oversight

International Trade: Iraq's Participation in U.S. Agricultural Export Programs

Published by the Government Accountability Office on 1990-11-14.

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

Nownllwr    1990
                    INTERNATIONAL
                    TRADE
                    Iraq’s Participation in
                    U.S. Agricultural
                    Export Programs


                                      142766




GAO,‘NSIAI)-91-76
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_--..~-      ---                                                                                                      -
United States
General Accounting Office
Washington, D.C. 20648

National Security and
International Affairs Division

B-227616

November 14,199O

The Honorable Charles E. Schumer
Chairman, Task Force on Urgent Fiscal Issues
Committee on the Budget
House of Representatives

Dear Mr. Chairman:

At your request, we have examined Iraq’s participation in the U.S.
Department of Agriculture’s Export Credit Guarantee Programs”’
(GSM-1021103) which promote U.S. agricultural exports. Under these
programs, the Commodity Credit Corporation (ccc) guarantees that U.S.
exporters or their assignees’ will be repaid for a credit sale made to a
foreign buyer in an eligible country. If the buyer defaults, the exporter
can file a claim with ccc for the loss. Under GSM-102, ccc guarantees
repayment for credit sales of 3 years or less; under GSM-103, CCC guar-
antees repayment for credit sales of more than 3 but less than 10 years.

This report 1) provides information on the development of Iraq as a U.S.
agricultural export market and the extent to which Iraq has benefited
from U.S. government agricultural export programs since its inclusion in
the GSM program in 1983; 2) examines agricultural, trade, and foreign
policy considerations that influenced decisions to continue offering
guarantees to Iraq under the GSM program despite a growing concern
about Iraq’s creditworthiness;2 and 3) discusses GSM program irregulari-
ties recently surfaced by the Justice Department’s investigation of a
bank’s unauthorized and unreported loans to Iraq and a subsequent
administrative review by the Department of Agriculture.3




’ An assignee may be any financial institution in the United States desiring to participate in these
programs. This allows the exporter to obtain immediate payment on the credit sale by assigning the
account receivable and the repayment guarantee.

‘As used in the context of this report, creditworthiness is defined as a country’s ability and intention
to make payments on debts. This ability can be influenced by economic, political, and financial
factors.
“On Ck%ober16,19!%, we testified before the House Committee on Banking, Finance and Urban
Affairs on Iraq’s participation in the Commodity Credit Corporation’s GSM-102/103 export credit
guarantee programs: Report on the Commodity Credit Corporation’s GSM-102/103 Export Credit
Guarantee Programs and Iraq’s Participation in the Programs (GAO/l-NV



Page 1                                                        GAO/NSIAB91-76       International   Trade
                   B-227016




                   On August 2, 1990, the President announced a trade embargo on Iraq,
Results in Brief   including a prohibition on granting credits for the purchase of U.S. agri-
                   cultural commodities. At that time, the ccc had a $2 billion liability
                   under its export credit guarantee programs (GSM-102/103) covering
                   loans to Iraq. Under current conditions these loans are not, being repaid,
                   and ccc may have to cover its guarantees.

                   Increasingly larger export credit guarantees were approved for Iraq
                   from fiscal year 1983 through fiscal year 1989, eventually totaling
                   approximately $4.5 billion. Another $500 million was approved for
                   fiscal year 1990. Even though Agriculture’s risk analysis documents for
                   fiscal years 1989 and 1990 rated Iraq as a high-risk market for granting
                   substantial credit guarantees, Agriculture continued to approve credit
                   guarantees through fiscal year 1990. It seems that the U.S. desire to
                   build a strategic and agricultural trade relationship with Iraq out-
                   weighed the apparent financial risks involved and discounted evidence
                   of Iraq’s human rights violations.

                   In addition, Iraq participated in other agricultural export development
                   programs. Under the Export Enhancement Program U.S. exporters
                   received an estimated $157.2 million in bonuses to facilitate Iraqi
                   purchases of about $509.8 million in agricultural commodities from
                   fiscal years 1986 through 1990. Moreover, over the same time period the
                   Targeted Export Assistance and Cooperator Foreign Market Develop-
                   ment Programs together provided $1.9 million in market development
                   assistance to US. commodity groups targeting the Iraqi market.

                   Beginning in June 1988, Iraq’s participation in the GSM program came
                   under the scrutiny of Agriculture and Justice Department investigators.
                   At that time, Agriculture’s Office of the Inspector General began an
                   investigation of the export of foreign origin tobacco to Iraq, which was
                   later turned over to the Justice Department. Then in August 1989, the
                   Office of the U.S. Attorney for the Northern District of Georgia was
                   notified that officials at the Atlanta branch of the Italian-owned Banca
                   Nazionalc de1 Lavoro had been keeping a second set of books and had
                   advanced unauthorized and unreported loans to Iraq. This discovery led
                   to the initiation of a grand jury investigation by the Office of the U.S.
                   Attorney, U.S. Department of Justice, focusing on bank fraud and eva-
                   sion of bank regulatory requirements. Agriculture’s Office of the
                   Inspector General joined the investigative team in September 1989,
                   when it learned that approximately $750 million of these loans were




                   Page 2                                      GAO/NSIAD-91-76   International   Trade
             B-227616




             guaranteed by ccc. By October 1989, Agriculture had initiated a sepa-
             rate administrative review of Iraq’s participation in the GSM-102/103
             program.

             As a result of the preliminary findings of the Banca Nazionale de1
             Lavoro investigation and the implications of GSM program irregulari-
             ties, Agriculture adopted a more cautious approach to providing addi-
             tional GSM guarantees to Iraq. Agriculture offered only one-half of the
             requested $1 billion in credit guarantees for fiscal year 1990, with the
             remainder dependent on the results of the ongoing Justice investigation.
             This initial $500 million was quickly exhausted, and in February 1990
             Iraq requested additional guarantees. Review of this request was still
             underway when Iraq’s August 1990 invasion of Kuwait and the subse-
             quent trade embargo brought to a halt all forms of assistance to Iraq,
             including credit guarantees. Appendix I contains a chronology of events
             that have affected U.S.-Iraqi agricultural trade relations and foreign
             policy and that have influenced the extent of Iraq’s participation in US.
             agricultural export development programs.


             Iraq is heavily dependent on agricultural imports because of its high
Background   population growth rate and limited arable land. By 1990, Iraq was
             importing more than 75 percent of its food needs. The United States had
             been a major food supplier to Iraq, accounting for about one-third of its
             total $2.9 billion in agricultural imports in 1988 and $2.5 billion in 1989.
             Iraq ranked as the 12th largest market for U.S. agricultural products.
             Australia, Canada, the European Community, and Turkey have also
             been major suppliers of agricultural commodities to Iraq.

             The availability of foreign credit has been an important factor in Iraq’s
             agricultural import decisions because of foreign exchange shortages and
             a large external debt. Iraq has been consumed with economic reconstruc-
             tion as a result of its S-year war with Iran. To date, Iraq has focused on
             modernizing its military capabilities and its oil-exporting facilities. The
             oil sector had provided about 95 percent of Iraq’s foreign exchange
             earnings. War damage to its oil export facilities, restrictions on its ports
             and pipelines, and a decline in oil prices due to overproduction by other
             suppliers constrained Iraq’s ability to generate revenue. As a result, Iraq
             turned to extensive external borrowing. Total external debt owed to
             creditors in non-Arab countries increased from about $8 billion in 1984
             to estimates of between $30 billion to $50 billion in 1990. In addition,
             Iraq owed an estimated $50 billion to Arab Gulf states. Many of the
             major debts have been rescheduled at least once.


             Page 3                                       GAO/NSIAD-91-76   International   Trade
B-227616




More than 90 percent of total U.S. agricultural exports to Iraq can be
directly attributed to the GSM-102 credit guarantee program. In fiscal
year 1982, the year before Iraq first participated in the GSM-102 pro-
gram, Iraq’s agricultural imports from the United States totaled less
than $135 million. In fiscal year 1983 Agriculture approved $401.9 mil-
lion in export credit guarantees for Iraq. At that time, the United States
and Iraq were working on reestablishing diplomatic relations, which had
been severed in 1967. Also during that time, Iraq was in the middle of its
8-year war with Iran, and the United States was seeking ways to assist
Iraq. For fiscal year 1989 Agriculture approved $1.1 billion in guaran-
tees. Iraq had become the largest export market for U.S. rice. Other
major exports have been wheat, feed grains, oilseed products, cotton,
sugar, dairy products, poultry, and tobacco.

In addition, Iraq has benefited from other agricultural export develop-
ment programs, including the Export Enhancement Program. Under this
program, U.S. exporters received an estimated $157.2 million in bonuses
to facilitate Iraqi purchases of an estimated $509.8 million in wheat,
wheat flour, feed grains, and other agricultural products. These bonuses
allowed US. exporters to lower their prices and make their goods com-
petitive with other countries’ subsidized agricultural exports. The com-
bination of the Export Enhancement Program with GSM guarantees
allowed Iraq to buy US. agricultural commodities at competitive prices
on credit. Agriculture’s Targeted Export Assistance and Cooperator For-
eign Market Development Programs have also focused on the Iraqi
market in their efforts to promote U.S. agricultural commodities.
Between fiscal years 1986 and 1990, these programs together provided
$1.9 million in market development assistance to US. commodity groups
targeting this market. Appendix III provides more detail on these other
export development programs targeted to Iraq.

Since the GSM export credit guarantee program began, Mexico, South
Korea, and Iraq have received the largest loan guarantees of all partici-
pating countries. Agriculture’s Foreign Agricultural Service (FAS)
administers ccc export credit guarantee programs. FAS determines which
countries may participate based on their long-term agricultural needs,
the market development opportunity for US. agricultural commodities,
and the ability to repay any credit extended. Because the programs also
provide economic benefit to foreign governments, their use can be influ-
enced by U.S. foreign policy considerations.

As part of the decision-making process for determining GSM program
allocations, FAS staff develop country risk profiles that in the past have


Page 4                                      GAO/NSIAD-91-76 International   Trade
                       5227616




                       been mainly qualitative in nature. These profiles discuss a country’s eco-
                       nomic, financial, and political strengths and weaknesses.

                       Since the program began in 1983, FAS has approved Iraq’s participation
                       in the GSM programs based on its enormous market development poten-
                       tial for U.S. agricultural exports and its long-term ability to repay its
                       debts due to extensive oil reserves. Because of increasing concern about
                       limiting ccc’s exposure, FAS developed new risk analysis procedures
                       which were used for fiscal year 1991 program allocations. These new
                       procedures are more quantitative and focus on financial risk. FAS views
                       the new procedures as a means of specifying the tradeoff between credit
                       risk and market development. Appendix IV provides detail on the GSM
                       decision-making process, including risk analysis.


                       Since the inception of the GSM-102/103 programs and continuing
Evolution of Iraq’s    through fiscal year 1990, Iraq has received approximately $5 billion in
Participation in the   GSM export credit guarantees. Its participation in the program grew
GSM-102/103            from 8 percent of the total credit guarantees approved in fiscal year
                       1983 to a high of 26 percent in fiscal year 1988, when Iraq received over
Programs               $1 billion in credit guarantees, making it the second largest guarantee
                       recipient for that year. The same program level was provided for fiscal
                       year 1989, despite growing concerns over Iraq’s creditworthiness.

                       For fiscal year 1990, Iraq requested over $1 billion in GSM-102/103
                       export credit guarantees. Agriculture took a more cautious approach
                       and only offered $600 million in credit guarantees. This reduced amount
                       reflected 1) concerns about Iraq’s creditworthiness raised in risk assess-
                       ment documents and during consultations with members of the National
                       Advisory Council on International Monetary and Financial Policies and
                       2) Agriculture’s apprehension about findings of possible program irregu-
                       larities surfacing in ongoing investigations and their implications for the
                       integrity of the overall GSM program.

                       The National Advisory Council is an interagency group that gives advice
                       and recommendations to government agencies, such as Agriculture, on
                       international financing matters including Agriculture’s decisions to
                       extend GSM credit guarantees. (See app. V for more detailed information
                       on Council operations.) Final decision authority for providing GSM
                       credit guarantees rests with the Department of Agriculture. Council
                       members include the Departments of Treasury and State, the Federal




                       Page 5                                      GAO/NSIAD-91-76   International   Trade
B-227616




Reserve Board, and the U.S. Export-Import Bank. Council members dis-
cuss GSM-102/103 proposals from each of their perspectives, high-
lighting issues dealing with foreign policy, financial risk, and trade
considerations.

In the case of Iraq, the U.S. desire to build a strategic and agricultural
trade relationship with Iraq seemed to have outweighed the apparent
financial risks involved with providing credit guarantees and to dis-
count evidence of Iraq’s human rights violations. Over the last few
years, several U.S. executive branch agencies stated to Congress and to
other groups their concerns about Iraq, including its creditworthiness,
its practice of repaying countries that offer further credits while
ignoring repayments to countries that do not offer further credits, and
its human rights violations. Despite these concerns, Agriculture con-
tinued to place a high priority on Iraq as a market for U.S. agricultural
products.

In the summer of 1988, Congress was considering imposing economic
sanctions on Iraq for its use of chemical weapons against its Kurdish
population. At the same time, Agriculture was seeking approval to real-
locate $36.5 million in fiscal year 1988 export credit guarantees to Iraq
from the existing credit lines of other countries. On September 22, 1988,
eight senior level FAS program staff addressed a memo to the ccc General
Sales Manager expressing strong concern over ccc’s vulnerability should
Congress impose sanctions on Iraq. They warned the General Sales Man-
ager that further extension of credit guarantees could expose CCC to
additional liability should sanctions be approved. The staff believed
that, based on past Iraqi statements and actions, Iraq would stop pay-
ments on its outstanding credit guarantees in retaliation for such con-
gressional action. Despite these concerns, the reallocation was approved
by the General Sales Manager because 1) Iraq was current on payments
to the United States, 2) Iraq was a growing U.S. agricultural market, and
3) Agriculture had no concrete evidence that the Iraqi government had
used chemical weapons against the Kurds. Ultimately the sanctions leg-
islation, which was opposed by U.S. agricultural interests, was defeated.
Appendix II provides more detailed information on the evolution of
Iraq’s participation in the GSM program.




Page 6                                      GAO/NSIAD-91-76   International   Trade
                          B-227616




                          Since June 1988, there have been several investigations of the GSM-102/
Investigations Into       103 programs to Iraq. The investigations have included those conducted
Program   Impropfieties   by Agriculture’s Office of the Inspector General and its Foreign Agricul-
                          tural Service, the Justice Department, the U.S. General Accounting
                          Office, and Italy’s Senate.

                          In June 1988 the Office of the Inspector General began an audit to deter-
                          mine whether or not foreign origin tobacco was being exported under
                          the GSM-102/103 programs to countries, including Iraq, and being repre-
                          sented as U.S. origin tobacco. Its findings led to a criminal investigation
                          of the matter conducted by the Department of Justice’s U.S. Attorney in
                          Raleigh, North Carolina. The investigation resulted in eight tobacco
                          exporting companies pleading guilty to filing false statements with
                          either Agriculture or U.S. Customs regarding the export of tobacco to
                          Egypt or Iraq.

                          In August 1989, allegations were raised that led to an investigation of
                          the banking activities of the Atlanta branch of the Banca Nazionale de1
                          Lavoro, an Italian-owned bank operating in the United States. This
                          investigation is being conducted by a task force of federal agencies and
                          is being led by the U.S. Attorney in Atlanta, Georgia. It has been
                          reported that the Atlanta branch of Banca Nazionale de1 Lavoro made
                          some $2 billion in loans to Iraq without higher level Banca Nazionale de1
                          Lavoro bank authorization. Approximately $750 million of these loans
                          had repayment guarantees under the GSM-102/103 programs. The
                          investigation is still ongoing, and little information has been made
                          public. Banca Nazionale de1 Lavoro is largely owned by the government
                          of Italy, and a special investigative committee of the Italian Senate has
                          been formed to conduct its own investigation into the affair.

                          In October 1989 FAS initiated an administrative review of the GSM-102
                          program for Iraq. Its review was limited to transactions made by Banca
                          Nazionale de1 Lavoro, and focused on four issues: (1) the actual arrival
                          in Iraq of agricultural commodities shipped under the GSM program,
                          (2) the payment of certain Iraqi domestic taxes on GSM sales, (3) unusu-
                          ally high commodity prices charged for GSM-guaranteed sales to Iraq
                          and financed through Banca Nazionale de1 Lavoro, and (4) the provision
                          of after sales services4 in connection with GSM sales,

                          4These services included providing nonagricultural products, such as truck parts, tires, and air condi-
                          tioning equipment, some of which could have military application. Agriculture’s Foreign Agricultural
                          Service first advised Iraq in September 1988 that providing these services was not acceptable under
                          the GSM program, however, Iraq continued to request such services until April 1990, when FAS
                          obtained a written commitment from Iraq that such requests would cease.



                          Page 7                                                       GAO/NSIAD-91-76      International   Trade
              B-227610




              In May 1990 Agriculture released the results of its administrative
              review. It found no evidence of diversion of commodities sold to Iraq. In
              addition, it announced that Iraq had agreed to exempt GSM credit guar-
              antee program transactions from its domestic tax policy. However, the
              review identified two key areas for further review-the extent and
              reason for high commodity pricing in certain GSM transactions, and the
              extent to which after sales services were provided and properly
              reported in connection with GSM sales. The administrative review was
              not a comprehensive analysis of all GSM transactions with Iraq but
              rather an examination of a limited number of transactions and issues
              that were identified as a result of the Banca Nazionale de1 Lavoro inves-
              tigation. Consequently, Agriculture asked its Office of the Inspector
              General to conduct a more thorough review of all GSM sales to Iraq.
              Appendix VI provides greater detail on the Banca Nazionale de1 Lavoro
              investigation and Agriculture’s administrative review.


              We examined the extent of Iraq’s participation in all agricultural export
Scopeand      development programs and reviewed the history of events leading to the
Methodology   extension of export credit guarantees to Iraq. We also reviewed the risk
              analysis procedures employed by Agriculture as well as the interagency
              process it uses to receive guidance on proposals. Finally, we examined
              the extent of Iraq’s involvement in recent GSM program violations and
              the irregularities uncovered during Justice Department and Agriculture
              investigations.

              We interviewed officials from the Departments of Agriculture and State
              in order to determine their roles and positions concerning Iraq’s partici-
              pation in the GSM programs. We also interviewed the former CCC Gen-
              eral Sales Manager. We reviewed pertinent files on Iraq’s participation
              in agricultural promotion programs.

              Our review was somewhat limited because the Departments of State and
              Treasury denied us access to National Advisory Council minutes and
              some key documents, stating that they contained information that was
              deliberative in nature. However, we did obtain information about
              National Advisory Council discussions from interviews with other
              member agency officials and by reviewing informal notes taken at the
              meetings.

              As requested, we did not obtain agency comments on this report. We
              performed our work from August 1990 to October 1990 in accordance
              with generally accepted government auditing standards.


              Page 8                                      GAO/NSIAD-91-76   International   Trade




                                                                       .
                                                                                    ”
&227616




As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 20 days from
the date it is issued. At that time, we will send copies to the Secretaries
of Agriculture, State, and Treasury. Copies will also be made available
to other interested parties upon request.

This report was prepared under the direction of Allan I. Mendelowitz,
Director, International Trade, Energy, and Finance Issues. He can be
reached on (202) 2754812 if you or your staff have any questions.
Other major contributors to this report are listed in appendix VII.

Sincerely yours,




Frank C. Conahan
Assistant Comptroller General




Page 9                                       GAO/NSIAD-91-76   International   Trade
Contents


Letter
Appendix I
Chronology of U.S.-
Iraqi Agricultural
Trade Relations and
Foreign Policy, 1983-
1990
Appendix II                                                                                             15
Evolution of Iraq’s       The GSM Program to Iraq
                          Country Risk Analysis
                                                                                                        15
                                                                                                        16
Participation in the      Interagency Deliberations on Iraq’s Participation in GSM                      16
GSM Program               Limited Fiscal Year 1990 Allocation for Iraq                                  19
                          State Department Position on Iraq                                             21

Appendix III                                                                                            22
Iraq’s Participation in   The Export Enhancement.Program
                          The Targeted Export Assistance and Cooperator
                                                                                                        22
                                                                                                        23
Other Agricultural            Programs
Export Development
Programs
Appendix IV                                                                                             25
The GSM Decision-         The GSM Programs                                                              25
Making and Risk
Analysis Processes
Appendix V
The Interagency
Processfor Discussing
U.S. Loan Guarantees



                          Page 10                                   GAO/NSIAD-91-76   International   Trade
                         Content8




Appendix VI                                                                                             32
The Banca Nazionale      The Banca Nazionale Del Lavoro Investigation
                         Administrative Review of the GSM-102 Program for Iraq
                                                                                                        32
                                                                                                        33
Del Lavoro and
Related Investigations
                                                                                                        -
Appendix VII                                                                                            35
Major Contributors to    National Security and International Affairs Division,
                              Washington, DC.
                                                                                                        35

This Report
Tables                   Table II. 1: Iraq’s Participation in CCC’s GSM Export                           15
                             Credit Guarantee Programs
                         Table III. 1: Commodities Sold to Iraq Under Agriculture’s                     23
                             Export Enhancement Program
                         Table 111.2:Market Development Activities in Iraq, Fiscal                      24
                             Years 1986-1990
                         Table IV. 1: Total Credit Guarantees Approved Under                            26
                             GSM-102 and GSM-103 Programs, Fiscal Years
                              1981-1990
                         Table IV.2: CCC’s Contingent Liability Under the                               27
                             GSM-102/103 Programs for Iraq




                         Abbreviations

                         BNL         Banca Nazionale de1 Lavoro
                         ccc         Commodity Credit Corporation
                         FM          Foreign Agricultural Service
                         NAC         National Advisory Council on International Monetary and
                                        Financial Policies


                         Page 11                                     GAO/N&ID-91-76   International   Trade
Appendix I

Chronology of U.S.-IraqiAgricultural Trade
elations and Foreign Policy, 19834990


1983              Iraq begins participating in Agriculture’s GSM program, with an initial allocation of $401.9 million in export
                  credit    guarantees.
                     -..--..-----                           ~---
1984, March       U.S. Department of Commerceembargoes                   shipments to Iraq of severalchemicals usually used in agriculture
                  but which could be used to make chemical weapons.
1984, November    Diplomatic relations between the United States and Iraq, which were broken off in 1967, are restored. Iraq is
                  removed from the State Department’s list of countries supporting terrorism, on which it was placed in 1979.
1988              Iraq’s GSM-102 approved guarantees rise to a high of $1 billion for fiscal year 1988.
1988, March       l&ring a:day’batneo;erthecity-.otHalabja,                 an Iraqi Kurdish village about 150 miles north of Baghdad, Iran
                  and Iraq use chemical weapons and kill between 4,000 and 5,000 civilians.                          -.
1988, June        Agriculture initiates an investigation into the &port of foreign origin tobacco to Iraq. This inquiry was later
                  turned over to the Justice        Department.
                                                ----~--
1988. August      Iraq and Iran accept a UN Security Council cease-fire to end their 8-year war and begin peace negotiations.
                  In interagency meetings of the National Advisory Council on International Monetary and Financial Policies                        -
                  (NAC), two members oppose the proposed $1 billion for fiscal year 1989 in GSM-102 credit guarantees and
                  recommend a limit of $600 million, citing Iraq’s huge deficit and its practice of rescheduling its debt bilaterally.
                  Another member favors the $1 billion program level and even discusses the possibility of increasing it.
                  The U.S. Export-Import Bank experiences arrearage problems with Iraq.
1988, September   Less tha~~~~&$%before the scheduled fiscal year 1989 GSM consultation&with Iraq are to take place, the US:
                  Senate passes chemical warfare legislation directly targeting Iraq. As a result, Iraq cancels the consultations.
                  The legislation is weakened in conference but still targets Iraq. Iraq says the cancellations will jeopardize the
                  GSM program and the servicing of past debt. Because of agricultural and foreign policy considerations, the
                  sanctions are removed    -..-~-from the legislation, which passes in late December 1988.
                  Agriculture announces an increase in Iraq’s fiscal year 1988 GSM credit guarantees by $36.5 million.
1988, October     Consultations on fiscal year 1989 GSM program allocation for Iraq are held in Baghdad. ____-.-.-...-
i989              Iraq is allocated    $1 billion in GSM-102
                              ~.~~ ~-_~_-_c__-.--          ~- and $50 million in GSM-103 for fiscal year 1989.
1989, August      Only the United States and Great Britain offer agricultural export credit to Iraq.
                  The Office oiiheU.S.-AitorneyfortheNorthern                 District of Georgia receives allegation of Banca Nazionale del
                  Lavoro (BNL) improprieties.
1989, September   Agnculture’s Office of the Inspector General joins the BNL investigation.
                  Agriculture submitsa-proposal.toi~~NAC                for an additional $30 rnillionincsMrio2~~~~q       for fiscal year 1989
                  and $1 billion in GSM-102 for fiscal year 1990. Members request that this proposal be withdrawn until more
                  Information on the BNL investigation is available.
1989. October     Agriculture resubmits its proposal to the NAC for $1 billion in GSM-102 guarantees to Iraq for fiscal year 1990.
                  Two NAC members oppose the $1 billion amount. Other council members approve this amount.
                  Agriculture andlraqholbconsultationsjngton,                         D.C., to discuss a GSM:Gprogram        for fiscal year 1990.
                  Agriculture offers $400 million in GSM-102. Iraq rejects this offer because it wants the full amount approved and
                  does not want to be tied to the BNL investigation unless concrete evidence of complicity is found. Agriculture
                  withdraws the $400 million offer.
1989, November    Agriculture officials go to Iraq to continue negotiations on fiscal year 1990 GSM allocations. An offer of $500
                  million in GSM-102 is made, with the possibility of another tranche of $500 million after successful conclusion of
                  the BNL investigation. Iraq accepts the first $500 million, but again does not want to accept any conditions on
                  further GSM allocations.                          -------_-
1990. February    Iraq requests ar-.addit&al$&‘3           million in GSM-102 for fiscal year 1990. Agriculture will not announce a further
                  allocation until the BNL investigation and the Office of the Inspector General review are completed.
                                                                                                                                       (continued)




                                        Page 12                                                         GAO/NSIAD-91-76      International   Trade
                                              Appendix I
                                              Chronology     of U.S.-Iraqi Agricultural   Trade
                                              Relations    and Foreign Policy, 19881SS0




___..-.
    _.,.__-    .-   .._ __-.._~-.. _..                                --
1990, April             Senate bill 2480 is introduced, stating that no assistance (grant, sale, loan, lease, credit, guarantee, or
                        insurance) may be furnished to Iraq unless the President certifies that Iraq has opened its nuclear, chemical,
                        and biological sites to international inspection. Also, Iraq’s most-favored-nation status will be revoked. (Bill
                        does not pass Senate.)   ----.-.---___-                                                                            I_-
                        House bill 4585 is introduced calling for the prohibition of sales to Iraq, through foreign military sales or
                        commercial means, of military, dual use, chemical or nuclear equipment, devices, or technology. (Bill passes
                        House, but not Senate.)              ___-__                   __
1990, May               Agriculture releases a report based on an administrative review of the GSM program to Iraq. The report focus&
                        on a limited set of transactions and issues identified as part of the BNL investigation. Results suggest further
                        study bv Aqriculture’s Office of the Inspector General.
                        House bill 4918 is introduced calling for a ban on U.S. assistance to Iraq unless the President determines Iraq
                        has opened its nuclear, chemical, and biological sites to international inspection and has improved its human
                        rights practices. The bill also directs Treasury to oppose loans to Iraq by international financial institutions,
                        revokes Iraqi air carrier landing rights in the United States, and ends most-favored-nation trade status. (Bill
                     ~~ does
                        .._..-.- not  pass House.).------ _____.
                                  -“----.-
1990, June    -.        Assistant Secretary of State for Near Eastern and South Asian Affairs testifies before the Senate Foreign
                        Relations Committee that the administration opposes congressionally imposed sanctions against Iraq for the
                        following four reasons: 1) They would not achieve U.S. goals in Iraq; 2) other nations would not join the
                        embargo, makinq it a weak move; 3) the administration’s policy is to avoid using aqricultural trade to pursue
                        foreign-policy goals; and 4) the sanctions would increase ihe U.S. foreign trade‘be%it.                 --------
                        Senate bill 2779 is introduced. It prohibits US funds, credits, auarantees. or insurance to be used for lraai
                        Imports Into the United States; names Iraq a terrorist nation; b&s Export-import Bank assistance for Iraq;‘and
                        directs the President to conduct a study on Iraqi military capability, transfers of nuclear, biological, chemical,
                        and ballistic missile technology to Iraq, and other nations’ economic sanctions against Iraq. (Bill does not pass
                        Senate.)
                        Senate bill 2787 is introduced, directing the President to enforce all laws imposing sanctions for Iraq’s
                        violations of human rights and banning financial credits and assistance for Iraq unless Iraq complies with
      ._.-              certain international agreements. (Bill --- does not pass
                                                                              __-. Senate.)                            ___--
i9iCi July              The Foreign Agricultural Service’s (FAS) new risk analysis procedures lead to a recommendation of limiting Iraq
                        to $200 million in GSM-102 guarantees for fiscal year 1991. FAS also recommends that this amount only be
                        provided if there is a successful resolution of the BNL investigation and if Iraq agrees to pay its arrearages to
                        the Export-Import Bank.                            _____-
                        Iraqi President Saddam Husseinaccuses Arab oil producers of exceeding their Organization of Petroleum
                        Exporting Countries oil production quotas, which, according to Hussein, decreased oil prices and deprived Iraq
                        of much-needed oil revenues.
                        The United Stat& puts-its Persian Gulf naval force on alert. ___..____     -__                           ___--___-..
                        Senate bill 2830 is introduced, amending the Food, Agriculture, Conservation, and Trade Act of 1990. The bill
                        instructs the President to enforce laws that would impose sanctions on Iraq, denying credits, assistance, or
                        financial benefits until the President certifies that Iraq abides by international law. It also directs the President
                        to report to Congress on the economic consequences of banning oil imports from Iraq. (Bill passes both Senate
                        and House, awaitrng President’s signature.)                                        -___
                        House bill 3950 is introduced. It calls for denial of agricultural promotion programs for countries that do not
                        respect human rights: that acquire chemical, biological, or nuclear weapons; and that support international
                        terrorism. (Bill is incorporated into Senate bill 2830 above.)
                                                                                                                                       (continued)




                                             Page 13                                                     GAO/NSW91-76        International   Trade
                                               Appendix I
                                               Chronology of U.S&aqi Agrkultural    Trade
                                               ReIationa and Fore&n Policy, 1993.1990




  ..I-,-- .- ..-.--._-..-
1990. Auaust                 lraa invades and occupies Kuwait.
                            Senate Resolution 318 is passed, urging the President to seek international cooperation in imposing sanctions
                            on Iraq.
                             President George Bush imposes economic sanctions against Iraq.
                             lraa ceases pavment on all debts to U.S. creditors, includino $2 billion in export credit guaranteed loans.
                             House bill 5431 is introduced which freezes Iraqi assets in the United States; bans trade, transportation links,
                             munitions sales, and foreign assistance for Iraq; and directs the President to prevent any international financial
                             institutions from orovidina loans to Iraa. (Bill passes House but not Senate.)
                            The United Nations Security Council votes 14 to 0, with Yemen abstaining, to pass a resolution condemning the
                            -Iraqi action and demanding the immediate withdrawal of Iraqi forces from Kuwait.
                            An Arab League emergency meeting of foreign ministers condemns the Iraqi invasion and calls for an
                             immediate lraai withdrawal from Kuwait.
                            The United States announces that air, sea, and ground elements of U.S. defense forces have been sent to
_. .__.-_.-__-.- --          Saudi Arabia and surrounding waters to deter an Iraqi attack against Saudi Arabia.
1990. Saotember              lraa is aaain placed on the Department of State’s list of states aiding and abetting terrorism.
                                               Source: This chronology was largely adapted from a Congressional Research Service report entitled
                                               “Iraq: U.S. Economic Sanctions,” 1890109,(Washington, DC.: updated Aug. 8, 1990).




                                               Page 14                                                     GAO/NSIADBl-76      International   Trade
Appendix II

Evolution of Iraq’s Participation in the
GSMProgram

                                           Iraq’s participation in Agriculture’s GSM program grew from 8 percent
                                           of the total export credit guarantees approved in fiscal year 1983 to a
                                           high of 25 percent in fiscal year 1988. In that year Iraq received over
                                           $1 billion in GSM-102 guarantees, making it the second largest recipient
                                           of GSM credit guarantees during that year. The same program level was
                                           provided for fiscal year 1989, despite growing concerns over Iraq’s
                                           creditworthiness. Based on the Foreign Agricultural Service’s rationale
                                           for providing such large amounts to Iraq, it appears likely that Iraq
                                           would have received the same program level ($1 billion for fiscal year
                                           1990) were it not for the BNL investigation and the discovery of other
                                           program irregularities involving Iraq. It also appears that foreign policy
                                           played at least as large a role in determining Iraq’s GSM program levels
                                           as did market development potential, according to conversations we had
                                           with FAS and State Department officials.


                                           Export credit guarantees approved for Iraq increased from about
The GSM Program to                         $400 million in fiscal year 1983 to about $1.1 billion in each of fiscal
Iraq                                       years 1988 and 1989. Another $500 million was approved for fiscal year
                                           1990. (See table 11.1.)

Table 11.1:Iraq’s Participation in CCC’s
GSM Export Credit Guarantee Programs       Dollars in millions
                                                                                            Total guarantees       Guarantees        Percent
                                           Fiscal year                                              approved            to Iraq       to Iraq
                                           1983                ---. -..----~---__--.__-.               $x,737.@           $401.9               8
                                           1984                                                         3,431.2             513.3             15
                                           1985                                                         2.512.8             340.1             14
                                           1986
                                              _.__.- ..--... - -.._. .._ ..- -.-- ~..                   2,535.1---___^      392.9             15
                                           1987                                                         2,872.g             652.5             23
                                           1988                                                         4,504.3.          1,113.2           - 25
                                           1989                                                         5195.3            1,088.8             21
                                           1990
                                              - ..-                                                     4,289.5             481.2             11
                                           Total                                                     $30,078.5           $4,983.9             17
                                           Tncludes $1,028.1 million under CCC’s Blended Credit Program, which combined direct loans with
                                           credit guarantees.
                                           Source: CCC Guarantee Program Commitment Reports prepared by the U.S. Department of Agricul-
                                           ture’s Foreign Agricultural Service, CCC Operations Division.


                                           FAS based approval of Iraq’s increased GSM participation on Iraq’s enor-
                                           mous market potential for U.S. agricultural exports (due to Iraq’s heavy
                                           dependence on imports for nearly all its food needs) and on its long-term
                                           ability to repay its debts (due to its huge oil reserves).



                                           Page 16                                                   GAO/NSIAD-91-76 International     Trade
                          Appendix II
                          Evolution of Iraq’s Participation   in the
                          GSM Program




                          When the GSM program was first offered to Iraq in 1983, the United
                          States and Iraq were working on reestablishing diplomatic relations,
                          which had been severed in 1967. Also during this time, Iraq was in the
                          middle of its &year war with Iran, and the United States was seeking
                          ways to assist Iraq. In addition, the U.S. farm sector was experiencing a
                          surplus of many commodities at this time. Despite some short-term
                          credit problems, Iraq seemed likely to once again become a cash market
                          and a significant market for U.S. agricultural commodities.


                          Agriculture’s country risk analysis for Iraq in 1988 indicated that its
Country Risk Analysis     economic situation had improved somewhat in 1987 and was expected
                          to continue to get better in 1988. However, it was noted that Iraq faced
                          severe economic difficulties because of its ongoing war with Iran. Iraq
                          was also expected to keep on deferring non-U.S. debts. From the mid-
                          1980s on, Iraq had pursued a policy of rescheduling old debt and
                          remaining current only on debt to those countries willing to extend new
                          credits. Despite concerns over such actions, FAS concluded that the risk
                          facing the Commodity Credit Corporation from Iraq’s credit initiatives
                          was likely to remain minimal.


                          FM consistently presented Iraq as a low-risk, high-potential market in
Interagency               meetings of the National Advisory Council on International Monetary
Deliberations on Iraq’s   and Financial Policies. While NAC members raised various concerns
Participation in GSM      about Iraq, the majority necessary for a NAC recommendation to grant
                          guarantees to Iraq was always present. As early as January 1985, one
                          member went on record against granting credit guarantees to Iraq. This
                          member cited concern about Iraq’s creditworthiness and strongly ques-
                          tioned Iraq’s capacity to service additional debt. In that meeting,
                          another member added that Iraq’s short-term debt had increased over
                          the last 2 years to the point where Iraq might be incapable of
                          rescheduling it.

                          Meanwhile, a third member of the NAC continued to express support for
                          additional credit guarantees while downplaying Iraq’s human rights vio-
                          lations. Through fiscal year 1989, the NAC continued to support
                          extending export credit guarantees to Iraq. Agriculture believed that it
                          was necessary to continue granting high guarantee levels to Iraq in
                          order to maintain Iraq as a major market for U.S. agricultural goods.




                          Page 16                                      GAO/NSIAD-91-76   International   Trade
Appendix II
Evolution of Iraq’s Participation   in the
GSM Program




In 1989 and 1990, Agriculture temporarily suspended Iraq’s line of
credit due to nonpayments on guaranteed loans. On at least two occa-
sions, the problems involved bank transfer difficulties. However, in
early 1990, a member of Agriculture’s Office of the General Counsel
admitted that “there is growing feeling within the U.S. government that
these repeated problems indicate more than simply bank transfer
problems, and raise fundamental issues of creditworthiness.” Neverthe-
less, it appears that decisions to extend export credit guarantees were
based on the belief that developing and sustaining the Iraqi market for
both agricultural trade and foreign policy considerations outweighed
Iraq’s questionable creditworthiness,

In 1988, Iraq had used chemical warfare against Iran and the Iraqi
Kurds. Nevertheless, the NACapproved continued allocation of export
credit guarantees to Iraq. In September 1988, when Congress was con-
sidering legislation that would have imposed sanctions on Iraq for its
use of chemical weapons, both Agriculture and State opposed these
sanctions. In a September 13, 1988, letter to the Chairman of the House
Foreign Affairs Committee, a senior State Department official reported
that Iraq had used chemical weapons in its campaign against the Iraqi
Kurdish population but noted that the United States attached great
importance to its bilateral relations with Iraq. This official also noted
that the United States had more to gain from maintaining a cooperative
relationship with Iraq than from isolating the country. Ultimately the
proposed sanctions were not enacted, partly due to foreign policy inter-
ests and pressure from US. agricultural trade groups.

Coinciding with congressional efforts to impose sanctions against Iraq,
Agriculture was seeking approval to reallocate $36.5 million in fiscal
year 1988 export credit guarantees to Iraq from existing credit lines
approved for other countries. Prices of U.S. commodities had increased
significantly, and without additional export credit guarantees, Iraq
would have been unable to meet its import requirements for the rest of
the year. Some Agriculture staff members expressed strong concern
over Iraq’s human rights atrocities as well as ccc’s vulnerability should
Congress impose sanctions on Iraq. In a September 22,1988, memo to
the CCC General Sales Manager about a press release announcing over
$30 million in additional loan guarantees to Iraq, eight senior Agricul-
ture staff members warned:

IIowever, we also note the strong likelihood that Iraq will not make scheduled pay-
ments for these purchases if the United States proceeds with economic/political
sanctions against Iraq, as is currently being strongly considered in Congress.Until



Page 17                                           GAO/NSIAJI-91-76   International   Trade
Appendix II
Evolution OPIraq’s Participation   in the
GSM Program




the specifics of this move toward sanctions are better known, we believe that the
immediate issuance of this press release would constitute an inordinately high
financial risk to the Corporation, with potential for program repercussions from
Congressional reaction.

Despite these concerns, approval was granted by the General Sales Man-
ager. According to FAS,this decision was made because (1) Iraq was cur-
rent on its payments under the GSM program; (2) without additional
credits, Iraq could not have maintained its import requirements, given
the higher commodity prices; and (3) the State Department’s official
position at that time was that no evidence existed linking the Iraqi gov-
ernment with the gassing of the Kurds. (This position conflicts with that
presented in the State Department official’s letter to the Chairman of
the House Foreign Affairs Committee.)

FASapproved a program level of $1 billion in GSM-102 and $50 million in
GSM-103 for Iraq for fiscal year 1989 based on Iraq’s long-term ability
to pay and on the market potential for U.S. agricultural exports, When
the NACconsidered this funding level in August 1988, two members
opposed the large size of the program and stated that $600 million was a
reasonable credit limit for Iraq, given its huge deficit and its policy of
bilateral rescheduling of debt. Another NACmember favored the $1 bil-
lion level and suggested the possibility of increasing it.

During 1988 and 1989, warning signs were building concerning Iraq’s
creditworthiness. According to an April 1989 analysis by one NAC
member, Iraq had rescheduled or refused to repay most payments owed
to foreign creditors. Only those creditors providing larger amounts of
new money were being repaid. Because of Iraq’s policy of rescheduling
old debt while at the same time taking on new debt, it was predicted
that Iraq’s debt would continue to grow at a faster pace than its income,
thus preventing it from being able to service its debt. According to an
internal Agriculture briefing document, by August 1989 only the United
States and Great Britain were offering credit to Iraq.

FASrisk assessment documents noted that Iraq was effectively tying
repayment of past debt to continued participation in the GSM export
credit guarantee program. Despite such problems, FASbelieved that it
had little choice but to continue the program because it feared that by
stopping or severely reducing the program the important Iraqi market
would be lost, and Iraq would refuse to pay its past ccc-guaranteed
loans.




Page 18                                          GAO/NSlAD-91-76   International   Trade
                      Appendix II
                      Evolution of Iraq’s Participation     in the
                      GSM Pro@am




                      FM proposed an additional $30 million in GSM-102 for Iraq for fiscal
Limited Fiscal Year   year 1989 and $1 billion in GSM-102 for fiscal year 1990. It submitted
1990 Allocation for   this proposal to the NAC in September 1989. Because of preliminary find-
Iraq                  ings from the BNL investigation and the discovery of possible improprie-
                      ties in the Iraqi GSM program, two members of the NAC requested that
                      discussion of the GSM program for Iraq be delayed pending the outcome
                      of the investigation.

                      In October, before the Iraqi delegation came to Washington to negotiate
                      its fiscal year 1990 GSM level, Agriculture resubmitted its $1 billion
                      GSM proposal to the NAC. FAS officials explained that Iraq had thus far
                      proved to be a good credit risk for CCC, that no evidence of wrongdoing
                      by the Iraqi government had been found in the BNL investigation, and
                      that lack of positive action on the GSM program would induce Iraq to
                      make its agricultural purchases elsewhere.

                      One member of the NAC supported the $1 billion level, noting that Iraq
                      had great strategic importance to the United States, Further, in NAC dis-
                      cussions about the fiscal year 1990 allocation, this member offered sev-
                      eral comments: (1) Although allegations concerning Iraq raised concern,
                      this member saw no reason to disapprove the fiscal year 1990 program
                      and (2) clear-cut Iraqi government involvement in any wrongdoing was
                      not evident, but some uncertainty did inevitably exist. This member rec-
                      ommended going ahead with a fiscal year 1990 allocation to Iraq, seeing
                      “...no financial difficulties looming where CCC guarantees would be
                      called ....”

                      However, that member was more negative in other forums where there
                      were discussions of a different issue that could have left CCC guarantees
                      vulnerable. In a February 1989 published report on human rights viola-
                      tions occurring in calendar year 1988, and in congressional testimony,
                      that member characterized Iraq’s human rights record as “abysmal” and
                      “unacceptable.” Yet in the NAC, that member chose not to present this
                      point of view, instead allowing discussions to center on commercial con-
                      cerns and bypass human rights issues.

                      Two NAC members opposed the $1 billion level. One of these members
                      had previously stated that a $600 million-$700 million limit was more
                      appropriate; now this member was unwilling to support any program
                      for Iraq unless assurances were given that the problems brought to light
                      by the BNL investigation were being addressed.




                      Page 19                                        GAO/NSIAD-91-76   International   Trade




                                                     , .,
Appendix II
Evolutlon of Iraq’s Participation   in the
GSM Program




As an alternative, FAS later proposed a two-tranche approach, with an
initial $400 million allocation and the remainder to be offered if no
improprieties involving Iraq surfaced in the BNL investigation. Although
other members of the NAC approved the $400-million level, two members
voted no.

In meetings with FAS officials in October 1989, Iraqi officials rejected
FAS' $400-million offer, saying that this level was not sufficient to meet
its import needs and that they did not want further guarantees to be
linked to the outcome of the BNL investigation. Agriculture officials rep-
resenting the FAS and the Office of the General Counsel went on a fact-
finding trip to Atlanta in October 1989 to review the preliminary find-
ings in the BNL case and their possible relevance to the GSM program.
They concluded that there was no reason to delay the Iraqi program. In
November 1989 Agriculture officials travelled to Iraq and offered
$500 million, with additional guarantees contingent on not finding evi-
dence of Iraqi complicity in the BNL scandal. Iraq agreed to the $500 mil-
lion but again would not accept conditions on further guarantees. In
effect, the fiscal year 1990 allocation was limited to $500 million, half of
the preceding year’s allocation.

By February 1990, Iraq had exhausted nearly all of its fiscal year 1990
GSM allocations and requested an additional $573 million. FAS was still
asserting that although there was considerable risk involved in granting
more credits to Iraq, there was also tremendous opportunity for
increased agricultural exports. However, FAS knew there would be
strong interagency opposition to a proposal for further credit guaran-
tees for fiscal year 1990 while questions remained unanswered in Agri-
culture’s ongoing administrative review.

As the $500 million in credit guarantees were exhausted, Iraq no longer
considered commodity offers from the United States. Instead, it began
purchasing commodities from Argentina, Australia, Canada, the Euro-
pean Community, Saudi Arabia, Thailand, and Vietnam. Australia,
Canada, and Thailand provided some new credit; the remainder of the
purchases were for cash. To clear the way for further negotiations,
Agriculture asked for consultations with Iraqi officials to discuss pro-
gram irregularities and to review pertinent documents. These discus-
sions were held in April 1990. Nevertheless, consideration of additional
GSM guarantees was deferred because the BNL investigation was still
ongoing and Agriculture’s Office of the Inspector General had not yet
finished its review of unresolved issues raised in the administrative



Page 20                                      GAO/NSIAD-91-76   International   Trade
                   Appendix II
                   Evolution of Iraq’s Participation   in the
                   GSM Program




                   review-high    pricing in certain transactions and the extent to which
                   after sales services had been provided in connection with GSM sales.


                   During hearings before the Senate Foreign Relations Committee in June
State Department   of 1990, the State Department’s Principal Deputy Assistant Secretary
Position on Iraq   for Human Rights and Humanitarian Affairs testified:

                   Human rights, as such, are not recognized in Iraq ... the ordinary Iraqi citizen knows
                   no personal security against government violence. Disappearances,followed by
                   secret executions, appear to be common. In somecases,a family only learns that one
                   of its loved ones has been executed when the security services return the body and,
                   in line with the Iraqi regime’s view of justice, require the family to pay a fine.

                   The testimony included other words, such as “torture is routine ....” and
                   “there is not even the charade of due process for those charged with
                   security-related offenses.” During the testimony, State said, “We bring
                   these issues up; we bring them up forcefully; we bring them up in inter-
                   national fora. We were one of the leaders in trying to get it in the U.N.
                   [United Nations] Human Rights Commission this year, in trying to get a
                   resolution against Iraq.” Despite State’s articulation of the U.S. govern-
                   ment’s position, human rights considerations did not surface at NAC
                   meetings, and credit guarantees were not opposed on that basis.

                   Again, an Assistant Secretary of State testified before Congress in June
                    1990 that “Iraq’s human rights record is an integral part of our agenda
                   with Iraq and will continue to influence the climate of our bilateral rela-
                   tions.” Yet this influence did not make its way into the NAC process.
                   Within the NAC, Iraq’s human rights violations and the risk they posed in
                   making financial decisions appeared to be outweighed by the U.S. policy
                   of continuing to build an important strategic and agricultural trade rela-
                   tionship with Iraq.




                   Page 21                                           GAO/NSlAD91-76   International   Trade
Appendix III

Iraq’s Paxticipabn h Other Agricultural
Export DevelopmentPrograms

                      In addition to the Export Credit Guarantee Programs (GSM-102/103),
                      the U.S. Department of Agriculture has three other export development
                      programs that have targeted sales to Iraq. In each case, the importing
                      country receives no direct benefits; rather the programs benefit U.S.
                      exporters, agricultural trade organizations and, ultimately, U.S. farmers.


                      The Export Enhancement Program was established by the Secretary of
The Export            Agriculture in May 1985 in reaction to continuing decreases in U.S. agri-
Enhancement Program   cultural exports. Under the program, government-owned surplus agri-
                      cultural commodities are made available as bonuses to U.S. exporters to
                      enable them to lower the prices of U.S. agricultural commodities and to
                      make these exporters competitive with subsidized foreign agricultural
                      exports, particularly those subsidized by the European Community. As
                      of August 2, 1990, over $2.8 billion worth of surplus commodities had
                      been made available as bonuses to eligible U.S. exporters for sales to
                      65 countries. These sales totaled about $10.8 billion.

                      In fiscal year 1985, wheat and wheat flour were the only agricultural
                      commodities exported under the program. Wheat flour sales to Iraq
                      were first targeted under this program in December 1985,2 years after
                      Iraq began participating in the GSM-102 program. By combining the two
                      programs, Iraq was able to buy U.S. agricultural commodities at compet-
                      itive prices on credit. Iraqi initiatives under the Export Enhancement
                      Program expanded to include wheat, poultry, barley, barley malt, dairy
                      cattle, and table eggs. Table III.1 shows the total quantity of U.S. agri-
                      cultural commodities sold to Iraq under this program since 1985. Since
                      the inception of the program, U.S. exporters had received an estimated
                      $157.2 million in bonuses to facilitate an estimated $509.8 million in
                      agricultural sales to Iraq.




                      Page 22                                     GAO/NSIAD-91-76   International   Trade
                                         Appendix III
                                         Iraq’e Participation in Other Agricultural
                                         Export Development     Programs




Table 111.1:Commodities Sold to Iraq
Under Agriculture’s Export Enhancement   Commodlty                                    Date of first Initiative                   Quantity sold
Program (as of August 2,199O)            Wheat flour                                  December 1985                                   300.0 TMT
                                                         --
                                         Dairv cattle                                 Ad 1986                                          6,028HD
                                         Poultry                                      December 1986                                    70.0 TMT
                                         Whea;                                        January 1987                                  2,486.5 TMT
                                         Table eggs                                   February 1987                                        177.9 MIL
                                         Barley                                       August 1987                                      250.0 TMT
                                         Barley malt                                  December 1987                                      5.0 TMT
                                         Legend

                                         TMT - Thousand metric tons
                                         HD - Head
                                         MIL = Million

                                         Source: Foreign Agricultural Service.



                                         The Targeted Export Assistance Program was mandated by the Food
The Targeted Export                      Security Act of 1985. Legislation authorizing the program did not
Assistance and                           specify how it was to be implemented. The Secretary of Agriculture
Cooperator Programs                      authorized the Foreign Agricultural Service to administer the program
                                         as a foreign market development program, modeled after Agriculture’s
                                         long-standing Cooperator Market Development Program. Both programs
                                         provide funding to conduct activities that promote U.S. agricultural
                                         commodities and products overseas. A major difference between the two
                                         programs is that participation in the Targeted Export Assistance Pro-
                                         gram is only available for those commodities that have been adversely
                                         affected by foreign unfair trade practices. Program participants include
                                         private, nonprofit agricultural trade organizations, state-related organi-
                                         zations, and private, profit-making U.S. firms.

                                         Market development activities targeting Iraq under these two programs
                                         began in 1986 and continued through 1990. In total, about $1.9 million
                                         was provided to Cooperators to develop agricultural export markets in
                                         Iraq during that time: $1.2 million under the Cooperator Program and
                                         $0.7 million under the Targeted Export Assistance Program. These
                                         funds supported activities such as trade servicing; technical assistance,
                                         seminars, and workshops; distribution of newsletters and technical liter-
                                         ature; trade missions; trade exhibits; point of sale promotions; and con-
                                         sumer and institutional education. Table III.2 shows a funding
                                         breakdown by fiscal year and FAScommodity division.




                                         Page 23                                                         GAO/NSIAD-91-76   International      Trade
                                            Appfmdfx III
                                            Iraq’8 P8rticipation in Other Agricultural
                                            Export Development     Programs




Table 111.2:Market Development
Acthltles In Iraq, Fiscal Years 1988-1990                                                                   Fiscal year
                                            FAS dlvlsion                                 1988       1987          1988           3989             1990
                                            Forest products
                                              Cooperator                            $30,336       $16,996      $43,949               $0          $9,080
                                              TEA                                    80.850        67.410             0               0                0
                                              Subtotal                             111,188         84,408       43,949                0           9,080
                                            Grain and feed
                                              Coooerator                            313,217       173,903      113,549          82,919          188,493
                                              TEA                                   177,616             0      219,364         115,200              960
                                              Subtotal                             490,833       173,903      332,913         198,119          189,453
                                            High value productsa
                                              Cooperator                                 2,612      2,101        3,089               0                   0
                                              TEA                                            0      8,199            0           1,034                   0
                                              Subtotal                                   2,812    10,300         3,089           1,034                   0
                                            Horticultural and tropical
                                               broducts                                                 No activitv in lraa
                                            Oilseeds and products
                                               Cooperator                            24,387        12,564       19,954          19,770           15,700
                                               TEA                                         0            0            0               0                0
                                              Subtotal                               24,387       12,584        19,954         19,770           15,700
                                            Tobacco, cotton, and seeds
                                              Coooerator                                 5.047     10.150            0          47,500           56.000
                                              TEA                                            0        610        6,990               0                0
                                              Subtotal                                   5,047    10,780         8,990         47,500           58,000
                                            Total
                                              Cooberator                          $375.599       $215.714     $180.541        $150.189         $269.273
                                              TEA                                 $258,466        $76,219     $226,354        $116,234             $960
                                            Legend

                                            TEA = Targeted Export Assistance
                                            aThese include semiprocessed products (e.g., flour and meat) and highly processed products (e.g.,
                                            dairy products and soups).
                                            Source: Foreign Agricultural Service.




                                            Page 24                                                     GAO/NSLAD-91-76        International     Trade
Appendix IV                                                                                          -
The GSMDecision-M&g md Risk
Analysis Processes

                   Through the Commodity Credit Corporation, Agriculture’s Foreign Agri-
                   cultural Service manages export credit guarantee programs designed to
                   encourage U.S. agricultural exports. Under these programs, about
                   $5.5 billion in loan guarantees are made available annually to exporters
                   or their assigned financial institutions, These guarantees ensure that the
                   exporters, or their assignees, will be repaid for credit sales made to for-
                   eign buyers, As with other guarantee programs, the government incurs
                   no direct costs-except for program administration-unless        defaults
                   occur and claims for repayments are made.

                   I%Schooses for participation in the GSM program those countries that
                   have the potential to purchase U.S. agricultural commodities but cannot
                   make such purchases without credit guarantees. The process of deter-
                   mining program funding levels generally begins in May or June of each
                   year, when specific country and commodity proposals are developed.
                   Part of the process in determining program funding levels is a risk
                   assessment that until recently was mainly qualitative in nature. From
                   this assessment, country profiles are developed that examine a
                   country’s economic, financial, and political strengths. Effective for fiscal
                   year 1991 program decisions, FAS began using a new risk assessment
                   procedure that involves more in-depth quantitative analyses.


                       export credit guarantee programs evolved in the 1970s from the
The GSM Programs   CCC
                   need to find export markets for the increasing levels of U.S. farm pro-
                   duction. The two current export credit guarantee programs, GSM-1021
                   103, are designed to increase exports of U.S. agricultural commodities
                   by providing credit for those countries in which significant additional
                   demand would exist if credit were available and by allowing U.S.
                   exporters to meet competition from other countries. The GSM-102 pro-
                   gram has been in effect since fiscal year 1981, and the GSM-103 pro-
                   gram has been in effect, since fiscal year 1986. The principal and most
                   significant difference between the two programs is the length of credit
                   terms available. IJnder GSM-102, ccc guarantees repayment for credit
                   sales of 3 years or less; under GSM-103, ccc’s guarantees cover credit
                   sales of more than 3 but less than 10 years. (See table IV.1 for a list of
                   GSM- 102/ 103 credit guarantees approved since 198 1.)




                   Page 25                                      GAO/NSIAD-91-76   International   Trade
                                      Appendix IV
                                      The GSM Decision-Making     and Risk
                                      Analysis Processes




Table IV.l: Total Credit Guarantees
Approved Under QSM-IO2 and GSM-103    Dollars   in millions
Programs, Fiscal Years 1981-l 990                                                                                           --------
                                      Fiscal ----_.~
                                              year           ...._.._.-.- GSM-102                 GSM-103                                Total
                                                                                                                                         ~-
                                      1981..__. -.-__--_-.
                                      __.-                      ___        $2,082.1                        $0                         $2,082.1
                                      1982
                                      __-_     ..------ _... __~_..___._ 1,543.3                             0                         1,54x3
                                      1983                                     3,709.3
                                                                           ____-.                            0                         3,709.3
                                      1984
                                        --~--- ~---.-__        ----__.______   3,431.2   _______-________    0                         3,431.2
                                      1985
                                      ___.-_--___-----..
                                                      ..-.-..--~-..-.__        2J12.8  -                     0                         2,512.8
                                      1986                 ..~~. . .~-.__-..   2,522.4                    12.7                      2,535.1
                                      1987                                     2,622.5                  250.4                       2,872.g
                                      1988                                     4,141.4                  362.9                   4,504.3
                                      1989                                     43769.8                  425.5 -____
                                                                                                       .___                            5,195.3
                                                                                                                                       ~-
                                      1990                                     3,957.4                  332.1                       4.289.5
                                      Total                             $31.292.2                  $1 a383.6                      $32.675.8
                                      Source: CCC Guarantee Program Commitment Reports prepared by the U.S. Department of Agricul-
                                      ture’s Foreign Agricultural Service, CCC Operations Division.


                                      The Food Security Act of 1985 required that CCC make available not less
                                      than $5 billion in GSM-102 guarantees annually through fiscal year
                                      1990. For GSM-103, the act specified at least $500 million annually
                                      through fiscal year 1988 and not more than $1 billion in each of fiscal
                                      years 1989 and 1990. Since the programs began, over 40 countries have
                                      participated, receiving guarantees for over 20 agricultural commodities.

                                      These credit guarantee programs provide protection to U.S. exporters or
                                      their assignees against nonpayment by foreign banks when export sales
                                      of US. agricultural commodities are made on a deferred basis. Under
                                      these programs, the U.S. exporter pays a fee and receives a payment
                                      guarantee from CCC. Usually the exporter will assign the proceeds that
                                      may become due under the payment guarantee to a U.S. bank (or other
                                      financing institution), which extends credit to finance the export sale.
                                      The U.S. exporter, US. bank, or other financing institution is then pro-
                                      tected by CCC’s guarantee if the foreign bank does not repay. If the U.S.
                                      exporter assigns the proceeds payable under the payment guarantee, the
                                      17,s. exporter can usually sell U.S. agricultural commodities to foreign
                                      buyers on deferred payment terms and receive payment immediately
                                      after export.

                                      CCC attempts to share some of the credit risk with the exporter or the
                                      exporter’s assignee by only guaranteeing 98 percent of the value of the
                                      sale plus a portion of the interest payable. The exporter or the
                                      exporter’s assignee is at risk for 2 percent of the principal and a portion
                                      of the interest payable. However, CCC has flexibility to adjust the


                                      Page 26                                                  GAO/NSIAD-91-76        International     Trade
                                         Appendix IV
                                         The GSM Decision-Making      and Risk
                                         Analysis Processes




--
                                         amount of guarantee coverage it provides. For example, in the past, CCC
                                         has guaranteed 100 percent of the value of commodity sales to Mexico.

                                         CCC’S  contingent liabilities under the GSM programs totaled about
                                         $8.9 billion as of September 30, 1990. ccc has paid out about $3 billion
                                         in claims since the programs’ inception and is at risk for an additional
                                         $2 billion not being serviced by Iraq (see table IV.2).
Table IV.2: CCC’s Contingent Liability
Under the CISM-102/103 Programs for      Fiscal year                                                        _________----Contingent liability
Iraq                                     1990                                                                                   $154,336,744
                                                                                                      _____--
                                         1991                                               __-.      ___--                             930,144,855
                                         1992
                                           ..~. _..-...-_.    ~~     ~~~~ .-~_-._~~~                                                    622,021,012
                                         1993                                                  __-.   _.___~           ~_---            287593,955
                                         1994
                                          _...._.___
                                                  ---.___~- .._._ .-                                                                      6,971,205
                                         1995
                                         .-~                           -~-_ __~-.-                                                        3,817,090
                                                                                                                                       -______
                                         1996                                                                                             3,593,898
                                         1997                                                 --                                            121,227
                                                                                                                                              ~.
                                         Total                                                                                     $2.008.599.986
                                         Source: U.S. Department of Agriculture’s   Foreign Agricultural Service, Financial Management Division.




How GSM Program                          Each year, F4S identifies a number of countries to be potential partici-
Decisions Are Made                       pants in the GSM programs. GSM participant countries are those which
                                         have potential for making additional agricultural commodity purchases
                                         but cannot make such purchases without credit and loan guarantees.
                                         According to FAS, determining which countries participate involves eval-
                                         uating long-term agricultural product needs, interest in the program,
                                         market development opportunity for U.S. agricultural commodities, and
                                         ability to repay. Since the program began, Mexico, South Korea, and Iraq
                                         have received the largest loan guarantees of all countries participating.
                                         Because the programs also provide economic benefit to foreign govern-
                                         ments, their use can be influenced by U.S. foreign policy considerations.

                                         Program development consists of a three-stage process: identification of
                                         the marketing opportunity, analysis of the financial risk, and negotia-
                                         tion and announcement of the program terms and conditions. Generally,
                                         this process begins in May or June of each year when FAS commodity
                                         divisions develop specific country and commodity proposals to use
                                         export credit guarantee coverage to support exports to targeted
                                         countries,




                                         Page 27                                                        GAO/NSIAD-91-76        International   Trade
                      Appendix IV
                      The GSM Decision-Making   and Risk
                      Analysis Processes




Country Credit Risk   Several Agriculture offices are involved in making GSM program deci-
Analysis              sions, but a key component in this process is the credit risk analysis that
                      FAS' Trade and Economic Information Division prepares. From the early
                      1980s through fiscal year 1990, this division prepared country profiles
                      for FAS that were mainly qualitative in nature, analyzing a country’s eco-
                      nomic, financial, and political strengths. A former FAS official noted that
                      during this time, there were no well-established procedures for including
                      countries in the GSM program. In Iraq’s case, market development
                      potential was the number one factor in determining its program funding
                      level. Other FAS officials have confirmed that during the 1980s the guar-
                      antee programs were driven more by market development potential than
                      by credit risk concerns,

                      The Director of the Trade and Economic Information Division told us
                      that in 1989 Agriculture concluded that its credit risk analysis proce-
                      dures did not provide the information necessary to make informed deci-
                      sions. He noted that there was a belief that the analysis allowed for too
                      much subjectivity. A decision was made to develop a more objective pro-
                      cedure, to base it on common commercial practices, and to build in more
                      quantitative analysis.

                      To put more emphasis on evaluating financial risk, the division began
                      developing new credit risk analysis procedures in January 1990 and
                      started using them in May 1990 for fiscal year 1991 GSM decisions. In
                      developing these new procedures, the division drew upon resources and
                      examples from many organizations, including the International Mone-
                      tary Fund, the World Bank, the Organization for Economic Cooperation
                      and Development, and the Export-Import Bank. The division director
                      told us that the need for new procedures stemmed from the previous
                      model’s inability to predict the future.

                      The new procedures should provide in-depth financial risk analysis and,
                      as such, will have more influence than before over market development
                      decisions. While these new procedures are more structured and contain
                      more in-depth quantitative analyses, the division has not tested the pro-
                      cedures to determine their reliability or predictive capability. However,
                      the division has compared its results with those of the Export-Import
                      Bank’s (also untested) and found them to be similar. According to one
                      program official, the new risk assessment procedures represent a year-
                      long effort to make explicit the tradeoff between credit risk and market
                      development.




                      Page 28                                     GAO/NSW91-76   International   Trade
The new risk analysis uses three elements to determine overall credit
risk: (1) a country risk letter grade based upon the country’s willingness
and ability to service its foreign debt in a timely manner; (‘2) a country
profile, which analyzes economic, financial, political, and social condi-
tions within a structured and qualitative framework; and (3) an annual
credit exposure guideline, which provides a means of limiting risk based
on current economic, financial, and political conditions.

As of September 1990,46 countries had been assessed under the new
procedures for fiscal year 199 1. Using the risk analysis procedure, Agri-
culture decided that some countries should be moved into concessional
programs’ rather than commercial credit programs. Although a risk
analysis was not completed on Iraq before it invaded Kuwait, the pre-
liminary recommendation from the Trade and Economic Information
Division was to limit CCC’s exposure by providing no more than
$200 million to Iraq for fiscal year 1991. This sharp decline in the rec-
ommended allocation level of $1 billion in the previous year was based
on a deterioration in diplomatic relations between Iraq and western
countries. The decrease was also due to Iraq’s continuing history of pay-
ment delays to some creditors and to its refusal to negotiate with the
International Monetary Fund.

The division also recommended that any allocation to Iraq be contingent
on (1) a satisfactory resolution to Justice’s BNL investigation and Agri-
culture’s Office of the Inspector General review and (2) indications from
Iraq that it intends to pay its arrearages with the U.S. Export-Import
Bank.




‘Concessional programs are those government programs that provide the foreign buyer with credit
terms which are more favorable than those obtained in the commercial market. An example of such a
program is the Public Law 480 (Food for Peace) Program.



Page 29                                                  GAO/NSIAD-91-76 International     Trade
Appendix V

The Interagency Processfor DiscussingU.S.
Loan Guarantees

               The National Advisory Council on International Monetary and Financial
               Policies guides and advises U.S. government agencies involved in
               making foreign loans or engaged in foreign financial, exchange, or mone-
               tary transactions. Besides coordinating the actions of U.S. agencies, the
               NAC ensures, when possible, that the actions of international financial
               institutions are consistent with U.S. policies and goals. The NAC allows
               member and interested agencies to meet, consider issues of financial
               importance to the United States, and present all of the facts available
               about the risks of a financial decision.

               NAC membership principally   consists of the Secretaries of the Treasury
               (who also serves as the chair), State, and Commerce, the U.S. Trade Rep-
               resentative, the Chairman of the Board of Governors of the Federal
               Reserve System, the President and Chairman of the Board of Directors
               of the U.S. Export-Import Bank, and the Director of the International
               Development Cooperation Agency. Also, at the assistant secretary level,
               there is a Committee of Alternates in the NAC authorized to act for their
               principals. These alternates represent each of the agencies listed above.

               A Staff Committee handles routine NAC business. The Staff Committee is
               composed of economists and other professionals from the NAC member
               agencies and occasionally from other agencies such as the Departments
               of Agriculture and Defense or the Office of Management and Budget.
               The Staff Committee meets on a weekly basis as necessary. It deter-
               mines what positions to take or recommendations to make by polling
               representatives after discussions. If immediate action is necessary, then
               these polls can take place by telephone. The assumption is, regardless of
               the procedure employed to take the poll, that representatives cast their
               votes for their principals, thereby ensuring high-level attention to policy
               issues and proposals. A majority vote determines NAC positions. How-
               ever, the Council seeks unanimity of views among its members.

               Agriculture submits all GSM-102/103 proposals to the NAC for review.
               After Agriculture has conducted a risk analysis on the country in ques-
               tion, it forwards a proposal to the NAC. During the NAC session, the mem-
               bers discuss proposals from each of their perspectives, including issues
               such as foreign policy, financial risk, and trade considerations. The NAC
               votes on the proposal, with each member’s vote recorded on a poll sheet.
               An official NAC recommendation must carry a majority vote. The NAC
               makes recommendations that are only advisory in nature. Agriculture
               does not have to abide by a NAC recommendation. The NAC sends its rec-
               ommendation, in the form of an “Action Notice,” back to Agriculture,
               which has the option of following or ignoring it. However, Agriculture


               Page 30                                     GAO/NSIAD-91-76   International   Trade
~~~
      Appendix V
      The Interagency Process for Discusuing   U.S.
      LOan Guarantees




      does not typically challenge NAC recommendations unless Treasury or
      State are not in the majority. In those cases, Agriculture reassesses the
      proposal before making its decision.




      Page 31                                         GAO/NSIAD-91-76   International   Trade
Appendix VI                                                                                           -
The Bmca NazionaleDel Lavoro and Related
Investigations

                      In September 1989, suggestions of improprieties connected with the
                      GSM-102 program surfaced as a result of a Department of Justice inves-
                      tigation of the Banca Nazionale de1 Lavoro’s making $2 billion in unau-
                      thorized and unreported loans to Iraq. Agriculture learned that
                      approximately $750 million of the unauthorized loans to Iraq were guar-
                      anteed under its GSM-102 program. Questions raised about possible pro-
                      gram irregularities led Agriculture to initiate an administrative review
                      of the guaranteed loans in BNL's portfolio. At the conclusion of the
                      administrative review in May 1990, certain information was turned over
                      to Agriculture’s Office of the Inspector General for a more thorough
                      analysis of all GSM sales to Iraq, in order to ascertain the full extent of
                      program irregularities.


                      In August 1989, the Office of the US. Attorney for the Northern District
The Banca Nazionale   of Georgia was notified that officials at the Atlanta branch of the Banca
Del Lavoro            Nazionale de1 Lavoro had been keeping a second set of books and had
Investigation         advanced more than $2 billion in unauthorized and unreported loans to
                      Iraq. This discovery led to the initiation of a grand jury investigation by
                      the Office of the ITS. Attorney, U.S. Department of Justice. The investi-
                      gation focused on bank fraud and evasion of bank regulatory require-
                      ments by officials of the Atlanta branch of BNI,, a bank largely owned by
                      the Italian government.

                      Agriculture’s Office of the Inspector General joined the investigative
                      team in early September 1989 when Agriculture learned that approxi-
                      mately $750 million of these loans were guaranteed by CCC under its
                      GSM program. Agriculture officials were told that evidence had been
                      uncovered of possible kickbacks, questionable consultant payments,
                      possible transshipped or bartered commodities, high prices, shipment of
                      non-1J.S. goods, and other program irregularities. At that time there was
                      no hard evidence of improprieties in the GSM program or wrongdoing by
                      the government of Iraq. Instead, possible misuse was hypothesized
                      based on evidence of apparent wrongdoing uncovered in non-ccc loan
                      transactions. Specifics of the theories being pursued, identity of indi-
                      vidual targets, and evidence of any involvement by the government of
                      Iraq are protected by the rules of grand jury secrecy and therefore are
                      not available to Agriculture. Agriculture later decided to launch its own
                      review under its own regulatory authority.




                      Page 32                                     GAO/NSIAD-91-76   International   Trade
                       Appendix VI
                       The Banea Nazlonale    Del Lavoro   and Related
                       Investigatlonfi




                       In October 1989, Agriculture staff from the Foreign Agricultural Service
Administrative         and the Office of the General Counsel went to Atlanta to meet with the
Review of the GSM-     Assistant US. Attorney in charge of the investigation and two Agricul-
102 Program for Iraq   ture Office of the Inspector General staff members assigned to the case.
                       They discussed the Justice investigation’s preliminary findings and the
                       findings’ possible relevance to the ccc-guaranteed transactions.

                       The administrative review continued for 7 months and involved the
                       examination of GSM files pertaining to sales to Iraq, associated letters of
                       credit, exporter records, and discussions with bank examiners, Office of
                       the Inspector General investigators, and exporters. It focused on four
                       potential problem areas- unusually high prices negotiated in GSM sales
                       to Iraq, Iraqi attempts to impose certain taxes on GSM transactions,
                       questions regarding the arrival of GSM commodities in Iraq, and Iraqi
                       requests for “after sales services.“l

                       In January 1990, Agriculture reported to the NAC that its administrative
                       review had revealed a pattern of unusually high pricing for certain com-
                       modities sold to Iraq under the GSM program during 1985-1987. Agricul-
                       ture stated that further review was needed before it could recommend
                       to the NAC any further allocation of fiscal year 1990 guarantees for Iraq.
                       In April 1990, a team of representatives of the Commodity Credit Corpo-
                       ration, the Foreign Agricultural Service, the Office of the General
                       Counsel, and the Department of State traveled to Baghdad to review rel-
                       evant documents and to interview Iraqi officials involved in the
                       transactions.

                       In May 1990, Agriculture released the results to date of the administra-
                       tive review. The review uncovered no evidence of diversion of commodi-
                       ties sold to Iraq. The fact that bank and exporter files lacked proof of
                       arrival appeared to be linked to the complexity of overland shipment
                       necessitated by the closing of Iraq’s Basra port during the Iran-Iraq war.
                       In addition, the review found that Iraq had requested some exporters to
                       pay a domestic Iraqi “stamp tax” in connection with GSM transactions.
                       After discussions with Agriculture officials, Iraq changed its policy and
                       began to exempt GSM transactions from paying the tax.

                       The review identified two key areas for further review-the    extent and
                       reason for high pricing in certain GSM transactions, and the extent to

                       ‘The issue of after sales services arose independent of the BNI, investigation after one exporter com-
                       plained about requests from Iraq for free, nonagricultural products (e.g., free truck parts, tires, and
                       air conditioning equipment) in connection with GSM sales, and the use of a certain carrier for GSM
                       shipments.



                       Page 33                                                      GAO/NSLAD-91-76      International   Trade
Appendix Vl
The Banca Nazionale    Del Lavoro   and Related
Investigations




which after sales services were provided and port values properly
reported in connection with GSM guaranteed sales. Agriculture turned
over to its Office of the Inspector General information it had developed
thus far and asked it to conduct a more thorough investigation of all
GSM sales to Iraq.2




2The administrative review was not a comprehensive analysis of all GSM transactions with Iraq but
rather an examination of a limited number of transactions and issues that were identified as a result
of the BNL investigation.



Page 34                                                     GAO/NSL4D-91-76      International   Trade
Appendix VII

Major Contributors to This
                      .    Report                                                   --


                        Phillip J. Thomas, Assistant Director
National Security and   Julie M. Gerkens, Senior Evaluator
International Affairs   N. Scott Einhorn, Adviser
Division, Washington,   $;~a~~~;o~;;~;$-~tor
                                   9
DC.




(4tmwO)                 Page 36                                 GAO/NSIAD91-70   International   Trade
.
                                                                                                                                                 ,i

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