Select Committee on Economic Affairs Minutes of Evidence

Examination of Witnesses (Questions 260 - 274)



  Q260  Lord Powell of Bayswater: Leaving Professor Kreutz to that special place reserved for German professors and coming back down to earth, can you tell us a bit about the mechanisms which are used by the European Union to decide which individuals and institutions should be put on the list for bilateral sanctions; and once they are on it, how do they get off it? Is there an appeal process, is there a review process, has it been used, does it work?

  Mr Kovanda: My Lord Chairman, the EU makes its own list. The list is adopted formally by the Council, as I mentioned, in accordance with the CFSP, and in developing these lists all appropriate branches of national governments are being employed. Heads of missions or ambassadors of our Member countries, in a given place, for example, last year, in Tashkent, in Uzbekistan, provided their collection of suggestions as to which personalities, which institutions, ought to get on the list of sanction targets. Proposals that are developed in this way are discussed in the Working Group of the Council, then approved by your Permanent Representative and his 24 colleagues, then subsequently by ministers. The lists, My Lord Chairman, are approved by unanimity. If we have lists from the UN Security Council committees, these are enforced without prior review, provided the UN lists are based on Chapter VII of the Charter. The difficulty, indeed, as Lord Powell hinted at, is how to get people off the list; there is the review and delisting process. Appeals, in fact, have been rather rare, but the Council and the Commission nowadays- I do not want to say `even as we speak' but currently- are involved in a process of developing ways by which personalities can appeal their listing and by which we could make a review and, if necessary, delist people that may find themselves on the list by virtue of insufficient data, leading to same-name confusion, and so forth.

  Q261  Lord Kingsdown: What are your views about the application of extra-territorial sanctions by the United States? To what extent has the US been successful in ensuring the compliance of EU citizens and businesses with US extra-territorial sanctions?

  Mr Kovanda: As I am sure you know, My Lord Chairman, as a matter of law and as a matter of principle, we cannot accept the extra-territorial application of such domestic legislation as Lord Kingsdown mentioned. The EU has systematically tried to resist the extra-territorial application of this legislation, and in this respect an important regulation was passed in 1996, called the Blocking Statute, which is directed exactly against that. If one were to estimate the effectiveness of these US extra-territorial sanctions, it would be very difficult for us. We, the Commission, have only access to instances where European Union residents and companies would notify us, and we have received, I think, about 20 such notifications, and none of those have led to the imposition of sanctions. There has been, My Lord Chairman, no assessment of the overall impact of extra-territorial sanctions attempted by the US.

  Q262  Lord Sheppard of Didgemere: I think actually you have answered the question I was going to ask, about the comprehensive assessment—we were just talking about the numbers that you estimated of the impact of US extra-territorial sanctions. What effect have such sanctions had in Europe and have European members suffered as a result, and what is the reaction of the EU to that?

  Mr Kovanda: My Lord Chairman, I think that the only way we would know was if European persons or European companies complained, and perhaps it is noteworthy that complaints have been very few, so one would surmise that, unless there is a vast pool of companies that have felt the effect of the US extra-territorial sanctions and have not complained, in fact the effect of these sanctions has been quite minimal.

  Q263  Lord Skidelsky: To follow up that line of questioning, is it the case that the US authorities have been covertly obtaining payment details from the SWIFT banking consortium based in Belgium, and, if so, what has been the EU response? Would such an action by the United States authorities contravene European Union banking regulations, or any other European Union laws?

  Mr Kovanda: My Lord Chairman, the primary responsibility for the proper application of data protection rules lies not so much, I think, with the European Commission as with competent national authorities. Nevertheless, to answer Lord Skidelsky's question with respect to the Commission, we follow the developments actively and if necessary would make full use of the powers that we have under the EC Treaty. The Commission, My Lord Chairman, is in contact with the Belgian Government and is following closely all the information on the facts on which the transfer of personal data, processed by SWIFT, to the authorities of the United States has been taking place.

  Q264  Lord Skidelsky: So it has been taking place?

  Mr Kovanda: The transfer of SWIFT data- we believe that it has, yes, My Lord.

  Mr Straver: If I may add to that, the information we have is that SWIFT has a mirroring facility, so it has a database in The Netherlands and one in the US and all the data that concern the transactions in Europe are mirrored in the US. That is done for technical reasons, no doubt, but it has the disadvantage that the US authorities can ask for the data to be submitted to them.

  Chairman: That is helpful.

  Q265  Lord Lamont of Lerwick: The EU has suspended aid to the Palestinian Authority following the election of Hamas. Is not that a rather odd response to a situation in which they had been urging Hamas to participate in democratic elections? It has led to violence and fighting between different groups within Palestine. Within the territory of the Palestinian Authority, are there really any grounds for rationally believing that this is going to alter the Government from its present political stance, on which it was elected in the democratic elections?

  Mr Kovanda: My Lord Chairman, the questions of Lord Lamont invite a discussion of Palestinian politics, and I think I would try to avoid the political part of it. Nevertheless, what remains as an important fact is that payments to the Palestinian Authority, once the Palestinian Authority consisted of Hamas leadership, indeed have been stopped, as Lord Lamont points out. Bear in mind that it was decided by the European Union, back in 2001, to list Hamas on its list of terrorist groups, and it is terrorist groups that are targets of financial sanctions, and in September 2003 the Council made the decision to include Hamas on the EU terrorism list. This happened, obviously, a long time before the elections and the handwriting was on the wall, so to speak. EU heads of state and government decided in July, as you know, that the Hamas Government needs to meet the three principles that were put down by the Quartet, the principles of non-violence, a recognition of Israel's right to exist and acceptance of existing agreements and obligations. Already, in April, the Council had turned these three principles into conditions for continued assistance. Whether cutting assistance to the Palestinian Authority, led by Hamas, would lead to Hamas' change of policy is questionable. We hope that it might, that it might shift the Hamas policy, make it budge, perhaps. There was great effort, as you know, supported by various international actors, for Palestinian politics to develop in the direction of a government of national unity, and the moment that we would see that any Palestinian Authority would be prepared to adhere to the three principles of the Quartet, I have no doubt but that the question of suspending support would have been reviewed. As to our support for Palestinian people, however, that is a different matter.

  Q266  Lord Lamont of Lerwick: Can I ask a question about the difference between general sanctions and smart sanctions, going back to the point which Lord Skidelsky touched on. One can see how general sanctions work, albeit at a price, which is felt by the general population, and it may or may not cause the government to move its position, and that is why, because it causes suffering, we move away from general sanctions; but they can work. Is not the problem with smart sanctions that in these non-transparent countries, whether you are talking about Saddam's Iraq or Iran or Libya, there are many corporate entities, many banks, many ways in which an individual can just move his assets around, and, actually, effectively to target an individual citizen in countries like that is well nigh impossible?

  Mr Kovanda: One of the principles of effective sanction application, My Lord Chairman, is the strictness and the universality with which the sanctions are applied. Therefore, everything else being equal, United Nations sanctions, which are obligatory upon all Members, are going to have a greater chance of success than sanctions on the other extreme which would be imposed by a single country. From this point of view, whether it is easier to bust general sanctions or bust targeted sanctions I think is a question of debate. At any rate, if we have, for example, EU sanctions directed at the financial activities of a certain personality, at the very least what it might do is deprive that personality of the possibility of making his, or her, investments in some of the best places that the world has. In such cases, it is very likely that other countries of the developed world would be joining such sanctions and further diminishing the flexibility that the targeted personality would have at his, or her, disposal. It is not going to be a panacea, under the best of circumstances, I will grant you that without any problem at all.

  Q267  Lord Paul: Mr Kovanda, you mentioned that giving the aid to the people is a different matter, but these are the very people who have voted Hamas in, and, in any case, do you think that this direct aid has been effective at sorting out the humanitarian cause?

  Mr Kovanda: My Lord Chairman, when it comes to Palestine, the European Commission and much of the international community have been very careful in distinguishing between the Palestinian Authority, with the predominant influence, if not the complete influence, of Hamas, and, underlined, listed as a terrorist organisation since 2003, on the one hand, and the Palestinian people, on the other hand. It is in view of this concern that the Commission last June set up something called the Temporary International Mechanism (TIM) at the request of the Quartet and at the request of the European Council. The TIM was devised in order to funnel into Palestine, by mechanisms which avoided the Palestinian Authority, by mechanisms which bypassed Hamas, funds to support the neediest of the needy in Palestine; some might call it a palliative, but I will say that a palliative is always better than nothing at all. Let me point out that the European Community contributed to TIM to the amount of €105 million. The TIM was set up originally for three months, to be ended, I believe, in September, and, all told, the TIM supported electricity generation in hospitals and health centres and water and waste water infrastructure for the benefit of the 1.3 million people in Gaza. In addition, TIM provided social allowances- we were very careful not to describe them as salaries- to vulnerable Palestinians. The Commission has paid €38 million for such allowances to over 100,000 people, including 12,000 healthcare service providers, 50,000 low-income cases and pensioners, and 35,000 social hardship cases. In September, the Council and the Middle East Quartet agreed to expand the TIM to include other strata of the population and extend it by three months into the phase two. Commissioner Benita Ferrero-Waldner, from External Relations, personally was very involved in setting up the TIM. I know this is a mechanism which is very close to her heart and I think that she was successful in persuading others and in getting TIM to work, as I say, to help the neediest of the needy.

  Q268  Lord Vallance of Tummel: Can we move on to Burma? I think most commentators on Burma seem to suggest that the current EU sanctions are ineffective in achieving reforms, let alone a change in regime, but they draw very different conclusions from this. On the one hand, there are those who say that this argues for intensification of the sanctions so that they really bite. On the other hand, there are those who say that, as the current sanctions are bearing upon the population at large- the point that Lord Skidelsky made- perhaps a policy of economic engagement might be preferable. Where do you stand as between those two points of view?

  Mr Kovanda: My Lord Chairman, this is a constant dilemma, is it not? When sanctions are being applied for a long time and nothing happens, what do you do next? Do you lift them or do you harden them, or do you find something else? The sanctions actually do seem rather extensive, the sanctions against Burma that are in effect today. They include financial sanctions targeting members of the military regime, and restrictions on admissions of those members- in this sense, very clearly-targeted sanctions; also an arms embargo, which I do not think would affect the population at large, and restrictions on investment in certain state-owned companies and suspension of co-operation programmes. Even this indicative list of how sanctions are targeted today suggests that this is by no means a comprehensive ban on trade with Burma or on investment in that country. Most of the sanctions, as I suggested, are directed against members of the military regime and against their personal assets. There may be some unintended and incidental—I hate to use the word—collateral impact on ordinary people, particularly if their names happen to be identical with those of regime members, but, frankly, we are not aware of this being a significant problem.

  Q269  Lord Lamont of Lerwick: Are not those sanctions just a subsidy to Japanese industry?

  Mr Kovanda: May I take that as a rhetorical question, My Lord Chairman?

  Lord Lawson of Blaby: It may or may not be rhetorical but it is a good point, and is it not clear; people who have studied Burma very carefully have come to the conclusion it is clear to everybody because the sanctions have had absolutely no positive effect. The regime in Burma has not been weakened and its policies have not changed. Those who have studied it very carefully have come to the conclusion that actually it is counterproductive, and indeed the motivation has been one of domestic politics in the sanctioning countries. Does not that experience cause you concern?

  Chairman: I think that, before you move into that, the witness ought to be allowed to answer the question he was asked already. I think we will go back to Lord Vallance, whose question it was.

  Q270  Lord Vallance of Tummel: Just to go back to the latter half of the question, which was, do you think that, as commentators have suggested, that there should be more economic engagement with Burma now, as the previous regime of sanctions has not been effective, that is the way we should go?

  Mr Kovanda: I do not think, My Lord Chairman, that increased economic engagement at this moment would be impossible. In fact, I would point out that the composition of the Council does provide for projects and programmes to support health, education, poverty alleviation, and there is any number of economic sectors where co-operation with Burmese entities is possible, I think.

  Lord Lamont of Lerwick: If there are no Asian sanctions, how can EU sanctions work?

  Chairman: We have got to make progress. We are running rather a lot over time, and I cannot say it is entirely the witnesses' fault we are running over time, if I may say so. Lord Layard.

  Q271  Lord Layard: I want to ask about Belarus and Zimbabwe. We have the EU travel bans and asset freezes on leading officials, which appear to be examples of sanctions designed to symbolise disapproval, to impose costs on relevant officials and underline EU commitment to democracy. Do you see these as being effective, or ineffective but better than nothing?

  Mr Kovanda: You know, in a world where sanctions are one of the few things that you have at your disposal, My Lord Chairman, I think the travel bans and the asset freezes that have been imposed on the leaders of the two countries which Lord Layard has mentioned are, to my mind, the very minimum that pretty much we had to do. Trade and economic sanctions would have given rise to concerns about the negative impact. We talked about that. It is the targeted sanctions which are the most appropriate way to affect leaders of countries which adopt policies which to us are deplorable. I would add Uzbekistan, to that list, for example. Whether and when these sanctions will be effective is the question which has been permeating our entire discussion here this afternoon, is it not?

  Q272  Lord Sheldon: On North Korea, it has been suggested that economic sanctions should be increased to show the disapproval of the nuclear weapons test and to deter development of the nuclear weapons programme. What sanctions would be suitable in these circumstances? Other than sanctions, do you think that negotiations, security guarantees and economic engagement would be more likely to achieve an objective we want to see?

  Mr Kovanda: My Lord Chairman, I think Lord Sheldon is raising a question which is as topical as can be, is he not? Today, I would suggest, the question has been superseded by the UN Security Council Resolution 1718, which has taken the decision-making out of the Commission's hand. Just yesterday, at a management meeting, when we were reviewing the positions of the European Commission, the point was made that for the first few days we were not exactly sure how we should react in the wake of a rather differentiated response from various important countries of the world. Now that we have UNSCR 1718 on the books, it is up to the Council and the Commission, with all deliberate speed, to implement into European legislation the provisions of that legislation, which, as you know, concerns military imports, cargo with military and non-proliferation matter. It includes luxury goods for the North Korean leadership, which I think is an imaginative extension of targeted smart sanctions, most recently, and other provisions.

  Q273  Chairman: What about Iran? To what extent do you think that there is a feasibility, desirability, of using economic sanctions against Iran as a means of influencing its nuclear programme?

  Mr Kovanda: My feeling is, My Lord Chairman, that the international community, most recently Dr Solana but certainly, leading up to him, the EU `three', including the United Kingdom, have gone every step of the way to reach a negotiated arrangement with Iran to achieve the objectives of the international community. We are actually very proud of the work that our colleagues have been doing and, just as a footnote, with your permission, we are particularly proud that the United States subscribed to the European approach to diplomacy with Iran. I believe, now, we have gone to the end of the road of negotiations; there is nothing left to negotiate, no glimmer of hope that negotiations might lead anywhere. Today, My Lord Chairman, as you know perfectly well, the matter is in front of the Security Council again, following 1696 of last July. Another Resolution is under preparation, a Resolution which may be under Chapter VII, but a Resolution which, in all likelihood, will include sanctions; what kinds of sanctions I would say it is not really appropriate to discuss, even if we would all have our best guesses. We will cross that bridge when we come to it.

  Q274  Chairman: Thank you very much. Both Lord Lamont and Lord Lawson asked you questions which implied a suggestion of a change in policy, I would have thought, and I stopped you answering, if you wanted to. I do not know that you particularly wanted to go down that road, but if you do please say so?

  Mr Kovanda: I would say this. I would say that the questions of Lord Lamont and Lord Lawson concerning Burma, in the context of how European-imposed sanctions fit into the broader international attitude toward Burma, are questions which provide me with food for thought. I will take those questions back to the Commission with me and consult on them with my colleagues who focus on Burma as much as do your Lordships.

  Chairman: A very tactful answer, if I may say so. Can I say that we are very grateful to you and your colleague for coming along and helping us with our inquiry. There are one or two things to follow up but they are absolutely straightforward. We are very grateful to you. Thank you very much indeed.

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