Multilateral Development Banks: U.S. Firms' Market Share and Federal
Efforts to Help U.S. Firms (Letter Report, 09/29/95, GAO/GGD-95-222).

Pursuant to a congressional request, GAO reviewed business opportunities
for U.S. firms at multilateral development banks (MDB), focusing on: (1)
the MDB market share held by U.S. firms and their major competitors; (2)
obstacles U.S. businesses may face in competing for MDB projects; (3)
services the U.S. government provides to help U.S. firms overcome
competition obstacles; (4) the Department of the Treasury's efforts to
ensure fair and open procurement processes for MDB-financed projects.

GAO found that: (1) from 1989 to 1994, U.S. firms were the largest
single source of goods and services for MDB-financed projects; (2) the
U.S. share of MDB procurements cannot be precisely determined due to
data limitations; (3) U.S. MDB market shares vary by bank and by
procurement categories and appear to parallel U.S. firms' ranking in
overall exports to World Bank developing countries; (4) U.S. firms may
have decreased MDB market shares in the future as developing countries
become more competitive; (5) U.S. firms competing for MDB projects face
certain obstacles including the lack of timely and specific project
information, the cost of marketing products in the borrowing countries,
their unfamiliarity with MDB competition processes, and the perception
that MDB procurement processes are noncompetitive; (6) the Department of
Commerce helps U.S. firms by providing information on MDB projects and
outreach seminars on MDB opportunities and the process for bidding on
MDB contracts; (7) the effect of Commerce's services on U.S. firms'
bidding rates in the MDB market is unclear because Commerce has not
formally evaluated its MDB services; and (8) Treasury has encouraged MDB
to strengthen their procurement processes for MDB-funded projects and
improve bank compliance with MDB procurement guidelines to ensure fair
and more open competition, and to promote borrowing countries' use of
standard bidding documents and wider dissemination of bidding
opportunities.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-95-222
     TITLE:  Multilateral Development Banks: U.S. Firms' Market Share 
             and Federal Efforts to Help U.S. Firms
      DATE:  09/29/95
   SUBJECT:  International economic relations
             Developing countries
             Business assistance
             Exporting
             Competitive procurement
             Procurement procedures
             Bank loans
             International organizations
             Information dissemination operations
             Lending institutions
IDENTIFIER:  France
             Germany
             Japan
             United Kingdom
             India
             China
             Mexico
             Brazil
             Indonesia
             South Korea
             Argentina
             Dept. of Commerce National Trade Data Bank
             Dept. of Commerce Economic Bulletin Board
             AID U.S.-Asia Environmental Partnership Project
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Committee on Small Business,
U.S.  Senate

September 1995

MULTILATERAL DEVELOPMENT BANKS -
U.S.  FIRMS' MARKET SHARE AND
FEDERAL EFFORTS TO HELP U.S. 
FIRMS

GAO/GGD-95-222

Multilateral Development Banks

(280078)


Abbreviations
=============================================================== ABBREV

  ADB - Asian Development Bank
  AfDB - African Development Bank
  AID - Agency for International Development
  CD-ROM - compact disk read-only memory
  EBRD - European Bank for Reconstruction and Development
  IBRD - International Bank for Reconstruction and Development
  ICB - international competitive bidding
  IDA - International Development Association
  IDB - Inter-American Development Bank
  MDB - Multilateral Development Bank
  NTDB - National Trade Data Bank
  TDA - U.S.  Trade and Development Agency
  TPCC - Trade Promotion Coordinating Committee
  U.K.  - United Kingdom
  U.N.  - United Nations

Letter
=============================================================== LETTER


B-260188

September 28, 1995

The Honorable Dale Bumpers
Ranking Minority Member
Committee on Small Business
United States Senate

Dear Senator Bumpers: 

According to the U.S.  Departments of the Treasury and of Commerce,
multilateral development banks (MDB), such as the World Bank and
others, provide approximately $45 billion annually in loan
commitments that generate business opportunities for U.S.  firms. 
The MDB procurement process is designed to provide fair and equal
opportunity for prospective bidders, taking into consideration
economy and efficiency.  Yet some U.S.  businesses have been
concerned about how the process is implemented and what the U.S. 
government is doing to promote U.S.  exports through MDB-funded
procurements.  Congress passed legislation in 1988\1

and 1992\2 that mandated that the Treasury and Commerce Departments
assign a high priority to promoting the export of goods and services
through MDB activities. 

In light of the possible business opportunities for U.S.  companies
at MDBs, you were interested in knowing how well U.S.  firms are
doing in competing for MDB business and how the U.S.  government
helps firms compete.  Specifically, you asked us to (1) identify and
compare the MDB market share held by U.S.  firms and their major
competitors, (2) describe any obstacles U.S.  businesses may face in
competing for MDB projects and the services the U.S.  government
provides to help U.S.  businesses overcome the obstacles, and (3)
describe the Treasury's efforts to help ensure fair and open
procurement processes for projects that MDBs finance. 


--------------------
\1 The Omnibus Trade and Competitiveness Act of 1988 (Public Law
100-418, Aug.  23, 1988). 

\2 The Jobs Through Exports Act of 1992 (Public Law 102-549, Oct. 
28, 1992). 


   BACKGROUND
------------------------------------------------------------ Letter :1

MDBs are autonomous international institutions that partially finance
development projects in developing countries using money borrowed in
world capital markets or contributed by governments of more developed
countries.  Government agencies of the borrowing countries (i.e.,
"executing agencies") are responsible for implementing the projects,
including procuring goods and services.  In accordance with MDB
guidelines, MDBs are responsible for supervising how the executing
agencies administer the procurement process.  (See app.  I for
information about the MDB project development and procurement
process.) These guidelines are generally incorporated in the loan
agreement between the executing agencies and MDBs and emphasize the
need for (1) considering economy and efficiency in project
implementation and (2) providing all eligible bidders from MDB member
countries with opportunities to compete for contracts.\3

The guidelines also allow for the use of local preferences\4 when
comparing bids, to help develop domestic contractors and
manufacturing industries in the borrowing country.  MDBs lend roughly
$45 billion\5 annually for projects that provide business
opportunities and an entry into developing markets for U.S.  firms. 

The United States is a member of five MDBs--the Asian Development
Bank (ADB), the African Development Bank (AfDB),\6 the European Bank
for Reconstruction and Development (EBRD), the Inter-American
Development Bank (IDB), and the World Bank.  (The World Bank refers
to the International Bank for Reconstruction and Development (IBRD)
and the International Development Association (IDA).  The "World Bank
Group" refers to IBRD, IDA, and two affiliates:  the International
Finance Corporation and the Multilateral Investment Guarantee
Agency.) The World Bank is the oldest and largest MDB and draws its
membership from developing and industrialized countries around the
world.\7 Membership in the regional MDBs generally consists of
developing or borrowing countries in a particular region and some
industrialized countries.  Members contribute funds and set operating
policies for these institutions. 

The Treasury and Commerce Departments share the major responsibility
for promoting U.S.  commercial interests in MDBs.  Through membership
on MDB boards of executive directors, the Treasury is responsible for
managing U.S.  participation in MDBs and promoting U.S.  exports by
helping to ensure that MDB procurement guidelines are fair and
implemented properly.  Commerce has a statutory role in promoting
U.S.  business interests in MDBs as well.  The Omnibus Trade and
Competitiveness Act of 1988 (1988 Trade Act) requires the Secretary
of Commerce to staff a part-time or full-time procurement officer at
each MDB and inform U.S.  firms about MDB business opportunities.\8
The Jobs Through Exports Act of 1992 increased the staffing
requirement by directing the Secretary of Commerce to assign at least
one additional full-time procurement officer to each MDB.\9


--------------------
\3 The European Bank for Reconstruction and Development does not
restrict eligibility to bid for contract opportunities to its
membership. 

\4 MDBs do not require, but, under specific circumstances, may allow,
borrowers to give preferences in bid evaluation to suppliers of goods
and construction services and for goods manufactured in the borrowing
country or in developing countries in the same region.  EBRD
guidelines do not allow for local preferences. 

\5 This amount generally represents about 40 percent of total project
costs and does not include funds generated from the borrowing
countries and other sources. 

\6 AfDB was not included in this review because of the unavailability
of procurement data. 

\7 IBRD was established in 1945; IDB in 1959; ADB in 1966; and EBRD
in 1991.  The World Bank Group accounted for about 65 percent of the
MDBs' total lending in 1994. 

\8 See section 2302 of the act, Public Law 100-418, Aug.  23, 1988
(22 U.S.C.  262s-2). 

\9 Section 501 of Public Law 102-549, Oct.  28, 1992 (22 U.S.C. 
262s-2 note). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

U.S.  firms were the largest single source of goods and services for
MDB-financed projects\10 from 1989 to 1994, compared with their major
industrialized competitors--France, Germany, Japan, and the United
Kingdom (U.K.).  MDB data, however, do not allow a precise
determination of the U.S.  share of MDB procurements because of the
limitations of the data MDBs report.  For example, identification of
the U.S.  market share within a specific MDB may refer merely to the
address to which payments are made and does not always indicate the
origin of goods.  In addition, some MDBs report procurement data
based on disbursements (i.e., payment to contractors), while others
publish data based on contract awards (i.e., the value of the
contract at the time it is awarded).  Notwithstanding these
limitations, the Treasury uses MDB publicly available annual report
data as an indicator of U.S.  performance. 

MDB procurement data show that from 1989 to 1994, U.S.  firms had the
largest share of disbursements at the World Bank, with an average of
about 8 percent or about $1.35 billion annually, and at IDB, with an
average of 20 percent or about $500 million annually.  In comparison
with procurements from firms of other industrialized countries, U.S. 
firms received the second largest share at ADB, behind Japanese
firms, and the third largest share at EBRD, behind German and Italian
firms.  These MDB market shares are largely consistent with overall
U.S.  exports to developing countries around the world.\11 (See app. 
IV for more information.) The components of the U.S.  market share
also varied by procurement categories.  For example, at the World
Bank, which represented the largest amount of total MDB procurements
from 1989 to 1994, the United States was the largest supplier of
goods, equipment, and consulting contracts for foreign
disbursements,\12 but was not the largest supplier for civil works
(i.e., construction).  Borrowing member countries have received about
half of the MDB procurements.  Their future share of the MDB market,
as well as other factors, such as the type of projects MDBs will
finance in upcoming years, may ultimately affect U.S.  firms' future
share of the MDB market. 

U.S.  government and business officials we interviewed told us that
some U.S.  firms wishing to compete for MDB projects face certain
obstacles, including the lack of timely and specific information and
the cost of marketing their products to executing agencies in the
borrowing countries.  While Commerce has relied on anecdotal feedback
to determine the needs of U.S.  firms, its services appear to be
consistent with the information businesses said they needed to assist
them in competing for MDB projects.  In conformance with the
requirements in the 1988 Trade Act, Commerce has placed full-time
procurement officers (referred to as "commercial liaison officers")
at each of the banks, has disseminated information about MDB
projects, and has provided outreach seminars to inform businesses of
MDB opportunities and the process for bidding on contracts.  The
extent to which Commerce's services affect the bidding rate of U.S. 
firms in the MDB market is unclear because Commerce has not formally
evaluated its MDB services.  Other U.S.  government agencies, such as
the U.S.  Trade and Development Agency (TDA), also assist U.S. 
businesses.  For example, TDA provides funds to MDBs for feasibility
and design studies that may lead to U.S.  exports. 

The Treasury has played an important role in encouraging MDBs to
promote fairer and more open competition by strengthening their
procurement processes for MDB-funded projects.  Many of Treasury's
efforts have been aimed at improving bank supervision of executing
agencies' compliance with MDB procurement guidelines.  For example,
the Treasury supported increases in procurement training for staff at
these banks and executing agencies.  With better-trained staff,
Treasury officials believe MDBs should be better able to monitor the
procurement process and to provide greater assurance that executing
agencies have the institutional expertise to implement procurement
guidelines.  The Treasury has also worked with some MDBs to promote
the use of standard bidding documents and the wider dissemination of
bidding opportunities. 


--------------------
\10 Our analysis of MDB contract award and disbursement data is only
for public sector projects that MDBs financed. 

\11 Based on developing member countries of the World Bank. 

\12 Foreign disbursements represent payments to addresses outside of
the borrowing country. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To identify and compare the U.S.  market share with that of other
industrialized countries that are major competitors for MDB
contracts, we analyzed contract award and disbursement data in MDB
annual reports and other documents for 1989 to 1994, the most recent
time frame for which data were available for MDBs we reviewed.  We
obtained data from ADB, EBRD, IDB, and the World Bank.\13 Because we
do not have audit authority over MDBs, we did not verify the
statistics, but we discussed the data with MDB and Treasury officials
to ensure that the data were suitable for our analysis.  The Treasury
recommended that we use publicly available information in the MDBs'
annual reports.\14 Our review focused on the major industrialized
competitors of U.S.  firms based on their market share of the world's
total merchandise exports as reflected in United Nations (U.N.) trade
statistics.  U.S.  firms' major industrialized competitors are firms
from France, Germany, Japan, and the U.K.  Data on U.S.  and its
major competitors' market share are presented in nominal U.S. 
dollars because the focus of our analysis was on each country's
market share between 1989 and 1994 and not on the changes in the
amount of contract awards or disbursements during this time period. 

To gain a broader perspective on MDB market shares for U.S.  firms
and their major industrialized competitors, we compared their
relative rankings in MDBs to their rankings based on U.N.  export
data.  Comparisons to U.N.  data were for exports from 1989 to 1993
to developing countries that were members of the World Bank.  We also
did this comparison for each of the regional banks.  (As of June
1995, general export data for 1994 were not available.) These two
data sets may contain different mixtures of goods and services,
however, a factor that would affect the extent to which the market
shares would correspond.  For example, U.N.  data for U.S.  exports
to one country may be largely agricultural, but the goods and
services exported to the same country for MDB contracts may be
industrial. 

Our analysis of MDB contract award and disbursement data relates only
to public sector projects that MDBs financed.  We did not include MDB
private sector operations because cumulative private sector lending
constituted less than 5 percent of public sector loans in most
MDBs\15 since inception and complete data on U.S.  competitors'
participation in private sector projects were not available. 

To describe any obstacles U.S.  firms may face when competing for MDB
projects and the services that the U.S.  government provides for
them, we interviewed officials from the Treasury and Commerce, TDA,
the Agency for International Development (AID), the Small Business
Administration, and the U.S.  Export-Import Bank.  We also
interviewed officials of U.S.  trade associations located in the
United States, such as the American Consulting Engineers Council, the
National Association of Manufacturers, and the Construction Industry
Manufacturers Association, to gain an understanding of U.S. 
businesses' needs.  Overseas, we interviewed officials from the
American Chamber of Commerce of the Philippines.  Some of the member
firms of these associations have provided goods and services for
MDB-financed projects and have testified before Congress on MDB
issues. 

To gain greater insight into the obstacles U.S.  firms face, we spoke
to U.S.  business officials in the United States and overseas who
represented nine firms of various sizes that have participated in
outreach seminars sponsored by MDBs and Commerce or who have shown
interest in pursuing MDB contracts.  We selected these firms based on
their size and industry category because these factors may influence
the extent to which obstacles have an impact on firms.  Furthermore,
we obtained information from Treasury and Commerce documents that
described Commerce's procurement officers' efforts and Treasury's
U.S.  MDB executive directors' efforts to promote U.S.  exports at
MDBs, as required in the 1988 Trade Act and the 1992 Jobs Through
Exports Act. 

To describe Treasury's efforts to help ensure fair and open MDB
procurement processes, we obtained and analyzed information on MDB
procurement guidelines and proposed revisions, Treasury's review of
MDB procurement policies, and MDBs' internal management studies that
highlighted procurement concerns.  Additionally, we interviewed MDB
and Treasury officials to discuss MDB procurement procedures and the
status of procurement reforms. 

We conducted our work at the Treasury, Commerce, IDB, and the World
Bank in Washington, D.C.; EBRD in London, England; and ADB in Manila,
the Philippines.  We did our work from January 1994 to June 1995 in
accordance with generally accepted government auditing standards. 

We requested comments on a draft of this report from the Secretaries
of the Departments of Commerce and of the Treasury or their
designees.  Their oral comments are discussed on pages 23 and 24. 


--------------------
\13 Data for the World Bank are for IBRD and IDA. 

\14 As of September 1994, EBRD did not publish procurement data in
its annual reports.  We obtained cumulative procurement data for
1991-94 from the U.S.  Executive Directors Office at EBRD. 

\15 The EBRD's Articles of Agreement require that it direct at least
60 percent of its funding to private sector activities or to
state-owned enterprises implementing a program to achieve private
ownership and control.  The balance, or not more than 40 percent, is
to be dedicated to public sector operations. 


   DATA SHOW THAT U.S.  FIRMS HAVE
   WON CONTRACTS FINANCED BY MDBS
------------------------------------------------------------ Letter :4

Although determining the U.S.  market share at MDBs is complicated by
factors peculiar to MDBs and other factors involving international
trade,\16 the data show that U.S.  firms had the largest share of
disbursements at two of the four MDBs we studied--the World Bank and
IDB.  Borrowing member countries have received about half of MDB
procurements.  Their future share of the MDB market, as well as other
factors, such as the type of projects MDBs will finance in upcoming
years, may ultimately affect U.S.  firms' future share of the MDB
market. 


--------------------
\16 International trade is heavily dominated by multinational
corporations whose operations transcend national boundaries and
complicate measures of export competitiveness of firms from various
countries. 


      DATA LIMITATIONS
---------------------------------------------------------- Letter :4.1

Determining the U.S.  market share of MDB procurements is difficult
for several reasons.  First, MDB procurement data may be based on the
address to which payments are made and may not always indicate the
origin of the goods.  Second, the level of detail in which MDBs
report data did not allow us to identify the procurements from
subcontractors, subsidiaries of multinational firms, or joint
ventures, so the market share for the United States and other
countries may be understated or overstated.  Third, MDBs publish data
differently in their annual reports, which makes comparing the U.S. 
market share to that of its major competitors across the banks
difficult.  For example, the World Bank and IDB report their data
based on disbursements, while ADB and EBRD report their data based on
the contracts awarded.  In addition, MDBs operate within the
framework of global trade, the nature of which makes it difficult to
identify goods from particular countries because they may contain
inputs from several countries.  Without detailed and uniform data, it
is difficult to obtain an exact measure of the U.S.  MDB market
share.  Taking into account these data limitations, the Treasury uses
MDB data as an indicator of U.S.  performance.  Treasury officials
told us that using MDB data from annual reports is generally adequate
for measuring the U.S.  firms' market share for MDB-financed
projects.  According to Treasury officials, the Treasury has been
working with MDBs to improve the consistency and the presentation of
the data.  (See app.  II for a detailed description of MDB data
limitations.)


      U.S.  FIRMS' SHARE OF MDB
      PROCUREMENT VARIED BY BANK
---------------------------------------------------------- Letter :4.2

As shown in figure 1, the market share of U.S.  firms relative to
other industrialized countries varied by MDB.  From 1989 to 1994,
U.S.  firms received an average market share of 8 percent or $1.35
billion annually in the World Bank.  At IDB, U.S.  firms' average
market share was 20 percent or about $500 million annually, compared
to firms located in France, Germany, Japan, and the U.K., which had
an annual average share of less than 5 percent each.  By contrast,
the market share for U.S.  firms in ADB averaged about 7 percent or
$204 million, placing them behind Japanese firms with about 10
percent.  With regard to EBRD, since 1991, when EBRD was established,
U.S.  firms have received about 11 percent of all public sector
contracts awarded, behind German firms (17 percent) and Italian firms
(15 percent). 

   Figure 1:  MDB Average Annual
   Market Share for the United
   States and Its Major
   Competitors, 1989-94

   (See figure in printed
   edition.)

Note 1:  EBRD data are cumulative from inception to March 1994. 

Note 2:  Italian firms had the second largest share with 15 percent,
compared to the United States' 11 percent, of EBRD contract awards. 

Note 3:  Dollars shown under each MDB refer to average annual
disbursements or contract awards. 

Note 4:  U.K.  includes Hong Kong. 

Source:  EBRD contract award data and annual reports (1989-94) from
the World Bank, IDB, and ADB. 

These market shares are based on the total amount of MDB contract
awards and disbursements from 1989 to 1994, which varied considerably
by bank.  The World Bank had the largest amount of disbursements,
with an annual average of $16 billion.\17 Annual averages for ADB and
IDB were $3 billion and $2.7 billion, respectively.  As of March
1994, EBRD cumulative public sector contract awards were $283
million.  See appendix III for a table listing dollar amounts of MDB
contract awards and disbursements to U.S.  firms and firms from the
four major industrialized competitors from 1989 to 1994. 

The relative ranking of U.S.  firms in each MDB appears similar to
their ranking in overall exports to World Bank developing
countries.\18 Compared to their major competitors, U.S.  firms
appeared to be as competitive in the MDB market as they were in
traditional world exports.  For example, the value of U.S.  firms'
share of World Bank disbursements was 1.5 times greater than the
value of disbursements for Japanese firms, which ranked second. 
Similarly, the value of U.S.  firms' overall exports to World Bank
developing nations was almost 1.5 times greater than the value of
Japanese firms' exports.  (See app.  IV for further information on
U.S.  firms' rankings.)

To further explore the U.S.  market share of World Bank
disbursements, we analyzed the types of goods and services purchased
from U.S.  firms and their major competitors.  Central to this
analysis is the classification of goods and services as local or
foreign procurements.  Goods and services purchased within the
borrowing countries where the projects are implemented are classified
as "local procurements," while those purchased outside of the
borrowing countries are classified as "foreign procurements." Since
U.S.  and other firms from industrialized countries are included in
disbursements for foreign procurements, our analysis of the
components of the U.S.  share is focused on foreign procurements. 

From 1989 through 1994, U.S.  firms averaged $1.35 billion in World
Bank disbursements annually.  The largest amount was for equipment
($630 million) and other goods ($588 million).  The balance was for
consulting services and civil works.  (See table 1.) Compared to
their major competitors at the World Bank from 1989 to 1994, U.S. 
firms were the largest supplier for foreign disbursements by
averaging 17 percent of goods, 13 percent of equipment, and 18
percent of consulting contracts.  In comparison, U.S.  firms averaged
about 3 percent of foreign disbursements for civil works. 

According to a U.S.  construction industry association, U.S. 
construction firms are discouraged from competing for World Bank
civil works projects because firms from developing countries may have
geographic and labor cost advantages and benefit from MDB domestic
preference rules.\19



                                Table 1
                
                 Average Annual Disbursements for World
                     Bank Foreign Procurements, by
                     Procurement Category, 1989-94

                         (Dollars in millions)

                                          All
                               Equipm   other  Consult   Civil
Country                           ent   goods      ing   works   Total
-----------------------------  ------  ------  -------  ------  ======
United States                    $630    $588     $116     $16  $1,350
U.K.\a                            455     252      104      20     831
France                            397     186       90      62     735
Germany                           539     230       44      44     857
Japan                             703     148       19      34     904
Others\b                        1,947   2,070      265     345   4,627
======================================================================
Total                          $4,671  $3,474     $638    $521  $9,304
----------------------------------------------------------------------
\a U.K.  includes Hong Kong. 

\b "Others" category includes other industrialized and developing
countries. 

Source:  World Bank annual reports, 1989-94. 


--------------------
\17 For 1989 through 1994, the World Bank had the largest amount of
MDB procurements at $98.6 billion.  ADB, IDB, and EBRD had $18.1
billion, $16 billion, and $283 million, respectively. 

\18 This analysis is only a rough comparison of the two data sets
because we did not weight MDB contract award and disbursement data
and U.N.  export data based on the actual mix of goods. 

\19 Under specific circumstances, World Bank procurement guidelines
allow for the use of local or regional preferences in bid evaluation. 
The use of the preferences may be granted at the request of the
borrower and must be specified in the loan agreement and in the
relevant bidding documents. 


      BORROWING MEMBER COUNTRIES
      RECEIVED A LARGE AND
      INCREASING SHARE OF MDB
      PROCUREMENT
---------------------------------------------------------- Letter :4.3

Firms from borrowing countries have received a large percentage of
MDB disbursements.  From 1989 to 1994, borrowing countries averaged
over half of the contract awards and disbursements in ADB, IDB, and
the World Bank.  Some MDB and U.S.  industry officials attribute this
phenomenon to several factors:  (1) borrowing countries' development
and increases in manufacturing capability, (2) multinational firms'
operations in borrowing countries, and (3) MDB rules that give
preferences to local firms.  However, according to a 1991 ADB study,
the application of domestic preferences has had a limited impact on
the pattern of contract awards.  The study stated that at ADB and
IDB, preferences have accounted for about 3 percent, and at the World
Bank about 11 percent,\20 of the total value of international
competitive bidding contracts in which the preferences were specified
in the bid documents.  An ADB official said that most firms in the
borrowing country would have won the contracts anyway because of
domestic tax structures and low shipping and labor costs. 

To illustrate the market share for borrower countries, figure 2 shows
the average market share of industrialized and borrower countries at
the World Bank for 1989-94.  These market shares were a combination
of foreign disbursements and local disbursements. 

   Figure 2:  Average Market Share
   of Disbursements for
   Industrialized and Borrower
   Countries at the World Bank,
   1989-94

   (See figure in printed
   edition.)

Source:  World Bank annual reports, 1989-94. 

About half of the World Bank's overall disbursements were to borrower
countries in 1989-94, and these disbursements were primarily for
local disbursements.  Seven of the World Bank's borrower
countries--India, China, Mexico, Brazil, Indonesia, South Korea, and
Argentina--together received almost one-third of the World Bank's
disbursements from 1989 to 1994.  Other developing countries received
19 percent of overall disbursements, of which about three-quarters
were for local procurements.  As shown in figure 3, the major
proportion of disbursements to these countries was for MDB projects
within their borders.\21 For example, with an average of 7.8 percent
annually of total World Bank disbursements from 1989 to 1994, India
was the second largest recipient of World Bank disbursements,
slightly behind the United States.  Yet, India's market share largely
consisted of local procurements (7.2 percent), versus less than 1
percent (0.6 percent) for foreign procurements. 

   Figure 3:  Borrower Nations'
   Share of World Bank Average
   Disbursements, 1989-94

   (See figure in printed
   edition.)

Source:  World Bank annual reports, 1989-94. 

A variety of factors may affect U.S.  firms' future share of the MDB
market, such as the increases in the market share of developing
member countries and recent growth in the MDBs' social sector
lending.  Increases in developing countries' share of the MDB market
may reduce the share of the MDB market for U.S.  firms and other
industrialized countries.  While most foreign procurement has come
from suppliers in industrialized countries, suppliers from developing
countries have increasingly been effective in winning contract
awards.  In 1989 at the World Bank, the cumulative percentage of
foreign procurement for developing countries was 15 percent.  In
1994, developing countries had 32 percent of foreign disbursements. 
If the developing countries' share continues to increase, the U.S. 
share of this market may drop.  Nevertheless, U.S.  government and
business officials believe that as these countries develop, they may
increase their overall demand for U.S.  goods and services. 

Another factor that may affect the U.S.  market share is the
increased emphasis some MDBs are giving to social sector and
environmental projects.\22 According to the Treasury, increased
lending in these areas may not adversely affect the U.S.  market
share because U.S.  firms are leaders in these areas.  Furthermore,
our review of MDB lending documents showed that although MDBs have
increased their lending for social sector activities, they have not
decreased their lending for some infrastructure projects, such as
energy and transportation--areas in which U.S.  firms have been
competitive. 


--------------------
\20 ADB data used for the study were from 1986 to 1991.  IDB data
were from 1980 to 1990, and World Bank data were for 1985. 

\21 Brazil and South Korea have a comparatively larger proportion of
foreign disbursements than the other countries listed in figure 3. 

\22 Social sector or human resource development activities generally
include education, health and nutrition, population, and water supply
and sanitation projects. 


   OBSTACLES TO COMPETING FOR MDB
   CONTRACTS EXIST, BUT THE U.S. 
   GOVERNMENT PROVIDES SERVICES TO
   ASSIST FIRMS
------------------------------------------------------------ Letter :5

Some U.S.  firms face various obstacles when competing for MDB
projects, some of which businesses can address through individual
marketing strategies.  The U.S.  government provides a range of
export promotion services that appear to be consistent with the
information U.S.  firms said they needed to assist them in competing
for MDB projects.  Some U.S.  firms gave suggestions on ways to
improve these services. 


      SOME U.S.  FIRMS FACE
      OBSTACLES IN MDB COMPETITION
---------------------------------------------------------- Letter :5.1

According to U.S.  and foreign government and U.S.  business
officials, several factors present obstacles to some firms competing
for MDB projects.  These factors include obtaining timely and
detailed project information, as well as marketing their products to
the borrowing countries' executing agencies.  Other obstacles U.S. 
government officials noted were businesses' unfamiliarity with the
process for competing for MDB contracts and the perception that the
MDB procurement process is not open and competitive. 

U.S.  government and business officials said that the lack of early
and complete information about projects can be an obstacle for some
firms competing in the MDB market.  Although MDBs publish information
on MDB projects throughout the project cycle, it may not be specific
and timely enough to help firms respond adequately to bids.  U.S. 
business officials told us that when MDB procurement notices are
released, it may be too late to start preparing bids.  Foreign
government and U.S.  business officials said that to help overcome
this obstacle, some foreign firms use their resources to learn about
projects in detail before the requests for proposals or bid documents
are issued.  But, according to U.S.  government and business
officials, some U.S.  firms, especially small to medium-sized firms,
do not have or are unwilling to spend the money and take the risks
involved in pursuing MDB projects, partly because the project cycle
spans several years and a project could be disapproved for MDB
financing or scaled back. 

Another obstacle some businesses face is the cost of marketing their
products to the executing agencies.  Although the procurement process
is designed to be fair, and all businesses are to have the same
access to information MDBs publish, Treasury and Commerce officials
said it is critical for businesses to market directly to executing
agencies in the borrowing countries because these agencies purchase
items for MDB-financed projects.  Businesses can market their
products by establishing some form of local presence, such as having
an agent or office in-country, or by frequently visiting the
executing agencies in the borrowing countries and MDBs.  U.S.  and
foreign government officials told us that establishing a local
presence to market goods and services is expensive, especially for
small to medium-sized firms.  But, according to some U.S.  business
officials, without a local presence it is difficult for firms to
learn about the market and culture of the borrowing countries and
conduct business directly with executing agencies. 

Businesses can address some of these obstacles through their own
business strategies.  U.S.  government and business officials told us
that U.S.  firms have to decide whether or not to make the MDB market
a part of their overall export strategy and pursue MDB opportunities. 
For example, U.S.  firms can develop a local presence in the
borrowing countries by establishing joint ventures with local firms. 
This measure would help U.S.  firms receive timely information on
projects and market their products and may also enable them to
benefit from local preference in MDB competition.  U.S.  firms could
also subcontract with local firms to help establish a local presence
and decrease labor costs.  For small to medium-sized firms that do
not have the resources to pursue MDB contracts alone or as prime
contractors, U.S.  government officials said they advise these firms
to subcontract with large U.S.  firms that have experience in the
market or to team up with other small firms to bid on projects as
ways to participate in the MDB market. 

MDB and U.S.  government and business officials further noted that
U.S.  firms could lose contracts because they did not follow one or
more of the bid specifications.  One U.S.  firm's bid proposal for a
project financed by ADB had about 200 deviations from the
specifications; the firm subsequently lost the bid.  Another U.S. 
business official told us that his firm now has a representative in
Manila that provides a liaison with ADB officials and executive
agencies to help ensure that his firm's bid proposals comply with the
bid specifications.  He said that he believes that submitting
nonconforming bid proposals has prevented his firm from winning ADB
contracts in the past. 


      COMMERCE PROVIDES
      INFORMATION TO U.S.  FIRMS
      ON MDB PROJECTS
---------------------------------------------------------- Letter :5.2

The 1988 Trade Act and the 1992 Jobs Through Exports Act require
Commerce to inform U.S.  businesses about MDB export opportunities. 
Commerce's MDB services are similar to some services it typically
provides to assist U.S.  firms in exporting their products.  Commerce
officials said they have not systematically surveyed U.S.  firms to
determine their needs in the MDB market.  Through informal
discussions with U.S.  firms, Commerce officials said they found that
businesses need information on MDBs and how to bid on MDB projects. 
In addition, as required in the 1988 Trade Act, Commerce has assigned
one commercial liaison officer at every MDB.  However, during the
time of our review Commerce had not yet placed additional officers in
every MDB, as required by the 1992 Jobs Through Exports Act. 
Commerce also has foreign nationals (staff from the country in which
the bank is located) and administrative staff at some MDBs. 

To promote the export of U.S.  goods and services, Commerce staff
conduct a variety of activities, such as

  organizing and participating in outreach programs in the United
     States and overseas to increase U.S.  firms' awareness of the
     MDB market;

  hosting seminars at MDBs for U.S.  firms to discuss their products
     with MDB staff;

  disseminating information on MDB projects and the procurement
     process electronically on the National Trade Data Bank (NTDB)
     and the Economic Bulletin Board;\23

  counseling U.S.  firms on how to bid on MDB projects; and

  assisting, in cooperation with the U.S.  executive directors'
     offices and the Treasury, as appropriate, U.S.  firms in
     addressing procurement problems and bid evaluation disputes. 

Commerce also provides services that are not specific to MDBs and
that give U.S.  firms opportunities to meet potential agents and
joint venture partners. 

In 1993, Commerce established the office of Multilateral Development
Bank Operations to oversee Commerce services in all MDBs.  According
to Treasury and Commerce officials, the office was established as
part of the Trade Promotion Coordinating Committee's\24 (TPCC)
efforts to strengthen U.S.  export promotion services.  As of May
1995, the office had seven staff, whose responsibilities were to
manage and coordinate outreach activities for the commercial liaison
officers in the MDBs, provide business counseling for U.S.  firms,
and train foreign service nationals in Commerce's overseas posts on
the MDB process.  It also had one staff detailed from the Treasury to
focus primarily on the World Bank's activities for private sector
financing and investment guarantees.  The office's counseling center
is to provide reference materials on all MDBs and access to
computerized information on NTDB, the Economic Bulletin Board, and
the Internet.  In October 1994, the office prepared a strategy paper
to help achieve its program goals of raising awareness throughout the
U.S.  business community about MDBs, increasing the number of firms
competing for MDB projects, and raising the share of U.S.  firms in
MDB procurement.  As part of the strategy, the office is beginning to
expand coordination with other U.S.  government agencies and target
trade associations to provide export promotion services for U.S. 
firms. 

U.S.  businesses we interviewed provided contrasting views on
Commerce's services.  Some U.S.  business officials told us that
Commerce's services had encouraged them to pursue MDB projects,
helped them to make contacts at MDBs, and in one instance led to an
MDB contract.  One trade association official stated in congressional
testimony that Commerce staff are critical to the U.S.  private
sector because they represent a vital link between business and
government.\25 Yet other business officials said that while the
information in NTDB is useful, it is not always timely enough to help
them bid on MDB contracts. 

Commerce has not formally evaluated how its services affect U.S. 
participation rates at MDBs.  However, it requires its MDB staff to
report periodically to the Multilateral Development Bank Operations
office on the U.S.  firms that have won MDB contracts, including the
staff's role in helping firms do so. 


--------------------
\23 NTDB is an electronic source for market research and
international trade data.  The information is collected by over 20
federal sources and is updated monthly on a compact disk read-only
memory (CD-ROM).  U.S.  firms may subscribe to NTDB for a fee.  U.S. 
firms may also obtain access to the Economic Bulletin Board, which is
an on-line source for trade information that is updated daily.  This
information is also available on the Internet. 

\24 TPCC is an interagency committee authorized under the Export
Enhancement Act of 1992 (Public Law 102-429, Oct.  21, 1992) to
develop a governmentwide export strategy along with a unified export
promotion budget.  It consists of 19 executive branch agencies and is
chaired by the Secretary of Commerce. 

\25 Testimony by Robert C.  Ulrich before the House Subcommittee on
International Development, Finance, Trade and Monetary Policy,
Committee on Banking, Finance, and Urban Affairs, on behalf of the
American Consulting Engineers Council, November 18, 1993. 


      OTHER U.S.  GOVERNMENT
      AGENCIES ASSIST U.S.  FIRMS
      INTERESTED IN MDB-FINANCED
      PROJECTS
---------------------------------------------------------- Letter :5.3

Commerce works with other U.S.  government agencies to disseminate
information on MDB projects.  For example, AID has funded staff in
Commerce's ADB office to promote U.S.  environmental exports for
AID's U.S.-Asia Environmental Partnership project.\26

Additionally, Commerce officials told us that the U.S.  Department of
State has agreed to help supplement Commerce's efforts by producing
cables twice a year that summarize IDB's and the World Bank's
projects that are in the pipeline.  State also includes MDB
information in strategic commercial plans that U.S.  embassies
develop. 

TDA provides funds at AfDB, EBRD, IDB, and the World Bank to finance
consultants and feasibility studies for major projects that are
economic development priorities of recipient countries.  TDA provides
funds for MDBs in the early stages of a project to enhance the
prospects for U.S.  firms competing successfully for supply
contracts.  These funds may only be used to hire U.S.  firms to
perform MDB feasibility and other studies. 

TDA began providing funds to MDBs in 1986.  According to a TDA
official, in 1994 TDA shifted its focus from financing numerous small
consultant services to financing a small number of larger project
design studies.  The official said that this shift should help TDA
focus on those projects that are most likely to lead to U.S. 
exports.  TDA also entered into agreements with EBRD, IDB, and the
World Bank\27 to provide trust funds with a constant balance of
$500,000.  To ensure that funds for hiring U.S.  consultants are
always available in these trust funds and to maintain a constant
balance of $500,000, TDA plans to replenish these funds as money is
disbursed. 


--------------------
\26 AID established the U.S.-Asia Environmental Partnership project
in 1992 to promote environmental improvements in Asia.  In 1993, AID
provided $3.1 million to Commerce to promote U.S.  environmental and
energy technology in Hong Kong, India, Indonesia, Malaysia, the
Philippines, Singapore, South Korea, Thailand, and Taiwan. 

\27 These funds at the World Bank are for the International Finance
Corporation, the World Bank's private sector arm. 


      U.S.  FIRMS SUGGESTED WAYS
      TO IMPROVE U.S.  MDB
      SERVICES
---------------------------------------------------------- Letter :5.4

Some U.S.  business officials we interviewed suggested ways in which
the U.S.  government could improve its MDB export promotion services. 
One business official said that the U.S.  government should reduce
the fragmentation of its services.  With several agencies involved in
delivering services, he said it is sometimes difficult to know where
to go for assistance.  He also suggested that the U.S.  government
provide more seminars geared to businesses of various sizes, such as
for small and medium-sized firms.  Also, a trade association official
suggested having U.S.  industry representatives who are knowledgeable
about specific industries work as commercial officers at MDBs. 

U.S.  government agencies recognize these issues and have taken steps
to address them.  For example, to deal with the issue of
fragmentation of export promotion services, the interagency TPCC
issued a report in 1993, Toward a National Export Strategy, that
included 65 recommendations to develop a comprehensive export
strategy.  Regarding the suggestion that export promotion seminars be
geared more for small to medium-sized firms, Commerce officials told
us that most of its seminars already include these businesses.  In
response to the suggestion that U.S.  industry representatives work
as commercial officers at the U.S.  Executive Directors Office,
Commerce officials said that this measure would not be feasible
because every industry would want its representative to fill this
position.  Furthermore, the MDBs place limits on the number of
personnel that may be assigned to the U.S.  Executive Directors
Office.  The officials also said that Commerce is training its
officers in various industrial sectors to better assist businesses. 


   THE TREASURY SUPPORTED REFORMS
   IN THE MDB PROCUREMENT PROCESS
   AND HAS ASSISTED U.S.  FIRMS IN
   PROCUREMENT DISPUTES
------------------------------------------------------------ Letter :6

Although MDBs establish procurement guidelines and are responsible
for monitoring the procurement process, the executing agencies in the
borrowing countries are responsible for awarding contracts for MDB
projects.  The Treasury has sought to ensure that MDBs strengthen
their procurement policies and rules and enhance their mechanisms for
monitoring the executing agencies that administer the procurement
process.  The Treasury, in cooperation with U.S.  executive directors
and Commerce liaison officers, has also assisted some firms that
raised complaints about bidding procedures. 


      THE TREASURY HAS PLAYED AN
      IMPORTANT ROLE IN MDB
      REFORMS
---------------------------------------------------------- Letter :6.1

The 1988 Trade Act requires the Secretary of the Treasury to instruct
the U.S.  executive director of each MDB to attach a high priority to
promoting the export of U.S.  goods and services.  In carrying out
this function, the U.S.  Executive Director of each MDB is to help
ensure that MDB procurement rules are observed and that U.S.  firms
are treated fairly, as envisioned by the act.  Treasury officials
told us that by working to build consensus with other member
countries, the Treasury has played an important role in procurement
reforms at MDBs.  The reforms are designed to improve bank
procurement rules and procedures and maintain fairness in the
procurement system.  For example, the Treasury supported many of the
World Bank's procurement reforms that the Bank initiated as part of
its portfolio management review in 1992.  As a result of the review,
the World Bank has done the following: 

  It has established a procurement advisory committee to review
     proposals for goods contracts over $25 million and consulting
     contracts over $10 million.  Through this committee, the World
     Bank is to monitor the consistency with which borrowing
     countries apply bank procurement guidelines. 

  It issued revised procurement guidelines in January 1995.  As part
     of the revision, the World Bank revised language to clarify and
     simplify procedures for social sector lending and other
     small-value contracts. 

  It has increased procurement training for World Bank and borrower
     staff to improve their procurement skills, institutional
     expertise, and quality of documentation. 

  It has required borrowers to use standard bidding documents for
     international competitive bidding.  With standardized documents,
     according to a Treasury official, the procurement process should
     be more efficient and transparent because it should decrease the
     amount of time needed to review bid documents and help
     businesses better understand the bid specifications. 

In 1990, the Treasury reviewed the IDB's procurement process and made
nine recommendations to improve procurement supervision and expand
the dissemination of IDB project information.  In a prior review,\28
we corroborated Treasury's findings and concurred with its
recommendations.  According to Treasury officials, IDB has dealt with
most of Treasury's recommendations.  These included increased
procurement training for IDB and borrower procurement staff and wider
dissemination of information explaining IDB procurement procedures. 

According to the Treasury, IDB has hired a procurement chief and
increased procurement training for its field offices and for
executing agencies.  To expand information dissemination on IDB
projects, IDB developed a booklet on its procurement procedures,
established monthly briefings to discuss IDB projects in the
pipeline, and required borrowers to advertise in international
publications. 

At EBRD, the Treasury was involved in developing the original
procurement guidelines for EBRD when it was established in 1991 and
in revising subsequent procurement guidelines, according to Treasury
officials.  For example, as a result of Treasury's efforts, EBRD
clarified the requirements for following public sector procurement
guidelines to include projects, such as public utilities, that are
majority owned or controlled by a national or local government. 

At ADB, a Treasury official said that the Treasury is monitoring the
degree to which U.S.  firms win contracts relative to their
competitors when executing agencies award "international shopping"
contracts.\29 In 1989, ADB raised the threshold for goods contracts
that are eligible for international shopping from $300,000 to
$500,000.  According to the Treasury official, U.S.  firms have not
been disadvantaged relative to their major competitors by the
increased threshold. 

While Treasury officials said MDBs have made progress in
strengthening their procurement operations, the Treasury is
continuing to work with MDBs to improve MDB procurement policies and
rules and the supervision of the procurement process. 


--------------------
\28 See Inter-American Development Bank:  Efforts to Improve
Procurement Procedures (GAO/NSIAD-91-126, Mar.  14, 1991). 

\29 International shopping procedures do not call for as much
advertising or notification as may be required by other MDB modes of
procurement.  These procedures generally entail soliciting at least
three quotations for purchasing low-value or off-the-shelf items. 


      THE TREASURY AND COMMERCE
      ARE TO ADDRESS COMPLAINTS
      THAT U.S.  FIRMS RAISE
---------------------------------------------------------- Letter :6.2

The 1988 Trade Act requires the U.S.  executive director of each MDB
to (1) investigate thoroughly any complaints from U.S.  bidders about
the awarding of procurement contracts by MDBs and (2) ensure that all
contract procedures and rules of the banks are observed.  Both the
Treasury and Commerce have assisted some firms that have complained
about aspects of MDB bidding or bid evaluation processes.  U.S. 
firms may raise complaints that involve alleged unclear or biased
specifications, the bid evaluation method, contract award practices,
and other issues.  Businesses are to raise procurement complaints
first with the executing agencies or MDB staff responsible for the
project.  If the firms are not satisfied with the result, they can
then discuss their complaints with the U.S.  Executive Directors
Office at the particular MDB. 

Neither the Treasury nor Commerce systematically collect data on the
number of bid complaints lodged by U.S.  firms; therefore, we do not
know the number of complaints U.S.  firms have made.  Treasury
officials told us that many complaints are resolved by bringing the
issue to the attention of the MDB project staff.  We found
documentation that showed that the Treasury and Commerce have
addressed various procurement disputes, including those that involved
prequalification\30 of bidders and questionable trade practices in
the context of the invitation for bids.  For example, one U.S.  firm
protested a foreign competitor's supplementary bid in which the
competitor offered a lower-priced bid for substantially upgraded
technology.  The U.S.  firm believed the competitor violated the
spirit of ADB-approved bid rules.  With the assistance of the ADB's
U.S.  Executive Directors Office and the Commerce officer, the U.S. 
firm was awarded the contract.  In another case, a Treasury official
stated in congressional testimony that the Treasury has been
successful in bringing about the reversal of contract awards,
reopening bids, and canceling loans when the borrowers were unwilling
to follow procurement procedures.  For example, the World Bank
canceled $50 million of a loan to Turkey for highway construction
when that country was unwilling to reverse an award.\31


--------------------
\30 MDBs prequalify bidders to procure technically complex items. 
Prequalification is done to ensure that only technically and
financially capable firms are invited to submit bids. 

\31 Testimony by Susan Levine, Deputy Assistant Secretary of the
Treasury, International Development, Debt and Environment, before the
House Subcommittee on International Development, Finance, Trade and
Monetary Policy, Committee on Banking, Finance, and Urban Affairs,
November 18, 1993. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We requested comments on a draft of this report from the Secretaries
of the Departments of the Treasury and of Commerce or their
designees.  We discussed our draft report with Treasury officials,
including the International Economist in the Office of Multilateral
Development Banks on August 15, 1995, and with Commerce's Director of
Multilateral Development Bank Operations on August 17, 1995. 
Officials from both agencies agreed with the overall message and
characterized the draft report as balanced and objective.  They
suggested technical changes, which we incorporated in the report as
appropriate. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the Secretaries of Commerce
and of the Treasury, TDA, and appropriate congressional committees. 
We also will send copies to the U.S.  businesses that participated in
our review and to other interested parties.  We will make copies
available to others upon request. 

Please contact me at (202) 512-4812 if you have any questions
concerning this report.  The major contributors to this report are
listed in appendix V. 

Sincerely yours,

JayEtta Z.  Hecker, Director
International Trade, Finance,
  and Competitiveness Issues


THE MULTILATERAL DEVELOPMENT
BANKS' PROJECT DEVELOPMENT AND
PROCUREMENT PROCESS
=========================================================== Appendix I


   THE MDB PROJECT CYCLE
--------------------------------------------------------- Appendix I:1

Projects that the multilateral development banks (MDB) finance
involve a number of stages, spanning several years from the point at
which they are conceived.  As shown in table I.1, MDBs work with the
borrowing countries in all of these stages, beginning with the
project identification phase and ending at postevaluation.  All MDBs
generally follow the same project cycle. 



                                    Table I.1
                     
                      MDB and Borrower Participation in the
                                  Project Cycle


         Project     Preparatio                          Implementat
Partici  identifica  n/fact                  Negotiatio  ion/         Postevalua
pant     tion        finding     Appraisal   ns          supervision  tion
-------  ----------  ----------  ----------  ----------  -----------  ----------
MDB      Yes         Yes         Yes         Yes         Yes          Yes

Borrowe  Yes         Yes         No          Yes         Yes          Yes
r
--------------------------------------------------------------------------------
Source:  MDB document and GAO analysis. 

In consultation with the borrowing countries, the banks begin by
studying the economy and economic priorities of the borrowing
countries in the context of the MDBs' lending priorities.  In the
preparation or fact-finding stage, borrowing countries examine (with
guidance from MDBs) the technical, institutional, economic, and
financial aspects of the proposed projects in the context of the
MDBs' lending criteria.  Subsequently, MDBs appraise the project to
ascertain the extent to which the project meets the banks' lending
requirements and development standards.  The appraisal process
usually results in formulating loan conditions that are then
negotiated and approved. 

The executing agencies are responsible for implementing the project,
while MDBs supervise the project through site visits and progress
reports from the borrowing countries.  After the project is
completed, MDBs conduct a postevaluation with assistance from the
borrowing countries.  The lessons learned from the evaluation process
are to be incorporated into future project preparation and
implementation. 


      PROCUREMENTS
------------------------------------------------------- Appendix I:1.1

MDBs are responsible for ensuring that the executing agencies adhere
to the procurement guidelines throughout the project cycle.  The
MDBs' responsibilities include enforcing the procurement procedures
by reviewing procurement plans, bid documents, and bid evaluation and
draft contracts.  The MDBs' role in the procurement process is to
ensure that the procurement procedures are observed and conducted
with fairness and impartiality.  For example, MDBs require that
borrowing countries (1) use loans only to buy goods and services
needed to complete the project, (2) purchase items in the most
efficient and economical manner, and (3) give qualified bidders from
MDB member countries an equal opportunity to compete for
bank-financed contracts. 

The executing agencies are responsible for advertising the need for
goods and services for each project, preparing bidding documents,
evaluating bids, and awarding contracts.  The contracts cover a broad
range of goods and equipment, civil works, and consulting services. 
For example, a World Bank 1993 document shows that borrowers of World
Bank funds have awarded about 30,000 contracts annually;
approximately 70 percent were for goods and equipment, 20 percent for
civil works, and 10 percent for consulting services. 


      MODES OF PROCUREMENT
------------------------------------------------------- Appendix I:1.2

MDB guidelines provide for different modes of procurement based on
various criteria, including the dollar value of the items to be
procured and the urgency of the need.  The international competitive
bidding (ICB) process is used to obtain many high-value goods and
services.  This process is designed to provide (1) adequate
notification of procurement opportunities, (2) equal opportunity for
all qualified bidders to compete for contracts, and (3) awarding of
contracts to the lowest evaluated bidder.\32

Executing agencies may use other methods of procurement when ICB is
not the most economical and efficient, such as to make small
purchases, to fill an urgent need, or to obtain products when few
suppliers provide a specialized good or service.  Other procurement
methods include the following: 

  Limited international bidding:  Suppliers or contractors of
     specialized goods and services participate by invitation rather
     than in response to an advertisement. 

  International and local shopping:  The executing agency generally
     solicits at least three quotations for purchasing low-value,
     off-the-shelf items. 

  Local competitive bidding:  This method is used in instances when
     foreign bidders are not expected to be interested because (1)
     contract values are small,(2) project activities are scattered
     geographically or spread over time, (3) project activities are
     labor intensive, or (4) the goods and services are available
     locally at prices below the international market price. 

  Direct purchasing:  This is normally done on a negotiated basis in
     various circumstances, including when proprietary equipment can
     be obtained from only one supplier, when it is necessary to
     obtain standardized equipment or spare parts, and when it is
     essential to extend an existing contract for civil works or
     goods. 

  Force account:  This procedure is used in certain construction
     projects when it is more advantageous and economical to use the
     borrower's own labor force and equipment. 


--------------------
\32 The lowest evaluated bid is based on the evaluation criteria set
forth in the bid documents.  In addition to the price, factors taken
into account include quality, durability, availability of after-sale
service and spare parts, training, and operational and maintenance
costs over the life cycle of the equipment. 


MDB DATA LIMITATIONS
========================================================== Appendix II

The U.S.  Department of the Treasury has identified differences in
MDB reporting systems that make assessing the market share of U.S. 
firms difficult.  These limitations include definitional issues
associated with the international market and differences in the way
MDBs report procurement statistics. 


   DEFINITIONAL ISSUES
-------------------------------------------------------- Appendix II:1

The evolution of the international trading system has created
definitional problems for reporting MDB procurement data.  Firms are
increasingly multinational and operate globally through subsidiaries,
alliances, and partnerships.  MDB statistics focus on firms from
specific countries that provide goods and services and do not reflect
the activities of multinational firms.  For example, multinational
firms may

  market, manufacture, and invoice goods and services from offices in
     several countries;

  integrate imported components into final products, which may then
     be exported;

  bid on contracts or receive payments through their home office or
     foreign subsidiaries; and

  bid on contracts through joint ventures involving firms located in
     various countries. 

Therefore, MDB procurement data that list the country of a firm from
which a winning bid was submitted or to which funds were disbursed
may not provide precise information about where the procured items
were produced. 


   APPROACHES TO MDB REPORTING IN
   ANNUAL REPORTS
-------------------------------------------------------- Appendix II:2

MDBs report procurement data in one of two ways--by disbursements or
by contract awards.  The basic difference between these two types of
statistics is the time period to which they refer.  For example, 1994
disbursements capture payments made in 1994 irrespective of when the
contracts were awarded.  Contract awards data would reflect the
amount of contract awards signed in 1994.  The World Bank and the
Inter-American Development Bank (IDB) report procurement data in
their annual reports based on disbursements.  The World Bank's
disbursement data are based on the address to which payments are
made, and the IDB's data are based on the origin of the goods.  The
Asian Development Bank (ADB) reports its data based on contract
awards by origin of the goods.  The European Bank for Reconstruction
and Development (EBRD) collects contract award data for public sector
projects by address of the supplying firm, but does not currently
publicize this information through its annual reports. 

Due to the complexity of and differences among the various MDB
reporting systems, the Treasury recommended that we use publicly
available data from the MDBs' annual reports (with appropriate
caveats).  The Treasury has further noted that different computer
systems and programs, as well as institutional cultures, would make
achieving a homogeneous reporting system costly and require strong
consensus building.  To determine the average market share for firms
from the United States and other countries, we used data from the
MDBs' annual reports for 1989 through 1994. 


SELECTED MDB CONTRACT AWARDS AND
DISBURSEMENTS, 1989-94
========================================================= Appendix III

Table III.1 shows that from 1989 to 1994, World Bank disbursements
were almost 3 times as large as disbursements and contract awards for
the other MDBs combined that were included in our review.  It also
shows how MDB disbursements and contract awards fluctuated from one
year to the next.  For example, World Bank disbursements to U.S. 
firms increased by almost $300 million between 1989 and 1990 and over
$350 million at IDB from 1992 to 1993.  Treasury officials partly
attribute these large increases to adjustment loans, which assist
countries in reforming economic and fiscal policies and address
balance of payments problems.  Treasury officials also attribute the
variation in U.S.  disbursements and contract awards in the regional
MDBs to U.S.  firms winning one or two large contracts.  Because the
regional MDBs (IDB, ADB, and EBRD) are much smaller than the World
Bank, winning one large contract can substantially raise the relative
share credited to a particular country. 



                              Table III.1
                
                MDB Disbursements and Contract Awards to
                  the United States and Its Four Major
                  Industrialized Competitors, 1989-94

                         (Dollars in millions)


                                   World
Country                             Bank       IDB       ADB      EBRD
------------------------------  --------  --------  --------  --------
United States
1989                              $1,408      $210      $143       n/a
1990                               1,696       365       156       n/a
1991                               1,315       658       307        \a
1992                               1,324       577       210        \a
1993                               1,393       936       144        \a
1994                                 971       506       261     $31\a
======================================================================
Total                             $8,107    $3,252    $1,221       $31

U.K.
1989                                $935       $29       $47       n/a
1990                                 875        43        65       n/a
1991                                 789        43        82        \a
1992                                 697        52        82        \a
1993                                 727        42        69        \a
1994                                 961        71        82     $21\a
======================================================================
Total                           $4,984\b      $280      $427       $21

France
1989                                $636      $212       $28       n/a
1990                                 716       142        60       n/a
1991                                 766       122       167        \a
1992                                 760        52        21        \a
1993                                 743        45        50        \a
1994                                 786        34        70     $17\a
======================================================================
Total                             $4,407      $607      $396       $17

Germany
1989                                $858       $75       $39       n/a
1990                                 777        76       115       n/a
1991                               1,019       169        82        \a
1992                                 874       133       134        \a
1993                                 846       131       340        \a
1994                                 766        70       248     $48\a
======================================================================
Total                             $5,140      $654      $958       $48

Japan
1989                              $1,321       $61      $147       n/a
1990                                 877        75       271       n/a
1991                                 826       112       344        \a
1992                                 860        78       206        \a
1993                                 846       107       434        \a
1994                                 691        47       337     $12\a
======================================================================
Total                             $5,421      $480    $1,739      $12\

======================================================================
Subtotal                         $28,059    $5,273    $4,741      $129

Other countries\c
1989                              $9,908    $1,823    $1,744       n/a
1990                              12,848     1,348     2,129       n/a
1991                              11,273     1,786     2,029        \a
1992                              11,926     1,853     2,089        \a
1993                              12,819     2,052     2,574        \a
1994                              11,804     1,855     2,832    $154\a
======================================================================
Grand total                      $98,637   $15,990   $18,138      $283
----------------------------------------------------------------------
Legend:  N/A = not applicable. 

\a Between its inception in 1991 and March 1994, EBRD made contract
awards totaling $283 million.  Data were not available to permit
showing the amount of contracts awarded each year; therefore, we show
the cumulative awards as of March 1994. 

\b U.K.  includes Hong Kong. 

\c "Other countries" category includes other industrialized and
developing countries.  The amounts shown are for both local and
foreign disbursements and contract awards. 

Sources:  MDB annual reports and EBRD contract award data, 1989-94. 


COMPARISON OF U.S.  FIRMS' RANKING
IN MDB PROCUREMENTS TO THEIR
RANKING IN WORLD EXPORTS
========================================================== Appendix IV

To gain some perspective on the size of MDB market shares for U.S. 
firms and their major industrialized nation competitors, we compared
MDB contract awards/disbursement data with United Nations (U.N.)
trade data from 1989 to 1993.  We ranked the United States, France,
Germany, Japan, and the United Kingdom (U.K.) according to the dollar
value of their firms' exports to the developing nations; we also
ranked each of the five nations according to the dollar value of
their firms' MDB contract awards/disbursements.  We then compared the
rankings based on MDB contract awards/disbursements to the rankings
based on export volumes for the World Bank, IDB, ADB, and EBRD. 
Because of the limitations of both data sets, these comparisons can
only provide a rough guide against which to assess the performance of
U.S.  firms and their major competitors in the MDB market.\33

U.S.  firms' rankings according to MDB contract awards/disbursements
were similar to U.S.  firms' rankings according to worldwide exports. 
Compared to the U.K., France, Germany, and Japan, the United States
had the highest level of total World Bank disbursements for 1989 to
1994 and the highest level of exports to World Bank developing
nations from 1989 to 1993.  During the same period, U.S.  firms also
had the highest level of total IDB disbursements and the highest
level of exports to IDB developing nations.  U.S.  firms ranked
second to Japanese firms in ADB contract awards and second to
Japanese firms in exports to ADB developing nations.  Compared to
their major competitors, U.S.  firms ranked second to German firms in
EBRD contract awards\34 and second to German firms in exports to EBRD
developing nations.  Tables IV.1-4 show that the rankings on the
basis of contract awards/disbursements and exports were similar in
most cases for all five nations at the World Bank, IDB, ADB, and
EBRD. 



                               Table IV.1
                
                 Total World Bank Disbursements, 1989-
                94, and Exports to World Bank Developing
                            Nations, 1989-93

                                                Ranking for exports to
                        Ranking for World Bank  World Bank developing
                        disbursements ($ in     nations ($ in
Nation                  billions)               billions)
----------------------  ----------------------  ----------------------
United States           1 ($8.1)                1 ($525.9)

Japan                   2 (5.4)                 2 (388.0)

Germany                 3 (5.1)                 3 (171.2)

U.K.                    4 (5.0)\a               5 (85.7)

France                  5 (4.4)                 4 (120.9)
----------------------------------------------------------------------
\a U.K.  includes Hong Kong. 

Sources:  World Bank annual reports, 1989-94, and U.N.  export data. 



                               Table IV.2
                
                 Total IDB Disbursements, 1989-94, and
                Exports to IDB Developing Nations, 1989-
                                   93

                        Ranking for IDB         Ranking for exports to
                        disbursements ($ in     IDB developing nations
Nation                  billions)               ($ in billions)
----------------------  ----------------------  ----------------------
United States           1 ($3.25)               1 ($296.6)

Germany                 2 (0.65)                3 (37.5)

France                  3 (0.61)                4 (17.9)

Japan                   4 (0.45)                2 (58.0)

U.K.                    5 (0.28)                5 (13.4)
----------------------------------------------------------------------
Sources:  IDB annual reports, 1989-94, and U.N.  export data. 



                               Table IV.3
                
                Total ADB Contract Awards, 1989-94, and
                Exports to ADB Developing Nations, 1989-
                                   93

                        Ranking for ADB         Ranking for exports to
                        contract awards ($ in   ADB developing nations
Nation                  billions)               ($ in billions)
----------------------  ----------------------  ----------------------
Japan                   1 ($1.74)               1 ($300.9)

United States           2 (1.24)                2 (187.3)

Germany                 3 (0.96)                3 (87.7)

U.K.                    4 (0.44)                4 (42.7)

France                  5 (0.40)                5 (38.1)
----------------------------------------------------------------------
Sources:  ADB annual reports, 1989-94, and U.N.  export data. 



                               Table IV.4
                
                Total EBRD Contract Awards Through March
                  1994 and Exports to EBRD Developing
                            Nations in 1993

                                                Ranking for exports to
                        Ranking for EBRD        EBRD developing
                        contract awards ($ in   nations ($ in
Nation                  millions)               millions)
----------------------  ----------------------  ----------------------
Germany                 1 ($48)                 1 ($33,600)

United States           2 (31)                  2 (9,500)

U.K.                    3 (19)                  4 (5,000)

France                  4 (17)                  3 (7,400)

Japan                   5 (11)                  5 (3,600)
----------------------------------------------------------------------
Sources:  EBRD contract award data from conception to March 1994 and
U.N.  export data. 

We did not compare the percentage of MDB contract
awards/disbursements accounted for by each of the leading nations for
two reasons.  First, to get the most accurate standard by which to
compare MDB disbursement data with export data, we would have had to
weight the export data by the percentage of exports going to each
developing nation and the actual mix of goods going to each
developing nation.  Because MDB data in the annual reports were
aggregated, we did not know the mix of goods that went to each nation
and, therefore, could not weight the export data by country and mix
of goods.  Second, because disbursements to local firms represented
domestic consumption, we would have needed to exclude all local
disbursements from the base on which we calculated percentages when
we compared MDB disbursements to exports.  However, data on local
disbursements were not available for some MDBs. 

While we could not consider percentage shares for firms from each
country, we considered the value of U.S.  firms' MDB contract
awards/disbursements in relation to those of their leading
competitors' firms.  We looked at how U.S.  firms compared to the
firms of the second-ranking nation in MDBs where U.S.  firms were in
first place, and how U.S.  firms compared to the firms of the
first-ranking nation in MDBs where U.S.  firms ranked second. 

We found that the value of U.S.  firms' World Bank disbursements was
about 1.5 times ($8.1 billion to $5.4 billion) greater than that of
Japanese firms, which ranked second.  The value of U.S.  firms'
exports to all World Bank developing nations was about 1.4 times
($525.9 billion to $388 billion) greater than that of Japanese firms. 
In other words, compared to Japanese firms, U.S.  firms won World
Bank disbursements at approximately the same rate as they won exports
to developing nations.  When we made this comparison for IDB, we
noted that the value of U.S.  firms' IDB disbursements was about 5
times that of German firms, which ranked second in terms of IDB
disbursements; similarly, the value of U.S.  firms' exports to IDB
developing nations was about 5 times that of Japanese firms, which
ranked second in terms of exports to the region.  For both ADB and
EBRD, U.S.  firms had a relatively higher share of procurements than
exports when compared to the firms of their main competitor in each
region.  These comparisons suggest that, compared to the firms of
their leading competitor nation in each MDB project market, U.S. 
firms were as competitive in winning MDB procurements as they were in
winning exports between 1989 and 1993.  However, we must note that
the same pattern did not always occur when we compared U.S.  firms to
the third-, fourth-, or fifth-ranking competitors' firms in each MDB. 


--------------------
\33 The major limitations of MDB data have already been discussed in
this report.  U.N.  trade data also contain several notable
limitations.  For example, not all nations provide trade statistics
to the U.N., and there are discrepancies in the statistics that are
provided.  Nevertheless, U.N.  trade data are frequently used by
policymakers and others. 

\34 Italian firms received 15 percent, compared to U.S.  firms' 11
percent, of EBRD contract awards. 


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Allan I.  Mendelowitz, Managing Director
John Hutton, Assistant Director
Eluma Obibuaku, Site Supervisor
Martin De Alteriis, Social Science Analyst
Loren Yager, Economist

LOS ANGELES FIELD OFFICE

Patrick Gormley, Adviser
Joyce Akins, Evaluator-in-Charge

