David Albright: The first speaker today is Robert Einhorn, who most of you know. And he is currently the Assistant Secretary of the Bureau of Non-Proliferation at the U.S. Department of State. Before that, he was Senior Advisor to the Under Secretary for Arms Control and International Security at the Department of State. He has a very long career that dates back to the early 1970s. One of the more relevant aspects of his career now is that he is also a Commissioner to UNMOVIC, and so is deeply involved in the day-to-day processes of trying to get inspections back in place.

Robert Einhorn: Thank you very much for that introduction. I think this is a very good time to hold this conference. We are at another one of those critical junctures in international efforts to persuade Iraq to comply with its obligations imposed on it by the Security Council.

I want to speak today about the Bush administration's emerging approach to dealing with the Iraq problem in general, but specifically its approach toward curbing Iraq's ambitions in the area of weapons of mass destruction (WMD) and enhanced military capabilities.

When the Bush administration took office, it found itself in a situation where the existing sanctions regime was deteriorating at a rather alarming rate. Saddam Hussein had essentially won the propaganda battle. He had convinced world opinion, including the Arab street, that sanctions were responsible for the hardships of the Iraqi population. These hardships are undeniable. But if you look at statistics published by the UN Office of Iraq Programs, you see that in the escrow account set aside for meeting Iraq's humanitarian needs, there is plenty of unspent funds earmarked for food, medicine, and other humanitarian purposes, which the Iraqi regime has decided not to utilize for those stated purposes. If Iraq, over the last few years, had tried conscientiously to meet the real needs of its public, it would have done a much better job.

But as I said before, that is spilled milk. Iraq won the propaganda battle and the result was that there was, in January 2001, widespread support internationally for getting rid of the UN sanctions regime. And it wasn't just Russian, French or Arab governments. We are taking about Western European governments, as well. We're even talking about populations in the West and in the United States, as non-governmental groups were calling for removal of sanctions. Members of the U.S. Congress were writing to the president to ask for relief for the Iraqi people.

We were seeing, in this period, steps to end Iraq's isolation from the rest of the world. Governments, one by one, were reestablishing diplomatic relations, and different forms of diplomatic contact with the Baghdad regime. Among the states of the Gulf Cooperation Council, the GCC, only Kuwait and Saudi Arabia were reluctant to reestablish relations. It's understandable why in those two cases.

We saw countries begin to resume civilian air traffic to Baghdad International Airport -- some conforming to UN procedures, some not conforming to UN procedures for humanitarian flights. Commercial relations with Iraq were on the increase. Most of the trade was legal under the oil-for-food program, but an increasing amount of the trade was illicit -- outside the oil-for-food program. Some trade delegations in Baghdad were negotiating deals, including on arms sales, that clearly were illegal. But they were doing so in anticipation of what they thought would be a forthcoming removal of the restrictions on Iraqi arms imports.

Especially worrisome was the growth of illicit oil exports or exports with revenues going directly to Iraq, rather than being deposited into the UN escrow account. A particularly disturbing development was the opening of a pipeline to Syria, which gave Iraq a very substantial source of cash revenue. It's true that only 10 percent of Iraq's oil revenues were not going into the UN escrow account, but as oil prices started to rise, this 10 percent became a fairly substantial number. We estimate somewhere between $1-2 billion annually, of cash going into the Iraq treasury. This illicit revenue -- this disposable income, if you will -- is a source of funding for a wide range of Iraqi activities, including activities designed to bolster the regime's support among the elite in Iraq. It is also a source of illicit imports, including imports of a rather sensitive nature.

Another factor in the deteriorating situation that the Bush administration found itself in was the absence of UN monitors since December 1998. Their absence put us in a very difficult position. Through remote intelligence means, we could learn just enough to create real concerns and suspicions about Iraqi WMD activities. But without inspectors on the ground, we didn't know enough to resolve these concerns or to confirm these suspicions. This was a real problem, and we became aware of increased efforts by Iraq to procure arms and dual-use items of concern in a variety of sensitive areas. We observed refurbishment of dual-use chemical facilities that had previously been associated with Iraq's chemical weapons program. We saw dramatically stepped up activity in the missile area. This missile activity was ostensibly for two legal missile programs, the Al Samoud, a liquid-fueled missile, and the Ababil 100, a solid-fuel, short-range missile. I say "legal" because the Gulf War cease-fire resolution 687 permitted Iraq to have missile capabilities up to 150 kilometers (km). These missile systems are nominally systems below 150 km, but we are concerned that they are actually test beds for missiles with greater range and capability.

In the nuclear area, there are no indications of the physical capability in Iraq to produce fissile material for weapons purposes. We believe that Iraq would need at least five years and some foreign assistance to enrich enough uranium to produce a nuclear explosive device. However, we know that Iraq has retained design information for nuclear weapons, and it has retained and kept intact its skilled manpower. And we must assume that theoretical work is continuing in Iraq for nuclear weapons.

So, without inspectors on the ground, we can't say for sure what Iraq is doing to reconstitute its destabilizing military capabilities. But no one I have ever spoken to believes that Iraq has truly given up its aspirations to acquire WMD or advanced conventional weapons that could threaten its neighbors. No one I've spoken to believes Iraq's repeated assertions that it has already fully complied with its disarmament obligations under Security Council resolution 687 and that, therefore, there are no remaining reasons for UN inspectors to carry out disarmament tasks in Iraq.

In sum, when the Bush administration took place in office, there was a widespread expectation internationally that sanctions were crumbling. But perhaps worse, Iraq had this expectation. It seemed to believe that it could have its cake and eat it, too. It could stand back and wait, and watch while the sanctions regime crumbled, without having to meet its obligations to comply. It believed, in other words, that there were few incentives for it to cooperate with the UN, to accept Security Council resolution 1284.

This expectation, I think, began to make Saddam Hussein bolder. We see it in his rhetoric; we see it in the increased tempo of challenges to coalition aircrafts in the no fly zones; we see it in the way Iraqi diplomats overplayed their hand at the last Arab League summit in Amman.

The incoming Bush administration recognized immediately that the status quo was not sustainable, and that time was not on our side. So, one of the earliest policy reviews launched by this new administration was on Iraq. Among the early conclusions of this review was that Iraq remained a continuing threat to regional security. It was essential to prevent Iraq from acquiring the wherewithal to regenerate its WMD, proscribed missile, and advanced conventional capabilities. And it was also believed that, given Iraq's track record over the last decade of doing everything possible to deceive and thwart US disarmament efforts, the most reliable and durable way of addressing Iraq's WMD and other military capabilities would be to replace the current regime in Baghdad with a regime which was willing to abide by its international obligations. Given these conclusions, regime change became a very important component for the Bush administration policy towards Iraq. But at the same time, the Bush administration recognized that regime change would not be easy and would not necessarily come very quickly. And so, in the near term we need it to contain Iraq and prevent it from augmenting its destabilizing military capabilities.

One vehicle for containment is U.S. and allied military forces, which would be available if Iraq crossed one of the "red lines" that we have articulated, including posing a threat to Iraq's neighbors. Another vehicle for containment was Security Council resolution 1284. As you all know, resolution 1284 provides a road map for Iraq to seek its rehabilitation. It's a road map that involved admitting UN monitors and inspectors, cooperating with them fully, making substantial progress on key remaining disarmament tasks, having the sanctions suspended, and eventually, with full compliance by Iraq, lifting sanctions altogether.

The United States remains committed to resolution 1284. If Iraq meets its requirements under the resolution, we will meet our requirements. We are prepared to take yes for an answer. In other words, we're prepared to suspend and eventually lift the remaining sanctions. But we're not prepared to lower our standards of compliance. We're not willing to dumb down the monitoring and inspection system in order to get to a point where even Iraq feels comfortable with the arrangements. In other words, we can't accept a Potemkin verification system, and neither can Hans Blix of UNMOVIC or Mohammed El Baradei of the IAEA. As Hans Blix is fond of saying, the Security Council has not authorized him to offer any discounts to Iraq on compliance. The United States believes that both UNMOVIC and the IAEA Action Team have done an outstanding job of getting themselves prepared to resume their mandated operations in Iraq.

I think both are ready to go at the drop of a hat at this point in time, and would do a competent, professional job. But the problem, of course, is that Iraq refuses to accept resolution 1284 or admit UNMOVIC or IAEA monitors. Under these circumstances, we've had to pursue our objectives towards Iraq without any prospect of Iraqi cooperation, at least in the near future. In other words, we've had to plan to contain Iraq from outside Iraq's borders. And so, with this constraint in mind, the administration has devised a plan for recapturing the initiative, for turning around expectations, and for rebuilding support internationally for containment.

There are two principal goals of this plan: first, to prevent Iraq from importing sensitive WMD related and military related equipment and technology; and second, to stop oil revenues from going to Iraq's treasury. Achieving these goals means introducing some rather far-reaching changes in the existing UN sponsored oil-for-food program. Under the new system, as in the old, all contracts for exports to Iraq would have to be submitted to the United Nations for screening. But restrictions on imports would be focused more narrowly on items that could make a direct contribution to Iraq's WMD, missile or conventional programs. And we also want to expand the range of civilian goods that could go to Iraq, and we'd want to reform the oil-for-food procedures in order to expedite the flow of goods to the Iraqi people.

To prevent leakage of oil revenues, Iraqi oil could be sold only to authorized purchasers. All the revenues from these purchases would have to be deposited in the UN escrow account. In this manner, we would want to eliminate the middlemen that now exist. These middlemen purchase Iraqi oil at a discounted rate and provide cash surcharges to Iraq. Then they resell this oil to legitimate oil dealers and the funds are deposited in the escrow account. But the result is to give the Iraqi government a substantial cut.

We realize that allowances would have to be made for current cross-border arrangements involving Iraq's neighbors -- Turkey, Jordan and Syria. The heavily discounted purchases of oil that these governments undertake from Iraq would have to continue, but they would be allowed to do so as long as any cash proceeds did not go to Iraq. Either they would continue what exists now, which is a kind of cross border arrangement where, say, Jordan receives oil and send its goods to Iraq. Or cash purchases would have to go into specially created escrow accounts that only may be used to purchase goods produced locally by Jordan. We also recognize that we also need to beef up monitoring of Iraq's border, both to prevent illicit oil exports, and to prevent smuggling of imports.

We have to be realistic here. We are not going to be able to catch all of the smuggling that goes on today, and it will continue to go on. It's almost inevitable. But the current system is very weak and porous, and even modest improvements can make a substantial difference as a deterrent, if not as a reliable, foolproof, detection measure.

We also have to think about the possibility of Iraqi retaliation against these arrangements. Iraq has already suspended new oil sales, at least for a month. And it has been threatening, both publicly and privately, its neighbors, if those neighbors cooperate with any new arrangements. We need to set aside funds, called a safety net, to compensate Iraq's neighbors if Iraq decides to retaliate against them.

We've been trying to put such an approach in place through very active negotiations both in New York and in the region throughout the months of May and June. We needed to get going in a very intensive way in May, because the latest phase of the oil-for-food program was to expire on June 4. Therefore, we accelerated our efforts to put this in place. It turned out that there was a lot to do. It wasn't possible to finish in time for the June 4 oil-for-food rollover resolution. But we did manage to get broad support for the general outlines of the plan.

On June 1, resolution 1352 was adopted unanimously by the Security Council, with all P-5 governments joining it. This is very significant, in that this was the first time in a very long time that the P-5 members had come together on Iraq. And what resolution 1352 did was to lay out the broad outlines of this revised arrangement and to extend the deadline for concluding it. It gave us 30 additional days, until July 3rd, to come up with the necessary arrangements. Since June 1, we've been working really hard in New York on a new plan.

A group of technical experts convened this week in Paris, and they will continue to use the time available to us before the July 3 deadline. A lot of progress has been made, but considerable obstacles remain. One big obstacle is Iraq's very vocal opposition to any arrangements. This is ironic; Iraq had complained that the current sanctions regime was destroying the welfare of Iraqi people. But essentially Iraqi is saying that a system that is designed to alleviate these problems, with respect to the Iraqi public, is unacceptable. Iraq argues to continue the existing system for six more months. This is an approach that Iraq and its friends have been strongly criticizing for the last several years. So it opposes the new system, and it has made certain threats, as I mentioned before, to its neighbors.

The second hurdle is the attitudes of the neighboring states, each of which has a special arrangement with Iraq. Iraq has cut sweetheart deals with these countries in order to win over their support. Iraq's neighbors are very reluctant to depart from these sweetheart deals, unless they are assured in a credible way that they won't be seriously disadvantaged by the new approach. So it's very important that we provide a credible case to these neighboring states so that they won't be disadvantaged.

The third obstacle is the very complicated, technical job of drawing up what's called a "goods review list," or GRL. This is a list of dual-use equipment and technology that will be adopted by the Security Council as part of a new approach. Under the new system that we propose, exporters will submit contracts to the UN. If a contract does not contain any items on this new list, it would be fast tracked; it would be approved without referral to any members of the Security Council. But if any of the contracts submitted were found to have items of the list, they would be pulled out of the stack, and sent to the missions in New York of Security Council members for review. These would be review lists; they would not be denial lists. And members of the Council--and its going to mean the United States, first and foremost, because we do that job most conscientiously -- will look at these contracts and determine whether we believe the humanitarian need is compelling, and that the risks of diversion to military programs are manageable. If we convince ourselves that the risks are manageable, we will approve those transfers. So this list is a review list, and its got a lot of dual-use technologies.

It's controversial, because the question of controlling dual-use trade is a controversial question. At what level should you control computers? How sensitive and important are certain kinds of telecommunications technologies to Iraq's military programs? There are certain areas that no one will disagree with--you know, advanced machine tools that can be used to produce ballistic missiles; no one disputes those kinds of things. But at the margin, it's a complicated and controversial matter, and it takes a while to work through these lists.

Another obstacle -- I don't know if it's going to be an obstacle or a question mark -- is the attitude of the Russian Federation. The Russians supported resolution 1352 on June 1, but I must say it was a rather grudging support. Russia remains reluctant to break ranks with Iraq, which so vocally and publicly opposes this new approach. We will see over the next days and weeks whether Russia is prepared to do what it said it has wanted to do for the last several years -- reform the current system so as to permit an expansion of economic relations with the Iraqi people. This is what this approach does. Now we'll see whether Russia will be prepared to support an approach that does precisely what Russia has called for. This will be a topic in Slovenia, on Saturday, when Secretary Powell meets his counterpart Igor Ivanov, but more importantly when President Bush speaks with President Putin in the Slovenian capital.

If the Security Council succeeds in adopting a new approach to sanctions in Iraq, this will be an important achievement. But we recognize that it's not a solution to the problem of Iraq's WMD, missile and conventional capabilities. We still need to implement resolution 1284. We realize that the new approach is not a replacement for resolution 1284, but it's our hope that if this new approach is implemented effectively, it could create incentives for Iraq to accept that resolution. I mentioned before that expectations are now running in the opposite direction. Iraq doesn't believe it needs to comply in order for sanctions to be removed.

If this new arrangement is effective, Iraq can't get a lot of uncontrolled oil revenue, and it can't import the goods and technologies that it needs for its programs. If, in other words, the new approach is effective, then Iraq might have to recalculate and decide that time is not on its side, that sanctions will not crumble inevitably, that the only path to the lifting of sanctions will have to go through the acceptance of resolution 1284 and admission of the inspectors. How long will that take is hard to predict, but the first step is the adoption of this new approach.

This concludes my remarks. I am happy to now take questions.

Question: You started by saying that the Iraqis won the public relations war. With the new U.S. proposals for new approaches to sanctions, what do you think is their next step in the public relations war?

Robert Einhorn: Iraq has reacted publicly; I don't think it has been an effective reaction. What the Iraqis say is that the new approach is not really relief for Iraqi people, but rather it is tightening the noose. This is the same old thing. I don't think that argument is seen as credible.

We have spoken to the non-permanent members of the Security Council and most of them, if not all of them, believe that this new approach really is responsive to the public desire to meet the civilian needs of Iraqis. So, I don't know how Iraqis will react, but I don't think they've yet found a public approach that is going to be effective.

Question: Could you describe what the U.S. response was when, prior to the inspectors being forced out of Iraq in 1998, the IAEA came to the conclusion that the nuclear weapons program had been destroyed, removed and rendered harmless? Did the United States take this as a basis for lifting sanctions under resolution 1284 with respect to the nuclear weapons program? The other question I would like to put to you is: what is the level of confidence in the U.S. government that fissile material has not been smuggled into Iraq, and how confident are you that such smuggling would be detected?

Robert Einhorn: On your first assertion, I don't believe that that was what the IAEA found. I believe that the IAEA found that it had a technically coherent picture of the past Iraqi efforts to acquire nuclear weapons and that, while there remained some unanswered questions, these questions could be addressed effectively through a system of reinforced monitoring. So, you used words out of resolution 687 "to remove, destroy and render harmless." I don't know-there are people at this conference who can give expert testimony to this point, but I don't think the IAEA made a claim as grand as that.

In any event, the U.S. position was that there were some unanswered questions, and we wanted to see them answered. We agree that the IAEA had done an excellent job in understanding the program. But we thought it would be necessary to deal with these outstanding matters and we weren't prepared to close any files.

In terms of the risks of smuggling weapons-usable materials into Iraq -- it's hard to know what you don't know. We have had no evidence that Iraq has successfully smuggled in any quantities of fissile materials for its weapons program. Whether we could detect it, I don't know. It's hard to measure that. But we're more likely to be able to detect any such efforts through our own unilateral intelligence means than through any enhanced border monitoring systems that might be put in place.

Question: I want to thank you for this comprehensive presentation of the new administration's policy towards Iraq. It actually answers some questions I had.

I was in Kuwait earlier this year, and the Kuwaiti's told me that the new U.S. policy was going to involve the return of weapons inspectors to Iraq. I couldn't understand how they could come to that conclusion. Now I have a better idea of the policy. But it seems to me that there are many uncertainties in what's been laid out, including the notion that the regional states are going to change or cut off their dealings with Iraq over oil. You suggest that the money that regional states are paying now to Iraq for oil is not going to go to Iraq anymore, and this is going to convince the Iraqis to accept resolution 1284 -- I'm just a little dubious about all of that.

I wonder if there is a deadline. It has been over two years, as you said, since we've had weapons inspectors in Iraq. Is there a point at which you would say that we either have the inspectors there, or decide that this policy of trying to get inspectors back into Iraq through evermore-complicated UN resolutions just hasn't worked? So I guess, what should the time frame be for the return for weapons inspectors?

Robert Einhorn: Look, we can't force inspectors back into Iraq against the will of the Iraqi government. Some modicum of cooperation is required for the inspectors to go back in and do their jobs. We hope Iraq soon will come to the conclusion that the only path to lifting sanctions must be through accepting resolution 1284 and fully cooperating with the United Nations. How long will it take them? I don't know. We don't think it makes any sense to impose any arbitrary deadlines. But the Iraqis know that certain red lines exist. The reconstitution of Iraq's WMD programs would constitute such a redline.

Question: I looked at the draft resolution submitted by the UK to the Security Council. I understand that it, or some variety of it, is under active discussion within the Council. I was interested especially in what it said it might do to prevent oil smuggling. I'm wondering if you could just expand on that a little bit.

Robert Einhorn: Well, I touched on some of the efforts. One of the problems that you have now is these small oil dealers purchasing heavily discounted oil and giving a hefty cash surcharge to the Iraqis. Then they resell it to big oil dealers, then the proceeds are deposited into the escrow account. The middlemen make a nice profit, and Iraq gets a cut of the cash. So, what we'd want to do is permit purchases of oil only by authorized dealers. And this British resolution would first try to establish criteria for selecting authorized dealers, and then it would provide for the choice of those authorized dealers and prohibit any sales of oil to unauthorized dealers.

Then there is a question of cross border dealings between Iraq and the neighboring states. And these neighboring states get good deals for supplies from Iraq and they're not going to give them up. We have no problem with that. There can continue to be oil exports across these borders provided that Iraq is not compensated with cash. If it is compensated by supply of Jordanian, or Turkish or Syrian goods, that's fine. If cash is transferred, the cash needs to be transferred to a local escrow account that's used to purchase a Jordanian or Turkish good that will then go to Iraq as compensation for the oil supply. The whole point is: don't allow the cash to go to Iraq.

Question: You mentioned that in order to provide deterrence for smuggling across the border, you would probably be thinking of some way to beef up border monitoring. And I'm just curious what your thoughts are on how you would do that. Would you enlist the assistance of neighboring countries? Would you do it unilaterally with our National Technical Means? Would you use the military or the UN forces that are there? How would you go about that?

Robert Einhorn: Enforcement mechanisms have not yet been determined. This has to be worked out in the course of negotiating a resolution and in subsequent discussions that the resolution would provide for. It has been our assumption that the primary responsibility for border monitoring would have to be borne by the neighboring states themselves. And we would have to find various ways, either the United States bilaterally, or other ways. Some European states have expressed an interest in providing some technical assistance to the border states to beef up their customs and inspection systems. But we don't believe the border states should have to perform this job alone. We think that the UN could help out in some fashion but this has yet to be worked out. But we don't see a bunch of folks in blue helmets doing this alone. We see the Jordanians, and the Turks and the Syrians bearing the primary responsibility with some external help.

Question: Given Iraq's history of deceit towards international organizations and the international community at large, how can the United States seriously consider ever fully lifting sanctions on all military items and dual-use items at some point in the future. And in the context of the U.S's policy of regime change, even if Iraq were to allow weapons inspectors in, how could the United States be sure that this regime wouldn't just seek to once again reconstitute the program after all sanctions had been lifted?

Robert Einhorn: As I mentioned earlier, the Bush administration is not going to lower its standards for compliance by Iraq. There needs to be verified compliance. We're talking about compliance by, essentially, a convicted felon, and here we need to see demonstrated and durable evidence that things have changed and that there is compliance.

The Russians have an approach on the table which says that if the inspectors go back in, sanctions should be suspended immediately, and that, if the inspectors can't find any incriminating evidence for some finite period of time, then sanctions should be lifted altogether. That is, believe it or not, the current Russian approach.

Now, we could never accept an approach where inspectors go back in, and Iraq put on its best behavior-that Iraq does not overtly obstruct for some period of time and if there is no confrontation, then we will declare Iraq to be in full compliance and sanctions will be lifted. We can't conceive of doing that. But if Iraq does what no one here can, even today, imagine-if it truly cooperates and truly fesses up to items and information that's its got squirreled away and fully cooperates-then we are prepared to take yes for an answer. We will -- and the world will be skeptical as it goes through this process. Surely the best and most durable way of addressing the WMD missile and conventional programs by Iraq is to replace this regime with one that is more inclined to abide by its international obligations. But we're prepared to take the path of resolution 1284 as far as it can go.

David Albright: One more question.

Question: You started the presentation by saying that Saddam, in a sense, won a propaganda war. Can you elaborate a little more about that? What were the mistakes? How can a pretty, isolated country that so blatantly is refusing to adhere to UN resolutions-how can such a country win a propaganda war? Can you identify the main mistakes, and can you tell us how the new administration's approach will avoid these mistakes.

Robert Einhorn: Maybe it's easier to do that in retrospect. I think that one thing we could have done better is the way we implemented our own review of oil-for-food contracts. The United States and the UK are really the only two governments in the entire world that took seriously their obligation to review these contracts. I see Jacques Baute in the audience, so I'll say, maybe France did too, a little bit, but only because he is here in front of me.

We took a very conscientious approach, and not for punitive reasons, but because when we saw an item that we believed could potentially make a contribution to these programs, we put a hold on the contract. Iraq never got the benefit of the doubt. As a result, these so called holds on oil-for-food contracts built up to the point where they exceeded $3 billion. And we opened ourselves up to charges of being indifferent to the welfare of the Iraqi public. We know that if we release some of these things, we would be attacked from the other side for taking risks with national security. But we figured it was much safer to err on the side of holding too many goods than too few goods. This built up too much. I think we could have been better at releasing contracts with low risks of diversion. I think we could have done a better job at public diplomacy, especially in the Arab world. I think we took the support of Arab governments-especially moderate Arab governments-for granted, and didn't really appreciate the extent to which Saddam's propaganda would resonate in the Arab street. We took for granted the extent to which Arab governments would be affected by what was going on in the Arab street. There were a series of things we probably could have done better, but those were two of them.

David Albright: Thank you very much.