II

106TH CONGRESS

2D SESSION S. 2861

To establish a biannual certification of eligibility for development assistance

based on the level of economic freedom of countries receiving United

States development assistance and to provide for a phase-out of that

assistance based on the certification, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JULY 13, 2000

Mr. FRIST introduced the following bill; which was read twice and referred

to the Committee on Foreign Relations

A BILL

To establish a biannual certification of eligibility for development assistance based on the level of economic freedom

of countries receiving United States development assistance and to provide for a phase-out of that assistance

based on the certification, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Foreign Assistance Re5 form and Democracy Support Act of 2000’’.

6 SEC. 2. FINDINGS.

7 Congress makes the following findings:
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1 (1) The World Bank has concluded that devel2 opment aid can be effective only in an environment

3 of sound economic policies and good economic man4 agement. Economic freedoms, rule of law, and gov5 ernmental and regulatory transparency are essential

6 elements in providing an environment in which aid

7 can reasonably be expected to promote economic

8 growth.

9 (2) While many internal and external factors

10 contribute to poverty and quality of life for the peo11 ple in recipient countries, the governments of those

12 recipient countries determine the degree of economic

13 freedom, economic management, and regulatory and

14 transparency which dictate whether development as15 sistance can reasonably be expected to help promote

16 sustained economic growth.

17 (3) Such sustained economic growth is in the

18 interest of both the recipient and the donor, and is

19 within the stated national interests of the United

20 States.

21 (4) Recipient countries which do not provide

22 economic freedom, sound management, and regu23 latory transparency do not provide an environment

24 where development assistance can be expected to

25 eliminate poverty and promote economic growth.
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1 Thus, the provision of development assistance into

2 such unreceptive environments does not promote

3 United States’ or the people of recipient countries’

4 interests to a reasonable degree and would thus be

5 more effectively committed elsewhere.

6 SEC. 3. DEFINITIONS.

7 In this Act:

8 (1) DEVELOPMENT ASSISTANCE.—The term

9 ‘‘development assistance’’ means—

10 (A) assistance under the Agricultural

11 Trade Development and Assistance Act of 1954

12 (7 U.S.C. 1691 et seq.);

13 (B) assistance under section 401 of the

14 Foreign Assistance Act of 1969 (22 U.S.C.

15 290f);

16 (C) assistance under the African Develop17 ment Foundation Act (22 U.S.C. 290h et seq.);

18 (D) assistance under chapter 1 of part I of

19 the Foreign Assistance Act of 1961 (22 U.S.C.

20 2151 et seq.), including population planning as21 sistance, environmental assistance, and eco22 nomic growth assistance, except for child sur23 vival assistance under section 104 of such Act;
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1 (E) micro- and small enterprise develop2 ment credits and microenterprise development

3 grant assistance;

4 (F) assistance from private sector enter5 prise funds;

6 (G) assistance under the Urban and Envi7 ronmental Credit Program;

8 (H) assistance under chapter 10 of part I

9 of the Foreign Assistance Act of 1961 (22

10 U.S.C. 2293 et seq.; relating to the Develop11 ment Fund for Africa);

12 (I) assistance under chapter 11 of part I

13 of such Act (22 U.S.C. 2295 et seq.; relating to

14 assistance for the independent states of the

15 former Soviet Union), except for democracy

16 building assistance;

17 (J) assistance under the Support for East

18 European Democracy (SEED) Act of 1989 (22

19 U.S.C. 5401 et seq.), except for democracy

20 building assistance;

21 (K) assistance under the Freedom for Rus22 sia and Emerging Eurasian Democracies and

23 Open Markets Support Act of 1992 (22 U.S.C.

24 5801 et seq.), except for democracy building as25 sistance; and
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1 (L) assistance under any successor pro2 gram to a program described in subparagraphs

3 (A) through (K).

4 (2) NEW OR SUCCESSOR COUNTRY.—The term

5 ‘‘new or successor country’’ means a country that—

6 (A) becomes independent of another coun7 try of which it had formed a part; or

8 (B) arises because of the dismemberment

9 of the country of which it had been a part.

10 (3) SECRETARY.—The term ‘‘Secretary’’ means

11 the Secretary of State.

12 TITLE I—PHASE-OUT OF

13 DEVELOPMENT ASSISTANCE

14 SEC. 101. BIANNUAL REPORT ON ECONOMIC FREEDOM OF

15 DEVELOPMENT ASSISTANCE RECIPIENTS.

16 (a) REPORT REQUIRED.—

17 (1) IN GENERAL.—At the times specified in

18 paragraph (3), the President shall submit a report

19 to Congress on the level of economic freedom in

20 countries receiving United States development as21 sistance.

22 (2) COMPOSITION.—The report shall detail each

23 country reviewed under subsection (b) by category of

24 economic freedom.
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1 (3) DEADLINES FOR SUBMISSION OF RE2 PORTS.—The report required by paragraph (1) shall

3 be submitted each year at the time of submission of

4 the congressional presentation documents on foreign

5 assistance for the next fiscal year and on the date

6 that is 6 months after that date.

7 (4) PUBLICATION.—The Secretary shall publish

8 the report in the Federal Register on the date that

9 is 30 days after the date of submission to Congress

10 of the report.

11 (b) OVERALL ECONOMIC FACTORS.—Prior to publi12 cation of each report, the Secretary shall review the laws,

13 policies, and practices of each country receiving develop14 ment assistance that directly address or otherwise affect

15 the economy or the degree of economic freedom in that

16 country and that were in effect during the preceding 6-

17 month period. In reviewing such laws, policies, and prac18 tices, the Secretary shall use, among other sources, the

19 annual Country Reports on Economic Policy of the De20 partment of State and the Country Commercial Guides of

21 the Department of Commerce. The Secretary shall review

22 the following factors applicable to each such country dur23 ing the preceding 6-month period in order to determine

24 whether the country is free, mostly free, mostly unfree,

25 or repressed, in terms of the level of economic freedom:
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1 (1) TRADE POLICY.—Trade policy, including

2 the following:

3 (A) The average tariff rates of the country.

4 (B) The extent to which the country has

5 established any significant non-tariff barriers.

6 (C) The extent to which corruption exists

7 within the customs service of the country.

8 (2) TAXATION POLICY.—Taxation policy, in9 cluding the following:

10 (A) The level of the highest income tax

11 rate.

12 (B) The level of the tax rate that is ap13 plied to the average income of individuals in the

14 country.

15 (C) The level of the highest corporate tax

16 rate.

17 (D) The extent to which other taxes exist

18 in the country.

19 (3) GOVERNMENT INTERVENTION IN THE

20 ECONOMY.—Government intervention in the econ21 omy, including the following:

22 (A) The level of government consumption

23 as compared to the total level of consumption in

24 the economy.
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1 (B) The extent to which the government

2 owns or otherwise controls businesses or indus3 tries.

4 (C) The level of output of the economy

5 that is attributable to the government.

6 (4) MONETARY POLICY.—Monetary policy, in7 cluding the average rate of inflation for the most re8 cent 10-year or other relevant period, as appro9 priate.

10 (5) CAPITAL FLOWS AND FOREIGN INVEST11 MENT.—Capital flows and foreign investment, in12 cluding the following:

13 (A) The extent to which the country has

14 established a foreign investment code.

15 (B) The extent to which the country allows

16 for 100 percent ownership by foreign investors

17 in domestic businesses.

18 (C) The extent to which foreign investors

19 are restricted from investing in certain busi20 nesses or industries.

21 (D) The extent to which foreign investors

22 are subject to certain performance require23 ments.

24 (E) The extent to which foreign individuals

25 can own land.
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1 (F) The extent to which foreign businesses

2 and domestic businesses are treated equally

3 under the law.

4 (G) The extent to which the country allows

5 foreign businesses to repatriate their earnings.

6 (H) The extent to which foreign businesses

7 are allowed to receive local financing.

8 (6) BANKING POLICY.—Banking policy, includ9 ing the following:

10 (A) The number of banks that the govern11 ment owns.

12 (B) The extent to which foreign banks can

13 open branches and subsidiaries in the country.

14 (C) The extent to which the government

15 influences the allocation of credit.

16 (D) The extent to which banks are allowed

17 to operate without undue government regula18 tion, including regulation relating to—

19 (i) deposit insurance; and

20 (ii) the offering of various types of fi21 nancial services, including buying and sell22 ing real estate, securities, and insurance

23 policies.

24 (7) PRICE CONTROL POLICY.—Wage and price

25 control policy, including the following:
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1 (A) The extent to which businesses are al2 lowed to establish their own prices without in3 fluence from the government.

4 (B) The extent to which the government

5 establishes prices for certain products.

6 (C) The extent to which the government

7 provides subsidies to businesses to affect prices.

8 (8) PROPERTY RIGHTS AND THE RULE OF

9 LAW.—Property rights and the rule of law, including

10 the following:

11 (A) The extent to which the legal system

12 is free of government influence or interference.

13 (B) The establishment of a commercial

14 code that defines contracts.

15 (C) The extent to which the country allows

16 foreign arbitration of contract disputes.

17 (D) The extent to which the government

18 can expropriate property.

19 (E) The extent to which corruption exists

20 within the judiciary.

21 (F) The extent of major delays in receiving

22 judicial decisions.

23 (G) The extent to which property rights

24 are granted and protected by legal means.
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1 (9) REGULATION POLICY.—Regulation policy,

2 including the following:

3 (A) A license requirement to operate a

4 business, including the degree of difficulty in

5 obtaining such a license.

6 (B) The extent to which corruption exists

7 within the government.

8 (C) The level of government regulation of

9 businesses, including—

10 (i) regulation of activities such as the

11 work week, paid vacations, and maternity

12 leave; and

13 (ii) regulation of environmental, con14 sumer safety, and worker health issues.

15 (D) The extent to which such government

16 regulations impose a burden on businesses.

17 (10) THE STATE OF THE BLACK MARKET.—The

18 state of the black market, including the following:

19 (A) The extent to which the following is

20 supplied on the black market:

21 (i) Labor.

22 (ii) Transportation.

23 (iii) Agricultural production.

24 (iv) Manufacturing.

25 (v) Services.
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1 (B) The level of piracy of intellectual prop2 erty on the black market.

3 (C) The level of smuggling in the country.

4 (11) ADDITIONAL FACTORS.—

5 (A) The total level of all development as6 sistance, financing by multilateral institutions

7 (including loan guarantees), and financial in8 struments used in economic development pro9 grams to recipient governments, and a descrip10 tion of the sources of such funds and the tar11 geted sector or goal of such programs.

12 (B) The total revenues of each recipient

13 government from all domestic and outside

14 sources.

15 (C) The total expenditure out of domesti16 cally generated revenues by each recipient gov17 ernment on programs and sectors in which do18 nors have provided assistance in any form dur19 ing the preceding 5 years.

20 (D) The total each recipient government

21 expends on military or security-related activities

22 and the security threats that justify such ex23 penditures.
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1 SEC. 102. CERTIFICATION REQUIREMENT.

2 (a) IN GENERAL.—Together with the submission of

3 each report required under section 101, the President

4 shall certify to Congress, with respect to each country that

5 is proposed to receive United States development assist6 ance, whether that country is free, mostly free, mostly

7 unfree, or repressed, in terms of the level of economic free8 dom determined for that country in that report.

9 (b) DECERTIFICATION.—A certification made under

10 subsection (a) shall be in effect with respect to such coun11 try for the fiscal year for which assistance is proposed to

12 be provided by the congressional presentation materials

13 submitted in that year, unless—

14 (1) the President changes the designation of the

15 country under the certification; or

16 (2) Congress enacts a joint resolution dis17 approving a designation under the certification.

18 SEC. 103. PHASE-OUT OF DEVELOPMENT ASSISTANCE FOR

19 MOSTLY UNFREE AND REPRESSED COUN20 TRIES.

21 (a) ASSISTANCE FOR MOSTLY UNFREE COUN22 TRIES.—In the case of a country designated as a mostly

23 unfree country pursuant to a certification in effect under

24 section 102, the following shall apply:
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1 (1) PROHIBITION.—Except as provided in para2 graph (2), development assistance may not be pro3 vided for such country after fiscal year 2005.

4 (2) LIMITED DEVELOPMENT ASSISTANCE PER5 MITTED.—The limitation on assistance described in

6 subsection (c) shall apply to the country in fiscal

7 year 2006 and each fiscal year thereafter.

8 (b) ASSISTANCE FOR REPRESSED COUNTRIES.—In

9 the case of a country designated as a repressed country

10 pursuant to a certification in effect under section 102 the

11 following shall apply:

12 (1) PROHIBITION.—Except as provided in para13 graph (2), development assistance may not be pro14 vided for such country after fiscal year 2004.

15 (2) LIMITED DEVELOPMENT ASSISTANCE PER16 MITTED.—The limitation on assistance described in

17 subsection (c) shall apply to the country in fiscal

18 year 2005 and each fiscal year thereafter.

19 (c) LIMITATION ON ASSISTANCE.—For each fiscal

20 year for which this paragraph is specifically made applica21 ble with respect to a country, development assistance is

22 authorized to be provided only for program assistance

23 strictly limited to primary or secondary education, basic

24 public health programs, democracy and governance pro25 grams, or technical assistance that directly and expressly
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1 addresses one of the factors contributing to the determina2 tion of eligibility under section 101.

3 SEC. 104. ACTIONS WITH RESPECT TO FREE AND MOSTLY

4 FREE COUNTRIES.

5 In the case of any country designated as a free or

6 mostly free country pursuant to a certification in effect

7 under section 102, the following shall apply:

8 (1) SUPPORT FROM PRIVATE INVESTMENT.—

9 The Overseas Private Investment Corporation

10 (OPIC), the Export-Import Bank of the United

11 States, and the Trade and Development Agency

12 shall undertake programs to encourage, finance, or

13 otherwise support private investment from United

14 States sources, with emphasis on projects in sectors

15 of critical need such as health, education, transpor16 tation, financial, and communications infrastructure.

17 (2) DEBT ASSESSMENT.—The Secretary of the

18 Treasury shall—

19 (A) undertake a review on the feasibility of

20 restructuring, rescheduling, or eliminating the

21 sovereign debt of such country if such debt is

22 held by any agency of the United States Gov23 ernment; and

24 (B) direct the United States Executive Di25 rector of each international financial institution
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1 to which the United States is a member to pro2 pose that such institution undertake a review

3 on the feasibility of restructuring, rescheduling,

4 or eliminating the sovereign debt of such coun5 try if such debt is held by such institution.

6 SEC. 105. CHANGE OF RECIPIENT COUNTRY STATUS SUBSE7 QUENT TO CERTIFICATION BY PRESIDENT.

8 (a) CHANGE FROM REPRESSED OR MOSTLY UNFREE

9 TO FREE OR MOSTLY FREE.—In the event that the Presi10 dent determines subject to biannual certification, after

11 consultation with Congress, that—

12 (1) a significant political change has occurred

13 in a country or credible potential to hasten such

14 change exists after the country is certified under

15 section 102 as a repressed or mostly unfree country,

16 (2) such change presents the United States

17 with the opportunity to act decisively to support a

18 transition to democracy, and

19 (3) if a new or successor country comes into ex20 istence at any time,

21 then the President is authorized for a period of three fiscal

22 years to carry out a democratic development program

23 (within the meaning of the Foreign Assistance Act of

24 1961) with respect to the country, without regard to any

25 other provision of this Act.
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1 (b) EXTENSION OF LIMITATION OR AUTHORIZA2 TION.—If the President determines, after consultation

3 with Congress, that it is in the national interests of the

4 United States to do so, the President may extend the pe5 riod of authorization under subsection (a) for an addi6 tional period not to exceed two fiscal years.

7 SEC. 106. OPPOSITION TO ASSISTANCE BY INTERNATIONAL

8 FINANCIAL INSTITUTIONS TO COUNTRIES IN9 ELIGIBLE TO RECEIVE UNITED STATES DE10 VELOPMENT ASSISTANCE.

11 (a) POSITION OF UNITED STATES IN INTER12 NATIONAL FINANCIAL INSTITUTIONS REGARDING ASSIST13 ANCE TO COUNTRIES INELIGIBLE TO RECEIVE UNITED

14 STATES DEVELOPMENT ASSISTANCE.—

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the Secretary of the Treasury shall in17 struct the United States Executive Director of each

18 international financial institution (as defined in sec19 tion 1701(c)(2) of the International Financial Insti20 tutions Act) to use the voice and vote of the United

21 States to oppose the provision of any assistance, di22 rectly or indirectly, by the institution to the govern23 ment of any country with respect to which develop24 ment assistance may not be provided (as determined

25 under section 103), any citizen or national of such
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1 country in such country, or any entity established

2 in such country.

3 (2) EXCEPTION.—The requirement to oppose

4 the provision of assistance, directly or indirectly, by

5 an international financial institution to a country

6 under paragraph (1) shall not apply with respect to

7 the provision of disaster assistance for such country

8 or assistance strictly limited to primary or secondary

9 education, basic public health programs, democracy

10 and governance programs, or technical assistance

11 which directly and explicitly addresses one of the

12 factors contributing to the determination of eligi13 bility under section 101.

14 (b) LIMITATION ON PROVISION OF FEDERAL FUNDS

15 TO INTERNATIONAL FINANCIAL INSTITUTIONS THAT

16 PROVIDE ASSISTANCE TO COUNTRIES INELIGIBLE TO RE17 CEIVE UNITED STATES DEVELOPMENT ASSISTANCE.—If

18 an international financial institution (as defined in section

19 1701(c)(2) of the International Financial Institutions Act)

20 provides assistance, directly or indirectly, to the govern21 ment of any country with respect to which development

22 assistance may not be provided (as determined under sec23 tion 103), any citizen or national of such country in such

24 country, or any entity established in such country, then

25 the United States shall withhold from payment to the in-
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1 stitution, from amounts that would otherwise be paid by

2 the United States to the institution, the amount that the

3 Secretary of the Treasury determines was the United

4 States portion of the amount necessary to support the

5 loans provided to such country by the institution during

6 the preceding fiscal year of the institution.

7 SEC. 107. WAIVER.

8 The President may exercise a waiver of all restric9 tions and requirements of this title on a country-by-coun10 try basis if he determines that United States national in11 terests would be served thereby. The waiver and its ration12 ale shall be submitted as a part of the biannual certifi13 cation. The waiver covers only the biannual period and

14 must be resubmitted each certification process.

15 TITLE II—PROCUREMENT RE16 FORM IN DEVELOPMENT

17 LENDING AND ASSISTANCE

18 SEC. 201. REQUIREMENTS FOR FAIR COMPETITION IN FOR19 EIGN COMMERCE.

20 (a) IN GENERAL.—Not later than 180 days after the

21 date of enactment of this Act, the Secretary of the Treas22 ury shall transmit to the President and to appropriate

23 committees of Congress a strategic plan for requiring the

24 use of independent third-party procurement monitoring

25 and other international procurement reforms relating to
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1 the United States participation in multilateral develop2 ment banks and other lending institutions.

3 (b) STRATEGIC PLAN.—The strategic plan shall in4 clude an instruction by the Secretary of the Treasury to

5 the United States Executive Director of each multilateral

6 development bank and lending institution to use the voice

7 and vote of the United States to oppose the use of funds

8 appropriated or made available by the United States for

9 any nonhumanitarian assistance, until—

10 (1) the recipient international financial institu11 tion has adopted an anticorruption plan that re12 quires the use of independent third-party procure13 ment monitoring services and ensures openness and

14 transparency in government procurement; and

15 (2) the recipient country institutes specific

16 strategies for minimizing corruption and maximizing

17 transparency in each stage of the procurement proc18 ess.

19 (c) ANNUAL REPORTS.—Not later than June 30 of

20 each year, the Secretary of the Treasury shall submit a

21 report to Congress on the progress in implementing pro22 curement reforms made by each multilateral development

23 bank and lending institution and each country that re24 ceived assistance from a multilateral development bank or

25 lending institution during the preceding year.
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1 (d) RESTRICTIONS ON ASSISTANCE.—Notwith2 standing any other provision of law, no funds appropriated

3 or made available for nonhumanitarian foreign assistance

4 programs, including the activities of the Agency for Inter5 national Development, may be expended for those pro6 grams unless the recipient country, multilateral develop7 ment bank, or lending institution has demonstrated that—

8 (1) procurement practices are open, trans9 parent, and free of corruption, fraud, inefficiency,

10 and other misuse; and

11 (2) independent third-party procurement moni12 toring has been adopted and is being used by the re13 cipient.

14 SEC. 202. REPORTING REQUIREMENT.

15 The President shall include in the annual congres16 sional presentation documents on foreign assistance pro17 grams a section on—

18 (1) the organizations proposed to receive devel19 opment assistance grants or contracts during the

20 year;

21 (2) the total amount each organization is pro22 posed to receive; and
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1 (3) the nationality of each group and whether

2 it is a subgroup, affiliate, or division of any other or

3 larger organization.

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