Saudi Arabia and the United States: Toward a New Relationship?

Following the last severe test of U.S.-Saudi relations in the early 1970s, Saudi and U.S. officials
engaged in a multi-track effort to re-anchor the bilateral relationship on a range of joint military
and economic commitments. Official political relations recovered and remained close, but a
degree of public mistrust persisted on both sides. Several contentious debates regarding proposed
U.S. arms sales to Saudi Arabia in the 1980s and 1990s demonstrated this mistrust; some
Members of Congress and others made evident their doubts about Saudi Arabia’s reliability as an
ally, and some Saudi officials questioned the reliability of U.S. commitments to Saudi Arabia.

Saudi support for the coalition response to the Iraqi invasion of Kuwait in 1990 helped mitigate
some of those mutual doubts, but created conditions that ultimately made it more challenging for
officials on both sides to publicly defend the bilateral relationship. Saudi officials faced withering
criticism from some quarters for inviting foreign military forces into the kingdom, for hosting
U.S. troops after the end of major combat operations against Iraq, and for continuing to cooperate
with the United States diplomatically, in spite of U.S. airstrikes on Iraq and ongoing U.S. support
for Israel. The Bush and Clinton Administrations sought to justify continuing military cooperation
and arms sales initiatives with Saudi Arabia for strategic reasons amid growing U.S. concern
about human rights and political reform in the kingdom, terrorist attacks on U.S. forces stationed
there, and increasing U.S. awareness that some Saudi citizens were espousing religious
extremism and supporting international terrorism.

The September 11, 2001 terrorist attacks compounded the effects of these negative factors in both
the official and broader public spheres. The 9/11 Commission Report recommendations directly
addressed the resulting challenges which continue to complicate the U.S.-Saudi official
relationship:

“The problems in the U.S.-Saudi relationship must be confronted, openly. The United States
and Saudi Arabia must determine if they can build a relationship that political leaders on
both sides are prepared to publicly defend—a relationship about more than oil. It should
include a shared commitment to political and economic reform, as Saudis make common
cause with the outside world. It should include a shared interest in greater tolerance and
cultural respect, translating into a commitment to fight the violent extremists who foment
hatred.”18

Under the Bush Administration, the Saudi and U.S. governments sought to maintain the mutual
strategic benefits of existing cooperative arrangements while managing the potential negative side
effects of policy differences and working level disagreements. In 2005, the United States and
Saudi Arabia established a cabinet-level strategic dialogue to address issues of mutual
importance. Six associated working groups met “as needed” to discuss: (1) counterterrorism; (2)
military affairs; (3) energy; (4) economic and financial affairs; (5) partnership, education,
exchange, and human development; and (6) consular affairs.19

The relative strengthening of Iran as a regional power since 2001 has helped provide a new
strategic logic for official U.S.-Saudi cooperation. However, U.S. military engagement in Iraq and
Afghanistan, fluctuating oil prices, and dilatory Saudi action on some reform and
counterterrorism issues continued to complicate public relations. In May 2008, one former U.S.
Ambassador to Saudi Arabia characterized the state of U.S.-Saudi relations as reflecting “an odd
disconnect,” in which, in his view, there has been:

“...recognition on the part of the governments in both countries that this is a very important
relationship. But in both cases, the public is extremely negative. Saudi Arabia has been
successfully vilified in American politics, and the United States is now extraordinarily
unpopular in Saudi Arabia.”20

Efforts to restore and redefine U.S.-Saudi partnership continued during the term of the 110th
Congress. Section 2043 of P.L. 110-53 (the Implementing the 9/11 Commission
Recommendations Act of 2007) required the Bush Administration to report on the long-term
strategy of the United States to work with the Saudi government to facilitate political, economic,
and social reforms, including greater religious freedom, and to combat terrorism, including efforts
to prevent and prohibit terrorist financing by Saudi institutions and citizens. The report was
transmitted to the Congress on January 30, 2008, and described a “multi-dimensional” U.S.
approach to achieving goals for relations with Saudi Arabia.21 The extent to which the Obama
Administration and the 111th Congress will seek to reinforce that strategy or chart a new course
for U.S.-Saudi relations remains to be seen.

New Bilateral Agreements
On the eve of President Bush’s May 2008 visit to Riyadh to commemorate the 75th anniversary of
the establishment of U.S.-Saudi relations, U.S. National Security Adviser Stephen Hadley argued
that the U.S.-Saudi relationship was in “pretty good shape.”22 In conjunction with President
Bush’s visit, the Administration announced a series of agreements designed to strengthen bilateral
relations in key areas:

• Civil Nuclear Cooperation - Both governments signed a Memorandum of
Understanding on Civil Nuclear Energy Cooperation under which the United
States agreed to “assist the Kingdom of Saudi Arabia to develop civilian nuclear
energy for use in medicine, industry, and power generation and will help in
development of both the human and infrastructure resources in accordance with
evolving International Atomic Energy Agency guidance and standards.”23

• Enhanced Security Arrangements - Saudi Arabia agreed to join the Global
Initiative to Combat Nuclear Terrorism and the Proliferation Security Initiative,
both of which are multilateral Administration initiatives aimed at reducing the
threats posed by weapons of mass destruction proliferation, terrorism, and related
activities. A White House statement released prior to the President’s visit
indicated that “the United States and Saudi Arabia have agreed to cooperate in
safeguarding the kingdom’s energy resources by protecting key infrastructure,
enhancing Saudi border security, and meeting Saudi Arabia’s expanding energy
needs in an environmentally responsible manner.”24 Under Secretary of State for
Political Affairs William Burns said in April 2009 that the United States and
Saudi Arabia are continuing to discuss the establishment of a training program
that will provide Saudi security forces with expertise to protect critical energy
infrastructure.25

• Reciprocal Visa Policies - Both governments agreed to issue business and tourist
visas to each others’ citizens on reciprocal terms: valid for five years, with
multiple entries. Both governments also agreed to issue student visas valid for the
duration of the student’s study program, up to a maximum of five years, without
two-year renewal requirements.

Endnotes

18 National Commission on Terrorist Attacks Upon the United States, Final Report, p. 374.

19 H.Con.Res. 202 (referred to the House Committee on Foreign Affairs on August 3, 2007) called on the
Administration to create an additional working group to address human rights.

20 Ambassador Chas Freeman, President of the Middle East Policy Council, served as U.S. Ambassador to Saudi
Arabia from 1989 to 1992. Tabassum Zakaria, “Analysis—Saudi smile likely for Bush on oil plea, not more,” Reuters,
May 12, 2008.

21 U.S. Department of State, U.S. Strategy Toward Saudi Arabia, Report Pursuant to Section 2043c of the
Implementing the Recommendations of the 9/11 Commission Act, P.L. 110-53, January 30, 2008.

22 Tabassum Zakaria, “Analysis—Saudi smile likely for Bush on oil plea, not more,” Reuters, May 12, 2008.

23 U.S. Department of State, Office of the Spokesman, “Media Note: U.S.-Saudi Arabia Memorandum of
Understanding on Nuclear Energy Cooperation,” May 16, 2008.

24 The White House, Office of the Press Secretary, “Fact Sheet: Strengthening Diplomatic Ties with Saudi Arabia,”
May 16, 2008.

25 Remarks of Under Secretary of State William Burns, New America Foundation Conference – “U.S.-Saudi Relations
in a World Without Equilibrium,” Washington, D.C., April 27, 2009.

Medicaid and Children's Health Insurance Program (CHIP): Status of House Legislation

H.R. 3962, Affordable Health Care for America Act, was introduced in the House of
Representatives on October 29, 2009. H.R. 3962 is based on H.R. 3200, America’s Affordable
Health Choices Act of 2009, originally introduced on July 14, 2009, and reported separately on
October 14, 2009, by three House Committees—Education and Labor, Energy and Commerce,
and Ways and Means. H.R. 3962 was further modified by the manager’s amendment posted on
November 3, 2009. On November 7, 2009, H.R. 3962, as amended, was passed by the House.

On November 6, the Congressional Budget Office (CBO) released an updated estimate of the
direct spending and revenue effects of H.R. 3962, incorporating the manager’s amendment
proposed on November 3, and enactment of H.R. 3548 (the Worker, Homeownership, and
Business Assistance Act of 2009, signed into law on November 6. This estimate projects the bill
would reduce federal deficits by $109 billion over the 10-year period of 2010-2019 and, by 2019,
would insure 96% of the non-elderly, legally present U.S. population. The gross 10-year cost of
the Exchange subsidies ($610 billion), increased federal Medicaid expenditures ($425 billion),
and tax credits for small employers ($25 billion) would total $1.052 trillion. Taking into account
employer and individual tax penalties and other issues pertaining to coverage, the net cost of the
coverage provisions, according to the CBO analysis, would be $891 billion over 10 years. “Over
the 2010-2019 period, the net cost of the coverage expansions would be more than offset by the
combination of other spending changes, which CBO estimates would save $427 billion, and
receipts resulting from the income tax surcharge on high-income individuals and other provisions,
which JCT [the Joint Committee on Taxation] and CBO estimate would increase federal revenues
by $574 billion over that period.”2

Endnotes

2 Congressional Budget Office, letter to Rep. John D. Dingel, “Analysis of the Affordable Health Care for America Act.”

Performance of Loans from Banks to the Economy

Financial disruptions can also result from worse-than-expected performance of loans from banks
to households, businesses, and governments, indicated by the numeral 3 in the figure above.
Banks and other financial intermediaries do not expect all loans to be repaid on time and in full;
rather, there is always some allowance for loan losses. When loan losses rise above expectations,
however, banks become less capitalized. To avoid an undercapitalized system, the OCC and other
regulators with safety and soundness authority require subject institutions to prepare for some
loan losses. In addition, they examine subject institutions’ loan portfolios to assess the overall
prudence of lending behavior and attempt to prevent overly risky lending.

During the 2001-2005 housing boom, large volumes of mortgage lending were conducted through
non-bank institutions, which were not subject to the prudential lending standards of the bank
regulators. Many large banks bought mortgage-backed securities based on such loans—or
assumed the equivalent risk exposure through off-balance sheet financing arrangements or
derivatives contracts—and have since suffered unexpected losses and become undercapitalized.
Some believe that the current crisis is evidence of a regulatory gap, and have called for the
establishment of a new systemic risk regulator with authority to oversee all financial institutions
and firms that could trigger a systemic disruption.

Thus, new proposals to create a regulator exclusively concerned with systemic risk repeat the
pattern that has characterized the development of U.S. financial regulation. The term “systemic
risk” does not have a single, agreed-upon definition. Some define systemic risk as the risk an
institution faces that it cannot diversify against. In other circumstances, systemic risk is defined as
the risk that the linkages between institutions may affect the financial system as a whole, through
a dynamic sometimes referred to as contagion. These definitions are compatible in some cases;
for example, the linkages between financial institutions could prevent any single lender from
effectively protecting itself from problems that emerge in the system as a whole.

The two definitions do not always apply to the same circumstances. Particular institutions in
some sectors might face risks that are not diversifiable and that arise from sources other than the
financial system. Similarly, linkages between institutions can create aggregate risks that
individual institutions could hedge against if they chose to do so, but there is no assurance that the
institutions would. In fact, another way to think about systemic risk is that it arises because all
market participants have incentives to limit their own risk-taking to prevent loss of the own
capital, but no participant will willingly limit its risk-taking—the source of its profitability—to
reduce the possibility of a systemic disruption.

Asset bubbles represent one form of systemic risk. In good times, loans are less likely to default;
therefore, it might make sense for any individual bank to increase its leverage and reduce its
capital reserves. However, overly easy lending and reduced capital reserves in good times can
lead to a bubble in the price of assets financed with loans, such as farms or houses (even tulip
bulbs). When the bubble eventually deflates, simultaneous deterioration of banks’ balance sheets
can result.

Over the years, the financial regulatory system has been modified to address various sources of
financial instability and evolving concepts of systemic risk. Not all federal financial regulators
have authority to address systemic risk, and no single regulator has jurisdiction over all the
financial institutions and markets that may become sources of systemic risk.

Table 2 below sets out the current federal financial regulatory structure: the agencies and the
financial institutions they regulate.

Table 2. Federal Financial Regulators and Who They Supervise

Regulatory Agency	Institutions Regulated	Emergency/Systemic Risk Powers	Other Notable Authority
Federal Reserve	Bank holding companies, financial holding companies, state banks that are members of the Federal Reserve System, U.S. branches of foreign banks, foreign branches of U.S. banks	Lender of last resort to member banks (through discount window lending). In “unusual and exigent circumstances” the Fed may lend to “any individual, partnership, or corporation ... ”	The Fed issues consumer protection regulations under various federal laws, including the Truth-in- Lending Act
Office of the Comptroller of the Currency (OCC)	National banks, U.S. federal branches of foreign banks
Federal Deposit Insurance Corporation (FDIC)	Federally-insured depository institutions, including state banks that are not members of the Federal Reserve System	After making a determination of systemic risk, the FDIC may invoke broad authority to use the deposit insurance funds to provide an array of assistance to depository institutions
Office of Thrift Supervision (OTS)	Federally chartered and insured thrift institutions, savings and loan holding companies
National Credit Union Administration (NCUA)	Federally-chartered or insured credit unions	Serves as a liquidity lender to credit unions experiencing liquidity shortfalls through the Central Liquidity Facility	Operates a deposit insurance fund for credit unions, the National Credit Union Share Insurance Fund (NCUSIF)
Securities and Exchange Commission (SEC)	Securities exchanges, brokers, and dealers; mutual funds; investment advisers. Registers corporate securities sold to the public	May unilaterally close markets or suspend trading strategies for limited periods	Authorized to set financial accounting standards which all publicly traded firms must use
Commodity Futures Trading Commission (CFTC)	Futures exchanges, brokers, pool operators, advisers	May suspend trading, order liquidation of positions, or raise margins in emergencies.
Federal Housing Finance Agency (FHFA)	Fannie Mae, Freddie Mac, and the Federal Home Loan Banks	Acting as conservator (since Sept. 2008) for Fannie and Freddie

Notes: For more detail on banking regulation, see the chart “Banking Institutions and Their Regulators.”

Classes of Noncitizens and Their Eligibility to Obtain Social Security Numbers, to Qualify as a Resident Alien, and to Receive Medicaid

Table A-1. Classes of Noncitizens and Their Eligibility to Obtain Social Security
Numbers, to Qualify as a Resident Alien, and to Receive Medicaid

Class of Alien	Social Security Numbers	Resident Alien for Tax Purposes	Medicaid
Legal permanent residents (LPRs): —during first five years	Eligible.	Yes	Generally ineligible, except states have the option of providing Medicaid to certain children and pregnant women who are LPRs.
—after five years	Eligible.	Yes	Eligible only at state option until LPR has substantial (generally 10- year) work history,a
—without a substantial (generally 10-year) work history,a	Eligible.	Yes	Eligibility required for persons with a military connection. Plus coverage required for SSI recipients. (Note: all aliens are eligible for emergency medical services.)
—with a substantial (generally 10- year) work history.a	Eligible.	Yes	Eligible.
Military connection: aliens with a military connection (active duty military personnel, honorably discharged veterans, and their immediate families).	Eligible.b	Yes	Eligible.b
Humanitarian cases: —asylees, refugees, Cuban/Haitian entrants, Iraqi and Afghan special immigrants, certain aliens whose deportation/removal is being withheld for humanitarian reasons, and Vietnam-born Amerasians fathered by U.S. citizens.c	Eligible.	Yes, if they are LPRs or they meet the substantial presence test. d	Eligible for 7 years after entry/grant of such status. Eligible at state option after 7 years.
Special Cases: —noncitizen “cross-border” American Indians,e	Eligible.	Yes, if they are LPRs or they meet the substantial presence test.	Eligible.
—Hmong/Highland Laotians,f	Eligible.	Yes, if they are LPRs or they meet the substantial presence test.	Eligible only if individual meets eligibility criteria for another noncitizen category—e.g., as a legal permanent resident, asylee, refugee, person with a military connection. (Note: LPRs eligible under conditions noted above for Medicaid treatment of LPRs.)
—parolees and conditional entrants,g	Eligible.	Yes, if they meet the substantial presence test.	Eligible if resident as of August 22, 1996. Ineligible for 5 years after entry, if entry is post-August 22, 1996. Otherwise eligible at state option.
—cases of abuse (battery or extreme cruelty),h	Eligible.	Yes, if they are LPRs or they meet the substantial presence test.	Eligible if resident as of August 22, 1996. Ineligible for 5 years after entry, if entry is post-August 22, 1996. Otherwise eligible at state option.
—victims of trafficking in persons,i	Eligible.	Yes, if they meet the substantial presence test.	Eligible for 7 years after entry. Eligible at state option after 7 years.
—aliens in temporary protected status, in extended voluntary departure (EVD) status, or deferred enforced departure (DED) status.	Eligible.	Yes, if they meet the substantial presence test.	Eligible only for emergency services.
Nonimmigrants[j]	Ineligible, except if nonimmigrant visa expressly permits the alien to work in the United States.	No, except those who meet the substantial presence test[k].	Eligible only for emergency services, provided individual meets other eligibility requirements.
Unauthorized aliens[l]	Ineligible.	No, except those who meet the substantial presence test.	Eligible only for emergency services, provided individual meets other eligibility requirements.

Source: CRS.

a. A substantial work history consists of 40 “qualifying quarters” of work (credits) calculated as they would be
for Social Security eligibility purposes—including work not covered by Social Security and work credited
from parents and spouses, but not including work performed after 1996 while receiving federal means-tested
benefits like TANF, food stamps, or Medicaid. A qualifying quarter is a three-month period of full or
part-time work with sufficient income to qualify the earner for credit toward eligibility for Social Security
benefits. The qualifying quarter income amount is increased annually; no more than four credit quarters can
be earned in any one year. The qualifying quarter test takes into account work by an alien’s parent before
the alien became 18 (including work before the alien was born/adopted) and by the alien’s spouse (provided
the alien remains married to the spouse or the spouse is deceased).

b. Eligible military personnel, veterans, and immediate family members also must be a legal permanent resident,
or an asylee, refugee, Cuban/Haitian entrant, alien whose deportation/removal is being withheld, parolee, or
conditional entrant.

c. Includes Amerasians admitted as immigrants who were born in Vietnam during the Vietnam era and
fathered by a U.S. citizen—as well as their spouses, children, and certain other immediate family members.

d. Substantial presence test: is met when the individual is present in the United States for at least 31 days
during the current year and at least 183 days during the current year and previous two years. For
computing the 183 days, a formula is used that counts all the qualifying days in the current year, one-third of
the qualifying days in the immediate preceding year, and one-sixth of the qualifying days in the second
preceding year. I.R.C. §§ 7701(b)(1)(A) and (b)(3). A nonresident alien may elect, under certain
circumstances, to be treated as a resident alien if the substantial presence test is met in the year following
the election. I.R.C. § 7701(b)(4). A dual-status or nonresident alien married to a U.S. citizen or resident may
qualify to be treated as a resident alien for the entire year. I.R.C. §§ 6013(g) and (h).

e. Noncitizen “cross-border” American Indians (from Canada or Mexico) are noncitizens who belong to a
federally recognized tribe or who were born in Canada and have the right to cross the Canadian-U.S.
border unhindered (so-called “Jay Treaty” Indians).

f. Members of a Hmong or Highland Laotian tribe when the tribe assisted U.S. personnel by taking part in
military/rescue missions during the Vietnam era—including spouses and unmarried dependent children.

g. Eligible parolees must be paroled for at least one year.

h. Eligibility in abuse cases is limited to aliens who have been abused (subject to battery or extreme cruelty) in
the U.S. by a spouse or other family/household member, aliens whose children have been abused, and alien
children whose parent has been abused—where the alien has been approved for, or has pending an
application/petition with a prima facie case for, immigration preference as a spouse or child or cancellation
of removal. The alien cannot be residing with the individual responsible for the abuse, and the agency
providing benefits must determine that there is a substantial connection between the abuse and the need
for benefits.

i. Eligible for treatment as refugees under the provisions of Section 107 of the Victims of Trafficking and
Violence Protection Act of 2000 (P.L. 106-386). Eligible victims of trafficking in persons are those subjected
to (1) sex trafficking where the act is induced by force, fraud, or coercion, or the person induced to
perform the act is under age 18, or (2) involuntary servitude. If age 18 or older, they must be “certified” as
willing to assist in the investigation and prosecution of the trafficker(s) and have made an application for a
nonimmigrant “T” visa (or be in the U.S. to ensure the effective prosecution of the trafficker[s]).

j. Nonimmigrants are those admitted temporarily for a limited purpose (e.g., students, visitors, or temporary
workers).

k. Most nonimmigrants enter as visitors for business or tourism and thus would not meet the substantial
presence test, which is described above in table note d. Many of the nonimmigrants who enter as
temporary workers of intracompany transfers would meet the substantial presence test. Resident aliens
who are employees of foreign governments and international organizations may qualify to exempt their
compensation from taxation. I.R.C. § 893.

l. Unauthorized (“illegal”) aliens are those in the U.S. in violation of immigration law for whom no legal relief
or recognition has been extended.

Key Terms Used in Natural Gas Statistics

Dry Natural Gas	Natural gas which remains after: (1) the liquefiable hydrocarbon portion has been removed from the gas stream (i.e., gas after lease, field, and/or plant separation); and (2) any volumes of non-hydrocarbon gases have been removed where they occur in sufficient quantity to render the gas unmarketable. (Note: Dry natural gas is also known as consumer-grade natural gas. The parameters for measurement are cubic feet at 60 degrees Fahrenheit and 14.73 pounds per square inch absolute.)
Natural Gas Associated- Dissolved	The combined volume of natural gas which occurs in crude oil reservoirs either as free gas (associated) or as gas in solution with crude oil (dissolved).
Natural Gas Liquids	Those hydrocarbons in natural gas which are separated from the gas through the processes of absorption, condensation, adsorption, or other methods in gas processing or cycling plants. Generally such liquids consist of propane and heavier hydrocarbons and are commonly referred to as condensate, natural gasoline, or liquefied petroleum gases. Where hydrocarbon components lighter than propane are recovered as liquids, these components are included with natural gas liquids.
Natural Gas Non-associated	Natural gas not in contact with significant quantities of crude oil in a reservoir.
Natural Gas, Wet After Lease Separation	The volume of natural gas remaining after removal of lease condensate in lease and/or field separation facilities, if any, and after exclusion of non-hydrocarbon gases where they occur in sufficient quantity to render the gas unmarketable. Natural gas liquids may be recovered from volume of natural gas, wet after lease separation, at natural gas processing plants.
Proved Reserves of Natural Gas	Proved reserves of natural gas as of December 31 of the report year are the estimated quantities which analysis of geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reservoirs are considered proved if economic producibility is supported by actual production or conclusive formation test (drill stem or wire line), or if economic producibility is supported by core analyses and/or electric or other log interpretations. The area of a gas reservoir considered proved includes: (1) that portion delineated by drilling and defined by gas—oil and/or gas—water contacts, if any; and (2) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons is considered to be the lower proved limit of the reservoir. Volumes of natural gas placed in underground storage are not to be considered proved reserves. For natural gas, wet after lease separation, an appropriate reduction in the reservoir gas volume has been made to cover the removal of the liquefiable portions of the gas in lease and/or field separation facilities and the exclusion of non-hydrocarbon gases where they occur in sufficient quantity to render the gas unmarketable. For dry natural gas, an appropriate reduction in the gas volume has been made to cover the removal of the liquefiable portions of the gas in lease and/or field separation facilities, and in natural gas processing plants, and the exclusion of non-hydrocarbon gases where they occur in sufficient quantity to render the gas unmarketable. It is not necessary that production, gathering, or transportation facilities be installed or operative for a reservoir to be considered proved. It is to be assumed that compression will be initiated if and when economically justified.

Source: EIA.

Safe Drinking Water Act: Congressional Hearings, Reports and Documents

U.S. Congress. Senate. Committee on Environment and Public Works. Water Infrastructure
Financing Act. Report to accompany S. 1400. 109th Cong., 1st sess. December 8, 2005. 52 p.
(S.Rept. 109-186).

U.S. Congress. House. Committee on Government Reform. Public Confidence, Down the Drain:
the Federal Role in Ensuring Safe Drinking Water in the District of Columbia. Hearing,
March 5, 2004, 108th Cong., 2nd sess. 268 p. (H.Rept. 108-161).

U.S. Congress. House. Committee on Government Reform. Subcommittee on Energy Policy,
Natural Resources and Regulatory Affairs. EPA Water Enforcement: Are We on the Right
Track? Hearing, October 14, 2003, 108th Cong., 1st sess. 201p. (H.Rept. 108-157).

U.S. Congress. House. Committee on Transportation and Infrastructure. Subcommittee on Water
Resources and Environment. Aging Water Supply Infrastructure. Hearing, April 28, 2004,
108th Cong., 2nd sess. 78 p. (H.Rept. 108-63).

Additional Reading
U.S. Environmental Protection Agency. Drinking Water State Revolving Fund Program: Increasing Impact, 2006 Annual Report. Office of Water. Report No. EPA 816-R-07-002, June
2007. 44 p.

U.S. Environmental Protection Agency. Providing Safe Drinking Water in America: 2003 National Public Water Systems Compliance Report. Office of Enforcement and Compliance
Assurance. Report No. EPA 305-R-05-002. September 2005. 19 p. plus appendices.

U.S. Environmental Protection Agency. The Clean Water and Drinking Water Infrastructure Gap
Analysis Report. Office of Water. Report No. EPA 816-R-02-020. September 2002. 50 p.

National Research Council. Health Implications of Perchlorate Ingestion. Board on
Environmental Studies and Toxicology. National Academies Press. January 2005. 177 p.

Operation and Security of the Panama Canal

Historical Background and the Panama Canal Treaties
When Panama proclaimed its independence from Colombia in 1903, it concluded a treaty with
the United States for U.S. rights to build, administer, and defend a canal cutting across the
country and linking the Pacific and Atlantic oceans. The treaty gave the United States rights in the so-called Canal Zone (about 10 miles
wide and 50 miles long) “as if it were sovereign” and “in perpetuity.” Construction of the canal
was completed in 1914. In the 1960s, growing resentment in Panama over the extent of U.S.
rights in the country led to pressure to negotiate a new treaty arrangement for the operation of the
Canal. Draft treaties were completed in 1967 but ultimately rejected by Panama in 1970.

New negotiations ultimately led to the September 1977 signing of the two Panama Canal Treaties
by President Jimmy Carter and Panamanian head of government General Omar Torrijos. Under
the Panama Canal Treaty, the United States was given primary responsibility for operating and
defending the Canal until December 31, 1999. (Subsequent U.S. implementing legislation
established the Panama Canal Commission to operate the Canal until the end of 1999.) Under the
Treaty on the Permanent Neutrality and Operation of the Panama Canal, or simply the Neutrality
Treaty, the two countries agreed to maintain a regime of neutrality, whereby the Canal would be
open to ships of all nations. The U.S. Senate gave its advice and consent to the Neutrality Treaty
on March 16, 1978, and to the Panama Canal Treaty on April 18, 1978, both by a vote of 68-32,
with various amendments, conditions, understandings, and reservations. Panama and the United
States exchanged instruments of ratification for the two treaties on June 16, 1978, and the two
treaties entered into force on October 1, 1979.

Some treaty critics have argued that Panama did not accept the amendments, conditions,
reservations, and understandings of the U.S. Senate, including the DeConcini condition to the
Neutrality Treaty. That condition states: “if the Canal is closed, or its operations are interfered
with, the United States of America and the Republic of Panama shall each independently have the
right to take such steps as each deems necessary, in accordance with its constitutional processes,
including the use of military force in the Republic of Panama, to reopen the Canal or restore the
operations of the Canal, as the case may be.” However, others argued that Panama, in fact, had
accepted all U.S. Senate amendments. The State Department asserted that Panama expressly
accepted all amendments, conditions, and understandings to the two treaties, including the
DeConcini condition. The United States and Panama signed the instruments of ratification for
both treaties, which incorporated all the Senate provisions. The two countries cooperated
throughout the years on matters related to the canal and established five binational bodies to
handle these issues. Two of the bodies were set up to address defense affairs and conducted at
least sixteen joint military exercises between 1979 and 1985 involving Panamanian and U.S.
forces.

Canal Transition and Current Status
Over the years, U.S. officials consistently affirmed a commitment to follow through with the
Panama Canal Treaty and turn the Canal over to Panama at the end of 1999. That transition
occurred smoothly on December 31, 1999. The Panama Canal Treaty terminated on that date, and
the Panama Canal Commission (PCC), the U.S. agency operating the Canal, was succeeded by
the Panama Canal Authority (ACP), a Panamanian government agency established in 1997.

Under the terms of the Neutrality Treaty, which has no termination date, Panama has had
responsibility for operating and defending the Canal since the end of 1999. As noted above, both
Panama and the United States, however, in exercising their responsibilities to maintain the regime
of neutrality (keeping the Canal secure and open to all nations on equal terms) independently
have the right to use military force to reopen the Canal or restore its operations. This is delineated
in the first condition of the Neutrality Treaty.

The secure operation of the Panama Canal remains a U.S. interest since about 13%-14% of U.S.
ocean-borne cargo transits through the Canal. The United States provides assistance to Panama to
improve its ability to provide security for the Canal and to enhance port and maritime security.
U.S. officials have consistently expressed satisfaction that Panama is running the Canal
efficiently, and since 2003, the U.S. military has conducted exercises with Panama and other
countries to protect the Canal in case of attack.46

Headed by Alberto Alemán Zubieta, the Panama Canal Authority has run the Canal for more than
nine years and has been lauded for increasing Canal safety and efficiency. In January 2006, the
Martín Torrijos government established a social investment fund backed by Panama Canal
revenues that invests in schools, hospitals, bridges, roads, and other social projects. The initiative,
according to the government, is designed to show Panamanians that the Canal is contributing to
economic development and improving the quality of life for Panamanians.47

Canal Expansion Project
On April 24, 2006, the Panama Canal Authority presented to President Torrijos its
recommendation to build a third channel and new set of locks (one on the Atlantic and one on the
Pacific) that would double the capacity of the Canal and allow it to accommodate giant container
cargo ships known as post-Panamax ships. The proposal would also widen and deepen existing
channels and elevate Gatun Lake’s maximum operating level. According to the proposed plan, the
overall project would begin in 2007 and take from seven to eight years to complete. The
estimated cost of the project is $5.25 billion, to be self-financed by the ACP through graduated
toll increases and external bridge financing of about $2.3 billion that would be paid off in about
10 years. The Panamanian government would not incur any sovereign debt as a result of the
project. According to the ACP, the overall objectives of the expansion project are to (1) achieve
long-term sustainability and growth for the Canal’s financial contributions to the Panamanian
national treasury; (2) maintain the Canal’s competitiveness; (3) increase the Canal’s capacity to
capture the growing world tonnage demand; and (4) make the Canal more productive, safe, and
efficient.48

President Torrijos and his Cabinet approved the expansion project on June 14, 2006, and the
National Assembly overwhelmingly approved it on July 10, 2006, with 72 out of 78 deputies
voting for the project. Pursuant to Panama’s Constitution (Article 319), the project had to be
submitted to a national referendum no sooner than 90 days from the date of approval by the
Assembly. The Torrijos government chose to hold the referendum on October 22, 2006, close to
the anniversary of October 23, 1977, the date when Panamanians approved the two Panama Canal
treaties in a national plebiscite by a two-to-one margin. A poll from early September 2006 showed
almost 64% public support for the Canal expansion project, but on election day the expansion
project received 78% of the vote.

The Torrijos government advanced the project as integral to Panama’s future economic
development. The government maintained that some 7,000 direct jobs would be created by the
project, as well as some 35,000 indirect jobs. President Torrijos asserted that increased revenue
from the Canal arising from the expansion project would allow the government to launch social
development programs and improve living conditions in the country.49

There had been some vocal opposition to the Canal expansion project. The organization known as
the Peasant Coordinator Against the Dams (CCCE, Coordinadora Campesina Contra los
Embalses), consisting of agricultural, civil, and environmental organizations, asserted that the
expansion project would lead to flooding and would drive people from their homes. An umbrella
protest group known as the National Front for the Defense of Economic and Social Rights
(Frenadeso), which was formed in 2005 during protests against social security reforms, called for
a “no” vote.50 Former Presidents Jorge Illueca and Guillermo Endara, as well as former Panama
Canal administrator Fernando Manfredo, also opposed the expansion project, maintaining that the
price was too high and too much of a gamble. Critics feared that the total price tag could rise
considerably and expressed concern that toll increases could make alternative routes more
economically attractive.51

The ACP is moving ahead with the Canal expansion project. The Panamanian government
officially launched the Canal expansion project on September 3, 2007, with a ceremony led by
former President Jimmy Carter whose Administration negotiated the Panama Canal Treaties. The
project is expected to be completed by 2014. In mid-December 2008, the ACP awarded the third
of four dry excavation contracts to a Costa Rican company. The excavation work is to create an
access channel linking the new Pacific locks with the existing Gaillard Cut, which is the
narrowest stretch of the Canal. Despite the global financial crisis, the ACP has been able to secure
financing for the expansion project.

In March 2009, three multinational consortiums placed bids for the multi-billion contract to build
the new set of locks.52 The ACP announced on July 8, 2009, that the consortium Unidos por el
Canal (United for the Canal) led by Spanish construction company Sacyr Vallehermoso was the
virtual winner of the contract after posting a bid of $3.12 billion. The consortium also includes
Italian, Belgian, and Panamanian companies, as well as two U.S. companies Montgomery Watson
Harza and Tetra Tech involved as design subcontractors. Competing higher bids had been made
by a consortium led by the U.S.-based Bechtel and a consortium led by the Spanish company
ACS.53

Endnotes

46 Senate Committee on Armed Services, Hearing, “Testimony on United States Southern Command, United States
Northern Command, and United States Joint Forces Command in Review of the Defense Authorization Request for
Fiscal Year 2008 and the Future Years Defense Program,” March 22, 2007, Federal News Service.

47 Rainbow Nelson, “Canal Cash to Pay for Social Development,” Lloyd’s List, January 18, 2006.

48 Autoridad del Canal de Panama (ACP), “Proposal for the Expansion of the Panama Canal, Third Set of Locks
Project,” April 24, 2006.

49 “Panama: Torrijos Wins Backing to Expand Canal,” Latin American Weekly Report, October 24, 2006; “Panama’s
Torrijos on Referendum Results: ‘Opportunity to Materialize Our Hopes,” Open Source Center (Panama City TVN),
October 23, 2006.

50 “Torrijos Appeals for Approval of Canal Expansion,” Latinnews Daily, September 1, 2006.

51 “Panama: Torrijos Reveals Plans to Expand Canal,” Latinnews Daily, April 25, 2006; Chris Kraul and Ronald
D.White, “Panama is Preparing to Beef up the Canal,” Los Angeles Times, April 24, 2006; John Lyons, “Panama Takes
Step Toward Expanding the Canal,” Wall Street Journal, April 24, 2006.

52 "Panama: Groups Bid on Canal Expansion," Economist Intelligence Unit, Business Latin America, March 9, 2009.

53 “Unidos por El Canal Virtual winner of ACP contract,” Business News Americas, July 8, 2009; and “Panama Canal
Announces ‘Best Value’ Proposal for New Set of Locks Expansion Contract,” States News Service, July 9, 2009.