CONGRESSIONAL RECORD -- SENATE

August 8, 1967

Page 21785

EXPORT-IMPORT BANK ACT AMENDMENTS OF 1967

The Senate resumed the consideration of the bill (S. 1155) to shorten the name of the Export-Import Bank of Washington, to extend for 5 years the period within which the Bank is authorized to exercise its functions, to increase the Bank's lending authority and its authority to issue, against fractional reserves, export credit insurance and guarantees, and for other purposes.

Mr. TOWER. Mr. President, I suggest the absence of a quorum.

The PRESIDING OFFICER. The clerk will call the roll.

The legislative clerk proceeded to call the roll.

Mr. MANSFIELD. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

The PRESIDING OFFICER. Without objection, it is so ordered.

Mr. MUSKIE. Mr. President, the pending business, S. 1155, would accomplish the following purposes:

First. Extend the life of the Export-Import Bank of Washington for 5 years -- to June 30, 1973;

Second. Increase the limitation on the amount of loans, guarantees, and insurance permitted to be outstanding at any one time from $9 to $13.5 billion;

Third. Increase the Bank's authority to issue export credit insurance and guarantees from $2 to $3.5 billion;

Fourth. Express as the policy of the Congress that the Bank should not assist exports to Communist countries, or exports which the Bank knows are principally for use in or sale to a Communist country, except when the President determines that such assistance would be in the national interest and so reports to the Senate and House of Representatives;

Fifth. Express as the policy of the Congress that the Bank should not assist military equipment exports under Department of Defense guarantees provided by the Foreign Assistance Act of 1961, as amended, to less developed countries unless the President determines that such exports are in the national interest and reports the same to the Senate and House of Representatives;

Sixth. Change the name of the Bank from the "Export-Import Bank of Washington" to "Export-Import Bank of the United States"; and

Seventh. Permit the Bank to pay allowances to its Advisory Committee members comparable to that paid other consultants.

Mr. President, the most critical issue in S. 1155 is the question of the Export-Import Bank's participation in the sale of arms overseas. This has been a matter of concern to members of the Committee on Banking and Currency as it has been to other Members of the Senate.

The committee, after careful consideration, concluded that the Export-Import Bank is the proper Government instrumentality for financing military exports from American manufacturers to developing countries when the President determines that such exports clearly are in the national interest. At the same time, such financing must not become disproportionate to other programs of the Bank to assist in financing the commercial export trade of the United States. Therefore, the committee recommends that Bank funds involved in the Department of Defense guarantee program for less developed countries be limited to 7½ percent of the Bank's lending authority as established under section 7 of the act.

Under the ceiling imposed by the committee, the level of Exim Bank participation in the DOD guarantee program will be sharply curtailed.

For these reasons, I have first chosen to talk about the two amendments dealing with the Export-Import Bank participations in the financing of exports of defensive arms to our free friends throughout the world.

Now, Mr. President, let us look at the record. Many of us in this Senate have played a part in the record since 1955, and many more have been a part of it since 1962. Both dates are milestones in the history of the issue.

The record first shows that the Congress indicated, in the Foreign Assistance Act and by other means, that it was not pleased with the giveaway arms program that had prevailed since the end of World War II and the Korean war.

The Export-Import Bank's assistance in connection with the sale of military and defense articles is not new. While even before 1962 Bank facilities had been involved in arranging for the financing of military sales to other countries, the current program began primarily in 1962. This was at the time that, as I have said, our Government began to shift its emphasis from a grant program to a loan program. And so it was that the facilities and the authority of the Export-Import Bank naturally came into play.

In 1962 the Export-Import Bank began, on its own, to finance arms sales to the industrialized and stronger friendly countries. This was easily accomplished through the Bank's right to determine financing of exports to countries where the ability to repay appeared reasonably assured.

Less developed countries, for the most part, could not meet the same qualifications.

Faced with the need of financing arms assistance to the less-developed nations, the Congress, in 1964, authorized DOD to guarantee financing provided by other institutions for military export sales and to charge a fee for such guarantee.

Then the Congress in 1965, again through amendment of the Foreign Assistance Act sections 503 and 509, removed the guarantee fee requirement for Export-Import Bank and other Government agencies.

Then the Eximbank and DOD worked out an agreement whereby the less-developed countries -- now commonly called the X countries -- would receive assistance from the Eximbank in the financing of arms exports.

Under the Eximbank-DOD arrangement, the Bank would not deal with the buyer, but only with DOD.

I might add this point for benefit of Members of the Senate: The Comptroller General took note of this arrangement in his audit of the Bank for 1966.

At the time of the Bank arrangement with DOD to help less-developed countries to defend themselves against communism, the Bank officials had hoped to put at least some of the financing with private banks. However, the Bank found the money market at that time to be in such condition as to make it unwise to try to get private financing for the sales.

Mr. President, the record shows clearly that the DOD arms sales program was at that time under constant congressional review.

From 1962 to the present time, the Eximbank has authorized $1.9 billion in financial assistance on military exports.

Of this amount, $1,326,000,000 has been made directly by the Bank to industrialized nations of Europe and Oceania without any DOD guarantees. This was accomplished, then, on the Bank's reasonable repayment policy which corresponds with the Bank's policy on commercial exports.

Up to the present time -- since 1962 -- the Bank has participated in arms financing, with DOD guarantees, to the total of $604 million. This financing would be largely to the countries where direct financing by the Bank would not be feasible. The interest rates recently have been 5½ percent with maturities generally at 5 to 7 years.

Additional information will be shown with respect to the anticipated financing experience of the Bank in its commercial activities, but let it be said at this point that the total $13.5 billion limit in Bank commitments requested in this bill is expected to be met by the Bank before the June 30, 1973, termination date of the Bank, also requested in this bill. That is without regard to military loans.

But to return now to the military sales program, we find that since changing from grants of military equipment to a sales program, 60 percent of all military exports are now being paid for by the recipients -- our friends who are with us in the fight for freedom.

Such a program reduces our dollar cost to the contribution of world peace. It has also been helpful in the free world defense program that the Congress, in the Foreign Assistance Act, provided that arms exports could be on a cash or credit basis. With the industrialized nations in a position, for the most part, to pay cash for our shipments, the less-developed nations can acquire defensive equipment by the credit arrangements between the Eximbank and DOD.

Mr. TOWER. Mr. President, will the Senator yield?

Mr. MUSKIE. I yield.

Mr. TOWER. Does the Defense Department estimate that in the next 5 years that ratio will go still more to loans than grants, to the tune of about 3 to 1?

Mr. MUSKIE. The Senator is correct. That is the trend. We expect it to continue in that direction, as the Senator has indicated.

Of our total arms sales, 90 percent go to the more industrialized nations and 10 percent to the less-developed nations. It is a part of the program of assistance that less-developed countries be discouraged from participating in arms purchases beyond their economic means, or beyond their legitimate needs to meet internal or external threats to their security. In some of these latter cases security is a real problem.

The record shows clearly, Mr. President, that the United States has made every effort to bring about a reduction in the world arms race, but to date we have not achieved our goal. We cannot achieve it unilaterally, and until there is a general agreement on arms, our help will be needed for the defense of friendly nations.

The committee has been assured by administration witnesses that our Government carefully weighs all factors in every application for arms made by a less-developed nation, hopeful that in this way we can contribute to a peaceful balance of world power.

Alternatives to the system of arms financing have been heard from various sources. Some members recommended private bank financing, but we found the amounts involved were often too large and that private banks are not willing to participate in such transactions.

We have reviewed the history leading to the Eximbank's participation in the arms sales program in 1962; now let us go back a bit in history for the record that made Eximbank participation possible and logical.

In 1955, Congress supported a shift from grants to loans in our economic and military assistance programs. This led to a 1955 act clarifying the meaning of the Eximbank's possible participation in other than commercial loans.

Mr. ELLENDER. Mr. President, will the Senator yield?

Mr. MUSKIE. I yield.

Mr. ELLENDER. The Senator referred to a 1955 act. It is really a 1954 act; and the monies that were used, as I understand, were not Export-Import Bank funds. On the contrary they were appropriated by Congress, and the facilities of the Export-Import Bank were merely used to carry out the transaction.

As I will show later, the Bank at no time used its own funds until just lately. I think the first loan was made by the Bank in 1963. Since then loans have been made to England, and other countries; and, as the Senator stated a while ago, such loans were made without any guarantees whatever from DOD. Of course, the reason for this was that the loans were made to hard currency countries. In other words, the loans were made to developed nations.

Mr. MUSKIE. It was not my intention to make the point any broader than the Senator makes it. I make the point that in 1955 -- it may have been 1954, I have not checked that out, but the Senator's recollection is probably accurate -- the Eximbank's facilities were used.

Mr. ELLENDER. But not its money.

Mr. MUSKIE. I am not quarreling with that. The question that has arisen, may I say to the Senator, in the public press and elsewhere, is whether or not, among other things, Eximbank ought to be associated with this kind of export.

It was associated, though not in the way that it now is, in 1955, under the authorization of Congress, in the export of arms. That is the only point I make, and the Senator's comment does not destroy that point. He has qualified it in a perfectly proper way, and what the Senator has said is accurate.

Mr. ELLENDER. I wish the Senator would specifically point out the law that was involved and show us what arms were sold. As I recall, Congress authorized the use of the facilities of the Export-Import Bank to administer loans for economic development. I do not recall that it authorized the Bank to administer loans made for purchase of military equipment.

Mr. MUSKIE. If the Senator has the actual language of the act, he can assist me in answering his question. My impression is otherwise.

Here is the report from the Committee on Foreign Relations on the Mutual Security Act of 1955. I read the actual language.

Mr. ELLENDER. The 1954 act.

Mr. MUSKIE. It was called the Mutual Security Act of 1955. But in any case, the language, which is the pertinent point in response to the Senator's question, begins as follows:

The present bill, in section 2(b), would authorize the furnishing of military assistance on terms of repayment up to ten years, and without regard to sections 105, 141, and 142. Military assistance appropriations would be used to finance these transactions, and repayments would go into the Treasury as miscellaneous receipts. The committee does not anticipate a large volume of aid to be furnished under this new provision, but believes that it may be useful in a few instances for the Defense Department to have this authority.

As I pointed out, the facilities of the Eximbank were used to assist the Department of Defense in discharging that authority.

(At this point, the Senator from New York [Mr. KENNEDY] assumed the chair.)

EXPORT-IMPORT BANK ACT AMENDMENTS OF 1967

The Senate resumed the consideration of the bill (S. 1155) to shorten the name of the Export-Import Bank of Washington, to extend for 5 years the period within which the Bank is authorized to exercise its functions, to increase the Bank's lending authority and its authority to issue, against fractional reserves, export credit insurance and guarantees, and for other purposes.

Mr. MUSKIE. In addition, I have the following language from the Mutual Security Act of 1954, as amended. Section 102 contains this language:

Military assistance may be furnished under this chapter on a grant or loan basis and upon such other appropriate terms as may be agreed upon, by the procurement from any source and the transfer to eligible nations and international organizations of equipment, materials, and services or by the provision of any service, including assignment or detail of members of the Armed Forces and other personnel of the Department of Defense solely to assist in an advisory capacity or to perform other duties of a noncombatant nature, including military training or advice.

Mr. ELLENDER. Mr. President, will the Senator yield?

Mr. MUSKIE. I yield.

Mr. ELLENDER. That was to be done by the Department of Defense. In no place in the act was it stated that the Export-Import Bank would finance the sale of military hardware. The Congress did encourage a change in our assistance from a grant to a loan basis; there is no doubt about that. But the facilities of the Export-Import Bank were made available to administer economic loans.

Mr. MUSKIE. May I fill out the record for the benefit of the Senator from Louisiana? The 1955 act added the word "sales" to "grants and loans," and then added this language:

Funds for the purpose of furnishing assistance on terms of repayment may be allocated to the Export-Import Bank of Washington, which may, notwithstanding the provisions of the Export-Import Bank Act of 1945, as amended, make and administer the credit on such terms.

Mr. ELLENDER. That is correct; but, as I said awhile ago, it never used its own funds for that purpose; and if the record is looked into the Export-Import Bank did not begin to finance the sale of military hardware until 1962.

Mr. MUSKIE. That is the only point I have made; I have not attempted to do any more than that. I am not arguing that pursuant to the 1955 act the Export-Import Bank used its funds. I said the Export-Import Bank used its facilities, facilities which presumably were supported by its funds, the circumstances of which were supported by its funds to administer the military arms export program. That is the only point I made in my prepared statement; I have not enlarged upon it.

I am grateful to the Senator from Louisiana for clarifying the issue.

In 1957, Congress gave authority for a revolving fund to be used in arms credit sales. The fund grew from 1958 to 1967 to a current level of $383 million in obligation authority.

In 1964, Congress authorized use of these funds to guarantee loans by financial institutions. Hence, the beginning of the Exim-DOD program. Early in 1966 the shift from grants to sales took form in response to Presidential recommendation.

Mr. ELLENDER. Mr. President, will the Senator yield?

Mr. MUSKIE. I yield.

Mr. ELLENDER. Did the Senator say "the beginning"?

Mr. MUSKIE. "The beginning" with respect to what?

Mr. ELLENDER. Of Export-Import Bank sales in, say, 1962.

Mr. MUSKIE. Yes. I said that on the third page of my statement this afternoon.

Mr. ELLENDER. I thought the Senator had stated that under the 1954 legislation this had been authorized.

Mr. MUSKIE. No. I think I have made it clear that the 1955 or 1954 act -- I am confused, because the act is referred to as the Mutual Security Act of 1955, in the case of the piece of legislation we are talking about -- authorized the use of Export-Import Bank facilities; never money. I have never made the argument that money was used, and I do not make that argument now. The facilities of the Export-Import Bank were used to handle credit sales of arms and the export of arms. The use of the Export-Import Bank money borrowed in connection with banking functions began in 1962.

I disagree with the Senator on one other point. I think the authority was there right along, but it was used in 1962.

Mr. ELLENDER. The Senator continues to use the word "arms." It was in order to facilitate loans and economic assistance.

Mr. MUSKIE. The language of the act in its final form was "sales, grants, and loans." The use of credit to expedite the program was specifically authorized.

This is the language -- and I repeat it, because I read it before: "funds for the purpose of furnishing assistance and terms of repayments." That is clearly present.

All of this background, Mr. President, is necessary, I believe, to understand the meaning of two amendments the committee added to S. 1155 dealing with the Eximbank's participation in financing arms exports.

First, the committee voted a conditional prohibition against participation of Eximbank in the financing of arms exports under the existing arrangement with DOD. This prohibition would affect, primarily, the exports to less-developed countries. The industrialized countries are largely in a position to pay cash or qualify for direct Eximbank loans. Under the committee amendment the President may waive the prohibition by reporting to the two Houses of Congress that he finds it to be in the national interest to permit the Bank's participation in the country X program.

Mr. TOWER. Mr. President, will the Senator yield?

Mr. MUSKIE. I yield.

Mr. TOWER. Mr. President, the President must report in 30 days. It is exactly the same proviso that applies to third party beneficiary restrictions.

Mr. MUSKIE. The Senator is correct.

Mr. TOWER. And is the President obligated to designate X countries or, in other words, the names of the countries?

Mr. MUSKIE. On a classified basis it is not necessary. But he is directed to furnish all information, including the identity of X countries.

Mr. TOWER. That information, in other words, will then be available to Congress?

Mr. MUSKIE. As it has been. It will be under this amendment.

Mr. TOWER. We did not, of course, know that it existed before. But we can then determine what countries precisely these guarantees are going to?

Mr. MUSKIE. The Senator is correct. And the Senate committee report, I think, spells that out.

I am happy that the Senator has made that clear here.

The committee also approved another amendment designed to limit the participation of the Bank in the financing of arms exports under the DOD guarantee program regardless of a Presidential waiver.

Under this amendment the Eximbank's country X arms export financing would be limited to 7½ percent of the total Bank authorizations for loans, guarantees, and insurance.

What this last amendment means is this: Should the $13.5 billion authorization provided in the pending bill become law, the Bank's ceiling on outstanding authorization for country X arms export financing would be $1,012,500,000.

I mentioned earlier, Mr. President, the committee felt that the Bank's anticipated activities warranted approval of the Bank request for an increase of $4.5 billion in its authorization for loans, guarantees, and insurance.

The Bank reports that at the end of fiscal year 1967 there were outstanding commitments of $7.4 billion against the Bank's present authority limit of $9 billion. This would leave $1.6 billion in lending authority, less than 1 year's anticipated needs.

The additional commercial activity anticipated by the Bank is drawn from the 1967 fiscal report showing that $3 billion, 600 million in authorizations was used for loans, guarantees, and insurance. This was an increase of $1 billion, 450 million more than in 1966.

The Bank's commercial activities in fiscal 1966 and 1967 rose in those years from $1 billion, 650 million to a total of $2 billion, 700 million. And more increases are anticipated.

The future outlook for expanded use of the Bank's operations include an estimated $2.5 to $3.5 billion in commercial aircraft exports which are expected to total about $6 billion in export values in the next 5 years.

Nuclear power exports are expected to run to $1 billion in 5 years.

Kennedy round trade results are expected to increase the Bank's authorization needs over the 5-year extension of the Bank charter, which is asked in the bill.

The future activities of the Bank in financing of exports would be changed by another amendment the committee approved for inclusion in S. 1155.

This amendment would prohibit the Bank from participating in any export financing of any commercial product which, in the knowledge of the Bank, would be intended for transshipment to a Communist country by a non-Communist recipient of Bank credit on the export.

Some concern has been expressed about the purported transaction which would aid in the building of a Fiat automobile plant in Russia. The Fiat plan called for purchase of automobile manufacturing tooling by IMI, an Italian finance organization, which is a non-Communist qualified buyer. The machinery then would be transshipped to Russia. The committee's amendment would prevent such a transaction.

Recognizing the necessary Presidential prerogatives in foreign affairs, the committee provided that the President could waive the prohibition in any case where he found the best interests of the United States would be served by transshipment to a Communist country of any product purchased by a non-Communist country.

Mr. President, the extension of the termination date of the Bank from June 30, 1968, to June 30, 1973, is a major consideration in early congressional action on this bill.

Assurance of continuation of the Bank's activity in the financing of our export trade is of dire importance in the negotiating of contracts. Our businessmen and the businessman abroad need this assurance in order to plan long-range purchases and sales.

The five-year extension would be consistent with the action of Congress since 1947.

Since the Congress approved the last five-year extension four years ago, the Bank's loans and authorizations have been increased by about $4 billion. Loan disbursements went up $2.2 billion.

The difference between these figures represent cancellations, transfers, sales of loans and the undisbursed balance of outstanding commitments.

Loan payments for the four-year period were $1.7 billion, and $700 million was received in fees and interest. There was a net income of $461 million, of which $200 million was paid in dividends to the Treasury and $261 million added to the Bank's reserve.

Thus, this is a profitable operation, returning a profit to the Treasury of the United States.

That was 4 years of business, Mr. President, and leaves the Bank today with $6 billion in commitments on direct loans, $4 billion of which are outstanding, and the present level of guarantees and insurance is $1.6 billion.

In last fiscal year alone, the Bank's volume of authorizations were close to $3.6 billion, of which about $2.7 billion would be charged against the statutory limitation since guarantees and insurance are only charged at 25 percent.

One can readily see from the figures of the Bank's business activity in the past few years the great benefits to our export trade -- and the great importance to our balance-of-trade problem.

There is, of course, a loss side of the ledger, and here we find that the old China and Cuba defaulted credits total $53 million. Also, there were delinquencies of about $8 million due from Indonesia on a debt of $80.7 million. Other delinquencies total $9 million, but are considered temporary.

The Bank's reserves, which have been growing at a rate of about $60 million per year, now total $1,080 billion, an amount about equal to the Bank's paid-in capital.

What the Bank expects in the future will be discussed in connection with another major amendment approved by the committee, that of increasing the total lending authority of the Bank from $9 billion, the present limit, to $13.5 billion.

At this point, however, I should like to have printed in the RECORD a summary of the Bank's operations during the period just discussed -- 1962-66.

There being no objection, the summary was ordered to be printed in the RECORD, as follows:

[TABLE LISTING OMITTED]

REVISED ADVISORY COMMITTEE PER DIEM

Mr. MUSKIE. Another of the committee's amendments to S. 1155, a comparatively minor one -- except, perhaps, to the nine members of the Eximbank's advisory committee -- would permit the Bank's board of directors to bring the per diem allowances for the members into line with allowances being paid elsewhere in the Federal Government for the same duties.

In 1954, Congress approved a daily rate for each member of $50 and travel allowance of $10 per day. This rate was higher than the prevailing rate for similar consultant activities, which was $45 per day and $9 travel allowance.

But the consultant per diem rates have increased greatly since 1954, and it has become a penalty rather than a premium to be on the Bank's consultant committee. For example, in fiscal 1967, fees for ordinary consultants ran $88 per day and travel allowances of $16.

As of today, the rate of the Bank's advisory committee members would be $100 per day with a travel allowance of $16 per day.

And to convince the Members of the Senate that the Eximbank's advisory committee is not made up of ordinary consultants, I ask unanimous consent, with pride, the right to have printed in the RECORD at this time the names of these esteemed gentlemen who serve the Bank so well.

There being no objection, the names were ordered to be printed in the RECORD, as follows:

Howard C. Petersen, Chairman and Chief Executive Officer, Fidelity Bank, Philadelphia, Pa. (Chairman of our committee.)

Alfred W. Barth, Executive Vice President, Chase Manhattan Bank, New York City.

Nat Goldfinger, Director of the department of research, AFL-CIO, Washington, D.C.

Joseph A. Grazier, President, American Radiator & Standard Sanitary Corp., New York City.

J. Victor Herd, Chairman of the Boards, The Continental Insurance Companies, New York City.

Dr. James A. McCain, President, Kansas State University, Manhattan, Kans.

Philip W. Pillsbury. Co-Chairman of the Board, The Pillsbury Company, Minneapolis.

William F. Ray, Manager, Brown Brothers Harriman & Co., Boston, and President of the Bankers Association for Foreign Trade.

I might add that the chairman of that Association is, ex officio, always asked to join our Advisory Committee.

Eric Ridder, Publisher, The Journal of Commerce, New York City.

CHANGE OF NAME

Mr. MUSKIE. One of the minor changes made in the bill by the committee provides for changing the name of the Bank from the "Export-Import Bank of Washington" to the "Export-Import Bank of the United States."

The present name of the Bank has existed since its founding in 1933, but the committee felt that the name should reflect its Federal character.

Mr. President, that completes the presentation of the bill, and I yield the floor.

Mr. TOWER. Mr. President, I commend the distinguished Senator from Maine for his able handling of the bill in committee. I concur with most of his remarks in support of the measure, and I intend to support it in its present form.

I am hopeful that the Senate will leave the bill intact. It has been considered thoroughly. In the controversial matter of the arms purchase, the full committee has been satisfied for the most part, that this is a legitimate way of financing these arms sales and is in the national interest.

I hope the bill will remain intact, and I will support it fully.

Mr. ELLENDER. Mr. President, I send to the desk an amendment and ask that it be stated.

The PRESIDING OFFICER. The amendment will be stated.

The ASSISTANT LEGISLATIVE CLERK. On page 4, strike out lines 1 through 21 and insert in lieu thereof the following:

(3) It is further the policy of the Congress that the Bank shall not, in the exercise of its functions under this Act or any other law, issue guarantees, insurance, coinsurance, or reinsurance, make loans, or in any other way extend or participate in an extension of credit, in connection with the purchase of any defense article (as defined in section 644(d) of the Foreign Assistance Act of 1961, as amended) by any less developed country, or agency or national thereof.

Mr. CLARK. Mr. President, I should like to ask the Senator from Louisiana [Mr. ELLENDER] a question. I have been reading his amendment with great interest. I shall certainly support it. I wonder whether he would be willing to modify it by striking the following words

which appear after the No. 3 in parentheses:

It is further the policy of the Congress that ...

Strike those words so that the amendment would read:

The bank shall not, in the exercise of its functions under this act ...

I believe that this change would make the direction from Congress more explicit and mandatory and make it impossible for the Bank to ignore what has been previously stated as the policy of Congress.

Mr. ELLENDER. As I read the amendment originally I thought it did just that. The purpose of my amendment is certainly to prevent the Bank from using its facilities and monies to provide credit for the sale of military hardware to less-developed countries.

I have no objection. Mr. President, I modify my amendment by striking from it the words indicated by my good friend from Pennsylvania.

The PRESIDING OFFICER. The amendment is so modified.

Mr. CLARK. I thank the Senator from Louisiana for his kindness in accepting this modification of his amendment.

I should like to ask him one more question, if I may. Why does the Senator limit the prohibition on the Bank in his amendment to less developed countries or agencies or nationals thereof? It is my understanding that much of the money in the loans the Bank has made has gone into developed countries, such as West Germany which, in turn, have resold the military hardware to underdeveloped countries. I am wondering why the Senator did not include all countries in his amendment?

Mr. ELLENDER. As I will explain later in my presentation to the Senate, I proposed three amendments before the Committee on Banking and Currency.

The first amendment prevented the Export-Import Bank from using any of its funds to finance the sale of military hardware to any country. Later I discussed that amendment with Mr. Linder, the president of the Export-Import Bank, and was told of the large number of contracts already made.

I then prepared a second amendment similar to the first but which would not effect the fulfilling of contracts and sales which had been previously consummated. Then I presented a third amendment, which is the one we are now considering, and which I hope will be adopted.

To be frank with the Senator from Pennsylvania, it is my belief that this third amendment will have a better chance of winning approval.

Mr. CLARK. I appreciate the pragmatic reasoning of the Senator from Louisiana, one of the ablest parliamentarians and experienced legislators the Senate has ever had. I would be happy to support either his first or second amendment. I share his high regard for Mr. Linder. I think he is a splendid public servant. But, if the Senator does not have the votes for the first or second amendment, perhaps he is wise in reverting to a fallback position by proposing the third amendment with the modification which he has kindly agreed to.

I want to assure him that he has my support in that effort.

Mr. President, I yield the floor.

Mr. TOWER. Mr. President, will the Senator from Pennsylvania yield for a comment on the matter of Germany?

Mr. CLARK. I am happy to yield to the Senator from Texas.

Mr. TOWER. Mr. President, according to information provided me by the Department of Defense, I think that we can clarify this business of what happens relative to transshipment of arms from Germany.

Material provided to the Federal Republic of Germany was originally grant in aid. In May 1962, the United States sold its reversionary rights to grant items but with certain major exceptions for $75 million. The exceptions were M-41 tanks, 105, and 155mm Howitzers, and F-84 aircraft; these items if excess to the Federal Republic of Germany needs must first be offered to the United States for possible reacquisition.

Where the reversionary rights were sold, the items can be disposed of to other NATO countries for NATO use without further U.S. approval. Sale by the Federal Republic of Germany of this equipment to non-NATO areas, however, requires item-by-item U.S. approval.

All requests from the Federal Republic of Germany for equipment transfers are considered by both the Department of State and the Department of Defense who are provided with the views of the U.S. Country Team in the proposed recipient country. Instances of alleged violations of procedures have occurred generally when the recipient nation to which the Federal Republic of Germany provided U.S.-origin equipment has not honored its agreement to the Federal Republic of Germany not to transship.

The F-86 Sabre VI aircraft which reportedly turned up in Pakistan were not of U.S. production. They were purchased by Germany from Canada and were sold by the Federal Republic of Germany to Iran for Iran's own use, and Germany had official assurances of this from Iran.

With respect to tanks, there have been no recent movements of U.S.-origin tanks from Germany and there will be none unless the United States first approves such movement. This is a frequent complaint of arms dealers.

In 1965, Germany, with U.S. approval, did transfer some M-48 tanks to Turkey, a NATO ally.

Mr. CLARK. I thank the Senator for his explanation. I have no doubt that the sale of American equipment by Germany to other countries was not financed by the Export-Import Bank.

Nevertheless, Germany did sell American materiel, I understand, to other countries for which it was not intended.

Mr. TOWER. Let me point out that acquisition of the F-86 Sabre jets was from Canada and not from the United States.

Mr. CLARK. Mr. President, I yield the floor.

Mr. ELLENDER. Mr. President, I suggest the absence of a quorum.

The PRESIDING OFFICER. The clerk will call the roll.

The assistant legislative clerk proceeded to call the roll.

[INTERVENING SENATE ACTION OMITTED]

Mr. TOWER. To what extent do commercial banks want these loans?

Mr. ELLENDER. I do not know, but Mr. McNamara represented to us that the sales would be made through commercial banks in this country and not the Export-Import Bank.

Mr. MUSKIE. Mr. President, will the Senator from Louisiana yield?

Mr. ELLENDER. I am happy to yield to the Senator from Maine for a question.

Mr. MUSKIE. I was interested in the colloquy between the distinguished Senator from Louisiana and the distinguished Senator from Idaho. I am not a member of the Foreign Relations Committee. I am not a member of the Appropriations Committee. I am a Senator who undertakes an interest in what is being done in these areas over the years. Looking at the legislation which was enacted in 1964 by a Congress, of which I was a Member, legislation which certainly came to the attention of the Foreign Relations Committee, we authorized the guarantee of loans for the sale of arms to less-developed countries.

More than that, it is quite clear that in 1964, it was with the knowledge of Congress as a whole, at least constructive knowledge, and I assume of the Foreign Relations Committee, that the amendment to the act of 1965 was designed specifically to relate the program to the Export-Import Bank.

I read from the report of the Committee on Foreign Affairs of the House in 1965:

Section 201(f) amends section 509(b) of the act which relates to the administration of guarantees issued in conjunction with the military sales to exempt guarantees issued to agencies of the U.S. Government from the requirement of fees, and premiums to be charged in connection with the issuance of guaranteed contracts.

This exemption is primarily designed to apply to the Export-Import Bank which at present is the only U.S. Government agency expected to be affected by it.

Mr. ELLENDER. In 1965?

Mr. MUSKIE. This is the 1965 act. The Department of Defense guaranteed loans according to the record which I have here. Beginning in fiscal 1966, they amounted to $237.7 million. In 1967, $353.1 million. In 1968, through July 28, 1967, $13.5 million -- for a total of the $604 million which we have been discussing.

So that here in the 1964 and 1965 acts, as I read them, Congress knew about it, authorized it, and knew that the Export-Import Bank was involved. It was subsequent to the enactment of that legislation that these transactions took place; yet today I am told, that this was done completely without our knowledge, that it was done, somehow, behind our backs, without our knowledge, without our approval, and without our authorization. I am puzzled. I certainly would like to have an explanation from the two gentlemen more closely associated with the committee than I am.

Mr. ELLENDER. As I pointed out a while ago, I did not become suspicious of what was happening, particularly when Mr. McNamara told us in committee that the Export-Import Bank fund was chartered for the purpose of extending credit for the procurement of military weapons

Mr. MUSKIE. I must say to the Senator that the act is certainly more authoritative than anything from Mr. McNamara.

Mr. ELLENDER. Knowing the history of the Export-Import Bank and what it did in the past, I was not suspicious until we found it out during the past year.

Mr. MUSKIE. If the Senator will yield. Part of the history of the legislation to which I have referred, the Senator has ignored.

Mr. ELLENDER. That was from the House report.

Mr. MUSKIE. I am referring to 201 (f) of the act in the House committee report which I assume must be part of the conference discussion on such an important policy matter.

Mr. CHURCH. Mr. President, will the Senator from Louisiana yield?

Mr. ELLENDER. I yield.

Mr. CHURCH. I do not know if anything I said gave the impression that I thought the arms transactions of the Export-Import Bank have been illegal.

Mr. MUSKIE. I am not suggesting that the Senator said that.

Mr. CHURCH. We know how our system works. Our system works on the basis of what we are told, to a very large degree. Our Government is the largest and most complicated in all of history. We have executive departments involved in detailed transactions of every description all over the world. We in Congress act on the information they supply. To a large extent, we must depend upon the executive departments to inform us.

Everyone who has had an insurance policy knows the difference between the large and the small print, and has encountered the problem, when the time came to collect, of discovering that something in the small print negated the coverage.

Mr. MUSKIE. Will the Senator from Idaho yield at that point?

Mr. CHURCH. I want to make my point first. The Senate operates within the same kind of framework. We depend, for our information, upon the major spokesmen of the executive branch. When they come to us to explain what they want, what their programs and objective are, we must rely upon their representations. It is true, of course, that what was done was legal, but it does not follow that Congress had any reason whatever, on the basis of testimony presented to our committees, to anticipate that $604 million would be financed through the Export-Import Bank to assist in the disbursement of arms to the less developed countries of the world. That is why there was such a ruckus in both Houses when these facts came to light.

This is the real argument that is being made by the Senator from Louisiana. We were misled, not on the basis of the fine print of the law, but, rather, on the basis of the representations which were made, and on which we relied in good faith.

In that connection, I would say we were misled in still another way. That has to do with the way interest rates on these sales are actually being subsidized by the Department of Defense, in order to further promote their consummation through the Export-Import Bank.

I ask unanimous consent to include in the RECORD an excellent article by Mr. Neil Sheehan, which appeared in the New York Times on Monday, August 31, which explains the way the interest rate subsidy has been arranged.

There being no objection, the article was ordered to be printed in the RECORD, as follows:

UNITED STATES SUBSIDIZES INTEREST RATES ON ARMS SALE LOANS

(By Neil Sheehan)

WASHINGTON, July 30. -- The Defense Department has apparently been subsidizing the interest rates on its arms sale loans to underdeveloped countries by charging the recipients lower rates than it pays to the Export-Import Bank for money it borrows. In the fiscal years 1966 and 1967, the Defense Department made $591-million in so-called country-X loans to 14 developing countries on a five-to-seven-year repayment basis.

An analysis of these loans shows that in a number of cases the recipients are paying interest rates two or more percentage points below what it has cost the United States Treasury to borrow money for comparable lengths of time in recent years.

Under the country-X procedure, the Export-Import Bank opens a line of credit to the Defense Department that the Pentagon's arms salesman, Henry J, Kuss, Jr., then uses to finance the sale of American arms.

The Defense Department guarantees the loans with its $383-million revolving arms sales credit fund under a law that states that only 25 per cent of the full value of the loan need be covered by money from the fund.

"NORMAL" INTEREST CITED

In testimony before the Senate Banking and Currency Committee last Tuesday, Deputy Secretary of Defense Paul H. Nitze said the "normal" interest rate for such loans was 5½ percent.

Data obtained from reliable sources disclose that only four of the 14 recipients are paying interest rates of 5½ percent, although these four borrowers -- Saudi Arabia, Iran, Argentina and Brazil -- account for the major portion of the $591-million in loans -- $417 million.

In those four instances, however, the interest rates are mixed, apparently on different slices of credit, and vary from 3½ to 5½ percent.

Iran, which received the largest credits, $210-million, is paying the Pentagon 4 to 5½ percent interest, while the Pentagon is paying the Export-Import Bank 4⅞ to 5½ percent.

Saudi Arabia, which received the second largest credits, $143-million, is paying the Defense Department 51/10 to 5½ percent interest, while the Pentagon is paying the bank a straight 5½ percent interest rate.

Five of the recipients -- Jordan, Morocco. Pakistan, India and Venezuela -- are paying the Defense Department straight interest rates of 3 per cent on a total of $53-million in loans. In these five cases the Pentagon is paying the Export-Import Bank interest rates from 4⅞ to 5½ percent.

In one instance, where a small loan of $1million was made to Chile, the Pentagon is apparently making a little money by charging Chile a 5 per cent interest rate while paying the bank 4⅞.

Israel has apparently been another special case. It received loans of $88-million over both fiscal years at interest rates from 3½ to 5 per cent, while the Pentagon paid the bank interest varying from 3½ to 5½ percent.

The Israeli case was the only instance in which the Export-Import Bank lent the Pentagon any money at interest as low as 3½ percent.

The remaining three borrowers -- Malaysia, Taiwan and Peru -- obtained a total of $25 million in loans at interest varying from a low of 3 to 4 per cent for Malaysia, which received $11-million, to a straight 5 per cent for Peru, which obtained $4-million.

In these three cases the Pentagon paid the bank interest varying from 4⅞ to 5½ percent.

During the current fiscal year, the Defense Department intends to make $256-million more in country-X loans from the Export-Import Bank to underdeveloped countries for the purchase of American armaments.

No breakdown by individual country is available. But a regional breakdown shows that the majority of the loans, $181-million, will be made to countries in the Middle East, India and Pakistan, apparently because of the intense competition between the United States and the Soviet Union for political influence in these regions.

OTHER LOANS PLANNED

In addition. the Pentagon plans to loan $25-million to African countries for arms purchases, $32-million to Latin-American nations and $18-million to Far Eastern countries.

Besides the $591-million in country-X loans over the last two fiscal years, the Defense Department has made direct arms loans to 12 underdeveloped countries.

These countries were also recipients of country-X loans over the last several years from the Pentagon's revolving arms sales credit fund. The loans were made at interest rates similar to those for country-X loans from the Export-Import Bank.

Israel received the largest credits, $54-million, and Iran the second largest. $41-million. The other 10 recipients were Morocco, $3-million; Jordan, $6-million; Pakistan, $3-million; India, $41-million; Taiwan, $2-million; Malaysia, $5-million; Argentina, $1-million; Brazil, $10-million; Venezuela, $19-million, and Peru, $1-million.

The following is a table of the 14 recipients of country-X loans in the fiscal years 1966. and 1967, the approximate amounts in each case and the rates of interest paid by the borrowers and by the Pentagon to the Export-Import Bank:

[TABLE OMITTED]

Mr. MUSKIE. Mr. President, will the Senator yield?

Mr. ELLENDER. I yield.

Mr. MUSKIE. Again, with all respect to the distinguished Senator from Idaho, whom I highly respect, he has not satisfield the Senator from Maine, who has not become involved in this matter through his committee responsibilities. The Senator is talking about something being done, not illegally, but without our knowledge. The small print to which the Senator referred was not issued by the administration, but by the Foreign Affairs Committee of the House.

The Senator from Louisiana has described his experience in fighting this amendment. The House insisted on it. So this must have been an issue which was thoroughly discussed in conference.

The House's view was that this extension is primarily intended to apply to the Export-Import Bank, which at the present time is the only U.S. Government agency expected to be affected by it. I submit that is the congressional record; that congressional small print is a clear indication that we knew what we were doing; that we authorized the guarantee program; that we knew the Export-Import Bank was involved.

I hold in my hand another confidential document, which I am told -- and if I am wrong I want to know it -- is an example of the kind of detail which was given to the Appropriations Committee and to the Foreign Relations Committee on the identity of the X countries, on the terms of the loans, the amounts, and the description of the equipment sold.

Mr. ELLENDER. When was that?

Mr. MUSKIE. This is an illustration of the kind of information; this is not it directly, because it is classified and is in the files of the committees, I presume. But President Linder testified to us that this information was given to the Foreign Relations Committee of the Senate, to the Foreign Affairs Committee of the House, and to the Appropriations Committees of both Houses. If he was not telling the facts to our committee, which was not privy to that information, but if in fact that information and detail was given to these committees, then I cannot understand the argument being made this afternoon that the committees were kept uninformed. It may be that members of the committees did not have specific information which was kept in their files, but that is different from saying that the information had not been provided to them.

Mr. CHURCH. Mr. President, I think the Senator from Maine lets the executive branch off too easily regarding its responsibility to the Congress of the United States. If Congress had been informed as to what this was all about, what was the occasion for the sudden uproar in both Houses, which has filled the newspapers? It is not enough to slip the information to us in small print. The obligation is on the executive branch to properly inform the Congress.

I have yet to see any previous testimony disclosing the extent to which the Export-Import Bank was being used to finance the large-scale distribution of arms to the underdeveloped countries of the world. As a matter of fact, it was not until the staff of the Foreign Relations Committee began to look into this question in early January that we began to get some idea of the rapid growth and startling dimension of the program. It was then we commenced the course of inquiry which led both the Foreign Relations Committee and the Banking and Currency Committee and committees of the House of Representatives to look into the whole question. I think the uproar the disclosures caused in Congress is sufficient evidence to validate our argument that Congress was never adequately informed. We were, in truth, kept blindfolded.

It is the responsibility of the executive branch to keep Congress informed, and I find nothing in the record of this case that amounts to an adequate discharge of that responsibility.

Mr. MUSKIE. Will the Senator from Louisiana yield me 30 seconds?

Mr. ELLENDER. I yield.

Mr. MUSKIE. Of course, I cannot possibly judge what may satisfy any Senator on any question of fact as to the adequacy of information that would satisfy him, but again reading the title of this document, which I say is a pretty accurate identification as to the kinds and uses, it says:

Summary, Fiscal Year 1967, FMS Credit Programs by Country, Export-Import Bank and Private Bank Transactions, and Status of FMS Available Resources.

Mr. ELLENDER. Was that in 1967?

Mr. MUSKIE. In 1967; and I am told similar information was supplied with respect to 1966; 1966 was the year when these Department of Defense guaranteed loans were made.

Mr. ELLENDER. But it was not until 1966 that I found out about it.

Mr. MUSKIE. The information was available, if our information is correct, in 1966, and the authorization by statute was made by Congress in 1965.

Mr. ELLENDER. As the Senator from Idaho pointed out, I do not know of any Senator who was not surprised when he learned that the facilities of the ExportImport Bank were being used to finance the sale of arms to less-developed countries.

Mr. MUSKIE. I do not know whether that reflects on Senators or the administration.

Mr. ELLENDER. I know they were all surprised. I know the Members of the House were surprised. New hearings were suddenly called. As I said, I was aware of loans being made directly by the Export-Import Bank to countries like England and Italy, but in respect to the less-developed countries, I only found it out last year. I seized the first opportunity to offer the amendment which is pending.

As I said a while ago, if left to me, I would exclude any loans made by the Export-Import Bank to finance any sales abroad. Let it be done directly by the Department of Defense, and let the Department come before Congress each year and get the money in order to go into these transactions.

Mr. MUSKIE. May I ask the Senator one question?

Mr. ELLENDER. Yes.

Mr. MUSKIE. The Senator described the battle he waged in 1964 to strike this provision from the bill.

Mr. ELLENDER. There was no mention made about Export-Import Bank, because it was never intended that the Export-Import Bank be used.

Mr. MUSKIE. I understand, but may I finish my statement? The Senator has described his battle to defeat the very legislation which is the basis for the bank's activities. At that time there was no specific reference in the language to Export-Import Bank. I agree.

But the next year the amendment to which I have referred was written, which identified Eximbank's activities, according to the House committee report, which must have been considered in conference. So I am curious as to why the Senator, who took such a vigorous interest in it in the first instance and must thus have had a motivation to follow the experience under it to a greater degree than any other Senator, should have been so surprised, in 1967, that Eximbank had become involved during that 3-year period.

Mr. ELLENDER. Mr. President, I do not wish to repeat what I said a while ago, but in the testimony given to the committee by Mr. McNamara, he indicated in no uncertain terms that commercial banks were to be used, not the Export-Import Bank. I quote again:

That bank– meaning the Export-Import Bank -- is not chartered for the purpose of extending credit for the purpose of procurement of military weapons.

That is Mr. McNamara speaking. That is what he said, and that stuck in my cranium. I discussed this with Mr. McNamara last year when hearings on the Foreign Aid bill were held by the Appropriations Committee and later in the year, during December of 1966 when I was in Santiago, Chile, I met the President of the Bank there, Mr. Linder, and I discussed the matter with him.

He told me about how these things were being done, and I took strong issue with his position. You could probably have heard us talk across the street, because, in my opinion, it was a violation of Mr. McNamara's stated intentions, and of the will of Congress.

In the congressional debates, in 1964, there was no mention of the Export-import Bank, because we had been told that commercial banks would be used. The Eximbank never came into the picture at all.

Several Senators addressed the Chair.

Mr. ELLENDER. I yield to the Senator from Kansas.

Mr. CARLSON. Mr. President, I had not intended to get into this discussion, but for those who might read the RECORD in the future, it might be interesting to place in the RECORD certain information regarding the congressional authorization. This is taken from a Department of Defense publication entitled "Military Assistance and Foreign Military Sales Facts" of May 1967, published by the office of the Assistant Secretary of Defense for Internal Security Affairs, and is not classified.

I shall read just one section, concerning the historical background of foreign military sales, found on page 25 of the brochure. I ask unanimous consent that the excerpts I have designated in the brochure be printed in the RECORD as a part of my remarks.

There being no objection, the excerpts were ordered to be printed in the RECORD, as follows:

CONGRESSIONAL AUTHORIZATION

The basic legislation authorizing foreign military sales was the Mutual Defense Assistance Act of 1949, which followed U.S. ratification of the NATO Treaty of July 25, 1949. It provided for "reimbursable aid" and as such was the forerunner of the present Foreign Military Sales Program.

Canada, Korea, Brazil, and the Netherlands were among the recipients in the first year of operation, FY 1950, with total sales of $13.1 million. Additional and amended authorizations were provided by the Mutual Securities Acts of 1951, 1954 and 1957 and by the Foreign Assistance Act of 1961 with its Amendments in 1962, 1964, 1965 and 1966.

This series of legislation:

Authorized the sale of materiel from stock on payment after delivery.

Authorized procurements for sale pursuant to "dependable undertaking" arrangements.

Provided for the use of MAP funds for credit sales financing to countries eligible for grant aid.

Capitalized the Foreign Military Sales Fund, initially authorizing $175 million, with subsequent additions bringing the Fund to its present level (through FY 1967) of $383 million;

authorized the reuse of payments received from foreign countries for further credit sale.

Authorized DOD to guarantee repayment to exporters, insurance companies, financial institutions or others who extend credit to foreign governments for the purchase of military materiel, the DOD establishing at the same time a 25% guaranty reserve.

Authorized the establishment of fixed prices to be paid by the purchaser when such is determined to be in the national interest.

Authorized the acquisition and disposition of evidences of indebtedness or ownership.

Provided that sales and exchange programs shall be administered so as to encourage regional arms control and disarmament agreements and to discourage arms races; in 1966 a ceiling of $85 million was set for the total amount of grant aid and sales to the American Republics.

Executive Branch policy has been consistent with the intent and objectives expressed in the Congressional legislation on this subject.

On May 9, 1963, the President indicated that ". . . it is essential that we make every effort to prosecute the program of selling U.S. equipment to our allies. Not only will this decrease the net outflow of gold from this country, but it also ties in our military aid to foreign policy."

On February 1, 1966, the President reported to Congress that "We will shift our military aid programs from grant aid to sales whenever possible and without jeopardizing our security interests or progress of economic development. Military sales now exceed the dollar volume of the normal grant aid program. This not only makes a substantial favorable impact on the balance of payments, but it also demonstrates the willingness of our allies to carry an increasing share of their own defense costs."

CREDIT FINANCING

As shown on page 33, about 72% of the $11.1 billion in orders and commitments for FYs 1962-1966 was on a cash basis; the other 28% was financed by credit provided by private banks, the Export-Import Bank or by the Department of Defense. About three-fourths of such credit was provided to the developed industrial countries.

When a buying country cannot meet the requirements of private banks or the Export-Import Bank, the purchases can be financed by the Foreign Military Sales Account. This Account was capitalized by the Congress in the amount of $175 million in FY 58 -- and expanded since then to reach its present level (through FY 67) of $383 million. The Account is restored by country repayments; hence its informal name: FMS Revolving Fund.

As noted above, the Congress has authorized the Department of Defense to "guarantee" loans made by other private or public financing sources. Such a guarantee requires that 25% of the contractual liability be reserved for the payment of claims under such contracts. Congress also authorized the Department of Defense to make sales of evidences of indebtedness and to guarantee payment against any such instrument. As shown on page 36, total credit extended through this account during FY 1962-1966 was $756 million. An additional $384 million is expected to be extended during FY 1967.

Mr. CARLSON. It reads as follows: The basic legislation authorizing foreign military sales was the Mutual Defense Assistance Act of 1949, which followed U.S. ratification of the NATO Treaty of July 25, 1949. It provided for "reimbursable aid" and as such was the the forerunner of the present Foreign Military Sales Program. Canada, Korea, Brazil, and the Netherlands were among the recipients in the first year of operation, FY 1950, with total sales of $13.1 million.

Additional and amended authorizations were provided by the Mutual Securities Acts of 1951, 1954 and 1957 and by the Foreign Assistance Act of 1961 with its Amendments in 1962, 1964. 1965 and 1966.

Mr. ELLENDER. That was dealing with Department of Defense authority.

Mr. CARLSON. Yes. Then, as to credit financing, the brochure states:

As shown on page 33, about 72% of the $11.1 billion in orders and commitments for FYs 1962-1966 was on a cash basis; the other 28% was financed by credit provided by private banks, the Export-Import Bank or by the Department of Defense. About threefourths of such credit was provided to the developed industrial countries.

When a buying country cannot meet the requirements of private banks or the ExportImport Bank, the purchases can be financed by the Foreign Military Sales Account

That is the revolving fund we are talking about today, and about which we have heard so much discussion in the Committee on Foreign Relations.

This Account was capitalized by the Congress in the amount of $175 million in FY 58 -- and expanded since then to reach its present level (through FY 67) of $383 million. The Account is restored by country repayments; hence its informal name: FMS Revolving Fund.

I mention that because this amount of $383 million is the figure they use when they make these 25-percent guaranteed loans on sales. That figure could easily reach $1 billion; as the distinguished Senator from Louisiana has stated. That is one of the problems that concerns us.

I support the Senator from Louisiana, after hearing much of the testimony and discussion in executive sessions on these sales. I think we ought to draw a line somewhere. The colloquy which has taken place today has indicated that Congress may not have been advised.

Perhaps that is true. I do not think they have been too anxious to divulge some of the operations that have taken place. As the Senator from Idaho has stated, much of the information is classified. We will not get into that.

[INTERVENING DEBATE OMITTED]

Mr. MUSKIE. I yield myself 5 minutes. Mr. President, as we consider the questions pending before us in connection with this legislation, I think we have a responsibility to consider it in terms of what our policy is now -- not what it was in the thirties, not what it was following World War II, not what it was through the fifties, but what it is now.

The Committee on Banking and Currency is not normally concerned with this national policy. We have been concerned with it in recent days and weeks because an instrument which is under our jurisdiction -- the Export-Import Bank -- has been involved.

History tells us that in the 1930's the reaction against the merchants of death was so great that Congress enacted the Neutrality Act, to prevent and prohibit the export of arms by the private sector of our economy. During World War II, we found that an inhibiting and shackling policy; and to get around it, we enacted the lend-lease policy, which unleashed the greatest overseas flow of arms in the history of mankind, to serve our national interest.

Following World War II, in our efforts to build up the free world posture against what we considered to be an imminent Communist threat, we continued that policy of arming the free world. Because the free world could not afford to purchase the arms, we provided them under grant programs; and throughout the fifties, we gave arms to Western Europe and to mature nations around the globe. For what purpose? To serve our national interest.

Then, as those nations began to lift themselves up from their postwar weakness, and began to develop economic viability, questions were asked in Congress, "Why should not those nations begin to pay for their arms, making contributions of their own to their own security and the security of the free world?"

It was in response to such questions that we began to develop the instruments of our current policy, to make it possible to sell arms to those people, and to extend credit when it was necessary.

So what is the nature of our policy -- not our 1930's policy or our 1940's policy or our 1950's policy, but our present policy -- toward developing countries, with respect to arms?

I have heard cumulative figures used in this debate of the billions that we have spent over the years.

I think the figure of $37 billion and other figures have been used. Those figures are a reflection of our policy as it existed in the fifties. What we are talking about with respect to the pending bill and the pending amendment is our policy now.

I think it is appropriate that the Senate know what the Committee on Banking and Currency was told with respect to our policy.

The testimony by Mr. Rostow made the point that 90 percent of the transactions about which we are talking were transactions made with the industrialized developed countries of the world, principally Europe. Those sales are not the subject of this amendment whatsoever. What we are talking about is the remaining 10 percent. And Mr. Rostow had this to say about it:

The remaining 10 percent of our sales go to the developing countries of the Near and Middle East, Africa, Latin America and East Asia. Here the policy considerations governing our arms sales are more complex and extremely sensitive.

Many of these developing countries have not yet met the minimum needs of their people for social and economic progress. It has been the policy of our government since President Truman's time to help these governments through our economic assistance programs to build a better way of life for their people.

I point out that these are the words of an administration representative defending our present arms policy with regard to developed nations.

I continue to read from his testimony -- These needs – These economic needs –

are urgent and substantial. The diversion of resources away from economic and social development into military expenditures is, therefore, something we all deplore. At the same time we cannot ignore the fact that the first, fundamental and inescapable requirement for economic and social progress in any country is a minimum level of internal and external security.

Many of these countries have legitimate armament needs; they face internal or external threats to their security, or both. In Latin America, Castroism now threatens stability by supporting dissident and extremist elements, and by spawning guerrilla warfare in countries such as Guatemala, Venezuela, Colombia and Bolivia. In Asia, Communist China poses an obvious threat to all the countries on its perimeter. And in the Near and Middle East, the Arab-Israeli dispute has smoldered for two decades, along with the struggle for dominance between the more radical and the more moderate regimes of the region.

Two struggles, which as you note, the Soviet Union has exploited with its enormous arms sales into that area.

Having quoted those general comments of an administration witness on this legislation, let me now turn to the testimony of the Secretary of Defense on the subject of Latin America as presented to the House committee. We are here talking about current policy, not the policy of the thirties, the forties, or the fifties, and not accumulated policy, but the current policy.

I read what the Secretary of Defense has to say on this subject:

Arms policy with respect to Latin America has effectively restrained both the level and the character of armaments in the Western Hemisphere in recent years. In the 1950s, we encouraged our Latin American allies to build up their forces for purposes of hemispheric defense. Since 1961, the Department of Defense has followed a different course and has progressively persuaded the Latin Americans to thin out their inventories, to shift away from cumbersome conventional structures and to substitute smaller, lighter equipment designed for internal security.

Grant military assistance to Latin America is being progressively reduced. The result clearly demonstrates that the policy of restraint has been successful. Defense expenditures in Latin America average 1.7% of GNP (compared with 8.6% in the U.S., 5.9% in the UK, 5.0% in Turkey and 4.1% in Germany). The number of items of major equipment -- combat aircraft, tanks and combat vessels -- has steadily decreased over the past five or six years. There are about twice as many combat aircraft in Sweden alone as in the whole of Latin America; there are only three-quarters as many tanks as in Belgium.

There are no supersonic aircraft in Latin American inventories. This is due in large measure to United States efforts over the past several years. But it is unrealistic to expect the Latin Americans to foreswear modern aircraft forever. A number of their jets are of pre-Korean vintage and are old and worn out. The Latin Americans want to replace them, in smaller numbers, and as economically as possible. They are interested in new airplanes with a long life span to amortize the investment cost. Their determination to procure modern aircraft from some source highlights the troubling question of how to respond to each request for the purchase of United States arms.

Mr. TOWER. Mr. President, will the Senator yield?

Mr. MUSKIE. I yield.

Mr. TOWER. Mr. President, the point was made by my distinguished friend, the senior Senator from Oregon, a moment ago that from the standpoint of the preservation and the timing of the order, aircraft is not a requirement.

I take issue with that from the military point of view and address myself to what the Senator has pointed out about the need for aircraft in the military assistance of Latin America.

The fact is that the trouble they are likely to face will be guerrilla warfare of the type for which men are being trained and prepared in Cuba by the Castroites. They can anticipate that any kind of insurrection that arises will be a Castroite incited insurrection in which case the major difference very often is between the regular and guerrilla forces and the availability of close airports from which to control the air space over the area where the action occurs.

We have learned that lesson in Vietnam. Aircraft is a part of the vital inventory, even so far as preserving internal order in the underdeveloped areas.

Mr. MUSKIE. Mr. President, I thank the Senator. I agree completely with what he has had to say.

I continue with a further segment of the testimony from Secretary McNamara:

This is a question to which the Executive Branch continues to give searching attention. The dilemmas are real. Should sale be refused when the requesting country is threatened with aggression by a well-equipped and hostile neighbor? Or when the dynamics of its internal politics make it more likely than not that the country must otherwise accept equipment and advisers from Communist countries? Or when it is more likely than not that the country will otherwise buy more expensive and sophisticated equipment elsewhere in the world, thereby jeopardizing its economic development and increasing the political strains in our relationship.

I have satisfied myself that effective conduct of United States foreign policy and the protection of the national interest does not warrant a blanket denial of such sales requests.

Mr. President, we are not debating in connection with this amendment whether we should have an unlimited arms race on the face of the globe stimulated by the United States. I do not know of a Senator on either side of this issue who would support such a proposition.

What we are debating is what if any kind of arms policy do we need in the light of realities not only for ourselves for the strong, industrial countries of Europe and for other parts of the globe, but also for the developing or less developed countries of the globe.

What responsibility if any should we bear to them, and is our present policy unrealistic and excessive in its terms?

We face such questions as these: Should we never, under any circumstances -- under any conceivable circumstances -- provide arms to the developing countries of the world? That is one of the questions. Should we never provide arms, under any circumstances? This question is pertinent, because the committee bill does this: First, it prohibits sales to the developing countries, but, second, it gives Presidential discretion to make exceptions and to waive the prohibition when in his judgment the national interest requires it. That is the way the committee answered the question.

Should we never, under any circumstances, provide arms for the developing countries? If our answer to that question is that we should not adopt any such inflexible policy, then the second question is this: Should we never, under any conceivable circumstances, provide credit to make it possible for developing countries to acquire our arms?

Is there really a Senator on the floor of the Senate who would say that we should never, for the next 5 years -- because we are talking about a 5-year extension of the life of -- the Bank -- under any circumstances that we can conceive or that we may not conceive, make our arms available to the developing countries and on credit terms?

I say that we cannot afford such a policy, which is the policy that we would freeze into our national legislative policy if the Ellender amendment is approved.

That is the question. The committee amendment does not provide and does not give support for an unrestrained and escalating arms race. It does give support to a restrained, limited, carefully applied national policy of providing our arms to developing countries when the President says it is in the national interest. I say, Mr. President, that we can afford no less than this type of restrained policy.

I yield to the Senator from Texas.

Mr. LAUSCHE. Mr. President, will the Senator yield for a question?

Mr. MUSKIE. I am happy to yield.

Mr. LAUSCHE. I ask these questions solely for the purpose of providing a bit of information for myself and for other Senators.

It is my understanding that there were five programs in the department that our Government had in providing military help to underdeveloped countries.

The PRESIDING OFFICER. The time of the Senator from Maine has expired.

Mr. MUSKIE. I ask unanimous consent that I may proceed for 2 additional minutes.

Mr. LAUSCHE. I will ask for time later.

Mr. MUSKIE. I withdraw the request for additional time.

The PRESIDING OFFICER. The Senator from Texas is recognized. How much time does the Senator request?

Mr. TOWER. Twenty minutes.

Mr. MUSKIE. I yield 20 minutes to the Senator from Texas.

Mr. TOWER. Mr. President, although the bulk of the debate so far on the amendment offered by the distinguished Senator from Louisiana has flowed from the supporters of the amendment, it is important to note that there are good and cogent reasons why the committee's bill and the committee's good judgment on this issue should prevail in the coming vote.

Two main arguments have been raised against the preservation of Eximbank participation in arms sales agreements in the manner arranged for by previous Congresses. By the way, if Congress has not been aware of this, it has been Congress' own fault.

It is said, first, that this is not a sound banking practice; second, that arms sales in and of themselves, should be drastically curtailed.

The argument that Exim's participation with the Department of Defense in providing credit for sales is somehow unsound as a banking principle falls of its own weight. The loans involved to developed countries are subjected to the same credit-risk investigations as are all other Exim loans, and agreements are entered into only with sound, solvent nations. The loans involving underdeveloped countries are entered into by the Bank only because the Department of Defense guarantees the loans -- and it is the best of banking practices to accept guaranteed loans. Therefore, the Bank is continuing its sound banking practices.

It really, then, is not a concern over banking principles which chiefly motivates the proponents of the amendment, including the Senator from Idaho. The chief objection raised really is a basic objection to arms sales in general.

May I respectfully point out that the question of ending or drastically curtailing U.S. arms sales is a matter for decisions by the Committee on Foreign Relations and the Committee on Armed Services, not the Committee on Banking and Currency; nor has the Committee on Banking and Currency attempted to infringe upon this jurisdiction in the current bill. We have said, simply, that if arms sales and loans are to be entered into, then Exim Bank is a proper functionary for such transactions.

This policy matter, I suppose, ultimately will be determined when we are asked to consider the Church amendment on the floor of the Senate. Then, if it is the will of the Senate that the underdeveloped countries should be left at the mercy of Fidel Castro or the agents and the satellites and those who pledge themselves to the suzerainty of the Soviet Union, we will have decided that is the policy.

We are determining a matter of pure mechanics here. The Committee on Foreign Relations has already approved an amendment to its foreign aid bill that would severely curtail arms sales arrangements. So I believe that the arguments made by the proponents of the pending amendment should be made when that matter comes up for consideration on the floor of the Senate. I might note now that there are those of us who would be prepared then to debate the wisdom of the principle with the members of the Committee on Foreign Relations who supported the Church amendment. I might also point out that the foreign aid bill already reported by the corresponding committee of the House of Representatives does not contain such a restrictive amendment.

The points are simply these: Proponents of the pending amendment are making the wrong case, at the wrong time, on the wrong bill. However, since they have chosen to raise some specific objections about arms sales, I believe that I must respond to those instances, even though I am forced to take time to reply to arguments that are not germane to the pending bill.

The basic impression left by the discussion yesterday of U.S. arms sales was incorrect. The U.S. program of arms sales is a program not of arms escalation; rather, it is a program of arms control.

The senior Senator from Louisiana objected yesterday to some arms sales to Argentina, which he said sparked a reaction on the part of Chile. These are the facts of that case: Argentina, Chile, Peru, and other Latin American countries were all seeking last year to replace pre-Korean war vintage aircraft which were difficult and uneconomical to maintain, as the Senator from Maine pointed out a moment ago. They preferred the U.S.-manufactured F-5, which is a supersonic jet. We have only a handful of F-5's in our inventory. We do use extensively a training version of the F-5, the T-38, a fine aircraft. It is a supersonic jet.

We offered Argentina, instead, used, subsonic, and less expensive, A-4B's. These are the Delta wing jobs that the Navy flies off carriers as attack aircraft. If Argentina had not bought these from us, she would have accepted the offer of another nation to sell her more advanced, newly manufactured planes at a much higher price.

Chile, when we were subsequently unable to supply more A-4B's because of the Vietnam war, did buy more expensive, reconditioned, subsonic aircraft in Europe.

Under the circumstances -- given the fact that Argentina was going to buy replacement aircraft somewhere -- our sale of the A-4B's had the purpose and effect of minimizing the diversion from her economic resources and of helping to control a potential supersonic arms race and dampen it down. I find it difficult now to see how our policy objectives in Latin America would have been better served if the administration had followed the course of primly refusing to sell any combat aircraft to Argentina, thereby forcing her to do what Chile did -- buy faster planes.

My distinguished friend and neighbor, the Senator from Louisiana, for whom I have the highest regard, complained here yesterday about some arms sales to nations in the Middle East. Here are the facts in those cases:

[INTERVENING DEBATE OMITTED]

Mr. MUSKIE. I yield myself 30 seconds.

We were concerned about the question raised by the amendment of the distinguished Senator from Louisiana, and asked the administration what was meant by the phrase "less developed countries," which is contained in the amendment. Our advice is that by any definition now known or used, there is no protection for Israel under this amendment. I am simply giving the Senator the benefit of such intelligence as we have.

Mr. CLARK. I am not a bit interested in what the administration thinks a less developed country is. I am interested in what the congressional intent is, and the congressional intent, I believe, is clear from the colloquy which has just taken place between the Senator from Louisiana and myself.

Mr. MUSKIE. There is some doubt on my part as to whether a definition that is not contained in the amendment or in the legislative language would have the effect of giving the Senator from Pennsylvania that kind of rockbound assurance.

Mr. CLARK. I say to the Senator that I hope he does not think that my vote in this Chamber will be influenced by the fact that somebody in the State Department thinks that Israel is within the the connotation of the pending amendment.

Mr. MUSKIE. I am sure the vote of the Senator from Pennsylvania will not be so influenced. I hope that others will take it into account.

The PRESIDING OFFICER. Who yields time?

Mr. ELLENDER. I yield 2 minutes to the Senator from Alaska.

Mr. GRUENING. Mr. President, I shall support the amendment offered by the able and distinguished Senator from Louisiana [Mr. ELLENDER] because, as I have repeatedly stated on the floor of the Senate, the time has long since come and gone when the United States should take the lead in slowing down or, preferably, halting the ruinous and dangerous arms race now plaguing the world.

U.S. largess in the form of foreign assistance is and has been dispensed to many underdeveloped countries throughout the globe to aid them in their economic development. To this has been added U.S. military assistance for the avowed purpose of enabling such countries to ward off Communist military aggression or to maintain law and order in those countries.

However, the years have witnessed example after example of countries where the original alleged reasons for the grant of military assistance have been perverted and the aid has been diverted to uses never envisaged.

In addition, U.S. economic aid has been used not for urgently needed economic development and reforms but to replace funds which would otherwise have been spent to carry out the country's normal civil budget, thus freeing that country's funds for the purchase of arms which the country's generals or admirals believed would enhance their own prestige.

One of the more recent examples of such military aggrandizement was the case of Chile, where the air force leaders launched a vigorous drive for the purchase of jet planes totally unneeded. If there is any Communist threat in Chile it would be of the homegrown variety with loud encouragement from Cuba's Castro. Using jet fighters against such rebels is totally inappropriate.

The diversion of Chile's meager resources -- every bit of which should be spent on that country's economic development -- to the purchase of sophisticated and unneeded weaponry is a disservice to the impoverished people of Chile and to the worthwhile objectives of the Alliance for Progress.

As Chile's enlightened and very able President, Eduardo Frei Montalava, recently stated:

The armaments race also conspires against the strengthening of the Alliance.... Nobody can possibly suppose that these weapons and armies are going to deter an aggressor from outside Latin America. Equally, the assertion that to stop subversion these countries must purchase fifty-ton tanks, supersonic aircraft and battleships defies belief. The armaments race ... diverts important resources which should be utilized to satisfy the urgent need for economic and social development.

The world has also witnessed similar diversions of needed resources to foster the armed race.

Recently, we all saw the U.S. tanks supplied to Jordan to resist "Communist aggression" used against the anti-Communist country of Israel.

A few years ago, U.S. tanks given to Pakistan to enable that country to resist "Communist aggression" were pitted against U.S. tanks given to India for the same purpose.

Even today, Turkey and Greece are facing each other belligerently, each armed with U.S. weapons allegedly given for the purpose of halting Communist aggression.

The amendment of the Senator from Louisiana to limit the credit resources of the Export-Import Bank in financing arms for the underdeveloped nations of the free world is a good first step along the road to limit the arms race which threatens to engulf the world in the third and last world war.

It is time for the United States to take leadership in the world in stopping the arms race. It is not enough for the United States to continue as the armorer of the free world with the feeble excuse that if the United States did not so act other nations would supply the arms.

Enabling an undeveloped nation to secure easy credit terms to enable it to buy unneeded arms only serves to divert that nation's economic resources from being used to meet the rising expectations of its own people and fertilizes the breeding ground of communism.

When the Export-Import Bank was first established, it was conceived of as a major financial tool for the economic development of friendly, foreign countries through "hard"-dollar repayment-loans. It is indeed shocking to learn that the Export-Import Bank has taken part in financing the arms buildup in many countries so clandestinely that even the oversight committees of the Congress were unaware of its activities. This is but one more example of how Congress has, over the years, permitted the executive agencies, especially in the field of foreign affairs, to erode the powers which Congress should constitutionally exercise.

It is my hope that the move to exercise some measure of control over the Export-Import Bank and to bring its activities more closely in line with its original purposes will succeed and will presage the enactment of similar curbs of the abuse of executive powers when the foreign aid bill comes before the Senate in the next few weeks.

Mr. ELLENDER. I yield 2 minutes to the Senator from Maryland.

Mr. BREWSTER. Mr. President, I am extremely disturbed by the clandestine nature of an ever-increasing international arms trade which is dangerous to the peace and security of the world.

Established in 1934, the Export-Import Bank of Washington was designed to assist countries in the financing of commercial exports. Its original intention was to aid these countries in their economic development by providing them with the opportunity to obtain loans at interest rates they could afford. The perversion of this intention by using the bank to finance the sale of arms abroad is a matter of grave concern.

Thus, I was shocked to learn that almost 36 percent of all Export-Import loans this year went for the purchase of American armaments. Fourteen developing countries received $591 million in country X, or secret, unidentified loans this year. The amazing part of these so-called country X loans is that not even the director of the bank knows where this money is going.

The U.S. Government not only sells the armaments but also guarantees these loans through a $383 million revolving arms sales credit fund. In many cases, the Defense Department subsidizes such dealings by charging less interest to the country involved than the United States must pay back to the Export-Import Bank for the loan.

It is very unfortunate that this Bank, which started with such excellent aims, should have to suffer a loss of prestige and reputation by involving itself in shady arms dealing.

The majority of the loans have gone to Latin America and the Middle East. Beyond doubt, and from personal inspection, I can say that U.S. armaments were used against Israel by the Arab nations last June. It seems far more logical that if we seek a military balance of power in the Middle East, it can be achieved better by striving for disarmament than by arming the antagonists to the hilt.

If, however, the U.S.S.R. insists on arming the Arab countries, then the United States should honor its commitments to Israel. This amendment would not prohibit such activity.

But why, in 1966 and 1967, did the Defense Department approve Jordan as the recipient of over $9 million in country X loans for American military supplies? What kind of twisted logic produces the conclusion that military aid given to Jordan will increase the independence of Jordan from her fellow Arab neighbors rather than equip her to wage war on her declared enemy, Israel? Are we, in fact, conditioned by the military industrial combine which former President Eisenhower warned us against in his farewell speech?

It is indeed symptomatic that most of the arguments in favor of country X loans are stated in terms of our economic position and not in terms of their necessity to our national security. Of course, it helps our balance of payments to glut the international market with our obsolete weaponry. I suggest, however, that this is a very dangerous way to solve an economic problem.

In a nuclear age, any local conflict can escalate into a confrontation between the major powers. It is therefore our obligation not to help provoke conflicts, especially by arming both sides.

It is important that in questions of world security, the political consequences of arms aid should take priority over temporary economic benefits.

Another disturbing aspect of backdoor financing of arms through the Export-Import Bank is the inexcusable failure of the Defense Department to inform Congress of the loans. The Senate Armed Services Committee, of which I am a member is not always informed of these sales until well after they have been completed.

In addition, I understand that the Senate Foreign Relations Committee and the Senate and House Banking Committees were not told of these military loans. Even more shocking is the fact that the $55 million ceiling on annual arms exports to Latin America, imposed explicitly by the Senate, has been completely disregarded. Over $98 million in loans was supplied by the Export-Import Bank alone for military purchases.

The Export-Import Bank Act Amendment of 1967, as reported by the Committee on Banking and Currency, is indeed a disappointment. The bill as it now stands does not abolish country X loans to underdeveloped countries. In fact, the amount that can be loaned was increased from $604 million to more than $1.1 billion. And as previous loans are paid off, new credits could be extended.

In addition, Congress might have to wait up to 30 days before being informed that a loan had been made. This is equivalent to giving Congress no power in determining the necessity and advisability of these loans.

I, therefore, strongly support Senator ELLENDER's amendment.

The PRESIDING OFFICER. Who yields time?

Mr. MUSKIE. I yield 5 minutes to the distinguished Senator from Washington [Mr. JACKSON].

Mr. JACKSON. Mr. President, I believe it is the beginning of wisdom on this matter of military sales and grant aid to face candidly the need of any President of the United States for flexibility.

As a great power, this country is bound to confront difficult choices with respect to arms sales abroad. The dilemmas for a President are obvious. Should sale be refused when it is apparent that the requesting nation will then accept advisers and equipment from China or the Soviet Union?

Should sale be refused when the requesting nation is under the guns of an aggressive neighbor?

Should sale be refused if the requesting nation will then purchase more costly and advanced equipment elsewhere, and so undermine its economic development and put new strains on relations with us and our allies'?

A refusal on our part to sell arms does not necessarily stop an arms purchase, nor does it save us from the consequences when the purchasing country turns elsewhere. As a classic example: the U.S. turndown of India's request for fighter aircraft in 1964 led to India's substantial purchase of Russian Mig's, as well as an arrangement for the manufacture of Mig's within India.

For this country to turn its back on the dilemmas of arms supply, and to walk away from the problems, will not necessarily prevent arms sales or, for that matter, reduce international tensions. It might very well accomplish the exact opposite. This would be especially likely now in the Middle East, where the Soviet Union is following a deliberate strategy of using arms sales to destabilize a tenuous political-military balance and so again put Israel in mortal jeopardy.

Clearly, in some cases, our best interests will be served by a decision to grant or sell arms; clearly, also, in many cases, our best interests will be served by a refusal to grant or sell arms.

Each request should be thoroughly reviewed, and then finally passed on at the highest levels of government.

The main point is: A President of the United States needs flexibility -- freedom to deal with each individual request for arms and equipment on its merits in the light of the developing situation at the time. In this dangerous period, the wise and effective conduct of our foreign affairs does not warrant restrictive denials of a President's freedom to use his judgment in making the difficult choices with respect to arms salts abroad -- choices which he faces now and will face in the future.

With this in mind, I believe the provisions of the committee bill that relate to the credit financing of military sales should be left unimpaired. There will be some countries whose defense costs should not be underwritten by outright assistance from the American people, and which are not able to lay cash on the barrelhead for needed equipment, but which the President may consider important to assist. Therefore, I am opposed to the pending amendment that would terminate the authority of the Export-Import Bank to lend money for military sales to underdeveloped countries.

In this connection, I should point out that the charge that Congress has been "kept in the dark" about the participation of the Eximbank in military credit sales is a great exaggeration. Since 1964 both the State Department and the Defense Department have discussed Exim relationships with the Senate Foreign Relations Committee, the Senate Appropriations Committee, the House Foreign Affairs Committee, and the House Appropriation Committee. That testimony is a matter of open record in both Senate and House committee reports. Classified details are furnished these committees on the usual "need to know" basis -- and such details have been available to other interested committees upon request.

Mr. President, I believe that the pending amendment would unduly and dangerously tie the hands of the President of the United States in the conduct of foreign policy. I trust the Senate will show its good sense by rejecting this amendment.

Mr. President, much has been said about Israel and that this particular amendment would not deny Israel assistance that might be necessary in the future. A big point that is being missed is that it may be in the national interest of the United States and the national interest of Israel that certain assistance be given to certain developing countries in the Middle East. This element of the problem is being overlooked in the colloquy, and it could be just as important to the future of Israel as granting a loan directly to Israel.

Mr. MUSKIE. Mr. President, will the Senator yield?

Mr. JACKSON. I yield.

Mr. MUSKIE. Mr. President, we should clarify as far as we can the point raised with respect to Israel.

The amendment of the distinguished Senator from Louisiana includes the phrase "less developed country." Obviously we were interested in undertaking to determine the meaning of that phrase in terms of current policy, which I assume is relevant.

There are two possible tests at this moment. The first test is with respect to the interest equalization tax. A determination is made by the Treasury of the countries which will be exempt as undeveloped countries from the application of that test.

Mr. President, I ask unanimous consent to have printed in the RECORD a list entitled

"Developed Countries for Purposes of IET."

There being no objection, the list was ordered to be printed in the RECORD, as follow s

[LISTING TABLE OMITTED]

Mr. MUSKIE. Mr. President, the list does not include Israel, so that with respect to that test the term "less developed country" would look less with favor to Israel.

If a country gets assistance it is considered a less developed country. Israel receives assistance under the act. Under that test it is a less developed country. This is information I have been given by the administration people, testimony that is not of interest to some Senators, but should be because of its seriousness.

Mr. JACKSON. Mr. President, I wish to supplement the statement of the Senator. Not only is this a serious situation so far as any loan that might be given to Israel, but there is also an additional factor that should not be overlooked. This involves the granting of loans to certain developing countries in the Middle Eastern area which would be in the interest of Israel and in the interest of the security of the United States.

Every Senator should understand, in dealing with the security problem in the Middle East, that it involves not only Israel but also other countries in that area that could impinge upon the security of Israel.

The effect of the pending amendment is to deny to the President the kind of flexibility he needs in order to handle this difficult and continually dangerous Middle Eastern situation.

Mr. LAUSCHE. Mr. President, will the Senator yield to me?

Mr. MUSKIE. Mr. President, I yield 7 minutes to the Senator from Ohio.

Mr. LAUSCHE. Mr. President, I wish to immediately call to the attention of the Senate the fact that in the foreign aid bill, the Committee on Foreign Relations recommended the repeal of the revolving fund now used by the Department of D fense in providing military equipment to underdeveloped countries.

The revolving fund recommended for repeal has in it $400 million. When the vote was taken for the repeal of the revolving fund, every member of the committee voted for the repeal except me.

After the votes were cast, I asked for the right to change my vote. I said I voted "no" because, as I looked down the road, I could see our enemies armed and our friends disarmed. I then joined the entire group voting for the repeal of the $400 million revolving fund in the control of the Department of Defense in providing military equipment for underdeveloped nations.

In the report of the Committee on Foreign Relations there is language and I say to the Senate that it is of the greatest importance

The repeal of the Department of Defense authority to finance commercial sales leaves undisturbed a number of sources for the undeveloped countries in the rare cases to obtain military equipment.

Mr. President, what are the sources that are left? The report of the Committee on Foreign Relations said that one source was the Export-Import Bank. Now, the Senate would repeal the Export-Import Bank provisions so it would have repealed two sources of providing aid. Senators might want to know how many sources there are. There are five sources: First, the revolving fund, with $400 million in it; second, the Export-Import Bank; third, section 614, under which the Department of Defense was allowed to sell military equipment on payment terms not to exceed 3 years and not more than $50 million, to be made available to any one country; fourth, section 516, which has $300 million in it, which the President could use in emergencies; and, fifth, the grants made under the Foreign Aid bill amounting to $391 million.

I subscribe, of course, to the idea of having the underdeveloped countries spend their dollars for food and not for military equipment, but I am not going to adopt the folly of saying that while Russia is militarily equipping its friends, we adopt a policy to allow our friends to remain unarmed.

The statement was made here earlier that it is charged the United States is fomenting the expansion of armament. I reject that charge as being completely false.

Mr. TOWER. Mr. President, will the Senator yield at that point for a question?

Mr. LAUSCHE. No; I shall not yield at this time. I wish to complete my statement.

The United States has been attempting to procure an understanding with Russia about general disarmament. Russia refuses to accede. Now, many philanthropic minds say, "Let us do it unilaterally." I repeat, let us do it unilaterally. We will disarm the world. We will not allow our friends to have military equipment. I submit to the Senate, in all candor, my unquestionable conviction that that kind of thinking is fallacious and ridiculous. On a one-sided, unilateral basis, we will now disarm the world?

If we think we are going to get by doing that the saving of our country, I say God help us all. Russia will arm the enemies of our country. We will disarm our friends. It just cannot be done without destruction of the life of the United States.

Mr. ELLENDER. Mr. President, I yield 2 minutes to the Senator from Maine.

The PRESIDING OFFICER. The Senator from Maine is recognized for 2 minutes.

Mrs. SMITH. Mr. President, as the ranking minority member of the Committee on Armed Services, I might be expected to oppose the Ellender amendment. In fact, at the outset I was inclined to disfavor it and planned to vote against the original Ellender proposal of limitation on the Export-Import Bank loans for military financing.

However, I am impressed in two respects with the Ellender amendment now before the Senate.

First, the Senator from Louisiana has demonstrated a reasonableness and constructive attitude in his willingness to compromise on this issue and to revise his original proposal and to scale his proposed restrictions down to the less developed nations.

Second, he has made an extremely convincing case for his amendment and his arguments, in my opinion, have been far more persuasive and logical than the arguments of those who oppose his amendment.

There has been a tendency on the part of the press to divide the Senate into "doves" and "hawks."

Yet, on the Ellender amendment there is a surprising joining of forces of many "doves" and many "hawks" in support of his amendment. This is a testimonial to the logic of the Ellender amendment for the normal and traditional pattern of the Senate is to uphold the position of the cognizant committee, which, in this case, is in opposition to the Ellender amendment.

Because of the persuasive logic presented by Senator ELLENDER and because of his willingness to compromise on this issue and scale down his original proposal and go more than half way to resolve differences on this issue, I shall vote far the Ellender amendment.

[INTERVENING DEBATE OMITTED]

Mr. MUSKIE. I yield 1 minute to the Senator from Vermont.

Mr. AIKEN. Mr. President, does not the Senator from New York feel that the administration used the money of the Export-Import Bank in the manner in which it did rather than using other funds at its command in order to make the year-end balance of the Government look a little better?

Mr. JAVITS. Frankly, I do not feel that that is true.

Mr. AIKEN. I do.

Mr. JAVITS. I think the reason they used this money was because it was available for the purpose. Some smart fellow figured out that it was available, and hence they used it. I say, having put the limitations on it that we have, that I think we will avoid the demanding position in which we have been placed in the past, without cutting off our noses to spite our faces.

Finally, Mr. President, we in this country must always work against the total flexibility of totalitarianism in matters of this nature, as contrasted with the rigidity of democracy. Now that the legitimate interests of the Congress concerning full disclosure of information are provided for, we must continue to provide needed flexibility to our officials in this field where Russia and China can shift gears overnight.

For those reasons, I shall vote to reject the amendment.

Mr. MUSKIE. Mr. President, I wish to take just 30 seconds to inform Senators who are anxious to know when the vote will occur that it is now my intention to yield 3 minutes to the Senator from Texas [Mr. TOWER] to sum up for himself on this issue. Then I plan to take not more than 3 minutes, unless unforeseen developments occur, to sum up for ourselves, which means a total of about 6 minutes on our side. I understand from the distinguished Senator from Louisiana that he does not intend to take much if any time, and certainly not more than that amount.

Senators may therefore be guided accordingly.

Mr. JAVITS. Mr. President, will the Senator give me 1 minute to speak about Israel?

Mr. MUSKIE. I yield to the Senator from New York for that purpose.

Mr. JAVITS. Mr. President, I have heard the debate on the subject as to whether Israel would or would not be included as a less-developed country under the amendment of the Senator from Louisiana.

My conclusion is that the State Department could jump either way, and it would be at its option. I do not want it to have that option. I do not know what the gyrations are over there, or the relationship between the State Department and the policy of the President with respect to Israel. My preference is not to give them something to decide, but to decide it ourselves.

Mr. MUSKIE. I thank the Senator from New York.

I yield 3 minutes to the distinguished Senator from Texas.

Mr. TOWER. Mr. President, by way of summation, I think perhaps we have lost sight of what the issue actually is here, because we have, in effect, been involved in something of a debate on the Church amendment on the question of whether or not we should sell arms to underdeveloped countries.

The fact of the matter is that if we do, then that is a matter of military and foreign policy; and if that is military and foreign policy, then, certainly, whether we agree with it or disagree with it, we want to employ the most effective and efficient means possible of implementing that policy. The Export-Import Bank is such a means.

It occurs to me that if one favors selling arms to our friends and our allies, so that they may defend themselves against enemies both domestic and external -- anything from Castroites to Soviet satellites -- then I think he should vote against the Ellender amendment, because this is an effective and efficient means.

Otherwise we will have to set up a banking institution in the Department of Defense. We will proliferate agencies all over again. We will set up other banking institutions or an agency that is not in the banking business to handle this sort of thing. Why can we not use the most efficient means of achieving the end?

It has been claimed that we sell indiscriminately. That is not true. The United States has tried to dissuade most of these underdeveloped countries from buying weapons. In many cases we have been able to talk them into buying less sophisticated and less expensive weapons.

If we say, "No, you can't buy any weapons from us, we will not finance their purchase," they might go elsewhere and buy more expensive and more sophisticated weapons and experience a more deleterious effect on their own economy.

Argentina wanted S-5's, supersonic jets. They then thought that they might like to have some British or French jets. We talked them into taking A-4's, a less expensive jet, a subsonic jet.

That is exactly what we have been trying to do. We do not want these countries to become dependent on other countries for their arms. We do not want to leave some of these underdeveloped countries at the mercy of the provocateurs, the saboteurs, the infiltrators, and the Castroites.

We do not want to leave Israel at the mercy of Nasser, who is being currently supplied with Soviet arms as fast as Russia can get them to him.

Soviet Russia has already supplied the United Arab Republic with an amount of equipment equal to more than half of what they lost in the recent war. That is what is going on.

It is up to us to determine whether we will unilaterally disarm our allies while their enemies are being armed by Soviet Russia.

Mr. MUSKIE. Mr. President, I yield myself 3 minutes. I feel that that will be enough time.

The PRESIDING OFFICER. The Senate will be in order.

The Senator from Maine is recognized.

Mr. MUSKIE. Mr. President, I feel the usual frustration of a floor manager of a bill who for 2 days has participated in making the record for a handful of Senators only to arrive at the climactic moment of the vote without the record that has already been made being known to all. I will try to sum up as quickly as I can.

It has been argued, despite the record made yesterday, that this whole program somehow was undertaken without the knowledge of Congress and has been conducted without the knowledge of Congress, and that consequently we are to slap the wrist of the administration for doing so.

I had some of the documentation on this point placed in the RECORD on yesterday. I have two other pieces of documentation which I would like to have in the RECORD now.

First of all, with respect to the 1964 amendments which created this guarantee program, the House report said: Since the purpose of the military assistance program is to encourage friendly governments to establish and maintain forces adequate for defense against Communist aggression and since it is to the advantage of the United States for such governments to assume the cost of their own defense as rapidly as possible, there is every reason to facilitate the financing of military sales by banks and the Export-Import Bank in a manner comparable to the financing of other export transactions.

That was the other body speaking, not in 1967, but in 1964. What did the Senate committee say on the same subject?

The Senate committee said in its report on the Foreign Assistance Act of 1965:

EXCHANGE AND GUARANTIES: Section 201(f) of the bill amends section 509(b) of the act, which relates to the administration of military assistance guaranties, so that one U.S. Government agency does not have to pay to another U.S. Government agency the fees and premiums charged in connection with the issuance of guaranty contracts.

Here is the key sentence of what was said by the Senate committee speaking not in 1967, but in 1965:

The main purpose is to make it possible for the Defense Department not to charge the Export-Import Bank a fee on contracts which are guaranteed both by the Department and the Bank and on which the Bank collects an adequate fee from the beneficiary of the guaranty.

This is certainly evidence that this was undertaken with the authority of Congress, and it was, of course, after this legislation that the program dealing with less developed countries began in 1966 and continued through 1967-68.

On the second point, Mr. President, it has been argued here during the course of this debate that what is involved is whether we want an unrestricted arms race. That is not the issue at all.

The pending bill prohibits sales to less developed countries without Presidential discretion. In addition, the pending bill limits the total, even with Presidential approval, to a rate that is less than the rates for the last 2 years.

The authority given amounts to $237 million in 1966 and something more than $300 million in 1967.

The committee bill would permit an annual rate of approximately $130 million. So the committee bill represents a cut, and even that amount cannot be used without a positive finding by the President that it is in the national interest, and a report by him to Congress within 30 days of each transaction concerning the transaction and his justification for approving it and that it is in the national interest.

Mr. PASTORE. Mr. President, will the Senator yield?

Mr. MUSKIE. I yield.

Mr. PASTORE. Is the Senator from Maine saying that the net effect of the Ellender amendment would be merely to cut out Presidential discretion?

Mr. MUSKIE. That is the effect.

So the question that confronts us is not the question of whether we want to approve an escalating arms race. It is the question, Should we never under any conceivable circumstances -- and we are talking about a 5-year period, because this is a 5-year authorization -- in the next 5 years ever permit our arms to become available to friendly and less developed countries on credit terms issued by the Export-Import Bank?

That is the question, and it represents, I think, the implementation of an unrestrained policy which has been decribed by the administration in these words:

We try to manage our arms sales policy to help our friends. to correct power imbalances, to counter Soviet arms sales, to use what leverage we have as a result of our arms policy to get countries to minimize their arms purchases.

The Ellender amendment would say that we should never implement that kind of a policy by using the Export-Import Bank and its credit facilities.

Mr. TOWER. Mr. President, will the Senator yield for a question?

Mr. MUSKIE. I yield for a question.

Mr. TOWER. Is it not true that usually when these countries present themselves to purchase arms, we try to dissuade them and, failing to dissuade them, we try to convince them to take a less expensive and less sophisticated type? Is it not true that we make every effort to cut down on the arms purchases and that we have rejected more sales than we have made?

Mr. MUSKIE. The Senator is correct. That is the thrust of the testimony that we have received over and over again before the committee.

Mr. TOWER. Therefore, we are able to influence them to keep their arms development in some semblance of control and balance.

Mr. MUSKIE. The Senator is correct. I submit that our influence in that connection would be greater if they know from time to time when, in our judgment, it is in our national interest to approve of the sale of arms to them.

Mr. PASTORE. Mr. President, will the Senator yield for a question?

Mr. MUSKIE. I yield for a question.

Mr. PASTORE. Mr. President, am I correct in my understanding that only the President of the United States can determine whether these arms shall be sold, and that the function of the Bank is merely to extend the credit once the decision is made by the President of the United States.

Mr. MUSKIE. The Senator is absolutely correct.

Mr. ELLENDER. Mr. President, I yield myself 1 minute.

The PRESIDING OFFICER. The Senator from Louisiana is recognized for 1 minute.

Mr. ELLENDER. Mr. President, my amendment would not prevent the Export-Import Bank from financing loans for military hardware to developed countries.

As I pointed out, we have in the law today authority for the President to spend as much as Congress will appropriate in order to assist our friends.

The Senator from Maine has just stated that the committee amendment will permit the sale of only $139 million of arms per year. There is no such language in the bill. It is true that it would be over a 5-year period, but under that amendment, the credit could be as much as a billion dollars in any one year.

Mr. MUSKIE. Mr. President, the Senator made that statement once before, and I will take 30 seconds to correct his interpretation of the bill.

The bill provides a total authorization for this purpose of 7½ percent of the total lending authority of the Bank. Applied to the $13.5 billion which would be the total lending authority of the Bank if the bill is enacted by Congress, the ceiling would then be a little over $1 billion, of which $604 million has already been committed, leaving $408 million for 5 years; and to that amount can be added annual repayments which are estimated at approximately $55 million per year. Adding those figures together, you get a total potential authorization for 5 years which amounts to an annual rate of $130 million.

Mr. ELLENDER. May I ask the Senator, if it is such a small amount, why not come back to Congress and let us know about it?

Mr. MUSKIE. If it is such a small amount, why does the Senator make such a big issue of it?

Mr. ELLENDER. The Senate may rest assured that in the event my amendment should be rejected, the Appropriations Committee is going to keep a close watch on this combination that has developed between the Department of Defense and the Eximbank. The manager of the bill [Mr. MUSKIE] has indicated what funds the bank will have available, on a yearly basis, to finance the exports of armaments to less developed nations. The formula approved by the Banking and Currency Committee will allow about $137 million a year for this purpose. I believe that every effort should be made by the Congress to keep this operation within that limit.

Mr. McINTYRE. Mr. President, I would like to make a few comments in explanation of my decision to support the bill reported by the Committee on Banking and Currency so far as it concerns the financing of country X loans by the Export-Import Bank. As I see it, there are two very different problems which are posed by the use of Exim credit for military sales to less developed nations.

The first problem deals with the effect of arms sales financing on the Export-Import Bank's capacity to handle its regular commercial business. This is a matter of proper and deep concern to the Committee on Banking and Currency. In the course of the hearings which the committee held, we were reassured that the country X transactions did not in any way interfere with the Bank's ability to make regular commercial credit available. I believe that the amendment to the bill which the committee has proposed will make doubly sure that country X transactions will not expand to the point where they will ever so interfere with the Bank's normal business.

The second problem is concerned with the more fundamental question of whether the United States should be in the arms business to begin with. Frankly, while I do have strong feelings on this subject, I did not and do not believe that the Committee on Banking and Currency is the proper forum in which to decide this issue. I do not believe that the Export-Import Bank Act is the proper vehicle to use for a resolution of this problem. For this reason, I have welcomed the attention paid to this issue by the Committee on Foreign Relations, and I look forward to the debate on the foreign aid bill, which I consider to be the most appropriate time to discuss the basic question of whether we should be in the business of supplying less-developed countries with weapons. I intend to vote against any amendments to the present bill which attempt to resolve that issue, because I do not believe the bill to be appropriate for the resolution of basic questions of American foreign policy.

Mr. President, I must state that I was dismayed with the lack of information which the executive branch has given to Congress in the past concerning the country X program. It is my belief that all such future transactions must be reported to the appropriate committees of the Congress -- Appropriations, Banking and Currency, Foreign Relations, and Armed Services -- so that all of us who are charged with responsibility for the various facets of this program may be kept well enough informed to make rational decisions on the future of these programs.

Mr. BYRD of West Virginia. Mr. President, the revealing debate over the Export-Import Bank's role in arms sales to underdeveloped nations can leave no doubt of the obligation on Congress to curtail such activity.

I agree wholeheartedly with the cogent observations which have been made by my distinguished colleague from Louisiana [Mr. ELLENDER] and I am in full support of his amendment prohibiting the Bank from using further funds to provide credit for arms sales to underdeveloped countries.

In my mind it is most unfortunate that the large number of existing arms contracts makes it prohibitive for us to consider the first amendment of which the Senator from Louisiana made mention yesterday. I, for one, feel strongly, as he does, that the Export-Import Bank should not play any role in arms sales.

It was most disturbing to learn of statements in 1964 by the Secretary of Defense -- statements which left the impression that arms sales would be made primarily through commercial banks in this country.

Even more upsetting, however, was the discussion of the system by which the Export-Import works blindly through the Department of Defense, not even knowing, in some cases, which countries are involved in the loans it guarantees.

Congress has a grave responsibility to put a damper on the arms race and to discourage especially those under developed nations which would do better to put food in the bellies of their peoples instead of guns in their hands.

The Export-Import Bank should go off with a heavy handicap in the military hardware race.

The PRESIDING OFFICER. The question is on agreeing to the amendment of the Senator from Louisiana, as modified.

The yeas and nays have been ordered, and the clerk will call the roll.

The legislative clerk proceeded to call the roll.

The result was announced -- yeas 40 - nays 49, as follows:

[ROLL CALL VOTE LISTING OMITTED]

So Mr. ELLENDER's amendment, as modified, was rejected.

Mr. MUSKIE. Mr. President, I move to reconsider the vote by which the amendment was rejected.

Mr. TOWER. I move to lay that motion on the table.

The motion to lay on the table was agreed to.

AMENDMENT No. 246

Mr. DIRKSEN. Mr. President, I call up my amendment No. 246.

The PRESIDING OFFICER. The amendment will be stated.

The assistant legislative clerk read the amendment, as follows:

On page 3, line 6, strike out all beginning with line 6 down to and including line 24 and insert the following:

"(2) The Bank in the exercise of its functions shall not guarantee, insure, or extend credit, or participation in any extension of credit (A) in connection with the purchase of any product by a Communist country (as defined in section 620(f) of the Foreign Assistance Act of 1961, as amended), or agency or national thereof, or (B) in connection with the purchase of any product by any other foreign country, or agency, or national thereof, if the product to be purchased by such other country, agency, or national is, to the knowledge of the Bank. principally for use in, or sale to, a Communist country (as so defined)."

Mr. DIRKSEN. Mr. President, the distinguished Senator from Iowa [Mr. MILLER] must attend a committee meeting. I ask unanimous consent that he be permitted to present two amendments now, one amendment to the bill, and one to my amendment.

I understand the committee is ready to accept one of these proposals, and perhaps both. I have no objection to the amendment he offers to my amendment, because it involves only one word which the Senator suggests to make it a little more lucid.

The PRESIDING OFFICER. Does the Senator from Illinois wish to temporarily set aside his amendment?

Mr. DIRKSEN. I would rather not. I would rather ask unanimous consent that this be done.

The PRESIDING OFFICER. Is there objection? The Chair hears none, it is so ordered.

Mr. COOPER. Mr. President, I was unable to hear the Senator. What is proposed?

Mr. DIRKSEN. The Senator from Iowa [Mr. MILLER] has two amendments. He must return to a committee hearing. I agreed to yield to him, if it is in order, so that he may offer these amendments, one to the bill and one to my amendment.

Mr. COOPER. I thank the Senator.

The PRESIDING OFFICER. The amendment of the Senator from Iowa will be stated.

The ASSISTANT LEGISLATIVE CLERK. The Senator from Iowa [Mr. MILLER] proposes an amendment on page 4, line 11, of the bill to insert the word "security" at the end thereof.

Mr. MILLER. Mr. President, this amendment would provide the determination by the President must be that such assistance or insurance as we have been discussing under the last amendment be in the national security interest. The way the bill reads now it is merely in the national interest.

If I detect the temper of the Senate correctly, we are very much concerned about the use of arms, and it is my guess that the Senate would be willing to agree if it is in the national security interest it would be proper.

I have cleared this matter and obtained the consent of the manager of the bill. If there are no questions, I move that the amendment be agreed to.

The PRESIDING OFFICER. The question is on agreeing to the amendment.

The amendment was agreed to.

Mr. MILLER. Mr. President, I wish to have a brief colloquy with my leader for a moment.

I am very much in favor of the pending amendment but I suggest it be modified on page 2, line 8, after the word "in" by inserting the word "by," to make it more inclusive than it now is.

Mr. DIRKSEN. Mr. President, I am glad to accept the modification to my amendment.

The PRESIDING OFFICER. The amendment of the Senator from Illinois [Mr. DIRKSEN] has been so modified. How much time does the Senator yield himself?

Mr. DIRKSEN. Mr. President, I yield myself 15 minutes.

The PRESIDING OFFICER. The Senator from Illinois is recognized for 15 minutes.

[INTERVENING DEBATE OMITTED]

Mr. MUSKIE. I thank the Senator from Kentucky.

May I say to the Senator from South Carolina that I will take 3 or 4 minutes to explain the amendment, so that the explanation may be in the RECORD, and then I understand that the Senator from Illinois will yield to the Senator from South Carolina.

Mr. President, there have been a number of explanations as to what the proposition before us is. As the representative of the committee which reported the bill to the floor, let me give the committee's explanation.

This bill is not a grant of authorization with respect to East-West trade. It is not an East-West trade bill. It does not in any way enlarge the authority of the Eximbank or any agency of the Government to engage in East-West trade, so-called.

The bill is a restriction upon the authority of the Eximbank to become involved in transactions which may, as their ultimate destination, result in the transfer of American goods to Communist third countries.

The restriction which is contained in the bill is a restriction which was authored by the distinguished Senator from Texas [Mr. TOWER], the ranking Republican member of the subcommittee, and the distinguished Senator from Iowa [Mr. HICKENLOOPER].

So we are not talking about authorization for East-West trade; we are not talking about an enlargement of authority to engage in East-West trade. We are talking about a bill which restricts present authority.

The entire question before us is whether that restriction is strong enough, whether it is sufficient, or whether it is too great in terms of the realities which confront us. I believe we should understand that, in the light of the other descriptions of the bill which have been given to the Senate this afternoon.

I read the language of the restriction as it appears in the bill:

It is further the policy of the Congress that the Bank in the exercise of its functions should not guarantee, insure, or extend credit, or participate in an extension of credit (A) in connection with the purchase of any product by a Communist country (as defined in section 620(f) of the Foreign Assistance Act of 1961, as amended), or agency or national thereof, or (B) in connection with the purchase of any product by any other foreign country, or agency, or national thereof, if the product to be purchased by such other country, agency, or national is, to the knowledge of the Bank, principally for use in, or sale to, a Communist country.

Mr. President, this language is followed by the provision that that prohibition may be waived by the President in his judgment if he considers it to be wise and in the national interest. This is a restriction on present policy. It is not a positive authorization to us to engage in East-West trade.

If we do become involved in transactions which can be described as East-West transactions, we will do so only as an exception to the policy of this bill and only in such instances as the President finds to be in the national interest.

I think that that description of the bill is essential at this point in the RECORD, so that Senators who read the RECORD may focus upon the real nature of the issue before us. I shall have more to say tomorrow about the broad questions raised in the debate up to this point.

Mr. President, we are involved in a discussion of vital national policy that will have a great deal to do not only with our national welfare, but also the prospects for peace in the world as a whole. The policies we adopt should be carefully considered; and as has been made clear, they will be.