National Export Strategy 2002 - International Trade Administration ...

Unlocking America’s Potential
Tied And Untied Aid
A major ongoing concern for U.S. exporters is the effectiveness with which our
major trading partners use aid financing to promote their firms in major project and
capital goods procurements in developing countries. A primary issue is that
competitors benefit from tied aid and untied aid that is de facto tied, i.e., aid from
their governments for public sector projects that is in some manner conditioned
upon the purchase of equipment from suppliers in the donor country. They would
like to see the U.S. Government: (1) take a more active role in countering and
discouraging market distorting uses of tied and untied aid, and (2) otherwise take a
more positive approach toward using tied aid that is consistent with OECD
guidelines to fund capital projects.
Discouraging Trade-Distorting Tied and Untied Aid
In 1991, negotiations advanced by the U.S. Government within the OECD to limit
the provision of trade-distorting tied aid (i.e., aid tied to “commercially viable”
projects) yielded the “Helsinki Package.” To complement the Helsinki Package, in
1992 Congress established within Ex-Im Bank the Tied Aid Capital Projects Fund
(TACPF)—or War Chest—to permit matching foreign tied aid offers when the
longer-term economic interests of the United States would be damaged despite the
tied aid meeting the OECD rules. The Administration has implemented this
matching program so as to maximize the possibility of discouraging any remaining
trade-distorting tied aid from being offered in the first place. Following aggressive
implementation of the tied aid rules, the export value of Helsinki-type tied aid
dropped from its 1991 high of roughly $9.5 billion to $3.4 billion in 2001. Non-
Japanese tied aid, $9 billion in 1991, has declined to $1.5 billion in 2001, the lowest
level on record. The benefit to the U.S. economy is estimated at an additional $1
billion of U.S. exports a year by allowing U.S. companies to compete fairly for
contracts without expensive tied aid subsidies.
Japanese “untied aid” that is de facto tied: Of great concern is the likelihood that
Japan is using untied aid credits to distort trade and circumvent the tied aid rules.
While Japan’s untied aid dropped from $12 billion during 1993–1997 to $4 billion in
2000, much of this aid appears to be de facto tied. In one well-documented case (the
Severnaya gas-fired power plant in Azerbaijan), a Japanese consortium was awarded
the contract after a Japanese/U.S. bid was disqualified on technical grounds based on
criteria not present during the pre-qualification process and despite the bid with U.S.
equipment from the world-class supplier of such equipment being 10 percent lower
in price. Press reports later revealed that Japanese officials actively lobbied for the
Japanese bidder even though Japan had provided untied aid. Discussions of this
bidding process in the OECD later concluded that this project was de facto tied.
Given the volume of untied aid provided by Japan over the last 10 years (an average
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