Foreign Assistance: U.S. Funding for Democracy-Related Programs  
(China) (27-FEB-04, GAO-04-445R).				 
                                                                 
In fiscal year 1999, Congress began authorizing the provision of 
U.S. foreign assistance funds to support programs aimed at	 
strengthening democracy in China, and, in fiscal year 2002, it	 
began appropriating specific amounts for such programs. However, 
the provision of foreign assistance funds to programs focusing on
China continues to be controversial due to concern about some of 
the Chinese government's human rights practices and certain of	 
its economic, political, and security policies. The House	 
Committee on International Relations expressed concern about the 
lack of a complete picture of U.S. funding for democracy-related 
programs focused on China. In response to this concern, we	 
determined how much funding the U.S. government has provided for 
programs intended to strengthen democracy in China for fiscal	 
years 1999 to 2003, in total and by year, and identified the	 
agencies responsible for administering the funds, as well as the 
intended purposes of the programs they support. While we focused 
primarily on bilateral programs, we also briefly describe	 
democracy-related efforts of multilateral institutions that the  
United States helps support.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-445R					        
    ACCNO:   A09374						        
  TITLE:     Foreign Assistance: U.S. Funding for Democracy-Related   
Programs (China)						 
     DATE:   02/27/2004 
  SUBJECT:   Appropriated funds 				 
	     Budget outlays					 
	     Foreign aid programs				 
	     Foreign governments				 
	     Grants						 
	     International relations				 
	     Democracy-building programs			 
	     Human rights					 
	     China						 

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GAO-04-445R

United States General Accounting Office Washington, DC 20548

February 27, 2004

The Honorable Henry J. Hyde
Chairman
The Honorable Tom Lantos
Ranking Minority Member
Committee on International Relations
House of Representatives

Subject: Foreign Assistance: U.S. Funding for Democracy-Related Programs
(China)

In fiscal year 1999, Congress began authorizing the provision of U.S.
foreign assistance funds to support programs aimed at strengthening
democracy in China,1 and, in fiscal year 2002, it began appropriating
specific amounts for such

2

programs. However, the provision of foreign assistance funds to programs
focusing on China continues to be controversial due to concern about some
of the Chinese government's human rights practices and certain of its
economic, political, and security policies. In your request to us and in
subsequent meetings with your staff, you expressed concern about the lack
of a complete picture of U.S. funding for democracy-related programs
focused on China.

In response to your concern, we determined how much funding the U.S.
government has provided for programs intended to strengthen democracy in
China for fiscal years 1999 to 2003, in total and by year, and identified
the agencies responsible for administering the funds, as well as the
intended purposes of the programs they support. While we focused primarily
on bilateral programs, we also briefly describe democracy-related efforts
of multilateral institutions that the United States helps support.
Information on these programs is provided in appendix I.

To address our objective, we reviewed and discussed relevant program
documentation and funding information with cognizant officials
administering democracy-related programs focused on China-primarily at the
Departments of State and Labor and the National Endowment for Democracy.
Also, we met with cognizant officials and reviewed documentation for
democracy-related programs in China under the United Nations, the Asian
Development Bank, and the World

1Pub. L. No. 105-277, S: 527.

2Pub. L. No. 107-115, S: 526.

Bank. (See the scope and methodology section for a more complete
discussion of our approach.)

Results in Brief

In fiscal years 1999 to 2003, the United States provided more than $39
million in bilateral support for programs intended to strengthen democracy
in China, with average annual funding levels increasing from about $2.3
million in 1999 and 2000 to about $14.4 million in 2002 and 2003. State
provided about 45 percent of the total funds (nearly $18 million),
primarily to support programs to enhance the rule of law. The National
Endowment for Democracy provided about 38 percent of the total (more than
$15 million) for programs aimed at a variety of purposes, such as
strengthening labor rights and reforming electoral systems. Labor provided
the remaining 17 percent ($6.4 million) to enhance protection of
internationally recognized workers' rights.

Background

Advancing democracy is an important overall theme in U.S. foreign
policy-for example, the Strategic Plan 2004-2009 issued by the Department
of State and the U.S. Agency for International Development identifies
democracy, security, and prosperity around the world as the three key
underlying concerns for U.S. foreign operations. Democracy programs have
become a prominent element in U.S relations with many developing and
transition countries.3

Beginning with fiscal year 1999, Congress began authorizing the use of
Economic Support Funds4 to support China-focused democracy programs, so
long as the funds went to nongovernmental organizations located outside
China.5 In addition, in the October 2000 law that approved the
normalization of U.S.-China trade relations, Congress authorized the
Departments of State, Labor, and Commerce to initiate rule of law programs
in China.6 In appropriations language for fiscal

3Transition countries are those working to convert their societies from
the command and control model typical of communist states to a
market-oriented model.

4Economic Support Funds are dedicated to promoting economic and political
stability in strategically important regions.

5In the wake of the Chinese government's 1989 crackdown on demonstrators
in Tiananmen Square, Congress adopted a number of restrictions on U.S.
economic relations with China. Among other things, Title IX of the Foreign
Relations Authorization Act of 1990 (Pub. L. No. 101-246, 104 Stat.

80) suspended obligations of foreign assistance funds for new activities
of the Trade and Development Program, and issuance of Overseas Private
Investment Corporation guarantees or other support for investments in
China. Also, until recently, annual Foreign Operations Appropriations Acts
prohibited indirect assistance to China-for example, Pub. L. No. 105-118,
S: 523.

6Commerce provided us with a list of workshops, seminars and other types
of training conducted in response to this directive, but agency officials
could not provide an estimate of the cost of these activities.

2002,7 Congress dropped the limitation that grants from Economic Support
Funds could be provided only to organizations located outside China and
directed that "not less than" a specific amount ($10 million) be made
available for programs aimed at supporting democracy, human rights, and
the rule of law in China. For fiscal year 2003, Congress appropriated not
less than an additional $15 million for such programs. In appropriations
acts and accompanying congressional committee reports, Congress directed
that certain amounts of these funds be used to expand State and National
Endowment for Democracy8 grants.9

U.S. Democracy-Related Assistance Has Totaled about $39 Million

As shown in table 1, during fiscal years 1999 to 2003, the United States
provided more than $39 million for democracy-related programs focused on
China, with average annual funding levels increasing from approximately
$2.3 million in fiscal years 1999 and 2000 to about $14.4 million in 2002
and 2003. These funds have been provided primarily as grants through
State, the National Endowment for Democracy,10 and the Department of
Labor.11

7Pub. L. No. 107-115, S: 526.

8The National Endowment for Democracy is a nongovernmental organization
that seeks to advance democracy around the world, primarily through a wide
variety of grants to other nongovernmental organizations. In its annual
report for 2002, the Endowment reported activities in more than 80
countries. Although independently managed, it receives most of its funding
through annual noncountry specific appropriations by the U.S. government.
These appropriations, which are separate from Economic Support Fund
appropriations, amounted to $42 million in fiscal year 2003, up from an
average of about $32 million per year over the previous 2 years.

9As we completed our work, Congress approved and the President signed an
omnibus appropriations act for fiscal year 2004 that provided an
additional $13.5 million for such programs, with all of the funds
designated for State and Endowment grants.

10Amounts provided through State and Endowment grant programs in fiscal
2002 and 2003 were less than the $25 million in Economic Support Fund
appropriations described in the background section of this report because:

o  	The appropriations acts specified that "not to exceed" $6 million of
the total could be made available for programs to preserve cultural
traditions and promote sustainable development and environmental
conservation in Tibetan communities in China, and State responded by
allocating $5.7 million to such programs;

o  	The Endowment retains about 15 percent of the funds it receives to pay
its administrative costs;

o  	Amounts appropriated for fiscal year 2003 were subsequently reduced by
a 0.65 percent rescission; and

o  	As of the end of fiscal year 2003 State and the Endowment retained a
combined unobligated balance of about $3.25 million in monies for China
grants.

11Labor funds came from that agency's appropriations, rather than Economic
Support Funds.

Table 1: U.S. Assistance for China Democracy-Related Programs by Fiscal
Year

                             (Dollars in thousands)
                                          Fiscal year                 Total   
         Agency/bureau        1999   2000   2001    2002     2003   
Department of Statea  o                                                    
Bureau for Democracy,                                                      
Human Rights, and Labor                                                    
Grants  o  Bureau for                                            
East Asia and Pacific                                            
Affairs Grants  o  Bureau                                        
for International                                                
Narcotics and Law                       $2,135  $3,827b  $5,306   $9,133
Enforcement Affairs Total               489 $  2,300 476  3,155  7,590 965
State                                   2,624    6,603    8,461   17,688
    National Endowment for                                                    
           Democracy         $1,887 $2,662 3,096    3,144    4,228   15,017
Department of Labor,                                                       
Bureau for International                                         
Labor Affairs                                    6,400             6,400
             Total           $1,887 $2,662 $5,720  $16,147  $12,689  $39,105  

Source: Prepared by GAO with data from the Departments of State and Labor
and the National Endowment for Democracy.

aTo avoid double counting and to more accurately show the level of funds
being provided to project implementers, State Bureau for Democracy, Human
Rights, and Labor funds transferred to the Endowment and allocated to
projects are included in the annual totals for the Endowment.

bIncludes $75,000 provided by State's Bureau of Oceans and International
Environmental and Scientific Affairs.

Department of State

As shown in table 1, in fiscal years 1999 to 2003, State administered
about $17.7 million, or more than 45 percent, of total U.S. funding for
programs intended to strengthen democracy in China. Most of this was
provided as grants to nongovernmental organizations, with the largest
share awarded through the Bureau for Democracy, Human Rights, and Labor
beginning in fiscal year 2002. Overall, State's assistance has gone
predominantly to programs to enhance the rule of law-an area where China's
government has acknowledged need for improvement and has actively sought
assistance from the donor community.

In 2002 and 2003 the Bureau for Democracy, Human Rights, and Labor
approved nearly $9.1 million in China-focused grants through the Bureau's
Human Rights and Democracy Fund.12 According to State, grants made through
this fund are intended to "uphold democratic institutions, promote human
rights, and build civil society in countries and regions of the world that
are geo-strategically critical to the U.S." State classifies approximately
half of the assistance provided through the fund over the last 2 years as
legal reform programs intended to address,

12In 2003, the Bureau also awarded $50,000 to the U.S. embassy in Beijing
for a project to support media reform. This award was made through the
Bureau's annual diplomatic post competition for democracy-related grants.

among other things, China's need for improved court proceedings, increased
professionalism among lawyers and judges, and enhanced capacity for
providing legal services to the disadvantaged. Several of State's grants
support work to be undertaken in cooperation with Chinese government
entities and/or with academics, consulting firms and nongovernmental
organizations in China. For example, one project includes support for
working with the Supreme People's Court, the National People's Congress
and other counterparts to promote criminal defense reforms in China;
another project funds a partnership between an American university and a
legal reform consulting firm operating in China to help develop China's
system for providing legal aid in rural communities.

Other rule of law efforts were funded through the Bureau for East Asia and
Pacific Affairs, which granted about $7 million to the Temple University
School of Law to support legal education activities in China.13 This
Bureau also provided $175,000 to the U.S. Embassy in Beijing for a small
grants program focused on enhancing the rule of law;14 and, in fiscal year
2001, it provided $385,000 to the American Bar Association to strengthen
the legal framework for and civil society participation in protecting
China's environment.15 In addition, the Bureau for International Narcotics
and Law Enforcement Affairs provided $965,000 for a resident legal adviser
in the U.S. Embassy in Beijing for a 2-year term, ending in August 2004.16
The advisor's mission is to engage with Chinese counterparts to stimulate
justice sector reforms through (for example) bilateral discussions and
programs focusing on substantive and procedural criminal and civil law
topics.

National Endowment for Democracy

During fiscal years 1999 to 2003, the Endowment awarded more than $15
million in grants aimed at enhancing democracy in China-about 38 percent
of total U.S.government funded support for democracy-related programs
during this period. Because appropriations to the Endowment did not
preclude it from making grants focusing on China, it was able to make
grants for such purposes prior to fiscal year 1999. For example, the
Endowment reported granting about $2.5 million for China programs and
projects during fiscal year 1998. Endowment officials noted

13The U.S. Agency for International Development manages the support
provided to Temple University, and it has also participated in selecting
recipients of grant support through the Human Rights and Democracy Fund.

14Funds for the small grants program were from State's appropriations for
public diplomacy, rather than Economic Support Funds.

15This project subsequently received $650,000 in additional support
through the Human Rights and Democracy Fund and (as noted in table 1) the
Bureau of Oceans and International Environmental and Scientific Affairs.

16Funds for the legal adviser did not come from Economic Support Funds,
but rather from appropriations to support the operations of this Bureau.
As of December 2003, State reported funding 21 resident legal advisers in
embassies around the world. While funded by State, the Department of
Justice's Office of Overseas Prosecutorial Development Assistance and
Training selects the advisers and provides administrative support.

that these grants were made using the organization's "core"
appropriations, which are noncountry specific. Since fiscal year 1999, the
Endowment has continued to grant more than $2 million per year (on
average) for China-related programs from its annual core appropriations.
In addition, however, State has transferred nearly $8 million to the
Endowment for China-specific grants and, beginning in 2001, the Endowment
has used these funds to increase its total grant volume for Chinafocused
projects by about $808,000 per year, on average. Endowment officials
stated that these additional funds have not dramatically changed the
orientation or character of Endowment support for programs in China. While
noting that the Endowment's highest priorities for China are human rights
and the free flow of information, these officials observed that the
Endowment supports activities in a variety of areas, including human
rights (documentation and advocacy) and independent media, as well as
labor rights, electoral and legal reform, policy analysis by independent
think tanks, and promotion of free markets.17

Department of Labor

In fiscal year 2002, the Department of Labor's Bureau for International
Labor Affairs awarded a total of $6.4 million to nongovernmental
organizations to help improve the content and application of labor laws
and regulations and enhance mine safety, with the latter effort to include
measures to strengthen enforcement of worker safety laws and regulations.
As noted with regard to State's grants, Department of Labor grants have
focused on areas where the Chinese government has acknowledged a need for
improved practices and has sought foreign assistance.

Agency Comments

Officials at the Departments of State, Labor, Justice, and Treasury; the
U.S. Agency for International Development; the National Endowment for
Democracy; the International Labour Organization; the United Nations
Development Program; and the United Nations High Commissioner for Human
Rights provided oral comments on a draft of this report. Overall, they
found the report to be an accurate description of the agencies' programs.
In addition, these officials provided technical comments that we have
incorporated into this report, as appropriate.

Scope and Methodology

To determine how much funding the U.S. government has provided for
democracy-related programs in China during fiscal years 1999 to 2003, and
to identify the agencies responsible for administering the funds and the
intended purposes of the programs they support, we reviewed relevant
program

17The Endowment has devoted a portion of each year's grant program to
supporting projects promoting human rights and democracy in Tibetan areas
of China. For example, in fiscal year 2002, the Endowment awarded seven
such grants, totaling about $223,000.

documentation and met with cognizant officials at the Departments of
Commerce, Labor, and State; the National Endowment for Democracy; and the
U.S. Agency for International Development. We also met with officials at
several major grantees, including the Temple University School of Law and
the American Bar Association. We asked the organizations how much funding
they had provided based on their definitions of democracy-related
programs.

To develop similar information about democracy-related programs undertaken
by multilateral organizations, we reviewed program documentation and met
with cognizant officials from the United Nations, the Asian Development
Bank, and the World Bank. We obtained publicly available data for programs
that these organizations identified as strengthening democracy, human
rights, and/or the rule of law.

The funding data contained in this report were provided by agency
officials at our request. While U.S. agencies and grantees provided annual
funding information, the multilateral organizations we contacted provided
us with life-of-program funding data. Thus, we are reporting budget data
for multilateral organizations in this format. Since State and the
Endowment made multiple grants, we consulted with officials from both
organizations about the methodology they employed to maintain and report
information on their grant awards. Based on our discussions with U.S. and
multilateral organization officials and our examination of the
documentation we were provided, we concluded that the data we obtained
were sufficiently reliable for the purposes of this engagement. However,
because of differences in the definition of democracy-related programs,
the data may not be directly comparable between the U.S. agencies and
multilateral organizations.18

We conducted our work from August 2003 through February 2004 in accordance
with generally accepted government auditing standards.

We are sending copies of this report to interested congressional
committees; the Secretaries of Commerce, Justice, Labor, State, and
Treasury; and the Administrator of the U.S. Agency for International
Development. We will also make copies available to others upon request. In
addition, this report will be available at no charge on the GAO Web site
at http://www.gao.gov.

18Data are also not directly comparable because the U.S. government and
the multilateral organizations discussed in this report define their
fiscal years differently. For example, while the U.S. government fiscal
year ends on Sept. 30, the United Nations' fiscal year ends on June 30.

If you or your staff have any questions about this report, please contact
me at (202) 512-4128 or at [email protected]. Janey Cohen, Simin Ho, Al
Huntington, Michael McAtee, and Richard Seldin made key contributions to
this report.

Jess T. Ford, Director International Affairs and Trade

Enclosure

Enclosure

Democracy-Related Assistance to China Provided by Multilateral
Organizations Supported in Part by the United States

Three United Nations' (UN) organizations-the UN High Commissioner for
Human Rights, the International Labour Organization, and the UN
Development Program-support programs in China that are explicitly aimed at
strengthening democracy, human rights, and/or the rule of law. The Asian
Development Bank and the World Bank also support programs aimed at
relevant purposes, such as strengthening the legal system, although the
Banks' articles of agreement preclude interference in the political
affairs of any member country. In total, these agencies identified more
than $82 million in relevant funding for projects initiated in or
continuing from 1999. U.S. support accounts for about 22 percent of the
budgets of UN organizations, about 16 percent of the budget of the Asian
Development Bank, and about 18 percent of the budget of the World Bank.

United Nations Organizations

The UN High Commissioner for Human Rights and the International Labour
Organization have negotiated Memoranda of Understanding with the Chinese
government through which these organizations provide technical support for
China's ratification and implementation of international human rights and
labor treaties. For 2002 to 2003, the High Commissioner budgeted $951,820
to provide such support. Officials at the International Labour
Organization identified a total of about $8.7 million in 1997 to 2004
funding for activities related to promoting respect for labor rights in
China-as well as creating greater opportunities for employment and
enhancing social protection for workers. Of this amount, about $2.9
million represents funds provided from the organization's own budget-the
remainder was provided by individual donor countries or organizations.19
Organization officials could not separate those portions of their programs
aimed at enhancing labor rights from those devoted to other purposes. The
UN Development Program has laid out strategies on promoting human rights,
rule of law and democracy in China, and the organization's budget for
related activities in that country from 1996 through 2007 is about $38.3
million. These funds support a variety of activities, including programs
aimed at reforming electoral systems and training participants in the
legal system on international best practices in criminal law. Out of the
total amount, the UN Development Program is funding about $7.2 million
while the remainder is being provided by bilateral donors and the
Government of China.

Multilateral Development Banks

Both the Asian Development Bank and the World Bank have identified
improving the functioning of China's markets as a major point of emphasis
in their country assistance strategies, and both cite promotion of the
rule of law and improved

19These were Japan, Switzerland, the United Kingdom, Denmark, the
Netherlands, and the Joint UN Program on HIV/AIDS.

Enclosure governance as important concerns. For the period 1999 to 2006
the Asian Development Bank reports budgeting about $35.5 million for
technical assistance to China on legal systems and governance. These funds
support a variety of efforts, including programs aimed at building a
stronger legal and regulatory framework and efficient judicial system,
supporting financial and fiscal reform, improving local public
administration capacity in less developed provinces, and broadening public
participation in decision-making, particularly among the poor. World Bank
officials could not provide specific funding information, but commented
that the institution has focused its technical assistance efforts on areas
where it has expertise, such as corporate governance, enterprise reform,
fiscal policy reform, land reform and tenure, and water rights. These
officials said that, in areas where the Bank has relatively little
expertise, such as criminal law reform, it defers efforts to other donors
such as the European Union, the United States, and France.

(320221)

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