under this loan that an item such as belts and belting is eligible for purchasing, and they are in the business of supplying these items.

They would contact you to see who purchases it. Is that what you mean?

Mr. KUNZE. We also accompany that with a list of all of the companies who have traditionally bought that particular item. So this goes to them. They have the list of the importers who will probably be buying that item in the future and they contact them directly.

Mr. O'LEARY. Mr. Broyhill, I would like

Mr. BROYHILL. Then you have no way of knowing what happens then.

Mr. KUNZE. Not at that stage of the game; no, sir.

Mr. BROYHILL. You do not know who was low bidder or who got the order?

Mr. KUNZE. No, sir; not at that time. At the time when the documentation finally comes into us for payment, the information would be known. But not concurrently with the time that the transaction was being negotiated or consummated.

Dr. HANNAH. Why do you not take one of these. Take a hypothetical deal. Say someone in Colombia was buying wheelbarrows, probably not there. How would this work?

Mr. CORMAN. You control the price because you do not permit them to pay a larger amount than ordinary market price. So, you have got control. It is just a point of your deciding how and when to exercise it. Mr. KUNZE. I think Mr. O'Leary has the answer for you.

Mr. O'LEARY. The price is controlled on a postaudit basis. The document after having been paid by the U.S. bank in accordance with commercial practices is audited by our office of controller. If the commodity is ineligible, a refund is required from the borrowing country. If the supplier overpriced, a refund is required from the supplier. For certain

Mr. BROYHILL. Right there now, what happens if you find that the price is within your general limits but you find that there were suppliers who were willing to supply this very same item for less?

Mr. O'LEARY. Well, a provision in our regulation requires the borrower to assure that the importer pay no more than the lowest available competitive price.

Mr. CORMAN. How do you monitor that?

Mr. O'LEARY. The primary way in which we monitor it is through the postaudit price review. If the price is above the prevailing range, or if we get complaints from other offerers that they know their price was low, we have the right under our regulation to require the importer to provide us with a list of all offers received.

Mr. BROYHILL. That is the point I am coming back to. They do not know whether their price was low or high or what.

Mr. O'LEARY. Well, on that point of the complaint, the man submits a quotation to a private importer and if he does not get the business, he does not know where he stood in it. I would like to give you the other side of the coin.

Mr. CORMAN. Let us look closely at that side, too.

Mr. O'LEARY. Of course, but the other side of the coin is that I have received many long-distance telephone calls, I have had many people who said they were small business-and I am sure they were-come to

my office for counseling, with the story, I have received a contract by responding to one of the publications in your small business circulars. What do I do now? How do I participate in the program to know that I will not get in trouble? If a man receives 10 quotations and he decides which one he wants, taking into account the type of item, the brand of item, and his possibilities of reselling it, demand in the local market is important-what will sell and what will not sell-because he has got to make a profit on his resale, and decides he will buy item A, he does not notify the others.

In some cases we receive complaints. We, therefore, require that we be supplied with a full list of all offers received. And if, without justification, the lowest price was not taken, we demand a refund from the cooperating country and disassociate ourselves from the transaction. The purpose of the program

Mr. BROYHILL. Have you done this?
Mr. O'LEARY. Yes; yes, indeed.

Mr. BURTON. Will the gentleman yield?

Mr. BROYHILL. You say you control the price with a postaudit review, which means you have already paid the bill.

Mr. O'LEARY. Yes, sir.

Mr. BROYHILL. And how many times have you been refused when you want a refund?

Mr. O'LEARY. I am not-well

Mr. BROYHILL. To rephrase my question: You have been paid the price, you furnished the service

Mr. O'LEARY. Our refund collection has been a very successful operation, let me put it that way. Occasionally you will have a country which goes

Mr. BROYHILL. That is my question, Mr. Chairman. How many times have you had countries tell you to jump in the lake?

Mr. O'LEARY. Well

Dr. HANNAH. We will get the answer.

Mr. O'LEARY. Not many, sir.

Dr. HANNAH. This becomes a deadout, you see. After all, the requirement is that we have nothing to do with the individual buyer, you see. We are dealing in this case with the Government of Colombia. There was a loan negotiated between the Government of Colombia and the list you have and the United States and the terms of loan were agreed to and this was for the purpose of making foreign exchange available.

Now, in the early days, of course, these were not tied. There was no requirement that the loans even had to be spent in the United States, but in recent years it was the will of the Congress and in the interest of the United States that these moneys that are available have to be spent in the United States.

The question was asked a little time ago as to what percentage of the money that is granted by the United States in AID loans is spent in the United States. The response was 98 or 99 percent. I thought someone might ask the question, well, why is it not a 100 percent?

Well, it is not a 100 percent because of arrangements that were made in our Government where in certain areas of the world, Taiwan, Korea, Singapore, various other places, they are permitted to furnish materials to Vietnam. This was a decision that was made. And when you

take in gross, this is where you figure it will figure out 1 percent or 11/2 or 2 percent of our total loans, but they will be limited to these few places where some time in the past, for reasons that were thought to be good, these arrangements were made.

But the point is that once the loan is made to the Colombian Government, since that is the Government we are talking about, they allocate this foreign exchange to individuals in their country, and they agree to loan to Joe Doaks in Colombia x dollars, a fraction of the money they have borrowed from the United States.

Well, this then requires this borrower to spend this in the United States, and there are various restrictions and pressures that we put on the Government as we negotiate these loans trying to get them to buy what it is to our advantage to sell them.

But now we are talking about the individual buyer. The buyer is not the Government of Colombia at all. The buyer is Joe Doaks that they have re-lent our money to. And so these questions for instance, I have come only recently to this picture and I am sure I do not have all of the answers but this is one of the things I have inquired enough into to satisfy myself and I am going to learn more about it as we go along, as to how do we protect ourselves, and if I am wrong, Mr. Kunze, you correct me, but the decision is made that our rules are not being complied with, and so Colombia would then be advised that a thousand or

x

dollars, whatever number of dollars it is, has not been expended in accordance with the treaty arrangement that they made when they borrowed the money. And as far as we are concerned, it is a deduct. And then we require them to refund it and you say, well, suppose they tell you to go to the next place. Well, this is what the little buyer may tell us, but we do not deal with him at all. It becomes the Colombian Government's problem. It was they that agreed to spend the money they borrowed from us in accordance with these rules, and if they are not, I am sure we have problems.

When you ask the question

Mr. BROYHILL. There have been cases where they do not agree with you and so you have no way of really collecting.

Dr. HANNAH. I am not able to answer that question but you are asking a question

Mr. BROYHILL. Mr. O'Leary indicated

Dr. HANNAH. We will find out. Whoever makes the rules

Mr. O'LEARY. I was thinking only of countries such as Burma which kicked us out of the country several years ago. I do not know whether this should be in the record, Mr. Chairman.

Mr. CORMAN. I believe that is a matter of record.

Mr. O'LEARY. Egypt is in the same situation. If we should come up with a refund in connection with the programs we had in those countries when we did have them, it is possible they would do as you say, tell us to go to hell, but our record for collecting reclaims from countries which remain in the program is very good.

Mr. CORMAN. I am really confused at this point. On one hand you tell us that you cannot notify bidders because you do not have any way of knowing their relative standing and, on the other hand, you tell us that you insist that they buy at the lowest responsible price.

How do you ever know if you have a quarrel with them or not?
Mr. O'LEARY. As I say, there are various ways.

First, on the postaudit of the transaction, if the price is too highMr. CORMAN. How do you decide if the price was too high if you do not know what the bids were?

Mr. O'LEARY. Well, Mr. Chairman, let us distinguish between formal competitive bid procedures where we do require that we see all of the prices and if the low price

Mr. CORMAN. Well, let us forget those. How do you know in all the other purchases whether or not the

Mr. O'LEARY (continuing). Lowest price is being accepted.

Mr. CORMAN (Continuing). The product is being bought at the lowest responsible price?

Mr. O'LEARY. In each individual case we do not have the exact knowledge of the prices that are submitted. In those countries which have a prepricing review of their own, the importer is required to come in with anywhere from three to five pro forma invoices before his price is accepted. And if he is not accepting the lowest price he must justify why he is not accepting the lowest.

Mr. CORMAN. To his government or to you?

Mr. O'LEARY. To his own government. As I say, the policing of commercial imports to assure that the lowest price is purchased in each individual case by each private importer involves so many, so much workload, if we were to undertake it in each individual case that it would be virtually impossible. The manpower required would be tremendous. So, we must, to a degree, depend on the competitiveness of the commercial market. The importer needs to buy as economically as possible because his profit depends on it when he resells.

În the case of complaints, we require that we be supplied with the information as to each offer received, and we disassociate ourselves from it and require a refund from the host government in the event that he did not buy properly.

A case which we had some time ago it dealt with pumps, by the way, in a certain country, where one pump company was virtually sure that their price was lower on a rather large procurement by a commercial importer for resale of irrigation pumps.

We got all the information. We found out that his price was a bit low and we inquired from our mission and asked them to investigate with the industrial community there why did he want to buy the higher priced pumps?

The result that came back was pump A is in demand. It sells. People will buy it. Pump B is not popular. Under those circumstances, to require the man to buy pump B would have left him with a "white elephant." Now, if he is going to buy something that will not resell, somebody else will buy pump A and resell it while he sits on pump B. Mr. CORMAN. Not with AID funds, though. If you had insisted he buy the more economical pump

Mr. O'LEARY. He would not have bought, I assume.

Dr. HANNAH. Take the next step, as to how you get the material to audit in the first place.

Mr. O'LEARY. Well, we require that there be submitted to the bank the regular commercial documents, the commercial invoice, the bill of lading, and the draft. In addition, we require that certificate from the supplier that he has complied with the rules of our regulations and with his contract and that he has complied with the price rules of

the AID program. These documents on postaudit are checked against prevailing prices, both under AID financing, which our Controller's Office keeps a record of, and the information they have from industry generally as to prevailing prices.

If the price is too high, the U.S. exporter is required to make a refund. Again, our history of collection there is good. In some cases we have had to sue where it has been large amounts but in general our collections have been good and I think our court collections have been, by and large, pretty good, too.

For certain items which are very difficult to price, we do require a prior price review. Again, this is a large workload. It is expensive to do. On textiles to certain countries we require price review before the sale is approved and the shipment made.

Certain suppliers whom we do not have evidence enough to disbar them, perhaps, but we have a history of problems, we place them under what we call prior review and we notify the supplier and we notify the banks that in each sale he proposes to make under AID financing, he must submit to our Controller's Office all details of that sale including his price and any other information that they request, and if they approve the transaction and the price, he is given notice to that effect which he can present to the bank and without presenting that notice to the bank he does not get financed.

Under those conditions we may also require any additional assurance of the sanctity of the transaction that we wish, such as a special inspection by an independent inspection firm or other requirements. But to check into each transaction fully after it is made and in advance of shipment would be a tremendous administrative burden which in the past it has not been deemed would be justified because of the expense involved and because of the fact that in a competitive market-I am not speaking of a situation such as Vietnam where we do in effect, do this where you have a war situation-but in a competitive market where a man's money means something to him, we feel that the incidence of irregularities really would not be great enough to justify this and we always have the American businessman who knows that he should have had the business and does not, who will come and tell us so we can investigate those cases and set them right.

Mr. CORMAN. Except he does not do it because he does not have any way of finding out whether he was the low bidder or not.

Mr. O'LEARY. In many cases he has a pretty good idea or his agent will have a pretty good idea.

Mr. CORMAN. Do you think there ought to be any additional requirements for disclosure to help you ascertain whether or not this is the problem?

Mr. O'LEARY. Well, the only way I would know of assuring you had no instance of this would be to put enough manpower into the thing for us to look at all offers received on the-what, 200,000 transactions a year, 200,000 or so that we finance, that we should look at all offers submitted and discuss with the importer if he wanted to take other than the low offer what his justification is.

In other words, that the second low offerer has maintenance facilities and spare parts available in the country to keep the machine running, or that with the low offerer he has had contracts with before and the man did not stand behind his warranty and he does not want to have anything more to do with him.