oversight

International Trade: Export of Wood Products Under Federally Assisted Export Programs

Published by the Government Accountability Office on 1990-07-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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 :GAO -: i·                                                   Repo't. to the Chairman, Subcommittee
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  (DA Co              United States
                      General Accounting Office
                      Washington, D.C. 2048
                      National Security and
                      International Affairs Division
                      B-240608

                      July 31, 1990
                      The Honorable Ron Wyden
                      Chairman, Subcommittee on Regulation,
                        Business Opportunity, and Energy
                      Committee on SmalBusiness
                      RHouse of Representatives
                      Dear Mr. Chairman:
                      In response to your request, we have reviewed exports of wood products
                      under the Commodity Credit Corporation's (ccc) GSM-102/103 export
                      credit guarantee programs and the Agricultural Trade Development and
                      Assistance Act of 1954 (P.L. 480). You specifically asked us to determine
                      (1) how wood exports compare to exports of other agricultural commod-
                      ities under these programs, (2) how credit guarantee periods for wood
                      exports compare to credit periods provided for the other commodities,
                      and (3) where the principal international markets are for wood
                      products.


Results in Brief     Our review showed that:
                   * During the period 1986 through 1989, wood exports accounted for 4 per-
                     cent, or $556 million, of the total value of all exports under GSM-102.
                     Wood products have never been considered for export under the GSM-
                     103 intermediate-term credit guarantee program, and wood product
                     exports under P.L 480 have been very limited.
                   * Although there are exceptions, credit periods provided for wood exports
                     rtnder GsM-102 have generally been shorter than those provided for
                     other agricultural commodities exported under the program. Wood
                     exporters claim that the shorter credit periods provided for wood
                     exports are unfair and prevent them from making sales in certain coun-
                     tries. U.S. government officials state that shorter credit periods are pro-
                     vided for wood exports to prevent the undermining of an international
                     agreement that establishes guidelines for providing officially supported
                     export credits. This agreement does not apply to agricultural commodi-
                     ties, but under the terms of the agreement, wood products are not con-
                     sidered agricultural commodities and, therefore, the agreement
                     guidelines apply to these products.
                   · The principal international markets for wood products under the osM-
                     102 program are in Algeria, Iraq, Mexico, South Korea, and Tunisia.



                     Phe 1                                      GAO/NSUADSIS4 Int      lemmu
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              B-240608




Background   .Since 1979, the United States has offered government-guaranteed credit
             to foreign buyers to expand exports of U.S. agricultural commodities.
             The major active programs are GSM-102 and GSM-103, administered
             through the cc, by the U.S. Department of Agriculture's Foreign Agri-
             cultural Servi e. These programs are designed to expand U.S. agricul-
             tural exports Z)y stimulatin U.S. bank financing of foreign purchases on
             credit terms 'i.'e programs are generally intended for sales to countries
             where guaral.,es are necessary to secure financing of the exports and
             where the purchasing country has the financial strength to provide a
             reasonable expectation that foreign exchange will be available to make
             payments as scheduled. Any agricultural commodity whose export fur-
             thers the ccc's long-range market development objectives is eligible for
             credit guarantees under the programs.

             The GSM-102 program is a short-term export credit guarantee program
             for transactions with repayment periods of 6 to 36 months. The GSM-103
             program is an intermediate-term credit guarantee program for transac-
             tions with repayment periods of 3 to 10 years. Currently, ccc is required
             to make available at least $5 billion in credit guarantees annually under
             GSM-102, and not more than $1 billion annually under GSM-103.

             In addition to these credit guarantee programs, the U.S. Department of
             Agriculture arnd the Agency for International Development cooperap-
             tively administer a foreign food aid and market development program
             for agricultural products under P.L. 480. In recent years, the P.L. 480 pro-
             gram has been funded at about $1.5 billion annually. About 5 million
             metric tons of agricultural commodities are exported each year through
             long-term credit sales and donations. Title I of P.L. 480 authorizes credit
             sales to be made at low interest rates with long repayment periods (typi-
             cally 20-40 years) to developing countries buying U.S. agricultural com-
             modities. Title II authorizes donations of commodities to relieve famine
             or other disasters.

             Traditionally, GSM export credit guarantees and P.L. 480 loans have been
             iaade to help develop markets and meet food needs for lesser-developed
             countries. Exports of wood products under these programs have not
             been emphasized. To clarify that wood products are eligible for export
             under these programs, the Congress, in the Omnibus Trade and Competi-
             tiveness Act of 1988 (P.L 100418), specified that agricultural commodities
             eligible for export credit programs include wood and processed wood
             products.




             Pagp                                       GAO/NSfADSO4 Intm.toalM Trade
                                        B-240608




Wood Product Exports                    Wood and wood products-such as lumber, plywood, and pulp-are, by
                                        value, the largest agricultural crop in the United States. These products
Constitute Small                        constitute about $6 billion, or nearly 15 percent of all U.S. agricultural
Portion of GSM and                      exports. However, they have accounted for a relatively small percentage
P.L. 480 Sales                          of the total value of commodities exported under GSM-102. According to
                                        the ccc's records, total exports of wood and wood products under csM -
                                         102 from the program inception through calendar year 1987 amounted
                                        to $15.1 million, or about 0.15 percent of the approximately $10 billion
                                        worth of commodities exported with GSM-102 credit guarantees. How-
                                        ever, since 1986, exports of wood and wood products under the program
                                        have steadily increased as a percent of total GsM-102 supported exports,
                                        reaching 6.10 percent in 1989. (See table 1.)
Table 1: Comparison of Value of OS M-
102 Wood Export Sle With Other          Dollars in millions
Commodity Sales During Calendar Yars                                                 Wod               AU    Pere
IlM-lNt                                 Calendar year                              products   oommodIties           hr
                                        1986                                           $3.3       S2,540.2              .01
                                        1987                                           65 0        2.902.2          2.20
                                        1988                                          230.7        4,264.4          5.40
                                        1989                                         257.4        4,231.7           6.10
                                        Total                                       $556.4      $13,"83.5           3.9
                                        Source: CCC database (Kansas City, Mo ).

                                        About $953 million worth of agricultural commodities were exported
                                        under the GSM-103 program during the period 1986 to 1989. However,
                                        wood products have never been exported under this intermediate-term
                                        credit guarantee program.

                                        Exports of wood products under P.L 430 have been very limited. About
                                        $5 million worth of wood products were exported to Jamaica in 1989,
                                        and another $5 million were approved in January 1990 for export to
                                        Costa Rica.


UWood Products                          Credit periods provided for wood and wood products under the GSM pro-
                                        gram have typically been limited to less than 2 years, while credit
Provided Shorter GSM                    periods provided for most other agricultural commodities have been for
Credit Periods Than                     3 years or more. For example, agricultural commodities such as cotton,
Other Agricultural                      feed grains, oilseeds, protein meals, rice, and wheat have been provided
                                        3-year credit periods under the cSM-102 program. Under the GSM-103
Cocmm[odities                           program, beans, breeder livestock, corn, feed grains, oilseeds, protein
                                        meals and concentrates, rice, semolina, table eggs, tobacco, vegetable


                                        Pae 3                                          OGAO/NIADM2U4   Intmuatioul Te
                           B240608




                           oils, and wheat and wheat flour have been provided credit periods of 4
                           to 7 years.

International Agreement    Members of an interagency advisory council that advises ccc on GSM-
Cited as Rationale-for     1021103 credit guarantee allocations toldusthat they are oppoedto
Shorter Credit Periods     offering longer credit periods for wood products because doing so would
                           undermine internationally agreed-upon financing guidelines. This
                           council, the National Advisory Council on International Monetary and
                           Financial Policies (NAC), is responsible for coordinating the policies and
                          practices of U.S. government agencies that make foreign loans or that
                          engage in foreign financial, exchange, or monetary transactions. It is
                          chaired by Treasury and is composed of representatives of the U.S.
                          Export-Import Bank, the Federrl Reserve, the Agency for International
                          Development, the U.S. Trade Representative, and the Departments of
                          State and Commerce. While the NMr serves in an advisory capacity, its
                          positions have usually prevailed. Although program officials at Agricul-
                          ture have considered expanding GSM support for wood exports, Agricul-
                          ture has not challenged the NAC.
                           Providing wood product exports GsM-102/103 credit with terms longer
                           than 2 years would place the United States in conflict with the Organiza-
                           tion for Economic Cooperation and Development's (oEcD) Arrangement
                           on Guidelines for Officially Supported Export Credits. This arrange-
                           ment, often referred to as the "OECD Consensus," came into being in
                           April 1978. The objective of this Consensus is to remove export credit
                          subsidies as a determining factor in international trade. The terms of the
                          Consensus cover most govelnment-supported export credit with terms
                          of 2 years or longer. While the Consensus specifically exempts agricul-
                          tural commodities from its terms and conditions, it does not categorize
                          wood products as an agricultural commodity. Therefore, any GsM-102/
                           103 export credit for wood products is covered by the Consensus if it
                          has a term of 2 years or longer. A problem arises because the terms of
                          the Gsm-102/103 pvograms are not consistent with Consensus require-
                          ments. For example, the Consensus limits officially supported credit to
                          85 percent of the export sale. However, the osM-102/103 program pro-
                          vides credit guarantees for up to I00 percent of the export.



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                          Pae'4                                          GA0/1inA4mm.I4    asmaI        as
                                                                                                        ~
                       B-240608




                       Treasury's position is that if the United States provides longer credit
                       terms for wood exports under the GSM-102/103 programs and does not
                       conform to the terms of the Consensus, it will, in effect, be undermining
                       the intent of the Consensus and opening the door for other countries to
                       do the same. To prevent this situation, Treasury has tried to keep
                       credits for wood exports from violating the Consensus by limiting the
                       credit periods to less than 2 years. For example, many of the GsM-102
                       credit guarantees that would otherwise be covered by the terms of the
                       Consensus are limited to a period of 720 days, i.e., 10 days less than 2
                       years.


Ratiornale Not         Treasury's rationale for providing shorter credit periods for wood prod-
                       ucts is not consistently applied to all commodities eligible for GSM-102/
Consistently Applied    103 credit that are not considered to be agricultural commodities under
                       the Consensus. We found numerous examples of GSM-102/103 commodi-
                       ties that, according to officials from Treasury, the U.S. Department of
                       Agriculture, and the U.S. International Trade Conmmission, are subject to
                       provisions of the OECD Consensus but were not treated accordingly in
                       terms of credit guarantees. Examples include the export of wool/mohair,
                       cotton, hides and skins, leather, and furs. Even for wood products,
                       application of the OECD Consensus was not consistent. We reviewed the
                       GSM credit periods provided for each of these commodities during fiscal
                       years 1986 through 1990 and found that the credit periods often
                       exceeded 2 years and, therefore, should have been covered by the OECD
                       Consensus. Ninety-five percent of those exceeding 2 years received
                       guarantees for credit with a term of 3 years. For the 6 commodities,
                       there have been a total of 117 credit guarantee allocations made avail-
                       able to purchasing countries since fiscal year 1985. Of the 117 alloca-
                       tions, 62 were provided a credit period of 2 years or longer. Wood
                       products received credit terms exceeding 2 years in 17 of 49 cases. (See
                       table 2.)




                       PafI                                      GAO/NKIAD8O540   InteanhAI Tras
                                       B-24060S




Table 2:, M-102 Credit Terms for
Uommlodtiee Covered by te OECO                                                                                      Times
Consensus (Fiscal Year 1986 Through    Commodity                                   Length of credit period        provided      Percentage
Fiscal Year 1990)                      Wool/Mohair                                 Less than 24 months                   0                 0
                                                                                   24 months &over                       4              100
                                       Cotton                                      Less than 24 months                   6                16
                                                                                   24 months &over                      31               84
                                       Hides & skins                               Less than 24 months                   6               38
                                                                                   24 months & over                     10               62
                                       Wood products                               Less than 24months                   32               65
                                                                                   24 months &over                      17               35
                                       Leather_ ______                             Less than 24 months                   /'             100
                                                                                   24 months & over                      0                 0
                                       Furs                                        Less than 24 months                   4              100
                                                                                   24 months &over                       0                 0
                                       Source: Foreign Agricultural Service commitment reports for fiscal years 1986 through 1990.

                                       U.S. government officials told us that prior to 1986, credit periods of 24-
                                      36 months were being approved for cotton, hides and skins, and other
                                      agricultural commodities exported under the GSM-102 program.
                                      According to these officials, in 1986, when the intermediate term (3 to
                                       10 years) GSM-103 export credit guarantee program started, the NAC
                                      began closely reviewi ng and questioning the credit guarantee periods
                                      provided for specific commodities. The NAC agreed, however, to the con-
                                      tinuance of 24-36-month credit periods tor such commodities allocated
                                      to countries that had previously purchased them under these longer
                                      credit periods.


Some Wood Product                     We interviewed 15 exporters of wood products who had used the GSM-
                                      102 credit guarantee program. Most told us that in many instances, the
Exporters Believe                     shorter-term financing had not created a problem either for them or for
Shorter Credit Periods                the purchasing countries. However, three exporters said that the rela-
Affect Sales                          tively short credit terms had resulted in some lost sales opportunities.
                                      For example, according to one exporter, Tunisia will not purchase wood
                                      or wood products without a minimum of 3-year financing terms. Simi-
                                      larly, another exporter said the government of the Yemen Arab Republic
                                      would purchase wood products only if financing terms of 4-10 years are
                                      allowed. According to domestic exporters, both countries are interested
                                      in purchasing U.S. wood products.




                                      Paoe                                                       GAO/N8LAD446W4 bItamaa m_Trms
                                      B2406806




Principal OSM                        According to an Agriculture Department Foreign Agricultural Service
                                     Notice to Exporters dated March                  23, 1990, 24 countries were eligible fur
Markets for Wood                     the GSM-102 program for all commodities. Of those 24, 8 were provided
Products                             allocations for wood products. (See table 3.)

Tb    A3         oAflaM-102 Credit
uamuntos for Fiscal Yr   1990        Dollars in millions

                                     Country                                                             All commodices     products
                                     Algeria                                                                      $675.0       $95.0
                                     Chile                                                                          35.0         0.0
                                     Colombia                                                                      142.0         0.0
                                     Ecuador                                                                       1o0.0          1.5
                                     Egypt                                                                         200.0         0.0
                                     El Salvador                                                                    24.0         0.0
                                     Guatemala                                                                      20 0         00
                                     Hungary                                                                        26.0         0.0
                                     Iraq                                                                          500,0        31.3
                                     Jordan                                                                         42.0         0.0
                                     Kenya                                                                           6.0         0.0
                                     Mexico                                                                      1,225.0        52.4
                                     Morocco                                                                        100          0.0
                                     Pakistan                                                                      1800          00
                                     Panama                                                                          2.5         2,5
                                     Senegal                                                                        13,0          N.0
                                     South Korea                                                                   548.0        10.0
                                     Surinam                                                                          5.0        00
                                     Trinidad &Tobago                                                                45.0        u0
                                     Tunisia                                                                         37,0        ,'0
                                     Turkey                                                                         1500         0
                                     Venezuela                                                                      100.0        00
                                     Yemen Arab Republic                                                             12.0        0.0
                                     Yugoslavia                                                                      40.0        2.5
                                     Total                                                                       4,137.s      $202.2
                                     So, irce: Foreign Agricultural Service commitment report, March 23, 1990.

                                     The same notice to exporters showed eight countries were allocated
                                     $403.5 million of credit guarantees under GsM-103. The eligible countries
                                     were Algeria, Ecuador, El Salvador, Jordan, Morocco, Panuama, Sri
                                     Lanka, and Tunisia. None of those countries received allocations f r
                                     wood products underaiM-103.



                                     Pi      7                                                     MAO/NIUAD441      Inateshema Tra&
               8240608




Conclusions   Wood products are generally being provided shorter credit periods than
              other commodities exported under the GSM-102/103 programs. Wood
              products are generally being provided credit periods of less than 2 years
              under the GSM programs, while other commodities are being provided
              credit periods of up to 7 years. According to wood exporters, the short
              credit periods provided for wood products are unfair and are preventing
              export sales to certain countries that require longer credit periods.
              The Treasury rationale for providing shorter credit periods for wood
              products appears to be valid but it is not being consistently applied to
              wood and several other commodities exported under the GSM-102 pro-
              gram. If the U.S. government is seriously concerned about undermining
              the OECD Consensus, it should apply its rationale for preventing the
              undermining of the OECD Consensus more consistently to all appropriate
              commodities. However, if the U.S. government believes that the treat-
              ment of wood products under the OECD Consensus should be the same as
              other agricultural commodities, the United States should seek agreement
              among the OECD countries to have wood products, and possibly other
              appropriate commodities, be considered as agricultural commodities
              under the Consensus and, therefore, ,xempt from Consensus guidelines.


Scope and     We interviewed 23 exporters of wood and wood products located in Ala-
              bama, Florida, Georgia,   New York, Oregon, and Washington. Fifteen of
Methodology   them had used the GsM-102 or P.L. 480 programs. We examined the extent
              of their participation in the programs and discussed their experiences
              with them. We also obtained and evaluated their comments about pro-
              gram problems or suggestions for improvements. The exporters we
              interviewed accounted for 76 percent of the $553 million of wood prod-
              ucts sold under GSM-102 in calendar years 1987 through 1989.

              To obtain a broader, industrywide perspective, we also interviewed rep-
              resentatives of 10 industry associations.

              To determine the reasons for denying longer credit periods for wood
              products, we interviewed officials from the Export-Import Bank and the
              Department of Treasury and reviewed the OECD Consensus on export
              credits.
              We reviewed ccc records on commodity exports under the programs and
              met with ccc officials to obtain information on wood export sales under
              the GSM-102/103 programs.



              Page 8                                   GAO/NSUAD104 I[tentaUoal Trde
B24060s




We conducted our work from February through July 1990 in accordance
with generally accepted government auditing standards. As you
requested, we did not obtain official agency comments on this report.
However, we discussed the contents with cognizant agency officials, and
their comments have been incorporated in the report as appropriate.

As agreed with your office, un~ios you publicly announce its contents
earlier, we plan no further distribution of this report until 14 days from
the date of this letter. At that time, we will send copies to the Chairmen
of the House and Senate Agriculture Coiamittees and to the Secretaries
of Agriculture and T-; asury. We will also make copies available to
others upon request.
Staff members who .made major contributions to the report are listed in
appendix I. If you have any questions regarding this report, I can be
reached at (202) 275-4812.

Sincerely yours,




Allan I. Mendelowitz, Director
Trade, Energy, an.d Finance Issues




PA& 9                                     GAO/NSUVDUM      atumadoA Ttu
 Appendix 1

 Major Contributors to This Report


 National Security and    Phillip J. Thomas, Assistant Director
                          N. Scott Einhorn, Project Manager
International Affairs     Lewis S. Peterson, Adviser
Division,
Washington, D.C.

Seattle Regional Office   Leo H.Kenyon, Senior Evaluator
                          Carole J. Moore, Evaluator




(4JU41)                   Pase 10                                 GAO/NIAiD40.   4 1itematioal Trade
                                      -9




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