Export-Import Bank: The U.S. Export-Import Bank's Financing of	 
Dual-Use Exports (31-AUG-01, GAO-01-1110R).			 
								 
Since October 1994, the Export-Import Bank of the United States  
has had statutory authority to provide loans, guarantees, and	 
insurance to help finance U.S. exports of dual-use defense	 
articles and services, provided that these items are nonlethal	 
and meant primarily for civilian use. These dual-use exports	 
include air traffic control systems. The U.S. Export-Import Bank 
used $153.2 million during fiscal year 1999 to finance three	 
dual-use exports, including transport aircraft and aircraft parts
to be used to develop and protect the Amazon region in Brazil and
radar systems to be used for vessel and air traffic control in	 
Croatia. End-use monitoring procedures are in place, but no	 
end-use reports have been filed for these dual-use exports	 
because none of the exports has been delivered. In fiscal year	 
2000, the Bank used $31.2 million to finance five dual-use	 
exports, including transport aircraft parts, vehicles, and	 
construction equipment to be used to protect and develop rural	 
regions in Venezuela. In fiscal year 2001, the Bank used $202.6  
million 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.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-1110R					        
    ACCNO:   A01694						        
  TITLE:     Export-Import Bank: The U.S. Export-Import Bank's	      
             Financing of Dual-Use Exports                                    
     DATE:   08/31/2001 
  SUBJECT:   Air traffic control systems			 
	     Dual-use technologies				 
	     Exporting						 
	     Financial management				 
	     Foreign trade policies				 
	     International trade restriction			 
	     Off-budget federal entities			 
	     Algeria						 
	     Brazil						 
	     Croatia						 
	     Venezuela						 

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GAO-01-1110R
     
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 authority 1 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 million 4
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 million 5 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 million 6 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

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

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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