Small business advertising Under AID Regulation 1, an importer is normally required, whether or not he utilizes formal competitive procurement, to solicit quotations through AID's Small Business advertising procedure. AID, however, grants waivers from the requirement where special contractual relationships exist between supplier and importer. The small business advertising requirement results in delays in commodity transactions and requires time consuming and therefore costly, negotiations with AID for waivers thereof. Accordingly, the Council recommends that the requirement be eliminated or made optional with the importer. To encourage the interest of small businessmen in AID-financed exports, the Council suggests that, in lieu of the requirement, AID circulate a classified list of importers (as it does for Colombia and Chile) from which small businessmen could select export prospects. If the requirement is retained, however, the Council recommends that an automatic waiver be granted without prior application whenever a special contractual relationship between supplier and importer exists which would currently justify such a waiver. Minimum value AID limits the minimum value of shipments of AID-financed commodities in order to avoid processing of small value orders. Unless, however, provision is made for automatic financing of such orders, a supplier may be unable to collect on the shipment without extensive negotiation with AID or with the government of the assisted country. AID should secure the agreement of the assisted country to pay automatically for an undervalued shipment from its own exchange. In lieu of such an agreement, AID should liberalize its requirements for waiver of the minimum value restriction. Local currency refunds Under AID Regulation 1, AID may require refunds from suppliers with respect to AID-financed commodity transactions whenever AID determines that a supplier has failed to comply with AID Regulation 1. When a supplier is required to make such a refund to AID, the importer involved in the transaction is entitled to a refund from the assisted government of the local currency deposited with that government for purposes of the transaction. Certain U.S. companies who have made refunds to AID find that subsidiaries in the assisted country acting as importers of AID-financed commodities, have experienced difficulties in securing refunds of their local currency. Refund difficulties have occurred even where AID has sought the cooperation of the assisted country in facilitating the return of the local currency to the importer. Accordingly, the Council recommends that loans or grant agreements negotiated by AID require the immediate cooperation of the government of an assisted country in assuring prompt refunds of local currency to importers. Charter review-Foreign flag AID Regulation 1 requires, as a condition for eligibility of the commodity transaction for AID financing, that AID give its prior approval for any foreign flag ocean charter upon which AID-financed commodities are to be shipped, whether or not AID finances freight costs. Since the prior approval requirement is not designed to monitor the trading history of the vessel and since AID rarely finances foreign flag freight, the Council recommends that this time consuming and therefore costly requirement be eliminated whenever AID does not finance freight costs. Barter financing AID apparently lacks authority, with respect to cash barters, to make timely payment to suppliers when the barter contractor's scheduled deposits into AID's account are insufficient to meet the cost of shipments under the Commodity Import Program. AID should seek authority in such situations to establish revolving funds from which to provide prompt payment. Such funds would be replenished from the eventualy proceeds of the cash barters. THE POSITION AND PROBLEMS OF SMALL BUSINESS IN PROCUREMENTS FINANCED BY THE AGENCY FOR INTERNATIONAL DEVELOPMENT Part III.-AGENCY FOR INTERNATIONAL DEVELOPMENT COMMENTS ON CERTAIN TESTIMONY PRESENTED TO THE SUBCOMMITTEE AMERICAN MARITIME ASSOCIATION Under the present cargo preference law, AID requires each country to ship at least 50 percent of its AID-financed cargo on U.S.-flag vessels if they are available at fair and reasonable rates. If they choose to go above 50 percent on U.S.-flag, AID finances the freight. If they choose to use their own or third country vessels for part of the tonnage above the U.S.-flag minimum requirement, they may do so, but AID does not finance the freight. We do not believe it feasible, or required under the law, to attempt to force one recipient country to exceed the statutory minimum against its wishes in order to compensate for the nonavailability of U.S.-flag shipping to other destinations. STATEMENT OF ROBERT N. BEE It is AID's policy to leave the selection of U.S. banks to receive letters of commitment entirely to the borrower/grantee in the cooperating countries. Over the years there have been sporadic complaints by U.S. banks that they have been unsuccessful in soliciting business financed under AID programs. The complaints usually stated that the reason for the lack of success was due to the fact that the borrower/grantee or his representative (e.g., central banks, commercial banks, governmental authorities) designate as recipients of AID letters of commitment only those U.S. banks with which they already have correspondent relationships and which would extend them credit or offer other advantages. As a result, the large banks in a few major financial centers have received the bulk of this business. More specifically, in the years since 1947, about 85% of AID and CCC business has gone to the nine largest banks in the U.S. However, in the last two years the share of this business assigned by borrowers/ grantees to other than the nine largest banks has increased to about 30% in dollar volume, as contrasted with 15% over the total period. This has resulted directly from the increased interest on the part of many regional banks in developing their international correspondent relationships and export activities on the part of their customers. The Regional Bank Working Party on AID/CCC Letters of Credit of which Mr. Robert N. Bee is the Acting Chairman, has proposed a procedure to achieve a wider distribution of AID letter of credit business. The proposal contemplates continuation of the current practice of having the borrower/grantee designate the banks to which AID would send letters of commitment. Instead of having the letter of commitment bank issue all letters of credit to the suppliers of the goods purchased, however, the proposal would provide for issuance of the letters of credit to be performed by regional banks in the vicinity of the supplier, and payments made thereunder charged against the amount available under the letter of commitment. This proposal is still under consideration by the Regional Bank Working Party, the large banks which would probably continue to receive most of the letters of commitment, and AID. In addition to the probability that such an arrangement would result in delays in the issuance of letters of credit to suppliers and increased bank service charges to the importers or the borrower/grantees, the proposal raises two basic problems: 1. The first of these problems has to do with a basic element in the Letter of Commitment procedure utilized by AID in the financing of its programs and projects, which involves a contractual relationship between AID and the bank receiving the Commitment Document. Under the terms of the Letter of Commitment, AID has the right to claim a refund from the bank in respect to payments to suppliers by the bank which AID, on the basis of post-audit of documents, considers improper. The proposals of the Working Group so far have made no provision for any arrangement between the lead banks holding AID Commitment Documents, against which AID could have redress, and the Regional Banks opening letters of credit in respect to which banks AID would have no contractual relationship. 2. The second problem is the matter of splitting the commissions and other costs as between the Regional banks opening the letters of credit and the banks holding the AID commitment documents. Basically, this is not a concern of AID. The last word which AID has had from the Working Group is that they consider these two basic problems soluble, and would submit proposals. So far, proposals have not been received. For many years, AID has looked to the Subcommittee on AID matters of the New York Federal Reserve Bank's Foreign Exchange Committee for advice on procedural problems relating to the banking community's role in providing commercial financing facilities under the AID program. It is used as a ready means of determining whether changes we propose making in our policies and procedures are practicable under normal commercial banking practices, and for working out basic relationships and areas of responsibility which are to be assumed by the letter of commitment banks and AID. The basic question here is not the procedural change proposed by the Working Party, as such, but whether agreements can be reached on the two basic problems referred to above so that the procedural change can be made workable. Additionally, it would be a matter of concern to AID if the procedural changes proposed should result in delays in opening letters of credit and higher banking charges. TRANS-NATIONAL EXPORT-IMPORT CORPORATION Mr. Dobb's statement contains references to two problems on which AID comments appear appropriate, i.e. PD 31 competition, and lack of award information. With respect to competition from non-U.S. sources, AID, with certain minor exceptions, already restricts commodity procurement to the United States. As a matter of overall policy in furtherance of the objectives of the Foreign Assistance Program, AID does permit commodity procurement, under grant financing from the following eight less developed countries: India Philippines Republic of China Of these countries, all but the Republic of China and Singapore are currently receiving direct U.S. dollar loan assistance to help overcome the balance of payments restraint on their development progress. The opportunity to earn dollars through offshore purchases financed by AID for third country aid recipients contributes to this same objective and reduces commensurately their need for AID loans. In the case of the Republic of China, the opportunity to earn dollar exchange from sales to Vietnam has facilitated the transition from a country once dependent on sizeable U.S. assistance to a country no longer in need of direct assistance. In the case of Singapore, the amount of procurement from that source is so small-$270,000 in fiscal year 1968-as to be inconsequential. The value of AIDfinanced procurement from these eight countries during fiscal year 1968 amounted to $28,639,000. This represents less than 22% of our total commodity import program during fiscal year 1968 and is $40,955,000 less than the AID-financed procurement from the same countries during fiscal year 1967. It is anticipated that there will be further reductions in the value of procurement from these countries in future years. To assure that AID-financed procurement from these eight countries will not adversely affect the U.S. balance of payments position, each country is required to accept payment for their sales in the form of imports from the United States. With respect to award information, we can appreciate the desire of American firms which have made offers or bids to foreign importers to learn the outcome of the procurement action. While the dissemination of such information is customary when U.S. Government agencies are procuring under formal Invitation for Bid, this is not necessarily the practice in the case of commercial buyers in the United States, and is probably rarely so in the case of foreign purchasers, particularly when procurement is based on the informal solicitation of offers or quotations. We believe that it would be an unreasonable burden on foreign importers, many of whom themselves are small business firms and must pay for their purchases in full, to require that they inform each responding American supplier of the outcome of their procurement action. We hope to be able to fill this information gap ourselves, however, by periodically publishing award information in the near future. (241) INTERNATIONAL HOSPITAL SUPPLY The requirement for bid and performance bonds has common usage among U.S. Government procuring agencies and is authorized by Part 1-10 of the Federal Procurement Regulations. We believe that their use by foreign purchasers is not only prudent, but is particularly desirable as a safeguard against possible nonperformance by bidders who are located thousands of miles away and against whom the possibility of recourse is otherwise remote. There have, unfortunately, been too frequent cases of U.S. suppliers reneging on delivery promises, shipping poor quality products, and demanding increased prices after a sale has been consummated. It is correct that some proposed purchases require that the products offered must have locally available servicing facilities and spare parts. It is understandable that small business firms (or large business firms) which do not have foreign servicing facilities and spare parts should believe that such a provision is discriminatory. From the viewpoint of the purchaser, however, it is a prudent and understandable safeguard. The foreign purchaser pays the full local currency equivalent of his dollar purchases of equipment from the United States. He, therefore, wants to be sure that the equipment he purchases can be serviced locally and that spare parts, which may be needed in case of a breakdown, can be obtained promptly. We believe that prudent American buyers of foreign equipment would exercise the same precautions, and not risk long periods of inoperability awaiting repairs. In the absence of detailed information on the examples to which the third paragraph of Mr. Freeman's statement refers, we are unable to comment on the specific cases involved. We presume that the products being purchased were those of the two large companies named in the statement, and that the intent of certifications referred to was to provide assurance to the buyer that offers or bids received from firms other than the manufacturer were bona fide. Many producing firms which maintain their own dealership and distributing outlets overseas understandably prefer to make sales through those agents and may, or may not, agree to sell their products through independent exporters. As pointed out in our comments on bid and performance bonds (which is another method of ensuring against non-delivery) there have been too frequent instances of non-performance by U.S. suppliers to warrant the removal of these protective devices if the buyer believes them necessary. Caveat emptor has been a sound principal in commerce for thousands of years. (242) |