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Washington, DC 20548:

United States General Accounting Office:

February 27, 2004:

The Honorable Henry J. Hyde:

Chairman:

The Honorable Tom Lantos:

Ranking Minority Member:

Committee on International Relations:

House of Representatives:

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

In fiscal year 1999, Congress began authorizing the provision of U.S. 
foreign assistance funds to support programs aimed at strengthening 
democracy in China,[Footnote 1] and, in fiscal year 2002, it began 
appropriating specific amounts for such programs.[Footnote 2] However, 
the provision of foreign assistance funds to programs focusing on China 
continues to be controversial due to concern about some of the Chinese 
government's human rights practices and certain of its economic, 
political, and security policies. In your request to us and in 
subsequent meetings with your staff, you expressed concern about the 
lack of a complete picture of U.S. funding for democracy-related 
programs focused on China.

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

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

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

Results in Brief:

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

Background:

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

Beginning with fiscal year 1999, Congress began authorizing the use of 
Economic Support Funds[Footnote 4] to support China-focused democracy 
programs, so long as the funds went to nongovernmental organizations 
located outside China.[Footnote 5] In addition, in the October 2000 law 
that approved the normalization of U.S.-China trade relations, Congress 
authorized the Departments of State, Labor, and Commerce to initiate 
rule of law programs in China.[Footnote 6] In appropriations language 
for fiscal 2002,[Footnote 7] Congress dropped the limitation that 
grants from Economic Support Funds could be provided only to 
organizations located outside China and directed that "not less than" 
a specific amount ($10 million) be made available for programs aimed 
at supporting democracy, human rights, and the rule of law in China. 
For fiscal year 2003, Congress appropriated not less than an 
additional $15 million for such programs. In appropriations acts and 
accompanying congressional committee reports, Congress directed that 
certain amounts of these funds be used to expand State and National 
Endowment for Democracy[Footnote 8] grants.[Footnote 9]

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

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

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

(Dollars in thousands).

Agency/bureau; Department of State[A]; Bureau for Democracy, Human 
Rights, and Labor Grants;
Fiscal year 1999: [Empty];
Fiscal year 2000: [Empty];
Fiscal year 2001: [Empty];
Fiscal year 2002: $3,827[B]; 
Fiscal year 2003: $5,306; 
Total: $9,133. 

Agency/bureau; Department of State[A]; Bureau for East Asia and 
Pacific Affairs Grants;
Fiscal year 1999: [Empty];
Fiscal year 2000: [Empty]; 
Fiscal year 2001: $2,135;
Fiscal year 2002: $2,300; 
Fiscal year 2003: $3,155; 
Total: $7,590. 

Agency/bureau; Department of State[A]; Bureau for International 
Narcotics and Law Enforcement Affairs;
Fiscal year 1999: [Empty];
Fiscal year 2000: [Empty];
Fiscal year 2001: $489; 
Fiscal year 2002: $476; 
Fiscal year 2003: [Empty];
Total: $965. 

Agency/bureau; Total State: $
Fiscal year 1999: [Empty];
Fiscal year 2000: [Empty];
Fiscal year 2001: $2,624; 
Fiscal year 2002: $6,603; 
Fiscal year 2003: $8,461; 
Total: $17,688. 

Agency/bureau; National Endowment for Democracy; 
Fiscal year 1999: $1,887; 
Fiscal year 2000: $2,662; 
Fiscal year 2001: $3,096;
Fiscal year 2002: $3,144;
Fiscal year 2003: $4,228;
Total: $15,017.

Agency/bureau; Department of Labor, Bureau for International Labor 
Affairs;
Fiscal year 1999: [Empty];
Fiscal year 2000: [Empty];
Fiscal year 2001: [Empty];
Fiscal year 2002: $6,400; 
Fiscal year 2003: [Empty];
Total: $6,400. 

Total; 
Fiscal year 1999: $1,887; 
Fiscal year 2000: $2,662; 
Fiscal year 2001: $5,720; 
Fiscal year 2002: $16,147; 
Fiscal year 2003: $12,689; 
Total: $39,105.

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

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

[B] Includes $75,000 provided by State's Bureau of Oceans and 
International Environmental and Scientific Affairs.

[End of table]

Department of State:

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

In 2002 and 2003 the Bureau for Democracy, Human Rights, and Labor 
approved nearly $9.1 million in China-focused grants through the 
Bureau's Human Rights and Democracy Fund.[Footnote 12] According to 
State, grants made through this fund are intended to "uphold democratic 
institutions, promote human rights, and build civil society in 
countries and regions of the world that are geo-strategically critical 
to the U.S." State classifies approximately half of the assistance 
provided through the fund over the last 2 years as legal reform 
programs intended to address, among other things, China's need for 
improved court proceedings, increased professionalism among lawyers and 
judges, and enhanced capacity for providing legal services to the 
disadvantaged. Several of State's grants support work to be undertaken 
in cooperation with Chinese government entities and/or with academics, 
consulting firms and nongovernmental organizations in China. For 
example, one project includes support for working with the Supreme 
People's Court, the National People's Congress and other counterparts 
to promote criminal defense reforms in China; another project funds a 
partnership between an American university and a legal reform 
consulting firm operating in China to help develop China's system for 
providing legal aid in rural communities.

Other rule of law efforts were funded through the Bureau for East Asia 
and Pacific Affairs, which granted about $7 million to the Temple 
University School of Law to support legal education activities in 
China.[Footnote 13] This Bureau also provided $175,000 to the U.S. 
Embassy in Beijing for a small grants program focused on enhancing the 
rule of law;[Footnote 14] and, in fiscal year 2001, it provided 
$385,000 to the American Bar Association to strengthen the legal 
framework for and civil society participation in protecting China's 
environment.[Footnote 15] In addition, the Bureau for International 
Narcotics and Law Enforcement Affairs provided $965,000 for a resident 
legal adviser in the U.S. Embassy in Beijing for a 2-year term, ending 
in August 2004.[Footnote 16] The advisor's mission is to engage with 
Chinese counterparts to stimulate justice sector reforms through (for 
example) bilateral discussions and programs focusing on substantive and 
procedural criminal and civil law topics.

National Endowment for Democracy:

During fiscal years 1999 to 2003, the Endowment awarded more than $15 
million in grants aimed at enhancing democracy in China--about 
38 percent of total U.S.-government funded support for democracy-
related programs during this period. Because appropriations to the 
Endowment did not preclude it from making grants focusing on China, it 
was able to make grants for such purposes prior to fiscal year 1999. 
For example, the Endowment reported granting about $2.5 million for 
China programs and projects during fiscal year 1998. Endowment 
officials noted that these grants were made using the organization's 
"core" appropriations, which are noncountry specific. Since fiscal year 
1999, the Endowment has continued to grant more than $2 million per 
year (on average) for China-related programs from its annual core 
appropriations. In addition, however, State has transferred nearly $8 
million to the Endowment for China-specific grants and, beginning in 
2001, the Endowment has used these funds to increase its total grant 
volume for China-focused projects by about $808,000 per year, on 
average. Endowment officials stated that these additional funds have 
not dramatically changed the orientation or character of Endowment 
support for programs in China. While noting that the Endowment's 
highest priorities for China are human rights and the free flow of 
information, these officials observed that the Endowment supports 
activities in a variety of areas, including human rights (documentation 
and advocacy) and independent media, as well as labor rights, electoral 
and legal reform, policy analysis by independent think tanks, and 
promotion of free markets.[Footnote 17]

Department of Labor:

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

Agency Comments:

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

Scope and Methodology:

To determine how much funding the U.S. government has provided for 
democracy-related programs in China during fiscal years 1999 to 2003, 
and to identify the agencies responsible for administering the funds 
and the intended purposes of the programs they support, we reviewed 
relevant program documentation and met with cognizant officials at the 
Departments of Commerce, Labor, and State; the National Endowment for 
Democracy; and the U.S. Agency for International Development. We also 
met with officials at several major grantees, including the Temple 
University School of Law and the American Bar Association. We asked the 
organizations how much funding they had provided based on their 
definitions of democracy-related programs.

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

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

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

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

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

Signed by: 

Jess T. Ford, Director:

International Affairs and Trade:

Enclosure:

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

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

United Nations Organizations:

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

Multilateral Development Banks:

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

(320221):

FOOTNOTES

[1] Pub. L. No. 105-277,  527.

[2] Pub. L. No. 107-115,  526.

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

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

[5] In the wake of the Chinese government's 1989 crackdown on 
demonstrators in Tiananmen Square, Congress adopted a number of 
restrictions on U.S. economic relations with China. Among other things, 
Title IX of the Foreign Relations Authorization Act of 1990 (Pub. L. 
No. 101-246, 104 Stat. 80) suspended obligations of foreign assistance 
funds for new activities of the Trade and Development Program, and 
issuance of Overseas Private Investment Corporation guarantees or other 
support for investments in China. Also, until recently, annual Foreign 
Operations Appropriations Acts prohibited indirect assistance to China-
-for example, Pub. L. No. 105-118,  523.

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

[7] Pub. L. No. 107-115,  526.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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