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v.329

u.s.

Department of the Treasury

PRESS RELEASES

STATEMENT OF THE HONORABLE LAWRENCE H. SUMMERS
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
U.S. TREASUR Y DEPARTMENT

BEFORE THE
SUBCOMMITIEE ON INTERNATIONAL DEVELOPMENT, FINANCE,
TRADE AND MONETARY POLICY
COMMITIEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVE'S
TUESDAY, NOVEMBER 9, 1~3

Fair Trade in Financial Seryices
I am pleased to have this opportunity to testify on the Fair Trade in Financial Services
Act of 1993 (H.R. 3248). Secretary Bentsen asserted in his confirmation hearing that, -The
touchstone of our policy, including in international negotiations on financial services, is that
we must demand reciprocity. - He added that he would -be pleased to take a close look at
the Fair Trade legislation and work with its supporters on an appropriate policy. - I am here
today in an effort to carry out that commitment.
We in the Administration appreciate the efforts by the sponsors of this bill and this
Committee to provide the means to secure national treatment and equality of competitive
opportunity abroad for U. S. financial institutions. We believe this legislation will give U. S.
negotiators the same leverage available to their counterparts in most major industrial
countries. The Administration supports the objectives of the bill and will work closely with
the Congress to iron out final details and obtain passage as soon as possible.

Wby Do We Sup,port Fair Trade in Financial Services

Le~islation?

We support this legislation because we want to open foreign markets and enable U.S.
financial firms to compete in those markets, just as foreign firms are able 'to do here in the
U.S. This falls in line with a broader objective of the Administration to improve the U.S.
economy by increasing U.S. exports of goods and services. As President Clinton indicated
early in the Administration, we must -compete not retreat.LB-493

2

To compete, we need the tools to make the competition a fair one. Improved
negotiating leverage through Fair Trade in Financial Services is important because U. S.
financial services finns comprise an increasingly important component of the U.S. economy,
because our financial institutions need to compete in the markets of their major competitors if
they are to remain competitive at home, and because moral suasion has not proven a
sufficiently effective tool in inducing countries to liberalize. Our financial services firms are
world class innovators: they will succeed when they are given the opportunity to compete.
The specific negotiating leverage we seek is the following:
o

Incentives for improved Uruguay Round commitments by a core of roughly a dozen
important emerging market countries and Japan, whose current proposals fOf market
liberalization are simply insufficient. I'll spe3k more on that in a few minutes.

o

Authority to retaliate against objectionable foreign practices which violate
international obligations. This authority must be more flexible than existing tools
and, thus, more appropriate to financial services where safety and soundness concerns
and potential international -spillover- effects involve unique considerations.

o

Leverage in future negotiations with countries whose financial services markets are
relatively closed to foreign participation and which do not make adequate market
opening commitments in the Uruguay Round. We would have the tools necessary to
negotiate effectively with these -free riders- which seek to benefit from international
agreements without undertaking the responsibilities of maintaining an open
international financial system.

I'd like to spend a few minutes explaining our current strategy in the Uruguay Round.
Our objective in the negotiations is an agreement that contains obligations to provide national
treatment and most favored nation treatment in the financial sectof. We want an agreement
that achieves sufficient liberalization to justify accepting a Uruguay Round MFN obligation.
The offers from many of the participants in the negotiations arc not sufficient to meet
our objectives. Standstill commitments that lock in existing protection arc not a sufficient
basis for a satisfactory agreement in financial services. We cannot justify committing to lock
our markets open without comparable commitments from others. We have therefore taken
the position that the U.S. will maintain an MFN exemption unless or until we are able to
negotiate adequate commitments from other countries.
p~ to narrow the sc~ of our MFN exemption in order to provide
SU?~tial co~rrutments on access ~d natlo~ treatment to all countries. We will guarantee
eXIStIng operatlons of all finns now 10 the Umted States and provide entry to those not
already here.

'Y-!e are

3

Also, we are prepared to improve our commitments and provide a higher level of
benefits to countries that are already open or will commit to full liberalization within a
reasonable transition period. To these countries, we would provide additional commitments
on expansion and new powers.
We consider Fair Trade in Financial Services legislation as an essential complement
to our Uruguay Round strategy.
To help unblock the logjam in Geneva, a team of high level officials has been visiting
several key emerging markets. The European Community also has sent officials for the same
purpose.
We believe this strategy will do two things. First, it will lever additional
commitments between now and the end of the Round. Second, it will help ensure that in the
event we fail to achieve sufficient progress that we have incentives in the agreement to
encourage other countries to liberalize in the future. This should reassure those who are
concerned that we may lock our markets open with no reciprocal commitments and that we
will have little recourse in the future to improve the situation.

Why We Need A Fair Trade in Financial Seryices Statute
The fundamental basis of Fair Trade in Financial Services legislation is fairness.
U.S. financial firms face two challenges when they look abroad for markets in which to
compete. First, they must receive the right to establish, and second, they must obtain the
right of national treatment and equality of competitive opportunity. Unfortunately, U.S.
financial institutions - our banks, securities firms, investment managers, and non-bank banks
- which are major players in some international markets, have had little or no success in
clearing both hurdles in many other countries.

Our firms face both formal and informal obstacles. De facto barriers often exist,
preventing foreign firms from full participation in the market, even when there are no legal
barriers to access. Some countries apply discriminatory restrictions designed to protect
domestic institutions under the guise of prudential regulation. We must be concerned with
assuring the equality of competitive opportunity for U.S. firms abroad by preventing the
artful use of informal or nontransparent barriers.
The barriers we face differ widely across countries. Most developed countries with
sophisticated financial markets welcome foreign financial firms on a nondiscriminatory basis,
have made strong financial services commitments in the Uruguay Round, and would not fall
afoul of Fair Trade in Financial Services legislation. It is worth mentioning, however, that
21 OECD countries have reciprocal national treatment provisions for trade in financial
services; and, the numbers have increased despite the standstill to the OECD Code of
Liberalization in Capital Movements agreed in 1986.

4

In the emerging markets where financial liberalization is just getting underway,
foreign financial institutions still face explicit barriers to entry and active discrimination.
These countries are the primary focus of our efforts in the Uruguay Round. Many have
largely state-owned financial systems and still restrict a broad of range of capital
.
transactions, but the door is beginning to open. Many of the newly industrializing econonues
of Asia and Latin America fall into this category.
Let me give you just a few examples of some of the problems our financial
institutions face in seeking access and competitive opportunities in the emerging markets:
o

In Korea, inadequate ~ to local currency funding sources by foreign banks, tight
restrictions on offering new financial products, and pervasive foreign exchange and
capital controls severely limit U.S. banks' opportunities for expansion in this
important market.

o

In Indonesia there are serious limitations on the ability to establish a commercial
presence, including a requirement to establish joint ventures with Indonesian fi.nns,
and a 49 percent equity limit on those investments.

o

The Philippines denies national treatment to banks with more than 40 percent foreign
equity. Among other restrictions on foreign banks are limitations on the number of
branches they may have and prohibitions on establishing additional branches or
shifting existing ones.

o

Taiwan, while not yet in the GATI, engages in financial policy discussions with
Treasury. At present, Taiwan still imposes ceilings on banks' foreign exchange
liabilities, particularly by limiting capital flows, and imposes restrictions on
branching.

o

Brazil's current legal framework presents a variety of problems. There are
constitutional prohibitions on foreign investment. Financial institutions may not hold
private issues of securities in their portfolios or place them. Most pension funds are
in the public sector and managed by public sector entities, which effectively excludes
foreign institutions from a major role in the sector.

U.S. financial firms have interests in other emerging markets as well. These include
Malaysia, India, Egypt and a number of other Latin American countries .
. Japan is ~ special ~; it falls somewhere between the industrial and the newly
em~g countn~. DespIte almost 15 years of deregulation and liberali~tion, foreign finns
are still only marginal players, excluded explicitly by regulation from certain types of
business and by more informal barriers from others.

5

We seek to level the playing field in areas where U.S. finns have a strong
competitive advantage but are now constrained from exploiting that advantage. In both the
Uruguay Round and the U.S.-Japan framework negotiations, we are seeking specific
commitments that will enable foreign finns to compete in the areas of asset management and
securities - where they are way ahead of domestic Japanese firms in terms of experience,
innovation and efficiency.
o

Over 80 percent of the 5900 billion corporate and public pension fund markets are
closed to discretionary investment advisors. Moreover, rules on how these assets
must be invested limit the ability of investment advisers to mobilize their considerable
skills even in those portions of the market open to them.

o

In the securities area, U.S. investment banks are virtually excluded from Japanese

underwriting by a combination of industry practices and legal and regulatory barriers
hindering the development of a viable corporate finance market. There are
constraints on distribution of securities products, who can issue them and how they
can be structured. Again, innovative, cutting edge U.S. firms cannot exploit their
competitive advantages.
o

The $450 billion mutual funds market in Japan has only a handful of foreign
participants due to economic barriers. It cost 30 times more to establish a mutual
fund in Japan than in other major markets, and foreign mutual fund managers must
market their products through Japanese securities firms, which are their major local
competitors.

o

Restrictions in Japan's foreign exchange regime are, despite Japan's large external
surplus, the most comprehensive of the G-7 countries. This hampers Japanese
investors' access to the full range of financial products offered cross border in
overseas markets. Once again, innovative products and efficient services provided by
foreign financial institutions are effectively shut out of the market.

In contrast to the variety of obstacles which U. S. firms face in foreign markets, the
U.S. market is one of the most open financial markets in the world. Our policy is to
welcome foreign firms and once they are established, to provide them national treatment and
essentially the same competitive opportunities as U.S. firms in similar circumstances.
In the U.S. market, more than 700 offices and subsidiaries of foreign banks account
for almost a quarter (5850 billion) of the total assets of the banking system and 3S percent of
business loans. We benefit from this liberal regime in many ways, not least in terms of the

estimated 300,000 direct and indirect jobs attributed to foreign banks. There are also
approximately 130 foreign-controlled registered broker-dealers and roughly 200 registered
foreign investment advisers in the United States.

6

Discussion of Fair Trade in Financial Services
This brings me to the Fair Trade in Financial Services Act of 1993. The
Administration believes that Fair Trade in Financial Services should reflect a number of
important considerations in order to help achieve our international strategy of opening foreign
markets while retaining the benefits of foreign participation in the U.S. market.
o

The legislation must be consistent with and sup;portiye of the commitments that are
undertaken in the Uruguay Round. It should provide protections for those countries
which have committed to maintain open markets or to substantially liberalize their
markets within a reasonable transition period.

o

Second, existing operations of foreign financial institutions already established in the
United States should be grandfathered. The impact of this legislation should be
prospcctiye in order to minimize the potential disruption to our market and possible
retaliation.

o

Third, the bill must provide ample discretion for negotiators, rather than automatic
triggers tied to rigid deadlines. Therefore, any sanctions must be a last resort, not an
opening salvo.

o

Fourth, there must be effective provision for full consultations within the Executive
Branch to ensure that consideration is given to aU implications of any action. Most
importantly, the regulatory authorities must be fully engaged throughout the process
to ensure that the interests of borrowers, lenders, investors and consumers are
considered.

H.R. 3248 goes a long way to meeting these goals. It provides a careful, step-by-step
approach involving analysis, identification and determination of problem countries and
negotiation. There is discretion throughout the process, including in the application of
sanctions. And, provision is made for grandfathering the existing operations of firms from
countries that meet certain criteria.
There are two key areas, however, where we believe some improvements can be
made to strengthen the overall approach.
o

We believe that the Secretary of the Treasury, not the regulatory agencies, should
exercise authority to impose sanctions in accordance with the specific direction of the
President, if any. Application of the discretion in this bill could have wide-ranging
implications for U.S. economic and foreign policies. The Secretary of the Treasury,
under the direction of the President and in consultation with other Executive Branch
agencies, is in the best position to make such decisions.

7

o

We recommend a more flexible approach to grandfathering that would cover all
foreign financial firms already established in the U. S. This would obviate any need
to rely on the European Community's Second Banking Directive as the criterion for
determining access to our market.

Let me respond to some of the concerns raised by critics of Fair Trade in Financial
Services. First, our objective is to open foreign markets not to close the U.S. market. Our
approach is designed to insure that we continue to enjoy the benefits of an open investment
regime which has helped make U.S. financial markets the most liquid, competitive and
sophisticated in the world.

In developing a new approach, we have sought to address the concerns expressed by
some that reduced access to our market could hurt consumers, borrowers and investors.
However, the current activities of all existing firms will be protected and countries not now
in our markets will be provided access. In addition, we will guarantee non-discriminatory
treatment on expansion and new powers to those countries with open markets or which are
prepared to commit to liberalization within a reasonable transition. The ability to expand in
our market would be limited only to those countries that fail to open their markets, and we
would introduce such constraints only after full consideration of the likely impact on the U.S.
economy.
Some have also raised the risk of counter retaliation. We do not believe the risks are
significant. Most industrial countries will be protected from sanctions and clearly have the
same powers being provided in this legislation. The scope of any sanctions is limited.
Moreover, the approach we are pursuing is much more forthcoming and positive than our
original proposal by providing very substantial commitments to all countries regardless of
their degree of openness. Finally, the authority in the bill will be consistent with our GAIT
obligations.
Conclusion
This Administration has clearly stated its objective to open foreign financial markets.
Fair Trade in Financial Services legislation will complement our efforts multilaterally,
bilaterally and regionally to gain access to foreign markets on the basis of national treatment
and equality of competitive opportunity. We believe that this bill provides the basis for
effective legislation and will work with this Committee and others on the Hill to place a final
bill on the President's desk as soon as possible.

~;.

UBLIC DEBT NEWS
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Dcpdrtlllcnt of the Trcasurv

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Bun"au oftht" PublIC Dt"bt • Washington, DC 20239

FOR IMMEDIATE RELEASE
November 9, 1993

Tencers for $14,102 million of 66-day bills to be issued
November 15, 1993 and to mature January 20, 1994 were
accepted today (CUSIP: 912794H56).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
3.09%
3.10%
3.10%

Investment
Rate
3.15%
3.16%
3.16%

Price
99.434
99.432
99.432

Tenders at the high discount rate were allotted 74%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-494

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CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 66-DAY BILLS

Low
High
Average

•

Received
$56,557,455

Accepted
$14,102,235

$56,557,000
455
$56,557,455

$14,101,780
455
$14,102,235

o

o

o

o

$56,557,455

$14,102,235

.....

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CONTACT: Office of Financing
202-219-3350

~REASURY'S

AUCTION OF 3-YEAR NOTES

Tenders for $17,008 million of 3-year notes, Series AB-1996,
to be issued November 15, 1993 and to mature November IS, 1996
were accepted today (CUSIP: 912827M74).
The interest rate on the notes will be 4 3/8~.
The range
of accepted bids and corresponding prices are as follows:
Yield
Low
High
Average

4.42~

4046~
4.44~

Price
99.875
99.764
99.819

Tenders at the high yield were allotted

61~.

TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$33,494,208

Acce:Qted
$17,008,378

The $17,008 million of accepted tenders includes $923
million of noncompetitive tenders and $16,085 million of
competitive tenders from the public.
In addition, $843 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $4,195 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.

LB-495

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Burt:<iu oj tht: PublIc Dt:bt • Wdshln~ton, DC '20'23q~;;:/

FOR IMMEDIATE RELEASE'
November 9, 1993
RESULTS OF

I

FOR RELEASE AT 2:30 P.M.
November 9, 1993

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,600 million, to be issued November 18,
1993. This offering will provide about $3,050 million of new
cash for the Treasury, as the maturing 13-week and 26-week bills
are outstanding in the amount of $24,561 million.
In addition to
the maturing 13-week and 26-week bills, there are $14,259 million
of maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $9,684 million of bills for their
own accounts in the three maturing issues. These may be refunded
at the weighted average discount rate of accepted competitive
tenders.
Federal Reserve Banks hold $3,409 million of the three
maturing issues as agents for foreign and international monetary
authorities.
These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders.
Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills.
For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $3,019 million of the original 13-week and
26-week issues.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356, published as a final rule on
January 5, 1993, and effective March I, 1993) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-496

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED NOVEMBER 18, 1993

November 9,

1993

Offering Amount .

$13,800 million

$13,800 million

Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bld amount
Multlples .

91-day bill
912794 H9 8
November 15, 1993
November 18, 1993
February 17, 1994
August 19, 1993
$12,211 million
$10,000
$ 1,000

182-day bill
912794 K6 0
November 15, 1993
November 18, 1993
May 19, 1994
November 18, 1993
$10,000
$ 1,000

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids
Competitive bids

Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
Competitive tenders .
Payment Terms .

Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date

For Immediate Release
November 9, 1993

STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN

I'm delighted at the strong support shown for the North American Free Trade
Agreement today by the Ways and Means Committee. The vote clearly shows that the
committee agrees that NAFfA is a winner for American workers. The additional
endorsements by House members we received today, coupled with the 25-12 vote in
Ways & Means, add strong momentum to our cause.

LB-497

Text as Prepared for Delivery
For Immediate Release
November 11, 1993
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
THE COMMONWEALlH CLUB
SAN FRANCISCO, CALIFORNIA
It's good to be back here. I checked my calendar and it was 19 years ago that I
last spoke to the Commonwealth Club. You know the saying about the more things
change, the more they stay the same? It's true, in spades. I looked up the message I
gave back in 1974. Let me quote myself if I might: "I worry about our economy."
Talk about deja vu allover again.
I can't help but reflect that we have some similarities between when I was last at
this podium and today. We'd just come off the shock of the oil embargo and were
ramping down from Vietnam.
Transitions like this, particularly of the magnitude we are confronted with by the
end of the Cold War, can be particularly trying. I know that is especially true in
California.
It is precisely because this economy is in transition, and because it needs very
careful attention, that Americans chose to put Bill Clinton in the White House.

Our economic goal is the kind of steady growth that gives Americans the kinds of
jobs that let them enjoy a decent standard of living, educate their children, and retire
without worry.
We've accomplished a lot already, but we're not done yet. We got deficit
reduction through, and you can see its effects already. Take a look at interest rates, at
auto sales and home sales, and at business investment.
Another approach is to invigorate trade, because the bottom line on trade is more
jobs. That's what I want to concentrate on this afternoon -- trade. Specifically, the
North American Free Trade Agreement. When I worry about the economy these days,
this is one of the things I worry about.
LB-498

2

We've got the vote coming up next week. It's going to be close. But I believe it
is winnable. If this were a secret ballot, we'd win this thing on the merits.
No question about it. We're marking progress, picking up endorsements. The NAFf~
bill came out of the Ways and Means Committee by a two-to-one margin. And the VIce
President gave an excellent presentation of the facts the other night. And let me tell
you, when the facts meet fear, the facts win every time.
Forty-one of the governors are for NAFfA The former presidents are for
NAFfA The former secretaries of the Treasury and State are for NAFfA. Our Nobellaureate economists are for NAFfA They know, just as I do, that NAFfA is a plus for
Americans.
There are some very significant gains that we'll get from passing NAFfA
California will be one of the major beneficiaries. The reverse is equally true. There will
be a significant price to pay if we don't pass NAFfA
The economists at the Treasury Department pile mounds of papers on my desk -row after row of numbers and page after page of charts. I may have to get my glasses
changed after all this reading. But I got a short note from one the other day about a
study by a respected independent economic forecasting firm that gave me a jolt. In six
short declarative sentences, it pointed out the economic dangers of not adopting
NAFfA I want to share that with you.
First, if we don't pass NAFfA, ten years from now there are likely to be half a
million fewer jobs in the U.S. economy than we'd have with NAFfA, and 170,000 of
those missing jobs will be in manufacturing. So much for the argument that jobs will
rush south.
Second, our jobless rate will be 0.3 percent higher than it otherwise might be.
That may not sound like much, but if you're out of work, your unemployment rate is 100
percent. Why anyone would pass up the chance to shave even one-tenth of a point off
the unemployment rate is beyond me.
Third, if we don't pass NAFfA, in a decade our GDP will be $43 billion lower
than it ought to be. That works out to $330 for every working American. Do you think
they'd rather have that money in their pocket? You bet they would.
Two other quick points as regards Mexico. The study said that without NAFfA,
undocumented Mexican migration to the United States will average 600,000 a year more
for the next decade. It takes an enormous toll on the economies of California and other
?order. stat~s. I:ve seen estimates that California spends $3 billion a year because of
Illegal mmugratlOn. One of the best ways I know to control our border -- and believe
me, I know a lot about that -- is to improve the Mexican economy.

3

Finally, that study told me that Mexico's economy will grow at less than half the
expected rate if we don't adopt NAFfA, and that Mexico and its citizens will be 15
percent poorer in a decade without NAFfA Mexico isn't going away. It's going to be
there with or without NAFfA We'd far prefer to see a Mexico with a healthy, stable
economy than one growing progressively poorer.
That's the downside of not passing NAFfA Now let me give you the good news
about NAFfA
One of the certain ways to make our economy grow is to expand trade. Trade
creates jobs, makes us more productive and more competitive. NAFfA does that.
I don't think many people appreciate the degree to which our economy depends
on trade. One job in every eight in this country depends on trade. Almost 75 percent of
the economic growth in this country since 1988 has come from growing exports. About
190,000 jobs here in California depend directly on trade with just Mexico and Canada
alone. Almost half the 90,000 jobs that depend on trade with Mexico have been created
in the past five years. Anyone who tries to tell you that less trade is better for the
economy, or that less trade means more jobs, well, he's probably knotted his tie too tight.
I suspect you've heard enough NAFfA speeches to be familiar with the figures
and arguments by now. But I've learned in Washington over the years that you
sometimes have to repeat something 42 times before people believe it. So bear with me
for a few minutes.
Given California's strong position in trade with Mexico, locking in progress we
have made already, and taking that even further, is an effective way to respond to the
slump that has affected this economy.
We can encourage and assist defense conversion all we want, but you must have a
market for the plowshares we're going to be making. We can retrain workers until
everyone's ready for a new career designing or building microcomputers, but unless we
have a place to sell these products, we accomplish absolutely nothing.
What NAFfA gives us is market access, without the barriers that have been in
the way. It levels out a playing field that's been sharply tilted against us, and we give up
very little. Right now, today, Mexico's tariffs on our goods going south are 2 1/2 times
what ours are on their goods heading up here. We wipe that out with NAFfA And
tariffs will disappear only on our goods and Canadian goods, not those of Japan or
Europe.

4

Despite recent voluntary progress in bringing down Mexic~ trade barriers by
President Salinas Mexico could jack its tariffs right back up as hIgh as 50 percent
without this agre~ment. Let me tell you, Mexicans are great customers. They're flocking
to the new Wal-Mart in Mexico City to buy U.S. goods, even though our goods cost more
now than they will with NAFfA They buy 70 percent of their imports from us. It
makes no sense to leave this market to our competition.
There are 700,000 jobs in this country dependent on trade with Mexico. Many of
them would be in jeopardy in relatively short order without NAFTA I think most
people prefer to see our economy expanding and creating jobs.
NAFfA creates additional jobs -- 200,000 of them by our estimates, and betterpaying ones at that. For those who are affected, we have an extensive worker
adjustment program. And NAFfA phases in tariff cuts in our industries that could feel
some impact from the agreement. Remember, if the worst fears of our opposition
materialize, and I really doubt it, we have the right to walk away from NAFTA with six
months' notice.
I've heard the arguments that NAFfA will be particularly hard on low-wage
workers in America. Economists have looked into this extensively, and they can't find
anything to validate that claim. In fact, the most comprehensive study I've seen says that
unskilled urban workers and our rural workers will actually be slightly better off.
What else do we get with NAFfA? It gives us important protections in the area
of intellectual property rights, and those are more important today than they've ever
been. We've also included very stringent rules of origin to make certain that Japan or
any other competitor can't, in effect, use the Mexican economy as a trampoline to slip
goods into the United States duty free. We won't let that happen.
Beyond that, we will eliminate the kind of rules that forced American firms to
move into Mexico -- and take jobs with them -- as the price of admission to the Mexican
market.
Let's look at the auto business for a moment. Our Big Three manufacturers have
only sold ~ few t~ousand vehicles a year down in Mexico, but they estimate they can sell
60,000 uruts the fIrst year alone under NAFfA That will support 15,000 jobs in the U.S.
economy. There's a tremendous market in Mexico.
Let me say a final thing about what NAFTA does: It cleans up the environment.
This is a landmark piece of environmental diplomacy.

5

This gets very personal for me. I was born and raised on the border. I have seen
millions and millions of gallons of raw sewage headed for the Rio Grande. I went
swimming in that river as a kid and it pains me to see what has happened to the border
region over the years.
I know the importance of safe drinking water, adequate wastewater treatment and
solid waste disposal. There are hundreds of thousands of households on both sides of
the border who lack these basic needs. We have a chance to improve the quality of life
and the quality of the environment -- be it in Tijuana or San Diego, or Reynosa across
the river from my home in McAllen.
We've set up a special lending facility, the North American Development Bank, to
leverage a small amount of U.S. and Mexican government money into $2 billion to $3
billion in lending authority for border environmental projects. In conjunction with other
financing mechanisms in NAFfA -- which also rely on the private financial markets -- we
expect it will be possible to meet the estimated $8 billion cost of cleaning up the border.
The NADBank also will make some loans for community adjustment and
investment in communities affected by NAFfA
If we don't have NAFfA, we don't have these important protections for the

environment. Remember, NAFfA didn't create these problems, but it is an important
part of the solution.
We must also view NAFfA in the context of global trade patterns. Japan is
doing tremendous business in Asia. It's the fastest-growing economic region on the
globe. Japan has quintupled its business in the region -- to $150 billion. It's only natural
to be doing business with your neighbors. Look at Europe, banding together for trade.
We're in the unique position of being able to trade across both the Atlantic and
Pacific, and having a huge market adjacent to us. Latin America is the second-fastest
growing region. Free -trade is breaking out all over. The question is, will we take
advantage of it?
NAFfA does more than put us squarely into the Mexican market. It opens the
door to creating a market of well over 700 million consumers -- count them, 733 million
at the moment -- stretching from Alaska to Cape Hom. There's a combined buying
power of almost $7.3 trillion there. We'd be foolish in the extreme to pass on this
opportunity.
If it sounds like a campaign speech for NAFTA -- you're right. There is a
tremendous opportunity here. I don't want to see America pass this up just because
some people try to play on the natural and understandable ~oncerns of Americans.
That's what you do when you don't have the facts on your SIde. You resort to fear.

6

That is an inexcusable way to conduct a serious debate about a critical economic and
foreign policy issue.
We have a window of opportunity to cement our relationship with Latin America,
starting with Mexico. It's the best opportunity we've had since Franklin Roosevelt and
the Good Neighbor policy. That was 60 years ago. That's how infrequently
opportunities like this come along.
Our neighbors are ready to bring down the walls of protectionism, privatize
industry, move to a market-driven economy, and democratize their political systems.
Salinas, our next door neighbor, is leading the charge. If we haven't the courage to take
yes for an answer, if we respond to xenophobia, we'll miss the chance to let Latin
America view us as a trading partner rather than as a threatening goliath. If we do that,
if we don't pass NAFfA, we may well see a return to the suspicions and antagonism of
the past. And let me tell you, it will resonate all through Latin America.
Finally, I want to remind everyone that shortly after the NAFfA vote, President
Clinton will go to Seattle to meet with Asian leaders. A major topic will be building a
regional alliance to help open markets and trade. We want a closer relationship with
those markets. It's in our interest both here in California and throughout our economy.
And if NAFfA loses, our president will have just been told by Congress it wants to
retreat, not compete.
Defeating NAFfA would signal that the United States is turning inward. Look
down the road three more weeks while we're doing the final negotiations on the
multilateral world trade agreement. The arguments against NAFfA -- as hollow and as
spurious as they are -- can also be turned against the GATT. And here you'd have a
president put at a tremendous disadvantage in asking the 110 countries of GATT to
open their markets to U.S. goods and U.S. jobs.
What kind of a country have we become? Are we afraid to take on the world in
trade. Today America has the most productive workers in the world. Our businesses are
more competitive today than they've been in years. Our cost of capital is more favorable
than it has been in years, particularly as compared to Europe and Asia. Our managers
and employees have responded to the demands of customers for quality products -which is why our goods are so sought after. And, our currency exchange rates are
favorable.
Our economic future lies in fair trade, where we use our skills to compete. It
does not lie cowering behind a wall of protectionism. It's time we get back to believing
in America.
Thank you.
-30-

Text as Prepared for Delivery
For Immediate Release
November 12, 1993

REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
GM HUGHES ELECTRONICS CORP. TOUR
LOS ANGELES, CALIFORNIA
When I give speeches around the country, one of the things I talk about is how
many more jobs we have in this country just because Mexico has started liberalizing its
trade rules. It's a fact that any time you take down a trading barrier, you can get more
trade, and more trade leads to more jobs.
We started out back in 1986, when Mexico began its economic liberalization, with
fewer than 300,000 Americans working at jobs based on trade with Mexico. In California
today, we estimate there are 90,000 people whose jobs depend on trade with Mexico.
Three quarters of these jobs are in Southern California, and half are in the Los Angeles
area.
Nationwide, we have about 700,000 Americans, count them, 700,000, whose
paychecks depend on it. We figure that in the next two years alone, we're going to be
creating 200,000 more jobs in the United States with NAFTA
We released a study today about the effects of NAFfA in Southern California,
and I want to share some of that with you. The study tells us that if NAFfA passes, by
the year 2010 this area will be doing about $15 billion in exports to Mexico. That much
in exports is enough to support 200,000 jobs in Southern California. The reverse of that,
however, says that without NAFTA, if trade were to fall back to 1987 levels, about
70,000 workers in California, three-quarters in Southern California, would lose their jobs.
What concerns me is that with the current high level of structural unemployment, those
Americans could have trouble finding new jobs, or ones that paid as well as these export
jobs pay.
Trade with Mexico is a success story. We've turned our position around from a
trade deficit of nearly $6 billion to a surplus of well over $5 billion. We're selling them
more than $40 billion in goods and services a year.
LB-499

2

What concerns me is that if we don't do NAFfA, it will cost us some of the jobs
we've seen created over the years because of Mexico being more open. I'm concerned
about tariffs being jacked right back up. I'm concerned about what a failure to pass
NAFf A means for our access in the rest of the Latin American market. I'm concerned
that Japan and Europe will start pulling out contracts and heading for Mexico City.
It's clear that this better trading relationship with Mexico has been good for
Hughes. The work you do is quite technical. I suspect it pays better than average.
Every expert I talk to tells me that the kinds of jobs involved in building products for
Mexico pay better than other kinds of work in this country.
So, what do we get with NAFfA, more jobs, and better paychecks. Sounds like a
good deal to me.
Let me tell you, NAFfA's got a number of very important benefits for us here in
the United States in our various industries.
But what really impressed me as I walked around looking at your work, is the
horizons you're opening up for people all over the world.
The capabilities of the Solidaridad they're building here are tremendous. When I
was coming along, satellites were the kinds of things you'd find in Buck Rogers. Look at
what you are doing now -- cellular telephone service from anywhere in Mexico, television
signals, and fax and data transmission.
Beyond the gee-whiz of the electronics, I'm impressed at what that's going to do
for Mexican citizens. And I'm also impressed at how what you are doing here will help
further transform Mexico's economy.
Look down the road at what a better Mexican economy is going to mean for us.
They'll have even more money to spend on the goods we produce. As you know, they're
a great customer. Seventy percent of everything they import comes from the United
States. They buy more from us on a per capita basis than do the more affluent
Europeans or Japanese.
That's nice to know when they're spending $8 billion -- a handsome piece of it
right here I might note -- to improve their telecommunications system. Better they
should do business with us than with someone else, right?
The benefits for our economy aren't just in telecommunications. Mexico is
upgrading its energy production. NAFfA will help us get a piece of that business.
NAFfA also brings down the tariffs on the sorts of things California is famous
for, like computers and computer parts and other electronic equipment.

3

The agreement has provisions to make certain Mexico's labor laws are enforced.
In addition, and this is a big plus, it contains some landmark protections for our
environment. We've made a deal with Mexico to get to work on cleaning up the border,
and we've worked out a way to pay for it at a very, very low cost to either government. I
must tell you, I am concerned about losing NAFfA because on top of everything else,
that environmental agreement won't go into effect.
There's another benefit from NAFfA By strengthening Mexico's economy, we
begin to reduce the incentive for illegal immigration. One study I saw last week said
that without NAFfA, illegal immigration could be 600,000 a year more than it is now. I
know that this takes a toll on border states. Believe me, I'm from Texas and I know a
lot about border issues.
Let me wrap things up here by saying that I can't remember seeing a political
debate like this. Every former president, every former secretary of the treasury and
secretary of state, our Nobel-prize winning economists, 41 out of 50 governors, everyone
is backing NAFfA
What is it that we know and our opponents are mixed up on -- it's that NAFfA
means more exports to Mexico and that means more jobs for Americans.
We are the most productive nation in the world. We have the world's best
technology. We are more competitive than we've been in years. We're delivering
quality products that the world wants. Our economic future lies in fair and open trade,
and that's what we get with NAFfA
Thank you.
-30-

UBLIC DEBT NEWS
DqU[U1JCnt ofLhe Trc<lsurv

•

FOR IMMEDIATE RELEASE
November 10, 1993

~,
.&1
. .

Rurcau of the Public Debt • Washinlrt.QJ;l, DC 20239

••••

~t

"'v~~-<'f
tiC U

CONTACT: Ortlce of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 9-YEAR, 9-MONTH NOTES
Tenders for $12,074 m~llion of 9-year, 9-month notes,
Series B-2003, to be issued November IS', '1993 and to mature
August 15, 2003 were accepted today (CUSIP: 912827L83).
The interest rate on the notes will be 5 3/4%.
The range
of accepted bids and corresponding prices are as follows:
Low
High
Average

Yield
5.68%
5.69%
5.69%

Price
100.499
100.424
100.424

Tenders at the high yield were allotted 97%.
TENDERS RECEIVED AND ACCEPTED (in thousands)
-

TOTALS

_ Received
$27,542,281

Accented
$12,073,851

The $12,074 million of accepted tenders includes $449
million of noncompetitive tenders and $11,625 million of
competitive tenders from the pUblic.
In addition, $700 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $2,300 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
The minimum par amount required for STRIPS is $800,000.
Larger amounts must be in multiples of that amount.
Also, accrued interest of $14.37500 per $1,000 of par must
be paid for the period August 15, 1993 to November 15, 1993.

LB-500

1'.,I

FOR IMMEDIATE RELEASE
November 12, 1993

CONTACT: Michelle Smith
(202) 622-2960
CEA CONTACT: Sherman Robinson
(202) 395-3997

BENTSEN, TYSON RELEASE STUDY ON SOUTHERN CALIFORNIA AND NAFTA
Treasury Secretary Lloyd Bentsen and Council of Economic Advisers Chair Laura
D' Andrea Tyson on Friday released a study which projected that Southern California will
greatly benefit from expanded trade and reduced immigration as a result of passage of the
North American Free Trade Agreement (NAFTA).
"Southern California will see more than its proportional share of the benefits from
expanded trade with Mexico as a result of NAFTA," the study said.
Perhaps the most significant effect of NAFTA on the economy of Southern California
will be reduced migration into California, according to the study. More jobs in Mexico -- as
a result of NAFTA -- is the best way to reduce illegal immigration from Mexico.
Further, the study projected that failure to implement NAFTA would raise the
Southern California unemployment rate by more than 0.3 percent on average over the next
decade. Without NAFTA, the study predicted, employment in California would average
70,000 less over the next decade.
The study projected that without NAFT A the Southern California economy -- with its
close links to Mexico -- would suffer particularly heavily. California exported $6.6 billion
of products to Mexico in 1992 -- more than 15 percent of total U.S. exports.
California's export-related jobs were concentrated in high-tech, high-wage industries,
such as electrical and electronic equipment, industrial machinery, transportation equipment
(including aerospace), fabricated metal products and precision instruments (including
scientific, medical and measuring instruments). As Mexico's industrialization proceeds under
NAFTA, the study predicted Mexicans will buy even more products made by Californians.
-30LB-501

NAFTA and Southern California
Office of the Assistant Secretary for Economic Policy, U.S. Treasury
Council of Economic Advisers, Executive Office of the President
November 11, 1993

Summary
California's expons to Mexico amount to more than 15 percent of U.S. total
exports to Mexico. The bulk of these exports come from southern
California, which has extremely close economic ties with Mexico. Southern
California will see more than its proportional share of the benefits from
expanded trade with Mexico as a result of NAFTA. Perhaps the most
significant effect of N AFT A on the economy will be realized through
reduced migration into CalifornIa. Expanded employment opportunities in
Mexico as a result of NAFTA are the best way to reduce illegal immigration
from Mexico. Such a reduction in potential labor competition could
significantly raise the wages and improve the opportunities of low-wage
southern Californians.

Southern California's Exports to Mexico
California finns and workers exported
$6.6 billion worth of products to Mexico in
1992. $6.4 billion of these exports were
manufactured goods. These exports represent
a threefold increase compared to five years
ago, when Mexico began its successful
program of economic reform and trade
li beralization.
California provides more than 15 percent
of Mexico's purchases of U.S. goods.
Southern California is a region very wellpositioned to benefit from an expansion of
trade with Mexico.
The Los Angeles area is the major
manufacturing center of California and the
nation: no county in the United States has
more manufacturing jobs than Los Angeles
county, which accounts for nearly half of
California's manufacturing jobs.

Table 1: California's Top 10 Industries exporting
to Mexico In 1992
1992 Value
(Millions)
Industry
$1,497
Electric and Elect. Equipment
1,036
Indus. Mach. and Computers
390
Transportation Equipment
345
Fabricated Metal Products
Primary Metal Industries
340
315
Food Products
Rubber and Plastic Products
296
Lumber and Wood Products
288
Scientific and Measuring Instruments 279
Refined Petroleum Products
276
Industries Not Shown
TOTAL

.1.§i
$6,557

The Administration has estimated that
California's exports to Mexico support
roughly 90,000 jobs. More than three quarters
of the jobs supported by California exports to
Mexico are in southern California, and more
than half of these jobs are in Los Angeles
county.

2
The jobs supported by exports to Mexico
are for the most pan in high-wage, high-skill,
capital-intensive industries. According to the
1990 census, the seven of these industries that
provided the largest net exports to Mexico
employed more than 400,000 workers in the
Los Angeles area:
•

106, III in fabricated metals.
• 98,717 workers in industrial machinery.
• 63,700 workers in rubber.
• 62,764 workers in food processing.
• 35,704 workers in chemicals.
• 26.396 workers in steel and metals.
• 23.939 workers in paper.
In 1992 the net exports to Mexico of these
industries amounted to $11 billion nationwide.
The expansion of trade with Mexico over
the past five years has favorably shifted the
demand for southern California's workers,
increasing employment opportunities for
workers in California.

Future Changes In Trade with Mexico
A failure to implement NAFf A could
lead to a sharp drop in trade with Mexico,
reducing exports and export-related
employment
In the absence of NAFTA, even if the
Mexican government remains wholeheanedly
committed to its policy of refonn. Mexico will
be unable to maintain its current pace of
purchases from the United States. Without
NAFf A. Mexicans will be unable to borrow
at favorable tenns on the world capital market.
Their balance of trade will have to adJUSt.
Their purchases of U.S. expons will fall.
The Wharton forecasting group has
projected that failure to implement NAFf A
will reduce U.S. annual expons to Mexico by

$35 billion by 2003. According to their
forecast, failure to implement NAFf A will
raise the U.S. unemployment rate in 2003 by
0.3 percentage points.
Were trade with Mexico to shrink back to
1987 levels, 70,000 California workersapproximately three-quarters of them in
southern California-would lose their jobs.
Given the current high level of structural
unemployment in southern California. many
of these workers would have great difficulty
finding other employment.
Those that did would be highly unlikely
to find jous that paid as well as those in the
relatively high-wage manufacturing industries
that make up the backbone of California's
trade with Mexico. The rise in California's
unemployment rate might well be significantly
higher, and would certainly not be lower, than
the 0.3 percentage point rise in the national
unemployment rate projected by Wharton.
If NAFf A and President Salinas' other
reforms succeed in boosting Mexican growth.
and if under NAFf A the United States-and
California-hold onto their share of the
Mexican market, then by 2010 California
producers would export approximately $20
billion a year to Mexico, of which over $15
billion would come from Los Angeles.
Such a flow of exports to Mexico would
support approximately 200.000 jobs in
southern California. It would amount to 2.3
percent of California's gross state product.
And once again, such export-supported jobs
would pay higher wages than alternative
employment.

los Angeles Apparel and NAFTA
Many critics of NAFf A fear that it will
cause substantial job dislocation. Even though
NAFf A will produce more and higher-wage

3
jobs in the United States. critics fear that those
who benefit will be a different group from
those who see their employment opportunities
restricted as a result of Mexican competition.
This Administration is concerned with job
dislocation and is investing substantial
resources in labor-dislocation adjustment and
through the creation of the North American
Development Bank to ensure that economic
change benefits all.
But more importantly. a number of
considerations suggest that fears of large-scale
job dislocation in southern California as a
result of increased impons from Mexico are
overblown.
Consider the apparel industry. a relatively
low-wage industry and the largest non-durable
manufacturing industry in southern California.
Economists Raul Hinojosa (from UCLA).
Sherman Robinson (from U.C. Berkeley). and
Goetz Wolff (an economic consultant) have
examined the likely impact of NAFf A on the
apparel industry in Los Angeles in a study
partially supported by the Southwest Voter
Research Institute. 1 They find that the
Southern California apparel industry-a
relatively low-wage and labor-intensive
industry-is unlikely to be a locus of U.S. job
dislocation under NAFf A.
They find that the Los Angeles and
Mexican segments of the apparel industry are
complementary-as shipments of Mexican
apparel to California have increased. so have
shipments from California to Mexico: the
industries appear to increase demand for each
other's products rather than competing with
each other.
The study showed that the quality of Los

lIn an October, 1992 study for UCLA's Lewis
Center for Regional Policy Studies.

Angeles-area apparel was signifIcantly better
in Los Angeles than in Mexico. And the
nature of the apparel industry in Los Angeles
places a strong premium on its remaining in
the United States: Los Angeles is the style and
marketing center for the nation in the fastchanging women's sportswear and casual
wear market segment
Thus the Los Angeles apparel industry
requires those close linkages between design,
production. and marketing. which encourage
the clustering of the industry in Los Angeles.
Note that the Los Angeles apparel
i'1dustry now accounts for nearly ten percent
of all apparel employment in the United
States. and for 22 percent of employment in
women's wear. Apparel is one of the largest
industries in Los Angeles, accounting for
almost 100.000 on-the-books employees and
for nearly one-third of total non-durable
manufacturing employment in Los Angeles.

California Electronics and NAFTA
The UCLA study also examined the
southern California electronics industry, and
concluded that there will be no significant
change in the location of electronics
production as a result of the NAFT A. There
have been major structural shifts in electronics
in the 1980s. The electronics industry
employment segments that remain in the
United States today are the high-wage, highskill. high-value segments in which Mexico is
relatively uncompetitive.
NAFT A will make locating in Mexico
somewhat more attractive relative to transPacific economies. Electronics jobs that
migrate back across the Pacific to Mexico will
boost high-wage electronics employment in
the U.S. Electronic components assembled in
Asia are likely to have been produced in

4
Japan, while components assembled in
Mexico are much more likely to have been
produced in the United States.

Migration and NAFTA
Southern California is the recipient of an
extremely large flow of undocumented
migrants from Mexico. Half of all Mexican
migration to the United States is migration to
California. The Tijuana-San Diego area is the
source of the largest legal flow of cross-border
traffic, and is the source of an estimated onequaner of undocumented migration as well.
This continued inflow of migrants to
California inescapably puts downward
pressure on the wages of low-income
Americans in southern California. With
NAFT A, increased Mexican economic growth
would diminish migration from Mexico and
increase the employment rate and wages of a
significant number of Californians with low
incomes.
All studies indicate that NAFT A. by
increasing growth in Mexico, will retard
undocumented migration from Mexico to the
United States in the long run.
In recent testimony, Raul Hinojosa
reviewed the evidence and concluded that
even in the short run "NAFTA-Plus" [with the
side agreements attached] will reduce pressure
for Mexicans to migrate illegally to the U.S.
He testified that the defeat of NAFf A would
be "the worst option in terms of
increasing ... pressure for undocumented
migranon to the United States."
The Whanon study cited earlier estimates
that, if NAFT A is not implemented, gross
undocumented migration will be higher by
594,000 in an average year over the next
decade.
The fundamental reason that so many

Mexicans have migrated to the United States
over the past several decades is the lack of
employment opportunities in Mexico.
The greatest impact of NAFf A will be to
increase wages and economic growth in
Mexico: the Whanon study estimates that
Mexican real GDP and Mexican wage levels
will be fifteen percent higher in a decade if
NAFr A is implemented than if NAFT A is
rejected.
A richer Mexico will reduce pressure on
Mexicans to migrate. More attractive
employment opportunities in Mexico will pull
some migrants back across the border, and
will make others decide not to move to the
United States in the first place.
This will, in turn, increase the incomes of
low-wage workers in the U.S. by reducing
competition for jobs from undocumented
immigrants. The effects of diminished
migration are likely to be felt most strongly
and immediately in southern California, and
the increases in the incomes of low-wage
Americans produced by a reduction of
migration pressure will be greatest in southern
California as well.
Note that NAFf A does nothing to relax
or weaken U.S. immigration law or border
immigration control policies. But we must
recognize that it has been, and will continue to
be, very difficult to stop undocumented
migration across the 2,000 mile border.
The best way to reduce this
undocumented immigration-and eliminate
pressure on the wages of low-income
Californians-is to increase the productivity
of the Mexican economy through NAFfA.

Text as Prepared for Delivery
For Immediate Release
November 15, 1993
REMARKS OF DEPUTY SECRETARY ROGER ALTMAN
NATIONAL ELECfRICAL MANUFACfURERS' ASSOCIATION

I'm delighted to be here this morning to talk with you about President Clinton's
health care program.
But first I need to take care of NAFTA business.
We seem to be specializing in tough votes. First the deficit package and now this.
I think I'm a little grayer today than I was when I signed up for this job. NAFTA is a tough
one, not because of what's in it. If that were it, we'd win in a minute. It's a difficult sell
because there are irrational fears about what it will do.
Plain and simple, NAFTA is an important step in bringing down trade barriers. It
will create jobs. It looks to our future and not to our past. It's a rejection of protectionism
and an affirmation of fair trade. It's also an important step on the road to further opening
markets in Latin America.
Virtually every segment of the U.S. economy stands to gain from NAFTA, yours
included. The Commerce Department tells me that since 1987, the electric and electronic
equipment segment of our economy has seen sales to Mexico grow by 122 percent. They're
up from $3.2 billion to $7.1 billion. Even at the Treasury Department that's real money.
We have been working on a major education program as it regards NAFTA We're
beginning to see results, more endorsements, and we're picking up momentum. The vice
president did a remarkable job with Ross Perot lasat week. I believe we can win, but it will
be close.
NAFTA is one element in our overarching goal of restoring and strengthening our
economy by getting back in the business of investing in America and improving our
competitiveness. The framework talks with Japan and concluding the Uruguay Round are
additional steps in the same direction. So is deficit reduction, so is health care.
Before I came over this morning I was looking over your position paper on health
care. There's quite a bit we agree on, particularly on the economic side of the ledger.
L&-S02

2

For instance, we agree that the competitive position of American manufacturers
suffers because of skyrocketing health care costs. There is no question about that. We also
agree with that employers who take a free ride on the system are penalizing all of us. I
think we can also agree that the existing system is in serious need of repair.
There are, to be sure, very compelling social reasons to take on health care reform.
There is an equally compelling economic case to be made.
Consider what it is we face. As a nation we spend a lavish 14 percent of our Gross
Domestic Product on health care. No other industrialized country spends near that. For
Japan the figure is seven percent; for Germany it is nine percent. As an example of how
it drags at our competitive edge, there was a University of Michigan study recently that said
our Big Three auto makers spend $1,100 per car for health car for their workers, but the
Japanese, and the transplant operations, spent about $500. If that doesn't skew competition,
I don't know what does. Ford Motor Company says it paid more for health care costs last
year than it paid for steel from its outside suppliers.
Furthermore, if present trends continue by the year 2000 health care will consume
more than 19 percent of our GDP, or one out of every $5. The existing system promotes
an inefficient and worsening allocation of our nation's economic resources. Especially when
you consider we don't have universal coverage.
Inflation in public and private health care spending is out of line with inflation in the
rest of our economy. On the private side, it's three times the national average, and it is
higher than that on the public side. Medicare and Medicaid are growing explosively. The
Medicare program today costs $130 billion a year. In five years it will hit $213 billion.
Medicaid is rising even more quickly. It doubled in the eight Reagan years, and doubled
again in the Bush presidency. Despite what we've done with our deficit reduction program,
the deficit will start climbing again beyond 1997 if we do nothing to get health care under
control.
It would be nice if we got a little something for everything we're spending in excess
of what our competitors spend. The problem is, the extra spending buys us nothing. Our
competitors have longer life expectancy and lower rates of infant mortality. They spend less
and they cover everyone. We are the only major industrialized country without universal
coverage. Nearly 15 percent of our population - more than 37 million Americans -- have
no health insurance. About a third of those are children. Another 22 million are
underinsured.

3

This is not just a problem for the uninsured or the underinsured. Every time
someone without insurance, or without needed coverage, shows up at an emergency room
and is treated, every one of us who has insurance foots the bill. Every time a business
leaves its employees without insurance, those with insurance pay the price. You're well
aware that your insurance premiums are higher than they need to be -- at least 10 percent
higher by our calculations.
In addition, for too long now, rising health care costs have been a drag on both
profits and wages. The average worker today would be earning at least $1,000 more a year
if health insurance costs had not risen faster than wages for the last 15 years. When you,
as employers, must devote more money to premiums, it drains away money that otherwise
could go for investment, wages or profits.

Our existing health care system has another feature tnat amounts to a built-in brake
on our economy. It's 'Job-lock." About 40 percent of our insurers won't cover pre-existing
conditions for new policyholders. That discourages people from trading up on their jobs
when they have the opportunity. Nearly one third of our workers report that they feel
locked into their jobs because of the health insurance system. That effectively cuts down
on worker mobility. Similarly, there are those in our society who want to work, but find it
hard to do so because of the threat of losing Medicaid benefits.
Furthermore, we are spending significant sums -- $80 billion by some estimates -- to
cover the costs of fraud and abuse. This serves as a huge drag on the economy. On top of
that, we're spending $45 billion year for health care administration and paperwork, yet
another area where we agree we have to move.
These are the reasons reform of the health care system is one of President Clinton's
highest priorities and an integral part of his economic strategy. With the adoption of the
President's plan, estimates indicate total business spending on the services covered will fall
by $10 billion. That money could be used to hire more workers, to raise wages and benefits,
to invest in plants, in equipment, in education or training or research. It could also go for
increased dividends or lower prices. Every one of these alternatives stimulate the economy
and create new jobs.
When we put this plan together we started with the premise that we don't need to
re-invent the entire health care universe. Nine out of every 10 Americans with insurance
receive it through work. That's why we used the work place as the vehicle for extending
coverage to every American. This approach avoids major disruptions to the private sector.
Given the complexity of the problem we face, it is a fair question to ask how we
think we're going to make this program work, how we .can get the syste~ under .co~trol. I
have a straightforward answer to that -- by applymg two old-fashIOned pnnclples -competition and consumerism.

4

At the moment, we have too little competition. Most of the leverage is in the hands
of the insurers and providers. All but our largest businesses are at a disadvantage when it
comes to negotiating premiums. There's also too little consumerism. Too few Americans
pay a meaningful share of their health care bills, so they don't shop around among
providers.
To spur competition, each state will form one or more non-profit regional alliances,
covering all workers and non-workers. In addition, large businesses with sufficient scale are
free to form their own corporate alliances. These alliances will negotiate for coverage with
providers for the most affordable quality coverage. The purchasing power inherent in this
approach, like the German system, will tilt the playing field in favor of the buyer.
Moreover, insurers won't be allowed to differentiate prices based on age or existing health
conditions. And workers will no longer be locked into jobs because of health coverage.
The result will be enormous public and private sector savings. Most businesses which
provide coverage today will see their margins improve because the percentage of payroll
devoted to health care will be limited to 7.9 percent.
Furthermore, small, low-wage businesses which have had trouble offering coverage
will find it more affordable.
The discounts available are scaled, based on the size of the business and the average
wage. But in no case will an employeer have to pay more than 7.9 percent of payroll for
health coverage. In some cases -- for instance a firm with under 25 employees with average
wages under $12,000, what you have to pay is as little as 3.5 percent of payroll. It can mean
paying as little as 15-cents an hour to provide a low-wage worker with health coverage.
When you consider the actual cost of the coverage, that's a great deal.
In broad terms, the discounts available to employers begin to take effect when the
average wage is below $25,000, regardless of the size of the fmn.
With financing accounted for, another of our goals is to help the self-employed better
afford their contribution to health coverage. For this we propose that self-employed people
be able to deduct 100 percent of the cost of the comprehensive benefit package.
Before getting into some of the specifics of the
Administration plan I want to make three general points.
First, our plan is the only comprehensive proposal that spells out exactly what
be.nefits will be p~ovided and how it will be financed. That is the only fiscally responsible
thmg to do. Dunng the development of the plan the Administration consulted with the
nation's best actuaries and health care experts. I feel confident we have approached the
estimating process in a very responsible way.

5

Second, we have protected both the private sector and the public sector from cost
overruns by insisting on accountability. The Health Security Act provides solid estimates
of the federal costs for discounts provided to businesses and low-income families. And there
is a 15 percent cushion to ensure sufficient funds are available.
And third, this plan will be phased in, which allows sufficient time to make
adjustments should we find that modifications are needed.
The plan clearly spells out the costs to the federal government and how we are going
to pay for them, including
discounts to eligible businesses and individuals, long-term care and the new Medicare drug
benefit.
Funding for these, and for program improvements, will come largely from slowing the
rate of growth in Medicare and Medicaid, a 75-cent increase in the tax on a pack of
cigarettes, an assessment on large companies that choose to establish corporate alliances,
and increased revenues as compensation shifts from non-taxable health care benefits to
taxable wages.
Now let's talk about these specific items in the bill. In addition to increasing the
excise tax on cigarettes, we also propose raising the excise tax on other tobacco products.
This would promote better health, not just for adults, but more importantly, for children.
The assessment on our largest employers will go for, among other things,
underwriting important work in health research from which every American benefits.
Another major revenue source in the package is the increased tax receipts that will
result from controlling the rate of growth in health care costs. This comes to $23 billion.
Increased competition, greater cost-consciousness on the part of both consumers and health
care providers, and other cost containment measures will lower health insurance costs over
time. Some of this has already started as the debate heats up. Hospitals are finding ways
to cut the length of stays for patients and the cost of lab work. Standard revenue estimating
rules assume that as tax-preferred employer health care costs go down, more compensation
will be paid in the form of taxable wages. That will generate more income and payroll taxes,
despite the increased numbers of workers
covered.
In addition we want to ensure that rural residents, and those who live in the inner
cities, have adequate access to quality health care. The plan does that with tax incentives
to encourage doctors and nurses to locate in underserved areas.

6

The Administration has offered a bold and comprehensive plan to give Americans
health security and to take charge of health care costs. It has been carefully thought through
every step of the way. We have tapped the best brains in the country in developing it, and
there is wide support for it. This August Lou Harris took a poll about Health reform, and
84 percent of the 2,000 adults who were asked about it said the current system needs
fundamental change or a complete rebuilding.
Next year alone, before we phase in our plan, our health care costs will approach $1
trillion. That's one dollar in every seven on our economy. You can see in every poll in
every newspaper you pick up that Americans know our health care system needs a
comprehensive overhaul. They are very concerned about what has become of our system
of health care and they have every right to be. We're concerned, too, about the impact of
all this spending on our economy, on our competitiveness, on our ability to invest.
There are now no fewer than half a dozen health care reform plans on the table.
There is quite a bit of common ground among them. For example, all but one call for some
form of competition. Every plan wants to get rid of exclusions for pre-existing conditions.
Every plan offers a choice of health plans and providers. Each proposes reforms in our
malpractice system. And most propose increasing the deduction for self-employed
Americans.
But despite the similarities, only the President's plan is
truly universal and comprehensive. It provides universal coverage, lifetime protection, builds
on our existing system of obtaining insurance, contains a Medicare drug benefit, a long-term
care benefit, cigarette taxes, a requirement that employers help pay for health insurance and
a budget that is fiscally responsible.
President Clinton is committed to seeing that the quality of health care improves. He wants
to reduce the paperwork burden on individuals and employers. He wants to make everyone
responsible for health care. And he is intent on financing the Health Security Plan in a
responsible manner.
It's a comprehensive approach, and we think it's the right way to get this debate
started.
Thank you.
-30-

Text as Prepared for Delivery
For Immediate Release
November 15, 1993

REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
AMERICAN COUNCIL OF LIFE INSURANCE
WASHINGTON, D.C.
Twenty-two years ago when I left the insurance business to go into government
work, I figured I'd never sell another policy again.
Well, it held true for 21 years, until I took this new job in January. If you think
you've had problems selling life insurance policies in the last 10 months, try selling to
Congress a budget deficit reduction policy, a health care reform policy, and this week
we're closing the deal on a policy called NAFfA.
I've been on Capitol Hill so much this year, I think I'm the lowest paid lobbyist in
town.
I want to talk NAFfA today, but let me start by saying a few things about the
economy and something you're interested in -- the savings rate in this country.
I like to tell a story. I was at a meeting in France three years ago. A European
got up and said: "Look at the great changes in the world. The end of the Cold War.
Europe and Asia emerging as the world leaders. And America on the decline."
It's a little ironic that three years later much of Europe is in a recession, Japan is
in a recession, and America is not just a political and a military leader -- we remain the
world's economic leader -- the engine of growth in the world.
We have the lowest interest rates in two decades and that's helping boost some of
our more vital industries -- like autos and housing. You like paying 7 percent instead of
10 percent for a mortgage, don't you?
Consumer spending is up. Inflation is low -- 2.8 percent. Unemployment is down
to 6.8 percent, from an average of 7.4 percent all last year.
And look at GDP, the growth rate. First quarter it was 0.8 percent. Second
quarter 1.9 percent. Third quarter 2.8 percent. If you don't think that's steady, sound
progress, look at Japan or Europe -- where it's negative.
LB-50 3

2

I have long argued for less spending by government and more spending by private
enterprise, because that's when you have sustainable grm\1h. You can't just have shortterm progress. It has to be sustainable. And that's what I like about this one.
Federal spending is down. \\'e haven't seen those kinds of cuts since the builddown after the Vietnam \\'ar. And business spending is up. And our companies are
finally making those investments by borrm\ing money at interest rates competitive with
the rates companies in J 3p3n and Europe borrow at.
I think b3ck just 3 short time ago when the J ap3nese h3d 1 percent interest rates
3nd they'd h3ve some W3rr3nts with some conversion pri\ileges out there to a stock th3t
was selling at 100 times e3rnings. Their cost of c3pit31 comp3red to wh3t we were
p3ying W3S 3n enormous dis3d\'3ntage to our businesses.
Now,. I know wh3t"s on .your minds -- how do we get Americ3ns to S3\'e more?
It's been on mv'" mind 3 long. .time,
I .thought
3bout it when I W3S in your
shoes, thought
......
....
_
.......
about it when I was in the Sen3te on the Fin3nce Committee, 3nd I h3ven't forgotten
about it.
~

It's still on my mind when a typical American family saves h3lf of what a family in
Germany saves or one-third wh3t a bmily in J3pan S3\'es.
My problem is, how do We do it \',ithout robbing the Tre3sury of re\'enues that we
need, So I haven't forgotten, I just h3ven't figured out 3 w3y to m3ke t3..\ deduction
s~l\ings vehicles th3t still let us meet our deficit-cutting t3rgets,
Now, ha\ing s3id th3t, I want to emphasize th3t I h3ve always recognized the
importance of life insur3nce in prmiding for a f3mily's financial security. The tax-free
inside buildup within life insur3nce contr3cts prO\ides 3 powerful s3\ings incentive. I
oppose 3ny notion of t3..\ing this inside buildup. It \.... ould discourage Americans from
buying life insur3nce to protect their fin3nci31 security.
\Vh3t we h3ve done -- my first priority 3S Treasury Secretary -- is to save money
for the taxp3yers. \\'e h3d the deficit reduction p13n. Th3t \\i11 put S500 billion into the
economv. over five .ve3rs.
:\ow let's t3lk 3bout :\AFTA, ;-\AFTA is our W3Y to let our companies -including insur3nce comp3nies -- compete glob311y on a level playing field. There's no
better p13ce to St3rt competing th3n in this hemisphere.
Our competitors ha\'e p13ns. They've been he3ding to trading blocks. The
Europe3n block, The :\si3n block.

3

Two decades ago, Latin America and the developing Asian markets were the
same size. Now, the Asian block is four times larger. The v.inner has been Japan,
because they went into Asia aggressively and grew their export business there.
NAFfA is our plan. \Ve're going after a market in ~1exico that is 90 million
people, and gro\',ing m'ice as fast as this market. It's a market we do S40 billion in
business a year in, and it can grow to S70 billion by the year 2000 v.ith ~AIT A

In the last six years, our exports to Mexico have gro\1.TI mice as fast our exports to
the rest of the world. \Ve've gone from a S6 billion trade deficit to a S5 billion surplus.
Last year, each Mexican, on average, purchased more U.S.-made products than the
average Japanese, German, or Canadian.
One thing they haven't purchased is life insurance. Latest numbers I saw, there
were just 4 million individual life insurance policies in Mexico covering 1.5 million
people -- out of a population of 90 million. I smell some market opportunities.
Today, per capita consumption of insurance is about S30 per year in
v.ith NAIT A, this would rise to about S430 in six years.

~1exico.

But

I've seen estimates that the market v.ill grow from about S5 billion today to about
S50 billion in six years. If that happens, l\1exico v.ill leap from the world's 27th to one of
the world's top 10 largest insurance markets.
Right now the insurance industry is very concentrated. ~1exico's four largest
companies account for 58 percent of the total premiums. And it's a closed market. It
hasn't been open to us in 50 years. If I still headed an insurance company, I'd be dov.TI
there tomorrow recruiting agents.
I was born and reared on that border. On the ~1exican side, I haven't always seen
a willingness to be partners. I've watched Mexican politicians campaign against us as the
colossus of the north, the gringos.
They've changed. For the last six years. they've opened their markets and bought
more of our products, and that has already created 400,000 more jobs in this country.
But right now, in spite of liberalization, the entire financial market has remained
virtually closed. \Vith ~AIT A, ~1exico v.ill have one of the most open systems in the
world.
Right now the average product entering Mexico from the C.S. is slapped v.ith a
10 percent tariff. But ~1exican products entering the C.S. get, on average, a 4 percent
tariff. And some products, like semiconductors, have no tariff. So their tariffs are tv;oand-a-half times ours. That's not a good deal. and v;e're on the bad end of that one.

4

When this passes, half of our goods headed to Mexico will be eligible for zero
tariffs. Within five years, two-thirds will be. And these zero tariffs will apply only for
our goods and Canada's goods. Not Japan's. Not the EC's.
Now, back when I was selling insurance, I always told my customers two things.
One, what the benefits were of the policy. Two, what the costs were. What will it cost
them?
I've just told you the benefits of NAFTA. Let me tell you the costs.
If we let this go down the tubes, watch Europe and Asia move into Mexico. I bet
they'd sign up in five minutes. One of the concerns is that Japan might use Mexico as a
trampoline to jump goods into our market. We've taken care of that in NAFTA with
strong rules of origin. But without NAFTA, we lose that protection.

And we're looking at more than our relationship with Mexico on this vote. We're
looking at setting a trade pattern with the rest of the world.
We'd like to open Latin America, which after Asia, is the fastest growing market
around -- and already our exports there are rising substantially faster than they are to
Europe. Mexico already negotiated a trade agreement with Chile. They're doing the
same with Venezuela and Colombia. If somebody votes no to NAFTA, he or she will
have contributed to a negative impact on the Latin America market.
And a "no" vote would have a negative impact on GATT -- where we want to
lower barriers in 110 countries. How can we open up other nations around the world, if
we can't even accept a "yes" for free trade from our own neighbor?
Look at those countries that have succeeded economically after World War II.
Look at Japan. Look at Korea. They have built their prosperity on exports -- and we
must do the same.
Here's another cost: the environment. For years as a Senator from Texas, I'd
talk about the problems on the border and nobody wanted to address them. I've seen
millions of gallons of raw sewage head to Rio Grande and babies born with birth defects.
Finally, there's a green treaty with money from Mexico to clean it up. No NAFfA, and
environmental problems won't get addressed.
And what about the illegal immigration issue. I just came back from California.

It costs that state $3 billion a year to take care of illegal immigrants. California has
2 million illegal immigrants. They tell me about studies that show 600,000 more
Mexicans will migrate to the U.S. every year without NAFTA. NAFTA will create jobs
on both sides of the border. With jobs, more Mexicans will stay home.

5

And what about narcotics trafficking. People think it will go up, because of the
increased traffic of products. NAFfA reduces tariffs. It helps customs efforts and law
enforcement. Cooperation is crucial to reducing trafficking, and NAFfA increases
cooperation. Ask any Customs inspector if he prefers the Salinas crowd or somebody
else in power. He'll tell you Salinas.
The bottom line is jobs. The opposition argues that if this passes, jobs will head
south because of the low wages. Baloney. Jobs can go south now. BMW and Mercedes
would be building their new plants in Mexico rather than the U.S. if all they were
concerned about were wages. Look who our biggest competitor is -- Japan, where wages
are 30 percent higher.
We think that with NAFfA, 200,000 jobs will be created in this country.
I can't remember a political debate like this. President Clinton and all former
Presidents support it. All former Treasury Secretaries support it.
It is a bi-partisan trade bill. Forty-one of 50 governors support it. And they know
about jobs, because they get elected only if they create jobs.

The vote is in two days -- and I think it's winnable. If it were a secret ballot it
would win overwhelmingly. It comes at a critical time, just before the President's
meeting with Asian leaders, and in the final weeks of our negotiations on the Uruguay
Round. Just as we're doing more to look outward and develop better trading
relationships elsewhere, it doesn't make sense to turn inward and reject NAFfA.
There's still some congressmen who haven't made up their minds how to vote yet.
With your help, I hope we can convince people that this thing is good. Good for the
insurance business. Good for the manufacturing sector. Good for the workers of this
country. If this wasn't good for America -- I wouldn't be out here supporting it.
We have the most productive workers in the world. That's true in the service
sector and it's true for manufacturing. Let's not retreat. Let's compete and help raise
the standards of living for all of our people.
So, thank you very much. And if you're ever having a bad day -- can't find
anybody to buy a policy -- just remember what I have to go through to sell Congress.
-30-

(i
UBLIC DEBT NEWS 1\.·~~

~~\.
.. ····· ....

,

[}q~artflll"llt of the

\~v~~~;/

Treasurv

FOR IMMEDIATE RELEAS.E
November 15, 1993

•

Bureau of the PublIc Debt

• WashIngton, DC 20239

Tenders for $13,925 million of 13-week bills to be issued
November 18, 1993 and to mature February 17, 1994 were
accepted today (CUSIP: 912794H98).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
3.10%
3.11%
3.11%

Investment
Rate
3.17%
3.18%
3.18%

Price
99.216
99.214
99.214

Tenders at the high discount rate were allotted 54%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)

TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

.~,,~

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS

Received
$58,257,054

AcceQted
$13,925,137

$52,115,753
1,284,973
$53,400,726

$7,783,836
1,284,973
$9,068,809

2,883,885

2,883,885

1,972,443
$58,257,054

1,972,443
$13,925,137

An additional $27,557 thousand of bills will be
issued to foreign official institutions for new cash.

LB-504

·iJ

I';;

#.;'if~U~'r

UBLIC DEBT NEWS ((~.)J
'~u~~"'o

Department of the Treasurv •

FOR IMMEDIATE RELEASE
November 15, 1993

Bureau of the Public Debt • Washington, DC 20239

RESULTS OF TRpASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $14,017 million of 26-week bills to be issued
November 18, 1993 and to mature May 19, 1994 were
accepted today (CUSIP: 912794K60).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
3.25%
3.27%
3.26%

Investment
Rate
3.35%
3.37%
3.36%

Price
98.357
98.347
98.352

Tenders at the high discount rate were allotted 17%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

Received
$59,696,971

Acce:Qte_d
$14,017,397

$54,636,590
926,524
$55,563,114

$8,957,016
926,524
$9,883,540

3,150,000

3,150,000

983,857
$59,696,971

983,857
$14,017,397

An additional $13,843 thousand of bills will be
issued to foreign official institutions for new cash.

LB-505

,~j/

CONTACT: Office of Financing
202-219-3350

CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND
THE SLOVAK REPUBLIC FOR THE AVOIDANCE OF DOUBLE
TAXATION AND THE PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME AND CAP!TAL

The United States of America and the Slovak Republic,
desiring to further expand and facilitate mutual economic
relations have resolved to conclude a convention for the
avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income and capital, and
have agreed as follows:

-

2 -

ARTICLE 1
General Scope
1.

This Convention shall apply to persons

~ho

are

residents of one or both of the Contracting States, except
as otherwise provided in the Convention.
2.

The Convention shall not restrict in any manner any

exclusion, exemption, deduction, credit, or other
no~

a110~ance

or hereafter accorded:
a) by the

la~s

of either Contracting State; or

b) by any other agreement

bet~een

the Contracting

States.
3.

A Contracting State may tax its residents (as

determined under Article 4 (Resident)) and its citizens,
including former citizens, according to the

la~s

of that

State as if the Convention had not come into effect.
4.

The provisions of paragraph 3 shall not affect:
a) the benefits conferred by a Contracting State

under paragraph 2 of Article 9 (Associated
Enterprises), under paragraphs l(b) and 4 of Article 19
(Pensions, Annuities, Alimony, and Child Support), and
under Articles 24 (Relief From Double Taxation), 25
(Non-Discrimination), and 26 (Mutual Agreement
Procedure); and
b) the benefits conferred by a Contracting State
under Articles 20 (Government Service), 21 (Students,
Trainees, Teachers and Researchers),

~nd

28 (Diplomatic

-

3 -

Agents and Consular Officers), upon individuals who are
neither citizens of, nor lawful permanent residents in,
that State.

ARTICLE 2
Taxes Covered
1.

The existing taxes to which this Convention shall

apply are:
a)

in the United States:

the Federal income taxes

imposed by the Internal Revenue Code (but excluding the
accumulated earnings tax, the personal holding company
tax, and social security taxes), and the excise taxes
imposed with respect to the investment income of
private foundations (hereafter referred to as "U.S.
tax") ;
b)

in Slovakia:

the income taxes imposed by the

income tax law, and the tax on immovable property (real
property tax)
2.

(hereafter referred to as "Slovak tax") .

The Convention shall apply also to any identical or

substantially similar taxes which are imposed after the date
of signature of the Convention in addition to, or in place
of, the existing taxes.

The competent authorities of the

Contracting States shall notify each other of any
significant changes which have been made in their respective
taxation laws and of any official published material

-

4 -

concerning the application of the convention, including
explanations, regulations, rulings, or judicial decisions.

ARTICLE 3
General Definitions
1.

For the purposes of this Convention, unless the

context otherwise requires:
a) the term "Contracting State" means either the
United States or Slovakia as the context requires;
b) the term "United States" means the United
States of America, but does not include Puerto Rico,
the Virgin Islands, Guam, or any other United States
possession or territory.

When used in a geographical

sense, the term "United States" includes the
territorial sea and the seabed and subsoil of the
adjacent area over which the United States may exercise
rights in accordance with international law and in
which the laws relating to U.S. tax are in force;
c) the term Slovakia means the Slovak Republic.
d) the te:-m "person" includes an individual, an
estate, a trust, a partnership, a company, and any
other body of persons;
e) the ter1:l "company" means any body corporate or
any

ent~ty

purposes;

which is treated as a body corporate for tax

-

f)

5 -

the terms "enterprise of a contracting State"

and "enterprise of the other Cont:::-acting State" mean,
respectively,

an enterprise carried on by a resident of

a Contracting State and an enterprise car:::-ied on by a
resident of the other Contracting state;
g)

the term "international traffic" means any

transport by a ship or aircraft, except when such
transport is solely between places in the othe:::contracting State;
h} the term "competent authority" means:
(il

in the United States, the Secretary of

the Treasury or his delegate; and
(ii)

in the case of Slovakia, the Minister of

Finance or his authorized representative.
2.

As :::-egirds the application of the Convention by a

contracting State any term not defined therein shall, unless
the context otherwise requires or the competent authorities
agree to a common meaning pu:::-suant to the provisions of
Article 26 (Mutual Agreement Procedure), have the meaning
has under the laws of that State conce:::-ning the

which

taxes to which the Convention applies.

ARTICLE 4
Resident
1.

For the pu:::-poses of this Convention, the term

":::-esident of a Cont:::-acting State" means any person who,

-

under

~he

6 -

laws of that State, is liable to tax therein by

reason of his domicile, residence, place of management,
place of incorporation, or any other criterion of a similar
nature.
2.

a) However, the term "resident of a contracting

S~ate"

does not include any person who is liable to tax

in that State in respect only of income from sources in
that State or capital situated therein;
b)

In the case of income derived or paid by a

partnership, estate, or trust, this term applies only
to the extent that the income derived by such
partnership, estate, or trust is subject to tax in that
State as the income of a resident, either in its hands
or in the hands of its partners or beneficiaries; and
c) Slovakia shall consider a united States citizen
or an alien lawfully admitted for permanent residence
(a green card holder) to be a resident of the United
States only if such person has a substantial presence,
permanent horne, or habitual abode in the United States.
J.

':'he term "resident of a Contracting State"

includes:
a) that State, a political subdivision, or a local
authority thereof, and any agency or instrumentality of
any such State, subdivision or authority; and
b) a pension trust or any other organization that
is constituted and

op~rated

exclusively to provide

-

7

-

pension benefits or for religious, charitable,
scientific, artistic,

cultu~al

or educational purposes

and that is a resident of that State according to the
laws of that State, notwithstanding that all or part of
its income may be exempt from income tax under the
domestic law of that State.
4.

Where by reason of the provisions of paragraph 1,

an individual is a resident of both Contracting States, then
his status shall be determined as follows:
a) he shall be deemed to be a resident of the
State in which he has a permanent home available to
him; if he has a permanent home available to him in
both States, he shall be deemed to be a resident of the
State with which his personal and economic relations
are closer (center of vital interests);
b)

if the State in which he has his center of

vital interests cannot be determined, or if he does not
have a permanent home available to him in either State,
he shall be deemed to be a

residen~

of the State in

which he has an habitual abode;
c) if he has an habitual abode in both States or
in neither of them, he shall be deemed to be a resident
of the State of which he is a national;
d)

if he is a national of both States or of

neither of them, the competent authorities of the

Contrac~lng

8 -

States shall settle the question by mutual

agreement.
5.
co~pany

Where by reason of the provisions of paragraph 1 a
is a resident of both Contracting States, if it is

created under the laws of a Contracting State or a political
subdivision thereof, it shall be deemed to be a resident of
that State.
6.

Where by reason of the provisions of paragraph 1 a

person other than an individual or a company is a resident
.

l

.

of both Contractlng State, the competent authorlties of the
Contracting States shall settle the question by mutual
agreement and determine the mode of application of the
Convention to such person.

ARTICLE 5
Permanent Establishment
1.

For the purposes of this Convention, the term

"permanent establishment" means a fixed place of business
through which the business of an enterprise is wholly or
par~ly

2.

carried on.
The term "permanent establishment" includes

especial.ly
a) a place of management;
b) a branch;
c) an office;
d) a factory;

-

9 -

e) a workshop; and
f) a mine, an oil or gas well, a quarry, or any
other place of extraction of natural resources.
3.

The term,

"permanent establishment" also includes:

a) a building site or construction or installation
project, or an installation or drilling rig or ship
used for the exploration or exploitation of natural
resources, but only if it lasts more than 12 months;
and
b) the furnishing of services, including
consultancy services, by an enterprise through
employees or other personnel, but only if activities of
that nature continue (for the same or a connected
project) within the country for a period or periods
aggregating more than 9 months within any 12 month
period.
A permanent establishment shall not exist in any taxable
year in which the activity described in subparagraph a) or
b) of this paragraph, respectively, continues for a period
or periods aggregating not more than 30 days in that taxable
year.
4.

Notwithstanding the preceding provisions of this

Article, the term "permanent establishment" shall be deemed
not to include:

-

10 -

a) the use of facilities solely for the purpose of
storage, display, or delivery of goods or merchandise
belonging to the enterprise;
b) the maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the
purpose of storage, display, or delivery;
c) the maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the
purpose of processing by another enterprise;
d) the maintenance of a fixed place of business
solely for the purpose of purchasing goods or
merchandise, or of collecting information, for the
enterprise;
e) the maintenance of a fixed place of business
solely for the purpose of carrying on, for the
enterprise, any other activity of a preparatory or
auxiliary character;
f) the maintenance of a fixed place of business
solely for any combination of the activities mentioned
in subparagraphs a) to e).
5.

Notwithstanding the provisions of paragraphs 1 and

2, where a person (other than an agent of an independent
status to whom paragraph 6 applies)

is acting on behalf of

an enterprise and has and habitually exercises in a
:ontracting State an authority to conclude contracts in the
na~e

of the enterprise, that enterprise shall be deemed to

- 11 have a permanent establishment in that State in respect of
any activities which that person undertakes for the
enterprise, unless the activities of such person are limited
to those mentioned in paragraph 4 whiCh, if exercised
through a fixed place of business, would not make this fixed
place of business a permanent establishment under the
provisions of that paragraph.
6.

An enterprise shall not be deemed to have a

permanent establishment in a Contracting State merely
because it carries on business in that State through a
broker, general commission agent, or any other agent of an
independent status, provided that such persons are acting in
the ordinary course of their business.
7.

The fact that a company which is a resident of a

Contracting State controls or is controlled by a company
which is a resident of the other Contracting State, or which
carries on business in that other State (whether through a
permanent establishment or otherwise), shall not of itself
constitute either company a permanent establishment of the
other.

ARTICLE 6
Income From Real Property (Immovable Propertv)
1.

Income derived by a resident of a Contracting State

from real property (including income from agriculture or

:c~es~~y)

:'2 -

situated in the other Contracting state may be

taxed in that other State.
2.
~hich

The te:-m "real property" shall have the meaning

it has under the

la~

the property in question

of the Contracting State in which

~s

situated.

The term shall in any

case include property accessory to real property, livestock
and equipment used in agriculture and forestry,
~hich

rights to

the provisions of general law respecting landed

property apply,

~Y~ldin~6a usufruct of real property and

rights to variable or fixed payments as consideration for
the working of, or the right to work, mineral deposits and
other natural resources; ships, boats and aircraft shall not
be regarded as real property.
3.

The provisions of paragraph 1 shall apply to income

derived from the direct use,
fo~

letting, or use in any other

of real property.
4.

The provisions of paragraphs 1 and 3 shall also

apply to the income from real property of an enterprise and
to income from real property used for the performance of
independent personal services.
5.

A resident of a Contracting State who is liable to

tax in the other Contracting State on income from real
property situated in the other Contracting State may compute
the tax on such income on a net basis as
a~~ributable

State.

i~

such income were

to a pe:-manent establishment in such other

In the case of the United States tax, an election to

- 13 -

apply the preceding sentence shall be binding for the
taxable year of the election and all sUbsequent taxable
years unless the competent authority of the united States
agrees to terminate the election.

ARTICLE 7
Business Profits
1.

The business profits of an enterprise of a

Contracting State shall be taxable only in that State unless
the ente=prise carries on or has carried on business in the
other Contracting State through a permanent establishment
situated therein.

If the enterprise carries on or has

carried on business as aforesaid, the business profits of
the

ente~prise

Day be taxed in the other State but only so

much of them as is attributable to that permanent
establishment.
2.

Subject to the provisions of paragraph 3, where an

enterprise of a Contracting State carries on or has carried
on business in the other Contracting State through a
permanent establishment situated therein, there shall in
each Contracting State be attributed to that permanent
establishment the business profits which it might be
expected to make if it were a distinct and independent
enterprise engaged in the same or similar activities under
the same or similar conditions.

-

3.

In

dete~ining

14

-

the business profits of a permanent

establishment, there shall be allowed as
that are incurred for the purposes

0:

deduc~ions

expenses

the permanent

establishment, including a reasonable allocation of research
and development expenses,

interest, and other similar

expenses and executive and general and administrative
expenses, whether incurred in the State in which the
permanent establishment is situated or elsewhere.
4.

No business profits shall be attributed to a

permanent establishment by reason of the mere purchase by
that

pe~anent

establishment of goods or merchandise for the

enterprise.
5.

For the purposes of this Convention, the business

profits to be attributed to the

pe~anent

establishment

shall include only the profits derived from the assets or
activities of the permanent establishment and shall be
determined by the same method year by year unless there is
good and SUfficient reason to the contrary.
6.

Nothing in this Article shall affect the

application of any law of a Contracting State relating to
the determination of the tax liability of a person in cases
Where the information available to the competent authority
of that State is inadequate to determine the profits to be
attributed to a permanent establishment, provided that, on
the basis of the available information, the determination of

-

15 -

the profits of the permanent establishment is consistent
with the principles stated in this Article.
7.

For the

of the Convention, the term

pu~poses

"business profits" means income derived from. any trade or
business.

It includes, for example, profits from

manufacturing, mercantile, fishing, transportation,
communication, or extractive activities, and from the
furnishing of the personal services of another person,
including the furnishing by a corporation
services of its employees.

0=

the personal

It does not include income

received by an individual for his performance of personal
services either as an employee or in an independent
capacity.
8.

Where business profits include items of income

which are dealt with separately in other Articles of the
Convention, then the provisions of those Articles shall not
be affected by the provisions of this Article.

ARTICLE 8
Shiopina and Air Transoort
1.

Profits of an enterprise of a Contracting State

from the operation of ships or aircraft in international
traffic shall be taxable only in that State.
2.
f~om

For the purposes of this Article, the term "profits

the operation of ships or aircraft in international

~=a::~c"

or

~~cludes

a~rcraf~

16 -

profits derived from the rental of ships

on a full

(time or voyage) basis.

It also

l~cludes

profits derived from the rental of ships or

aircraf~

on a bareboat basis by an enterprise engaged in the

operat~on

of ships or aircraft in international traffic, if

such rental activities are incidental to the activities
described in paragraph 1.
J.

Profits of an enterprise of a Contracting State

from the use, maintenance, or rental of containers
(~~cluding

trailers, barges, and related equipment for the

transport of containers) used in international traffic shall
be taxable only in that State.
4.

The provisions of paragraph 1 shall also apply to

prof~~s

from participation in a pool, a joint business, or

an international operating agency.

ARTICLE 9
Associated Enternrises
1.

Where:
a) an enterprise of a Contracting State

participates directly or indirectly in the management,
control or capital of an enterprise of the other
Contracting State; or
b) the same persons participate directly or
indirect:y in the management, control, or capital of an

ente~prise

17 -

of a Contracting State and an enterprise of

the other Contracting state,
and in either case conditions are made or imposed between
the two

ente~prises

in their commercial or financial

relations which di:fer from those Which would be made
between independent enterprises, then any profits which, but
for those conditions, would have accrued to one of the
enterprises, but by reason of those conditions have not

50

accrued, may be included in the profits of that enterprise
and taxed accordingly.
2.

Where a

Cont~acting

State includes in the profits

of an enterprise of that State, and taxes accordingly,
profits on which an enterprise of the other Contracting
State has been charged to tax in that other State, and the
profits so included are profits which would have accrued to
the enterprise of the first-mentioned state if the
conditions made between the two enterprises had been those
which would have been made between independent enterprises,
then that other State shall make an

app~opriate

adjustment

to the amount of the tax charged therein on those profits.
In determining such adjustment, due

~egard

shall be paid to

the other provisions of this Convention and the competent
authorities of the Contracting States shall if necessary
consult each other.
3.

The provisions of paragraph 2 shall not apply in

the case of fraud, gross negligence, or willful default.

- 18 -

ARTICLE 10
Dividends
Dividends paid by a company which is a resident of

1.

a

Contrac~ing

State to a resident of the other contracting

State may be taxed in that other State.
However,

2.

Contrac~ing

such dividends may also be taxed in the

State of which the company paying the dividends

is a resident,

and according to the laws of that state, but

if the beneficial owner of the dividends is a resident of
the other

contrac~ing

S~ate,

the tax so charged shall not

exceed:
a)

5 percent of the gross amount of the dividends

if the beneficial owner is a company which owns at
least 10 percent of the voting shares of the company
paying
b)

~he

dividends;

15 percent of the gross amount of the dividends

in all other cases.
~his

paragraph shall no~ affec~ the taxation of the company

i~ respect of ~he profi~s out of which the dividends are

paid.
3.

Subparagraph a)

of paragraph 2 shall not apply in

~he case of dividends paid by a United States Regulated

:~vestnen~ Company or a Real Estate Investment Trust.

SUbparagraph b)

of paragraph 2 shall apply in the case of

=ividends paid by a Regula~ed Inves~men~ Company.

In the

- 19 -

case of dividends paid by a Real Estate Investment Trust,
subparagraph b) of paragraph 2 shall apply if the bene:icial
owner of the dividends is an individual holding a less than
10 percent interest in the Real Estate Investment Trust;
otherwise the rate of withholding applicable under domestic
law shall apply.
4.

The term "dividends" as used in this Article means

income from shares

o~

other rights, not being debt-claims,

participating in profits, as well as income from other
corporate rights which is subjected to the same taxation
treatment as income from shares by the laws of the State of
which the company making the distribution is a resident.
The term "dividends" also includes income from arrangements,
including debt obligations, carrying the right to
participate in profits, to the extent so characterized under
the law of the Contracting state in which the income arises.
5.

The provisions of paragraph 2 shall not apply if

the beneficial owner of the dividends, being a resident of a
Contracting State, carries on or has carried on business in
the other Contracting State, of which the company paying the
dividends is a resident, through a permanent establishment
situated therein, or performs or has performed in that other
State independent personal services from a fixed base
situated therein, and the dividends are attributable to such
permanent establishment or fixed base.

In such case the

provisions of Article 7 (Business Profits) or Article 14

-

20 -

(:ndependen~ Personal services),

as the case may be, shall

apply.
6.
S~ate

A co~oration which is a resident of a Contracting

may be subject in the other State to a tax in addition

to the tax allowable under the other provisions of this
Conven~ion.

Such tax, however, may not exceed 5 percent of

the income of the corporation that is attributable to a
permanent establishment in that other State or subject to
tax on a net basis in that other State under Article 6
(Income from Real Property (Immovable Property)) or Article
13 (Gains), after deducting the taxes on profits imposed
thereon in that other State and after adjustment for
increases or decreases in the assets, net of liabilities, of
the corporation connected with the permanent establishment
or the trade or business.

Such tax may only be applied if

under the laws of that other State such tax applies with
respect to any permanent establishment in that

ot~er

State

that is maintained by any corporation not resident in that
other State.
7.

Where a company that is a resident of a

State derives

profi~s

Contrac~ing

or income from the other Contracting

State, that other State may not impose any tax on the
dividends paid by the company, except insofar as such
dividends are paid to a resident of that other State or
insofar as the holding in respect of which the dividends are
paid forms part of the business property of a permanent

-

21 -

establishment or a fixed base situated in that other State,
even if the dividends paid

consis~

wholly or partly of

profits or income arising in such other State.

ARTICLE 11
Interest
1.

Interest arising in a Contracting State and

beneficially owned by a resident of the other Contracting
State shall be taxable only in that other State.
2.

Notwithstanding the provisions of paragraph I, the

United States may tax an excess inclusion with respect to a
residual interest in a Real Estate Mortgage Investment
Conduit in accordance with its domestic law.
3.

The term "interest" as used in this Convention

means income from debt-claims of every kind, whether or not
secured by mortgage and, subject to paragraph 4 of Article
10 (Dividends), whether or not carrying a right to
participate in the debtor's profits, and in particular,
income from government securities, and income from bonds or
debentures,

including premiums or prizes attaching to such

securities, bonds, or debentures, as well as all other
income that is treated as income from money lent by the
taxation law of the Contracting State in which the income
arises.

-

22 -

The provisions of paragraph 1 shall not apply if
~he

0:

beneficial owner

Contrac~ing

the ether
~hrough

S~ate,

the interest, being a resident of a

carries on or has carried on business in

Contrac~ing

a permanent

State, in which the interest arises,

es~ab_lshment

situated therein, or

performs or has performed in that other State independent
personal services from a fixed base situated therein, and
the interest is attributable to such permanent establishment
or fixed base.

In such case the provisions of Article 7

(Business Profits) or Article 14 (Independent Personal
Services), as the case may be, shall apply.
5.

Interest shall be deemed to arise in a Contracting

State when the payer is a resident of that State.

Where,

however, the person paying the interest, whether he is a
resident of a Contracting State or not, has in a Contracting
State a

pe~anent

establishment or a fixed base, and such

interest is borne by such permanent establishment or fixed
base, then such interest shall be
State in which the

pe~anent

dee~ed

to arise in the

establishment or fixed base is

situated.
6.

Where, by reason of a special relationship between

the payer and the beneficial owner or between both of them
and some other person, the amount of the interest, having
regard to the debt-claim for which it is paid, exceeds the
amount which would have been agreed upon by the payer and
the bene:icia~ owner in the absence of such relationship,

-

23 -

the provisions of this Article shall apply only to the
last-mentioned amount.

In such case the excess

par~

of the

payments shall remain taxable according to the laws of each
Con~racting

State, due regard being had to the other

provisions of the Convention.

ARTICLE 12
Royalties
1.

Royalties arising in a Contracting State and

beneficially owned by a resident of the other Contracting
State may be taxed in that other State.
2.

Royalties described in subparagraph a) of paragraph

3 and beneficially owned by a resident of a contracting
State may be taxed only in that State.

Royalties described

:n subparagraph b) of paragraph 3 may also be taxed in the
Contracting State in which they arise and according to the
laws of that State, but if the beneficial owner is a
resident of the other Contracting State, the tax so charged
shall not exceed 10 percent of the gross amount of the
:::-oyalties.
3.

The term "royalties" as used in this Convention

means payments of any kind received as a consideration for
the use of, or the right to use:
a) any copyright of literary, artistic or
scientific work,

including cinematographic films or

-

films or tapes and

o~her

24 -

means of image or sound

reproduction;
b) any patent, trademark, design or model, plan,
secret formula or process, or other like right or
property, or for industrial, commercial, or scientific
equipment, or for information concerning industrial,
commercial, or scientific experience.
The term "royalties" also includes payments derived f::-om the
disposition of any such right or property which are
contingent on the productivity, use or further disposition
thereof.
4.
a~ply

The provisions of paragraphs 1 and 2 shall not

if the beneficial owner of the royalties, being a

resident of a Contracting state, carries on or has carried
on business in the other Contracting State, in which the
::-oyalties arise, through a permanent establishment situated
therein, or performs or has performed in that other State
:ndependent personal services from a fixed base situated
therein, and the royalties are attributable to such
permanent establishment or fixed base.

In such case the

provisions of Article 7 (Business Profits) or Article 14
(:ndependent Personal Services)

I

as the case may be, shall

apply.
5.

Where, by reason of a special relationship between

the ~ayer and the beneficial owner or between both of them
and some other

~erson,

the amount of the royalties, having

-

regard to the use, right, or

25 info~ation

for which they are

paid, exceeds the amount which would have been agreed upon
by the payer and the beneficial owner in the absence of such
~elationship,

the provisions of this Article shall apply

only to the last-mentioned amount.

In such case the excess

part of the payments shall remain taxable

acco~ding

to the

laws of each Contracting State, due regard being had to the
other provisions of the Convention.
6.

For purposes of this

Ar~icle:

a) Royalties shall be treated as arising in a
Contracting state when the payer is that State itself
or a political subdivision or local authority of that
State or a person who is a resident of that State for
purposes of its tax.

Where, however, the person paying

the royalties, whether he is a resident of one of the
Contracting States or not, has in a Contracting State a
permanent establishment or fixed base in connection
with which the liability to pay the royalties was
incurred, and the royalties are borne by the permanent
establishment or fixed base, then the royalties shall
be deemed to arise in the State in which the permanent
establishment or fixed base is situated.
b) Where subparagraph a) does not operate to treat
royalties as arising in a Contracting State, royalties
paid for the use of, or the right to use,

in a

contracting State any property or right described in

-

26

-

paragraph 3 shall be treated as arising in that State.

13

~~TICLE

Gains
1.

Gains derived by a resident of a contracting State

from the alienation of real property situated in the other
C8ntracting State may be taxed in that other State.
2.
~roperty

For the purposes of this Article the term "real

situated in the other Contracting State" includes

real property referred to in Article 6 which is situated in
that other State.
co~pany

o~

It also includes shares of stock of a

the property of which consists at least 50 percent

property situated in the other Contracting State, and an

in~erest

in a partnership, trust or estate to the extent

that its assets consist of real property situated in the
other State.
J.

Gains from the

;roperty which are
~h~ch

a~ienation

attrib~table

of personal (movable)

to a permanent establishment

an enterprise of a Contracting State has or had in the

other Contracting State, or which are attributable to a
f~xed

base which is or was available to a resident of a

Contracting State in the other Contracting State for the
pcrpose of
gc:ns

fro~

per:o~ing

independent personal services, and

the alienation

0:

such a permanent establishment

-

(alone or

~ith

the

~hole

27 -

enterprise) or such a fixed base,

may be taxed in that other State.
4.

Gains derived by an enterprise of a Contracting

State from the alienation of ships, aircraft, or containers
used in international traffic shall be taxable only in that
State.
5.

Payments described in paragraph 3 of Article 12

(Royalties) shall be taxable only in accordance

~ith

the

provisions of Article 12.
6.

Gains from the alienation of any property other
t~rough

than property referred to in paragraphs 1
taxable only in the Contracting State of

~hich

5 shall be

the alienator

is a resident.

ARTICLE 14
Indeoendent Personal Services
1.

Income derived by an individual

~ho

is a resident

of a Contracting State from the performance of personal
services in an independent capacity shall be taxable only in
that State, unless such services are performed or were
performed in the other Contracting State and:
a) the income is attributable to a fixed base
regularly available to the individual in that other
State for the purpose of performing his activities; in
such a case, the income attributable to that fixed base
may be taxed in that other State; or

-

28 -

b) the individual is present in the other
Con~rac~:ng

State for a period or periods exceeding in

the aggregate 183 days in any twelve month period.
2.

The term "personal serv'ices" includes especially

i~dependent
teac~ing

scientific, literary, artistic, educational or

activities as

we~l

as the independent activities of

physicians, lawyers, engineers, architects, dentists and
accountants.

ARTICLE 15
Dependent Personal Serv'ices
1.

Subject to the provisions of Articles 16

(Directors' Fees), 19 (Pe~sions, Annuities, Alimony, and
Child Support) ,

20

(Gover~ment

Service), and 21 (Students,

Trainees, Teachers, and Researchers), salaries, wages, and
other similar remuneration derived by a resident of a
Contract:ng State in respect of an employment shall be
taxable only ~n that State unless the employment is
exercised in the other Contracting State.

If the employment

is so exercised, such remuneration as is derived therefrom
oay be taxed in that other State.
2.

Notwithstanding the provisions of paragraph 1,

remuneration derived by a resident of a Contracting State in
respect of an employment exercised in the other Contracting
State shall be taxable

o~ly in the first-mentioned State if

-

a)
a

pe~iod

the

~ecipient

29 -

is present in the other State for

or periods not exceeding in the aggregate 183

days in any twelve month period;
b)

the remuneration is paid by, or on behalf of,

an employer who is not a resident of the other State;
and
c)

the remuneration is not borne by a

pe~anent

establishment or a fixed base which the employer has in
the other State.

J.
Article,

Notwithstanding the preceding provisions of this
remuneration in respect of an employment as a

oenber of the regular complement of a ship or aircraft
cpe~ated

by an enterprise of a Contracting State in

international traffic may be taxed only in that Contracting
State.

ARTICLE 16
Directo~s'

Fees

Directors' fees and similar payments derived by a
resident of a Contracting State for services rendered in the
other Contracting State in his capacity as a member of the
board of directors or another similar organ of a company
which is a resident of the other
taxed in that

othe~

State.

Cont~acting

State may be

-

30

-

ARTICLE 17
L:~itation

1.

A

pe~son

on Benefits

that is a resident of a Contracting state

and derives income from the other Contracting State shall be
en~itled

under this Convention to relief from taxation in

that other Contracting State only if such person is:
a) an individual;
b) a Contracting State, or a political subdivision
or local authority thereof;
c) engaged in the active conduct of a trade or
business in the first-mentioned State (other than the
business of making or managing investments, unless
these activities are banking or insurance activities
carried on by a bank or insurance company) and the
income derived from the other Contracting State is
de~ived

in connection with,

o~

is incidental to, that

trade or business;
d) a company in whose principal class of shares
there is substantial and ~egula~ trading on a
recognized securities exchange, or which is wholly
owned, directly or indirectly, by a resident of that
Contracting State in whose principal class of shares
there is such substantial and regUlar trading on a
recognized securities exchange;
e) an entity that is a not-for-profit organization
(inclUding a pension fund or private foundation)

and

-

31 -

that, by virtue of that status,

is generally exempt

from income taxation in its Contracting State of
residence, provided that more than half of the
beneficiaries, members or participants, if any,

in such

organization are entitled, under this Article, to the
benefits of this Convention; or
f)

a person that satisfies both of the following

conditions:
i) more than 50 percent of the beneficial
interest in such person (or in the case of a
company, more than 50 percent of the number of
shares of each class of the company's shares) is
owned, directly or indirectly, by persons entitled
to the benefits of this Convention under
subparagraphs a), b), d) or e); and
ii) not more than 50 percent of the gross
income of such person is used directly or
indirectly, to meet liabilities (including
liabilities for interest or royalties) to persons
not entitled to the benefits of this Convention
under subparagraph a), b), d) or e).
2.

A person which is not entitled to the benefits of

the Convention pursuant to the provisions of paragraph 1
may, nevertheless, be granted the benefits of the Convention

if the competent authority of the State in which the income
arises so determines.

J.

:o~

32 -

purposes of subparagraph d)

of paragraph I, the

<:e:::L'. H:-ecognized secu:-ities exchange" means:
a)

the NASDAQ System owned by the National

Association of Securities Dealers,

Inc. and any stock

exchange registe:-ed with the Securities and Exchange
commission as a national securities exchange for
purposes of the Securities Exchange Act of 1934;
b) the Slovak stock exchange (Burza Cennych
Papierov Bratislava, A.S.) and any other stock exchange
approved by the State authorities; and
c) any other stock exchange located in a
cont:-acting State and agreed upon by the competent
authorities.
4.

Fo:- purposes of subparagraph f(ii)

of paragraph 1,

the te:--m "gross income" means gross receipts, or where an
ente:-prise is engaged in a business which includes the
~2~u!acture

c:-

p~oduction

cf goods,

gross receipts reduced

by <:he direct costs of labo:- and materials attributable to

SUch manufactu:-e or p:-oduction and paid or payable out of
SUch receipts.

ARTICLE 18
A:-tistes and Soortsmen
Notwithstanding the provisions of Articles 14
(Independent Personal Sen'ices) and ~5

(Dependent Personal

Services),'lncome d
'
e:-lvec
by a resident of a Contracting

-

JJ -

State as an ente=taine=, such as a theate=, motion picture,
radio, or television artiste, or a musician, or
sportsman,

~s

a

from his personal activities as such exercised in

the other Contracting State, may be taxed in that other
State, except where the amount of the gross receipts derived
by such entertainer or sportsman, including expenses
reimbursed to him or borne on his behalf, from such
activities does not exceed twenty thousand United States
dolla=s ($20,000) or its equivalent in Slovak crowns for the
taxable year concerned.

Such tax may be imposed by

withholding upon the entire amount of all gross receipts
derived by such entertainer or sportsman at any time during
the taxable year concerned, provided that such entertainer
or sportsman is entitled to receive a refund of such taxes
When there is no tax liability for such taxable year in
accordance with the provisions of this Convention.
2.

Whe=e income in respect of activities exe=cised by

an entertainer or a sportsman in his capacity as such
accrues not to the entertainer or sportsman but to another
person, that income of that other person may,
notwithstanding the provisions of Articles 7 (Business
Profits) and 14 (Independent Personal Services), be taxed in
the Contracting State in which the activities of the
entertainer or sportsman are exercised, unless it is
established that neither the entertainer or sportsman nor
Persons related thereto partlcipate directly or indirectly

-

:n
~he

~he

prof~ts

receipt of

d~vldends,

of

tha~

defe~red

pa~tnership

othe~

34 -

person in any

rernune~ation,

manne~,

including

f'
.
bonuses, .ees,

distributions, or

othe~

distributions.
3.
2,

Notwithstanding the provisions of paragraphs 1 and

income

de~i.ved

by a resident of a Contracting State as an

entertainer or sportsman shall be exempt from tax by the
other Contracting State

;f'

the vlsit to that other State is

substantially supported by public funds of the
:i~st-mentioned

authority

State or a political subdivision or local

the~eof

a~rangement

or is made pursuant to a specific

agreed to by the

Gove~nments

of the Contracting

States.

ARTICLE 2.9
p
.
.enSlons,
Annuities,

Ali~onv,

and

Child Support
1.

Subject to the provisions of Article 20 (Government

Se:-.: ice)

a) pensions and other simi.lar remuneration derived
and beneficially owned by a resident of a Contracting
State in

conside~ation

0:

past employment by that

individual or another individual resident of the same
Contrac~ing

State shall be taxable only in that State;

-

35 -

b) social security benefits and other pUblic
pensions paid by a Contracting State to a resident of
the other Contracting State or a citizen of the United
States shall be taxable only in the first-mentioned
State.
2.

Annuities derived and beneficially owned by a

resident of a Contracting State shall be taxable only in
that State.

The term "annuities" as used in this paragraph

means a stated sum paid periodically at stated times during
a specified number of years, under an obligation to make the
payments in return for adequate and full consideration
(other than services rendered).
3.

Alimony paid to a resident of a Contracting State

shall be taxable· only in that State.

The term "alimony" as

used in this paragraph means periodic payments made pursuant
to a written separation agreement or a decree of divorce,
separate maintenance, or compulsory support, which payments
are taxable to the recipient under the laws of the State of
which he is a resident.
4.

Nondeductible alimony and periodic payments for the

support of a child made pursuant to a written separation
agreement or a decree of divorce, separate maintenance, or
compulsory support, paid by a resident of a Contracting
State to a resident of the other contracting State, shall
not be taxable in that other state .

.

-

-

36 -

ARTICLE 20
Gove~nment

Remuneration,

Service

including a pension, paid

f~om

the public

funds of a Contracting State or a political subdivision or
local authority thereof to a citizen of that State in
respect of services rendered in the discharge of functions
of a

gove~nmental

S':ate.

nature shall be taxable only in that

However, the provisions of Article 14 (Independent

Personal Services), Article 15 (Dependent Personal Services)
or Article 18 (Artistes and Sportsmen), as the case may be,
shall apply, and the preceding sentence shall not apply, to
reouneration paid from the public funds of a Contracting
State or a political subdivision or local authority thereof
in respect of services rendered in connection with a
business carried on by that State, political subdiv~sion, or
local authority.

AR':'ICLE 21
Students, Trainees, Teachers, and Researchers
1.

a) An indivldual who is a resident of a Contracting

State at the beginning of his visit to the other
Contracting State and who is temporarily present in
that other Contracting State for the primary purpose
0

&
~

.
•

-

37 -

i) studying at a university or other
accredi~ed

educational

insti~ution

in that

o~her

Contracting state, or
ii) securing training required to qualify him
to practice a profession or professional
specialty, or
iii)

studying or doing research as a recipient

of a grant, allowance, or award from a
governmental, religious, charitable, scientific,
literary, or educational organization,
shall be exempt from tax by that other Contracting State
with respect to the amounts described in subparagraph (b) of
this paragraph for a period not exceeding five years from
the date of his arrival in that other Contracting State.
b)

~he

amounts referred to in subparagraph (a) of

this paragraph are:
i) payments from abroad, other than
compensation for personal services, for the
purpose of his maintenance, education, study,
research, or training;
ii) the grant, allowance, or award; and
iii)

income from personal services performed in

that other Contracting State in an aggregate
amount not in excess of 5,000 United States
dollars ($5,000) or its equivalent in Slovak
crowns fer any taxable year.

-

2.
S~a~e

38 -

An individual who is a resident of a Contracting

a~

~he

beginning of his visit to the other contracting

State and who is temporarily present in that other
contrac~ing

State as an employee of, or under contract with,

a resident of the first- mentioned Contracting State,

for

the primary purpose of:
a)

acquiring technical, professional, or business

experience from a person other than that resident of
the first-mentioned Contracting State, or
b)

studying at a university or other accredited

educational institution in that other Contracting
State,
shall be exempt from tax by that other Contracting State for
a period of 12 consecutive months with respect to his income
from personal

serv~ces

in an aggregate amount not in excess

of 8,000 United States dollars ($8,000)

or its equivalent in

S2.ovak crowns.
3.

An individual who is a resident of one of the

Con~racting

States at the time he becomes temporarily

present in the other Contracting State and who is
temporarily present in the other Contracting State for a
period not exceeding 1 year,

as a participant in a program

sponsored by the Government of that other Contracting State,
...~o~-

~h

~de

.

pr~mary

purpose of training, research, or study,

shall be exempt from tax by that other Contracting State
respe::t to h:s income from personal services in respect

-

39 -

of such training, research, or study performed In that other
Contracting State in an aggregate amount not in excess of
10,000 United States dollars (USD 10,000) or its equivalent
in Slovak crowns.
4.

The competent authorities of the Contracting States

may agree to change the amounts specified in paragraphs
1(b) (iii), 2(b) and 3 of this Article to reflect significant
changes in price levels.
5.

An individual who visits a Contracting State for

the primary purpose of teaching or conducting research at a
university, college, school or other accredited educational
or research institution in the other Contracting State, and
who is, or immediately before such visit was, a resident of
the other Contracting State shall be exempt from tax in the
first-mentioned Contracting State for a period not exceeding
two years in respect of remuneration for such teaching or
research.

The benefits provided in this paragraph shall not

be granted to an individual who, during the immediately
preceding period enjoyed the benefits of one of the
preceding paragraphs of this Article.

An individual shall

be entitled to the benefits of this paragraph only once.
6.

This article shall not apply to income from

research if such research is undertaken not in the public
interest but primarily for the private benefit of a specific
person or persons.

-

40 -

ART!CLE 22
Other Income
1.

Ite~s

of income of a resident of a Contracting

State, wherever arising, not dealt with in the foregoing
Articles of this Convention shall be taxable only in that
State.
2.

The provisions of paragraph 1 shall not apply to

:ncome, other than income from real property as defined in
paragraph 2 of Article 6 (Income from Real Property
(Immovable Property», if the beneficial owner of the
income, being a resident of a Contracting State, carries on
or has carried on business in the other Contracting State
through a permanent establishment situated therein, or
perfo~.s

or has performed in that other State independent

personal se=vices from a fixed base situated therein, and
the income is attributable to such permanent establishment
or fixed base.

In such case the provisions of Article 7

(Business Profits) or Article 14

(Independent Personal

Services), as the case may be, shall apply.

ARTICLE 23
Caoital
1.

Capital represented by real property referred to in

A~ticle 6 (:ncome fro~ Real Property (Immovable Property»,
owned bv. a

-_es;de~.~
-

oc_ a Cor:·
•
0 S·~a~e
~
._r a c~:..n_
an d

' • • d l.n
.

Sl._ua~e

~he

o~her

contrac~ing

S~ate,

41 -

may be taxed in that other

State.
2.

Capital represented by personal (movable) property

forming part of the business property of a permanent
establishment which an enterprise of a Contracting State has
in the other Contracting State, or by personal property
pertaining to a fixed base available to a resident of a
Contracting State in the other Contracting State for the
purpose of performing independent personal services, may be
taxed in that other State.
3.

capital represented by ships, aircraft, and

containers owned by a resident of a Contracting State and
operated in international traffic, and by personal property
pertaining to the operation of such ships, aircraft, and
containers shall be taxable only in that State.
4.

All other elements of capital of a resident of a

Contracting State shall be taxable only in that State.

ARTICLE 24
Relief From Double Taxation
1.

In accordance with the provisions and subject to

the limitations of the law of the United States (as it may
be amended from time to time without changing the general
prinCiple hereof), the United States shall allow to a
resident or citizen of the united States as a credit against

-

the

Un~ted

42 -

States tax on income the income tax paid to

Slovakia by or on benalf of such resident or citizen.
2.

In Slovakia, double taxation will be avoided in the

following manner:
Slovakia, when imposing taxes on its residents, may include

in the tax base upon which such taxes are imposed the items
ot income which according to the provisions of this

Convention may a:so be taxed in the United States, but shall
allow as a deduction from the amount of tax computed on such
a base an amount equal to the tax paid in the United States
(Other than solely on the basis of citizenship).

Such

deduction shall not, however, exceed that part of the
Slovakia tax, as computed before the deduction is given,
Vhlch is appropriate to the income which, in accordance with
the provisions of this Convention, may be taxed in the

United States (other than solely on the basis of
citizenshio) .
3.

In the case cf an individual who is a citizen of

the United States and a resident of Slovakia, income which

~y be taxed by the United States solely by reason of
c1tizensh i

~p

.

.

In accordance wlth paragraph 3 of Article 1

(General Scope) shall be deemed to arise in Slovakia to the

extent necessary to avoid double taxation, provided that in

~

event will the tax paid to the United States be less than

tax that Would
:~ the individual were not a
- be pal·Q" ~citiZen cf the Cnited States.

the

-

43 -

ARTICLE 25
Non-discrimination
1.

Nationals of a Contracting State shall not be

subjected in

~he

other Contracting State to any taxation or

any requirement connected therewith which is other or more
burdensome than the taxation and connected requirements to
which nationals of that other State in the same
circumstances are or may be SUbjected.

This provision shall

apply to persons who are not residents of one or both of the
Contracting States.

However, for the purposes of United

States taxation, United States nationals who are subject to
tax on a worldwide basis are not in the same circumstances
as Slovak nationals who are not residents of the United
Sta~es.

2.

The term "nationals" means:
a) all individuals possessing the nationality of a

Contracting State;
b) all legal persons, partnerships and
associations deriving their status as such from the
laws in force in a Contracting State.
3.

The taxation on a permanent establishment which an

enterprise of a contracting State has in the other
Contracting State shall not be less favorably levied in that
other State than the taxation levied on enterprises of that
C~her

State carrying on the same activitles.

This provision

shall not be construec as obliging a Contracting State to

-

44 -

g=ant to resldents of the othe= Contracting State any
pe=sonal allowances, reliefs, and reductions for taxation
pu=poses on account of civil status or family
responsibilities which it grants to its own residents.
4.

Nothing in this

A=ticl~

shall be construed as

preventing either Contracting State from imposing a tax as
described in paragraph 6 of Article 10 (Dividends).
5.

Except where the provisions of paragraph 1 of

A=ticle 9 (Associated Enterprises), paragraph 4 of Article
11

(Interest), or paragraph 5 of Article 12 (Royalties)

apply,

interest, royalties, and other disbursements paid by

a resident of a Contracting State to a resident of the other
Contrac~ing

State shall, for the purposes of determining the

taxable profits of the fi=st-mentioned =esident, be
deductible under the same conditions as if they had been
paid to a =esident of the first-mentioned State.

Similarly,

any debts of a resident of a Contracting State to a resident
of the other Contracting state shall,

for the purposes of

determining the taxable capital of the first-mentioned
resident, be deductible under the same conditions as if they
had been contracted to a resident of the first-mentioned
State.
6.

Ente=prises of a Contracting State, the capital of

~hich is wholly or partly owned or controlled, directly or
indirectly, by one or more residents of the other
Contractinq_ S-~a_e,
shall not be SUbjected in the

-

45 -

first-mentioned State to any taxatlon or any requirement
connected therewith which is other or more burdensome than
the taxation and connected requirements to which other
similar enterprises of the first-mentioned State are or may
be sUbjected.
7.

The provisions of this Article shall,

not~ithstanding

the provisions of Article 2 (Taxes Covered),

apply to taxes of every kind and description imposed by a
Contracting State or a political subdivision or local
authority thereof.

ARTICLE 26
Mutual Aoreement Procedure
Where a person considers that the actions of one or
both of the Contracting States result or will result for him
in taxation not in accordance with the provisions of this
Convention, he may,

irrespective of the remedies provided by

the domestic law of those States, present his case to the
competent authority of the Contractlng State of which he is
a resident or national.

The case must be presented within

three years from the first notification of the action
reSUltlng in taxation not in accordance with the provisions
of the Convention.
2.

The competent authority shall endeavor, if the

Objection appears to it to be justified and if it is not
itself able to arrive at a satisfactory solution, to resolve

~~e

case

~y ~u~ual

~~e

other

46 -

agreemen~ wi~h ~he

Con~rac~ing

S~ate,

competent authority of

with a view

~o

the avoidance of

taxation which is not in accordance with the Convention.
Any

agree~ent

reached shall be implemented

any time

li~i~s

do~estic

law of the Contracting States.

J.

notwiths~anding

or other procedural limitations in the

The competent authorities of the Contracting States

shall endeavor to resolve by mutual agreement any
difficul~ies

or doubts arising as to the interpretation or

application of the Convention.

They may also consult

together for the elimination of double taxation in cases not
provided for ln the Convention.
4.

The competent authorities of the contracting States

may communicate

wi~h

each

o~her

direc~ly

for the purpose of

reaching an agreement in the sense of the preceding
paragraphs.

ARTICLE 27
Exchange of
1.

Info~aticn

and Administrative Assistance

The competent authorities of

~he

Contracting States

shall exchange such inforilla~ion as is necessary for carrying
Out the provisions of tr.is Convention or of the domestic
laws of the Contrac~ing S~ates concerning taxes covered by
the Convention insofar as the taxation thereunder is not
Contrary to the Convention.
not res~ric~e~
~'.' Ar~i~'e
- - - - w,
____

1_

The exchange of information is
(G enera_
, S cope.
)

Any

-

47 -

information received by a Contracting State shall be

trec~ed

as secret in the same manner as information obtained under
the domestic laws of that State and shall be disclosed only
to persons or authorities (including courts and
administrative bodies)

involved in the assessment,

collection, or administration of, the enforcement or
prosecution in respect of, or the determination of appeals
in relation to, the taxes covered by the Convention.

Such

persons or authorities shall use the information only for
such purposes.

They may disclose the information in public

court proceedings or in judicial decisions.
2.

In no case shall the provisions of paragraph 1 be

construed so as to impose on a Contracting State the
obligation:
a) to carry out administrative measures at
variance with the laws and

administra~ive

practice of

that or of the other Contracting State;
b) to supply information which is not obtainable
under the laws or in the

no~al

course of the

administration of that or of the other Contracting
State;
c) to supply information which would disclose any
trade, business, industrial, commercial, or
professional secret or trade process, or information
the disclosure of which would be contrary to public
policy (ordre public).

J.

48 -

I: info=mation is requested by a Contracting State

ln accordance with this Article, the other Contracting State
shall obtain the information to which the request relates in
the same manner and to the same extent as if the tax of the
first-mentioned State were the tax of that other State and
were being imposed by that other State.

If specifically

requested by the competent authority of a Contracting State,
the competent authority of the other Contracting State shall
provide information under this Article in the form of
depositions of witnesses and authenticated copies of
unedited original documents (including books, papers,
statements, records, accounts, and writings), to the same
extent such depositions and documents can be obtained under
the laws and administrative practices of that other State
with respect to its own taxes.
4.

For the purposes of this Article, the Convention

shall apply, notwithstanding the provisions of Article 2
(Taxes Covered), to taxes of every kind
Co~tracting

i~posed

by a

State.

ARTICLE 28
Diolomatic Agents and Consular Officers
Nothing in this Convention shall affect the fiscal
privileges of diplomatic agents or consular officers under
the general rules
provis:o~s

0:

international law or under the

cf special agreements.

- 49 -

ARTICLE 29
Entrv Into Force
1.

This Convention shall be subject to ratification in

accordance with the applicable procedures of each
Contracting State and instruments of ratification shall be
exchanged at Washington, D.C. as soon as possible.
2.

The Convention shall enter into force upon the
inst~uments

exchange of

of ratification and its provisions

shall have effect:
a)

in respect of taxes withheld at source,

for

amounts paid or credited on or after the first day of
the second month next following the date on which the
Convention enters into force;
b)

in respect of other taxes, for taxable periods

beginning on or after the first day of January of the
year in which the Convention enters into force.

ARTICLE 30
Termination
1.

This Convention shall remain in force until

te~inated

by a Contracting State.

Either contracting State

may terminate the Convention at any time after 5 years from
the date on which the Convention enters into force,

provided

that at least 6 months prior notice of termination has been
given through diplomatic channels.

In such event, the

Convention shall cease to have ef:ect:

-

a)

~~

~espec~

50 -

of taxes withheld at source,

fo~

amoun~s

paid or credited on or after the first day of

Janua~y

next following the expiration of the 6 month

period;
b) in respect of other taxes,

for taxable periods

beginning on or after the first day of January next
following the expiration of the 6 month period.

IN WITNESS WHEREOF, the undersigned, being duly
authorized thereto, have signed this Convention.

DONE at Bratislava, in duplicate, in the English and
Slovak languages, beth texts being equally authentic, this
day of O~, 1993.

=OR THE

UN:~ED

STATES OF

~~RICA:

FOR THE SLOVAK REPUBLIC:
/

I

!.//
I

/

Text as Prepared for Delivery
For Imm~diate Release
November 16, 1993
TESTIMONY OF TREASURY SECRETARY LLOYD BENTSEN
HOUSE WAYS AND MEANS COMMlTI'EE
Chairman Rostenkowski, Congressman Archer, members of the committee: It is a
pleasure to discuss the President's comprehensive health reform plan with you today. I
have a longet statement for the record, which r d like to summarize.
I have a deep personal interest in this topic. rm sure you recall we've worked
closely over the years when I was chairman of the Senate Finance Committee on many
of these issues.
Reforming the nation's health care system is one of President Clinton's highest
priorities. I think it would be a good idea to look at why reform is necessary before I
take us through some of the details of the approach we have chosen.
First, there are inefficiencies and inequities in our system that raise health care
costs to those who pay the bills. Getting sick can mean that the cost of your coverage
escalates beyond reason, or that insurers decide to drop a person or even an entire group
from coverage. Our system doesn't engender security, it fosters insecurity about having
health insurance. That's wrong.
We are the only nation in the industrialized world without universal coverage.
That's wrong. Fifteen percent of all Americans - 37 million of them, between onequarter and one-third of them children - don't have the security of health insurance.
Twenty-two million more have inadequate protection. That's wrong.
Furthermore, our system contains a built-in brake on the economy which we want
to eliminate. It's called job-lock. Almost two-fifths of the insurers in this nation exclude
pre-existing conditions of new policyholders. Surveys show that nearly one-third of the
workers in this country say they feel locked into their job because of health insurance.
A third problem we must resolve is the issue of affordability. Millions and
millions of Americans go without insurance, many because they can't afford it, even if
they do have a job. Recent estimates indicate that by next year there will be about $25
billion in what we call "uncompensated care," all of it picked up by those who have
insurance. I know of two hospitals in Texas which together had about $80 million in
uncompensated care just last year.
LB-S06

2

Because of this cost-shifting problem, those who have insurance pay the cost of
care for those who do not have the coverage. And, according to some studies, that costshift drives up insurance premiums for all Americans more than 10 percent.
This nation pays far too much for health care. We spend about 14 percent of our
Gross Domestic Product on health care. But the state of our health is no better than
that of other industrialized nations that spend no more than 10 percent of their GDP on
health care. In fact, we're behind in some areas.
The cost of health care is rising far faster than inflation. If we don't get this
under control, the portion of our GDP devoted to health care costs will be more than 19
percent by the tum of the century. That's unacceptable.
What this unrelenting increase is doing is eating up the pay of working Americans.
If insurance costs bad stayed at the same share of payroll for the past 20 years, our
workers could be making an extra $1,000 each a year. Some projections show that if
nothing is done, every bit and more of projected wage increases in the coming decade
could be consumed by health care costs. Talk about going backwards!
Finally, there are serious inefficiencies in our system, excess capacity, and waste.
We've seen studies showing that we're losing about $80 billion a year to fraud and abuse.
We could sure put that money to better use. We spent roughly $45 billion last year -- on
paperwork. We have more hospital beds than we can fill, and prices keep going up.
It is not a pretty picture. For our economy to function at its best, we must make
this system more efficient and more cost-effective. If we do that, we will make available
the resources we need to provide universal coverage.
Mr. Chainnan, when you announced these hearings, you said you wanted to look
at what effect President Clinton's program will have on the economy. I'd like to address
that point.
What I believe will happen is that many businesses will see their expenses for
health coverage fall. As everyone is brought into the system, and as we control costs, we
project that by the end of the decade business will be spending about $10 billion less per
year on health services.
That money will probably go mostly for better wages and benefits for current or
new employees, but a portion may also be invested in plant and equipment that will
improve productivity, be paid out to shareholders, or even be used to lower prices. Each
option contributes in a meaningful way to stimulating the economy.

3

There are also going to be some important benefits for our small businesses.
Those who do provide coverage for their employees -- and about two thirds do right now
-- will see their insurance administrative costs come down. There is no reason they
should be spending up to 40 percent for administration. Furthermore, as free riders
throughout the system are eliminated, premiums for those already providing coverage to
their workers will be lowered. And they'll benefit from being part of health alliances
that can negotiate prices for them.
Lastly, getting rid of health-related job lock and welfare lock will add efficiency to
the economy over the long-term.
In our view, Mr. Chairman, the key to the success of any health reform program is
universal coverage. Lawton Chiles discovered that when he became governor of Florida.
He thought you had to control costs first, then extend coverage to everyone. He was
back before the Finance Committee within a year saying he'd changed his mind.
Universal coverage ends the cost-shifting, and thus is critical to controlling costs.
If I might, I'd like now to discuss how President Clinton's program is structured
and how the revenue will be obtained.

To avoid major disruptions, the new system will be financed primarily like the
current system. The key to making this plan effective is to build on the system of
insuring individuals through their employers. Most businesses, small and large, already
cover their workers. Nine of every 10 Americans with private health insurance get it
through work. Just as they do today, employer and individual health insurance premiums
will pay for the bulk of health coverage.
In general, employers will be required to pay 80 percent of the average premium.
Requiring a contribution from the employer minimizes the disruption to our current
system. However, to help ease firms into the new system, the plan limits to 7.9 percent
the percentage of payroll that would be devoted to health care premiums for coverage
obtained through regional alliances. Small low-wage firms and individuals of modest
means would be provided special discounts. And, through the bargaining power of
health alliances, premium rates can be lowered.

Before I deal with some of the specific revenue issues, there are four general
points I want to make.
First, our plan is the only comprehensive proposal that spells out exactly what
benefits will be provided and how it will be financed. This is the only fiscally responsible
thing to do. During the development of the plan, the administration consulted with the
nation's best actuaries and health care experts. I feel confident we have approached the
difficult and complex estimating process in a very responsible way.

4

Second, we have protected both the private sector and the public sector from cost
overruns by insisting on accountability.
Third, this plan will be phased in to allow sufficient time to make adjustments
should we find that modifications are needed.
And fourth, there are plenty of plans out there, and some people have asked me
why we didn't set up a system with just one payer, like the Canadian system. The
President decided he didn't want to create a big, new government program, but rather
wanted to build on what we have. I agree. We have faith in the markets. What we've
done should free our insurers from having to resort to practices such as cherry-picking to
stay in business.
Our plan clearly spells out the costs to the federal government and how we are
going to pay for them, including discounts to eligible businesses and individuals, long
term care and the new Medicare drug benefit. Funding for these, and for program
improvements will come largely from slowing the growth in Medicare and Medicaid, a
75-cent increase in the tax on a pack of cigarettes, an assessment on large companies
that choose to establish corporate alliances, and increased revenues as compensation
shifts from non-taxable health care benefits to taxable wages.
As to the excise tax on cigarettes, we would raise it from the current 24-cents-perpack to 99 cents. The administration also proposes to increase the federal excise tax
rates on all other tobacco products.
As members on both sides of the aisle in this committee have been saying for
years, increases in tobacco taxes will promote better health - not just among adults, but

very importantly among our children. I am particularly concerned about the use of
tobacco products by adolescents.
The health security plan also contains a 1 percent payroll assessment on large
employers who opt to form their own health alliances. That will contribute, among other
things, to underwriting important work in health research from which every American
benefits.
Another major revenue source in the package is the tax receipts that will result.
This accounts for about $23 billion over the estimating period. As health costs fall and
employers devote the savings to taxable wages, more personal income and payroll tax
revenue will be generated.
There are other tax provisions in the President's health plan to accomplish many
of the goals of this committee.

5

For example, the individual income tax health insurance deductions for selfemployed taxpayers will be increased to 100 percent of the costs of the comprehensive
benefit package. And we have tax incentives to encourage doctors, nurses and other
health professionals to work in our rural areas and inner cities.
Furthermore, we propose to modify the current tax treatment of long-term care
expenses and insurance.
And we propose basing Medicare Part B premiums on income, with additional
premiums being paid by single taxpayers with incomes above $90,000, and married
couples with incomes above $115,000.
The administration has offered a bold and comprehensive plan to give Americans
health security and take charge of health care costs. Next year alone, before we can fully
phase in our plan, our nation's health care bill will exceed $1 trillion. That's one dollar
of every seven in our economy.
There has been a sea change in public opinion about health care. Americans
recognize that our health care system needs a comprehensive overhaul.
It is clear to me that we are going to do something this Congress. You need only
look at the legislative landscape to figure that out. There are no fewer than half a dozen
plans on the table. There is quite a bit of similarity among many of them. For example,
all but one call for some form of competition. Every plan gets rid of exclusions for preexisting conditions. Every one offers a choice of health plans and providers. Several call
for the creation of a national health board. And many propose increasing the deduction
for self-employed Americans.
We have a significant amount of common ground here. But only the President's
plan is truly universal and comprehensive. It provides universal coverage, builds on our
existing system of obtaining insurance, contains a Medicare drug benefit, a long term
care benefit, cigarette taxes, a requirement that employers help pay for health insurance,
and, while it is designed to encourage managed competition, it also has a backup
mechanism to ensure savings.
I've been waiting a long time for a president willing to take the lead on this issue.
The health care problem will cripple our economy if we don't act. I'm proud to be part
of an administration willing to seize this opportunity.
The President wants a bipartisan solution to this problem. It is an American
issue, not a partisan one. The President and I look forward to working with each of you
on this committee, and others in Congress, to enact a comprehensive and lasting reform
of our health care system.
-30-

More Americans Lack Health Security
16

Percent of population without insurance
14.7%

14

12
10

8
6
4
2

0.5%

1.0%

o
Canada Denmark

France

Gennany Sweden

Japan

Sourcp: Organization of Economic Cooperation and Development

United
Kingdom

United
States

Workers are Losing Wages to Rising Health Costs
If health care had been reformed in 1975, American workers would have
over $1,000 in extra wages every year
$30,000 ...-.- - - - - - - - - - - - - - - - - - - - - - - - - - ,
~

Lost Wages

$29,000

$28,000

$28,49
Actual Wages

$27,000

$26,000~'--~----~--~----~--~--~----~--~--~--~

1975

1977 1979 1981

1983

1985 1987 1989

1991

Source: Commerce Department, Office of Management and Budget

1992

National Health Spending
The
1,800 r--

u.s. will have a $1 trillion health care bill next year

In Billi ons

----,,----,------:--..----,----:--....,---..-----,-------:--..-----.-----:-~

1,600
,

1,400

$1 Trillion ,:'
1,200

+:'
. ,
:., '

1,000
800
600
400
200

o

',,<'?

1962

~;::.~:,;~ ,~~~~)~:Zw· :~~\\~'%'*~~\ ~

1966

1970

Source:CBO Forecasts

1974

1978

1982

1986

1990

1994

1998

RECORD TESTIMONY OF TREASURY SECRETARY LLOYD BENTSEN
BEFORE THE
HOUSE WAYS AND MEANS COMMITTEE
NOVEMBER 16, 1993
Chairman Rostenkowski, Congressman Archer, members of the
committee:
It is a pleasure to have the opportunity to discuss
the President's comprehensive health reform plan with you today.
I have a deep personal interest in this topic.
I'm sure you
recall we've worked closely over the years when I was chairman of
the Senate Finance Committee on many of these issues.
Reforming the nation's health care system is one of
President Clinton's highest priorities.
I think it would be a
good idea to look at why reform is necessary before I take us
through some of the details of the approach we have chosen.
First, there are inefficiencies and inequities in our system
that raise health care costs to those who pay the bills. Getting
sick can mean that the cost of your coverage escalates beyond
reason, or that insurers decide to drop a person or even an
entire group from coverage. Our system doesn't engender
security, it fosters insecurity about having health insurance.
That's wrong.
We are the only nation in the industrialized world without
universal coverage. That's wrong.
Fifteen percent of all
Americans -- 37 million of them, one third of them children -don't have the security of health insurance. Twenty-two million
more have inadequate protection. That's wrong.
Furthermore, our system contains a built-in brake on the
economy which we want to eliminate. It's called job-lock.
Almost two-fifths of the insurers in this nation exclude preexisting conditions of new policyholders. Surveys show that
nearly one-third of the workers in this country say they feel
locked into their job because of health insurance.
We have a relatively mobile work-force, far more mobile than
that of Europe.
Eliminating this particular problem could
improve that mobility, free more workers to upgrade their jobs
and improve their standard of living.
A third problem we must resolve is the issue of
affordability. Millions and millions of Americans go without
insurance, many because they can't afford it, even if they do
have a job. Recent estimates indicate that by next year there
will be about $25 billion in what we call "uncompensated care,"
all of it picked up by those who have insurance.
I know of two
hospitals in Texas which together had about $80 million in
uncompensated care just last year.
Because of this cost-shifting problem, those who have
insurance pay the cost of care for those who do not have the
coverage.
And, according to some studies, that cost-shift drives
up insurance premiums for all Americans more than 10 percent.
This nation also pays far too much for health care. We
spend about 14 percent of our Gross Domestic Product on health
care, and the state of our health is no better than that of other
industrialized nations that spend no more than 10 percent of
their GDP on health care.
In fact, we're behind in some areas.
LB-S07

2

We've seen some moderation in the rate of inflation in the
health field of late, but it's still going up three times the,
rate of overall consumer price inflation.
If we don't get thlS
issue under control, the percentage of our GOP devoted to health
care costs will be more than 19 percent by the turn of the
century. That's unacceptable.
What this unrelenting increase is doing is eating up the pay
of working Americans. If insurance costs had stayed at the same
share of payroll for the past 20 years, our w~rke~s could be
making an extra $1,000 each a year.
Some prO]ectlons show that
if nothing is done,
every bit and more of projected wage
increases in the coming decade could be consumed by health care
costs. Talk about going backwards!
Finally, there are serious inefficiencies in our system,
excess capacity, and waste. We've seen studies showing that
we're losing about $80 billion a year to fraud and abuse -that's about 8 percent of our total spending. We could sure put
that money to better use. We spent more than 5 percent of our
total health budget -- or roughly $45 billion last year -- on
paperwork. We have more hospital beds than we can fill, and
prices keep going up.
It is not a pretty picture.
For our economy to function at
its best, we must make this system more efficient and more costeffective.
If we do that, we will make available the resources
we need to provide universal coverage.
Mr. Chairman, when you announced these hearings, you said
you wanted to look at what effect President Clinton's program
will have on the economy.
I'd like to address that point.
What I think will happen is that many businesses will see
their expenses for health coverage fall.
As everyone is brought
into the system, and as we cut costs, we project that by the end
of the decade business will be spending about $10 billion less
per year on health services.
That money will probably go mostly for better wages and
benefits, but a portion may also be invested in plant and
equipment that will improve productivity, be paid out to
shareholders, or even be used to lower prices.
Everyone of
those options contributes in a meaningful way to stimulating the
economy.
There are also going to be some important benefits for the
small businesses in this nation. Those who do provide coverage
for their employees -- and about two thirds do right now -- will
see their insurance administrative costs come down.
There is no
reason they should be spending up to 40 percent for
administration.
Furthermore, as free riders throughout the
system are eliminated, premiums for those already providing
coverag 7 to their workers will be lowered. And they'~l benefit
from belng part of health alliances that can negotiate prices for
them.
Lastly, and I mentioned this a bit earlier, getting rid of
health-related job lock and welfare lock will add efficiency to
the economy over the long-term.
In our view, Mr. Chairman, the key to the success of any
health reform program is universal coverage.
You recall when
Lawton Chiles was chairman of the Budget Committee in the Senate.
He was convinced that it was necessary to control health care
costs before extending coverage to everyone. Lawton left the
Senate and became governor of Florida. Within less than a year
he was back telling the Finance Committee that he had changed his
mind. Having universal coverage ends the cost-shifting, and is
critical to controlling costs.

3

If I might, I'd like now to discuss how President Clinton's
program is structured and how the revenue will be obtained.
To avoid major disruptions, the new system will be financed
primarily like the current system. The key to making this plan
effective is to build on the system of insuring individuals
through their employers. Most businesses, small and large,
already cover their workers.
Nine of every 10 Americans with
private health insurance get it through work. Just as they do
today, employer and individual health insurance premiums will pay
for the bulk of health coverage.
In general, employers will be required to pay 80 percent of
the average premium.
Requiring a contribution from the employer
minimizes the disruption to our current system. However, to help
ease firms into the new system, the plan limits to 7.9 percent
the percentage of payroll that would be devoted to health care
premiums.
Small low-wage firms and individuals of modest means
would be provided special discounts. And, through the bargaining
power of health alliances, premium rates can be lowered.
Before I deal with some of the specific revenue issues,
there are four general points I want to make.
First, our plan is the only comprehensive proposal that
spells out exactly what benefits will be provided and how it will
be financed.
This is the only fiscally responsible thing to do.
During the development of the plan, the administration consulted
with the nation's best actuaries and health care experts.
I feel
confident we have approached a difficult and complex estimating
process in a very responsible way.
Second, we have protected both the private sector and the
public sector from cost overruns by insisting on accountability.
Third, this plan will be phased in, which allows sufficient
time to make adjustments should we find that modifications are
needed.
And fourth, there are plenty of plans out there, and some
people have asked me why we didn't set up a system with just one
payer, like the Canadian system. The President decided from the
early days that he didn't want to create a big, new government
program, but rather wanted to build on what we have.
I agree
with him.
We have faith in the markets. What we've done should
free our insurers from having to resort to practices such as
cherry-picking to stay in business. A market-based approach will
encourage them to compete on the basis of quality and price,
without competitors skimming off only the healthy population, the
cream of the insurance business.
Our plan clearly spells out the costs to the federal
government and how we are going to pay for them, including
discounts to eligible businesses and individuals, long term care
and the new Medicare drug benefit. Funding for these, and for
program improvements will come largely from slowing the growth in
Medicare and Medicaid, a 75-cent increase in the tax on a pack of
cigarettes, an assessment on large companies that choose to
establish corporate alliances, and increased revenues as
compensation shifts from non-taxable health care benefits to
taxable wages.
NOW, as to some specific revenue items in the bill. Our
proposal contains a number of provisions that have been of
particular interest to this committee over the years.

4

As you know, the plan includes a proposal to increase the
tax on tobacco products. Specifically, the excise tax on
cigarettes would be increased by 75 cents per pack -- raising the
federal tax from the current level of 24 cents to just under a
dollar a pack. The administration also proposes to increase the
federal excise tax rates on all other tobacco products.
As members on both sides of the aisle in this committee have
been saying for years, increases in tobacco taxes,will promote
better health -- not just among adults, but very lmportantly
among our children.
I am particularly concerned about the use of
tobacco products by adolescents.
Although we know it will promote better health, I want to
elaborate briefly on this point. This is an entirely appropriate
way to finance health care for several reasons.
First, tobacco consumption is the leading preventable c~use
of death and disease in the united states. As members of thlS
committee know, it accounts for about half a million deaths a
year and billions of dollars in health care costs.
Second, since the Presidentts health care plan does not
generally allow differential health insurance premiums for
smokers and non-smokers, the fact of the matter is that nonsmokers will bear some of the increased health costs of smokers.
This.proposal helps make up for that.
Studies by the Department of Health and Human Services, as
well as the Canadian experience, demonstrate that raising tobacco
taxes can successfully discourage the use of tobacco products by
the young. This is particularly true for the proposed increase
in taxes on smokeless tobacco. Studies have shown that nearly 20
percent of male high school students use this type of tobacco,
and it presently is taxed at a disproportionately low rate in
comparison to cigarettes.
The health security plan also contains a 1 percent payroll
assessment on large employers who opt to form their own health
alliances. That will contribute, among other things, to
underwriting important work in health research from which every
American benefits.
Another major revenue source in the package is the tax
receipts that will result. This accounts for about $23 billion
over the estimating period. Let me explain.
Increased
competition, greater cost-consciousness on the part of both
consumers and providers, and other cost containment measures will
lower health insurance costs. Standard revenue estimating rules
assume that as tax-preferred employer health care costs go down,
more w~rker compensation,will come in the form of taxable wages.
~hat wlll generate more lncome and payroll taxes, despite the
lncreased number of workers covered.
There are other tax provisions in the President's health
plan that will accomplish many of the goals of this committee.
For example, the individual income tax health insurance
deductions for self-employed taxpayers will be increased to 100
percent of the costs of the comprehensive benefit package.
Members of both parties on this committee have been trying to get
that done for years.
It's time we got it done. We propose that
a self~employed taxpayer could claim the full 100 percent
deductlon once the state of residence establishes a regional
alliance. Until then, the 25 percent health insurance deduction
for self-employed workers will continue.

5

,
In add~tion, ,I know t~at many of you here are very
1nterested 1n mak1ng certa1n our rural residents, and those who
live in the inner cities, have adequate access to quality health
care. This plan does that with incentives that encourage doctors
and nurses to locate in under served areas.
, We are p:oposing two tax incentives to encourage adequate
med1cal care 1n all areas of the country. A physician who starts
working full-time in an area designated as being short of health
professionals can receive a tax credit of up to $1,000 per month
for up to 60 months. Other health care providers doing the same
in these areas can receive a tax credit of up to $500 per month.
In addition, all physicians who work in these areas will be able
to expense an additional $10,000 for medical equipment each year.
There are other ways the tax system will be used to achieve
other objectives of the health plan. For example, we encourage
through the tax system private long term care insurance.
The plan proposes to modify the current tax treatment of
long-term care expenses and insurance. Long-term care expenses
incurred by certain incapacitated individuals will be treated as
deductible medical expenses, and taxpayers will be able to
exclude up to $150 a day from taxable income for benefits paid
under qualified long-term care policies. In addition, employers
could deduct the premiums paid for these policies, and employees
will also be able to exclude the value of this employer-provided
coverage from taxable income.
There is another point that many on this committee have been
discussing for some time. This legislation will base the
Medicare Part B premiums on income, for high-income enrollees.
Many members have supported this proposal. High-income taxpayers
who enroll in part B will see their premiums gradually increased
from about 25 percent of program costs to up to 75 percent of
program costs. The additional premiums will be paid by single
taxpayers with income above $90,000, and married couples with
income above $115,000. We anticipate this will affect about 2.5
percent of beneficiaries.
Lastly, there have been some concerns raised about whether
employers will be able to shift their work force to independent
contractor status to avoid any responsibility for financial
support of health reform. We're are intent that this will not be
permitted to happen.
Under the Act, a worker's status is to be determined under
the same rules that apply for employment tax purposes under the
Internal Revenue Code. We believe that following the existing
employment tax rules will not impose additional administrative
burden on employers and is preferable to developing a new set of
rules that would apply only for health care purposes.
We are aware that in some cases the employment tax rules are
not clear. The subjective nature of the common law test on which
those rules are based makes it difficult both for taxpayers to be
certain they are correctly classifying their workers and for the
government to achieve even-handed administration. Because the
stakes are increased significantly by health care reform, the Act
includes provisions that are intended to ensure that anti-abuse
rules can be developed to prevent gaming of the employer mandate
and premium discounts.
Let me emphasize, however, that we do not
foresee these new rules as substantially departing from the
current law or resulting in significant reclassification of
workers.
Rather, we would strive to develop clearer and more
objective standards on which employers can rely.
We realize that worker classification issues are difficult
and that others have sought solutions to these issues in the
past. We want to open a dialogue between the administration,

6

Congress and employers on how these goals can be achieved.
.
Over the past several years, for example, the IRS has worked w1th
several industry groups as part of its Compliance 2000 initiative
to develop standards for worker classification in those
particular industries. Representatives of those industry.groups
have confirmed to us that these efforts have been product1ve, and
we intend to build on that work.
In addition, we anticipate and
look forward to guidance from Congress as this legislation
proceeds.
CONCLUSION
The administration has offered a bold and comprehensive plan
to give Americans health security and take charge of health care
costs. Next year alone, before we can fully phase in our plan,
our nation's health care bill will exceed $1 trillion.
That's
one dollar of every seven in our economy.
The plan we have drafted accomplishes everything many of us
tried to do in the last Congress, and much more.
You may recall,
Mr. Chairman, that last year we worked together to fashion
several proposals that, taken together, would have made important
but incremental progress in extending health coverage to low
income families.
I helped develop some of those bills because at
the time it was as far as I thought we could go in achieving
reform of the health care system.
Things have changed.
It has, in fact, been a sea change.
Americans recognize that our health care system needs a
comprehensive overhaul.
You can see that reflected in every poll
in every newspaper you pick up. Americans are concerned about
what's become of our system of health care, and they have a right
to be.
It is clear to me that we are going to do something this
Congress. You need only look at the legislative landscape to
figure that out. There are no fewer than half a dozen plans on
the table. There is quite a bit of similarity among many of
them.
For example, all but one call for some form of
competition. Every plan wants to get rid of exclusions for preexisting conditions. Every plan offers a choice of health plans
and providers. Several call for creation of a national health
board. And many propose increasing the deduction for selfemployed Americans.
We have a significant amount of common ground here.
But
only the President's plan is truly universal and comprehensive.
It provides universal coverage, builds on our existing system of
obtaining insurance, contains a Medicare drug benefit a long
term care benefit, cigarette taxes, a requirement that employers
help pay for health insurance, and, while it is designed to
encourage ~anaged competition, it also has a backup mechanism to
ensure sav1ngs.
I've been waiting a long time for a president willing to
take the lead on this issue. The health care problem will
cri~p~e our.econ~my.if we don't act.
I'm proud to be part of an
adm1n1strat10n w1111ng to seize this opportunity.
presi~ent Clinton is committed to universal coverage and
compreh 7ns1ve benefits, with lifetime coverage, and cost
protect10ns for every American.
He is committed to choice in
health care.

Furthermore, President Clinton is intent on seeing that the
quality of health care improves.
He wants to reduce the
paperwork burden for individuals and employers. He wants to make
everyone responsible for health care. And, he is intent on
financing the Health Security plan in a responsible manner.
This
plan does all of that with minimal government intrusion.

7

The President wants a bipartisan solution to this problem.
It is an American issue, not a partisan one. The President and I
look forward to working with each of you on this committee, and
others in Congress, to enact a comprehensive and lasting reform
of our health care system.
Thank you.
-30-

More Americans Lack Health Security
16

Percent of population without insurance
14.7%

14
12
10

8
6

4
2

0.5%

1.0%

o
Canada Denmark

France

Germany Sweden

Japan

Source: Organization of Economic Cooperation and Development

United
Kingdom

United
States

National Health Spending
The
1,800 r-

u.s. will have a $1 trillion health care bill next year

In Billions

I

1,600

:,
:'

1,400

.

.

.

.

$1 Trillion ",'
1,200

+,'
.,

1,000
800
600
400
200

I

0
1962

1966

1970

Source:CBO Forecasts

1974

1978

1982

1986

1990

1994

1998

Workers are Losing Wages to Rising Health Costs
If health care had been reformed in 1975, American workers would have
over $1,000 in extra wages every year
$30,000

r - J- - - - - - - - - - - - - - - - - - - - - - - - ,

~

LostWages

$29,000

$28,000

$28,49
Actual Wages

$27,000

$26,000 ....._ - - I ._ _"'--_""""'-_-.l-_ _
1975 1977 1979 1981 1983 1985

i.-_~_....I..

Source:

1987

_

.l_.._

__l._ _

1989

1991

COITnnerce DepartITlent, Office of ManageITlent and Budget

1992

1 ext AS

t'repared tor lJellvery

REMARKS OF LAWRENCE H. SUMMERS
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
U.S. TREASURY
delivered at
INTERAMERICAN DEVELOPMENT BANK
NOVEMBER 10, 1993
Thank you very much. I'm delighted to be here to represent the United States at
this historic event. What you have heard makes one very important part of the case for
NAFfA You know there are agonizingly difficult issues of international economic
policy. I would suggest to you that NAFfA is not one of them. It is as close to a free
lunch that economists will ever find. NAFfA is good for the United States. NAFfA is
good for Canada, and NAFfA is good for Mexico. NAFfA is progress in this
hemisphere.
In a real sense, the NAFfA debate is a test of us as a people in the United
States. Are we a people who are governed by fear or a people who are guided by hope?
Of course, there are things to be concerned about: exiting foreign investment, low
wages, environmental problems. One thing is certain: if NAFfA goes down, none of
these problems are going to get any better. But a vote for NAFfA is a vote for the
continuation of strong economic reform in Mexico and in the rest of Latin America that
will raise wages. A vote for NAFfA is a vote for a more competitive Western
Hemisphere against the real competitors this country faces in Europe and in Asia. A
vote for NAFfA is an endorsement of strong new agreements and strong new financing
to provide for environment improvements. The issue isn't whether worries are valid or
not. Of course worries are valid. The question is whether you try to put up walls and
lock in the not-so-great world that was yesterday, or whether we try to bring down
barriers, be guided by hope and create a much better world for tomorrow.
NAFfA isn't just a test of us as a people. It is a test of us as a nation and what
kind of role we want to have in the world. Are we the kind of nation that fears a
country like Mexico? Are we the kind of nation that is unwilling to compete? Are we
the kind of nation that doesn't want to embrace the change, the opportunity that an
agreement like NAFfA would bring? If we answer those questions yes, what can the
rest of the world, the parts of the world that don't share a 2,000 mile border with us, the
parts of the world that haven't yet undertaken bold programs of economic reform, the
parts of the world that ~till look for major trading opportunities -- what can those
countries think of the United States if we are unwilling to go ahead with Latin America?
LB-508

You know, the Cold War is the third war that ended in this century. After World
War I, the United States wasn't prepared to lead. Tariffs went up. We sought refuge at
home. We didn't create new international institutions. And what followed was 20 years
of slow down: stagnation, depression, and ultimately, the second World War. After
World War II, the United States was prepared to lead. We sought to bring down
barriers, we created new international institutions, and we saw the most prosperous,
rapidly growing and peaceful past century in the history of the world.
Now the Cold War is over. And the choice is before us. Henry Kissinger said,
speaking at the White House the other day, that the vote on NAFfA is the most
important vote in foreign policy that the Congress will cast, not in this year, but in this
decade. And he's right, because it speaks to what kind of a nation we're going to be.
Are we going to fail as we did after World War I, or are we going to lead as we did after
World War II? I have no doubt that the United States is going to be prepared to lead
and cooperate in Latin America and it sill benefit us all. It's damn close to a free lunch.
Thank you very much.

2

FOR IMMEDIATE RELEASE
November 15, 1993

CONTACT: Peter O'Brien
(202) 622-2960

TREASUR Y ANNOUNCES PENALTY AGAINST UNITED MISSISSIPPI BANK

The Department of the Treasury on Monday announced the United Mississippi
Bank has paid a civil money penalty of $40,000 for failing to file currency transaction
reports as required by the Bank Secrecy Act (BSA).
The violations at the Natchez, Miss. bank, which occurred from 1990 to 1991,
were identified by the Internal Revenue Service's Detroit Computing Center Compliance
Review Group.
"This penalty represents a complete settlement of the bank's civil liability for
these violations and should encourage all financial institutions to implement effective
BSA compliance programs," Ronald Noble, Assistant Secretary for Enforcement, said.
Noble said Treasury appreciated the assistance of United States Attorney George
Phillips and Assistant United States Attorney Robert Anderson, both of the Southern
District of Mississippi.
The BSA requires banks and other financial institutions to keep certain records,
file currency transaction reports with Treasury on cash transactions in excess of $10,000
and file reports on the international transportation of currency, travelers checks and
other monetary instruments in bearer form. The purpose of these records and reports is
to assist the government's efforts in combatting money laundering as well as for use in
civil, tax, regulatory and other criminal investigations.
-30LB-509

FOR RELEASE AT 2:30 P.M.
November 16, 1993

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,600 million, to be issued November 26,
1993.
This offering will provide about $3,025 million of new
cash for the Treasury, as the maturing bills are outstanding in
the amount of $24,579 million.
Federal Reserve Banks hold $6,173 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,921 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356, published as a final rule on
January 5, 1993, and effective March 1, 1993) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-S10

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED NOVEMBER 26, 1993

November 16, 1993
Offering Amount .

$13,800 million

$13,800 million

Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding

90-day bill
912794 J2 1
November 22, 1993
November 26, 1993
February 24, 1994
August 26, 1993
$12,241 million

181-day bill
912794 K7 8
November 22, 1993
November 26, 1993
May 26, 1994
November 26, 1993

Minimum bid amount
Multiples .

$10,000
$ 1,000

$10,000
$ 1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids

Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
competitive tenders .
Payment Terms

Prior to 12:00 noon Eastern Standard time on
auction day
Prior to 1:00 p.m. Eastern Standard time on
auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date

~.

UBLIC DEBT NEWS ,t..~
Departlllent of the Treasurv

-

Huccau of the PublIC Debt • Wa,h;ogroo, DC 20239

FOR IMMEDIATE ~ELEASE
November 16, 1993

~:!~~'i

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $16,150 million of 52-week bills to be issued
November 18, 1993 and to mature November 17, 1994 were
accepted today (CUSIP: 912794L93).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
3.42%
3.43%
3.43%

Investment
Rate
3.56%
3.57%
3.57%

Price
96.542
96.532
96.532

Tenders at the high discount rate were allotted 63%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-511

Received
$53,932,175

AcceDted
$16,149,975

$49,618,000
429,175
$50,047,175

$11,835,800
429,175
$12,264,975

3,650,000

3,650,000

235,000
$53,932,175

235,000
$16,149,975

November 16, 1993
STATEMENT OF
MAURICE B. FOLEY
DEPUTY TAX LEGISLATIVE COUNSEL (TAX LEGISLATION)
DEPARTMENT OF THE TREASURY
BEFORE THE
WA YS AND MEANS SUBCOMMITTEE ON SELECT REVENUE MEASURES
U.S. HOUSE OF REPRESENTATIVES

Mr. Chairman and Members of the Subcommittee:
I am pleased to have this opportunity to present the views of the Administration on
H.R. 429 (the "Taxpayer Debt Buy-Down Act").

I. Background
Before turning to the views of the Administration, I would like to provide the
Subcommittee with background information regarding the Presidential Election Campaign
Fund check-off, which is the only analogous federal program. 1
Presidential Election Campaign Fund. Section 9006 of the Internal Revenue Code
establishes the Presidential Election Campaign Fund (the -Campaign Fund-). Each
individual whose federal income tax liability for a taxable year is at least $1 may designate,
by checking the appropriate box on his or her tax return, that $1 be paid into the Campaign
Fund. Pursuant to the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), individuals
will be able to designate $3 of their tax liability beginning next year. The amount designated
for the Campaign Fund does not affect the taxpayer's tax liability.
Monies in the Campaign Fund are used for three purposes: (1) payments to the
national committee of each major and minor political party for its nominating convention; (2)
payments to the eligible candidates of a political party for President and Vice-President; and
(3) payments to eligible candidates seeking the nomination of a political party to be
President.
For calendar year 1992, 20.5 million returns, or 18 percent of the total number of
individual income tax returns, designated a total of $29.6 million in contributions to the
Campaign Fund. A total of $32.3 million in contributions was designated for calendar year

A number of states provide check-offs on income tax forms to permit taxpayers to fund
state electoral campaigns, private charitable organizations, and state governmental programs.
1

~B-512

2
1991. The main cost of administering this provision consists of the labor cost of transcribing
data at the Internal Revenue Service (IRS) service centers when the returns are processed.

ll. Overview of H.R. 429
H.R. 429 would provide individual taxpayers with the ability to designate on their
federal income tax returns between one and ten percent of their tax liability to be earmarked
for reducing the public debt. The Treasury Department would estimate on May 1 the total
amount earmarked on returns filed for the preceding calendar year, and would transfer that
amount into a "Public Debt Reduction Trust Fund" (the "Trust Fund").2 The amounts in the
Trust Fund would be used to retire or purchase outstanding Treasury securities, and therefore
could not be used to fund federal programs.
H.R. 429 also mandates a corresponding decrease in federal spending. This decrease,
if not done legislatively through reductions in discretionary appropriations and direct
spending, would be achieved through an essentially across-the-board sequestration. Social
security payments, net interest payments on federal debt, and funding for certain insurance
funds established to resolve the savings and loan problem ~, the Resolution Trust
Corporation; Federal Deposit Insurance Corporation, Bank Insurance Fund; National Credit
Union Administration, credit union share insurance fund, etc.) are exempted from
sequestration under the bill.
Sequestration updates released under the Balanced Budget and Emergency Deficit
Control Act of 1985 by the Office of Management and Budget would be expanded to include
the Treasury estimate of the amount earmarked to the Trust Fund. These reports would also
contain an estimate of the amount of the percentage reduction in programs that would be
required as a result of the transfers to the Trust Fund. The final reports, issued within 15
days of the end of a Congressional session, would provide the actual amounts required to be
sequestered. Budget authority (appropriations in the case of discretionary spending) for the
new fiscal year would be cut by the "sequestration percentage" U&., the total amount
earmarked by taxpayers for debt reduction divided by all government spending programs
which are not explicitly exempted). Any increases in budget authority would be subject to
pay-go restrictions.
The provisions of H.R. 429 would remain in effect until the entire outstanding public
debt is retired.

The IRS would tabulate the actual amounts designated, but this tabulation could not be
completed by the May 1 deadline provided in the bill.
2

3
lli. Administration's Position
We recognize that the objective of H.R. 429 is to impose discipline on spending by
the federal government and, in doing so, reduce the amount of outstanding federal debt.
This Administration has a strong commitment to deficit reduction, as reflected in our efforts
to pass OBRA '93. OBRA '93 will reduce the deficit by nearly $500 billion over five years.
Through the National Performance Review, a new rescission package, and our proposal to
limit the growth of Medicare and Medicaid through comprehensive health care reform, we
have presented plans to further restrain the growth of government spending and reduce the
deficit. In addition, the Bipartisan Commission on Entitlement Reform, which is chaired by
Senators Kerry and Danforth, will come forward with suggestions on controlling entitlement
costs and other serious budget reforms.
The Administration opposes H.R. 429, however, because of the potentially adverse
effects it could have on the legislative process, the budget process, and the economy. In
addition, the bill would pose numerous administrative problems.
Impact on the political process. By providing a blunt instrument, which would result
in across-the-board spending cuts, H.R. 429 could disrupt the orderly development of a
federal budget and discourage the Administration and Congress from setting priorities
through difficult budgetary choices. Under our system of government, members of Congress
choose the spending programs to be funded and determine the amount of funding for each
program. H.R. 429 would allow certain individuals effectively to override those choices by
extending to those designating a transfer to the Trust Fund the right to permanently reduce
the level of federal spending -- a right not enjoyed by every citizen. The bill would dilute
the ability of Congress to determine overall levels of funding. In turn, the ranking of
priorities would be made much more difficult. For example, supporters of particular
programs may seek to offset anticipated sequestrations of unknown amounts by proposing
levels of funding that exceed the amount necessary to accomplish their objectives. This
would further complicate the task of setting priorities in the budget process.
By incorporating a "one dollar, one vote" concept into the budgetary process, H.R.
429 could undermine the fundamental "one person, one vote" tenet of our political system.
The bill would allow citizens who incur significant tax liabilities to have a potentially greater
voice in the way federal funds are spent than those who incur little or no tax liability. In
addition, approximately 48 million potential taxpayers who in 1991 had no income tax
liability would, in a sense, be disenfranchised, even though these individuals pay payroll,
excise, and other federal taxes. In essence, this would give a limited number of taxpayers a
disproportionately large impact on the budget process and allow them to circumvent the
normal political process.
H.R. 429 provides taxpayers with only the ability to reduce the overall level of
spending, but not the ability to increase spending or re-allocate the amounts spent on
different programs. The role of government in society, and the way in which federal monies

4

are raised and spent, clearly are questions which deserve to be addressed by all citizens.
These fundamental issues should be decided through the voting process, not through the tax
system, where those low-income Americans who are likely to be affected the most by the
outcome are effectively disenfranchised. 3
The check-off for the Campaign Fund does not raise these process concerns because
the designations to the Campaign Fund do not trigger, through sequestration, budget cuts in
other programs. In addition, the dollar amounts involved are much smaller. Even assuming
100 percent participation in Campaign Fund designations, the maximum annual amount of
contributions would be approximately $345 million. By contrast, the midsession review of
the budget projected fiscal year 1994 individual income taxes at somewhat less than $550
billion. Thus, the potential FY 1994 reduction in federal spending pursuant to H.R. 429
could exceed $50 billion.
Budget considerations. By allowing taxpayers to elect to designate up to 10 percent
of their current year's income tax liability to a deficit trust fund, H.R. 429 does not simply
reduce Congressional budget authority for the following fiscal year. Rather, it permanently
reduces future budget authority by the amount designated each year, so that designations in
successive years would result in significant cumulative reductions. Thus, if the bill were
enacted this year, and all taxpayers were to designate the full 10 percent on their 1993 and
future tax returns, Congressional budget authority would be reduced by approximately $50
billion in fiscal year 1995, $100 billion in fiscal year 1996, $150 billion in fiscal year 1997,
etc.
It is important to understand that the resulting spending cuts, which are required to be
spread equally across nearly all federal programs, would quickly have a major deleterious
impact on these programs. For example, since projected outlays for the expenditures subject
to H.R. 429 total approximately one trillion dollars, these programs would have to be
reduced from their baseline levels by roughly 5 percent in fiscal year 1995, 10 percent in
fiscal year 1996, 15 percent in fiscal year 1997, etc., if all taxpayers elected the maximum
amounts allowed under H.R. 429. Even if only a small fraction of taxpayers elected the
maximum amount, and only a moderate fraction elected to designate any portion of their tax
liability to deficit reduction, these cutbacks could, over time, result in significant reductions
in many programs, such as Medicare, Medicaid, guaranteed student loans, veterans
programs, job training programs, Head start, highway spending programs, defense, outlays
associated with the earned income tax credit, food stamps, and unemployment compensation.
Moreover, some of these programs are designed to provide a "safety net" for those most in
need of federal assistance and are restricted or exempted from cuts under the current budget
rules for sequesters ~, Medicare, Medicaid, food stamps, and unemployment
compensation) .

The Presidential Election Campaign Fund does not raise this distributional concern
because every taxpayer who participates contributes the same amount.
3

5
Economic considerations. H.R. 429 would require an undetermined and unpredictable
amount of spending cuts to reduce the public debt and, as a consequence, would severely
limit the government's ability to prevent mild recessions from turning into severe economic
downturns. Similarly, during a modest economic upswing, such as we are currently
experiencing, the unanticipated spending cuts pursuant to this bill could jeopardize economic
recovery.
In addition, the sequestration provisions of H.R. 429 would remain in effect until the
first fiscal year during which there is no public debt outstanding. Given that the outstanding
public debt currently exceeds $4 trillion, the federal government would be required to run
significant budget surpluses for years (once the deficit is eliminated) before all outstanding
debt could be retired. It would take many years to accomplish this goal. As a result, H.R.
429 would constrain discretionary budget policies and cause economic disruptions for an
extended period of time.
Administrative considerations. In addition to the broader policy concerns, H.R. 429
would pose significant administrative burdens. Any check-off system would further
complicate tax returns and instructions. By requiring infonnation that does not directly relate
to the detennination of an individual's tax liability, the proposal could also complicate
electronic filing. Proposals such as this frustrate the objective of reducing the paperwork
burden and complexity of tax fonns. Moreover, space on the income tax fonn is already
allocated to maximize compliance. Mandating additional items could displace items crucial
to the proper reporting and collection of tax. This could reduce compliance, limit the ability
of the IRS to properly enforce the tax laws, and thus reduce tax receipts.
There are also a number of processing concerns presented by this bill. Unlike the
Campaign Fund, taxpayers would be able to designate different amounts, based on their
particular tax liabilities. Thus, the IRS would be required to devote significant resources to
transcribing these designations. Amounts to be sequestered would be based upon estimates
made by the Treasury Department of the aggregate amounts designated by taxpayers for the
last taxable year ending before the beginning of that session of Congress. Given the May 1
deadline, these estimates would, by necessity, be imprecise (especially in the early years). In
any particular fiscal year, the sequestration might exceed or be below the actual amounts
designated by taxpayers. This would require adjustments to sequestrations to correct
discrepancies between the estimates (and the sequestration based on those estimates) and
actual designations.

6
In addition, some taxpayers are likely to make computational errors in determining
the amount they wish to designate, potentially resulting in additional communications
between those taxpayers and the IRS. Further complications would arise if the individual's
tax liability is subsequently adjusted, potentially requiring changes to the sequestration
percentage.

*

*

*

This concludes my prepared remarks. I would be pleased to respond to your
questions.

~AHGOED UNTIL 10:00 A.M.
November 17, 1993

STATEMENT OF
LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON COMMERCE, CONSUMER AND MONETARY AFFAIRS
COMMITTEE ON GOVERNMENT OPERATIONS
U.S. HOUSE OF REPRESENTATIVES
Mr. Chairman and distinguished Members of the Subcommittee:
You asked for our views on certain legislative initiatives
outlined in a recent report by the Internal Revenue Service (the
Service) entitled "Final Recommendations of the Service Center
Organization Study," as amended in April 1993 (the Report). You
also requested that we discuss additional legislative proposals
that we believe are needed to facilitate the Report's findings or
the Service's Tax systems Modernization (TSM) as a whole.
The Report was prepared by a Service task force. In general
terms, its goal was to support TSM by improving the way in which
the Service interacts with taxpayers and collects and processes
data. As your letter indicates, the Report's recommendations do
not necessarily represent the official position of the Service or
Treasury.
I.

The Report's Legislative Recommendations

The Report (at page 124) lists the following seven
legislative proposals:
1.

Resolve signature issues

2.

Allow credit card payments

3.

Mandate electronic filing by preparers

4.

Mandate electronic filing/EFT for business returns

5.

Annualize 941 and 720 returns

6.

Allow up-front assessment of tax for selected issues

7.

Accelerate IRP filing requirements

Although the Report does not describe the proposals in great
detail, additional explanations on four of them (items 1, 2, 3
and 4, above) are provided in a more recent document prepared by

LB-S1.3

-2-

the Service in support of the National Performance Review,
entitled "Internal Revenue Service Legislative proposals in
Support of the National Performance Review," dated October 20,
1993 (the NPR Proposals). The NPR Proposals modify
recommendations 3 and 4, above, by requesting that the Secretary
of the Treasury (the Secretary) be given broad regulatory
authority to require that returns be filed electronically,
instead of the more targeted authority to mandate electronic
filing by certain preparers and for certain business returns. As
described more fully below, we generally support recommendations
1, 2, 3 and 4, as modified by the NPR Proposals.
The Service is still evaluating whether the last three of
the Report's recommendations (items 5, 6 and 7) adequately take
into account certain compliance effects and technological
capabilities. We believe that it would be premature for Treasury
to take a position on these last three recommendations until the
Service has completed its evaluations.
II.

The Report's Legislative Recommendations,
as Modified by the Service's NPR Proposals
A.

Regulatory authority to prescribe alternative methods
for verifying signatures on returns

Under current law, an individual must sign any return,
statement or other document that is required to be submitted to
the IRS under penalties of perjury. Taxpayers who file returns
electronically must submit a written signed jurat (i.e., a
certification) to the Service after the electronic filing
verifying that the submission was the taxpayer's and affirming
the accuracy of its contents. Numerous other documents filed
with returns also require taxpayer or third party signatures.
In its NPR Proposals, the Service recommends that the
Internal Revenue Code of 1986 (the Code) be amended to explicitly
recognize the authority of the secretary to issue regulations
providing "for alternative methods of verifying, signing, and
subscribing" returns and other documents. The proposal would
eliminate the need for a separate signature form for electronic
filing and the current SUbstantial processing, storage and
retrieval costs connected with the separate signature form.
A similar proposal was in section 4933 of H.R. 11, the
Revenue Act of 1992, which was passed by both Houses of Congress,
but vetoed by the prior Administration.
section 4933 would have
given the Secretary the authority to prescribe alternative
methods of verifying returns on a trial basis for 1993, 1994 and
1995 and would have imposed a number of reporting requirements.
We believe that the broader grant of authority in the NPR
Proposals is more supportive of the Service's long-range

-3-

modernization goals than the more narrow trial-basis grant in
H.R. 11.
B.

Regulatory authority to permit payment of taxes by any
commercially acceptable means, including credit cards

The Code permits taxes to be paid by stamps, checks or money
orders. Under the Service's proposal, the Secretary would be
authorized to accept tax payments by any commercially acceptable
means to the extent prescribed by Treasury regulations. This
would include payment by credit or debit cards.
We believe this legislation is an important part of the
Service's strategy to shift from a paper-based remittance
processing system to an information processing system. An
identical proposal was contained in H.R. 11 (section 4122) and in
H.R. 13, the Tax Simplification Act of 1993 (section 122). Like
the signature proposal, the credit card proposal in H.R. 11 was
not enacted, because it was in a tax bill vetoed by the prior
Administration. Work on H.R. 13 was postponed pending
consideration of H.R. 2264, the Omnibus Budget Reconciliation Act
of 1993. The credit card proposal is now part of H.R. 3419, the
Tax Simplification and Technical Corrections Act of 1993, which
was introduced by Chairman Rostenkowski of the House Ways and
Means Committee on November 1, 1993.
C.

Regulatory authority to require that returns be filed
electronically or by magnetic media

The Code does not specifically authorize the Secretary to
require that tax returns be filed electronically. The Code does
authorize the Secretary to issue regulations requiring that
certain returns be filed on magnetic media or in other machinereadable form. These are returns (other than income tax returns
for individuals, trusts or estates) filed by a person who is
required to file at least 250 returns during a calendar year.
The regulations must take into account (among other factors) the
cost of complying with magnetic media filing requirements.
The Service has proposed that the Secretary be given
regulatory authority to require that tax returns be filed other
than in paper form, including electronically or by magnetic
media. This authority would extend to all tax returns, including
income tax returns for individuals, trusts and estates. The
Service envisions that the conversion to non-paper filings would
be phased in by various groups of taxpayers and returns, taking
into account the relative costs and other burdens associated with
converting to an electronic filing system.
Broad regulatory authority to require that returns be filed
other than in paper form is appropriate and essential to the
Service's ability to modernize its systems, streamline its

-4-

operations and, in general, deliver quality services at the least
cost. However, in view of the potential burdens on taxpayers and
preparers in complying with electronic or magnetic media filing
requirements, we currently are considering whether legislative
refinements to this proposal may be necessary to clarify the
intended scope and timing of the conversion to a non-paper based
system.
III.

Additional Legislative proposals

There are a number of additional legislative proposals that
we believe are important to modernize the tax collection and
administrative process.
For example, among the Service's NPR
Proposals is a new proposal that would authorize the Secretary to
prescribe alternative methods of submitting written declarations,
statements, or other documents required by statute to be attached
to returns. This proposal supplements the related proposal to
permit alternative signature methods and would facilitate
conversion to a paperless electronic filing system. As another
example, prior tax bills, as well as the Service's NPR Proposals,
include a provision authorizing the Service to treat
reproductions from digital images as original documents.
In
addition, we are carefully reviewing all of the legislative
recommendations outlined in the Service's NPR Proposals.
We appreciate your panel's interest in revamping the
Service's organizational structure and look forward to continuing
to work with you in addressing this important issue.

FOR RELEASE AT 2:30 P.M.
November 17, 1993

CONTACT:

Office of Financing
202/219-3350

TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $28,000 MILLION
The Treasury will auction $17,000 million of 2-year notes
and $11,000 million of 5-year notes to refund $14,483 million of
publicly-held securities maturing November 30, 1993, and to raise
about $13,525 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $1,146 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the pUblic include $1,284
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format.
All competitive and noncompetitive awards will be at the highest yield of accepted
competitive tenders.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms and
conditions set forth in the Uniform Offering Circular (31 CFR
Part 356, published as a final rule on January 5, 1993, and
effective March 1, 1993) for the sale and issue by the Treasury
to the public of marketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-514

HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED NOVEMBER 30, 1993
November 17, 1993
Offering Amount .

$17,000 million

Q~scr i12tign of Of fer in2:
Term anu type of security
2-year notes
Series
Series AD-1995
CUS I P numlJC~ r
912827 M9 0
Auction uJte
November 22, 1993
Receipt of Tenders
(Eastern Standard time) :
Noncompetitive tenders
Prior to 11:00 a.m.
Competitive tenders
Prior to 11:30 a.m.
Issue date
November 30, 1993
Dated date
November 30, 1993
Maturity date
November 30, 1995
Interest rate .
Determined based on the
highest accepted bid
yield .
Determined at auction
Interest Payment dates.
May 31 and November 30
Minimum bid amount
$5,000
Multiples .
$1,000
Accrued interest
payable by investor
None
Premium or discount .
Determined at auction

$11,000 million
5-year notes
Series U-1,),)8
912827 N2 4
November 23, 1993
Prior to 12:00 noon
Prior to 1:00 p.m.
November 30, 1993
November 30, 1993
November 30, 1998
Determined based on the
highest accepted bid
Determined at auction
May 31 and November 30
$1,000
$1,000
None
Determined at auction

The followinq rules apply to all securities mentioned above:
submission of Bids:
Noncompetitive bids .
. Accepted in full up to $5,000,000 at the highest accepted yield
(1) Must be expressed as a yield with two decimals, e.g., 7.10%
Competitive bids
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
Maximum Award .
Payment Terms .
. Full payment with tender or by charge to a funds account
at a Federal Reserve Bank on issue date

EMBARGOED FOR RELEASE
UPON DELIVERY
(APPROXIMATELY 2:00 p.m.)
TEXT AS PREPARED
FOR DELIVERY
statement of Susan B. Levine
Deputy Assistant Secretary of the Treasury
International Development, Debt and Environment
Before the
Committee on Banking, Finance, and Urban Affairs Subcommittee on
International Development, Finance, Trade and Monetary Policy
u.S. House of Representatives
November 18, 1993
Introduction

Mr. Chairman.

Members of the Committee. I appreciate your
invitation to testify on procurement opportunities for u.S. firms
with the multilateral development banks. This is an extremely
important issue for Treasury.
In testimony last spring, secretary Bentsen made it clear that
increasing business development and exports would be one of this
Administration's most important objectives in the multilateral
development banks. The u.S. already does well in this area,
better as you might imagine, than any other G-7 country.
Nevertheless, improving u.S. performance in this area is a key
item on this Administration's agenda for change in the
multilateral development banks.
Other agencies will clearly have major roles to play in this
process. The Department of Commerce and the Trade and Development
Agency are particularly valuable sources of support and technical
expertise. I am pleased that representatives of these two
agencies are here this afternoon.
We are working closely with both of these agencies to advance our
commercial interests in the multilateral development banks. Our
basic objectives are to assure that u.S. firms

LB 515

(1)

are made aware of business opportunities from the
multilateral development banks as early as possible in
the project cycle and

(2)

that they have a full and fair chance to compete
successfully with firms from other countries for this
increasingly important business.

- 2 -

The International context
We also need to look at this issue in a much broader context.
Last year, the united states exported more than $619 billion in
goods and services. Between 1987 and 1991, U.S. exports were the
primary engine of growth in our domestic economy, accounting for
39 percent of the increase in our gross domestic product over that
period.
As President Clinton has said, the united states cannot afford to
retreat from the international economy. For our own selfish
reasons, we need to help create a freer and more open
international trading system within which the global economy can
grow more rapidly. This approach will pay dividends on the home
front. It is, in fact, the only way in which we can assure our
nation's economic future and begin to create greater economic
opportunities for our own people.
Our efforts to increase global growth are crucial at a time when
economic growth has been negative or extremely slow in other
industrial countries. Each percentage point increase in growth in
other G-7 countries will result in more than $10 billion in u.S.
exports each year. Under the Uruguay Round, lower tariff and nontariff barriers to manufactured goods could increase world output
by more than $5 trillion over the next ten years and U.s. output
by more than $1 trillion.
Developing counties will also be affected. These countries have
been the most rapidly expanding export· market for U.S. merchandise
exports over the past five years. U.S. exports to them went from
just under $109 billion in 1987 to more than $181 billion in 1992.
That was an increase of more than sixty-six percent, more than
twice the rate of increase for our trade with other industrial
countries. Under the Uruguay Round, we believe that full
participation of developing counties in the global trading system
could increase U.S. exports by an additional $200 billion over the
next ten years.
The Reach of the Multilateral Development Banks
The Administration's approach to the multilateral development
banks is part and parcel of our overall approach to international
economic issues. The multilateral development banks playa
central role in the international economic system. They encourage
their borrowers to adopt policies that promote more rapid economic
growth and more open trading practices. They have a financial
reach that extends far beyond the capability of any single donor,
including the united states.
This year, development bank loan commitments to developing
countries will amount to more than $45 billion. Most of this

- 3 -

money has come from funds that are raised in private capital
markets and at no cost to the u.s. Government.
These loan commitments are a catalyst that increases the flow of
private investment to developing countries. This further enhances
the prospects for economic growth in those countries and creates
even larger and more rapidly expanding demand for exports of U.S.
goods and services.
Multilateral development bank loan commitments have gone to more
than 100 borrowing countries in Asia, Africa, Latin America and in
Central and Eastern Europe and the former soviet union. Many of
the countries that have received these loans such as Argentina,
Mexico and Pakistan have become important customers for U.S.
exports. In many instances, the largest MDB borrowers are also
the most important Export-Import Bank customers.
The multilateral development banks make loan commitments in many
economic sectors. Their loans identify potential customers for a
broad range of U.S. goods and services. The World Bank's sectoral
distribution of lending for its most recent fiscal year presents a
good example of the diversity of this market: agricultural and
rural development $3.3 billion or 13.8 percent of total lending;
transportation $3.2 billion or 13.4 percent; education $2.0
billion or 8.S percent; urban development $2.0 billion or 8.S
percent; and population, health and nutrition $1.8 billion or 7.6
percent. This is a large market of great diversity that we cannot
afford to stay out of.

Measuring

u.s. Performance

As I indicated at the outset, the most recent statistical data
that we have show that the United states is the most successful of
the G-7 countries in terms of contracts awarded or disbursements
made. The first chart at the end of my statement shows the U.S.
at the top with 'an estimated $2.2 billion over the most recent
fiscal years.
We do not have estimates for other countries in either the African
Development Bank or the European Bank. However, in the other
three banks for which we do have statistics, Germany and Japan
come next after the United States, with each of them getting
approximately $1.1 billion. Even in the Asian Development Bank,
the U.S. received procurement of $210 million, marginally ahead of
Japan with $206 million for calendar year 1992.
Also of note is how effective some of the developing countries
have become at winning contracts on multilateral development bank
projects. A second chart at the end of my statement ranks the top
eleven recipients in each of the banks for which we have
statistics. It shows India, Mexico and China in second, third and

- 4 -

fourth places respectively in the World Bank with Germany, Japan
and France in fifth, sixth and seventh places. The united Kingdom
shows up in ninth place after Brazil.
Assessing the Impact
Behind the overall figures I have just cited lie a multitude of
individual cases in which u.s. firms have won contract awards from
MDB financed projects. These firms come from every part of the
country. They include large international firms with extensive
experience on major projects as well as small and medium-sized
firms with more limited areas of expertise and experience. Taken
together, these firms provide a very broad array of U.S. goods and
services for MDB financed projects.
A few specific examples will show what I mean. McDermott
International of New Orleans, Louisiana is a large firm with
extensive international experience. In 1989, it led an
international consortium which won a $407 million contract to
develop the Oso off-shore oil condensate project in Nigeria. Of
that amount, $265 million has come directly to the United states
over the past three years to pay for compressors, generators,
piping, steel tubing and other goods and services needed to
complete the project.
The award of this contract has had a very positive impact on the
economy of New Orleans where McDermott's international
headquarters are located. We understahd that four hundred people
have worked on the contract there. Thirty other people have
worked on site in Nigeria and still more were engaged in
transporting barges and other equipment needed at the site.
The positive impact from the project was also felt in other parts
of the country through the activities of subcontractors hired by
McDermott. The compressors for the project came from Dresser
Industries in New York. The turbine generators came from General
Electric in California. Other important equipment came from
Crowley Machinery in the State of Washington.
Other Large Disbursements
O~her

u.s. firms that have received relatively large
d1sbursements on World bank projects during the past year include
American Cast Iron Pipe from Birmingham, Alabama ($11 million);
u.s. Chemical Resources from Tampa, Florida ($9.8 million);
Caterpillar from Peoria, Illinois ($12.9 million); Cargill
Incorp~rated from Minneapolis, Minnesota ($9.9 million); General
Electr1c.from New York ($10.5 million); Kellogg Overseas
Corporat10n from Dallas, Texas ($17.3 million); and sprint

-

5 -

International Communication Corporation from Reston, Virginia
($5.5 million).
A number of awards have also gone to consulting engineering firms
that prepare the feasibility and prefeasibility studies which are
the essential first steps in the project cycle. These firms also
provide other important services such as preparation of final
designs and project management and supervision.
A quick review of World Bank procurement data over the past year
shows the following firms which have received disbursements on
contracts of this type: Morrison-Knudsen of San Francisco,
California; Stokes Engineering Company of Weston Connecticut;
Deleuw Cather of Chicago, Illinois; Harza Engineering of Chicago,
Illinois; Camp, Dresser and McKee of Boston, Massachusetts; Black
and Veatch of Kansas City, Missouri; Louis Berger of East Orange,
New Jersey; and stone and Webster of New York.
u.S. accounting firms, management consulting firms, and other u.S.
companies and organizations that provide specialized services have
also done well in the MOBS. Last year, for example, the list of
u.S. companies winning MOB contracts included Deloitte, Haskins,
and Sells; Ernst and Young; Peat Marwick; Arthur D. Little; Booz,
Allen, and Hamilton; and Price Waterhouse. u.S. universities have
also done well. Last year's listing includes: the Midwest
University Consortium, the University of Connecticut, Tulane
University, Harvard University, Northeastern University, and the
University of Wisconsin.
We do not have separate statistics on minority and women-owned
firms, but last March, the African Development Bank's Board of
Directors approved a project for $2.3 million which resulted in a
contract being awarded to Theragen Incorporated of Capital
Heights, Maryland. The contract is part of the bank's private
sector development program. It supports a joint venture between
Theragen and the Swaziland Investment Trust in the development of
a pharmaceutical company in Swaziland. In recent years, two U.S.
minority-owned investment banks -- Pryor McClendon and Courts and
Doley Securities -- have served as co-managing underwriters for
African Development Bank yankee bond offerings.

Financial services and the Environment
Let me turn now to the financial services industry, one with which
I am quite familiar. Since 1989, the MOBs have raised more than
$62 billion in public bond offerings. Of this amount, nearly $50
billion or 78 percent was either managed or co-managed by U.S.
firms.
The environmental services industry is another key area which
stands to derive significant benefits from the MOBs' greatly

- 6 -

increased emphasis on environmental wor~.
~his work,i~clu~es
environmental impact assessment and monltorln~ and mltlg~tl0n ,
measures. u.s. firms have a strong technologlcal lead Vls-a-V1S
other countries in many important areas.
It is one of the most
promising areas for potential growth in the fu~u~e. ,Tha~ is one
of the benefits we expect to get from our partlclpatl0n ln the
Global Environment Facility.

MDB Reporting systems and Procurement policies
The procurement benefits I have just outlined are only the tip of
the MDB iceberg. On average, MDB financing has represented about
forty percent of the total costs of individual projects. The rest
of the financing has come from other sources such as export
promotion agencies and even more has come from the borrowing
countries themselves. This additional financing is shown in the
third chart at the end of my statement.
It is directly related to
MDB lending activity and, in many cases, gives u.s. suppliers an
important opportunity for further business which is not reflected
in the MDB reporting systems.
Other methodological issues arise with the reporting systems. MDB
statistics do not always capture procurement benefits accruing to
the United states. This is the case when U.s. firms bid through
their foreign subsidiaries or as part of a joint venture or subcontracting arrangement with foreign firms.
For example,
Caterpillar, one of the larger u.s. firms benefitting from MDB
business, has indicated there are specific instances in which
World Bank statistics did not fully capture the amount of business
that had accrued to their firm.
We are continuing to work with the MDBs to improve the accuracy
and comparability of information generated through their reporting
systems. We also want to develop additional information on the
importance of total project costs and subcontracting. Our overall
view, however, is that the information reported to us by the MDBs
is accurate and responsive to our needs.
There will always be some degree of distortion in any complex
statistical process. From our point of view, it is most useful to
focus on improving our outreach to the u.s. business community and
on assuring that U.s. firms are treated fairly in the awarding of
MDB contracts.
we,believe that MDB procurement policies and practices must remain
falr. Contracts above certain specific levels, which have varied
among the MDBS, must continue to be awarded on the basis of
intern~tional competitive bidding.
This is a time-consuming and
expe~s7ve process.
It requires preparation of detailed and
speclflc requests for tender, public announcements of the
requests, and public opening of bids that are submitted.

- 7 -

But we believe that this system is necessary in order to maintain
o~r ~ompetit~ve advantage.
In several important respects, MOB
b1dd1ng requ1rements are similar to those of the u.s. Government.
Overall, we believe that the MOBs emphasis on international
competitive bidding has served U.S. interests well.
some~imes

problems arise in the bidding process, and procedures
are 1n place, both within the banks and within the u.s.
Government, to deal with them. When we believe there is a
possibility that u.s. firms have not been treated fairly, we have
pursued those exceptions aggressively.
In some cases, we have been successful in reversing the awards of
contracts and in bringing about a new round of international
competitive bidding or in the cancellation of the loan amounts in
question when the borrower is unwilling to make amends. For
example, the World Bank cancelled $50 million of a loan to Turkey
for highway construction when that country was unwilling to
reverse an award.
Increasing

u.s.

Business

As I mentioned at the outset, we have a mandate to increase the
commercial benefits of u.s. participation in the multilateral
development banks. Our Executive Directors and Alternates are
instructed to make business development and exports one of their
highest priorities within the MOBS. We do not intend to treat
this issue as a purely technical issue! In all of the banks,
either the Director or the Alternate, with strong support from
staff, will take primary responsibility for business development
and procurement issues.
Within Treasury, we have created a new position: Assistant
Director for Business Development and Exports. This position has
been filled by a senior career official. He has overall
responsibility within the office of Multilateral Development Banks
for enhancing business outreach and for assuring that procurement
policy issues are resolved. He will take a broad approach to
these issues and seek to relate them more effectively to our other
important policy objectives within the MOBS. We now have two
professional staff members working on these types of issues at
Treasury.
The Inter-Agency Process
We are also working to improve inter-agency support for MOB
business matters. We rely heavily on the Commerce Department and
the Trade and Development Agency in our efforts to improve u.s.
commercial performance in the MOBS. Treasury has been a full
participant in the Trade Promotion Coordination Committee.

-

8 -

secretary Bentsen, Under-Secretary Summers, Assistant Secretary
Shafer, and I have all participated in this process.
We are pleased with the results of that process as they relate to
increasing our share of MOB business. ,commer~e has already,
assigned an additional commercial serV1ce off1cer to work w1th the
office of the u.s. Executive Director at the African Development
Bank and an additional environmental procurement officer is now in
the office of the u.s. Executive Director at the Asian Development
Bank. Additional commercial service staff are expected at the
other banks in the near future. The concept of one-stop shopping
for the MDBs has also been adopted at the Commerce Department in
order to facilitate the assistance provided to u.s. business.
We are working closely with the Trade and Development Agency to
support u.s. consulting engineers and other management consultants
at the earliest stages of the project cycle. Both agencies-Commerce and TDA-- will speak more to the specific details of
their own programs in the MOBS. I simply wanted to emphasize how
integral we believe their efforts are to the overall success of
our program in the MDBs. We cannot succeed without their
continuing and active involvement in encouraging a larger share of
business for u.S. firms.
Enhancing outreach to

u.s.

Business

Since the beginning of 1993, the multilateral development banks
and the u.s. Government have sponsore~ or participated in more
than 150 seminars or conferences designed to encourage
participation of u.s. firms in the work of the multilateral
development banks. Some of these seminars have been regularly
scheduled monthly or quarterly meetings held by the MDBs to
acquaint firms generally with the nature of their work and the
possibilities for doing business. Others have been targeted at
geographical areas within the United states or at MDB activities
in certain borrowing countries or in specific economic sectors
such as the environment or energy.
Earlier this month the Asian Development Bank concluded a series
of seminars for u.S. firms in Boston, Milwaukee, Portland, and
Honolulu. In June, a seminar on MOB work in the electric power
sector was held here in Washington with the participation of
app~oximately 150 U.S. firms including major contracting firms,
eng1neers and consultants, private bankers and other financial
services firms. Similar conferences have been held previously for
the telecommunications, agricultural, and environmental sectors.
We bel~eve these c~nferences and seminars have been very useful in
promot1ng u.S. bus1ness. We plan to continue them in the future.
~e are,very inte~ested, however, in developing new mechanisms for
1nvolv1ng the pr1vate sector more actively in our work at the MOBs

- 9 -

and in refining our approach to different sectors of the
business community.

u.s.

For example, we are making preliminary plans now for a seminar
targetted at small and medium-sized businesses with a special
focus on minority and women-owned firms that we hope will take
place in Chicago in the first quarter of next year. We believe
that these types of firms that have been active in international
activities may benefit from an approach that is specifically
tailored to their concerns.
Conclusion

My statement today has focused on the commercial aspects of our
national interest in the multilateral development banks. I do not
want to leave you with the idea that we are in any way
deemphasizing economic, political, strategic or humanitarian
objectives that we have pursued in these international
institutions. We will continue to work toward these and other
important foreign policy goals that we have within the banks.
What we are doing within Treasury is putting much more emphasis on
the commercial aspect of our participation in the banks. We
intend to work more closely with other government agencies and
with all members of the u.s. business community in this effort.
Frankly, in some cases, the most useful thing we can do is to get
out of the way and let the other gover~ent agencies and u.s.
business firms do the jobs they know how to do much better than we
do. In other cases, we believe we will be able to provide a
perspective or additional push that can help advance our
commercial interests in the MOBs and we are very committed to
doing that more effectively.
The final point I want to make is that we must also act to meet
our financial obligations to the MOBS. At this time, we have
arrearages in excess of $818 mil~ion. These ~rrear~ges.inter~er7
with the achievement of all our 1mportant pol1cy Ob)ect1ves w1th1n
the MOBS. This includes our long-term ability to generate greater
commercial opportunities. It is important that we begin to reduce
our arrearages over the next several years.

u.s.
World Bank/lDA: WBFY 1993

FIRMS GET LARGEST SHARE OF MDB G-7 PROCUREMENT

Inter-American Development Bank: CY 1992

(to June 30,1993)

(disbursements by address of payment)
United States
Germany
Japan
France
U.K.. (includes Hong Kong)
Italy
Canada

*

(disbursements by origin of goods - converuole currency only)

1393
846
846
743
727
386
192

8.0%
4.9%
4.9%
4.3%
4.2%
2.2%
1.1%

United States .........
Germany
Japan
Italy
Prance
United Kingdom
Canada

577
133
78
65
52
52
45

International Finance Corporation
African Development Bank Group: CY 1992

(private sector operations)
U.S. companies have participated as underwriters, company managers,
equity investors, capital goods suppliers, lenders, technical partners, •
& providers of technical assistance.

(disbursements by address of payment)
$66 million (estimated) to U.S. addresses.

Asian Development Bank Group: CY 1992
European Bank For Reconstruction & Development

(contract awards by country of procurement/origin of goods)

(mixed information base)
United States ..........
Japan
Germany
U.K..
Italy
Canada
France

210
206
134
82
72
34
21

7.7%
75%
4.9%
3.0%
2.6%
1.2%
0.8%

Consulting: U.S. received 15 % of contract awards in CY 1992.
Merchant banking: U.S. companies have participated in 38%
of merchant banking deals (6/91 to 9193).

I

I Oeveloe ment banking:

no meaningful data available as yet

• MOB Procurement: G -7 Shares of Total Procurement. Public data, for the most recent year available.
(in US$ millions and in percent).

11193

21.0%
4.8%
2.8%
2.4%
1.9%
1.9%
1.6%

u.s.
World Bank/lDA: WBFY 1993

LARGEST - -

BUT DEVELOPING COUNTRIES ARE IMPORTANT *

Inter-American Development Bank: CY 1992

(10 June 30, 1993)

(disbursements by address of payment)
United States ..........
India
Mexico
China (ex. Taiwan! H.Kong)
Germany
Japan
France
Brazil
U.K. (includes Hong Kong)
Indonesia
Argentina

(disbursements by origin of goods - convertible currency only)
1393
1279
1132
1089
846
846
743
815
727
727
567

8.0%
7.4%
6.5%
6.3%
4.9%
4.9%
4.3%
4.7%
4.2%
4.2%
3.3%

Asian Development Bank Group: CY 1992

..

(contract awards by country of procurement/origin of goods)
Indonesia
Pakistan
United States ..........
Japan
Philippines
India
China
Bangladesh
Korea
Germany
U.K.

292
246
210
206
172
171
152

144
135
134
82

10.7%
9.0%
7.7%
7.5%
6.3%
6.2%
5.5%
5.3%
4.9%
4.9%
3.0%

• MDB Procurement: Relative Shares Of Top 11 (in US$ millions and in percent).

United States .........
Brazil
Mexico
Chile
Argentina
Venezuela
Germany
Ecuador
Colombia
Japan
Italv

577
303
259
176
153
139
133
118
90
78
65

21.0%

11.0%
9.4%
6.4%
5.6%
5.1%
4.8%
4.3%
3.3%
2.8%
2.4%

African Development Bank Group: CY 1992
(disbursements by address of payment)

$66 million (estimated) to U.S. addresses.

European Bank For Reconstruction & Development
(mixed information base)
Consulting: U.S. received 15% of contract awards in CY 1992.
Merchant banking: U.S. companies have participated in 38%
of merchant banking deals (6191 - 9193).
Devel~ent banking: no meaningful data available aSJ'..et

public data for the most recent year available.

(percentages are of total procurement and include project and adjustment lending).

11193

u.s.

BUSINESS OPPORTUNITIES GO BEYOND MDB SHARE OF PROJECT COSTS.

WB & IDA - Total Project Costs: WBFY 1993. •
(in US$ millions and in percent of total project costs)

Total

All Projects
Total Project Costs

$58,69261

100%

IBRD/IDA

$23,695.9

40%

Local Contribution

$24,970.8

43%

Cofinancing

$10,025.9

17%

$3,194.8
$3,654.5
$1,218.1
$1,958.5

5%
6%
2%
3%

Other Multilateral
Bilateral
Export Credit
Private

•

[

Percent

Financing plans at the time of Board Approval.
Additional cofinancing may appear during project implementation.

11/93

Embargoed until after NAFfA vote
November 17, 1993

STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
I am gratified that the House has chosen the course of fair trade over
protectionism. This is an important victory, not only for President Clinton, but also for
Americans who want the better jobs that trade provides. Beyond improved access to
Mexico's market and a level playing field, this agreement holds the promise of even
stronger trading ties -- and more jobs -- throughout this hemisphere.
This administration will continue working to expand trade, through the GAIT
negotiations, through our talks with Japan, and through new ties with Asia, because trade
is a critical element in sustaining solid and steady growth in the U.S. economy.
This was a long and difficult campaign. It produced unusual alliances. Even
friends disagree now and then. With NAFfA behind us, we look forward to working
with our friends on the other issues on the American agenda, such as comprehensive
health care reform. Our goal is to strengthen the standard of living in this country, and
there is work to be done.
-30-

LB-S16

Forecast U.S. Exports to Mexico: "Post-NAFTA
Pro-Growth" Scenario
Billions of 1992 Dollars
$300
$250
$200
$150
$100
$50
$0
1992

2000

2010

2020

u.s. Trade Balance with Selected Countries, 1992
Billions of Dollars
$20
$10
$0
-$0.7
-$10

-$8.4

-$20

-$20.0

-$30

-$40
-$50

•
I

-$41.7
I

I

I

i

,

Mexico

France

Germany

China

Japan

u.s. Jobs Supported by Exports
to Mexico Pay More Than Other
U.S. Jobs

Average Hourly Wages ($/hr.)

11.32

11.20
10.83 11.01

10

8L-'- Ali Industries
_
_

Manufacturing

Services

All U.S. private sector, non-agricuHural employment
Employment supported by merchandise exports to Mexico

Value of Imports
Japan Has Benefited from Growth in Its Natural Market: Developing Asia
The U.S. Has Suffered from Slow Growth in latin America

Billion 1992
Dollars

600
Developing Asia , /

500
400
300
200
100
0
1972

~.........-

1976

, , ........_---_/

.....
~--

1980

~

"

Latin America

1984

1988

1992

• In the early 1970s the Latin American and the developing Asian markets were
equally large.
• Today the trade of Asian developing countries is four times Latin American trade.
Developing Asia's demand for imports has multiplied tenfold since 1972.
• The principal beneficiary of the growth of developing Asia has been Japan: a $12$15 billion a year market in 1972 is a $120-$150 billion a year market today.
• The principal beneficiary from a Latin American economic take-off would be the
United States. NAFfA would help spark such an acceleration of growth, and
would cement U.S. producers' position as the preferred source of First World
products in Mexico and the rest of Latin America.

Text as Prepared for Delivery
For Immediate Release
November 18, 1993

STATEMENT OF R. RICHARD NEWCOMB
DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL
UNITED STATES DEPARTMENT OF THE TREASURY
BEFORE THE
HOUSE FOREIGN AFFAIRS COMMITTEE

THE CUBAN DEMOCRACY ACT AND U.S. TRAVEL TO CUBA

I.

Introduction
Chairmen Torricelli, Gejdenson, and Berman; members of the subcommittees.

I am pleased to be here today to discuss the Cuban Democracy Act ("CDA"), the
embargo against Cuba, and travel related financial restrictions under the embargo. As
you know, the Treasury Department's Office of Foreign Assets Control ("FAC") is
responsible for implementing and enforcing economic embargoes and sanctions
programs.
In performing its mission, F AC relies principally on the President's broad powers
under the Trading With the Enemy Act ("TWEA") and the International Emergency
Economic Powers Act ("IEEPA") to prohibit or regulate commercial or financial
transactions involving specific foreign countries. F AC has policy, enforcement, regulatory
and operational responsibilities. These include rulemaking, licensing, criminal
enforcement, civil penalties, compliance, the blocking of foreign assets in the United
States, and the authority to require recordkeeping and reporting.
In developing, implementing, administering, and enforcing economic sanctions and
embargo programs, FAC maintains a close working relationship with numerous other
federal departments and agencies to ensure that the F AC mandate is properly
implemented and effectively enforced. Among these agencies are: the State
Department for foreign policy guidance in promulgating regulations and on sensitive
cases; the Commerce Department on issues regarding exports; the National Security
Council staff on significant policy questions and regulatory changes; the Customs Service
for assistance in the many enforcement matters involving exports, imports, transportation,
LB-517

and travel', and the b~lI1k reaulatorv
agencies
C>..
......
restrictions.

to

assure bank compliance with financial

II. The Provisions of the Cuban Democracy Act

The Cuba embargo, as it existed before the CD A, prohibited all commercial,
financial, and trade transactions by all persons subject to U.S. jurisdiction, which includes
U.S. citizens and permanent residents, wherever they are located, all people and
organizations physically located in the U.S., and all branches and subsidiaries of U.S.
organizations throughout the world.
The Cuban Assets Control Regulations ("CACR" ; the "Regulations") which
implement the embargo contained certain limited licenses or exemptions for specified
types of transactions in the following areas: limited family remittances, certain travel
transactions, trade in informational materials, and trade by U.S. foreign subsidiaries. It
is within this context that the CDA was enacted. The original program remains in effect,
as altered by the provisions of the CDA.
Today I would like to discuss the changes effected by the CDA regarding exports
of food and medicine, offshore trade by U.S. subsidiaries, and telecommunications.
a. Food

Section 1705(b) of the CDA provides that nothing in the Act, or any other law,
shall prohibit donations of food to nongovernmental organizations or individuals in
Cuba. Although donations of food to non-governmental organizations and individuals
are now exempt from the embargo, they continue to be monitored by the Commerce
Department.
b. Medicines and Medical Supplies

Under section 1705(c) of the CO A, exports of medicines and medical supplies are
allowed, subject to certain licensing requirements provided in subsection (d)(2). All
exports of medicine and medical supplies, without exception, require a specific license
from the Commerce Department if exported from the U.S.; or from FAC (and
potentially Commerce) if exported from a third country by a person subject to U.S.
jurisdiction. Both commercial sales and humanitarian donations can be licensed. For
medical exports to be licensed, the following four provisions must be met:

• the item(s) being donated would be permitted under section 203(b )(2) of
IEEP A, which restricts the misuse of such donations;
• there is a reasonable likelihood that the item(s) to be exported will not be used
2

for torture or human rights abuses;
• there is a reasonable likelihood that the item(s) to be exported will not be reexported; and
• the item(s) to be exported could not be used in the production of any
biotechnological product.
Commercial shipments of medicine and medical supplies to Cuba, in addition to
satisfying the four requirements listed above, must also satisfy requirements for U.S.
Government verification that the exported goods will be used for the purpose for which
they were exported and that they will be used for the benefit of the Cuban people.
There is no requirement for verification on donations of medicines to non-governmental
organizations; only the four criteria listed above are applicable to such donations.
I should add that the language of the CDA includes no exceptions for shipments
of small amounts of medicines to individuals, which used to be authorized for inclusion
in gift packages. This may have been a legislative oversight, and warrants the
Subcommittee's review for potential technical amendment. Accordingly, all shipments of
medicines, even those to relatives and even if valued under the limit for generally
licensed gift packages, must be specifically licensed.
So that all interested parties can have easily understood information, we plan to
incorporate a section on making humanitarian donations into our existing brochure titled
"Cuba: What You Need to Know About the U.S. Embargo."

c. Offshore Trade by U.S. Subsidiaries
Section 1706(a) of the CDA prohibits the issuance of licenses (pursuant to
section 515.559 of the Regulations) allowing offshore transactions with Cuba by foreign
subsidiaries of U.S. firms. The prohibition against issuing licenses is softened slightly in
that the CDA provides that the prohibition "shall not affect" contracts entered into
before the date of enactment of the CDA. Most such situations were brought to our
attention within weeks of passage of the CDA and licenses to allow completion of a preCDA contract have been issued where appropriate.

Total trade licensed under section 515.559 had risen from $332 million in 1989 to
$705 million in 1990 to $718 million in 1991. In 1992 trade had fallen to $336 million
and in 1993, reflecting the prohibitions of the CD A, to just $1.6 million.
The governments of Canada and the UK, which have normal trade relations with
Cuba, have issued blocking orders which prohibit companies organized under their laws
from complying with U.S. law with regard to prohibitions on trade with Cuba. In
3

addition, the Canadian order requires a Canadian company to report any instruction,
directive, or advice it receives from its parent corporation concerning trade with Cuba to
the Canadian government. Despite these measures that affect foreign subsidiaries of
U.S. companies in these countries, we intend to implement U.S. law as it is written and
hold firms subject to U.S. jurisdiction responsible for complying with the embargo. We
have entered into discussions with regulators in Canada and the UK to attempt to
minimize disputes arising from these contlicting legal requirements.

d. Telecommunications
An area of great interest has been telecommunications between the U.S. and
Cuba. Prior to the enactment of the CDA, telecommunications service, including phone
service, telexes, and telegraph service, was authorized on a highly regulated and
restricted basis by licenses issued by F AC. These licenses insured that the vast majority
of payments owed to Cuba would be placed in blocked accounts in the United States.
Service and transfers of new telecommunications technology have also been limited
consistent with the purposes of the embargo.

The CDA provision dealing with telecommunications directs the Government to
address telecommunications issues outside the prior system of laws and regulations that
make up the Cuban embargo. The CDA permits telecommunications services between
Cuba and the United States, notwithstanding other restrictions on transactions with
Cuba.
This broad authorization for services is coupled with some limitations on the
facilities that may be used in providing services to Cuba. The "quality and quantity" of
facilities are authorized as may be necessary "to provide efficient and adequate" services.
In implementing this mandate from Congress, the President, through the Executive
Branch, has determined what constitutes "efficient and adequate" service. After a review
conducted by the State Department in consultation with the Federal Communications
Commission ("FCC"), Treasury, and other agencies, as well as discussions with
telecommunications companies, State sent a policy guidance letter to the FCC outlining
the scope of new services to be allowed.
State's policy guidance specifies that new service proposals must be capable of full
implementation within a year; must be limited to equipment and services necessary to
deliver a signal to an international telecommunications gateway in Cuba; and new modes
of service (e.g., fiber optic cable) must be approved in advance. The letter contains
some technical requirements as well.
The CDA specifically provides that payments to Cuba will be made pursuant to a
license. We have published regulations establishing the procedures for securing such a
license. The CDA states that payments may be licensed for full or partial current
settlement with Cuba; however, the CDA does not provide for payments from blocked
4

accounts. As required by the statute, we will ensure that the CDA is implemented in a
manner consistent with the public interest. Under section 1710, I might add, the
Secretary of the Treasury must ensure that activities to support the Cuban people, newly
permitted under the CDA, are carried out only for the purposes set forth in the Act, and
not for the purpose of the accumulation by the Cuban Government of excessive amounts
of U.S. currency or the accumulation of excessive profits by any person or entity.
As a first step in implementing the CDA telecommunications policy, we have
issued licenses to telecommunications companies authorizing transactions incident to
their travel to Cuba for the purpose of negotiating to provide for telecommunications
services between the United States and Cuba.

III. Travel
As you may know, travel related transactions are authorized by general license for
individuals who are:
• Visiting close relatives residing in Cuba;
• Traveling on official government business for the U.S. or a foreign
government;
• Traveling for the purpose of news gathering; and
• Doing professional research of a noncommercial
academic nature, specifically related to Cuba, where the product of the research is likely
to be disseminated.
In addition, an individual may travel to Cuba "fully hosted or sponsored". That is,
all of the traveler's expenses in Cuba are paid for by a non-U.S. entity. A fully hosted or
sponsored traveler may not spend any money, except for exempt items, in Cuba nor
provide any services to Cuba, or a Cuban
national, during the visit.
Travel may also be authorized by specific license from FAC, on a case-by-case
basis, for humanitarian reasons, for participation in public events held in Cuba, for
representatives of recognized human rights groups, for clearly defined educational or
religious activities, and for activities involving the import or export of informational
materials, or the transmission of information.
In keeping with this specific licensing policy, FAC has authorized travel
transactions by representatives of several donating organizations. Representatives of
various religious groups often travel as the fully hosted guests of their church members in
Cuba or sponsored by an affiliate church group in a third country. We have also recently
5

licensed a seller of political and artistic posters to travel to Cuba to facilitate the import
and export of posters, which are exempt informational material.
The Supreme Court upheld restrictions on travel-related transactions with Cuba in
Regan v. Wald, 468 U.S. 111 (1984). The Court held that TWEA provides an adequate
statutory basis for the 1982 amendment to the CACR restricting the scope of permissible
travel-r~lated transactions with Cuba and Cuban nationals. The Court rejected the
argument that such a regulation violates the right to travel guaranteed by the Due
Process Clause of the Fifth Amendment to the Constitution. It held that, given the
traditional deference given to executive judgment in the realm of foreign policy, the Fifth
Amendment right to travel did not overcome the foreign policy justifications supporting
the President's decision to curtail the flow of currency to Cuba by restricting financial
transactions relating to travel to Cuban travel. The Court rejected the respondents'
argument that a restriction on travel was inappropriate because, in their view, there was
no "emergency" at the time with respect to Cuba and that the relations between Cuba
and the United States were then subject to only the "normal" tensions inherent in
contemporary international affairs.'" 468 U.S. at 242. The Court declined to secondguess the Executive branch on this foreign policy issue. lQ.
II'

IV. Challenges to the Cuba Embargo
We have recently faced organized challenges to the embargo from two groups.
These challenges have taken the form of protests involving unlicensed travel transactions
and the unlicensed export of goods.
An organization of ministers has sponsored and organized two vehicle caravans in
a protest of the Cuba sanctions. Having collected donations throughout the United
States for "humanitarian export to Cuba," the group attempted to cross into Mexico at
Laredo, Texas, in November 1992, and again July 1993, bound for Cuba. Statements
made by the group indicated that it did not intend to obtain prior authorization for the
export of goods to Cuba. Treasury officials met with members of the organization before
both actions in an effort to assist in lawful and orderly exportation of goods, but the
group refused to apply for a license for their exports. Nevertheless, upon having
ascertained that some of the items were qualified to be exported to Cuba, FAC provided
a letter authorizing the export of those articles for use by the group's intended recipient,
the Martin Luther King Memorial Center. The articles included school supplies,
clothing, bicycles (and bicycle parts), manual typewriters and other office equipment,
nonprescription medications, and various common medical supplies. The export of these
goods to the King Center was determined to be consistent with the CDA and current
U.S. policy with respect to Cuba.

The organization also attempted to cross the border with unauthorized
prescription medicines and other goods requiring a license. These were seized by the
Customs Service and later licensed, consistent with provisions of the CDA, and shipped
6

to Cuba.
We are advised that the organization is planning another protest this month, by
organizing a group to assist in a "construction brigade" which will help to build housing
in Cuba. They are also planning their third caravan, for February 1994, which will again
attempt to cross into Mexico at Laredo, Texas, with unauthorized goods destined for
Cuba.
Separately, a coalition of groups based in San Francisco organized approximately
170 U.S. citizens to travel to Cuba in protest of U.S. policy. The coalition chartered a
Cuban aircraft in Cancun, Mexico, and flew to Cuba on October 10, 1993. We believe
the majority of the travelers' transactions were in direct violation of the CACR and

TWEA.
The travel challengers returned to Cancun from Cuba on October 17, 1993, with
many continuing their travel to their respective home destinations within the next three
days. Approximately 120 participants in this travel challenge were identified upon their
return to the U.S. Some travelers may have been authorized by general license to
engage in travel-related financial transactions, such as individuals traveling for
journalistic activity or to visit close family relatives, and were not questioned further.
Other travelers were identified as suspected violators of the sanctions. The matter is
under discussion with the Justice Department, and it would be improper for me to
discuss it further at this stage of the investigation.

v.

Conclusion

We shall continue to work to ensure that all interested parties are aware of the
requirements of the embargo, the new provisions of the CDA, and the seriousness with
which we approach our task of enforcing this embargo -- fully and effectively, but also
fairly and impartially. We in the Treasury Department are available to answer questions
from the public, to assist in ensuring compliance with the embargo, and to continue full
enforcement of existing requirements until such time as Cuba begins to build a new
democratic government and the U.S. Government lifts the sanctions.
Thank you.

7

for Immediate Release

Monthly Release of U.S. Reserve Assets

The Treasury Department today released U.S. reserve assets data for the month of
October 1993.
As indicated in this table, U.S. reserve assets amounted to $74,550 million at the end
of October 1993, down from $75,835 million in September 1993.

U.S. Reserve Assets
(in millions of dollars)
End
of
Month

Total
Reserve
Assets

September
October

Gold
Stock 1/

Special
Drawing
Rights 1/J/

Foreign
Currencies

Reserve
Position in

1J

IMP 1/

75,835

11,057

9,203

43,474

12,101

74,550

11,056

9,038

42,548

11,908

1993

1/

Valued at $42.2222 per fine troy ounce.

1/

Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.

1/

Includes allocations of SDRs by the IMF plus transactions in SDRs.

1/

Valued at current market exchange rates.

LB-518

Text As Prepared for Delivery
For Immediate Release
November 19, 1993

REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
FEDERAL LAW ENFORCEMENT OFFICERS ASSOCIATION
ARLINGTON, VIRGINIA
Yesterday, I was asking some of our people who was the last Treasury Secretary
to be at one of these, and somebody has a good sense of humor. They told me it was
Alexander Hamilton.
I guess it's been a while since you've seen a Treasury Secretary, so I'm very glad
to be here.
In fact, I've been looking forward to this, because I want to tell all of you
something I don't think you hear often enough these days.
Thank you.
Thank you for the tough job you do every day. I appreciate it, and so does every
American.
I was in office about a month when they bombed the World Trade Center, and
then four brave ATF agents died in Waco, and a few months later three Customs agents
died in Georgia looking for drug smugglers. I can't describe for you the effect those
deaths have had on me.
I look around, and I read the headlines every day. The crime, the violence, the
drugs destroying our communities, the guns in the schools, the broken families, the kids
who wind up in the gutters.
And I ask myself: "What on earth happened to America?"
There's a great irony in all of this. As we see all these problems on the street,
our country is becoming a role model to the world.
I was at a meeting in France three years ago. A European got up and said:
"Look at the great changes in the world. The end of the Cold War. Europe and Asia
emerging as the world leaders. And America on the decline."
LB-519

2

Now, three years later much of Europe is in a recession. Japan is in a recession.
And America is not just a political and a military leader -- we remain the world's
economic leader -- the engine of growth in the world.
At Treasury, I wear two hats.
I worry about law enforcement, and I want to talk more about that one. And I
worry about our economy.
The two are related. In a perfect world, where everyone has great jobs and lots
of money and the economy is booming, there would be no excuses for many crimes.
We've seen progress on the economy. We're seeing steady, solid growth.
The lowest interest rates in two decades. Inflation is low. Unemployment is
down. The private sector has created more than a million jobs since January.
Are they all great and high paying? Not all of them.
Are they all in the middle of the cities, where the unemployment is high and
people need jobs? Not all of them.
I watch a lot of those big companies with a billion dollars to invest build their
plants in places you never heard of -- where their neighbors are cows, and cows don't
commit crimes.
Detroit, with a population of 1 million people, has just two auto assembly
factories. Marysville, Ohio, with a population of 10,000, also has two.
I see a proud city like Detroit, with mile after mile of neighborhoods with burned
out doors and windows cracked by bullets.
I see a proud city like Washington. In fact, three blocks from the Treasury
Building where I work, people sleep at a Metro station wrapped in dirty blankets with
their heads covered by the morning newspaper.
Is that the standard of living you'd expect in an industrialized nation? Or, is that
the standard you'd expect in a third-world country?
We're asking law enforcement officers to do a lot. To tackle problems of our
society that you shouldn't have to deal with. That you can't solve alone.

3
I don't know how to say this any other way -- but you're going to have to keep
dealing with them. We're here to talk about re-inventing law enforcement, but until we
re-invent some of our societal standards, we can't fix our country.
I know Treasury law enforcement people understand that. After they put their 40
or 50 or 60 hours in, I hear the stories of hundreds of them going back to the
communities they serve as volunteers -- as part of our Department's Project Outreach
program.
They mentor and they become role models to some of the unluckier kids who
have no father or mother at home. I encourage everyone of you to join programs like
that because we have to help children, one child at a time.
But look at the big picture. I've seen a lot of numbers on how much crime costs
our economy. One report has it at $100 billion a year. Another at $200 billion. Pick
which ever you want -- it's too much.
It's too much when our industry loses $60 billion a year to foreign producers of
counterfeit goods, or we lose thousands of jobs because of unlawful textile and apparel
transshipment.
So let me tell you how we're re-inventing law enforcement at Treasury under Ron
Noble's leadership.
We have a lot of tactics we're employing, because the criminals have a lot of new
tactics they're employing. I'll mention five of them.
The first doesn't take money. I never met a law enforcement officer who didn't
tell me they needed more money, more resources, more men or women. But this tactic
is called cooperation.
We want to work to minimize turf battles between federal law enforcement
bureaus. By the way, bonds that are built up at conferences like these are important.
I understand the importance of independence. I understand the importance of
free standing units. But I don't understand why we'd ever want to pick fights with one
another, rather than picking off the criminals on the street.
I intend to work with Attorney General Reno to minimize turf battles between
Justice and Treasury agencies, and to have Treasury agencies keep sharing our expertise
with state and local police as well.

4

A second tactic, and along these lines, is to take a task force approach to dealing
with organized criminal groups. I'm not just talking about fighting the drug groups. I
mean the terrorists, the counterfeiters, and the gun dealers.
Their wealth and power is too much to combat alone. We have to combine our
skills and resources -- and we're going to do more of that.
Third, we want to take steps to reduce the easy access of weapons of all kinds. I
was giving health care testimony on the Hill this week, and they asked me if I was for
taxing ammunition. And I said the Administration needs to consider it. I am for
anything that restricts the easy access to weapons of destruction.
There are over a quarter of a million gun dealers in the United States.
Under current laws ATF issues 1,000 new licenses every week. We charge $10 per
license. It costs more to buy a pepperoni pizza than to get a license. In some
jurisdictions, it appears to be easier to get a gun dealers license than it is to legitimately
purchase a target rifle.
Now I'm not optimistic that steps to bring this under control will reduce the gang
problem, but it is a beginning, and we must begin.
Fourth, we're stepping up our anti-money laundering activities.
At Treasury, we're in the money business. We make it at Engraving and Printing.
We borrow it to pay our bills. We collect it in the form of taxes at IRS -- and we see a
lot of tax cheats, but that's another speech. We regulate it at the financial institutions,
and we investigate financial crimes at the Secret Service.
But we sure have to do a better job of worrying about the illegal money. Gang
leaders and drug dealers don't stray from their money. Maybe the Cartel leader doesn't
have to see the drugs, but he sure checks the flow of cash.
We will be following the flow. We have set up a Money Laundering Review Task
Force from all entities at Treasury (you'll hear a lot more about that one). And we're
going to be expanding access to the data that Treasury collects on currency transactions.
Money laundering is an international problem, and it really hit home a couple of
months ago. I was getting ready for a meeting with my Mexican counterparts, and,
of course, our people prep me with everything you ever wanted to know about how
Mexico was curbing inflation, and strengthening the Peso, and privatizing its economy.

5
Well, I went to the meeting and the Mexican Finance Minister told me the most
important issue he wanted to work on was strengthening our common money laundering
activities. An extraordinary priority -- and one that I believe deserves that level of
attention.
Fifth, and finally, Treasury will help in addressing the gang problem by providing
effective and timely training. We believe the most important tools law enforcement
officers have aren't the ones they carry or load. It's the one between their ears.
Training, intelligence, and data support systems are critical in dealing with mobile and
sophisticated criminal enterprises.
A high priority of our Department will be the training provided at the Federal
Law Enforcement Training Center, as well as the specialized training available through
our bureaus.
Let me end with this. There is something very special to me about working with
law enforcement officers. I look at you, and I see men and women who put duty to our
country first.
It's a tough profession. One in which you can burn out and get disillusioned with
real fast. I've held a lot of jobs in my life. I used to own an insurance company, and I'll
tell you -- it's a lot easier to sell life insurance than it is to worry about money
laundering and gangsters and illegal immigrants.
I asked a question at the beginning: What on earth happened to America?
No, the more important question we all should be asking right now is: How can
we make America better -- and safer?
I wasn't there, but I think that's what Alexander Hamilton talked to your
enforcement ancestors about 200 years ago when they were inventing our government.
Let's work together to re-invent it.
-30-

~~

UBLIC DEBT NEWS t.~;·I·~1
" ...

Department at the Treasurv

•

Bureau a/the Public Debt • Washin~ton, DC 20239

1.<.

'~~Y'

"'~

CONTACT: Office of Financing
202-219-3350

FOR IMMEDIATE RELEASE
~ovember 22, 1993

RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $17,013 million of 2-year notes, Seri~s AD-1995,
be issued November 30, 1993 and to mature November ~Q, 1995
~ere accepted today (CUSIP: 912827M90).
~o

~~e ~~~erest rate on the ~otes will be 4 1/4~.
All
:ompecitive tenders at yields lower than 4.27% were acc~pted in
=~ll.
Tenders at 4.27% were allotted 47%. All noncomDetitive and
sucessful competitive bidders were allotted securities at the yield
:: ~.=7%, with an equivalen~ p~ice of 99.962.
The median yield
·.·;as ~.25~; :hat is, 50% of the amount of accepted comp~tltive bids
~ere :endered at or below that yield.
The low yield was 4.20%;
:~at is, 5% of the amount of accepted competitive bids were
~e~dered at or below that yield.

TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$46,584,445

Accepted
$17,013,294

The $17,013 million of accepted tenders includes $585

~illion of noncompetitive tenders and $16,428 million of

competitive tenders from the public.
In addition, $967 million of tenders was awarded at the
high yield to Federal Reserve Banks as agen~s.for forelgn.an~
~nternational monetary authorities. An addltlonal $596 mlillon
~f tenders was also accepted at the high yield from Feder~l
~eserve Banks for their own account in exchange for maturlng
securities.

LB-520

\
a~J,.0
UBLIC DEBT NEWS '~".•
?-f.hS{jIl);~'

«

Department of the Treasurv •

FOR IMMEDIATE RELEASE
November 22, 1993

Bureau afthe Public Debt • Washington, DC 20239

Tenders for $13,979 million of 13-week bills to be issued
November 26, 1993 and to mature February 24, 1994 were
accepted today (CUSIP: 912794J21).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
3.12%
3.14%
3.14%

Investment
Rate
3.19%
3.21%
3.21%

Price
99.220
99.215
99.215

Tenders at the high discount rate were allotted 24%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousanQ.s)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-S21

""~~

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS

Low
High
Average

.. \

Received
$51,864,871

Acce]2ted
$13,979,152

$46,635,592
1,203,115
$47,838,707

$8,749,873
1,203,115
$9,952,988

2,973,164

2,973,164

1,053,000
$51,864,871

1,053,000
$13,979,152

l

11

~.'

UBLIC DEBT NEWS t~d
Department of the Treasury

-

Bureau a/the Public Debt - Washington, DC 20239

FOR IMMEDIATE RELEASE
November 22, 1993

.Av~<c"J

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $14,056 million of 26-week bills to be issued
November 26, 1993 and to mature May 26, 1994 were
accepled today (CUSIP: 912794K78).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
3.28%3.30%3.30%-

Investment
Rate
3.38%3.40%3.40%-

Price
98.351
98.341
98.341

Tenders at the high discount rate were allotted 20%-.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED ( in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-S22

":.,litre \)£-

CONTACT: Office of Financing
202-219-3350

Received
$56,547,321

Accegted
$14,055,997

$51,331,426
874,195
$52,205,621

$8,840,102
874,195
$9,714,297

3,200,000

3,200,000

1,141,700
$56,547,321

1,141,700
$14,055,997

...

Monthly Treasury Statement

/

of Receipts and Outlays
of the United States Government
For Fiscal Year 1994 Through October 31, 1993, and Other Periods

Highlight

This issue includes budget estimates for full fiscal years 1994 and 1995, based on the appendix tables
in the Mid-Session Review of the FY 7994 Budget, released by the Office of Management and
Budget in September 1993.

RECEIPTS, OUTLAYS, AND SURPLUS/DEFICIT
THROUGH OCTOBER 1993

8
I
L

L

140
120
100

Contents
Summary, page 2
Receipts, page 6

80

Outlays, page 7

60
Means of financing, page 20

I

o

Receipts/outlays by month, page 26

N
S

Federal trust funds/securities, page 28

-20
-40 IL--~~
-60 -¥!========;~===::;Z:::======1
Compiled and Published by

Department of the Treasury

Financial Management Service

Receipts by source/outlays by
function, page 29
Explanatory notes, page 30

Introduction
of receipts are treated as deducllOns from gross receipts, revolVing and manage.
ment fund receipts, reimbursements and refunds of monies preViously expended are
treated as deductions from gross outlays, and Interest on the publiC debt (pu~~
Issues) is recognized on the accrual basIs Malor Information sources Inclu<k
accounllng data reported by Federal entities, disburSing officers, and Federal
Reserve banks,

The Monthl, Treasury Statement of Receipts and Outlays of the United States
GOI <'Inment IMTSIIS pie pared by the Financial Management Service, Department of
the Treasury and after approval by the Fiscal Assistant Secretary of the Treasury, IS
normally released on the 15th workday of the month following the reporting month
The publication IS based on data provided by Federal entIties, disbursing oHicers,
and Federal Reserve Dailks

Triad 01 Publications
The MTS is part of a triad of Treasury financial reports. The Darly Treasu'}
Statement is published each working day of the Federal Government It provides
data on the cash and debt operations of the Treasury based upon reporting of the
Treasury account balances by Federal Reserve banks. The MTS IS a report Of
Government receipts and outlays, based on agency reporting. The US Govemment
Annual Report is the offiCial publication of the detailed receipts and outlays of Ihe
Government. It is published annually in accordance With legislative mandates given
to the Secretary of the Treasury.

Audience
The MTS IS published to meet the needs of Those responsible for or Interested
In the cash poSition of the Treasury, Those who are responsible for or Interested In
the Governments budget results, and ,ndividuals and businesses whose operatIons
depend upon or are related to the Government's financial operations.

Disclosure Statement
ThiS statement summarizes the finanCial activities of the Federal Government
and off-budget Federal entities conducted in accordance with the Budget of the US
Government, Ie, receipts and outlays of funds, the surplus or defiCIt, and the means
of financing the defiCit or disposing of the surplus, Infonmation is presented on a
modified cash basIs receipts are accounted for on the basiS of collections; refunds

Dala Sources and Informalion
The Explanatory Notes secllOn of this publication proVides information conoemIng the flow of data Into the MTS and sources of information relevant to the MTS

Table 1. Summary of Receipts, Outlays, and the Deficit/Surplus of the U.S. Government, Fiscal Years 1993 and 1994,
by Month
[$ millions)

Period

FY 1993
October
November
December
January
February
March
April
May
June
July
August
September
Year-Io-Dale
FY 1994
October
Year-Io-Dale

Oullays

Receipls

Deficit/Surplus (-)

76,824
74,625
113,683
112,712
65,975
83,284
132,021
70,640
128,568
80,633
86,741
127,469

125,616
107,351
152,629
82,896
114,172
127,258
123,930
107,603
117,469
120,211
109,819
119,168

48,792
32,726
38,947
-29,817
48,197
43,974
-8,091
36,963
-11,099
39,577
23,078
-8,300

1,153,175

1,408,122

254,948

78,669

124,013

45,343

78,669

124,013

45,343

Note Details may not add to totals due to rounding

2

Table 2. Summary of Budget and Off-Budget Results and Financing of the U.S. Government, October 1993 and
Other Periods
[$ millions]

Total on-budget and off-budget results:
Total receipts

Budget
Estimates
Full Fiscal
Year'

Current
Fiscal
Year to Date

This
Month

Classification

Prior
Fiscal Year
to Date
(1993)

Budget
Estimates
Next Fiscal
Year (19951'

78,669

78,669

1,241,312

76,824

1,329,334

55,865
22,804

55,865
22,804

903.425
337,888

55,048
21,776

974,096
355,238

124,013

124,013

1,500,061

125,616

1,536,259

100,490
23,523

100,490
23,523

1,219,390
280.671

103,775
21,841

1,243,698
292,561

-45,343

-45,343

-258,748

-48,792

-206,925

-44,625
-719

-44,625
-719

-315,965
+57,217

-48,727
-65

-269,602
+62,677

Total on-budget and off-budget financing

45,343

45,343

258,748

48,792

206,925

Means of financing:
..............
Borrowing from the public .
Reduction of operating cash, increase (-) ..
By other means ,.
....................

4,255
33,646
7.442

4,255
33.646
7.442

265,244

-1,552
39.420
10.925

212,679

On-budget receipts
Off-budget receipts
Total outlays

...........

On-budget outlays
Off -budget outlays
Total surplus (+1 or deficit (-I
On-budget surplus (+1 or deficit (-I
Off-budget surplus (+1 or deficit (-)

'These figures are based on the appendix tables in the Mid-Session Review of the FY 1994
Budget, released by the OHice of Management and Budget in September 1993.

-6.496

.. No Transactions.
Note: Details may not add to totals due to rounding.

Figure 1. Monthly Receipts, Outlays, and Budget Deficit/Surplus of the U.S. Government, Fiscal Years 1993 and 1994

$ billions
Outlays
,,

.'

:
,

':

\".

'

-"

-- .. --'

Receipts

Dec.

Feb.

Jun.

Apr.

Aug.

Oct.

FY

FY

93

94

3

-5,754

Figure 2.

Monthly Receipts of the U.S. Government. by SO\Jrce, Fiscal Years 1993 and 1994

$ billions

ITolal ReceiptS]

Oct.

Figure 3.

Dec.

Feb.

Jun.

Apr.

Aug.

Oct.

FY

FY

93

94

Monthly Outlays 01 the U.S. Government, by Function, Fiscal Years 1993 and 1994

$ billions
Total Outlays

Apr.

Jun.

Aug.

Oct.

FY
FY

93

94

4

Table 3.

Summary of Receipts and Outlays of the U.S. Government, October 1993 and Other Periods
[$ millions]
Budget
Estimates
Full Fiscal Year'

This Month

Current
Fiscal
Year to Date

37.680
2,158

37.680
2,158

37.285
2,096

548,215
120,842

22.804
6.636
1.046
343
3.597
990
1.708
1.708

22.804
6,636
1,046
343
3,597
990
1.708
1,708

21,776
6,359
1,034
426
3,670
1,027
1,666
1,485

337,888
94,807
27,272
4,676
54,512
12,691
20,374
20,035

Total Receipts .................................................

78,669

78,669

76,824

1,241,312

(On-budget) ...........................•......................

55,865

55,865

55,048

903,425

.................................................

22,804

22,804

21,776

337,888

378
158
20
3,993
4.893
264
23,147
2.550
1.805
1.710

378
158
20
3.993
4,893
264
23,147
2,550
1.805
1,710

204
135
18
1,232
7,051
290
25,954
2,493
2,334
1,714

3,134
3,138
186
12,297
66,603
3,181
264,144
30,545
30.992
16,931

25.432
24,562
2.645
527
751
3,362
843
3.151

25,432
24,562
2,645
527
751
3,362
843
3,151

25,649
22,778
2,591
698
1,215
3,667
900
2,928

320,180
315,266
26,986
7,325
10,322
36,640
5,538
36,773

17.638
-102
2.806
430
239
1.079
3.335
14

17.638
-102
2,806
430
239
1,079
3.335
14

17,978
131
4,061
439
165
1,098
3,090
113

303,161
9,779
38,038
6,552
836
14,670
38,872
762

7
1,330

7
1.330

-2,578
2,224

5,231
23,279

-359
-2.593

-359
-2.593

-443
-2,510

-86,125
-45,175

Total outlays .................•.................................

124,013

124,013

125,616

1,500,061

(On-budget) .......................•..........................

100,490

100,490

103,775

1,219,390

.................................................
....................................

23,523

23,523

21,841

280,671

-45,343

-45,343

-48,792

-258,748

(On-budget) •....•......................•.....................

-44,625

-44,625

-48,727

-315,965

-719

-719

-65

+57,217

Classification

Comparable
Prior Period

Budget Receipts
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions:
Employment taxes and contributions (off-budget)
Employment taxes and contributions (on-budget) .
Unemployment insurance
Other retirement contributions
Excise taxes
Estate and gift taxes
Customs duties ., ...........
Miscellaneous receipts .

(Off-budget)

Budget Outlays
Legislative Branch
The Judiciary
Executive Office of the President
Funds Appropriated to the President
Department of Agriculture .'
Department of Commerce
Department of Defense-Military
Department of Defense-Civil
Department of Education
Department of Energy
Department of Health and Human Services, except SOCial
Security
. . . . . . . . . . . ..
Department of Health and Human Services, Social Security
Department of Housing and Urban Development
Department of the Interior
Department of Justice .
Department of Labor
Department of State
Department of Transportation
Department of the Treasury:
Interest on the Public Debt
............
Other
Department of Veterans Affairs .
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small BUSiness Administration
Other independent agencies:
Resolution Trust Corporation ..
Other
Undistributed offsetting receipts:
Interest
Other

(Off-budget)

Surplus (+) or deficit (-)

(Off-budget)

.................................................

'These figures are based on the appendix tables In the Mid-SeSSion Review of the FY 1994
Budget. released by the Office of Management and Budget In September 1993
Note' Details may not add to totals due to rounding.

5

Table 4.

Receipts of the U.S. Government, October 1993 and Other Periods
[$ millions]

Classification

Individual Income taxes:
Withheld
Presidential Election Campaign Fund
Other
Total-Individual income taxes

.........................

Corporation income taxes ....................................
Social insurance texes and contributions:
Employment taxes and contributions:
Federal old-age and survivors ins trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Deposits by States
Other
Total-FOASI trust fund
Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts from railroad retirement account
Deposits by States
Other
Total-FDI trust fund
Federal hospital Insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts from Railroad Retirement Board
Deposits by States
Total-FHI trust fund
Railroad retirement accounts:
Rail industry pension fund
Railroad Social Security equivalent benefit
Total-Employment taxes and contributions
Unemployment insurance:
State taxes deposited in Treasury
Federal Unemployment Tax Act taxes
Railroad unemployment taxes
Railroad debt repayment
Total-Unemployment insurance
Other retirement contributions:
Federal employees retirement - employee
contributions
Contributions for non-federal employees
Total-Other retirement contributions ..
Total-Socia' insurance taxes and
contributions ........................................

Gross
Receipts

J

Refunds
(Deduct)

Prior Fiscal Year to Date

Current Fiscal Year to Date

This Month

I Receipts
.

Gross
Receipts

I (Deduct)
Refunds I Receipts

Gross
Receipts

34,513

34.284
27
4.053

34,284
27
4,053

I (Deduct)
Refunds IReceipts

(")

3,583

38,364

684

37,680

38,095

811

37,285

2,158

4,269

2,111

2,158

4,291

2,194

2,096

20,597

20,597

20,597

20,597

19,678

19,678

....

(' ')
( )

....

-11

38,364
4,269

(
(

684
2,111

)
)

37,680

..

r..'))

(
(

)
)

-11

(

20,597

19,667

19,667

2,207

2,109

2,109

20,597

20,597

20,597

2,207

2,207

2,207

.. )

.. )

..)

..)

2,207

2,207

2,109

2,109

6,328

6,328

6,328

6,057

6,057

..

..)

(' ')

6,328

6,328

6,328

173
135

173
135

(

..)

29,440

29,440

(

4

804
238
5

804
241
5

4

1,046

1,050

338
5

338
5

343

29,440

(

804
241
5
(

)

.. )

..

..

..)

(

(

6,328

6,057

6,057

173
135

172
137

7

165
137

..)

29,440

28,142

7

28,135

4

804
238
5

..)

780
249
10
2

4

1,046

1,040

338
5

338
5

418
8

418
8

343

343

343

426

426

(

1,050

..)

(

2,207

6,328

..

..)

)

(

2,207

(

(

(

(

173
135

..

)

(

(

(

..

(

..)

(

(

(

)

..)

..)

)

(

7

7

)

780
242
10
2
1,034

30,832

4

30,828

30,832

4

30,828

29,608

14

29,594

1,716
439
1,420
55

31

1,685
439
1,419
55

1,716
439
1,420
55

31

1,685
439
1,419
55

1,844
397
1,412
54

35

1,809
397
1,411
54

3,630

32

3,597

3,630

32

3,597

3,706

36

3,670

Estate and gift taxes ..... , .. ' ......... , ......................

1,015

25

990

1,015

25

990

1,044

17

1,027

...............................................

1,798

90

1,708

1,798

90

1,708

1,736

70

1,666

1,524
185

1,524
184

1,524
185

1,524
184

1,148
337

(

..

)

1,148
337

1,709

1,708

1,709

1,708

1,485

(* *)

1,485

78,669

81,617

2,948

78,669

79,966

3,142

76,824

55,865

58,813

2,948

55,865

58,190

3,142

22,804

22,804

22,804

21,776

Excise taxes:
Miscellaneous excise taxes'
Airport and airway trust fund
Highway trust fund
Black lung disability trust fund
Total-Excise taxes

Customs duties

.....................................

Miscellaneous Receipts:
DepoSits of eamlngs by Federal Reserve banks
All other

81,617

2,948

Total -

........................
Receipts ........................................
On-budget ......................................

58,813

2,948

Total -

OH-budget

......................................

22,804

Total Total -

Miscellaneous receipts

(•• ) Less than $500.000
Note Details may not add to totals due to rounding

Iinciudes amounts for Windfall profits tax pursuant to P.L 96-223
No Transactions

6

55,048
21,716

Table 5.

Outlays of the U.S. Government, October 1993 and Other Periods
[$ millions]

Classification

Legislative Branch:
Senate
House of Representatives
JOint items
Congressional Budget Office
Architect of the Capitol
Library of Congress
Government Printing Office:
Revolving fund (net)
General fund appropriations
General Accounting Office
Umted States Tax Court
Other Legislative Branch agencies
Proprietary receipts from the public
Intrabudgetary transactions

Current Fiscal Year to Date

Prior Fiscal Year to Date

Gross !APPlicable! Outlays
Outlays
Receipts

Gross !APPlic.able! Outla s
Outlays
Receipts
y

Gross !APPlic.able! Outlays
Outlays
Receipts

37
61
8
2
20
198

(")

.....................................

37
60
8
2
20
198

37
61
8
2
20
198

13
3
35
2
3

13
3
35
2
3

Total-Agency for International Development

Total-Funds Appropriated to the President

(")

(")

(")
(")

2

204

151
6

(")

151
6

151
6

(")

151
6

133
1

(")

133
1

158

(

158

158

(<0)

158

135

(

4
5
10

4
5
10

4
5
10

4
5
10

3
5
9

3
5
9

20

20

20

20

18

18

41
1,865
1,400
3

52
1,865
1,400
3

41
1,865
1,400
3

60
178
117

..

)

10

2

2

9

2
-9

20

3,302

3,322

194
9
129

194
9
129

331
130
46
48

10

..

)

13

135

47
178
117

(")

(. ')

1
2
12

1
2
-12

25

334

9

2
-9

20

3,302

358

194
9
129

194
9
129

186
45
137

186
45
137

331

331

331

369

369

130
46
48

130
46
48

130
46
48

135
83
39

135
83
39

34

7
38

26
-38

34

7
38

26
-38

38

3
39

36
-39

257

46

212

257

46

212

295

41

254

12

14
2
9

12

18
4
3

19

(")

14
-9
9

)

18
-15
3

57

557

690

61

629

218

443

(")

46
1,035

35
1,025

(")

(")

..)

1,166

-1,166
(")

3

5,236

1,243

3,993

2,555

14
2
9

(")

14
-9
9

614

57

557

614

218

218

(' ')

46
1,035

46
1,035

(")

(")

1,166

-1,166

46
1,035
(

..)

5,236

..

(

(")

...........

-13
7
43
2
4

(")

-1

35
57
7
2
23
36

206

218

International Monetary Programs
Military Sales Programs:
Special defense acqu'lsition fund
Foreign military sales trust fund
Kuwait civil reconstruction trust fund
Proprietary receipts from the public ......
......... , ...
Other

-13
7
43
2
4

1

378

Peace Corps
Overseas Private Investment Corporation
Other
Total-International Development Assistance

-1

13
3
35
2
3

(")

2

3,322

Total-Multilateral Assistance

-1

35
58
7
2
24
36

379

...............

Agency for International Development:
Functional development assistance program
Sub-Saharan Africa development assistance
Operating expenses
Payment to the Foreign Service retirement and
disability fund
Other.
Proprietary receipts from the public
Intrabudgetary transactions

(")

(")

37
60
8
2
20
198

378

52
1,865
1,400
3

International Development ASSistance:
Multilateral ASSistance:
Contribution to the International Developrnent
ASSOCiation
International organizations and programs
Other

1

2

..............

Total-International Security ASSistance

(")

379

Executive Office of the President:
Compensation of the President and the White House
Office
Office of Management and Budget
Other

Funds Appropriated to the President:
International Security Assistance:
Guaranty reserve fund
Foreign military financing grants
Economic support fund
Military assistance
Peacekeeping Operations
Other
Proprietary receipts from the public

1

-1

The Judiciary:
Supreme Court of the United States
Courts of Appeals, District Courts, and other judicial
services
Other

Total-Executive Office of the President

(")

13
3
35
2
3

Total-Legislative Branch ................................

Total-The Judiciary

This Month

1,243

7

)

3,993

(

..

(

443
40

-5
1,025

1,197

-1,197
3

1,323

1,232

(")

Table 5. Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions)
-

-

Classification

Department of Agriculture:
Agricultural Research Service
Cooperative State Research Service
Extension Service
Animal and Plant Health Inspection Service
Food Safety and Inspection Service
Agricultural Marketing Service
SOil Conservation Service
Watershed and flood prevention operations
Conservation operations
Other
Agricultural Stabilization and Conservation Service:
Conservation programs
Other
Farmers Home Administration'
Credit accounts'
Agricultural credit Insurance fund
Rural housing Insurance fund
Other
Salaries and expenses
Other

This Month

Current Fiscal Year to Date

Prior Fiscal Year to Date

Gross I Applicable I Outlays
Outlays
Receipts

Gross )APPlicablej
Outlays
Receipts
Outlays

Gross IAPPlicablej Outls s
Outlays
Receipts
Y

56
33
33
33
38
110

56
33
33
33
38
109

56
33
33
33
38
110

56
33
33
33
38
109

76
36
32
49
51
64

76
36
32
49
51
64

26
39
6

26
39
6

26
39
6

26
39
6

22
59
9

22
59
9

507
47

507
47

507
47

507
47

1,631
36

1,631
36

146
-5

247
254

146
-5

211
272

46
6

46
6

46
6

64
8

193

552

193

556

-51

-51

-51

-140

107
26
6
58
151

1
292
72

64
26
5
-234
80

121
24
6
92
92

.. )

1,358

408

950

(00)

(00)

2,062
-3

2,053
439
239
34

2,053
439
239
34

2053
439
239
34

2,053
439
239
34

1,951
571
245
139

1,951
571
245
139

2.766

2,766

2,766

2,766

2,905

2,905

122
9
102

122
9
102

122
9
102

122
9
102

101
13
162

101
13
162

233

233

233

233

275

275

45
-111

47

45
-111

58

3
86

55
-66

(00)

(00)

4,893

6,181

4,893

8,112

1,062

7,051

21
34
22

22
34
22

21
34
22

20
50
31

164
-3
23
11

(00)

162
3
19
10

(00)

162

3

163
-3
23
7

3

19
7

4

191

194

3

191

9
-12

8

12

10

8
-10

16

264

304

14

290

247
254
46
6

Total-Farmers Home Administration

552

Foreign assistance programs
Rural Development Administration
Rural development Insurance fund
Rural water and waste disposal grants
Other
Rural Electrification Administration
Federal Crop Insurance Corporation
Commodity Credit Corporation:
Price support and related programs
National Woel Act Program

-51

Food and Nutrition Service:
Food stamp program
State child nutrition programs
Women, Infants and children programs
Other
Total-Food and Nutrition Service
Forest Service:
National forest system
Forest service permanent appropriations
Other
Total-Forest Service

Department
Economic
Bureau of
Promotion

359

107
26
6
58
151

1
292
72

64
26
5
-234
80

1,358

408

950

(

..)

47

Other
Proprietary receipts from the public
Intrabudgetary transactions
Total-Department of Agriculture

101
259

43

(

2
111

(00)

.......................

of Commerce:
Development Administration
the Census
of Industry and Commerce

6,181

1,288

22
34
22

SCience and Technology
National Oceanic and Atmospheric Administration
Patent and Trademark Office
National Institute of Standards and Technology
Other

164
-3
23
11

(00)

3

163
-3
23
7

Total-SCience and TeChnology

194

4

191

194

Other
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts

9

9
-12

9

12

16

264

280

Total-Department of Commerce

.......................

280

8

101
259

359

43

2
111

145
275

65
-3
64
8

420

135
-140

33

..

(

)

190
65
265

86
24
6
-98
27
1,796
-3

(00)

1,288

19
50
31

3

Table 5. Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Department of Defense-Military:
Military personnel:
Department of the Army
Department of the Navy
Department of the Air Force
Total-Military personnel
Operation and maintenance:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies
Total-Operation and maintenance.
Procurement:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies

...........

Total-Procurement
Research. development. test. and evaluation:
Department of the Army
Department of the Navy
Department of the Air Force
. . . . . . . . . ..
Defense agencies
Total-Research. development. test and evaluation
Military construction:
Department of the Anmy
Department of the Navy
Department of the Air Force
Defense agencies

.

. . . . . .. . . . .

Total-Military construction
Family housing:
Department of the Anmy
Department of the Navy
Department of the Air Force
Defense agencies
Revolving and management funds:
Department of the Anmy
Department of the Navy
Department of the Air Force
Defense agencies:
Defense business operations fund
Other.
Trust funds:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies
Proprietary receipts from the public:
Department of the Army ..
Department of the Navy
Department of the Air Force
Defense agencies
Intrabudgetary transactions:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies:
Defense cooperation account
Voluntary separation incentive fund
............
Other.
Offsetting governmental receipts:
Department of the Army
Defense agencies:
Defense cooperation account
Total-Department of Defense-Military

This Month

Current Fiscal Year to Date

Prior Fiscal Year to Date

GrOSSIAPPlicable I Outlays
Outlays
Receipts

Gross IAPPlic.ablei Outla s
Outlays
Receipts
y

Gross IAPPlicablel Outla s
Outlays
Receipts
y

2.204
2.241
2.190

2.204
2.241
2.190

2.204
2.241
2.190

2.204
2.241
2.190

3.519
3.045
2.646

3.519
3.045
2.646

6.634

6.634

6.634

6.634

9.210

9.210

1.519
1.599
1.694
1.601

1.519
1.599
1.694
1.601

1.519
1.599
1.694
1.601

1.519
1.599
1.694
1.601

2.032
1.305
1.720
1.468

2.032
1.305
1.720
1.468

6.413

6.413

6.413

6.413

6.526

6.526

749
2.116
1.998
269

749
2.116
1.998
269

749
2.116
1.998
269

749
2.116
1.998
269

1.047
2.487
1.834
330

1.047
2.487
1.834
330

5.131

5.131

5.131

5.131

5.698

5.698

462
506
1.337
682

462
506
1.337
682

462
506
1.337
682

462
506
1.337
682

480
581
1.257
684

480
581
1.257
684

2.987

2.987

2.987

2.987

3.002

3.002

53
91
95
166

53
91
95
166

53
91
95
166

53
91
95
166

50
80
126
136

50
80
126
136

404

404

404

404

393

393

75
64
82
8

75
64
82
5

75
64
82
8

75
64
82
5

66
81
67
5

66
81
67
5

-99
-17

-99
-17

-99
-17

-99
-17

41
15

1,697
-12

1,697
-13

1,697
-12

1.697
-13

858
-8

(

)

(")

(")

(")

(

8

9
1
49

8

6
6
4

3

(

(' ')

..............

9
1
49

(")

49
118
129
106
191

.............

..

-118
-129
-106
-191

3

(")

49
118
129
106
191

-118
-129
-106
-191

(")

41
15

..)
..)

858
-8

2
5

4
1
4

26
137
94
239

-26
-137
-94
-239

(")

123
11
90

123
11
90

123
11
90

123
11
90

123
793
15

123
793
15

(")

(")

(")

(")

-5

-5

47

47

47

47

-412

-412

23,696

550

9

23,147

23,696

550

23,147

26,484

25

·25

530

25,954

Table 5.

Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Department of Defense-Civil
Corps of Engineers
Construction, general
Operation and maintenance, general
Other
Proprietary receipts from the public

This Month

Current Fiscal Year to Date

Prior Fiscal Year to Date

Gross /APPlicablej Outlays
Outlays
Receipts

Gross lAPPlicable lOti
Outlays
Receipts
u ays

Gross )APPlic.able) Outla 5
Outlays
Receipts
y

94
122
196

9

80
87
164
-9

9

322

411

11,908

11,908

12,273

12,273

2,218
-11,908
8
2
-1

2,218
-11,908
8
2

2,218
-11,908
8
2
-1

2,088
-12,273
13
3

1

2,088
-12,273
13
2
-1

2,550

2,560

2,550

2,516

23

2,493

387
6
117
1
6

387
6
117
1
6

387
6
117
1
6

387
6
117
1
6

527
29
139
1
7

527
29
139

516

516

516

516

702

702

80
87
164

9

80
87
164
-9

9

322

332

11.908

11.908

2,218
-11,908
8
2

80
87
164
332

Total-Corps of Engineers
Military retirement
Payment to military retirement fund
Retired pay
Military retirement fund
Intrabudgetary transactiOns
Education benefits
Other
Proprietary receipts from the public
Total-Department of Defense-Civil

...................

Department of Education:
Office of Elementary and Secondary Education:
Compensatory education for the disadvantaged
Impact aid
School Improvement programs
Chicago litigation settlement
Indian education
Other
Total-Office of Elementary and Secondary
Education

(' ')

2,560

10

(")

10

22

94
122
196
22

22

390

(' ')

7

Office of Bilingual Education and Minority Languages
AffairS
Office of Special Education and Rehabilitative Services:
Special education
Rehabilitation services and disability research
Special institutions for persons With disabilities
Office of Vocational and Adult Education

15

15

15

15

17

17

224
183
6
71

224
183
6
71

224
183
6
71

224
183
6
71

199
149
10
130

199
149
10
130

Office of Postsecondary Education:
College hOUSing loans
Student financial aSSistance
Federal family education loans
Higher education
Howard University
Other

703
-35
65
7
-2

-11
703
-35
65
7
-2

703
-35
65
7
-2

-11
703
-35
65
7
-2

708
229
112
19
-2

11

727

738

11

727

1,066

34
34
4

34
34
-4

31
45

4

34
34
-4

15

1,805

1,821

15

1,805

2,349

1,083

1,083

1,083

1,083

1,139

1,139

120
300
3
31
33
16
27
29

(' ')

120
300
3
31
33
16
27
28

120
300
3
31
33
16
27
29

(")

120
300
3
31
33
16
27
28

132
269
126
29
30
17
34
41

(")

132
269
126
29
30
17
34
41

558

(

558

558

(")

558

677

(")

677

167
29

103

91

221

2

78
29
-58
22
-2

193
48

2

78
29
-58
22
-2

89

-221
-17
-1

149

1,710

1,860

149

1,710

325

1,714

11

Total-Office of Postsecondary Education
Office of Educational Research and Improvement
Departmental management
Proprietary receipts from the publiC
Total-Department of Education

........................

Department of Energy:
AtomiC energy defense actiVities
Energy programs
General sCience and research activities
Energy supply, Rand 0 activities
Uranium supply and enrichment activities
FOSSil energy research and development
Energy conservation
Strategic petroleum reserve
Nuclear waste disposal fund
Other
Total-Energy programs
Power Marketing Administration
Departmental administration
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
Total-Department of Energy."", ...... ,., ... " ... " ...

738
34
34
1,821

167
29

..)
89
58

22
1,860

10

11

58
22

13

-13
708
229
112
19
-2

13

1,053

2

31
45
-2

16

2,334

48

-17
2,040

Table 5. Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Department of Health and Human Services. except Social
Security:
Public Health Service:
Food and Drug Administration
Health Resources and Services Administration
Indian Health Service
Centers for Disease Control
National Institutes of Health
Substance Abuse and Mental Health Services
Administration
Agency for Health Care Policy and Research
Assistant secretary for health

This Month

Current Fiscal Year to Date

Gross !APPlicable! Outlays
Outlays
Receipts

Gross - (APPlicabl;1 Outlays
Receipts
Outlays

7,394
3,765

7,394
3.765

6,215
3,198

6,215
3,198

7,338
94

7,338
94

7,338
94

7,215
84

7,215
84

7,432

7,432

7,432

7.432

7,299

7.299

4,520
129

4,520
129

4,520
129

4,520
129

4.748
103

4.748
103

4,650

4,650

4,650

4,650

4,851

4,851

18

18

18

18

49

49

23,259

23,259

23,259

23.259

21.613

21.613

977
69
1,924

977
69
1.924

977
69
1.924

977
69
1.924

1,523
67
3.101

1,523
67
3.101

2.970

2,970

2,970

2.970

4.691

4.691

1,446
453
38
42
42
38
59
138
285

1,446
453
38
42
42
38
59
138
285

1.446
453
38
42
42
38
59
138
285

1,446
453
38
42
42
38
59
138
285

1,436
208
17
39
36
13
7
109
285

1,436
208
17
39
36
13
7
109
285

255

255

255

255

28

28

2,797

2,797

2,797

2,797

2,178

2,178

43
16

43
16
-1.354

43
16

43
16
-1,354

64

-3,765

-3.765

-3.765

-3.198

25,432

26,786

25,432

26,786

7,394
3,765

7,394
3,765

7,338
94

...............

Federal supplementary medical insurance trust fund:
Benefit payments
Administrative expenses and construction

Total-Health Care Financing Administration
Social Security Administration:
Payments to Social Security trust funds
Special benefits for disabled coal miners
Supplemental security income program
Total-Social Security Administration
Administration for children and families:
Family support payments to States
...........
Low income home energy assistance
Refugee and entrant assistance
Community Services Block Grant
Payments to States for afdc work programs
Interim assistance to States for legalization
Payments to States for child care assistance .......
SOCial services block grant
Children and families services programs
Payments to States for foster care and adoption
...........
assistance
Other
Total-Administration for children and families
Administration on aging
Office of the Secretary
...........
Proprietary receipts from the public
Intrabudgetary transactions:
Quinquennial transfers to the general fund
From FHI, FOASI. and FDI
Payments for health insurance for the aged:
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund
Payments for tax and other credits:
Federal hospital insurance trust fund
Other
Total-Department of Health and Human Services,
except Social Security ................................

60
137
152
116
692

1,438

1,467

Other

Outlays

1,467

1,467

200
10
51
1,467

Total-FSMI trust fund

(")

I

226
-7
63

200
10
51

Total-FHI trust fund

Applic.able
Receipts

200
10
51

200
10
51

Federal hospital insurance trust fund:
, ............
Benefit payments ..
Administrative expenses and construction .....
Interest on normalized tax transfers ...........
Quinquennial transfers to the general fund from FHI

I

60
137
152
116
692

(' ')

60
131
136
98
781

Health Care Financing Administration:
Grants to States for Medicaid
Payments to health care trust funds

Gross
Outlays

60
131
136
98
781

60
131
136
98
781

60
131
136
98
781

Total-Public Health Service

Prior Fiscal Year to Date

(")

1,354

-3,765

26,786

1,355

11

(")

(")

1.354

1,355

226
-7
63
(")

1,137

1,438

64
-1,137

-3,198

1,137

25,649

Table 5.

Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]
This Month
Gross _)APpliC&ble! 0 tl
Outlays
Receipts
u ays

Department of Health and Human Services, Social
Security (ott-budget):
Federal old-age and survivors Insurance trust fund:
Benefit payments
Administrative expenses and construction
Payment to railroad retirement account
Interest expense on Intertund borrowings
Interest on normalized tax transfers
QUinquennial transfers to the general fund from
FOASI
Total-FOASI trust fund
Federal disability Insurance trust fund:
Benefit payments
Administrative expenses and construction
Payment to railroad retirement account
Interest on normalized tax transfers
QUinquennial transfers to the general fund from FDI
Total-FDI trust fund
Proprietary receipts from the public
Intrabudgetary transactions'
Total-Department of Health and Human Services,
Social Security(olf-budget) . _.... _.......................
Department of Housing and Urban Development:
Housing programs'
Public enterprise funds
Credit accounts'
Federal housing administration fund
Housing for the elderly or handicapped fund
Other
Rent supplement payments
Homeownershlp assistance
Rental housing assistance
Rental housing development grants
Low-rent public housing
PubliC housing grants
College housing grants
Lower Income housing aSSistance
Section 8 contract renewals
Other
Total-HOUSing programs
PubliC and Indian Housing programs:
Low-rent public housing-Loans and other expenses
Payments for operation of low-income housing
prOjects
Community Partnerships Against Crime
Total-PUblic and Indian Housing programs
Government National Mortgage Association:
Management and liqUidating functions fund
Guarantees of mortgage-backed securities
Total-Govemment National Mortgage Association
Community Planning and Development:
Community Development Grants
Other
Total-Community Planning and Development
Management and Administration
Other
Proprietary receipts from the public
Other
Offsetting governmental receIpts
Total-Department of Housing and Urban
Development .............................................

Prior Fiscal Year to Date

Current Fiscal Year to Date

IAPPlicabl~1
Receipts

Classification
Gross
Outlays

0

Gross )APPlicable
Outlays
Receipts

uttays

I

Outla s
Y

22.407
139

22.407
139

22.407
139

22.407
139

21.389
141

21,389
141

22,546

22.546

22.546

22.546

21.530

21.530

2.926
66

2.926
66

2.926
66

2.926
66

2.711
60

2.711
60

2.992

2.992

2.992

2.992

2.771

(")

-977

..)

.. )

(

(

-977

-977

2.771

..)

..)

(

(

-977

-1.523

(

..)

-1.523

24,562

(* *)

24,562

24,562

(* *)

24,562

22,778

(* *J

22,778

13

5

8

13

5

8

8

6

2

525
384
42
5
9
55

374
59

151
326
42
5
9
55

525
384
42
5
9
55

374
59

151
326
42
5
9
55

440
51

(

(

37
266
1
886
257
3

37
266
1
886
257
3

37
266
1
886
257
3

570
409
21
4
6
59
7
38
213
1
998
160
2

130
359
21
4
6
59
7
38
213
1
998
160
2

..

(

(

..)

..)

)

37
266
1
886
257
3

..

..)

(

..

(

)

)

..)

(

2.483

438

2.045

2.483

438

2.045

2.497

496

2.001

5

15

-9

5

15

-9

11

14

-3

217
14

217
14

217
14

188
9

221

236

15

221

208

14

217
14

188
9

236

15

(

(

133

181

-48

133

181

-48

97

127

-29

133

181

-48

133

181

-48

97

127

-29

300
73

15

300
59

300
73

15

300
59

298
36

9

298
27

374

15

359

374

15

359

335

9

325

77
2
-11

77
2
-11

77
2
-11

114
4
-18

2,645

3,293

2,645

3,237

..

(

)

77
2
-11

3,293

649

12

(

..

..)

)

649

..

)

(

..

)

194

..

(

)

114
4
-18

646

2,591

Table 5. Outlays of the U.S. Govemment, October 1993 and Other Periods-Continued
[$ millions)
Current Fiscal Year to Date

This Month
Classification

Gross IAPPlicablel Outlays
Outlays
Receipts

Department of the Interior:
Land and minerals management:
Bureau of land Management:
Management of lands and resources
Fire protection
Other
Minerals Management Service
Office of Surtace Mining Reclamation and
Enforcement
Total-land and minerals management

............

Fish and wildlife and parks:
United States Fish and Wildlife Service
National Park Service .
Total-Fish and wildlife and parks

Territorial and intemational affairs ...
Departmental offices
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting govemmental receipts
Total-Department of the Interior .......................
Department of Justice:
legal activities
Federal Bureau of Investigation
Drug Enforcement Administration
Immigration and Naturalization Service
Federal Prison System
............
Office of Justice Programs
Other
Intra budgetary transactions
Offsetting governmental receipts
Total-Department of Justice

............................

Department of Labor:
Employment and Training Administration:
Training and employment services
Community Service Employment for Older Americans
Federal unemployment benefits and allowances
State unemployment insurance and employment service
................
operations
Payments to the unemployment trust fund
Advances to the unemployment trust fund and other
funds

Outla s
y

I

Applicable
Receipts

I

Outlays

69

57
17
15
67

57
17
15
67

24

24

32

32

161

161

161

188

188

24
19
24
42
12

24
19
36
42
15

3

24
19
24
42
12

22
31
38
68
18

2

22
31
33
68
16

14

121

177

7

171

17

17

17

69

69

24

24

161

24
19
36
42
15

11
3
14

Gross
Outlays

45
7

45
7

45
7

11

4

121

135

78
103

78
103

78
103

78
103

98
142

98
142

182

182

182

182

240

240

95
9
19

(

)

95
9
19

95
9
19

(

..)

95
9
19

77
8
49

(

..)

77
8
48

124

(

)

123

124

(

)

123

134

(

.. )

134

100
3
-147
-16

100
3

100
3
-147
-16

121
4
158

121
4
-158

135

Bureau of Indian Affairs:
Operation of Indian programs
Indian tribal funds
Other
Total-Bureau of Indian Affairs .............

I

45
7
17
69

Water and sCience:
Bureau of Reclamation:
Construction program
Operation and maintenance
Other.
Geological Survey
Bureau of Mines
Total-Water and sCience

Gross lAPPlic.able
Outlays
Receipts

Prior Fiscal Year to Date

..
..

100
3
147
-16

..

(

688
190
173
67
102
169
61
21

..

(

)

161

10

147

..)

-16

527

688

190
173
67
102
159
:' 61
21

190
173
67
102
169
61
21

..

)

..

(

161

10

(

..)

(

..)

527

863

190
173
67
102
159
61
21

613
195
65
105
179
61
39
-2

(. ')

..

(. 'j

(
(

)

165

698

7

33

613
195
65
105
172
61
39
-2
-33

40

1,215

.. )

22

-22

31

751

1,255

345
29
9

345
29
9

353
30
7

353
30
7

16

16

16

26
590

26
590

959

959

959

250

250

-22

31

751

783

345
29
9

345
29
9

16
959

13

)

)

22

783

..

(

(

(

)

..

Table 5.

Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Department of Labor:-Continued
Unemployment trust fund:
Federal-State unemployment Insurance:
State unemployment benefits
State administrative expenses
Federal administrative expenses
Veterans employment and training
Repayment of advances from the general fund
Railroad unemployment insurance
Other
Total-Unemployment trust fund
Other
Total-Employment and Training Administration
Pension Benefit Guaranty Corporation
Employment Standards Administration:
Salaries and expenses
SpeCial benefits
Black lung disability trust fund
Other
Occupational Safety and Health Administration
Bureau of Labor Statistics
Other
Proprietary receipts from the public
Intrabudgetary transactions

This Month

Current Fiscal Year to Date

Prior Fiscal Year to Date

Gross IAPPlicablel Outlays
Receipts
Outlays

Gross IAPPlicablel 0 tl
Outlays
Receipts
u ays

Gross IAPPlicablel Outla s
Outlays
Receipts
y

2.317
285
90
11

2,317
285
90
11

2,317
285
90
11

2,317
285
90
11

2,746
266
12
10

2,746
266
12
10

5
2

5
2

5
2

5
2

6

6

2,710

2,710

2,710

2,710

3,041

3,041

8

8

8

8

6

6

4,075

4,075

4,075

4,075

4,303

4,303

17

67

17

63

15
87
48
14
19
11
38

15
87
48
14
19
11
38

15
87
48
14
19
11
38

16
-29
49
15
23
27
19

67
15
87
48
14
19
11
38

250

..

(

)

(

..

)

-963

-963

3,362

3,412

190
37

190
37

33
9

Total-Administration of Foreign Affairs
International organizations and Conferences
Migration and refugee assistance
International narcotics control
Other
Propnetary receipts from the public
Intra budgetary transactions
Offsetting governmental receipts

50

r

0)

(00)

-36

98
16
-29
49
15
23
27
19

(0 0)

n

-963

-855

3,362

3,631

190
37

190
37

268
59

268
59

33
9

33
9

33
9

31
4

31
4

269

269

269

269

363

363

554
10
5
5

554
10
5
5

554
10
5
5

554
10
5
5

486
34
9
9

486
34
9
9

(00)

r

0)

(00)

(0 0)

(0 0)

n

843

843

843

843

900

900

1,770
4
31

1,770
4
31

1,770
4
31

1,770
4
31

1,472
6
19

1,472
6
19

1,805

1,805

1,805

1,805

1,497

1,497

National Highway TraffiC Safety Administration

20

20

20

20

17

17

Federal Railroad Administration:
Grants to National Railroad Passenger Corporation
Other

58
21

58
20

58
21

58
20

104
17

104

79

78

79

78

121

120

Total-Department of Labor

.............................

Department of State:
Administration of Foreign Affairs:
Salaries and expenses
Acquisition and maintenance of buildings abroad
Payment to Foreign Service retirement and disability
fund
Foreign Service retirement and disability fund
Other

Total-Department of State

..............................

Department of Transportation:
Federal Highway Administration:
Highway trust fund:
Federal-aid highways
Other
Other programs
Total-Federal Highway Administration

Total-Federal Railroad Administration

-963
3,412

50

14

50

-855
-36

3,667

16

Table 5. Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Department of Transportation:-Continued
Federal Transit Administration:
Formula grants
Discretionary grants
Other
Total-Federal Transit Administration
Federal Aviation Administration:
Operations
Airport and airway trust fund:
Grants-in-aid for airports
Facilities and equipment
Research. engineering and development
Operations
Total-Airport and airway trust fund

This Month

Current Fiscal Year to Date

Prior Fiscal Year to Date

Gross (APPlicable ( Outlays
Outlays
Receipts

Gross (APPlic.able ( Outlays
ReceIpts
Outlays

Gross !APPlic.able! Outla s
Outlays
ReceIpts
y

192
113
19

192
113
19

192
113
19

192
113
19

101
81
34

101
81
34

324

324

324

324

216

216

369

369

369

369

241

241

132
79
13

132
79
13

132
79
13

132
79
13

228
101
15
95

228
101
15
95

224

224

224

224

439

439

(")

(")

(")

(. ')

(")

(")

(")

(")

(")

Total-Federal Aviation Administration

593

(")

593

593

(")

593

680

(

..

)

680

Coast Guard:
Operating expenses
Acquisition. construction. and improvements
Retired pay
Other

200
12
32
7

(")

200
12
32
6

200
12
32
7

(")

200
12
32
6

269
22
41
11

(

..)

269
22
41
10

252

(")

251

252

(")

251

343

(")

343

14

49
19

62
19

14

49
19

40
35

10
1

30
34

(")

(")

7

-3
-7

19

2,928

Other

Total-Coast Guard

62
19

Mantime Administration
Other
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
Total-Depllrtment of Transportation

13

...................

Department of the Treasury:
Departmental offices:
Exchange stabilization fund
Other
Financial Management Service:
Salaries and expenses
Payment to the Resolution Funding Corporation
Claims. judgements. and relief acts
Other
Total-Financial Management Service

............

Federal Financing Bank
Bureau of Alcohol. Tobacco and Firearms:
Salaries and expenses
Internal revenue collections for Puerto Rico .
United States Customs Service
Bureau of Engraving and Printing
United States Mint
Bureau of the Public Debt
Internal Revenue Service:
Processing tax returns and assistance
Tax law enforcement
Information systems
Payment where earned income credit exceeds liability
for tax
Health insurance supplement to earned income credit
Refunding internal revenue collections. interest
Other
Total-Internal Revenue Service

(")
(")

(")

13

(")
(")

13

(")

13

-3

(")

(")

16

3,151

2,947

-17
33

-18
33

96
39

95
39

13
587
51
11

13
587
51
11

13
587
51
11

19
587
18
7

19
587
18
7

663

663

663

663

632

632

-114

-114

-114

-114

-114

-114

23
16
128
-1
3-11
13

23
16
128
-1
-11
13

23
16
128
-1
-11
13

23
16
128
-1
-11
13

37
15
142
6
18
20

37
15
142
6
18
20

97
265
60

97
265
60

97
265
60

97
265
60

136
352
96

136
352
96

17
2
395
13

17
2
395
13

17
2
395
13

17
2
395
13

18
1
182
-4

18
1
182
-4

850

850

850

850

781

781

(")

(")

16

3,151

3,167

-17
33

-18
33

13
587
51
11

3,167

15

Table 5.

Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Department of the Treasury:-Continued
United States Secret Service
Comptroller of the Currency
Office of Thrift Supervlson

Current Fiscal Year to Date

Gross !APPlicable! Outlays
Outlays
Receipts

Gross jAPPlicablej 0 tI
Receipts
u ays
Outlays

36
21
13

36
29
15

17.429
209

17,429
209

17.638

36
29
15

Interest on the pUbliC debt.
Public Issues (accrual basIs)
SpeCial Issues (cash basIs)
Total-Interest on the public debt

347
~1,356

.....................

Department of Veterans Affairs:
Veterans Health Administration:
Medical care
Other
Veterans Benefits Administration'
PubliC enterpnse funds
Guaranty and Indemnity fund
Loan guaranty revolving fund
Other
Compensation and pensions
Readlustment benefits
Post-Vietnam era veterans education account
Insurance funds:
National service life
United States government life
Veterans special life
Other
T otal- Veterans Benefits Administration
Construction
Departmental administration
Proprietary receipts from the public:
National service life
United States government life
Other
Intrabudgetary transactions
Total-Department of Veterans AHa irs

.................

17.283
694

17,638

17,638

17,638

17,978

17,978

5

5

5

2

413

17,536

1,097
18

1,097
21

~3

54
40
35

~18

~1,356

~1,356
~56

17,949

413

17,536

1,097
18

1,097
21

~3

54
40
35

~18

36
111
38
1,400
73
7

96
2
6

96
2
9

~13

~13

3

................

5
10

~122

~1,713

51
33
15

2
122
~1,713

51

~51

18,053

~56

18,109

1.073
49

19

1.073
31

70
4
1,400
73
7

20
161
25
2.623
90
15

96
2
6

69
1
8

~13

~9

37
44
23

~17

117
2
2.623
90
15
69

4

4
~9

1,758

132

1,626

1,758

132

1.626

3.002

108

2,895

51
88

(' ')

51
88

51
88

(")

51
88

50
98

(")

49
98
~32

30

~30

30

~30

32

(")

(")

(' ')

(")

(")

(")

16

~16

16

~16

50

~50

3,004

~7

~7

198

2,806

3,004

.. )

67
73
153
124
36

67
73
153
124
36

22

~22

23

430

(

~7

~3

198

2,806

4,269

(")

67
73
153
124
36

47
110
157
104
31

22

~22

23

430

453

~3

208

4,061

47
110
157
104
31
10

~10

11

439

~1

~1

...............

~347

56

70
4
1,400
73
7

3

8
2

347

~347

17,949

67
73
153
124
36

General Services Administration:
Real property activities
Personal property activities
Information Resources Management Service
Federal property resources activities
General activities
Proprietary receipts from the pUbliC
Total-General Services Administration

17.283
694

~7

Environmental Protection Agency:
Program and research operations
Abatement. control, and compliance
Water Infrastructure finanCing
Hazardous substance superfund
Other
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
Total-Environmental Protection Agency

17,429
209

~56

~13

jAPPlicable! Outla s
Receipts
y

17.429
209

~1,356

96
2
9

Gross
Outlays

51
38
26

56

36
111
38
1,400
73
7

Prior Fiscal Year to Date

36
21
13

8
2

5

Other
Proprietary receipts Irom the public
Receipts from Off-budget federal entities
Intrabudgetary transactions
Offsetllng governmental receipts
Total-Department of the Treasury

This Month

453

450

284

284

284

284

261

261

~46

~46

~46

~46

~37

~37

~17

~17

~17

~17

~71

~71

2
16

2
16

2
16

2
16

14

(")

(

("J

239

240

240

16

..)

(")

(")

(' 'J

239

169

1
14
3

~3

3

165

Table 5. Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

National Aeronautics and Space Administration:
Research and development
Space flight, control, and data communications
Construction of facilities
Research and program management
Other
Total-National Aeronautics and Space
Administration ............................................
Ottice of Personnel Management:
Government payment for annuitants, employees health
and life insurance benefits
Payment to civil service retirement and disability fund
Civil service retirement and disability fund
Employees health benefits fund
Employees life insurance fund
Retired employees health benefits fund
Other
Intrabudgetary transactions:
Civil service retirement and disability fund:
General fund contributions
Other.
Total-Ottice of Personnel Management

...............

Small Business Administration:
Public enterprise funds:
Business loan fund
Disaster loan fund
Other
Other
Total-Small Business Administration

..................

Other independent agenCies:
. . ..........
Action
Board for International Broadcasting .'
Corporation for Public Broadcasting
District of Columbia:
Federal payment
Other
Equal Employment Opportunity Commission
Export-Import Bank of the United States
Federal Communications CommisSion
Federal Deposit Insurance Corporation:
Bank insurance fund
Savings association insurance fund
FSLlC resolution fund
A ffordable housing and bank enterprise
Federal Emergency Management Agency:
Public enterprise funds
Disaster relief
Emergency management planning and assistance
Other
Federal Trade Commission
Interstate Commerce Commission
Legal Services Corporation
National Archives and Records Administration
National Credit Union Administration:
Credit union share insurance fund
Central liquidity facility
Other

This Month

Current Fiscal Year to Date

Prior Fiscal Year to Date

Gross IApplicable I Outlays
Outlays
Receipts

Gross IAPPlic.able! Oulla s
Outlays
Receipts
y

Gross !APPlicable! Outla s
Outlays
Receipts
y

539
385
28
126

539
385
28
126

539
385
28
126

539
385
28
126

462
466
43
126

462
466
43
126

1,079

1,079

1,079

1,079

1,098

1,098

266

266

266

266

248

248

2,985
98
-19

2,985
1,244
110

2,985
98
-19

2,788
1,176
209

2,985
1,244
110
1
7

1,146
129

1,146
129

(

(")

7

-3

..)
7

7

1,192
127

2.788
-16
82

r .)

-7

-7

-3

-3

-3

-4

4,610

1,275

3,335

4,610

1,275

3,335

4,410

1,320

3,090

48
19
5
33

54
34
2

48
19
5
33

54
34
2
(' ')

-6
-15
3
32

118
69
4
45

84
37
1

(")

-6
-15
3
32

(

.. )

33
31
3
45

104

89

14

104

89

14

235

123

113

13
12
275

13
12
275

13
12
275

13
12
275

18
35
319

52
7
13
25
9

135
3

52
7
13
-110
7

52
7
13
25
9

135
3

52
7
13
-110
7

698
5
14
56
13

146
3

328
3
348

277
8
348

52
-5

328
3
348

277
8
348

52
-5

942
2
46

845
2
133

56
141
17
13
6
3
1
3

23
262
20
-1
6
3
59
15

101

10
10

38

20

26
17

(")

-8

..

(

)

(

..)

..)

(

1
73
141

17

56
141
17

17

13
6
3
1
3

13
6
3
1
3

38

48
10
-7

48
10
-7

10
10

(

..)

17

-8

17

73
141

17

..)

..)

18
35
319
24

698
-20
14
-90
10
(

..97

)

-87

1

13
6
3
1
3

(

(

-4

(

.. )

17

-5

(

.. )

.. )

(

-78
262
20
-1
6
3
59
15
-6
-5

Table 5.

Outlays of the U.S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Other independent agencies:-Continued
National Endowment for the Arts
National Endowment for the Humanities
National Labor RelatIOns Board
National SCience Foundation
Nuclear Regulatory Commission
Panama Canal Commission
Postal Service
Public enterprise funds (off-budget)
Payment to the Postal Service fund

This Month

Current Fiscal Year 10 Dale

Prior Fiscal Year to Date

Gross !APPlicable! Outlays
Outlays
Receipts

Gross -jAPPlicabl1 Outla s
Outlays
ReceIpts
y

Gross !APPlicablj Outla s
Outlays
ReceIpts
Y

20
11
11
222

20
11
11
222
40
47
3,616
61

Railroad Retirement Board
Federal WIndfall subsidy
Federal payments to the railroad retirement accounts
Regional raIl transportatIon protective account
RaIl Industry pensIon fund:
Advances from FOASDI fund
OASDI certifIcatIOns
AdministratIve expenses
Interest on refunds of taxes
Supplemental annUIty pensIon fund
Other
Intrabudgetary transactIons:
Social Security equivalent benefit account
Payments from other funds to the railroad
retirement trust funds
Other

47
45

~6

44,125

~509

2

23
12

20

20

11

11

11
222
40
47

11
222

61

3,616
61

23
12

23
12

47
45

~6

4,125

~509

2

16
11
16
181
30
42

~91

--452
69

3.849
69

23
12

25
16

25
16

)

(" ")

~87

~87

87
6
5
241
1

~91

~91

4,301

61

(
~91

89
41

16
11
16
181
-59
2

(

(

239

239

239

239

87
6
5
241

385

385

385

385

384

384

~12

~12

-12

~12

-16

~16

Total-Railroad Retirement Board

653

653

653

653

662

662

Resolution Trust Corporation
Securities and Exchange CommiSSion
Smithsonian Institution
Tennessee Valley Authority
United States Information Agency
Other

1,211
10
20
984
87
169

1,204

1,211
10
20
984
87
169

1.204

3,320
6
28
831
97
110

~2,578

561

114

7
10
20
106
87
55

5,898

114

7
10
20
106
87
55

4

6
28
271
97
107

8,558

7,221

1,337

8,558

7,221

1,337

11,836

12,190

-354

(oO)

(" .)

Total-Other independent agencies

....................

90
5

(

.. )

Undistributed offsetting receipts:
Other Interest
Employer share, employee retirement:
Legislative Branch'
United States Tax Court:
Tax court Judges survivors annuity fund
The Judiciary:
JudiCial survivors annUity fund
Department of Defense-Civil:
Military retirement fund
Department of Health and Human Services, except
Social Security:
Federal hospital Insurance trust fund'
Federal employer contributions
Postal Service employer contributions
Payments for military service credits
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors Insurance trust fund'
Federal employer contributions
Payments for military service credits
Federal dIsabIlIty Insurance trust fund:
Federal employer contributions
Payments for military service credits
Department of State'
ForeIgn ServIce retirement and disabIlity fund
Office of Personnel Management
C,Vil service retirement and disability fund
Independent agencies
Court of veterans appeals retIrement fund
Total-Employer share, employee retirement

90
5

(

878
(

..)

..

)

90
5

..

90
5

..)

878

..)

(

(

..)

(

..)

..)

(

(

-1,081

~1,081

~1,081

~1,081

~195

~195

~195

~195

..

(

..

)

~1,055

~151

..

)

)

(

..)

..

(

)

-1,055

-151

~38

~38

~425

~425

~425

~425

~402

~402

-46

~46

~46

~46

~43

-43

~9

~9

~9

~9

~11

-11

~816

~816

~816

-816

-798

-798

~2,572

-2,572

~2,572

-2,572

-2,498

-2,498

18

Table 5. Outlays of the U,S. Government, October 1993 and Other Periods-Continued
[$ millions]

Classification

Undistributed offsetting receipts:-Continued
Interest received by trust funds:
The Judiciary:
Judicial survivors annuity fund
Department of Defense-Civil:
Corps of Engineers
Military retirement fund
Education benefits fund
Soldiers' and airmen's home permanent fund
Other
Department of Health and Human Services, except
Social Security:
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund
Federal disability insurance trust fund
Department of Labor:
Unemployment trust fund
Department of State:
Foreign Service retirement and disability fund
Department of Transportation:
Highway trust fund
Airport and airway trust fund
Oil spill liability trust fund
Department of Veterans Affairs:
National service life insurance fund
United States government life Insurance Fund
Environmental Protection Agency
National Aeronautics and Space Administration
Office of Personnel Management:
Civil service retirement and disability fund ..
Independent agencies:
Railroad Retirement Board
Other
Other

Current Fiscal Year to Date

Gross !APPlicable! Outlays
Outlays
Receipts

Gross !APPlicabli Outlays
Outlays
Receipts

Prior Fiscal Year to Date
Gross !APPlicable
Outlays
Receipts

J

Outla s
y

(" ")

(" ")

(" .)

..)

(" ')

(' ')

-169

-169

-169

-169

-158

-158

(")

(' ')

(" ')

(' ")

(" ')

-3

-3

3

-3

-4

-4

(" ')

(' ')

(' ")

(

-7
-13

-7
-13

-7
-13

-7
-13

-12
-18

-12
-18

-44
-15

-44
-15

-44
-15

-44
-15

-30
-11

-30
-11

-11

-11

-11

-11

-26

-26

-1

-1

-1

-1

..)

(' ')

-19
-1

-19
-1

-19
-1

-19
-1

-6
-5

-6
-5

(" ')

(' ")

(' ')

(" ')

(" ')

(

..

(

..)

)

(

.. )

(

-2

-2

-2

-1

-1

(00)
(0 ')

(' ')
(" 0)
(00)

(' ')
(" ")
(0 0)

( )
(' 0)
(0 0)

(" ')
(" ")

(" ')
(0 ")

-3

-3

-3

-3

-3

-3

-36
-1
-35

-36
-1
-35

-36
-1
-35

-36
-1
-35

-166

-166

(" 0)

(" 0)

-1

-1

-359

-359

-359

-359

-443

-443

r ")

Total-Interest received by trust funds
Rents and royalties on the outer continental shelf lands
Sale of major assets

This Month

..

21

-21

..-2

21

-21

12

-12

................

-2,931

21

-2,952

-2,931

21

-2,952

-2,941

12

-2,953

Total outlays, ................................................

138,790

14,778

124,013

138,790

14,778

124,013

144,695

19,079

125,616

...........................................

111,143

10,653

100,490

111,143

10,653

100,490

118,553

14,778

103,775

Total off-budget ............. , .............................

27,648

4,125

23,523

27,648

4,125

23,523

26,142

4,301

21,841

Total-Undistributed offsetting receipts

Total on-budget

................................
...........................................

-45,343

-45,343

-48,792

-44,625

-44,625

-48,727

Total off-budget ...........................................

-719

-719

-65

Total surplus (+) or deficit
Total on-budget

MEMORANDUM
Receipts offset against outlays

[$ millIons]

Current
FIscal Year
to Date
Proprietary receipts
Receipts from off-budget federal entities
Intrabudgetary transactions
Governmental receipts
Total receipts offset against outlays

Comparable Period
Prior Fiscal Year

3,894

3,394

21,665
127
25,686

22,040
206
25,640

'The Postal Service accounting IS composed of 28-day accounting penods To conform With
the MTS calendar-month reporting baSIS utilized by all other Federal agencIes, the MTS reflects
USPS results through 10/15 and estimates for $863 million through 10/31
No Transactions
Less than $500,000
Note Details may not add to totals due to rounding

'Includes FICA and SECA tax credits, non..:ontributory military service credits, spec,al benefits
for the aged, and cred,t for unnegotlated OASI benefit Checks
'Includes a decrease in net outlays of $34 million for amortization of zero coupon bonds
'Prior month adjustment

r ')

19

Table 6.

Means of Financing the Deficit or Disposition of Surplus by the U.S. Government, October 1993 and Other Periods
[$ millions]
Net Transactions
( -) denotes net reduction of either
liability or asset accounts

Assets and Liabilities
Directly Related to
Budget ON-budget Activity

Account Balances
Current Fiscal Year

Fiscal Year to Date
This Year

liability accounts:
Borrowing from the public
PubliC debt seCUrities, ISSUed under general Financing autholities:
Obligations of the United States, ISSUed by
United States Treasury
Federal Financing Bank
Total, publiC debt secUrities

2,708

4,396,489
15,000

4,396,489
15,000

4,407,511
15,000

11,023

11,023

2,708

4,411,489

4,411,489

4,422,511

-8
-455

-8
-455

-5
-442

1,373
86,397

1,373
86,397

1,365
85,942

11,470

11,470

3,145

4,326,466

4,326,466

4,337,936

47

47

152

24,682

24,682

24,730

11,517

11,517

3,298

4,351,149

4,351,149

4,362,666

7,242

7,242

4,902

1,116,713

1,116,713

1,123,956

-20

-20

52

12,776

12,776

12,755

7,263

7,263

4,850

1,103,938

1,103,938

1,111,200
3,251,466

Deduct
Federal seCUrities held as irlvestments of government accounts
(see Schedule D)
Less discount on federal securities held as investments of
government accounts
Net federal securities held as investments of government
accounts

4,255

4,255

-1,552

3,247,211

3,247,211

9,245
-125
1,051
-5,359

9,245
-125
1,051
-5,359

9,281
-328
-172
-708

43,819
6,950
6,000
2,928

43,819
6,950
6,000
2,928

53,064
6,825
7,051
-2,431

9,067

9,067

6,521

3,306,907

3,306,907

3,315,974

-11,257
-22,389

-11,257
-22,389

-20,173
-19,247

17,289
35,217

17,289
35,217

6,032
12,828

-33,646

-33,646

-39,420

52,506

52,506

18,860

-165

-165

-550

9,203
-8,018

9,203
-8,018

9,038
-8,018

-165

-165

-550

1,185

1,185

1,020

-676
23
-7

-676
23
-7

-1,199
-75
2

31,762
5,864
-25,514
-98

31,762
5,864
-25,514
-98

31,762
5,188
-25,491
-105

Total borrowing from the pubhc
Accrued Interest payable to the public
Allocations of special draWing rights
Deposit funds
Miscellaneous liability accounts (includes checks Outstanding etc,)
Total liability accounts ", ..... , ......... _.................................
Asset accounts (deduct):
Cash and monetary assets'
U S Treasury operating cash:'
Federal Reserve account
Tax and loan note accounts
Balance
SpeCial draWing rights:
Total holdings
SDR certificates issued to Federal Reserve banks
Balance
Reserve position on the U,S, quota in the IMF:
US subscription to International Monetary Fund:
Direct quota payments
Maintenance of value adjustments
Letter of credit ISSUed to IMF
Dollar depoSits With the IMF
ReceivablelPayable (-) for interim maintenance of value
adjustments

458

458

755

90

90

547

-202

-202

-516

12,103

12,103

11,901

(. 'j

(. 'j

2,678

2,678

-82

22,414

22,414

-31,336

-31,336

-40,568

88,208

88,208

56,872

-180
365
-5,074

-180
365
-5,074

-171
311
-1,817

-6,471
6,832
-627

-6,471
6,832
-627

-6,651
7,197
-5,701

-36,225

-36,225

-42,245

87,942

87,942

51,717

+45,292

+45,292

+48,766

+3,218,965

+3,218,965

+3,264,257

51

51

26

+45,343

+45,343

+48,792

Balance
Loans to International Monetary Fund
Other cash and monetary assets
Total cash and monetary assets
Net activity, guaranteed loan finanCing
Net activity, direct loan financing
Miscellaneous asset accounts
Total asset accounts
Excess of liabilities (+)

.....................................................
or assets (-) ....................................

Transactions not applied to current year's surplus or deficit (see
Schedule a for Details)
Total budget and oN-budget federal entities (financing of deficit (+)
or disposition of surplus (-» ..............................................

This Year

11,023

Agency SeCUrities, ISSued under special financing authorities (see
Schedule B for other Agency borrowing, see Schedule C)
Total federal securities

I Prior Year

Close of

I This Month I This month

11,023

Plus premium on public debt securities
Less discount on pubhc debt securities
Total publiC debt securities net of Premium and
discount

I

Beginning of

This Month

51
+3,218,965

No Transactions

'Major sources of Information USed to determine Treasury"s operating cash Income Include the
Balance Wires from Federal Reserve Banks. reporting from the Bureau 01 the PubliC Debt
eiKtrOr"IC transfers through the Treasury FinanCial Communication System and reconciling wires
tram I"ternal Revenue Centers Operating caSh IS presented on a modified cash baSIS, dePOSitS
are refle-ctej as (e('erved and Withdrawals are reflected as processed

I" .) Less than $500,000
Note: Details may not add to totals due to rounding

Dad~

20

..)

(

25,091

+3,218,965

+3,264,308

Table 6. Schedule A-Analysis of Change in Excess of Liabilities of the U.S. Government, October 1993 and
Other Periods
[$ millions]
Fiscal Year to Date
Classification

This Month
This Year

Excess of liabilities beginning of period:
Based on composition of unified budget in preceding period
Adlustments during current fiscal year for changes in composition
of unified budget
Reclassification of the Disaster Assistance Liquidating Account,
FEMA, to a budgetary status
ReviSions by federal agencies to the prior budget results
Reclassification of Thrift Savings Plan Clearing Accounts to a
non-budgetary status
Reclassification of Deposit in Transit Differences (Suspense)
Clearing Accounts to a budgetary status

3,218,965

-r

Prior Year

3,218,965

2,964,066

(")

128
(")

174
3,218,965

3,218,965

2,964,368

Budget surplus (-) or deficit
Based on composition of unified budget in prior fiscal yr
Changes in composition of unified budget

45,343

45,343

48,792

Total surplus (-) or deficit (Table 2)

Excess of liabilities beginning of period (current basis)

45,343

45,343

48,792

Total-on-budget (Table 2)

44,625

44,625

48,727

Total-oft-budget (Table 2)

719

719

65

-51

-51

-26

Transactions not applied to current year's surplus or deficit:
Seigniorage
Total-transactions not applied to current year's Surplus or
deficit
Excess of liabilities close of period

0

0

0

0

0

,

0

0

0

,

0

0

0

,

0

0

,

0

0

0

,

0

0

0

,

0

0

000

0

0

0

0

0

-51

-51

-26

3,264,257

3,264,257

3,013,133

Table 6. Schedule a-Securities isued by Federal Agencies Under Special Financing Authorities, October 1993 and
Other Periods
[$ millions]
Net Transactions
(-) denotes net reduction of either
Liability accounts

Account Balances
Current Fiscal Year

Classification
Fiscal Year to Date
This Month
This Year
00

1

Beginning of

Prior Year

Close of
This month

J

This Year

This Month

00

Agency secuntles, Issued under special fmancmg authontles:
Obligations of the United States, issued by:
Export-Import Bank of the United States
Federal Deposit Insurance Corporation:
Bank insurance fund
FSLlC resolution fund
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family housing mortgages
Department of Housing and Urban Development·.
Federal Housing Administration
Department of the Interior:
Bureau of Land Management
Department of Transportation:
Coast Guard:
Family housing mortgages
Obligations not guaranteed by the United States, issued by:
Legislative Branch:
Architect of the Capitol
Independent agencies:
Farm Credit System Financial ASSistance Corporation
National Archives and Records Administration
Postal Service
Tennessee Valley Auothority

..

(

(' .)

30

Total, agency securities
No Transactions.
(' oJ Less than $500,000
Note: Details may not add to totals due to rounding.

21

..

(

)

30

(")

(

93
943

93
943

93
943

)

7

7

7

8

213

213

243

13

13

13

(")

(. ')

(")

176

176

178

1,261
302

1,261
302

1,261
302

..

(

..)

)

16

16

143

21,675

21,675

21,691

47

47

152

24,682

24,682

24,730

Table 6.

Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
October 1993 and Other Periods
[$ millions]
Account Balances
Current Fiscal Year

Transactions
Classification

Beginning of

Fiscal Year to Date

Close of
This month

This Month
This Year
Borrowing from the Treasury:
Funds Appropnated to the President
International Secunty Assistance
Guaranty reserve fund
Agency for International Development
Housing and other credit guaranty programs
Overseas Private Investment Corporation
Department of Agnculture
Foreign assistance programs
Commodity Credit Corporation
Farmers Home Administration
Agnculture credit Insurance fund
Self-help housing land development fund
Rural housing Insurance fund
Rural Development Administration
Rural development Insurance fund
Rural development loan fund
Federal Crop Insurance Corporation'
Federal crop insurance corporation fund
Rural Electrification Administration:
Rural communication development fund
Rural electrification and telephone revolving fund
Rural Telephone Bank
Department of Commerce:
Federal shiP finanCing fund, NOAA
Department of Education:
Guaranteed student loans
College housing and academic facilities fund
College housing loans
Department of Energy
Isotope production and distribution fund
Bonneville power administration fund
Department of Housing and Urban Development
Housing programs
HouSing for the ederly and handicapped
Public and Indian housing:
Low-rent public housing
Department of the Interior
Bureau of Reclamation Loans
Bureau of Mines, Helium Fund
Bureau of Indian Affalfs
RevolVing funds for loans
Department of Justice:
Federal prison Industries, incorporated
Department of Transportation:
Federal Railroad Administration:
Railroad rehabilitatIOn and improvement financing funds
Settlements of railroad litigation
Amtrak COrridor Improvement loans
Regional rail reorganization program
Federal AViation Administration'
Alfcraft purchase loan guarantee program
Department of the Treasury
Federal Financing Bank revolVing fund
Department of Veterans Affalfs
Loan guaranty revolVing fund
Guaranty and Indemnity fund
Direct loan revolVing fund
Vocational rehabilitatIOn revolVing fund
EnVifonmental Protection Agency
Abatement. control, and compliance loan program
Small Business Administration
Business loan and revolVing fund

I

This Year

Prior Year

348

348

348

125
8

125
8

125
8

193
24,745

193
24,745

193
26,068

-196

5,771
1
2,910

5,771
1
2,910

3,386
1
2,910

..

1,680
5

1,680
5

1,670
5

113

113

113

25
8,099
802

25
8,099
802

55
8,099
802

2,058
154
460

2,058
154
460

2,058
168
460

..)

(

1,323

1,323

-9,253

-2,385

-2,385

36

-10

-10

-13
(

31

[ This Month

)

31
7

-2

13

13

58

58

200

13
2,332

13
2,332

13
2,390

-475

-475

-45

8,959

8,959

8,484

110

110

110

5
252

5
252

5
252

17

17

17

20

20

20

8
-39
2
39

8
-39
2
39

8
-39
2
39

.. )

(' ')

(

-4,523

114,329

114,329

112,348

-678
8

860
83
1
2

860
83
1
2

860
83
1
2

12

12

12

3.203

3,203

3,203

..)

(

..)

(

(

-1,981

-1,981

..

(
(

)

..)

22

..

)

Table 6.

Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
October 1993 and Other Periods-Continued
[$ millions]
Account Balances
Current Fiscal Year

Transactions
Classification

Beginning of

Fiscal Year to Date
This Month

I

This Year
Borrowing for the Treasury:-Contlnued
Other independent agencies:
Export-Import Bank of the United States
Federal Emergency Management Agency:
National insurance development fund
Pennsylvania Avenue Development Corporation:
Land aquisition and development fund
RaIlroad Retirement Board:
Railroad retIrement account
SOCial Security equivalent benefit account
Smithsonian Institution:
John F. Kennedy Center parking facilities
Tennessee Valley Authority
Total agency borrowing from the Treasury
financed through public debt securities issued

..................

Borrowing from the Federal Financing Bank:
Funds Appropriated to the President:
Foreign military sales
Department of Agriculture:
Rural Electrification Administration
Farmers Home Administration:
Agriculture credit Insurance fund
Rural housing insurance fund ....
- - . . . . .. . . .
Rural development insurance fund
Department of Defense:
Department of the Navy
Defense agencies
Department of Education:
Student Loan Marketing Association
Department of Health and Human Services,
Except SOCial Security:
Medical facilities guarantee and loan fund
Department of Housing and Urban Development:
Low rent housing loans and other expenses
Community Development Grants
Department of Interior:
Territorial and international affairs
Department of Transportation:
Federal Railroad Administration
Department of the Treasury:
Financial Management Service
General Services Administration:
Federal buildings fund
Small Business Administration:
BusIness loan and investment fund
Independent agencies:
Export-Import Bank of the United States
Pennsylvania Avenue Development Corporation ..
Postal Service
............
Resolution Trust Corporation
Tennessee Valley Authority
Washington Metropolitan Transit Authority
Total borrowing from the Federal Financing Bank

................

231

This Month

386

386

1,199

4

42

42

42

..)

76

76

76

245

2,128
2,690

2,128
2,690

2,128
2,921

20
150

20
150

20
150

(

231

I

7

813

813

This Year

Prior Year

Close of
This month

-2,381

-2,381

-14,201

183,196

183,196

180,815

-6

-6

-6

4,083

4,083

4,077

-93

-93

29

22,252

22,252

22,160

8,908
26,036
3,675

8,908
26,036
3,675

8,908
26,036
3,675

1,624
-96

1,624
-96

1,624
-96

4,790

4,790

4,760

85

85

85

1,801
131

1,801
131

1,801
123

23

23

23

17

17

17

-30

-30

-8

-8

-30

-4

-30

-30

-21

30

30

35

35

114

1,436

1,436

1,471

-7

-7

-14

670

670

663

7

7

5

-1,849

-1,849

-4,449
-147

5,795
150
9,732
31,688
6,325
177

5,795
150
9,732
31,688
6,325
177

5,795
157
9,732
29,839
6,325
177

-1,981

-1,981

-4,523

129,332

129,332

127,351

Note: This table includes lending by the Federal Financing Bank accomplished by the purchase
of agency financIal assets, by the acquIsition of agency debt securities, and by direct loans on
behalf of an agency. The Federal Financing Bank borrows from Treasury and issues its own
securities and in tum may loan these funds to agencies in lieu of agencies borrowing directly
through Treasury or issuing their own securitIes.

No Transactions

r .)

Less than $500,000
Note Details may not add to totals due to rounding

23

Table 6.

Schedule D-Investments of Federal Government Accounts in Federal Securities, October 1993 and
Other Periods
[$ millions]
Securities Held as Investments
Current Fiscal Year

Net Purchases or Sales ( -)
Classification

1

Federal funds:
Department of Agnculture
Department of Commerce
Department of Defense-Military
Defense cooperation account
Department of Energy
Department of Housing and Urban DevelopmentHousing programs
Federal housing administration fund:
Public debt seCUrities
Government National Mortgage Association:
Management and liquidating functions fundPubliC debt securities
Agency securities
Guarantees of mortgage-backed securitiesPubliC debt seCUrities
Agency securities
Other
Department of the Intenor:
PubliC debt securities
Department of Laber
Department of Transportation
Department of the Treasury
Department of Veterans AffairS:
Canteen service revolving fund
Veterans reopened insurance fund
Servicemen's group life Insurance fund
Independent agencies:
Export-Import Bank of the United States
Federal Deposit Insurance Corporation:
Bank Insurance fund
Savings association insurance fund
FSLlC resolution fund:
PubliC debt securilles
Federal Emergency Management Agency:
National flood Insurance fund
National Credit Union Admlnlstralion
Postal Service
Tennessee Valley Authority
Other
Other
Total publiC debt securities
Total agency secUrilieS

.............................................

Trust funds:
Legislative Branch
Library of Congress
United States Tax Court
Other
The JudiCiary
JudiCial retirement funds
Department of Agriculture
Department of Commerce
Department of Defense-Military
Voluntary separation Incentive fund
Other
Department of Defense-Civil
Military retirement fund
Other

I

Close of
This month

This Month

10

10

3
8

-840
6

9
4,081

9
4,081

9
4,071

31

-121

5,214

5,214

5,245

(' ')

(")

(")

9
20

9
20

8
20

17

17

26

22

22

3

3,221
1
191

3,221
1
191

3,238
1
213

143
-50
16

143
-50
16

(")

(")

199
-49
9
283

2,508
16,590
881
5,773

2,508
16,590
881
5,773

2,651
16,540
897
5,773

-2

-2

-2
-2

38
518
150

38
518
150

38
516
150

118

118

104

76

76

194

-9
-6

-9
-6

-42
(")

4,325
1,283

4,325
1,283

4,316
1,278

560

560

115

801

801

1,362

-71
-30
702
-65
5
-155

-71
-30
702
-65
5
-155

12
404
-70
-10
40

71
2,764
3,027
3,452
853
2,715

71
2,764
3,027
3,452
853
2,715

2,734
3,729
3,387
858
2,561

1,219

1,219

61

58,562
21

58,562
21

59,781
21

1,219

1,219

61

58,583

58,583

59,802

4

4

5
4
27

4
27

6
4
27

212
5

212
5

212
.5

3
-2

3
-2

-10

-10

31

(")

-2

(")

-1

-1

(")
(")

(")
(")

20
4

20
4

10,823

10,823

-3

-3

24

This Year

Prior Year

This Year

Total Federal funds

Beginning of

Fiscal Year to Date
This Month

(")
(")

(")

(")

844
151

844
151

864
155

10,014
56

96,690
1,213

96,690
1,213

107,513
1,210

Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities, October 1993 and
Other Periods-Continued
[$ millions]
Securities Held as Investments
Current Fiscal Year

Net Purchases or Sales (-)
Classification

Beginning of

Fiscal Year to Date
This Month
This Year

1

This Year

Prior Year

I

Close of
This month

This Month

Trust Funds-Continued
Department of Health and Human Services, except Social Security:
Federal hospital insurance trust fund:
. ........... .
Public debt securities ....
Federal supplementary medical insurance trust fund ...
Other
Department of Health and Human Services, Social Security:
Federal old-age and survivors insurance trust fund:
Public debt securities .
. ................. .
Federal disability insurance trust fund .. '
Department of the Interior:
Public debt securities
Department of Justice
Department of Labor:
Unemployment trust fund
Other
Department of State:
Foreign Service retirement and disability fund ....
Other
............. .
Department of Transportation:
Highway trust fund .......... .
Airport and airway trust fund
Other
Department of the Treasury
Department of Veterans Affairs:
General post fund, national homes
National service life insurance:
Public debt securities ...
Agency securities
United States govemment life Insurance Fund ...
Veterans special life insurance fund .......... .
Environmental Protection Agency
National Aeronautics and Space Administration .............. .
Office of Personnel Management:
Civil service retirement and disability fund:
Public debt securities
Employees health benefits fund
Employees life insurance fund
Retired employees health benefits fund
Independent agencies'.
Harry S. Truman memorial scholarship trust fund
Japan-United States Friendship Commission
Railroad Retirement Board
Other

-974
602
10

-974
602
10

-1,276
-281
10

126,078
23.268
659

126,078
23,268
659

125,104
23,870
670

-569
-635

-569
-635

-63
-524

355,510
10,237

355,510
10,237

354,940
9,602

-11
106

-11
106

-23

184

184

174
106

-676

-676

-1,023

-8

-8

-8

36,607
53

36,607
53

35,930
45

-82

-82

-22

6,662
38

6,662
38

6,579
38

-780
273

-780
273

-160
-181
21
-33

22,004
12,672
1,675
209

22,004
12,672
1,675
209

21,224
12,944
1,671
186

39

39

39

-33

11,666

11,666

11,606

125
1,462
5,477
16

125
1,462
5,477
16

123
1,456
5,481
16

311.705
6.794
13.688

311.705
6,794
13,688

309,848
6,747
13,713

1

1

1

52
16
11,849
128

-4

-4

-24

-24

-61

-61

-2
-6

-2

-1

-6

-4

4
(")

4
(H)

43

-1,857
-47
25

-1,857
-47
25

-1,523
-22
-82

(H)

(")

(")

(

..)

(H)
(")

52

-112
3

-112
3

-49
1

11.961
125

52
17
11,961
125

6,023

6,023

4,841

1.058.131

1,058.131

1,064,153

Total trust funds __ .............................................. .

6,023

6,023

4,841

1,058,131

1,058,131

1,064,153

Grand total ................................................................. .

7,242

7,242

4,902

1,116,713

1,116,713

1,123,956

Total public debt securities

17

Note Investments are in public debt securities unless otherwise noted
Note: Details may not add to totals due to rounding.

... No Transactions
(. ') Less than $500.000

25

Table 7,

Receipts and Outlays of the U,S, Government by Month, Fiscal Year 1994
[$ millions]

Oct.

Classification

Nov.

Dec.

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Fiscal
Year
To
Date

Comparable
Period
Prior
F.Y.

Receipts:
Individual Income taxes
Corporation Income taxes
Social Insurance taxes and
contnbutlons'
Employment taxes and
contnbutlons
Unemployment insurance
Other retirement contributions
EXCIse taxes
Estate and gift taxes
Customs duties
Miscellaneous receipts

37,680
2,158

37,680
2.158

37.285
2,096

29,440
1,046
343
3,597
990
1}08
1,708

29,440
1,046
343
3,597
990
1,708
1,708

28,135
1,034
426
3,670
1,027
1,666
1,485

...........

78,669

78,669

......

(On-budget)

........................

55,865

55,865

......

(Off-budget)

........................

22,804

22,804

Total-Receipts this year

......

To/ai-Receipts prior year

76,824

76.824

(On budget)

55,048

55,048

(Off budget)

2/,776

2/,776

Outlays
Legislative Branch
The Judiciary
Executive Office of the President
Funds Appropriated to the President:
International Security Assistance
International Development
Assistance
Other
Department of Agriculture:
Foreign assistance, special export
programs and Commodity Credit
Corporation
Other
Department of Commerce .
Department of Defense:
Military:
Military personnel
Operation and maintenance
Procurement
Research, development, test, and
evaluation
Military construction
Family housing
Revolving and management
funds
Defense cooperation account
Other
Total Military
C,Vil
Department of Education
Department of Energy
Department of Health and Human
Services, except Social Security:
Public Health Service
Health Care Financing Administration:
Grants to States for Medicaid
Federal hospital ins trust fund
Federal supp. med Ins. trust
fund
Other
Social Security Administration
AdministratIOn for children and
families
Other
Department of Health and Human
ServiceS, Social Secunty
Federal old-age and survivors Ins
trust fund
Federal disability Ins trust fund
Other

378
158
20

378
158
20

204
135
18

3,302

3,302

334

557
133

557
133

629
270

900
3,993
264

900
3,993
264

1,653
5,397
290

6,634
6,413
5,131

6,634
6,413
5,131

9,210
6,526
5,698

2,987
404
226

2,987
404
226

3,002
393
219

1,568
-217

1,568
(' .)
-217

905
-30
32

23,147

23,147

25,954

2,550
1,805
1,710

2,550
1,805
1,710

2,493
2,334
1,714

1,467

1,467

1,438

7,394
7,432

7,394
7,432

6,215
7,299

4,650
3}83
2,970

4,650
3}83
2,970

4,851
3,247
4.691

2.797
-5,060

2,797
-5,060

2,178
-4,271

22,546
2,992
-977

22.546
2,992
-977

21.530
2,771
-1,523

(' ')

26

Table 7. Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1994-Continued
[$ millions]

Classification

Oct.

Nov.

Dec.

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Fiscal
Year
To
Date

Comparable
Period
Prior
F.Y.

Outlays-Continued
Department 01 Housing and Urban
Development
Department of the Interior
Department of Justice .'
Department of Labor:
Unemployment trust fund
Other
Department of State
Department of Transportation:
Highway trust fund
Other
Department of the Treasury:
Interest on the public debt
Other
Department of Veterans Affairs:
Compensation and pensions
National service life
United States government life
. . . . . . .. . .
..
Other
Environmental Protection Agency ...
General Services Administration . , .....
National Aeronautics and Space
.......
AdmiOistration
Office of Personnel Management
Small BUSiness Administration
Independent agenCies:
Fed. Deposit Ins. Corp.:
....
..
Bank insurance funds
Savings association fund .........
...
FSLlC resolution fund
Postal Service:
Public enterprise funds (off..........
budget) ..
Payment to the Postal Service
fund
Resolution Trust Corporation ....
Tennessee Valley Authority
Other independent agencies
Undistributed offsetting receipts:
Employer share, employee
retirement
Interest received by trust funds ...
Rents and royalties on outer
continental shelf lands
Other

2,645
527
751

2.645
527
751

2.591
698
1,215

2,710
652
843

2,710
652
843

3,041
626
900

1,774
1,377

1,774
1,377

1,479
1,449

17,638
-102

17,638
-102

17,978
131

1,400
66
2
1,338
430
239

1,400
66
2
1,338
430
239

2,623
37
1
1,400
439
165

1,079
3,335
14

1,079
3,335
14

1,098
3,090
113

52

97

..-5)

(")

-87

-509

-509

-452

61
7
106
1,626

61
7
106
1,626

69
-2,578
271
2,326

-2,572
-359

-2,572
-359

-2,498
-443

-21

-21

n

-12

(")

52
-5

(

(")

n

Totals this year:

.........................
(On-budget) ........................
(Off-budget) ........................
Total-surplus (+) or deficit (-) .....
(On-budget) ........................
(Off-budget) ........................
Total borrowing from the public ....
Total·outlays prior year

125,616

125,616

(On·bud[?et)

103,775

11)3,77.1

(Ojfbud[?et)

21,841

:!I 114 I

Total outlays

......

124,013

124,013

100,490

100,490

. .....

23,523

23,523

......

-45,343

-45,343

-44,625

-44,625

. .....
. .....

-719

-719

. .....

4,255

4,255

-1,552

Total·surplus (+) or deficit (-)
Pnor year

-48,792

-411.79:

(On·budget)

-48,727

-4X.7~7

(Ojfbud[?et)

-65

-0.1

No transactions.
(" 0) Less than $500,000.

Note: Details may not add to totals due to rounding.

27

Table 8. Trust Fund Impact on Budget Results and Investment Holdings as of October 31, 1993
[$ millions]
This Month

Securities held as Investments
Current Fiscal Year

Fiscal Year to Date

Classification

Beginning of
Receipts

Outlays

Excess

Receipts

Outlays

Excess
This Year

Trust receipts, outlays, and investments
held:
Airport
Black lung disability
Federal disability Insurance
Federal employees life and health
Federal employees retirement
Federal hospital Insurance
Federal old-age and survivors insurance
Federal supplementary medical insurance
Highways
MIlitary advances
Railroad retirement
Military retirement
Unemployment
Veterans life insurance
All other trust
Total trust fund receipts and outlays
and investments held trom Table 60 ..........................................
Less: Interfund transactions

439
55
2,344
1,193
6,594
21,966
5,069
1,437
1,166
356
13,158
2,017
32
361

224
48
2,992
106
3,019
7,432
22,546
4,650
1,902
1,035
629
2,218
2,710
104
347

215
7
-648
-106
-1,826
-838
-580
419
-464
131
-274
10,940
-692
-72
14

1,193
6,594
21,966
5,069
1,437
1,166
356
13,158
2,017
32
361

224
48
2,992
106
3,019
7,432
22,546
4,650
1,902
1,035
629
2,218
2,710
104
347

215
7
-648
-106
-1,826
-838
-580
419
-464
131
-274
10,940
-692
-72
14

56,188
20.595

49,963
20,595

6,225

56,188
20,595

49,963
20,595

6,225

439
55
2,344

Trust fund receipts and outlays on the basis
of Tables 4 & 5

35,594

29,369

6,225

35,594

29,369

6.225

Total Federal fund receipts and outlays
Less: Interfund transactions

45,935
215

97,504
215

-51,568

45,935
215

97,504
215

-51,568

Federal fund receipts and outlays on the
baSIS of Table 4 & 5

45,720

97,289

-51,568

45,720

97,289

-51,568

2,645

2,645

-45,343

78,669

124,013

Less offsetting proprietary receipts
Net budget receipts & outlays

...............

2,645

2,645

78,669

124,013

No transactions.

Note Interfund receipts and outlays are transactions between Federal funds and trust funds
such as Federal payments and contnbutions, and interest and profits on investments in Federal
secunt,es They have no net effect on overall budget receipts and outlays since the receipts Side of
such transactions IS offset against bugdet outlays. In this table, Intertund receipts are Shown as an
adlustment to arrive at total receipts and outlays of trust funds respectively

J

This Month

Close of
This Month

12,672

12,672

12,944

10,237
20,484
318,583
126,078
355,510
23,268
22,004

10,237
20,484
318,583
126,078
355,510
23,268
22,004

9,602
20,462
316,644
125,104
354,940
23,870
21,224

11,961
96,690
36,607
13,253
10,784

11,961
96,690
36,607
13,253
10,784

11,849
107,513
35,930
13,185
10,886

1,058,131

1,058,131

1,064,153

-45,343

Note: Details may not add to totals due to rounding.

Table 9. Summary of Receipts by Source, and Outlays by Function of the U.S. Government, October 1993
and Other Periods
[$ millions]
Classification

This Month

Fiscal Year
To Date

Comparable Period
Prior Fiscal Year

37.680
2.158

37.680
2.158

37.285
2.096

29,440
1.046
343
3.597
990
1.708
1.708

29.440
1.046
343
3.597
990
1.708
1.708

28.135
1.034
426
3.670
1.027
1.666
1,485

78,669

78,669

76,824

24.281
4,732
1,421
345
1.911
1,442
377
3,133
898
3.586
9,315
10,729
17.342
25,538
2.819
1,011
640
17.082
-2,593

24.281
4.732
1,421
345
1.911
1,442
377
3.133
898
3.586
9.315
10.729
17.342
25.538
2.819
1.011
640
17.082
-2.593

27.133
2.131
1,410
607
3.341
2.255
-2.262
2.928
952
3.774
8.021
11.019
18.334
24.301
4.078
1.120
2.526
16.457
-2.510

124,013

124,013

125,616

RECEIPTS
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions:
Employment taxes and contributions
Unemployment insurance
Other retirement contributions
Excise taxes
Estate and gift taxes
Customs
Miscellaneous
Total ....................................................... ..

NET OUTLAYS
National defense
InternatIOnal affairs
General science. space. and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and Regional Development
EducatIOn. training. employment and social services
Health
Medicare
Income security
Social Security
Veterans benefits and services
Administration of justice
General government
Interest
Undistributed offsetting receipts
Total ........................................................ .

Note Details may not add to totals due to rounding.

29

Explanatory Notes
1. Flow of Data Into Monthly Treasury Statement
The Monthly Treasury Statement (MTS) IS assembled from data In the
central accounting system The major sources of data Include monthly
accounting reports by Federal entities and disbursing officers. and daily
reports from the Federal Reserve banks These reports detail accounting
transactions affecting receipts and outlays of the Federal Government
and off-budget Federal entities. and their related effect on the assets and
liabilities of the US Government. Information IS presented In the MTS on
a modified cash basIs

the employee and credits for whatever purpose the money was Withheld
Outlays are stated net of offsetting collections (including receipts of
revolving and management funds) and of refunds. Interest on the public
debt (public issues) is recognized on the accrual basIs. Federal credit
programs subject to the Federal Credit Reform Act of 1990 use the cash
basIs of accounting and are divided into two components. The portion of
the credit activities that involve a cost to the Government (mainly
subsidies) is included within the budget program accounts. The remaining
portion of the credit activities are in non-budget financing accounts.
Outlays of off-budget Federal entities are excluded by law from budget
totals. However. they are shown separately and combined with the onbudget outlays to display total Federal outlays.

2. Notes on Receipts
Receipts Included In the report are classified Into the following major
categories (1) budget receipts and (2) offsetting collections (also called
applicable receipts). Budget receipts are collections from the public that
result from the exercise of the Government"s sovereign or governmental
powers. excluding receipts offset against outlays. These collections. also
called governmental receipts. consist mainly of tax receipts (including
sOCIal Insurance taxes). receipts from court fines. certain licenses. and
deposits of earnings by the Federal Reserve System. Refunds of receipts
are treated as deductions from gross receipts.
Offsetting collections are from other Government accounts or the
public that are of a business-type or market-oriented nature. They are
claSSified into two major categories: (1) offsetting collections credited to
appropriations or fund accounts. and (2) offsetting receipts (i.e .. amounts
deposited in receipt accounts). Collections credited to appropriation or
fund accounts normally can be used without appropriation action by
Congress. These occur in two instances: (1) when authorized by law.
amounts collected for materials or services are treated as reimbursements to appropriations and (2) in the three types of revolving funds
(public enterprise. intragovernmental. and trust); collections are netted
against spending. and outlays are reported as the net amount.
Offsetting receipts in receipt accounts cannot be used without being
appropriated. They are subdivided into two categories: (1) proprietary
receipts-these collections are from the public and they are offset against
outlays by agency and by function. and (2) intragovernmental fundsthese are payments into receipt accounts from Governmental appropriation or funds accounts. They finance operations within and between
Government agencies and are credited with collections from other
Government accounts. The transactions may be intrabudgetary when the
payment and receipt both occur within the budget or from receipts from
off-budget Federal entities in those cases where payment is made by a
Federal entity whose budget authority and outlays are excluded from the
budget totals.
Intrabudgetary transactions are subdivided Into three categories:
(1) interfund transactions. where the payments are from one fund group
(either Federal funds or trust funds) to a receipt account in the other fund
group; (2) Federal Intrafund transactions. where the payments and
receipts both occur within the Federal fund group; and (3) trust intrafund
transaction~. where the payments and receipts both occur within the trust
fund group.
Offsetting receipts are generally deducted from budget authority and
outlays by function. by subfunction. or by agency. There are four types of
receipts. however. that are deducted from budget totals as undistributed
offsetting receipts. They are: (1) agencies' payments (Including payments
by off-budget Federal entities) as employers into employees retirement
funds. (2) interest received by trust funds. (3) rents and royalties on the
Outer Continental Shelf lands. and (4) other interest (i.e .. interest collected
on Outer Continental Shelf money In deposit funds when such money is
transferred Into the budget).

4. Processing
The data on payments and collections are reported by account symbol
into the central accounting system. In turn. the data are extracted from
this system for use in the preparation of the MTS.
There are two major checks which are conducted to assure the
consistency of the data reported:
1. Verification of payment data. The monthly payment activity reported by
Federal entities on their Statements of Transactions is compared to the
payment activity of Federal entities as reported by disbursing officers.
2. Verification of collection data. Reported collections appearing on
Statements of Transactions are compared to deposits as reported by
Federal Reserve banks.

5. Other Sources of Information About Federal Government
Financial Activities
• A Glossary of Terms Used in the Federal Budget Process, March
1981 (Available from the U.S. General Accounting Office, Gaithersburg,
Md. 20760). This glossary provides a basic reference document of
standardized definitions of terms used by the Federal Government in the
budgetmaking process.
• Daily Treasury Statement (Available from GPO, Washington. D.C.
20402, on a subscription basis only). The Daily Treasury Statement is
published each working day of the Federal Government and provides data
on the cash and debt operations of the Treasury.
• Monthly Statement of the Public Debt of the United States
(Available from GPO, Washington, D.C. 20402 on a subscription basis
only). This publication provides detailed Information concerning the public
debt.
• Treasury Bulletin (Available from GPO, Washington, D.C. 20402, by
subscription or single copy). Quarterly. Contains a mix of narrative, tables,
and charts on Treasury issues, Federal financial operations, international
statistics, and special reports.
• Budget of the United States Government, Fiscal Year 19 _
(Available from GPO, Washington, D.C. 20402). This publication is a
single volume which provides budget information and contains:
-Appendix, The Budget of the United States Government, FY 19_
-The United States Budget in Brief, FY 19 _
-Special Analyses
-HIstorical Tables
-Management of the United States Government
-Major Policy Initiatives

3. Notes on Outlays
Outlays are generally accounted for on the basIs of checks issued.
electronic funds transferred. or cash payments made. Certain outlays do
not reqUire Issuance of cash or checks. An example IS charges made
against appropriations for that part of employees salaries withheld for
taxes or savings bond allotments - these are counted as payments to

• United States Government Annual Report and Appendix (Available
from Financial Management Service, U.S. Department of the Treasury.
Washington, D.C. 20227). This annual report represents budgetary
results at the summary level. The appendix presents the individual receipt
and appropriation accounts at the detail level.

30

Scheduled Release
The release date for the November 1993 Statement will be 2:00 pm EST December 21, 1993.

For sale by the Superintendent of Documents, US. Government Printing
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For Immediate Release
November 23, 1993
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
BANK REGUlATORY CONSOLIDATION
I strongly support this approach to regulatory consolidation.
First, let me layout a bit of the rationale of what we want to do. It just makes no
sense to have four separate agencies involved in regulating our financial institutions.
Right now we have a system where the regulation is scattered all over. It was
designed for another time. And let me tell you, that time has long since passed. What
we have now slows up our economy by making it difficult and confusing for our financial
community to get its work done. And it creates friction within the government. We
need to straighten this out.
That's why we settled on the idea of a single agency. The leaders of the House
and Senate Banking Committees have done quite a bit of work on this issue, and they've
come up with the same approach. I think it's the best way to tackle this problem. I'm
looking forward to working with Congress in getting this legislation through. We expect
to send our plan up to the Hill in January.
I might also note that it's rare that you'll find a government agency willingly giving
up some of its authority.
But that makes my second point, which is that one of the aims of the Clinton
administration is to reinvent government -- get rid of what's old and outmoded and
install modem systems. We have to get rid of these inefficiencies in our economy to
make it function at its best, and this is one way to do that. We have other initiatives in
the works here at Treasury on that front.
As we bring about this change in our system for regulating financial institutions,

we will preserve the basic functions of the FDIC and the Federal Reserve. That's
because we're restructuring the system around three basic jobs -- supervision and
regulation, insuring deposits, and operating a central bank.
The final point I would make is that we will ensure that nothing we do raises any
question about the safety and security of our financial system.
-30LB-523

Consolidating the Federal Bank Regulatory Agencies

The Honorable Frank N. Newman
Under Secretary of the Treasury

Proposal Requested by the
Committee on Banking, Housing, and Urban Affairs
United States Senate

November 23, 1993

Table of Contents

Summary of the Administration's Proposal to
Consolidate the Bank Regulatory Agencies . . .

1

The Administration's Proposal to Consolidate
the Bank Regulatory Agencies . . . . . . . . . .

3

I.
II.
III.
IV.
V.
VI.

Introduction
Previous reform proposals
Rationale for consolidation
Objectives for effective agency restructuring
The Administration's proposal
Benefits of consolidation
Efficiency
Accountability
Consistency
Benefits to customers and the economy
Eliminating potential conflicts of interest
VII. Conclusion
Appendices

3
4

5
6
7
9

10
10
10
10

11
11
12

Summary of the Administration's Proposal to
Consolidate the Bank Regulatory Agencies
•

The proposal would establish a Federal Banking Commission, an
independent agency that would regulate all FDIC-insured depository
institutions and their holding companies and other affiliates.

•

The Commission would have all the depository institution regulatory
functions currently exercised by:

•

•

the Comptroller of the Currency (as charterer and regulator of
national banks);

•

the Federal Reserve Board (as primary federal regulator of bank
holding companies and of state-chartered banks that are members of
the Federal Reserve System);

•

the Federal Deposit Insurance Corporation (as primary federal
regulator of state-chartered banks that are not members of the
Federal Reserve System); and

•

the Office of Thrift Supervision (as charterer and regulator of
federal savings associations, and primary federal regulator of
savings and loan holding companies and state-chartered savings
associations) .

The Commission would have five members:
•

a Chairperson appointed by the President and confirmed by the
Senate, serving a four-year term (both as a member and as
Chairperson) expiring on the last day of March following a
Presidential election;

•

the Secretary of the Treasury (or the Secretary's designee);

•

a member of the Federal Reserve Board, designated by the Board;
and

- 1-

•

two members appointed by the President and confi.med by the
Senate, serving staggered five-year terms.

•

The FDIC would continue to insure deposits at all federally insured banks
and savings associations. It would resolve failed or failing institutions.
It would retain its current statutory authority as deposit insurer (e.g., to
grant and withdraw deposit insurance; conduct special examinations of
insured institutions to protect the deposit insurance fund; take "back-up"
enforcement action to stop risky practices at such institutions if the
Federal Banking Commission failed to do so; and help determine whether
a critically undercapitalized institution should remain open).

•

The Federal Reserve, as the nation's central bank, would continue to
conduct monetary policy, administer the payment system, and provide
liquidity to financial markets through the discount window.

•

The FDIC and Federal Reserve, in carrying out their respective
responsibilities, would have access to all records of the Federal Banking
Commission relating to depository institutions or their holding companies,
including all data and examination reports.

•

The states would remain the primary regulators of the banks they charter,
thus preserving the integrity of the dual banking system. Moreover, the
Federal Banking Commission would use state examinations as
appropriate, consistent with the statute requiring periodic examinations.

•

The consolidation of regulatory functions would occur on a date set by
the Secretary of the Treasury, preferably within ten months after the
proposal became law. The Secretary would, however, have discretion to
allow an additional five months.

-2-

The Administration's Proposal to C~'~1solidate
the Federal Bank Regulatory Agencies
I. Introduction
The need to restructure the federal bank and thrift regulatory system has
steadily increased over the past several decades, as distinctions among
depository institutions have blurred and the regulatory system has grown more
costly and complex. The time has come for bold comprehensive action.
The current federal regulatory structure is needlessly disjointed and
convoluted. Four different agencies regulate depository institutions insured by
the Federal Deposit Insurance Corporation (FDIC). The Office of the
Comptroller of the Currency (OCC) charters and regulates national banks. The
Federal Reserve Board, in addition to conducting monetary policy, regulates
bank holding companies (Le., companies that control banks) and state-chartered
banks that are members of the Federal Reserve System. The Federal Reserve
Board also has overlapping responsibilities for regulating foreign banks' U.S.
operations and U.S. banks' foreign operations. The FDIC, in addition to
insuring deposits, regulates state-chartered banks that are not members of the
Federal Reserve System. The Office of Thrift Supervision (OTS) charters and
regulates federal savings associations, and also regulates savings and loan
holding companies (i.e., companies that control savings associations) and statechartered savings associations. In addition, the FDIC has back-up authority to
stop unsafe practices at any FDIC-insured institution if the institution's primary
federal regulator fails to do so. (Appendix A depicts the current federal
regulatory structure.)
This structure did not result from any well-thought-out plan. Indeed, as
Senate Banking Committee Chairman Riegle has observed, "no thoughtful
person would ever design such a system from scratch." Instead, the structure
arose over time as the Federal Government, in response to crises and changing
needs, established new agencies and expanded existing agencies' responsibilities
without ever significantly rationalizing and simplifying the structure.
Congress created the OCC in 1863 to help finance the Civil War. It
established the Federal Reserve System in 1913 to stabilize the national
economy after a series of banking panics. It created the FDIC in 1933, after

-3-

the banking system collapsed during the Great Depression. The following year,
it extended federal regulation and deposit insurance to the thrift industry
through the Federal Home Loan Bank Board, which became the OTS in 1989,
and the now-defunct Federal Savings and Loan Insurance CorporatioH. It
instituted holding company regulation in 1956 for banks and in 1968 for savings
associations. It applied federal regulation to foreign banks in 1978.
Each new layer of the bank and thrift regulatory system achieved some
measure of success, but the system -- considered as a system -- makes little
sense. It is a crazyquilt: a patchwork lacking any coherent overall design.
(An excellent chart published by the Federal Reserve Bank of New York,
entitled "Depository Institutions and 'fheir Regulators," uses 12 columns, 17
lines, and 31 footnotes to explain which regulator handles what.)
To address the practical problems inherent in this system, Congress in
1979 created the Federal Financial Institutions Examination Council (FFIEC) to
coordinate examination policies and procedures among the federal banking
agencies. Unfortunately, despite the progress achieved under the FFIEC's
auspices, the FFIEC has fallen far short of solving these large and complex
problems.
Our balkanized regulatory system also reflects a bygone era in which
commercial banks, savings banks, savings associations, and other financial
institutions operated largely within their own specialized market niches. But
these distinctions have eroded over time in the face of such forces as new
information technology, financial innovation, deregulation, increasing consumer
sophistication, and global competition. These developments have exposed the
system's latent and glaring faults.

II. Previous Reform Proposals
Many proposals to consolidate depository institution regulation have
emerged over the past half-century. Their proponents have included a task
force of the Commission on Organization of the Executive Branch of
Government, commonly known as the Hoover Commission, 1949; the
Commission on Money and Credit, 1961; House Banking Committee Chairman
W right Patman, 1965; the Hunt Commission, 1971; the House Banking
Committee's Study of Financial Institutions in the Nation's Economy, 1975;

-4-

Senate Banking Committee Chairman Proxmire, 1975; the Private Sector
Survey on Cost Control, commonly known as the Grace Commission, 1983;
Vice President Bush's Task Group on Regulation of Financial Services, 1984;
and the Bush Admini::,tration, 1991.
Each of these studies and proposals has called for some form of
regulatory consolidation, yet consolidation has remained an elusive goal. We
have studied enough. Now it is time to act.

III. Rationale for Consolidation
Under the current bank and thrift regulatory system, each of the federal
banking agencies has its own team of examiners, its own bureaucracy, and its
own regulations. This overlap and confusion generates nedlless expense and
endless confusion for the nation's insured depository institutions. Coordination
is an inherently time-consuming process that yields only limited results. Even
identical regulations are implemented and interpreted differently.
Further, current trends in the financial services industry provide a strong
rationale for consolidating the bank and thrift regulatory system and
rationalizing our fragmented supervisory system. Competition from other
providers of financial services is shrinking profit margins in banking, making it
increasingly important for banks and thrifts to minimize non-interest expenses.
The cost of supporting multiple regulators is becoming increasing unaffordable.
The OTS's current budgetary constraints give impetus to merging federal
bank and thrift regulators as soon as possible. The OTS funds itself through
assessments on OTS-regulated institutions. A shrinking thrift industry means a
shrinking assessment base, and the OTS's assessment base has fallen by more
than 30 percent since 1990. In response, the OTS has cut its staff by one-third,
frozen senior managers' salaries, limited staff merit-pay increases, consolidated
its 12 district offices into 5 regional offices and cut total operating expenses by
more than 25 percent. Yet even after all these economies, the OTS will have
great difficulty meeting its current expenses from its assessment base. This
difficulty is just one reflection of the continually changing markets for fmancial
services. A consolidated agency could better adapt to such changes by
redeploying resources.

-5-

Consolidation in the banking industry is increasing the number of banking
organizations with subsidiaries that operate under different charters. Consider
the case of a bank holding company with national bank, state nonmember bank,
and savings association subsidiaries, as depicted in Appendix B. This company
must deal with four separate primary federal regulators. This problem affects a
large segment of the industry. As illustrated in Appendix C, 47 percent of total
bank and thrift assets are held by banking organizations with three or four
fede!"al regulators.
We now have an historic opportunity to rationalize the structure of
federal banking regulation. The Chairmen of the Senate and House Banking
Committees have advanced well-considered and similar proposals based on the
principle of unitary regulation. Today the Administration joins that effort with
an approach that incorporates many of the highly constructive elements of H.R.
1214 (Chairman Gonzalez and 12 other Members of the House Banking
Committee) and S. 1633 (Chairman Riegle and Senator D'Amato).

IV. Objectives for Effective Agency Restructuring
Under the National Performance Review, the Vice President has
challenged us to reinvent government, rather than to adhere to past ways of
governing that may no longer serve the needs of the pUblic. The principles
formulated in the National Performance Review -- cutting red tape and
governing efficiently -- provided the framework within which we developed our
proposal. In light of these principles, we have identified the following goals as
necessary for successfully restructuring the federal banking agencies:
•

First, regulations and policies for comparable activities should be
consistent, regardless of charter.

•

Second, the restructured system should implement those regulations and
policies consistently.

•

Third, a successful restructuring should improve the overall efficiency
and quality of supervision by regulating banking organizations as a unit
and eliminating time-consuming interagency rulemakings.

-6-

•

Fourth, the new system should define clear roles and functions for the
remaining agencies to eliminate redundancies and assure that the agencies
work cooperatively.

•

And finally, the new regulator must have appropriate independence,
balanced with responsibility to the electorate through a continuing
Executive Branch role.

V. The Administration's Proposal
We can best achieve these objectives by realigning the bank and thrift
regulators along the lines of their core functions: deposit insurance, central
banking, and safety and soundness regulation. The FDIC would insure
deposits. The Federal Reserve Board would conduct monetary policy,
administer the payment system, and provide liquidity through the discount
window. And a new agency, the Federal Banking Commission, would
supervise all FDIC-insured depository institutions. The Administration's
proposal would leave the core functions of the FDIC and the Federal Reserve
undisturbed. (Appendix D depicts the proposed new federal regulatory
structure.)
The Federal Banking Commission would regulate all federally insured
banks and thrifts, all bank and thrift holding companies, U.S. banks' foreign
operations, and foreign banks' U.S. operations. It would also charter national
banks and federal savings associations. The Commission would thus carry out
all the functions currently exercised by the OCC and OTS, as well as the
FDIC's functions as primary federal regulator of state nonmember banks and
the Federal Reserve's functions as primary federal regulator of bank holding
companies, state member banks, and foreign banks. This consolidation of
authority would ensure consistent and efficient supervision of each banking
organization (holding company and its depository institutions) as a unit.
The states would remain the primary regulators of the banks they charter,
thus preserving the integrity of the dual banking system. Moreover, the
Federal Banking Commission would use state examinations as appropriate,
consistent with the statute requiring periodic examinations.

-7-

The new Commission would have five members: 'ie Secretary of the
Treasury (or the Secretary's designee); a member of the Federal Reserve
Board, designated by the Board; and three members appointed by the President
and confirmed by the Senate. One of the three appoint..,u members would be
specifically appointed and confirmed as Chairperson of the Commission, and
would serve a four-year term (both as a member and as Chairperson) expiring
on the last day of March following a Presidential election. The two other
appointed members would serve staggered five-year terms. One of these two
members must be from another political party. We believe that this governing
structure would properly balance the need for independence in regulatory action
with the need of any Administration for an appropriate and effective voice in
policies relating to the functions and structure of the banking system.
Under this framework, the FDIC would continue to insure deposits at all
federally insured banks and thrifts. It would resolve failed or failing
institutions. It would grant, suspend, and terminate deposit insurance. It could
conduct special examinations of insured institutions to protect the deposit
insurance fund. It could take back-up enforcement action to stop risky practices
at such institutions if the Federal Banking Commission failed to do so. It
would retain its current role as deposit insurer in carrying out the prompt
corrective action statute (e.g., helping determine whether a critically
undercapitalized institution should remain open).
This authority would fully enable the FDIC to perform its core functions.
In fact, the FDIC testified in 1991 before both Congressional Banking
Committees that "the important issue is not necessarily who the primary federal
regulator is but that the FDIC have back-up examination and enforcement
authority over all insured depository institutions."
The Federal Reserve, as the nation's central bank, would continue to
conduct monetary policy, administer the payment system, and provide liquidity
through the discount window. The Federal Reserve would retain authority to
set standards for, and examine activities related to, the payment system and
discount window. In addition, the Federal Reserve could participate in the
Federal Banking Commission's examinations of a limited number of banking
organizations most significant to the payment system. Nothing in the
Administration's proposal would in any way affect the Federal Reserve
System's independence in performing its core functions.

-8-

T ( make this new f.~ mework effective, the FDIC and Federal Reserve
would have full access to bank supervisory information in orJer to make
independent judgments on matters most directly bearing on their core functions.
The COulJllission would be fequired to provide the FDIC and Federal Reserve
timely and accurate information on the condition of the banking and thrift
industries and on individual depository institutions.
The Commission would surely need the skills and experience of acc,
Federal Reserve, FDIC, and OTS staff members, who have carried out their
regulatory -responsibilities professionally and have cooperated as best they could
within the current needlessly complex system.
We want to get this process moving quickly, and we believe the basic
time plan outlined in S. 1633 makes good sense. Under that approach,
consolidation of the regulatory functions would occur on a date set by the
Secretary of the Treasury, preferably within 10 months after the proposal
became law, but with the Secretary having discretion to allow an additional five
months to ensure a smooth transition.

VI. Benefits of Consolidation
Secretary Bentsen, in his October 25 address to the Center for National
Policy, outlined the benefits of regulatory consolidation:
"We can further streamline the existing structure and create one
that can make more timely decisions. And, by eliminating
duplicative regulatory agencies, we can help reduce inconsistent
interpretations of the same laws and rules. Furthermore,
interagency turf battles would be avoided. Finally, financial
institutions could reduce their operating expenses and spend more
time making sound loans than filling out papers in quadruplicate."
In short, consolidating the federal banking agencies, properly
accomplished, would benefit banks, thrifts, consumers, and the economy in
general.

-9-

Efficiency
Reorganization framed around core regulatory functions would improve
the efficiency of depository institution regulation. A single regulator would be
responsible for the entire banking organization: the depository institutions, their
holding company, and affiliates. The current system of fragmented regulatory
decision making, duplicative rulemaking, and delayed supervisory action would
end.
Accountability
Consolidation into a single agency would fix accountability for regulating
depository institutions and provide a focal point for Administration,
Congressional, and public concerns regarding regulatory policy. The current
system necessitates extensive interagency coordination and negotiation to bridge
policy differences. Further, even with interagency policy agreements,
implementation varies among the agencies. We have had to navigate through
these very problems in developing and implementing the President's credit
availability and Community Reinvestment Act reform initiatives.
Consistency
Consolidation would eliminate interagency inconsistencies in regulation.
It would facilitate more timely and decisive action against problem institutions
and more rapid processing of healthy institutions' applications to expand or
engage in new activities. No bank or thrift would suffer, or benefit, from the
differential application of enforcement standards or closure policies of different
agencies. Thus consolidation would eradicate the current opportunities for
charter-shopping and other competition in laxity. It would also provide a
comprehensive, uniform, and coordinated mechanism for enforcing applicable
laws and regulations.
Benefits to Customers and the Economy
Bank customers, and the economy generally, should benefit from
eliminating needless compliance costs through regulatory consolidation.
Customers would also benefit from uniform application and enforcement of
laws and regulations designed to ensure that institutions deal fairly with their

- 10 -

customers. And fmally, this simplified structure wlJlIld mean that customers
would know (or could readily ascertain) who regulates their bank. If they have
a problem with an insured depository institution, they would know with whom
to register their complaint.

Eliminating Potential Conflicts of Interest
Reorganizing the bank and thrift regulatory syst~m would also eliminate
conflicts of interest and focus that could arise when an agency handles more
than one core function. Under the current structure, the insurer, the central
bank, and the supervisor all face such potential conflicts. The insurer has
incentives to resist banking innovations if the insurance fund is solvent. On the
other hand, if the insurance fund nears insolvency, the insurer has incentives to
forbear. Similarly, a central bank that also has primary regulatory
responsibility for specific banking institutions might be diverted from its focus
on overall monetary policy. (Many countries have chosen to separate central
banking from bank supervision.) Furthermore, a bank supervisor that shares
supervisory authority with the other regulators might incline toward leniency, in
order to maintain a constituency of institutions to supervise. The new functionbased regulatory structure would eliminate these conflicts.

VII. Conclusion
Reforming our nation's bank regulatory structure is one of the most
significant steps we can take to reduce the regulatory burden on insured
depository institutions. It would allow those institutions to compete more
effectively and provide better service to consumers. Moreover, it would
advance the Administration's overall agenda of reinventing government.
We intend to send Congress early next year legislative language to
effectuate the regulatory-consolidation proposal outlined here. We look forward
to working with both Banking Committees and other Members of Congress on
this important issue.

- 11 -

Appendix A: The Current Federal Structure for Supervising
FDIC-Insured Depository Institutions and Their Holding Companies

Treasury

~~.------,

......
N

Office of Thrift
Supervision

Office of the
Comptroller of
the Currency

!zs~~
State and
Federal Savings
Associations

Savings and
Loan Holding
Companies

Federal Reserve

Federal Deposit
Insurance
Corporation

~L------,·· S~----,
National Banks

State Member
Banks

Bank Holding
Companies

State
Nonmember
Banks

Appendix B: Consider the Case of a Bank Holding Company with National
Bank, State Member Bank, State Nonmember Bank, and Savings
Association Subsidiaries

Office of the
Comptroller of the
Currency

Federal Reserve
Holding Company

w

National Bank

Federal Deposit
Insurance Corporation

State Nonmember
Bank

Savings Association

State Member Bank

Office of Thrift
SuperviSion

Appendix C: Most Banking Organizations Have 2, 3, or Even 4
Primary Federal Regulators

1,756

$895

13%
5,703

306

20%

43%

2%

~

$1,223
5,617

27%
$1,186

42%,

Number of Banking Organizations

Amount of Total Banking Assets
($Blllions)

Ll] One Regulator

E3

Two Regulators

•

Three Regulators

•

Four Regulators

26%

Appendix 0: The Proposed Federal Structure for Supervising
FDIC-Insured Depository Institutions and Their Holding Companies

Federal Banking Commission

Ul

State Banks

National Banks

State and Federal
Savings Associations

Holding Companies

Statement by VICe President ~ Gore GIl tile
Administcation's Proposal to Coa5oIidate the
Bank Regulatory Ageucies

The bank regulatory consolidation proposal is in keeping with
both the substance and the spirit of reinventing government. The new
Federal Banking Commission collapses the regulatory, examination
and approval functions now performed by four agencies into one.
This is a major step forward in the Clinton Administration's efforts to
create a government that works better and costs less.

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SEc..~ETARY

OF THE TREASUR"

November 22,

1993

The Honorable Donald W. Riegle, Jr.
Chairman
Committee on Banking, Housing, and
Urban Affairs
United States Senate
Washington, DC 20510
Dear Don:
Enclosed is the Administration's proposal to consolidate the four
existing federal bank regulatory agencies into a single new
agency, the Federal Banking Commission.
This proposal responds to your request for Under Secretary Newman
to present the Administration's views on regulatory
consolidation.
We believe the time has come to rationalize and simplify the
structure of federal banking regulation. We can no longer afford
the current regulatory structure, a spider's web of overlapping
jurisdictions that represents a drag on our economy, a headache
for our financial services industry, and a source of friction
within our government. Regulatory consolidation will advance our
goal of reinventing government and enabling the eccnomy to
function more efficiently.
Our proposal builds on S. 1633, which you introduced together
wIth Senator O'Amato, as well as on H.R. 1214, Chairman
Conzalez's consolidation bill.
We Intend to transmit our proposal to Congress in legislative

language early next year. We look forward to working with you
and the other members of the Committee to enact these historic
and long-overdue reforms.
Sincerely,

~

Lloyd Bentsen

Enclosures

•

DEPARTMENT OF THE TREASURY
WASHINGTON. D.C.
SECRETARY OF' THE TREASURY

November 22,

1993

The Honorable Alfonse M. D'Amato
Ranking Republican
Committee on Banking, Housing, and
Urban Affairs
United States Senate
Washington, DC 20510
Dear AI:
Enclosed is the Administration's proposal to consolidate the four
existing federal bank regulatory agencies into a single new
agency, the Federal Banking Commission.
This proposal responds to Chairman Riegle's request for Under
Secretary Newman to present the Administration's views on
regulatory consolidation.
We believe the time has come to rationalize and simplify the
structure of federal banking regulation. We can no longer afford
the current regulatory structure, a spider's web of overlapping
jurisdictions that represents a drag on our economy, a headache
for our financial services industry, and a source of friction
within our government. Regulatory consolidation will advance our
goal of reinventing government and enabling the economy to
function more efficiently.
Our proposal builds on S. 1633, which you introduced together
with Chairman Riegle, as well as on H.R. 1214, Chairman
Conzalez's consolidation bill.
We intend to transmit our proposal to Congress in legislative
language early next year. W. look forward to working with you
and the other members of the Committee to enact these historic
and long-overdue reforms.

;;p
Uoyd Bentsen
Enclosures

DEPARTMENT OF THE TREASCRY
WASHINGTON. D.C.
SECRETARY OF THE TREASURY

November 22,

1993

The Honorable Henry B. Gonzalez
Chairman
Committee on Banking, Finance and
Urban Affairs
u.s. House of Representatives
Washington, DC 20515
Dear

Mr«~----

Enclosed is the Administration's proposal to consolidate the four
existing federal bank regulatory agencies into a single new
agency, the Federal Banking Commission.
We believe the time has come to rationalize and simplify the
structure of federal banking regulation. We can no longer afford
the current regulatory structure, a spider's web of overlapping
jurisdictions that represents a drag on our economy, a headache
for our financial services industry, and a source of friction
within our government. Regulatory consolidation will advance our
goal of reinventing government and enabling the economy to
function more efficiently.
Our proposal builds on H.R. 1214, the Regulatory Consolidation
Act of 1993, which you introduced earlier in this Congress, as
well as on S. 1633, the Riegle-D'Amato bill.
We intend to transmit our proposal to Congress in legislative
language early next year. We look forward to working with you
and the other members of the Committee to enact these historic
and long-overdue retorms.

J\7~(""--~--1-'
Lloy
Enclosures

(I
DEPARTMENT OF THE TRt::ASURY
WASHINGTON,D SECRETARY OF" THE TREASURY

November 22,

1993

The Honorable James A. Leach
Ranking Republican
committee on Banking, Finance and
Urban Affairs
U.s. House of Representatives
washington, DC 20515
Dear Jim:
Enclosed is the Administration's proposal to consolidate the four
existing federal bank regulatory agencies into a single new
agency. We appreciate the serious and thoughtful contribution
you have made to this very important issue, as reflected in H.R.
1227, the Bank Regulatory Consolidation and Reform Act of 1993.
We believe the time has come to rationalize and simplify the
structure ot federal banking regulation. We can no longer afford
the current regulatory structure, a spider's web of overlapping
jurisdictions that represents a drag on our economy, a headache
tor our financial services industry, and a source of friction
within our government. Regulatory consolidation will advance our
goal of reinventing government and enabling the economy to
tunction more efficiently.
We agree with your view, reflected in H.R. 1227, that the Office
ot Thritt Supervision should be consolidated with the Office of
the Comptroller ot the CUrrency, and we also believe that further
con.olidation -- involving tunctions currently exercised by the
rederal Reserve Board and FDIC -- is an achievable goal and
repre •• nts the best public policy.
We intend to transmit our proposal to Congress in legislative
lanquage early next year. We look torward to working with you
and the other .ember. ot the Committee to enact these historic
and long-overdue retorms.
Sincerely,

Enclosures

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c.uo......

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MVUCO

'A1Tf Wl.MllU.y, W..-TOOO

1T1W'"
- I , " - _CTQjI _
a.. C~IL
-...,.,,, ~ IIUU~ IT_ ~o.

tinittd

~tQtt.s ~mQtt

COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON. DC 2051D-e075

November 8, 1993
Honorable William J. Clinton
President of the United States
White House
Washington, D.C. 20500
Dear Mr. President:
In the preface to the "Report of the National Performance Review" you
and the Vice-President state: "It is time to radically change the way
government operates." We agree.

Let us state as clearly as we can that we strongly believe that the
time is now for the full consolidation of the supervisory and regulatory
responsibilities of the four bank and thrift regulatory agencies - the
Comptroller of the Currency, the Federal Reserve Board, the Federal
Deposit Insurance Corporation, and the Office of Thrift Supervision -- into a
single, independent Federal Banking Commission.
The current system is costly, burdensome, inefficient, archaic and
must be re-engineered and modernized. We believe this issue must be
addressed immediately and call upon you to exert bold leadership in this
area as part of the Admjnjstration's ongoing effort to reinvent government.
Reforming our bank and financial regulatory bureaucracy is long
overdue. Now is the time to address this issue head on. Banks and thrifts
are posting record profits, and both the Congress and the Administration
are committed to cost saving, deficit reduction, and a more efficient
government.
Consolidation of the regulatory agencies is not a new idea. Virtually
every independent study of our federal bank regulatory system since 1949
has recognized the need for major consolidation. Consolidation has been
advocated by, among others, The Hoover Commission, the Hunt
Commission, the FINE Study, the Grace Commission, the Task Group on
Regulation of Financial Services, and the recently complt::ted National
Commission on Financial Institution Reform, Recovery, and Enforcement.

Most recently, on September 14, 1993, the Senate nanking Committee
received testimony from a bi-partisan group of six fonner financial agency
regulators. The witnesses were unanimous and unequivocal that major
consolidation would benefit consumers; benefit industry; and improve the
safety and soundness of the financial services industry. For the banking
industry, consolidation holds the promise of reduced examination fees and
an end to duplicative examinations and conflicting regulations. For the
general public, regulatory consolidation means a more accountable, more
responsive bank regulatory system. And for the American economy,
regulatory consolidation means a more vital, more competitive banking
system.
We believe that a streamlined regulatory system will allow America's
banks to put more effort into productive business activities and less into
coping with their regulaton. We also believe that the consolidation and
streamlining of our supervisory and regulatory system into • single Federal
Banking Commission will do much to reduce the paperwork burden facing
the industry while at the same time increasing the safety and soundness of
the system.

Mr. President, full consolidation of the supervisory and regulatory
responsibilities of all four of our bank and thrift regulatory agencies is a top
priority for us in this Congress. We look forward to worJDnc dOlely with
you and your Administration on this issue. Given the similarity of
approaches contained in the bills we have introduced in the House and
Senate, we urge your Administration to seize this unique and historic
opportunity to fundamentally improve the way our bank and thrift
regulatory agencies operate and to reinvent and re-engineer this area of our
government in a major, meaningful way.

...-----,

Sincerely,

B. Gonzalez
Chairman
House Banking Committee

zr
AHO~ ~. . .: :JI" "- /

Donald

RAnking Member

Chairman'

Senate Banking Committee

I

W~

Riegle, Jr.

Senate B~ .

·ttee

Vol. 139

WASHINGTON, THURSDAY, MARCH .{, 1993

No. 25

([ongrrssionallZrcord

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of America

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INTRODUCTION
OF THE
REG U LATORY CONSOLIDATION ACT OF
1993

HON. HENRY

Fad cononve 10 r&<;JJlale 10r8Igr1 banks I \)6.

Thursday. March 4.1993
Mr. GONZALEZ. Mr. Speaker. today I introduce the Regulatory Consolidation Act of
1993. H.R. 1214. This act oonso6idaIes all the
Federal bank and thrift reguIaby functions
Into. &Ingle. Independent oommis8Ion.

Mr. ~. the current Fede4W ntguIatory
stNdunt for banks and thrifts Is hombty scat·
tefed and disjointed. National broks ar. reguIeted by the Office of ht CompIrOller of the
~ In

f8QUlated

by ht Office of Thrift ~ The Fed.,., Raerve regulaiaa bar* hoking ~­
nIn, foreign banks, and Slate benQ Ihat 81e
~ of the Fedefal AeseNe SyatIIm and.
.. 1M ume time. Ia c:hatQed witt C8If'IW'O out
1M NatIon', rnonnuy poley. The FedenI/ De~ InIurInoe CotporaIon
State
benka tNt .... not members of 1M Federal
Raerw System and "*"- .. ~ and

r.......

uvings uaodatioM.
You IhouId not be SUfPriMd to Ieam that
1M current paICt1wofk IysIem . . . not cr..ted
.. part of eny cohesIv. ntgUatory pWI. The
OCC wee auted &0 help finance Ile CMI
War, 1M Federal Reserw wu eatIIbtiIhed 60
YMfa '-t8r .. hi Nation', central __ to ed"*'Is1Ier mone\aIy policy, 1M FDIC ... established III I8I8t .. an 1M&nf~ • ~.
Md 1M ~1eO( of the OTS wu created
to prooAde lOng-term. low co.t . . . to Ihritta.
lNa <IIjoirMd and ~ ~ to
Feder8I regu&don hal prcMtn to be dupIic:a1M. Ineffic:Mnt, and .~. The Comptroller G«leraI recently prMeIMd ht ~
witt • ~ attICaI ~ of the
bMk end Ivtft examndon proeM&. tM1ifytng
theI. '1E}xarNnaIIon ......... I n aymp~
mde of • regu&atoty ItNC:ln tNt II not as
~ and etftcIent . . It IhI:Ui be In

Com,,,,-

~ our ~ InstlMiona.~ The
GeneoII AccountIng Otb repoI1 ~
tne Iroot\SI:$teocles In the QU81tty and compreI'IenIIwnMI of U8ITlIMIIone among !he
r~8QeOdU.

The savings and loan
to the tB.Jr.payet'5 of

Qebade IIIu&traI4Ia h

0Uf C\ICI'ent r~tory
system. The bI!WlkS and sav4ngs as.soaatJona
attIo pey fat INS ~ and r.etfident sys-

cost

Iem.. It. bMlk hoIdiroQ company wtIh naboNli
bar*. s.. bar*. and saW'Iga aa£XICI()C\

SUOsidiariIe unaergoM OCC. Fedefaj ~

....,.. ors.

and StBa. IlIaITIf\Iltions

Some Ilf1}U6 \hat tT'oe F eder8J ReS8N'8
needS to retain 6.Qm4I r~lory tu~
p,an I10aIBd by Itle laS! /tdrTWlISIraOOO ~"'"'
have IarQe bani< hokllOQ companies W11t1 Itl6
F9Qerai Reserve. o\toeni propose MWlq Itl6

a GONZAUZ

OF TKXAS
0-1 THE HOUSE OF REPRESENTATIVES

eun.ncy. Sav\noS

E509

CONGRESSIONAL RECORD- ExleruionI of RemarkI

March 4, 1993

.-rutiJroI.

EWfI CclrrcltrIOler BowsheI. no Ian of ~
Ing ,.~ noted that, lOIN of !he I'inga
"- driwe .... ~ nutII Ie the InC:On!Utanc:y 8nd Ile arbinMNI flat ...,. ... from
ttle different t.nIang agenc:iM 1tIaJ come In to
look .. Ilem." ThIs ~ remediM 1tIe
~ ~ butOIn and Ita ..lendInt oo.aa ImpOSed upon our ~ dePC*tory 1NaAIone.
The ~f Consolidation Act of 1gQ3
cr..... e Fedeoll BetWOng Cor/VTlIYIOn. AI
,. .toty ~ 01 IN OCC. OTS. FDIC.
and Fedeoll Re~ .,8 ~~t.tred to the
CornmaaO\. The- FedtICaI AeMfW ia tr.. '"
locus SOlely on monetarY policy and the FOC
admhs..,.. the Federal d8POS'f tnsuranc8
ft.nM. The OCC and OTS are aboIIshecI The
~ "fS'8ITI d ~ Inc! . . . .u-uf

heve thaI tle F~aI ~ I!IhOuId ("V)
centJBte on mooetaty IX*C'Y ooty and r i .•.
pIOI"e. 1tlf'Ol4l hea/lnfp. ~ 8I'1y bank ex
t>.aI* ~ ~ f89U1atory ~s are
~ carry OUC Its monewy poley rTlIS-

neeoed
SK)fI

The . - eom.ns.s.on ......., ~I ~ sell'8n
the Socntlafy of !he Treasury. the
Ct\aUm8rI of h
806rd 04 Gov~ of the
Federal ReeeNe Sys\8m. the ChaIrman ~ the
8oan:I ~ Otreclors of !he FDIC. and folx ~
~ one of wt.lctl woud be the OWr·
man. ~ by \he p~ wi1h hi aGo
VICe end oonMflt of thI s.en.s.. 1J. . . . one
Pr8SId«1IIaIy appotnted (lI)ITII1'liaio ITIUSI
haVe t.s .. least 2 )'Mra expenenc:e ,~
r6Mntng consumer ()( c...:.tTVI'llnty net"e.sts on
banIung seMC88. Cledil needs ()( I'ouSIOg and
~;

consumer ~ PC"O'8C~

I belle,.. hs 81~ strikM Itle appr0priate baI8roe between ~ and ueoJtJv8 bfandl C(JrlU"0I 04 benII: 'eQUlaGon
1ndependen08 Is .... w-a~ by pre"YlOUS
admIn~ &0 poitOC.IZa reguta!lon In order
to ~ their ~ poItItC-f contl'obut86
gf8f1tty ~ I'le ~ and loan COSIS and •
near 1Jag.c: I8xJly 111 banit and thnfI e~
dIld supetV\SIon.
On the ~ han<l. the elUKUbve bflWlCh
tlaS •
interesl In PfOlTlOClnO • he8tChy
and Y\8bWt banking indusUy.
aspects 01
any admin&StrB1iOn', aconomc policy cjepend
to a OINt deO''' on a saSe and sound bank1r1(J 1rQ,s1ry. Placing IN Sect8Caly 04 the
Treasury on tle Convn&sion will pl'OYlde !he
a~ ~ an 8II'8nU4t 10 a.q>res.l IU
'J14Io'N$. The lns'lU4Ionafued r~hIp between the ~ rego.jaIoI end the
TrINL..<vy ~ of the
8OYIsaoned 11
m'f !eQl5latlO'l is S~ "'!he current

uono

cmca

son

wner.

Treesurr

svs-m

~ Ie cnatved
wi1tl runneng the OCC and the
and ~
enoel !he Faderat Resafw end Ile FDIC
the

ttvouon ~ room .... and

ors

node.
The Regulatory ConecAida8on Ad Mtabhshes • ~ dM6ion ....... hi ConYTUSIOO '" sup4K'liM and anbce ~ pre>
tedion laws.. Including Ole CommunIty fWl.
ves1m8nf Act. The c:onsumer civI.sion ~
ruu 1hat conaumer ~. IndudIng
availability of ban6dng SIMces and credit. .,.
.. ~t .. sat.ty and aoundnesa. InSInd depo8itofy InsftJtione ant ~ to
"'"' the ~ and needs of the ~
rruWty ItIey MtW. The comurner <I\otsIon Ie
deelglied to monitof InsttluUonl' periomwIflOe
under that teet.

1 am ~ened by fle ruOOet of rrP(

BanI·

'no ~ ~ tIl8I nav. pn.d me
tU

0riQi'leI

cosponsort of Iw ~

Con-

~ Act ~ 1993--Mr VENTO. Mr. F~
Mt- I<.D4HEDY. Mr FLME ...... t.tfUoIE. M&. WATERS. Ur. QunrnRU. Mr RusH. Ms. RoY9Al.A.u..AAO. Ma. VE1.).ZOJEL and .... ~. I
wrOlAlIo Pr8Sl()Qnl CIinlon In Ia18 ~ ~
Ing h6m 10 SUWOf1 regUat.Oty coneoIidUon
and pledomg to wM wt1tl his ~1Ion
towards that ?OW. I am pIaaSad 10 repoct that
\tie Icvtjal ~se of ItwI admrtlmal.iOn Ie a
pos/bV9 ooe. Pra&ident Olnton'l report. ~It. VISI()(I of ChaflO8 lor Arnefi::a" 5tales !hal "'The
Federal Government is more c:ompIex than it
needs 10 be. Often. many cttf8rent agenciec
deal witt1 \tie same iSsue. and 1rQvtduaJs.
~ ~ lrId SIllI8l lind it
l~bIe 10 haVe !heir protJaems adInsaed.
Departments and ~ .... already conSOiIdaIlng and srnpIityiog their operaIIOnS. and
t!'le admtntstrallon will .... to ratIonaliZe and
streamline tunc1IOOS GoverMl8f1t-wide.~ ma.s5/ve too of regulating an If\Cf88SIfIQIy c:om(lIU matIdaJ corrrnurwty ~ the
tuIHIme &Hcxt 04 81'1 IndepenQent and thor~ ~ COfTlIftUIon. Othec ....
_ ar. se~ Itle NaDon up lor 8IlOChet COIOy
r~ taIkn !hal may mad the .......
arO loan dIs&S\8( Ioo6c Iik.e 8 walk In the pertt.
and In the meanwhile. IoadnV needIeU and

excessIW burOens on the brilng~.

Vol. 139

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November 8, 1993

S 15321

CONGRESSIONAL RECORD-SENATE
third, the need to reduce unneceaaary
regulatory oompl1&nce COlts on the induatry wherever poeelble W1thout eacr11lc1D1' wety &Dd loundneu,
Our blll would oombine the lupermory &Dd regulatory t\mctlons ot the
Comptroller ot the Currency, the FedentJ Reserve Bot.rd, the Federal Depoalt lnaun.nce Corporatlon &nd the
Dmce of Thrift Superv1a1on into a SlDgle Federal Banldne Comm18a1on.
.uRlUCA'S rt..AWED II.AHI RaOULATORT ST8TDi

Today, we have tour eDtirely eep&rate FedentJ b&nk1ng &genclel. Each
baa lts own aquad o( eu.m1nen. lts own
bureaucracy. &nd Its own regulaUona.
No thoughttul penon would ever deslgn
such a system trom Icr&tch. In tact,
nobody planned our pree8nt ba.nk regulatory Iystem-lt'l a product ot hiltorlcal &cc1dent.

STATEMENTS ON INTRODUCED
BILLS AND JOINT RESOLtrrION
By Mr. RIEGLE (for himself &nd
Mr. D'AMATO):
S. 1833. A bill to oooaolidate under a
DeW Federal Banldnl' CoDUll1u1on the
npery1a1on of &ll depoe1tory 1Datltuttona 1uured under the Federal Depoait lDauranoe Aot. &D4 for other purpoeee; to the Com.m1ttee on BanldDl',
Hoa.1q. and Urban A.a&1rL
amtJLA1WY OOJI'IOUDATmlf ICr or u.
• Mr. RIlCGLE. Mr. Prea1dent, I riM to
introduce the Becu1&tory Cooaolid&tton Act of 1893 tocether with the r&DlI:1DI' RepubllC&D on the Senate Banldng,
Houa1nc. and Urban Alf&1n Committee,
Senator ALl'ONSS D' AMATO. Th1a 1etr1&atlon &ddreuea three lmportant needa
in America'. t1n&Dc1&l re~tory Intem: F1rat, the need to modernize &nd
ltre&ml1ne the outdated &n&ehron1attc
IJ'ltem under whioh the Natlon'. bank1nr &nd thr1tt 1natltuUona currently
muat oPE;rate; MOOnd. the need to inc.reue the etreottveneaa ot Federal Government ovendl'ht ot depoe1tory 1natltutlona by intecT&t1D1' reepolll1bWty
(or Federal SupervtaJOD &nd e n .m lna.tlon iD a II1D1'le rel'Ul&tory body; &nd

America'i bank retrUl&tory IYltem
evolved .. a rea.otton to or181a. RUDD1D1'
abort ot money to fund the Chil War.
Congreu created the OMce o( the
Comptroller o( the Currency to (ac111tate war f1n&.nclD1' eUorti in 1863. In
1913, Congreae eetabl1Bhed the Federal
Reeerve SYltem to .t&b1l1r.e the lnduetry &Iter a eeri.. o( b&nldDl' ~CI. In
1J33. Congreu created the FDIC to Introduce a .ystem o( Federal depoalt iDIUr&Dce &nd reatore contldence in our
f1DADc1&l system &Iter huncireda of
bank f&Uurea. And the omce of Thrttt
Superv1ll1on &lao b&d its root.. iD the
Depreu1on. only to be tr&Datormed
into It.. preeent (orm &Iter the _vtup
&nd 10&11 ortaIa.
Th1a piecemeal recul&tory 'ystem Sa
clearly out of date &nd in crltlcal need
of overh&u.l. It pneratee needl... 8][penee &nd endleu contuaton for America'. b&nb &nd thrIttI. Money that the
ba,nlr1nw 1Dcluatry oould m&lr:e aV&1lable
for lend1nc to It.. oustomen Sa apent iD.te&d to .upport weU-intentione4-but
only m&rI'1D&lly 'UOONltul-etrOrta at
oomplJ1nc With multiple &genoy mandatee.
In f&ct, our current bank recul&tory
system baa vt.rtu&ll7 DO defenden out.aide the rewul&tory &genet.. themeelvea. AI former FDIC Cb&1rm&n WUl1&m Seidman recently aclmowledpd;
'I1w tlD&Dolal lutltQUou nplatorJ .,....
t.em 11 oomplu. lDefDctellt. OQtIDOIM4 IoD4

Our wi tne88e1 were alao una.n1moull
ILlld unequivocal on the foUoW1ng 11!lIues:
Major cODBol1d.atlon would beneOt
conaumera;
MAJor consolidatlon would benetlt
the lndustry;
Major conaoUaaUon would improve
the lI&!ety ILlld aoundneea o( the tlD&nc1a.l servicel lnduatry; &nd
Reformlng our bIulk ILlld relrUi&tory
bureaucracy le loDl' overdue &nd now 1"
the time to addreaa the need tor major
conaol1d.atlon. We have a new &dm1DJetratlon committed to ch&Dl'8. Banks
&nd thrtf'ta are poIItiDl' record proQ ta,
&nd both the Congreea &Dd the &dm1n1etr&tlon &re committed to ca.t-e&viDl',
deOclt reduction &nd a more eMetent
wovemmen t. 'I'ha 1aaue mUit be &ddreued ln the admin1stratlon'. oncolDl'
eUoru to relnvent Government.
AI I have 8&1d. theee vi... were
Ih&red by every slngle one of our witneUN. Here are some brief uoerpta of
what each had to _y about the current
b&nk regulatory ayatem:
William Proxmtre, ch&.1rman o( the
Senate COmmittee on BanklDl', Houe1Dg and Urb&n AlI&1nI tram 11775 to 19&0
&nd 1987 to 1989:
We han tile moet bla&rre. eDt&qled rerul&tory tntem in tile world. It Dn_ _ _ ee
to &m&&e me that it baa laate4 tIlllloDe.
• • • I Ihould like to wd tlle reoomrDeDd&UOD that at aD ablolute miD1mIUD UIe CoIlmea oouol1ckte tile bank replatorJ ttmettou of tile Comptroller of tile C1II'reDc7, till
,.ederal Reeern Board aDd tile J'DIO III a 1tD~le ac'ID07 • • • [TJhe m1D1mIUD oo.ollda-

ttOD of bank rertll&ttOD 1h0000d al80 tIlOlude
tile baDk recul&~ ttmcuou of tIleM tIl.rM

anDot. aDd tile omce of nrtft 8uperYlItOD.
HENRy B. GoNZALSZ, current cb&1rm&n

o( the HoWIe Com.m1ttee on Bank-

IDI', FiD&Dce &nd Urban A.tr&1ra:

Our O1U'I"8Ilt ITItem of recul&ttOD operate.
l1U a HJclra-bea4ed moDlt.er. With u. ID&D7
bea4a 0&1l1DC &roGDd. M.Cb Witll a m1a4 of lte
OWD aDd indUl....Dt to tile acUntt. of tile
otller. Certa1Dl7. DO raUoD&1 pe.- WOQld
haft I f t r dM1ped nob a Intem for nnl&~ tile uttcm'. banD aDd tbr1fta.
CoUOUdaUOD of tile ~torJ ftmottou
[000. ,.edlraJ ReeIIrft, J'DIC aDd ann into a
I1qle, IIldepeDdeDt recul&t.or wOllld r.alt in
ID&D7 beDeDtI.

L. William Seidman, cb&lrm.&D of the
Federal Depoalt lDaurance Corporation
U'CIWo. It IlHdl to be m0rme4 With aatqle from 1986 to 1991:
lD4epad8llt federal nnlat.or. (Do DOt b0thU OM waDti to talk abwt "relllftDtIIlc
er to uk rerul&ton aboat It; their tvf 11 IC"VDJDIDt", ODe doeaa't haft to be a
tIletr 01117

~.)"

or U-amvLATOaa dD UJ'DTS
On September 14. 1993. the Senate
B&nkiDl' Committee received teatlmony trom a blp&rtla&n croup of au
former flnanc1&l recui&ton. topther
with former Senate BanldDl' Commit.tee Ch&1rm&n WUl1a.m Proxmtre and
current HoWIe Ban lr1 nl' Committee
Ch&Irm&D HKNRT GoNZALU.
The group . . . unanImous &nd UDequlvoe&.l in it.. view that the current
system Sa COItly, burdeoaome, iDeMclent, &rCh&1c &nd the time hu oome
tor it to be re-eDl'1Deered &nd modern1.zed.
Ta'l'DllOIfT

Tbomaa ~ to noop1M that tIl1I t. aD
obYlou place to It.&rt • • • reralatGr7 r.
Itnotarlq 11 De0eea&r'7 for tile followtq
reuoDa: to I1mpl11Y tile ITItem aDd maD lte
recul&ttou 1I.D1lorm; to make It more etreottft &D4 .mc181lt; to make It operate OD a
timely bull; to make 01ll' flDaDclal I78tem
more compettttft; aDd to reduce fniltrattoD
aDd tile rel1llt&Dt couumptlOD of ItOmacb
pUla.

John G. Heimann, Comptroller of the
tram 1977 to 1981:

~nOJ'

I ftnt teetUled 1D faYOr of reo~ the
~ n~

1tnI0tare III 11m aDd.

00U1ateDtl7 U'I'1Ied lor
..-07 oouoUdat1OD botll .b1le I

I1Doe that time, han
~

.... 1n fQftrDJDeDt Mn1ce aDd alter ID7 r.
turD to tile printe MCtor. M7 ne. . . to tile

S 15322

November 8, 1993

CONGRESSIONAL RECORD - SENA TE

_\&dom o( ooollolldaOoo MIlL. lJUI the Mme
SIlme 18 y8&l"ll La~r. The lIY8"UIm _ haYtI
tOOa, III arc.h&lc. f'x~nalve. dopllcaUve a.OO
me fncl eDt.. The COlI c. &nI lUUleceto&&r11.y bur·
Genaome. r' --..:tly &lid I.odJ.recU:y, they are
tA:lrne by t.c.e CODII"J1D6I' &n4 th( ah&reholder
They C&n be mea.ntnr.'ally reduced wtthout
h&rmIU.l OODSlIQueo088. 1.0 tact, I would &JyUe
that eoDllOlldatioo ..ould lmPl'On the .ynem
or b&IUI::1Dw IRlpemmoa at 1_ COIIt.
w. abould Cl"eac. a
8&nklng Commtaloo (P.B.C.> ..1Uch ..auld eOYIIlop the
IlI"WMIlt bank 8Upe~r,' a.cUT1Ll.. o( the
OCC. OTS. FDIC. J'RB &n4 the NaLlOD&.l
CreelS t Unloa Ad.m.1n1at..r&t1on (N.c. U. A. ).

"eGera1

H. Joe Selby, EzecutJ" Vice Preeident &lid D1reotor 01 Regul&tory Atr&1n
at the Federal Home Lo&n Bank of 0&11... (rom 1986 to 1988; 8en1or Deputy
Comptroller of the Curreocy from 1m
to 1986; &DeS Act.1Dc Comptroller of the
CllJTency In 1986:
The P"MDt ,....-clJ&tory appr.ratID ill ()Q~
dated aDd oa tmoch4. er-&ed III napoDM to
t\DaD01al crtaM, aDcl '" the tIltroclucLloll ot
ne.. ftDaDclal prodQOc.. it hAl bND "a4encI
l.oemo181lt aD4 lDefJecttTe III III&Q rMpeot.I
by the rapid cbaDC''' III the tlDaDol&.I 1Y1tem.
WultJp.1e fe4enJ apDCl.. wtt.b overLaPP1Jla
rupoaalbWtJee 01llJ' promote dupllcaLlon.
lDaollllltel't:,. &D4 IDemcJeDC7.
R.Npou1ul!lty for ,...,uaLloD &Dd aupel'vtatOIl of &ll federall7 lUIlnd depoaJtory IllIUtutSou &Dd bol4Jq OOIIlpuiee lhoaJd be
_ted bI a
fec*'al ftD&ac:1&.I tutSm-

11Il6".

LlolllQ~~.

Andrew F. BrImmer, member of the
board of WQvernora of the Federal ReMne Syltem from aes to 1174:
• • • ~

bulk

epmtneCloD

It&Dd-

u....,.o.m. oat of ow ~ted Federal

B&Ilk Ret'ul&t0r7 A~cnbated '"
taw " " " an4it anDOIa of ~ &Dd ann. .ted t.be rec:eu1oa wh1ch occurnd til tboN
yean,

Tbe h4eral 8&Dk Replat0r7 Itnc:ture
ah0GJ4 be revampe4. 'lbe ComPtroUu of the
CUrrenC7, t.be Oaloe of TbrtR Bapema101l,
and the NatSODal CnIclJt Umoll A.4m1Datrr.tJoa Ibould &ll be abo118becl.

BJch&rd C. Breeden. Cb&1rmt.n of the
8ecurlt1ee &lid Excb&Dp Com.m1aaion
(rom 1.989-i3; Depoty Co~l to the
Vlce-Pree1dent a.nd st.a.tr D1reotor of
the Taak Group on Regul&t1on 01 Ftnanc1&l Service. from li8l-86:
Our curt ~ ol t b&Ilk NCUlaCOQ ayatem ill
Itmp17 too bit', too eoetl7, &Dd too l.oemclent.. At a tune wbeD ... f&oe extremely 411'ncult aDd petntlll cbo~ .. a DatSon 1"8I'U'd1.0« re80UJ"C4I &llocation &D4 roTenUD8Dt
lI~n<!l.or pMoritJea. It. ill ~ Ulat tile
banlI: ~t.ory IYStem hAl reuutJDed IMIT\~ly lmmune to reduotlou III overcapacity
&.Dd eUm1n&tJoa or prt~t1a&Lloa 01 'CUUIec.II&l'J' fIlnCtJOIll. IDdeed.. til. "'W emplo~eDt
oC the depositor,' .....,u..toO Io8lIDCl.. 1.0 the
U.S. ill OYU 40.000 per'80DL Tb.la uceeda t.U
elM of aenral NATO &nD1ee, &Dd It ill more
t.b&a 16 tUIIu IT'Mter tb&.D the "'tal emp.101mAlDt. of the SEC, eYeD tboQrb UIa SEC over_
approx1m&tely UIa u.me Ilumber of eIlLlLlee 01 d.IfJereDt types with ~te a.eta
at least double a.ll the depostta 01 b&n.b aDd
t.bt11'ta III tbe U. S.
It ..oaJd be a aubetaDtIal tmproyement
from t.be ,t&tua QUO 1I aacJl bankm. oompan)'
oooid ban a I1qle ~ (ratller th&Il 2
or S), Of COQn&. total oouol14&tSOD of t.be
bank a.od Cbrttt. acac:1.. ..0Qld &llow nbo
1It&Dtl&1 ~vtan tbroqb the ellmlGAttOIl 01 rod......' IMIUtt-.-U.&U and

Todal'e Moll ~tory e:y8~m 1.1 eo coet.1y t.b.& tit I~ CI"ea llD« I ma)or threa t to the
compeuUveDMII o( ('ornmen:.l&.l b&ab, ~d
thereby Qodel"OUttlnll' to lIOme degree the aD~t1vee the ~tem ~ desa.ned to achIeTe.
~othy RYILIl, D1rector o( the OrDce

o ( Thr11't 8 u perv1a1oo from 1.990--92:
There ~ only on. word to deacrtt.e All t.h1a.
That word ~ lrTl<1lock. No one erea~ a rec·
tl.Iatory lIyWtem today would deel(ll ncb a
mecb&n1am.

GoverDmeDt baa the opportwUty to make
the recuLatory world OYer ~ DOt. Cor nralatSOD" aa.i:e, but Cor America', 1&I1tt:y &Dd
oompeLlLlnDeM. ~tory .."ooy l"IIIrtnloturtna hAl beeD nacued for ~ AlmoR
4IYVY report lMued OYV the lut. tb.ree cleowe. hAl ~ che DM4 lor &Dd beDeOU
of ooDllOUdaLlon.
What ill che beet
8lmp1y stated.
I belleve that &ll b&U &n4 t.brtft. recul&tory
a.ctSY1Ll.. abOQld be OOI*IU4ated Ill'" ODe
at"eDCY. Th1I ".DOY Iboald haft &ll 01 tile
authortty that tod&1 ill yMY4 III Che multiple ".Dcl ... I Dow t.bJIipro..-l wtll nu..
tar( 1Mu ... Tbat c1eb&ce. aaow...r, ill rout
..anti the u..m. or ~,
CoDllOUdaLlOll ma.k.. _ _ &Dd ooaJd be
eaa1l7 lmp.1emeDted over a two year period.
Now. It" time to ")U.IIt do It",

1tnlCt.W'e'

TO HEZD POR IlD'OIUII

The fact that we have tuat emerged
reom Amerlca'e rreateet Qnanc1&l crlIda I1nce the Great Depreu10n ma.kee
th1JI &II eepecl&lly 1'Ot>d time tor Corr
rn .. to look at retrUl&t0r7 conaol1~
tJon. Fint,
le&rnec1 the bard way 01
the .normoue prtoe that Am.rlca'i tazPAYera &lid Qn&DC1&l ln8tJtutiODII are
forced to PAY by In.mct.nt recul&t10n.
And eecond. tor the Q.nt tim. 1D ...eral yean w. can look at lmportant adm1D1atrat1v. 1aeuee Uke recul&tol'l' reIt.ruCturing outa1d. 01 a CI1a1a .nv1l'orr
ment.
America needl a more ratlon&l, modern b&nk rqulatol'l' eyatem. Th. current eyatem w need.l..-ly complez. The
Banldnc Com.m1ttee &180 held h-.rlnp
In 1991 on ...era.l ret'Ul&tol'l' reetruoturing propouJa. We ~ftred at
least three major problema with the ezleting retrUl&tol'l' etructure.
Lack of Independ.nce: Uk. monetary pol1cy, b&nk rerrul&tJon should be
eep&rated (rom pol1tJcal lntloenoe.
Bank regulatory poUey eOuld be d~
clded on Ita virtue &lid not by the direction 01 blowlnc polltJcaJ wlnd.a. In
h1a tMtimOny betore the Ba.n.ldnc Committee, Steve Roberta, a former aide to
Fed Cba.1rman Paul Vo!cker. gave hie
ratlon&.le for &n lnd~peodeot b&nktng
regulator thi. way:

W.

lDdependent agencl.. ue able to tuncUoo
..ell lor eeoreral r..eona: they t.eD4 to baYtl •
eoDtlDulty oC le&del"ihlp. they ban a eont1DuI ty or mlaaIoo and PQrl)OM wi t!l ded.lcatec1 proteaa.lon&l ,tam. .nd a ele&l' m&Ddate. R.e~tor,' ~enclee that an putII 01
I'oyernmeot departmeDta DormallJ' lack ncb
eoDttDulty and an ('IIDeI"&lJy beaded by an
I.od.lY1duaJ .. 110 bu ......t tanueDca OIl the
It&1I. the bw'e&Q'1 apgroa.cJl to Ita m..laIUon
&Del ob lee tl vea, a.n4 1tI approa.aA to r"8f'\ll&LlOD aD4 nperY1Bioll.

Regulator delaya: By tragment.1Dc authorlty. the current ayetem lmpedee
timely declelonm&klol' bec&wMI of Intern.aJ eqUAbbllng among the t».nking
Ot:9'GT"""~A.
a,.,'" ~f"Ao,... .rf',...rl. tn ~Q tr.

needed chAng'ee In the banldnc regula.former Senator WUllam Prollmire wd In ~t1mony belore the
Baoldng Committee:

UOlll!. A.8

OUr bank lD« &Dd nne ",,1&1 ~ ill UDderlI'oLog ra.pld techDolQl1oaJ ~ wben DeW
&.lid complex pnoLloee &nI lDtrodaoed almon
dally. &0. repl&ton C&DDOt ~ ..,.
OD top ot t.h1a OOIlIt&IltJ7 ~ GnaMiaJ
8ye~m U tbey mu.t lpand mon at u..&r ume
a.h t1nr tw'f 1r&ra.
Unhealthy competJtJon AlDODI' ~­

lAton: In recent y..,.. the b-.... of the
(our FedentJ bAnk ~ apDOt..
have all t.eet.1ftec1 In faYOr' ollDMntna'tn.l consoUdAtion 01 the ~ &Del
1ndeed the ~nolee have made 11m1tec1
PI'OIn'"8U In e&rrJ1.nc oot tbeir ..-parr
I.1bWtiee In a properly ~
manner, Neverth.l.... ~ ~
jurledJctlon In the preeeat ~
Itructure
continu..
to
toAer'
unhealthy compeUtioD UDODC the
agenc1es,
JWlt lut week on October 3D. The
Washington Poet 0&rTlec1 a ~ aboat
the propoe&i of the NatioD" e1cbth
l.a.rgeet ba.nkilll' orp.nlatlcm. W.u.
Fargo, to trade Ita bank ohuter tor a
aa.v1np &lid loaD oharter 1D order to
ta.ke adva.nt&ge ot IUIII reetrioth'e rul..
on interstate branch1Dc ADd perm.t.I1b!e activltlee. The et.Gr7 WeDt OD to
note that the propouJ wou14 ba.. pat
FedenJ rel'Ulatora OD the __ aDd ....
dropped bec&ue 1t m1Cbt be too OODtrovenl&l.
AI Fed Cba.lrm&D Arthur Ban8 nat.ed 1n the early 18'10'1:
The preeent. Q'rtem III OOIIdaatft to Rb&Ie
eompetJtSon amoq t.be ret'Qlata17 aatbantJea. aometlDMa to "lu
101Mtlm.. to del&J oornouw -.....

ooaaCraID-.

Wol.lp.nc Beln1cke of tile BrooIdDn
IMtJtutlon. tMt11)1nc 1D 1111 betor.
the BILIlldng ColDlDlttee acned:
The fe ..er the IUIIIlber of
e a t .....oclea. the I....,. t.be ~ nwLaD &D4

00,.

the lawu the ch&Iloe that ~ m.utatJOD&l oompetStloa W1ll ~ ~Mrm
pahUo pollC7.

Regulatory coaaoUdatloa Ie Dot a
new or r&d1caJ ldM.. Th. Deed to ID8l'1r9
the Federal bAnk recul&tar7 apDCl..
b.u been widely acDowleclc'ed ftno cleoadee. In 1M9, the H~er CommtMton
w.. the f1nt ot a 181'1.. of ~-lnel
commleelona to reoommeD4 OODIIOU~
tlon of the bank recul&tol'l' app&n.tQa.
In 1962, the Comm1all1on on MoDey &lid
Cred.1t did t.he same. In the mld-JJml' ..
my predeceuor. Cb&1rm&D Proxm1re,
held he&rlnp on ~toIT coaaoU4a.tion &lid Introduced lectalatloD on
three occaa1ona. In the early 1!8)'.. the
Re&p.n &dmiD1atration embraoecl recul.&tory conaoUdAUon u a ~~
meuure. And the Bub adm t Dt ltrat10n
1ncluded a Itrtpped-dOWD NIUl&tol'l'
consolld.&tJon propoul 1D the ln1ti&l
leg18l.&t1ve pe.ckap I8Dt to ecm.rre. in
1991-the p&c~ th.t.t al tS m a y17 became FDICIA. So I want to be the t1.rst
tD aclmowledg-e that thJ.I bW baa many
a.nceetora.
John Sandner, the oh&1rm&D of the
ChiC&i'o Merca.ntUe Exoh.&lln. earUer
'~i.

v .... ,.

,..."rll"....t htl! own

~&torv

November 8, 1993

CONGRESSIONAL RECORD-SENATE

coneol1datlon proWll&l. At a newlI conference, Mr. S&ndner called the current
Feder&! sYlltem of nD.&Ilclo.l regulation
"&n eltJ)enelve mor&all of duplication
&nd InemClency." And jWlt recently In
&n Internew with the Amerlc&n &nker, DaVid Muillne, the vice chalrma.n oC
the Feder&! Re8erve Boud, also e&lled
Cor a more ratlona.l Feder&l b&nk regulatory system, lI&ying "there'll no Queetlon that we need to move to a more
IItreamllned system." He decllLl'ed the
current Structure "costly and cumbereome and tendJ.ng not to lead to decisive actions when needed."
I completely agree with Mr. S&.ndner
&nd Mr. Mul1lne. Reform of our regulatory system I.a long overdue.
It Will be a toUgh nght, however. In
testimony beCore the Ba.nklng Commit-tee In 1991, Senator Proxm1re warned of
the dJmculties facing hil elLl'ller consolidation prowlI&li (which dJd not include the thrirt regulator):
I lIenoaal,. undenNItlmat.ed th. depth oC th.
eotreoched oppoaltloo to renl&tory 00111011datloo. All three baDlt nl4rUl&tory ...oclee
v.h.meDtly Oppoeed th. lerUlatloD. Privatel,., ho •••• r. I&Cb ".DC,. I.t It be bOWD
It .ould Wlthdra. It. obJectlol1l II It oould
usum. the po••n oC the other two.

Therefore, It'. ImwrtAnt to recognize that regulatory coneolldatlon will

Berve many vital Intereatlf beyond
thoee oC the bAnldn&' agenclel:
For ta.xpayera, regulatory consolidation mea.na more effective Federa.l IUperv1alon and examination oC depoeltory lnetltutlona, which tranalate. Into
better protection ap.1nat the rllk that
ta.xpayer CUnda will ever ag&1n need to
be called on bec&uae loeeea outstrip
Federa.l deposit lnaura.nce CUnda.
For bank and thrift cuatomere and
the genera.l public, regulatory co08011dation mea.na a more accountable,
more reaponalve bank regulatory lyatem. Clt1zena w1.11 no longer have to
guelN which Caceleu agency II responIIIble for the p&rt1cul&r lnatltutlon they
bank With_ Whether It'. a bank or a
thrift, they'll know that the Federa.l
Ba.nklng Commiu1on II the place to
turn It there'a a problem.
For the American economy, regulatory consolidation mea.na more emclent government and a more vital,
cOllHffectlve, and comJ)etltlve banking
syatem. No other country hobbles Ita
Qna.nclal aystem w1.th ao many bank
regulators. With a atreamlined regulatory aYitem, our Qnanclal lnetltutiona w1.11 be able to put more effort
into their bualneea and leea Into coping
with their regulatora.
For the b&nklng Induatry, conaolidatlon holda the promiBe of a more ra.tional ayatem oC Feder&! overelght,
With aubstAntially reduced eu.m..lnatlon &nd aupervl.alon Ceea, lelN frequent
&nd lelN Intrusive eu.m..lnatlona, and
reduced need to aort out Inconll1ltent
&nd even conflicting regulatory guld&nce.
UT PROVlSIONS or THIS Bn.L
Let me now brlefiy deaorlbe how the
bUl I am Introducing today would re-

form America'lI baLk regulatory 11:111tern.

The bill would ellt&bl1l1h a ave-member Federal Banktng Commlaelon to IIUpernee and re!fUlate all FD.v-IIlJIured
de wei tory Inlltltutlone, Although the
Comml88lon would be an Independent
agency, Ita membere would Include
both the 8ecret&ry of the Treuury-{)r
the 8ecMlt&ry'1I delllfDe&-&nd a member of the Feder&! ReBerve Board.
Three Independent Commiallonera apwtnud (or staggered 6-Year tenlUl
would alao lerva on the Commiaelon.
The PreSident would dealgnau. o~e of
theae Independent Comml88lonere to
eerve u ChAIrman o( the CommllNlon
and another to eerve U Vice Chairman.
I beUeve thi, .tructure provides both
the admlniatratlon and the Feder&! ReBerve Boud with the InConnatlon and
ovel1llght they need with rep.rd to
bank Mlgulatlon while ,1multAneoua\y
tulflll1ng the vlt&1 need Cor political
IndeJ)endence In nnanci&l recul&tlon.
The CommllNlon would &alume the
regulatory and sUJ)ervtaory fUnctiona
currently exercised by the Comptroller
0( the Currency with reapect to national bank,; the Federal Reaerve
Board over bank holdJn&' compa.nlea
and State-<:hartered banks that belong
to the Federa.l Reeerve Syatem; the
FDIC with l'88J)ect to other State-ch&rtered banks; and the Omce oC Tbr1rt
SUJ)ervtalon with reapect to u.vlnp ....
aoc1&tlona and u.vlnp uaoc1&tlon
hoidin&' companies. The FDIC. .. depoeit 1naurer. would retain ita exiating
backup enCorcement authority. The
Federa.l Reserve would retain all oC I!*
central bank monetary policy. lender
oC lut resort, and payment ayatem reaponalbllitiN and would have &cce. .,
through the Federal Ba.nldn&' Comm18ilion. to all the InConnation and reaources It neec1a to deal with potent1&l
ayatemic ruk laaUN. I eould point out
that there are many powerf\ll central
bank. around the world. AA one oC our
WitneaeN pointed out. the German
Bundeebank I.a notably amon&' them
and It 1a not only a powerf\ll and effeotlve central bank but It .pendllOO percent oC Ita time worr:v1n&' about monetary policY and the value oC the currency. Regul&tlon and lnaun.noe oC
cred1t un10na would remaJn exa.ctly ..
they are today.
The bill would require the consolidatlon oC regulatory CUnctlona to occur
on a date Bet by the Secretary oC the
Treuur:v. The goal would be to &ch1eve
consolldatlon within 10 mon.lla after
the bill becomee law, but the Secretary
would bave dJacretion to extend the J)erlod by an add1t1ona.l 5 montha. To Cacllitate a timely and urderly oo08OlldatlOD. the act would urge the PreSident
to nom1n&te the ln1t1&1 rroup oC appointed Comm1aalonere at leaat 3
montha before the consolidation data,
and urge the Senate Banking Commit-tee to act on thOBe nom1n&tlona at
leaat 45 daya before that date.
Ftn&lly, the b1ll would alao reCorm
the Board c' the FDIC to reflect the
abolition oC the omce oC the Comptrol-

S 15323

ler of the Currency &.nd the Omce of
Thr1rt Sur.ervtllion by IflVing both the
Secretary of the Trea..eury-{)r the Secretcy'll deellfIle&-&nd the Chairman of
tne rederal Banking CommleaJon I6&ta
Oll the FDIC BolLl'd.
Thoee lLl'e the ell88ntlal proVislone of
this b1l1.' Let me lIt&te u clearly u I
C&D that I believe IItrongly that the
time \a now for cun co08Olldation of
the lIupernllory rellwr.lllbll1t1ee ot the
four a.genclee-----a.ny a.lternatlve that
doelln't go thlll fILl' would 111m ply r3sult
In &.nother kind of regulatory hodg"t3podge. On other det.&ll. of my b1l1 I
have an open mind. I therefore view
thi, bill u an ImportAnt nnt ,.t~p-tte
centl'&J tenet ot my View of what c&o
best proVide constructlva BOlut1oIlJl to
the re!fUlatory burden problem and to
become the foundatlon o( a me&n1ng1'ul
dJacuaslon oC a much-needed, modern
bank regulatory atructure tor the cuture.
OONCLlJ8JON

The bill I am olTering today can go a
great d.1,t&nce toward re11evlng the
regulatory burdena many bankere &re
feeling, ImproVing ·the emclency and
eCIectlveneu ot regulatlon, and placing
America', nnanclal system on a BOund
regulatory tooting (or ,.neraUona
ahead. I urge my colleague. to conalder
It carefully and lend It their .upport. I
urge the admin1atratlon to aelze tbl.a
unique moment oC opportunity to
reinvent and reengtneer Government In
a major, mean1ncful way.
Mr. President, I uk UD&Dimoua conBent to have addJtlona.l materi&l placed
In the RBooRD at the conclualon of my
remarks.
There being no objection. the material wu ordered to be prlDted In the
RBooan, u follow.:
COtom"lU ON

8AJfKD(O, BooaDIO,

.um URBAJ( ArPAlJUI,

Wullt~. DC, N~'. 1m,

HOD. WlLL1.Ul J. Ct.I!n'OM.
Pr~

of U&t U"Ued StGta,
WIlu. H01IM, Wulll1lQtoII. DC.
Dua MIL PUamIDCT: 1D the pnfaoe to th.
"Report of the Nat1ol1&l PerfOrm&DOI Ren ....
ud th. Viae-President ltate: "It
11 tuDe to ra41call7 chaDp th• ..,. roYlromaDt operatM." We &4rTM,
Let U ltate ... clearl,. ... _ caD that ••
1trODCb' beUe. . that th. time 11 DOW for th.
fUll OOIUIOUdatioD of th. I11pe~ u4 retrIllatory respoDllbWtlee of the foar b&Dlt ud
tbrtR recul&tory .... oelM-tbe Comptroller
of the CurnDc,., th. Fed.ral RelIne Board..
th. Fed.rat Depoelt InauraDOI Corporation.
ao4 the Omce oC TbrtCt SupentaioD-lDto a
11DII.. lDdepeud.ot Fed.ral 8aDk1lW CommlaIIOD.
Th. curreDt 1,.ltem 11 COItly, bard.D.IOme.
lD.moi.ot. arcb&1o aod moat. be re-tD«1OMred aod mod.mued. W. beU. .e t.b..1.a 1aIa.
moat be ad~ tmmed1atel,. aod call
UPOD
to .urt bold l.ad.nh1P lD th1&
area .. part oC th. Ac1m1I1UtratlOD'1 0~01Dl
.aort to reIDV'Dt ro •• rom.Dt.
ReCormlDC OW' baDlt aod C1J1&Dc1&l recu;atory bureaucrac,. II lo~ o. .rdae. No. 11
th. tim. to adc1reaa tb1IlaIae bead aD. 8aou
aod thrtCtI are IIOItlDI record pront.. aod
both th. Coqrllll aod the Ac1m1nllt.ration
are oommltted to COlt 1&Y1DC, denelt redactlol1. aod a more .mCI.Dt roY.nameDt.
C~lIdatloD oC th. rerulatory . .enclee 1&
Dot a 0_ Idea. Vlrtu&Uy ...ry lDd.peDdent

,.OG

,.OG

S 15324
!lLUcU of

C'1lr

CONGRESSIONAL RECORD-SENATE
redenLl bank

re~tary

IYlltem

elDc.e llHli h&II r&eognaed tb. Deed for m&,)or
COD.llol:d&.IOD. ConaolldatJoo h&II bee , adTocated by. amoow othera.. Tbe Roo.er Comm1lllltoo. the RllIlt Commtaloo. tb. ~
StucU. t.be Grace Comml.'OI1. tlI.e Taak
OI'OQP 011 Retru!AtJQD of P1n&Dc1a.J SerT1Oe8.
ud tbe r"8C4otiy oompl.ted NaUonaJ CommlMioll 00 F'tna.DclAl lutJCIltJoo R.elonn.. ReDOVer?, aDd JtnloroemeDt.
Woet re<leDtiy, 011 Septembw H. l..9Q3.

UwI
SeDate 8e.okl n l' Committee received taUmony from .. bl-put,lAD ~ of I1.I. former
tlDaAcJ&l &«eOCY ret'Ulatora.. TbfI tr1tDa..
un&Il1moal aDd QIIequtnIc&l that m&)or
COIUIOUdatlOD WOQJd benen, 00D8Q.DIera; beDent 1DchLetl'y; aDd \.mIII"On the ""et~ aDd
1OIlJIcm- of Ule "DIDClAl MntOlll UldutrJ'.
Fe. the ~ lDduCr7, oouoUdaUoll
boldl the ~IIUM of rechaoecl ... " " n.... kID
Ieee aDd aD eDd to dupUcaU.. enmloaUC-

.w_
aDd

00DJl1cua. ...... '.uo...

'or Cob.

reDW&l

~. ~la.tory OOUOU4aUOD me&Da a
more &coo\u; ~l., alOft I"llllpozW" b&nk "--

alatory .,."tem. ADd for Cob. AmertOUl eocmonu, recul&tory ooulckratlOD me&A8 a mora
V1W, mora oompHlU- ~ .,."tellL
W. beb_ tbat .. ~ ,...,uatory
srwtem trW aUow Amer1c:a'1 b&Ab to PQt
more .nan UN.o proc1GOcne bQaUMee aotnlU8I aDd 1_ Ulto oo~ ,"Cob Ul.lr ,.....
la.ton. w. &180 beUna tbat the ooDolOU4&tlOD &Dd It.raa mUnl • of OQI' RperTWory &Del
I"8C'Q1atory .,."tem Ulto .. ~l. JI'acIeral
8aDk1Dc' CnmmlMtOD wU.I do macJl to rachaoa
tbe paperwork bardea Iaatq t.ba IDCIutry
wb1Ja
IUM t1me Ul~ t.ba .uat7
aDd 1CMUWba_ of tba QWtIIIIL
Mr. PnUcMDc.. ftlll oouoUdaUoa 01 tba IIIPllme0t7 aDd ~ r.poDa1bWUee of
aU fov of OQI' br.DIl &Del thrtA NPlMoI7
.....me. .... top pnon" lor _ 1D CIl .. OoDma W. look fonrarcl to work1Dc o1oeelF
,"Cob fOU aDd fOV ~tlOD Oil tbJa
IIIIQ.. OtTell Cobe I1m1l&rtt7 01 ..~
coDteUlad In Ule bllll _ bave lntrochaced In
tba Bo.... aDd SeDaM. _ ..... JOU' a4mlDlatntJoD to ..1M tb1a QIItq1M aDei hY&ortc ~
portQDltf to fUDdamezaca.llF lmIIrVft &1M WQ
oW' baDk &Del thr1tt. ~t0r7 ..-m- o~
erate &Del to re1D..a' aDd ,....qtMar tb.1I
u . of ov ,v9W1UDllllC.lD .. 1II&)CIr', mMDID,-

a' ".

I'QI waf.
SlnoeralJ,
HENRy 8. (}()I(&Al..D,
~,

~~CGF

ALPOM8.& at.

I....

D'~.

~II"',

s-.~~

DotIAl.D W. RaoL&. .1L.
~
3aoU~CG

11t_

RmUUTOIlY CON8OLIDATlOlf Acr

or llIIII3

The Ao' would eet.ablYb .. ~ Paderal BaDklng CommIIlldOll. 00IWlat.lD« of:
Th. See.rata.ry of t.be 'freuQr7 401' the Sea1"!It&ry'ldealVlee);
A member of the Federal s-~ 8o&nl.
~D by the Bo&nl; &Ad
Three commlllllloDel'\l appoUlted for IJtaIrIfVed t;. YIII&I' tenne.
The Co~IOD---4ll lDciepaocieD' &«eDC:Pwoald IIQpervtae a.D4 rat'U1a&oa all FDIC-lit-

surad deposlt0r7 lD8tlCllUODa aDd tbelr bol4-

amua-.

cornpantea aDd otMr'
Tbe Comm18BiOD WOQld Cob... be. . all the
depoeltory lostlClltloa ~ fQacUoaa
CWTently uercl8ed by:
The Comptroller of tbe CIU'nDc7 (D&CJ0Dal
U1g

b&Dor.
TIHI Federal

a-..

Board CbaIUr bolcbDr

compallJee aDd St&w member t.D.D);
TIHI FDIC (Stew DOD ....mber b&D.b):1ll.D4
TIHI D1rec~ at t.ba
.Tbr1R Soper_.~.~_

, ...... ~. on"

omoe.«

,"'"'~

hnltltn .. cornoa.nlMI

The roIC W-Oll.ld.

depoe1t In.8urar. ret&1n
ILl enlltw. t.oll·up eo(oroemllDL IlQtbonty
The wnsolldaUoo 01 ~tary tIutoUOIlll
ooour on • date IMt lrJ tbe s.or.t&ry of tbe
Treaaury. The K"OILl woWd be to &ah.le"" 000IOUdatlon w1tJUn 10 monUli Alter Lb. b1ll b&com.. law. but the Secrec.a.ry wou!d have cl18o.retlOl1 ta ~o" &!l Ioddltloo.a..l 6 moot.ha.
To C&oIUtate Il t.1mIlIJ &!ld orderly ooneolldatlon. t.be Act woll.ld ~ tbe Prea1dent to
oomtnate the lDltlAJ rrooap of appolDtecI 001IImlalooen Ilt )aut 3 moDUlI belon tile 000IOlIdatJoD data. &!lei \lIY8 CAe SeDate ~
CommItt. to Ilot on UIOIII DOIIlI.Jl&UODa at
lean til cia" belen tbat data.
The PI"IIIIIIMDt woW4, IQb)ect to Senate
oon11rm&UOD.. dee1nl&te OIWI of tbe
Il~
poUlted oomm1aa1oDen u ChA1rpenlOD aDd
tbe otb.r u Viae ChairpenlOJl..
Th. bill would not 1PIIOl.ftcall,y nqutre that
th. I1'aderal BanaUlW <))mmLM1O. ba. . a M~
&raW Oouumar DtnIklIl ot tbM QDa of tbe
LI

a

oommtMtODan ba. . a ~"00&01
b&cQrcMmd.
The 8ecraC&r7 of tbe
(01' t.ba Sea1'MAr7'l deI.1c'D") loUd tba ~ of t.be
JI'acIar&l 8aD&1Dr CornmlMlOD woWc1 aa 011
tb. FDIC'. ~membar Board of DtraotorI. In
place of tbe Comptroller of the CIlrTeDey aDd
the O1.rector 01 th. omce of ThrtIt 80118 ....

-rr-n

YlatOD.e

• Mr. D'Al'dATO. Mr. Prealdent. I

&m

pleued to }oln Senator RmoL&. the ctt..tlngu1ahed cb&1rma.n ot the Senate
Com.m.1ttee on Ba.ni..1D1', RaWDl', and
Urb&n A.a&1ra, lD introduo1D1' the RegulAtory Conaol1d&t1on Act ot lJ93.. Betore
uplalolnr the lmport&nce &Dd purpoee
ot the lertal&.t1on. I want to &Ck.nowledge hi. determ1n&tlon &Dd outat.&Dcl1nc leaderah1p lD tormu.i&t1nc a b1p&rt.1I&D and coberent lec1al&.t1ve approa.cb
to modern1z1nc and r&tJoW1l.tnr the
regulatlon ot nn&nr.J&l1nat1tut10D&.
Mr. Preeldent, the bUl we Are in~
duc1nc today would cooaolid&te into &
alncle, independent Feder&1 BAnk Commila10n the aupervlaory &Dd reculatory
ru.nctlona currently IIC&ttered &mODI'
the Comptroller or the CUrnnoy, the
FedenJ Reee"e Bo&rcL the PedenJ ~
poe1 t Inaur&Dce Corpon.t1on and the
o{ Tbrtft. Superv1a1on. The FedenJ B&nk Comm1aa1on would &.I8UIDe
the relr\1l&.tory and IUperv180ry tunot10na o{ the Comptroller of the Currency over D&t.loD&l b&n.lu; the Feder&1
Relerve Bo&rd over b&n.k bold1De comp&n1ee &Dd St&t6-<:b&rtered banD thAt
beloDl' to the Peder&1 Reeerve Syatem;
tbe Fed wtth retlpect to other Stat.
cb&rtered banu; and the Oftlce of
Thr1ft Supema10D concern1nc I&vinp
&8IIocJ&Uona &.Dd their hold1ng com p&ruee. The FDIC woWc1 ret&1n b&c.k-up
enforcement &Uthor1ty 1n Ita capa.c.1ty
u 1naurer. The Fed woWd coDtlnue Ita
biJltor1 C&I. &.Dd crt UC&I. roles l1.li oen tral
bani a.nd lender of lut resort.. The bill
would not addre6e or c.h.&ng'e the
preeent reru,l.&tJ on &.Dd lDaun.oce of
ared1 t un1ona.
Mr. Prea1dent, Mveral ween ~o
&mldat great f&nL&re the admlnlJlt.nr,.tton releued t.be "N&tioD&l Perfonnance ReView" cont&1n1n« ma.ny reoommen<i&tloDe {or reinvent.1nr Government. The report propoaee to streamline, decentraJlse, reor1ent &.Dd even
el1m1na.te ~eDCl61 and pr'O(1'1LlJl8 in
order to create a more respollll.!ve. 1'(-

omce

November 8, 1993

(&CUv. IUld emclent Government. Bat
the mport cODllplcooualy avolda &Dl" atUlmpt to aobie", theee l.aod&ble IO&Is
In the oon ten ot the bank revul&.torY
IItructUI'e. Th!. mwtt be an O"I~bt or
& lubJect Itlll under re\'lew wtth1n the
&dmln18traUon beo&uae It baa beeD propoeed-but not aooomp11abed-by ~
pendent oommiealona. th1nk t&.nka aDd
prom I nen t el[PflN .moe the l&te 1J9O'a,
Mr. President, the Rewula&ol7 CoD8O.l1datlon Aot ot 1983 woal4. lD the
worde of V1ce Presklent oaR&. IDOft
our bank regul&tory I7Wtem from '"'redtape to resulta • • .... WtUl t.be adm1D1.8tr&tJon '. .apport, aDd ~ upon
the blpartJaan entham&am lor oouoUdAUon In the HCHIM and Snlflte, aD
Lndependent Feder&1 Bank 001DlD1lBioD
O&D be esta.bll.bed lD t.h18 Ooacr-. I
artre the admJ..nl8t.I'at ~ &0
IJUpt)Ort the but wbeD th~ ~ betor. the oommittee I&tM Wa IDODUa.
Mr. Pres1dent., the ~ iQ'H8m
for depoaltory 1nItlwUODol baa dneloped more by a.coident thaD b7~,
B&nk eucutl.ee ba.,. eXllla.llIi rna.tr&tlon over wb&t tbe7 ba.,. ca1le4 a
"revolvtng door ot e'lam'''''''' ADd
among the moat notable caue. of tlwI
cred1 t crunch 1.8 the burd8D8OlDe, COD-

ruatllll', &.Dd ooetly rqu.1a.tiOD tba& baa
reeulted !rom the preent ~WDe
tra.mewo"k 01 over'&pp1DC' aDd 1IDDO'Ord1n&ted eu.m1D&Uou, duplJcaUw , .
porta, and cWlerlDl' aDd I ..........Dt
1nterpret&t.1oDol. " . . OQI'ND'''''' of
recWation 1a U'CIhaiCl, ~,
co.t.\y ADd conta.1Dc to bot!l eM ......J.&t.ed and the retrU1&tonL
Mr. Pree1d8llt. I W&Dt to
th.&t t.h1I ~ &ddr"a.. oal7
rerul&t0r7 .tz'aOtQre aDd DOt tM _bIt&Doe
retrUl&UOD. TIle 00IDIDlttee ~ tile Deed to 1lplUe bulk
ADd thrift. regv.laUoo. mlUp&e &U 1m1DteDded or Uo . . . . ''7 ~....a.
of p&rt.1oalar repJatloa.., aDd mcr..e
the &bWty of bulb and tbr1fta to
make money &Dd cncUt ..nJlabIe to
the 8OODO my , In the D8U' 1Uture. t.be
SeDAte wUl ooutder 8. 12TI. tile '"CommOnity De",lopment. CrecUt ""beDae-

_ph'''''''

or u..

ment, and ~ ImproftlDeDt
Act o{ 1983" to ~ t.beM OODalrDa.
The purpoee 01 tb1a b1ll 1a to ~
&.Dd coDllOl1d&te the lOur ~
ageDOiee lnto .. Pecler&l B&Dk Comml.
1i0D, aDd 1t 1a ent1rel,. ooumateDt. With
the committee" O"Ierall ~ to
s1mpUfYtng &Dd atrMm Unlec ~
Uon wbile strengthenl".. the baDk'nc
syatem, Mr. PrMident., Ch&1rmaD &mOLa &Dd I lDteM to man ~
conaol1dAtlon a prtorttJ' lor OQI' oomm1 t.tae. I b.&.,. pledgoed to tull7 81lppOrt
and cooperate in uu. effort. We are
both committed to the p&-.p of IeI1aI&tioD by the eDd or uu. Coap-. Althougb t.h18 1.8 an ambttkJu..-1. e.pecl&lly Ln Urht 01 the lAte of alJD1l&r
forte 1n the put, I urwe IIlJ' oolle&traee
to e&plta.l.Ue on th1a opportaBtt,. to
reinvent &ad reorp.n1se the bank J"eI'Qla.tory structure.
Mr. Prea1deDt, I concratW&te the
chAirman ap.1n tor o~ an aoel:Aot way t{) reduce O"Ierret'Ql&tton &Dd

.t-

November 8, 1993
etre&mllne the

re~toQ'

CONGRESSIONAL RECORD-SENATE
etructure (or

lnaUtuUona. EnacUnc uu.
lec1a1&t.lon wtU proVide (or ailrJl1!1cant
paperwork reducUon. recul&tory burden reUe( and oontrlbute to ~nomJc
rrowth .bile Ino.reulnc t.be wet,. &lld
8Ow1«ln. . o( the f1n&.Dc1&l eyetem. I
lUTe our coUea.ruee to Jom \a in

depoe1~

aclL1evinC a compnhenatble ey.tem o(
recul&Uon (or depoaitory In.Ututton. .•

816326

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Newspaper Article

Number of Pages Removed:

Author(s):
Title:

"The Bank Regulation Jumble"

Date:

1993-11-23

Journal:

The Washington Post

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

For Immediate Release
November 23, 1993
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
BANK REGULATORY CONSOLIDATION
I strongly support this approach to regulatory consolidation.
First, let me layout a bit of the rationale of what we want to do. It just makes no
sense to have four separate agencies involved in regulating our financial institutions.
Right now we have a system where the regulation is scattered all over. It was
designed for another time. And let me tell you, that time has long since passed. What
we have now slows up our economy by making it difficult and confusing for our financial
community to get its work done. And it creates friction within the government. We
need to straighten this out.
That's why we settled on the idea of a single agency. The leaders of the House
and Senate Banking Committees have done quite a bit of work on this issue, and they've
come up with the same approach. I think it's the best way to tackle this problem. I'm
looking forward to working with Congress in getting this legislation through. We expect
to send our plan up to the Hill in January.
I might also note that it's rare that you'll find a government agency willingly giving
up some of its authority.
But that makes my second point, which is that one of the aims of the Clinton
administration is to reinvent government -- get rid of what's old and outmoded and
install modern systems. We have to get rid of these inefficiencies in our economy to
make it function at its best, and this is one way to do that. We have other initiatives in
the works here at Treasury on that front.
As we bring about this change in our system for regulating financial institutions,

we will preserve the basic functions of the FDIC and the Federal Reserve. That's
because we're restructuring the system around three basic jobs -- supervision and
regulation, insuring deposits, and operating a central bank.
The final point I would make is that we will ensure that nothing we do raises any
question about the safety and security of our financial system.

-30LB-523

FOR IMMEDIATE RELEASE
Nov. 22, 1993

MARY ELLEN WITHROW NOMINATED TO BE TREASURER OF THE U.S.

Treasury Secretary Lloyd Bentsen announced Monday that President Clinton has
nominated Ohio Treasurer Mary Ellen Withrow to be Treasurer of the United States.
The Treasurer oversees the United States Mint, which manufactures coins and
medals; the Bureau of Engraving and Printing, which prints paper money and postage and
revenue stamps; and the United States Savings Bond Division.
Mrs. Withrow was first elected Treasurer of Ohio in 1982 and reelected in 1986 and
1990. She began her public career in 1969 as the first woman elected to the Elgin Local
School Board in Marion County, Ohio. She was elected Marion County Treasurer in 1976
and 1980.
Ms. Withrow, 63, and her husband, Norman, are residents of Marion County. They
have four daughters and four grandchildren.
-30-

LB-S24

UBLIC DEBT NEWS
Dq~artmen( of (he Treasury

•

FOR IMMEDIATE RELEASE
November 23, 1993

RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $11~023 million af 5-year nates, Series U-1998,
to be issued November 30, 1993 and to mature November 30, 1998
were accepted today (CUSIP: 912827N24).
The interest rate on the notes will be 5 1/8%. All
competitive tenders at yields lower than 5.20% were accepted in
full.
Tenders at 5.20% were allotted 82%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 5.20%, with an equivalent price of 99.673. The median yield
was 5.18%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.12%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)

TOTALS

Received
$29,800,885

Accepted
$11,022,605

The $11,023 million of accepted tenders in~lu~es $473
million of noncompetitive tenders and $10,550 mllllon of
competitive tenders from the public.
In addition, $530 million of tenders was awarded ~t the
high yield to Federal Reserve Banks as agents ,for forelgn,an~
international monetary authorities. An additlonal $550 mllllon
of tenders was also accepted at the high yield from Feder~l
Reserve Banks for their own account in exchange for maturlng
securities.

LB-525

FOR RELEASE AT 2:30 P.M.
November 23, 1993

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,800 million, to be issued December 2,
1993. This offering will provide about $2,775 million of new
cash for the Treasury, as the maturing bills are outstanding in
the amount of $24,014 million.
Federal Reserve Banks hold $6,140 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $1,925 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356, published as a final rule on
January 5, 1993, and effective March 1, 1993) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-526

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 2, 1993

November 23, 1993
Offering Amount .

$13,400 million

$13,400 mlllion

91-day bill
912794 J3 9
November 29, 1993
December 2, 1993
March 3, 1994
September 2, 1993
$11,905 million
$10,000
$ 1,000

182-day bill
912794 K8 6
November 29, 1993
December 2, 1993
June 2, 1994
June 3, 1993
$14,771 million
$10,000
$ 1,000

Description of Offering:

Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding .
Minimum bid amount
Multiples .

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids
Competitive bids

Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
competitive tenders
Payment Terms .

Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date

FOR IMMEDIATE RELEASE
November 23, 1993

CONTACT: Scott Dykema

(202) 622-2960

BENTSEN RELEASES ECONOMIC/FOREIGN EXCHANGE REPORT
Treasury Secretary Lloyd Bentsen released Tuesday the department's Sixth
Annual Report to Congress on International Economic and Exchange Rate Policy.
"The report paints a rather bleak picture of the industrialized world," Bentsen
said. The secretary called for more vigorous pursuit of the growth strategy adopted by
G-7 countries. The report concludes that moderate economic recoveries appear to be
firmly established in the United States, Canada, and the United Kingdom, but prospects
for Japan and continental Europe are discouraging.
Bentsen said more needs to be done. "First, we need a GATT agreement to open
new markets and encourage trade. Second, the Japanese Government must act promptly
and decisively to carry through on its commitment at the Tokyo Summit to implement
fiscal and monetary measures that ensure strong domestic demand and reduce its trade
surplus. Third, Europe should continue to pursue policies that permit additional cuts in
interest rates and to address structural issues that are impeding growth and employment."
Bentsen, noting one of the report's findings, also said emerging markets are a
major source of dynamism in the global economy. "The United States has taken
significant steps, such as NAFTA and the new dialogue with the APEC nations, to
ensure that we will have a major stake in the success of these countries."
Treasury's report finds that China continues to manipulate its exchange system
and urges Chinese authorities to eliminate all restrictions on access of its residents to
LB-S27

2

foreign exchange. Although China is now reporting deficits in its overall trade and
current account positions, U.S. data indicate that the bilateral Chinese surplus with the
United States continues to grow, totalling over $14 billion in the first eight months of
this year. While Treasury expresses concern over the restrictions maintained by Taiwan
and Korea, which may limit market forces that could otherwise lead to appreciation of
their exchange rates, the report doesn't find that manipulation is now occurring.
The report, prepared in consultation with the Federal Reserve, is required under
the Omnibus Trade and Competitiveness Act of 1988.
-30-

DEPARTMENT OF THE TREASURY
SIXTH ANNUAL
REPORT TO THE CONGRESS
ON
INTERNATIONAL ECONOMIC AND EXCHANGE RATE
POLICY

NOVEMBER 1993

Embargoed for release until
4:30 p.m., November 23, 1993

DEPARTMENT OF THE TREASURY
SIXTH ANNUAL
REPORT TO THE CONGRESS
ON
INTERNATIONAL ECONOMIC AND EXCHANGE RATE
POLICY

NOVEMBER 1993

Embargoed for release until
4:30 p.m., November 23, 1993

TABLE OF CONTENTS

Part I

Summary and Conclusions

Part II

Global Economic Developments
Economic Situation in the G-7 Countries
Developments in Foreign Exchange Markets
U.S. Balance of Payments Situation
Progress in Cooperation among the G-7

Part III

Actions Under Section 3004
China
Taiwan
South Korea

Appendix

Text of Sections 3004 - 3006 of the Omnibus Trade and
Competitiveness Act of 1988

1

5
11
14

17

20
21
27
31

PART I: SUMMARY AND CONCLUSIONS
This Report discusses developments in U.S. international economic policy,
including exchange rate policy, since the fifth annual Report to Congress submitted
in December 1992. It concentrates on developments since the interim Report
provided in May 1993. These reports are required under Sections 3004 and 3005
of the Omnibus Trade and Competitiveness Act of 1988 (Trade Act).
A healthy and growing world economy is increasingly important to U.S.
economic growth. Exports have accounted for a rising share of U.S. economic
growth, having increased from 4 percent of GDP in 1959 to more than 10 percent
today. More than forty percent of the rise in total income between 1985 and
1991 can be attributed to exports, although the ratio has since declined as
economies in continental Europe and Japan have slowed. For the United States to
export, others must import, and their ability to do so is closely linked with growth
in their domestic economies.
Although moderate economic recoveries appear firmly established in the
United States, Canada and the United Kingdom, prospects for other major
industrial countries are not at all encouraging. Germany, Japan and France are
now expected to experience negative growth in 1993, with minimal growth in
Italy. Projected aggregate economic growth for the major industrial countries in
1993 has declined from 1.9 percent (as forecast by the IMF in April 1993) to 1.3
percent (September 1993 forecast). Growth is still expected to improve in 1994,
but the forecast has been pared back to 2.3 percent (from 3.0 percent), which
would be insufficient to create the jobs necessary to significantly reduce current
high levels of unemployment. Private forecasts and the OECD forecasts also have
scaled back growth projections for Japan and continental Europe.
Employment growth has been flat in the industrial countries, and
unemployment has continued to increase. Unemployment in Europe is now in
double digits and is expected to rise to 12 percent in 1994. There are currently 35
million unemployed in the OECD countries alone, 22 million of whom are in Europe.
The recent slowdown in growth in continental Europe and Japan has caused
U.S. exports to these regions to remain flat since 1991. The IMF estimates that
slow growth in the industrial countries reduced U.S. GDP growth by one-third in
the second quarter of 1993. Where growth has been robust, including the newly
industrializing economies (NIEs) of Asia, China and Latin America, demand for U.S.
goods and services has expanded rapidly. Growth in exports to these countries
has accounted for more than half of the total growth in U.S. exports since 1991.
The recent increase in the U.S. trade deficit is not attributable to a failure of U.S.
industry to compete, but rather reflects weak economic conditions in Japan and
Europe.

-2To help foster global economic recovery and growth in jobs and trade, the
major industrial countries have intensified their economic policy coordination. In
April 1993, they adopted a cooperative growth strategy, including:
In the United States and Canada, improvements in savings and investment
through substantial reductions in fiscal deficits.
In Europe, measures to stimulate private demand and combat rising
unemployment, particularly through further declines in interest rates
facilitated by medium-term fiscal consolidation and containment of costs.
In Japan, measures to stimulate domestic demand to increase economic
growth and reduce large external account surpluses.
The G-7 countries have implemented a range of measures consistent with
this strategy to strengthen the world economy. In the United States, passage of a
budget package that provides for $500 billion in deficit reduction has contributed
to significant declines in long-term interest rates. In Europe, short-term interest
rates have declined by 100 to nearly 400 basis points since January 1993. In
Japan, the Government recently introduced a third fiscal expansion package, and
the Bank of Japan has reduced the discount rate by 150 basis points. The
Government has also begun the process of deregulating and reforming the
economy to make it more open to foreign goods, services and investment.
Despite this progress, the outlook remains unsatisfactory, and sustained
efforts will be required. In the United States, reform of the health care system is
needed to reduce the burgeoning costs to the budget, businesses and individuals.
In Europe, fiscal deficits as a percent of GDP now exceed the peak levels
experienced by the United States, and real interest rates remain high. In Japan,
weak consumer and business confidence continue to stymie domestic demand,
resulting in further increases in an external surplus that is already a drag on world
growth and a source of heightened protectionist pressures. Action to achieve
increased consumption and to accelerate the opening of the Japanese economy is
becoming urgent. Finally, all G-7 countries need to accelerate structural reforms to
remove impediments to increased employment and to bring the Uruguay Round to
a successful conclusion by the mid-December deadline.
In its Article IV consultations with the United States Government, which
were completed in August 1993, IMF staff indicated particular interest in two
developments affecting the U.S. budget deficit. First, staff indicated that, despite
the adoption of the budget package, the U.S. budget deficit would begin to rise in
1998. Second, they noted that the budgetary implications of the President's
health care proposal (which was released several months after the Article IV
consultations were completed) remained uncertain.

-3Over the past twelve months, the dollar has been relatively stable on an
overall, trade-weighted basis. The two most prominent developments in the
foreign exchange markets were:
yen appreciation in early 1993 and a renewed rise in the summer, to
successive new historic highs against the dollar and most other
currencies; and
another bout of pressures in the Exchange Rate Mechanism (ERM) of
the European Monetary System, which led to a widening on August 2,
for most participating currencies, of the permitted band of fluctuations
from 2.25 percent to 15 percent.
The Administration believes that exchange rates should reflect economic
fundamentals. Attempts to artificially influence or manipulate exchange rates are
inappropriate. At the same time, excessive volatility of exchange rates is
counterproductive for growth. Consequently, the United States remains ready to
cooperate in exchange markets with its G-7 partners.
Treasury has reviewed the foreign exchange and exchange rate policies of
China, Taiwan and Korea, countries with an important role to play in promoting a
healthy, open global economy and adjustment in external imbalances. This
assessment has examined whether these countries are manipulating their exchange
rates within the meaning of Section 3004 of the Trade Act, to prevent effective
balance of payments adjustment or gain unfair competitive advantage in
international trade.
Treasury supports China's plans to move towards a more market based
economy and reform its foreign exchange system. Nevertheless, China's foreign
exchange system continues to be heavily regulated, and the United States is
seriously concerned with the level of China's bilateral trade surplus with the United
States. Based on China's continued reliance on foreign exchange restrictions, it is
Treasury's judgement that China manipulates its exchange system to prevent
balance of payments adjustment and gain unfair competitive advantage. Treasury
urges the Chinese authorities to eliminate all restrictions on access to foreign
exchange, a step which would facilitate imports and promote adjustment in China's
large bilateral surplus with the United States.
Taiwan is not, at this time, manipulating the rate of exchange between the
New Taiwan dollar and the U.S. dollar. Nevertheless, continued adjustment is
needed in Taiwan's global current account surplus and bilateral trade surplus with
the United States.

-4Treasury remains seriously concerned that Taiwan appears unwilling to lift
an array of restrictions on foreign exchange transactions and capital flows,
although it has made changes that reduce some of the restrictions. The remaining
restrictions continue to reduce demand for the NT dollar and limit market forces
which could lead to appreciation.
Korea is not, at this time, manipulating its exchange rate directly. Korea's
external deficits declined significantly in 1992 as economic growth slowed
following the implementation of stabilization policies in late 1991 and throughout
1992, and have declined further in 1993.
There is no evidence that the Korean central bank is intervening directly in
the exchange market, and the level of activity of other government-owned foreign
exchange banks in the market has remained minimal since the May 1993 report.
Treasury continues to be concerned, however, that stringent foreign exchange and
capital controls have hindered the influence of market forces in the determination
of the won's exchange rate and of Korea's trade and investment flows. The
Korean authorities implemented some initial measures in October 1993 to ease
controls in the foreign exchange area.

-5PART II: GLOBAL ECONOMIC DEVELOPMENTS,
A.

ECONOMIC SITUATION IN THE G-7 COUNTRIES

Growth
Real GOP growth prospects for continental Europe and Japan have
deteriorated since spring. While the moderate recoveries projected for the United
States, Canada and the United Kingdom seem more firmly established, the outlook
for the others is more gloomy. The International Monetary Fund has once again
marked down its projections for most G-7 countries -- in some cases by sizeable
amounts. Table 1 below shows the latest IMF growth projections for the G-7
countries.
Table 1
G-7 Real GOP Growth
(% change year/year)

1992
united states
Memo: Administration
Forecast for u.s.
Japan
Germany (all)
France
Italy
united Kingdom
Canada
G-7 Total

2.6%

1993F

1994F

2.7%

2.6%

1.3
1.9
1.4
0.9
-0.5
0.7

2.4
-0.1
-1.6
-1.0
0.3
1.8
2.6

3.0
2.0
1.2
1.1
1.7
2.8
3.8

1.8

1.3

2.3

F = forecast; source: IMF, World Economic Outlook, September 1993
OECD and private forecasts of real GOP growth in Japan and continental
Europe also have been scaled back. The OECD's Secretariat is /expected to revise
downward its June 1993 growth projections for Japan and Europe in the
December 1993 Economic Outlook. A summary of private forecasts provided by
Consensus Economics, Inc. in the monthly publication Consensus Forecasts also has
reduced growth prospects for Europe and Japan, indicating more doubt about the
speed and strength of recovery. The November Consensus Forecast has reduced
sharply already low forecasts for growth in Continental Europe and Japan for both
1993 and 1994. As illustrated in Table 2, the forecasts for growth in Japan and
continental Europe for 1993 and 1994 combined were scaled back by more than 3
percentage points for Japan and by more than one percentage point for the
continent between the May and November Consensus Forecasts.

-6Table 2
Evolution of Consensus Forecasts
Real Growth
(in percentage points)
1993
Forecast in:
5/93
11/93

Japan (GNP)
Germany (west)
France
Italy
UK

Canada
United states

1994
Forecast in:
5/93
11/93

1.2
-1.7
0.0
0.3
1.5
3.2

-0.1
-2.1
-1.3
-0.3
1.8
2.5

3.1
1.0
2.0
1.5
2.5
3.8

1.1
0.6
0.8
1.4
2.6
3.5

3.1

2.7

3.1

2.8

Change in Growth Forecast for:
(in percentage points)
1993

1994

1993+1994

--------Japan (GNP)
Germany (west)
France
Italy
Canada

-1.3
-0.4
-1.3
-0.6
0.3
-0.7

-2.0
-0.4
-1.2
-0.1
0.1
-0.3

-3.3
-0.8
-2.5
-0.7
0.4
-1.0

United states

-0.4

-0.3

-0.7

UK

Source: Consensus Forecasts, Consensus Economics, Inc.
If these forecasts prove correct, Japan in 1993 will record its first recession
since 1974 (during the first OPEC oil price shock). More troublesome is the
prospect that this recession (unlike the 1970s recession) would not represent an
aberration from an otherwise strong Japanese growth path. Japanese growth was
7.6 percent in 1973 and 2.9 percent in 1975, in contrast to the weak growth rates
shown above for 1992-1994. After an investment boom during the years of the
speculative "bubble" of the late 1980s, the excessive expansion of business
investment is now being followed by a period of retrenchment. Private nonresidential investment grew at double-digit rates in the 1988-1990 period, but
actually declined in 1992. Consumption spending has also been weak. The sharp
rise in public sector investment in 1992 and 1993 under the fiscal expansion
programs has compensated only in part for private sector weakness.

-7The projections in Table 1 for 1993 and 1994 include the Fund staff's
estimate of the impact of the two Japanese fiscal expansion programs announced
during the current year (April and September), suggesting that these steps, while
welcome, are likely to serve mainly to prevent even deeper recession, rather than
to ensure a strong recovery. These projections indicate that further measures may
be needed to ensure a solid recovery. The IMF has projected that most of the
decline in Japan's overall government sector budget surplus (from 3.0 percent of
GNP in 1991 to 0 percent in 1993) is due to cyclical factors, which will be
reversed once recovery has materialized.
The outlook for Europe is also disappointing. Projections for the four largest
EC countries are shown above. Weakness in most European economies has
reflected low to negative growth of real consumption outlays, and very weak
business investment. For the EC countries as a whole, the IMF now expects a 0.2
percent decline in real GOP this year, recovering to only 1.6 percent growth in
1994. The aggregate unemployment rate for the EC is now in double digits, and
the Fund expects this rate to rise to 12.0 percent for 1994, despite some
improvement in the UK. The number of jobs in the EC is expected to continue to
fall, for the fourth successive year, in 1994.
Budget deficits in Europe, already substantial, have increased because of the
downturn. When adjusted for cyclical factors, however, fiscal policy has tightened
in Germany and Italy.
Table 3
Fiscal Balances: Germany, France, Italy and the UK
(percent of GOP)

(a)
structural Budget Balances:
1990
1991
1992
1993F
Germany
France
Italy
UK

-3.0
-2.5
-11.5
-3.2

-4.7
-2.3
-10.2
-2.3

-3.1
-3.8
-8.2
-5.7

-3.6
-3.4
-8.8
-3.8

Actual Budget Balances:
1992
1991
1990

(b)

Germany
France
Italy
UK

-1.9
-1.5
-11.5
-1.3

-3.1
-2.1
-10.7
-2.7

-2.7
-3.9
-10.0
-6.2

1993F
-4.8
-6.0
-10.3
-8.6

F = forecast; source: IMF, World Economic Outlook, September 1993

-8Recovery of private consumption and investment in Europe continues to be
constrained by the high level of real interest rates (nominal interest rates adjusted
for inflation). While nominal interest rates have fallen, real rates remain high given
the current very weak state of growth and employment in most European
countries.
Table 4
Nominal and Real* Short-Term Interest Rates* *
(percentage points)
1992
Nominal Real

united states
Japan
Germany (all)

3.4
4.1
9.4

0.4
2.5
4.7

1993F
Nominal Real
3.0
2.8
7.0

0.0
1.6
2.4

1994F

Nominal Real
3.6
3.2
5.9

0.8
2.4
3.0

* Real rates are derived by subtracting comparable consumer prices (see Table 5)
from nominal rates.
* * For the United States: three-month Treasury bills; for Japan, three month
certificates of deposit; for Germany, three-month interbank deposits.
F = Forecast: source: IMF, World Economic Outlook, September 1993
These estimates of real interest rates would be higher if producer prices or
equipment prices were used instead of consumer prices to measure inflation. For
instance, in west Germany, producer prices are expected to rise less than 0.5
percent this year and only about 1 percent next year, which implies real interest
rates of nearly 7 and 5 percent, respectively.
The widening of the exchange rate bands within the Exchange Rate
Mechanism (ERM) of the European Monetary System has given added flexibility to
monetary policy in many European countries. To the extent that this flexibility can
be used, European growth in 1994 and later years could be stronger.
Inflation
Aggregate inflation in the G-7 countries continues to decline, and inflation is
likely to remain low. IMF projections for consumer price increases (see Table 5
below) indicate that inflation for the G-7 next year will be at the lowest rate since
the early 1960s (excluding the rate for 1986, when world petroleum prices fell
sharply). The Consensus Forecast is similar.

-9Table 5
G-7 Consumer Price Inflation
(% change year/year)

united states
Memo: Administration
Forecast for u.s.
Japan
Germany (all)
France
Italy
United Kingdom*
Canada
G-7 Total

1992
3.0

1993F
3.0

1994F
2.8

1.7
4.7
2.4
5.2
4.7
1.5

3.2
1.2
4.6
2.2
4.5
3.2
1.8

3.3
0.8
2.9
2.2
4.6
3.8
1.5

3.1

2.9

2.6

* Retail Price Index excluding mortgage interest
F = forecast; source, IMF, World Economic Outlook, September 1993
Anti-inflationary macroeconomic policies, recession and slow growth have
contributed to the improved outlook for low inflation in the major countries. Slow
growth in the industrial economies as a whole has restrained world commodity
prices. Rises in unemployment have tended to moderate wage gains.
German inflation has been a major concern, in part because tight monetary
policies designed to reduce inflation in Germany have impeded recovery elsewhere
in Europe. Recently, the outlook for German inflation has improved. Over the past
twelve months (through October 1993) consumer prices in the west increased by
less than 4 percent; the annual rate for the April-October 1993 period declined to
2.9 percent.
Part of the rise in the German price level this year can be explained by the
one point increase in value added tax on January 1 and mineral fuel tax increases
this spring -- both of which were incorporated in the consumer price index even as
they restrained aggregate demand. Decontrol of prices in the east from the
artificially low levels set by the former GDR authorities, now nearly completed, has
contributed to upward movement of the price level in the east. Wage settlements
have been in the 3 to 3-1/2 percent range this year, vs. 5-1/2 to 6 percent in
1992, and this moderation should contribute to an improved inflation picture. The
IMF expects a decline in the all-German inflation rate to 2.9 percent next year (2.7
percent in the west).

-10External Accounts
The most important development in the external accounts of the G-7
countries, in terms of policy concerns, has been the continuing sharp rise in
Japan's trade and current account surpluses, to a record current account surplus
of $117.6 billion, or 3.2 percent of GDP, in 1992. In the first three quarters of
1993, the current account surplus reached $99.5 billion (an annual rate of $132.7
billion). The IMF expects the surplus to reach $137 billion for the year, and to rise
slightly in 1994 to $141 billion, as Table 6 indicates.
Table 6
G-7 Current Account Balances
($ billions and % GDP)

united states
Japan
Germany (all)
France
Italy
united Kingdom
Canada
G-7

Total

1992
-$66
(-1.1)
+118
(+3.2)
-26
(-1.3)
+3
(+0.2)
-27
(-2.1)
-16
(-1.5)
-23
(-4.0)
-37
(-0.2)

1993F
-$112
(-1.8)
+137
(+3.2)
-32
(-1.7)
+2
(+0.2)
-14
(-1.4)
-21
(-2.3)
-20
(-3.7)
-60
(-0.4)

1994F
-$130
(-1.9)
+141
(+3.0)
-30
(-1.5)
+3
(+0.3)
-13
(-1.3)
-25
(-2.6)
-17
(-2.9)
-70
(-0.4)

F = Forecast; source: IMF, World Economic Outlook, September 1993
The Japanese recession expected this year, in concert with significant
growth in major trading partners in North America (United States 2.7 percent and
Canada 2.6 percent) and Asia (8.7 percent) and "J-curve" effects stemming from
the yen's rise, will continue to widen Japan's current account surplus in dollar
terms through 1994. Using Bank of Japan export and import price deflators to
derive indices of Japanese trade volumes indicates that the volume of Japanese
exports grew 5.3 percent in 1992 and the volume of imports fell by 1.4 percent.
The degree to which the growth in Japanese domestic demand increases will
be the key factor in the evolution of Japan's external balances, particularly over
the next year or two.

-11The U.S. current account deficit is also likely to continue rising, although the
deficit may not be as high as the IMF staff expects. The moderate nature of the
U.S. expansion and the strong competitive position of U.S. exports (of both goods
and services) should help restrain the rise. Faster growth in Europe and Japan
would have a significant effect in moderating the increase in the deficit.
B.

DEVELOPMENTS IN FOREIGN EXCHANGE MARKETS

On a real trade-weighted basis, the dollar was relatively stable, declining by
0.6 percent from the end of 1992 to October 1993.
Chart 1
Real Exchange Rate of the Dollar
(January 1993 - October 1993)

110 . - - - - - - - - - - - - - - - - - - - - - - - - - , 110

105

105

100

- 95

95

OOLL--L---L-~--~-~--~--~--~--

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

__~ 00
Oct

Dollar (Index)
Source J.P.Morgan, 1980 lrade weights
(18 industrial and 22 deYeIopIng countries;
1980-62 = 100). Data ..e through Oct 31, 1993

A rise in !he Index a apprecialion/decline in compeblivene.. ;
a Ialln Ihe Index • depteClabonf"""...se in competitive".,"

The primary exchange market development was appreciation of the yen, which
rose nearly 14 percent over the same period, bringing its total appreciation since
August 1992 to 22 percent.

-12Chart 2
Real Exchange Rates: Dollar, Yen and Mark
(January 1980 - November 1993)
1&0

..

I~ !~.... ··~· .

150

I

140 4---------------~==========~------------~ 140

.

,",
,"

8130
....

~----------------~k_------~.,~.~--------------~~
II
•
••
•

i './' '\\

•

"

130

.'~ :-. ,:
i
120
~12O ~------------~hr-------~~'~·~'~',-·----~----------_+·--~
~.'.
,
.-'
....
\ .
:..'~!
0
CIO

~

.

•

t

110

..

W

"..

,

,,,

oS 100

'.'

' " I.
.. • • •:~ .....

~

-

•.•.1

-8

It

• ~, •• ,...

4---------+-----------~~~~.-,-----'~~~--~~~~

f

110

.'
.•••·

'
~-+~~~~~~~~~~----+---~~~--~---,~~~
:
......
"--" .....

....

100

80
80

10

80/1 81/1 82/1 83/1 84/1 85/1 88/1 tn/1 88/1 89/1 80/1 81/1 82/1 83/1

=
=

Nota: A ri.. In ".lndex appreciation/dacina In competitiveness;
a faJlln the Index daprec::iation/in In competitivan....
-source: ..F Morgan; 1980 trade waighta (18 Industrial and 22 d8Y8loping
countri..; 1gee) - 82 - 100. DaTa . . through October 31,1993).

In nominal terms, the yen appreciated against both the dollar and the DM
since the end of 1992, Dollar movements often reflected developments or
expectations regarding other currencies.
Chart 3
Currencies in Nominal Terms: Dollar vs. Yen and Mark
(January - mid-November 1993)
130r-----------------~================~----------------__r2

I Japanese Yen Gerru¥_Mark I

1.9

~ 120+-------~~----------~·======================~·--------------------~

....
m

~

1.8 CD

~

Q.

m 110+---------------------~~~-=~----~~~~--~--r.----------~~LL11,7 ~

C

~

~

1.6
100+-------------------------------------------------------------~
u-____
____
____
____
__
____
____
____
____
____
___ u
~

01-01-93

~

Feb

~

Mar

~~

Apr

~~

May

~

Jun

~

Jul

~

~

ro

~

1.5

~

Aug
Sep
Oct 11-16-93
Source: daily opening N.Y. rates

-14Other European central banks were careful not to get ahead of the
Bundesbank's gradual and modest pace of monetary easing, apparently out of
concern that their currencies might be weakened excessively in the European
Monetary System's (EMS) Exchange Rate Mechanism (ERM). However, ERM
pressures reemerged during the summer, as the market judged the modest pace of
monetary easing to be inappropriate to weak cyclical conditions in European
economies. As of August 2, 1993 the permissible bands of fluctuation for most
participating currencies were widened to + /- 15 percent from + /- 2.25 percent.
Despite the widening in ERM bands, it appears that many other European central
banks remain sensitive to the exchange rate implications of easing more rapidly
than the Bundesbank.
The OM tended to ease against the dollar during the episode of pressures in
the ERM. In late September, political tensions in Russia, culminating in President
Yeltsin's dissolution of parliament, also briefly weakened the mark against the
dollar, but to a lesser extent.
C.

U.S. BALANCE OF PAYMENTS SITUATION

Developments in 1993
The U.S. trade deficit in the first half of 1993 (balance of payments basis,
seasonally adjusted) was $127.4 billion at an annual rate, up from $107 billion
(annual rate) in the second half of last year and $96.1 billion for 1992 as a whole.
The renewed widening in the trade deficit, which began in 1991 after four years of
steady declines, primarily reflects cyclical factors; the United States is in the
course of a cyclical recovery, while Japan and Europe are experiencing recession or
very slow growth.
First half 1993 exports totalled $449.3 billion at an annual rate, up about $9
billion or just 2 percent in value from the full year 1992; exports have been
essentially flat since the last Quarter of 1992. The deceleration of export growth,
which had averaged 13.5 percent per year in value terms between 1987 and
1991, was the major factor in the widening of the trade deficit during the first half
of the year.
On a geographic basis, U.S. export growth has been particularly sluggish to
the other industrial countries, especially Europe and Japan, reflecting the very
weak demand growth in their economies. The most recent IMF forecasts project
negative GOP growth in 1993 for both Europe (EC -0.2 percent) and Japan (-0.1
percent) for 1993.

-15By contrast, export growth has held up well to areas such as Latin America
and the Asian NIEs, which have avoided recession. The IMF projects 8.7 percent
growth this year for developing economies in Asia, while growth in Latin America
should be nearly 3.5 percent. This pattern confirms other evidence from cost and
price indicators that the U.S. competitive position remains strong and is not a
significant factor behind the recent widening of the trade deficit.
While overall exports have stagnated so far in 1993, imports have risen
substantially, despite the modest pace of recovery in the domestic U.S. economy.
Imports rose during the first half of 1993 to $576.7 billion at an annual rate, up
$40 billion or 7-1/2 percent compared with full-year 1992. Imports rose sharply in
March, and have remained substantially above the averages of 01 (and 0492)
through September (latest data available).
Capital goods and automotive products accounted for nearly 60 percent of
the increase in imports during the first half of 1993. Computers continued to be a
major category of investment and import spending; both consumption and
investment spending contributed to strong growth of vehicle imports. More than
85 percent of the increased imports of automotive products were from Canada.
The geographic pattern of the overall trade balance reflects in part the
influence of growth abroad on export performance. Where exports are weak or
falling, the balance has deteriorated. Export growth to the NIEs and Latin America
has contributed to a modest reduction in bilateral deficits. The following table
shows the shifting geographic trade pattern since 1991 (lowest annual trade deficit
since 1983).
Table 7
U.S. Trade with Selected Areas: 1991, 1993 *
($ billion; data from Survey of Current Business)

Country
or Region

w.

Europe
Japan
China
Asian NIEs
L. America
Canada
R. O. w.
TOTAL

Exports
1993*
1991
$116.8 $112.5
46.7
47.2
7.9
6.3
44.4
49.0
76.5
63.3
99.7
85.9
57.0
53.0
----- ----416.9 449.3

Imports
1993*
1991
$101.9
92.3
19.0
59.2
63.0
93.0
62.3

----490.7

* 1st half, seasonally adjusted annual rate

$117.1
104.2
27.6
61.8
74.7
116.0
75.3

----576.7

Balance
1991
1993*
$14.9
-45.1
-12.7
-14.9
0.3
-7.1
-9.3
-----

-$4.7
-57.5
-19.7
-12.7
1.8
-16.3
-18.3

-----

-73.8 -127.4

-16The current account typically follows closely swings in the trade balance,
since trade is the largest and most volatile component. However, the role of
services has increased substantially in recent years. The increasing net surplus
recorded on services transactions reflects a combination of U.S. competitiveness in
a range of high-tech services, and the fact that the United States has become an
attractive and (relatively) low-cost tourist destination. Table 8 shows data for the
peak deficit year of 1987, for 1991 (post-1987 low point) and 1993 (1 st half at an
annual rate).
Table 8
U.S. Current Account: 1987; 1991; 1993 *
( $billion)

Balance

1987

Trade
Services
Investment Income
Transfers
Current Account

-160
8
8
-23
-163

1993.
-74
46
13
-36**
-51**

1993*
-127
59
-1
-29
-98

* 1st half, seasonally adjusted annual rate
* * Excludes $43 billion in one-time transfers from allies to support Desert Storm.
However, growing surpluses on services have been largely offset by a
deterioration in the balance on net investment income. The succession of large
current account deficits -- which are expected to continue in the near future -- has
eroded the U.S. net investment position and, inevitably, our net earnings.
Consequently, the surplus on net investment income that characterized the U.S.
balance of payments position in the postwar period has disappeared, and income
payments on foreign investments in the United States seem likely to exceed
receipts from investments abroad by an increasing margin in coming years.
In principle, the capital account balance constitutes the mirror-image of the
current account balance; i.e., a current account deficit will have as its counterpart
a net capital inflow of equal size. However, measurement problems mean that
recorded balances on current and capital account may be quite different. During
the first half of 1993, the recorded net capital inflow accounted for $26.2 billion of
the total net inflow of $49.2 billion, while the remainder was unrecorded. Of the
recorded balances, official channels accounted for more than $28 billion in total
net inflows (with recorded private net capital outflows of $2 billion).

-17U.S. investors acquired substantial amounts of foreign assets during the first
half of 1993, in the form of both portfolio and direct investments. U.S. purchases
of foreign securities in the first half were roughly equal to securities purchases for
the entire year 1992; direct investment outflows were at a pace equal to that of
1992. Net flows of U.S. official capital were negligible.
There was a decline in recorded foreign private portfolio investment in the
United States in the first half of this year, compared with 1992. Foreign direct
investment inflows, which showed a mixed pattern in 1992, accelerated
substantially in the first half of 1993 -- to levels roughly equal to U.S. direct
investment outflows -- but remained well below the very high annual levels of
1987-90. There were substantial inflows of official capital in the first half of
1993, equalling roughly three-fourths of private flows. These largely reflected
purchases of dollars by foreign central banks.
Prospects for Full-Year 1993 and 1994
Relative growth performance in the United States and major foreign
economies will continue to dominate the trade and current account outlook for the
rest of 1993 and 1994. Barring a dramatic change in prospects for growth in the
United States -- and, especially, Europe and Japan -- U.S. trade and current
account deficits should continue to widen at least through 1994.
The full-year 1993 trade deficit is likely to widen somewhat from the first
half figure of $127 billion (annual rate) -- perhaps to the neighborhood of the $136
billion (annual rate) deficit figure for the second quarter. A further widening is in
prospect for 1994, though probably less than the $40 billion deterioration expected
for 1993 over 1992. It is difficult to be more precise, especially since there have
been unusually frequent revisions recently to the outlook for growth in Europe and
Japan, which is key to prospects for the U.S. trade balance.
Following the trade balance, the current account deficit also is expected to
widen this year and next. It should rise to slightly above $100 billion for the full
year 1993, and show a further increase in 1994.
O.

PROGRESS IN COOPERATION AMONG THE G-7

U.S. economic growth is increasingly linked through trade and investment
with world economic growth; economic growth here is dependent upon growth
abroad. U.S. exports represent an increasingly important component to overall
economic growth, having increased from 4 percent of GOP in 1959 to more than
10 percent today. From 1985 to 1991, growth in U.S. exports was equivalent to
40 percent of total income growth, although the ratio declined thereafter as

-18economies in Europe and Japan slowed. For the United States to export, others
must import, and their ability to do so is closely linked with growth in their
domestic economies. Accordingly, the Administration places high priority on a
close and effective dialogue within the Group of Seven.
The G-7 recognizes the need to restore growth. Economic policy
coordination among the G-7 has made significant advances since the interim report
was presented in May 1993. At the Tokyo Summit in July, specific policy
measures were agreed by the G-7, which were later reaffirmed at the meeting of
the G-7 Finance Ministers in September. In the United States, passage of a budget
package will cut $500 billion from the federal budget deficit over the next five
years. Short-term interest rates in Europe have declined, and the basis is being laid
for further reductions. In Japan, the Government has introduced a third fiscal
expansion package, and the Bank of Japan has gradually reduced the discount rate
by 150 basis points since January 1993. Other steps are being taken in Japan to
open the economy to foreign goods, services and investment.
Despite this progress, the outlook remains unsatisfactory, and further steps
are needed. In the United States, reform of the health care system is needed to
reduce the costs for citizens and the budget. In Europe, fiscal deficits as a percent
of GDP currently exceed the peak levels experienced by the United States and real
interest rates remain high. In Japan, domestic demand has been stymied by the
bursting of the asset price bubble and a collapse in confidence, and the external
surplus represents both an increasing drag on world growth and a source of
protectionist pressures. The need for measures to increase consumption and to
accelerate market reforms in Japan has become urgent.
All G-7 countries need to accelerate structural reforms to remove
impediments to increased employment. The Jobs Conference proposed by the
President, expected to take place in February 1994, will provide an opportunity to
explore possible approaches for strengthening employment growth. Although the
agenda for the Conference has not been finalized, it is expected to provide a forum
for discussion of policies, including structural reforms.
The Administration's commitment to economic policy coordination
recognizes the need to create a new growth strategy. The direct link that exists
today between trade, investment and world growth makes it in the interests of the
United States and its G-7 partners to pursue economic policy coordination. To
spur export growth and investment in other countries requires that their domestic
economies grow. Therefore, the individual interests of the G-7 members will be
well served by coordinating policy to reinvigorate economic growth both at home
and abroad. Development of appropriate macroeconomic policies and the removal
of structural barriers, particularly in labor markets, will contribute to other factors
that are expected to help restore economic growth and reduce external imbalances

-19within the G-7. However, U.S. authorities are very much aware that official
forecasts have undergone a series of downward revisions, and they stand ready to
suggest additional policy measures if growth prospects do not improve as
expected.

-20PART III: ACTIONS UNDER SECTION 3004
The text of Section 3004 of the Omnibus Trade and Competitiveness Act of
1988 (see Appendix 1) requires that the Treasury consider whether countries
manipulate their exchange rates for purposes of preventing balance of payments
adjustment or to obtain unfair advantages in international trade. Section 3004
provides for steps that the Secretary of the Treasury shall take, including
negotiations, with respect to countries that manipulate their exchange rates. This
section summarizes the current status of China, Taiwan and Korea, countries that
have in past reports been designated under Section 3004.
In the first report (fall 1988)' Treasury determined that Taiwan and Korea
manipulated their exchange rates within the meaning of the legislation. Following
bilateral negotiations, Treasury concluded that, while significant problems
remained, Taiwan (as of fall 1989 report) and Korea (as of spring 1990 report)
were no longer manipulating their currencies. These findings were reaffirmed in fall
1990, spring 1991, and fall 1991. The applicability of Section 3004 to China was
first considered in fall of 1990; in that report and in the spring and fall 1991
reports, Treasury noted that China's exchange rate controls were of serious
concern but did not find that currency manipulation was occurring.
In the spring and fall 1992 reports, Treasury reaffirmed its determination
that Korea was not manipulating its exchange rate. With regard to Taiwan,
Treasury determined that Taiwan was once again manipulating its currency, as it
was using central bank intervention and restrictions on foreign exchange
transactions and capital flows to constrain demand for the NT dollar, even though
its external surpluses were increasing. However, in the spring 1993 report,
following negotiations with Taiwan, Treasury determined that Taiwan was not
manipulating its exchange rate, as it was not intervening in the exchange markets
to dampen appreciation and significant adjustment in Taiwan's current account
surpluses was taking place.
With respect to China, Treasury found that China was also manipulating its
foreign exchange rate system in the spring 1992 report. The basis for the changed
judgment was the continued devaluation of the administered exchange rate, the
significant control exercised by the authorities over foreign exchange swap center
rates which had also depreciated since the emergence of the large surpluses and
China's large external surplus. As a result of these manipulation findings, Treasury
initiated negotiations with China during 1992.
The remainder of this part describes and assesses balance of payments and
exchange rate developments in the foreign exchange systems of China, Taiwan
and Korea.

-21-

CHINA
Treasury supports China's plans to move towards a more market based
economy and reform its foreign exchange system consistent with the path of
overall reforms. Nevertheless, China's foreign exchange system continues to be
heavily regulated and the United States is seriously concerned with the level of
China's bilateral trade surplus with the United States. Based on China's continued
reliance on foreign exchange restrictions, it is Treasury's judgement that China
manipulates its exchange system to prevent balance of payments adjustment and
gain unfair competitive advantage. Treasury urges the Chinese authorities to
eliminate all restrictions on access to foreign exchange, a step which would
facilitate imports and promote adjustment in China's large bilateral surplus with the
United States.
Trade and Economic Developments
According to Chinese data (which differ substantially from those of its
trading partners as described below), China's trade and current account balances
have declined substantially in 1993. These data suggest that for the first nine
months of 1993, China's global imports rose 30 percent compared with the first
nine months of 1992 to $68.2 billion, while China's global exports rose only 7
percent to $61.2 billion. As a result, China reports that its merchandise trade
balance fell to a deficit of $7.0 billion for January-September 1993 compared with
a surplus of $4.9 billion for January-September 1992. Import growth continued to
be driven by strong domestic demand and rapid GOP growth. (However, using
data from China's trading partners it is not clear that China's trade balance is in
deficit.) Largely due to the deterioration in its trade balance, China's expects that
its current account balance will fall into deficit in 1993 compared with a $6.4
billion surplus in 1992. Foreign exchange reserves dropped from $46.8 billion at
the end of 1992 to $38.2 billion at the end of June 1993 (equivalent to 6 months
of imports).' China's total external debt increased from $60.6 billion at year-end
1991 to $69.3 billion at year-end 1992. China's debt service ratio stood at 9
percent for 1992.

Reserve figures include foreign exchange held by both the People's Bank of China
and the Bank of China. The Chinese authorities no longer include foreign exchange
holdings of the Bank of China in China's official foreign exchange reserve figures.
Nevertheless, it should be noted that the Bank of China is a state bank and that a
substantial share of its foreign exchange deposits are from state enterprises. This
suggests a significant degree of government control over the Bank of China's reserve
holdings. At the end of June 1993, foreign exchange reserves of the People's Bank of
China stood at $1 8.9 billion while reserves of the Bank of China stood at $1 9.3 billion.
1

-22Despite the decline in China's global trade balance, its surplus with the
United States continued to grow. According to U.S. data, Chinese exports to the
United States for January-August 1993 grew 24 percent over January-August
1992 to $19.7 billion. Chinese imports from the United States grew 17 percent
during the same period to reach $5.5 billion, for a Chinese trade surplus of $14.2
billion in the first eight months of 1993. At current growth rates, China's surplus
with the United States would rise to $23.1 billion for all of 1993, up from $18.3
billion in 1992. U.S. consumption of the type of low-cost, labor-intensive goods
exported by China is growing rapidly. Footwear, clothing, toys, and plastic goods
constituted the most rapidly growing categories of U.S. imports from China. On
the export side, U.S. exports of capital goods are increasing most rapidly. Aircraft,
automobiles, telecommunications equipment, and specialized industrial machinery
constituted the most rapidly growing categories of U.S. exports to China.
In general, China's trade data are not consistent with those of its major
trading partners. For example, China reports a small trade surplus with the United
States, in contrast to the large and growing surplus shown in U.S. figures.
Similarly, China reports a trade deficit with Japan, while Japan reports a Chinese
bilateral surplus. The source of the differences is chiefly China's significantly
lower reported export figures. Chinese companies face incentives to underreport
the value of exports as a way to avoid domestic taxes, to avoid foreign exchange
surrender requirements, and to move funds offshore. Moreover, Chinese trade
figures count exports transshipped through Hong Kong to other countries as
exports to Hong Kong. The United States and other trading partners count these
goods as exports to the partner country.
China's economy continues its high growth fueled by rapid growth of
investment and the money supply. According to Chinese statistics, China's GDP
grew 13.3 percent in the first nine months of 1993. Investment in fixed assets by
state enterprises rose 57 percent in September 1993 compared with September
1992 while M1 grew 21 percent during the same period. Rapid economic growth
has contributed to rising inflation. Retail price inflation rose from 6 percent for the
year ending in September 1992 to 12 percent for the year ending in September
1993. Urban inflation has risen more rapidly, reaching 21 percent for the year
ending in September 1993.
On July 3, 1993 the government announced a 16-point austerity program to
slow the economy. This program includes measures to cut government spending,
impose credit limits, raise interest rates, and prevent the diversion of bank loans for
non-priority investment. So far, the austerity program has focused mainly on
recalling funds and redirecting credit away from securities trading, real estate
investment, and other activities the Chinese authorities view as speculative. The
program seems to have cooled China's economy somewhat, as industrial
production, investment in fixed assets, and urban inflation have declined from

-23highs in June and July 1993. Chinese officials have indicated they plan to go
ahead with major reforms of China's monetary, financial, and tax systems. These
reforms would be aimed at: increasing the People's Bank of China's ability to
control the money supply and promote the stability of the renminbi, allowing
existing state banks to become commercial banks while creating new institutions
to make policy loans, and separating central and local taxes to decrease the central
government's reliance on provincial authorities for the collection of taxes.
China's Foreign Exchange System
There have been no significant changes in China's foreign exchange system
since Treasury's May 1993 report to Congress. China continues to operate a dual
exchange rate system. The administered exchange rate is set daily and generally
applies to priority imports by state-owned enterprises under the State Plan.
China's second exchange rate, the "swap" rate, is determined in foreign exchange
adjustment centers. Joint ventures and foreign invested enterprises may buy and
sell foreign exchange at the swap centers. Domestic enterprises (which must
surrender their foreign exchange earnings for retention quotas) may trade retention
quotas at the swap centers. Swap center exchange rates are established through
an open bidding system (15 centers) or as the State Administration of Exchange
Control (SAEC) matches applications for foreign exchange (85 centers).
China maintains several types of restrictions on foreign exchange, including:
1) surrender requirements; and 2) restrictions on access to swap centers. In
addition, China's foreign exchange regulations are non-transparent.
China's surrender system requires domestic enterprises to surrender 20
percent of their foreign exchange earnings to the People's Bank of China in
exchange for renminbi at the administered exchange rate. This foreign exchange is
used to supplement foreign reserves and to supply foreign exchange to state
enterprises under the foreign exchange plan. In addition, the central bank may
require enterprises to surrender an additional 30 percent of their foreign exchange
earnings to the central bank in exchange for renminbi at the swap center exchange
rate. In 1992, the People's Bank of China fully exercised this option. Of the
remaining 50 percent of foreign exchange earnings, 40 percent accrues to the
foreign trade corporation exporting the goods while 10 percent accrues to the local
government. All retained foreign exchange is kept in the form of foreign exchange
retention quotas which domestic firms may trade in swap centers. The producing
enterprise receives no foreign exchange retention quotas. Foreign funded
enterprises are not required to surrender their foreign exchange earnings and may
trade foreign exchange in China's swap centers.
China maintains extensive limits on access to foreign exchange. For goods
on the restricted list, an enterprise must receive a license from the Ministry of

-24Foreign Trade and Economic Cooperation (MOFTEC) before it may buy foreign
exchange in the swap centers. For those goods that do not require MOFTEC
approval, access is based on a priority list of uses of foreign exchange drawn up in
conformity with state industrial policy. The authorities generally discourage
purchases of foreign exchange to finance imports of goods not formally approved
by the government. Limits on access to the swap centers act as barriers to trade
since importers cannot purchase foreign exchange to import a wide range of
goods. American and other foreign businesses in China have complained that they
are being denied access to China's swap centers for transactions that had been
approved previously and that this is a serious constraint on their business
activities.
In April 1993, China introduced a priority list in swap centers that placed
imports into three categories: 1) goods for which foreign exchange was guaranteed
(primarily agricultural inputs, interest payments and remittances, technology
imports, and inputs to key construction projects); 2) goods for which foreign
exchange was provided on a discretionary basis by the SAEC (industrial inputs,
educational materials, and some spare parts); and 3) goods for which foreign
exchange was prohibited (generally consumer and luxury goods).
On July 1, 1993 China replaced the three categories of imported goods with
a unified priority list. The new list sets general guidelines for enterprises and
products that are to have priority access to foreign exchange (foreign invested
enterprises for business activities and remittances, to state-owned enterprises and
priority construction projects, for imports of agricultural inputs, grain and
foodstuffs, high technology goods, and materials needed for educational, cultural,
and medical purposes). China claims that it no longer prohibits the purchase of
foreign exchange for particular goods. However, it is not clear that the new
priority list improves access to foreign exchange. By specifying broad categories
of goods for which foreign exchange should be made available, the new list gives
wide discretion to the State Administration of Exchange Control to approve or deny
applications for foreign exchange. There is no guarantee that purchases of foreign
exchange for these goods will be approved, nor is it clear whether purchases of
foreign exchange for previously prohibited items will be permitted.
Generally, China's foreign exchange system is not transparent. China does
not allow public access to the regulations governing foreign exchange, including
the regulations governing China's swap centers.
Exchange Rate Developments
In 1992, China's administered exchange rate depreciated 5.5% to 5.77
yuan/dollar. China's swap rate depreciated 24% to end 1992 at 7.30 yuan/dollar.

-25Administered Rate: On November 10, 1993, the official rate of the renminbi
stood at 5.80 yuan/dollar. This rate represents a slight depreciation from 5.77
yuan/dollar at the end of 1992. The Chinese authorities have kept the
administered rate relatively constant in 1993.
Swap Rate: On November 10, 1993, China's national swap rate stood at
8.71 yuan/dollar, representing a depreciation of 20 percent against the dollar since
year-end 1992. In February 1993, faced with a rapidly depreciating swap rate,
China unofficially capped the swap rate at about 8.2 yuan/dollar. However,
exchange rate caps caused the volume in China's swap centers to drop as many
foreign exchange transactions moved into the grey and black markets. On June 1,
1993, the Chinese authorities lifted caps on the swap rate and the renminbi
immediately depreciated to approximately 10.5 yuan/dollar. On July 3, 1993, the
Chinese government announced a 16-point austerity program and the appointment
of Zhu Rongji as Governor of the People's Bank of China. Shortly afterwards the
People's Bank of China began to sell dollars in China's swap centers and tightened
restrictions on access to foreign exchange. As a reSUlt, the renminbi appreciated
to about 8.70 yuan/dollar by mid-July and has remained at a fairly constant level
since that time.
On November 10, 1993, the gap between the swap and administered
exchange rates was 51 percent, up from 27 percent at the end of 1992.
Exchange Rate Negotiations
Treasury most recently held negotiations with the People's Bank of China in
September 1993. During these negotiations, Treasury urged the Chinese
authorities to eliminate all foreign exchange restrictions. Treasury noted that
current restrictions act as barriers to trade and limit Chinese imports. Lifting
restrictions on access to foreign exchange would promote adjustment in China's
large bilateral surplus with the United States. In response to Treasury concerns,
the People's Bank of China confirmed China's intention to unify China's exchange
rates, create a unified national foreign exchange market, and improve the
transparency of China's foreign exchange regime, although the People's Bank has
not committed to a timetable for reform.
Treasury welcomes plans for unification of China's dual exchange rates as a
significant step toward reducing the distortions in China's foreign exchange
system. However, unification alone will do little to improve access to foreign
exchange. Treasury strongly urged the Chinese authorities to move to full current
account convertibility as soon as possible. Free access to foreign exchange would
improve access to the Chinese market, further China's economic reform process,
and improve the efficiency of China's economic system.

-26China's GAD Accession
China's accession would extend the GAD system of trade rules to one of
the world's largest economies, help facilitate China's trade relations with the rest
of the world, and contribute to opening further an important market to U.S. goods
and services. However, China has not yet brought its foreign exchange regime
into conformity with GATT Article XV. Article XV states that GATT members 1)
shall not, by exchange action, frustrate the intent of the GATT trade provisions;
and 2) may only apply exchange restrictions in accordance with the IMF Articles of
Agreement. Treasury urges China to bring its exchange system into compliance
with GATT Article XV and the IMF Articles of Agreement as it accedes to the
GAD.
Assessment
The Chinese government has recently announced its intention to embark on
a series of major reforms of its monetary, financial, and tax systems. The United
States supports China's efforts to move toward a more market based economy as
well as its recent actions aimed at promoting macroeconomic stability. Moreover,
Treasury welcomes China's stated intention to implement major reforms of China's
foreign exchange system in the near future in the context of overall reform efforts,
including: unifying its dual exchange rates; creating a unified national swap market;
and improving the transparency of its exchange system.
Nevertheless, China's foreign exchange system continues to be heavily
regulated, and the United States is seriously concerned with the level of China's
bilateral trade surplus with the United States. There has been no significant
liberalization of China's foreign exchange regime since Treasury's May 1993 report
to Congress. Treasury considers that China's restrictions on access to foreign
exchange significantly limit imports and the business activities of domestic and
foreign enterprises. Moreover, while China has indicated its intention to implement
reforms, it has not yet taken these steps nor committed to a specific timetable for
reform. Therefore, based on China's continued substantial reliance on foreign
exchange restrictions, it is Treasury's judgement that China currently manipulates
its exchange system to prevent balance of payments adjustment and gain unfair
competitive advantage.
Treasury will continue its negotiations with the People's Bank of China
concerning implementation of exchange system reform and urge the Chinese
authorities to remove all foreign exchange restrictions that act as barriers to trade.

-27TAIWAN
Taiwan is not currently manipulating the rate of exchange between the New
Taiwan (NT) dollar and the U.S. dollar for the purpose of preventing balance of
payments adjustment or gaining unfair competitive advantage in international trade.
Nevertheless, continued adjustment is needed in Taiwan's global current account
surplus and bilateral trade surplus with the United States
Treasury remains seriously concerned that Taiwan appears unwilling to lift
an array of restrictions on foreign exchange transactions and capital flows,
although it has relaxed some of the restrictions. These restrictions reduce demand
for the NT dollar and limit market forces which could lead to appreciation.
Trade and Economic Developments
Taiwan's overall external imbalance continued to decline during the first
semester of 1993. Taiwan's current account surplus was $3.1 billion for the
period from January to June, 1993 (equivalent to 2.9 percent of GDP), compared
to $4.1 billion for the first semester of 1992 and $8.2 billion for year 1992
(equivalent to 3.9 percent of GDP). Net private capital outflows continued through
the first half of 1993, registering $2.6 billion. Private capital outflows were led by
private direct investment abroad and other long-term capital outflows.
The pace of reduction in Taiwan's bilateral surplus with the United States
picked up over the first eight months of 1993. Taiwan's cumulative bilateral
surplus with the United States was $5.9 billion during the period from January to
August, 1993, representing a 12 percent drop from the same period in 1992,
when Taiwan's surplus was $6.7 billion. U.S. exports to Taiwan over the period
from January to August 1993 were 11 percent higher than during the same period
last year, while U.S. exports to the world during this eight-month period were 3
percent higher than during the same period last year. U.S. imports from Taiwan
during January to August, 1993, dropped 1 percent compared to the same period
last year, while total U.S. imports grew 9 percent during that period.
Taiwan's foreign exchange reserves stood at $83.7 billion at end-August,
1993, providing over one year of import cover. Total international reserves
(including gold) stood at $88.5 billion.
Exchange Rate Developments
The NT dollar depreciated sharply over the summer, bringing the cumulative
depreciation against the US dollar between end-1992 and November 12, 1993 to
5.8 percent. With Taiwan's inflation running at 3 to 4 percent in 1993, it is
expected that Taiwan's exports will become more competitive. The NT dollar

-28stood at NT$ 26.87 per US dollar on November 10, 1993. This represents a
depreciation of 9.6 percent since the NT dollar reached a record high in July,
1992.
Depreciation of the NT dollar appears to have resulted from private capital
outflows and the Taiwan authorities' decision to ease monetary policy. The
Central Sank of China (CSC) kept money tight for the first few months of 1993, to
check inflation as well as to avoid short-term capital outflow due to dips in the
interest rate. In April, Taiwan began to release some postal system savings which
had been deposited at the CSC, so that the funds could be used for loans to
manufacturers and small- and medium-sized enterprises and for infrastructure
projects. In September, Taipei lowered reserve requirements on domestic currency
deposits, but imposed reserve requirements on foreign currency deposits, in an
attempt to stem capital outflows and bolster the NT dollar. Market observers have
reported that the Taiwan authorities intervened over the summer to support the
NT$ against depreciation pressures, although this is difficult to verify.
The NT dollar also sustained a 23 percent depreciation against the Japanese
yen through November 10, 1993. As Taiwan purchases most of its imports from
Japan (30 percent in 1992) and the United States (22 percent in 1992)' a
depreciation of this magnitude could raise import prices and increase inflationary
pressures in Taiwan's domestic economy.
Exchange Rate System
Taiwan continues to maintain extensive controls and regulations on foreign
exchange transactions and capital flows. Together, these limit the size of
Taiwan's foreign exchange market.
Although Taiwan has relaxed certain limitations on foreign exchange
transactions and capital flows over the past year, these reforms were generally
marginal, and the key ceilings and restrictions remain in place. We understand that
in some cases the new, higher ceilings continue to restrict individual firms'
activities; in all cases, the limitations retain the potential to constrict firms'
activities.
Taiwan's ceilings on banks' foreign exchange liabilities limit the ability of
banks to engage in forward trading in the NT dollar, to offer foreign currency loans
in Taiwan and to use swap funding in order to obtain NT dollars with which to
make local currency loans. In August, the Taiwan authorities increased the foreign
exchange liabilities ceilings for commercial banks, the third such increase this year,
and developed a new formula for calculating the ceilings. We understand that
most U.S. banks are not operating up against the ceilings on foreign exchange
liabilities at the present time. One contributing factor may be the recent

-29depreciation of the NT dollar, which has made holding foreign exchange liabilities
unattractive. Hence, the situation could change dramatically if pressures for
appreciation develop, and the existence of the ceilings remains an obstacle to
banks' long-term plans in Taiwan.
Non-trade-related capital inflows and outflows by a firm or by an individual
continue to be subject to a limit of US$5 million. Foreign individual investors are
prohibited from investing on Taiwan's stock exchange (the Taiex). The Taiex was
opened to foreign institutional investors in January, 1991; however, they continue
to face limitations on inward remittances and on repatriating capital and profits. In
July, the CSC raised the ceiling for aggregate foreign institutional investment from
US$2.5 billion to US$5 billion (out of a total market capitalization of over US$120
billion), and increased the limit for a single institutional investor from US$50 million
to US$1 00 million.
In August, 1993, the CSC issued regulations for the establishment of foreign
exchange brokerage firms. Until then, the foreign exchange brokerage business in
Taiwan had been handled by the quasi-public Foreign Exchange Development
Foundation (FEDF). Also in August, the Taiwan authorities authorized inter-bank
forward rate agreements, interest rate swaps and third currency forward and
swaps transactions. These reforms represent a step forward; nevertheless, unless
Taiwan lifts its restrictions on capital flows and limitations on the activities of
foreign exchange brokers, this market is likely to remain small and thin.
Exchange Rate Negotiations
While not citing Taiwan as an exchange rate manipulator, Treasury
nonetheless continues to urge Taiwan to move more rapidly to reduce restrictions
on foreign exchange transactions and capital flows. Taiwan's aim of achieving the
status of a regional financial center will require significant liberalization of these
restrictions, as well as further movement toward opening its financial markets.
Assessment
The present determination maintains the assessment contained in Treasury's
May, 1993 report that Taiwan is not at this time engaging in practices which
constitute manipulation of its currency. Four factors support this determination.
First, the depreciation of the NT dollar in recent months appears to be largely the
result of capital outflows from the island and a relaxation of monetary policy.
Second, the array of controls on capital flows and external transactions maintained
by the Taiwan authorities do not appear at this time to be directly constraining
appreciation of the NT dollar. Third, significant adjustment continues to occur in

-30Taiwan's current account and trade surpluses. Finally, it appears that in recent
months the Central Bank may have intervened in the market to support the NT
dollar.
Treasury remains concerned that the recent depreciation in the NT dollar
may cause Taiwan's external surpluses to increase in the months ahead. Taiwan's
real exchange rate and exports have become even more competitive to date in

1993.
Treasury will continue to monitor Taiwan's exchange rate policies in the
period leading up to the next report to Congress. In this regard, Treasury is
prepared to respond to any actions by Taiwan that interfere with the role of market
forces in exchange rate determination -- such as direct intervention in the foreign
exchange market to dampen pressures for appreciation, or maintenance of
restrictions on foreign exchange transactions or capital inflows that constrain NT
dollar appreciation.
Treasury will continue to use bilateral discussions to press for changes in
Taiwan's exchange rate policies and elimination of restrictions on foreign exchange
transactions and capital movements. In addition, in the context of Taiwan's
accession to the GATT, the United States will participate in negotiations with
Taiwan on a special exchange agreement with GATT contracting parties to ensure
that Taiwan cannot use foreign exchange policies to frustrate the intent of GATT
trade liberalization obligations.

-31REPUBLIC OF KOREA

Korea is not currently manipulating the exchange rate directly to prevent
effective balance of payments adjustment or to gain unfair competitive advantage
in international trade. Korea's external deficits declined significantly in 1992 as
economic growth slowed following the implementation of stabilization policies in
late 1991 and throughout 1992. External deficits have declined further in 1993.
There continues to be no evidence that the Korean central bank is intervening
directly in the exchange market, and the level of activity of other governmentowned foreign exchange banks in the market has remained minimal since the May
1993 report. Treasury continues to be concerned, however, that stringent foreign
exchange and capital controls have hindered the influence of market forces in the
determination of Korea's exchange rate and trade and investment flows.
Recent Developments
Real GNP growth slowed to 4.7 percent in 1992, compared to 8.6 percent
in 1991 and 9.4 percent in 1990. GNP grew by 3.8 percent in the first half of
1993. The slowdown is attributed to stabilization policies to cool demand after
overheated growth in 1991 and 1992. The cooling down of the economy was
accompanied by a significant reduction in the rate of inflation in 1992, which
declined by more than half to 4.5 percent (the lowest in six years) from 9.4
percent in 1991. Consumer prices registered a 4.6 percent advance in the year
ending September 1993. Original growth projections of 5 to 6 percent for 1993
were recently revised downward to roughly 4.5 percent in anticipation of difficult
business conditions in the wake of President Kim's August 1993 decree banning
the use of false names in financial transactions.
The current account deficit continued its downward trend in the first three
quarters of 1993, registering $1.0 billion (O.3 percent of GNP) compared to $4.8
billion (1.6 percent of GNP) in the first three quarters of 1992. Korea's overall
trade deficit shrank in the first three quarters of 1993 to $445 million, down from
$3.0 billion in the first three quarters of 1992, due to brisk export growth and
lower imports. According to U.S. data, Korea's bilateral trade surplus with the
United States grew to $1.6 billion in January - August 1993, compared to $1
billion during the same period in 1992. The overall external deficit is expected to
be eliminated in 1994.
In the capital account, overall net capital inflows totalled $5.1 billion in the
first half of 1993, up from $2.3 billion during the first half of 1992, due mainly to
a rise in long-term capital inflows following 1992's limited opening of the stock
market to foreign investment. Korea's net external debt has continued its
downward trend as Korean overseas assets have risen. Net debt registered $9.74

-32billion (3 percent of GNP) at the end of June 1993, representing a 24 percent
decline from the same period last year.
In conjunction with the continued improvement in its external accounts,
Korea's foreign exchange reserves reached a record $20 billion as of the end of
September 1993, providing roughly 3 months of import coverage. Debt service
payments have remained stable at roughly 6 percent of exports of goods and
services.
As of November 10, 1993, the won stood at 804.5 per dollar, representing
a nominal depreciation of 1.7 percent since the end of 1992. The won depreciated
roughly 17 percent against the Japanese yen during the same period. Since the
introduction of the "market average rate" (MAR) system in March 1990 (see the
fall 1992 report for a description of this system), the won has depreciated against
the dollar by 16.3 percent, due largely to higher inflation in Korea and the
emergence of trade and current account deficits in 1990. In addition, however,
Treasury believes that the maintenance of strict controls on foreign exchange
transactions and capital inflows, as opposed to direct intervention by the central
bank, serves to put downward pressure on the won.
Foreign Exchange and Capital Controls
A broad array of controls on foreign exchange and capital account
transactions in Korea continues to prevent market forces from playing a fully
effective role in exchange rate determination, to distort trade and investment
flows, and to constitute a potential channel for Korean monetary authorities to
indirectly influence the exchange rate.
The so-called "real demand rule, n which requires foreign exchange banks to
obtain and review documentation of an underlying commercial transaction for most
foreign exchange transactions, has been a significant impediment to the
development of the Korean foreign exchange market and financial sector as a
whole. In a positive step forward, the Korean authorities implemented initial
measures on October 1, 1993, to ease underlying documentation requirements and
expanded the foreign exchange fluctuation band. Korea's restrictive terms for
deferred import payment, especially regulations that limit payback periods to only a
fraction of international norms, continue to be of key concern, as are tight
restrictions on off-shore financing alternatives. While there have been some limited
steps since the May 1993 report to ease controls in some of these areas, much
remains to be done to enhance the role of market forces in the determination of
the exchange rate and trade and investment flows. Given Korean aspirations to
integrate the Korean financial sector with global capital markets and to attain

-33OEeD membership by 1996, the Korean authorities should take bolder steps to
shorten significantly the list of prohibited foreign exchange and capital transactions
and move forward with broad-based reform of the financial sector.
Status of Financial Policy Talks
In early July 1993 the Korean government finalized a broad-based financial
sector deregulation and liberalization plan for the next five years. Treasury and the
Korean Ministry of Finance consulted closely during the formulation of the financial
sector blueprint through the U.S.-Korea Financial Policy Talks. Treasury has
commended the efforts of the Korean authorities in formulating the reform plan and
welcomed the broad scope of its contents. Treasury will be following
developments closely as the implementation process unfolds. In that regard,
concerns remain about the lack of specificity in the blueprint and the lengthy
timeframe for implementation. Treasury will continue to work with the Korean
Ministry of Finance in the Financial Policy Talks and the Uruguay Round financial
services negotiations in addressing outstanding market access issues faced by U.S.
financial services institutions in Korea.
000

APPENDIX 1

- OMNIBUS TRADE AND COMPETITIVENESS ACT OF 1988
(H.R. 3)

SEC. 3004.

INTERNATIONAL NEGOTIATIONS ON EXCHANGE RATE AND
ECONOMIC POLICIES.

(a) Multilateral Negotiations.--The President shall seek to
confer and negotiate with other countries-(1)

to achieve--

(A)
better coordination of macroeconomic policies
of the major industrialized nations; and
(B) more appropriate and sustainable levels of
trade and current account balances, and exchange rates
of the dollar and other currencies consistent with such
balances; and
(2)
to develop a program for improving existing
mechanisms for coordination and improving the
functioning of the exchange rate system to provide for
long-term exchange rate stability consistent with more
appropriate and sustainable current account balances.
(b)
Bilateral Negotiations.--The Secretary of the Treasury
shall analyze on an annual basis the exchange rate policies of
foreign countries, in consultation with the International
Monetary Fund, and consider whether countries manipulate the rate
of exchange between their currency and the United states dollar
for purposes of preventing effective balance of payments
adjustments of gaining unfair competitive advantage in
international trade.
If the Secretary considers that such
manipulation is occurring with respect to countries that (1) have
material global current account surpluses; and (2) have
significant bilateral trade surpluses with the United states, the
Secretary of the Treasury shall take action to initiate
negotiations with such foreign countries on an expedited basis,
in the International Monetary Fund or bilaterally, for the
purpose of ensuring that such countries regularly and promptly
adjust the rate of exchange between their currencies and the
united states dollar to permit effective balance of payments
adjustments and to eliminate the unfair advantage. The Secretary
shall not be required to initiate negotiations in cases where
such negotiations would have a serious detrimental impact on
vital national economic and security interests; in such cases,
the Secretary shall inform the chairman and the ranking minority
member of the committee on Banking, Housing, and Urban Affairs of
the Senate and of the committee on Banking, Finance and Urban
Affairs of Representatives of his determination.

SEC. 3005.

REPORTING REQUIREMENTS.

(a)
Reports Required.--In furtherance of the purpose of
this title, the Secretary, after consultation with the Chairman
of the Board, shall submit to the Committee on Banking, Finance
and Urban Affairs of the House of Representatives and the
Committee on Banking, Housing, and Urban Affairs of the Senate,
on or before October 15 of each year, a written report on
international economic policy, including exchange rate policy.
The Secretary shall provide a written update of developments six
months after the initial report.
In addition, the Secretary
shall appear, if requires, before both committees to provide
testimony on these reports.
(b)
Contents of Report.-- Each report submitted under
subsection (a) shall contain-(1)
an analysis of currency market developments and
the relationship between the united states dollar and the
currencies of our major trade competitors;
(2)
an evaluation of the factors in the united states
and other economies that underlie conditions in the currency
markets, including developments in bilateral trade and
capital flows;
(3)
a description of currency intervention or other
actions undertaken to adjust the actual exchange rate of the
dollar;
(4)
an assessment of the impact of the exchange rate
of the united states dollar on-(A)
the ability of the united states to maintain
a more appropriate and sustainable balance in its
current account and merchandise trade account;
(B)
production, employment, and noninflationary
growth in the united states;
(C) the international competitive performance of
united states industries and the external indebtedness
of the United states;
(5)
recommendations for any changes necessary in
united states economic policy to attain a more appropriate
and sustainable balance in the current account;
(6)
the results of negotiations conducted pursuant to
section 3004;

-2-

(7)
key issues in United states policies arising from
the most recent consultation requested by the International
Monetary Fund under article IV of the Fund's Articles of
Agreement; and
(8)
a report on the size and composition of
international capital flows, and the factors contributing to
such flows, including, where possible, an assessment of the
impact of such flows on exchange rates and trade flows.
(c)
Report by Board of Governors.--section 2A(1) of the
Federal Reserve Act (12 u.s.c. 225a(1»
is amended by inserting
after "the Nation" the following: ", including an analysis of the
impact of the exchange rate of the dollar on those trends"'.
SEC. 3006.

DEFINITIONS.

As used in this subtitle:
(1)
Secretary.--The term "Secretary" means the
Secretary of the Treasury.
(2)
Board.--The term "Board" means the Board of
Governors of the Federal Reserve System.

-3-

FOR IMMEDIATE RELEASE
November 23, 1993

STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
"I am delighted that both the Senate and the House have passed the Government
Securities Act Amendments of 1993. This bill gives the Treasury permanent rulemaking
authority over the government securities market and extends important investor protections to
buyers of government securities. It also enables Treasury and the independent regulatory
authorities to better supervise the activity of market participants. Maintaining the confidence
of all market participants in the efficiency and liquidity of the Treasury markets is vital to
our job of selling the government's debt at the lowest possible cost, and this bill will enable
us to continue to carry out this important responsibility."

LB-528

TEMPORARY DIESEL DYEING REGULATIONS
(Filed November 23, IS~.
The IRS today issued temporary regulations relating to changes to the diesel fuel
excise tax Congress made in the 1993 Budget Act (the • A:t). These changes were made in
response to reports of significant noncompliance with the tax. A principal feature of the new
rules is the use of dyes to differentiate taxed and nontaxable fuels. Under the new statute, to
be removed from a terminal free of tax ~, for nontaxable or reduced-tax uses), diesel fuel
must be dyed. Tax must be imposed upon the removal of undyed fuel from a terminal. (A
terminal is a gasoline and diesel storage and distribution facility that is supplied by pipeline
or vessel, and from which gasoline and diesel may be removed at a rack.) The use of dyeing
to distinguish between fuels is consistent with the practice of a number of other industrialized
countries (including Canada, Denmark, France, Germany, Italy, and the United Kingdom).
The new rules are effective January 1, 1994.
Treatment of Dyed Fuel

Tax Exemption for Dyed Fuel
The Act exempts diesel fuel from tax at the time of removal from the terminal (which
is generally the tax collection point for diesel fuel under the Act) if the IRS determines the
fuel is destined for a nontaxable usc, and the fuel is dyed (and marked) in accordance with
regulations. All fuel dyed and labeled in accordance with the regulations is treated as
destined for a non-taxable usc.
•

The regulations require the use of EPA blue dye (if high sulfur fuel) or red
dye (if low sulfur fuel)l of a prescribed type and concentration. Other dyes
may be used in low sulfur fuel, but only if they are approved by the IRS
Commissioner. A transitional rule permits a lower concentration of dye for
stocks of fuel previously dyed for EPA purposes.

•

The IRS received a number of requests for waivers or delays of the dyeing
requirements (although others urged prompt issuance of the regulations). The
regulations did not adopt these suggestions because the IRS does not have
authority to waive or delay the dyeing requirements.

Penalty for Improper Use of Dyed Fuel
The Act also provides that dyed diesel fuel (including fuel that is dyed to satisfy EPA
requirements or for marketing or other nontax purposes) may only be used for nontaxable

IUnder the Clean Air Act, administered by the EPA, high-sulfur fuel must be dyed blue
and may not be used on the highway. Low-sulfur fuel for highway use may be clear or dyed
a color other than blue.

-2-

purposes such as for heating, use on a farm for farming purposes and use by a State or local
government. For any other use of dyed fuel, the Act imposes a SID-per-gallon penalty on
the ~ser and on any pers n that sells the fuel with knowledge that it will be used for a
taAable purpose.
The IRS received a number of requests for delays in enforcement of this requirement
(although, again, others urged the IRS not to delay). The regulations did not adopt these
suggestions because the IRS does not have authority to delay the enforcement of the penalty.
Labelin~

Reguirements

Terminal operators and others who sell dyed fuel are responsible for informing their
customers of the restriction on the use of dyed diesel fuel. The notice must state: "DYED
DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE" and must
appear on bills of lading, invoices, etc., for dyed diesel fuel and on retail fuel pumps where
dyed diesel fuel is sold.
ReHer Proyisions
The IRS requested public comments during the development of the temporary
regulations. The regulations include a number of relief provisions adopted in response to the
comments received.
•

Splash dyeing ~, manual mixing of dye in diesel fuel) at the terminal will
be allowed on a transitional basis. Dye injection systems will not be required
until July 1,1994.

•

Dyed fuel does not have to contain a colorless marker until July 1, 1994.

•

Kerosene will not be treated as diesel fuel under these regulations. Thus,
kerosene used for heating will not be taxed and will not have to be dyed.
However, a person that blends kerosene with diesel fuel past the terminal rack
is liable for tax on the amount of kerosene used in the blend. The treatment of
kerosene after June 30, 1994 is under study.

•

The person receiving dyed fuel at the terminal rack is not required to be
registered by the IRS and is not required to give the terminal operator or
position holder ~, the person that holds the inventory position in the diesel,
as reflected on the records of the terminal operator) an exemption certificate.
However, each terminal operator must keep records sufficient to identify each
person that receives dyed diesel fuel at the rack of each terminal it operates.

-3Treatment of Clear Fuel
Imposition of Tax
The Act provides that diesel fuel is taxed in the same manner as gasoline. Thus, tax
is imposed on undyed diesel fuel removed from the terminal at the rack and the position
holder is liable for this tax.
Credit or Payments for Nontaxable Uses
The regulations include rules for claiming a credit or refund with respect to clear
is used for nontaxable uses. These rules follow the legislative
history and the Act.
~, taxed) diesel fuel that

•

If clear diesel fuel is used in a nontaxable use other than on a farm for
farming purposes or by a State or local government, the ultimate purchaser
must make the claim. This rule will apply, for example, to users of home
heating oil or users of fuel for construction, logging, etc.

•

If clear diesel fuel is sold for use on a farm for farming purposes or by a
State or local government, only a registered ultimate vendor may make the
claim. This rule enables farmers and State and local governments to purchase
clear diesel fuel on a tax-free basis.
As a transitional rule, however, a person that is registered as a diesel
fuel producer on December 31, 1993, generally will be considered to
be a registered ultimate vendor during 1994.
As a condition to making a claim, a registered ultimate vendor must
have received a prescribed certificate from the farmer or State or local
government to whom it sold the fuel. A transitional rule provides that
claims relating to sales before April 1, 1994, may be supported with
certain exemption certificates used to support tax-free sales of diesel
fuel under pre-l994 law.
Noncommercial Boats

The Act provides that diesel fuel used in noncommercial boats is no longer exempt
from tax. The pre-I994 exemption continues, however, for diesel fuel used in boats for
commercial fishing, transportation of persons or property for compensation or hire, or for
business use other than use predominantly for entertainment, amusement, or recreation.

-4-

Notice of Proposed Rulemaking
Issued along with Lhese temporary regulations is a notice of proposed rulemaking,
under which the temporary regulations are issued as proposed regulations. The notice
requests comments and schedules a public hearing on March 22, 1994.

[4830-01-u]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 40, 48, and 602
[T.D. 8496]
RIN 1545-AS13
Diesel Fuel Excise Tax; Registration Requirements Relating
to Gasoline and Diesel Fuel Excise Tax
AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Temporary regulations.

SUMMARY:

This document contains temporary regulations

relating to the tax on diesel fuel and registration
requirements for the gasoline and diesel fuel excise taxes.
The temporary regulations reflect and implement certain
changes made by the Omnibus Budget Reconciliation Act of
1990 (the 1990 Act) and the Omnibus Budget Reconciliation
Act of 1993 (the 1993 Act).

The temporary regulations

affect certain blenders, enterers, refiners, terminal
operators, throughputters and persons that sell, buy, or use
diesel fuel for a nontaxable use.

The text of these

temporary regulations also serves as the text of the
proposed regulations set forth in the notice of proposed
rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.
EFFECTIVE DATE:
January 1, 1994.

These regulations are effective

- 2 ADDRESSES:

Send comments to:

CC:DOM:CORP:T:R (PS-52-93),

room 5228, Internal Revenue Service, P.o. Box 7604, Ben
Franklin Station, Washington, DC 20044.
comments may be hand delivered to:

In the alternative,

CC:DOM:CORP:T:R (PS-52-

93), room 5228, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT:

Frank Boland (202) 622-

3130 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued without prior notice
and public procedure pursuant to the Administrative
Procedure Act (5 U.S.C. 553).
col~ections

of

info~ation

For this reason, the

contained in these regulations

have been reviewed and, pending receipt and evaluation of
p~blic

comments, approved by the Office of Management and

B~dget

under control number 1545-1418.

b~rden

per respondent or recordkeeper varies from 2 hours to

The estimated annual

.1 hour, depending on individual circumstances, with an
estimated average of .1 hour.
These estimates are an approximation of the average time
expected to be necessary for a collection of information.
They are based on such information as is available to the
IRS.

Individual respondents or recordkeepers may

more or less time, depending on their particular
circumstances.

requ~re

- 3 -

Fcr furt.her

info:-r..a~ior.

concerning this collection cf
sub~it

inforoation, and where to

co~ents

on this collection

of information, the accuracy of the estimated burden, and
suggestions for reducing this burden, please refer to the
prea~le

to the cross-referencing notice of proposed

rule~akir.g

published in the Proposed Rules section of this

issue of the

Fe~eral

Register.

c:-: A'.J;',.lst 26, 19503, the IRS published in the

<soe:)

Register (56 FR
r~:e:7.ak:..ng
:..ss~e

a:-::

t:

~~e

(A.sPR.~)
t~at

:S503

t~a~

s~o'.Jld

Ac~'s

an

a~vance

notice of proposed

ir.vited COi._'":'.er.ts fro=:-: the puclic

be

ad~ressed

c~ar.ges

to the diesel fuel tax.

ccr.~air.s

ANPR.~

tha":

te:porary reg'.Jlations that are

ef!ect:..ve ;anuary 1, 199.;.
:..~~ositi=n

The IRS

ir. dra!ting these te:porary regulations.

c=~sidered

Th:s doc'.J:er.t

t~e

0:-.

ir. reg'.Jlatior.s relating

rece:ve:: a nu::.ber of co::=.er.ts in respor.se to the
~ere

Fe~eral

It prov:"des rules relating to

o!, an:: liacility for, the diesel fuel tax

ur.jer secticr. <OS:: the exe:ption for dyed diesel fuel: the
back-up tax on dyed fuel used for a taxable purpose: credits
and

pa}~er.ts

relating to taxed diesel fuel used for a

nor.taxable purpose: and registration requirecents relating
to both the diesel fuel and gasoline taxes.

A future notice

of proposed rule:aking will propose conforming amendments to
the gasoline tax

re~~lations

(§§<S.40S1-1 through 4S.40S1-S)

so that those rules will also generally apply to diesel

-

4 -

f'..Je2..
rue:
tax

d~s~~ibution
u~de~

and structure of the diesel fuel

sys~em

the Internal Revenue Code (Code)
gene~ally

Diesel fuel and gasoline

are distributed from

refineries and points of entry into the United States
through the "bulk transfer/terminal system" to wholesale
distributors and then to retailers.
des=ri~~icn

of this distribution

For a further

syste~,

see the

prcposed gasoline regulations that were published in

t~e

'e~eral

~!X

sa:e

c~

is

Bef~re

~=F~se=

Ja~uary

by

is

~~::esa:e

de~ined

t~e

in

Tax is i=posed on

'091.

or

i~porter

'092 to include a

t~e

thereof.

A

registe~e=

Thus, in practice, tax is not

a registered

::':..esel fue: to a

the federal diesel

199~,

~ro=ucer

se=~io~

d:s~rit~~:r.

u~t~l

I,

se=~i=~

d:ese2. fuel ty

F~:=~=er

:=~:se=

t~e

Re;ister on August 27, 1991 (56 FR 42287).

F:e-:99~.

f~e:

to

prea~le

~ho:esale

distributor sells the

re~a:ler

or at the

i~pcrter

that is registered by the IRS can

\o'~olesaler's

O\o'Tl reta':"l

p·~:-~s.

A

Fr==~:er

or

sell diesel fuel tax tree to (1) other registered producers,
(2) registered heating oil retailers for resale for use as
heating oil, and (3) a buyer for any of the following uses
by the buyer: (a) use other than as a fuel in a dieselpo ...·ered

higr.~ay ve~.icle

h:g~.·.·ay

business use,

p'~:r::ses,

or diesel-powered train,

(c) use on a

fa~

(b) an off-

for fanning

(d) the exclusive use of a State or local

-

govern::-.er.t,

(e) export,

5 -

(f) the exclusive use of a nonprofi.t

educational organization,

(g) in certain aircraft museum

uses, and (h) use in certain school buses and qualified
local buses.

A reduced rate of tax applies to a producer's

sale for use by the buyer in trains and certain intercity
buses.
Cong~ess

occ~~~ing

has found that considerable evasion may be

ur.je~

High~ay

Sh::rtfall in

Subco~ittee

the

H::~se

pre-199~

the

taxing structure.

Trust Fund Collections:

Hea~ing befc~e

on Investigations and Oversight of the

Cor.::ittee on Putlic Works and Transportation, l02d

Con;., 2d Sess.

(1992).

Congress sought to correct the

.. e a ;~es ses of pre-19 9 ~ 1 aw by
sec~:::n

b:~e~

132~2

;'SS3.

a=ends secticn
s~=e

See

I:~nne~

aI:end~ents

made to the Code t y

of the 1993 Act.
Effective
~06:

1,

Jan~ary

19;~,

tr.e 1993 Act

to i=pose the di.esel fuel tax in the

as the gasoline tax.

Thus, tax will be impose=

on (1) the re:oval of gascline and diesel fuel
tax~:::e

fue:)

fro: any refinery,

fuel froI: any ten:inal,
the United States for

(collectively

(2) the reI:oval of taxatle

(3) the entry of taxable fuel into

cons~ption,

use, or warehousing, and

(4) the sale of taxable fuel to an unregistered person
unless there was a prior taxable removal, entry, or sale of
the taxable fuel.

However, the tax will not apply to any

er.t:j' or re::oval of taxable fuel
refiner)'

o~

transfe~red

in bulk to a

ten:inal if the persons involved (including the

te~inal

6 -

operator) are registered.

Cnder section 4081, there are no nonbulk removals or
entries of gasoline that are exempt from tax.

However,

under section 4082, as amended by the 1993 Act, the tax
under section 4081 does not apply to diesel fuel that (1)
the IRS determines is destined for a nontaxable use (such as
use on a
i~

fa~

accc~ja~ce

r.a~J.~~ng
Fo~

for fan:ing purposes), (2) is indelibly dyed
IRS regulations, and (3) meets any

~ith

that may be prescribed in regulations.

req-..;~rerr.ents

t~is

pu~p~se,

no~taxable

use generally includes the

sa~e

uses that are exe::pt fro= tax under pre-1994 law, plus
ce~tain
tra:~

as

a~d

a=e~ded

use=
7~e

uses that are taxed at a reduced rate (use in any

i~

in certain buses).

no~=c==ercial

boats is no longer exer.pt from tax.

exe::ptior. continues, ho.ever, for diesel fue:

use= :r. boats for
or

under section 6421,

by section 13163 of the 1993 Act, diesel fuel

p~e-:994

pe~s~~s

Ho~ever,

co~ercial

p~ope~ty

fo~

fishing, transportation of

cc::pensatior. or hire, or for

t'..;s:r.ess use other tr.a:-, use predo::inantly for entertain::lent,
a::use=e~t,

or recreation.

If diesel fuel that was exe::pt from tax under section
4062 is later sold for use or used for a purpose that is not

a nontaxable use (for example, use as a fuel in a registered
diesel-powered highway vehicle), revised section 4041(a) (1)
ir.pcses a tax or. such sale or use.

A reduced rate of tax

apP:les to diesel fuel sold for use or used as a fuel in

- 7 ce~tain

trains and
Ne~

intercity buses.
i~poses

section 6714

an assessable penalty if (1) any

dyed fuel is sold or held for sale by any person for any use
that such person knows or has reason to know is not a
nontaxable use of such fuel,
use or used by any

pe~son

(2) any dyed fuel is held for

for a use other than a nontaxable

use and such person knew, or had reason to know, that such
fuel

so dyed, or (3) any person willfully alters, or

~as

to a::er, the s:ren;:h or co:posi:ion of any dye or

a::e~~:s
=!~~e~
=e~~s

i~
a~y

7~e

!_e:

i~v::ved

a~i

or

.... :::-.

pe~a:ty

e=~:oyee,
:~

of the

pe~a:ty

$:,C~:,

s~::se::r~e:-.:

a:::.:.:-.: t]· the

~e:-.3:::i

Vnder this section, dyed fuel

dyed d:ese: fuel, whether or not dyed pursuant to

a:=~~:

:~:~e!ses

:~e

any dyed fuel.

~~ic~ever

o~

is

fo~

every gallon of

gre!te~.

The

pe~alty

v::::a:ions by X::ultiFlying the

n·.:.:-~er

is ix::posed

is $lC

of

p~ior

violatio~s.

Also,

any business entity, each

.~

1.

office~,

or agent of the entity who willfully participated

act givlng rise to

t~e

penalty is jointly and

severally liatle with the entity for the penalty.
As under pre-1994 law, a credit or payment may be allowed
if diesel fuel on which tax has been imposed is used in a
nontaxable use.
p~~chaser

fuel for

Under pre-1994 law, only the ultimate

of the tuel (that is, the person that bought the
cons~ption

or export and not for resale) is

e::.;:t:e to clait' the credit or

pay:~ent.

If at least $750

- 8 -

is payacle to a purchaser at the end of any of the first
three quarters of its income tax year, the purchaser may
make a quarterly claim for that payment if the claim is
filed during the first quarter following the last quarter
included in the claim.

Any amounts not claimed for these

quarters and any amounts for the fourth quarter of the
clai~a~t's

inco~e

The 1993 Act
taxed fuel
C~

lo=al

6~:-(l)

(rather

a c:a:=
a~~

~:th::-:

tha~

vendor of

The ul t ima te

vendo~

::a J"

a:-:i per:od for which $200 or more is

f=~
~~:=~

in=:ude~

ulti~ate

sectio~

the farmer or governmental unit)

cred':' t or paj-=ent.

te f:Ied by the
~_!~te~

In these two cases, revised

that only the registered

provi~es

t~.e

these rules after 1993 except for

on a farm for farming purposes or by a State

govern=e~t.

::3::" ot t a::-:

F3;3::e

co~tin~es

use~

d:ese: fuel

~::e

tax year generally must be claimed as a

is not less than one week.

e~d

The

clai~

::~st

of the quarter following the earliest

in the cIai::.

If the claim is not paid

20 days after it is filed, interest will be paid on

the clai::.
The 1993 Act gives the IRS additional authority to
enforce the diesel fuel tax.

For example, new section

40S3(C) provides that the IRS has the authority to inspect

terminals, dyes and dyeing equipment, and fuel storage
fa=lllties: to stop, detain and inspect vehicles: and to
establish inspe=tion sites.

Also, new section 4082(c)

-

9 -

provides that the IRS may require conspicuous labeling of
retail diesel fuel pu=ps and other delivery facilities where
dyed diesel fuel is dispensed.
te~porary re~~la~ions;

Explanation of the

Definition of diesel fuel.

te~porary

The

define diesel fuel as any liquid that is
co~~ercially
~se

a

i~

::~-:=

~as

p:-~~~:s:c~

if, \,.. i~~:;',.;~
~~a=~ica:

co~only

is

}..

boa~.
!~rther

a~j

licr~id

~ee~s

pr~cessing

co~~ercia:

n~t

t~is

cr blending, the

fitness for use in the
b~at.

treated as diesel fuel be!ore July 1,

T:-.·..;s, the dye:"ng

re:r..JireI:e;"\~s

of the

ter:p~rary

H~~eve:-,

~~~:

C~

t:e~=s

:~s

is

of the

~ixture

f~el

res',.;:~ing

(tha~

with

are re:r..Jested on the

ble~=.

Only the

is, the added kerosene;

treat~ent

of kerosene after

199~.

the gasoline tax

~e~inal

pers=~

kerose~e

It-position of taxi the positioc holder rule.

provide

a

to tax.

Cc~:-er.ts

.J"'::"'.e 30,

or sa:e of the

p=rtlc~

s~ject

diese:

p:-e~:c',.;s:y-~axe=

re~=~a:

~~~axe=

or

diese:-p~wered

of the vehicle, train, or

e~gine

Ker:;se~e

:c;.:;..;.

hig~~ay ve~icle,

diese:-p~·.. ere=

re:;-_:.re~e~~

regulations

known or sold as a fuel that is suitable for

diese:-p~~ere~

cr

~:-a:~,

diesel fuel tax

tha~

re~~lations,

tax is

i~p~sed

at the rack.

As under

these temporary regulations

on diesel fuel removed from the

The position holder is liable for

- 10 t~is

tax and the tercinal operator may be jointly and

severa:ly liable for the tax if the position holder is not
registered under section 4101.

Also, tax is imposed on the

nonbulk removal of diesel fuel from a refinery, on the entry
of diesel fuel into the United States, and on the sale or
of blended diesel fuel by the blender thereof.

re~oval

for dyed diesel fuel.

txe~ption
re;~:ations,

Under the temporary

tax is not imposed on the removal, entry, or

sa:e of diese: fuel if (1) the person otherwise liable for
tax (fer

exa~ple,

the position holder) is a taxable fuel

re;':'s~ra~~,

(2) in the case of re:loval from a tentinal, the

te:-=:":-.al is

ope:-a~e:l

t~e

f~el

co~tains

red

dye (if 1 c·.·

c=::=e::~:-at':'c::.
t..;~

by a taxable fuel registra::t, an:l (3)

either a blue dye (if high sulfur fuel) or

s~lf~:-

O~~e:-

fuel) of a prescribed type and
dyes

~ay

be use:l in low

s~lfur

fuel

c:--.ly if they are approve:l by the co=r:.issioner.
7~e

tlue dye des=ribe:l in the tecporary regulations is

the sa=e dye prescribed by the
A~e~=y

Enviro:-~ental

Protection

(EPA) as an ider.tifier of high sulfur diesel fuel,

which, under EPA rules, is not to be used in diesel motor
vehicles.

However, the EPA does not require the blue dye to

be of a specific concentration.

The temporary regulations,

although requiring a specific concentration, provide a
transitional rule permitting a lower concentration for
sto=ks of fuel previously dyed for EPA purposes.
are

re~~ested

on these standards.

Comments

- 11 The

te~porary

regulations do not require that dyed fuel

also contain a colorless marker.

A colorless marker is a

material that does not reveal its presence until the fuel
~hich

into

it is introduced is subjected to a special test.

The IRS believes,

ho~ever,

that the use of markers is a

valuable enforcer:ent tool and
1,

J~ly

199~.

Further

co~ent

~ill

require markers beginning

is req'uested on the type and

conce;-.::-atior. of ma:-ke:- to be required.

Idea:ly, any

req-...:i:-ed I:arker should be economical to use, easy to dete:::::
in diesel fuel by use of a roadside test, difficult and
ex~e~slve

to re:ove

frc~

ty different

=a;-...:~a=t~:-e

the fuel, and capable of
p:-od~ce:-s.

7he pe:-son receiv:'n9 dyed fuel at the ter::ir.al rac}: is
n::

to be registered by the IRS and is not

re~~ired

t:. g:·.. e the

te:-I:i~a:

cpe:-at::.:- c:- position holde:- a;1

exe=;::cn ce:-tifi::::ate.
:-e;...::at:..ons,
s~!!l::ient

f~el

to

ea::~.

re~...:::-e=

H::.~eve:-,

te:-::i~al

ide~tify

unde:- the

ope:-ato:-

I:~st

te~~o:-a:-y

kee; re::o:-ds

ea::.h person that receives dyed diese:

at the rack of ea::::h terminal it operates.

If the

terminal operator provides any person with any bill of
lading, shipping paper, or
that diesel fuel

re~oved

8i~ilar

document that indicates

at the rack is dyed when in fact it

is not dyed, then the terminal operator is jointly and
severally liable for tax on the removal.
Notice relating to sales and rer.ovals of dyed diesel

!J&.l.

tinder section 4082, dyed diesel fuel may only be used

- 12 -

fer nentaxable purposes; tax and a penalty ttay be ittposed on
any other use.

The

te~porary

regulations provide that

teruinal operators and others who sell dyed fuel are
responsible for informing their customers of this
restriction on the use of dyed diesel fuel.

Any person that

fails to provide this information as required by the
te=perary regulations will, for purposes of the penalty
i=p~se~

by

sectio~

d:ese: fuel

~ill

be

6714, be

presu~ed

to

kno~

that the dyed

for a taxable use.

use~

Dye ir-.iection svste:-:-s.

The te::porary reg'..llations do not

re:;-..:ire tr-.e use of dye injectio:i syste=s or vis'..lal
i~s~ectio~

s~ste=s

devices.

and devices

e;.~=rce=ent.

The IRS believes, however, that such
ca~

contribute to effective tax

Thus, a future netice of proposed

rule~aking

.. ::: p:-=p=se r..:les regarding these systeI:s and devices.
7:-.ese ru:es ..'::1 be
l':-.::..: speclf:c dye

c ~ CJ' e :

~:;,

p:-opose~

i~jectio;.

to be effective July 1,

199~.

syste=s are req-..:i:-ed, any ttea:-.s

in =: u ~ ~ ~:; .. SF: a s~." dye in:; at the t e r= ina 1, is

Back-¥P tax.

Under section 4041, a back-up tax applies

to dyed diesel fuel or diesel fuel on which a credit or
pa)~e;.t

has been allowed under section 6427 if the fuel is

delivered into the fuel supply tank of a diesel-powered
hig~way

vehicle, diesel-powered train, or diesel-powered

boat fo:- a taxable use.

The operator of the vehicle, boat,

or train is liable for the tax.

In addition, the seller of

-

13 -

the diesel fuel generally is jointly and severally liatle
fer the tax if the seller

kno~s

or has reason to know that

the fuel will be used for a taxable use.

However, a seller

of diesel fuel is not jointly and severally liable for tax
on fuel delivered into the fuel supply tank of a bus or
train.
Beca'...lse the back-up tax is in:posed only on the delivery
e: dlesel fuel
~rain,

er

heatln;

in~e

tax is not
or in

011

the fuel supply tank of a vehicle,
i~posed

s~a~io:-,ary

d=es net a;::;:::y to a

del~very

bca~,

on the use of diesel fuel as
e;:;:iles.

In addition, the tax

cf diesel fuel for several

e:-...::-erated uses.
Geilerally, the prelS;~

exe:-;::tie;: fer diesel f'...lel used in a boat

a

t e =;:: : 0::' e din (1) the bus i n e s s

t

~3

tra~SFertiil::;

er (2) a;:y

.
.....
~

.....

"'
g"l

0

f

con~inues

fer

co I:.:: ere i a 1 f is:: in::; e r

perse;:s er property for co=pensatioil or hire,

e~::er

ac~ivi:J'

traje er

b'...lsi~ess

unless the boat is used

cf a t]-pe geilera::y considered to constit'...lte
or recreation.

This limitation Oil

e:-.:e:-~ai:-..=.er.t,

a=-..;se=e;:~,

eil~e:-tainment,

a=use:ent, or recreation activities does not

apply to a boat used in a trade or business of commercial
fls::ing or transporting persons or property for compensatioil
or hire.

Thus, diesel ruel used in a boat in the conduct of

a trade or business of transporting passengers for
ce=pe~satioil

or hire (such as a cruise ship, sightseeing

boat, or any charter vessel that includes a captain who is

- 14 for operating the boat) is

resFo~sitle

exe~pt

from tax even

if the passengers engage in activities that could be
considered entertainment, amusement, or recreation.
Ad~inistrative

authority.

The temporary regulations

provide rules relating to inspections of terminals, dyes and
equip~ent,

dyeing

Credits and
fc~th

fuel storage facilities, and vehicles.

pa\Te~ts.

The temporary regulations set

the conditions that must be met before a

credlt or

is allo.ed with respect to taxed diesel

pal~ent

fuel that has been used for nontaxable uses.
u:ti~ate
!~e:

p~~chaser

used in

fa:-:::.~g

a

C~:y

may

n~~taxatle

p~=t:::Jses

the

clai~

with respect to taxed

uses other than use on a far= for

ulti~ate

res~e=t

tc taxed diesel

fa:-:::.~~

p~:-poses

a

~ake

Only the

or by a State or local governoent.

re;iste~ed

;:;e~.e~a::y,

for

clai~

f~e:

vendor

~ay

make the

sold fer use on a

clai~

fa~

wit~

for

or by a State or local governr:ent.

pe~son

be===:-es registered for this purpose 0:11y

:! :t reets the tests set forth in the ter:porary

re;·... :at~~!""'.s.

As a transitional rule, however, a person that

is registered as a diesel fuel producer on December 31,
1993, generally will be considered to be a registered
ultl~ate

vendor during 1994.

As a condition to making a claim, a registered ultimate
vendor must have received a prescribed certificate from the
!a:-::e~

er State or local governcent to whom it sold the

!'... el.

As a transitional rule, however, claims relating to

- 15 -

sales before April 1, 1994, may be supported with certain
exe~ption

certificates used to support tax-free sales of

diesel fuel under pre-1994 law.
Registration and reporting provisions of the Code
The Code provisions relating to registration with respect
to the gasoline and diesel fuel taxes are sections 4101,
~222,

7232, and 7272.

Section 4101(a), as

a~ended

by the 1990 Act, provides

t.r.a t e',e ry pe rs~;: req-..;: red by the IRS to reg: ster with
respect to the tax
wit.h t.he IRS at the
s~t:e=t

i~posed
ti~e,

to the ter=s and

by section 4081 must register
in the

fo~

conditio~s,

and
as

~a~ner,

~ay

and

be prescribe= ty

Sect:..on 41C1(b) provides that. the IRS may require, as a
c~;.=.:.t:..c:-:

of pe:-=.itt.ing any person to be registered, that

the pers=:-: give t.he IRS a bond in a su: that the IRS dee:s
a~~r~~r:..ate
~r=~erty

a:-:d agree tc the i:position of a lien on

cf such persc:-:

use~

in the trade or business for •

Section 4101(c) provides that, with regard to the denial,
revocation, or suspension ot registration, rules similar to
the rules of section 4222(c) apply.

Section 4222(c)

provides that the registration of any person can be denied,
revoked, or suspended it the IRS determines that (1) the
person has used its registration to avoid payment of tax, or
to postpone or in any manner to interfere with the

co:le~tio~

1S

16 -

of tax, or (2) denial, revocation, or suspension

ne=essary to protect the revenue.
Section 4101(d) provides that.·the IRS may require

information reporting by persons registered under section
4101.

Section 7232 imposes a

cri~inal

penalty on any person

that fails to register as required by section 4101, falsely
re~~ese~ts

fa:se
72~2

itself to be registered, or willfully makes

s:a:e~e~t

in an applica:ion for registration.

a~y

Sec:io~

i:poses a civil penalty on any person that fails to

re;:.s:e:- as req-.lired by section 4101E>:;:a:--.a<:ic:-. of

C·.. e:-.·:e·..·.

t~e

te:"';2orary re;r..:lations; regis<:r-aticn

7he te::pc:-ar:r' re;'.Jlations update

a~d

a~j

clarify

r..::es un=er- se=ticn 410: relating to regist:-ation fer

t~E

of the taxat:e fuel excise tax

p~rFoses

se=:io~
t~a:

4081.

~~s:

p~rposes,

and the

i~posed

unde:-

The te::porary regulations describe persons

be or are

al:o~ej

to be registered for these

the standards for qualification to be registered,

te~s

and conditions of registration.

Submission of

an application for registration does not make the applicant
a registrant: a person be=omes a registrant only if the
district director approves the application and issues the
person a registration letter.
pe;is:ration standards.

The district director will

register an applicant only if the district director

- 17 de~e~ines

that the applicant meets certain prescribed

tests: the activity test, the acceptable risk test, and the
adequate security test.

However, a district director will

register an applicant as an ultimate vendor of diesel fuel
if the applicant meets only the activity test and the
district director is satisfied with the tax history of the
applicant and any person related to the applicant.
~c~icn

on the application by the district director.

the district director
o~

dete~ines

If

that an applicant meets all

the applicatle registration tests, the district director

is to register the applicant and issue the applicant a
le~~e~

c~

registra~ion

regis~raticn.

the

da~e

the

d:stric~

7he

on

re;~s~~y
~rese~~

tha~

da~e

of the

The effective date will be nc earlier than

~hich

le~~er

containing the effective

the letter of registration is signed by

direc~cr.

of

re;istra~ion

replaces the

ce~tificate

of

1S issued by the district director under

prac~ice.

Unlike present practice, the letter of

registration will not be a copy of the applicant's approved
application for registration.
Ierrrs an1 conditions of registration.

After an applicant

has been registered, it must follow certain rules to retain
its registration and avoid certain other adverse
consequences.

For example, a registrant must make deposits,

file returns, and pay taxes as required, and must notify the
dis~rict

direc~or

that iSSued its letter of registration of

- 18 sub~itted

any changes in the information it has
connectio~

with its application.

in
registra~t

In addition, a

may not make any false statement on, or violate the terms
of, a notification certificate, or allow another person to
use its registration.

It is expected that the district

director will regularly review each registration to ensure
that each registrant has followed these rules.
Effe=:~ve
te~:~al
C~de~

J~ly

ope~ato~s,
te~porar)'

the

re~o~t

specified

~3~~er

~~es=ribed

19S~,

I,

th~o~g~p~:ters,
re~~lations,

info~ation

re;:s:~a~:
!~e:

and gasohol

blende~s.

registra~ts

these

must

at the time, place, and in the

m~st

revoke or

ir.te~fere

registratio~

suspe~d

dete~.ines

if the district director

has used its

tax er

conditions apply to

by the IRS.

The dis:rict director
re;:s:~a:ic~

additio~al

a
tha: a

to evade the taxable

with the collectior. of the tax.

ReVo=a:lcn or suspension also is required if the district
c~~e=tc~

deter:ines that the registrant does not meet one

o~

mere e! the registratlor. tests and the deficiency has net
been corre=ted within a reasonable period of time after
notification by the district director.
If the district director detercines that a registrant has
failed to comply with other terms and conditions of its
registration, has made a false statement in its application,
or

othe~'ise

has used its registration in a manner that

cre3tes a significant threat to the revenue, the district

- 19 direc~or

may revoke or suspend registration.

Alternatively,

the district directcr may require the registrant to give a
bond as a condition of retaining its registration, require
the registrant to file monthly or semimonthly returns, or
both.
Special Analyses
dete~ined

It has been
a

si;~i!ica~t

Cr=er 12866.

re;~:a~cry

that this Treasury Decision is not
actio~

It als: has

bee~

as defined in Executive
dete~ined

that section

55J(t; c! the Ad=inistrative Procedure Act (5 U.S.C. chapter
5;

a~=

t~e

Re;~la~ory

a~~ly

d: n:t

to these

Flexitility Act (5 U.S.C. chapter 6)
regula~io~s

Re;~:at:ry

Flexibility

t:

7S:5(f) c! the

se:t::~

re;_:~:::~s

~i::

te

i:~act

on

s~all

is not required.

Inter~a:

sut:itte~

A=','::a:::- of the S:a:l

the:r

A~ali'sis

and, therefore, a

Reve~ue

P-urs'Ua~t

Code, these

to the Chief Counsel for

B'.lsi~ess

Ad:inistration for co::.=.ent

0:;

business.

The principal author of these regulations is Frank
Boland, Office of Assistant Chief Counsel (Passthroughs and
Spec i a:'

In~'.lstr ies).

and Treasury

Ho.'ever, other personnel from the IRS

Departce~t

participated in their development.

List c! sutjects
~fE

parts 40 And 48

Excise taxes, Reporting and recordkeeping requirements.

- 20 2E erR part 602

Reporting and recordkeeping

require~ents.

Adoption of Arrendr..ents to the Regulations
Accordingly, 26 erR parts 40, 48, and 602 are amended as
follows:
PART 40--EXeISE TAX
Paragraph 1.

PROeEDL~L

REGVLATIONS

The authority citation for part 40 is

cy adding an entry in numerical order to read as

a~ende=

follo ...·s:
Au~hority:
Sec~ion

~:.6C:1(a)-3T

7805 * * *
also

iss~ed

under 26

~.s.e.

* * *

~::::a).

Par. 2.

;e:::s:~.s

~.s.e.

26

Se=tic~

::~t:e

to

~ake

per:od

l~

the

is added to read as

f=: tax c;,. taxatle f-...:el

(a; ;;. ge:-:e;a:.
pers~~

~C.6C:l(a)-3T

a

!!':e dlstrict director may req-..:ire a

ret~rn

~anner

(ter.·20ra;yl.

of tax for a monthly or se=imonth:y

prescribed in §40.6011(a)-1(b) if the

person-(1) Is a bonded registrant (described in §48.41013T(t) (2) of this chapter) at any time during the period;
(2) Has been registered under section 4101 for less than
one year at the beginning of the period;
(3; Meets the acceptable risk test of §48.4101-3T(f) (3)
cf th:.s chapter by reason of §48.4101-3T(f)

(3)

(i) (B) of this

- 21 chapter at any time during the period;
(4) Has failed to comply with the applicable provisions
of §48.4101-3T(h) of this chapter (relating to the

te~s

and

conditions of registration); or
(5)

Is liable for tax under §48.4082-4T(a) of this

chapter (relating to the back-up tax on diesel fuel) at any
ti~e

the period.

d~ring

(bl r:fe=tive
oJ a ~ -..; a ry 1

PMT

da~e.

This section is effective

199~ .

1

.."FA:-:-":R.ER.S AND RETAILERS EXCISE TA.XES

4E--lI~,"

Par. J.
r e:::; \' i:i:'; t
e~tries

The

r. e

a~thority

citation for part 48 is

a~e~ded

by

e ~. t ry for .. Sec t ion 4 8 . 4 1 0 1 - 2 T " and add in:.;

in nu:erical order to read as follows:

A~thority:
Se=tlc~s

26

~.S.C.

4S.4~E2-1T

78J5 * *

*

and 46.4062-27 alsc

iss~ed

under 26

:.:.S.C. 4':62.
Se=tlcn 4S.41Cl-37 als:; iss-..;ed under 26 G.S.C. 410l(a)
a~.::

(b).
Se=tio~

4S.41Cl-47 a:so issued under 26 V.S.C. 4101(d).

Sections 48.6427-87 and 48.6427-9! also issued under 26
t:.S.C.6427(n).
Par. 4.
§48.4041-0I
fuel after

Section 48.4041-0T is added to read as follows:
~pplicability
Dece~er

of regulations relating to diesel

31. 1993

(te~porary).

Sections 48.4041-1 through 48.4041-17 do not apply to
sa:es or uses of diesel fuel after December 31 , 1993.

For

- 22 r~les

relating to the diesel fuel tax

i~posed

by section

4041 after December 31, 1993, see §48.4082-4T.

Par. 5.

Sections 4B.4081-10T through 48.4081-12T are

added to read as follows:
§48.40S1-10T Diesel fuel tax; definitions

(te~porary).

(a) Definitions.
Diesel fuel means any liquid that is

co~only

or

cC:7"_-:-ercially kno ...m or sold as a fuel that is suitable for
~se

i~

trai~,

a diesel-powered

or diese:-po'.'ered boa";.

re~~~re~e~";

::~~:d

high~ay

has

F~=~~:sion

if,

~i";h=~t

F~a=";ical

vehicle, diesel-powered
A liquid meets this

fur";her processing or blending, the

and co=:-ercial fitness for use

engine of the

ve~i=le,

train, or boa";.

i~

the

A liquid

l:3Y possess U:is practical and co=.mercial fitness even
t~=~g~

";he specified use is no"; the liquid's

predol:ina~t

Hc'.'ever, a liq..:id does no"; possess this practical and

~se.

cc=:-erc:al fitness solely by reason of its possible or rare
~se

as a fuel in the propulsion engine of such a vehicle,

tralr., or boat.
(1) Kerosene; pefore July 1. 1994.
kerosene is not treated as diesel fuel.
to the

i~position

Before July 1, 1994,
For rules relating

of tax on kerosene that is blended with

diesel fuel, see §4B.40Bl-12T.
(2) Kerosene; ofter June 30, 1994.

(Reserved)

Diesel-powered poat means any waterborne vessel of any
size or configuration that is propelled, in whole or in

-

23 -

by a diesel-po_ered engine.

pa~t,

Diesel-po-ered highway vehicle means a high_ay vehicle,
as defined in §48.4041-8(b), that is propelled by a dieselpowered engine.
Diesel-powe~ed

train means any diesel-powered equipment

or machinery that rides on rails, including equipment or
machinery that transports passengers, freight, or a
co~ination
~~c~i~ery

operator
_=r~

e~~ip~ent

of both passengers and freight, and

or

that on:y carries freight or passengers o! the
the~ecf.

train,

Thus, the term includes a locomotive,

s_itc~ing

(t; E!!ect!ve date.

engine, and track

~aintenance

~ac~i~e.

This section is e!fective January 1,

. . c. -::" ....
•
......

c~

(a;

;=-;:=s:ti=~.

t~e

re=oval of diesel fuel frc= a tercinal if the diesel

f~e:

o! t<!x.

Exce::t as provided in

§~S.~C82-1:-

is re=oved at the rack.

(b)

~bility

for tax--(l) In general.

The position

holder with respect to the diesel fuel is liable for the tax
icposed under paragraph (a) of this section.
(2) Joint and several liability of tert:linal operatorj
u~;egistered

position holder--(i) In general.

The terminal

operator is jointly and severally liable for the tax
under paragraph (a) of this section if--

i~posed

- 24 (A) The position holder with respect to the diesel fuel
is a person other than the teruinal operator and is not a
taxable fuel registrant; and
(B) The terminal operator has not met the conditions of
paragraph (b) (2)

(ii)

of this section.

Conditions for avoidance of liability.

(ii)

A terminal

operator is not liable for tax under paragraph (b) (2) (i) of
t:::s section if, at the

ti~e

of tr.e rer:-.=·,.ral, the ter=:r.al

ope::-ator-(A) Is a taxable fuel registrant;
(E; Has an unexrired notification certificate (described
§,o.~:S:-5)

(e)

fro= the position holder; and

Has no reason to believe that ar:y ir.for=3tion in the

certificate is false.
(3; ;=':':-:t ar:d seve;al liab':'l;,ty of

te~ir.3:

ope::-atcrj

and seve::-ally llable for the tax icposed under

:c~r.t:y

F!ra;ra~::

re=:va: of

(aj of th:s secticr: if, in connection
d~esel

~ith

the

fuel tr.at is not dyed and carked in

accordance with §48.4082-1T, the terminal operator provides
any person with any bill of lading, shipping paper, or
sicilar document indicating that the diesel fuel is dyed and
marked in accordance with §48.4082-1T.
(c) Rate Qf tax.

For the rate of tax, see section

4~E:(a).

(d)

Effective date.

This section is effective

- 25 -

Ja:i'...lary 1,

199~.

§~e.40el-12T

Diesel fuel taxi taxable events other than

removal at the

te~inal

rack (temporaryl.

(a) Tax on removal from a refinery--(l) In general.
Except as provided in §48.4082-1T (relating to exemption for
dyed diesel fuel) and paragraph (a) (2) of this section
(relating to an exe::ption for certain refineries), tax is
i:-.l='8se:! on

t~e

re~ova 1 0

f d i ese 1 fue 1

fro~

a re finery i f--

(i) The re=:va1 is by bulk transfer and the refiner or

t!"".e o·... !"le:- of
1S

a taxatle fue: re;:strar.t; or

r.~~

(::)

(2)
~~.:e:-

diesel fuel iCI:e::!iately befo:-e the re::oval

t~e

:-e:::-,'a: is at

7!"".e

re!"inery rack.

fc; ce:-tair. refineries.

Exe~:t~=~
pa:-a;:-aF~

t~e

(a) (1)

(ii)

The tax i::posed

of this section does not apF:Y tc

a :-e=:va: of d:ese: fuel if-(:1

T~e

diesel fuel is re::oved by rail car fro:: an
a~

7:-.e re~:ne:-y

(:i)

sa::e taxa=:e

~~e:

..
~

.

1S

ail:!

received at an app:-oved ter=ina:;
t~e

te:-=:nal are operated by the

re;:st:-ant; and

(iii) The refinery is not served by pipeline (other than
a pipeline for the receipt of crude oil) or vessel.
(3)

Liabil~ty

for tox.

The refiner is liable for the tax

i::posed under paragraph (a) (1) of this section.
(4) Ea~e of tax.
408: (a).

For the rate of tax, see section

- 26 (t) Tax on entry into the United States--(l)

of tax.

lrnpositio~

Except as provided in §48.4082-1T (relating to dyed

diesel fuel), tax is

i~posed

on the entry of diesel fuel

into the United States if-(i) The entry is by bulk transfer and the enterer is not

a taxable fuel registrant: or
(ii) The entry is not by bulk transfer.

(2) Liatility for tax.

The enterer is liable for the tax

under paragraph (b) (1) of this section.

i~p=sej

0:

(3) Rate

tax.

Fer the rate of tax, see section

4CS:'(a,.
diesel

E:e~dej

(C)

t:€-~e;--(l)
=:x~~re

c!

:=;::sed

~;-.jer

l:~_:j

section

~~jer

ac=orda~=e

thereof.
'"

tax

of tax.

re==~a:

or sale ty the

Blended diesel fuel is

fuel _ith respect to _hich tax has

bee~

as kerosene; on which tax has net been icposej
406~

-ith

(other than diesel fuel dyed in

§48.4C6~-lT(b)).

Tax is

i~posed

on the

The

n~er

ot gallons ot blended diesel fuel

to tax is the difference between the total number of
re~oved

or sold and the

of gallons ot previously taxed diesel fuel used to

projuce the blended diesel fuel.
(2)
t:e~jej

a~;

section 4:';:'(a) (1) or 4CE1(a), and any other

gallons of blended diesel tuel
n~er

o~

or sale of blended diesel fuel by the blender

re=c~a:

5ut~ect

Ir:=sitic~

d~esel

(s~=h

f~e:;

Liatil~ty

to; tax.

The person that produces the

dlesel fuel outside the bulk transfer/terminal

- 27 -

systec (the blender) is liable for the tax

i~posed

under

paragraph (c) (1) of this section.
(3) Rate of tax.

For the rate of tax, see section

4081(a) .
Cd) Effective date.

This section is effective

Jan;.;ary 1, 1994.
Par. 6.
tc

as

re~d

Sections 48.4082-1T through 48.4083-1T are added
follo~s:

Ciesel fuel tax; exerption

§~E.40E2-1T

(a)

Exe~ption.

Tax is not

i~posed

(te~porary).

by section 4061 on the

re=cval, entry, or sale of any diesel fuel if-(:) The

pe~son

othe~ise

liable for tax is a taxable fuel

reg:s":ra;:t:
(2;

In the case of a re::oval fro:: a ten:inal, the

te:-::::-,a:
(3;

an aFt:roved ten:i.nal: and

lS

7~e

dlesel fuel satisfies the dyeing and

re~~:re=e;.ts
I

\

~arking

of paragraph (b) of this section.

-,
...

s..;: :-..;; !-..;e!.

Diesel fuel that is required to be dyed blue

p;.;rs;.;ant to the Enviror.:ental Protection Agency's high
sulfur diesel fuel requirement (40

erR

80.29) satisfies the

dyeing requirement of this paragraph (b) only if it contains
the bl ue dye 1," dial)cya,Itino-anthraquinone in a
concentration of at least 10 pounds (3 pounds before April
1, 1994) of active liquid Solvent Blue 98 per thousand
ba~rels

of diesel fuel.

-

(2) Dyeing;

lo~

28 -

sulfur fuel.

Diesel fuel that is not

described in paragraph (b) (1) of this section satisfies the
dyeing requirement of this paragraph (b) only if it
contains-(i) The red dye red disazo in a concentration of at least
5.6 pounds of active liquid Solvent Red 164 per thousand

barrels of diesel fuel; or
(ii)
1S

An~

other dye of a type and in a con=entration that

appro·,.:ed cy the

Co~issioner,

[Reserved ~
(c)

E~fe=tive

d~te,

This section is effective

January 1, 1994,
§48,40S2-2~

Diesel fuel taxi nctice

d"'e:: diesel fuel
(a)

!~

t':~::':"Y.ABLE

with respe=t to

(te::-pora:-v ),

A notice stating:

ge~e;al,

t:SE

re~Jired

Q~;:'Y,

PENALTY fOR

DYED C:ESEL Fl'EL,

~AXABLE

lTSE must be--

(1) Provided by the terr.inal operator to any person that
re=eives dyed diesel fuel at a

te~inal

racK of that

ope:-atcr:
(2) Provided by any seller of dyed diesel fuel to its
buyer if the fuel is located outside the bulk
transfer/terminal

syste~

and is not sold from a retail

p~p

posted in accordance with the requirements of paragraph
(a) (3) of this aection; and
(3) Posted by a seller on any retail pump where it sells
dyed diesel fuel for use by its buyer,

-

(b)

29 -

The notice required under paragraph (a) (1) or

Fo~.

(2) of this section must be provided by the time of the

or sale and must appear on shipping papers, bills of

re~oval

lading, and invoices accompanying the sale or removal of the
fuel.
(c) Penalty.

Any person that fails to provide or post

the required notice with respect to any dyed diesel fuel is,
p-..::-;:~ses

f--

p~es-..:~ej

of the

pe~jalty

iz:posed by section 6714,

to know that the fuel will be used for a taxatle

\.!se.
(d:
;a:-:-..;a~y

E~!"e=t:ve

1,

§~~.';Oe2-3:
~:-.so;:e=t:c:-.

6~;.';:5:-~:

(a)
se=tio~
t~e

date.

This section is effective

199.;.

Diesel fuel; dye
de· .. ices
::esel

I~;:ositio~

in~ection

(te~;:=ra;yl.

f~e:;

ta=~--..:;:

of tax--(l) In

syste~s

and

vis~al

[Reservedj
tax

(te~pora~yl.

gene~al.

Tax is iz:posed by

4041 on the delivery into the fuel supply tank of

p~o~-..::sion

engine of a diesel-powered highway vehicle

(ether than an automobile bus) or diesel-powered boat of-(i) Any diesel fuel that contains a dye:

(ii) Any diesel fuel on which a credit or payment has
beer. allo.ed under section 6427; or
(iii) Any liquid other than gasoline or diesel fuel on
which tax has not been imposed by section 4081.
(2) Liability for tax--(i) In general.

The operator of

the vehicle or boat into which the fuel is delivered is

- 3D -

liable for the tax imposed under paragraph (a) (1) of this
section.
(ii) Joint and several liability of the seller.

The

seller of the diesel fuel is jointly and severally liable
impose~

for the tax

under paragraph (a) (1) of this section

if the seller knows or has reason to know that the fuel will

not be used in a nontaxable use.
Rate of tax.

(3;

The rate of tax is the rate

i~posed

on

dlesel fuel by section 4C81(a).
(b) Tax on diesel fuel; buses
7ax is

i::-?:lse~

s~~~:y

ta~k

a

by section

J...~.:'

f::.'
tee~

d:ese: fuel

allc~e~

(:':'1)

~:::ch

A~.y

licr.Ji~

Liatili~y

t~at
o~

section

un~er

tax has not

(2)

on the delivery into the fuel

train of--

diesel fuel

A~y

trains--(l) In general.

of the propulsion engine of an automobile bus or

diese:-p:l~ered

(i,

40~1

an~

c=~tains

a dye;

.... ::ich a credit or payment has
6~27;

or

ct!":er than gasoline or diesel fuel on

bee~

icposed by section 4081.

for tax.

The operator of the bus or train

into which the fuel is delivered is liable for the tax
i~posed

under paragraph (b) (1) of this section.

(3) Eate

of~--(i)

Buses--(A) In general.

The rate of

tax on the delivery of diesel fuel into an automobile bus is
the sue of the rates described in sections
40';l(a) (1)
b~s

(e)

1S use~

(iii) (I) and

40~1(d)

(1)

(the bus rate), if the

to furnish (for cocpensation) passenger land

transpo~tation

31 -

available to the general public and either

such transportation is scheduled and along regular routes or
the seating capacity of the bus is at least 20 adults (not
including the driver).

A bus is available to the general

public if the bus is available for hire to more than a
li~ited

nu~er

of persons, groups, or organizations.

Other uses.

(B)

The rate of tax on the delivery of

diesel fuel into an
irp=sed by

se=tic~

c:~e~

:~3t

t~a~

Tra:~s.

(ii)
f~el

a

i~to

auto~obile

bus is the rate of tax

4C51(a) if the bus is used for a purpose

described in paragraph (b)

The

(3)

(i)

(A)

of this

of tax en the delivery of diesel

ra~e

diese:-p~~ered

train is the rate prescribed in

4041 for diesel fuel sold for use in a train (the

sec~ion

(4) Cress
:-e:a~l~g

to

re~e:-e:",.=e.

ce~~ai~

b~s

For the registration re::r..:.ire:-:ent
a~d

t~ain

operators, see

§48.41C~-

J7'c)(2).
(c;

Exe~~~ic~s.

The taxes i=posed under paragraphs (a)

and (b) of this section do not apply to a delivery of diesel
fuel for-(1) Use on a farm for

fa~ing

purposes as that term and

related terms are defined in §48.6420-4(a) through (g):
(2) The exclusive use of a State, any political
subdivision of a State, or the District of Columbia:
(3)

Use described in section 4041(h)

(relating to use in

- 32 -

a vehicle

by an aircraft museum) ;

o~~ed

(4) The exclusive use of the American Red Cross;
(5) Use in a boat employed in-(A) The business of

co~ercial

fishing;

(B) The business of transporting persons or property for
compensation or hire; or
(C) Any other trade or business, unless the boat is used

in any activity of a type generally considered to
e~~ertain~e~~,
c~

a=~se=e~t,

or recreation (within the meaning

section 2i4 (a) (1) (A) and the regulations under that

(E; Cse in an
t~e

constit\.,;~e

a~~o=obile

tra~s?ortation

de~:.ned

in the last
Cse In a

(i)
6~~i (t;

(2)

(~;)

c~=rensa~ion)

bus while the bus is engaged in

of students and ecployees of schools (as
sen~ence

~~allfied

of section 4221 (d) (7)

(C)):

local bus (described in section

",'!,:ile the bus is engaged in furnishing (fer
intracity passenger land transportation that

is available to the general pub:ic and is scheduled and
along

reg~lar

routes:

(8) Use in a highway vehicle that is not registered (and
is not required to be registered) for highway use under the
1a.s of any State or foreign country:
(9) The exclusive use of a nonprofit educational
organization, as defined in §48.4221-6(b):
(10)

t:se in a high'w'ay vehicle

o~~ed

that is not used on the highway; or

by the United States

-

33 -

(11) Use in a vessel of war of the United States or
foreign nation, as described in §48.4221-4(b)
(d) Effective date.

a~y

(5).

This section is effective

January 1, 1994.
Adr.inistrative authority (temporary).

§~8.4Ce3-1T

(a) In

ge~eral--(l)

Authority to inspect.

Officers or

er.;:loyees of the IRS designated by the COmltissioner, upon
appropriate credentials and a written notice to

p~ese~t:ng

o·.-ner,

t~.e

e~ter
~it~

operat.o~,

p:ace and to conduct inspections in accordance

a~y

pa~ag~aphs

(2;

r.a~ne~

c:rc~~st.a~ces,
c~

a~J·

~~=j~:e~

Inspections will be performed in a

and at

o~

ti~es

that are

reaso~a~le

under the

taKing into consideration the norr.al business

the place to be

(t, Fla::e
te a:

(a) through (c) of this sect.ion.

Beasona~le~e55.

reaso~atle

h=~~s

or agent in charge, are aut.horized to

ente~ed.

i;:s:le::ti;;"l--(l) Ir.

gene~al.

Inspections ttay

p:a::e at ...·hic~. taxable fuel is (or may be)
c~

st=~ej

cr at. a;:y ir.spectio;: site where

evide~=e

of act.ivities described in section 6714(a) may be
disco~ered.

These places

~ay

include, but are not limited

to-(i) Any terminal:
(ii) Any fuel storage facility that is not a terminal:
(ili) Any retail fuel facility: or
(iv) A."y designated inspection site.
(2) Designated inspection sites.

A designated inspection

-

34 -

site is any State highway inspection station, weigh station,
agricultural inspection station, mobile station, or other
location designated by the Commissioner to be used as a fuel
inspection site.

A designated inspection site will be

identified as a fuel inspection site.
(c) Scope of
e~ployees

i~spection--(l)

Inspection.

Officers or

may physically inspect, examine or otherwise

search any tank, reservoir, or other container that can or
~ay

be used for the

of fuel,
~ade

e~~ip~en~

of any

Inspection may also be

used for, or in connection with,

stcrage, or transportation of fuel,

~arkers.

This includes

c]'eing cr marking of fuel.
keF~

re==rds

storage, or transportation

fuel dyes, or fuel markers.

Fr=~~=ticn,
f~e:

prod~cticn,

to

dete~ine

a~y

e~~ipment

fuel dyes or

used for the

This also includes the books and
excise tax liability under

sectic~

4:::.
(:;

De~ai~~e~~.

ve~:=:e,

train, or

C!!:cers or e:ployees may detain any
boa~

for the purpose of inspecting its
De~ain=ent

will be either on

the pre:ises under inspection or at a designated inspection
site.

Detainment may continue for such reasonable period of

time as is necessary to

dete~ine

the amount and composition

of the fuel.
(3)

Re~oval

and re:ove

of sarrples.

&a~ples

Officers or employees may take

of fuel in such reasonable quantities as

are necessary to determine its

co~position.

-

(d) Refusal to

sut~it

35 -

to inspection--(l) Imposition of

Any person that refuses to allow an inspection

penalty.

will be fined $1,000 for each refusal.

This penalty is in

addition to any other penalty or tax that may be imposed
upon that person or any other person liable for tax under
section 4081 or penalty under section 6714.
(2) Assessmer.t of penalty.
pe~a:ty

(e)

anj is assessej in accordance with section 6671.
E~~ective

Ja~~ary

This penalty is an assessable

date.

This section is effective

1, 199':.

Pa:-. i.

Sections ':8.'::01-37 anj

':8.~lCl-~T

are adjed to

re a:: as f 0: 1 o ...·s :
§~: .

~

: : : -

J:- Re; : s t rat i c ~ ( t e ~ p 0:- aD') .

(a; Overv:e·..·.
re;:st:-ation

u~der

This sectior. provides rules relatin; to
section

exc:se tax or. taxable fuel
crejit or
c:ese:

pa~~er.t

f~el

perso~s

~101

for purposes of the federal

i~posed

by section 4081 and the

allowed to registered

ur.der section 6':27.

ulti~ate

vendors of

This section describes

that must be, or are allowed to be, registered:

sta~dards

for

~ualification

to be registered; and the teres

and conditions of registration.

A person is registered

under section 4101 only if the district director has issued
a registration letter to the person and the registration has
not been revoked or suspended.
or is
n~er

re~uired

Each business unit that has,

to have, a separate

e~ployer

is treated as a separate person.

identification

Thus, two business

-

36 -

ur.its (for exar:ple, a parent corporation and a subsidiary
corporation, or a proprietorship and a related partnership),
each of which has a different employer identification
are two persons.

n~er,

(b) Definitions--(l)

bpplica~t.

that has applied for registration

applicant is a person

An
u~der

paragraph (e) of

this section.
(2)

Bc~ded

A ponded registrar.t is a person

regis~ra~t.

that has given a bond to the district director under
paragraph (j) of this sectior. as a condition of
registration.
(3)

Gasc~=;

(i;

The

te

§~8.~C6:-6(g)

Tr. etc t a ! n o~:-.= e r

to~;~:

t:e~je:-

a~c~~:.

The

gaso~ol

bo~~ing

a==~~:

rate of tax aFFlica=:e to later separatior., as

des:::-ited ir.
( 1 :')

bo~~in3

at the gasohol

d~ring

(1) (iii); and

0 ~

g a : Ion s

proj~:::io~

a reF:-esentative

0

f gas 0 1 in e e xp e :: t e j t c

tax rate by the

6-~onth

gaso~cl

period (as

de: e r= .:. n e j b i the dis t ric t d ire.:: tor) .
O

(4) Penalized for a wrongfyl act.

A person has been

penalized for a wrongful act if the person has-(i) Been assessed any penalty under chapter 68 of the

Internal Revenue Code (or similar provision of the law of
any State or the District of Columbia) for fraudulently
faili~g

to file any

has not

bee~

re~u:-n

or pay any tax, and the penalty

wholly abated, refundej, or credited;

-

37 -

Been assessed any penalty under chapter 68 of the

(ii)

Internal Revenue Code, such penalty has not been wholly
abated, refunded, or credited, and the district director
determines that the conduct resulting in the penalty is part
of a consistent pattern of failing to deposit, pay, or pay
over a substantial amount of tax;
(iii) Been convicted of a crime under chapter 75 of the
I~ter~a:

Code (or

Reve~ue

si~ilar

provision of the law of

any State or the Di.strict of Colur:.bia), or of conspiracy to
co~~it

suc~

a crice, and the conviction has not been wholly

reversed by a court of
(iv)

~ak:~;

an

t~e

e:e=e~t

of fa:se

District of
of

assesse~

(v:) Had lts

t~e

Col~ia,

offe~se

and

state=e~ts,

wh:::y reversed by a
(v; Been

jurisdiction;

convicted, under the laws of the United States,

Bee~

a;-.::" State, or
w~~c~

co~petent

co~rt

of

of a felony for

is theft, fraud, or the
t~e

conviction has not been

co~petent

jurisdiction;

any tax under section 4103 and the tax

reg~stration

under section 4101 or 4222

revoked.
(5)

Re'ate~

person.

A person is related to an applicant

if the person-(i) Directly or indirectly exercises control over an
activity of the applicant and the activity is described in
paragraph (c) (1) or (d) of this section;
(ii) OWr.s, directly or indirectly, five percent or more

-

38 -

ap~:icant;

of the

(iii)

unde~

Is

a duty to assure the payment of a tax for

which the applicant is responsible;
(iv)

Is a mecher, with the applicant, of a group of

organizations (as defined in §1.52-1(b) of this chapter)
that would be treated as a group of trades or businesses
under

co==~n

or

c~a~~e~:

Distrib~ted

(v)
a

control for purposes of §1.52-1 of this

t~ansaction

in

or transferred

w~ich

c! the

(6;

d~s~~~=~
c~

t~:s

di~e=~c~
se=~ion,

re;:s~~a~l~n

(c)
~e~scr.
t~e

dis~~ibuto~

Pe;is~;a~~.

has

Pe~scns

is

A

or

is a

pers~n

that the

parag~aph

(g) (3)

under section 410: and whose

been revoked or suspended.

re~~ired

re~~ired

transfe~or.

in accordance with

regis~ered

asse~s

to the basis of the assets in the

re3!s~ra~~

has,

no~

to the applicar.t in

the applicant's basis in the

1S de~e~:ned by re!e~ence
r.a~=s

asse~s

to be

to be registered--(l) In general.
regis~ered

A

under section 4101 if

person is engaged in the activity of a-(i)

Blender, as defined in §48.4081-1(d);

(ii) Enterer, as defined in §48.4081-1(g):
(lii) Refiner, as defined in §48.4081-1(0);
(iv)

Te~inal

operator, as defined in §48.4081-1(t): or

(v) Throughputter, as defined in §48.40B1-1(u) (2)
t~r~~;~p~~ter

(2)

~~s

(a

that is a position holder).

and train operators.

Every operator of a bus or

- 39 train is required to be registered under section 4101 at any
time it incurs any liability for tax under

§~8.4082-4T

the bus rate (as described in §48.4082-4T(b) (3) (i»

at

or the

train rate (as described in §48.4082-4T(b) (3) (ii».
(3) Consequences of failing to register.
cri~inal

For the

penalty imposed for tailure to register, see

section 7232.

For the civil penalty imposed for failure to

register, see section 7272.
(d)

Perso~s

re;istered.

that

but are net

~ay,

A person

~ay,

but is not

registered under section 4101 if the
t~e

re~~ired

re~~ired
pe~son

to, be
to, be

is engaged in

activity of-(1) A gasohol
(:~

A~

(3) A

(4;

An

blende~,

ind~stria:

user, as

t~.~e-..;;~.~-..;tte~,

ulti~ate

as defined in §48.4081-6(b)
de!i~e=

as defined

(3);

in §48.4081-1(1);

§4E.4051-1(~)

(1)

(a

vendor of diesel fue:, as defined in

§45.6427-9T(a) (1).
(e;

bp~licatio;.

inst;u;tio;.s.

Application for

registration under section 4101 must be made in accordance
with the instructions tor Form 637 (or such other form as
the

Co~issioner

may desiqnate).

(t) Registration tests--(l) 10 general--(i) Persons other

than ultimate vendors.

Except as provided in paragraph

(C (1) (ii) of this section, the district director will

register an applicant only if the district director

- 40 dete~ines

that the applicant meets the three following

tests (collectively, the registration tests):
(A) The activity test of paragraph (f) (2) of this
section:
(6) The acceptab:e risk test of paragraph (f) (3) of this
section: and
(C) The adequate security test of paragraph (f) (4) of
t~.:s

sectio:i.

(ii)

Clti~!te

re;is~e~

a~

The

ve:i~=~s.

applicant as an

dist~ict

ulti~ate

director will

vendor of diesel fuel

on:y if the district director-(A) Deten:,i,nes that the applicant meets the activity test
o~

paragraph (f) (2) of this section: and
(E; Is

c:a:.::

sa~isfie=

r.:S~=~i·

re:ate::

f~~

_itt the filing, deposit,

all

feje~al

c~

taxes of tr,e app:icant and

a~'l'

..

t.his para;rapr.

de";e~i~es

(i)

an~

pe~s:~

(2) ';he a:-tiv:.ty tes";.
tes~

pal~ent,

An app:icant meets the activity

(!) (2)

only if the dist.rict

dire=t::~

tr.at the applicant--

Is, in the

co~rse

of its trade or business, regularly

engaged in an activity described in paragraph (c) (1) or (d)
of this section: or
(ii) Is likely to be (because of such factors as the

applicant's business experience, financial standing, or
trade connections), in the course of its trade or business,
re~~larly

engaged in an activity described in paragraph

-

41 -

(c) (1) or (d) of this section within a reasonable time after
be=o~ing

registered under section 4101.

(3) Acceptable risK test--(i) In general.

applicant

An

meets the acceptable risK test of this paragraph (f) (3) only
if--

(A) Neither the applicant nor a related person has been
penalized for a wrongful act; or
(S: Even though the applicant or a related person has
tee~

pe~a:ized

for a

.~ongful

act, the district

directo~

deten:ines, after revie·... of evidence offered by the
a~~:lcar.t,

a

c~eate

the tax

the registration of the applicant does not

sig~i!icar.t

i~posed

risk of nonpayoent or late

In

~akir.~

0

f n c n p a \T e n tor 1 ate p a yr.- e r. t

the deten:ination described in

(8) of this section, the district director may

cor.side~

factors such as the following:

pe~s=n

ti~e

0 f

paragrap~

(f, ~J) (i)

(A) The

of

pal~e~t

by section 4081.

S i 9 n i f i car. t r i s Yo

( l i)
t~>:.

t~at

elapsed since the applicant or related

.as pena:ized for a

w~ongful

act.

(8) The present relationship between the applicant and
any related person that was penalized for any wrongful act.
(e)

The degree of rehabilitation of the person penalized

for any wrongful act.
(D) The amount of bond given by the applicant.
re~ard,

In this

the district director may accept a bond under

paragraph (j) of this section, without regard to the limits

- 42 -

on the aI:l:Junt of the bond set by paragraph

(j)

(2) of this

se::tion.
(4) Adequate security test--(i) In general.

An

applicant

meets the adequate security test of this paragraph (f) (4)
only if the district director determines that the applicant
has both adequate financial resources and a satisfactory tax
history, or the applicant gives the district director a bond
(under the provisions of paragraph (j) of this section).
(ii) Ade;uate financial resources--(A) In general.
has adequate financial resources only if the

a~F::ca~t

d:strict dire::tor
fl~a~c:ally

(1)

An

dete~ines

that the applicant is

capatle cf paying--

Its expe::ted tax liability under section 4061 for a

reFrese~tative

6-I:lo~t~

period (as

dete~ined

by the district

c:re::tcr) ;
,,&.

.,. - tt:e case of a te:-=.ir.al operator, the expected tax

liat:::ty
te~:~a:

~~der

sectio~

4081 of

perso~s

other than the

operator witt: respect to taxable fuel

the racks of its terminals

d~ring

re~ovej

at

a representative 1-month

period (as determined by the district director): and
(l)

In the case of a gasohol blender, the gasohol

bonding az:ount.
(B)

Basis for

dete~ination.

The determination under

this paragraph (f) (4) (ii) must be based on financial
infor:ation such as the applicant's income statement,
ba:a~::e

sheet or bond ratings, or other information related

-

4J

-

te the applicant's financial status.

(iii) Satisfactory tax history.

An applicant has a

satisfactory tax history only if the district director is
satisfied with the filing, deposit, and payment history for
all federal taxes of the applicant and any related person.
(g) Action on the application by the district director-(1)

of opplication.

Revie~

investi;~~e

the

The district director may

and co:p:eteness of any

acc~racy

representations cade by an app: icant, reg-..Jest any addi tio:,.al
re:evant info:-r.ation fro=. the applicant, and inspect the
a~~:ican~'s

pre:ises during normal business hours without

a=·.. a~ce notice.
(:; Den:a:.
a~~::cant

does not ceet

al~

ef the applicable registration

described in para;raph (f) of this section, tte

tes~s

t~at

If the district director determines that an

!~s

aFP:icatio~

the tas:s fer the
(3;

A~p:-cva':.

fer registration is denied and state

de~ia:.

If the district director determines that

an applicant meets all of the applicable registration tests
described in paraqraph (f) of this section, the district
director must reqister the applicant under section 4101 and
issue the applicant a letter of registration containing the
effective date of the registration.

The effective date of

the registration must be no earlier than the date on which
the district director signs the letter of registration.

A

- 44 C2::Y

of an

ap~lication

for registration

(Fo~

637)

is not a

letter of registration.
(h) Terms and conditions of registration--(l) Affirmative
d~ties.

Each registrant must--

(i) Make deposits, file returns, and pay taxes required
by the Internal Revenue Code and the regulations thereunder;
(ii) Keep reccrds sufficient to show the registrant's tax
liat::'ity under sectic;: 4081 and parnents or dep:::sits of
s·..;::h liability;
(lii) Make all ir.fcr=.aticn reports req'.Jired under sectio:;

(:V;

~ake

availatle

fo~

inspection on de:and by the

r:-.te:-:;al Reven"..le Service during non:.al business hours
re::~:-=s

releva:-.t to a dete:-:ination of tax liability

unde~

se:tion 4081: an=
(V)

Notify the district directc:- of any change (such as a

c!'". ~:-.ge in o ...·ne~s!'". i~;
s~t=:tted

in

In the infon:.at i on the reg i strant

c~nne:tion

with its application for

(h) (1) (v), within 10 days after the change occurs.
(2) Prohitlted

actio~s.

A registrant may not--

(i) Sell, lease or otherwise allow another person to use
its registration:
(ii) Make any raIse statement to the district director in

connection with a

s~=ission

of this section: or

under paragraph (h) (1) or (3)

- 45 -

(iii)

~ake

any false statement on, or violate the

te~s

of-(A) A notification certificate of a taxable fuel
registrant (as described in §48.4081-5(b»; or
(B) A certificate of a registered gasohol blender (as
described in §48.4081-6(C) (2)).
(3) Additional terms and conditions for terminal
ope~a~o;s--(i)

Records to be

~aintained

relating to

re~ovals

of diesel fuel.

Each

te~inal

in

t:~st

keep the following infon:ation ".. ith

§~8.~OSl-1(t)

operator described

respe=t to each rack re::oval of diesel fuel at each
i~

te~inaJ.

c;::e~ates:

(A: The bill o! lading or other shipping document.
(E,
-:t~

re=ord of

T~e

_~~ther

the fuel was dyed in

ac=o~dan=e

§'E.~:S2-1:(b).

(:, The

vo:~.e

and date of the re=oval.

(=,

The

ide~tity

(E:

A~y

other in!o:-:ation

(li)

Be~en~ion

re~uirement

te~inal
pa~agraph

of

of the

perso~

that re=eived the fuel.

reCf~ired

in!o~atior..

by the Co!:.::issioner.

In addition to any other

relating to the retention of records, the

operator must maintain the information described in
(h) (3) (i) of this section at the ten:inal from

which the removal occurred for at least 3 months after the
re:oval to which it relates.
(1) Adverse actions by the district director against a

reg:stra;.t--(l)

Manda~ory

revo=ation or suspension.

The

- 46 -

district director must revoke or suspend the registration of
any registrant if the district director

dete~ines

that the

registrant, at any time-(i) Does not meet one or more of the applicable
registration tests under paragraph (f) of this section and
has not corrected the deficiency within a reasonable period
of tioe after notification by the district director:
(ii) Has used its registration to evade, or atte=pt to
evade, the parment of any tax iltposed by section 4081, or to
postpone or in any !tanner to interfere with the collection
cf any such tax, or to make a fraudulent claim for a credit
0:-

par=e:-.t;
(iii) Has aided or abetted another person in evading, or

a:te:-;:ting tc evade, pay=e:;t of any tax imposed by section

':2:,

or in

~aking

a

frau~~:ent

clai~

for a credit or

pai-=e:-.t; or
(iv) Has sold,

lease~,

or othenr'ise allowed another

F€!"'s=n to use its regist!"'ation.
(2)

Be~e~ial

a=tior.

district director

pe~itted

dete~ines

in other cases.

If the

that a registrant, at any time,

has failed to comply with the terms and conditions of
registration under paragraph (h) of this section, made a
false statement to the district director in connection with
its application for registration or retention of
reg i stra t ion, or other'-' i se used its reg i stra t ion in a manner
that creates a significant risk of nonpayment or late

- 47 pa}~ent

of tax, then the district director may--

(i) Revoke or suspend the registrant's registration:
(ii) In the case of a registrant other than an ultimate
vendor, require the registrant to give a bond under the
provisions of paragraph (j) of this section as a condition
of retaining its registration: and
(iii) In the case of a registrant other than an ultimate
vendor,

recr~ire

se:i:onthly

the registrant to file monthly or

re~u~ns

under §40.6011(a)-3T of this chapter as

a condition of retaining its registration.
(3) Action by the district
a

~e~:st~aticn.

s~sFen=s

directc~

If the district

to revoke or

directo~

susce~d

revokes or

a registration, the district director must so

nctify the registrant in writing and state the basis for the
revocation or suspension.

The effective date of the

revocation or suspension may not be earlier than the date on
which the
(J)

dis~rict

director notifies the registrant.

Bc~=s--(l)~.

di~ectc~

Each bond given to the district

as a condition of registration under paragraph

(f) (4) (i) or (i) (2) (ii) of this section must be executed in
the form prescribed by the district director.

Each bond

It:.lst be--

(i) A public debt obligation of the United States
Government:
(ii) An obligation the principal and interest of which
are unconditionally guaranteed by the United States

-

~

8 -

Governr.ent;
(iii) A bond executed by a surety co=pany listed in

Department of the Treasury Circular 570 as an acceptable
surety or reinsurer of federal bonds (a surety bond): or
(iv) Any other bond with security (including liens under
section 4101(b) (1) (B)) considered acceptable by the district
director.
(2)

A.-~'':';-.-:''

r.~st

(j)

cf bO;'ld.

A bond given under tr.i.s

paragrat:~

be in an a=ount that the district director

de~er::i.nes

\o"ill ensure

lrt:=sed by

sec~ion

ti~ely

4051,

collection of the taxes

taking into account the applican-:"'s

f;';-.3;'lcial capal:ilities, tax history, and expected liability
unje~

sec~i.on

de=~ease

a=c=_~~

~Oe:.

The district director may increase or

the a=.=Uii-:" of the required bOiid to take into
c~an;es

iii the

a~~licant's

financial capal:ilities,

tax hi.story, and expected liability under section 4081.
Ho~ever,

in no case may the amount of the bond be

tha~

a==u;,~

e::r~al

t~e

tha~

the

dis~rict

director

greate~

dete~i.nes

is

to--

(i) The applicant's expected tax liability under section
4051 for a representative 6-month period (as

dete~ined

by

the district director):
(ii) In the case of a terminal operator, the expected tax
liability of persons other than the terminal operator under
sec~io;,

40S!

racks of its

~ith

respect to taxable fuel removed at the

te~inals

during a representative I-month

- 49 -

period (as

dete~ine~

by the district director); and

(iii) In the case of a gasohol blender, the gasohol
bonding amount.
(3) Collection of taxes from a bond.

If a bonded

registrant does not pay the amount of tax it incurs under
section 4081 by the time prescribed in section 6151 for
paying that tax, the district director may collect the

---

a --·' ...... .... of the unpaid tax

(inclu~ing

• ith respect to that tax) frc= the
(~)

a

Ien:ination of

bc~~

~ay

bo~~ej

the

bon~s--(i)

t~€

Surety

bon~.

registrant's

bon~s.

A surety

registrant that the surety desires to be

0:1

bo~~

relieve~

after a certain date, which date

be at least 60 days after the receipt of the notice by
~he

d:strict directcr.

na=e= in the nctice.
t~e

bonde~

interes~

give written notice to the district director and

of 11ati:ity unjer the
~~st

penalties and

a=o~~t

section

of tax

~081

He.ever, the

t~at

d~ring

s~rety

the

the

bon~e~

te~

will be relieved of any

s~rety

remains liab:e fer

registra~t

incurred

~n~er

of the bond and for penalties

anj interest with respect to that tax.
(ii) Other bonds.

A bond (other than a surety bond)

given to the district director may be returned to the bonded
registrant only after the earlier of-(A) The district director's determination that the bonded
registrant has paid all taxes that the bonded registrant
lncurred under section 4081 during the period covered by the

- 50 bo~j

and any penalties and interest with respect to the

taxes;
(B) The expiration of the period for assessment of the
section 4081 tax of the bonded registrant, as determined
under the provisions of subchapter A of chapter 66 of the
Internal Revenue Code, for the period covered by the bond:
or
T~e

(el

date that the district director receives fro= the

re;:st~a~t

a

s~~stit~te

bond given under this paragraph (j).

(5) Dete:-r.inatic;j that bond is no longer required.
d:st~ict

the

t.~.e

r.eets

sectio~

!~:~

sec~rity

adeq'.late

that the bonded registrant

test of paragraph (f) (4) of t.his

without a bond, the registrant is to be released

C~oss

a~e

t.~.:s

re!erences--(l) For a rule relating to the

m=~t~:y

!:::ng of

c~

dete~ines

the ot:igatior. to give a bond as a condition of

(k)

t~at

director

If

and

re;:ste~ed

se=ir.o~thly

returns by certain

perso~s

under section 4101, see §40.6011(a)-3T

cha~te~.

(2) For

regu!at.io~s

relating to the gasoline tax imposed

by section 4081, see 1148.4081-0 through 48.4081-8.
re~.llations

For

relat.ing t.o the diesel fuel tax imposed by

section 4081, see 1148.4081-10T through 48.4081-12T.
(1) Effective date--(l) Except as otherwise provided in
th:s
199';.

parag~aph

(1), this section is effective January 1,

- 51 (2) Paragraph (c) (1) of this section (relating to persons
required to be registered) is effective January 1, 1995.
(3) A registration in effect on December 31, 1993, with
respect to the tax on gasoline or diesel fuel is subject to
the district director's review, and to revocation or
suspension, under the standards set forth in this section,
but remains in effect until the earlier of-(i) The effe=tive date of a registration issued under

(g) (3) of this section; or

~a:-ag:-at:::

(11) The effe=tive date of the revocation or
c~

t::e regist:-atior.

§~e.~:C:-~:

u~jer

In!oI73tic~

paragraph (i) of this section.

reporting

(te~.poran').

(a) In ge:"',e:-a!--(l) Ie:-7.in31 operators.
=t:e:-ato:-

des=:-l~e=

in

suspe~sion

§~5.4C::-l(t)

~ust

Each ten:inal

~ay.e

a return

S~.:·-·:'~;--

(i)

lS

:-r.e

na=e ar.:! registration nu=.!:Je:- of any pe:-scn that

a position holder (as des=ribed in

§'8.4081-1(~)

at any

te:-=:,,;,a: it ope:-ates;
(ii) The identity of the position holder with respect
to-(A) All rack

re~ovals

of taxable fuel from each terminal

it operates, and the volume and dates of the removals; and
(8) In the case of rack removals of diesel fuel, whether

the fuel was dyed at the operator's terminal in accordance
witt: §48.4082-1T(b); and
(iii) Any other ir.fon:ation required by the Commissioner.

- 52 -

(2) Throughputters.
§~8.4081-1(u)

Each throughputter described in

must make a return showing--

(i) The name and registration number of the operator of
each terminal at which it holds an inventory position in
taxable fuel: and
(ii) Any other information required by the Commissioner.
(3) Gasohol blenders.

Each registered gasohol blender

describej in §46.4081-6(b) (4) must make a return showing,
with respect to each batch of gasohol it producej from
gaso:ine it bought at the gasohol production tax rate-(i) The
s~:=

na~e

and registration

nu~er

of the person that

the blender the gasoline:

(li) The date and location of the purchase of the
gasoline:

(i::) The
(:v;
n~:7-=e~

T~e

vc:~~e

of the gasoline:

na:e, address, and ecployer identification

cf the perscn that sold the blender the alcohol:

(v) The date and location of the purchase of the alcohol:
(vi) The volume and

ti~e

of the alcohol: and

(vii) Any other information required by the Commissioner.
(b) fOrm And time of return.

Each return required under

this section must be made at the time and in the form
required by the Commissioner.
(c) Consequences for failure to make a return.

For the

consequences for failing to make an information return
re~..;irej

by this section, see §48.4101-3T(i)

(relating to

-

53 -

adverse actions against a registrant) and section 6721
(relating to a penalty for failure to file an information
return) .
(d) Effective date.

This section is effective

July 1, 1994.
Par. S.

Sections 4S.6427-ST and 48.6427-97 are added to

read as follo .... s:
§48.6~27-8T

i;: a

~5e=

p·~:-t'=5e5

(a)
c:a~=

Credit or

n=;:";axa~le
0::-

to

fo::- credit cr
u~jer

.... ith respect to diesel fuel

use (o";he::- thar. on a farn, for fa:7.i;:3

a State or local governr.:ent)

~y

Cor.ditio~s

a::o.e~

payme~t

a~lo.ance

paJ~ent

{ter.1porary}.

of credit or payment.

A

.... ith respect to diesel fuel is

this section only if--

(:) Tax .... as i:posej ty section 4081 on the diesel fuel to
.~~=~

the

(~I
t~e

7he

clai~

relates:

clai~a;:t

bo~;~";

t~e

fuel

a~d

did not resell it in

Cr.i";ej 5";ates:
(3)

paJ~e;:";

T~e

c:ai=ar.t has filed a ticely claic for a credit or

that co;:tains the

info~atlon

required under

para;raph (c) of this section: and
(4) The fuel was either-(i) Used in a use described in §§48.4082-4T(c)

(3)

through

( 11) :
(il) Exported:
(iii) Used other than as a fuel in a propulsion engine of
a diesel-po .... ered high.ay vehicle or diesel-po .... ered boat:

-

54 -

(iv) Used as a fuel in a propulsion engine of a dieselpo.ered train: or
(v) Used as a fuel in the propulsion engine of an
automobile bus if the bus was used in a use described in
section 6427 (b) (1)
6427

(after the application of section

(b) (3)).

(b) form of
this

u~de~

clai~.

sectio~

Each claim for an income tax credit

must be made on Form 4136, Credit for

Federal Tax Paid on Fuels, or on such other

fo~

as the

Co=_-:-.:ssione~

r.ay designate, in accordance with the

i;.s~ructions

fer

t~:s

sectien

Re~~est

r.~st

tha~

fo~.

be made on

Each claim for a payment under
Fo~

843, Claim for Refund and

for Abater.ent, or on such other form as the

Co=-=.:..ss:oner r.ay designate, in accordance with the
:;.s~~~ctions

(c)
cre=:..~

for that

Cc;.~e;.~

or

of

pal~en~

fc~.

clai~--(l)

In general.

Each clair. for

under this section must contain the

fc::.lo ...·:ng infon:ation with respect to all the diesel fuel
covered by the claim:
(i) The name, address, telephone number, and employer

identification nUI:ber of the person(s) that sold the diesel
fuel to the claimant and the date(s) of the purchase(s).
(ii) A

state~ent

by the claimant that the diesel fuel

covered by the claim did not contain visible evidence of
dye.

(iii) A statement (which may appear on the invoice or

-

55 -

document) by the person that sold the fuel to the

si~ilar

claimant that the diesel fuel sold did not contain visible
evidence of dye.
(iv) The total amount of dieiel fuel covered by the
clair:.
(v) The use made of the diesel fuel covered by the claim
described by reference to specific categories listed in
paragraph (a) (4) of this section (such as use in a boat
e~;::oyed

in cO=.l:ercial fishing or use by a nonprofit

ed~ca~ional

organization).

(vi) If the diesel fuel covered by the clair: .as
eXr:r~ej,

a

ex;:=r~a";ion

~c

s~ate=e~~

that the

clai~ant

has the proof of

described in §'('S.4221-3(d) (1).
place for tiling clair.l.

(C)

I~~e

a~j

~he

ti~e

for filir.; a

clai~

under

For rules relating

sec~ion

6~27,

see

se:-::':::i 60:2"7(i).
(e,

E!':e=";~ve

da";e.

T!'::.s section is effective

Ja;".Jary 1, 1994.
§':.€0:;~-9:

sold for use

Credit cr
00

p3i~e;.t

with respect to diesel fuel

a farp for faruing purposes or by a State or

local government (tekPoraryl.
(a)

~finitioos--(l)

An

ultimate vendor, as used in this

section, is a person that sells undyed diesel fuel to the
user of the fuel (the ultimate purchaser) for use on a farm
for

fa~ing

purposes or for the exclusive use of any State,

pO:ltical subdivision of a State, or the District of
Colur.l:la.

- 56 -

(2) A registered ultirrate vendor is-(i) An

vendor that is registered under section

ulti~ate

4101 as an ultimate vendor: or

(ii) With respect to a claim filed before January 1,
1995, an

diesel fuel on
n=t

vendor that is registered as a producer of

ulti~ate

revoked or suspended.

bee~

to al!o·..·3r.ce of cre:Ht or pal'T.'e:lt.

CO:idit;'c~s

(r)

31, 1993, if the registration has

Dece~~er

c:ai= for

cred~t

or

pai~ent

A

with respect to diesel fuel is

a::o.ed under this section only if-(:) Tax was

(2) The
p~!",=:-.3ser

(~)

clai~ant

(:l)

~se

on a far: fo!'" far:in;

T~e

purp~ses

(as defined in

o!'"
exc:~sive

a State, o!'"
1

sold the diesel fuel to the ultimate

fcr--

§4e.6':2:'-~):

(3

by section 4061 on the diesel fuel to

the clai= relates:

.~:=~

c~

i=~osed

t~e

use of a State, political subdivision

C:strict of

ColtJ-~ia:

The claicant is a registered ultimate vendor: and

(4) The clai:ant has filed a timely claim for a credit or
pal~er.t

that contains the intormation required under

paragraph (d) ot this aection.
(c) for; ot claim.

Each claim for an income tax credit

unjer this section must be made on Form 4136, Credit for
feje!"'al Tax Paid on Fuels, or on such other form as the
Co:=:ss:oner :ay designate, in accordance with the

- 57 ir.s~ru~tions

for that forn.

Each claim for a

pal~e~t

under

this section must be made on Form 843, Claim for Refund and
Request for Abatement, or on such other form as the
Commissioner may designate, in accordance with the
instructions for that form.
(d) Content of clai;--(l) In general.

Each claim for

credit or payment under this section must contain the
fc:lo ...·in9 ir.fo!'"1':ation ...·ith respect to all the diesel fuel
cove~ed

by the claic:

(i) A cOFY of the
if

applica~le,

( :. :.;

7r.e

certificate of registration.

n~::.be~

of each person that sold the

diese~

to the claicant and the date of the purchase.

(1:'':':'
l

letter of registration or,

r.a:7e, a dd!"ess, te: ep!':one nu::-.ber, and er.pl oye r

l=e:-.t:f:cation
f~e:

i~s

clai~ant's

The nace, address, telephone nur.ber, and taxpayer

de:-. t: f 1 cat i on

r.~r.ber

of

ea~h

f a~er or goverrunenta 1 uni t

tr.at rO"..J;!':t the diesel fuel from the claicant and the nuI:..ber
of

ga::~ns

(:V)

A

that the
state=e~t

c:aica~t

sold to each.

t!':at the diesel fuel covered by the

cIa':'c did not contain visible evidence of dye.
(v) The total amount of diesel fuel covered by the claim.
(vi) A statement that the claimant has not included the
a:o',Jr.t of the tax in its sales price of the diesel fuel and
has not collected the

a~ount

of tax from its buyer.

(vii) For claics relating to sales by the claimant after
Ma!"c!': 31, 1994, a statecent that the claimant has in its

p~ssession

58 -

an unexpired certificate described in paragraph

(d) (2) of this section and the claimant has no reason to
believe any information in the certificate is false.
(viii) For claims relating to sales by the vendor before
April 1, 1994, either the statement described in paragraph
(d) (1) (vii)

of this section or a statement that--

(A) The claimant has in its possession an unexpired
exe=ption certificate relating to tax-free sales of diesel
fuel for use on a farm for

fa~ing

purposes or for the

exclusive use of a State, political subdivision of a State,
or the

Dis~rict

(5) The
1,

;a~~a~y

:~

Colu~ia:

.as received from the buyer before

ce~~ifica~e
199~;

and

(c;

7he

t~e

ce~tificate

(2)

Ce~~i!ica~e--(i)

F~~vlded

1S

of

clai~an~

to the

has no

reas~n

to believe any

info~ation

is false.
Ie general.

ulti~ate

The certificate to be

vendor consists of a statement that

signed under penalties of perjury by a person with

a~~ho~ity

to bind the buyer, is in substantially the same

form as the model certificate provided in paragraph
(d) (2) (ii) of this section, and contains all information
necessary to complete such model certificate.

A new

certificate must be given if any information in the current
certificate changes.
pa~~

sa:e.

The certificate may be included as

of any business records
The

ce~tificate

no~ally

used to document a

expires on the earliest of the

- 59 follo~ing

dates:

(A) The date one year after the effective date of the
certificate (which may be no earlier than the date it is
signed) .
(B) The date a new certificate is provided to the seller.
(ii) Model certificate.
CERTIfICATE Of fARMER OR STATE OR LOCAL GOVE~~NTAL UNIT
(To support vendor's claim for a credit or payment under
se=tion 6~27 of the Internal Revenue Code.)
Na=e, address, and e~ployer identification number of seller
The undersigned buyer ("Buyer") hereby certifies the
following under penalties of perjury:
Buyer will use the diesel fuel to which this certificate
relates either--(check one)
____ On a farm for farming purposes (as that term is
de!ined in §48.6420-4 of the Manufacturers and Retailers
Ex=ise Tax Regulations): or
____ for the exclusive use of a State, political
s~d:vision of a State, or the District of Colurebia.
This certificate applies to the following (co~plete as
aFF:lcable) :
If this is a sin;le purchase certificate, check here
1. Invoice or de:ivery ticket nucber
2.
(nu=ber of gallons)
If this is a certificate covering all purchases under a
spe=ified account or order nu~er, check here
and
e~ter:

1. Effe=tive date
2. Expiration date
(period not to exceed 1 year after the effective date)
3. Buyer account or order number ___________________
Buyer will provide a new certificate to the seller if any
information in this certificate changes.
If Buyer uses the diesel fuel to which this certificate
relates for a purpose other than stated in the certificate
Buyer will be liable for tax.
Buyer understands that the fraudulent use of this
certificate may subject Buyer and all parties making such
fraudulent use of this certificate to a fine or
i~prisonment, or both, together with the costs of
prosecution.
Sig~ature

and date signed

- 60 Printed or typed name of person signing
Title of person signing
Name of Buyer
Employer identification number
Address of Buyer
(e) Time and place for filing claim.

For rules relating

to the time for filing a claim under section 6427, see
sectio~

6~27(i).

A claim under this section is not filed

ur.less it contains all the

info~ation

required by paragraph

(d) of this section and is filed at the place required by tr-Je
forr.
(f) Effective date.
Ja~ ....

PAR:

This section is effective

ary 1, 199.;.
€02--0~8

Pa~.

9.

CONTRJ~ h~~SERS

~~DER

THE

PAPER~ORK

RE8CCT:~S

The authority citation for part 602 continues to

reaj as follows:
A.... t.hority:
Pa=. 10.

26 t:.S.C. 7805.
Section 602.101(c) is

a~ended

by adding the

following er.t.=ies in numerical order to the table to read as
follows:

5602.101

OMB control numbers.

* * * * *
(c)

* * *
Current OMB
control number

CFR part or section where
identified and described

* * * * *
48.4082-2T ••..•••.....•.•..•....•.•.... 1545-/#'F
1545- 6.I/!

48.4101-3T . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.4101-4T . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.6427-8T . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.6427-9T . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

1545-1"(: .....,

1545- ../ !""
1545-," --

'" '" '" '" *

,.

Approved:

---;:1

.

~~

'lhtvrd2'~frl1itl &t1;~~

....,

Mal ,.'.Iet Milner Rlchardsa:
~

",'"
~
l' S
.... - \...........
- y ..... L
Assistant Secretary of the Treasury

:...es::e

Sa~~els

For Immediate Release
November 24, 1993

STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
The U.S. Treasury Department is taking two restructuring steps to cut our
bureaucracy and better serve our customers.
First, we're moving the Savings Bonds Division into the Bureau of Public Debt,
which will finally put everybody who works on savings bonds into one unit. Second,
we're eliminating several political appointments from the U.S. Mint.
In both cases, we looked at the environment we're operating in, and we said it's
time to change. What made sense a long time ago, doesn't make sense now.
The Bureau of Public Debt is responsible for every aspect of the savings bonds
program, except marketing. The Savings Bonds Division handles that. But marketing
people have no say in many things that affect sales -- like interest rates and product
design.
I don't think there are many companies left in America where products are
designed, engineered, built and then thrown over some wall to marketing people who are
told: "Go sell this thing." Everybody has to be brought into the same room, under the
same management.
The marketing strategy employed today is essentially unchanged since the
program began. Marketing in the 1940s doesn't look like marketing in the 1990s. Nor
does the marketplace.
For instance, we rely on many corporations to sell bonds through payroll
deductions, and we still will. But the reality is that many of these corporations are
shrinking, and we need to develop more over-the-counter sales and other marketing
methods.
One reason the program has been so successful is the hard work and dedication
of the sales force. This improved organizational structure will allow these individuals to
improve their productivity through greater contact with other areas of the program.
Savings bonds are a great product. They are the most widely held security of all
time. They offer the American people a secure investment opportunity, a good rate of
return, and tax advantages.

LB-529

2

We have the goods, and with this restructuring we'll be better able to sell them
and encourage Americans to save.
At the Mint, there are nine political appointments that are currently vacant. We
plan to eliminate entirely five positions, and convert the remaining four to career
positions. We will be sending legislation to the Hill to accomplish this.
The four field Mints in Philadelphia, Denver, San Francisco, and West Point, New
York, are coin production facilities -- pure and simple. Day-to-day operations are left to
plant managers, who are career civil servants with years of experience in manufacturing.
As a vestige of the days of patronage -- dating back to the Coinage Act of 1873 -the Mints are headed by Superintendents appointed by the President and confirmed by
the Senate. In addition, five other Presidential appointees reside in the field Mints.

It's time professional managers, not political appointees, run production facilities.
I hope these actions send a signal: No more business as usual.
-30-

For Immediate Release
November 24, 1993
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
PASSAGE OF THE BRADY BILL
It's been 12 long years since the attempt on President Reagan's life that severely
wounded Jim Brady and prompted this legislation. This is a victory for Jim, and for the
millions of Americans across the spectrum who worked to bring about the most
significant gun control measure in a quarter century. I congratulate Congress for passing
this bill.
The Brady Bill by itself cannot solve the problem of guns and violence in our
society. It will take more than that. But I believe that a mandatory waiting period
before buying a handgun will make an important contribution. It will save lives, and it
will reduce the economic drain on society that handgun violence creates.
At the Treasury Department and the Bureau of Alcohol, Tobacco and Firearms
we will give priority to the effective and timely implementation of this law.
Beyond the Brady Bill, we believe three important provisions of the crime bill
now in a conference committee will make an additional contribution to reducing violence
in America. Those provisions include important gun dealer licensing reforms, an
outright ban on a number of assault weapons that are used in crimes and which have no
place on our streets, and a ban on the M-39B armor-piercing bullet.
The last substantive gun control legislation was the Gun Control Act of 1968,
enacted following the assassinations of President Kennedy, Sen. Robert Kennedy, and
Dr. Martin Luther King. That legislation set up a licensing system, created a weapons
tracing system, and restricted the importation of some weapons.
-30-

LB-530

UBLIC DEBT NEWS
RESULTS OP TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,597 million of 13-week bills to be issued
December 2, 1993 and; to mature March 3, 1994 were
accepted today (CUSIP: 912794J39).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
3.10%
3.12%
3.12%

Investment
Rate
3.17%
3.19%
3.19%

Price
99.216
99.211
99.211

Tenders at the high discount rate were allotted 20%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

Received
$61,282,295

Acce:gted
$13,597,313

$56,309,397
1,158,551
$57,467,948

$8,624,415
1,158,551
$9,782,966

3,139,630

3,139,630

674,717
$61,282,295

674,717
$13,597,313

An additional $12,483 thousand of bills will be
issued to foreign official institutions for new cash.

LB-531

UBLIC DEBT NEWS
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,595 million .of 26-week bills to be issued
December 2, 1993 and to mature June 2, 1994 were
accepted today (CUSIP: 912794K86).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
3.24%
3.26%
3.26%

Investment
Rate
3.34%
3.36%
3.36%

Price
98.362
98.352
98.352

Tenders at the high discount rate were allotted 17%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

Received
$54,950,251

AcceQted
$13,594,709

$49,939,431
840,537
$50,779,968

$8,583,889
840,537
$9,424,426

3,000,000

3,000,000

1,170,283
$54,950,251

1,170,283
$13,594,709

An additional $21,517 thousand of bills will be
issued to foreign official institutions for new cash.

LB-532

FOR RELEASE AT 2:30 PJM.
November 30, 1993

CONT~r.T:

Office of Financing
202/219-3350

TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $4,000 million
of 10-day Treasury cash management bills to be issued
December 6, 1993.
Competitive tenders will be received at all Federal
Reserve Banks and Branches. Noncompetitive tenders will
not be accepted.
Tenders will not be received at the
Bureau of the Public Debt, Washington, D. C.
Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and international monetary authorities at the average price of
accepted competitive tenders.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356, published as a final rule on
January 5, 1993, and effective March 1, 1993) for the sale
and issue by the Treasury to the public of marketable
Treasury bills, notes, and bonds.
Details about the new security are given in the
attached offering highlights.
000

Attachment

LB-533

HIGHLIGHTS OF TREASURY OFFERING
OF lO-DAY CASH MANAGEMENT BILL

November 30, 1993
Offering Amount . . . . . . $4,000 million
Description of Offering:
Term and type of security .
CUSIP number . . . . . . .
Auction date . . . . . . .
Issue date
Maturity date
.....
Original issue date
..
Currently outstanding . . .
Minimum bid amount . . . .
Multiples. . . . . .
.
Minimum to hold amount
Multiples to hold
....
submission of Bids:
Noncompetitive bids
Competitive bids . . .

10-day Cash Management Bill
912794 E6 7
December 2, 1993
December 6, 1993
December 16, 1993
December 17, 1992
$48,258 million
$1,000,000
$1,000,000
$10,000
$1,000

Not Accepted
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.

Maximum Recognized Bid
at a Single yield

. 35% of public offering

Maximum Award .

. 35% of public offering

.

.

.

Receipt of Tenders:
Noncompetitive tenders
Not Accepted
Competitive tenders . . . . Prior to 1:00 p.m. Eastern Standard
time on auction day
Payment Terms .

.

.

.

.

.

. Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date

FOR RELEASE AT 2:30. P.M.
November 30, 1993 I

CONTACT:
-

,

'

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,800 million, to be issued December 9,
1993. This offering will provide about $3,100 million of new
cash for the Treasury, as the maturing bills are outstanding in
the amount of $23,695 million.
Federal Reserve Banks hold $5,872 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $1,916 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356, published as a final rule on
January 5, 1993, and effective March 1, 1993) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-534

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 9, 1993

November 30, 1993
Offering Amount . . . . .

$13,400 million

$13,400 million

Description of Offering:
Term and type of security .
CUSIP number
. . .
Auction date . . . . . . .
Issue date
. . . . . .
Maturity date .
....... .
Original issue date . . . . . .
Currently outstanding .

91-day bill
912794 J4 7
December 6, 1993
December 9, 1993
March 10, 1994
March 11, 1993
$26,191 million

182-day bill
912794 K9 4
December 6, 1993
December 9, 1993
June 9, 1994
December 9, 1993

Minimum bid amount
Multiples . . . . .

$10,000
$ 1,000

$10,000
$ 1,000

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids .

Accepted in full up to $1,000,000 at the average
discount rate of ~ccepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.

Competitive bids

Maximum Recognized Bid
at a Single yield
Maximum Award .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .

35% of public offering
. . . .

35% of public offering
Prior to 12:00 noon Eastern Standard time on
auction day
Prior to 1:00 p.m. Eastern Standard time on
auction day
Full payment with tender or by charge to a funds
account at a

Federal Reserve Bank on issue date

0

<!)

en

C\J

S

federal financing
WASHINGTON, D.C. 20220

December 2,

1993

FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of October 1993.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $127.3 billion on October 31,
1993, posting a decrease of $1,980.8 million from the level on
September 30, 1993. This net change was the result of a decrease
in holdings of agency debt of $1,848.6 million, in holdings of
agency assets of $0.1 million, and in holdings of agencyguaranteed loans of $132.1 million. FFB made 11 disbursements
and 1 repricing in October. FFB also received 36 prepayments in
October.
Attached to this release are tables presenting FFB October
loan activity and FFB holdings as of October 31, 1993.

LB-535

c\J
C\J

<!)

c\J

0
C\J
(fJ
(fJ

~

a.

0

If)

'<t

C\J

c\J

C\J

<!)

c\J
0
C\J

CD

LL
LL

Page 2 of
FEDERAL FINANCING BANK
OCTOBER 1993 ACTIVITY

BORROWER

AMOUNT
OF ADVANCE

DATE

FINAL
MATURITY

INTERESTRATE

AGENCY DEBT
RESOLUTION TRUST CORPORATION
Note 20 /Advance #1

10/1

$30,787,710,737.98

1/3/94

3.114% S/A

$8,095,979.00
$15,883,111.00
$3,273,168.00
$7,385,970.20
$6,801,793.00
$68,461.20
$598,619.00

12/11/95
12/11/95
6/30/95
11/15/93
12/11/95
1/3/95
9/5/23

4.066%
4.000%
3.844%
3.199%
4.075%
3.624%
6.050%

S/A
S/A
S/A
S/A
S/A
S/A
S/A

$750,000.00
$1,426,000.00
$9,049,000.00
$46,275.21

12/31/14
1/3/22
1/3/22
1/3/11

5.784%
5.851%
5.851%
5.442%

Qtr.
Qtr.
Qtr.
Qtr.

GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Foley Square Office Bldg.
Foley Square Courthouse
HCFA Headquarters
ICTC Building
Foley Square Office Bldg.
Memphis IRS Service Cent.
Oakland Office Building

10/6
10/15
10/15
10/18
10/22
10/22
10/29

RURAL ELECTRIFICATION ADMINISTRATION
Guam Telephone Auth. #371
Alabama Electric #334
Alabama Electric #339
@Seminole Electric #052

S/A is a Semi-annual rate:
@ interest rate buydown
* maturity extension

10/5
10/15
10/15
10/15

Qtr. is a Quarterly rate.

Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
Tennessee Valley Authority
U.S. Postal Service
sub-total *
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Electrification Admin.-CBO
Small Business Administration
sub-total*
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DEd.-Student Loan Marketing Assn.
DEPCO-Rhode Island
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Electrification Administration
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
DOT-WMATA
sub-total*

October 31. 1993 September 30. 1993
$ 5,794.6
29,839.1
6,325.0
2a1~l.:!

51,690.2
8,908.0
3,675.0
26,036.0
30.9
51. 3
4,598.9

*figures may not total due to rounding
+does not include capitalized interest

FY '94 Net Change
10/1/93-10/31/93

$

0.0
-1,848.6
0.0
O.Q
-1,848.6

.::Q....l

.::Q....l

-0.1

-0.1
-6.3
-30.0
-30.4
-8.2
0.0
42.1
0.0
0.0
-92.7
-2.5
-4.1
0.0
Q.Q
-132.1

4,077.0
4,760.0
0.0
123.2
1,801.0
1,627.8
22.9
1,528.3
17,560.6
87.9
572.4
16.9
177.Q
32,354.9

4,083.4
4,790.0
30.4
131. 4
1,801.0
1,585.7
22.9
1,528.3
17,653.3
90.4
576.4
16.9
177.0
32,487.0

-6.3
-30.0
-30.4
-8.2
0.0
42.1
0.0
0.0
-92.7
-2.5
-4.1
0.0
Q.Q
-132.1

=========

~~as::z:

$127,347.9

$129,328.8

0.0
-1,848.6
0.0
Q.Q
-1,848.6
0.0
0.0
0.0
0.0
0.0
0.0

43,302.8

~

$

0.0
0.0
0.0
0.0
0.0
0.0

8,908.0
3,675.0
26,036.0
30.9
51. 3
4,598.9
2.8
43,303.0

~======-z:=

grand-total*

$ 5,794.6
31,687.7
6,325.0
2.731.:!
53,538.8

Net Change
10/1/93-10/31/93

$-1,980.8

•

-

--

$-1,980.8

Page 2 of
FEDERAL FINANCING BANK
OCTOBER 1993 ACTIVITY

BORROWER

AMOUNT
OF ADVANCE

DATE

FINAL
MATURITY

INTERESTRATE

AGENCY DEBT
RESOLUTION TRUST CORPORATION
Note 20 /Advance #1

10/1

$30,787,710,737.98

1/3/94

3.114% S/A

$8,095,979.00
$15,883,111.00
$3,273,168.00
$7,385,970.20
$6,801,793.00
$68,461.20
$598,619.00

12/11/95
12/11/95
6/30/95
11/15/93
12/11/95
1/3/95
9/5/23

4.066%
4.000%
3.844%
3.199%
4.075%
3.624%
6.050%

S/A
S/A
S/A
S/A
S/A
S/A
S/A

$750,000.00
$1,426,000.00
$9,049,000.00
$46,275.21

12/31/14
1/3/22
1/3/22
1/3/11

5.784%
5.851%
5.851%
5.442%

Qtr.
Qtr.
Qtr.
Qtr.

GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Foley Square Office Bldg.
Foley Square Courthouse
HCFA Headquarters
ICTC Building
Foley Square Office Bldg.
Memphis IRS Service Cent.
Oakland Office Building

10/6
10/15
10/15
10/18
10/22
10/22
10/29

RURAL ELECTRIFICATION ADMINISTRATION
Guam Telephone Auth. #371
Alabama Electric #334
Alabama Electric #339
@Seminole Electric #052

S/A is a Semi-annual rate:
@ interest rate buydown
* maturity extension

10/5
10/15
10/15
10/15

Qtr. is a Quarterly rate.

Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Export-Import Bank
Resolution Trust corporation
Tennessee Valley Authority
u.s. Postal Service
sub-total *

october 31. 1993 September 30. 1993
$ 5,794.6
29,839.1
6,325.0

$ 5,794.6
31,687.7
6,325.0

Net Change

FY '94 Net Change

10/1/2;}-10/31/9;}

10/1/93-10/31/9;}

$

0.0
-1,848.6
0.0

211311~

217;}11~

O~O

0.0

53,538.8

-1,848.6

-1,848.6

8,908.0
3,675.0
26,036.0
30.9
51.3
4,598.9

8,908.0
3,675.0
26,036.0
30.9
51.3
4,598.9

0.0
0.0
0.0
0.0
0.0
0.0

0.0
0.0
0.0
0.0
0.0
0.0

~I~

~

=.2..&.l.

-6.3
-30.0
-30.4
-8.2
0.0
42.1
0.0
0.0
-92.7
-2.5
-4.1
0.0
2.a.Q
-132.1

43,302.8

43,303.0

Government-Guaranteed Loans:
DOD-Foreign Military Sales
DEd.-Student Loan Marketing Assn.
DEPCO-Rhode Island
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-virgin Islands
DON-Ship Lease Financing
Rural Electrification Administration
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
DOT-WMATA
sub-total *

4,077.0
4,760.0
0.0
123.2
1,801.0
1,627.8
22.9
1,528.3
17,560.6
87.9
572.4
16.9
117 10
32,354.9

4,083.4
4,790.0
30.4
131.4
1,801.0
1,585.7
22.9
1,528.3
17,653.3
90.4
576.4
16.9
1771Q
32,487.0

-=======-=====

-6.3
-30.0
-30.4
-8.2
0.0
42.1
0.0
0.0
-92.7
-2.5
-4.1
0.0
Q&
-132.1

========

~z::::::::~

$127,347.9

$129,328.8

$-1,980.8

*figures may not total due to rounding
+does not include capitalized interest

0.0
-1,848.6
0.0

51,690.2

Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Electrification Admin.-CBO
Small Business Administration
sub-total *

grand-total*

$

~11

-0.1

-0.1

$-1,980.8

FOR IMMEDIATE RELEASE
December 1, 1993

CONTACT: Scott Dykema
(202) 622-2960

U.S.-NETHERLANDS TAX TREATY TO TAKE EFFECT IN 1994
The Treasury Department announced a new tax treaty between the United States and
the Netherlands will take effect January 1, 1994.
The new treaty, which the Senate approved November 20, was signed Wednesday by
Presidel1t Clinton. The Dutch government completed approval of the tax accord November
30.
The treaty enters into force 30 days after both governments notify each other in
writing that constitutionally required formalities to approve the new tax treaty have been
completed. This final step was completed Wednesday when the governments exchanged
diplomatic notes. As a result, the treaty will take effect for (i.e. "have effect for") taxable
years beginning on or after January 1, 1994.
Ratification of a separate protocol amending the treaty hasn't yet been completed.
The protocol, signed in Washington October 13, also was approved by the Senate November
20 and signed by President Clinton Wednesday. The Dutch government expects ratification
to be completed before the end of December.
-30-

LB-536

UBLIC DEBT NEWS
RESULTS OF TREASURY'S AUCTION OF 10-DAY BILLS
Tenders for $4,020 million of 10-day bills to be issued
December 6, 1993 and to mature December 16, 1993 were
accepted today (CUSIP: 912794E67).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
2.98%
3.01%
3.00%

Investment
Rate
3.03%
3.07%
3.03%

Price
99.917
99.916
99.917

Tenders at the high discount rate were allotted 66%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED ( in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-537

Received
$35,006,000

Acce:gted
$4,020,160

$35,006,000
0
$35,006,000

$4,020,160
0
$4,020,160

0

0

0
$35,006,000

0
$4,020,160

THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release

November 18, 1993
REMARKS BY THE PRESIDENT
UPON DEPARTURE
The South Lawn

11:28 A.M. EST

THE PRESIDENT: Thank you very much.
ladies and gentlemen. Thank you, Mr. Vice President.

Thank you,

Let me just say that I have never been involved in an
effort in which there were so many diverse people working so hard
with so little concern for who got the credit after the battle was
over.
I thank all those who were mentioned last .. ight and
were mentioned today by the Vice President. I will say again that I
believe that his stunning performance in the debate on the Larry King
show played a major role in our victory. (Applause.)
Now that the House has voted for the North American
Free Trade Agreement, voted for America to continue to compete and
win in the global economy, I want to say again how grateful I am to
the members who voted with us, and how deeply I respect the opinions
and convictions of those who did not and those who supported them.
It is for us now to make sure that this agreement is
speedily passed by the United states Senate, and then implemented as
it was intended to be implemented, with the cooperation of both labor
and management to make sure that it works to the benefit of the
united States and to all the working people of our country. It is
also our responsibility to press on until we have the kind of
education and training programs we need.
And finally, it is our responsibility to make sure
that we make the most of this effort in terms of our relationships
with our neighbor to the south, Mexico, the rest of Latin America,
and hopefully with nations all across the world who are committed to
open and free trade, to lowering the barriers that they have to our
products and services and to working together for more global
opportunity, jobs and growth.
Last night I called President Salinas and I told him
that the Vice President and Chief of Staff McLarty would be available
to go to Mexico City when NAFTA is ratified by both nations, to meet
with him and his government for in-depth discussions about how best
to launch this great new era in North American relations.
The President gracefully welcomed this suggestion and
invited the Vice President to travel to Mexico as soon as NAFTA is
approved by the United States Senate and by the Mexican Senate, which
is expected to be this Tuesday.

MORE

-

2 -

Now I am leaving for the first ever Asian and Pacific
Economic Cooperation Forum in seattle with the strength in hand to
fight for open markets throughout the world.
The 15 Asian Pacific
Economic Partners that I will meet are dynamic and powerful traders
and competitors.
From the creative tension between their nations and
ours can come an economic expansion that will sustain us for years to
come.
The fastest growing part of the world economy is in Asia.
One thing is clear, by taking the courageous step of
opening trade in our own hemisphere we have the economic, the
political and the moral standing to make the case that that ought to
be done throughout the world, that America is serious about lowering
trade barriers and promoting growth in our country and throughout the
globe.
I look forward to this trip and to continuing the
fight.
I will remind you again, as I have said so many times in the
past, there is simply no evidence that the united States, or any
other wealthy country, can grow jobs and increase incomes unless the
world economy is growing and unless we have more customers for our
goods and services.
We took a long step in the right direction last
night and I intend to take more steps on that course in the next few
days in the Pacific Northwest.
Thank you very much.

(Applause.)

THE: WHITE HOUSE

Office of the Press Secretary
(Seattle, WashlnQton)
November 18, 1993
REMARKS BY THE PRESIDENT

UPON ARRIVAL

Boeing Field
Seattle, Washington
2:50

P.M. PST

THE PRESIDENT: Thank you very much. Thank yo~ very
much. Governor Lowry and Mayor Rice, Chairman schronz, ladies
and qentlemen. I thouqht I ought ~o br1ng Alr Force One bome.
And I'm glad to b8 back here myself and I do love this town.
seattle ha5 been wonderful to me. The state of washington has
been good ~o me. Wlthout your support I would not have been able
to take offi~e as President and to work every day to keep the
commitments I made to the American people to try to change th1s
country for the bet~~r.
I want to thank you especially today for all the
work that you and th1s city have don., and all the work people
throuqhout this state have done to help this Asian Pacific
Economic cooperatlon meetlnq come off a8 well a. sit ha •.
Everyone says you've been a wonderful host. I thank you and your
nation thanks you. (Applause.)
Frank noted that a number of my Cab1net members came
here with me today, along with Congressman Norm Dicks and Heather
Foley, the wife of Hou.e Speaker Tom Foley. I wanted to say also
that senator Patty Murray had planned to come home with me today.
I invited her here.
And I want you to Know why she's not here.
She'. not here because she is in Washinqton fightinq to pa.s a
crime ~11l that keep5 in the ban on assault weapons to make our
streets safer. I'm proud of her for d01nq that. (Applause.)
You know, I've ~een to this wonderful city for many
reasons. I came here as a governor to a Governors Conference.
I've b.en here on vacat10n. I came here many times asking your
h~lp to become PreSident.
Today I come on a truly historiC
miSSion, for th1s 1s the flrst meet1nq ever of the leaders of the
nation. of the Asian Pacific Economic Cooperation qroup. I'll
have a chance to meet with the Prime Minister of Japan, the
President of China, the leaders of the other nation. in this
group. We'll ~e able to talk &bout regional economics and
polltical developments. We'll be focuslnq o~ what we can do to
help our own people.
Make no mistake aDout it: Ultimately, this meetinq
is about the jobs, the incomes and the futures of the Amer1can
people; about exhorting Amer1can leadersh1p 1n a world where
there isn't a lot ot growth now, so jobs are not aecure, incomes
are staqnant 1n every wealthy country on Earth. The only way we
can turn thi8 around now 1s to ha~e more growth not only 1n
Amer1ca, but throuqbout the world.
With all of the difficulties we have today, our
economy 1s grow1ng more than Europe's economy. It i. growing
faster today than Japan'. economy. Our problem 1n America today
and ~oeing's problem today 1s that there's not enough qrowth 1n
the world economy. 80 people don't have enough money to buy the.e
airplane.. And we're qolnq to chanoe that, beglnn1ng at this
meet1no for the Pacific reqion. I know we can do that.
(Applause. )

-

2 -

AmQrica'~ workar, ar& still the world'S most
productive. America can compete and w1n allover the world in
all ~arkets, if only g1ven a falr chance and if there are
sensible partnersnlps to promote growth. People cannot spend
money they do ~ot have.

So we conle here today, hop1ng to drive down trade
barrlers, cpen up trade opportunities, and promote more growth.
Seattl~ has l~ng seen itself as the po~tal of the Pacific.
Today, it is the portal to the Asian Pac1fic region -- the
world's fastest-growing economy, the largest region in our world
in terms of pcpulat~on, wlth enormous potential for American
prosperlty and new partner~n1p6 for peace and freedom and
democracy.
washington exports more per person than any other
state 1n our nation. And over 80 percent of those exports go to
the Asian Pacific region. You know that. You know al.o that
Boeinq 1s America's largest exporter, and that no country in the
world better exemplifies -- no company 1n the world better
exemplifies the potential of worldwide economic partnerships to
create opportunity for people right here at home in America.
I'm proud that I worked with the Transportation
secretary and the commerce secretary and others in my
administI'at~on to see that your aircraft get full and fair
consideration in the global market. Someone sort of made fun of
me the other day. They sa1d, vou know, President Clinton is
almost like a rug merchant out there selling American products.
well, I'm not ashamed that I've asked other countries to buy
Boeing and I'll do it again 1f given half the chance.
(Applause.)
I was 50 pleased th1s week that Boeing reached an
agreement with Gulf Air based in Bahra1n to sell six of your new
777 wide-body planes with an option to purchase another six -- an
agreement chat could ~e worth S2 bil11on. I was pleased to read
in the paper today of Boeing's agreement with Southwest A1rlines.
I think you all know we're work1ng on other sales in the Middle
East. And I'~ also proud to say that I am delighted that Boe1ng
was selected as the prime contractor for our America's space
Station -- Bomething I worked hard to save from the budget axe in
the last sess10n of Congress.
(ApplaUse.) That's another global
partnership because now we're g01ng to develop that space station
1n partnersh1p with the Russians 1n further pursuit of peace and
global econom!c prosperity.
And f1nally, I want to say a special word of thank.
to Congressman Norm D1ck. for h1s 1n1t1ative in getting Congress
to initiate a new a1rl1ft initiative to SUPPlement our pre.ent
airlift capac1ty and replace .o~e of our old plan•• by buy1ng
off-the-shelf commercial airlines, like the 747. I commend Norm
Dicks for that initiative. It can save the Defense Department
money and put people in Washington state to work. (Applause.)
I ask you here to continue your resolve in the face
of advers1ty to be an example to the re.t of our nation, that we
can compete and win in this global economy.
As Fran~ said, and as GOvernor Lowry and Mayor Rice
noted, we've just come through a tough f1ght in the CongreSs
where good people on both Sides argued about what wal best for
the workinq fam1l1es of America. I did everythinq I could for 12
years to advance the cause of working people as a qovernor. I
ran for president becau•• I thouqht we could exPand the horizons
of younq people and pre •• rve the ~er1can Dream and make a
strength out of our d1versity in the nation a. you have done in
seattle. That's Why I ran.
This debate over NAFTA was very profitable, very
productive, but some~1m.s very pa1nful because 80~~ nl ~ho ~O~~

-

3 -

f~lende

I ever had were on the other slde of that debate. And
they were on the other slde becau6e they were tlred of see1ng
Americans wo~k harder for lower wages to pay higher prices for
health care, hou61ng, and educa~ion to have less aecurlty 10
their baslc lives. That was a genulne fear :hat should be
honored by every person ~n public life today. ThOBe are the
fears we have to a~swer.
I dlsagreed on the solution because I be11eve that
the only way a rich country can Qrow richer 1s to find more
customers [or 1ts products and services. In the absence of that
we cannot continue to qrow.
We are ~ettlnq more and more productive as we have
to do ~o compete. But what does that mean? That means fewer
people can pr~duce mo~e things. If fewer people produce more
things and you still want more jobs at h1qher incomes, there must
be more customers. There is no alternative.

But make no mistake about 1t, my fellow Americans,
the fight over N~A shows us the best of both sides. The
winn1ng side was right; we ought to expand our trade, we've got
to bring down trade barr1ers, we have to reach out to the rest of
the world. We need a partnership, not only with Mexico, but w1th
all of ~at~n America -- 700,000 m1ll1on people plus in a qiant
trading cooperat1ve partner'hlp. We need that. But we alao need
to quarantee every American working family the educat10n and
training ~hey need, the investment 1n their communities they
need, the security of health care that can never be taken away,
and an economic policy dedicated to growing jobs and raiSing
incomes and benefiting the ordinary c1t1zens of this country.
That i5 what we have to do. (~pplauae.)
our economic strategy 18 s1mple, direct, and I think
correct: Put our own economic houae in order, enable our people
to compete and win 1n the qlobal economy, and f1nd more markets
for our products and services. Just in tbe la,t 10 months the
United States Congress has enacted an historic plan that haa
brought 1nterest rates down to record low~. kept 1nflation down,
1ncreased 1nvestment, permitted millions of Americans to
refinance their homes, and created more jobs in the private
sector 1n the las~ 10 months than in the preVious four years. It
is not nearly enough, but it's a darn 900d beginn1n9, and we're
glad to have it.
(ApplaUse.)
We must now move on to invest in education and
tra1ning and new technologies, and helping u. to wln from
downsizinq defense by converting to domest1c technoloq1es and
openinq the world to those markets. We can do it. And that's
what thi' Meeting 1, all abOUt. so I say to you, aqain, you have
helped America to make history here in Seattle.
The meetinq of the leaders of the Asian Pacific
reqion, 1f we make wi •• decisions and 1f we begin a long-term,
disciplined partnership for growth and opportunity, can create
jobs here and job. aero •• the Pacific; can ra1se incomes here and
give hope to people who never had it all across the largest ocean
on the globe. We can do this. And when we do, I hope you will
always take pride in knowing that it began here in Washington,
America'. tradinq state, America'. model for the future, 1n a
town that's been awfully good to me and 1. now a wonderful
example for the entire un1ted states.
Thank you very much, and God ble •• you all.
(APplause.)
3:02 P.M. PST

THE WHITE HOUSE

Office ot the Pres. Secretary
~or

Im~.d14t.

NoveiEer

R.laa ••

19, 1993

REMARKS BY THI PRESIDENT

TO S!ATTLJ APEC HOST COHHITTI~

The spaniah Ballroom
Four seasons Hotel
eeattle, Wa.h1ngton
9:42 A.M. PST

THE PRESIDENT: Tban~ you .0 .uch for that warm
welcome, and thank you, allot you, for everything you have done
to ~ake this conference of the ~1an Pacific aconoaic Council a
.ucc.... I want to thank your Governor for hie laader.h1p1n
coming all the way to W.sh1nqton, D.C. to help .e pa.a the NArTA
agreoment .nd for speaking up for it, and a. a laader of the~
.tate which le.da Amer1ca in per capita trade.
1 want to thank .Y 900d friend, Mayor Rice, who
heads tbis wonderful city which baa baen voted the beat city in
America 1n which to do bua1ne.a -- in no •• all .eaaure becau.e of
your Kayor. (Applauae.)
It. gl.d to e.e .y friend and former colleaque,
Governor Roberta, out thera. I auet ,.y I eort of juaped when
Gov.rnor Lowry 1ntroduced her .a his neighbor to the soutb. I
never thought of Oregon in tha south b.fore. (Laughter.) Th.t'.
• lesson for thia whole conference -- per.pective ia very
1aportant. (L.ughter .nd .pplause.)

I h.ve one member of your delegation here,
congressm.n Nora Dickl, Who cam. back with ae yesterday; and
Speaker Foley ia on the w.y. But I'm gl.d to see hia here. !
thank -- the Washington delegation h.s been enormously aupport1ve
of thia adm1n1stration in the cau.e of economio exPana10a, and I
•• very grateful for that.
sen.tor Murr.y wanted to come back with .e .lao, but
ahe's on the floor of the Sen.te even a. I ap••k here, debating
tha crime bill and trying to p ••• it with 100,000 new poliee
officers, and tha Br.dy bill and an hi.torie ban on •••• ult
weaponl, which .he'a working h.rd to keep in the bill.
(Applau.e.)
I love seattle. I .lway. love to come here. I
called home l.at n10ht and both my wife and .Y dauqhter h.d
chewed .e out becau.e I
here and they .aren't. (L.ughter.)
We've had .0• • wonderful day. here. Th1. aomino I got up and I
.ent runn1ng in Green La~e Park, and I didn't turn green -- but I:
nearly did. It wa. a v1gorou8 run. (L.ughter.)

w.,

I am delighted that 10 many meahara of our
adm1nistration ca.e with me -- the secr.t.ry of Coamerce Ron
Brown, my Chief of Staff M.c McLarty, and our R.tional scono.1c
Advilor Bob Rub10 are over bera to .y rioht; but we .180 h.ve tba
Tr.de ~.a.ador Mickay ~antor here r and the secretary of stace
Warren Chr1atopher. TheY've .11 co.e here to aake it cl •• r boW
important .e believe this wond.rful meeting is to our future
interestl, aa I know you do. I'. qlad to ••• so .anr of .y
friends hera fro. other at.taa in th. west and, indeed, froa all
across America.

• 6 •

This organization, AP!C, has historically h.~ lS
_embers that together account for more than half the world'.
output -- Australia, Brunei, Canada, China, Indonesia, Japan,
Hong Kong, MalaYSia, New Zealand, the Philippines, SinQapore,
soutb Korea, Ch1nese Taipei, Thailand and the united States. At
tbis meeting, we are addinq Mexico and Papua, New Guinea. Tbis
will be the first time that the leaders of all of these econo~ies
have gathered together. APSC reflects the Asian Pacific values
of harmony and Consensus building. Our goal this week will be to
do some of both.
This city is the appropriate place to have this
meetlnQ. Not only i8 Washington State the most trade-oriented
state 1n the Union, but a. I learned from the Governor on the way
up the stair. when I as~ed him, 80 percent of your trade 1s tied
to the ASian Pacific reglon, and 90 percent ot the imports to
this port in Seattle come from Asia. Over halt of Boelng'.
planes, Microsoft's computer programs and washinqton's wheat are
Aold abroad.
Today I want to talk with you who have done 80 much
to make th1s meeting a reallty about why APBC and the Asian
paclfic region will playa vital role in our American quest to
create jobs and opportunity and security. And I want to begin by
talking about what I believe our broader purpose. as a nation
must be as we near the end of this tu.UltuoU8 century.
once in a great while, nations arrive at moments of
choice that define thp.ir couree and the1r character for years to
come. These momenta are always hard, because chang~ 1s always
hard, because they are steeped 1n controversy, becau.e they are
often full of risk. W. know and regret the _o.ents when our
nation has choaen unwisely 1n the pa.t such a. when we turned the
world toward protect10niam and i80lationism after World War I; or
when we failed for so long to face up to the awful consequences
of slavery.
We celebrate the chapters of American history in
which we chose boldly -- the DeclaratiOn of Independence, the
Louisiana Purchase. the containment of coamunism, the embrace of
the civil right • •ovement. NoW we have arrived agaln at such a
moment. Change is upon us. We can do nothing about that. The
pol~ .tars that guided our affairs in the past years have
disappeared. The Soviet Union is gon~. Commun1st expansionis~
haa ended.
At the same time, a new global economy, a con.tant
innovation, and instant communication i. cutting through our
world like a new river, providing both power and disruption to
the people and nations who live along 1ts course.
Given the disappearance of the Soviet threat and the
perSistence of problema at home, from layoffS and stagnant
incomes to crime rates, many Americans are tempted to pull back
and to turn away from the world.
Thls morn1ng, I ran with 80me of my friends from
seattle, and we were talking about the irony that lome of UQ felt
being 80 excited about this meeting and all of its promi.e and
prosper1ty. And one of my friend. who i. a judge here wa. going
to court to deal with candidate. for parole and talking to me
about all the young ch11dren Who are in trouble, even in this,
one of our most vibrant Cities.
In times like this, it is easy to just t~rn QW~?
Our people hav~ a right to feel trouble. The challeng~ cf the
glooal economy and our inadequate response to it for yeats lS
ahak1n; the mooring. of middle-class security. so are the
de~tructive Boc1al developments here at home and o~r in~dequa~.
respo~se to them.
But we simply cannot let our na~io~al worrlea
blind ua to our national interes~a. W. cannot find security in a

- 3 -

pursue a strategy of involvement grounded
ability to do well in the future.

~n

confidence in our

Our 8~curity 1n th1s new era clearly require. us to
reorder our military forces and to ref1ne our force structure for
~he coming years.
But our nat10n~1 security also depends upon
enlarging the world's community of market democracies because
democracies make more peaceful and constructive partners. That's
why ~e'r~ leadlng an ambit~ous eff~rt to support democratic and
mark~t reforms in all the naticns of the fOl~er Sov1~t Union.
And more than ever, our security io t1ed to
economics. Military threats remain, and they require our
vigilQnce and resolve. But lncr~a8inQly, our place 1n the world
will be determined as much by the skills of our workers as by the
Gtrength of our weapons; as much by our ability to pull down
foreign trade barr1ers, as our ability to breach di&tant
ramparts.
AS President I've worked to put these economic
concerns of our people at the heart of our domestic and our
foreign policy. We cannot rema1n strong abroad unless we are
atrong at home. staonant nations eventually lose the ability to
finance cilitary readiness, ~o afford an activist foreign policy,
or to 1nspire al11es by their exacplea. YOU have only to look at
what happened to the former Sov1et Union to see that lesson writ
large. It collapsed from the inside out, not from the outside
in.
At the same time, creatinq jobs and opportun1tie.
for our people at home requires us to be engaoed ab~oad, so that
we can open foreign markets to our exports and our businesses.
Today exportR are the life blood of our economic Qrowth, Since
the mld-1980S, half our 1ncreases and incomes and almost all the
exPansion and manufacturinq jobs in the United states have been
tled to export.. Thi8 trend will continue. All wealthy nations,
and many more than we are havino difficulty creatino jobs and
raiSing incomes even when there i8 economic growth. Why i8 that?
Because workera in advanced countr1es must become ever more
product1ve to deal with compet1tion from low-wage countries on
the one hand, and h1qh-skilled, high-tech countries cn the other.
Being more productive simply means that fewer and fewer people
can produce ~ore and more ooods.
In an environment lixe that, if you want to increase
jobs end raise incomes, the only way to do lt 1s to f1nd more
customer5 for each country's product; there is no alternative.
No one haa yet ma~e any conv1ncino case that any wealthy country
can lower unemployment and ra1se lncomes by clOSing UP itl
borders. The only way to do lt 1s to expand global qrowth and to
expand each country's fair share of global trade. Thi8 country
must do both.
(Applause.)
To prosper, therefore, we have to try to get all
nations to pursue a strategy of growth. I have worked hard on
that. For 10 years, I watched America go to the •• G-7 meetings
and be hammered on by other nations to reduce our def1cit, to
stop taking money out of the global pool of investment capital,
to help to contribute to global growth by showino some ~iBclpllne
here at home. Well, we've done that. We've done that. And now
we must get our partners in Europe and Japan to also follow
strategies that will promote global growth.
Much of our trade deficit problems today are the
result directly of Slow economic growth abroad. And th~~ ~~t~on
now 1s grow1ng more rapidly than all of our wealthiest
compet1tors. We must do that. But we must also ~om?ete, no~
retreat. We cannot confuse our objectives with our pro~l~m~
we
have no alternative, evan in a time of 5low global economiC
growth, to tak1ng the ctepa to QXPand worl~ trade.

MORE

We are pursu~n9 a new qlobal trade agreement under
GATT by the end of th1s year. In July, we nQqot1ated a market
opening agreement at the G-7 to help advan~e th~ GAT~ J);~A~6,
That market opening aQreem~nt offers th~ prospect of hund~~d6 of
thousands of new jobs in the American economy.
We have placed our vital relationship wjth

J~~cr

on

a new foundation ttat Will allow our workers and our b'..!s ... ~.~~ s:~

greater access to Japanese markets when we complete the prOC~6S.
We have estab11shed a new dialogue for economic cooperation with
Korea aimed at improving trade and the regulatory environment for
the United States and other foreign bus1nesses 1n that nation.
NoW, aftar a long and d1fficult nat10nal debate,
we're about to secure something I have fought for tooth and nail,
as the prev10us speakers discussed, the North American Free Trade
Act. I fought for NAFTA because I believe it will create
American jobS, and a lot of the~. And because I believe it will
improve the quality of our life, and because I know it w1ll lead
us to similar agreements with the rest of the market democracies
in Lat1n America, anO because I believe that it sends a message
that our hemisphere wanted to hear and that the world needs to
hear: The Cold War may be over, but the United states 1s not
about to pull up its stakes and go home. we will remain engaged
1n the world. (Applause.)
ThiS, after all, 1s the real 81qn1f1canee of NArTA.
It does not create a trading bloc, it 18 • building block 1n our

efforts to expand world econo~1c opportunity and global growth;
and in the proces., to promote jobs and opportunity for
AJDerlc:ans.

Wednesday's vote for NAFTA enable. me to begin this
meeting bolstered by a bold expre.s10n of America's intent
to re~a1n 1nvolved in tbe world. And the NAFTA vote, combined
with this APEC conference greatly strengthens our push for an
even b1gger potent1al breakthrough, a new GATT agreement. I want
to be clear about this -- th1s nation will not accept a flawed
agreement, but if we can achieve one that meets our standards,
the benefits to our people could be enormous.
APEC

Over the first 10 yearl, a good GATT agreement could
Crp.3te 1.4 ml11ion American jobs and boost the aver::.;;e American
f:,l.~i:'~~ 1nc?~E' by 11,700 a year.
Over a decade, 1'.:. co'.'!.:! expand
tll~ ,;c:1C\':; tic:~n~or.~ b~' IS tri1l10n.
Th1s, n,y l!:;:":'ow Amer1cans,
1,; ~l.t: C'l.f's·,ofer to 20 years of stagnan~ wages for ~l':.e ilard-work1ng
middle class. (APplause.)
ou:.- 1oi1l11ngness to fight for these init1atives -for NAFTA, for an ~,n"'i90rat~~ AI'~C, for a goed new GATT agre~ment
-- t.:!",('mlc. ;r.l\ke it (l~ar to tbe wo~:~d 'Chat PJI".eri'::1 w1ll lead the
charg~ a9ain~~ gicbal r~ce8s1on gnd the pressures for
retrenchment 1t hac created, not just hare in our country, but 1n
all the advanceG n~t10ns of the wor!J. Ye!r! from to~ay,
Am::.rl.cans will looy. hcack in t:}!c3Se month&; as a moment when -:lur
nation looked ~quarely at a new econom1c era and d1d not flinch
from its challeng~~.
k!'- ,oq-:·';.cr"; our 'i.c?~E:rs'llp in the (l~clJal eccne:IlY, we
pu~~u~ a t~~~~-~~~t ~~Iit~7Y.
w~ wuet fl~st c~rtinue to
lI111kp eu:- ~~on':,flY Ci".~ our ~'!/)r:'€' ii\O!'t. cc,J:\\')ecl,;~.\·'!l.
Second, we
mu~t. f~cus ou:.- glccdi ici~1at~v~~ on ~h. fast~~t-;row1ng region•.
Third, Wi' must cr(:IJ:';f! n'!w lil.r~~·c;;emcJ"l.ts f~r ·~::";~rr.a~1onal
rej :;.tions 10 thf! !crccs f'f ;;h!.~ er!. tc!!:~.E~'t )\,r ~~('I~le &S well 8S
our par·~ncrs.

to

hav~

Aft£:
so ~;~

1'C~':"::

Cur ."1.!""~ :hallenge 1n"·ol .... ~~ cict1:mFl :-.ar~ at hll!:l9.
: 1: n=:!'J.l£loC~ we'!'~ ~uttinQ ~wr E-c(,!10:n1c hoe.• e l.n orde::-

-:::~r·~)~"-:!~ ~d ... ill
l:''''~'..l:-~.·_o~, :!'oe~s'Jrc
':"C.'.T. ~l'1::.~ '~:ac.T \-;lI.S

W~~

~~e~e~ ~~ b~ ~a

~~

r.t\~

(:nacte:i a sweeping
solver.cy.
where it
the day that I took off1ce -- (appla~8e)

dE-!.J,~ i.
Tbf';'~

C·~;':'::;N~.

Ole' VEO

t I;~.:; po1n·.;,~ the w'!y back to
.;u; about !'50 r.~l:l.ion beloW

MORE

-

5 -

larqely because of plummeting intQrest rate that are
resultant from the deficit reduction efforts-

~lrectly

We're investing 1n 8ducat1on and tra1ninq and the
Knowledge and sk1lls of our people in the technologies of the
future. We're working to ensure that we have the means to adjust
to a dynamic world economy. We created some special bridge
programs for any workers displaced by NAFTA. And early next
year, I Will propose a plan to transform America's unemployment
system into a reemployment system ~f lifetime education and
training and job placement services for workers who have to
change jODR many times.
Particularly as we enact NAFTA, we must r&cognize
that we have a solemn oDllgat1on to make our inVOlvement in
international trade serve the interest of our people. That meana
they have to be able to adjust to change.
And if I might jUst add a parentbesis here to allot
you Who ar& very much future oriented, this country today is
really being limited in what we can do becau.e so .any of our
systems, econom1c and social. are organized for conditione that
no lon;er exi.t. We are not organ1zed to make the chan;•• we all
want to make.
The unemployment systea is 8imply an example of
that. The unemployment .ystem we. created at a time when tbe
average length of unemployment was shorter than 1t 1. today, and
when the average unemployed person when called back to work went
back to his or her former employer, which i8 not the ca •• today.
so unemployment ~ould literally be a .ore pas.ive syatea. YOU
could draw money out of it. Your wage would go down for awhile,
but you knew you'd be called back to your old employer. That',
fine for a stat1c economy. It doesn't work for a dynamic economy
where the average la-year-old must change jobs .even times 1n a
life time. where the average unamployed person i. une.ployed for
longer and when most people don't get called back to tbe .ame job
they gave up.
The unemployment syatem, in short, i. now an unfair
tax on employers because it doean't function, and a rip-ott for
employees because it doesn't help th... Why? Because the ,yste.
was organized for a reality that 1sn't tbere anymore. so what
the Labor Secretary is trying to do 1s to sat up a syat.- where
people who 10ae their job, immediately, and even betore they lose
their jobs, 1f possible, beg1n training program., begin job
placement program., begin think1ng about what the future really
holda, instead of living with a system that was ye.terday'.
reality and 1, today'. aham. (Applause.)
Time here doe. not permit thiS, but there are a lot
of creative people in th1. room, and I cannot res1.t this
opportunity to .ay, if you will look at the operative .ystema in
the court., in the juvenile SYltem, in all the .oc1al ey.tem. 1n
this country, in the edUcation and tra1ninq .Yltem. and in the
economic arrangements of this country, you will find exaaple
after example after example after example where qoo4, bright,
creat1ve people wbo know what the problems are. are struggling
with organizations Which thwart tbeir ab1lity to deal with the
world as 1t 1.. Th1a ls one of our great challenve., my tellow
Americans, and we must face it.
W1th the end of the Cold War, we're trying to open
billion. of dollars worth of formerly restr1cted h1qh-tech gooda
to export markets. We'r~ working to speed the conver.ion of
companies, of workers, of eo~unit1ea fro. defense to
commerc1ally succeSsful economies. With the Vice Pr.81dAn~
leadersh1p, we're reinvent1ng vovernment, reduc1ng ~ureaucracy.
we're about to reform our health care Iyste. in ways that will
relieve bu.ines.e. burdened by unfairly rising costs, and ~rovide
security for families terrorized DY uncertain coverage.
0

MORI

All these steps to make our people and our

na~1on

better prepared to thrive 1n thi5 competitive economy are
important. The heginni~g steps, wh11@ l~mited, are ce~inrling to

payoff. The deficit has declined. Interest rates have beell at
histor1c lows. Inflation rate remains low while investment is
increasing. Housing costs have cllmbed for three straight
months. Employment 1s lncreasing -- in the first 10 months ther.e
has been ~ore pr1vate sector job increase than in the p~e\';ous
four years. To be sur~, there 16 still much to do, but thIS is a
good beginning. (Applause.)
The second part of th1S strategy must be to expand
the sweep of our enQagement. For decades, our foreign pol1cy
fOcused on containment of commun1sm, a cause led by the United
states and our European allies. I want to emphasize this here
today: Europe remains at the core of our alliances. It 1s a
central partner for the United States 1n security, in foreign
policy, and in coftmerce. But as our concern shifts to economic
challenges that are genuinely global, we must look across the
Pacific as well as the AtlantiC. we must engage the world's
fastest-growing economies.
Our support for NAFTA is a recognition not only that
Mex1co i& OUr closest big ne1ghbor and a very important part of
our future, but that Latin Amerlca is the second fa&te6t-growlng
part of the world, and a part of the world increasingly embracing
both democracy and free market economics, two things that have
alluded that continent for too long. Tbe fastest-growing region,
of course, 1s the Asian Pacific, a region that haa to be vital
for our future, 3S 1t has been for our past.
A lot of people forget that we began our existence
aa a nation as a Pacific power. By the time of aeorge
Washington's inauguration, American .hips were already visiting
china. In th1s century, we fougbt tbree aajor wars 1n the
Pacific. Thousands of our people still remain stationed in the
reglon to prov1de stability and security in the armed services.
And our cultural bonds are profoundly str.eng. There are now
aeven m1llion American citiZens of ~ian decent.

The Asian Pacif1c has taken on an even greater
importance a8 its economy has exploded. It's a diverse region
spanning 16 time zonee, having at least 20 different major
languaQes, and hundreds of dialects. This is a reglon where many
r1ce farmers still harvest their crops by hand and yet it is the
home to the world's fas~est-growing cities.
Yet amid th1s great diversity a distinct economy has
emerged, built upon ancient cultures connected through
decentralized business networks, linKed by modern communications
and joined by common denomlnators of high lnvestment, hard work,
and creative entrepreneurship.
What has happened to Asia 1n the past half-century
ls amazing and unprecedented. Just three decad.s a90, Asia had
only eight percent of the world's GDP. Today it exceeds 2S
percent. These econom18S are g01ng at three times the rate of
the estab116hed 1ndustrial nations. 1D a short time, many of
these economies bave gone from belng dominoes to dynamos; from
m1nor powers racked by turmoil -- (applause) -- yes, you can clap
for them, it's true.
The pres. will ask me at the end of this speech who
gave me that phrase. It came from Win Lord, our ASSistant
Secretary of state for Far Eastern Affair.. He also 91ves me
good ideas, aa well a& good phraaes. (Laughter.)

Th1s is a hopeful time. For tbe fir~t tie~, ~~~ the
first time in th1s century, no great m1litary rivalry d1v1~~ .• the
Asia Pacific reOion. ~ct1v. hostilities have yielded to
possibilities for cooperation and gain. Of course, the reg10n
still has problems and dangers. Tens of millions of Asians still
MOR!

.

, ,.

live on less than a dollar A day. Ther~ are territorial
disputes, ethnic tensions, and weapODS proliferation. This
sudden growth has lead to serious environm~ntal strain. from
smoke-choked cities to toxic dumplng. And tnere are human rights
abuses and repression which continue to affect millions of people
throughout the r~gion.
The econom1c explosion hal been a sauree of anxiety
for many Americans. Our workers are concerned ~hat. their jobs,
the1r markets are being lost to Asia. of the nations that are
r~pr.sented here, I believe we have a trade deficit with all but
one. These trade 1mbalances w1th Japan and Chlna alone account
for more than two-third~ of our total trade deficit. And we do
have a trade defiCit, as I sald, with virtually everyone of the
nations.
Yet, ultimately the 9rowtb of Asia can and should
our nation. Over the past five years, our exports to
everyone of these nat10ns has increased by at least 50 percent.
Huch of what Asia needs to continue on its growth pattern are
900ds and services in Which we are strong: aircraft, financial
serv1cea, telecommunications, infrastructure, and others.
Already, ASia i. our largest trading partner. Exports account
for 2.5 m1110n jobs here in America, to Asia. Incraa.1ng our
ahare at that market by one percent would add 300,000 jobs to the
American economy. This 18 an effort worth aaking. (APPlause.)
b~nef1t

Of course, we must continue to pres. tbe nations to
be more open to our produc~. as we are to thea. we've made a
good start w1th the economic tramework agreement with Japan, and
I look forward to discussing the elements of that and tbe
progress we can make wlth Prime Mlnister H080kawa later today.
We're also deterained to work with Chlna to
el1m1nate lts trade barr1ers and to raise the issue of our
cont1nuin9 concerna over huaan r19htc and weapons 8al... I look
forward to d01ng all that When I .eet witb president J1ang today,
1n an effort to put our relat10nship w1th China on a more
constructive path, but still one that deals with all of tbese
issue. that are important to the un1ted State •.
we do not intend to bear the cost of our ailitary
presence 1n ASia and the burdens of regional leadershlp only to
be sbut out of the benefits of qrowth tbat that stabil1ty brings.
It 1s not r1qht. It's not 1n tbe lono-term intere.t of our ASian
friends. And, ultimately, 1t i. a trade relat10nship that 1s
simply not sustainable. 80 we must use every aeana available in
the Pacific, as ela.where, to pro.ote a more open world econosy
through global aqreements, regional effort. and negotiations with
individual countries,
As we make these efforts, un1ted States DUliness
must do more to reach out across the Pacific. I know Seattle'.
business commun1ty understand. tne potential that 11e. 1n tbe
Asian Paciflc region. But m11110n. of our businesse. do not. We
cannot bave customers where we are not there to make tbe .ale. I
want American bus1nes.es to •• e the opportun1t1e., to bear tbe
success atories not only here but all across the natiOD. I want
more American bus1ne.ses to follow tbe exa.plea of firms l1ke
H.F. Henderson Indus trias in Welt Callwell, New Jersey, wb1ch
manufactures automatic weigbtn; systems. Thi. amall fira sales
to Cbina, Soutb Korea, Australia, Singapore, and HODq Kono have
addad over two dozen job. to its payroll of 150.
You think about that. If every company in ~~=~!ca
"ith 150 employee. could t.dd two dozen jobs J.)y exPort .. :C\ Asia,
we would have a much smaller unemployment problem 1D e ""!ry lihort
time. We have to do a better job of pierclno those markets even
as we press for them to be open.
to

A.~a.

In July, I made my first trip oversea. as pre.1dent
During that trip. I propoaed ~h1. ,~.~O~~ --_ •. _- .-~

•

••

described a Vls10n of a new Pac1t1e Community to under. cor. thl
importance we place on worklnq for shared prosperity, for
security and for democracy. ~8 I said earlier, the Secretary of
State, the secretary of Commerce, our Trade Representative -they'v~ all come to seattle, all going to Q1ve major speeches
here, all gOlng to make our presence felt. We want to be a
partner with all of the other nations that are har~ 1n making
this Pacific Community.
But as I said earlier about our problems here at
home with the unemployment system, you could also say the same
thing about the 1nternational system. we have to develop new
institutional arrangements that support our national economic and
security 1nterest internationally.
If you look at the end of World War II and the
success that flowed from it, that didn't happen by accident.
ViSionaries like Harry Truman and Georqe Marahall, Georqe Kennan,
Dean AtCheson, Averell Harriman, worked with other nations to
build in5titutions like NATO, the IMF, the world Bank, the GATT
process. We taka it tor granted now. But it took th •• a few
years to put this together. And 1t wasn't s~lt-evldent at the
time that it had to be done. And a lot of peopl. thouqht it was
a wasta of time or effort, and others thought that it would never
work, and others thouqht that it wasn't even a good idea. But
these people had the Vision to .aa that collective security,
expanded trade and growth around the world were in the interest
of the ordinary American citizen.
We now have to brinq the same level of vision to
th18 time of chanqe. We've done that through our vote for N~rTA.
We will do so aqaln at the NATO summit this January, where X will
recommend a new partnership for peace to draw central and la.tern
Europe toward our community of security. And we're work1nq to
build a prosperous and peaceful Asian Pacific re;ion throu.qh our
work here with APse.
This i. still a younq organization. I want to
salute those who had the vision to estab11sh it, such as ~oraer
Australian prima Mlnister Robert Hawke, and others includ~ng
President Bush and those in hie admini.tration who wantea to host
this reglonal leaders maeting 1n Washington State. But'l want to
say also that we now must 1magine wbat this orgaDizat10~ should
be in the 21st century.
over time, there 18 a lot we may be able 'to do
through this ~rgan1zat1on that no one ever thought abolUt before.
It could beco~e a forum for considerinq developaant pr~or1t1as in
Asia, for working with the A5ian Development Bank to a~su.re that
all can share in the reqion's economic qrowth. It could ~elp to
focus attention on barriers to trade and qrowth. It coul~ evolve
into a forum for dispute resolution on economic mattera.
'.
The m1ssion of this organization i8 not to c~eate a
bureaucracy that can frustrate economic qrowtb, but to be~p bul10
connections amonq aconomies to promote economiC growth. ~lthe~oh
we are still only formulat1nq APEC's agenda, we can .pec~late
what some of those connectiona miqht be.
Thi. organization, for example, could help to set up
comaon telecommunication standarda so firma don't na.O to have a
01ffarent product des1gn for each .eparate country. It coulO
help us to move toward an open skies agr.ement that could low~r
fares for airline pas.engers and cargo, and provide qreater
consumer cboices over route.. It could promote solution. to ~;!.
environaantal problema of this populous and enerqy-d.~u~ing
reqion, problems that are truly staq9ar1nq today. 80 that we
could quarante. that a polluted quality of 11fe does not
unde~ine a rising standarO of livinq.
Protect1n9 the Pacific environment a180 can be a
particular SOUrCe of American business 0~ortunit1es, Asia',

- 9 -

purchases of environmeHtal equipment likely will ri68 by •• 0
billion by the end of this decade. ~d our nation, wh1ch has
pioneered many of those technologies, shoul~ be th~re to claim
the large share of that market.
APEC can complement our nation's other efforts to
open world trade. It can prov1de a counterbalance to our
bilateral and our global efforts. If we encounter obstacl~c ~~ ~
b1lateral negotiation, we should be able to appeal to other APEC
members to help us to resolve the disputes. If our efforts to
secure global trade agreements falter, then APSC stlll offers us
a way to expand markets within this, the fastest-qrow1ng region
of the globa.
I expect this first meeting of APEC leader. to focus
on getting acquainted and on sharing perspectives. Whatever we
do must be done in a sp1rit of genuine partnership and mutual
respect 1n the interest of all of the nations involved. This
cannot be a Un1ted states show, this has got to be an Asian
Pacific combined partnerShip. (APplause.)

Nonetheless, I believe it 1s our obligat1on to
prop05. aome tangible step. to ~ove forward. we will propose
that secretary Bentsen organize a meetlng of the APBC'. finance
m1ni5ters to advance our d1alogue on the broad is.ues affectlng
economlc growth. We w111 propo.~ the formation of an Aaia
Pacific bus in ••• roundtable to pro.ote greater diSCUSSion wlthin
the region'S private sectors. We wll1 aak the leaders to endor.e
the establishm@nt of an Asia pac1fic education foundation to
promote understanding and a sense of community among our reg1on's
young people.
These first steps are small. But we should not
understate or underest1mate the scope of the journey that they
could begin.
Today we ta~e for granted the 1aportance of .any
institut10ns that see.ed unl1~ely when they were firat created.
Por exaaple, we can't 1maq1ne now how we could have weathered the
Cold War without NATO. In the same way, futUre generations may
look back and say they can't imaq1ne how the Asian pacific region
could have thrived 1n such a spir1t of haraony without the
ex1stence of APEC. Even though this organ1zation 18 in ita
infancy and 1ta first leaders meeting 18 not 1ntended to make
dec1sions, we should not besitate to th1nk boldly about where
such effort. could lead.
For this organ1zat10n, these •• etings and the ••
relationShips we are forging today can lead our .aabers toward
shared expectatlons about our common respons1bi11t1e. and our
common futur.. Even now we can beq1n to iaag1ne what a new
Pacific Community might look like by the .nd of tbis deeade -and that'. not very far away.
Imagine an Asian Pacific region in which robust and
open economic competition 18 a source of jobs and opportun1ty
w1thout becominq a source of ho.tility and in.tability, a sen.e
of resentment or unfairn.... Imagine a reglQn in which the
d1veralty of our economiee ramains a source of dyn.a1 •• and
enrlchment, just D. the diversity of our own people in America
make our nation ~ore vibrant and resilient. Ima91ne thls r.qion
in wh~cb newly emer91ng economic freedom. are matched ~y qreater
lndiv~dual freedoms, po11tical freedoms and human rights; a
reg~oD in which all nations -- all nations -- enjoy those hu.an
r1qhts and free electione. (Applause. )
In such a future we could s.. Japan fast becoming a
of polltical reform as well as an economic colossUS,
pursu1nq policies that enable our economiC relations to be a
sourc. of gr.atar mutual benefit and mutual satisfaction to our
peoples. We could see China expresslnq the greatness and power .
and its people and ita cult~re by plaYing a constructive req10nLL

mod~l

- 10 -

and qlobal leadership rolQ whils movinq toward greater 1nternal
llberalizatlon. We could Gee V1&tnam more integrsted into the
region'! economic and pol1tical life after providing the full.it
Possible accounting of those Arr.erlcans who dld not return from
the war there.
We could even see a Korean penlnsula that no longer
braces for war, but that lives 1n peace and security because its
people, both north and south, have decided on the terms of
reunification. We could see a region where weapons of mass
destruction are not among the exports and where security and
stability are assured by mutual strength, respect and
Cooperation; a reglon in which diverse culture. and economies
show their common wisdom and humanity by joining to preserve the
glory of the pacific enVironment for future generations.
such goals extend beyond tomorrow'. agenda. But
they must not 11. beyond our v1slon.
This week our nation hal
proved a will1ngness to reach out in the face of change to
further the cause of proQres8. NOw we must do 80 4gain. We must
reach out to the economies of the Pacific. we must work with
them to build a better future for our people and for their8. At
th1. moment 1n history, that 1s our solemn responsibility and our
great opportunity. Thank you very much. (APplause.)
10:19 A.M. PST

Pool Rliport itS
Headlines from Clinton photo op w1th PH Hosokawa: Clinton says he
hasn't changed policy on China vis a V1S supercomputer sale and
weapons proliferation.
"Our policy 15 to try to engage China, but to be very firm with
the human rights issues, to be very firm on the weapons
proliferation issues. But there are 1.2 billion peopl~ 1n China
and we don't belleve we can achieve our objectives wlthin the
context of complete isolation.
I

I

POTUS say the computer sale is sign that US is willing to work
with china if "they reciprocate across a whole broad range of
issues. ' ,
Clinton applauded Japanese prime minister on "his successes 1n
promoting political reform."
Clinton ~aid he invited Hosokawa to US in early February to
continue discussions.
In response to a question about opening up rice market, Hosokawa
said he needs to successfully complete his polit1cal reforms.
Full transcript coming.
Clinton and Hosokawa sat in front of fireplace. Among those in
the room were warren Chrlstopher, Sandy Berger, Walter Mondale,
Mickey Kantor, Winston Lord.
Before the photo op, Bowman Cutter, deputy assistant to the
president for economic policy and White House counselor Davld
Gerqen spoke to the pool.
They downplayed the importance of the supercomputer sale to
China.
Cutter said: "The deCision took into account, obviously whether
or not there continued to be national security concerns, and
there weren't."
Cutter said "!t is extremely unlikely" that Clinton would
discuss the computer sale with Jiang today. "we don't regard it
at this point any longer of sufficient importance to do it. We
only have an hour and a half."
"The secretary of state may have discussed it earlier. ,.
Cutter said there was no quid pro quo.
cutter compared the Cray computer to a Radio Shack. "They could
go down to a radio shack and buy a couple of personal computers
and do the same thing."
cutter said there was nothing in the package regarding
satellites.
Cutter said he thinks the

co~puter

price was $8 million.

Gergen ment10ned a GH Toyota announcement that will lead to the
sale of 20,000 automobiles in Japan.
"We're very pleased about this GH deal," Gergen said. "This opens
up a dealership - Toyota will be sel11ng GM8 through this
dealership."
Cutter said this meeting with Clinton and Hosokawa "is a real
important meetlna.
Gereen said they Will meet aaain Februarv 11
I

I

cutter said: "It 1s very important there be result. 1n the three
key sectors and that there be a strong macroeconomic package by
then, 5timulu~ package by then as part of the frameworks.
Cutter said in the meeting with Hosokawa Clinton will "underline
his concerns at two l~vels - one concern is that the Japan
economy begin to take up, be the second engine of growth and the
U.S. economy is the only world economy that is growing right
now." (lIie)
Be1ng able to accomplish that will lower their surplus and
increase (inaudible.) ..
"A.t the micro le:vel, what he is go1ng to underline is the
pr1nciple first of all that Japan be as open as the other major
industrial economies to imports and to investment. And at the
same time that there be tangible results in the three specific
baskets we outlined in July. Those are government procurement,
autos and auto parts and life insurance.
There ar. now proposals on the table about a month from the U.S.
government."
'
I

cutter said Hosokawa is strengthened by the passage of his reform
package. "His capacity to have some freedom of movement in
general is clearly strengthened, just as NAFTA. makes a world of
difference to us. His capacity to deal wi~h rice, which has been
a major symbolic issue in Japan for years., And this probably
doesn't affect that much."
Cutter said he doesn't expect Hosokawa to bring up rice deal with
Clinton.
on China, they said Clinton will press on three areas: human
rights, proliferation and trade surplus.

Cannon
Kn1qht-Ridder

THE WHITE HOUSE
office of the Press Secretary
(Seattle, Washinqton)
For Immediate Release

November 19, 1993

REMARKS BY THE PRESIDENT
AND PRIME MINISTER HOSOKAWA OF
IN PHOTO OPPORTUNITY

JAP~N

North Kirkland Cutter Room
Rainler Club
Seattle, Washington
12 : 14 P. M. PST

Q
Mr. P~esident, havlng accused the Bush
adm1nl.strat1on of "coddle China," what 1s your response to those
who are upset about the computer sale and other initiatives which
you are making to the Chinese?

THE PRESIDENT:
That we haven't changed our policy.
Our POllCY is to try to enqage China, but to be very firm with
the human rights issues, to be very firm on the weapons
proliferation issues.
But there are 1.2 b11110n people in China
and we don't believe we can achieve our objectives within the
context of complete isolation. And in this case, the computer
sale for their weather serv1ce 1s someth1ng that they could get
elseWhere if they didn't get 1t from the united states.
I think
it 1S an important 1ndication that we are willing to work with
them if they Will reciprocate across a whole broad range of
issues lnvolvinq human rights, proliferation and trade.
And, of course, in my next meeting I'll have a
chance to talk about that.
now?

Q
And, Sir, what do you expect from the Japanese
It's been a few months since Tokyo --

THE PRESIDENT:
Well, first of all, let me say -- lt
has been a few months, but it's been a remarkable few months for
Japan.
I want to applaud the Prime Minister on his successes 1n
promoting political reform.
We had a very good meeting al~eady
today and we have many more th1ngs to discuss.
I have invited him to the United States and he has
to come in early February to continue our discussions on
our bilateral economiC relationships and what we can do to
improve them, to deal with the trade defiCit and to do a number
of other things that we're trying to do.
~nd so we're going to
have another meeting in early February and we'll have more to say
about that then.
I
accept~d

But I've been very impressed, I must say, with the
changes that he's making in Japan and with so much on his plate
with the political issue that they still -- this government has
opened its construction market more to us, something that I very
much appreCiate.
And it's an indication that we'~l be able to
make more progress in the months ahead.
.

Q
Sir, when you spoke of APEC promoting security
for Asia Paclfic nations, what did you have in mind? Anything
along the lines of what NATO does for European security?
THE PRESIDENT: What I meant by that is I think that
we all have to work together, as we are now, on the issues of
concern to us.
~s you know, the United states is very concerned
that North Korea not become a nuclear power and adhere to the
M1ssile Technoloqy control Regime -- I mean, the nonproliferation
of nuclear weapons issue.
And we have worked very hard to try to
MORE

- 2 -

Qet our inspectors 1n there through IAEA. And the Japanese, and
the Chinese, I mi~ht add, have been very cooperative with us and
tried very hard to give tiS good advice and we consulted together.
That's the kind of thing I th1nk we have to do more of.
Q
Can we ask the Pr1me M1nister a quest1on,
please? Mr. Prime Min1ster, now that you've won your po11tical
reforms, do you think 1t will be possible to open up, lncluding
the r1ce market perhaps?

PRIME MINISTER HOSOKAWA: First of all, let me say
that I haven't succeeded in completing my political reform. In
the ~apanese House of Counselors, the situation is more
diff1cult.
And let me give you an idea. It is something like
the difficulty wh1ch was faced by the U.S. Congress recently with
regard to the NAFTA issue.
(Laughter.) The same level of
difficulty is facing me in trying to pass political reform in the
Japanese House of Counselors.
Now, with regard to the rice issue that you raised,
let me point out that this is a very serious issue in Japan, and
one has to be very careful in not gp.tt1ng this r1ce issue in the
way of political reform.
Now, let m~ also say that, of course, Japan is ready
to make its utm~st effort to bring about the successful
conclUSion of the uruguay Round. But having said all of this, I
will have to continue to make and exert my best efforts in order
to successfully complete Japanese political reform.

* * * * *
Q
Mr. president, do you agree with the prime
M1nister on the concept of the Asian Pacific Community?

THE PRESIDENT: we have some more talks to hold, but
believe we are generally in agreement that we shOUld attempt to
use this torum to broaden trade and deepen understanding and
perhaps to accelerate the pace at which we can increase trade and
economic growth 1n the region.
I

I must say, this is, I believe, my f1rst opportunity
to talk to the Japanese press since my Un1ted Nations speech. I
have been very impressed with the work the Prime Minister and the
new government have done in passing political reform -- I know
it's not over yet, but it's making good progress -- and in
reaching out to the united States on a number of issues. so I'm
pleased with the way things are going now and very appreciative
of the work the Prime M1n18ter is doing.

Q
Mr. President, 1s there any difference of the
atmosphere of this meeting and the former meet1ng 1n September
with Prime Minister Hosokawa?
THE

Q

PRESIDENT:

With the meeting last september?

YQ&.

THE PRESIDENT: I don't know how to describe it.
That was also, I thought, a very good meeting. But I have an
intense int@rest in the changes that are going on in Japan now
and I am watching them W1th great admira~ion. AS you know, I
think, based on what I said when I was in Japan for the G-7
meeting, I strongly feel that both our nations have a lot of
changes to make. And it's always difficult to make change. So I
think this meeting -- there's a lot of feeling that we share a
certain destiny here -- the Prime Minister working on his
polit1cal reform measures, and I've been work1ng on trying to
open the trading systems through NAFTA. I really very much
respect what 1s g01ng on in Japan.
THE PRESS:

Thank you.
END

12:25 P.M. PST

THE WHITS HOUSB
Oftice of the Press Secretary
(Seattle, Washington)

BACKGROUND BRIEFING
~y

SENIOR ADMINISTRATION OFFICIAL

November 19, 1993
The Ranier Club
seattle, Washington
2:00 P.M. PST

AMBASSADOR MONDALE: The president and Prime
Minister HOBokawa met for a little over an hour. 'They met first
privately for about 20 minutes, and during that discussion they
discussed NAFTA. The Prime Minister congratulated the President
on that progress. And the president brought up political reform
and the proqress made in political reform in Japan. They
discussed the political reform issue in some detail, and then the
President invited the Prime Minister to come to washington on
February 11th as a part of the scheduled meetings incorporated in
the framework agreement.
They discussed GATT briefly, the 1mportance of using
these two to three weeks remaining to make progress on that
issue. And that was fundamentally -- bas1cally what they
discussed.
In the larger meeting they began by d1scussing North
Korea and the importance of the United states, South Korea and
Japan coordinating closely their mutual efforts to bring about
change 1n North Korea in terms of the possibilities of develop1ng
nuclear weapons and delivery SY8tems.
The Pres1dent recounted the American poSition, which
think is well-known to you, that we're trying to engage the
North Koreans in a way that they will permit resumed IAEA
inspect10ns of North Korea, resume a dialogue w1th south Korea.
And I think that formulat1on 1s known to everyone here.
I

They discussed next the relationship of the united
States with China, and the President said that we very much hope
to improve relations with Chlna. We have some issues -- trade,
weapons proliferation and human rights -- that we're very seriOUS
about. we're trying to reach out to find a way of moving to
improved relatione with China.
Prime Minister H080kawa said that he was encouraged
by the progress 1n at least the nature of the dialogue as he was
following 1t between the United states and China, and he hoped
that progre8S could be made on that matter.
Then they discussed the framewor~ negotiations, the
Bo-called "basket talks" that are underway; went back to the
question of meeting on February 11th to review the proqress in
those matters. Both spoke generally about that and both talked
about the exciting development ~Q~Y -- announced today bp-t.W04G.M. and Toyota.
G.M. will be dlstributi.n9 "IJu"tx'1.;<I.n- Pc-_c}os.,;AL'\.
cars directly through, I think, eome 100 Toyota ro~~1~ c~rta1n
distributors in Japan, and made a co~mitment to Be! 4 f tho k11~
n\Ullber of cars. And both of thell\ aa1.d this is A B yn 0
of cooperation an~pr09rQse that is needQd.

-

2 -

The President concluded his portion of the
discussion by expressing his vision about developments in
international economics. But I think I'll stop there and let my
colleague pick up on that. And then I'll step back if you've got
some more questions.
SENIOR ADMINISTRATION OFFICIAL: If I could
reiterate, just underline the Toyota-G.K. deal 1s that it will
result apparently in 20,000 more vehicles sold into Japan, which
is double the amount now Bold in Japan by G.H.
Let me make -- just underline the three pOints that
the President made in stating his vision of tbe economic
relationship between Japan and the United states as a kind of
follow-on from the vision that he's been unfolding about sort of
the global economy.
The first was that he wanted it to be a relationship
in which the United States and Japan worked closely with Europe
to develop and fOllow polic1es that will stimulate global growtb.
In other words, a macropoint.
The second thing he said was that he saw a day when
all major industrial nations have equal openness to investment
and to trade. And he said that at that point, when there is that
kind of equal openness, then it would be clearly either the fault
or the merit of individual companies and how they succeeded in
part1cular competitions.
And finally, he said that he saw this framework as
one that was 1ntended to yield concrete results.
so those were the three pOints that he concluded the
meeting with. Having said that, I'll get Ambassador Mondale back
and we'll take questions.
Q
-- this morning -- (inaudible) ~- bilateral
talked about the importance of Japan stimulat1ng its economy.
Have you heard any responses from tbe Japanese -- (inaudible.)

AMBASSADOR HONDALE: No, the only discuss10n of that
in the meeting wh1ch I attended was that which my colleague
mentioned. The President's description of his vision and the
f1rst element of that vision was the industrial1zed world
harmoniz1ng policies and, in this instance, getting the
stimUlation that is needed for growth. But that was the only
d1scussion in the larger meet1ng.
Q
-- Japan's historiC resistance to importing
American agricultural goods -- (inaudible.)

AMBASSADOR MONDALE: Not at the meeting I was at.
They talked about GATT and the importance of makinq progress in
GATT. The Prime Minister at the news conference -- you may have
been there -- was asked about rice, and he said that it was a
very, very difficult issue to be dealt with in Japan. And he
mentioned that they are in the middle of a political reform f10ht
and they would like to keep -- and thus, this issue was doubly
difficult to deal with. But that was the d1scu8s1on. That was
on the record at the news conference.
Q
Beyond talk1no about tbe need for the United
states and Japan and south Korea to cooperate in trying to get
North Korea in resumption of the lAEA inspections, was there a
discussion on ~peciflc8 such as a deadline on resumption --

SENIOR ADMINISTRATION OFFICIAL: Maybe I can go off
record a little bit. There was a question ot whctho~ therp
was a specific deadline. And it was pointed out that really thatwould depend upon circumstances' that we were worri~d about the
deteriorat1ng capacity to monit~r developments in North KO~-~~ tn
the nuclear 1ndustry.
This was a matter, of ~ou~c~, which
e
~he

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- 3 -

IAEA handles, but th&y are concerned about it -- and that we
hoped through diplomatic relations and d1scussions to solve ~h!~
problem, But if the IAEA arrived at a situation w:.ere th,:y co'~l:..i
no lon~9r assure the 1nt~grity af the surveillance system, then
another matter might be -- a much more serious matter might be
confronted by everyone.
Q
Speak1nQ of deadlines, 1s February 11th new
more or less the deadline for finishing -- (inaudible.)

AMBASSADOR HONDALE: For the first three -- there
are three baskets, as yo~ know. one is public pro~urement, which
is telecommunications, medical eqUipment, insurance, auto and
auto parts. Those baskets -- those negotiations are scheduled to
be completed, if I'm correct, before the February 11th meeting.
SENIOR ADMINISTRATION OFFICIAL:

You're

prob~bly

Sick of hearing this, but if you remember, the way the

discussions are intended to go is that the president and the
Prime Minister will meet twice a year at the G-7 meet1nq,
whenever it is, and then approximately halfway between that -that for each of those, prior to each of those, there will be a
sort of deputy's level meeting which we'll try to iron out any
d1sagreements or come to conclusions. so that the February 11th
meeting 1s the point, as Ambassador Mondale just said, is the
point at which we need to begin to come to concrete results with
respect to the first three areas in those baskets. But it's not
the completion of the fra~ework. There will be further
discussions, and we hope that this becomes the sort of central
way in which we d1scuss economic issues.
Q

What are the other baskets besides procurement?

SENIOR ADMINISTRATION OFFICIAL: procurement is one,
and within procurement are the specifics that Ambassador Mondale
just stated, which is telecommunications, medical eqUipment and
supercomputers. The second 1s autos and auto parts, and the
th1rd is life insurance.
AMBASSADOR MCNDALB:

If I can just -- another point

I had forgotten about, the President thanked prime Minister

HosoKawa for the progress that's heen made in the construction
industry and the new principles that have been announced. Those
regulations implementing those principles have not yet been put
in place, but they're important new princ1ples, and tbe Pr1~e
Minister was given credit for that.
Q
I just wanted to make sure I understand what
you said as far as the schedule. My understanding is that
January 1 deadline for the first three haskets is to be -SENIOR ADMINISTRATION OFFICIAL: It actually never
occurred to us that anybody would pose whether 1t slipped or not
-- because the maetinq was in early July, the idea would be that,
roughly, every six months there would be another meeting. We
never said that that was kind of an lro~clad rule and that it was
off track if that hadn't occurred. The President and the Prime
Minister have met twice. We'v~ had a change of prime m1nistera
since we had that discussion. There have been ongoing
discussions between all of the teams, so that we just set a
meeting at what seemed to be -- not what seemed to be -- what was
the most convenient time for the two of them to get together.
Q

By concrete results, could you specify amounts

and --

SENIOR ADMINISTRATION OFFICIAL; w@ll, I can't.
clarify it because that's sort of the topiC of the~n~~~~:~~~~Ei~
But it can mean anyth~ng from ag~~ements with resp_ct
r in
levels of increaae of imports to specific chanoes in law ~
regulation. But concre't.~ _;:.tl4'l conCl.e .....a a.n d s..--..·
..... -~ •~ L -f i. c: • ,...-:> ""
conceptual.
MORE

·
Q

.
..

(InaudlblQ.)

SINIOR ADMINISTRATION OFFICIAL: The U.S. has, with
respect to each basket, has a proposal on the table that 15
currently being discussed by the team. I think that rather L.ca~l
get in the way -- in the middle of each of those negotiations
that I'll let each of the baskets carryon with their own
negotiations. But, yes, of course, we have them in mind.
Q
-- Japanese -- (inaudible) -- showdown stage,
and was there any discussion on the part of the Prime Minister
about the Japanese ability --

AMBASSADOR MONDALE: I thought the significant thing
was that the meet1ng began with Hosokawa raising the Korean
issue. We had planned to raise it, but he raised it on his own
as the first question to be discussed at the larger meetlnQ. And
his points were that we needed to be sure that trilateral
cooperation was understood and pursued. We needed to see if we
could find ways to engage the North Koreans. And it was in that
spir1t that the diSCUssion occurred.
SENIOR ADMINISTRATION OFFICIAL: The question about
timing came up here, and that was discussed. Both -- maybe I
should do this off the record -- both the Prime Minister and the
President hope that China would press vigorously for moderation
on the part of the North Koreans. But basically, the idea here
was to make certain that the consultation and close contact on
these matter5 continued in th1s very difficult area.
Q
So there was no indication from the prime
Minister that the Japanese felt the need to -- (inaudible.)

discussed.

AMBASSADOR MONDALE: No.
That was not involved.

Q

No, that was not

When you say off the record, you mean on

backqround?
AMBASSADOR MONDALE: Yes. I haven't been 1n this
field for awhile.
(Laughter.) AS a matter of faot, based on my
many years, I don't trust either one of those -- (laughter). I
thought I'd just try it for the hell of it.
(Laughter.)
SENIOR ADMINISTRATION OFFICIAL: You'd be pleased to
know that the reason we were laughing when we came in 1s that Dee
Dee and Ambassador Mo~dale agreed that he would be on the record
as Ambassador Mondale; and they both agreed that was a good thing
since that was his name.
(Laughter.)
AMBASSADOR MONDALE: And we agreed that my colleaque
would be off the record, because we don't think we can carry this
burden.
(Laughter.)
THE PRESS:

Thank you.
END

2:14 P.M. PST

fHE WHITE HOUSE
Office of the Press secretary
(Seattle, Washington)
For Immediate

ReleaB~

November 19, 1993

REMARKS BY THE PRESIDENT
AFTER MEETING WITH PRESIDENT JIANG OF CHINA
Rainier Club
Seattle, Washington
3:15 P.M. PST

THE PRESIDENT: Good afternoon.
I have just
completed a meeting with President Jiang of China, which I
believe w~s very productive. It was an important meeting for the
people of China and the people of the United states. Ch1na,
after all, 1s home to one of every five people who live on this
planet and is the world's fastest grow1ng major economy. We have
to work together on a w1de range of issue of re9ional
s1qnlf1cance and of global significance.

President Jiang said to me in a letter that we need
to talk to each other not because we have no differences, but
because we do have differences and need to resolve them. Today,
I tried to be as forthright and clear as I could about our common
interests and about our clear d1fferences.
We aqreed on the need to work on improving our
relat1onship. We know that what we do affects not only our own
people, but all the people in the world. When we work together
we're a powerful force for 8.curi~y and economic progress. As
fellow membera ot the U.N. security council, we have worked s1de
by side on many things, includ1ng Cambodia and Haiti.
In our meet1ny I reaffirmed the united states
support for the three j01nt communiques as the bedrock of our one
China policy. We agreed on the need to preserve the peace and
stability of the Korean Peninsula and to work together to enS 1lre
that North Korea resolves the world's concerns over its nuclear
problems.
We a180 discussed very frankly areas of
disagreement. I emphas1~ed to President J1ang the need for early
concrete progress on aspects of China policy and practice that
are of deep concern to the Amer~can people -- human rights.
including Tibet, trade practices, and nonproliferation.

Over the past few months we have had a number of
bilateral meetings in Beijing and Washington to explore the
progress -- the possib1lities for progress in these key areas.
Our mee~ing today is a part of that ongoing process. I hope it
can lead to substant~al advances.
In our meetinQ today I especially stressed our
concerns .0 the area of human rights. Last May I put forward key
human r1ghts conditions that must be met 1f Moet Favored Nat10n
status to China 1s to be reoewed next spring.
I told President Jiang that ! welcvme our dialogue
on human rights. I hope we can make Significant ~ro9ress on
these issues very soon. I mentionQd in particular the need for
prison access by the ICRC, the question of releasing political
prisoners, especially those who are sick. I particularly
mentioned the case of Wang Jontao. I asked for a dialogue on
Tibet W1th the Dalal Lama or h1s representatives. And I
discussed the quest1cn of prison labor and the need for our

..

c~stoms

:I

•

~ffic~als to v1sit cthe~ f3ci11t~~s as
ln our memor.andum of dnderstandl:1=.

alre~dy ~alJ~~ ,~~

In 0ther words, on t~e a~estlon ~f human =lchts, r
attempted ~o be q~~te 6peciflc, no: implYlnq that the United
states could dictate ~~ C~ina or that Ch~na ~culd d1ctat~ to th2
~n1ted states the gen?ral ~ondl:lon5 ~r instltutlcr.s of our
society, but clearly ~ec~gn~zlng that there are human rights
issues that are a barrier to tbe full resolut1on of normal ana
complete and constructive ~elations between our tw~ ~ations.
I also emphasized the need for progress on our trade
We discussed the needs for greater market access and
tor the protection of intellectual property righ~s. I think our
trade relationsh1ps al~ne indicate that the United States has not
attempted to isolate China, but instead has attempted to assist
its movenent into the global economy. After all, this year we
will purchase about d third of the total Chinese exports. And we
must do a bett~r job of selling our products and services :nto
that market.
~mbalance.

I also stressed that we look to China to participate
fully in internationel efforts to stem weapons proliferation. we
continue to have differences on these issues. But we agreed that
we should seek to resolve them through dialogue and negotiation.
This 1s clearly in the interest of both nations.
As we approach the 21st century, the relationship
between our two countries will be one of the most 1mportant in
the world. I believe that my meeting today with President Jiang
established our determination to build on the positive aspects of
our existing relations, and to address far more candidly and
personally than we have in the past the problems that remain
between our two natlons.
I look forward to continuing that
dialogue during tomorrow's APSe leaders meeting and in other ways
in the coming months.
I believe we have made a good beginning. I always
believe t~e best beq~nning in a challenqing situation ~s to be as
frank and forthright as possible, and I think that I did that dnd
I believe that he did that.
Let me make just one other comment about a domestic
188ue, then I'll answer a couple of queBt~ons. I'd like to
compliment the United States senate in passing the crime bill
today. It is absolutely 1mperat1ve that we now resolve the
differences between the Senate and the House bill, that we move
ahead to get 100,000 police on the street as quickly as W~ can.
It w~ll still take several months even after the bill is s1gned
to train the police and put them out there. It 1s a terribly
important iS8ue.
There are other matters in the b1lls, especially ~he
boot camps, that I think are important. But I am distressed at
the senate filllbuster of the Brady bill. I know they're g01ng
to vote one more time tonight. And before they leave, ! would
urge the United states to pass the Brady bill -- the Senate to
pass the Brady bill. It has been delayed far too long. And the
attack against it ~hat it will not solve all the gun violence in
the United States ignores the fact that it will solve some of our
problems by actually permitting us to do 8 weapons cbeck of the
criminal and mental health backgrounds of people who want to buy
handguns. It Will, it will turn up people who should not be ~~l~
to buy guns, many of whom ~ill have crlminal r~cor~s, some of
whom may have outstanding warrants.
Thls is an lmportant ~ssue for our country. I
understand that some people ~h1nk the politics ~re still
difficult. But clearly, it 18 the right thing to ~o. And! hope
the senate will reconsider its fillibuster and perm1t the
majority to rule. Ther~'s plainly a heavy Majorlty for th~ Brady
bill. That majority should be able to carry the day.

· .
~

Q
Hr. President. In the photo opportunlty prior
to your meeting Wlth Pre.1dent J1ang, he sounded reluctant to
even discuss in any grea~ detail ~he questions of human ~igbts
and weapons proliferatlon. What was hiS response to your
concer~s about those :ssues?
And since you appear so reluctant
to push Ch1na into any sort of isolation just what do you have
at your disposal to bring China around? 'What's your leverage
there?

THE PRESIDENT: Well, first of all, I think anybody
should be reluctant to isolate a country as big as China with the
potential China has for good, not only aood for the 1.2 billion
of China who are enjoy1ng this unprecedented economic growth, but
good in the reglon and good throughout the world. So our
reluctance to isolate them is the right reluctance.
On the other hand. I laid down a human rights pollcy
and a policy on trade and non-proliferation that we are going to
pursue: the human rights policy 1n the context of MFN renewal
next year, and the trade and non-proliferation policies in the
proper context that we are already pursuing. And I think that
the leverage is not 1nsignificant. After all, we do -- we are
thelr major purchaser of products and services. We have been
their commercial friend, as we should bave been. I do not
begrudge that. But we have got to have proqress on these three
fronts.
I would remind you these two countries have been
somewhat estranged ever since T1ananman sqUare. And the v~ry
fact that we talked today I think is a positive sign that both of
us are interested in trying to resolVe our respective problems.
I don't think you ever lose anything by talking to someone as
long as you're honest. And! don't think there was any doubt
about where the United States stands on these issues today.

Q

And his response, Mr. preSident?

THE PRESIDENT: Well. he was -- he did engage and
discuss the nUmber of those things. I think, given the nature of
the pol1tical env1ronment 1n China and their historic reluctance
to discuss these issues in public, the press statement that he
made was cons1stent with their h1storic pattern. But r thought
we began a dialogue, and that's all I th1nx I should say today.
Q
Mr. pres1dent. 1n your meeting with prime
Minister Hosokawa and also as you mentioned in your meeting with
President Jiang, you d1&cussed the subject of North Korea. What
can you tell U8 about your sense of how that situation is
developin~, whether we're moving toward a situation in which
you're g01ng to be faced with a deadline because of the lAEA's
inability to eventually continue to monitor? And what sort of
assurances have you gotten from the Chinese on cooperation on
that issue?

THE PRESIDENT: well, first of all, that's precisely
what we want to avoid. We want to avoid the Situation where the
lARA can no longer certify that North Korea is non-nuclear. So
you're 1n the worst of both worlds -- you don't whether it 1s,
but you can't say that it isn't. That is what we're trying to
avoid.
secondly you shOUld understand that perhaps next
only to South Korea, both China and Japan are deeply interested
in the same objective, they do not wish to have a nuclear North
Korea. And so they support the policy of trying t~ prev~nt thu~
from happen1ng.
All three of those coun~r1es have a great deal of
about what is most likely to bring about that rosult.
They are worried about whether sanctions would backf~re. And we
have discussed with them soma o~her options, perhaps taking a
3ensit~v1ty

..

".

more comprehensive 2.pproaCh to all 'che dlffere!!lc';'B l::'E;::.4c-.. l t," in
3n attempt to demonstrate again to Nor:h Korea t~at ~hey have
nothlng to be afraid 0i fro~ an honest dialogue wlth the South
Jnd from allowing the lnspectcrs to come back :~.
30 we 3re ~~oking ~t xnat some other options are
But this is ~ very important issue, and the U~ited ~tates,
~ ~h1nk, clearly has the cesponaibil1ty to lead on this issue.
And we are doing our be5~ to do it. We are on top of It. And I
know there are those who think we should have taken a different
course. who think. well. maybe we Just haven't been involved in
this. But I would remind you thAt South Korea, Japan, and china
are intimately 1nterested and personally affected by those
developments. And we have consulted extensively with all three
of them all along the way, and we are pursuing the policy we
think has the best chance of success.

now.

Q
Mr. President, in advance of this meeting, one
journalist described Japan's historic posture toward the united
statel> as one of "obsequious arrogance, namely the endless
stonewalling of various trade 1ssues. It took us no less than 22
years to 9~t Washington apples into Japanese markets." What is
your sense of the posture of the new Japanese government toward
mov1ng things on so we will not have to wait 22 years, for
instance to get Amer1can rice into that market?

THE PRESIDENT: This 1s a different government and a
different tlme with, I th1nk. different objectives for the
internal economy of Japan. I think that the present policy is
not sustainable. On the other hand, this government was elected
and this prime Minister was elected to deal with a wide range of
iS8ues. They are working on their polit1cal reform agenda now.
And I think they will conclude it soon.
The united states supports those efforts at
political reform and believes that they should be encouraged.
It's part of the change that is sweeping the world. After that,
I believe that Prime Minister H050kawa will move seriously on the
two great economic issues that we share ~n common -- one is whet
should be done to make sure that at times like thts When there'S
a global recession, the Untted States, Japan and Europe follOW
poliCies that will promote hiQher rates of global growth, because
we can't grow unless there'~ a global economic growth pattern.
Secondly is, what can we do to follow up on our
framework agreement 1n which we 1dentified some very specific
areas in ~h1ch we expect mutually to work together to get real
results. My vision, as I said to Pri~e Minister Hosoxawa, for
Japan is that as we move toward the 21st century, Japan will
become like other great powers in terms of its openness to
investment and to trade, and that together we will help to create
a world of far more sustained and sustainable growth and
opportunity for our own people and, in the proceAS, for the
develOPing nations, as well.
Q
Mr. Pres1dent, you just mentioned three
communiques in one China policy. Does that mean somebody raised
the issue of TaiWan in the bilateral meet1nQ1 And seccndly,
since you've visited Taiwan four times and most knowledoeable of
the Taiwan issue, what you want to do in deal with U.S.-Taiwan
relations?

THE PRESIDENT: I have been there many times. !'ve
been there five times. actually. And I haVe been very 1M~rpssed
with the remarkable transformatlon of the country as It has
gotten more prosperous and more democrat1c, and impreDGod ~.~o by
~he amount of investment from Ta~wan ~nto ~hina.
So ~t se~~s
that the two ~ountries are getting along on a comm~~~ial ?Rsis.
even as the rest of us are ~onfronte~ w1th pollt1cal d11em~as
from time to time.
whatev~r.

We did not really discuss tha~ today in any datail
The policy of the United ~tates on on~ China :s the

• & ..

following the Taiwan £alat1ons Act, nor does it pr-=clu'::" "' hWlI
the strong economlC relatlonsh1p we enjoy with Talwan. The~e's a
representative, as vou know, her~ at ttis meeting. So r feel
good about where we'are on that. But I don't think tha~ w111 b~
a major stumbling block 1n our rela~lonship with China.
r rhi~~
~e can work through these other things that the practi~al
ingenuity ~f ~he Chinese people themselves seems to be at lease
on a course to resolvp that in some form or fashion in the years
ahead.

Thank you very much.
END

3:30 P.M.

PST

T~E

~~I:E

ci :he
(Seatt:e.

~ff:ca

Fer

:~wedlaLe

:N

HOUSE

?r~ss

secretary

~ash~nqtc~1

Release

NovemDer !3.

REHAR~S

TCAST A7 ,iORKING

DY

~INNER

TH~

1993

PRESID~NT

WITH APEC AND

E~SINE5S

LtADERS

four Seasons Hotel

seattle, Washlnqton
o:~o

P.H.

PST

natlOr.s and
washln~ton
dur~nq th1s

THE PRES1DENT: ~o my fellow leaders of the APEC
d16~lngu~shed guests, we gather here ton1ght in
State at 3 historlc moment. At least two other t~mes

century a great Qlobal struqqle has ended and a new
era has dawned. That has happened aga1n today. It falls to each
of us as it fell to leaders then to imaqine and to build a new
future for ou~ people. I deeply appreciate the willingness that
each of you has 5hown ~o make the lonq trip here to be together
today.
I want to express my appreciation for the warm
hosPitality of the people and the elected officials of th1s
beautiful clty of Seattle in the Everqreen Statelo! wash1n9ton.
All c: us 1n the AS1an Paclf1c live as ne1qhbors1n a region that
haa lonq been characterized by both its commerce and its
conflicts. The question for our future 18 whether we can reap
the bo~nty cf the Pec~f1c without bring~ng it storms. There are
vast ~ifferences amonq our economies and our people, yet these
can be a great source of enrichment.
! hear the complex music of our many d1ffer1nq
languages and I know that in each of them our words for work, for
opportun1ty, for children, for hope carry the same mean1nq. I
see the roo~s of our many ancient civilization., whether
Confusc1on or Ialam1c or Judeo-Chr1stian. I knOw there 1s much
we can learn from each others' rich and proud cultures. Above
all, I look a~ the perpetual motion of this region's ports, 1ts
fac~orles, ~t6 shipp1ng lanes, its 1nventors, its workers. its
consumers, and I know we are all united 1n a desire to convert
that restless enerqy into better lives for our people.

Tomorrow all of us will go for a day of discussion
on beautiful Blake Island. I believe that discussion can help to
foster among us a aense of community. Not a commun~ty of formal,
legal economic integration a5 in Europe, but a commun1ty such a.
neighbors create when they sit down together over cotfe~ or tea
to talk about house repairs or their children's schools; the kind
of commun1ty t~at families and friends create when they gather on
holidays to rejoice in their common blessings. Such gatherings
are not driven by charters or by-law&, but by shared interests
and asp~ratlCn& -- bonds that are often more powerful endurlnQ
than those which are written down.
So it is wlth this commu~ity I hope we can create
toqether. We have common concerns about the cond1t1ons in our
neiqhborhood -- about regional trade barriers, about our shared
envi~onment.
We have common aspirations -- good ~obs for our
~orkers, r1s1n; standards of ~iv1ng for our children and peace
among o~r nat1ons. And now we have a common f~rum for pUrsUlng
our common goals. ~on1Qht and tom~rrow let us cor.tlnue
develop~~~ a sharad sense of purpose as expaus~ve as the ocean
that un1tes cur lando.
~ur qrea~ r.ovel~~t, Herman Melv1l1e, cnce
abou~ ~~e pac~=ic Ocean.
He said 1t rolls the midmost
~he wor.ld. the I~dian Ocean and the Atlan~lc be1nq but

wrote ~h~s
waters of
~tS arm •.

Itus ~~lS mys~er~:UE. =lV~~e ~aclf!: :ones the wur!~'s whole bUl~
about, ~aKe5 all :C2StS bay :0 :t. seams the ::de bea::ng of the
Earth. Worklno as ~Qr:ners we have a hls~orlc opportunlty :0
~arne5s t~e t:des o~ ~ne F6Cl~:; so that :~ey reay l~ft all our
people t~ a ~etter :Jt~re.
Tcr.lq::t : dSY. each =-!1d every one ~f you ~e6r to
me 1n a toast := the pac1::c :o~rn~r.lty
a regloL at peace,
prosperous and fre~.
~ea=, hear.

Thank you.

( A.ppl ause . )
END

8:35 P.M. PST

THE WHITE HOUSE

Office of the Press Secretary
(Seattle, Washington)
For Immediate Release

November 20, 1993

REMARKS BY THE PRESIDENT
IN STATEMENT REGARDING APEC LEADERS MEETING

Blake Island, Washington
12 : 4 5 P. M.

PST

THE PRESIDENT:
Good afternoon, ladies and
gentlemen. As we approach the end of a week of APEC activities,
we've just completed three hours of meetings among 14 APEC
economic leaders. It's been a pleasure for me and an honor for
the United states to host this week's events and to convene this
historic meeting on this beautiful island.

The Asian pacific region will provide an
increasingly vital role for our nation and the world. The region
is home to 40 percent of the world's people, include the world's
fastest growing economies, and the leaders standing here
represent half the world's economic output.
This week's events have been a success for all the
region's peoples. W~'ve laid a foundation for regional efforts
to create Jobs, raise incomes, expand business opportunities and
foster regional harmony. This week we took several tangible
steps toward these goals.
On Monday and Tuesday over 1,500 business people
engaged in trade came together to focus on the region's potential
to benefit their bottom lines. Later in the week, our ministers
agreed to a package of market-opening measures designed to help
bring the Uruguay Round to the GATT to a successful conclusion by
December 15th. And the ministerial meeting agreed to develop an
action plan in the near future to reduce barriers to business
throughout our region, such as differing product standards.
The capstone of this week's activities has been this
first-ever leaders meeting. Our discussions this morning, which
will continue in the afternoon, give us a chance to become better
acquainted and to compare our visions for our own nations and for
our diverse and d~lamic region. By meeting and talking we've
been able to forge a stronger regional identity and a stronger
purpose. That purpose is captured in the Vision statement we
just released.
The statement sets forth our shared view of a
regional economy characterized by openness, cooperation, dynamiC
growth, expanded trade, improved transportation and
communications and high-skilled, high-paying jobs. We've
welcomed the challenge of the Eminent Persons Group to achieve
free trade in the Asian Pacific region, advance global trade
liberalization, and launch concrete specific programs to move us
toward these long-term goals.
In.our discussions last evening and today, I've been
struck by-hOM-~any priorities we share -- strong, sustainable
economic growth, more open markets, better jobs, working
conditions and liv1ng standards for our own people, better
edUcation for our children and our adults, and prote~t.lon of the
region '·s ...unique environment.
Of·~ourse,

·aen~~-tho&e~alB.

we will not always agree on how to

But at 1eQst now, for the first time, our

HORE

- 2 -

region has a means to hold serIOUS policy discussions on such
questions as how to remove trade barriers or how to sustain
robust growth.
If you ask me to summarIze In a sentence what we've
agreed, it is this:
We've agreed that the ASIan Pacific region
should be a united one, not divIded.
We've agreed that our
economic policies should be opened, not closed.
we've agreed ~o
begin to express that conviction by doing everything we possibly
can to get a good GATT agreement by December the 15th.
With today's meeting, we're helping the Asian
Pacific to become a genuine community; not a formal, legal
structure, but rather a community of shared interests, shared
goals and shared commitment to mutually beneficial cooperation.
The development of that community is certainly in
the interest of the American people and all the people of this
region.
We should be pleased with the progress we've made. And
let me say again how honored I am on behalf of the United states
to have had the opportunity to host all these leaders.
Thank you very mUch.

Q
Hr. President, there was no sign of any
flexibility from China in the area of -- or with Japan on the
trade imbalances. Can you say, were any minds or attitudes
changed during the course of this meeting?
THE PRESIDENT:
You're referring to meetings that I
had yesterday and discussions we had. Today I'm the host of the
meeting where we discussed economic issues, and I, frankly,
believe by -- I'll make you a prediction on the economic issues
-- by next June or July, certainly by a year from now, I believe
that the responsibilities of the united states and Japan to do
more to promote global economic growth will have been in large
measure advanced. And I think you will see that we've done some
of the things that we should -- both of us.
So today, we focused
on what w~ could do together economically, and I think that's
what I ought to respond to today.

Q
Hr. preSident, the fact that -- representatives
from Taiwan and China to join you to discuss about the issues -I wonder, how do you find your respective vision for these areas?
And in your opinion, how does this meeting affect the
relationship between Taiwan and China?
THE PRESIDENT:
Well, that's something for them to
determine.
I invited, as the host, all the members of this
organization, which was the appropriate thing to do.
Actually,
I'm struck by how much common investment and common activity
there is now, and by the common strategies of high savings and
investment, hard work and entrepreneurism that are sweeping that
part of the world.
It 1s immensely impressive, I think, to
anyone who has observed it.

Q
Hr. President, what do you think about
Malaysia'S absence from this meeting. And what do you think
about the EAEP -- the East ASia Economic Party?
THE PRESIDENT: Well, I'm not -- first of all, I'm
in favor of anything which increases regicnal economic
cooperation and advances the economic interests of peop~e as long
as it doesn't close off economic opportunities for ~~hc~o.
~r.~ x
wish Mr. Mahathir were here and I look forward to meeting him
someday.

Q
Mr. PreSident, how serious is the situati~n in
North Korea as a threat to this whole region? And is that
something that you discussed today at the meeting7

THE PRESIDENT:
We didn't discuss it today, but It
was discussed yesterday.
And I look forward to meetIng wlt~
President Kim in Washington.
He's gOlng tack to W;;:;~l .. :_:;; a. r
we'll be meetIng there and talking about It.
It 1S a source of
concern to us. but one that we belIeve we can find solutions to.
And we're going to be taking some Init\at1ves 1n that area In the
not-too-dlstant future.
Q
Mr. PresIdent, 15 New Zealand now f1gurat1vely
out of the cold. If not llterally? Have you now restored the
pol1tical relatIonship w1th New Zealand?

today.

THE PRESIDENT:
(Laughter.)

Actually, we're out in the cold

The Prime Minister and I had a good talk about that
and we agreed that we would at least take a good look at our
relationship and see what else might be done. We have an awful
lot in common and a lot of natural instincts toward friendship
and cooperation. And I think both of us are uncomfortable with
what has become of our relationship over the last several years.
So we'll take another look at it; we may have something to say
about it, but not today and not tomorrow.
Q
Mr. PreSident, when you are talking about NAFTA
you mentioned several times Taiwan, Japan and China are the three
major obstacles when you're dealing with u.s. trade deficit. A
lot of people think that was not very helpful when you're trying
to cooperate with Asia countries.
I was wondering after this
meeting --

THE PRESIDENT: Wait, wait, wait.
(Laughter.)
can ask the question, but let me restate what I said.

You

What I said to the American people was simply the
fact that they -- the people who were against NAFTA acted as if
Mexico essentially was g01ng to displace the entire industrial
production of the United states, or significant portions of it.
And I pointed out the fact that we have a trade surplus with
Mexico, and that our largest operating trade deficits are with
Japan, China and Taiwan. That's simply a fact.
That's not an
act of hostility, it's just a stated fact.
So, go ahead. ask the
question.

Q
The question is, after this meeting, will you
think that in the future that United States is willing to use
cooperation instead of Article 301 type of trade retaliation
threat to deal with these problems?
THE PRESIDENT: well, I think, first of all, we've
used Article 301 rather sparingly. And secondly, we do seek
cooperation. That's the whole purpose of this meeting. That's
one of the reasons that I wanted all the leaders to come here,
because I think that we have so much in common in terms of our
shared views about what the economy of the 21st century ought to
look like, and what our roles ought to be in 1t that I think we
can do a lot through cooperation. And we're working very hard to
do that.
In the end, 1f we're going to develop the right kind
of free market sYRtem, it 1s going to have to be a cooperative
one. But it's going to have to be one that is plainly in the
interest of all the people involved in the system. That is,
everyone has to be going forward together.

Q
Mr. PreSident, how hard and fast is the
December 15th deadline for successful completion of the GATT
Round? It's slipped a couple of times previously. Would you be
prepared to extend it if you don't have agreement by then?
THE PRESIDENT: Well, it'S not entirely up to me,
and, of course, we have certain legi.f>lat1.'1" ""'"'th.;I2.-l. .... Y lr.. ,.... .. L·~..., ...
as you know, that controls that.

All I can tell you is that I think we want to take
this moment of opportunity that, frankly, the House Qf
Representatives -- and I hope today that the Senate -- wIll gl.~
impetus to through NAFTA and that we are trYIng to gIve energy to
through our meeting here and through our clear statement again
that we want the Asian paclflc region to be united, not divided,
economically; open, not closed; and commItted to GATT.
We want
to seize this moment to try to get It done now.
And I've always
found that when you're workIng on an obJectIve you shouldn't
discuss what you'll do If you don't get there untIl after you
don't get there.
We stIll think we can be there and we're going
to try.
Thank you very much.

END

12:56 P.M. PST

THE WHITE HOUSE
Office of the Press Secc0tary
(Seattle, Washington)

BACKGROUND BRIEFING
BY
SENIOR ADMINISTRATION OFFICIALS
November 20, 1993
Blake Island, Washington
2:00 P.M. PST
(in progress)

Q
-- extension of sanctions. What I would like
my colleague
open communications -- put these set of
restrictions on -- what they're dOing?
SENIOR ADMINISTRATION OFFICIAL: Each delegation can
brief their own delegation. First of all the meeting is still
going on. We can talk about generally what President Clinton
said and try to characterize more generally what others said.
SENIOR ADMINISTRATION OFFICIAL:
you take it where we are.

Right, why don't

SENIOR ADMINISTRATION OFFICIAL: Well, just a little
bit more about the atmospherics. I think last night really was
the ice-breaking event -- dinner in which you could just see the
chemistry of these leaders beginning to work. The table really
was too large for one conversation, so it really became a number
of conversations.
But I think a feeling -- tone set by the President
of informality and warmth, which I think was picked up on. At
the end of the evening he gathered them all together downstairs,
told them he was going dress with a leather jacket and his boots,
hoped that they would all dress informally before they came out
today.
The President started off this morning saying that
there would be -- basically divide the discussion up into three
segments. The first segment would be an opportunity for each of
the leaders to talk about their general sense of ~riorities and
challenges in the region. Then the second session, which took
place after the break, dealt more with their individual domestiC
priorities. And then this afternoon they're talking more about
things that can be done together, the mechanisms that can be used
to work together more closely.
The President summed up -- spoke briefly at the
outset of the session and summed up -- pulling a number of the
strands of the discussion together at the end -- this morning,
basically talking about the mutual responsibilities that the
countries in APEC have. On the one hand, the responsibility of
the developed countries, including the United states, to promote
stable growth through the kinds of strategies that he has been
pursuing, that other leaders in the room from developed countries
spoke about.
But he also said that as we saw in the NAFTA np.hM~~,
there is a sense among many Americans that the 1n~ern~~i~~~ h t
trading system has to work more in the United states' favor, t a
we've had a ~riod of 1ncre~B1ng produ~t1vity so that we became
more competitive , but that is not al.ways CLc",1:ing new joh"'!he ;>'nr1
that's the only way in which the industrial couutri<>o -can
MORE

- 2 -

creating new jobs is through two strategies: One is to be
working more closely on macroeconomic policy among the larger
countries, specifically mentioned Japan; and second of all,
expanding markets -- that if production and productivity and
growth and open markets are to continue 1n the developed
countries, then there needs to be continued trade expansion and
new customers. So the President really sought to strike that
balance, I think, in his comments.
Let me just suggest three or four themes that I
think have emerged from the morning generally. One is, I think,
a general sense of APEC's potential. There is -- I think there's
SOme continuum in terms of how fast these countries want to go in
developing APEC, but I think there 1s a common view that this has
been a significant step forward for APEC, for the leaders to meet
together, and that they do want an Asian Pacific economic
community with a small "c". That is not a European community,
but a framework within which they can work on problems together,
as I said before.
Second of all, the other theme is -- a second theme
that emerged is the integration of the Asia Pacific region. I
was stunned by a couple of statistics: 66 percent of the trade
of the APEC members is among themselves, compared with about 60
percent, for example, for the European Community. This is
already the most integrated region of the world economically.
And I think what we're now seeing here is some institutional
framework to that.
Third, I would say is the diversity. There are at
least, I think, three distinct perspectives in the room. one is
that developing countries, those that really are still in fairly
early stages of development, have serious environmental
population and poverty problems. The second is the tigers, the
newly industrialized countries who are now beginning to look at
the new generation of their problems; a need for infrastructure.
One of the leaders said that these nations in Asia will spend a
trillion dollars on infrastructure in the next 10 years -- ports
and telecommunications. That's obviously enormous opportunity
for the United States.
And then, finally, the developed countries, the
advance countries -- we're actually, the United states, have the
highest rate of growth among the developed countries who are
here. They're all facing a different problem, a problem of job
creation. And, again, the President's pOint, that requires open
markets.
The last point I would say is I think there is a
desire here for unity among the Asian Pacific countries. I was
quite struck by one of the Asian leaders who said that he was
very afraid before the NAFTA debate that there would be a line
drawn down the middle of the Pacific; and that the United states
was on the verge of withdrawing and retreating; and that the fact
that we now are moving towards NAFTA; the fact the president had
seized the leadership of this meeting reassured him that the
United States was gOing to remain engaged in the world and there
would not be a line drawn down the middle of the Pacific.
I guess the final point is that I thlnk there was no
discordant note on is the importance they all see for GATT. Now,
there obviously are -- each of them would probably draft a
different treaty. There are still differences on issues. But
almost to a leader, they spoke of the need to complete a GATT
round. It'S really important to developing nations in ordeJ: [IoH
them to continue to have export markets as well as for the
developed nations like the United states, which need to have
reduce barriers to create new markets. So I would say from the
three hours this morning, those

that emerged.

ar~

the major themoq, L

tht~k,

-

3 -

SENIOR ADMINISTRATION OFFICIAL:
the vision statement --

Yes, let's go to

SENIOR ADMINISTRATION OFFICIAL:
it real quickly on the vision statement.

we're going to do

SENIOR ADMINISTRATION OFFICIAL:
Let me give you a
real -- picking up my colleague's point about GATT, notice in the
third paragraph the commitment of leaders to have the Asia
Pacific region take a leadership role, take concrete steps to
produce the strongest possible outcome in Geneva.
This is the
first time the region is getting together as a unity and
presenting some ideas in Geneva to move the process forward.
I think there are a number of important comments in
the vision statement to draw attention to -- in particular where
the leaders welcome the challenge that they were presented by the
Persons Group to achieve free trade in Asia Pacific.
Over the
longer term, that's a visionary statement.
I think their agreement to have a finance ministers
meeting that's gOing to work on promoting capital market
developments has a meaning as this region integrates itself, has
huge infrastructure demands that my colleague was just talking
about, better capital markets, more integrated financial markets,
which happen to be an area in which we're extremely competitive
in financial services, go a long way toward helping to integrate
the efficiency of the capital side of the economies.
Lastly, I think there's important ideas both on
education.
All of the leaders today talked about their focus on
education both for students, children coming up through the
system, but the retraining of workers and the training for new
jobs as the populations adjust to the challenges of competition.
So the commitment to establishing an APSC education program to
develop some of these ideas will provide help over time on the
training side for all 14 of the economies.
And last, they came up with the idea of a business
volur.teer program, which is like a jobs corps for the region as a
whule, where you take some retired executives or you take
exis~1ng executives and they share human capital, they share
maoa~2ment skill and training skills with others in the region.
SENIOR ADMINISTRATION OFFICIAL:
I'll tell you one
The President -- about six months ago, the president sent
my colleague out to make the circuit of all of the countries who
are herA to be1in to develop these kind of common themes.
And so
at hjs dir~ct~on, the idea of beginning to draw thi~ into a
g~~~tec S2nse of common ground has been going on for about six
mOflths.
th~~~.

3S~lIOR

ADMINISTRATION OFFICIAL:
could I add one
think i~ important -- that is the role of the
p~~~~te SQ~'0C.
I think it's fair to say everyone recoq~izes
th,,:':e 2.r2 :o'i.:.J·;·. ·~t economies and that's what make economies tick.
Sc T thi~k the.:e's a common recognition that govenl:nellts ought to
try to remove borriers and get out of the way of the private
secLer.

otr.~~ the~0 t1~t I

SENIOR ADMINISTRATION OFFICIAL:
Let me just go back
if I might, for a moment on the president's 5tate~ent
as he wr~pped up.
He talked about the kind of internal reforms
he was introducing.
Each one of them as they went aro.md i'\!}(l
talke·j C',}J":)tit some of the things they were doing at home, and he
went. t.h:.-rJuo;;n the reformc he's undertaking thi'lt you all a::.-e
fa7.;ilic:· ,.,ith.
He then went on to tell them -- I've got a few
quo~es here -- all of us had to he~ome -- talking about the
nations -- all of us have ha~ to be~Qme more product1v~ jn order
to compete.

OVQ~ this,

- 4 -

Then he saId a few seconds later, but in the last
few years, ironically, productIvIty has not led to more jobs and
higher wages for many Americans. And he said that's true of some
other industrialized countries. He pOinted to the exampl~ of
France, where for several years growth has actually -- growth III
Germany, but unemployment in France has never gone below nine
percent. He said that's one of the great challenges of the
industrialized nation states.
He said, "From that I conclude wealthy countries
need two things in addition to their internal reform. First,
beginning with Japan, Europe and the United States, we must find
ways to coordinate our macroeconomic policies to achieve more
growth." And he noted that he and the Prime Minister of Japan
had talked about that here in their bilateral and it was
something they were working on, and he was looking forward to
more conversations with him.
Secondly, wealthy countries must find ways to expand
their trade, too. He talked about the fact that in the past it's
been the developing nations that needed to expand their trade
very rapidly as a means of growth. But given the current
conditions of the wealthier countries, they need to find new
markets for their products. And one of the things he's hopina to
achieve here, obviously, as he was hoping to achieve through
NAFTA, was a way to open markets in Asia for American products.
I wanted to come back -- there were a number of
people in the room who congratulated him on NAFTA. They thought
it was an important signal to the world about America's opellOess;
they had been worried whether America was going to turn inward;
and that this was an important signal to them that APEC would
work as a forum because America would not be turning inward. It
went to the pOint that my colleague was raising about the
division between an Asian Pacific and an American Pacific, and
that's exactly what they'd like to avoid.
Q
What new ideas or pressures can this gnp'!'
bring to bear over the next three to four weeks that ho\' (".j' 1~ been

SENIOR ADMINISTRATION OFFICIAL: Well, fl 1">- nf
i"'s are agricultural producing countries -c~-': ~(-:~: ' . -".-: ':xporting countries.
They have been - - 'i r,\I:"oer of
th:-: '1.;\-' '_ ,_ .,-.\ active in the Cairns Group, which I t:;~:C",k now
n".'-.c'::::. 1:-.) :'t·r~nr.. e intensely active, trying to encour:<,j" (1 ~
I:'·.;L~':-"-_Z.I,:- te, l~ove beyond refighting old battles 0'1',1' .:~ai': :,ouse
c;.'::: C-',:: ,):. t!.<:: business of putting the pieces of tJ1i' t0SPtf,er.
~r:_:, C,l

tL ':_.£:.

-.;~ market access, these countries ha'" " r. J"i',2H\1
': . . ~'·~r barriers.
TtJE:!"c are obviously 1-, ~fc•• :.:'!1~
P::',:'i..'::. nc'_"':: that we have with each of these COloIJ1.:J" Ll'. , but: a
VF,,-:;', H·'-Y ~-.'::j"lJrlg commitment, and I think a great CI)lf'rphf':lSl.(1n
1!1~:c,:::,:" L

tll:~t

if G.'':''~ :;'5 not
tr~~tng bfc;~.
~nd
irJ+:;:--:-~?'_ ~tc:;''o
}1 an

completed, that the world wil: ,,"">cd~ ir..ro
I thought one of the quite in'~rn.·~i~0 was no
Asian traJ;ng bloc. They ver~' ~\-:)'> ·',111'= a
_ :,11ng system :~II " .. ldch there are t!1,"·
"
'~b locs
but that aro:, ne>t exclusive.

T--'_.: - : ),' -' ;:-C-,
<:.:

J

ve'-

f,;;;.IOR ADMINIST!tATION OFFICIAL: It's ".:.~;o t'·ue, the
t.:..ct o~' 1I,:-·'!ting here today enhances the pro!>u<....;i:S of GATT.

:, • • • :

•• ; - , ' ' : :

o
tdz. ~ ::;,

I understand that, but are thp~L ~~y s~ecifi~

\)t"C'~OS2..~.. :..;

:,~~:IOR

ADMINISTRATION OFFICIAL:

'IhEJC \~C.2

~,

<.:: -;. ~:,t'.~-:.
1~;le trade ministers on Thursda~ or Fried;.' Rr.u'Junc-:d
;),)-:~; __ .:. ___ .;.[. r.l~asures on market access.
I'm not rea] )_·1 fo\ll"i.liar
e;-,~-:~>. ~',' urief on it, but there was 0. Pl:~'-\..Y 5.1.gf\ifi.'l'I,,' ~'C1Lh<-t
ac.;I~~~s onnouncement that came out of this meeting.

s'
c

-

Q
any effect now

5 -

Why is there encouragement that this could have

SENIOR ADMINISTRATION OFFICIAL:
I think it gives it
momentum.
And I think deadline -- there's never been a trade
agreement in the history that I'm aware of that has not been
completed with a back against the wall of a deadline.
Q

discussion on MFN

and what impact that

would have on the
SENIOR ADMINISTRATION OFFICIAL: There was no
discussion in this meeting of that.
There were not -discussions were not about bilateral relationships as much as
they were about multilateral -- regional --

Q
In the past, U.S. officials had suggested that
the Japanese make concessions on the agriculture side that could
help break the logjam as far as the Europeans are concerned. Was
there any -SENIOR ADMINISTRATION OFFICIAL: Again, not today,
but this is certainly something the President raised with Prime
Hinister Hosokawa yesterday.

Q

Was there any indication or any given --

Q

The President was talking something about by

June or July
SENIOR ADMINISTRA'l'ION OFFICIAL:
I didn't -- he was
mentioning -- his reference about June or July had to do with
macroeconomic. He was asked on building stronger growth rates.
SENIOR ADMINISTRATION OFFICIAL:
I think -- I'm
sorry -- right now Hosokawa is engaged 1n putting -- he's in his
NAFTA battle, political reform, which he has said he will hav~ by
the end of the year. When he is done with that we would hope
that they would turn very strongly to a strong economic agenda,
both macro and micro.

Q
The U.S.-Japan set up the framework last July,
they said they would have agreements early this year and a
program by next July.
SENIOR ADMINISTRATION OFFICIAL: The other thing I
would just say, like Japan, if I could, is that the February 11th
meeting, I think, is really important, something we wanted to
happen here, because this was never seen -- this is part of APEC
-- this was never seen as part of the framework discussions. But
now setting a February 11th meeting date between the president
and Hosokawa becomes an action forcing event in terms of the
framework negotiations.

Q
-- said something yesterday about negot1ating
rice in connection with the GATT Round.
Is there any ind1cation
SENIOR ADMINISTRATION OFFICIAL:

We certainly hope

so.

Q

-- (inaudible) --

SENIOR ADMINISTRATION OFFICIAL: This was never -and I think we were all very straightforward about this, leiVling
up to this. This was not intended, expected, anticipated to be Q
negotiating meeting in which, like the G-7, you come away with
very, very substantial outcomes.
I predict that 15 years from
now, looking back on this meeting, will be far more significant
than looking bacy_ on the -- any particularly G-7 summit meeting,
because I think. whe.t-. is b.,.,g"lnn"lng to ho.Pl'on i.s tho ""'1nlut.\nn 'Of a

- 6 -

mechanism for cooperatloll In Asia, which has never eXisted
before.
Q
You said that yO\l were hoping that thE> .1?~:'·J ,,<.
will begin to deal with the economic issues after they get tl,e
political reform out of the way.
Is that your hope alone, or did
the Japanese, did Mr. Hosokawa, actually tell you, don't worry,
let me get through this, and it will be all right, and I will
begin to deal with these issues?

SENIOR ADMINISTRATION OFFICIAL:
Well, we think that
he ought to deal with these issues
he has said publicly in
Japan that he think there needs to be economic -- substantial
economic stimulus.
But he has a Diet right now that is, over the
next two or three weeks, in the House of Counselors, focused very
much on political reform.
So it's just like any other political
situation where he's got to get that major piece of legislation
through.
I mean, we're talking about over the next three or four
weeks.

Q
Is it fair to say that the President wants to
move faster on the beginning of ASia Pacific cooperation as many
of the other countries do, especially with regard to specific
goals for free markets?
SENIOR ADMINISTRATION OFFICIAL:
I'll give my answer
and then
I think there is a range -- we didn't start APEC.
this is an organization that was started by ASEAN and
APEC was
by Prime Minister Hawke, President Bush, Secretary Baker. And so
it's been evolving since '89. My sense is that most of the
people in that room want this to be a mechanism for serious
cooperation, although not a trading -- not a community with a
capital "C".
Q

Why not?

SENIOR ADMINISTRATION OFFICIAL:
colleagues have a different take --

Let me see if my

SENIOR ADMINISTRATION OFFICIAL:
In the first place,
APEC is a consensus organization.
You can show leadership and
move it but you're going to have to take into the account the
views of others.
secondly, it's only four years old. Thirdly,
it's incredibly diverse.
If you look at the people represent1ng
it -- it's such an historic event that such diverse cultures,
histories and countries could aaree on certain principles like
free market and freer trade over time.
So I think that's why the
vision statement is so important.
More specifically, you have
some countries like Australia that want to go faster, some
countries like some of the smaller ones -- not everyone in every
case -- some of the smaller ones would rather go slower.

Q
I get the feeling from listening to you and the
President and reading the vision statement that political
differences and concerns and reservations are totally put aside
in trying to generate a mechanism to enhance economic
cooperation.
Is that the case?
SENIOR ADMINISTRATION OFFICIAL:

APEC is an economic

operation --

Q

I understand that, but there's still bilateral

relationships -SENIOR ADMINISTRATION OFFICIAL:

Q

Absolutely.

-- and political differences.

SENIOR ADMINISTRATION OFFLCIAL:
And we have
important bilateral 8ecur1~y inta~o£t8 with
almost everyone of the countries in that room. With some we
have security p~edges and 6~r.ur1ty &greament~.
With som~ wn h~vp

~~txaordinarily

political problems.
The fact that there 1S a range of political
relationships does not mean that we can't come together to find
some areas of mutual interests --

Q
So you put them aS1de, in other words, right -for the purposes of promoting economic cooperation?
SENIOR ADMINISTRATION OFFICIAL: We've had bilateral
meetings this week that address those kinds of questions. This
is a different kind of meeting. This is talking about the
future.

Q
Let me ask specifically, how much would a
suspension of Most Favored Nation trade status for China
undermine what went on here this weekend?
SENIOR ADMINISTRATION OFFICIAL:
It obviously would
be an important step.
But we have made it very clear to the
Chinese that there are certain things that need to be done. We
believe these steps can be taken. We believe they're reasonable.
And I'm hopeful that they will be taken.
SENIOR ADMINISTRATION OFFICIAL:
goes directly to
this question about why -- this meeting does not put aside
political differences. APEC does not do that.

Q

-- (inaudible) --

SENIOR ADMINISTRATION OFFICIAL:
I understand that,
but there are bilateral concerns that go along with that, too.

Q
Could you answer the question of what MFN means
to the United states? I mean, let's say the Chinese disappoint
you with -- it's not possible for you to renew status, and then
Germany other countries continue to go and get these lucrative
infrastructure contracts. What does it mean
SENIOR ADMINISTRATION OFFICIAL:
speculate on what happens if.
Q

I'm not going to

But it's -- how bad is it?

SENIOR ADMINISTRATION OFFICIAL:
It's important to
us that we have the progress the President has talked to in the
human rights area so that we can continue an important economic
relationship and bUild on the relationship in other areas as
well.
SENIOR ADMINISTRATION OFFICIAL: Can I just go to
the skepticism that's coming out of some of these questions? I
just think you ought to understand coming into this kind of thing
-- you come back and say, well, you didn't get this -- why didn't
you come home with a deal on China?
The fact that these nations are here, talking this
way to the United States, that these nations want the United
States to remain engaged in the Pacific, they want the United
States there for security reasons, for economic reasons, for a
lot of other reasons. That's what -- they're here to encourage
the United States to remain engaged. They also want access to
our markets. You ought to judge this over a period of time as
you think about what the prospects here are. This is the
beginning of trying to create a mechanism, a forum.
What a lot of these nations said today, what the
leaders said today was that they welcomed the president'~
statement last night about creating a community with a small -in a sense of a family.
It was not European Communitv capital,
00.0.

'byh..f. _ ' -

.1_

- 8 -

important.
These folks want to try to work this out.
what I'm coming away from the conversations with.

This w~s

Q
Yesterday the President seemed to say in )115
speech is that there was a hint of this, that the U.S. wants to
continue to be involved in a security sense, but he seemed to
question to be saying, well, maybe we will not continue to be
strategically involved unless we get a piece of the action
economically.
Was that misinterpreted?

SENIOR ADMINISTRATION OFFICIAL: No, I think that's
a little bit overinterpreted.
I think the President said we have
had an important security relationship in this region, one that,
by the way, has been mutually beneficial, and it's not just
simply that we're doing that totally magnanimously, and that we
-- as my colleague said, our presence in Asia is a force of
stability. They don't want us to pullout of Asia in security
terms and then face the kind of rivalries they have faced between
Korea and Japan and China. The United states is a stabilizing
influence and it's in our interest for there to be a stable Asia.
And the President was not at all suggesting we're not about to do
that.
What he was saying is that we also want to share in the
economic benefits as well.

Q

So he's using it as leverage?

SENIOR ADMINISTRATION OFFICIAL: well, I don't know
if I would call it leverage.
He's saying -- our trade to every
one of these countries has increased 50 percent last year to
everyone of these countries or more.
And we've got to do even
better than that. They've got to deal with trade barriers, we've
got to become more competitive. The fact that we have American
business out here this week with us, it's not all government-togovernment. There are 2,000 businesspeople here in Seattle. We
haven't been as Asia-oriented as a private sector as have other
countries. That's certainly -- and Japan has moved much more
aggressively into Asian markets.
So part of what is happening here today is saying to
the American people there is a vast, dynamic economy in Asia. and
we had better be paying more attention to it, and there are
opportunities out there.
A trillion dollars of infrastructllre
projects -- that's telecommunications -- that's the stuff W~ do
very well. That's port construction, that's all of the tll1nqs
that the United States is -- airplanes, ports -- that we're very
competitive on. There are a lot of opportunities.
MS. MYERS: We need to wrap this up because I think
they need to send the first boat back.

Q
Why isn't the very fact of this meeting a
threat to Europe? Why shouldn't Europe think that this is
holding their feet to fire on GATT?
SENIOR ADMINISTRATION OFFICIAL: We're still more of
a threat to Europe than Europe '92 was a threat to the rest of
the world.
We are trying to develop our market to the south,
we're trying to develop our markets to the east, but ultimately,
the solution is a GATT agreement in which you have a stronger
multilateral trading system. And Europe has to understand that.
We're deeply committed to it.
I think these people are deeply
committed to it.
I think that most people in Europe are deeply
committed to it.
That's gOing to be the reason whv we d0n't
evolve into regional trading blocs.
speed.

Q
You said there's a range of interest in the
Is China in the "go slow" group?

SENIOR ADMINISTRATION OFFICIAL:
I'll get to that.
But I'd like to underline the other senior official said.
I want
to beseech you to sort of step back and look at this event. This
has never happened in the history of this region -- where 15, 20

leaders head together.
It was proposed only a few months ago by
the President.
Indeed, there was no time nor any desire to try
to construct some huge communique.
The idea was quite thp
opposite, to start a project -- and really it's q,ll> L;
.r
(l.~
that countries ranging from China to singapore, from Brunei ta
Japan, were sending their leaders here on three ~onths notice to
get together, with incredible diversity, and yet they can agree
on a general vision for the future that has some real meaning.
So this, to me, is the story of this day, and that's why there
are other senior officials talking about looking back in a few
years.
This is the first meeting of its kind, and put
together in three or four months. That shows a sense of open
dynamism in this region. And I think that's the story.
SENIOR ADMINISTRATION OFFICIAL:
I agree.
Can I
just add one bit of color? Let me just add one bit of color on
that. This is also giving these leaders a chance to talk a bit
about their own countries to each other. Coming over in the boat
with the President was interesting. They were just chatting.
They weren't talking much economics, they were talking about what
was gOing on in their own countries.
You know, we spent a fair amount of time talking
about our respective health care systems and how each one was
handling health care. He said there was also a conclusion by
several -- several people talked about one of the problems of
modern societies is how rule-oriented they've become, the excess
number of rules.
And they said it was interesting, the Chinese
talked about the excess number of rules. And there was a general
feeling -- so this was an opportunity to talk about -- get to
know each other in ways that I find quite different from what we
used to see during the Cold War period when it was all military
and security.
People are talking about these social systems now
in interesting ways.
THE PRESS:

Thank you.
END

2: 45 P. H.

PST

THE WHITE HOUSE
Office of the Press Secretary
(Seattle, Washington)
November 20, 1993

For Immediate Release

REMARKS BY THE PRESIDENT
IN PHOTO OPPORTUNITY UPON DEPARTURE
FROM BLAKE ISLAND
Blake Island, Washington
3:05 P.M. PST
Q

Mr. Clinton, are you pleased at the outcome of

today's meeting?
THE PRESIDENT:
next year in Indonesia.
Q

Yes, and we agreed to meet again

When you look back on this how will you --

THE PRESIDENT: 1 think 10 years from now people
will look back on this meeting as a very historic meeting because
we agreed to meet and then we agreed to meet again next year to
work on a number of issues of mutual concern to our people. I
think this is really the assurance that the people need that our
region will remain unified and committed to an open economy.
Q
Standing here with leaders of the Pacific Rim,
what's your message to the European Community?

THE PRESIDENT: That we want them to be part of an
open economy, too. This is not an exclusive operation. We want
the Asia Pacific Community to be united, but not closed: united,
but open. And what we want to say to Europe is we're committed
to doing everything we can to get a good GATT agreement between
now and December 15th: we want your help, let's do it.
Q

What about us?

THE PRESIDENT:
Q

(Laughter.)

I thought it was the pool --

No, no --

THE PRESIDENT: -- in Indonesia. President Soeharto
has invited us to meet in Indonesia next year. We decided to do
it. We agreed on a number of very specific things that we would
work on over the coming year. And the message again is that we
want this community to be united, not divided: and open, not
closed.
I was asked a question over there, "What's the
message to Europe?" The message to Europe is we want this to be
a united but open community and we want Europe to work with us to
get a good GATT agreement by the end of the year. That's the
message we want to send to our European friends. We don't want
an exclusive trading bloc, we want them to join us in a new world
trading system.
Q
00 you feel these countries are all as open to
the United States as you'd like them to be?

THE PRESIDENT: Well, we talked about that. That's
one of the reasons that we're meeting here so that we can do more
business with each other. And we talked about some specific
things we might do to work toward that -- the development of some
non-binding, but agreed upon principles for investment and
access; the development of some technology transfer programs that
could really help the United States in working with other
countries with severe environmental problems, for example.
So we have made the commitments that I think we need
to make at this meeting to move to a position where this
community will be an even better thing for the United states to
be a part of on terms that everyone can win on. So we're very
hopeful. But the first thing we hope we can do is get a new
world trade agreement by the end of the year.
Q

So will this be an annual event, the leaders of

the APEC -THE PRESIDENT: Well, no -- it's going to happen
twice. You'll see us next year. We'll see if we'll decide to do
it again.
(Laughter.) Now we're all going to Jakarta. This
will be -- for the Americans it will be interesting. Sign up tor
the trip now.
(Laughter.)
Q
-- difficult for you to communicate from
various areas of ftsia Pacific area -- i3 it ditficult for you to
communicate to us naturally or a very comfortable situation?

THE PRESIDENT: Oh, I think it's like all other
human relations -- the more we're together the more natural it
is. It got better as it went along. Like life.
(Laughter.)
3:10 P.M. PST

THE WHITE HOUSE
Office of the Press Secretary
(Pasadena, California)
For Immediate Release

November 21, 1993

REMARKS BY THE PRESIDENT
TO U.S. COAST GUARD PERSONNEL
Pier 36
Seattle, washington
4:59 P.M. PST
THE PRESIDENT: Thank you very much. This 1s a warm
reception in more ways than one. (Laughter.) And after a cold
day on the boat, it's a wonde~ful thing to behold.
I want to thank Admiral Lockwood and Captain Murray,
and all the men and women of the Coast Guard for the wonderful
assistance that I have received today and that our nation
receives every day.
The Blake Island meeting I think was a great
success. Indeed, these have been a good few days for the United
States. We had the leaders of 14 of the Asian Pacific nations
here in Seattle for a couple of days. We represent 40 percent of
the world's people, half the world's economy, the fastest growing
economies in the world. And I can tell you that the spirit of
this meeting was incredibly positive -- people believing that we
had to reach out even more to one another; we had to lower our
barriers; we had to make it possible for all of us to grow in
peace and harmony and prosperity. It's the sort of thing that
people join the Coast Guard of the United States to make sure
happens. And you should feel very good about it.
And, of course, when the Congress -- the House of
Representatives passed the North American Free Trade Agreement
the other night, you say, well, what in the world -- you say
that's about Mexico and Canada -- what does that have to do with
all these other countries?
The Prime Minister of Singapore got up in our
meeting and he said, "I don't know what would have happened if
Congress had voted that treaty down because the rest of us would
have thought that America was going to turn away from the world.
We wo~ld have said that you weren't going to be there."
(Applause.)
Instead you had the president of Korea, the
President of the Philippines, you had the president of Indonesia,
the Prime Minister of Thailand, all these people saying, "We want
you to be involved in our future. We want the future of Pacific
to be a united Pacific, not a divided Pacific. We want it to be
an open future, not a closed future. we want our diversity to be
a source of strength."
Even in our differences, we found a way to talk. As
you know, the discussion I had with the President of China was
the first discussion that the leader of the United states has had
with the leader of the world's most populous country and the
fastest growing economy on the Earth since the unfortunate
incidents at Tiananmen Square. So we began at least to have a
conversation about our differences as well as what we h4V~ in
common. This was a remarkable meeting.
To have the Prime Minister of Japan, a genuine
reformer, a person who is committed to changing his country in
the way it relates to the rest of the world. in~ludtng the United

-- -.,- "''-&i.a .Leaaers and talk about what
Klno of common ground we could find -- it was very moving.

And then when we got off the boat tonight, they told
me, Congressman McDermott, that the Senate passed NAFTA a few
minutes ago and then passed the Brady bill.
(Applause.) So it's
been a good day for the United States.
(Applause. )
So I would say that the 200 years that the Coast
Guard has been there for America and her people have been well
rewarded by the work that has been done for America in these last
few days.
I would say, Captain Murray, your obvious and
genuine heartfelt emotion at this moment is justified by what a
wonderful country this is and what great people we have in the
United States Coast Guard.
I know you were there to help the victims of
Hurricane Andrew; to assist those who were washed away by the
flooding in the midwest, the worst flood in well over a 100
years; to work with the Red Cross and the people of California to
help to fight the deadly wildfires.
On any day, the Coast Guard, on average, will save
the lives of 16 people and help 360 others in distress. That's a
pretty good record. In a place like Seattle, people understand
the importance of your work. I hope by my coming here today and
the publicity that this visit will generate, that Americans
everywhere will understand how much they owe to the United States
Coast Guard.
(Applause.)
A lot of Americans don't know about your efforts to
stem the flow of illegal drugs, but it helps to make every
community safer. And I want to tell you that we're looking for
new and innovative ways to do more of that and ways that are more
effective. Your work in tracking foreign fishing fleets helps
protect the important American industry and strengths our
economy. Your work in responding to some 8,000 oil and chemical
spills a year helps protect the environment that all Americans
cherish and enjoy. Your support for scientific work, such as
with your ice breakers in the Arctic adds to the entire nation's
research base at a time when we need desperately to invest more
in research and development for our future economy as well as for
our environmental security. Your efforts in monitoring the seas
for the growing influx of illegal immigrants also serves our
national interests in a difficult area. And in times of war, you
and the entire Coast Guard stand ready to protect our nation in
the mest fundamental ways. The Coast Guard has long helped to
augment our naval forces through work like anti-submarine and
surface warfare. For all of these efforts your nation and your
president are in your debt.
Your work underscores a crucial point: In order to
make life better of people within our borders, we often need to
take actions beyond our borders. As modern transportation and
communications make the world smaller and smaller, we must engage
abroad to succeed at home. And that was the whole point of this
meeting we had on Blake Island.
I spent the better part of a year and a half
campaigning to the American people in the race for President.
And everywhere I went I said that we had reached a time when
there was no longer an easy dividing line between foreign policy
and domestic policy, between defense policy and economiC policy;
that clearly, we could not be strong abroad if we were not strong
at home; but that it was no longer possible for a wealthy country
to have a strong economy at home without being involved abroad
and succeeding and winning in the global competitive economy.

• 3 •
"VI-''';-''

--,..

--

'"

~U=l~; :~e b~!;etary s~as~n, : ~:~: ~.
requlred to make some very dlfflcult decisions. Some of the
calls will be right and occasionally I will doubtless make some
of them wrong. But I want you to know that every call will be
determined on the basis of what I honestly believe is best for
the long-term security and prosperity of the American people
based on those simple ideas.

-

-J-:J

:--

e~;e~~a~_y

There is no longer a Simple dividing line between
defense policy and economic policy, no longer a clear line
between foreign policy and domestic policy. America, like it or
not, is part of a world that is increasing more interdependent, a
world in which we are rewarded when we are productive and
aggressive in. selling our products and services, and in which we
are punished 1f we refuse to compete.
There are those Who long for a world in which the
American people could be more secure and more immune from change.
I, at least, long for the world in which we are more secure.
But
we cannot do it by trying to immunize ourselves from change. No
free SOCiety is immune from the winds blowing through the world
today. We have to find a way to make these changes our friend
and not our enemy. We have to find a way to train every American
as well as the men and women of the Coast Guard are trained to do
their job. We have to find a way to give people the sense that
they will have access to learning and relearning for a lifetime.
We have to find a way to invest in those things which will give
the promise of real hope and opportunity.
And I say to you as Americans, we have got to find a
way to give structure, order, diSCipline, hope and love back to
those millions of American children who do not have the daily
supports that you take for granted if you're a member of the
United States Coast Guard, but without which life is very
difficult to live on successful terms.
(Applause.)
I hope today as we look out on these beautiful
waters and remember that our history and our heritage are rooted
to the sea, that most of our Americans came across the oceans to
get here to become Americans, that we must, just like we did in
the beginning, be a nation that reaches out across the seas to
new markets and new opportunities and new horizons.

To those of our friends and neighbors in the Pacific
and elsewhere, we're going through a difficult and challenging
time. Not all our roads are easy. But this is a time which we
should be grateful to live in, for after all, the Cold War is
over, the threat of nuclear destruction recedes, the hopes of
people really have a chance to be realized in a peaceful
enVironment, and many of the problems we have are problems of our
own making that we can unmake if we have the discipline and will
and vision and sheer persistence to face them and work them
through.
Therefore, I say to you that I value your service
and your sacrifice, your talent and your dedication, not only
because you help to make our nation stronger, but because I hope
that every time an American citizen sees you in this uniform that
that will help us to remember what kind of people we are and
where we need to go.
Thank you, and God bless you all.
END

(APplause.)
5:12 P.M. PST

CONVl:l\'TION BETWEEN THE GOVERNMENT
OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE REPUBLIC OF' KAZAKHSTAN
FOR THE AVOIDANCE OF DOUBLE TAXATiON AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO
TAXES ON INCOME AND CAPITAL

The Government of the United States of America and the
Gove~ent

desire to

of the Republic of Kazakhstan, confirming their
dev~lop

and strengthen the

econo~ic,

scientific,

technical and cultural cooperation between both States, and
desi~ing

to conclude a convention for the avoidance of

double taxation and the prevention of fiscal evasion
respect to taxes on
follows:

inco~e

~ith

and capital, have agreed as

-

2 -

ARTICLE 1
General Scope
1.

This Convention shall apply to persons who are

residents of one or both of the Contracting States and to
other persons as specifically provided in the Convention.
2.

The Convention shall not restrict in any manner any

exclusion, exemption, deduction, credit, or other allowance
now or hereafter accorded:
a) by the laws of either Contracting State; or
b) by any other agreement between the Contracting
States.
3.

Notwithstanding any provision of the Convention

except paragraph
accordance
under
o!

wi~h

A~icle

~ha~

,.

~

~,

its

a Contracting State may tax, in
domes~ic

(Residence»

law, residents (as determined
and citizens or former citizens

S~~te.

The following benefits shall be conferred by a

Contrac~ing

State notwithstanding the provisions of

paragraph 3:
a) under paragraph 2 of Article 7 (Associated
Enterprises), paragraph 5 of Article 18 (Pensions,
Etc.) and Articles 23 (Relief from Double Taxation),
(Non-discrimination) and 25 (Mutual Agreement
Procedure): and
b) under Articles 17 (Government Service), 19
(S~udents,

Trainees and Researchers), and 27

2~

-

3 -

(Diplomatic Agents and Consular Officers) for
individuals who are neither citizens of that State nor,
in the case of the United States of America,
individuals having immigrant status therein.

ARTICLE 2
Taxes Covered
1.

The taxes to which this Convention shall apply are:
a) in the United States of America:

the Federal

income taxes imposed by the Internal Revenue Code, but
excluding the accumulated earnings tax, the personal
holding company tax, and social security taxes
(hereafter referred to as United States tax).
b) in the Republic of Kazakhstan:

taxes on

profits and income provided by the laws "On Taxation of
Enterprises, Associations and Organizations" and "On
the Income Tax on Citizens of the Kazakh SSR, Foreign
Citizens and Stateless Persons" (hereafter referred to
as Kazakhstan tax).
2.

The Convention shall apply also to any

substantially similar taxes which are imposed after the date
of signature of the Convention in addition to, or in place
of, the existing taxes, including taxes which are
substantially similar to those currently imposed by one
Contracting State but not by the other Contracting State and
which are subsequently imposed by the other State.

The

-

4 -

competent authorities of the Contracting States shall notify
each other of any significant changes which have been made
in their respective taxation laws and of any official
published material concerning the application of the
Convention, including explanations, regulations, rulings, or
judicial decisions.
3.

The Convention shall also apply to any tax on

capital described in subparagraph (g) of paragraph 1 of
Article 3 (General Definitions) that is imposed by either
Contracting State as of the date of signature of the
Convention or thereafter, but only if such capital tax is
provided by Federal or Republic legislation.

ARTICLE 3
General Definitions
1.
conte~

For the purposes of this convention, unless the
otherwise requires:
a) the term "Contracting State" means the United

States of America (the United States) or the Republic
of Kazakhstan (Kazakhstan), as the context requires;
b) the term "United States" means the United
States of America, but does not include Puerto Rico,
the Virgin lslands, Guam, or any other United States
possession or territory.

When used in a geographical

sense, the term "United States" includes the
territorial sea, and also the exclusive economic zone

- 5 -

and continental shelf in which the United States, for
certain purposes, roay exercise sovereign rights and
jurisdiction in accordance with international law and
in which the laws relating to United States tax are
applicable;
c) the term "Kazakhstan" means the Republic
Kazakhstan.

of

When used in a geographical sense,

the term "Kazakhstan" includes the territorial
sea, and also the exclusive economic zone and
continental shelf in which Kazakhstan, for certain
purposes, may exercise sovereign rights and
jurisdiction in accordance with international law
and in which the laws relating to Kazakhstan tax
are applicable;
d) the term "person" means an individual, an
estate, a trust, a partnership, a coropany and any other
body of persons;
e) the term "coropany" means any entity which is
treated as a body corporate for tax purposes.

In the

case of Kazakhstan, this term means a joint stock
company, a limited liability company or any other legal
entity or other organization which is liable to a tax
on profits;
f) the term "international traffic" roeans any
transport by a ship or aircraft, except when such

-

6 -

transport is solely between places in the other
Contracting State:
g) for purposes of Article 22 (Capital), the term
"capital" means movable and real property, and includes
(but is not limited to) cash, stock or other evidences
of ownership rights, notes, bonds or other evidences of
indebtedness, and patents, trademarks, copyrights or
other like right or property:
h) the term "competent authority" means:

i) in the United States:

the Secretary of

the Treasury or his authorized representative; and
ii) in Kazakhstan:

the Minister of Finance or

his authorized representative.
2.

As regards

Con~racting

unless the

~e

application of the Convention by a

State, any term not defined therein shall,
conte~

otherwise requires or the competent

authorities agree to a common meaning pursuant to the
provisions of Article 25 (Mutual Agreement Procedure), have
the meaning which it has under the laws of that State
concerning the taxes to which the Convention applies.

ARTICLE ,

Residence
1.

For the purposes of this Convention, the term

"resident of a Contracting State" means any person who,
under the laws of that

S~ate,

is liable to tax therein by

-

7 -

reason of his domicile, residence, citizenship, place of
management, place of incorporation, or any other criterion
of a similar nature.
a) However, this term does not include any person
who is liable to tax in that State in respect only of
income from sources in that State or capital situated
therein.
b) In the case of income derived by a partnership,
trust, or estate, residence is determined in accordance
with the residence of the person liable to tax with
respect to such income.
2.

Where by reason of the provisions of paragraph 1 an

individual is a resident of both Contracting States, then
his status shall be determined as follows:
a) he shall be deemed to be a resident of the
State in which he has a permanent home available to
him; i! he has a permanent home available to him in
both States, he shall be deemed to be a resident of the
State with which his personal and economic relations
are closer (center of vital interests);
b) if the State in which he has his center of
vital interests cannot be determined, or if he does not
have a permanent home available to him in either State,
he shall be deemed to be a resident of the state in
which he has an habitual abode;

-

8 -

c) if he has an habitual abode in both states or
in neither of them, he shall be deemed to be a resident
of the State of which he is a citizen;
d) if each State considers him as its citizen or
if he is a citizen of neither of them, the competent
authorities of the Contracting States shall settle the
question by mutual agreement.
3.

Where by reason of the provisions of paragraph 1 a

company is a resident of both Contracting States, the
competent authorities of the contracting States shall
endeavor to settle the question by mutual

agree~ent,

but if

the competent authorities are unable to reach such an
agreement, the company shall be treated as a resident of
neither Contracting State for the purposes of deriving
bene!its under this Convention.
~.

Where by reason of the provisions of paragraph 1 a

person other than an individual or a company is a resident
of both Contracting States, the competent authorities of the
Contracting States shall settle the question by mutual
agreement and determine the mode of application of the
Convention to such person.

ARTICLE 5
Permanent Establishment
1.

For the purposes of this Convention, the term

"permanent establishment" means a fixed place of business

-

9 -

through which a resident of a Contracting State, whether or
not a legal entity, carries on business activities in the
other Contracting State.
2.

The tenn "pennanent establishment" includes

especially:
a) a place of management:
b) a branch:
c) an office;
d) a factory:
e) a workshop: and

f) a mine, an oil or gas well, a quarry, or any
other place of extraction of natural resources.
3.

The term "pennanent establishment" also includes:
a) a building site or construction, installation

or assembly project, supervisory services connected
therewith, or an installation or drilling rig or ship
used for the exploration or exploitation of natural
resources, but only if such site, project, or rig lasts
or such services continue for a period of more than 12
lDonths: or
b) the furnishing of services, including
consultancy services, by residents through employees or
other personnel engaged by the residents for such
purpose, but only where activities of that nature
continue (for the same or a connected project) within
the country for a period of more than 12 months.

- 10 ~.

Notwithstanding the preceding provisions of this

Article, the term "permanent establishment" shall be deemed
not to include:
a) the Use of facilities solely for the purpose of
storage, display, or delivery of goods or merchandise
belonging to the resident:
b) the maintenance of a stoCK of goods or
merchandise belonging to the resident solely for the
purpose of storage, display, or delivery:
c) the maintenance of a stOCK of goods or
merchandise belonging to the resident solely for the
pu~ose

of processing by another person:

d) the maintenance of a fixed place of business
solely for the purpose of purchasing goods or
merchandise, or of collecting information, for the
resident;
e) the maintenance of a fixed place of business
solely for the purpose of carrying on, for the
resident, any other activity of a preparatory or
auxiliary character;
f) the maintenance of a fixed place of business
solely for any combination of the activities mentioned
in subparagraphs a) to e).
5.

Notwithstanding the provisions of paragraphs 1 and

2, where a resident of a Contracting State carries on
activities in the other Contracting State through an agent,

-

11 -

that resident shall be deemed to have a permanent
establishment in that other State in respect of any
activities which the agent undertakes for that resident, if
the agent meets each of the following conditions:
a) he has an authority to conclude contracts in
that other State in the name of the resident;
b) he habitually exercises that authority;
c) he is not an agent of an independent status to
whom the provisions of paragraph 6 apply; and
d) his activities are not limited to those
mentioned in paragraph 4.
6.

A resident of a Contracting State shall not be

deemed to have a permanent establishment in the other
Contrac~ing

State merely because it carries on business in

that other State through a broker, general commission agent,
or any other agent of an independent status, provided that
such persons are

ac~ing

in the ordinary course of their

business.
7.

The fact that a company which is a resident of a

Contracting State controls or is controlled by a company
which is a resident of the other Contracting State, or which
carries on business in that other State (whether through a
permanent establishment or other-'ise), shall not of itself
cons~itute

other,

ei~her

company a permanent establishment of the

- 12 -

ARTICLE 6
Business Profits
1.

The business profits of a resident of a Contracting

State shall be taxable only in that State unless the
resident carries on or has carried on business in the other
Contracting State through a permanent establishment situated
therein.

If the resident carries on or has carried on

business as aforesaid, the business profits of the resident
may be taxed in the other State but only so much of them as
is attributable to:
a) that permanent establishment;
b) sales in that other State of goods or
merchandise of the same kind as those sold through that
permanent establishment; or
c) other business activities carried on in that
other State

o~

the same kind as those effected through

that permanent establishment.
2.

Subject to the provisions of paragraph 3, where a

resident of a Contracting State carries on or has carried on
business in the other Contracting State through a permanent
establishment situated therein, there shall in each
Contracting State be attributed to that permanent
establishment the business profits which it might be
expected to make if it were a distinct and independent
person engaged in the same or similar activities under the
same or similar conditions.

- 13 -

3.

In determining the business profits of a permanent

establishment, there shall be allowed as deductions expenses
which are incurred for the purposes of the permanent
establishment.

There shall be allowed a reasonable

allocation, between a resident of a Contracting State and a
permanent establishment of such resident situated in the
other Contracting State, of properly documented expenses
incurred for the purpose of the resident's business
activities.

Such allocable expenses include executive and

general administrative expenses, research and development
expenses, interest, and charges for management, consultancy,
or technical assistance, whether incurred in the State in
which the permanent establishment is situated or elsewhere.
The permanent establishment shall not be allowed a deduction
for amounts paid to its head office or any of the other
offices of the resident by way of royalties, fees or other
similar payments in return for the use of patents or other
rights, or by way of commission, for specific services
performed or for management, or by way of interest on moneys
lent to the permanent establishment.

The business profits

attributed to a permanent establishment shall be determined
by the same method year by year unless there is good and
sufficient reason to the contrary.
4.

No business profits shall be attributed to a

permanent establishment by reason of the mere purchase by

- 14 -

that permanent establishment of goods or merchandise for the
resident.
5.

Where the information available to or readily

obtainable by the competent authority of a Contracting State
is not adequate to determine the expenses of a permanent
establishment, profits may be calculated in accordance with
the tax laws of that State.

For purposes of this paragraph

5, information will be considered to be readily obtainable
if the taxpayer provides the information to the requesting
competent authority within 91 days of a written request by
the competent authority for such information.
6.

For purposes of this Article, the term "business

profits" means profits derived from the active conduct of
business.

It includes, for example, profits from

manufacturing, mercantile, transportation, communication, or
ex~rac~ive

ac~ivities,

of

person.

ano~her

and from the furnishing of services

It does not include income received by

an individual for his performance of personal services
(either as an employee or in an independent capacity).
Income of an individual from the performance of services as
an employee is dealt with in Article 15 (Income from
Employment).

Income of an individual from the performance

of services in an independent capacity is dealt with in
Article 14
7.

(Independen~

Personal services).

Where business profits include items of income

which are dealt with separately in other Articles of the

- 15 -

Convention, then the provisions of those Articles shall not
be affected by the provisions of this Article.

ARTICLE 7
Associated Enterprises
1.

Where:
a) a person which is a resident of a Contracting

State participates directly or indirectly in the
management, control or capital of a person which is a
resident of the other Contracting

State~

or

b) the same persons participate directly or
indirectly in the management, control or capital of a
resident of a Contracting State and any other person;
and
c) in

eithe~

case conditions are made or imposed

between the two persons in their commercial or
financial relations which differ from those which would
be made between independent persons,
then any income, which would have accrued to one of the
pe~sons

in the absence of those conditions, but has not so

accrued because of those conditions, may be included in the
income of that
2.

pe~son

Where a

and taxed accordingly.

Cont~acting

State includes in the profits

of a resident of that State, and taxes accordingly, profits
on which a resident of the othe= Contracting State has been
Charged to tax in that other State, and the profits so

- 16 -

included are profits which would have accrued to the
resident of the first-mentioned State if the conditions made
between the two persons had been those which would have been
made between independent enterprises, then that other State
shall make an appropriate adjustment to the amount of the
~ax

charged therein on those profits.

In determining such

adjustment, due regard shall be paid to the other provisions
of this convention and the competent authorities of the
Contracting States shall if necessary consult each other.
3.

The prOVisions of paragraph 1 shall not limit

either Contracting State in applying its domestic law to
make adjustments to income, deductions, credits, or
allowances between persons, whether or not residents of a
Contracting State, when necessary to prevent evasion of
taxes or clearly to reflect the income of any such persons.

ARTICLE 8
Shipping and Air Transport
1.

Income of a resident of a Contracting State from

the operation of ships or aircraft in international traffic
shall be taxable only in that State.
2.

Income of a resident of a Contracting State from

the following activities shall be taxable only in that
State:
a) income from the rental of ships or aircraft
operated in international traffic by the lessee;

-

17 -

b) income from the rental of ships and aircraft,
whether or not operated in international traffic, if
such rental activity is incidental to the operation of
ships or aircraft in international traffic by the
lessor; and
c) income (including demurrage) from the use, or
rental for use, of containers in international traffic
(including trailers, barges, and related equipment for

apply

the

~ransport

3.

The provisions of paragraphs 1 and 2 shall also

~o

of containers).

income from participation in a pool, a joint

business, or an international transportation agency.

ARTICLE 9

Income from Real Propert V
1.
~ro~

Income derived by a resident of a Contracting State

real property (including income from agriculture or

!ores~~)

situated in the other Contracting State may be

taxed in that other
2.

S~ate.

for purposes of this Convention, the term "real

property" includes any interest owned or held in tenancy by
any individual or any legal entity in land, unsevered
produc~s

of land as well as any fixture built on that land

(buildings, s~ruc~ures, etc.) and o~her property considered
real property under the law of the contracting State in

- 18 -

which the property in question is situated.

Ships, boats

and aircraft shall not be regarded as real property.
3.

The provisions of paragraph 1 shall apply to income

derived from the direct use, letting, or use in any other
form of real property.

4.

A resident of a contracting State who is liable to

tax in the other contracting State on income from real
property situated in that other State may elect, subject to
the procedures of the domestic law of that other State, to
compute the tax on such income on a net basis as if such
income were a~~ributable to a permanent es~ablishment in
tha~

the

other

Sta~e.

~axable

Any such election shall be binding for

year of the

years unless revoked

elec~ion

pursuan~

and all subsequent

~axable

to the procedures under the

domestic law of the Contracting State in which the property
is

situa~ed.

ARTICLE 10
Dividends
1.

Dividends that are paid by a company which is a

resident of a Contracting S~ate and that are beneficially
owned by a resident of the o~her Contracting State may be
taxed in that other
2.

Sta~e.

However, such dividends may also be taxed in the

first Contracting State, and according to the laws of that
State, but the tax so charged shall not exceed:

- 19 -

a) 5 percent of the gross amount of the dividends
if the beneficial owner is a company which owns at
least 10 percent of the voting stock of the company
paying the dividends: and
b) 15 percent of the gross amount of the dividends
in all other cases.
This paragraph shall not affect the taxation of the company
in respect of the profits out of which the dividends are
paid.
3.

The teI"lD "dividends" as used in this Article means

income from shares or other rights, not being debt-claims,
participating in profits, as well as income from other
co~orate

rights which is subjected to the same taxation

treatment as income from shares by the laws of the State of
which the company making the distribution is a resident.
The teI"lD "dividends" also includes income from arrangements,
including debt obligations, carrying the right to
par~icipate

in profits,

~o

the extent so characterized under

the law of the Contracting State in which the income arises.
In the case of Kazakhstan, this term includes, in
particular, income transmitted abroad to the foreign
participants of a joint venture created under the laws of
Kazakhstan.
(.

The provisions of paragraphs 1 and 2 shall not

apply if the beneficial owner of the dividends, being a
resident of a Contrac~ing S~ate, carries on or has carried

- 20 -

on business in the other Contracting State, of which the
company paying the dividends is a resident, through a
permanent establishment situated therein, or performs or has
performed in that other State independent personal services
from a fixed base situated therein, and the dividends are
attributable to such permanent establishment or fixed base.
In such case the provisions of Article 6 (Business Profits)
or Article 14 (Independent Personal Services), as the case
may be, shall apply.
5.

A company which is a resident of a Contracting

State and which has a permanent establishment in the other
Contracting State or which is subject to tax on a net basis

in that other State under paragraph
fro~

4

of Article 9 (Income

Real Property), paragraphs 2 and 3(b) of Article 12

(Royalties), or paragraphs 1 or 2 of Article 13 (Gains)

~ay

be subject in that other State to a tax in addition to the
tax on profits.

Such tax, however, may not exceed 5 percent

of the portion of the profits of the company subject to tax
in the other Contracting State which represents the
"dividend equivalent amount" of such profits.

ARTICLE 11
Interest
1.

Interest arising in a Contracting State and derived

by a resident of the other Contracting State may be taxed in
that other State.

-

2.

21 -

However, such interest may also be taxed in the

Contracting State in which it arises and according to the
laws of that State, but if the beneficial owner of the
interest is a resident of the other Contracting State, the
tax so charged shall not exceed 10 percent of the gross
amount thereof.
3.

Notwithstanding the provisions of paragraph 2:
a) interest beneficially owned or paid by a

Contracting State, subdivision or local authority
thereof, and such government instrumentalities as may
be agreed upon by the competent authorities, shall be
taxable only in that State;
b) interest arising in a Contracting State and
paid to a resident of the other Contracting State in
respect of a loan for a period of not less than three
years made, guaranteed, or insured by any export credit
agency wholly owned by that other Contracting State
shall only be taxable in that other State.
~.

The provisions of paragraphs 1, 2 and 3 shall not

apply if the beneficial owner of the interest, being a
resident of a Contracting State, carries on or has carried
on business in the other Contracting State through a
permanent establishment situated therein, or performs or has
performed in that other State independent personal services
from a fixed base situated therein, and the interest is
attributable to such permanent establishment or fixed base.

- 22 In such case the provisions of Article 6 (Business Profits)
or Article 14 (Independent Personal services), "as the case
may be, shall apply.
5.

Interest shall be deemed to arise in a Contracting

State when the payer is that State itself, a political
subdivision, a local authority or a resident of that State.
Where, however, the person paying the interest, whether a
resident of a Contracting State or not, has in a contracting
State a permanent establishment or a fixed base or derives
profits that are taxable on a net basis in that State under
paragraph

~

of Article 9 (Income from Real Property),

paragraphs 2 and 3(b) of Article 12 (Royalties), or
paragraph 1 or 2 of Article 13 (Gains), and such interest is
borne by such permanent establishment or trade or business
subject to tax on a net basis, then such interest shall be
deemed to arise in the State in which the permanent
es~ablishmen~

6.

or trade or business is situated.

Where, by reason of a special relationship between

the payer and the beneficial owner or between both of them
and some other person, the amount of the interest, having
regard to the debt-claim for which it is paid, exceeds the
amount which would have been agreed upon by the payer and
the beneficial owner in the absence of such relationship,
the provisions of this Article shall apply only to the
last-mentioned amoun~.

In such case the excess part of the

payroen~s shall remain taxable according to the laws of each

-

23 -

Contracting State, due regard being had to the other
provisions of the Convention.
7.

A resident of a contracting State may be subject in

the other Contracting State to a tax, in respect of
interest, in addition to the tax on business profits
allowable under the other provisions of this Convention.
such additional tax, however, may not exceed 10 percent of
the "excess interest amount."

ARTICLE 12
Royalties
1.

Royalties arising in a contracting State and paid

to a resident of the other Contracting State may be taxed in
~hat

other State.
2.

However, such royalties may also be taxed in the

Con~racting

State in which they arise, and according to the

laws of that S~ate, bu~ if the beneficial owner is a
residen~

of ~he o~her Contracting S~a~e, the tax so charged

shall not exceed 10 percent of the gross amount of the
royal~ies.

In the case of royalties described in

subparagraph b) of paragraph 3, the beneficial owner may
elect to compute the tax on such income on a net basis as if
such income were attributable to a permanent establishment
or fixed base in the contracting State in which the
royalties arise.

- 24 -

3.

The term "royalties" as used in this Convention

means:
a) payments of any kind received as a
consideration for the use of, or the right to use, any
copyright of literary, artistic, or scientific work,
including computer programs, video cassettes, and
cinematograph films and tapes for radio and television
broadcasting, any patent, trademark, design or model,
plan, secret formula or process, or other like right or
property, or for information concerning industrial,
commercial, or scientific

experience~

and

b) payments for the use of, or the right to use,
industrial, commercial, or scientific equipment.
4.

The provisions of paragraphs land 2 shall not

apply if the beneficial owner of the royalties, being a
resident of a Contracting State,
on business in the
pe~anent

othe~

car~ies

on or has carried

Contracting State through a

establishment situated therein, or performs or has

performed in that other State independent personal services
!rom a fixed base situated therein, and the royalties are
attributable to such permanent establishment or fixed base.
In such case the provisions of Article 6 (Business Profits)
or Article l4

(Independent Personal Services), as the case

may be, shall apply.

- 25 -

5.

Royalties shall be deemed to arise in a Contracting

State when paid for the use of or the right to use the right
or property in that State.
6.

Where, by reason of a special relationship between

the payer and the beneficial owner or between both of them
and some other person, the amount of the royalties, having
regard to the use, right, or information for which they are
paid, exceeds the amount which would have been agreed upon
by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply
only to the last-mentioned amount.

In such case the excess

part of the payments shall remain taxable according to the
laws of each Contracting State, due regard being had to the
other provisions of the Convention.

ARTICLE 13
Gains
1.

Gains derived by a resident of a Contracting State

from the alienation of real property referred to in Article
9 (Income from Real Property) and situated in the other
Contracting State may be taxed in that other State.
2.

Gains from the alienation of
a) stOCK, participations or other rights in the

capital of a company or other legal person (whether or
not a resident of a Contracting State) the property of

-

26 -

which consists principally of real property situated in
a Contracting State: or
b) an interest in a partnership, trust, or estate
(whether or not a resident of a Contracting State) to
the extent attributable to real property situated in a
Contracting State may be taxed in that State.

For the

purposes of this paragraph, the term "real property"
includes the shares of a company referred to in
subparagraph (a) or an interest in a partnership,
trust, or estate referred to in subparagraph (b), and
in case of the United States includes a United States
real property interest, as defined in section 897 of
the Internal Revenue Code (or any successor statute).
3.

In addition to gains from the alienation of shares

described in paragraph 2 of this Article, gains derived by a
residen~
s~o=k,

of a Contracting State from the alienation of

participations, or other rights in the capital of a

company or

o~her

legal person which is a resident of the

other Contracting State may be taxed in that other
Contracting State if the recipient of the gain, at any time
during the 12-month period preceding such alienation, had a
participa~ion,

directly or indirectly, of at least 25

percent of the vote or value of that company or other legal
person.
S~ate

such gains shall be deemed to arise in that other

to the

exten~

necessary to avoid double taxation.

-

4.
~hich

27 -

Gains from the alienation of personal property

are attributable to a permanent establishment

~hich

an

enterprise of a contracting State has in the other
Contracting State or

~hich

are attributable to a fixed base

available to a resident of a contracting State in the other
Contracting State for the purpose of performing independent
personal services, and gains from the alienation of such
permanent establishment (alone or

~ith

the

~hole

enterprise)

or such fixed base, may be taxed in that other State.

s.

Gains derived by a resident enterprise of a

contracting State from the alienation of ships, aircraft, or
containers

ope~ated

in international traffic shall be

taxable only in that State.
6.

Gains from the alienation of any property other

than property referred to in paragraphs 1 through 5 shall be
taxable only in the Contracting State of

~hich

the alienator

is a resident.

ARTICLE 14
Independent Personal Services
1.

Income

de~ived

by an individual

of a Contracting State from the
pe~sonal

~ho

perfo~ance

is a resident
of independent

services shall be taxable only in that State,

unless
a) such services are performed or

~ere

in the other Contracting State; and either

performed

- 28 -

b) the income is attributable to a fixed base
which the individual has or had regularly available to
him in that other State, or
c) such individual is present or was present in
that other State for a period or periods exceeding in
the aggregate 183 days in any consecutive twelve month
period.
In such a case the income attributable to the services may
be taxed in that other State in accordance with principles
similar to those of Article 6 (Business Profits) for
determining the amount of business profits and attributing
business profits to a permanent establishment.
2.

in

The term "independent personal services" includes,

p~rticular,

independent scientific, literary, artistic,

educational or teaching activities, as well as the
independent services of physicians, lawyers, engineers,
a~chitects,

dentists, and accountants.

ARTICLE 15
Income from Employment
1.

Subject to the provisions of Articles 16

(Directors' Fees), 17 (Government Service), and 18
(Pensions, Etc.), salaries, wages, and other similar
remuneration derived by a resident of a Contracting State in
respect of an employment shall be taxable only in that State
unless the employment is exercised in the other Contracting

- 29 -

State.

If the employment is so exercised, such remuneration

as is derived therefrom may be taxed in that other state.
2.

Notwithstanding the provisions of paragraph 1,

remuneration derived by a resident of a Contracting State in
respect of an employment exercised in the other Contracting
State shall be taxable only in the first-mentioned State if
a) the recipient is present in the other State for
a period or periods not exceeding in the aggregate 183
days in any twelve month period: and
b) the remuneration is paid by, or on behalf of,
an employer who is not a resident of the other State:
and
c) the remuneration is not borne by a permanent
establishment or a fixed base which the employer has in
the other State.
3.

Remuneration derived by a resident of a Contracting

State that would otherwise be taxable in the other
Contracting State under the preceding provisions of this
Article may be taxed only in the first-mentioned State when
the remuneration is in respect of employment as a member of
the regular complement of a ship or aircraft operated in
international traffic.

-

30 -

ARTICLE 16

Directors' Fees
Directors' fees and similar payments derived by a
resident of a Contracting State in his capacity as a member
of the board of directors or similar body of a company which
is a resident of the other Contracting State may be taxed in
that other State.

ARTICLE 17

Gove=nment Service
1.

a) Remuneration, other than a pension, paid from

the public funds of a Contracting State, a subdivision
or local authority thereof to an individual in respect
of services rendered in the discharge of functions of a
governmental nature shall be taxable only in that
State.
b) However, such remuneration shall be taxable
only in the other Contracting State if the services are
rendered in that State and the individual is a resident
of that State who:
i) is a citizen of that State: or
ii) did not become a resident of that State

solely for the purpose of rendering the services.
2.

Not~ithstanding

the provisions of paragraph 1, the

provisions of Article 14 (Independent Personal Services) or
Article 15 (Income from Employment), as the case may be,

- 31 shall apply to remuneration paid in respect of services
rendered in connection with a business.

ARTICLE 18
Pensions. Etc.
1.

Subject to the provisions of paragraph 2,
a) pensions and similar remuneration derived and

beneficially owned by a resident of a Contracting State
in consideration of past employment may be taxed only
in that State; and
b) social security benefits and other public
pensions paid by a Contracting State may be taxed only
in that State.
2.

a) Any pension paid to an individual in respect of

services rendered to a Contracting State, subdivision,
or

au~ority

in the discharge of functions of a

governmental nature and paid by, or out of funds
created by, that State, subdivision or local authority
shall be taxable only in that Contracting State.
b) However, such pension shall be taxable only in
the other Contracting State if the individual is a
resident of, and a citizen of, that other Contracting
State.
3.

Annuities derived and beneficially owned by an

individual who is a resident of a Contracting State shall be
taxable only in that State.

The tern "annuities" as used in

-

32 -

this paragraph means a stated sum paid periodically as
stated times during a specified number of years, under an
obligation to make the payments in return for adequate and
full consideration (other than services rendered.)
4.

Alimony paid to a resident of a Contracting State

shall be taxable only in that State.

The term "alimony" as

used in this paragraph means periodic payments made pursuant
to a written separation agreement or a decree of divorce,
separate maintenance, or compulsory support, which payments
are taxable to the recipient under the laws of the State of
which he is a resident.
5.

Periodic payments for the support of a minor child

made pu~suant to a written separation agreement or a decree
o! divorce, separate maintenance, or compulsory support,
paid by a resident of a Contracting State to a resident of
the othe~ Contracting State shall be taxable only in the
!i~st-mentioned

State.

ARTICLE 19
Students. Trainees and Researchers
1.

An individual who is a resident of a contracting

State at the beginning of his visit to the other Contracting
State and who is tempo~a~ily present in that other State for
the primary purpose of:
a) studying at a university or other accredited
educational institution in that other State, or

-

33 -

b) securing training required to qualify him to
practice a profession or professional specialty, or
c) studying or doing research as a recipient of a
grant, allowance, or other similar payments from a
governmental, religious, charitable, scientific,
literary, or educational organization,
shall be exempt from tax by that other State with respect to
payments from abroad for the purpose of his maintenance,
education, study, research, or training, and with respect to
the grant, allowance, or other similar payments.
2.

The exemption in paragraph 1 shall apply only for

such period of time as is ordinarily necessary to complete
the study, training or research, except that no exemption
for training and/or research shall extend for a period
exceeding five years.

3.

This Article shall not apply to income from

research if such research is undertaken not in the public
interest but primarily for the private benefit of a specific
person or persons.

ARTICLE 20
Other Income
Items of income of a resident of a contracting State,
arising in the other Contracting State and not dealt with in
the foregoing

~icles

that other State.

of this Convention, may be taxed in

-

34 -

ARTICLE 21

Limitation on Benefits
1.

A person that is a resident of a Contracting State

and derives income from the other Contracting State shall be
entitled under this Convention to relief from taxation in
that other State only if such person is:
a) an individual:
b) engaged in the active conduct of business in
the first-mentioned State (other than the business of
~aking

or managing investments, unless these activities

are banking or insurance activities carried on by a
bank or insurance company), and the income derived from
that other State is derived in connection

~ith,

or is

incidental to, that business:
c) a company the shares of
first-~entioned

~hich

are traded in the

State on a substantial and regular

basis on an officially recognized securities exchange
or a company

~hich

is wholly owned, directly or

indirectly, by another company that is a resident of
the first-mentioned State and the shares of which are
so traded;
d) a not-for-profit organization that is generally
exempt from income taxation in its Contracting State of
residence, provided that more than half of the
beneficiaries, members or participants, if any, in such

-

35 -

organization are entitled, under this Article, to the
benefits of this Convention: or
e) a person that satisfies both of the following
conditions:
i) more than 50 percent of the beneficial
interest in such person, or in the case of a
company, more than 50 percent of the number of
shares of each class of the company's shares, is
owned directly or indirectly by persons entitled
to the benefits of this Convention under
subparagraphs a), c) or d), and

ii) not more than 50 percent of the gross
income of such person is used, directly or
indirectly, to meet liabilities (including
liabilities for interest or royalties) to persons
not entitled to the benefits of this convention
under subparagraphs a), c) or d) .
2.

A person that is not entitled to the benefits of

the Convention pursuant to the provisions of paragraph 1
may, nevertheless, be granted the benefits of the Convention
if the competent authority of the State in which the income
arises so deteruines.
3.

For purposes of subparagraph (e) (ii)

of paragraph

1, the term "gross income" means gross receipts, or where a
person is engaged in a business which includes the
manufacture or production of goods, gross receipts reduced

-

36 -

by the direct costs of labor and materials attributable to
such manufacture or production and paid or payable out of
such receipts.

ARTlCLE 22
Capital
1.

Capital represented by real property referred to in

Article 9 (Income from Real Property) owned by a resident of
a Contracting State and situated in the other Contracting
State, may be taxed in that other State.
2.

Capital represented by movable property forming

part of the business property of a permanent establishment
which a resident of a Contracting State has in the other
Contracting State, or by movable property pertaining to a
fixed base available to a resident of a Contracting State in
the other Contracting State for the purpose of performing
independent personal services, may be taxed in that other
State.
3.

Capital represented by ships, aircraft, and

containers owned by a resident of a Contracting State and
operated in international traffic, and by movable property
pertaining to the operation of such ships, aircraft, and
containers shall be taxable only in that State.
~.

All other elements of capital of a resident of a

Contracting State (as determined under Article 4
(Residence)) shall be taxable only in that State.

-

37 -

ARTICLE 23
Relief from Double Taxation
In accordance with the provisions and subject to the
limitations of the law of each Contracting State (as it may
be amended from time to time without changing the general
principle hereof), each State shall allow to its residents
(and, in the case of the United States, its citizens), as a
credit against the income tax of that State:
a) the income tax paid to the other Contracting
State by or on behalf of such residents or citizens;
and
b) in the case of a company owning at least 10
percent of the voting stoCK of a company which is a
resident of the other Contracting State and from which
the first-mentioned company receives dividends, the
income tax paid to the other State by or on behalf of
the distributing company with respect to the profits
out of which the dividends are paid.
For purposes of this

~rticle,

the United States taxes

referred to in paragraphs 1 a) and 2 of Article 2 (Taxes
Covered), and the Kazakhstan taxes referred to in paragraphs
1 b) and 2 of Article 2 (Taxes Covered), as described in
paragraph 8 of the Protocol to this convention, shall be
considered income taxes.

-

38 -

ARTICLE 24
Non-discrimination
1.

A citizen of a Contracting State shall not be

subjected in the other Contracting State to any taxation or
any requirement connected therewith which is other or more
burdensome than the taxation and connected requirements to
which a citizen of that other State or of a third State, who
is in the same circumstances, is or may be subjected.

This

provision shall apply to persons who are not residents of
one or both of the Contracting States.

This provision shall

not be construed as obliging a Contracting State to grant to
citizens of the other Contracting State tax benefits granted
by special agreements to citizens of a third State.
2.

A resident of a Contracting State which has a

permanent establishment in the other Contracting State shall
not, in that other State and with respect to income
attributable to that permanent establishment, be subjected
to more burdensome taxes than are generally imposed on
residents of that other State or of a third State which are
carrying on the same activities.

This provision shall not

be construed as obliging a Contracting State to grant to
permanent establishments of the residents of the other
Contracting State tax benefits granted by special agreements
to permanent establishments of the residents of a third
State.

-

3.

39 -

Except where the provisions of paragraph 1 of

Article 7 (Associated Enterprises), paragraph 4 of Article
11 (Interest), or paragraph 6 of Article 12 (Royalties)
apply, interest, royalties, and other disbursements paid by
a resident of a Contracting State to a resident of the other
Contracting State shall, for the purposes of determining the
taxable profits of the first-mentioned resident, be
deductible under the same conditions as if they had been
paid to a resident of the first-mentioned State.

Similarly,

any debts of a resident of a Contracting State to a resident
of the other

Con~racting

State shall, for the purposes of

determining the taxable capital of the first-mentioned
resident, be deductible under the same conditions as if they
had been

con~racted

to a resident of the first-mentioned

State.
A company which is a resident of a Contracting

~.
S~ate,

the capital of which is wholly or partly owned or

con~rolled,

directly or indirectly, by one or more residents

of the other Contracting State, shall not be subjected in
the first-mentioned State to any taxation or any requirement
connected therewith which is more burdensome than the
taxation and connected requirements

~o

which other similar

companies which are residents of the first-mentioned State
(whe~her

owned by residents of that State or of a third

State) are or may be subjected.

-

5.

40 -

Nothing in this Article shall prevent a Contracting

State from imposing the tax described in paragraph 5 of
Article 10 (Dividends) or paragraph 7 of Article 11
(Interest) .
6.

The provisions of this Article shall,

notwithstanding the provisions of Article 2 (Taxes Covered),
apply to taxes of every kind and description.

ARTICLE 25
Mutual Agreement Procedure
1.

Where a person considers that the actions of one or

both of the Contracting States result or will result for him
in taxation not in accordance with the provisions of this
Convention, he may, irrespective of the remedies provided by
the domestic law of those States, present his case to the
competent authority of the Contracting State of which he is
a resident or citizen.
2.

The competent authority shall endeavor, if the

objection appears to it to be justified and if it is not
itself able to arrive at a satisfactory solution, to resolve
the case by mutual agreement with the competent authority of
the other Contracting State, with a view to the avoidance of
taxation which is not in accordance with the Convention.
Any agreement reached shall be implemented notwithstanding
any time limits or other procedural limitations in the
domestic law of the contracting States.

3.

~l

-

The competent authorities of the Contracting States

shall endeavor to resolve by mutual agreement any
difficulties or doubts arising as to the interpretation or
application of the Convention.

In particular the competent

authorities of the Contracting States may agree:
a) to the same attribution of income, deductions,
credits, or allowances of a resident of a Contracting
State to its permanent establishment situated in the
other Contracting State;
b) to the same allocation of income, deductions,
credits, or allowances between persons;
c) to the same characterization of particular
items of income;
d) to the same application of source rules with
respect to particular items of income:
e) to a common meaning of a term: and

f) to the application of the provisions of
domestic law regarding penalties, fines, and interest
in a manner consistent with the purposes of the
Convention.
They may also consult together for the elimination of double
taxation in cases not provided for in the Convention.
~.

The competent authorities of the Contracting States

may communicate with each other directly for the purpose of
reaching an agreement in the sense of the preceding
paragraphs.

-

5.

~2

-

If any difficulty or doubt arising as to the

interpretation or application of this convention cannot be
resolved by the competent authorities pursuant to the
previous paragraphs of this Article, the case may, if both
competent authorities and the taxpayer(s) agree, be
submitted for arbitration, provided that the taxpayer agrees
in writing to be bound by the decision of the arbitration
board.

The decision of the arbitration board in a

particular case shall be binding on both States with respect
to that case.

The procedures shall be established between

the States by notes to be exchanged through diplomatic
channels.

After a period of three years after the entry

into force of this Convention, the competent authorities
shall consult in order to determine whether it is
appropriate to make the exchange of diplomatic notes.

The

provisions of this paragraph shall have effect after the
States have so agreed through the exchange of diplomatic
notes.

ART!CLE 26
Exchange of In:ormation
1.

The competent authorities of the contracting States

shall exchange such information as is necessary for carrying
out the provisions of this Convention or of the domestic
laws of the Contracting States concerning taxes covered by
the Convention insofar as the taxation thereunder is not

-

contrary to the Convention.
not

restric~ed

~3

-

The exchange of information is

by Article 1 (General Scope).

Any

information received by a Contracting State shall be treated
as confidential in the same manner as information obtained
under the domestic laws of that State and shall be disclosed
only to persons or authorities (including courts and
administrative bodies) involved in the assessment,
collection, or administration of,

~he

enforcement or

prosecution in respect of, or the determination of appeals
in relation to, the taxes covered by the

Conven~ion.

Such

persons or authorities shall use the information only for
such purposes.

They may disclose the information in public

court proceedings or in judicial decisions.
2.
cons~rued

In no case shall the provisions of paragraph 1 be
so as to impose on a Contracting State the

obligation:
a)

~o

carry out administrative measures at

variance .ith the laws and administrative practice o!
that or of the other Contracting State;
b) to supply information which is not obtainable
under the la.s or in the normal course of the
administration of that or of the other Contracting
Sta~e;

c)

~o

supply information which would disclose any

trade, business,
professional

indus~rial,

secre~

commercial, or

or trade process, or information

- 44 -

the disclosure of which would be contrary to public
policy.
3.

If information is requested by a Contracting State

in accordance with this Article, the other Contracting State
shall obtain the information to which the request relates in
the same manner and to the same extent as if the tax of the
first-mentioned State were the tax of that other State and
were being imposed by that other State.
reques~ed

by the competent authority of a Contracting State,

the competent

authori~y

informa~ion

provide

If specifically

of the other Contracting State shall

under this Article in the form of

depositions of witnesses and authenticated copies of
comple~e

original documents (including books, papers,

statements, records, accounts, and
ex~en~

wri~ings),

to the same

such depositions and documents can be obtained under

the laws and administrative practices of that other State
.ith

respec~

~.

~o

its own taxes.

For the purposes of this Article, the Convention

shall apply, notwithstanding the provisions of Article 2
(Taxes Covered), to taxes o! every kind imposed by a
Contracting State.

ARTICLE 27
Diplomatic Agents and Consular Officers
Nothing in

~his

Convention shall affect the fiscal

privileges of members of diplomatic missions and consular

- 45 -

officers or employees of a consular establishment under the
general rules of international

la~

or under the provisions

of special agreements.

ARTICLE 28
Entry Into force
1.
each

This Convention shall be subject to ratification in

Contracting State and instruments of ratification

shall be exchanged at

as soon as

possible.
2.

The Convention shall enter into force on the date

of the exchange of instruments of ratification and its
provisions shall have effect:
a) in respect of taxes

~ithheld

at source on

dividends, interest or royalties, for amounts paid or
credited on or after the first day of the second month
following the month in which the Convention enters into
force;
b) in respect of other taxes, for taxable periods
beginning on or after the first day of January of the
year in

~hich

the Convention enters into force.

ARTICLE 29
Termination
1.

This Convention shall remain in force until

terminated by a contracting State.

Either Contracting State

- 46 ~ay

terminate the Convention at any time after 5 years from

the date on which the Convention enters into force, by
giving, through diplomatic channels, at least 6 months prior
notice of termination in writing.

In such event, the

Convention shall cease to have effect:
a) in respect of taxes withheld at source, for
amounts paid or credited on or after the first of
January follo~ing the expiration of the 6 ~onth period:
b) in respect of other taxes, for taxable periods
beginning on or after the first of January following
the expiration of the 6 month period.

IN WITNESS

~~EREOF,

the undersigned, being duly

authorized by their respective Governments, have signed this
Convention.

DONE at Almaty this

~'i~

£-

day of october 1993,

.

~n

duplicate, in the English and Russian languages, both texts
being equally authentic.

A Kazakh language text shall be

prepared, which shall be considered equally authentic upon
an exchange of diplomatic notes confirming its conformity
\.'i th the Engl ish language text .

.1;V7~?~¥
FOR THE GOVERNMENT OF THE
UNITED STATES OF AMERICA:

~~

FOR T~ GOVERNMENT OF THE
REPUBLIC OF KAZAKHSTAN:

PROTOCOL

At the signing today of the Convention between the
Government of the United States of America and the
Government of the Republic of Kazakhstan for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and Capital, the undersigned have
agreed upon the following provisions, which shall form an
integral part of the Convention:
1.

With regard to Article 5,
It is understood that a fixed place of business through

which a resident of a Contracting State carries on business
in the other Contracting State constitutes a permanent
es~ablishment,

whether or not such place of business is

owned by the resident.

For example, the operation of a

mine, an oil or gas well, a quarry or any other place of
ex~raction

of natural resources constitutes a permanent

es~ablishrnent

of the operator, without regard to whether the

opera~or

the property from which the natural resources

o.~s

are

extrac~ed.

2.

With regard to

A~icle

10,

(a) In the case of dividends from a United States
Regulated

Investmen~

subparagraph (a)

o~

Company, subparagraph (b), and not
paragraph 2 shall apply.

dividends from a United

Sta~es

In the case of

Real Estate Investment Trust,

the rate of withholding applicable under domestic law shall
apply.

-

2 -

(b) The term "dividend equivalent amount," as used in
paragraph 5, refers to the portion of the profits of a
permanent establishment Subject to a tax under Article 6
(Business Profits), or that portion of the profits of a
resident of one State subject to tax on a net basis in the
other State under paragraph 4 of Article 9 (Income from Real
Property), paragraphs 2 and 3(b) of Article l2 (Royalties),
or paragraphs 1 or 2 of Article l3 (Gains), that is
comparable to the amount that would be distributed as a
dividend if such income were earned by a locally
incorporated subsidiary.

In the case of the United States,

the term "dividend equivalent amount" shall have the same
meaning that it has under the law of the United States as it
may be amended from time to time without changing the
general principle of this paragraph 2(b) of the Protocol.
3.

~i~t

regard to Article 11,

a) If Kazakhstan agrees in a treaty \o,.ith another
country which is a member of the Organization for Economic
Cooperation and Development to impose a lower rate on
interest than the rate specified in paragraph 2, both
Contracting States shall apply that lower rate instead of
the rate specified in paragraph 2.
b) For purposes of paragraph 3(b), the agencies and
ins~rumentalities

referred to shall be the Export-Import

Bank and the Overseas Private Investment Corporation of the
United States and similar agencies of either contracting

-

3 -

State as may be agreed upon in future by the competent
authorities.

The provisions of this paragraph shall apply

p~ovided that the lender does not have a right of recourse

for payment of principal or interest to any person other
than the borrower or a governmental body in the country of
the borrower.
c) Notwithstanding the provisions of paragraph 1, the
United States may tax an excess inclusion with respect to a
Real Estate Mortgage Interest Conduit (tlREMIC") in
accordance with its domestic law.
d) Where a resident of Kazakhstan conducts business in
the United States through a permanent establishment in the
United States

o~

derives income subject to tax in the United

States on a net basis by reason of paragraph 4 of Article 9
(Income from Real Property), paragraphs 2 and 3(b) of
Article 12 (Royalties),

pa~agraphs

1 or 2 of Article 13

(Gains), or Article 14 (Independent Personal Services), the
"excess interest amount"
inte~est

shall be the excess if any, of (i)

borne by the permanent establishment or trade or

business SUbject to tax on a net basis in the United States,
over (ii) the interest paid by such permanent establishment
or trade or business subject to tax on a net basis.

Where a

resident of the United States conducts business in
Kazakhstan through a permanent establishment in Kazakhstan
or derives income subject to tax in Kazakhstan on a net
basis by reason of paragraph 4 of Article 9 (Income from

-

4 -

Real Property), paragraphs 2 and 3(b) of Article 12

(Royalties), paragraph 1 or 2 of Article 13 (Gains), or
Article 14 (Independent Personal Services), the "excess
interest amount" shall be the amount of interest expense
that is deductible in computing the resident's profits
attributable to the permanent establishment in Kazakhstan or
to the trade or business subject to tax in Kazakhstan on a
net basis and that is comparable to the meaning of "excess
interest amount" in the preceding sentence.
~.

With regard to Articles 10. 11 and 12.
Taxes may be withheld at the source in a Contracting

State at the rates provided by domestic law, but any excess
amount will be refunded in a timely manner on application by
the taxpayer if the right to collect the said taxes is
wa~ved

5.

or limited by the provisions of the Convention.

Rega~dlnc

ft~ere

A~icles

9 and 12.

a resident of a Contracting State elects to

compute the tax due under Article 9 or 12 on a net basis, as
provided for in those articles, the competent authorities of
each Contracting State may adopt reasonable rules for the
dete~ination

and reporting of taxable income.

Each

competent authority may also adopt procedures to ensure that
a person deriving such income provides books and records as
necessary to determine the proper amount of the tax.

-

6.

5 -

With regard to paragraph 3 of Article 13,
If either Contracting State introduces such a tax, it

shall inform the other Contracting State in a timely manner,
and agrees to consult with that other State as to whether it
is appropriate to amend the treaty to provide nonrecognition
treatment in certain cases.
7.

With regard to Article 21,
In the United States, the term "officially recognized

securities exchange" means the NASDAQ System owned by the
National Association of Securities Dealers, Inc., and any
stock exchange registered with the Securities Exchange
Commission as a national securities exchange for purposes of
the Securities Exchange Act of
S.

193~.

With regard to Article 23,
a) It is understood that in the case of an individual

resident in Kazakhstan who is also a citizen of the United
States, the credit required to be granted against Kazakhstan
tax on income shall include a credit for the income tax paid
by such individuals to the United States imposed solely by
reason of citizenship, subject only to a limitation of such
credit to Kazakhstan tax on income from all sources outside
Kazakhstan.
b) The Republic of Kazakhstan confirms that in
computing the taxes on profits and income under current law,
an entity that is a resident of Kazakhstan and is a joint
venture with participation by residents of the United States

-

6 -

or which is wholly owned by residents of the United States,
or a permanent establishment (subject to the provisions of
Article 6), is permitted deductions for actual wages paid
and for interest expense whether or not paid to a bank and
without regard to the term of the debt.

The deduction may

not exceed the limitation under Kazakh tax law, as long as
the limitation is not less than an arm's length rate taking
into account a reasonable risk premium.
c) It is understood that income tax paid by a Kazakh
person which is treated as a partnership under U.S. Federal
income tax rules shall be treated for purposes of this
Article as paid by the U.s. partner, pursuant to the rules
o! the Internal Revenue Code.
d) Both sides agree that a tax sparing credit shall not
be provided in Article 25 (Relief from Double Taxation) of
the Convention at this time.

However, the Convention shall

be promptly amended to incorporate a tax sparing credit
provision if the United States hereafter amends its laws
concerning the provision of tax sparing credits, or the
United States reaches agreement on the provision of a tax
sparing credit with any other country.
9.

With regard to Article 25.
When the competent authority of one of the Contracting

States considers that the law of the other Contracting State
is or may be applied in a manner that eliminates or
significantly limits a benefit provided by the convention,

-

7 -

that State shall inform the other Contracting State in a
timely manner and may request consultations with a view to
restoring the balance of benefits of the Convention.

If so

requested, the other State shall begin such consultations
within three months of the date of such request.
If the Contracting States are unable to agree on the
way in which the Convention should be modified to restore
the balance of benefits, the affected State may terminate
the Convention in accordance with the procedures of
paragraph 1, notwithstanding the five year period referred
to in that paragraph, or take such other action regarding
this Convention as may be permitted under the general
principles of international law.
10.

With regard to Article 28.
Where any legal rules applicable as of the dates of

entry into force of this Convention provided greater
benefi~s

wi~h

respect to taxation than are provided under

this Convention, the taxpayer may elect to apply those
rules, in

~heir

respect to which
othe~ise

entirety, for the first taxable year with
~he

provisions of this Convention would

have effect under paragraph 2.

FO~V~~HE
U~!~ED

S~A~ES

OF AMERICA:

FOR _
REPUB~IC

GOVERNMENT O~ ~
OF KAZAKHSTAN: