GAO/NSIAD/00-231R Eximbank’s Financing of Dual-Use Exports

United States General Accounting Office

Washington, DC 20548

National Security and

International Affairs Division

B-286054

September 1, 2000

Congressional Committees

Subject: Export-Import Bank: The U.S. Export-Import Bank’s

Financing of Dual-Use Exports

Since October 1994, the Export-Import Bank of the United States has had statutory

authority1to provide loans and loan guarantees to help finance U.S. exports of

defense articles and services, provided that it determines these items are nonlethal

and meant primarily for civilian use. These exports, which the Bank refers to as

“dual-use” exports, include such items as air traffic control systems that have military

applications but will be used mainly for civilian purposes. The Bank is authorized to

use up to 10 percent of its total annual export financing authority to support the sale

of dual-use exports. This report responds to our statutory mandate to report on the

end uses of such dual-use exports supported by the Bank, in order to assure that they

have been employed primarily for civilian purposes.

In September 1999, we reported on the Bank’s financing and end uses of dual-use

exports approved in fiscal year 1997,2

as required. That report also summarized dualuse commitments for fiscal years 1998-99. This report provides information regarding

the extent of financing and end uses of dual-use exports approved during fiscal year

1998. It also summarizes the commitments to finance dual-use exports made in fiscal

years 1999 and 2000 to date. The enclosure to this report lists the specific items,

recipients, and amounts of the Bank’s dual-use financing for fiscal years 1998-2000.

RESULTS IN BRIEF

In fiscal year 1998, the U.S. Export-Import Bank financed one dual-use export to

Indonesia and one dual-use export to Venezuela, using $9.4 million or less than 1

percent of its financing authority to support dual-use exports. According to Bank

officials and documentation, the items have been delivered and are being used

primarily for civilian purposes.

1

The Export-Import Bank Reauthorization Act of 1997 (P.L. 105-121, Nov. 26, 1997) extended through

2001 provisions in 1994 legislation (P.L. 103-428, Oct. 31, 1994) authorizing the Bank to finance certain

dual-use exports. It also extended through 2001 a provision requiring us to report annually not later

than September 1 on dual-use items financed by the Bank during the second preceding fiscal year—

which, for the purposes of this report, corresponds to fiscal year 1998.

2

See U.S. Export-Import Bank’s Financing of Dual-Use Exports (GAO/NSIAD-99-241R, Sept. 1, 1999).
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2 GAO/NSIAD/00-231R Eximbank’s Financing of Dual-Use Exports

During fiscal year 1999, the Bank committed to finance one dual-use export to Brazil

and two such exports to Croatia, using $153.2 million or less than 10 percent of its

financing authority to finance dual-use exports. The items provided by these exports

are not currently in use, according to the Bank. In fiscal year 2000 to date, the Bank

has authorized the financing of five dual-use exports to Venezuela, using $31.3 million

or 2 percent of its authority to support dual-use exports. According to the Bank, none

of the items supported by these five dual-use exports is in use yet.

DUAL-USE EXPORTS FINANCED IN FISCAL YEAR 1998

In fiscal year 1998, the U.S. Export-Import Bank (Eximbank) reported that it 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

exports.3

One of these exports, totaling $7.7 million, 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, documents, and field visits by

these or other U.S. officials, the items provided by the two dual-use exports approved

for financing during fiscal year 1998 are being used for primarily civilian purposes.

DUAL-USE EXPORT COMMITMENTS FOR FISCAL YEARS 1999-2000

During fiscal year 1999, the Eximbank reported that it committed to finance three

dual-use exports totaling $153.2 million. This amounted to less than 10 percent of the

Eximbank’s fiscal year 1999 financing authority to support the sale of dual-use

exports.4

The first export, totaling $53 million, was for the refurbishment and the

procurement of aircraft to be used by the Brazilian Air Force in support of territorial

protection and development. The second export, totaling $14.6 million, was for the

purchase of radar equipment to be used by Croatia’s Navy for coastal surveillance.

The third export, totaling $85.6 million, was for the procurement of equipment to be

used by Croatia’s Air Force for civil air traffic control. None of the dual-use exports

items approved for financing during fiscal year 1999 has been delivered, according to

Eximbank officials.

So far in fiscal year 2000, the Eximbank reported that it has committed to finance five

dual-use exports totaling $31.3 million.5 This amounts to 2 percent of the Eximbank’s

3

In fiscal year 1998, the Eximbank’s 10-percent cap on dual-use financing amounted to $1,716.4 million.

4

In fiscal year 1999, the Eximbank’s 10-percent cap on dual-use financing amounted to $1,575.4 million.

5

On July 12, 2000, the Eximbank postponed approving the financing of two of these dual-use exports,

totaling $21.1 million, to Venezuela because that country had not complied with the Bank’s end-use

reporting requirements for seven dual-use exports financed in fiscal years 1997 and 1998. On July 28,

2000, Venezuela complied with the end-use reporting requirements. On August 1, 2000, the Eximbank

approved the financing of the two pending dual-use exports to Venezuela. The Eximbank made this
B-286054

3 GAO/NSIAD/00-231R Eximbank’s Financing of Dual-Use Exports

fiscal year 2000 financing authority to support the sale of dual-use exports.6

The first

export, totaling $1.5 million, is for the procurement of trucks, vans, and buses to be

used by the Venezuelan Navy in support of territorial protection and development.

The second export, totaling $2.4 million, is for the purchase of trucks, buses,

ambulances, and automobiles to be used by the Venezuelan Navy in support of

territorial protection and development. The third export, totaling $6.3 million, is for

the refurbishment of an aircraft to be used by the Venezuelan Air Force in support of

territorial development. The fourth export, totaling $3.5 million, is for the

procurement of dump trucks and truck bodies to be used by the Venezuelan Army in

support of territorial development. The fifth export, totaling $17.6 million, is for the

purchase of trucks and construction equipment to be used by the Venezuelan Army in

support of territorial development. None of the dual-use exports items approved for

financing during fiscal year 2000 has been delivered to date, according to Eximbank

officials.

AGENCY COMMENTS

We obtained oral comments on a draft of this report 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 noted that the

Eximbank generally agreed with the information presented in this report.

SCOPE AND METHODOLOGY

To determine the end uses of the items provided by the dual-use exports financed in

fiscal year 1998 and to identify the extent of Eximbank financing of dual-use exports

in fiscal years 1999 and 2000, 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 2000 in accordance with generally

accepted government auditing standards.

-----

We are sending copies of this report to interested congressional Committees. We will

also send copies to James A. Harmon, the Chairman and President of the Eximbank;

the Honorable William S. Cohen, the Secretary of Defense; and the Honorable

decision based on the end-use reports submitted by Venezuela and other information indicating that

the dual-use exports delivered to Venezuela were being used primarily for civilian purposes.

6

For fiscal year 2000, the Eximbank’s 10-percent cap on dual-use financing amounts to $1,550 million,

according to Eximbank officials.
B-286054

4 GAO/NSIAD/00-231R Eximbank’s Financing of Dual-Use Exports

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. TapiaVidela.

Jess T. Ford

Associate Director,

International Relations and Trade Issues
B-286054

5 GAO/NSIAD/00-231R Eximbank’s Financing of Dual-Use Exports

List of Recipients

The Honorable Phil Gramm

Chairman

The Honorable Paul S. Sarbanes

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Robert C. Byrd

Ranking Member

Committee on Appropriations

United States Senate

The Honorable James A. Leach

Chairman

The Honorable John J. LaFalce

Ranking Member

Committee on Banking and

Financial Services

House of Representatives

The Honorable C.W. Bill Young

Chairman

The Honorable David R. Obey

Ranking Member

Committee on Appropriations

House of Representatives
ENCLOSURE ENCLOSURE

6 GAO/NSIAD-00-231R Eximbank’s Financing of Dual-Use Exports

DUAL-USE EXPORTS FINANCED BY

THE U.S. EXPORT-IMPORT BANK (EXIMBANK), FISCAL YEARS 1998-2000

Dollars in millions

Fiscal

year

Recipient

country

Export ID

number/type of

Eximbank

financing/

description of

export item

Amount of

Eximbank

financing End user

Intended end

use/status

Venezuela

APO73274XX

/guarantee/

trucks $7.7

Venezuelan

Army

Territorial

development/

in use

1998

Indonesia

APO69837XX

/loan/aircraft

parts 1.7

Indonesian Air

Force

Relief

efforts/

in use

Brazil

APO67303XX

/loan/ aircraft

and aircraft

components 53.0

Brazilian Air

Force

Territorial

development/

not in use

Croatia

APO74581XX

/loan/radars 14.6 Croatian Navy

Coastal

surveillance/

not in use

1999a

Croatia

APO73528XX

/guarantee/

radars 85.6

Croatian Air

Force

Civil air traffic

control/ not in

use

Venezuela

APO74654XX

/guarantee/

vehicles 1.5

Venezuelan

Navy

Territorial

development/

not in use

Venezuela

APO74918XX

/guarantee/

vehicles 2.4

Venezuelan

Navy

Territorial

development/

not in use

Venezuela

APO73839XX

/guarantee/

aircraft parts 6.3

Venezuelan

Air Force

Territorial

development/

not in use

Venezuela

APO76105XX

/guarantee/

trucks 3.5

Venezuelan

Army

Territorial

development/

not in use

2000b

Venezuela

APO75942XX

/guarantee/

trucks and

construction

equipment 17.6

Venezuelan

Army

Territorial

development/

not in use

a

Commitments.

b

Commitments.

Source: GAO analysis of Eximbank data.

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