By Tom Doggett
WASHINGTON, May 9 (Reuters) - U.S. lawmakers said on Wednesday that they support reauthorizing a law, set to expire in August, which seeks to punish foreign companies with large investments in Iran and Libya's energy sectors.
Both Republican and Democratic lawmakers said the Iran-Libya Sanctions Act (ILSA) needs to be extended against Iran in particular, arguing that Tehran is still a major supporter of international terrorism and has not adequately responded to U.S. efforts to improve relations.
Since Congress passed ILSA five years ago, said Republican Rep. Benjamin Gilman who chaired a subcommittee hearing of the House International Relations Committee on the law, it was "regrettable that Iranian behavior has not changed for the better. In fact, it seems to be getting worse."
ILSA gives the U.S. president authority to limit the ability of countries that violate the law to export goods to the United States.
William Reinsch, who is vice chairman of the USA*Engage coalition of U.S. businesses, said the sanctions law has failed because it has not stopped foreign companies from investing in Iran or Libya, and overall unilateral U.S. sanctions have hurt American firms.
"Unilateral sanctions are doing significant damage to U.S. commercial prospects at a time of economic downturn and energy shortage," he told lawmakers.
"If ILSA were to make Iranian and Libyan oil production less efficient and thereby reduces their contribution to world oil supplies, oil prices would increase," he said.
Lawmakers, however, rejected arguments that more oil is needed from Iran and Libya to ease tight supplies worldwide.
Gilman said it was "pure folly" to believe lifting the sanctions law would result in new investment in Iran and Libya that would increase the countries' oil production and eventually lead to lower crude prices around the world.
He said the countries are members of the OPEC oil cartel, and as such would be bound by the group's policies of restricting oil supplies and keeping prices high.
Rep. Tom Lantos of California, the top Democrat on the International Relations Committee, said he backs the immediate extension of the ILSA law because Iran has not responded favorably to a U.S. move last year to allow imports of Iran caviar, nuts and carpets.
"The United States reached out an open hand only to be met with a clenched fist from Iran," he said. "We have no choice but to refer to our principles and our (sanctions) policies."
Congress is not expected to vote on whether to renew the sanctions law until sometime after Iranian elections scheduled for early June.
The Bush administration has not taken a formal position on the sanctions law. However, according to administration and congressional officials, it is privately against extending ILSA in its current form for another five years.
The administration realizes, though, that it cannot immediately do away with Iran and Libya sanctions all at once and is considering calling for the law to be extended for two years, officials said.
Other lawmakers at the hearing also said they were in favor of reauthorizing ILSA against Iran, but left open the possibility of relaxing the sanctions law again Libya if that country took responsibility for the bombing of a PanAm airline over Lockerbie, Scotland more than a decade ago and compensated the victims' families.