I
105TH CONGRESS
2D SESSION
H. R. 3256
To establish an index of economic freedom to evaluate on an annual basis
the level of economic freedom of countries receiving United States devel-
opment assistance and to provide for a phase-out of that assistance
based on the index, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 24, 1998
Mr. SOLOMON introduced the following bill; which was referred to the Commit-
tee on International Relations, and in addition to the Committee on
Banking and Financial Services, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To establish an index of economic freedom to evaluate on
an annual basis the level of economic freedom of coun-
tries receiving United States development assistance and
to provide for a phase-out of that assistance based on
the index, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘International Respon-
sibility and Self-Sufficiency Act of 1998’’.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Economic freedom plays the single greatest
role in the ability of a country to develop sustainable
levels of economic growth.
(2) Poverty is largely a condition imposed on
people by ill-conceived and repressive economic poli-
cies. Other factors such as history, culture, war, and
climate influence a country’s development, but no
such factor is as important as economic freedom. No
amount of foreign aid can make up for the condi-
tions that result from economically unfree econo-
mies.
(3) Governments have placed various con-
straints on economic activity throughout history, and
some governments have placed greater constraints
on economic activity than others. Generally, these
constraints can be measured. Since economic free-
dom is the degree to which individuals are free to
produce, distribute, and consume goods and services,
one method by which economic freedom can be
measured is to study the number of constraints a
government imposes on production, distribution, and
consumption. Government policies and conditions
that either maximize personal economic choices or
restrict personal economic choices can be objectively
examined.
(4) United States foreign assistance has failed
to help other countries grow economically. 67 coun-
tries have received foreign assistance from the
United States for more than 35 years. Of these 67
countries, 37 countries have economies that grew by
less than 1 percent per year since receiving such for-
eign assistance. These countries are no better off
economically than before receiving such foreign as-
sistance.
(5) Of these 37 countries, 19 countries actually
are poorer than they were before receiving United
States foreign assistance.
(6) Assistance from multilateral institutions
such as the World Bank and the International Mon-
etary Fund have been equally ineffective at promot-
ing sustainable levels of economic growth.
(7) Of the 66 less developed countries receiving
loans from the World Bank for more than 25 years
(most for more than 30 years), 37 are no better off
today than they were before they received such
loans.
(8) Of these 37 countries, a majority (20 in all)
actually are poorer today than they were before re-
ceiving assistance from the World Bank.
(9) Of the 89 less developed countries that re-
ceived loans from the International Monetary Fund
between 1965 and 1995, 48 are no better off eco-
nomically today than they were before receiving such
loans. Of these 48 countries, 32 are poorer than
they were before receiving such loans, and, of these
32 countries, 14 have economies that are at least 15
percent poorer than when they received their first
such loans.
(10) United States foreign assistance fails to
support the foreign policy interests of the United
States. 68 percent of United States foreign assist-
ance recipients voted against the United States in
the United Nations on United States-supported for-
eign policy goals a majority of the time in the 1996
session of the United Nations, an increase from 64
percent of United States foreign assistance recipi-
ents in the 1995 session. Thus, two out of every
three United States foreign assistance recipients
voted against the United States most of the time in
the United Nations.
age tariff of less than 2 percent, and Hong Kong
has an average tariff rate of 0.1 percent.
(14) On average, countries receiving higher lev-
els of United States foreign assistance do not import
more in United States exports of goods and services
and do not have lower average tariff rates than
countries receiving lower levels of United States for-
eign assistance.
SEC. 3. ESTABLISHMENT OF ANNUAL INDEX OF ECONOMIC
FREEDOM.
(a) IN GENERAL.—The Secretary of State shall es-
tablish an index of economic freedom for the purpose of
evaluating on an annual basis the level of economic free-
dom of countries receiving United States development as-
sistance.
(b) OVERALL ECONOMIC FACTORS.—In establishing
the index under subsection (a), the Secretary shall, on an
annual basis, review the laws, policies, and practices of
each country receiving development assistance that most
contribute to or detract from the achievement of economic
freedom in the country. In reviewing such laws, policies,
and practices, the Secretary shall use, among other
sources, the annual Country Reports on Economic Policy
of the Department of State and the Country Commercial
Guides of the Department of Commerce. The index shall
review the following factors with respect to the country
before assigning a specific numerical rating of between one
(for the highest level of economic freedom) to five (for the
lowest):
(1) TRADE
POLICY.—Trade policy, including
the following:
(A) The average tariff rates of the country.
(B) The extent to which the country has
established any significant non-tariff barriers.
(C) The extent to which corruption exists
within the customs service of the country.
(2) TAXATION
POLICY.—Taxation policy, in-
cluding the following:
(A) The level of the highest income tax
rate.
(B) The level of the tax rate that is ap-
plied to the average income of individuals in the
country.
(C) The level of the highest corporate tax
rate.
(D) The extent to which other taxes exist
in the country.
(3) GOVERNMENT
INTERVENTION
IN
THE
ECONOMY.—Government intervention in the econ-
omy, including the following:
(A) The level of government consumption
as compared to the total level of consumption in
the economy.
(B) The extent to which the government
owns or otherwise controls businesses or indus-
tries.
(C) The level of output of the economy
that is attributable to the government.
(4) MONETARY POLICY.—Monetary policy, in-
cluding the average rate of inflation for the most re-
cent 10-year or other relevant period, as appro-
priate.
(5) CAPITAL
FLOWS
AND
FOREIGN
INVEST-
MENT.—Capital flows and foreign investment, in-
cluding the following:
(A) The extent to which the country has
established a foreign investment code.
(B) The extent to which the country allows
for 100 percent ownership by foreign investors
in domestic businesses.
(C) The extent to which foreign investors
are restricted from investing in certain busi-
nesses or industries.
(D) The extent to which foreign investors
are subject to certain performance require-
ments.
(E) The extent to which foreign individuals
can own land.
(F) The extent to which foreign businesses
and domestic businesses are treated equally
under the law.
(G) The extent to which the country allows
foreign businesses to repatriate their earnings.
(H) The extent to which foreign businesses
are allowed to receive local financing.
(6) BANKING POLICY.—Banking policy, includ-
ing the following:
(A) The number of banks that the govern-
ment owns.
(B) The extent to which foreign banks can
open branches and subsidiaries in the country.
(C) The extent to which the government
influences the allocation of credit.
(D) The extent to which banks are allowed
to operate without undue government regula-
tion, including regulation relating to—
(i) deposit insurance; and
(ii) the offering of various types of fi-
nancial services, including buying and sell-
ing real estate, securities, and insurance
policies.
(7) WAGE AND PRICE CONTROL POLICY.—Wage
and price control policy, including the following:
(A) The minimum wage established by the
government.
(B) The extent to which businesses are al-
lowed to establish their own prices without in-
fluence from the government.
(C) The extent to which the government
establishes prices for certain products.
(D) The extent to which the government
provides subsidies to businesses to affect prices.
(8) PROPERTY
RIGHTS
AND
THE
RULE
OF
LAW.—Property rights and the rule of law, including
the following:
(A) The extent to which the legal system
is free from undue government influence.
(B) The establishment of a commercial
code that defines contracts.
(C) The extent to which the country allows
foreign arbitration of contract disputes.
(D) The extent to which the government
can expropriate property.
(E) The extent to which corruption exists
within the judiciary.
(F) The extent of major delays in receiving
judicial decisions.
(G) The extent to which property rights
are granted and protected by legal means.
(9) REGULATION
POLICY.—Regulation policy,
including the following:
(A) A license requirement to operate a
business, including the degree of difficulty in
obtaining such a license.
(B) The extent to which corruption exists
within the government.
(C) The level of government regulation of
businesses, including—
(i) regulation of activities such as the
work week, paid vacations, and maternity
leave; and
(ii) regulation of environmental, con-
sumer safety, and worker health issues.
(D) The extent to which such government
regulations impose a burden on businesses.
(10) THE STATE OF THE BLACK MARKET.—The
state of the black market, including the following:
(A) The extent to which the following is
supplied on the black market:
(i) Labor.
(ii) Transportation.
(iii) Agricultural production.
(iv) Manufacturing.
(v) Services.
(B) The level of piracy of intellectual prop-
erty on the black market.
(C) The level of smuggling in the country.
(c) RANKING OF COUNTRIES BY CATEGORY.—
(1) DETERMINATION
OF
AVERAGE
SCORE.—
After assigning a specific numerical rating for each
of the 10 factors under subsection (b) with respect
to a country for a fiscal year, the Secretary shall de-
termine an average score for the country.
(2) CATEGORIZATION OF COUNTRY.—After de-
termining the average score for a country for a fiscal
year, the Secretary shall, based upon such average
score, categorize the country into one of four cat-
egories in accordance with the following:
(A) A country with an average score of 1
to 1.99 shall be categorized as ‘‘free’’.
(B) A country with an average score of 2
to 2.99 shall be categorized as ‘‘mostly free’’.
(C) A country with an average score of 3
to 3.99 shall be categorized as ‘‘mostly unfree’’.
(D) A country with an average score of 4
to 5 shall be categorized as ‘‘repressed’’.
SEC. 4. PHASE-OUT OF DEVELOPMENT ASSISTANCE BASED
ON ANNUAL INDEX OF ECONOMIC FREEDOM.
(a) ANNUAL RANKING BY CATEGORY OF RECIPIENT
COUNTRIES.—In conjunction with the submission of the
annual requests for enactment of authorizations and ap-
propriations for foreign assistance programs for each fis-
cal year, the President shall submit to the Congress a
ranking by category of each country for which develop-
ment assistance is requested for the fiscal year based upon
the index of economic freedom established under section
3.
(b) ASSISTANCE FOR FREE COUNTRIES.— In the
case of a country determined to be a free country under
section 3 with respect to assistance provided for fiscal year
2000—
(1) development assistance may be provided for
such country for such fiscal year; and
(2) development assistance may not be provided
for such country for any subsequent fiscal year.
(c) ASSISTANCE FOR MOSTLY FREE COUNTRIES.—
(1) FISCAL
YEAR
2000.—Development assist-
ance may be provided for fiscal year 2000 for a
country determined to be a mostly free country
under section 3 with respect to assistance provided
for such fiscal year.
(2) SUBSEQUENT FISCAL YEARS.—
(A) NO CHANGE IN RANKING; CHANGE TO
FREE
OR
MOSTLY
UNFREE
COUNTRY.—If a
mostly free country described in paragraph (1)
continues to be ranked as a mostly free country
under section 3 with respect to assistance pro-
vided for fiscal years 2001 and 2002, or if such
country is determined to be either a free coun-
try or a mostly unfree country under section 3
with respect to assistance provided for fiscal
years 2001 or 2002, then—
(i) development assistance may be
provided for such country for such fiscal
years; and
(ii) development assistance may not
be provided for such country for any sub-
sequent fiscal year.
(B) CHANGE TO REPRESSED COUNTRY.—If
a mostly free country described in paragraph
(1) is determined to be a repressed country
under section 3 with respect to assistance pro-
vided for either fiscal year 2001 or 2002, then
development assistance may not be provided for
such country for such fiscal year and any sub-
sequent fiscal year.
(d) ASSISTANCE
FOR
MOSTLY
UNFREE
COUN-
TRIES.—
(1) FISCAL
YEAR
2000.—Development assist-
ance may be provided for fiscal year 2000 for a
country determined to be a mostly unfree country
under section 3 with respect to assistance provided
for such fiscal year.
(2) SUBSEQUENT FISCAL YEARS.—
(A) NO CHANGE IN RANKING; CHANGE TO
FREE OR MOSTLY FREE COUNTRY.—If a mostly
unfree country described in paragraph (1) con-
tinues to be ranked as a mostly unfree country
under section 3 with respect to assistance pro-
vided for fiscal years 2001 through 2004, or if
such country is determined to be either a free
country or a mostly free country under section
3 with respect to assistance provided for fiscal
years 2001 through 2004, then—
(i) development assistance may be
provided for such country for such fiscal
years; and
(ii) development assistance may not
be provided for such country for any sub-
sequent fiscal year.
(B) CHANGE TO REPRESSED COUNTRY.—If
a mostly unfree country described in paragraph
(1) is determined to be a repressed country
under section 3 with respect to assistance pro-
vided for any of the fiscal years 2001 through
2004, then development assistance may not be
provided for such country for such fiscal year
and any subsequent fiscal year.
(e) ASSISTANCE FOR REPRESSED COUNTRIES.—
(1) FISCAL
YEAR
2000.—Development assist-
ance may be provided for fiscal year 2000 for a
country determined to be a repressed country under
section 3 with respect to assistance provided for
such fiscal year.
(2) SUBSEQUENT FISCAL YEARS.—
(A) NO
CHANGE
IN
RANKING.—If a re-
pressed country described in paragraph (1) con-
tinues to be ranked as a repressed country
under section 3 with respect to assistance pro-
vided for each of the fiscal years 2001 through
2004, then development assistance may not be
provided for such country for such fiscal years
and any subsequent fiscal year.
(B) CHANGE TO FREE COUNTRY.—If a re-
pressed country described in paragraph (1) is
determined, subsequent to a revolution, coup, or
other major political change, to be a free coun-
try under section 3 with respect to assistance
provided for any of the fiscal years 2001
through 2004, then development assistance may
not be provided for such country for such fiscal
year and any subsequent fiscal year.
(C) CHANGE
TO
MOSTLY
FREE
COUN-
TRY.—If a repressed country described in para-
graph (1) is determined, subsequent to a revo-
lution, coup, or other major political change, to
be a mostly free country under section 3 with
respect to assistance provided for any of the fis-
cal years 2001 through 2004, then—
(i) development assistance may be
provided for such country for such fiscal
year and, if such country continues to be
a mostly free country, for the succeeding
fiscal year; and
(ii) development assistance may not
be provided for such country for any sub-
sequent fiscal year.
(D) CHANGE TO MOSTLY UNFREE COUN-
TRY.—If a repressed country described in para-
graph (1) is determined, subsequent to a revo-
lution, coup, or other major political change, to
be a mostly unfree country under section 3 with
respect to assistance provided for any of the fis-
cal years 2001 through 2004, then—
(i) development assistance may be
provided for such country for such fiscal
year and, if such country continues to be
a mostly unfree country, for each of the
succeeding 3 fiscal years; and
(ii) development assistance may not
be provided for such country for any sub-
sequent fiscal year.
(f) ASSISTANCE FOR NEW OR SUCCESSOR COUN-
TRIES.—If a new or successor country comes into exist-
ence at any time from fiscal year 2000 through fiscal year
2003, then development assistance shall be provided for
such country in accordance with this section, except that
any reference in this section to fiscal year 2000 and to
any subsequent fiscal year shall be deemed to refer to the
first fiscal year for which assistance is to be provided for
such country and to the corresponding fiscal year that
comes after such first fiscal year, respectively.
SEC. 5. OPPOSITION TO ASSISTANCE BY INTERNATIONAL
FINANCIAL INSTITUTIONS TO COUNTRIES IN-
ELIGIBLE TO RECEIVE UNITED STATES DE-
VELOPMENT ASSISTANCE.
(a) POSITION
OF
UNITED
STATES
IN
INTER-
NATIONAL FINANCIAL INSTITUTIONS REGARDING ASSIST-
ANCE TO COUNTRIES INELIGIBLE TO RECEIVE UNITED
STATES DEVELOPMENT ASSISTANCE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the Secretary of the Treasury shall in-
struct the United States Executive Director of each
international financial institution (as defined in sec-
tion 1701(c)(2) of the International Financial Insti-
tutions Act) to use the voice and vote of the United
States to oppose the provision of any assistance, di-
rectly or indirectly, by the institution to the govern-
ment of any country with respect to which develop-
ment assistance may not be provided (as determined
under section 4), any citizen or national of such
country in such country, or any entity established in
such country.
(2) EXCEPTION.—The requirement to oppose
the provision of assistance, directly or indirectly, by
an international financial institution to a country
under paragraph (1) shall not apply with respect to
the provision of disaster assistance for such country.
(b) LIMITATION ON PROVISION OF FEDERAL FUNDS
TO INTERNATIONAL FINANCIAL INSTITUTIONS THAT PRO-
VIDE ASSISTANCE TO COUNTRIES INELIGIBLE TO RE-
CEIVE UNITED STATES DEVELOPMENT ASSISTANCE.—If
an international financial institution (as defined in section
1701(c)(2) of the International Financial Institutions Act)
provides assistance, directly or indirectly, to the govern-
ment of any country with respect to which development
assistance may not be provided (as determined under sec-
tion 4), any citizen or national of such country in such
country, or any entity established in such country, then
the United States shall withhold from payment to the in-
stitution, from amounts that would otherwise be paid by
the United States to the institution, the amount that the
Secretary of the Treasury determines was the United
States portion of the amount necessary to support the
loans provided to such country by the institution during
the preceding fiscal year of the institution.
(c) SENSE OF THE CONGRESS RELATING TO ADOP-
TION AND IMPLEMENTATION OF INDEX OF ECONOMIC
FREEDOM
BY
INTERNATIONAL
FINANCIAL
INSTITU-
TIONS.—It is the sense of the Congress that each inter-
national financial institution (as defined in section
1701(c)(2) of the International Financial Institutions
Act)—
(1) should establish an index of economic free-
dom similar to the index of economic freedom estab-
lished under section 3; and
(2) should implement a phase-out of assistance
based on such index similar to the requirements to
phase out United States development assistance
under section 4.
SEC. 6. WITHDRAWAL OF THE UNITED STATES FROM THE
INTERNATIONAL FINANCIAL INSTITUTIONS.
As soon as possible after development assistance may
not be provided for any subsequent fiscal year to each
country to which an international financial institution (as
defined in section 1701(c)(2) of the International Finan-
cial Institutions Act) may provide assistance, the Sec-
retary of the Treasury shall withdraw the United States
from the institution, and shall seek to negotiate an agree-
ment on the method of settling accounts with the institu-
tion.
SEC. 7. DEFINITIONS.
As used in this Act: