B-227.616
Scope and
Methodology
In May 1990 Agriculture released the results of its administrative
review. It found no evidence of diversion of commodities sold to Iraq. In
addition, it announced that Iraq had agreed to exempt GSM credit guar-
antee program transactions from its domestic tax policy. However, the
review identified two key areas for further review—the extent and
reason for high commodity pricing in certain GSM transactions, and the
extent to which after sales services were provided and properly
reported in connection with GSM sales. The administrative review was
not a comprehensive analysis of all GSM transactions with Iraq but
rather an examination of a limited number of transactions and issues
that were identified as a result of the Banca Nazionale del Lavoro inves-
tigation. Consequently, Agriculture asked its Office of the Inspector
General to conduct a more thorough review of all GSM sales to Iraq.
Appendix VI provides greater detail on the Banca Nazionale del Lavoro
investigation and Agriculture's administrative review.
We examined the extent of Iraq's participation in all agricultural export
development programs and reviewed the history of events leading to the
extension of export credit guarantees to Iraq. We also reviewed the risk
analysis procedures employed by Agriculture as well as the interagency
process it uses to receive guidance on proposals. Finally, we examined
the extent of Iraq's involvement in recent GSM program violations and
the irregularities uncovered during Justice Department and Agriculture
investigations.
We interviewed officials from the Departments of Agriculture and State
in order to determine their roles and positions concerning Iraq's partici-
pation in the GSM programs. We also interviewed the former CCC Gen-
eral Sales Manager. We reviewed pertinent files on Iraq's participation
in agricultural promotion programs.
Our review was somewhat limited because the Departments of State and
Treasury denied us access to National Advisory Council minutes and
Some key documents, stating that they contained information that was
deliberative in nature. However, we did obtain information about
National Advisory Council discussions from interviews with other
member agency officials and by reviewing informal notes taken at the
meetings.
As requested, we did not obtain agency comments on this report. We
performed our work from August 1990 to October 1990 in accordance
with generally accepted government auditing standards.

Page 8 GAO/NSIAD 91.76 International Trade


Appendix IV
The GSM Decision-Making and Risk
Analysis Processes
*-mm
The GSM Programs
Through the Commodity Credit Corporation, Agriculture's Foreign Agri-
cultural Service manages export credit guarantee programs designed to
encourage U.S. agricultural exports. Under these programs, about
$5.5 billion in loan guarantees are made available annually to exporters
or their assigned financial institutions. These guarantees ensure that the
exporters, or their assignees, will be repaid for credit sales made to for-
eign buyers. As with other guarantee programs, the government incurs
no direct costs—except for program administration—unless defaults
Occur and claims for repayments are made.
FAS chooses for participation in the GSM program those countries that
have the potential to purchase U.S. agricultural commodities but cannot
make such purchases without credit guarantees. The process of deter-
mining program funding levels generally begins in May or June of each
year, when specific country and commodity proposals are developed.
Part of the process in determining program funding levels is a risk
assessment that until recently was mainly qualitative in nature. From
this assessment, country profiles are developed that examine a
country's economic, financial, and political strengths. Effective for fiscal
year 1991 program decisions, FAS began using a new risk assessment
procedure that involves more in-depth quantitative analyses.
CCC export credit guarantee programs evolved in the 1970s from the
need to find export markets for the increasing levels of U.S. farm pro-
duction. The two current export credit guarantee programs, GSM-102/
103, are designed to increase exports of U.S. agricultural commodities
by providing credit for those countries in which significant additional
demand would exist if credit were available and by allowing U.S.
exporters to meet competition from other countries. The GSM-102 pro-
gram has been in effect since fiscal year 1981, and the GSM-103 pro-
gram has been in effect since fiscal year 1986. The principal and most
significant difference between the two programs is the length of credit
terms available. Under GSM-102, CCC guarantees repayment for credit
Sales of 3 years or less; under GSM-103, CCC's guarantees cover credit
sales of more than 3 but less than 10 years. (See table IV.1 for a list of
GSM-102/103 credit guarantees approved since 1981.)
Page 25 GAO/NSLAD-91.76 International Trade