a dependable undertaking (1) to pay the full amount of such contract which will assure the United States Government against any loss on the contract, and (2) to make funds available in such amounts and at such times as may be required to meet the payments required by the contract and any damages and costs that may accrue from the cancellation of such contract, in advance of the time such payments, damages, or costs are due. Interest shall be charged on any net amount by which any such country or international organization is in arrears under all of its outstanding unliquidated dependable undertakings, considered collectively. The rate of interest charged shall be a rate not less than a rate determined by the Secretary of the Treasury taking into consideration the current average market yield on outstanding short-term obligations of the United States as of the last day of the month preceding the net arrearage and shall be computed from the date of net arrearage.69

(b) The President may, if he determines it to be in the national interest, issue letters of offer under this section which provide for billing upon delivery of the defense article or rendering of the defense service and for payment within one hundred and twenty days after the date of billing. This authority may be exercised, however, only if the President also determines that the emergency requirements of the purchaser for acquisition of such defense articles and services exceed the ready availability to the purchaser of funds sufficient to make payments on a dependable undertaking basis and submits both determinations to the Congress together with a special emergency request for authorization and appropriation of additional funds to finance such purchases under this Act.70 Appropriations available to the Department of Defense may be used to meet the payments required by the contracts for the procurement of defense articles and defense services and shall be reimbursed by the amounts subsequently received from the country or international organization to whom articles or services are sold.

(c) 71 The provisions of the Renegotiation Act of 1951 do not apply to procurement contracts, heretofore or hereafter entered into under this section, section 29, or predecessor provisions of law.

69 The words beginning with "Interest shall be charged on any net amount were added by sec. 207(a) of the International Security Assistance and Arms Export Control Act of 1976 (Public Law 94-329; 90 Stat. 738).

70 Sec. 207(b) of the International Security Assistance and Arms Export Control Act of 1976 (Public Law 94-329; 90 Stat. 738) amended subsec. (b) by striking out the first sentence and adding in lieu thereof the words to this point. The first sentence of subsec. (b) formerly read as follows: "(b) The President may, when he determines it to be in the national interest, accept a dependable undertaking of a foreign country or international organization with respect to any such sale, to make full payment within 120 days after delivery of the defense articles or the rendering of the defense services.".

Sec. 1007(bX5) of the DOD Authorization Act, 1985 (Public Law 98-525; 98 Stat. 2579) waived the requirement under sec. 22 for payment in advance of delivery with respect to the purchase by the Federal Republic of Germany of one Patriot missile fire unit.

71 Subsec. (c), as added by sec. 17 of the International Security Assistance Act of 1978 (Public Law 95-384; 92 Stat. 740), was amended and restated by sec. 105/bx2) of the International Security and Development Cooperation Act of 1980 (Public Law 96-553; 94 Stat. 3134). It formerly read as follows:

"(c) The provisions of the Renegotiation Act of 1951 do not apply to contracts for the procurement of defense articles and defense services heretofore or hereafter entered into under this section or predecessor provisions of law.".

Sec. 23.72, 73 Credit Sales.-(a) 74 The President is authorized to finance the procurement of defense articles, defense services, and

72 22 U.S.C. 2763. Sec. 23 was amended and restated by sec. 102 of the International Security and Development Cooperation Act of 1985 (Public Law 99-83; 99 Stat. 195). It previously read as follows:

"The President is authorized to finance procurements of defense articles, defense services, and design and construction services by friendly foreign countries and international organizations on terms requiring the payment to the United States Government in United States dollars of

(1) the value of such articles or services within a period not to exceed twelve years after the delivery of such articles or the rendering of such services; and

"(2) interest on the unpaid balance of that obligation for payment of the value of such articles or services, at a rate equivalent to the current average interest rate, as of the last day of the month preceding the financing of such procurement that the United States Government pays on outstanding marketable obligations of comparable maturity, unless the President certifies to Congress that the national interest requires a lesser rate of interest and states in the certification the lesser rate so required and the justification therefor.".

Prior to that, sec. 45a12) of the FA Act of 1974 amended sec. 23, which formerly read as follows: "Sec. 23. Credit Sales-The President is hereby authorized to finance procurements of de fense articles and defense services by friendly countries and international organizations on terms of repayment to the United States Government of not less than the value thereof in the United States dollars within a period of not to exceed ten years after the delivery of the defense articles or the rendering of the defense services.".

13 Sec. 101b) of the International Security and Development Cooperation Act of 1985 (Public Law 99-88, 99 Stat. 193) provided an authorization for each of the fiscal years 1986 and 1987 of $5,371,000,000 to carry out sec. 23 and set a ceiling of $553,900,000 for each fiscal year of the amount that may be made available at concessional interest rates.

Congress did not enact an authorization for fiscal year 1993. Instead, the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1993 (Public Law 102-391), waived the requirements for authorization, and title III of that Act (106 Stat. 1653) provided the follow

ing

"FOREIGN MILITARY FINANCING PROGRAM

"For expenses necessary for grants to enable the President to carry out the provisions of section 23 of the Arms Export Control Act, $3,300,000,000: Provided. That of the funds appropriated by this paragraph not less than $1,800,000,000 shall be available for grants only for Israel, and not less than $1,300,000,000 shall be available for grants only for Egypt: Provided further, That the funds appropriated by this paragraph for Israel shall be disbursed within thirty days of enactment of this Act or by October 31, 1992, whichever is later: Provided further, That to the extent that the Government of Israel requests that funds be used for such purposes, grants made available for Israel by this paragraph shall, as agreed by Israel and the United States, be available for advanced fighter aircraft programs or for other advanced weapons systems, as follows: (1) up to $150,000,000 shall be available for research and development in the United States; and (2) not less than $475,000,000 shall be available for the procurement in Israel of defense articles and defense services, including research and development: Provided further. That not leas than $40,000,000 of the funds provided under this paragraph shall be available for Morocco: Provided further. That funds made available under this paragraph shall be nonrepayable notwithstanding any requirement in section 23 of the Arms Export Control Act.

"For the cost, as defined in section 13201 of the Budget Enforcement Act of 1990, of direct loans authorized by section 23 of the Arms Export Control Act as follows: cost of direct loans, $149,000,000 Provided. That these funds are available to subsidize gross obligations for the principal amount of direct loans of not to exceed $855,000,000: Provided further, That funds appropriated under this heading shall be made available for Greece, Portugal, and Turkey only on a loan basis, and the principal amount of direct loans for each country shall not exceed the follow* $315,000,000 only for Greece, $90,000,000 only for Portugal, and $450,000,000 only for Turkey Provided further. That direct loans subsidized under this paragraph may be made available at concessional rates of interest: Provided further, That the concessional rate of interest on Foreign Military Financing Program loans shall be not less than 5 per centum per year. In addition, for administrative expenses necessary to carry out the direct loan program, $200,000, which may be transferred to and merged with funds deposited by foreign purchases for adminis trative expenses pursuant to sections 43(b) and 43(c) of the Arms Export Control Act.

"None of the funds made available under this heading shall be available to finance the procurement of defense articles, defense services, or design and construction services that are not sold by the United States Government under the Arms Export Control Act unless the foreign country proposing to make such procurements has first signed an agreement with the United Mtates Government specifying the conditions under which such procurements may be financed with auch funds Provided. That all country and funding level changes in requested allocations ahall be submitted through the regular notification procedures: Provided further. That funds made available under this heading shall be obligated upon apportionment in accordance with paragraph (XC) of title 31. United States Code, section 1501(a): Provided further. That_none of The Kinda appropriated under this heading shall be available for Zaire, Sudan, Liberia, Somalia, Guatemala, Peru, and Malawi: Provided further. That not more than $300,000,000 of the funds made available under this heading shall be available for use in financing the procurement of

Continued

defense articles, defense services, or design and construction services that are not sold by the United States Government under the Arms Export Control Act to countries other than Israel and Egypt: Provided further, That only those countries for which assistance was justified for the 'Foreign Military Sales Financing Program' in the fiscal year 1989 congressional presentation for security assistance programs may utilize funds made available under this heading for procurement of defense articles, defense services or design and construction services that are not sold by the United States Government under the Arms Export Control Act: Provided further, That funds appropriated under this heading shall be expended at the minimum rate necessary to make timely payment for defense articles and services: Provided further, That the Department of Defense shall conduct during the current fiscal year nonreimbursable audits of private firms whose contracts are made directly with foreign governments and are financed with funds made available under this heading (as well as subcontractors thereunder) as requested by the Defense Security Assistance Agency: Provided further, That not less than $1,000,000 of the funds appropriated under this heading should be made available for landmine clearing and related activities: Provided further, That not more than $26,000,000 of the funds appropriated under this heading may be obligated for necessary expenses, including the purchase of passenger motor vehicles for replacement only for use outside of the United States, for the general costs of administering military assistance and sales: Provided further, That not more than $300,000,000 of funds realized pursuant to section 21(eX1XA) of the Arms Export Control Act may be obligated for expenses incurred by the Department of Defense during the fiscal year 1993 pursuant to section 43(b) of the Arms Export Control Act, except that this limitation may be exceeded only through the regular notification procedures of the Committees on Appropriations: Provided further, That none of the funds appropriated under this heading, and no employee of the Defense Security Assistance Agency, may be used to facilitate the transport of aircraft to commercial arms sales shows.". Title V of that Act provided the following at 106 Stat. 1659, 1666, 1675, and 1689:

"SEC. 515. (a) *

"DEOBLIGATION/REOBLIGATION AUTHORITY

"(b) Obligated balances of funds appropriated to carry out section 23 of the Arms Export Control Act as of the end of the fiscal year immediately preceding the current fiscal year are, if deobligated, hereby continued available during the current fiscal year for the same purpose under any authority applicable to such appropriations under this Act: Provided, That the authority of this subsection may not be used in fiscal year 1993.

"SEC. 532. (a) •

"ENVIRONMENT

"(h) of the funds appropriated by this Act to carry out the provisions of section 23 of the Arms Export Control Act, not less than $15,000,000 shall be made available to countries in Africa for programs which support conservation and biological diversity.

"SEC. 556. (a)

"NARCOTICS CONTROL PROGRAM

"(d) For purposes of satisfying the requirement of section 484 of the Foreign Assistance Act of 1961, funds made available by this Act for the purposes of section 23 of the Arms Export Control Act may be used to finance the leasing of aircraft under chapter 6 of the Arms Export Control Act.

"SEC. 587. (a)

RESCISSION

"(c) of the funds made available (including earmarked funds) in Public Law 101-513 and prior Acts making appropriations for foreign operations, export financing, and related programs to carry out the provisions of section 23 of the Arms Export Control Act and section 503 of the Foreign Assistance Act of 1961, $45,750,000 are rescinded.".

For text of provisions on Foreign Military Sales Debt Reform in the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1988 (Public Law 100-202, sec. 101(e)), see page 712.

74 The Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1993 (Public Law 102-391; 106 Stat. 1676), provided the following:

"COMMERCIAL leasing of defense arTICLES

"SEC. 558. Notwithstanding any other provision of law, and subject to the regular notification requirements of the Committees on Appropriations, the authority of section 23(a) of the Arms

Continued

design and construction services by friendly foreign countries and international organizations, on such terms and conditions as he may determine consistent with the requirements of this section. Notwithstanding any other provision of law, and subject to the regular notification requirements of the Committees on Appropriations, the authority of this section may be used to provide financing to Israel and Egypt for the procurement by leasing (including leasing with an option to purchase) of defense articles from United States commercial suppliers, not including Major Defense Equipment (other than helicopters and other types of aircraft having possible civilian application), if the President determines that there are compelling foreign policy or national security reasons for those defense articles being provided by commercial lease rather than by government-to-government sale under this Act.75

(b) The President shall require repayment in United States dollars within a period not to exceed twelve years 76 after the loan agreement with the country or international organization is signed on behalf of the United States Government, unless a longer period is specifically authorized by statute for that country or international organization.

(c)(1) The President shall charge interest under this section at such rate as he may determine, except that such rate may not be less than 5 percent per year.

(2) For purposes of financing provided under this section

(A) the term "concessional rate of interest" means any rate of interest which is less than market rates of interest; and

(B) the term "market rate of interest" means any rate of interest which is equal to or greater than the current average interest rate (as of the last day of the month preceding the financing of the procurement under this section) that the United States Government pays on outstanding marketable obligations of comparable maturity.

(d) References in any law to credits extended under this section shall be deemed to include reference to participations in credits.

(e) 77 (1) Funds made available to carry out this section may be used by a foreign country to make payments of principal and interent which it owes to the United States Government on account of credits previously extended under this section or loans previously guaranteed under section 24, subject to paragraph (2).

Export Control Act may be used to provide financing to Israel and Egypt and NATO and major non NATO allies for the procurement by leasing (including leasing with an option to purchase) od defense articles from United States commercial suppliers, not including Major Defense Equipwent (other than helicopters and other types of aircraft having possible civilian application), if The President determines that there are compelling foreign policy or national security reasons for home defense articles being provided by commercial lease rather than by government-to-govarmmand sale under such Act.'

* The last sentence of subsec. (a) was added by sec. 572 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1988 (Continuing Appropriations for 1988, Juke Law 100 202).

* 20%) of the International Security Assistance and Arms Export Control Act of 1976 Public Law 94 329, 90 Stat. 739) originally substituted "twelve years" in lieu of "ten years" Ber 20 of the same Act went on to say, "The amendment made by subsection (a) shall apply with empt to financing under agreements entered into on or after the date of enactment of How Act for the procurement of defense articles to be delivered, or defense services to be rendered, after much date".

Hut (8) was added by sec. 580 of the Foreign Operations, Export Financing, and Related Prograins Appropriations Act, 1991 (Public Law 101-513; 104 Stat. 2045).

(2) Funds made available to carry out this section may not be used for prepayment of principal or interest pursuant to the authority of paragraph (1).

Sec. 24.78 Guaranties.-(a) The President may guarantee any individual, corporation, partnership, or other juridical entity doing business in the United States (excluding United States Government agencies other than the Federal Financing Bank) 79 against political and credit risks of nonpayment arising out of their financing of credit sales of defense articles, defense services, and design and construction services 64 to friendly countries and international organizations. Fees shall be charged for such guaranties.

(b) The President may sell to any individual, corporation, partnership, or other juridical entity (excluding United States Government agencies other than the Federal Financing Bank) 79 promissory notes issued by friendly countries and international organizations as evidence of their obligations to make repayments to the United States on account of credit sales financed under section 23, and may guarantee payment thereof.

(c) 80 Funds obligated under this section before the date of enactment of the International Security and Development Cooperation Act of 1980 which constitute a single reserve for the payment of claims under guaranties issued under this section shall remain available for expenditure for the purposes of this section on and after that date. That single reserve may, on and after the date of enactment of the International Security and Development Cooperation Act of 1985, be referred to as the "Guaranty Reserve Fund." Funds provided for necessary expenses to carry out the provisions of section 23 of the Arms Export Control Act and of section 503 of the Foreign Assistance Act of 1961, as amended, may be used to pay claims on the Guaranty Reserve Fund to the extent that funds in the Guaranty Reserve Fund are inadequate for that purpose.

For purposes of any provision in this Act or any other Act relating to a prohibition or limitation on the availability of funds under

78 22 U.S.C. 2764.

79 Sec. 45(a)(3) of the FA Act of 1974 inserted "(excluding United States Government agencies other than the Federal Financing Bank)" in lieu of "(excluding United States Government agencies)".

80 Subsec. (c), as amended by the FA Act of 1973 and the FA Act of 1974, was further amended and restated by sec. 104(a) of the International Security and Development Cooperation Act of 1980 (Public Law 96-533; 94 Stat. 3132). It formerly read as follows:

"(c) Funds made available to carry out this Act shall be obligated in an amount equal to 10 per centum of the principal amount of contractual liability related to any guaranty issued under this section, and all the funds so obligated shall constitute a single reserve for the payment of claims under such guaranties. Any funds so obligated which are deobligated from time to time during any current fiscal year as being in excess of the amount necessary to maintain a fractional reserve of 10 per centum in the principal amount of contractual liability under outstanding guaranties shall be transferred to the general fund of the Treasury. Any guaranties issued hereunder shall be backed by the full faith and credit of the United States.".

Sec. 106 (b) and (c) of the International Security and Development Cooperation Act of 1985 Public Law 99-83; 99 Stat. 196) amended subsec. (c) by deleting the following text:

"The President shall report promptly to the Congress whenever the payment of a claim under any such guaranty reduces the total amount of funds in the single reserve under this subsection to an amount less than $750,000,000, together with his recommendations for the authorization of appropriations of additional funds for such reserve.".

It also added the text beginning with "That single reserve" and continued with the following: "Funds authorized to be appropriated by section 31(a) to carry out this Act which are allocated for credits at market rates of interest may be used to pay claims under such guarantees to the extent funds in the Guaranty Reserve Fund are inadequate for that purpose.' The Supplemental Appropriations Act, 1987 (Public Law 100-71; 101 Stat. 409), deleted this text and replaced it with the present language.

""