tion arrears, to become available in 1999. The release of these appropriated arrears would depend on the adoption of a series of reforms in the coming year, specific to each organization, that should reduce the annual amount that we must pay these organizations, starting with their next biennial budgets. These reforms would include a reduction in the U.S. share of organizational budgets, management reforms yielding lower organizational budgets, and the elimination of, or U.S. withdrawal from, low-priority programs and organizations.

The Administration wants to work closely with Congress to shape this package, lowering out-year funding requirements while maintaining strong U.S. leadership in organizations and programs important to our national interests. Enacting the advance appropriation is an essential step in achieving these objectives. It would show that we recognize our legal obligations and are determined to maintain the sanctity of our treaty commitments as we press for changes in the organizations. It would give us the leverage to mobilize support from other nations for the reforms we seek and for the lowering of our future assessments. Failure to arrive at an agreedupon solution this year will put U.S. international leadership at risk in the next century.

We are equally committed to restoring our leadership in, and reforming, the multilateral development banks (MDBs). Our commitments to them represent America's full-faith pledge. Moreover, the MDBs already have undertaken significant reforms in response to Administration and congressional concerns, including cuts in administrative expenses. The budget would eliminate our arrears over the next three years while meeting ongoing commitments that were negotiated down by 40 percent from previous funding agreements. The budget also includes funds to eliminate all arrears to the World Bank's International Development Association affiliate that lends to the world's poorest countries, many of them in Africa. Future budgets would seek to eliminate all of the arrears, while continuing our success in lowering the level of future U.S. commitments.

Our leadership in international institutions also has been critical in preventing inter

national financial crises. As the Mexican peso crisis demonstrated, the increased interdependence of our trading and monetary systems means that a monetary crisis in any major trading nation affects all nations. Consequently, the G-10 nations and a number of other current and emerging economic powers have negotiated the New Arrangements to Borrow (NAB), in order to provide a credit line for the International Monetary Fund (IMF) in cases when a monetary crises in any country could threaten the stability of the international monetary system. The budget proposes a one-time appropriation of $3.5 billion in budget authority for the U.S. share, but it will not count as an outlay or increase the deficit; the United States will receive an increase in its international reserve assets that corresponds to any transfer to the IMF under the NAB.

Promoting an Open Trading System

The Administration remains committed to opening global markets and integrating the global economic system, which has become a key element of continuing economic prosperity here at home. Achieving this goal is increasingly central to our global diplomatic activities.

We are helping to lay the groundwork for sustained, non-inflationary growth into the next century by implementing the North American Free Trade Agreement and the multilateral trade agreements concluded during the Uruguay Round. We are conducting a vigorous follow-up to ensure that we receive the full benefit of these agreements. the December 1996 World Trade Organization ministerial meeting in Singapore, for example, negotiators reached agreement on lowering many of the remaining barriers to trade in information technology, which will significantly benefit U.S. firms and workers. We are finalizing our anti-dumping and countervailing duty regulations, which implement commitments made in the Uruguay Round.

To promote other, mutually-beneficial trade relationships, the Administration will propose legislation for "fast-track" authority to nego

tiate greater trade liberalization.1 It also will propose to extend the authorization of the Generalized System of Preferences for developing countries beyond its current expiration date of May 31, 1997 and to give the eligible countries of the Caribbean Basin Initiative expanded trade benefits.

We are more closely integrating the Government's trade promotion activities through the Trade Promotion Coordinating Committee (TPCC), creating a synergy among agency trade programs that will significantly improve American business' ability to win contracts overseas, and creating export-related jobs at home. The budget puts a high priority on programs that help U.S. exporters meet foreign competition, and TPCC agencies are developing rigorous performance measures to help ensure that programs in this area are effective.

As discussed earlier in this chapter, U.S. assistance is important in encouraging the emergence of free market economies in Central Europe and the NIS, where our programs increasingly focus on facilitating a mature trade and investment relationship with the United States.

Over time, our bilateral development assistance, provided through the U.S. Agency for International Development (USAID), likewise promotes the emergence of growing market economies in developing countries by supporting market-friendly policies and key institutions. Economic growth and market-oriented policy reforms in the developing world create growing demand for U.S. goods and services as well as investment opportunities for U.S. businesses. On a larger scale, the multilateral development banks also promote economic growth and increased demand for our exports. The budget proposes that our bilateral development assistance and contributions to the multilateral development banks grow by 25 percent-from $2.6 billion to $3.3 billion.

Three smaller agencies provide U.S. Government financial support for American exports. The Export-Import Bank is a principal source of export assistance, offering loans, loan guarantees, and insurance for exports, primarily of capital goods. To assure that its programs

1 Fast track is a procedure designed to expedite congressional approval of trade agreements between the United States and other nations.

operate as economically as possible, the Bank is considering raising some fees, thereby lowering net spending in 1998 while maintaining a strong overall level of export support. The Overseas Private Investment Corporation (OPIC) provides political risk insurance for, and finances, U.S. investment in developing countries, leading to greater U.S. exports. The budget proposes to maintain 1998 OPIC funding close to the 1997 level. The Trade and Development Agency (TDA) makes grants for feasibility studies of capital projects abroad; subsequent implementation of these projects can generate exports of U.S. goods and services. The budget increases funding for TDA over the 1997 level. With the new emphasis on trade and investment in the NIS, the Export-Import Bank, OPIC, and TDA may well become important channels for further funding directed at this region.

Along with the Government's financial support for U.S. exports, the Commerce Department's International Trade Administration (ITA) promotes U.S. trade through its network of Export Assistance Centers and overseas offices. These centers and offices provide export counseling to the American sector. The budget proposes a slight increase for ITA compared to 1997.

Leading the Response to New
International Challenges

Another fundamental goal of our international leadership, and an increasing focus of our diplomacy, is meeting the new transnational threats to U.S. and global security-the proliferation of weapons of mass destruction, drug trafficking and the spread of crime and terrorism on an international scale, unrestrained population growth, and environmental degradation. We also must sustain our leadership in meeting the continuing challenge of refugee flows and natural and human-made disasters.

In 1997, the Administration will seek Senate ratification of the Comprehensive Test Ban Treaty and the Chemical Weapons Convention, both critical to our long-term security and to preventing the spread of weapons of mass. destruction. The budget supports the implementation of these agreements. U.S. diplomacy and law enforcement activities are playing

a key role in preventing the spread of such weapons to outlaw states such as Libya, Iraq, Iran, Syria, and North Korea. The Defense Department's Nunn-Lugar program and the State Department's Nonproliferation and Disarmament Fund help support these efforts. (For more information on the NunnLugar program, see Chapter 10.) In addition, U.S. support for such organizations as the International Atomic Energy Agency and the Korean Peninsula Energy Development Organization is critical to meeting our non-proliferation goals.

U.S. bilateral assistance programs are also critical to tackling other important transnational problems. Our international counter-narcotics efforts are making real progress in drug-producing countries. After several years of deeply cutting the Administration's budget requests for counter-narcotics purposes, Congress provided the full requested amount for 1997, permitting the United States to intensify its efforts to curb cocaine production in the Andean countries by offering growers attractive economic alternatives. The budget proposes $230 million for the State Department's narcotics and anti-crime programs, eight percent more than in 1997, with most of the increase focussed on programs in Peru.

In addition, USAID development assistance and U.S. contributions to international efforts, such as the Global Environment Facility, support large and successful programs to improve the environment and reduce population growth. The United States is the recognized world leader in promoting safe and effective family planning projects.

Disasters, humanitarian crises, and refugee flows are certain to remain central challenges to our leadership. The budget continues our historically strong commitment to refugee and disaster relief, proposing $1.7 billion, which sustains these programs at the 1997 level. This assistance, which reflects the humanitarian spirit of all Americans, has long enjoyed bipartisan support.

Conducting Foreign Affairs

An effective American diplomacy is the critical foundation for meeting our foreign policy goals. The budget supports a strong U.S. presence at over 250 embassies and other posts overseas, promoting U.S. interests abroad and protecting and serving Americans by providing consular services. These activities include the basic work of diplomacy-the reporting, analysis, and negotiations that often go unnoticed but that allow us to anticipate and prevent threats to our national security as well as discover new opportunities to promote American interests. The budget proposes $2.7 billion for the State Department to maintain its worldwide operations, modernize its information technology and communications systems, and accommodate security and facility requirements at posts abroad.

The budget also proposes two significant innovations in State Department management.

• One would make about $600 million in immigration, passport, and other fees, which now go to the Treasury Department, available to finance State Department operations directly. Improvements in how these State Department operations perform will, thus, be directly linked to the receipts they generate.

The other innovation restructures the management of the diplomatic platform to support the overseas activities of other Federal agencies. This reform recognizes the magnitude of the State Department's overseas administrative workload, the need to carry it out efficiently, and the need to allocate the costs of overseas support fairly among agencies. With approval of the President's Management Council, the various agencies represented abroad have designed a new overseas administrative arrangement-the International Cooperative Administrative Support Services program. The Administration will propose to fund this new arrangement in a budget amendment that it will send to Congress shortly after transmitting the budget.

President Clinton October 1996

Our defense capability sustains America's global leadership and provides the backbone of our national security policy, safeguarding America's interests, deterring conflict, and securing the peace, where necessary.

• When America's diplomatic leadership helped achieve the Dayton Peace Accord, our military led the effort that has brought a year of peace in Bosnia. With our NATO, central European, and Russian partners, our military continues to secure the Bosnian accord.

• America's armed forces remain in the Persian Gulf, deterring war in that critical region of the world.

• In Asia and the Pacific region, U.S. military forces provide the critical foundation for peace, security, and stability, in partnership with Japan and other nations.

• In our own region, America's soldiers have supported the return of democracy in Haiti and helped end the exodus of refugees to our shores.

To fulfill such missions, support our allies, and reassure our friends that America is prepared to use force in defense of our common interests, our armed forces must be highly ready and armed with the best equipment that technology can provide. In the 21st Century, we also must be prepared and trained for new post-Cold War threats to American security, such as ethnic and

required conflicts that undermine stability. Some of these post-Cold War threats, such as the proliferation of weapons of mass destruction, terrorism, and drug trafficking, know no national borders and can directly threaten our free and open society.

Sustaining a Strong Military Capability

The United States is the only nation with the logistics, mobility, intelligence, and communications capabilities required to conduct large-scale, effective military operations on a global scale. Coupled with our unique position as the security partner of choice in many regions, America's military capability provides a foundation for regional stability through mutually beneficial partnerships.

The budget continues to support the defense policy laid out by the Administration over the past four years-to sustain and modernize the world's strongest and most ready military force, a force capable of prevailing in two nearly simultaneous regional conflicts. It fully funds our commitment to maintain the highest levels of training and readiness for that force, and to equip our uniformed men and women with the most advanced technologies in the world (see Table 10-1). The Quadrennial Defense Review, now underway in the Department of Defense (DOD), will ensure that the armed forces are shaped, trained, and armed for emerging threats and missions, and remain capable of global military operations in the next century.

2,069,000

1,128,000

1,431,000 892,000

Providing the Necessary Funding

For the Defense Department's military functions, the budget proposes discretionary funding of $251.6 billion in budget authority and $248.4 billion in outlays for 1998. Through 2002, the budget continues the Administration's plan of the last four years, completing the careful resizing of our military forces, ensuring full support for military readiness and quality of life programs in the nearterm, and providing for the modernization of our forces as new technologies become available later in this decade and after the turn of the century.

DOD funding keeps pace with inflation in 1999, and then increases slightly faster than inflation through 2002. Over this period, the budget reflects the impact of marginally lower estimates of inflation, offset by increases in procurement programs necessary to ensure

the continued modernization of our military forces.

The budget also proposes $2 billion in 1997 emergency supplemental appropriations to fund continuing operations in Bosnia and Southwest Asia, and a $4.8 billion rescission of 1997 defense resources to offset the cost of the supplemental and other funding requirements.

Ensuring the Nation's Security

Expanding Arms Control.-The President is strongly committed to reducing the threat of weapons of mass destruction through arms control agreements. Over the past four years, the Administration has worked hard to implement the START I treaty, indefinitely and unconditionally extend the Nuclear Nonproliferation Treaty, obtain the signing of the Comprehensive Test Ban Treaty (CTBT), and