c Accountability * Integrity * Reliability United States General Accounting Office National Security and Washington, DC 20548 International Affairs Division B-283474 . September 1,1999 Congressional Committees Subiect: U.S. ExoorHmnort Bank’s Financing of Dual-Use Exports Since October 1994, the Export-Import Bank of the United States (Eximbank) has had statutory authority’ to provide loans and guarantees to help finance U.S. exports of defense articles and services, provided that it determines these items are nonlethal and for primarily civilian use. These exports, referred to by the Eximbank as “dual-use” exports, include such items as air traffic control systems that have military applications but wilI be primarily used for civilian purposes. The Eximbank is authorized to use up to 10 percent of its total annual export financing authority to support the sale of dual-use exports. This letter responds to our statutory mandate to report on the end uses of such dual-use exports supported by the Eximbank, in order to assure that they have been employed primarily for civilian purposes. In September 1998, we reported on the Eximbank’s financing and end uses of dual-use exports approved in fiscal year 1996,’ as required. That report also summarized dual-use commitments for fiscal years 1997-98. This letter provides information regarding the extent of financing and end uses of dud-use exports approved during fiscal year 1997. It also summarizes the commitments to tiance dual-use exports made in fiscal years 1998 and 1999 to date. Our enclosure lists the specific export items, recipients, and amounts of Eximbank dual-use financing for fiscal years 1997-99. RESULTS IN BRIEF In fiscal year 1997, the Eximbank financed one dual-use export to Brazil and six dual-use exports to Venezuela, using less than 7 percent of its financing authority to support dual-use exports. According to Eximbank officials and documents, items provided by five of the six exports have been delivered to Venezuela and are being used for primarily civilian purposes. The items supported by the export to Brazil and one of the exports to Venezuela have not yet been delivered. During fiscal year 1998, the Eximbank financed one dual-use export to Venezuela and one such export to Indonesia. The items provided by these exports are currently in use, according to the Eximbank. In fiscal year 1999 to date, the Eximbank has financed one dual- use export to Brazil and two such exports to Croatia. According to the Eximbank, none of the items supported by these three dual-use exports is in use yet. ‘The Export-Import Bank Reauthorization Act of 1997(P.L. 105-121,Nov. 26,199’7) extended through 2001 provisions in 1994 legislation (P.L. 103-428,Oct. 31,1994) authorizing the Eximbank to finance certain dual-use exports. It also extended through 2001 a provision requiring us to report annually not later than September 1 on the dual-use exports financed by the Eximbank during the second preceding fiscal year-which, for this letter, corresponds to fiscal year 1997. art Bank 7s Fmanc . GAO/NSIAD-99-241R Eximbank’s Financing of Dual-Use Exports B-283474 DUAL-USE EXPORTS FINANCED IN FISCAL YEAR 1997 In fiscal year 1997, the Eximbank financed seven dual-use exports totaling $108.3 mihion. This amounted to less than 7 percent of the Eximbank’s fiscal year 1997 financing authority to support the sale of dual-use exports3 The seven dual-use exports approved for fiscal year 1997 were for Brazil and Venezuela. One export, totaling $34 million, was for the refurbishment of cargo airplanes and the purchase of transport helicopters to be used by the Brazilian Air Force in supporting rural economic development. According to Eximbank officials and documents, these dual-use items are not in use yet. The other six exports, totaling $74.3 million, were for the purchase of radio systems, trucks and other vehicles, and aircraft parts to be used by the Venezuelan military for supporting air traffic control modernization, civilian and humanitarian assistance, and development activities in rural areas. In July 1999, Eximbank officials undertook a trip to Venezuela to monitor the end use of these dual-use exports. Based on the information collected during this trip, the Eximbank reported that it had determined that five of the six dual-use exports had been delivered and were being used for primarily civilian purposes, including air traffic control modernization and territorial protection and development. The sixth dual-use export of aircraft parts had not been delivered yet. DTJALUSE EXPORTS FINANCED IN FISCAL YEARS 1998-99 For fiscal year 1998, the Eximbank financed two dual-use exports totaling $9.4 million. This amounted to less than 1 percent of the Eximbank’s fiscal year 1998 financing authority to support the sale of dual-use exports4 One of these exports, totaling $7.7 miIIion, was for the procurement of trucks to be used by Venezuela’s Army in civilian construction activities in the country’s frontier regions. The other export, totaling $1.7 million, was for the purchase of aircraft parts to be used in aircraft belonging to the Indonesian Air Force. These aircraft are intended primarily for civilian activities, such as humanitarian aid and relief efforts. According to Eximbank officials and documents, the items provided by these two dual-use exports are in use. So far in fiscal year 1999, the Eximbank has financed three dual-use exports totaling $153.8 million. This amounts to less than 10 percent of the Eximbank’s fiscal year 1999 financing authority to support the sale of dual-use exports5 The first export, totaling $86.2 million, is for the procurement of equipment to be used by Croatia’s Air Force in civil air traffic control activities. The second export, totaling $14.6 rnihion, is for the purchase of radar equipment to be used by Croatia’s Navy in coastal surveillance efforts. The third export, totaling $53 miIlion, is for the refurbishment and the procurement of aircraft to be used by the Brazilian Air Force in support of territorial protection and development. According to Eximbank officials and documents, none of the items provided by these three dual-use exports has been delivered. ‘In fiscal year 1997,the Eximbsnk’s N-percent cap on dual-use fimncing amounted to $1,652.2million ‘In f!iscalyear 1998,the Eximbank’s lo-percent cap on dual-use iinancing amounted to $1,716.4million. ‘In fiscal year 1999,the Eximbank’s lo-percent cap on dual-use jinancing will amount to $1,575.4million. 2 GAOMSIAD-99-241R Eximbank’s F’inancing of Dud-Use Exports B-283474 AGENCY COMMENTS We obtained oral comments on a draft of this letter from the Eximbank’s Vice President of the Engineering and Environment Division, which is responsible for monitoring end-user compliance with dual-use requirements. He generally agreed with the information presented in this report and suggested two technical changes. We have incorporated these changes. SCOPE AND METHODOLOGY To determine the end uses of the items provided by the dual-use exports financed in fiscal year 1997 and to identify the extent of Eximbank financing of dual-use exports in fiscal years 1998 and 1999, we reviewed pertinent Eximbank documents, such as memorandums to the Board of Directors and engineering reports and evaluations regarding actual use of export items. We also interviewed Eximbank officials who monitor end-user compliance with dual- use requirements, including the Vice President of the Engineering and Environment Division. We did not independently verify the end use of these products. We conducted our work during July and August 1999 in accordance with generally accepted government auditing standards. We are sending copies of this letter to interested congressional Committees; James A. Harmon, the Chairman and President of the Eximbank; the Honorable William S. Cohen, the Secretary of Defense; and the Honorable Madeleine K. Albright, the Secretary of State. We will also make copies available to others upon request. Please contact me on (202) 512-4128 if you have any questions concerning this letter. The major contributors to this letter were Virginia C. Hughes and Juan F. Tapia-Videla. Benja&n F. Nelson Director, International Relations and Trade Issues Enclosure 3 GAO/NSIAD-99-241R Eximbank’s Financing of Dud-Use Exports B-283474 List of Recipients The Honorable Phil Gramm Chairman The Honorable Paul S. Sarbanes Ranking Minority Member Committee on Banking, Housing, and Urban Affairs United StatesSenate The Honorable Ted Stevens Chairman The Honorable Robert C. Byrd Ranking Minority Member Committee on Appropriations United States Senate The Honorable James A. Leach Chairman The Honorable John J. LaF’alce Ranking Minority Member Committee on Banking and Financial Services House of Representatives The Honorable C.W. Bill Young Chairman The Honorable David R. Obey Ranking Minority Member Committee on Appropriations House of Representatives 4 GAON3AD-99-241R Eximbank’s Financing of Dual-Use Exports ENCLOSURE ENCLOSURE DUAL-USE EXPORTS FINANCED BY THE U.S. EXPORT-IMPORT BANK CEximbank), FISCAL YEARS 1997-99 Dollars in millions Type of Eximbank Amount of FiSCd Recipient financing/description Eximbank Intended end Y country of export items financing End user use/status 1;: Territorial Loan/aircraft and Brazilian development/not in Brazil aircraft components $34.0 Air Force use Guarantee/radio Venezuelan Territorial Venezuela systems 08.8 Army development/in use Guarantee/radio Venezuelan Civil air traffic Venezuela systems 03.4 Air Force contrdlh use Venezuelan Territorial Venezuela Guaranteehucks 25.5 Army development/in use Venezuelan Territorial Venezuela Guarantee/trucks 14.1 Army development/in use Territorial Guarantee/aircraft Venezuelan development/not in Venezuela parts 10.1 Army use Guarantee/motor Venezuelan Territorial Venezuela vehicles 12.4 Army development/in use 1998 Venezuelan Territorial Venezuela Guarantee/trucks 07.7 Army development/in use Indonesian Indonesia Loan/Aircraft parts 01.7 Air Force Relief efforts/in use 1999 Territorial Loan/aircraft and Brazilian development/not in Brazil aircraft components 53.0 Air Force use Croatian Coastal surveillance/ Croatia Loan/Radars 14.6 Navy not in use Croatian Civil air traffic Croatia Guarantee/Radars 86.2 Air Force control/not in use Source: GAO analysis of Eximbank data. (711444) 5 GAO/NSIAD-99-241R Embank’s Financing of Dud-Use Exports ,_ -’ : ,. :; .., : ‘,. Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and Mastercard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please caB (202) 512-6000 using a touchtone phone. 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U.S. Export-Import Bank's Financing of Dual-Use Exports
Published by the Government Accountability Office on 1999-09-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)