Summary: Tied aid refers to foreign assistance that is linked to the purchase of exports from the country extending the assistance. Tied aid can consist of foreign aid grants alone, grants mixed with commercial financing or official export credits, or low-interest loans. Competitors' tied aid practices can put U.S. exporters at a competitive disadvantage in bidding on overseas projects. GAO estimates the potential loss of U.S. capital goods exports due to these tied aid practices to be as high as $1.8 billion annually. Although most countries provide tied aid, significant differences exist between U.S. tied aid programs and those of its competitors: most U.S. tied aid is linked to programs meeting basic human needs, such as education, health, and food aid, while other countries' tied aid programs focus on capital projects. Donor countries obtain greater economic benefits from tying aid to capital projects because they usually involve importing large quantities of high-value-added goods. Capital projects also involve follow-on sales in later years. This testimony discusses (1) the amounts of tied aid provided by the United States and six of its competitors, (2) the types of tied aid programs of each country, (3) the potential impact on U.S. exports of U.S. competitors' tied aid practices, (4) the Organization for Economic Cooperation and Development's 1992 agreement on tied aid, and (5) the Trade Promotion Coordinating Committee's new Tied Aid Capital Projects Fund.
