[House Report 108-603]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-603

======================================================================



 
  TO REAUTHORIZE THE TROPICAL FOREST CONSERVATION ACT OF 1998 THROUGH 
                FISCAL YEAR 2007, AND FOR OTHER PURPOSES

                                _______
                                

 July 14, 2004.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hyde, from the Committee on International Relations, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4654]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on International Relations, to whom was 
referred the bill (H.R. 4654) to reauthorize the Tropical 
Forest Conservation Act of 1998 through fiscal year 2007, and 
for other purposes, having considered the same, reports 
favorably thereon without amendment and recommends that the 
bill do pass.

                           TABLE OF CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for the Legislation..........................     2
Committee Consideration..........................................     5
Votes of the Committee...........................................     5
Committee Oversight Findings.....................................     5
New Budget Authority and Tax Expenditures........................     5
Congressional Budget Office Cost Estimate........................     5
Performance Goals and Objectives.................................     7
Constitutional Authority Statement...............................     7
Section-by-Section Analysis......................................     7
New Advisory Committees..........................................     8
Congressional Accountability Act.................................     8
Federal Mandates.................................................     8
Changes in Existing Law Made by the Bill, as Reported............     8

                          Purpose and Summary

    This bill reauthorizes the Tropical Forest Conservation Act 
of 1998 (TFCA) through fiscal year 2007. The current TFCA 
authorization, P.L. 107-26, expires at the end of fiscal year 
2004. H.R. 4654 authorizes appropriations for debt reduction 
for eligible countries through FY 2007 at $20,000,000 in FY 
2005 (the President's budget request); $25,000,000 in FY 2006; 
and $30,000,000 in FY 2007. A new section authorizes that funds 
can be used for audits and evaluations of the program. In 
addition, an amendment allows for TFCA debt reduction 
agreements to redirect reduced principal payments for forest 
conservation activities. Current law allows only the 
redirection of reduced interest payments into forest 
conservation funds.
    Ensuring fiscal and programmatic accountability requires 
the ability to contract for independent audits. While it is the 
intent of H.R. 4654 to maximize the amount of funds going to 
new TFCA deals, a modest authorization level is provided as a 
good management procedure to ensure that some audits be 
undertaken each year. The $200,000 authorized by the bill to be 
made available to carry out audits and evaluations of programs 
is not intended as a limit on expenditures for such purposes.
    H.R. 4654 would allow principal on debt incurred before 
January 1, 1998, to be eligible for treatment under the 
straight debt reduction option; currently only interest can be 
treated. The benefit of also treating principal is that the 
U.S. Government can treat more debt and therefore generate more 
funds for forest conservation. At present, principal is only 
treated under subsidized debt-for-nature swaps, involving 
private money contributed by NGOs.

                Background and Need for the Legislation

    The Tropical Forest Conservation Act (TFCA) was first 
enacted in 1998 and reauthorized in 2001. TFCA is based on 
Enterprise for the Americas Initiative (EAI) started in 1991 
that allows the President to restructure debt in exchange for 
conservation efforts in Latin America. The TFCA expands on the 
EAI and allows protection of threatened tropical forests 
worldwide through ``debt-for-nature'' mechanisms.
    H.R. 4654 was developed with the Bush Administration, the 
World Wildlife Fund, the Nature Conservancy, Conservation 
International, and the Wildlife Conservation Society.
    The United States has a significant national interest in 
protecting tropical forests in developing countries. Tropical 
forests provide a wide range of benefits. They harbor 50-90 
percent of the earth's terrestrial biodiversity. They act as 
``carbon sinks,'' absorbing massive quantities of carbon 
dioxide from the atmosphere, thereby reducing greenhouse gases. 
They regulate rainfall on which agriculture and coastal 
resources depend, and they are of great importance to regional 
and global climates. Furthermore, tropical forests are breeding 
grounds for new medicines. Twenty-five percent of prescription 
drugs come from tropical forests. The United States National 
Cancer Institute has identified over 3,000 plants that are 
active against cancer. Seventy percent of them can be found in 
tropical forests.
    Regrettably, tropical forests are rapidly disappearing. It 
is estimated that 30 million acres (an area larger than the 
State of Pennsylvania) are lost each year. The heavy debt 
burden of many countries is a contributing factor because they 
must resort to exploitation of their natural resources 
(particularly the extraction of timber, oil, and precious 
metals) to generate revenue to service their external debt. At 
the same time, poor governments tend to have few resources 
available to set aside and protect tropical forests. The TFCA 
addresses these economic pressures by authorizing the President 
to allow eligible countries to engage in debt swaps, buybacks 
or reduction/restructuring in exchange for protecting 
threatened tropical forests on a sustained basis.
    The debt-for-nature mechanisms in the TFCA have proven to 
be an effective, market-oriented tool to leverage scarce funds 
available for international conservation. The host country 
places an amount in its tropical forest fund that typically 
exceeds the cost to the U.S. Government of the debt reduction 
agreement. In addition, because these tropical forest funds 
have integrity and are broadly supported within the host 
country, conservation organizations are interested in placing 
their own money in these tropical forest funds further 
leveraging Federal conservation dollars.
    Current TFCA agreements will contribute to the conservation 
of 40 million acres of tropical forests.
    In addition to forest conservation and debt relief, TFCA is 
intended to strengthen civil society by creating local 
foundations to support small grants to nongovernmental 
organizations (NGOs) and local communities. The program also 
offers a unique opportunity for public-private partnerships. 
Four of the agreements to date have included private funds 
raised by U.S.-based NGOs in addition to appropriated debt 
reduction funds.

                        TFCA AGREEMENTS TO DATE

    Seven TFCA agreements have been concluded to date: 
Bangladesh, El Salvador, Belize, Peru, the Philippines, Panama 
and Colombia. These agreements have generated $70.4 million in 
long-term income commitments for tropical forest conservation. 
Private donors have contributed more than $5 million to TFCA 
swaps, leveraging the U.S. Government funds.
Bangladesh
    The U.S. contributed $6 million to reduce debt in 
Bangladesh. The TFCA agreement with Bangladesh will generate 
$8.5 million in conservation funds to support grants for forest 
conservation activities in Bangladesh over 18 years. The 
Bangladesh agreement will focus on conservation of critical 
habitat for the Bengal tiger, including the Sundarbans East 
Wildlife Sanctuary, the Himchari National Park, and the Tknaf 
Game Reserve.
El Salvador
    The U.S. contributed $7.7 million to reduce debt in El 
Salvador. The TFCA agreement with El Salvador will generate $14 
million in conservation funds over 25 years for forest 
restoration on denuded mountain slopes to prevent catastrophic 
mud slides and to restore biological diversity to 282,000 
acres.
Belize
    The U.S. contributed $5.5 million and the Nature 
Conservancy $1.3 million in a debt swap agreement that will 
generate $9 million in conservation funds. The agreement will 
conserve 23,000 acres of new forest preserves and provide 
support for local non-governmental organizations managing 
270,000 acres of national tropical forest areas over 26 years. 
The government of Belize donated 11,000 acres of land as part 
of the agreement. A principal area to be protected is the 
800,000 acre Maya Mountain Marine Corridor which contains 
pristine tropical rain forests, mangrove forests and coral 
reefs offshore.
Peru
    The World Wildlife Fund, the Nature Conservancy and 
Conservation International together contributed $1.1 million to 
the Peru debt swap agreement. The U.S. contribution was $5.5 
million. The agreement will generate $10.6 million in 
conservation funds over 12 years and will help conserve at 
least 10 protected areas including the Pacaya-Samiria National 
Reserve. This is a five million-acre area, nearly the size of 
the state of New Jersey, that contains humid tropical forests 
and wetlands, is home to freshwater gray and pink dolphins, 
Amazonian manatees, and giant river otters.
Panama
    The Nature Conservancy contributed about $1.2 million to 
the June 2003 TFCA agreement with Panama, and the U.S. 
contributed $5.6 million, which will generate $10 million in 
conservation funds over 13 years to help preserve the Chagres 
River Basin, a high biodiversity tropical forest that is also 
the major source of water for the Panama Canal, and is home to 
jaguars, Harpy eagles, and Howler monkeys.
Philippines
    The U.S. contributed $5.5 million to reduce debt in the 
Philippines. The TFCA agreement with the Philippines will 
generate $8.3 million in conservation funds over 14 years to 
conserve high-value coastal forests and mangroves in a country 
that has the highest rate of deforestation in southeast Asia, 
and the third highest in Asia.
Colombia
    The U.S. contributed $7 million to Colombia and $1.4 
million was contributed by the World Wildlife Fund, the Nature 
Conservancy and Conservation International which will generate 
approximately $10 million in local currency debt payments over 
12 years to support grants that will conserve the northeastern 
tropical Andes, including oak forests, the Llanos region in 
Orinoco Basin, and the Caribbean region. These are areas of 
great biodiversity that are home to 120 species of mammals, 46 
species of amphibians and reptiles, and 638 species of birds. 
The agreement will also create a permanent endowment fund to 
manage these areas over time.

                                OUTLOOK

    At least three TFCA agreements in up to three new countries 
are expected annually through FY 2007. Active deals are 
currently being negotiated with Jamaica and Sri Lanka. Several 
other countries that have expressed interest in the program or 
that have eligible debt include: Guatemala, Ecuador, Paraguay, 
St. Vincent, Botswana, Costa Rica, the Dominican Republic, 
India, Indonesia, Brazil, and Kenya.

                        Committee Consideration

    On June 24, 2004, the Committee met in open session and 
ordered favorably reported the bill H.R. 4654 by voice vote, a 
quorum being present.

                         Votes of the Committee

    There were no record votes on H.R. 4654.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 4654, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 28, 2004.
Hon. Henry J. Hyde, Chairman,
Committee on International Relations,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4654, a bill to 
reauthorize the Tropical Forest Conservation Act of 1998 
through fiscal year 2007, and for other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Joseph C. 
Whitehill, who can be reached at 226-2840.
            Sincerely,
                                       Douglas Holtz-Eakin.
Enclosure

cc:
        Honorable Tom Lantos
        Ranking Member
H.R. 4654--A bill to reauthorize the Tropical Forest Conservation Act 
        of 1998 through fiscal year 2007, and for other purposes.

                                SUMMARY

    H.R. 4654 would authorize the appropriation of $75 million 
over the 2005-2007 period for programs under the Tropical 
Forest Conservation Act. Those funds would be used to cover the 
costs of restructuring debt owed to the United States so that 
certain countries would pay into local funds established to 
preserve, maintain, and restore tropical forests. CBO estimates 
that implementing the bill would cost $75 million over the next 
five years, assuming the appropriation of the authorized 
amounts. H.R. 4654 would not affect direct spending or 
receipts.
    H.R. 4654 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 4654 is shown in the 
following table. The estimate assumes that the bill will be 
enacted late in 2004, that the authorized amounts will be 
provided in annual appropriation acts, and that outlays will 
follow historical spending patterns. The costs of this 
legislation fall within budget function 150 (international 
affairs).

                                     By Fiscal Year, in Millions of Dollars
----------------------------------------------------------------------------------------------------------------
                                                              2004     2005     2006     2007     2008     2009
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Spending Under Current Law for Debt Restructuring                94        0        0        0        0        0
  Budget Authority \1\
  Estimated Outlays                                             234      180       63        0        0        0

Proposed Changes                                                  0       20       25       30        0        0
  Authorization Level
  Estimated Outlays                                               0        8       22       27       18        0

Spending Under H.R. 4654 for Debt Restructuring                  94       20       25       30        0        0
  Authorization Level \1\
  Estimated Outlays                                             234      188       85       27       18        0
----------------------------------------------------------------------------------------------------------------
\1\ The 2004 level is the amount appropriated for that year.

                           BASIS OF ESTIMATE

    The Tropical Forest Conservation Act of 1998 authorized the 
Secretary of State to negotiate agreements with eligible 
countries to create local funds administered by local boards 
with the authority to make grants to preserve, maintain, and 
restore tropical forests. The local funds receive a stream of 
payments generated from modifying the terms of outstanding 
development assistance or food-aid debt owed to the United 
States. The debt modifications include authority to reduce and 
to restructure debt, to swap the debt, or to sell the debt back 
to an eligible country in ways that will generate income for 
the local funds. H.R. 4654 would authorize the appropriation of 
$20 million in 2005, $25 million in 2006, and $30 million in 
2007 to cover the cost of loan modifications, as defined by the 
Federal Credit Reform Act.
    Under current law, only interest from the modified loans 
may be deposited in the local funds. Principal payments 
continue to be paid in dollars to the U.S. government. H.R. 
4654 would authorize the payment of principal from the modified 
loans to the local funds. In addition, the bill would authorize 
$200,000 to be used for audits and program evaluations in any 
year. CBO estimates those changes to the program would reduce 
the amount of outstanding debt that could be modified with the 
amounts authorized, but would not otherwise affect the cost of 
the program.

              INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

    H.R. 4654 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would not affect the budgets of 
state, local, or tribal governments.

                         ESTIMATE PREPARED BY:

Federal Costs: Joseph C. Whitehill (226-2840)
Impact on State, Local, and Tribal Governments: Melissa Merrell 
        (225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2940)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                    Performance Goals and Objectives

    The goal of this legislation is to reauthorize the TFCA 
(P.L. 105-214), protecting the world's valuable tropical 
forests by restructuring debt in exchange for conservation 
efforts.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clause 18 of the 
Constitution.

               Section-by-Section Analysis and Discussion

Section 1. Reduction of Debt Under the Foreign Assistance Act of 1961 
        and Title 1 of the Agricultural Trade Development and 
        Assistance Act of 1954.
    This section authorizes appropriations for reduction of 
debt programs at $20,000,000 for fiscal year 2005; $25,000,000 
for fiscal year 2006 and; $30,000,000 for fiscal year 2007.
Section 2. Use of Funds to Conduct Program Audits and Evaluations.
    This section amends TFCA to add a new section 806(e) to 
authorize the use of a portion of each year's appropriation for 
the costs associated with conducting prudent and efficient 
audits and evaluations, including personnel costs associated 
with such audits and evaluations of the TFCA.
Section 3. Authority to Allow for Payments of Principal and Interest in 
        Local Currencies.
    This section allows for TFCA debt reduction agreements to 
redirect reduced principal payments (in local currency) for 
forest conservation activities. Current law allows only the 
redirection (in local currency) of reduced interest payments 
into forest conservation funds. There are several countries 
that are potentially eligible for TFCA deals but have 
insufficient eligible interest owed to the United States that 
could be reduced to create viable tropical forest funds. The 
TFCA already allows for principal to be reduced and redirected 
toward forest conservation under TFCA debt swap agreements 
entered into pursuant to Sec. 808. This section will extend 
that possibility to debt reduction agreements.

                                OUTLOOK

    At least three TFCA agreements in up to three new countries 
are expected annually through FY 2007. Active deals are 
currently being negotiated with Jamaica and Sri Lanka. Several 
other countries that have expressed interest in the program or 
that have eligible debt include: Guatemala, Ecuador, Paraguay, 
St. Vincent, Botswana, Costa Rica, the Dominican Republic, 
India, Indonesia, Brazil, and Kenya.

                        New Advisory Committees

    H.R. 4654 does not establish or authorize any new advisory 
committees.

                    Congressional Accountability Act

    H.R. 4654 does not apply to the legislative branch.

                            Federal Mandates

    H.R. 4654 provides no Federal mandates.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                TROPICAL FOREST CONSERVATION ACT OF 1998



           *       *       *       *       *       *       *
SEC. 806. REDUCTION OF DEBT OWED TO THE UNITED STATES AS A RESULT OF 
                    CONCESSIONAL LOANS UNDER THE 
                    FOREIGN ASSISTANCE ACT OF 1961.

    (a) * * *

           *       *       *       *       *       *       *

    (c) Additional Terms and Conditions.--[The following] (1) 
The following additional terms and conditions shall apply to 
the reduction of debt under subsection (a)(1) in the same 
manner as such terms and conditions apply to the reduction of 
debt under section 704(a)(1) of this Act:
            [(1)] (A) The provisions relating to repayment of 
        principal under section 705 of this Act.
            [(2)] (B) The provisions relating to interest on 
        new obligations under section 706 of this Act.
    (2) In addition to the application of the provisions 
relating to repayment of principal under section 705 of this 
Act to the reduction of debt under subsection (a)(1) (in 
accordance with paragraph (1)(A) of this subsection), repayment 
of principal on a new obligation established under subsection 
(b) may be made in the local currency of the beneficiary 
country and deposited in the Tropical Forest Fund of the 
country in the same manner as the provisions relating to 
payment of interest on new obligations under section 706 of 
this Act.
    (d) Authorization of Appropriations for Fiscal Years After 
Fiscal Year 2001.--For the cost (as defined in section 502(5) 
of the Federal Credit Reform Act of 1990) for the reduction of 
any debt pursuant to this section or section 807, there are 
authorized to be appropriated to the President the following:
            (1) * * *

           *       *       *       *       *       *       *

            (4) $20,000,000 for fiscal year 2005.
            (5) $25,000,000 for fiscal year 2006.
            (6) $30,000,000 for fiscal year 2007.
    (e) Use of Funds to Conduct Program Audits and 
Evaluations.--Of the amounts made available to carry out this 
part for a fiscal year, $200,000 is authorized to be made 
available to carry out audits and evaluations of programs under 
this part, including personnel costs associated with such 
audits and evaluations.

SEC. 807. REDUCTION OF DEBT OWED TO THE UNITED STATES AS A RESULT OF 
                    CREDITS EXTENDED UNDER TITLE I OF THE AGRICULTURAL 
                    TRADE DEVELOPMENT AND ASSISTANCE ACT OF 1954.

    (a) * * *

           *       *       *       *       *       *       *

    (c) Additional Terms and Conditions.--[The following] (1) 
The following additional terms and conditions shall apply to 
the reduction of debt under subsection (a)(1) in the same 
manner as such terms and conditions apply to the reduction of 
debt under section 604(a)(1) of the Agricultural Trade 
Development and Assistance Act of 1954 (7 U.S.C. 1738c):
            [(1)] (A) The provisions relating to repayment of 
        principal under section 605 of such Act.
            [(2)] (B) The provisions relating to interest on 
        new obligations under section 606 of such Act.
    (2) In addition to the application of the provisions 
relating to repayment of principal under section 605 of the 
Agricultural Trade Development and Assistance Act of 1954 to 
the reduction of debt under subsection (a)(1) (in accordance 
with paragraph (1)(A) of this subsection), repayment of 
principal on a new obligation established under subsection (b) 
may be made in the local currency of the beneficiary country 
and deposited in the Tropical Forest Fund of the country in the 
same manner as the provisions relating to payment of interest 
on new obligations under section 606 of such Act.

           *       *       *       *       *       *       *


SEC. 810. TROPICAL FOREST FUND.

    (a) Establishment.--Each beneficiary country that enters 
into a Tropical Forest Agreement under section 809 shall be 
required to establish a Tropical Forest Fund to receive 
payments of interest and principal on new obligations 
undertaken by the beneficiary country under this part.

           *       *       *       *       *       *       *


                                  
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