The “Smart” Sanctions Proposal

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					                 The “Smart” Sanctions Proposal
                             18th February 2002
                     A voices in the wilderness uk briefing

In February 2001 in „an effort to rescue [a] sanctions policy that was
collapsing‟ (US Secretary of State, Colin Powell) the US and Britain
launched a major propaganda campaign to try and undercut the growing
international pressure to have economic sanctions against Iraq lifted. Central
to this ongoing initiative is an attempt to repackage the embargo as “smart”
    Though widely spun as an „end to sanctions‟, according to former UN
Humanitarian Co-ordinator Hans von Sponeck „all the pillars of the existing
sanctions policy seem to remain‟ under “smart” sanctions. Furthermore,
if adopted “smart” sanctions would actually strengthen economic sanctions in
certain important respects.

   “Smart” sanctions would relax the existing restrictions on civilian imports
into Iraq (see 3 below). This might lead to a greater flow of goods into Iraq.
However the net effect of this would simply be to reduce the extent to which
the US and British governments currently obstruct the humanitarian
programme („oil-for-food‟). The cynicism of this should be apparent: if they
wanted to the US and Britain could terminate this obstruction tomorrow.
   More importantly “smart” sanctions would fail the Iraqi people
because they don‟t address the fundamental causes of the humanitarian
crisis. This is because the crisis is not caused primarily by the lack of civilian
consumer goods or medicines or food. Rather, the fundamental causes are:
(a) the massive deterioration of Iraq‟s civilian infrastructure over the last
eleven and a half years; and (b) the collapsed state of Iraq‟s economy.
   “Smart” sanctions would continue to block the reconstruction of Iraq‟s
infrastructure and prevent the revival of its economy. They would retain the
basic framework of the humanitarian programme - long recognised to be
fundamentally inadequate - and ignore several important recommendations of
the March „99 UN Humanitarian Panel.
   We take these points in turn.

Blocking Reconstruction.
According to the current UN Humanitarian Co-ordinator for Iraq, Tun Myat,
„the overall well-being of the people [of Iraq]‟ will not improve unless
„the basics - housing, electricity, water and sanitation - [are] restored.‟
Indeed „the biggest killer of children [today] is not lack of food or
medicine but of water and sanitation.‟ The Economist Intelligence Unit
estimates the cost of reconstructing Iraq‟s essential infrastructure at $50 - 100
billion. By comparison, humanitarian revenues for the last six-month phase of
oil-for-food amounted to a mere $3.85 billion.
    „To recover from its 11 years under the sanctions battering-ram - which has
crushed the country‟s industrial and agricultural infrastructure - Iraq needs
the freedom, and overseas investment, of a huge reconstruction effort.‟
(Economist, 24 Feb. 2001).
Yet, the Economist observes, „although [it] would be able to import more‟
under “smart” sanctions „[Iraq] would still be denied the free movement of
labour and capital that it desperately needs if it is at last to start picking
itself up. Iraq needs massive investment to rebuild its industry, its power
grids and its schools, and needs cash in hand to pay its engineers, doctors
and teachers [but] none of this looks likely to happen under smart
sanctions.‟ (26 May 2001).

Preventing Economic Revival.
The absence of normal economic activity „has given rise to the spread of
deep-seated poverty‟ in Iraq (UN Secretary-General‟s Report, November
2000) and without a functioning economy „it [i]s not realistic to significantly
improve the [humanitarian] situation‟(Tun Myat).
   Iraqi families need purchasing power in order to buy the goods that are in
the shops. Purchasing power in turn comes from jobs (Hans von Sponeck has
estimated unemployment at over 50 per cent) and from being paid in money
that has some value (the value of the Iraqi dinar is now less than 0.1% of its
1990 value).
   Jobs and the appreciation of the dinar depend upon the revival of Iraq‟s
economy which in turn depends on foreign investment, free civilian trade
(import and export) across Iraq‟s borders and the investment of Iraq‟s oil
revenues in the economy. All of these would remain prohibited under “smart”
   In March ‟99 the UN‟s Humanitarian Panel concluded that the humanitarian
situation would „continue to be a dire one in the absence of a sustained revival
of the Iraqi economy.‟ Yet, according to the Financial Times‟ “smart” sanctions
„will not revive Iraq‟s devastated economy while control over Iraq‟s oil
revenues remains in the hands of the UN, and foreign investment and credits
are still prohibited.‟ (28 May 2001)

Retaining the Framework.
“Smart” sanctions would retain the basic framework of the oil-for-food
programme: a highly centralised system of procurement and distribution under
which the vast majority of the population is totally dependent upon a monthly
food ration provided by the Government.
   As one officer with a high-profile aid agency explained to the FT “smart”
sanctions „won‟t improve life for the ordinary Iraqi. It will [continue to]
be a dole, a handout to Iraq as a whole ... It will do nothing to tackle the
real issue - how to stimulate the internal economy and allow civil society
to come back.‟ (FT, 1 June 2001)

Ignoring the Panel
Three years ago the UN Humanitarian Panel recommended letting the Iraqi
Government use oil-for-food monies to purchase locally produced food for the
food ration, reducing the proportion of revenues currently diverted for „war
reparations‟ and permitting private foreign investment in Iraq‟s non-military
export industries. These recommendations - which the Panel said might lead
to „incremental improvements‟ - are absent from “smart” sanctions.
Although “smart” sanctions don‟t address the fundamental causes of the
humanitarian crisis it is still important to understand in what ways they would
modify the existing framework. In order to do this we first need to say
something about this framework.

a) „Oil-for-food‟
Since late 1996, Iraq has been able to import humanitarian goods through a
UN-controlled programme usually known as „oil-for-food.‟ (Don‟t be misled by
this name: today Iraq is permitted to purchase goods across a wide range of
sectors, not just food and medicine). The programme allows Iraq to sell oil
legally, and to use 72% the proceeds to buy approved goods (the remaining
28% goes to pay „war reparations‟ and UN expenses).
        Under oil-for-food (which runs in six-month-long Phases) Iraq ships oil
out to foreign buyers and the foreign exchange earned by selling the oil is
deposited in a UN-controlled bank account in New York.
   Iraq can only use oil-for-food revenues to buy commodities. In particular it
is not permitted to invest these revenues in the economy or use them to pay
wages for its public servants such as doctors and engineers.

b) The Sanctions Committee
       Until March 2000 all contracts for goods purchased under „oil-for-food‟
had to be sent for approval to a body set up by the Security Council known as
the „Sanctions Committee.‟ The Committee, which consists of representatives
of the 15 members of the Security Council, is able to block or delay any
contract submitted to it by placing it „on hold.‟
   The US and Britain - who have been responsible for 98% of such „holds‟ -
have come under heavy fire for their behaviour on the Committee. According
to the UN Secretary-General these holds have been a „major factor‟ impeding
the implementation of oil-for-food. There are currently more than $5.2 billion
worth of goods „on hold‟ - a rise of more than $1.5 billion since the first “smart”
sanctions resolution was circulated in May 2001.

c) The Green Lists
Since March 2000 the Security Council has adopted several lists of pre-
approved items which are no longer required to be submitted to the UN
Sanctions Committee for approval. These so-called „Green‟ lists now cover a
wide range of goods across a number of sectors. Goods not on these lists
must be submitted to the Sanctions Committee as before.

The British Government has circulated several draft UN resolutions outlining
its proposals. The following account is based on the last available draft (20
June ‟01). Its main provisions can be divided into two categories: those which
relax sanctions and those which would strengthen it.

Relaxing Sanctions.
1. The „Amber‟ List
“Smart” sanctions would replace the current system of „Green‟ lists with a
single „Amber‟ list (think traffic lights!) of „dual use‟ goods. Contracts for goods
on the „Amber‟ list would need approval from the Sanctions Committee. All
other goods would be approved automatically (as currently happens with
goods on the „Green‟ lists).
   Note that the „Amber‟ list is not a list of „banned‟ goods. It is a list of
potentially suspect goods - contracts for which will be approved or denied on
a case-by-case basis.
   The Security Council has agreed a provisional „Amber‟ list, to be adopted
(subject to further modifications) at the end of May, comprising:

an existing UN agency list of goods that could be used for nuclear, biological
or chemical weapons, or long range missiles (the so-called „1051‟ list);
a second list of „dual-use‟ goods from the 1996 „Wassenaar Arrangement‟
(which evolved out of a Cold War export control system); and
 a new US-drafted „Goods Review List‟ - eight pages long - of assorted items.

As things stand it is difficult to assess what the impact of the adoption of such
a list will be on the volume of goods placed „on hold‟ by the Sanctions
Committee. (B) and (C) contain items (eg. „optical fibre cables of more than 5
meters in length‟) with no direct relation to Iraq‟s proscribed weapons. There
is also potential for increased disputes over what is and isn‟t covered under
the new „Amber‟ list (In late 2001
$430 million worth of contracts were in limbo pending the resolution of a
disagreement between UN Security Council members and UN technical
experts as to whether or not these items fell into category (A) above).

   More importantly however, even if the adoption of an „amber‟ list led
to the lifting of all „holds‟ this would not end the humanitarian crisis. It
would merely remove one of the ways in which the US and British
governments currently obstruct the implementation of the humanitarian
programme - a programme which is itself grossly inadequate.

2. „Provision of services‟.
The June 2001 draft „expresses [the Security Council‟s] intention to permit the
provision of services in civil sectors, other than financial services, to Iraq‟, the
details to be elaborated by the UN Secretary-General and submitted to the
Security Council for its approval. The impact of this provision is unclear,
though it is clearly limited in scope.

Strengthening Sanctions.
1. Tightening Border Controls.
“Smart” sanctions would attempt to tighten border controls around Iraq,
creating new UN monitoring stations.
   Iraq has threatened to stop trading with any neighbouring country that co-
operates with “smart” sanctions. “Smart” sanctions provides an incentive to
these countries to co-operate: oil-for-food monies currently allocated for UN
expenses would be available for payments to neighbouring states for
„enhancing border monitoring.‟

2. Choking Off Foreign Exchange
“Smart” sanctions would also attempt to strengthen the existing sanctions
regime by choking off Iraq‟s access to foreign exchange. (Recall that Iraq
receives no cash under oil-for-food, only commodities.)
    At present Iraq has only two sources of foreign exchange: smuggling and
illegal surcharges on oil sales. We look at these in turn before examining the
potential humanitarian repercussions of such a move.

2(a) Smuggling.
“Smart” sanctions would attempt to bring all Iraq‟s trade transactions with
neighbouring countries into the oil-for-food deal, channelling all oil revenues
through UN-controlled „national‟ bank accounts. (Iraq is currently engaged in
trade outside UN control with Turkey, Jordan, Syria, and Gulf States.)
       So Syria, for example, would be supposed to buy Iraqi oil by placing
funds in a special „national‟ UN account and Iraq could then use the funds in
that account to buy approved civilian goods, but only from Syria. (The 20
June draft also allows barter of goods, so that Iraq could „sell‟ oil and receive
acceptable civilian commodities, without having to go through a UN escrow

2(b) Illegal surcharges.
Since late 2000 Iraq has been charging oil brokers a lower price on oil bought
through oil-for-food - and demanding under-the-counter payments or
„surcharges‟ for each barrel of oil, with the money going directly to the Iraqi
Government. Under “smart” sanctions only approved oil brokers (who will not
pay the surcharge) would be allowed to buy oil under oil-for-food.

2(c) The humanitarian impact.
Lack of access to foreign exchange could have devastating
consequences for ordinary Iraqis: illegal revenues are the Iraqi
Government‟s only external source of cash and it is not permitted to use oil-
for-food revenues to pay its doctors and teachers, or to pay to distribute and
install the goods it purchases under the programme.
   In a joint statement, former UN Humanitarian Co-ordinators for Iraq, Denis
Halliday and Hans von Sponeck, condemned the fact that “smart” sanctions
would actually reduce Iraqi access to foreign exchange: This „will deepen,
not lessen the suffering of the Iraqi people‟. (Statement, 29 May 2001)

Note that the “smart” sanctions proposed by the US and Britain are not
targeted sanctions such as those recently threatened against Zimbabwe.
Genuinely smart sanctions would target the leadership. “Smart” sanctions
are still comprehensive (untargeted) economic sanctions, damaging the
entire economy and creating mass poverty.

The US and Britain first attempted to get their “smart” sanctions proposal
adopted at the UN at the end of Phase IX (1 June 2001). This failed and the
humanitarian programme was extended on an ad hoc basis for a single month
in an attempt to hammer out a consensus. This second attempt failed after
Russia hinted that it would use its veto if the matter was put to a vote.
  A breakthrough of sorts occurred at the end of Phase X (29th November
2002) with the adoption of UN Resolution 1382. This committed the Security
Council to adopt an „Amber‟ list at the end of Phase XI on 30 May 2002.
Whether or not the US/UK will also try and get any of the other “smart”
sanctions provisions adopted at this juncture - or whether these have simply
been allowed to fall by the wayside - remains unclear at present.

The British Government claims that under “smart” sanctions „Iraq will be free
to meet all of its civilian needs without impediment.‟ In reality the US-British
proposals would do little to alleviate suffering in Iraq.
   In order to reconstruct its public health infrastructure (sewage treatment,
water pumping/distribution systems, electricity, sanitation, the national health
service, and so on), Iraq needs massive investment from outside, and the
rehabilitation and development of its oil industry. None of this will be permitted
under “smart” sanctions.
   Similarly, by retaining the current „oil-for-food‟ framework “smart” sanctions
will prevent the „sustained revival of the Iraqi economy‟ that is a necessary
pre-condition for the end of the humanitarian crisis.
  This double failure was reflected in the Economist‟s assessment that “smart”
sanctions offered „an aspirin where surgery is called for.‟
   At bottom “smart” sanctions are simply „an attempt to make
sanctions appear smarter and more presentable‟ (Neil Partrick of the
Royal United Services Institute) not an attempt to end the humanitarian

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