GAO-01-1110R Eximbank’s Financing of Dual-Use Exports

United States General Accounting Office

Washington, DC 20548

August 31, 2001

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

authority1

 to provide loans, guarantees, and insurance to help finance U.S. exports of

dual-use defense articles and services, provided that it determines these items are

nonlethal and meant primarily for civilian use.2

 These dual-use exports include such

items as air traffic control systems that have military applications but that are nonlethal and mainly used for civilian purposes. This legislation also requires us to

report annually, not later than September 1, on the end uses of the dual-use exports

financed by the Bank during the second preceding fiscal year—which, for the

purposes of this letter, corresponds to fiscal year 1999.

This letter provides information regarding the extent of financing and end uses of

dual-use exports approved during fiscal year 1999. It also provides similar

information on the dual-use exports financed in fiscal years 2000 and 2001 to date.

The enclosure to this letter provides detailed information regarding the dual-use

exports financed during fiscal years 1999, 2000, and 2001 to date.3

Results in Brief

During fiscal year 1999, the U.S. Export-Import Bank used $153.2 million4 to finance

three dual-use exports, including transport aircraft and aircraft parts to be used in the

development and protection of the Amazon region in Brazil and radar systems to be

used for vessel and air traffic control in Croatia. According to Bank officials, end-use

monitoring procedures are in place, but no end-use reports have been filed for these

 1

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

Sept. 30, 2001, provisions in 1994 legislation (P.L. 103-428, Oct. 31, 1994) authorizing the Bank to

finance certain dual-use exports. Under this legislation, the Bank can use up to 10 percent of its total

annual loan, guarantee, and insurance authority to support the sale of these dual-use exports.

2

 According to Bank officials, an export that has dual uses (both military and civilian applications) is

eligible for financing if convincing evidence exists that the export is nonlethal in nature, the export will

be used mainly for civilian activities, and the buyer or end-user provides certification to that effect.

3

In September 2000, we reported on the Bank’s financing and end uses of dual-use exports approved in

fiscal year 1998, as required. That letter also summarized dual-use exports approved in fiscal years

1999-2000. See Export-Import Bank: The U.S. Export-Import Bank’s Financing of Dual-Use Exports

(GAO/NSIAD-00-231R, Sept. 1, 2000).

4

In fiscal year 1999, the Eximbank’s 10-percent cap on dual-use financing amounted to $1.575 billion.
 GAO-01-1110R Eximbank’s Financing of Dual-Use Exports 2

dual-use exports because none of the exports has yet been delivered. Deliveries are

expected to begin in September 2001.

In fiscal year 2000, the Bank used $31.2 million5

 to finance five dual-use exports,

including transport aircraft parts, vehicles, and construction equipment to be used in

the protection and development of rural regions in Venezuela. In fiscal year 2001 to

date, the Bank has used $202.6 million6 to finance three dual-use exports, including

transport aircraft and support systems to be used for pipeline monitoring in Algeria

and construction equipment to be used for territorial protection and development in

Venezuela. According to Bank officials, no end-use reports have been filed for these

eight dual-use exports because none of the exports have yet been delivered.

Deliveries are expected to begin in December 2001.

On August 28, 2001, the vice president of the Bank’s Engineering and Environment

Division, which is responsible for monitoring end-user compliance with dual-use

requirements, told us that the Bank agreed with the information presented in this

report.

Dual-Use Exports Financed in Fiscal Year 1999

During fiscal year 1999, the Export-Import Bank (Eximbank) financed three dual-use

exports totaling $153.2 million. The first export, totaling $53 million, was for the

refurbishment and the procurement of transport aircraft to be used by the Brazilian

Air Force in the protection and development of the Amazon region. The second

export, totaling $14.6 million, was for the purchase of radar equipment to be used by

Croatia’s Navy for vessel traffic control and monitoring. The third export, totaling

$85.6 million, was for the procurement of equipment to be used by Croatia’s Air Force

for air traffic control. According to Eximbank officials, no end-use reports have been

filed for these exports because none of these exports has yet been delivered.

Deliveries of these exports are expected to begin in September 2001.

Dual-Use Exports Financed in Fiscal Years 2000-01

In fiscal year 2000, the Eximbank financed five dual-use exports totaling $31.2

million. One export, totaling $6.3 million, was for the refurbishment of an aircraft to

be used by the Venezuelan Air Force in support of territorial protection and

development. Two exports, totaling $3.8 million, were for the procurement of trucks,

vans, buses, ambulances, and automobiles to be used by the Venezuelan Navy in

support of territorial development. Two exports, totaling $21.1 million, were for the

procurement of dump trucks, truck bodies, trucks, and construction equipment to be

used by the Venezuelan Army in support of infrastructure development in the

country’s interior. According to Eximbank officials, no end-use reports have yet been

filed for these dual-use exports because none of the exports has been delivered.

Deliveries of these exports are scheduled to begin in December 2001.

 5

 For fiscal year 2000, the Eximbank’s 10-percent cap on dual-use financing amounted to $1.55 billion.

6

 In fiscal year 2001, the Eximbank’s 10-percent cap on dual-use financing amounts to $1.325 billion.
 GAO-01-1110R Eximbank’s Financing of Dual-Use Exports

3

So far in fiscal year 2001, the Eximbank has financed three dual-use exports totaling

$202.6 million. The first export, totaling $195.5 million, is for the procurement of

transport aircraft and related equipment to be used by the Algerian Air Force to

monitor hydrocarbon pipelines, survey national borders, conduct search and rescue

operations, respond to natural disasters, detect environmental hazards, and monitor

agriculture. The other two exports, totaling $7.1 million, are for the procurement of

construction equipment to be used by the Venezuelan Army in support of territorial

protection and development. According to Eximbank officials, no end-use reports

have been filed for these dual-use exports because none of the exports has been

delivered. Deliveries of these items are expected to begin in March 2002.

During September 2001, according to Eximbank officials, the Bank plans to approve

another five dual-use exports, using an additional $30.7 million of its fiscal year 2001

dual-use financing authority. One of these exports will procure vehicles and

helicopters to be used by the military in the Dominican Republic for the provision of

civil services and assistance, such as evacuation and medical services, during natural

disasters. The other four exports will procure construction equipment and transport

aircraft engines, instruments, and parts to be used by the Venezuelan military in

support of territorial protection and development.

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. The vice president

noted that the Bank agreed with the information in this report.

Scope and Methodology

To determine the extent of financing and end uses of the dual-use exports financed in

fiscal years 1999, 2000, and 2001, we reviewed pertinent Eximbank documents, such

as memorandums to the Board of Directors and engineering reports and evaluations

dealing with the financing and end uses of dual-use exports. 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 2001 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 the President and Chairman of the Eximbank, the Secretary of

Defense, and the Secretary of State. We will also make copies available to others

upon request.
 GAO-01-1110R Eximbank’s Financing of Dual-Use Exports 4

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

Director,

International Affairs and Trade

Enclosure
 GAO-01-1110R Eximbank’s Financing of Dual-Use Exports

5

List of Recipients

The Honorable Paul S. Sarbanes

Chairman

The Honorable Phil Gramm

Ranking Minority Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Robert C. Byrd

Chairman

The Honorable Ted Stevens

Ranking Minority Member

Committee on Appropriations

United States Senate

The Honorable Michael G. Oxley

Chairman

The Honorable John J. LaFalce

Ranking Minority Member

Committee on 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
ENCLOSURE ENCLOSURE

6 GAO-01-1110R Eximbank’s Financing of Dual-Use Exports

Dual-Use Exports Financed by

U.S. Export-Import Bank, Fiscal Years 1999-2001

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

Brazil

APO67303XX/

loan/ aircraft

and aircraft

components $53.0

Brazilian Air

Force

Territorial

development/

not delivered

Croatia

APO74581XX/

loan/radars 14.6

Croatian

Navy

Vessel traffic

control/ not

delivered

1999

Croatia

APO73528XX/

guarantee/

radars 85.6

Croatian Air

Force

Air traffic

control/ not

delivered

Venezuela

APO73839XX/

guarantee/

aircraft parts 6.3

Venezuelan

Air Force

Territorial

development/

not delivered

Venezuela

APO74654XX/

guarantee/

vehicles 1.5

Venezuelan

Navy

Territorial

development/

not delivered

Venezuela

APO74918XX/

guarantee/

vehicles 2.3

Venezuelan

Navy

Territorial

development/

not delivered

Venezuela

APO76105XX/

guarantee/

trucks 3.5

Venezuelan

Army

Territorial

development/

not delivered

2000

Venezuela

APO75942XX/

guarantee/

trucks and

construction

equipment 17.6

Venezuelan

Army

Territorial

development/

not delivered

Algeria

APO75744XX

/loan/

aircraft 195.5

Algerian

Air Force

Pipeline

monitoring/

not delivered

Venezuela

MSME220376

/insurance/

construction

equipment 4.4

Venezuelan

Army

Territorial

development/

not delivered

2001

Venezuela

APO77248XX/

guarantee/

construction

equipment 2.7

Venezuelan

Army

Territorial

development/

not delivered

Source: GAO analysis of Eximbank data.

(320075)
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