International Trade:

Competitors' Tied Aid Practices Affect U.S. Exports

GGD-94-81: Published: May 25, 1994. Publicly Released: May 25, 1994.

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Pursuant to a congressional request, GAO reviewed the tied aid practices of the United States and its major competitors, focusing on: (1) the amount of aid provided by the United States and its competitors; (2) the types of tied aid programs available from each country; and (3) how U.S. competitors' tied aid programs affect U.S. exports.

GAO found that: (1) the amount of tied aid the United States and its competitors have supplied has generally increased; (2) Italy provided the highest percentage of bilateral tied aid; (3) Japan and the United States provided the lowest lowest percentages of tied aid; (4) while the number of tied aid notifications to the Organization for Economic Cooperation (OECD) has decreased, the number of untied aid notifications has increased; (5) France and the United States offered the most tied aid; (6) although U.S. tied aid programs focus mainly on human needs, its competitors' tied aid programs focus on capital projects; (7) capital aid projects are thought to accrue greater economic benefits than human aid projects because capital projects can improve high-value-added trade and follow-on sales in later years; (8) U.S. competitors dedicated between 45 and 91 percent of their tied aid toward capital projects, while the United States provided 17 percent of its tied aid for capital projects; (9) the United States does not have adequate business-government cooperation to facilitate capital projects; (10) estimated U.S. export losses due to competitors' tied aid practices totalled between $500 million and $1.8 billion from 1984 through 1987; (11) the 1992 OECD tied aid agreement is operated by Export-Import Bank funds and tries to minimize trade distortions that arise from tied aid usage; and (12) limitations to the OECD agreement include escape clauses and a lack of enforcement mechanisms.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: TPCC addressed the recommendation in its 1994 report to Congress. On page 24, the report said, "as recommended in the September 1993 report, Ex-Im Bank established the Tied Aid Capital Projects Fund to counter and ultimately eliminate the use of trade-distorting foreign tied aid credits. The Fund, operating with a subsidy budget of $150 million, seeks to level the international playing field for U.S. exporters. Ex-Im Bank does not use the Capital Projects Fund to initiate tied aid credits, but is prepared to counter potential foreign tied aid offers. Whenever possible, Ex-Im Bank seeks agreement among member governments of the Organization for Economic Cooperations and Development against providing tied aid financing for specific projects. If such agreements are not reached, Ex-Im Bank provides U.S. exporters with an early indication of its willingness to counter foreign tied aid efforts."

    Recommendation: In order to provide greater assurance to U.S. exporters that the U.S. government is serious about combating foreign competitors' tied aid practices, the Secretary of Commerce should, as chair of the Trade Promotion Coordinating Committee, work with other member agencies to ensure that the budget for the Tied Aid Capital Projects Fund is sufficient to counter competitors' trade-distorting tied aid offers when U.S. economic interests are adversely affected.

    Agency Affected: Department of Commerce

 

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