leading position in the chemical industry. The Board of Directors and NAC approved the loan. The minutes of the NAC staff committee indicated that no questions were raised on the loan.

Eximbank comments and GAO evaluation

Eximbank contended that these sales would not have taken place without its assistance. It stated that in two cases commercial banks were not prepared to participate without Eximbank and in the third case foreign competition was present.

In support of its contentions, Eximbank referred us to correspondence received from borrowers and banks involved in the transactions. The correspondence, which we had previously reviewed, contained statements that (1) commercial bank participation was predicated on Eximbank's providing part of the financing needed and (2) foreign competition existed for the sale. There was no evidence that Eximbank had examined into the validity or effect of the assertions made.

In view of the information obtained by us from other sources and presented in the previous sections, the correspondence provided by Eximbank did not resolve the questions concerning the need for its participation. Thus, our observations concerning these transactions remained unchanged.

INFORMATION REQUESTED BY EXIMBANK ON APPLICATIONS FOR LOANS

1. Country; name and address of borrower.

2. Ownership and brief history of borrowing entity.

3. Financing required for total project.

4. Description of efforts made to obtain dollar financing from sources other than Eximbank and results thereof.

5. Documents describing the financial responsibility of the borrower such as financial statements, equity position and cash flow projections.

6. On project applications-

a. items to be purchased

b. sources and availability of raw materials and compo

nents

c. markets to be supplied, traditional suppliers, likely competition

d. information demonstrating viability of the project

e. time schedule of the project

f. management plan for the project

g. host government assistance in assuring viability of the project

7. Description of items to be purchased if not related to a project.

8. Guarantor of the obligation.

9. Local cost financing if required.

10. Schedule of dates needed for Eximbank response and completion of financing arrangements.

Source:

Eximbank pamphlet on how to apply for loans, financial guarantees, and preliminary commitments.

SUMMARY OF DEPARTMENT OF AGRICULTURE'S SYSTEM

FOR DETERMINING THAT ADDITIONAL EXPORTS ARE MADE

AND MINIMIZING LIKELIHOOD OF BARTER TRANSACTIONS

DISPLACING COMMERCIAL SALES

Information extracted from a study made by the Cabinet Committee on Balance of Payments in response to a GAO report (B-152980, Jan. 1966).

Section 303 of the Agricultural Trade Development and Assistance Act of 1954, as amended, contains the following language:

"In carrying out barters or exchanges authorized
by this section no restrictions shall be placed
on the countries of the free world into which
surplus agricultural commodities may be sold,
except to the extent that the Secretary shall
find necessary in order to take reasonable
precautions to safeguard usual marketings of
the United States and to assure that barters
or exchanges under this Act will not unduly
disrupt world prices of agricultural commodi-
ties or replace cash sales for dollars."

In stipulating reasonable precautions, the Congress recognized that a judgment of probability was involved in appraising the effect of barter on cash agricultural exports.

In taking reasonable precautions to avoid disruption of world prices or displacement of cash sales for dollars (i.e., to insure additionality of barter exports), Agriculture has been guided by two primary considerations: (1) that the potential for additionality depends essentially on the foreign exchange position of prospective importing countries, their recent status as cash markets, and U.S. prices and other conditions of sale of agricultural products relative to those of other suppliers and (2) that broad guidelines must be established which, while permitting an operable program, will guard against its displacement of U.S. cash agricultural exports.

Information from an Agriculture publication

In a publication entitled "The Barter Export Program,' Agriculture noted that it had been necessary to devise a system to reasonably insure that barter exports would not displace cash sales that would otherwise be made.

The system, adopted to channel barter exports to markets where they would accomplish the program's objective, works as follows:

1. An analysis is made of international trade in each
agricultural commodity eligible for barter export.
Taken into account are each potential importing
country's external financial position, its history
of cash imports from the United States of the com-
modity under study, its probable import of the com-
modity from the United States in the near future,
and its pattern of exports of the commodity if it
is a major producer.

2. The designation "X" (no barter exports allowed) is
assigned to certain major U.S. markets when there
is little or no likelihood that barter exports will
increase total sales.

3. The designation "A" (barter exports permitted only
after case-by-case review) is assigned if it ap-
pears that U.S. exports can be increased or main-
tained through barter but there is a history of sub-
stantial cash sales. An "A" designation is auto-
matic if the country is a substantial exporter of
the commodity.

4. The designation "B" (no barter export restrictions) is assigned if the country is in a fair-to-poor external financial position or has not been a substantial cash market for the commodity and cannot be expected to become one in the near future.

Under such a system, Japan would probably be designated as an "A" country, on the basis of its current foreign exchange reserve position. A lesser developed country might be an "A" or "B" country. Thus, applications for financing