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U.S. Weighs Whether Purchase Might Serve to Improve Ties

By Thomas W. Lippman and David B. Ottaway
The Washington Pos
Tuesday, January 19, 1999

Just as the Clinton administration was reluctantly concluding late last year that its effort to rebuild ties to Iran was going nowhere, Iran surprised Washington with a request to buy more than $500 million in U.S. grain and sugar, a move described by Iran's U.S. purchasing agent as an effort to reach out to the United States.

The proposed transaction requires a Treasury Department license, and the administration is debating whether approval would appear to reward Iran undeservedly or whether denial would cut off a promising line of contact. The debate is complicated by uncertainty about Iran's motives in placing the order.

A preliminary, staff-level recommendation to reject the proposal has been delivered to the White House national security adviser, Samuel R. "Sandy" Berger, but no decision is imminent, administration officials said. A bipartisan group of farm-state Congress members urged President Clinton last month to permit the transaction, arguing that it would benefit farmers while "demonstrating to the Iranian government an example of positive results which stem from acceptable standards of international behavior."

But senior administration officials said Iran is not conforming to "acceptable standards of international behavior," despite some improvements since the 1997 election of President Mohammed Khatemi. The administration recently reported to Congress that "despite some signs that the Iranian government wants to improve its standing in the international community, Iran continues to pursue policies that threaten the interests of the United States," including supporting Middle East terrorist groups.

Clinton banned all commerce between Iran and the United States in a 1995 executive order prompted by Iran's support for alleged terrorist organizations and its hostility to peace between Israel and the Palestinians. Some administration officials argue that Iran's behavior has not shifted sufficiently to warrant approval of any transaction of the scope of the proposed grain purchase.

The administration has already rejected a small Texas oil company's application to engage in an oil "swap" with Iran in which oil would be sent from another country to Iran in exchange for Iranian crude with easier export access. Officials said the administration plans to reject all such transactions -- including one requested by Fairfax-based Mobil Corp.

After two decades of bitter hostility after Iran's 1979 revolution, Secretary of State Madeleine K. Albright last summer held out an olive branch, offering a "road map" to normal relations. Her offer reflected the belief of Clinton and his senior advisers that Khatemi is less doctrinaire in his opposition to all things American than were his predecessors and that his offer of increased cultural contacts might presage better ties.

The administration took some tentative steps toward testing Iranian sentiment, such as authorizing Iran's ambassador to the United Nations to travel to California to deliver a speech, and welcomed Iran's participation in diplomatic efforts to settle the conflict in Afghanistan. But as 1998 drew to a close, senior officials concluded that Khatemi's preoccupation with an internal power struggle against hard-line factions would prevent him from moving further, even if he were so inclined.

Albright's initiative "is basically moribund," a State Department official said. "It's just too hard for the Iranians" to openly pursue improved relations with Washington, given the deep hostility to the United States that pervades Iran's ruling religious establishment.

"I may be wrong, but I get a feeling that Khatemi is preoccupied," a senior administration official said. "We continue to believe that Khatemi is the best opportunity for change in Iran that we have seen since 1979. But I don't see him pushing major new initiatives; he's fighting a very difficult domestic battle."

If anything dramatic happens in the next several months, the official said, it is more likely to be a negative event, such as a new outbreak of Iran- sponsored terrorism, than a positive, clear-cut outreach to the United States.

In addition to those concerns, some administration officials apparently believe that the grain purchase order may be only an artifice, aimed at setting the precedent of an approved transaction without consummating a deal. Cash-strapped Iran, its economy hobbled by low oil prices, could buy some of the commodities from other countries for less money and on favorable credit terms, analysts said.

The application for a Treasury license was filed by Niki Trading Co., which was formed last June by Richard W. Bliss, a veteran Washington lobbyist, and Yahya Fiuzi, an Iranian American who has lived in the area for the past 20 years. "Niki" means "doing good" or "goodwill" in Farsi, according to Pani Farkhan, Fiuzi's daughter, who also works for the company.

Bliss said in an interview that the Delaware-based company was created specifically to negotiate and carry out the proposed grain deal after receiving "some encouragement" from both American farmers and the Iranian government in the past year.

On Sept. 8, the Government Trading Corp. of Iran submitted an order to Niki for the purchase of 2 million metric tons of wheat, 400,000 tons of corn, 300,000 tons of rice, 400,000 tons of sugar and 200,000 tons of soya bean meal. The Iranian state body reportedly handles $3 billion in purchases abroad annually.

Bliss estimated the deal's potential value at $500 million to $600 million and said that while Iran intended to pay in cash, several European banks had offered to help finance the deal if Iran needed loans or credits.

Iran has not bought wheat from the United States since 1981. But in the three years before the 1979 revolution that toppled the shah, the country purchased more than 1 million tons annually, according to the National Association of Wheat Growers.

Iran did continue to buy corn, barley and sorghum from the United States until the administration tightened U.S. sanctions and ended this trade in 1995. The previous year, Iran imported 546,000 metric tons of these "coarse grains" from the United States, according to the U.S. Grains Council. On Dec. 14, Bliss submitted a request for a "special license" to the Treasury Department's Office of Foreign Assets Control for a waiver on U.S. sanctions. Describing it as a "one-time cash transaction," Bliss argued that the sale would be "of significant benefit to United States farmers" and also a "dramatic gesture of goodwill to the Iranian people."

Two days later, 10 agricultural trade associations sent a letter to Clinton strongly endorsing the deal. The list included the National Association of Wheat Growers, the U.S. Rice Producers Association and the American Sugar Beet Growers Association. All favor exempting food products from U.S. economic sanctions in general and endorsed the proposed Iranian purchase as "a unique opportunity to assist our agricultural sector" while encouraging "progressive change" in Iran.

The same day, a bipartisan group of 15 senators and 17 House members also wrote Clinton to support the purchase. Signatories included Republican Sens. Larry E. Craig (Idaho), Chuck Hagel (Neb.) and Pat Roberts (Kan.), and Democratic Sens. John Breaux (La.), Byron L. Dorgan (N.D.) and Bob Kerrey (Neb.).

Bliss said that the request had been approved "at the highest levels of the Iranian government" and that he believed Iran was seeking to use the purchase to begin improving ties with Washington. A similar view was expressed by Jim Miller, the National Association of Wheat Growers' vice president for governmental affairs, who described it as "an Iranian overture to a more normal relationship between the two countries."


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