Throwing ‘Seeds’ — And Caution — To The Wind: An Overview Of The Seed Ii Legislation

Introduction

On Thursday, 19 July, the Senate Foreign Relations Committee will begin its mark-up of the Support for East European Democracy Act of 1990 (known as "SEED II"). This draft legislation — which currently runs to 114 pages — is intended to provide assistance to Eastern Europe and the Soviet Union.

If enacted in its present form, however, SEED II bill will radically alter a host of current congressional restrictions guiding U.S. foreign policy and provide dangerous precedents that could seriously jeopardize any future loan repayments to American taxpayers by foreign governments.

This result is in no small measure a consequence of this legislation being managed in an extremely closely held manner. In fact, it has not been subjected to any formal subcommittee or full committee hearings nor public scrutiny and is still undergoing revisions less than 24 hours prior to its scheduled mark-up.

A Sampler of SEED II’s Significant Elements and Serious Flaws

The following are among the highlights — many of them quite troublesome — of the draft SEED II legislation:

• Funding

   

  • Authorizes $465 million in foreign assistance for eligible countries in FY91.

   

  • Authorizes $1.17 billion for U.S. participation in the European Bank for Reconstruction and Development (EBRD) over an unspecified period.

   

  • Authorizes $50 million in additional funding for U.S. missions and personnel.

 

• Eligibility

   

  • The legislation fails to provide an explicit definition of countries eligible for assistance, noting only that it shall be the policy of the United States "to support political and economic transformation in countries of Europe seeking to emerge from the tyranny and legacy of communist rule."
    • A European country is regarded as eligible for any of the benefits authorized by the Act — provided the President deems that it would "assist the emergence or transition of that country from communist rule."

   

   

  • As a consequence of the extremely broad character of the eligibility definition, the Soviet Union could easily qualify for most favored nation (MFN) status, OPIC coverage, Eximbank programs, Trade and Development Program activities, Small Business Administration loans and programs, IMF membership, and a host of other U.S. government assistance measures.
    • The bill would offer a new and simplified basis for the President to waive the restrictions on trade and economic relations that currently apply to the Soviet Union, pursuant to the Jackson-Vanik amendment.

     

    • The bill also waives current restrictions on Eximbank lending to the Soviet Union and all other East European countries.

   

   

  • Assistance even to Warsaw Pact military forces is authorized, provided only that such assistance is said to "contribute to the proper functioning of such forces in accord with the rule of law and under the direction of a democratically-elected government."

 

• Export Controls

   

  • In an obvious grab for new legislative authority, the Foreign Relations Committee makes findings and recommendations and imposes reporting requirements concerning export controls, an area which has traditionally been under the exclusive purview of the Banking Committee in the Senate.

   

  • The bill attempts to draw parallels between U.S. and Soviet export control regimes and calls for "the establishment of mutually satisfactory controls" by the two superpowers.
    • This "mirror-image" approach to reductions in national security export controls wholly misrepresents the relative value of Soviet high technology to the West versus that of the United States to the Soviet Union.

     

    • More importantly, it ignores the fundamental basis for U.S. controls on militarily relevant technologies, and the critical role such controls play in maintaining the qualitative edge so essential to an effective U.S. defense posture.

   

   

  • The bill calls on the President to initiate a multinational conference including the Soviet Union to identify ways in which "valuable advanced technologies might be incorporated safely" for "mutually beneficial economic activity."
    • Under present circumstances, such a conference would be tantamount to an industrial espionage field-day for Moscow.

   

 

• Finance and Debt Forgiveness

   

  • The bill asserts that the financial weakness of East European countries "is attributable primarily to foreign debt incurred by previous communist governments." Its authors steer clear of assigning any blame to mismanagement or misallocation of resources caused by the centrally-planned economies, which continues to operate to varying degrees in the USSR, Bulgaria and Hungary.

   

  • To improve the economic prospects of the East European nations, the bill encourages:
    • "U.S. participation in a comprehensive multilateral forgiveness plan for the government-to-government debt of such countries;" and

     

    • "a generous rescheduling of official debt and reductions of 50% or more of the principal on official debt" in Paris Club arrangements.

   

   

  • The bill ignores the fact that the precedent of such "forgiveness" would greatly reduce the incentive for other countries to whom U.S. taxpayers have extended loans to repay their debts. With at least $68 billion owed to the American taxpayer by foreign governments, such precedents are not without serious consequences.

     

  • SEED II establishes a special facility within the EBRD to guarantee national, local, and municipal bond issues and other debt instruments; guarantee and insure personal, real or mixed property; and issue letters of credit. This would presumably also apply to Soviet bond issues — potentially exposing U.S. taxpayers to enormous new liabilities.

   

  • The bill also authorizes U.S. citizens and financial institutions to make deposits, loans, and other forms of financial assistance to credit unions in eligible countries. It would appear that this would amount to yet another loophole that could be used to allow U.S. commercial banks to provide general purpose lending to the Soviet Union — bypassing the current prohibitions of the Johnson-Debt Default Act.

   

  • For Poland, the bill also waives Eximbank’s current statutory requirement that it obtain a "reasonable assurance of repayment" for its loans and authorizes the President personally to provide those assurances to the Bank. In other words, the provision ensures that Eximbank loans can be made to Poland without regard for prospects of repayment.

Conclusion and Recommendation

As this illustrative listing suggests, the provisions of this bill require vastly more analysis and scrutiny than Senators will be able to perform in the course of tomorrow’s mark-up. Accordingly, the Center for Security Policy calls on the Foreign Relations and other interested committees — including Banking, Finance, Armed Services, and Agriculture Committees — to hold urgent hearings on the SEED II legislation.

Moreover, the Center believes that, before the Senate acts on the SEED II legislation, the Bush Administration should be obliged to outline clearly and publicly its specific intentions with respect to future Soviet eligibility for whatever benefits are ultimately provided under this legislation. Also required are the actual milestones and timetables that the Soviet Union would be required to meet before the President would make a determination that the USSR was eligible for any or all of these benefits.