US Economic Sanctions Come Under Fi

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The Japan Times
February 5, 1998

US Economic Sanctions Come Under Fire at the WTO

By HISANE MASAKI 
Staff writer

To understand how political factors can often come into play at the World
Trade Organization, look at Japan's and the European Union's dispute with
the United States over Massachusetts' Myanmar sanctions law.

Nearly seven months have passed since Japan joined the 15-nation EU in
filing a complaint with the WTO?the Geneva-based watchdog on international
commerce?over the Massachusetts law, which denies state contracts to both
American and foreign companies doing business in Myanmar.

Although Japan has so far held three rounds of "bilateral consultations"?
the first in July, the second in October and the third in December?in the
first stage of the WTO's dispute-settlement procedures, it is in no hurry to
play its strongest card: requesting the establishment of a neutral WTO panel
to rule on the case.

It appears likely that Japan, and the EU as well, will wait another few
months or longer before deciding whether to ask for such a panel.

The WTO rules grant a complainant the right to request the establishment of
such a panel in the second stage of dispute-settlement procedures if
bilateral consultations fail to produce a settlement within 60 days of the
complaint being filed.

The WTO panel on the case of the Massachusetts law, if established, would
likely rule against the U.S., adding further fuel to voices within the U.S.
calling for a switch in trade and economic policy away from multilateralism
under the WTO.

"We will never condone the Myanmar sanctions law," a senior Japanese
government official said. "But at the same time we will have to take into
account various factors, including political ones, very carefully in
deciding whether and when to exercise the right to ask for a WTO panel," the
official said, requesting anonymity.

In theory, the EU can also request a WTO panel to rule on the Myanmar
sanctions law, regardless of whether Japan does so. But the Japanese
official, who is closely involved in the case, indicated that Japan and the
EU are maintaining close contact on the issue, saying that cooperation
between Japan and the EU will make their battles with the U.S. at the WTO
"more effective."

Unlike many other disputes brought before the WTO, the row over the Myanmar
sanctions law is as much political as economic. Since the Massachusetts law
took effect in January last year, both Japan and the EU have complained to
Washington that the law violates a WTO agreement on government procurement
practices.

The accord covers not only central governments but also local governments
registered in the commitments made by WTO members. The U.S. agreed to put
Massachusetts and some other states under the WTO government procurement accord.

After Tokyo and Brussels complained to the U.S. over the Myanmar sanctions
law, a group of legislators from Massachusetts sent letters to the two
capitals in February last year warning against what they see as an
interference in the internal affairs of their state.
Aside from Massachusetts, 10 other U.S. states are said to have passed laws
prohibiting the signing of procurement contracts with companies doing
business with Myanmar, which has been shunned by the U.S. and Europe because
of its alleged violations of human rights and democracy.

Japan's complaint to the WTO last summer over the Massachusetts law was
prompted by a deep concern that the law might spill over into other American
states, and that Massachusetts might enact a similar bill targeting other
countries over human rights violations and democratic principles.

Among those countries that Japan fears could be targeted is Indonesia which
has drawn a harsh criticism from the international community over its
repression in East Timor. Any sanctions law targeting Jakarta would have a
much greater impact on Japan than the Myanmar sanctions law, given the close
trade and investment relations Japan has with Indonesia.

In recent months, the U.S. has stepped up pressure on the military regime in
Myanmar for its continued crackdown on the prodemocracy movement led by
opposition leader and Nobel Peace Prize laureate Aung San Sun Kyi. Last May
the Clinton administration imposed a ban on new U.S. investments in the
Southeast Asian country.

But while facing a battle with Japan and the EU over the Massachusetts law
at the WTO, the Clinton administration has urged the Massachusetts state
government to repeal any legislative measures that could be in violation of
WTO rules.

While some Japanese government officials say that they want to watch to see
if such efforts by the U.S. administration will bear fruit, they are
pessimistic about the prospects of the controversial state law being rescinded.

Among other political factors that are on the minds of Japanese officials is
the diplomatic wisdom of requesting a WTO panel on the case at a time when
Tokyo is carefully gauging the timing for extending loans to Yangon for a
major airport project.

Although Japan virtually suspended official development assistance to Yangon
after the Myanmarese military [grabbed power in a 1988 coup, it has
advocated a policy of "constructive engagement'' with Yangon to encourage
positive change there.

The repair and expansion of Yangon's international airport is among the six
infrastructure projects for which Japan pledged yen loans before the 1988
military coup. The yen loans, including Y27 billion for the airport project,
were never disbursed.

According to Japanese government officials and private-sector experts,
Yangon airport's deteriorating conditions : have raised safety concerns and
work on the facility should begin immediately. But Tokyo believes that
Myanmar's military regime needs to make some effort toward national
reconciliation, such as opening a dialogue with Sun Kyi, before it will
disburse the pledged yen loans.

"Even if the loan disbursement is made for humanitarian reasons, we are not
yet convinced that such a step will be accepted, or at least condoned, by
either the Japanese public or the international community," said one senior
Foreign Ministry official, who asked to remain anonymous.

Alarmed by the Japanese move to disburse the airport loans, the U.S.
administration has put relentless diplomatic pressure on Tokyo in recent
months. "Japan's request of a WTO panel on the Massachusetts law would
provoke the U.S. and make the loan disbursement for the Yangon airport
project even more difficult, " another Japanese official said.

There is also a view within the Japanese government that requesting a WTO
panel now would not be politically wise, given the current state of economic
relations between Japan and the U.S.

"Japan should avoid any steps that could provoke the U.S.," one Japanese
trade official said, "because Japan-U.S. bilateral economic relations are
becoming increasingly tense over what the U.S. perceives as Japan's lack of
effort to stimulate its stagnant economy, a move that Washington believes
will reduce Japan's growing trade surplus and ease the current Asian
financial crisis."

Another factor affecting Japanese and EU stances at the WTO over the Myanmar
sanctions law is the bitter squabble between the U.S. and the EU over the
U.S. Helms-Burton Act, which the EU brought before the WTO. The law, aimed
at making life difficult for the Castro regime, allows Americans to sue
foreign firms that do business on property confiscated in Cuba in U.S. courts.

But the Helms-Burton Act, which was signed into law in 1996, also gives the
U.S. president the authority to waive that right for a six-month period.
Last month President Bill Clinton extended the waiver for the fourth
consecutive time.

The EU claims that the U.S. law defies global trade rules because it
attempts to impose U.S. policy on other countries. Although the EU requested
the creation of a WTO panel last spring to rule on the dispute, the WTO
proceedings have since been suspended for one year to give the U.S. and the
EU time to reach an out-of court settlement. If no out-of-court settlement
is reached by April, the WTO proceedings are expected to resume, and the
EU-requested dispute-settlement panel is expected to be established.

The Clinton administration recently began to review its policy of imposing
economic sanctions on countries that have been deemed to violate human
rights, such as like Cuba, Iran and Libya.

The U.S. sanctions law against Iran and Libya, enacted in 1996, has also
pitted the U.S. and the EU against each other because it would allow the
U.S. to mete out sanctions against foreign companies that make oil and other
energy investments in the two Mideast countries. U.S. enforcement of the
law, especially over European investments in Iran, would likely result in
the EU filing a complaint with the WTO.

The U.S. administration's review of its economic sanctions has come amid
growing voices at home that the policy has not worked as originally
intended. But it Is not clear at the moment when the review will be
completed and what the outcome will be.

"There seems to be a common feeling in both Japan and the EU that requesting
a WTO panel on the Myanmar sanctions law would now be too much to digest,"
commented a Japanese official.


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