FAS | Space | Star Wars | GAO Reports |||| Index | Search |


Nuclear Nonproliferation: Uncertainties With Implementing IAEA's Strengthened Safeguards System

 (Letter Report, 07/09/98,
GAO/NSIAD/RCED-98-184).

Pursuant to a congressional request, GAO reviewed: (1) changes the
International Atomic Energy Agency (IAEA) is undertaking to strengthen
its safeguards program; (2) the reasonableness of IAEA's assumptions
regarding the impact of these changes on program costs and efficiency;
and (3) comments on the extent of IAEA's reliance on the United States
to finance the Agency's safeguards activities.

GAO noted that: (1) in response to Iraq's secret nuclear weapons
program, the international community, led by the United States, launched
an intensive effort to create a new capability within the IAEA's
safeguards system to detect secret or undeclared activities; (2) IAEA is
beginning to implement a strengthened safeguards system by introducing
advanced safeguards techniques under its existing safeguards agreements;
(3) it is also seeking additional rights to conduct more intrusive
inspections and collect information on nuclear activities through an
Additional Protocol that supplements the existing safeguards agreements;
(4) IAEA's changes to its safeguards systems are intended to give its
inspectors greater ability to detect clandestine nuclear activities in
non-nuclear weapons states that are signatories to the Non-Proliferation
of Nuclear Weapons or other regional nonproliferation treaties; (5)
under existing safeguards agreements with states and regional
organizations, IAEA has increased its access to information on all
nuclear activities at declared facilities in non-nuclear weapons states;
(6) IAEA's member states expect that the Agency will implement the
strengthened safeguards system through cost neutrality, that is, through
savings from expected future efficiency gains and cutbacks on certain
types of inspections that on an annual basis offset the cost increases
resulting from implementation; (7) while IAEA has performed some
preliminary planning, it does not have a long-term implementation plan
that: (a) identifies the total resource requirements for implementing
the new measures; (b) provides an implementation schedule with
milestones for equipment and estimated projections of adoption of the
Additional Protocol; and (c) provides criteria for assessing the
effectiveness of the new measures and their usefulness for reducing
inspection efforts; (8) IAEA has limited options for funding the new
Strengthened Safeguard System because of the practice, imposed by its
major contributors, that limits the the Agency's regular budget to
zero-real growth, and by the Agency's practice, insisted on by IAEA's
less developed member states, of maintaining a balance between IAEA's
technical cooperation and its safeguards programs; and (9) as a result,
if these constraints continue and IAEA's assumptions about cost
neutrality for the new program are not borne out by experience, IAEA
will likely turn to the United States for substantial voluntary
extrabudgetary contributions to implement the Strengthened Safeguards
System.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD/RCED-98-184
     TITLE:  Nuclear Nonproliferation: Uncertainties With Implementing 
             IAEA's Strengthened Safeguards System
      DATE:  07/09/98
   SUBJECT:  International agreements
             Nuclear proliferation
             International organizations
             International cooperation
             Developing countries
             Nuclear weapons
             Atomic energy defense activities
             Strategic planning
IDENTIFIER:  IAEA Safeguards Program
             Iraq
             IAEA Strengthened Safeguards System
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                    <info@www.gao.gov>                        **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Chairman, Committee on International Relations, House
of Representatives

July 1998

NUCLEAR NONPROLIFERATION -
UNCERTAINTIES WITH IMPLEMENTING
IAEA'S STRENGTHENED SAFEGUARDS
SYSTEM

GAO/NSIAD/RCED-98-184

Nuclear Nonproliferation

(711274)(141079)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  DOE - Department of Energy
  EURATOM - European Atomic Energy Community
  GAO - General Accounting Office
  GDP - gross domestic product
  IAEA - International Atomic Energy Agency
  NDF - Non-proliferation and Disarmament Fund
  NPT - Treaty on the Non-proliferation of Nuclear Weapons
  POTAS - U.S.  Program of Technical Assistance to IAEA Safeguards
  SAGSI - Standing Advisory Group on Safeguards Implementation

Letter
=============================================================== LETTER


B-280004

July 9, 1998

The Honorable Benjamin A.  Gilman
Chairman, Committee on International Relations
House of Representatives

Dear Mr.  Chairman: 

International Atomic Energy Agency (IAEA) safeguards are a
cornerstone of U.S.  and international efforts to prevent nuclear
weapons proliferation.  Since the early 1970s, the international
community has relied on IAEA safeguards to independently verify that
non-nuclear weapon states are complying with their obligations under
the Treaty on the Non-proliferation of Nuclear Weapons (NPT) not to
manufacture or otherwise acquire nuclear weapons or other nuclear
explosive devices.  Under the NPT, states with comprehensive
safeguards agreements must declare all nuclear material to the
Agency.  IAEA then regularly inspects all facilities or locations
containing declared material to verify its peaceful uses.  The
discovery that Iraq had developed a clandestine nuclear weapons
program while IAEA was inspecting Iraq's civilian nuclear facilities
caused the Agency and its member states to initiate an intensive
effort to strengthen further the safeguards system.  As you
requested, this report (1) describes the changes IAEA is undertaking
to strengthen its safeguards program, (2) assesses the reasonableness
of IAEA's assumptions regarding the impact of these changes on
program costs and efficiency, and (3) comments on the extent of
IAEA's reliance on the United States to finance the Agency's
safeguards activities. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

In response to Iraq's secret nuclear weapons program, the
international community, led by the United States, launched an
intensive effort to create a new capability within the IAEA's
safeguards system to detect secret or undeclared activities.  IAEA is
beginning to implement a strengthened safeguards system by
introducing advanced safeguards techniques under its existing
safeguards agreements.  It is also seeking additional rights to
conduct more intrusive inspections and collect information on nuclear
activities through an Additional Protocol that supplements the
existing safeguards agreements.  IAEA expects that implementing the
new measures will add costs to its safeguards budget but believes
that the increased costs will be offset with future savings from
greater efficiencies in safeguards operations.  IAEA thereby hopes to
maintain current funding levels over the long run.  However, while
IAEA has conducted some preliminary planning, it does not have a
long-term plan for implementing the new system.  Furthermore, if
IAEA's assumptions about financing the new system through costs
savings do not materialize, and the Agency's funding priorities and
constraints do not change, IAEA will likely seek increased funding
primarily through extrabudgetary contributions from the United
States. 

IAEA's changes to its safeguards system are intended to give its
inspectors greater ability to detect clandestine nuclear activities
in non-nuclear weapons states that are signatories to the NPT or
other regional nonproliferation treaties.  Under existing safeguards
agreements with states and regional organizations, IAEA has increased
its access to information on all nuclear activities at declared
facilities in non-nuclear weapons states.  It has done so by
conducting routine short notice inspections, taking environmental
samples inside facilities, and testing new safeguards technology that
allows remote monitoring of facilities under safeguards.  When and if
IAEA member states adopt the Additional Protocol, the Agency will
gain the ability to use more intrusive measures such as collecting
information on all aspects of a state's nuclear industry, including
research and development activities and nuclear import and export
data; conducting short notice inspections of undeclared or suspect
sites and unannounced inspections at declared nuclear facilities; and
taking environmental samples beyond locations where inspectors
currently have access. 

IAEA's member states expect that the Agency will implement the
strengthened safeguards system through cost neutrality, that is,
through savings from expected future efficiency gains and cutbacks on
certain types of inspections that on an annual basis offset the cost
increases resulting from implementation.\1 However, IAEA's
assumptions about cost neutrality may not materialize because IAEA
officials do not yet know the extent to which the new safeguards
measures will allow the Agency to reduce its existing inspections. 
In addition, savings in cost and inspector effort of some new
measures, such as remote monitoring and environmental sampling at
declared sites, may not be fully realized.  Furthermore, while IAEA
has performed some preliminary planning, it does not have a long-term
implementation plan that (1) identifies the total resource
requirements for implementing the new measures, (2) provides an
implementation schedule with milestones for equipment and estimated
projections for adoption of the Additional Protocol, and (3) provides
criteria for assessing the effectiveness of the new measures and
their usefulness for reducing inspection efforts. 

IAEA is heavily dependent on U.S.  financial support to meet its
safeguards obligations.  For example, in 1997, the U.S.  contribution
to IAEA's safeguards budget was almost 40 percent of the Agency's
total safeguards budget when extrabudgetary contributions were
included.  IAEA has limited options for funding the new Strengthened
Safeguards System because of the practice, imposed by its major
contributors, that limits the Agency's regular budget to zero-real
growth, and by the Agency's practice, insisted on by IAEA's less
developed member states, of maintaining a balance between IAEA's
technical cooperation and its safeguards programs.  As a result, if
these constraints continue and IAEA's assumptions about cost
neutrality for the new program are not borne out by experience, IAEA
will likely turn to the United States for substantial voluntary
extrabudgetary contributions to implement the Strengthened Safeguards
System.  A review of the Agency's overall program priorities by
independent senior experts, initiated in March 1998 by IAEA's
Director General, provides IAEA member states with the opportunity to
reevaluate, among other things, the budget practice of zero real
growth and the need to maintain a funding balance between the
safeguards and technical cooperation programs, in light of IAEA's
increasing safeguards workload. 


--------------------
\1 Although IAEA refers to cost neutrality, this does not mean that
IAEA will recover its initial implementation costs.  Instead, IAEA
use of this term means that once the new system is fully implemented,
IAEA expects that annual operation costs for its safeguards program
will be about the same as they are today, adjusted for inflation. 


   BACKGROUND
------------------------------------------------------------ Letter :2

IAEA, an autonomous international organization affiliated with the
United Nations, was established in Vienna, Austria, in 1957.  The
Agency has the dual role of promoting the peaceful uses of nuclear
energy through its nuclear safety and technical cooperation programs,
and verifying, through its safeguards program, that nuclear materials
subject to safeguards are not diverted to nuclear weapons or other
proscribed purposes.  IAEA's governing bodies include the General
Conference, composed of representatives of the 127 IAEA member
states; and the 35-member Board of Governors, which provides overall
policy direction and oversight to IAEA.  A Secretariat, headed by the
Director General, is responsible for implementing the policies and
programs of the General Conference and Board of Governors. 

IAEA derives its authority to establish and administer safeguards
from its statute, the NPT and regional nonproliferation treaties,
bilateral commitments between states, and project agreements with
states.\2
Article III of the NPT binds each of the treaty's 180 signatory
states that had not manufactured and detonated a nuclear device prior
to January 1, 1967, (referred to in the treaty as non-nuclear weapon
states) to conclude an agreement with IAEA that applies safeguards to
all source and special nuclear material in all peaceful nuclear
activities within the state (known as comprehensive safeguards
agreements).\3 The regional treaties contain similar obligations.  As
of March 1998, all but four of the non-nuclear weapons states with
significant nuclear activities had comprehensive safeguards
agreements with IAEA.\4 India, Pakistan, Israel, and Cuba, because
they are not parties to the NPT or other regional nonproliferation
treaties, do not have comprehensive safeguards agreements with IAEA,
thus, they are not required to declare all of their nuclear material
to the Agency.\5 Instead, these four states have IAEA safeguards
agreements that limit the scope of the Agency's safeguards activities
to monitoring only specific material, equipment, and facilities. 
India and Pakistan are known to have nuclear weapons programs and
detonated several nuclear devices during May 1998.\6 Israel is also
believed to have produced nuclear weapons.  The five nuclear weapon
states that are parties to the NPT--China, France, the Russian
Federation, the United Kingdom, and the United States--are not
obligated by the NPT to accept IAEA safeguards but have voluntarily
submitted designated materials and facilities to IAEA safeguards
inspections to signal to the non-nuclear weapon states their
willingness to share in the administrative and commercial costs of
safeguards.  (App.  I lists states that are subject to safeguards
inspections, as of February 1998.)

IAEA safeguards are a set of technical measures and activities by
which IAEA seeks to verify that nuclear material subject to
safeguards is not diverted to nuclear weapons or other proscribed
purposes.  Material-accounting measures verify quantities of nuclear
material declared to the Agency and any changes in the quantity over
time.  Containment measures use physical barriers, such as walls and
seals, to control the access to and the movement of nuclear material,
while surveillance devices, such as cameras, detect the movements of
nuclear material and any tampering with IAEA's containment measures. 
Finally, IAEA uses on-site inspections, among other things, to help
ensure that a state has reported all of the material it is required
to report. 

In 1997, IAEA's total expenditures were $313 million, of which about
$93 million was spent on the safeguards program.  IAEA funds its
programs through its regular budget, for which all members are
assessed, and by voluntary extrabudgetary contributions from the
United States and other member states.\7 In 1997, IAEA spent about
$82 million for safeguards through its regular budget and almost $11
million from extrabudgetary contributions.  Since 1985, IAEA's member
states have generally limited the Agency's regular budget to zero
real growth, allowing only nominal increases for inflation and staff
salaries.\8 Also, IAEA endeavors to meet the demands of less
developed member states to maintain a balance in funding between its
technical cooperation program and its safeguards program. 


--------------------
\2 These regional treaties, the Treaty for the Prohibition of Nuclear
Weapons in Latin America (the 1967 Treaty of Tlatelolco), the South
Pacific Nuclear Free Zone Treaty (the 1985 Treaty of Rarotonga), the
Treaty of Pelindaba (for Africa, 1995), and the Treaty of Bangkok
(for Southeast Asia, 1995) require each participating country to
conclude a comprehensive safeguards agreement with IAEA. 

\3 Nuclear materials include source materials, such as natural
uranium, depleted uranium, and thorium; and special fissionable
materials, such as enriched uranium and plutonium. 

\4 According to a State Department official, a fifth country with a
significant nuclear program, Georgia, has signed but not yet ratified
a safeguards agreement with IAEA pursuant to the NPT. 

\5 According to a State Department official, Cuba is not known to
currently possess undeclared nuclear material. 

\6 India and Pakistan detonated their nuclear devices after January
1, 1967 and therefore cannot be considered as nuclear weapons states
under terms of the NPT.



\7 The U.S.-assessed contribution rate for IAEA's regular budget is
25 percent.  The United States contributes a slightly higher amount
for the safeguards component to the regular budget (an additional 2.7
percent on average), along with 32 other members, as part of IAEA's
effort to provide partial relief to 95 lesser developed IAEA member
states. 

\8 In 1993, we found that IAEA had difficulty funding its safeguards
program because of limits on budget growth.  Further, we found that
IAEA's financial situation could worsen as more nuclear facilities
become subject to safeguards and as IAEA implements new measures to
strengthen safeguards.  See Nuclear Nonproliferation and Safety: 
Challenges Facing the International Atomic Energy Agency
(GAO/NSIAD/RCED-93-284, Sept.  22, 1993). 


   CHANGES TO IAEA'S SAFEGUARDS
   PROGRAM EXPECTED TO HELP DETECT
   CLANDESTINE NUCLEAR ACTIVITIES
------------------------------------------------------------ Letter :3

IAEA safeguards play a vital role in seeking to prevent nuclear
weapons proliferation by verifying the peaceful use of nuclear
materials.  According to a State Department official, prior to the
discovery of Iraq's secret nuclear weapons program, states had been
reluctant to accept a more intrusive safeguards regime.  However,
events in Iraq clearly demonstrated the need for expanding the scope
of safeguards.  Following revelations about Iraq in 1991, IAEA
adopted several measures to strengthen certain reporting requirements
and to improve the Agency's access to information.  The Agency and
its member states also launched a thorough study of its safeguards
system, known as Programme 93 plus 2, which resulted in the
development of a new, two-part, strengthened safeguards system.  IAEA
expects that changes to strengthen its safeguards program will
enhance its capability to detect clandestine or undeclared nuclear
activities in non-nuclear weapon states. 


      IAEA'S INITIAL REACTION TO
      THE REVELATIONS IN IRAQ
---------------------------------------------------------- Letter :3.1

Following the revelations about Iraq's clandestine nuclear program in
1991, IAEA adopted three measures to strengthen reporting and access
to information.  In 1992 and 1993, IAEA's Board of Governors
reiterated the Agency's right to exercise authority to conduct
special inspections at locations other than those declared to the
Agency, based on all information available to it, including that
provided by member states.  The Board also adopted changes requiring
more timely reporting by states of certain design information for new
facilities that will handle safeguarded materials.  Furthermore, the
Board also adopted a voluntary reporting system for exports of
certain nuclear materials and equipment on the Nuclear Suppliers
Group Trigger List.\9 Currently 52 states and Taiwan have agreed to
participate in the reporting system. 


--------------------
\9 The Nuclear Suppliers Group is an informal group of major nuclear
suppliers that have established nuclear export guidelines.  The
Trigger list is a list of nuclear items that the suppliers have
agreed should be transferred only if the receiving state has IAEA
safeguards applied to all of their nuclear material. 


      THE STRENGTHENED SAFEGUARDS
      SYSTEM:  PART 1 MEASURES
---------------------------------------------------------- Letter :3.2

IAEA's Board of Governors approved part 1 of the new strengthened
safeguards system in 1995.  Part 1 measures being implemented through
existing safeguards agreements include obtaining additional
information from states regarding facilities that once contained, or
will contain, nuclear material subject to safeguards; the expanded
use of unannounced inspections; the collection of environmental
samples at locations where inspectors now have access; and the use of
advanced technology to remotely monitor the movements of nuclear
material. 

Part 1 measures include the following: 

  -- Non-nuclear weapons states are now required to provide IAEA with
     additional information about nuclear activities undertaken prior
     to entry into force of their safeguards agreements. 

  -- IAEA's inspectors are now allowed to perform environmental
     sampling at facilities and locations where they currently have
     access.  Environmental samples taken from the surfaces of
     equipment and buildings and the air, water, vegetation, and soil
     at declared nuclear facilities can help IAEA detect the presence
     of certain types of undeclared activities, including uranium
     enrichment and plutonium reprocessing. 

  -- IAEA is increasing its access to all declared nuclear and
     nuclear-related locations and will employ the use of unannounced
     inspections. 

  -- IAEA is testing new safeguards measurement and surveillance
     systems that can operate unattended and can transmit safeguards
     data remotely.  Remote monitoring technology--including
     electronic seals, radiation and motion detectors, and video
     surveillance--is intended to make IAEA's traditional safeguards
     program effective, and at the same time more efficient, by
     reducing many of the regular safeguards inspections,
     particularly at light water nuclear power reactors and storage
     facilities. 

  -- IAEA is increasing its cooperation with state and regional
     systems of accounting and control, including those in the
     European Union, performed by the European Atomic Energy
     Community (EURATOM) inspectorate of the European Commission and
     those between Brazil and Argentina carried out by their Agency
     for Accounting and Control of Nuclear Material in the conduct of
     inspections. 


      PART 2 STRENGTHENED
      SAFEGUARDS MEASURES:  THE
      ADDITIONAL PROTOCOL
---------------------------------------------------------- Letter :3.3

In May 1997, IAEA's Board of Governors approved part 2 of its
strengthened safeguards measures in the form of a model agreement
known as the Model (or Additional) Protocol.\10 This new protocol
supplements member states' safeguards agreements and will give the
Agency new authority to collect information and conduct inspections. 
Part 2 measures are designed to more quickly and effectively alert
the international community to the possible production or diversion
of nuclear material for nuclear weapons or other proscribed purposes. 
Implementing part 2 measures will require each state to adopt an
Additional Protocol as a supplement to its existing safeguards
agreement that will give IAEA the additional legal authority the
Agency believes it needs to implement the new measures. 

Part 2 measures include the following: 

  -- IAEA will gather information about all aspects of a state's
     nuclear fuel cycle, including information about research and
     development on the nuclear fuel cycle, the manufacture and
     export of sensitive and other key nuclear-related equipment, and
     all buildings on a nuclear site. 

  -- IAEA inspectors will be provided access (also referred to as
     "complementary access") to all aspects of a state's nuclear fuel
     cycle including; facilities at which nuclear fuel-cycle research
     and development is carried out; manufacturing and import
     locations and all buildings on a nuclear site, including
     undeclared or suspect sites.  This is intended to provide, among
     other things, a deterrent to the co-location of clandestine and
     peaceful activities.  IAEA may exercise this right through short
     notice inspections on sites where nuclear material is located
     and at other locations.  This access will include the right to
     take environmental samples. 

  -- IAEA inspectors will be provided access to conduct "wide-area"
     environmental monitoring, that is, collecting environmental
     samples beyond declared locations when deemed necessary.\11

  -- States will improve their administrative arrangements for
     designating inspectors and issuing multiple-entry visas to
     facilitate unannounced/short notice inspections and permit
     access to modern means of communication. 


--------------------
\10 The Model Protocol Additional to the Agreement(s) Between
State(s) and the International Atomic Energy Agency for the
Application of Safeguards. 

\11 According to Article 9 of the Model Protocol, IAEA shall not seek
access to carry out wide-area environmental sampling until its use is
approved by the Board of Governors. 


      IAEA IS BEGINNING TO
      IMPLEMENT THE STRENGTHENED
      SAFEGUARDS SYSTEM
---------------------------------------------------------- Letter :3.4

Since 1995, IAEA has tested and started to implement some of the
strengthened safeguards measures.  For example, IAEA is conducting
field tests of remote monitoring systems in Switzerland, South
Africa, and the United States.  IAEA has also held unannounced
inspections in Sweden, South Africa, and Canada.  By the end of 1998,
IAEA expects that seven facilities in Switzerland will be remotely
monitored and IAEA will begin using this technology at light water
nuclear power plants in Japan.  IAEA has collected environmental
samples at 64 facilities (enrichment plants and hot-cell
installations that could be used to reprocess plutonium) in 34
countries in preparation for incorporating this technique into its
routine safeguards inspections.  IAEA has also begun the collection
of information from states on decommissioned and closed-down
facilities and information provided on a voluntary basis on the
imports and exports of nuclear related equipment and material.  IAEA
has been developing a broad-based information analysis system that
will help it assess the expanded declarations of nuclear activities
provided by inspected states.  The new system will also include the
results of ad hoc, routine, and special inspections; information
provided by other member states; data from public sources; and
results of environmental sampling.  This information will be
incorporated into country profiles. 

As of March 1998, seven of IAEA's non-nuclear weapons states had
signed Additional Protocols to their safeguards agreement based on
the Model Protocol:  Armenia, Australia, Georgia, Lithuania, the
Philippines, Poland, and Uruguay.  Australia has also ratified the
Protocol and Armenia is implementing it provisionally.  Other states
with significant nuclear programs, including Canada, France, the
United Kingdom, the United States, and the 13 non-nuclear weapon
states of EURATOM, have submitted drafts of Additional Protocols for
IAEA's Board of Governors approval in June 1998.\12 Japan and the
Republic of Korea are expected to follow later this year or early in
1999.  India's representative to IAEA told us that India has no plans
for ratifying the Additional Protocol.  Pakistan's representative was
unable to meet with us or answer our written questions on the matter. 


--------------------
\12 The Board of Governors must approve a state's Additional Protocol
before it can be implemented by IAEA. 


   IAEA WILL LIKELY FACE
   DIFFICULTIES IMPLEMENTING THE
   STRENGTHENED SAFEGUARDS SYSTEM
------------------------------------------------------------ Letter :4

Although IAEA recognizes that some new costs will be incurred in
implementing the Strengthened Safeguards System, it expects to offset
increased annual implementation costs with future savings from
greater efficiencies in safeguards operations, thereby maintaining
current funding levels in the safeguards program.  However, IAEA does
not know whether anticipated cost savings through efficiencies can be
achieved.  Moreover, IAEA does not know whether, or to what extent,
the new safeguards measures will allow a reduction in current
inspection levels, and the savings in cost and inspector effort of
some measures such as remote monitoring and environmental sampling at
declared sites, may not be fully realized.  While IAEA has conducted
some preliminary planning for implementing certain aspects of the new
system, IAEA does not know whether in the long run it can implement
the new system with existing resources because it has not developed a
long-term plan that (1) identifies the total resource requirements
for implementing the new measures, (2) provides an implementation
schedule with milestones for equipment and estimated projections for
adoption of the Additional Protocol, or (3) establishes criteria for
assessing the effectiveness of the new measures and whether they
could be used to reduce inspection efforts. 


      IAEA AND ITS MEMBER STATES
      EXPECT IMPLEMENTATION TO BE
      COST NEUTRAL
---------------------------------------------------------- Letter :4.1

In a May 1996 report, IAEA's Director General outlined to IAEA's
Board of Governors how the new system might be implemented to meet
the goal of eventual cost neutrality and provided some notional cost
estimates for implementing the new system.  The report anticipates
that implementation would follow a step-by-step approach, with part 1
measures being implemented first, followed by part 2 measures.  As
IAEA gains experience with the new measures, the report stated that
costs savings could be achieved by reducing inspections at nuclear
power plants.  IAEA expects that the implementation of part 1 and 2
measures would likely cost $34 million over 6 years starting in 1997. 
The estimated annual implementation costs range from $5.3 million to
$6.5 millon a year.  IAEA projects that cost savings, resulting from
a two-thirds reduction of interim safeguards inspections at nuclear
power reactors, starting in 1999, would lead to cost neutrality by
2002.\13

The representatives of member states we spoke to generally expect
that the implementation of the overall Strengthened Safeguards System
will be cost neutral.\14 For example, the representatives to IAEA
from China, Germany, Japan, and the United Kingdom told us that IAEA
may need additional short-term funding increases to implement the new
system, but they expected that the savings resulting from increased
efficiency will offset implementation costs at a later date.  The
Canadian representative also stated that cost increases resulting
from the implementation of the new system are not inevitable and that
it is possible that IAEA can find the necessary resources within the
Safeguards Department by re-evaluating existing programs and
priorities. 


--------------------
\13 IAEA offered two cost savings scenarios, one for reduced interim
inspections at light-water reactors (which are refueled during a
reactor shutdown and are generally less expensive to safeguard), and
the other for on-load power reactors (which are refueled while
producing power and are generally more expensive to safeguard).  The
projected cost savings did not involve changes in the safeguards
timeliness goals established for nuclear power reactors. 

\14 We obtained information from the representatives of 14 member
states to IAEA.  They included the representatives of the five
nuclear weapon states (the United States, the United Kingdom, France,
the Russian Federation, and China); representatives from states with
comprehensive safeguards agreements (Australia, Argentina, Brazil,
Canada, Japan, Germany, and South Africa); and representatives from
states without comprehensive safeguards agreements (Israel and
India). 


      IAEA'S ASSUMPTIONS ABOUT
      COST SAVINGS MAY NOT
      MATERIALIZE UNLESS NEW
      MEASURES PROVE TO BE
      EFFECTIVE
---------------------------------------------------------- Letter :4.2

IAEA hopes that by implementing the new measures it will be able to
achieve future cost savings through a reduction in inspections and an
increase in efficiency.  However, IAEA's assumptions about the extent
of cost savings may not materialize.  Our discussions with IAEA
officials indicate that the amount of cost savings that can be
expected during implementation is uncertain because (1) IAEA does not
have experience in implementing the new measures, and there is no
consensus among member states to determine when and to what extent
the new system will allow for a reduction in existing inspections;
(2) the savings in cost and inspector effort of some measures, such
as remote monitoring and environmental sampling, may not be fully
realized; and (3) the need to analyze new information provided by
member states under comprehensive safeguards agreements and the
Additional Protocols may require more inspectors or other staff. 

IAEA intends to reduce routine inspections if it can provide to its
member states a credible assurance regarding the absence of
undeclared nuclear activities, such as uranium enrichment and
plutonium reprocessing, in non-nuclear weapon states.  However, our
discussions with IAEA officials indicate that there are many
uncertainties about the effectiveness of the new measures and the
means by which the Agency will develop the findings that could
support such assurances.  For example, according to an IAEA
Safeguards Division Director, the Agency's new rights to inspect
suspected undeclared sites could be limited by the amount of access
provided to IAEA inspectors and the degree to which a country can
conceal information through deception and distraction, as was the
case in Iraq.  In addition, while environmental sampling of the air,
water, vegetation, and soil has been demonstrated to be a powerful
new tool to detect undeclared activities such as plutonium
reprocessing, the absence of data showing enrichment or reprocessing
may not be sufficiently credible to reduce inspections.  According to
an IAEA official, the absence of such data does not necessarily prove
that the activities did not occur, but only that the Agency did not
find evidence of such activities.  Moreover, Department of Defense
(DOD) officials told us that, in general, wide-area environmental
sampling, the feasibility of which is still under study, could be
extremely costly and vulnerable to countermeasures deployed by a
safeguarded state, that can undermine its effectiveness.  According
to IAEA's former Director General, member states should not expect
that the new measures will be 100 percent accurate and should expect
that they will not detect proliferators 100 percent of the time.  He
warned that no inspection regime is perfect. 

IAEA's member states are not in agreement on when and to what extent
IAEA can reduce inspections based on credible assurances of the
absence of undeclared nuclear activities.  According to the Canadian
representative, IAEA should start planning now for how it will
integrate new safeguards measures with the current system.  Once IAEA
can arrive at credible assurances, it should be in a position to
reduce inspections at nuclear power reactors and concentrate its
traditional safeguards measures on nuclear materials, such as highly
enriched uranium and reprocessed plutonium, which can be directly
used in building a nuclear weapon.  In contrast, U.S.  officials
believe that it is unwise to drop existing measures, such as interim
inspections that have proven effective, and replace them with the
untested new measures.  U.S.  officials stated that IAEA should
implement and assess the new system over a period of years and
replace existing measures as it builds confidence in the system. 

IAEA hopes to reduce the costs of safeguards by implementing advanced
safeguards technologies that reduce inspector effort.  These
technologies include remote monitoring and environmental sampling. 
However, the extent of potential savings from implementing these new
technologies is not fully certain.  For example, in 1995 IAEA
estimated that the use of remote monitoring, for containment and
surveillance of material at
79 nuclear facilities located in Canada, Japan, South Korea,
Switzerland, and Taiwan, could save $2.3 million a year by reducing
IAEA's inspection effort by two-thirds at these facilities.  In
addition, the use of unattended monitoring systems to verify the
nondiversion of nuclear material at on-load reactors could save $2.9
million a year in inspection effort.  However, according to IAEA,
several factors could reduce the amount of savings derived from
remote monitoring.  IAEA noted that any failures of equipment would
jeopardize the potential savings in the inspection effort, since
additional inspections would be required to reestablish the
inventories of nuclear materials in the facilities.\15

Also, according to an IAEA Safeguards Division Director, while remote
monitoring would reduce the number of costly site visits, it may not
significantly reduce the number of inspectors (whose salaries
accounted for 58 percent of the direct safeguards inspection costs in
1996, according to our calculations) because they would be needed to
analyze the data transmitted to Agency headquarters and regional
offices.  In addition, IAEA has stated that it may have to use short
notice inspections to provide additional assurances that the remote
monitoring equipment has not been tampered with. 

The costs of analyzing environmental samples also may reduce
potential savings.  For example, according to U.S.  officials, the
average costs of analyzing environmental samples is about $2,700 and
$4,000 per sample, depending on the type of analysis performed.  IAEA
has not determined the number or frequency of samples that will be
taken during routine inspections at enrichment facilities and hot
cells.  While IAEA plans to reimburse, on a limited basis, member
states participating in its network of analytical labs, a large
percentage of the costs of analyzing environmental samples is being
borne by the United States.  In addition, IAEA has not yet fully
determined the impact that environmental sampling at declared sites
will have on reducing inspection efforts at the sites.  According to
State and Department of Energy (DOE) officials, the United States is
currently studying alternative sample analyses techniques for IAEA
which may reduce these costs. 

Moreover, analyzing new information available to the Agency from
safeguards agreements and the new protocol will increase inspector
efforts.  According to IAEA, the analysis of the new information is a
fundamental part of the Strengthened Safeguards System.  When the
evaluation indicates possible inconsistences in state declarations,
IAEA intends to take certain follow-up actions, including, where
appropriate, requesting access to sites or other locations to
increase its confidence that there are no undeclared materials or
activities.  According to an IAEA safeguards official, this analysis
is being performed by IAEA's three safeguards operations divisions
and the new system is expected to produce an influx of information to
the Agency.  According to IAEA's Safeguards Division Director of
Concepts and Planning, IAEA will need more inspectors because of the
increase in information flowing into the Agency and the increase in
material placed under safeguards.  In its draft 1999-2000 program and
budget, IAEA estimates that information analysis will require the
equivalent of six staff, although this is absorbed within existing
staff levels.  In total, five new inspectors were added in the draft
1999-2000 program and budget to handle protocol related activities. 


--------------------
\15 There are also installation and operation costs for these
systems.  A February 1995 IAEA report estimated that the total
initial costs of installing remote monitoring for containment and
surveillance equipment at the 79 sites would be about $6.25 million
and that yearly operating costs would be about $995,000.  The cost
for installing unattended nondestructive assay equipment at eight
sites would be about $1.35 million, with yearly operating costs of
$202,000. 


      IAEA DOES NOT HAVE A
      LONG-TERM PLAN TO IMPLEMENT
      THE STRENGTHENED SAFEGUARDS
      SYSTEM
---------------------------------------------------------- Letter :4.3

Although IAEA is beginning to implement some parts of the
strengthened safeguards system, such as installing remote monitoring
equipment, it has not yet developed a plan or a total resource
estimate for implementing the full system.  While some planning
documents exist, the Agency has not developed a long-term plan that
(1) identifies the total resources needed to implement the new
measures, (2) provides an implementation schedule with milestones for
equipment, and estimated projections for adoption of the Additional
Protocol and (3) provides criteria for assessing the effectiveness of
the new measures and the ways they may contribute to reducing
inspection efforts.\16

A long-term plan would allow IAEA and its member states to better
manage cost uncertainties and funding limitations. 

According to the Deputy Director General for Safeguards, IAEA has not
developed a plan or a cost estimate because of the uncertainties
involving the implementation of the new Strengthened Safeguards
System and because they have concentrated their efforts on gaining
adoption by the Board of the Model Protocol and conclusion by
individual member states of their Additional Protocols.  In IAEA's
draft program and budget for 1999 and 2000, the Agency states that it
is difficult to estimate the cost of activities resulting from the
implementation of the part 2 measures under the Model Protocol,
because there is no certainty about the number of member states that
will adhere to the Protocol through the year 2000 or the volume of
activities in each member state.  In November 1997, we discussed the
lack of a plan with the U.S.  Ambassador to the U.S.  Mission to the
U.N.  System Organizations in Vienna.  He told us that the United
States should not be alarmed that IAEA did not have a plan for the
early implementation of the Strengthened Safeguards System because it
was more important for the United States to push for the early
ratification of the Additional Protocols by a large number of IAEA's
member states.  According to the Ambassador, early ratification is
important to encourage the limited number of countries of
proliferation concern to accept the Additional Protocol. 

IAEA is beginning to implement elements of part 1 of the new system,
which will require large initial expenditures for equipment and is
beginning to develop information that can be used as the basis for
establishing a long-term plan.  During their review of IAEA's draft
1999-2000 program and budget, the Geneva Group of major donors states
posed questions to the IAEA Secretariat concerning the uncertainties
involving implementation of the new, Strengthened Safeguards
System.\17 They expressed their concern about the lack of a plan and
a cost estimate, including costs and time frames for implementing
remote monitoring, and the lack of details on the Agency's assumption
that costs for activities related to the model protocol can be
absorbed within existing resource levels.  They also expressed
concerns about how projected funding increases for safeguards in the
draft 1999-2000 program and budget related to the increased costs for
implementing the new system.  In response to their questions, IAEA
provided information that could be used as the basis for developing a
long-term plan.  IAEA indicated that by the end of 2000 it expects
that (1) remote monitoring will be implemented at as many as 100
sites, (2) as many as 50 states with nuclear programs will have
adopted an Additional Protocol, and (3) activities related to the
Protocol will account for about 10 percent of staff costs in the
field for countries where the Additional Protocol is being
implemented.  IAEA's Standing Advisory Group on Safeguards
Implementation (SAGSI), a group of safeguards experts that advise
IAEA's Director General, has called on IAEA's Secretariat to develop
a work plan, with milestones and cost estimates, so that the Agency
can evaluate different approaches to efficiency, effectiveness, and
costs during its implementation of the new system.  According to the
IAEA Deputy Director General for Safeguards, in early 1998, SAGSI and
the Agency embarked on a project called "Integration of Safeguards"
to assess the relative effectiveness of the new measures in
comparison with traditional verification activities and to seek
potential reductions in inspection efforts in states that have
adopted the Additional Protocol. 


--------------------
\16 Such documents include IAEA's June 1997 Preliminary
Implementation Plan for Remote Monitoring, July 1997 Protocol
Implementation Action Plan, and December 1997 Plan for Implementation
of the Protocol Additional to Safeguards Agreements. 

\17 The Geneva Group represents 14 member states that are major
donors to U.N.  agencies, including IAEA.  The major donors include
Australia, Belgium, Canada, France, Germany, Italy, Japan, the
Netherlands, the Russian Federation, Spain, Sweden, Switzerland, the
United Kingdom, and the United States. 


   U.S.  FINANCIAL SUPPORT
   EXPECTED TO INCREASE AS IAEA
   IMPLEMENTS STRENGTHENED
   SAFEGUARDS SYSTEM
------------------------------------------------------------ Letter :5

IAEA is heavily dependent on U.S.  financial support to meet its
safeguards obligations.  For 1997, the U.S.  contribution to IAEA's
safeguards budget grew to almost 40 percent of the Agency's total
safeguards budget when extrabudgetary contributions are included. 
IAEA has limited options for funding the new, Strengthened Safeguards
System as long as its regular budget is held to zero real growth and
competing funding priorities and political constraints inhibit
reallocation of resources.  U.S.  and IAEA officials agree that IAEA
will continue to seek increased U.S.  financial support as the Agency
implements its new safeguards measures. 


      THE UNITED STATES IS THE
      LARGEST FINANCIAL
      CONTRIBUTOR TO IAEA'S
      SAFEGUARDS PROGRAM
---------------------------------------------------------- Letter :5.1

The United States has historically been a primary supporter of IAEA
and its largest contributor.  It considers the NPT and IAEA
safeguards to be key elements of international efforts to prevent
nuclear weapons proliferation.  In 1997, the United States spent over
$53 million for IAEA's safeguards program:  about $22 million from
assessed contributions; almost $17 million from extrabudgetary
contributions; and almost $16.5 million from various U.S.  agencies'
in-kind contributions, such as the use of laboratory facilities and
personnel.  These in-kind contributions are not reflected in IAEA's
total safeguards budget.  As shown in table 1, the U.S.  contribution
to IAEA's safeguards budget through its regular and extrabudgetary
contributions has grown since 1989 to almost 40 percent of IAEA's
total safeguards budget in 1997, making the United States the largest
financial contributor to IAEA's safeguards program.\18



                                               Table 1
                               
                               U.S. Contributions to IAEA's Safeguards
                                          Budget, 1989-1997

                                        (Dollars in millions)

                                       U.S.                       U.S.
                              contributions              contributions                          U.S.
                                  to IAEA's                  to IAEA's  Extrabudgetar  extrabudgetar
                                      total                    regular              y              y
                      IAEA's     safeguards      IAEA's     safeguards  contributions  contributions
                       total    budget (and     regular    budget (and      to IAEA's        \a (and
                  safeguards  percentage of  safeguards  percentage of     safeguards  percentage of
Year                  budget         total)      budget         total)         budget         total)
----------------  ----------  -------------  ----------  -------------  -------------  -------------
1989                   $56.4    $16.6 (29%)       $52.7    $14.6 (28%)           $3.8     $2.1 (55%)
1990                    59.9      18.2 (30)        54.2      15.0 (28)            5.6       3.3 (58)
1991                    61.4      18.4 (30)        57.1      15.8 (28)            4.3       2.6 (60)
1992                    66.1      21.3 (32)        59.7      16.5 (28)            6.4       4.8 (74)
1993                    73.8      24.1 (33)        64.9      18.0 (28)            8.9       6.1 (69)
1994                    74.9      23.5 (31)        68.1      18.9 (28)            6.8       4.6 (67)
1995                    86.3      32.1 (37)        72.2      20.3 (28)           14.0      11.8 (84)
1996                    83.1      25.8 (31)        74.7      21.0 (28)            8.5       4.8 (57)
1997                    97.8      38.6 (39)        78.3      21.6 (28)           19.5      17.0 (87)
----------------------------------------------------------------------------------------------------
Note:  Numbers may not add due to rounding. 

\a U.S.  extrabudgetary contributions to IAEA do not include some
U.S.  in-kind assistance, such as U.S.  facilities and laboratory
support to IAEA. 

Source:  GAO's analysis of IAEA's budget data from the Division of
Budget and Finance, IAEA's Department of Administration. 

In 1997, the United States contributed nearly $22 million to IAEA's
regular safeguards budget that funded core inspection activities,
such as staff salaries, travel, training, and other direct costs in
IAEA's safeguards program operations and other program areas.  The
United States also contributed almost $17 million in extrabudgetary
cash contributions to IAEA from funds provided by the Department of
State.  This includes over $7 million to assist the Agency in funding
activities essential to implementing the strengthened safeguards
system through the U.S.  Program of Technical Assistance to IAEA
Safeguards (POTAS), and over $7 million through the Nonproliferation
and Disarmament Fund (NDF) for the purchase of new safeguards
equipment.\19 In addition to the United States' regular safeguards
and extrabudgetary contributions to IAEA, we estimated that, in
fiscal year 1997, the Department of State, DOE, and DOD provided
in-kind assistance valued at $16.5 million to support IAEA's
safeguards program.  Of this amount, DOE's Office of Arms Control and
Nonproliferation, International Safeguards Division, provided about
$10 million from its international safeguards program to support
high-priority projects at IAEA and DOE laboratories for the
strengthened safeguards program.  In addition, during 1997, State and
DOD spent about $2.5 million to analyze environmental samples for
IAEA.  The remaining $4 million in funds supported POTAS research and
development at DOE laboratories and management of the POTAS program
at Brookhaven National Laboratory.  (App.  II discusses U.S. 
extrabudgetary contributions and in-kind assistance to IAEA's
safeguards program in 1997.)


--------------------
\18 We chose 1989 as a base year for analysis because it was the last
year of IAEA safeguards operations before the Persian Gulf War and
the breakup of the former Soviet Union. 

\19 The United States authorizes extrabudgetary funds to IAEA by
fiscal year, while IAEA budgets by calendar year.  As a result, U.S. 
extrabudgetary funds that are appropriated for IAEA in any fiscal
year may be accounted for by IAEA in the previous calendar year.  In
addition, U.S.  extrabudgetary funds may be carried over and
disbursed in subsequent calendar years.  For fiscal year 1997, the
United States authorized $9.1 million for the POTAS program. 


      WITH LIMITED BUDGET OPTIONS,
      IAEA MAY INCREASE RELIANCE
      ON U.S.  EXTRABUDGETARY
      SUPPORT
---------------------------------------------------------- Letter :5.2

Increases in the amount of nuclear materials subject to safeguards,
and new initiatives for verifying that excess nuclear weapons
material in the United States will not be used for nuclear explosive
purposes, have caused IAEA's safeguards requirements to grow. 
According to IAEA, IAEA's requirements to safeguard nuclear materials
exceed, and will continue to exceed, the resources provided to the
safeguards program under the regular budget.  (App.  III discusses
the growth in the amount of nuclear materials subject to IAEA's
safeguards since 1989.) Since IAEA's regular budget is subject to
zero-real growth, IAEA has only been able to meet its safeguards
requirements because of its heavy reliance on extrabudgetary support
from its member states, which is not subject to zero-real growth
limitations.  Our analysis shows that IAEA's total safeguards budget
(regular and extrabudgetary contributions) grew 37 percent from 1989
to 1997.\20 While IAEA's regular safeguards budget grew at an average
annual real rate of 2.28 percent, extrabudgetary contributions, which
are not subject to zero-real growth limitations, grew at an average
annual rate of 10.2 percent since 1989, or almost four times the rate
of annual real growth in regular budget expenditures.\21 As a result,
extrabudgetary expenditures in the safeguards program have almost
doubled since 1989 (see app.  IV for our analysis of real growth in
IAEA's safeguards program from 1989 to 1997).  Further, IAEA's draft
1999 and 2000 program and budget shows that the Agency will continue
to require substantial extrabudgetary contributions from its member
states for initial equipment purchases for the new safeguards
measures.  (See app.  V for more details on IAEA's proposed
safeguards budget for 1999 and 2000.)

IAEA's draft program and budget for 1999 and 2000 states that the
cost of upgrading and replacing obsolete equipment with new
technology, including the majority of remote monitoring components,
will depend heavily on extrabudgetary resources--$15.2 million and
$12.4 million for 1999 and 2000, respectively.  IAEA's Deputy
Director General for Safeguards has stated that without strong U.S. 
extrabudgetary support, IAEA could not afford to replace its obsolete
surveillance equipment with new systems, which must occur before
remote monitoring can be widely used.  According to an IAEA official,
approximately 300 to 400 obsolete surveillance systems will need to
be replaced over the next 5 years.  (See app.  V for IAEA resources
spent and required for purchasing new safeguards equipment for 1994
to 2000.) IAEA's Secretariat warns that if there is a shortfall in
extrabudgetary contributions, they will have to modify the Agency's
strategy for replacing equipment.  The inability to replace obsolete
and unreliable equipment may have a negative effect on IAEA's ability
to attain its safeguards goals, thus providing a lower level of
assurance to member states that nuclear material has not been
diverted to military purposes. 

According to IAEA's Secretariat, its overall programmatic
requirements will continue to exceed the resources available with
zero real growth.  In addition, the Secretariat stated that the
overreliance on extrabudgetary resources should not continue. 
However, the Secretariat further stated that unless IAEA member
states seek alternative funding sources or reduce or eliminate
specific activities, the Agency will have to continue to rely on
extrabudgetary contributions to achieve its objectives in the
safeguards program. 

To ensure the implementation of IAEA's Strengthened Safeguards
System, officials from the State Department and the U.S.  Mission to
the U.N.  System Organizations in Vienna have stated that the United
States is prepared to provide the Agency with additional
extrabudgetary funding.  However, this is subject to the availability
of appropriated funds.  State Department and DOE officials also hope
to continue to rely on the use of alternative funding sources, like
the NDF, to help finance the high priority needs of IAEA's
strengthened safeguards program, such as acquiring new safeguards
equipment.  For example, for 1998, IAEA has already requested funds
from State Department appropriations, including the NDF, to purchase
high priority safeguards equipment not funded under the regular
budget.  IAEA's equipment requirements, totaling $10.7 million,
include new radiation monitoring equipment and 76 units for a new
digital surveillance system. 


--------------------
\20 Our calculations of average annual real growth rate includes any
increases in expenditures above the average rate of inflation,
including salary increases. 

\21 Our analysis does not include all in-kind contributions to IAEA's
safeguards program.  According to the State Department, the existence
of substantial in-kind contributions underscores IAEA's heavy
reliance on extrabudgetary support from its member states. 


      IAEA MAINTAINS A FUNDING
      BALANCE BETWEEN ITS DUAL
      RESPONSIBILITIES
---------------------------------------------------------- Letter :5.3

In addition to the limitations of zero real growth in IAEA's regular
budget, IAEA's safeguards budget is affected by other considerations,
specifically the need to maintain a funding balance between
safeguards and the technical cooperation program.\22 Since 1958, in
promoting the peaceful uses of nuclear energy through its technical
cooperation program, IAEA has provided technical assistance to its
member states by supplying equipment, expert services, and training
that support the establishment or upgrading of nuclear techniques and
facilities.  Although the United States does not receive technical
assistance, it has been the leading financial donor to IAEA's
technical cooperation program.  Furthermore, the United States is
effectively paying a disproportionate share of the technical
cooperation fund, a voluntary fund that finances technical assistance
projects, because many member states are not paying their designated
shares.  Yet, many of these states are receiving the benefits of
IAEA's technical assistance.  While the United States and other major
donors to IAEA believe that applying safeguards is IAEA's most
important function, most developing countries believe that receiving
technical assistance through the technical cooperation program is
just as important and participate in IAEA for the technical
assistance it provides.  The United States and other major donors
principally participate in the program to help ensure that member
states fully support IAEA's safeguards and the NPT.  Accordingly,
IAEA has endeavored to maintain a balance in funding between its dual
statutory responsibilities of providing technical assistance and
ensuring compliance with safeguards agreements.  As seen in figure 1,
in 1997 IAEA spent about 29 percent and 30 percent of its overall
budget resources on technical assistance and safeguards activities,
respectively. 

   Figure 1:  IAEA's 1997
   Expenditures by Major Activity
   (dollars in millions)

   (See figure in printed
   edition.)

Source:  IAEA's Division of Budget and Finance, Department of
Administration. 

IAEA's draft program and budget for 1999 continues to maintain this
funding balance in the regular budget.  However, in November 1997,
IAEA's Director General stated that there should not be a
dollar-for-dollar balance between the technical cooperation and
safeguards programs and that developing countries should realize that
IAEA's safeguards are also important to their well-being.  In
February 1998, the Geneva Group of major donor countries asked IAEA
to set priorities for its programs more strategically, and some
wanted to break the one-for-one balancing of IAEA resources for
technical cooperation and safeguards.  In March 1998, IAEA's Director
General began a review of IAEA's overall program priorities to ensure
that, in view of budgetary constraints, IAEA's program activities
meet the priorities of its member states.  According to executive
branch officials, pressures for balance remain, compounded by the
recent failure of several major donors to pay their share of the
technical cooperation fund. 


--------------------
\22 See Nuclear Nonproliferation and Safety:  Concerns With the
International Atomic Energy Agency's Technical Cooperation Program
(GAO/RCED-97-192, Sept.  16, 1997). 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

IAEA's safeguards program plays a vital role in seeking to prevent
nuclear proliferation by verifying that non-nuclear weapon states are
adhering to their treaty obligations not to acquire nuclear weapons. 
However, for those countries that are not subject to comprehensive
safeguards such as India and Pakistan, the Strengthened Safeguards
System will have little effect.  The future effectiveness of IAEA's
safeguards depends on whether IAEA will receive sufficient legal and
financial support from its member states to permit full
implementation of the new safeguards measures and how well the Agency
implements changes to strengthen its ability to detect clandestine
nuclear activities in countries with treaty obligations not to
develop nuclear weapons.  We believe that without a long-term plan,
IAEA may not be able to effectively and efficiently implement these
changes.  A long-term plan, that includes cost estimates for
implementing the new measures, an implementation schedule and
milestones, and criteria for assessing the effectiveness of the new
measures could help IAEA and its member states better manage the
uncertainty facing the Agency as implementation of the new measures
begins.  In addition, we concur with the position of U.S.  officials
who told us that they believe that it would be unwise to drop
existing safeguards measures until the new measures are proven
effective. 

IAEA is heavily dependent on U.S.  financial support to meet its
safeguards obligations, with U.S.  contributions now accounting for
almost 40 percent of the Agency's total safeguards budget.  IAEA's
mandated requirements to safeguard nuclear materials will continue to
exceed resources in its regular budget because IAEA's member states
are continuing their practice of zero real growth and their practice
of maintaining a one-for-one balance between its safeguards and
technical cooperation programs.  IAEA's draft budget for 1999
continues the one-for-one funding balance and requests strong
extrabudgetary support from its member states, including the United
States, to replace obsolete equipment and otherwise support the
implementation of the strengthened safeguards system.  The Director
General's effort to review IAEA's overall program priorities presents
member states with an opportunity to reevaluate the budget policies
of zero real growth and the need to maintain a funding balance
between the safeguards and technical cooperation programs, in light
of IAEA's increasing safeguards workload.  Reprogramming funds into
the safeguards budget, at least during the transition to a new
strengthened system, and removing the budget limitations of zero real
growth could reduce IAEA's reliance on extrabudgetary contributions
from the United States. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

We recommend that the Secretary of State, working with other IAEA
member states, request the Director General to develop and circulate
a plan for implementing parts 1 and 2 of the Strengthened Safeguards
System.  Such a plan should include (1) an estimate of the total cost
of program implementation; (2) a schedule, with milestones, for
implementing the strengthened safeguards measures, and (3) criteria
for assessing the effectiveness of the new measures.  This plan
should be used by IAEA and its member states to determine when the
new measures can replace existing safeguards measures.  Furthermore,
IAEA should periodically revise and update the plan as it implements
the strengthened safeguards measures and use the plan to develop its
budgetary requirements for the program. 

To reduce reliance on U.S.  extrabudgetary contributions, we also
recommend that the Secretary of State reevaluate the United States'
policy of supporting zero real growth for IAEA's regular budget and
the need to maintain a one-for-one funding balance between the
safeguards and technical cooperations programs. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

The Department of State, in coordination with the Departments of
Energy and Defense, the Arms Control and Disarmament Agency; the
Nuclear Regulatory Commission, and the U.S.  Mission to the United
Nations System Organizations in Vienna, Austria, provided oral
comments on a draft of this report.  These agency officials generally
agreed with the facts presented in the report.  However, these
officials raised a concern about our recommendation that the members
require the IAEA Secretariat to develop a strategic plan for the
implementation of the Strengthened Safeguards System.  The officials
were concerned that by using such a plan, IAEA's Secretariat could be
pressured by the Board of Governors to meet arbitrary target
deadlines for phasing out old measures for cost reasons even through
the effectiveness of the new measures had not yet been established. 
According to the officials, the United States has emphasized to IAEA
that the effectiveness of the Strengthened Safeguards System must be
established before some of the current measures can be phased out. 

We agree that it would be unwise to drop existing safeguards measures
until the new measures are proven effective.  However, we believe
that a long-term implementation plan that establishes criteria for
assessing the effectiveness of the new measures so that IAEA and its
member states can determine when the new measures can replace
existing measures is consistent with the U.S.  position and would not
require IAEA to phase out existing measures before the new measures
are in place and working.  Such a plan is important because it would
establish the basis for making any decision on phasing out some of
the existing measures and would provide IAEA and its member states a
clearer understanding of implementation costs for the new system. 

In commenting on this report, IAEA's Deputy Director General for
Safeguards also expressed some doubts about the utility of a
long-term implementation plan.  He has stated that a long-term plan
with milestones fails to recognize the unique and special nature of
the Additional Protocol and that while existing safeguards are
implemented with rigid quantitative requirements, the Additional
Protocol will be implemented more qualitatively.  The Deputy Director
General said that implementation of inspection activities under the
new Protocol will be on a case-by-case basis, subject to overall
budgetary appropriations for the implementation of safeguards.  As a
result, the Agency's management will have flexibility in deciding
how, where, and when to engage resources in order to provide greater
assurances of nonproliferation.  He also said that IAEA has attempted
to derive cost estimates based on general assumptions about the
number of states joining the Additional Protocol and a projection of
the level of effort required in implementation. 

We recognize that the Additional Protocol will be implemented
differently than the existing safeguards system.  However, the
Additional Protocol is only one of two parts to the new Strengthened
Safeguards System.  We believe that a long-term implementation plan
for the Strengthened Safeguards System is valuable for several
reasons.  First, the Strengthened Safeguards System involves
potentially large expenditures for equipment and services (such as
environmental sampling).  A flexible long-term plan, updated
periodically, would allow member states to better forecast their
contributions.  Second, while there is uncertainty regarding the
level of activity under the Additional Protocol, we noted in our
report that IAEA has started to estimate some costs associated with
its implementation.  By incorporating these costs and the assumptions
used to derive them into a long-term implementation plan, IAEA's
Secretariat and member states will be in a better position to adjust
resources as needed and respond to any unforeseen needs.  Third,
while the Deputy Director General commented that IAEA will only spend
the money it has to implement the new system, a plan would allow IAEA
to better focus its resources as it gains experience and maximize the
potential benefits of the new system. 

The State Department agreed with our recommendation that the budget
policy of supporting zero real growth in IAEA's regular budget and
the need for maintaining the one-for-one balance between safeguards
and technical cooperation be reevaluated, but it raised several
concerns.  First, the United States, as one of the founding members
of the Geneva Group of major donors, has traditionally been a staunch
supporter of the Group's zero real growth approach to U.N.  budgets,
and changes in this policy for IAEA might undermine the U.S.  budget
positions in other international organizations.  Second, given
limited resources and congressional interest in "capping" the amount
of money made available for assessed contributions, funding increases
at IAEA would force the United States to seek reductions in other
international organizations' budgets.  Third, with respect to the
one-for-one balance between safeguards and technical cooperation
programs, a State Department official noted that without a decision
to alter this balance, not only are reallocations within existing
budget levels hampered, but any budget increase to fund the
safeguards program would politically need to be matched by an equal
increase in other areas of IAEA's budget, effectively doubling the
cost. 

We recognize that State's concerns need to be addressed, but we
believe that reevaluating the zero-real growth policy for IAEA and
the one-for-one balance between IAEA's safeguards and technical
cooperation programs could (1) provide a more stable funding basis
for the safeguards program while the Agency is implementing the
Strengthened Safeguards System and (2) reduce IAEA's reliance on
extrabudgetary contributions from the United States. 

The Executive Branch also provided several technical corrections that
have been incorporated as appropriate into the report. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To describe changes IAEA is undertaking to strengthen its safeguards
program and to assess the reasonableness of IAEA's assumptions
regarding the impact of these changes on program costs and
efficiency, we visited IAEA headquarters in Vienna, Austria, in
October and November 1997.  In Vienna, we met with various IAEA
officials, including the Director General, the Deputy Director
General for Administration, the Director of the Division of Budget
and Finance, the Deputy Director General for Safeguards, and other
IAEA staff in the departments of Administration and Safeguards.  We
also analyzed financial and programmatic data from IAEA on its
safeguards program, including documents from meetings of IAEA's
General Conference and its Board of Governors.  In general, we
reported IAEA's annual expenditure data, except in the cases where
budget data were most appropriate, such as table 1 which demonstrated
the share of the U.S.  contributions to IAEA's safeguards budget from
1989 to 1997.  Differences between IAEA's budget and expenditure data
are due to the use of a fixed UN budgetary exchange rate of 12.70
Austrian schillings to 1 U.S.  dollar to express the budget in
dollars, while dollar expenditures are calculated using the average
annual exchange rates.  Although we could not independently verify
the quality or accuracy of IAEA's financial data, we analyzed the
data to determine whether it supported IAEA's assumptions about cost
neutrality. 

While in Vienna, we also observed a demonstration of remote
monitoring and other surveillance equipment at IAEA headquarters.  We
met with the representatives from the following 13 IAEA member
states--Argentina, Australia, Canada, China, France, Germany, India,
Israel, Japan, the Russian Federation, South Africa, the United
Kingdom, and the United States--to obtain their perspectives on the
Agency's Strengthened Safeguards System.  We obtained a written
response to our questions from Brazil.  We toured IAEA's Siebersdorf
Analytical Laboratory and the Clean Laboratory, which were financed
by U.S.  extrabudgetary contributions.  In addition, we met with
officials and obtained documents from the U.S.  Mission to the United
Nations System Organizations in Vienna. 

To comment on the extent of IAEA's reliance on the United States to
finance safeguards activities, we met with officials and gathered
data from the Arms Control and Disarmament Agency, The Department of
Energy, DOD, the Department of State, DOD's Air Force Technical
Application Center, and the Nuclear Regulatory Commission.  We
compared this information with information we had obtained from IAEA. 
In October 1997, we attended the second annual U.S.-IAEA Safeguards
Policy Review Meeting and the semiannual U.S.  Support Program
meeting with U.S.  and IAEA officials held in Washington, D.C.  We
also visited Los Alamos and Sandia National Laboratories in New
Mexico to discuss U.S.  technical support to IAEA's safeguards
program. 

We performed our work from June 1997 through June 1998 in accordance
with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to other appropriate
congressional committees; the Secretaries of Defense, Energy, and
State; the Director, Arms Control and Disarmament Agency; the Nuclear
Regulatory Commission; and other interested parties.  Copies will be
made available to others upon request. 

If you have any questions concerning this report, we can be reached
at (202) 512-4128 and (202) 512-3841, respectively.  Major
contributors to this report are listed in appendix VI. 

Sincerely yours,

(Mr.)Harold J.  Johnson, Associate Director
International Relations and Trade Issues
National Security and International
  Affairs Division

(Ms.)Gary L.  Jones, Associate Director
Energy, Resources, and Science Issues
Resources, Community, and
  Economic Development Division


STATES SUBJECT TO SAFEGUARDS
INSPECTIONS, AS OF FEBRUARY 1998
=========================================================== Appendix I

-------------------------  -------------------------  --------------------------
Non-nuclear Weapons State
--------------------------------------------------------------------------------
Afghanistan                Grenada                    Peru

Algeria                    Guatemala                  Panama

Antigua and Barbuda        Guyana                     Philippines

Argentina                  Holy See                   Poland

Armenia                    Honduras                   Portugal

Australia                  Hungary                    Republic of Korea

Austria                    Iceland                    Romania

Bahamas                    Indonesia                  St. Kitts and Nevis

Bangladesh                 Iraq                       St. Lucia

Barbados                   Ireland                    St. Vincent and the
                                                      Grenadines

Belarus                    Islamic Republic of Iran   Samoa

Belgium                    Italy                      Senegal

Belize                     Jamaica                    Singapore

Bhutan                     Japan                      Slovakia

Bolivia                    Jordan                     Slovenia

Bosnia Herzegovina         Kazakhstan                 Solomon Islands

Brazil                     Kiribati                   South Africa

Brunei Darussalam          Latvia                     Spain

Bulgaria                   Lebanon                    Sri Lanka

Canada                     Lesotho                    Sudan

Chile                      Libyan Arab Jamahiriya     Suriname

Colombia                   Liechtenstein              Swaziland

Costa Rica                 Lithuania                  Sweden

Cote d'Ivoire              Luxembourg                 Switzerland

Croatia                    Madagascar                 Syrian Arab Republic

Cyprus                     Malawi                     Thailand

Czech Republic             Malaysia                   The Former Yugoslva
                                                      Republic of Macedonia

Democratic People's        Maldives                   Tonga
Republic of Korea

Democratic Republic of     Malta                      Trinidad and Tobago
the Congo

Denmark                    Mauritius                  Tunisia

Dominica                   Mexico                     Turkey

Dominican Republic         Monaco                     Tuvalu

Ecuador                    Mongolia                   Ukraine

Egypt                      Morocco                    Uruguay

El Salvador                Myanmar                    Uzbekistan

Estonia                    Nauru                      Venezuela

Ethiopia                   Nepal                      Viet Nam

Federal Republic of        Netherlands                Western Samoa
Yugoslavia (Serbia and
Montenegro)

Fiji                       Nicaragua                  Zimbabwe

Finland                    Nigeria

Gambia                     Norway

Germany                    Panama

Ghana                      Papua New Guinea

Greece                     Paraguay


Non-nuclear Weapons States Where Safeguards are Applied to Facilities, E
Specific Safeguards
Agr
--------------------------------------------------------------------------------
Cuba

India

Israel

Pakistan


Nuclear Weapons States with Voluntary Offer Agreements in Force
--------------------------------------------------------------------------------
China

France

Russia Federation

United Kingdom

United States
--------------------------------------------------------------------------------
Note:  Comprehensive safeguards also apply to Taiwan. 

\a Refers to states which have safeguards agreements with the
International Atomic Energy Agency under the Treaty on the
Non-Proliferation of Nuclear Weapons (including countries in the
European Atomic Energy Community), the Treaty of Tlatelolco, the
Treaty of Rarotonga, or the Treaty of Bangkok. 

Source:  IAEA. 


U.S.  EXTRABUDGETARY CONTRIBUTIONS
AND IN-KIND ASSISTANCE TO THE
INTERNATIONAL ATOMIC ENERGY
AGENCY'S SAFEGUARDS PROGRAM IN
1997
========================================================== Appendix II

For 1997, the United States contributed almost $17 million of the
total extrabudgetary contributions to the International Atomic Energy
Agency's (IAEA) safeguards budget of nearly $20 million from funds
provided by the Department of State.  Specifically, the United States
contributed $7.1 million to IAEA through the U.S.  Program of
Technical Assistance to IAEA Safeguards (POTAS).\1 POTAS is assisting
the Agency in funding activities essential to implementing the
strengthened safeguards system by providing cost-free experts to the
safeguards program, evaluating environmental monitoring techniques,
and field-testing new digital surveillance systems.\2

To purchase safeguards equipment for IAEA, the United States provided
$7.2 million through the Nonproliferation and Disarmament Fund (NDF). 
For example, these funds were used to replace obsolete surveillance
equipment and analytical equipment for the Clean Laboratory at the
Siebersdorf Analytical Laboratory in Austria, where environmental
samples are collected and screened for IAEA.\3 The United States also
paid $1.4 million to IAEA for its verification of nuclear fissile
material that had been declared excess to U.S.  defense needs.\4 The
remaining $1.2 million was provided to IAEA to assist member states
to account for and protect nuclear materials. 

In addition to the U.S.  contribution to IAEA's extrabudgetary
resources, we estimated that in fiscal year 1997 the Departments of
State, Energy (DOE), and Defense (DOD) provided in-kind assistance
valued at $16.5 million in support of IAEA's safeguards program. 
DOE's Office of Arms Control and Nonproliferation, International
Safeguards Division, made $10 million in funds available from its
international safeguards program to support high-priority projects at
IAEA and at DOE laboratories for IAEA's strengthened safeguards
program.  In addition, about $2.5 million was provided during fiscal
year 1997 by DOD and State for conducting environmental sample
analysis to assist IAEA in establishing its baseline samples. 
Specifically, DOD's Air Force Technical Applications Center and
several DOE (at State Department expense) laboratories perform
environmental sample analysis in the United States for IAEA. 
Although IAEA plans to begin reimbursing the United States in part
for future analyses on a limited basis, the United States has
financed almost all of IAEA's environmental sampling studies to date. 
The remaining $4 million in assistance helped fund POTAS supported
research and development activities at DOE laboratories, and
management of the POTAS program at Brookhaven National Laboratory. 


--------------------
\1 The United States Member State Support Program to IAEA includes
POTAS, which is managed by Brookhaven National Laboratory and is
overseen by an interagency coordinating committee composed of
representatives from the Departments of State, Energy, and Defense;
the Nuclear Regulatory Commission; and the Arms Control and
Disarmament Agency. 

\2 Through POTAS, the United States is also providing funds to the
International Remote Monitoring Project, which examines potential
cost-saving measures such as reducing inspector presence through the
use of unattended monitoring. 

\3 According to IAEA's budget data, from 1993 through February 1998
the United States contributed almost $2.6 million in extrabudgetary
resources for constructing and equipping the Clean Laboratory. 

\4 In September 1993, President Clinton announced that nuclear
material (plutonium and highly enriched uranium) excess to U.S. 
defense needs would be placed under IAEA safeguards on an indefinite
basis.  The President offered such materials to illustrate the U.S. 
commitment to the Treaty on the Non-proliferation of Nuclear Weapons
and demonstrate that the materials will not be used in nuclear
weapons. 


AMOUNT OF NUCLEAR MATERIAL SUBJECT
TO IAEA SAFEGUARDS, 1989-96
========================================================= Appendix III

From 1989 through 1996, the amount of nuclear material under IAEA
safeguards has increased by 80 percent, from 52,413 significant
quantities of nuclear material in 1989 to 94,294 significant
quantities in 1996.\1 IAEA attributes this growth to (1) the increase
in the number of states with significant nuclear programs that now
have safeguards agreements with the Agency, including Argentina,
Brazil, South Africa, and the newly independent states of the former
Soviet Union; (2) the continued growth in the amount of nuclear
material in civilian nuclear fuel cycles; and (3) the inclusion by
the United States of excess nuclear material from its nuclear weapons
program under its voluntary safeguards agreement with the Agency. 

IAEA has been able to manage the increase in its safeguards
responsibilities by increasing the efficiency of its safeguards
operations and reducing costs.  From 1989 through 1996, the cost, in
real terms, for safeguarding one significant quantity of nuclear
material decreased by 28 percent, from $1,359 to $978.  According to
IAEA, the increased efficiency is the result of improvements in
safeguards approaches and technology, direct technical support from
member states, and greater cooperation and resource sharing with
state and international organizations with safeguards
responsibilities.  For example, IAEA has implemented a more efficient
working relationship with the European Atomic Energy Community
(EURATOM)--known as the New Partnership Approach--which resulted in
better coordination of inspections and a sharing of costs for common
safeguards equipment in EURATOM member states.  According to IAEA's
Deputy Director General for Safeguards, the New Partnership Approach
has resulted in a reduction of more than 1,500 person days of
inspection at EURATOM facilities in the non-nuclear weapons states of
the European Union. 

Despite the improvements in safeguards efficiency, U.S.  officials
are concerned about IAEA's safeguards goal attainment for
unirradiated direct use material, which, according to a June 1997
State Department cable, has not kept pace with IAEA's increasing
workload.\2 According to IAEA, the primary reason for its inability
to attain its safeguards goals has been failures in the camera
equipment used for surveillance of safeguarded nuclear material. 
According to IAEA, the inability to attain safeguards goals for some
types of material has not affected IAEA's safeguards conclusions
that, based on all information available, material under safeguards
has not been diverted.  However, it has reduced the level of
confidence in the conclusions.  IAEA warned member states in May 1997
that it does not have the resources to continue to meet its expanding
workload. 


--------------------
\1 A "significant quantity" is the approximate amount of nuclear
material needed to build a nuclear explosive device. 

\2 Unirradiated direct use material consists of highly enriched
uranium and plutonium that has not been exposed to radiation or has
been separated from highly radioactive materials.  It presents a high
proliferation risk because it is relatively easy to handle and can be
readily used for nuclear weapons. 


GAO'S ANALYSIS OF REAL GROWTH IN
IAEA'S SAFEGUARDS PROGRAM, 1989-97
========================================================== Appendix IV

Table IV.1 provides the results of GAO's analysis of annual real
growth in IAEA's safeguards program budget and expenditures from 1989
through 1997. 



                                    Table IV.1
                     
                     Results of GAO's Analysis of Annual Real
                        Growth in IAEA Safeguards' Program
                        Budget and Expenditures, 1989-1997

                          (Dollars in millions for 1997)

                                 Regular     Regular  Extrabudgeta  Extrabudgeta
           Total         Total  safeguar  safeguards            ry            ry
Ye    safeguards    safeguards        ds  expenditur    safeguards    safeguards
ar        budget  expenditures    budget          es        budget  expenditures
--  ------------  ------------  --------  ----------  ------------  ------------
19         $73.5         $71.3     $68.7       $65.7          $4.8          $5.5
 89
19          75.3          73.8      68.4        67.7           6.9           6.1
 90
19          74.3          73.9      69.3        68.5           5.0           5.3
 91
19          77.0          74.7      69.7        68.7           7.3           6.0
 92
19          83.2          80.9      73.4        71.9           9.9           9.0
 93
19          81.9          79.1      74.5        71.7           7.4           7.5
 94
19          92.2          88.6      77.4        77.8          14.8          10.9
 95
19          87.3          88.4      78.5        78.3           8.7          10.1
 96
19        $100.7         $92.2     $80.9       $81.5         $19.8         $10.7
 97
An          3.72          3.38      2.28        2.68         15.31         10.20
 n
 u
 a
 l
 R
 e
 a
 l
 g
 r
 o
 w
 t
 h
 r
 a
 t
 e
 (
 p
 e
 r
 c
 e
 n
 t
 )
--------------------------------------------------------------------------------
Note:  Annual real growth rates for 1989 through 1997 were estimated
using ordinary least square regression methodology. 

To calculate annual real growth in IAEA's safeguards program from
1989 through 1997, we took into account the share of IAEA's
safeguards program budget and expenditures that were made in Austrian
schillings and in U.S.  dollars, and converted IAEA's annual
safeguards budget and expenditures for both the regular budget and
extrabudgetary contributions into 1997 dollars.  Based on IAEA's 1999
budget estimates, we assumed that about 83 percent of its regular
budget was in Austrian schillings.  Based on the U.S.  average share
of IAEA's total extrabudgetary contributions to the safeguards
program from 1989 through 1997, which is made in U.S.  dollars, we
also assumed that about 32 percent of the extrabudgetary
contributions was in Austrian schillings.  These percentages were
then used to estimate the schilling-to-dollar shares of the regular
and extrabudgetary budgets and expenditures during this period.  A
fixed exchange rate of 12.70 Austrian schillings to the U.S.  dollar
and average annual U.N.  exchange rates, that were provided to us by
IAEA, were used to convert the share of the budget and expenditures,
respectively, that were in Austrian schillings to the current year
figures.  The Austrian gross domestic product (GDP) deflator and
official Austrian exchange rates from the International Monetary
Fund's International Financial Statistical Yearbook, 1997 were then
used to convert these figures back into 1997 dollars.  The U.S.  GDP
deflator was used to convert the share of IAEA's safeguards budget
and expenditures that were in U.S.  dollars into 1997 dollars.\1


--------------------
\1 According to a State Department official, IAEA measures real
growth differently from GAO.  First, IAEA excludes exchange rate
fluctuations from its calculations by using a fixed exchange rate for
comparison purposes.  Second, instead of applying U.S.  and Austrian
GDP deflators, IAEA applies actual changes experienced in the
preceding year in the prices of goods and services that it procures,
and anticipated salary increases.  As a result, IAEA understates
growth in comparison with GAO's methodology. 


IAEA'S SAFEGUARDS PROGRAM BUDGET
FOR 1999 AND 2000
=========================================================== Appendix V

According to IAEA's draft program and budget for 1999 and 2000, the
Agency will require a total of about $160 million in funds through
its regular budget and $40 million in extrabudgetary resources in
1999 and 2000 to fund its existing safeguards program and to begin
implementing part 1 of its strengthened safeguards measures, as
demonstrated in
figure V.1. 

   Figure V.1:  Total Resource
   Estimates for IAEA's Safeguards
   Program, 1998 to 2000

   (See figure in printed
   edition.)

Note:  Cost estimates are in 1998 dollars. 

Source:  IAEA's Draft Program and Budget for 1999 and 2000. 

Although IAEA has not developed detailed cost estimates for
implementing the strengthened safeguards measures over the next
several years, it has estimated the costs of replacing obsolete
surveillance equipment and installing some remote monitoring
equipment.  The installation of safeguards equipment will depend
heavily on extrabudgetary resources--$15.2 million and $12.4 million
for 1999 and 2000, respectively, as seen in figure V.2. 

   Figure V.2:  Resources Spent
   and Required for Purchasing New
   Safeguards Equipment 1994
   through 2000

   (See figure in printed
   edition.)

Source:  IAEA's Draft Program and Budget for 1999 and 2000. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

F.  James Shafer, Jr., Assistant Director
Charles T.  Bolton, Evaluator-in-Charge
Jo Ann T.  Geoghan, Evaluator
Beth A.  Hoffman Len, Senior Evaluator
Bruce L.  Kutnick, Assistant Director and Senior Economist

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Gene Aloise, Assistant Director
Sarah E.  Veale, Evaluator-in-Charge


*** End of document. ***