THE U.S.-NETHERLANDS ANTILLES TAX TREATY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R000400580014-3
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 16
• Document Creation Date: December 20, 2016
• Document Release Date: November 2, 2007
• Sequence Number: 14
• Content Type: MEMO

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DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
MEMORANDUM FOR THE MEMBERS OF SIG - IEP
FROM: Norman A. Bailey
Executive Secretary
SUBJECT: The U.S. - Netherlands Antilles Tax Treaty
Issues
Based on a number of tax policy considerations, the U.S. Treasury is
negotiating a new tax treaty with the Netherlands Antilles. The
outcome of these treaty negotiations involves not only U.S. interna-
tional tax policy, but also important U.S. economic and political
interests. For example:
o U.S. business relies heavily on the existing U.S. - Netherlands
Antilles treaty for access to the Eurodollar market.-
o Restrictions in the proposed new treaty will clearly reduce Antilles
revenues. Although the actual revenue loss and its relative
importance are difficult to evaluate, reduced government revenues
raise the possibility of increased unemployment and political
discontent.
o If the U.S. were to attempt to compensate the Antilles for revenue
losses arising from the proposed treaty by providing direct aid,
this would result in less aid being available to the rest of the
Caribbean Basin.
o U.S. drug enforcement efforts are greatly assisted by cooperation
and facilities provided by the Netherlands Antilles. Although
Treasury is unaware of linkage between current tax treaty negotia-
tions and U.S. - Antilles drug enforcement efforts, some U.S.
officials believe that a breakdown in treaty negotiations would lead
to a U.S. expulsion from the islands.
Treasury, the Antilles treaty negotiators and other U.S. Government
officials differ in their opinions of how close to agreement the U.S.
and Antilles are in the current round of treaty negotiations. The
Antilles negotiators have indicated that if the highly technical tax
issue of "derivative treaty benefits" can be resolved, a treaty could
be concluded. Treasury negotiators believe that other important issues
are still unresolved and that agreement on the derivative benefits
provision would not necessarily result in a a rapid conclusion of the
treaty.
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c
A breakdown in treaty negotiations would not be a disaster for either
side. Failure of the U.S. Treasury and the Antilles to conclude treaty
negotiations and to obtain Senate ratification of the proposed treaty
leaves the existing tax treaty in force. The existing treaty would
thus continue to maintain Antilles revenues. It is unlikely that
either side would unilaterally abrogate the existing treaty given the
mutual interest in maintaining Eurobond financing.
Of course, a change in U.S. domestic tax law that-removes the
30 percent U.S. tax on interest paid to foreign lenders, or a decision
to grant the Eurofinancing benefits available under the Antilles treaty
to other countries (or even U.S. territories) would result in serious
revenue losses to the Antilles. The Administration has supported
legislation repealing the 30 percent withholding tax on foreign
lenders.
Options
1. Instruct Treasury to reach a compromise on derivative treaty
issues.
o Per Antilles negotiators, this would result in successful
conclusion of the treaty.
o Per Treasury, there is no guarantee that a Treasury compromise
on derivative treaty benefits will not be met by Antilles
objections over other treaty issues, in particular exchange of
information and effective date provisions.
o Treasury concessions on derivative treaty provisions could be
viewed as excessive by Congress and result in its refusal to
ratify the treaty.
2. Permit Treasury to continue negotiations and make concessions on
the basis of its evaluation of enforcement/administrative
difficulties and Congressional sentiment.
o Treasury is best situated to evaluate the merit of highly
technical international tax issues and Congressional acceptance
of Treasury's concessions.
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o Treasury's evaluation of treaty negotiations and concessions
does not reflect sufficient awareness of nontax issues.
o Failure to compromise on derivative treaty issues may result in
breakdown of treaty negotiations.
Background
The U.S. Treasury has been meeting with representatives of the Nether-
lands Antilles over the past two years in an effort to renegotiate a
mutually agreeable tax treaty. The existing treaty, which took effect
in 1955 and was updated by protocol in 1963, is widely used by foreign
investors to channel funds into the U.S., and by U.S. multinationals
seeking access to the Eurodollar market.
Treasury and Congress have long viewed the Netherlands Antilles treaty
as subject to abuse. The ability of third-country nationals to route
investments through the Antilles and claim the benefits of a treaty to
which they are not a party is considered extremely undesirable U.S. tax
policy.
This practice, which is referred to as "treaty shopping," undercuts the
incentive of countries to negotiate bilateral tax treaties with the
U.S. Furthermore, the existence of treaty shopping hampers Treasury
negotiators in obtaining concessions from existing U.S. tax treaty
partners.
Although a wide variety of U.S. tax treaties could theoretically be
used by third parties, in practice the transaction and tax costs of
establishing offshore companies generally results in treaty shopping
being undertaken out of tax havens, such as the Netherlands Antilles
and the British Virgin Islands (BVI). Last year, the U.S., with
Congressional support, abrogated its treaty with the BVI after an
unsuccessful attempt at renegotiating a treaty that would have limited
treaty shopping.
Because of its status as a tax haven, any U.S. treaty with the Nether-
lands Antilles will be subject to intense Congressional inspection.
The widespread use of bearer shares and the country's bank secrecy
laws, in conjunction with the U.S. tax treaty, have made the Nether-
lands Antilles a well-publicized.j urisdiction for investors who value
anonymity. IRS and Treasury are convinced that substantial sums of
illegal money move through the Netherlands Antilles. A successful
resolution of the bank secrecy and bearer shares rules would greatly
aid IRS enforcement efforts.
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The current U.S.-Netherlands Antilles tax treaty negotiations have not
yet resolved a number of important issues. The U.S and the Netherlands
Antilles are in disagreement over the extremely technical subject of
"derivative treaty benefits." The Antilles negotiators have suggested
that if the issue of derivative treaty benefits can be resolved,
agreement on the entire treaty could be reached. However, Treasury
negotiators believe that a resolution of the derivative benefits issue
does not assure that a treaty could then be successfully concluded.
The existing treaty is of great benefit to the Antilles and delaying
the adoption of a new, more restrictive treaty may to be in the best
interest of the Antilles.
The following discussion covers not only the derivative treaty
question as well as other tax issues, but also the consequences of a
breakdown in the negotiating process.
Treaty Issues
Eurodollar Financing
The Netherlands Antilles tax treaty is extremely important to U.S.
multinationals because it provides a mechanism by which U.S. companies
obtain access to the Eurodollar market without subjecting foreign
lenders to the U.S. 30 percent withholding tax. From both the U.S. and
Antilles economic viewpoint, this is really the overriding issue of the
treaty. Fortunately, the U.S. and the Netherlands Antilles have
reached at least a tentative agreement on this issue.
The U.S. will provide an interest exemption on qualifying Euro issues
outstanding, but shall have the right to withdraw this interest
exemption on six months notice for seven years after the new treaty
comes into force. However, in the event of such termination, existing
issues would be protected for ten years. Treasury advises that this
agreement is acceptable to U.S. business.
Exchange of Information
Because of the widespread use of bearer shares and Antilles bank -
secrecy laws, the exchange of information provisions contained in the
existing U.S.-Netherlands Antilles tax treaty are of little use to the
IRS in preparing civil or criminal tax cases. Under the proposed
treaty, the Antilles has agreed in principle to permit the secrecy
provided by bearer shares and existing banking laws to be pierced in
some cases, and to provide much more significant information to U.S.
tax authorities. This broadening of the exchange of information
provisions -- although not totally settled -- would offer substantial
aid to the IRS and Justice Department.
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The Derivative Treaty Provisions
In an attempt to limit treaty shopping, the U.S. general negotiating
position with respect to all treaty partners, not just the Netherlands
Antilles, is to insist on a "Limitation of Benefits" Article in its tax
treaties. One purpose of this Article is to deny the benefits of the
tax treaty to corporations which are resident in the treaty country,
but which are owned by nonresidents of either the treaty country or the
United States.
The derivative treaty rules constitute an exception to the above
general rule. Essentially, they operate to permit a corporation owned
by third-country nationals, who are resident in a country that is a
treaty partner with the U.S., to qualify for treaty benefits.
The U.S. and the Antilles cannot agree on how far the derivative treaty
exception should be extended. This disagreement has come to issue over
the questions of 1) indirect holdings and 2) rate differentials.
While both sides have agreed that there should be a derivative treaty
provision in the treaty, the U.S. wants to limit the derivative treaty
benefits to situations where third-country owners are either
individuals or publicly traded companies.
1.- Indirect Holdings
The U.S. insists that Antilles companies owned by third-country holding
companies, i.e. nonpublic companies, resident in a country with which
the U.S. has a taR treaty, should not qualify for the Antilles treaty
benefits under the derivative treaty. rule. For example, the U.S. would
not permit a Canadian holding company of a U.K. public company with a
Netherlands Antilles subsidiary to qualify under the U.S. - Antilles
treaty.
The Antilles insists that such indirect ownership should qualify
Antilles companies for treaty benefits.
The Antilles believes the holding company provisions provide perfectly
appropriate recognition of common international business practices and
corporate structures. Treasury believes that extending these
provisions to holding companies opens up the possibility of abuse,
creates additional complexity and enforcement problems for the IRS and
may be unacceptable to Congress.
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2. - Rate Differentials
The rate differential question is even more technical. The U.S.
position is that derivative treaty benefits apply only if the rates
in the derivative treaty are as low or lower than the rates In the
Antilles treaty.
For example, if the benefits available to a resident of France are
greater than the benefits available under the U.S.-Antilles treaty, the
French resident will qualify for derivative treaty benefits. However,
under the U.S. proposal, the derivative treaty benefits will not apply
in cases where the third-country resident's treaty benefits are less
than those available under the U.S.-Antilles treaty.
The Antilles believes that derivative treaty benefits should be
available to any third-country resident provided there is a tax treaty
between the third country and the U.S. Where the third-country treaty
provides for fewer benefits than the Antilles treaty, for example, a
higher rate of tax on dividends, then the higher rate of tax would
apply.
It is not obvious why these derivative treaty provisions are so
important to the Antilles for they generate little revenue for its
economy. The Antilles has argued that such provisions are essential in
order to maintain their financial infrastructure, which is dependent on
contacts with a large number of European countries. Treasury's primary
objection to the Antilles position is that it would undermine relations
with other treaty partners. Moreover, Treasury does not believe
Congress would accept such a position. It is also Treasury's position
that such rules would create administrative complexity and enforcement
difficulties.
Political and Economic Considerations
In the event that a treaty cannot be concluded with the Nether-
lands Antilles, or in the event that whatever treaty is concluded
significantly reduces business activities and tax revenues of the
Antilles, the following possible reactions must be considered:
1.- The loss of tax revenues to the Antilles would reduce indigenous
government spending and services. Unless such revenue losses were
compensated for by additional U.S. aid, the likelihood of economic
and political turmoil could increase. Should aid be required, the
only available possible current source of funding would have to
come from the already too meager Caribbean Basin Initiative.
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2.- The Drug Enforcement Administration (DEA) and the Customs Service,
currently with facilities in the Antilles, could be asked to leave.
The White House Drug Abuse Office believes this would in all
likelihood result in a significant increase in aircraft and boat
traffic through Aruba for potential drug smuggling. DEA would be
forced to station aircraft on the unsecured north coast of
Colua-bia, and Customs, currently stationed in Aruba, would be
forced back to Puerto Rico or Guantanamo.
Balancing the Issues
It is obvious that the tax treaty negotiations with the Netherlands
Antilles involve more than just tax issues. However, the impact of the
current treaty negotiations on economic and political issues of great
concern to the U.S. will differ sharply depending on whether:
1.- Treaty negotiations break down, but the existing treaty remains in
force;
2.- The treaty is concluded and ratified by the Senate at roughly its
present state of negotiation; or,
3.- No agreement on a treaty can be reached and either the U.S. or the
Antilles abrogates the existing treaty.
In terms of the political and economic damage to the U.S. and the
Antilles, it should be kept in mind that the failure to reach a new
treaty leaves the current treaty in force. Clearly, this is the
alternative the Antilles would prefer because this provides it with
the greatest benefits. Furthermore, the U.S. interest in preserving
Eurocurrency financing and the difficulty of passing legislation such
as Gibbons-Conable (removing. the 30 percent tax on interest payments to
foreigners) at this time, make it unlikely that the U.S. would abrogate
the existing treaty with the Antilles.
The Eurofinancing role granted to the Antilles under the existing U.S.-
Netherlands Antilles treaty now accounts for nearly 70 percent of the
Antilles revenues generated under the current treaty. If a new treaty
is concluded at the current stage of negotiations -- regardless of
which way the derivative treaty issue is decided -- there will be some
loss of revenues to the Antilles.
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Treasury believes that its resolution of the Eurofinancing issue under
the proposed treaty will largely preserve Antilles revenues and the
access of U.S. multinationals to the Eurocurrency markets. Presumably,
this would minimize the possibilities of political unrest and the
threat of U.S. drug enforcement personnel being expelled from the
area.
The Antilles negotiators have provided Treasury information that shows
30 percent of total Antilles revenues are due to offshore activities.
By way of comparison, individual income taxes account for about
45 percent and Social Security taxes for almost 37 percent of total
U.S. federal budget receipts. Approximately 20 percent (64 percent of
the 30 percent) of total Antilles revenues are currently due to
activities arising under the U.S.-Antilles treaty.
The Antilles treaty negotiators estimate that adoption of the proposed
treaty would halve the 30 percent of total revenues currently due to
offshore activities. However, the derivative treaty question involves
negligible direct revenue effects.
If the U.S. Treasury is able to reach agreement on a tax treaty with
the Netherlands Antilles, it will not take effect unless it is ratified
by the Senate. To the extent that Treasury negotiators take positions
unacceptable to Congress, the time and effort spent on the treaty will
be wasted.
In the event that the current round of treaty negotiations breaks down
completely and either the U.S. or the Antilles decides to abrogate the
existing treaty, the consequences would be more dire. U.S.
multinationals would lose the Antilles as an avenue to Eurofinancing,
the Antilles would suffer a large revenue loss (20 percent of total
Antilles revenues are generated through the U.S.-Antilles treaty), and
the threats of political unrest and U.S. loss of drug enforcement
resources would become more serious.
If this were to occur, it is likely that Treasury and Congress would
quickly seek to create another Eurodollar window, perhaps through
another country or a U.S. territory. However, the Netherlands Antilles
loss of revenues from its present Eurofinancing monopoly could not be
compensated for so easily.
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of Agriculture
Summary of the
Agricultural Export Equity
and Market Expansion Act, S. 822
The Agricultural Export Equity and Market Expansion Act, S. 822, as approved
by the Senate Agriculture Committee, is a bill designed to restore equity in
agricultural trade and maintain and enhance foreign markets for U.S.
agricultural products. To accomplish this, the bill expands authority for
the use of CCC stocks, requires the export sale of CCC dairy products,
modifies the P.L. 480 program, and directs that several. other actions be
taken. Major provisions and a proposed USDA position are outlined below.
Export Sale of Dairy Products
Section 201 provides that the Secretary must make sales of at least 150,000
MT of CCC owned dairy products annually during fiscal years 1983, 1984 and
1985. These sales are to be made at no less than the minimum price under
the International Dairy Agreement. Provision is made for fewer sales if
they could not be made at or above this minimum.
USDA Comment: The provision should be amended to make it discretionary as
the Secretary already has the authority to carry out its intent. We have
been exporting significant amounts of dairy products in the past two years
(68,000 MT in 1981 and 145,000 MT in 1982, excluding P.L. 480 donations) and
intend to continue to do so as is appropriate given international market
conditions. An arbitrary minimum amount would not serve us well as a policy
instrument vis-a-vis our trading partners or as a means to recoup the
maximum amount for the CCC.
Agricultural Export Assistance
Section 202 (b) provides in part that one half of the funds realized from
the sale of product under Section 201 be used to promote exports in whatever
form is necessary to compensate for other countries' price and credit
subsidies.
USDA Comment: This provision should be amended to make it discretionary. We
would find it exceedingly difficult to estimate from both a price and
quantity standpoint the returns to the CCC from any dairy sales and, thus,
would not be in a position to develop an effective long-term program with
the proceeds from such sales.
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Section 202 (c) would require the use of $90 million in fiscal year 1983 for
price or credit subsidies for exports of value-added or high-value U.S.
agricultural products, with at least $20 million to be used for poultry and
eggs, $15 million for raisins, and $5 million for canned fruit.
USDA Comment: This provision should be amended to allow the use of $90
million of CCC funds rather than mandating the use of those funds for this
purpose. This brings it into conformity with the Secretary's existing
authority. The requirement to direct portions of these funds to specified
products should be eliminated.
Expansion of Markets for U.S. Agricultural Products
Section 203 provides authority for an export "PIK" program, using CCC owned
stocks as payment to exporters, users, and foreign purchasers to encourage
foreign market development for U.S. agricultural commodities.
USDA Corn ent: The Department recognizes that a PIK export program could
expand U.S. agricultural exports by generating new demand and/or by
restoring U.S. competitiveness in world markets against unfair competition
from the European Community and other subsidizing exporters. At the same
time, USDA believes that authority for a PIK export program exists under the
CCC Charter Act. In fact, USDA already has implemented a PIK export program
for wheat flour to Egypt. The Administration's position therefore is that
the legislation is not needed. However, strong Administration opposition to
the PIK export proposal would undermine current agricultural trade policy
initiatives. Such opposition would be perceived by the European Community
and other subsidizing competitors as a weakening in our position against
export subsidies and a clear rejection of the option to meet those subsidies
with subsidies of our own.
Use of Food Security Wheat Reserve for Export Expansion
Section 204 authorizes the use of up to 1.5 million metric tons of wheat
from the Food Security Wheat Reserve in each of the fiscal years 1983 and
1984 to carry out an export PIK program and requires that the amount taken
from the Reserve must be replenished before October 1, 1984. The Reserve
currently includes 4 million metric tons of wheat which is withheld from the
market and nay be drawn upon, for food security reasons, in a situation in
which there is insufficient wheat on the market to be used to satisfy PL-480
programs.
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USDA Comment:In view of the apparent overwhelming success of the domestic
PIK program, it is expected that there will be some drawdown of U.S. wheat
stocks. Furthermore, the flour program with Egypt will virtually deplete
existing CCC stocks of wheat, and the domestic PIK is likely to use any
additional stocks CCC may acquire from the 1983 crop. Therefore, the
authority proposed in this bill could be useful for gaining access to
additional supplies, should the opportunity for further export PIK programs
arise. It is our view that a temporary drawdown of the Food Security Wheat
Reserve would in no way threaten the U.S. capability to provide sufficient
wheat for food security needs, as overall stocks over the next two years are
expected to be more than adequate to satisfy both domestic and foreign
requirements.
Agricultural Export Credit Revolving Fund
Section 208 expresses the sense of the Congress that during FY 1983 not less
than $1 billion should be made available to fund the Agricultural Export
Credit Revolving Fund authorized by Section 1201 of the Agricultural and
Food Act of 1981, which amended Section 4(d) of the Food for Peace Act of
1966.
USDA Comment: The Department opposes enactment of this provision. While the
Department recognizes that establishment of the Agricultural Export Credit
Revolving Fund could assist the Department in its export promotion efforts,
budgetary constraints preclude capitalization of the Fund at this time.
Moreover, the Department has taken other steps to assist with export
promotion, including establishment of the blended credit program under
general authority of the CCC Charter Act.
Export Transportation of Agricultural Commodities
Section 209 provides that the provisions of the cargo preference laws shall
not apply to future export payment-in-kind or blended credit activities of
the Coniiodity Credit Corporation.
USDA Comment : This Department supports section 209 (Export Transportation
of Agricultural Commoditeis) which provides that the cargo preference laws
shall not apply to future payment-in-kind or blended credit activities of
the Corrnodity Credit Corporation. The application of the cargo preference
laws of the United States to the export shipment of agricultural commodities
under payment-in-kind or blended credit activities of the CCC would more
offset the benefits of such programs and would generally make more difficult
the ability of the U.S. Government to promote agriculture exports at the
time of a depressed agricultural economy.
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Expanded Donation of CCC Stocks Abroad
Section 301 expands existing authority provided in Section 416 of the
Agriculture Act of 1949 which authorizes the donation of CCC owned dairy
products to foreign governments and public and private nonprofit
humanitarian organizations for distribution overseas, to include other
commodities acquired by CCC. In addition, it authorizes the sale and barter
of these commodities, as approved by the Secretary of Agriculture, to
facilitate providing assistance to needy people. The donation of
commodities under this authority is to be coordinated through the same
mechanism established by the President to coordinate P.L. 480 food
assi stance.
USDA Comment: The Department supports enactment of this provision, provided
it is amended to incorporate Section 416 overseas donations within the P.L.
480 Title II program authority and operations. This change would render
explicit authority for the sale and barter of these commodities unnecessary
as they are presently authorized within the P.L. 480 Title II legislation.
Expanded Use of CCC Stocks Under P.L. 480
Section 302 amends Public Law 480 by adding a new Section 116, which would
authorize t e President to use CCC acquired commodities and their products
to increase the level of agricultural exports through Titles I,II, and III
of P.L. 480 above the level of assistance programed under the Act in any
given year.
USDA Comment: The Department does not support enactment of this provision.
Existing authority already provides for the use of CCC acquired commodities
in the P.L. 480 program. More important, this provision would generate
increased demand on CCC funding and borrowing authority. Making CCC
acquired commodities available for P.L. 480 with no increase in available
P.L. 480 funding to reimburse CCC would increase financial losses in the
domestic price support programs. In addition, ocean freight differential
payments under Titles I and III and ocean transportation costs in Title II
would need to be funded through general CCC borrowing authority.
Section 303(a) amends Title II of Public Law 480 by requiring the President
to consider the nutritional assistance to program recipients and benefits to
the United States which would result from providing processed and protein
fortified products through the Title II program. In addition, it directs
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that, as feasible, approximately 55 to 60 percent of total Title II Program
tonnage be distributed each year in the form of processed and
protein-fortified products.
USDA Comment: The Department opposes enactment of this provision. Title II
is in large part a targetted feeding program; commodities are programed to
meet a combination of nutritional, humanitarian, and developmental
objectives. In determining the commodity mix for the program, Title II
managers at anpt to include the least expensive commodities which can still
meet these objectives, thus allowing the program to reach the greatest
number of people within budgetary constraints. The Department opposes a
legislatively mandated percentage target as program requirements shift from
year to year. In a year in which normal programing requirements would
result in a lower percentage of processed foods, this provision would result
in greater costs than necessary or the donation to fewer people of higher
cost processed foods than would be possible with a different commodity mix.
Section 303(b) would amend P.L. 480 Title II by requiring the President in
using nonprofit voluntary agencies to distribute Title II food commodities
to consider any nutritional and developmental objectives established by
those agencies which are based on their assessment of the needs of the
recipient people.
USDA Comment: The Department does not oppose enactment of this provision.
Food for Development Programs
Section 304 (1) Amends Section 302 (c) of P.L. 480 by adding a requirement
that consideration be given to using the capabilities and expertise of U.S.
nonprofit voluntary agencies and cooperatives in developing and carrying out
Title III Food for Development programs.
USDA Comment: The Department of Agriculture does not oppose enactment of
this provision.
Section 304 (2) would require the President to ensure, to the extent
feasible, that the total value of Title III agreements for each fiscal year
equal approximately 17 to 20 percent of the total value % Title I agreements
for that year. If the aggregate value target for Title III financing is not
achieved in any fiscal year, the President would be required to submit-to
Congress a detailed statement on the reasons for the lack of acceptable
agricultural and rural development projects that qualify for Title III
assistance and a detailed description of U.S. Government efforts to assist
eligible countries to identify appropriate Title III projects.
USDA Comment: The Department opposes enactment of this provision. Food
commodities are provided under Title III only when it is found that the
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recipient country will be able to use the commmodities or currencies
generated therefore in mutually agreed upon projects or programs designed to
help achieve development goals. Experience has shown that the countries
designated by law as eligible for Title III assistance often lack the
institutional capacity to implement a complex program to address
agricultural production constraints. An attempt at this time to mandate
legislatively a greater remainder of Title III programs would be
counterproductive. The U.S. Government does leave other vehicles of
assistance, e.g. development assistance programs, which may be more
appropriate in particular countries and situations. Moreover, existing
legislation provides a target of 15 percent of Title I financing be used for
Title III programs. This is a minimum, not a maximum, and can be exceeded
whenever appropriate Title III program candidates are identified.
Section 304 (3) requires that Title III agreements provide, to the extent
feasible, tat the commmodities made available on the funds generated from
the sale of the commmodities be used at the farm and village level in
famine-prone countries, particularly in sub-Saharan Africa, to establish
rural projects emphasizing post-harvest food conservation and provide for
participation in development and administration of such projects by the
intended project beneficiaries. In addition, Title III agreements entered
into to establish rural projects must ensure that the commodities or funds
generated therefrom be used primarily to benefit the poor in participating
countries.
USDA Com ent: The Department of Agriculture opposes enactment of this
provision w ich is unnecessary since existing administration policy
adequately addresses these issues. Current Title III policy and program
guidance to the field directs that the special needs of the poor be
considered in program design.
In addition, its focus on project specific activities, and on problems of
food security in particular, may distort the focu3 of Title III away from
policy reform which may be a more appropriate application of Title III,
including its application in Africa. To the extent the legislation mandates
precise forms of project specific activity and implies uniform solutions to
problems which may vary remarkably in their dimensions and their causes from
country to country. Title III programming potential will be greatly
constrained and unable to respond to unique situations.
CCC Sales of Extra Long Staple Cotton
Section 401-Amends section 407 of the Agricultural Act of 1949 to permit
Commodity Credit Corporation (CCC) stocks of extra long staple (ELS) cotton
to be sold for unrestricted use at such price levels as thee Secretary
determines appropriate to maintain and expand export and domestic markets
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for such cotton. Currently, such sales cannot generally be made at less
than 11.5 percent of the loan rate. Elimination of the 11.5 percent minimum
sales price restriction on CCC sales would permit movement of CCC stocks to
the marketplace and should reduce government costs.
USDA Comment: The Department supports this provision.
Barter of Agricultural Commodities
Section 403 (2) requires the Secretary to the maximum extent practical, in
con sultation with the Secretary of State, to use CCC commodities to barter
for strategic and critical materials; use normal commercial channels; and
take action to avoid displacing usual marketing of U.S. agricultural
commodities.
USDA Comment: The Department opposes this provision. The authority now
contained in the CCC Charter Act and in Section 310, Title III of P.L. 480
provide the Departmet with adequate authority to carry out barter
arrangements for the exchange of CCC commodities and strategic materials
Section 403 (4) directs the Secretary, to the maximum extent practicable, in
consultation with the Secretary of Energy and the Secretary of State, to
accept petroleum products in exchange for CCC commodities and transfer them,
without reimbursement, to the Strategic Petroleum Reserve.
USDA Comment: The Department opposes this provision. As cited above, the
Department currently has adequate authority to undertake such barter
arrangements. Further, transfer of commodities without reimbursement would
expend funds appropriated to carry out agricultural price support programs
in acquiring petroleum for the Strategic Petroleum Reserve.
Economic Support Fund
Section 404 requires the President to use not less than 35 percent of funds
appropriated for the Commodity Import Program of the Economic Support Fund
for the purchase of U.S. agricultural commodities and agricultural related
products. In addition, not less than 20 percent of the funds appropriated
for the Commodity Import Program shall be used for the purchase of U.S.
agricultural commodities, and of this 20 percent, one half shall be used to
purchase processed or value-added products.
USDA Comment: The Department does not oppose enactment of this provision.
It would assist in increasing the volume of U.S. agricultural commodities
being exported through the Commodity Import Program.
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Congressional Reports Required
Section 501 requires a report by July 1983 on use of agricultural subsidies.
Section 502 requries a report on progress on negotiations for a US-USSR long
tern agreement by March 1983.
Section 503 requires a report on bilateral agreements by July 1983.
Section 504, requires a report on barter within 90 days of enactment.
Section 505 requires a report by the secretary of State on programs under
which surplus us agricultural products could be distributed to foreign
countries.
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