U.S. to Block Aid for China Dam Project

The Clinton Administration, putting environmental concerns ahead of its usual posture as a cheerleader for U.S. exports, has decided to block cut-rate government financing for American companies hoping to land a piece of China’s mammoth Three Gorges Dam project.

Administration officials said Friday the National Security Council concluded that the Export-Import Bank, a government agency that underwrites overseas sales by U.S. companies, should stay away from the Yangtze River dam project.

Environmental organizations around the world oppose the dam, which, if built, would be the largest public works project on Earth. It would flood thousands of acres and produce unknown changes in the ecology of the entire Yangtze River basin. Moreover, critics say the project may not be economically sound.

White House Press Secretary Mike McCurry said the Administration concluded that “the United States government should not offer commercial assistance to the Three Gorges project because of environmental concerns.” He said the government had earlier opposed World Bank financing for the dam on the same grounds.

The giant U.S. equipment manufacturer Caterpillar Inc. has applied for Export-Import Bank financing to support its planned bid for one of the dam’s many contracts. But officials said the security council decision to oppose subsidized loans had been reached even before Caterpillar submitted its request.

Although the bank’s governing board could theoretically override White House objections and make the loans, officials said it is extremely unlikely that the agency would take such a step. In addition, the head of the bank, Kenneth D. Brody, is a Clinton appointee.

White House officials expressed concern that, if a U.S. government agency extended support to the project, environmental and human rights groups could be expected to file suit against the funding, possibly tying the bank up in extended litigation. Besides, officials said, China’s estimates of both the cost and the benefits of the project are suspect, raising serious questions about whether the loans would ever be repaid.

Beijing estimates that the project will cost at least $30 billion.

Despite its name, which seems to imply that it is a source of funds for all aspects of world trade, the Export-Import Bank limits its operations to subsidized loans to American exporters. The objective is to enhance the bargaining position of U.S. companies--which often face competition from government-supported companies in other countries--in world markets.

The Three Gorges Dam project cuts across several of the Administration’s top foreign policy goals. In addition to the conflict between protection of the environment and support for export sales, the project also illustrates the conflict between Washington’s criticism of Chinese human rights violations and the Administration’s hope to repair the tattered overall Washington-Beijing relationship.

McCurry, confirming a report in the Wall Street Journal, said the U.S. government “would not prohibit private-sector involvement with the project, but I think, as a matter of United States government policy, we will refrain from [governmental] assistance to the project.”

By agreeing not to block purely private financing, the Administration seeks to take some of the sting out of its decision to block Export-Import Bank and World Bank loans.