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Working for the Nature of Tomorrow,

1412 Sixteenth Street, N.W., Washington, D.C. 20036-2266 (202) 797-6800









JUNE 16 1988



I appreciate the opportunity to testify this morning on behalf of the National Wildlife Federation concerning an initiative to quire preparation of environmental analyses of projects financed by the multilateral development banks.

The Federation is the nation's largest private conservation organization with over 5 million members and supporters, dedicated to the wise use and management of natural resources and protection of the global environment.

The Federation has been a leader in the campaign to reform the environniental policies and projects of the multilateral development banks (WDBS) since 1983. we have worked closely with the Environmental Defense Fund, the Sierra Club, Environmental Policy Institute, and others in this effort, and endorse the testimony of Bruce Rich and Larry Willians this morning, describing the HDBs' environmental problems that necessitated the campaign, and sone of the progress to date.

In addition, I served as legal counsel at the Council on Environmental Quality from 1979 to 1981 and worked with the Department of the Treasury in developing agency procedures to comply with the National Environmental Policy Act. I also represented the Environment Liaison Center, a worldwide network of enviornmental non-governmental organization (NGOs) headquartered in Nairobi, Kenya, in the deliberations on international guidelines for the

preparation of environmental impact analyses (EIA). These negotiations, sponsored by the United Nations Environment Programme (UNEP), have resulted in a set of guidelines recently adopted by the Governing Council of UNEP.

with this background in mind, I will try in my remarks today to put the Subcomittee's April 25, 1988 NEPA altendment proposal into context and reconmend some alternative ways to accomplish the same objective.

The Federation applauds the proposal's goal of assuring that i1DB projects receive thorough examination for environmental and social impacts, that alternatives be appropriately considered, and that the local people consulted, in the process of project design, implementation and evaluation. In fact, the multilateral development bank reform campaign has been designed specifically to accomplish this goal (See legislation attached). We appreciate the interest and support of the Subcommittee in this vital work. As has been amply documented in almost two dozen hearings since 1983, the projects financed by the MDBs have not been systematically reviewed for environmental and social impacts. Many have failed to deliver the econonic benefits promised, and at the same time have caused unacceptable environmental destruction, substantial increases in hurian disease, and further impoverishment of already poor peasant communities and tribal minorities. (See Financing Ecological Disasters.)

It is entirely appropriate for the United States, through congress and the Executive Branch, to exercise vigilance, seeking to ensure that funds it donates to the MDBs for assisting developing countries, do not instead endanger human life, reduce prosperity and destroy productive natural resources. Sound natural resource management is essential for sustainable development; and increased use of environmental impact assessments may lead to better resource management decisions.

Although the goal of making effective environmental impact analysis a regular part of MDB project approval clearly is shared by all of us here, it is not quite so easy to figure out how to achieve it. In fact, in 1983, the Environmental Poiicy Institute, National Wildlife Federation, and Natural Resources Defense Council where Bruce Rich worked at that time, prepared some draft language along the lines of the currently proposed amendment, which was considered by a Subconmittee of the House Banking Conmittee. At that time, even the threat of introducing such an amendment had the desired effect: hearings on the environmental and social impacts of MDB projects were scheduled inmediately (June, 1983); the process leading to the escalation of Congressional and Treasury Departnient attention to these issues, and subsequent changes within the rides, was suddenly underway.


But we did not press for the originally proposed legislation, partly because of the very real probleris posed by imposing NEPA or NEPA-type requirements on international activities. 1 We concentrated instead on the elements tliat are prerequisites to adequate EIA, such as increased staff expertise at the MDBS, and a requirement to consult local people and local environmental and health agencies.

One could argue that recently the Congress already has acted on the issue under discussion today, at least as far as its jurisdiction allows: in the 1987 authorizing legislation governing United States participation in the MDBS, the Congress required the Agency for International Development (AID) to "ensure" that agencies are instructed to analyze environmental impacts of MDB projects, well in advance of ican approval. (See Section 1303 of H.R. 3750, enacted as part of the Fiscal Year 1988 Continuing Resolution.)

This legislation is an inportant step. But it does not impose the specific requirements of ivePA, rior does it prohibit the United States from voting to approve projects that lack adequate environmental review. It is appropriate, therefore to revisit the original 1983 proposal, and analyze the current proposed NEPA amendment, to see if they are still needed and if the implementation problems earlier perceived can be overcome.

One of the most interesting things about the present proposal is that, because of its international context, it affects many different actors, most of whom the United States cannot control; it also aims at several objectives. For example, it is worthwhile to assure that the United States does not unwittingly vote for MDB projects causing serious demage to the natural resource base or which may jeopardize the lives of tribal minorities in the borrowing countries. And it is presumably our nation's right to take any measures we deem necessary to nake sure we do not con

1 There is no need here to go into the intricacies of the statutes which govern United States participation in the MDBS (See e.g. International Financial Institutions Act of 1977 (P.L. 95-118)). I am sure this Subcommittee is well aware of the fact that the MDBs are controlled by a Board of Governors, of which the United States is only one member, although it is the most powerful member in two of the banks. Suffice it to say that United States law can govern the actions of the Department of the Treasury, only by requiring it to promote certain policies or seek certain documents. Success in such endeavors can only be gained when the objectives of the United States are supported by cther countries as well.

tribute to such harm, including voting "no" on all projects or even leaving the MDBs.

But in addition, we want to encourage borrowing countries to do their own EIAs, and ultimately to propose better projects. An intermediate objective is to make sure the MDBs give good advice to the borrowers on sustainable development strategies, and that they ensure adequate EIAs of the projects they finance. As the proposed amendment recognizes, one tool to encourage attention to the environnental and social issues is to require the existence of an EIA (hopefully to be prepared by the borrower or relevant MDB) when the project comes up for a vote; then if it is not available, the United States cannot vote in favor of the project. Because of the importance of the U.S. vote (almost 20% at the World Bank; almost 35% at the Inter-American Development Bank), a U.S. legislative requirement to vote against projects which have no EIA cannot be ignored.

But note that the one institution we can control, the United State Department of the Treasury, is the least important actor in the long chain of responsibility to assure that projects in the borrowing countries are environmentally sustainable.

It is risky to announce goals that one does not have the power to carry out. Moreover, it is possible (though unlikely) that a United States demand for EIAs could be ignored completely, by the banks and the borrowers: one effect of the amendment might be to force the United States to reduce or eliminate its participation in the MDBs. Even though this result is unlikely to occur, no threat should be made or implied if we do not intend to carry it out.

Therefore, I am not sure we should concentrate so much on the logistical problems of whether the Department of the Treasury can or should prepare EISs, or whether the MDBs can or should provide the necessary documents to Treasury. The key question is: will the proposed amendment to NEPA make it more likely or less likely that borrowing countries will carry out their own EIAS and take the reports seriously in their own development planning? I do not think any of us knows the answer to that question; but I would feel better if we knew more about how to answer it before enbarking on an amendment to NEPA. I would therefore propose that the Subcommittee ask Treasury and CEQ to sound out the views of government officials involved in EIA from a selection of borrowing countries.

Some Problems Raised by the Proposed Amendment:
The proposal to apply NEPA to the MDBs has much to recommend it.
Obviously, environmental impact analyses should be done. They


would help the MDBs avert both large environmental disasters, and small avoidable losses of natural resources. Many countries around the world already have laws requiring environmental impact studies and routinely analyze new projects (Mexico and Brazil for example).

The United States has been a leader in developing environmental legislation and the techniques of impact analysis. Thus it is expected this country should take the lead in advancing international environmental agreements.

But there are at least two problems with the current proposal that need to be addressed. First, there is a great deal of confusion about how the amendment would be implemented. The draft language proposed by Tom Stoel of Natural Resource Defense Council is admirably clear and simple on most points. But it still does not clarify what entity is responsible for preparing the statements. Under NEPÀ as ii cupiies with: the United States, the agency preparing a "reconuzendation or i port" is responsible for seeing that the EIS is prepared, although it may delegate the work or hire contractors. In the present proposal, however, no one I have talked to expects the Department of the Treasury actually to prepare or even oversee the necessary documents. We all seem to assume that the world Bank or other MDBs will do it, without having any ability actually to order it to be done. TO make matters more confusing, I originally hoped the analysis provided to Treasury would be done by the borrowing country since, in fact, many project proposals submitted to the MDBs now contain an environmental impact analysis by the proponent country. But apparently the World Bank considers these to be confidential docunents. (I do not know how this is treated by the other MDBS). Changing that set-up would be another good legislative objective; but it cannot be accomplished except by agreement of the world Bank Board. In any event, the amendment as currently proposed leaves it unclear who is going to do the required work, or how the law could be enforced, except by withdrawing the United States from MDB participation.

The second problem is more fundamental. NEPA is a uniquely American statute. It works only because of the characteristics of the rest of our legal system. It is a procedural statute, which requires consideration of certain values and resources; but it does not demand or prohibit any specific action or decision. It works in a particularly American way, relying on public participation for enforcement. The requirement to prepare the EIS itself is not the crucial part of NEPA. More important are the requirements to look at alternatives and consider public comments. What makes it all work is the right of citizens to stop a project through litigation if the EIS is not adequate. There are thousands of legal cases where projects have been delayed, altered or stopped because of NEPA. Obviously, I and my

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