We are encouraged by the progress that the World Bank, in particular, has made in strengthening the environmental assessment process. Mr. Conable has taken strong leadership. I have met with Mr. Ken Piddington who is the new head of the Environment Department at the World Bank. I have spoken to a number of people on different geographic desks within the World Bank.

Although they are not fully there yet, they are genuinely moving. It seems to me that perhaps the top priority should be to get the regional MDB's to advance to the stage at which the World Bank already finds itself.

Finally, I would like briefly to mention what we see as a longerterm future objective. You heard from Mr. Reilly about the desirability of the World Bank not just lending for development per se but for lending for sustainable development and even beyond sustainable development, focusing on the sustainability aspect.

The World Bank is uniquely situated to make loans with a very long-term perspective which aids the borrowing country in developing its infrastructure, its institutions, so that long-term environmental consequences can be taken into account. It seems to me this has to be one of our ultimate objectives.

Another long-term objective has to be integrating developing countries' own development strategies with lending by the MDB's, with United States and other developed countries' development assistance programs, with private financing by private banks and private sector corporations, and, finally and very importantly, with the activities of various non-governmental organizations, some of which you have already heard from and some of which you will hear from in the future.

Thank you.

Senator BAUcus. Thank you, Mr. Nitze.

Senator Durenberger was here earlier, and he wanted the Chair to mention his interest in the issue. He is now involved in negotiations with welfare reform, ongoing negotiations which I hope will conclude today.

Mr. Hill, precisely how far would you go in applying NEPA to MDB loans?

As I listen to all the witnesses, I tend to hear an agreement in the abstract with the Symms proposition but some disagreement with the Symms amendment in the concrete, that is, there are variations here among the witnesses as to how far we should go. A previous panelist, I think, said we should go all the way. I think that was Professor Robinson.

How far do you think we should go in applying NEPA? There are various gradations or degrees.

Mr. HILL. Let me use as an analogy the NEPA process in our country now where agencies make their own decision as to classes of actions for which there will be nothing done. They are categorically excluded. These are generally minor, repetitive actions, typically replacing culverts on a road system in part of a national forest, that type of thing.

There is an exception, however. If a decision maker knows there will be a significant environmental impact from one, then it is triggered through the other part of the process in which an environ

mental assessment is done and the decision as to go or no go on the full blown environmental impact statement.

Senator BAUCUs. And how long does it take to prepare that EA, environmental assessment, generally?

Mr. HILL. Two weeks to sixty days.

Senator BAUCUS. I thank you.

Mr. HILL. The reason I am bringing this example up is I believe that this process must grow from the banks themselves, and as they go through the process, they should be deciding what classes of actions would require a full blown environmental impact assessment or whatever we want to call it rather than an outside body, such as the United States, saying it must be this, this, and this. It should flow from within the organization.

Senator BAUCUS. Correct me if I am wrong, but isn't that the process today under NEPA, the agency makes the decision?

Mr. HILL. Yes. They will bring in the list of categorically excluded activities. They will publish that in the Federal Register and get public comments on that before they finalize it.

Senator BAUCUs. Therefore, so far, as we are going down the road here, you would apply NEPA to MDB loans, so far. Mr. HILL. Yes.

Senator BAUCUS. Where would you not apply NEPA? What parts of NEPA?

Mr. HILL. I am not an expert on MDB's, but if it is typical of what I have seen in Federal agencies, there is a level of activity beyond which there are not significant environmental impacts. What I am saying is that each of the MDB's should be drawing that threshold or laying that threshold themselves.

Senator BAUCUs. What is wrong with that, Mr. Nitze?

Mr. NITZE. Mr. Chairman, I support the idea that the United States should urge the MDB's to develop a more formal environmental assessment process within the MDB. It seems to me and to the Department that the place where the assessment should take place is within the MDB.

Now, obviously, the U.S. executive director is going to have to cast his vote based on advice he receives from the U.S. Government, Treasury in particular, based on all of the considerations, but――

Senator BAUCUs. Under current law, an agency could contract out the development, at least, of the EIS. I don't know whether they do EA's, but I don't want to get hung up on whether it is within the agency itself.

What you are saying is so far, you think the application of NEPA, at least insofar as requiring environmental assessment is appropriate? Is that what you are saying?

Mr. NITZE. Mr. Chairman, the distinction I am trying to make is asking the Treasury Department or a Treasury Department contractor or some other agency of the U.S. Government to separately prepare an environmental assessment or an EIS before deciding whether or not to vote in favor of the specific project as one member of the governing body of the World Bank or another MDB and requiring the MDB itself or at least urging the MDB itself to develop an environmental assessment which would then be made

available to all of the executive directors or other people who actually would be voting on the project.

Senator BAUCUS. And you favor which alternative?

Mr. NITZE. I favor the latter alternative.

Senator BAUCUs. What jurisdiction do we have to require the latter alternative?

Mr. NITZE. We don't have any legal jurisdiction, Mr. Chairman. I think what we can do, however, is exercise considerable leverage because of our shareholdings in the bank, because of our role as a major donor nation, because of our relationship with other donor nations, and because of a number of bilateral relationships we have with the developing countries that are requesting these loans, and I think that process is well underway.

Senator BAUCUS. Mr. Malpass, you in the conclusion of your statement said that you think, in fact, the Symms amendment will harm our efforts.

Mr. MALPASS. Yes, sir.

Senator BAUCUs. Will hurt our efforts in encouraging countries to pay more attention to environmental concerns. I didn't quite understand why you reached that conclusion or how you reached that conclusion.

Mr. MALPASS. I am sorry if my summary wasn't as clear, perhaps, as the statement. The reason for that has to get into the U.S. influence within the MDB's.

I was listening to the earlier panel, and I would like to explain a little bit how they operate, because I think there is a little bit of misunderstanding on that.

The United States is a minority share-holder in all of the MDB's. Our greatest share is in the Inter-American Development Bank, but it runs down to only 6 percent in the African Development Bank. So, our influence on any particular topic is necessarily limited.

In fact, the effect of our vote in the boards of directors of these organizations is limited as well. The way that we are most effective in the organizations is when we try to bring other members along with us on any particular tonic or issue.

To the extent that other members see the United States as voting mechanically because of a Congressional mandate, as voting for or against something on a basis that is entirely internalized in the U.S. system, they will discount the U.S. participation in the organizations. So, if you were to apply a NEPA standard, a U.S. oriented standard to the calculation of our vote, it would completely eliminate the meaning of our vote, because other members would look at it and say well, the U.S. is voting according to its law. So, it would have no actual feedback to the field where these loans are having an effect.

Senator BAUCUs. If I might on that point, it is my understanding that the requirement of NEPA to Federal agency decision making, at least insofar as an AS or an EIS is required, has the effect of doing the precise opposite, that is, of internalizing those considerations within the Federal agency. The question arises as to the degree to which an agency decides against a decision because the EIS shows significant environmental damage.

Under the law, the agency does not have to directly consider the implication of the EA or EIS. The agency can still go ahead and make the decision. The law just requires that the statement be made available.

Nevertheless, the EA and the EIS do have the effect of internalizing the decision making within the agency. It is not a hard and fast draw the red line effect, it is blurred, and those considerations are internalized.

So, I would think that if an EA were required or to some degree we went down this road that the United States decision would also be internalized. That is, the environmental concerns would also be internalized, and the United States Government would then be negotiating with or at least communicating with the potential borrowing country directly or indirectly, and these things have a way of working themselves out so that the United States response would not be automatic.

There would not be an automatically imposed legislative result, that is, it would be very much in the negotiating process but with an added dimension, an environmental dimension.

Mr. MALPASS. That type of process is actually already going on in that there is a working group that meets weekly where EPA, AID, and other organizations can feed their views into the process. In fact, the views of environmental groups are welcomed in that proc

ess.

That process does come up with an environmental assessment-I am talking in small letters-and that provides a very effective means for the United States to work within the organizations.

I think maybe our difference here is in one of priorities. Our priority at this point is to actually get the organizations to use the information that we already have and to get other governments to agree with us and to help develop more information-the United States is already far out in front of other countries within the MDB's in our environmental impact within the organizations.

Again referring back to the previous panel, I heard some discussion of the Dutch representatives being very conscious of environmental situations. That is true, they are. However, number one, they don't have the assessment and review process that the United States does and, number two, they never vote against loans in the organizations on environmental grounds and, number three, they don't make any environmental assessment of MDB loans based on their own domestic law or their own legal considerations.

So, while we can talk about other countries as being environmentally sensitive, they really haven't been as effective in the MDB's as the United States has been.

Senator BAUCUS. Thank you very much.

Senator Symms?

Senator SYMMS. Thank you very much.

Just to pursue that, Mr. Chairman, I think you really got right to what I think is the point I would like to clarify between Mr. Malpass or any of you that might want to comment and certainly Mr. Hill.

I think what my amendment is aiming to do is to allow more informational scrutiny. If it is all internalized, don't you deny the

ability of the informational aspects of it from the internal scrutiny?

Mr. Hill, you are Chairman of the Council on Environmental Quality. What would your view on it be? Isn't that the thrust of what we are trying to get at?

Mr. HILL. That is one of the underlying principles in NEPA, and it also flows through-my testimony, the part I cut out, refers to the United Nations environment program principles and guidelines for environmental impact assessment. That effort took ten years to complete. All 58 member nations of the Governing Council-north, south, east, west, developed, undeveloped, developing-adopted those unanimously.

They call for some basic things: that each country adopt a process, it be an open process, it be a process which allows and encourages public participation, and each country define what is a significantly affecting the environment activity.

Senator SYMMS. But you are saying open process.

Mr. HILL. Open process.

Senator SYMMS. So, ultimately, then, Treasury is going to have to reckon with this.

Mr. HILL. That is why it is going to have to flow from the MDB's. We should be encouraging adoption of the approaches in the goals and principles but working with the other members.

Senator SYMMS. Now, you make the point, Mr. Hill, to discourage applying inappropriate or inapplicable domestic NEPA requirements to an MDB loan.

Mr. HILL. Yes.

Senator SYMMS. Conversely, aren't there some aspects of our NEPA experience that would be very helpful in this process, and if we were to require some sort-a modified version or some version-of a NEPA loan, would that necessarily mean an EIS for every loan? Would it have to?

Mr. HILL. It wouldn't have to, no. It wouldn't necessarily have to. I hesitate to get any more-I know you are trying to get me to be more definite. I hope you understand I am trying not to, because I don't have the expertise to sit here and make a judgment that it should apply to this loan or that loan or the other loan. That should be a process through which the bureaucracy within the MDB comes up and makes those decisions.

Senator SYMMS. Generally speaking, what would be the impacts that would trigger the necessity for an EIS on a loan in a general sense?

Mr. HILL. A significant environmental impact. As I said, using the example of the U.S. Forest Service, replacement of culverts on an existing road system is categorically excluded and does not trigger the process, because we have already done that. If we are building a new road system, we will want to do an assessment first and make a decision whether we need to do an EIS.

That is unique to our country, and I don't know that all those steps have to be in a process that works at a bank.

Senator SYMMS. Mr. Edwards, what pitfalls do you see in an environmental review within an institution that is not made available to the public, in other words, if it is internalized too much within. an MDB?