TRADING WITH FRIENDLIER ENEMIES

TRADING WITH FRIENDLIER ENEMIES

The phrase 'trading with the enemy' is taking on new meaning. Rather than doing more to prohibit it, the U.S. government is encouraging more of it - if you still consider such countries as North Korea, Cuba and Iran 'enemies.'

Congressional action last week to ease U.S. export controls on five nations - Cuba, Iran, Libya, Sudan and North Korea - is just the latest example of the government's taking a more moderate tack toward countries it has long sought to ostracize because of their terrorist or other policies.In late June, for example, the Clinton administration lifted U.S. controls on a wide range of exports to North Korea, so that most U.S. consumer goods now can be sent to that country without a U.S. license. And the U.S. embargo on imports from North Korea was largely dismantled.

A few months earlier, the administration announced it was relaxing its import ban on goods from Iran, clearing U.S. purchases of carpets, dried fruit, pistachios and caviar. It also declared itself ready to talk with Iran about returning to it billions of dollars in assets frozen in the United States since 1979.

In yet other recent moves, the Clinton administration has relaxed export curbs on Cuba, allowing commercial sales of agricultural goods, medicines and medical products to private entities there. Similar measures were taken last summer on exports to Iran, Libya and Sudan.

Now Congress wants to go further, by opening the way for U.S. exporters of food and medical items to sell directly to the governments of those countries - a potentially major step.

What's behind this? The Clinton administration, business spokesmen say, increasingly recognizes that you can better influence countries by 'engaging' them in dialogue and deed rather than by imposing unilateral economic sanctions on them. Implicit in this approach is a greater humanitarianism: witness the emphasis on food and medical exports.

It still usually takes two to tango, however. Lifting sanctions on North Korea reflects that government's commitment to halt development of nuclear weaponry and its rapprochement with South Korea. The overture to Iran was in response to social-political reforms underway there.

But other factors are at work, in particular a more concerted push by U.S. farm groups to dismantle unilateral trade sanctions. Facing falling revenues generally, they are tired of watching European, Canadian and other competitors rack up sales in markets off-limits to them.

Those markets, led by Iran, Libya and Cuba, represent about $6 billion a year in potential agricultural sales, the American Farm Bureau Federation estimates.

Though it's much too early to assess the impact of the administration's recent embargo easing actions, early results look mixed. While, for example, the Commerce Department is licensing increasing amounts of commercial sales of medical supplies to Cuba, it has licensed only one commercial food sale there. The only big new order from Iran so far been for corn.

But the new legislation in Congress, letting U.S. agricultural producers sell directly to the governments of Cuba, Iran and Libya, might generate much more business. The Cuban government, notes Audrae Erickson, an American Farm Bureau trade specialist, not only controls Cuba's pursestrings but every facet of the country's distribution chain. Governments in the other countries exert similar hegemony.

Will Cuba and the others buy more from the United States?

It's hardly a sure bet. Iran apparently still resents U.S. support of Iraq in the Iran-Iraq war as well as the U.S. trade sanctions. As a matter of 'pride,' says one commodity trader, the Iranian government may not buy much from America. And Cuban leader Fidel Castro, for political reasons, may decide to boycott U.S. offerings.

U.S. suppliers face other hurdles, especially in the Cuban market, where U.S. rules bar them from both U.S. government and U.S. commercial bank export financing support. Foreign competitors offer easy credits and barter for Cuban sugar.

The Stern Group, a Washington-based consultancy, estimates that if the currrent proposals in Congress partly lifting export sanctions are enacted, U.S. agricultural sales to Cuba would exceed $100 million in the first year and top $400 million annually after five years. (Much smaller gains are seen for medical product exports to Cuba.) But it really seems anyone's guess. 'Economic conditions,' the Stern report notes, 'are dynamic...and so, too, are the political assumptions driving these economic trends.'

Despite the recent liberalizing moves, U.S. export sanctions policy remains a patchwork of seeming contradictions. The United States imports over $4 billion a year in oil from Iraq but none from Libya or Iran. While U.S. banks are not allowed to finance U.S. exports to Cuba, the United States dispenses millions of dollars a year in aid to North Korea.

The contradictions seem to stump even the most sophisticated. Recently asked why trade with China is in the U.S. economic and financial interest but trade with Cuba apparently is not, Treasury Secretary Lawrence Summers, after a pause, simply answered that he is not the administration's spokesperson on Cuba policy.

Meanwhile, Congress keeps rejecting proposals legislating a more rational export sanctions system that would require, among other things, cost-benefit studies before sanctions are imposed.

Still, as William Lane, a Caterpillar executive who chairs the USA*Engage businss coalition points out, neither last year nor so far this year has the government imposed any unilateral sanctions 'of note.' It's 'clear,' he says, that U.S. policymakers 'view unilateral sanctions in a more critical light.' The light needs more wattage.