SECTION. 1. AUTHORITY TO AGREE TO CERTAIN AMENDMENTS TO THE BORDER 
              ENVIRONMENT COOPERATION AGREEMENT; GRANT AUTHORITY.

    (a) Amendment Authority.--Part 2 of subtitle D of title V of Public 
Law 103-182 (22 U.S.C. 290m-290m-3) is amended by adding at the end the 
following:

``SEC. 545. AUTHORITY TO AGREE TO CERTAIN AMENDMENTS TO THE BORDER 
              ENVIRONMENT COOPERATION AGREEMENT.

    ``The President may agree to amendments to the Cooperation 
Agreement that--
        ``(1) enable the Bank to make grants and nonmarket rate loans 
    out of its paid-in capital resources with the approval of its 
    Board; and
        ``(2) amend the definition of `border region' to include the 
    area in the United States that is within 100 kilometers of the 
    international boundary between the United States and Mexico, and 
    the area in Mexico that is within 300 kilometers of the 
    international boundary between the United States and Mexico.''.
    (b) Grant Authority.--Part 2 of subtitle D of title V of Public Law 
103-182 (22 U.S.C. 290m-290m-3), as amended by subsection (a), is 
amended by adding at the end the following:

``SEC. 546. GRANTS OUT OF PAID-IN CAPITAL RESOURCES.

    ``(a) In General.--The President shall instruct the United States 
Federal Government representatives on the Board of Directors of the 
North American Development Bank to oppose any proposal where grants out 
of the Bank's paid-in capital resources, except for grants from paid-in 
capital authorized for the community adjustment and investment program 
under the Bank's charter of 1993, would--
        ``(1) be made to a project that is not being financed, in part, 
    by loans; or
        ``(2) account for more than 50 percent of the financing of any 
    individual project.
    ``(b) Exception.--
        ``(1) General rule.--The requirements of subsection (a) shall 
    not apply in cases where--
            ``(A) the President determines there are exceptional 
        economic circumstances for making the grant and consults with 
        the Committee on Foreign Relations of the Senate and the 
        Committee on Financial Services of the House of 
        Representatives; or
            ``(B)(i) the grant is being made for a project that is so 
        small that obtaining a loan is impractical; and
            ``(ii) the grant does not exceed $250,000.
        ``(2) Limitation.--Not more than an aggregate of $5,000,000 in 
    grants may be made under this subsection.''.
    (c) Clerical Amendment.--Section 1(b) of such public law is amended 
in the table of contents by inserting after the item relating to 
section 544 the following:
``Sec. 545. Authority to agree to certain amendments to the Border 
          Environment 
          Cooperation Agreement.
``Sec. 546. Grants out of paid-in capital resources.''.

SEC. 2. ANNUAL REPORT.

    The Secretary of the Treasury shall submit annually to the 
Committee on Financial Services of the House of Representatives and the 
Committee on Foreign Relations of the Senate a written report on the 
North American Development Bank, which addresses the following issues:
        (1) The number and description of the projects that the North 
    American Development Bank has approved. The description shall 
    include the level of market-rate loans, non-market-rate loans, and 
    grants used in an approved project, and a description of whether an 
    approved project is located within 100 kilometers of the 
    international boundary between the United States and Mexico or 
    within 300 kilometers of the international boundary between the 
    United States and Mexico.
        (2) The number and description of the approved projects in 
    which money has been dispersed.
        (3) The number and description of the projects which have been 
    certified by the Border Environment Cooperation Commission, but yet 
    not financed by the North American Development Bank, and the 
    reasons that the projects have not yet been financed.
        (4) The total of the paid-in capital, callable capital, and 
    retained earnings of the North American Development Bank, and the 
    uses of such amounts.
        (5) A description of any efforts and discussions between the 
    United States and Mexican governments to expand the type of 
    projects which the North American Development Bank finances beyond 
    environmental projects.
        (6) A description of any efforts and discussions between the 
    United States and Mexican governments to improve the effectiveness 
    of the North American Development Bank.
        (7) The number and description of projects authorized under the 
    Water Conservation Investment Fund of the North American 
    Development Bank.

SEC. 3. SENSE OF THE CONGRESS RELATING TO UNITED STATES SUPPORT FOR 
              NADBANK PROJECTS WHICH FINANCE WATER CONSERVATION FOR 
              TEXAS IRRIGATORS AND AGRICULTURAL PRODUCERS IN THE LOWER 
              RIO GRANDE RIVER VALLEY.

    (a) Findings.--The Congress finds that--
        (1) Texas irrigators and agricultural producers are suffering 
    enormous hardships in the lower Rio Grande River valley because of 
    Mexico's failure to abide by the 1944 Water Treaty entered into by 
    the United States and Mexico;
        (2) over the last 10 years, Mexico has accumulated a 1,500,000-
    acre fee water debt to the United States which has resulted in a 
    very minimal and inadequate irrigation water supply in Texas;
        (3) recent studies by Texas A&M University show that water 
    savings of 30 percent or more can be achieved by improvements in 
    irrigation system infrastructure such as canal lining and metering;
        (4) on August 20, 2002, the Board of the North American 
    Development Bank agreed to the creation in the Bank of a Water 
    Conservation Investment Fund, as required by Minute 308 to the 1944 
    Water Treaty, which was an agreement signed by the United States 
    and Mexico on June 28, 2002; and
        (5) the Water Conservation Investment Fund of the North 
    American Development Bank stated that up to $80,000,000 would be 
    available for grant financing of water conservation projects, which 
    grant funds would be divided equally between the United States and 
    Mexico.
    (b) Sense of the Congress.--It is the sense of the Congress that--
        (1) water conservation projects are eligible for funding from 
    the North American Development Bank under the Agreement Between the 
    Government of the United States of America and the Government of 
    the United Mexican States Concerning the Establishment of a Border 
    Environment Cooperation Commission and a North American Development 
    Bank; and
        (2) the Board of the North American Development Bank should 
    support qualified water conservation projects which can assist 
    Texas irrigators and agricultural producers in the lower Rio Grande 
    River Valley.

SEC. 4. SENSE OF THE CONGRESS RELATING TO UNITED STATES SUPPORT FOR 
              NADBANK PROJECTS WHICH FINANCE WATER CONSERVATION IN THE 
              SOUTHERN CALIFORNIA AREA.

    It is the sense of the Congress that the Board of the North 
American Development Bank should support--
        (1) the development of qualified water conservation projects in 
    southern California and other eligible areas in the 4 United States 
    border States, including the conjunctive use and storage of surface 
    and ground water, delivery system conservation, the re-regulation 
    of reservoirs, improved irrigation practices, wastewater 
    reclamation, regional water management modeling, operational and 
    optimization studies to improve water conservation, and cross-
    border water exchanges consistent with treaties; and
        (2) new water supply research and projects along the Mexico 
    border in southern California and other eligible areas in the 4 
    United States border States to desalinate ocean seawater and 
    brackish surface and groundwater, and dispose of or manage the 
    brines resulting from desalination.

SEC. 5. SENSE OF THE CONGRESS RELATING TO UNITED STATES SUPPORT FOR 
              NADBANK PROJECTS FOR WHICH FINANCE WATER CONSERVATION FOR 
              IRRIGATORS AND AGRICULTURAL PRODUCERS IN THE SOUTHWEST 
              UNITED STATES.

    (a) Findings.--The Congress finds as follows:
        (1) Irrigators and agricultural producers are suffering 
    enormous hardships in the southwest United States. The border 
    States of California, Arizona, New Mexico, and Texas are suffering 
    from one of the worst droughts in history. In Arizona, this is the 
    second driest period in recorded history and the worst since 1904.
        (2) In spite of decades of water conservation in the southwest 
    United States, irrigated agriculture uses more than 60 percent of 
    surface and ground water.
        (3) The most inadequate water supplies in the United States are 
    in the Southwest, including the lower Colorado River basin and the 
    Great Plains River basins south of the Platte River. In these 
    areas, 70 percent of the water taken from the stream is not 
    returned.
        (4) The amount of water being pumped out of groundwater sources 
    in many areas is greater than the amount being replenished, thus 
    depleting the groundwater supply.
        (5) On August 20, 2002, the Board of the North American 
    Development Bank agreed to the creation in the bank of a Water 
    Conservation Investment Fund.
        (6) The Water Conservation Investment Fund of the North 
    American Development Bank stated that up to $80,000,000 would be 
    available for grant financing of water conservation projects, which 
    grant funds would be divided equally between the United States and 
    Mexico.
    (b) Sense of the Congress.--It is the sense of the Congress that--
        (1) water conservation projects are eligible for funding from 
    the North American Development Bank under the Agreement Between the 
    Government of the United States of America and the Government of 
    the United Mexican States Concerning the Establishment of a Border 
    Environment Cooperation Commission and a North American Development 
    Bank;
        (2) the Board of the North American Development Bank should 
    support qualified water conservation projects that can assist 
    irrigators and agricultural producers; and
        (3) the Board of the North American Development Bank should 
    take into consideration the needs of all of the border states 
    before approving funding for water projects, and strive to fund 
    water conservation projects in each of the border states.

SEC. 6. SENSE OF THE CONGRESS REGARDING FINANCING OF PROJECTS.

    (a) In General.--It is the sense of the Congress that the Board of 
the North American Development Bank should support the financing of 
projects, on both sides of the international boundary between the 
United States and Mexico, that address coastal issues and the problem 
of pollution in both countries having an environmental impact along the 
Pacific Ocean and Gulf of Mexico shores of the United States and 
Mexico.
    (b) Air Pollution.--It is the sense of the Congress that the Board 
of the North American Development Bank should support the financing of 
projects, on both sides of the international boundary between the 
United States and Mexico, which address air pollution.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
Output: (Sec. 1) Amends the North American Free Trade Agreement Implementation Act to authorize the President to agree to amendments to the Border Environment Cooperation Agreement (the November 1993 Agreement Between the Government of the United States of America and the Government of the United Mexican States Concerning the Establishment of a Border Environment Cooperation Commission and a North American Development Bank) that: (1) enable the North American Development Bank to make grants and non-market rate loans out of its paid-in capital resources with the approval of its Board of Directors for qualified water conservation projects; and (2) amend the definition of "border region" as it relates to such projects to include specified areas in the United States and Mexico that are within 300 kilometers of the international boundary between the two countries.

(Sec. 2) Directs the Secretary of the Treasury to report annually to certain congressional committees on the North American Development Bank, addressing specified issues. Directs the President to instruct the U.S. representative on the Board of Directors of the North American Development Bank to oppose, with exceptions, any proposal where grants out of paid-in capital resources would: (1) be made to a project that is not being financed, in part, by loans; or (2) account for more than 50 percent of any individual project. (Sec. 3) Expresses the sense of Congress that: (1) water conservation projects are eligible for funding from the Bank under the Cooperation Agreement; and (2) the Board of Directors of the Bank should support qualified water conservation projects which can assist Texas irrigators and agricultural producers in the lower Rio Grande River Valley. (Sec. 4) Expresses the sense of Congress that the Bank should support: (1) the development of qualified water conservation projects in southern California and other eligible areas in the four U.S. border States (California, Arizona, New Mexico, and Texas), including the conjunctive use and storage of surface water and groundwater, delivery system conservation, the re-regulation of reservoirs, improved irrigation practices, wastewater reclamation, regional water management modeling, operational and optimization studies to improve water conservation, and cross-border water exchanges consistent with treaties; and (2) new water supply research and projects along the Mexico border in southern California and other eligible areas in the four U.S. border States to desalinate ocean seawater and brackish surface water and groundwater, and dispose of or manage the brines resulting from desalination. (Sec. 5) Expresses the sense of Congress that the Bank Board should: (1) take into consideration the needs of all of the border states before approving funding for water conservation projects; and (2) strive to fund such projects in each of such states. (Sec. 6) Expresses the sense of Congress that the Bank Board should support the financing of projects, on both sides of the international boundary between the United States and Mexico, which address: (1) coastal issues and the problem of pollution in both countries having an environmental impact along their Pacific Ocean and Gulf of Mexico shores; and (2) air pollution.