POLITICAL AND ECONOMIC POLICY TOWARD LIBYA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000200260007-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: December 21, 2016
• Document Release Date: July 28, 2008
• Sequence Number: 7
• Content Type: REPORT

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POLITICAL AND ECONOMIC POLICY TOWARD LIBYA
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State Dept. review completed
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Political and Economic Measures
There is no clear-cut division between the political, eco-
nomic, and military measures available to deal with Qadhafi.
Steps already taken to increase military assistance to threatened
regional friends - indicate-a political resolve on our.part and
-carry a political message to Qadhafir in addition to-the practi-
cal effect that they have in-increasing the capabilities of the
states involved. We are examininq further political steps such
as organizing opposition to the OAU summit in Libya, the estab-
lishment of Radio Free Libya? further controls on travel by
Libyans, travel by US citizens to Libya,. etc. We are offering
locristical and financial support to the OAU Peacekeeping Force-
for Chad. If Libyan withdrawal from Chad is incomplete, we will
'examine further steps in Chad.
At issue here is whether economic measures should be con-
sidered for the political message that they, too, can convey..
Economic sanctions by one country generally have been ineffec-
tive in changing the behavior of the target country. Neverthe-
less, economic measures do convey a political signal. They also
tend to involve less risk of escalation,. reprisal, and irreversi-
bility.
The basic facts that recommend serious consideration of the
use of economic measures to send a strong signal to Qadhafi are:
o Our efforts to convince other nations to restrict
military relevant commercial transactions with
Libya have met with mixed success, because of the
importance of the Libyan market for their defense
industries and perhaps because of our own con-
tinued dealings with Libya.
o In .1980 the United States purchased 40% of Libya's
oil exports, paying Libya $10 billion in annual
revenues. At the current rate, US oil imports from
Libya would run about $2.6 billion a year based on
sales of August-October11981. Libya's total annual
sales at this rate would be $9.2 billion. Under
current oil market conditions, Libyan oil revenues
have declined considerably; this has put Libya in
a tight cash-flow position for the near-term and
led it to borrow in international capital markets.
Libya still has reserves totalling $16 billion.
o Libya uses its oil revenue for campaigns of ter-
rorism, including assassination plots against
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our own public officials, subversion of.its
neighbors,. and external aggression. -
o Libya also uses its oil revenue to purchase vast
quantities of advanced Soviet-weapons with de-.
liveries running $1 billion in- TTTT-and estimated
at $2_3 billion this year.- Libya is the largest
recipient of Soviet weapons and accounts for one
fifth of Soviet arms exports to the Third World-
o While the evidence is unclear, we cannot discount the
possibility that the excessive quantitites.of Soviet-
armaments deployed in Libya are "pre-positioned' there to
serve future Soviet purposes directed against western
interests in the Mediterranean, the Persian Gulf, and in
.Africa.
o This places the United States in the embarrassing
position of indirectly funding a substantial ar-
ray of Libyan (and potentially Soviet) activity
that is directly anti-thetical to our-national
interest and to the interests of .the industrial
democracies, more generally.
By enacting an oil embargo or broader economic measures
directed against Libya, the United States would be.able to make
a powerful statement --- to Qadhafi, to regional friends, and to
the rest of the-world -- that we would not conduct "business as
usual" with an international. outlaw.
There is disagreement as to whether economic steps by the
US would affect'Qadhafi.'s behavior. The two positions are:
o The necessary impact would have to be on Qadhafi's capa-
bilities, rather than on his intentions.. We have less economic
leverage over Libya now than. we did in 1980 -- when we took 40%
of Libyan exports-and paid them $10 billion -- and it is highly
unlikely that this patternwill?be repeated in the near-term.
To affect his capabilities, however, an economic boycott would
have to have the cooperation of our allies to have a sufficient
impact. Because they differ with us on the advisability of using
economic sanctions, the cooperation of our allies in this matter
is not likely to be forthcominq.. Even if it were, Qadhafi would
always be able to find other customers for his oil,-merely by
manipulating its price, and the Soviets and Eastern Bloc coun-
tries would be only too willing to come to his aid, for mutual
benefit.
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o Unilateral US economic action, in the service of our
political objectives,- could be effective in. altering Libyan be-
havior by demonstrating to regional states, the Soviets, Libyans,
and our own people the seriousness with which we view Libya's
lawless and aggressive Behavior. This action would be viewed
in the context of the other measures we have taken to.isolate
Qadhafi and to call attention to the danger to international
order posed, by Qadhafi's support of. terrorism and other. aggres-
sive actions.. The willingness of the United States to put
foreign policy goals ahead of its commercial interests would
dramatize the threat we-believe Qadhafi poses. It would also
demonstrate US leadership and determination in meeting it..' Not
until we deny our own monies to Qadhafi's fund for terrorism and
arms will we be free of charges of hypocrisy.. Then we can begin
to serve as a model for other states that we are asking to incur
financial loss by limiting interaction with Libya -- particularly
in the nuclear and arms supply areas. Thus, while the US action
would be unilateral, it would exert a certain moral suasion upon
our allies..
Economic effects of US actions would vary with-time and
with the- state of world oil markets.. Over the near-term, the
impact. of unilateral US-actions would (for the reasons noted
.--above) be minimal- However, over the medium-yterm, the withdrawal
of US personnel in particular could impose some dislocations in
Libyan oil production and the Libyan economy- These medium-term
effects referred to above would have the particular advantage,
from our point of view, of putting a crimp in Qadhafi's ability
to support subversion of his neighbors,. just at the time when
these efforts seem to have been gaining in momentum. Such prob-
lems would not likely be lasting, as Libya restructured its
market for oil and its source-of technology over the long-term.
Additional arguments against economic sanctions include:
o The Administration would be asking one part of
the-private sector to bear the costs of sending
foreign policy "signals". Taking such steps
may be interpreted as being contrary to Admini-
stration economic policies..
o Possible consequences of economic sanctions would
be confiscation of US--owned assets, some insur-
ance claims against OPIC, and court suits.
o Sanctions tend to persist long past their limited
usefulness because reversing them would convey
the wrong political message.
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Economic Steps
The economic steps are intended to be carried out in a
phased program, with due regard for the likelihood of net advantage
to U.S'.. interests, and with a 'review of each succeeding step before.
it is implemented.. Step 1 can be put into effect. immedi.ately,.
while the subsequent ones will be implemented at the appropri-
ate times, for example, at 30-60 day intervals...' Timing will be
dependent in particular on the need to allow sufficient time
for the OAU-sponsored Peacekeeping Operation (PKO) to be put in
place in Chad. Timing may also be affected by other, unforeseen
circumstances, such as Libyan provocations that may occur- Consul-
tations with our allies on our plans for dealing with the Libyan
threat would begin immediately.. Our allies would be encouraged to
join us in these steps, and, in any event, to do'nothing to undercut
them. .
There may be legal difficulties in implementing some of the
following steps.
Step-1. -Voluntary Withdrawal of American-Personnel-and-
Minimization of Sales arid-Purchases-of-Libyan-Products
We. should encourage those.corporations' vrfro have American
nationals stationed in Libya to withdraw these Americans from
Libya voluntarily. This should be done through an immediate appeal.
by the President to the CEO's of all such oil corporations, and to
representative CEO's of other companies which do business in Libya,
including any companies that employ significant numbers of Americans
in Libya. The goal would be to remove potential U.S. hostages
- from'Libya and thereby to lay the basis for any necessary further
U.S. actions against Libya. Libya would also lose the benefit
of technical skills of U.S. personnel, although they could be
replaced. We should also encourage all such companies to reduce
to a minimum their sales and purchases of Libyan products.
At the same time, we should ask US companies which purchase
Libyan oil to shift to other suppliers such as Nigeria, advising
US oil companies that the US government will no longer accept
Libyan crude for the SPR. Informal USG efforts of this type
would add to the pressdres which have already. reduced purchases
of Libyan crude; once these companies have signed contracts with
other suppliers, Libya will have difficulty winning them back.
Encouraginq shifts to other suppliers could further reduce
Libya's exports; it would not provide a clear target- for Libyan
retaliation against US personnel and assets nor a clear provoca-
tion engendering sympathy for Oadhafi, and it would offer some
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possibility of obtaining cooperation from foreign oil companies
without straining relations with our allies. Company cooperation
is uncertain, of course, and a reduction in Libyan.prices or some
tightening of the oil market would discourage compliance. There
is a significant difference between this option and the forthcom-
ing-ones-
step 2: Mandatory Withdrawal of US Business Personnel from
Libya
There are no simple and dependable means of ensuring the
withdrawal of all US business personnel from Libya.
This step includes several legal steps designed to bring
about the withdrawal of US business personnel.. These steps
might be taken individually or in conjunction with other options
discussed in this paper. Several of those options involve novel
uses of statutory and regulatory authorities. Their implementa-
tion would require further legal and factual analysis by the
agencies concerned in order to ensure a clear legal basis which
would withstand even preliminary challenges.. The steps are described
at Tab A.' They include:
o Impose administrative and/or criminal penalties on
persons employed by United African Airlines,
o Impose restrictions on use of US passports for
travel to Libya, and
o Seek to compel or promote the withdrawal of US
business personnel from Libya as a prerequisite to
additional economic measures under IEEPA or the Ex-
port Administration Act.
Consequences of Regulatory Action. The oil companies have
received repeated appeals from State Department officials to
withdraw their personnel from Libya. Yet another, higher-level
appeal would precede any legal declaration or action under the
Export. Administration Act by several weeks to permit further
"quiet withdrawal." Exxon is now withdrawing totally, Mobil may be
taking similar action, but the other companies have not yet
followed suit. Only 71 of Exxon's 1920 person work force are US
citizens, however, and most. of the 429 other foreign workers and
the 1400 Libyans will remain behind.' One company, Occidental, is
very unlikely to withdraw personnel unless required to by some US
Government mandatory action.
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Some oil companies still operating in Libya may prefer ex-
plicit US Government regulatory action limiting their opera-
tions as opposed to unofficial pressure for a "voluntary with-
drawal.." Such official action would place them in a better
position with their stockholders and insurers, and would facili-
tate later re-entry into Libya.. On`-the negative side, however,
Libya may respond to official US action by harrassing those who
wish to leave; nationalizing US oil company assets there; or by
other negative actions aimed specifically at the United States.
Although we cannot rule-out the possibility that US action
to reduce the-presence-of US employees alone would create a
hostage situation, it is much more likely that Qadhafi will not
take the sort of action that would scare off other westerners
and threaten him with US military action.. In any case, we should
give prior warning and explanation of US action regarding our
citizens to selected allies and friends.
The oil companies have an investment in Libya with an esti-
mated replacement value of $2..5 billion.. Current book value is
substantially lower, possibly less than $200 million- (National-
ized assets can he written off against taxes_by the companies at
a rate of 46%.) Furthermore-, the companies would likely be fore-
going-substantial future earnings if forced to leave Libya. We
could come under pressure from the companies and the Congress to
obtain compensation from Libya for any nationalized property at
its fair market value.
The most prominent arguments in favor of this step are that
it would prepare the way for stronger measures -- both. economic
and military -- if we should decide to undertake them at a later
date and it would substantially reduce the potential hostage
problem. We should accept for planning purposes that it will
probably not be possible to eliminate all potential hostages..
Step 3: A Unilateral US Oil Embargo
An oil embargo could be accomplished through the applica-
tion of Section 232(b) of the Trade Expansion Act of 1962, as
amended, on the ground that US dependence on Libyan oil consti-
tutes a circumstance that threatens to impair national security.
Before the President. takes such action, the Secretary of
Commerce must perform a study which shows that oil is being
imported from Libya "in such quantities and under such circum-
stances as to threaten the national security." While our
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levels of oil imports from Libya are now at a. substantially
reduced level, the importation of oil from Libya continues
.to provide revenues which Libya can use to finance international
aggression and terrorism..
Alternatively, IEEPA could be used as legal authority, but
because of its broad scope, this would raise serious concerns among
our allies and other oil producers.
The advantages of imposing a unilateral." oil. embargo are
that= it would be an action totally within our control; it
would. make. as stronc= politica:L statement that would receive wide
publicity; we would not. have to expend precious capital and risk
straininq the western alliance-by trying to achieve allied co-
operation. This time of relatively weak oil. markets may be
especially appropriate for US companies to switch suppliers.
Disadvantages are that: such action would undermine the
credibility of the position we have taken with oil producers
that oil should not be used as an instrument of foreign policy;
Qadhaf i could exploit the economic ineffectiveness of -a US-only
oil embargo for his own propaganda purposes (`e-.g_, he might at-
tempt to characterize the US as impotent, although we could re-
duce his ability to do so by emphasizing that the purpose of our
embargo is'to disassociate the US front Libyan activities, not
necessarily to injure the Libyan economy); one portion of the
US economy would feel itself bearing an undue share of the
cost of supporting our policy against Libya; a US-Libyan "con-
frontation" of this sort may redound to Qadhafi`s advantage by
drawing further attention to him; and US action against Libya
may move Qadhafi even closer to the Soviets. Most of our Allies
might deride the US for hurting itself economically without
making much of an impact on Libya, and would fill the economic
void themselves.
From a'policy standpoint,. the-Trade Expansion Act would
clearly be the preferable legal. basis for an oil import ban.. The
alternative of invoking- I.EEPA raises the spectre of a broader em-
barqo extending to US subsidiaries overseas, and would unneces-
sarily concern allied governments and investors. IEEPA would
make sense as a basis for restricting Libyan oil imports only as
part of an overall prohibition of transactions with Libya.
Following Steps 1 and 2, this action can be conceived as
one in a series of graduated steps against Qadhafi, each of which
would be reviewed in liqht of previous experience and ongoing
Libyan behavior.
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Step 4: An Embargo of US Exports and Disposition 'of Equity-in
*Libya on Foreign Policy Grounds
The US would, under the foreign policy provisions of the
Export Administration Act, prohibit to the maximum extent allowed
by the Act,. US exports. to Libya. Most.. US direct sales to Libya are
of machinery and transportation equipment about half of which is
related to oil production. Though this-option would not damage
Libya to any great extent, US exports to Libya run about $500 -
million a year and-it would be a symbol of our willingness. to
cut all ties.
The commercial cost to the US-may be-greater than the $500
milliona year in exports foregone. Other countries might-per-
ceive the US as an unreliable supplier of goods and. services. and
may shift to more reliable European and Japanese suppliers, as
they have tended to do following our imposition of controls on
sales to Iraq and Syria. .
The political cost lies in our practice of limiting re-
export by Europeans (and others)- of goods or components of US
origin. Europeans resent what they see as extraterritorial in-
trusion in their commercial transactions. We..-could expect lit-
tle Allied support. At the beginning, to avoid creating a US/
European problem, we would have to avoid enforcing controls on
third countries, though in time we could not avoid this.
In addition, as part of this step, we should consider the
legal basis under the IEEPA for effecting the disposition by
U.S.. companies of their equity in Libya.
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Option 2: Withdraw U.S. Business Personnel from Libya
As indicated in the basic policy paper, this option
includes several legal steps designed to bring about the
withdrawal of U.S. business personnel.- These steps might be
taken individually or in conjunction with other options
discussed in this paper. Several of those-options involve-
novel uses of statutory and regulatory authorities. Their
implementation would require further legal and. factual
.analysis by the agencies concerned-
A. Impose administrative or criminal penalties on
persons employed by United African Airlines under the Export
Administration Act: Violations of regulations or orders
issued by Commerce pursuant to 'the Export Administration Act
are. punishable by the imposition of administrative- penalties
(fines and denial of export licenses) or criminal sanctions..
UAA has-been determined by Commerce to be ineligible as
a recipient of U.S. exports. Commerce regulations prohibit
.any person from providing U.S. origin goods or technology to
such a "denied party." Therefore, persons providing such
technology in the form of services to UAA might_be charged
with a violation of the regulations on this ground.
Under the regulations, aiding or abetting violations of
the export controls- imposed pursuant to the Act is itself a
violation. Some of the U.S. civilian type aircraft used by
UAA have been transferred to Libya in violation of Commerce
Department export controls.. Use of such aircraft with
knowledge of the violation is a continuing violation under
-the regulations. Commerce might therefore charge United
States persons working-for UAA in the use or servicing of
illegally obtained aircraft with aiding and abetting such
violations."
Such actions would constitute novel applications of the
Act, and enforcement could prove problematic: given the
difficulty of obtaining information on activities in Libya
which could be used as evidence in on-the-record adminis-
trative proceedings governed by formal ajudicatory procedures
or in judicial proceedings. Nevertheless, the very fact
that we were seeking to impose sanctions in such cases could
serve as a deterrent to additional U.S. nationals taking
employment with UAA.
This step would be consistent with all of the other
options described in this paper, but is not dependent upon
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the adoption of any other measures. it could be taken now
in furtherance of. our existing policy of denying support to
Qadhafi's air carriers.
B. Impose Restrictions on Use of U.S. Passports for
Travel to Libya: The Secretary of State has authority under
the Passport Act of 1926, as amended, to make passports-
invalid for travel to, in or through "a country or area in
which there is imminent danger to the public- health or
safety of U.S. travelers." Restrictions-on the use of
.passports for travel to Libya could be justified in light of
Qadhafi'-s manifest hostility towards the U.S., his willing-
ness to encourage or permit: placing in jeopardy the safety
of U.S_ individuals, as the mob attack on our Embassy which
caused us-to withdraw U.S.. diplomatic personnel demonstrates,
and the absence of. any consular protective services in Libya
for U.S. nationals.
It should be recognized, however,, that this step alone
could be-of limited effectiveness. During the nearly 40
years in which geographic restrictions on travel by American
citizens to one or more foreign countries were in force
under the Passport Act, no successful prosecution was main-
tained for violation of geographic restrictions- This is so
largely because in order to have a successful prosecution.
the Government must prove that a U.S., passport that was
geographically restricted was used to enter the country to
which travel was restricted. Persons travelling to geograph-
ically restricted areas generally work out arrangements with
the country of destination to admit them without presentation
of the passport; if the passport is not used,. no violation
occurs. Even if the passport is used, evidence on this
point is not likely to be available to prosecutors in the
United States.
Notwithstanding the potential prosecutional problem, an
order under the Passport Act might be effective as a basis
for withdrawal of U.S. persons by corporations otherwise
inclined to such withdrawal but who simply desire a firm
order from the Government to protect them from shareholder
actions. Thus it would serve to. reinforce efforts under
Option 1 to encourage voluntary withdrawal. Moreover, it
would-constitute a means of buttressing our legal case in
support of the steps described under C below, should one of
those measures be approved.
C. Seek to Compel or Promote the Withdrawal of U.S.
Business Personnel from Libya as a Prerequisite to Addi-
tional Economic Measures Under the International Emergency
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Economic Powers Act or the Export Administration Act:
U.S. policy making vis-a-vis Libya has been constrained by
the presence of the significant number of U.S. business
personnel there as potential hostages. Under this approach,
we would seek in advance of imposing any additional economic
sanctions to minimize the. potential for hostage-taking by
taking-in conjunction with passport restrictions--steps
designed to force the termination of employment of U.S.
nationals in Libya.. Two potential legal-bases are avail-
able; there are legal problems. and. uncertainties with each.
First, under the International Emergency Economic
Powers- Act the President may declare a national' emergency to
deal with any unusual or extraordinary threat to the national
security, foreign-policy or economy of the United States. -
which has its origin. outside the United States- Once he has-
done so, he has- authority to-preclude transfers of credits
or payments by any-person subject to U.S,. jurisdiction,
directly--or indirectly, to any foreign country or its
nationals as well as to prohibit importation or exportation
of any property in which any foreign country or its nationals
has an interest. This authority has been used in the past.,
specifically in the Iranian hostage situation, to restrict
transactions related to travel, but only in the context of
broad restrictions against transactions with the country -
involved- -
Conceivably the President could declare a national
emergency in narrow terms focused on the presence of the-
approximately 1500 UJ..S _ citizens .now!in -Libya..?_The?.argument
used would be that Libya's record of support of terrorism
and declared hostility against the United States places
these Americans in circumstances that make them.potential
hostages, thereby constituting "an extraordinary threat to
the effective conduct of U.S. f.oreiari. policy."
There are three concerns regarding declaration of an
emergency which is narrowly based on the voluntary presence
of U.S.. persons in Libya.. First, such a declaration accompanied
by appropriate sanctions would be-utilizing the power available
under lEEPA a:s a pure restriction on travel, a purpose not
clearly justified by its history. Such a narrow utilization
of IEEPA power would provide an additional basis for challeng-
ing prosecutions for violation of such an IEEPA order. in
addition, a narrow declaration would. possibly require the
issuance of a broader declaration if other IEEPA sanctions
were deemed necessary at some point in the future, requiring
the various procedures required by IEEPA to be followed.
Finally, it can be argued that invocation of TEEPA on this
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basis could "cheapen the currency" and raise foreign appre-
hensions that IEEPA can or will be invoked to deal with
situations of lesser gravity.
On the other hand, it can also be argued that declaring
.and explaining an emergency on such narrow grounds might
minimize concerns of investors and other governments that
might follow froth declaring a broadly articulated emergency
that would: permit full-scale U.S'..embargo of Libya. possibly
e_:ten.dingz to- foreign:. subsidiaries of U.S... firms-
On the basis of this declaration, of emergency, the
President would prohibit direct or indirect financial trans-
actions-by Americans with foreign persons related to the
travel to. ox-presence in Libya. of Americans for business
purposes.- This would substantially inhibit business travel
to or presence in Libya. Limiting the restrictions to
business-related travel would substantially increase the -
prospects-for effective enforcement. To the extent that
U.S. based and controlled firms are the employers, enforce-
ment efforts could be focused on them rather than on indi-
vidual employees.
By restricting only business related transactions., we
would seek to avoid Constitutional challenges based on
interference with first amendment freedoms.
A second alternative legal basis for applying pressure
to achieve the withdrawal of U.S. personnel would be the
Export Administration Act of 1979. That statute permits the
President to prohibit the export of goods and "technology"
for overriding foreign policy reasons. Restrictions on the
export of "technology" have included restrictions on the
export of technical services (e.g., technical services by
computer technicians in the Soviet Union). We could prohibit
the export of "technology" in the form of technical services
performed in. Libya by U_S_ oil workers, aircraft pilots and
service personnel.. .
This approach would have certain advantages from an
enforcement standpoint. Administrative sanctions against
U.S. firms, which failed to cease providing designated
services, include general denial of export privileges. On
the other hand, usable proof that an individual performed
.technical services utilizing U.S.-sourced "technology" while
in Libya would be extremely difficult--if not impossible--to
obtain.
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The alternative legal bases described above are not
mutually exclusive. If this step were decided upon, further
review would be required to determine which of the two bases
(or a combination thereof) would be most effective.
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