[Senate Hearing 107-]
[From the U.S. Government Publishing Office]
S. Hrg. 107 - 406
REAUTHORIZATION OF THE EXPORT-IMPORT
BANK OF THE UNITED STATES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
INTERNATIONAL TRADE AND FINANCE
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
ON
ENSURING THAT EX-IM BANK HAS THE RESOURCES TO ENABLE IT TO FULFILL ITS
STATUTORY MANDATE FOR U.S. EXPORTERS BOTH SMALL AND LARGE TO PROVIDE
FINANCING TERMS AND CONDITIONS COMPETITIVE WITH THOSE OFFERED BY
FOREIGN EXPORT CREDIT AGENCIES
__________
JUNE 19, 2001
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
U.S. GOVERNMENT PRINTING OFFICE
78-811 WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PAUL S. SARBANES, Maryland, Chairman
CHRISTOPHER J. DODD, Connecticut PHIL GRAMM, Texas
JOHN F. KERRY, Massachusetts RICHARD C. SHELBY, Alabama
TIM JOHNSON, South Dakota ROBERT F. BENNETT, Utah
JACK REED, Rhode Island WAYNE ALLARD, Colorado
CHARLES E. SCHUMER, New York MICHAEL B. ENZI, Wyoming
EVAN BAYH, Indiana CHUCK HAGEL, Nebraska
JOHN EDWARDS, North Carolina RICK SANTORUM, Pennsylvania
ZELL MILLER, Georgia JIM BUNNING, Kentucky
MIKE CRAPO, Idaho
DON NICKLES, Oklahoma
Steven B. Harris, Staff Director and Chief Counsel
Wayne A. Abernathy, Republican Staff Director
Martin J. Gruenberg, Senior Counsel
Amy F. Dunathan, Republican Senior Professional Staff Member
Adrienne B. Vanek, Republican Economist
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
______
Subcommittee on International Trade and Finance
EVAN BAYH, Indiana, Chairman
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
MIKE CRAPO, Idaho JOHN F. KERRY, Massachuttes
CHUCK HAGEL, Nebraska CHARLES E. SCHUMER, New York
Catherine Cruz Wojtasik, Staff Director
Katherine McGuire, Republican Staff Director
Joel Oswald, Republican Professional Staff Member
(ii)
C O N T E N T S
----------
TUESDAY, JUNE 19, 2001
Page
Opening statement of Senator Bayh................................ 1
Prepared statement........................................... 32
Opening statements, comments, or prepared statements of:
Senator Hagel................................................ 3
Senator Sarbanes............................................. 5
Senator Miller............................................... 8
Senator Dodd................................................. 8
Senator Corzine.............................................. 16
WITNESSES
John E. Robson, President and Chairman, Export-Import Bank of the
United States.................................................. 8
Prepared statement........................................... 33
Response to written questions of Senator Bayh................ 44
John B. Taylor, Under Secretary, International Affairs, U.S.
Department of the Treasury..................................... 11
Prepared statement........................................... 40
(iii)
REAUTHORIZATION OF THE EXPORT-IMPORT BANK OF THE UNITED STATES
----------
TUESDAY, JUNE 19, 2001
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on International Trade and Finance,
Washington, DC.
The Subcommittee met at 2:30 p.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Evan Bayh (Chairman of
the Subcommittee) presiding.
OPENING STATEMENT OF SENATOR EVAN BAYH
Senator Bayh. The Committee will come to order. We would
like to thank everyone in attendance today. This is the second
of two hearings on the potential reauthorization of the Export-
Import Bank, the authority for which expires this September 30.
So this is a timely matter of great significance to all of us
present today as well as to the country.
It has tremendous macroeconomic significance given our
substantial balance-of-trade deficit, and that will impact our
currency and the rest of our economic health in the years to
come if we are not diligent about addressing that issue.
It has significant microeconomic considerations for
companies that wish to compete on a level playing field. It is
important that we try and level that playing field so that
American industries and businesses can export their goods and
services without having undone the natural competitive
advantage they would otherwise enjoy being negated by unfair
practices on the part of other countries that are not addressed
by the United States and our Government.
I want to express my appreciation to Senator Hagel. We have
had a good working relationship, Chuck, and I want you to know
that that is going to continue regardless of who is in the
Majority and who is in the Minority. We see eye to eye on many
of these issues, and I look forward to having a good bipartisan
relationship with you as well as a personal friendship.
I am honored by the presence of our Full Committee
Chairman, Senator Sarbanes, today, an individual for whom I
have a great deal of respect. Paul, thank you for your time and
presence today.
The first hearing on this subject matter involved hearing
from State governments and the private sector. We heard many
positive comments about the role of the Export-Import Bank and
the contributions it has made to the welfare and well being of
America's economy.
Of course no organization is perfect. We heard some areas
of criticism, particularly with regard to the adverse impact
rules and the question of whether the Bank has at all times
lived up to its own standards of analysis in regard to
enforcing those rules. It is an issue of which I have some
significant interest to address in the course of these
hearings.
This second set of hearings will focus upon the
administration and the witnesses representing the
administration, starting with John Robson. John, I want to
congratulate you on your confirmation. Welcome aboard.
Mr. Robson. Thank you, Mr. Chairman.
Senator Bayh. He continues a lifetime of a distinguished
public service. And of course John Taylor, as well. John, thank
you for your time. I was looking over your very impressive list
of credentials. Almost every well-known, prestigious academic
institution has had the benefit of your tenure at one point in
time. So we are pleased to have the benefit of your wisdom and
insight today.
I do not know if he will be able to join us, but I do want
to say a word about Jackie Clegg who performed admirable
service at the Bank. She is going to be missed, but is going on
to other things. I know Chris Dodd, our colleague, is very
proud of her work, as are we, and I want to again take this
opportunity to publicly salute her contribution to our
Government and our people.
Also Jim Harmon for the leadership he provided. John, you
are filling some big footsteps. I know you will do it
admirably, but Jim was a very effective leader as well. The
Subcommittee is in particular looking forward, John, to hearing
your views on the use of the Tied Aid Credit War Chest. This is
a significant issue. I know you are aware that there have been
some issues that have been raised in this regard. I am sure
that will be the subject of questions and we will be interested
in having the benefit of your views with regard to that issue.
With regard to the significant questions that will be
addressed during the course of these hearings, we are looking
forward to working with the leadership of the Bank and the
Treasury. We want to have the benefit of your thoughts on the
economic impact, the adverse economic impact, issue.
John, I am looking forward to having the analysis that your
predecessor indicated would be forthcoming offered up, I think
July 13 was the target date. I hope we are still on schedule.
If not, perhaps you can indicate if we are not then why not.
But in any event, we are looking forward to having the benefit
of that analysis with regard to that important issue.
Also, tied aid financing. John, I just mentioned the market
window is a financing issue. The 5 year instead of the 4 year
reauthorization. The pluses and the minuses of that with regard
to the functioning of the Bank.
Finally, and of great significance, the issue of the budget
for the Export-Import Bank. Of course the Administration
suggested a 25 percent reduction in funding. We are interested
in hearing what the consequences of that will be in a practical
sense in the functioning of the Bank and the mission that the
Bank is charged with pursuing. Let me say a few things about
the witnesses that we will hear from today, and then I will ask
for comments and opening statements from my colleagues.
First, John Robson, who is a very distinguished individual.
He is formerly an investment banker with the San Francisco-
based firm of Robertson Stephens. He served with distinction as
a Deputy Treasury Secretary under former President Bush, and
was Dean of the Emery University School of Business from 1986
to 1988. He received his undergraduate degree from Yale, and
his law degree from Harvard University.
John, I want to thank you for your testimony and again your
willingness to step forward and take on the trials and
tribulations of public service. You have done it in a
bipartisan way and we are grateful to you for your dedication
once again.
John Taylor, as I mentioned, has a very distinguished
background. He received his undergraduate degree from Princeton
and his Doctorate in Economics from Stanford--which seems to be
a popular place for graduates these days, judging by the news
over the last weekend. He has taught economics at Columbia,
Yale, Princeton, and his alma mater of Stanford University. He
previously served as a senior economist and then a member of
the Council of Economic Advisers under President George Herbert
Walker Bush. He was also a delegate to the Uruguay Round of
trade negotiations. Much of his research is focused on
developing tools that central bankers and financial market
analysts can use to analyze policy and developments in foreign
markets. Gentlemen, I thank you for your time. We are looking
forward to hearing from you. Without any further ado, I would
like to turn the proceedings over to my friend and colleague,
the Senator from Nebraska, Senator Hagel.
STATEMENT OF SENATOR CHUCK HAGEL
Senator Hagel. Mr. Chairman, thank you. Good afternoon. I
want to thank you, Chairman Bayh, for continuing these
important hearings on the reauthorization of the Export-Import
Bank. Thank you. Also, to Full Committee Chairman Sarbanes for
his leadership in prioritizing this effort as one of the most
important responsibilities this Committee has this year.
The Export-Import Bank serves a valuable role in this
Nation's trade policy. It gives our businesses a tool with
which to compete with foreign companies. It lowers our trade
deficit and it promotes growth and jobs in every sector of our
country. Ex-Im has proven to be an efficient and cost-effective
way of supporting exports. A successful and efficient Export-
Import Bank supports the President's trade agenda. A priority
for the Administration is to open markets around the world for
goods and services.
The United States has quality goods and services that can
compete with products from any nation in the world. However, it
is difficult for U.S. companies to compete with these products
when they come with an aggressive financial offer. Once the
U.S. exporter loses one deal, it is difficult to get back in
that market once certain foreign standards are established.
U.S. exporters sometimes need the Bank to help provide
competitive financing in areas where the waters have not yet
been tested and where the risk is greater than what U.S.
commercial banks are prepared to take.
We have many issues to review in the reauthorization of the
Bank. Senator Bayh has outlined several of them already. I
would like to address a couple of these issues. The first of
which is the budget.
Part of the goal of this authorization procedure is to
determine whether the Bank has the resources, authority,
legislative support, and means through which it can assist U.S.
companies in the most effective and accountable way possible. I
will be interested to hear Chairman Robson's perspective on the
proposed budget for the Bank. It is the job of Congress to
ensure that the appropriations set for the Bank enables it to
meet its objectives and its purpose.
Another important issue is competitive financing. At a
hearing we held last month, as Chairman Bayh referenced, we
heard from some of the witnesses that their competitors are
able to receive better financing terms than what the Export-
Import Bank can offer. All export credit agencies are obliged
to obligate the Bank to follow the arrangement negotiated in
the Organization for Economic Cooperation and Development,
OECD, when offering financing through government entities.
It seems that other countries are able to offer more
flexible terms at better rates through banking institutions
called market windows that fall outside of this arrangement.
These other countries, such as Germany, Canada, and others,
provide government assistance to market windows while claiming
that the market windows are commercial banks. Thus, market
windows are able to provide commercial bank service and very
aggressive financing without being covered by the OECD
regulations. In this hearing I would like to hear how the
administration is going to address this problem.
Tied aid is again an issue that Chairman Bayh has
mentioned. Another competitive issue which needs to be
addressed today is concerning tied aid and the consequences of
tied aid. Tied aid is credit given to foreign companies that is
tied to the procurement of goods or services from the donor
country. While this practice is allowed under the OECD
arrangement, there are several requirements associated with
this tied aid.
It has come to my attention that the procedure and criteria
used by the administration to grant tied aid funding to U.S.
exporters has not yet been cleared up and has in fact not been
clear in the past. An example of one such case comes from my
home State of Nebraska. One of the most successful
internationally savvy companies in Nebraska applied for such
tied aid from Ex-Im last year.
The company testified before this Committee last month that
it was led to believe by Ex-Im that it met the criteria for
tied aid, but then found out later the Treasury had overturned
the decision and tied aid financing was not granted.
This Nebraska company has gone on with its business and is
not raising this case as a complaint. However, this case
illustrates that there is a lack of clearly defined procedures
for granting tied aid.
It is my understanding that the Treasury Department and the
Export-Import Bank are currently working on an administrative
policy to address this issue. I look forward to hearing the
progress on this policy today as well as the testimony from our
distinguished panel today and leaders of these two most
important agencies of our Government. Mr. Chairman, thank you.
Senator Bayh. Thank you, Senator Hagel.
Chairman Sarbanes.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Mr. Chairman, thank you very much. First
of all, I want to congratulate you on assuming the gavel and
chairing the Subcommittee. This is your first hearing. I must
say, by way of prelude, this morning we had a hearing on the
housing issue
and one of the witnesses at the table was a fellow named Ira
Pepperkorn. I want to say that he was effusive in his praise of
you, Mr. Chairman, having worked for you when you were Governor
of Indiana. And I hastened to assure him that all of the
Members of the Committee shared your glowing opinions. I told
him we would be sure to deliver the message to you, so I feel
that I have done my duty there.
Senator Bayh. Thank you, Mr. Chairman. I am glad that his
soft spot for me was not held against him by my colleagues.
[Laughter.]
Senator Sarbanes. I also want to say it is good to be back
with Senator Hagel with whom we have worked on so many issues
in a very positive and constructive way, and I am sure that you
and he will be a very effective team in charge of this
Subcommittee.
The charter for the Export-Import Bank expires on September
30, and it is important that we move expeditiously to consider
its reauthorization. I am hopeful that after the testimony
today we will be able to think about doing a markup sometime
after the July 4 recess. We only have one more week after this
week, but I would hope once we come back in the July period we
will be able to move ahead. We have got to move the bill out of
the Committee, through the Senate, and, of course, through the
House. There is a challenge ahead to get it done by September
30. With the indulgence of my colleagues, since this is an
issue in which I have been quite interested over the years, I
want to take just a couple of moments.
Senator Bayh. By all means.
Senator Sarbanes. First of all, I strongly support the
reauthorization of the Export-Import Bank and I am very pleased
that John Robson, the Chairman and President of the Bank, and
John Taylor, the Under Secretary of Treasury for International
Finance, are before us. I think there are two strong market-
based reasons for the existence of the Ex-Im Bank.
First, in my view U.S. exporters are able to compete very
effectively in international markets on the basis of price and
quality. I would like to see that competition limited to those
factors. However, when foreign governments provide subsidies to
their exporters, U.S. exporters are placed at a competitive
disadvantage, often a decisive competitive disadvantage.
The Ex-Im Bank has a critical role in leveling the playing
field for U.S. exporters by countering the public financing
made available by foreign governments. In addition, in
undertaking this effort the Ex-Im Bank also provides leverage
to U.S. negotiators seeking to achieve international agreements
to limit the use of government export subsidies.
Second, certain countries in the developing world pose
credit risks of such magnitude that commercial banks are
reluctant to finance U.S. exports to those countries even
though they may present a significant opportunity for the U.S.
exporters. The Ex-Im Bank has a difficult but important task of
assessing the country's risk and determining if a guarantee
should be provided for a commercial export loan that would make
possible an export deal that would otherwise not occur.
Now in considering all of this, I think it is important to
note that the Ex-Im Bank has an exceptional track record in
managing the risk associated with its lending activities. The
Ex-Im Bank has an excellent repayment record with losses
running 1.4 percent of disbursements over its 67 year history.
In the last 10 years, these losses have been somewhat higher
because of the financial crises we have confronted in the
developing world. But in any event, it is my understanding that
over the past 5 years the interest and fees collected by the
Ex-Im Bank have earned the Federal Government over $4 billion.
When the Banking Committee last reauthorized the Ex-Im Bank
4 years ago, there was a sense that some progress was being
made in controlling the growth of export credits offered by
national governments. The OECD arrangement on tied aid credit
seemed to be having some effect, and there was hope that
further progress could be made.
I now have the sense that developments are perhaps moving
in the opposite direction. Funding for export credit agencies
of other governments has been growing. In addition, foreign
governments have been utilizing other mechanisms such as market
windows and untied aid to get around the OECD arrangement. In
light of these developments, the proposal in the
Administration's budget to reduce funding for the Ex-Im Bank by
25 percent was particularly disappointing.
Given the growing use of export credits by our competitors
and efforts to get around the restrictions that exist, this
would not seem to be the time to reduce the resources of the
Ex-Im Bank. Also of concern are proposals that have been
floated by the OMB to compensate for the proposed reduction in
funding by raising fees on Ex-Im Bank loans, reducing the
proportion of Ex-Im Bank financing and export deals, and
imposing a more stringent standard on whether an export deal
really requires Ex-Im Bank financing. It is not clear that
these proposals are being developed with consideration of the
lending policies of the export credit agencies of other
countries to determine how these proposals will affect the
competitiveness of Ex-Im Bank financing.
I want to turn my attention just briefly to an issue that
has been raised by my colleagues. And that is, what I regard as
the unduly intrusive role by the Treasury into the Ex-Im Bank's
utilization of the Tied Aid Credit War Chest. The Ex-Im Bank
Charter provides that the Tied Aid Credit Program shall be
administered by the Ex-Im Bank, ``in consultation with the
Treasury Secretary and in accordance with the Secretary's
recommendations on how such credits could be used most
effectively and efficiently to carry out the purposes described
in the charter.''
These purposes are focused on efforts to enforce and
facilitate new international agreements restricting the use of
tied aid, which is an area in which the Treasury has taken the
lead in negotiations. So there is a broad policy question I
think which I want to distinguish from the specific individual
judgments on particular loans.
In the past, Ex-Im Bank and the Treasury have collaborated
closely on the use of the War Chest. In fact, the charter of
Ex-Im Bank was amended in 1992 to give the Bank additional
authority to match foreign tied aid credits when it determines
a U.S. trade or economic interest justify the matching, even if
the foreign credits are in compliance with an international
agreement, even if it complied with an international agreement
we authorize the Bank to engage in matching, if it determined
that the trade or economic interest justified it. The Treasury,
which has lead responsibility in negotiating arrangements in
the OECD to limit export credits, has provided general guidance
to Ex-Im Bank on how the War Chest may be used to advance the
negotiating objectives.
While agreement has usually been reached on individual tied
aid cases, when disagreements have arisen in the past, the
Treasury has generally deferred to the judgment of the Ex-Im
Bank Board. It was therefore disturbing that a case arose
earlier this year in which the Ex-Im Bank Board voted four to
nothing in favor of a tied aid grant case, and the Treasury
Department moved to overturn that decision.
Now Senator Hagel alluded to that case, and of course I
know he is familiar with it since it involved a Nebraska
company, which in fact testified at the first Subcommittee
hearing on the Ex-Im Bank reauthorization held in May. The Ex-
Im Bank, which was supported by the Commerce Department,
believed that on the merits this case clearly deserved tied aid
credit support.
Apparently even the Treasury Department agreed that it was
a close call--conceded that it was a close call--yet the
Treasury insisted on the unprecedented action of overturning
this specific Ex-Im Bank decision. This suggests a level of
micromanagement by the Treasury that I am fearful could
seriously disrupt the functioning of the Tied Aid Credit
Program.
Now it is my understanding, as my colleagues have
indicated, that an effort is underway between Ex-Im Bank and
the Treasury to work out their differences over the operation
of the Tied Aid Credit War Chest and reach a common
understanding of their respective roles. As I indicated
earlier, it was my understanding that the Treasury in the
context of negotiating to try to get general limits provided,
as it were, policy guidance to the Ex-Im Bank but in the past
it has not intruded to the point of overturning specific Ex-Im
Bank decisions.
I hope that this effort at coming to a common understanding
may prove successful. I regard the Tied Aid Credit War Chest as
a very important resource to meet the challenges posed by
foreign export credits. Senator Heinz and I worked on this
issue many years ago.
The fact of the matter is that if we do not counter these
foreign export credits our exporters are left totally exposed
and they are not competing on a level playing field. I think if
we use it effectively and with the deep pockets that people
understand the United States has, other countries will be less
likely to engage in the effort to provide this assistance. But
as long as they think they can do it and get away with it, and
the Nebraska contract was lost directly on that basis, that
their competitors--I think it was an Austrian company--were
getting significant credit support from their government, they
took the contract. It wasn't a very large contract, but it has
significant follow-on possibilities. So we hope to get that
straightened out. I think it is very important to do that.
Mr. Chairman, I am pleased that these two very able and
competent witnesses are before us. I join you in wishing John
Robson the very best as he has assumed the presidency and the
chairmanship of the Export-Import Bank. Thank you very much.
Senator Bayh. Thank you, Chairman Sarbanes.
Senator Miller.
COMMENT OF SENATOR ZELL MILLER
Senator Miller. I do not have any remarks but I will have
some questions later.
Senator Bayh. Thank you. Thank you, Senator.
Senator Dodd, before you arrived I just wanted to take this
opportunity to praise Jackie Clegg for her devotion to the
Export-Import Bank and to the good work that it does. We said
that she would be sorely missed but is soon to assume even
greater responsibilities in the capacities as a mother. So we
congratulate both of you on that.
STATEMENT OF SENATOR CHRISTOPHER J. DODD
Senator Dodd. I thank you, Mr. Chairman, for that. I had
better add some remarks of my own about it or I will be in
trouble when I get home.
[Laughter.]
Senator Dodd. I thank you very much, and she has enjoyed
her service immensely and has been deeply impressed with John
Robson. I wanted to apologize. I missed your swearing-in
ceremony the other day. You sent a kind invitation, and I
missed it. So I apologize to you for not being there, but I
gather it was a wonderful ceremony and I congratulate you on
your new responsibilities.
Mr. Taylor, it is good to see you here with us, as well.
Again, Mr. Chairman, thank you for your kind comments about
Jackie. She has enjoyed her work there immensely and enjoyed
working with the staff there; and the comments that Senator
Sarbanes has raised are important ones.
I will be very interested in hearing some responses to
these questions. My questions run along similar lines. I am
sure all of us have sort of the same questions. I think that
Nebraska arrangement was about $3 million--it was not a massive
deal, as I understand it. The Senator from Nebraska can correct
us on that. So I look forward to your testimony, and again
congratulations to both of you and I look forward to working
with you.
Senator Bayh. Thank you, Senator Dodd. Gentlemen, you have
been good enough to listen to us. We are eager to listen to
you.
Mr. Robson.
STATEMENT OF JOHN E. ROBSON, PRESIDENT AND CHAIRMAN EXPORT-
IMPORT BANK OF THE UNITED STATES
Mr. Robson. Thank you, Mr. Chairman. With your permission--
hello to the Committee and thank you Senator Sarbanes for
coming to this hearing; I know you have a high degree of
interest in the Ex-Im Bank--I would like to put my full
statement in the record and read one that I hope will not be
deemed excessively long. When we get through with the hearing,
I hope that the adjective ``potential'' reauthorization is no
longer found in the vocabulary.
I am happy to be here today to testify on behalf of
rechartering the Export-Import Bank. The Ex-Im Bank is a sunset
agency. Our charter needs to be renewed by Congress by
September 30, 2001. In this reauthorization we are requesting a
renewal of the Bank's charter for 4 years, through September
30, 2005. We are also requesting that our Sub-Saharan Africa
Advisory Committee be extended for 4 years. This advisory
committee has offered valuable advice which has been
instrumental in our ability to increase our business with sub-
Saharan Africa.
I can assure you that I would not have accepted my position
if I were not convinced that the Ex-Im Bank with its program of
direct loans, loan guarantees, insurance, and working capital
loans is a valuable part of the U.S. economic arsenal. It is,
because working in partnership with business and labor it keeps
our exporters competitive, helps create good jobs for U.S.
workers that pay above the average, and plays a role in
reducing the trade deficit. This has been the task of the Ex-Im
Bank in the past, and with the charter being renewed, the Bank
will continue its vital work. It is a highly respected
institution of long standing staffed by a group of dedicated
professionals.
Since its inception in 1934, the Bank has had a unique role
in our country's history. In 1939, the Bank helped finance the
717 mile Burma Road in China. And in 1941, the Bank supported
U.S. exports for the Pan American Highway in Central America
and Mexico. In 1946, it authorized $2 billion for the
reconstruction of Europe. In 1948, it administered the funds
for the Marshall Plan, and also authorized $100 million for
exports to the newly recognized state of Israel. More recently,
when private-sector lending institutions back out due to the
Asian financial crisis, Ex-Im Bank stepped in to provide short-
term financing that resulted in $2 billion of U.S. exports
going to Korea.
So the Bank has a proud history of not only supporting
exports and creating jobs generally, but also stepping in under
circumstances where we can play a role in advancing broader
American interests. With that introduction, let me now turn
briefly to our budget.
With an appropriation of $633 million as the Administration
has proposed, plus $90 million in additional program budget
funds that we estimate will be available due to cancellation of
prior year commitments, the Ex-Im Bank would have a total of
$723 million in program budget funds available for fiscal year
2002. The Bank estimates that its total fiscal year 2002
program budget resources of $723 million can support about
$11.4 billion in export credit authorizations.
We have also projected the level of demand for export
transaction credit for fiscal year 2002. And because of some
uncertainty, rather than projecting a single export credit
demand dollar amount, we have calculated a range. The low end
of the demand range is $11.9 billion in authorizations. The mid
range is $12.5 billion. The high end is $14.5 billion.
We have said above that the $723 million in fiscal year
2002 program budget resources can support $11.4 billion in
export credit authorizations. Thus, if actual export credit
demand exceeds that level, then the Bank's available resources
would not be adequate to support the higher increment of export
credit demand.
The President's budget suggests the possibility of making
up a gap between exporter credit demand and program budget
resources by instituting changes in the way the Bank does
business such as raising fees and/or lowering the percentage of
Ex-Im Bank's export credit coverage of a transaction from its
current 85 percent.
I will consider conducting some very limited and carefully
designed clinical trials for the purpose of gathering real-
world data on these issues. And it is my plan to work with the
export community and Congress in designing these limited
experiments. Turning to our administrative budget, our
administrative budget is essential to our mission, and I urge
that our request be fully funded.
For fiscal year 2002, we are requesting $65 million for our
administrative budget, which is an increase of $3 million or 5
percent over fiscal year 2001. The increase is representative
of our continuing effort to improve our case processing and
upgrade our information technology system. Let me turn now to
our small business operations. The benefits of increased
exporting by Ex-Im Bank credit extend to businesses of all
sizes in almost all States.
According to the most recent available national data, 96
percent of exporters are small- and medium-sized businesses.
They represent 30 percent of U.S. merchandise exports by value.
Ex-Im Bank tends to track this national average since fiscal
year 2000 86 percent of our transactions directly benefit small
businesses, and they consumed approximately 20 percent of our
authorization expenditures. Small businesses account for most
of the job growth in our country. We are directly assisting
some 2000 small businesses each year. But this represents just
a small fraction of the small businesses which export.
Ultimately the most cost-effective way to reach the
thousands of small businesses that could make use of our
services is to expand our technological base by making use of
the Internet which will involve significant capital investment.
Let me now turn to several issues which will have our attention
in the immediate future.
The first is tied aid. Tied aid is essentially highly
concessional foreign assistance conditioned on the purchase of
goods and services from the donating country. This combination
has the potential effect of injecting a grant element into
trade finance by lowering interest rates, lengthening terms, or
both.
One continuing issue which has been mentioned several times
already is the use of the Tied Aid War Chest. There needs to be
continued scrutiny of tied aid activities by our industrial
competitors, and we need to gather more data to determine the
extent of evasion of the OECD rules which limit tied aid.
Turning to new markets and new initiatives, over the past
few years Ex-Im Bank has made a concerted effort in expanding
our support to U.S. exporters in new and revitalized markets
such as Mexico and sub-Saharan Africa. The most notable growth
in Ex-Im Bank's programs recently has been sub-Saharan Africa,
the result of Ex-Im Bank's effort to meet its 1997
Congressional mandate.
In 1998, the Bank authorized about $56 million to support
U.S. exports to sub-Saharan Africa. It authorized $589 million
in 1999, and $914 million in fiscal 2000. While the figures in
the last 2 years may be abnormally higher due to some
especially large transactions, we will continue our efforts to
support sales to these areas.
In Mexico where exporters are doing a growing business, our
medium- and long-term authorizations for fiscal years 1997
through 2000 total $5.1 billion. Future prospects there look
bright, given further capital expenditure needs and the new
policies being proposed by President Fox. Turning briefly to
market windows, the new export credit mechanisms which are
being developed by the other countries, again mentioned by a
number of the Senators here.
Market windows are State-owned institutions which claim to
operate on a commercial basis in the province of trade credits
and thus, arguably, outside disciplines imposed by the OECD
arrangement. Again we need to determine if the OECD rules of
engagement are being circumvented by market windows and to this
end we plan to commit resources to a major research effort.
I am keenly aware of the Bank's charter obligation to
examine economic impact when it authorizes export transactions.
This issue is at the top of my agenda. We are currently
reworking our economic impact guidelines and will include
Congress, the exporting community, and labor in this process,
and a draft of our report should be available for comment
shortly.
Turning to the environment, in 1995 again at the direction
of Congress, Ex-Im Bank adopted a comprehensive environmental
policy that included a program to support environmentally
beneficial and renewable energy exports, and a set of
environmental procedures and guidelines applicable to its
support of foreign projects. Since 1995, Ex-Im Bank has
supported $3 billion in environmentally beneficial U.S. exports
and environmentally beneficial projects.
In 1997, we initiated discussions with the heads of the G-7
export credit agencies to persuade them to work with the OECD
to adopt policies which impose on their exporters meaningful
environmental guidelines. The Export-Import Bank believes that
our competition should agree to specific standards,
environmental impact assessment in sensitive cases, and
transparency. And these negotiations are still ongoing. Mr.
Chairman, that concludes my oral testimony and I shall be happy
to answer any questions.
Senator Bayh. Thank you, Mr. Robson, very much.
Mr. Taylor.
STATEMENT OF JOHN B. TAYLOR
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
U.S. DEPARTMENT OF THE TREASURY
Mr. Taylor. Thank you, Mr. Chairman, and thanks for
inviting me here to testify on the reauthorization of the
Export-Import Bank. We strongly support the reauthorization,
and I agree with Chairman Robson that it would be good to no
longer call it ``potential'' reauthorization. I want to submit
my written statement for the record and, if I may, just have my
introductory comments focus on the role of the United States
Treasury in working with the Export-Import Bank.
The Treasury has a very important role to play in
implementation and in formulation of policy regarding the
Export-Import Bank. I look forward to working closely with John
Robson, a good friend, along with the Full Banking Committee
and this Subcommittee in making things work smoothly.
There are two specific roles for Treasury which I would
like to just briefly mention. One is that the Treasury works
along with Export-Import Bank to ensure that the policies
followed are consistent with those of the Administration.
Second, and this is the major focus of this hearing on the
Treasury's role in export finance policy, Treasury works
closely with Export-Import Bank to negotiate and enforce rules
limiting the use of foreign export subsidies. I think it is
very important to establish such rules and to enforce them for
several reasons.
First, such subsidies distort trade significantly. Second,
they interfere with efficient resource allocation around the
world. Third, they are an immense disadvantage to the U.S.
exporters because frequently foreign export subsidies are
larger. And fourth, subsidies are a drain on the budget. They
require using funds that could otherwise go to other purposes.
The U.S. Treasury for many years has worked through the
OECD to negotiate these rules and to enforce them. There is a
fine professional staff at the Treasury that goes to these OECD
meetings and has done so through many years. It is a bipartisan
operation and has been in existence with the same career people
through a number of different Administrations. A number of
things of importance have been accomplished through these
negotiations and believe that similar progress can be made in
the future.
I just mentioned two things that are quite significant to
me as I look at the progress. One is that there is now a limit
that has been achieved through negotiations on the amount of
interest rate subsidies that can be associated with Export-
Import financing. The subsidies can be no less than 100 basis
points over the cost of funds to the government. This rule has
saved governments hundreds of millions of dollars of scarce
budget resources.
The second is the limitation on the use of tied aid
credits. As John Robson indicated, we need to have the best
data we can to assess these trends. But the data I look at
suggest a significant reduction in the amount of tied aid
credits in the 1990's.
For example, in 1991 there were $9 billion of tied aid
credits if you exclude Japan. In the year 2000 there were $1.8
billion, again if you exclude Japan. So excluding the Japanese
aid, both tied and untied, which I will describe more, there is
no question that there has been an enormous reduction in the
amount of tied aid.
Looking at these numbers separately from Japan is important
because Japan in recent years has moved from untied aid to tied
aid, and therefore the gross numbers in terms of tied aid have
showed a significant increase, especially in the last couple of
years. So it is very important to look carefully at these
numbers in order to assess the trends.
Going forward, it seems to me that there is a chance to
make progress to deal with some of the problems that you
mentioned in your opening remarks.
There are two areas which we think are very important in
Treasury. One is untied aid and the other is the market
windows. These distortions relating to export financing can
occur, of course, even if aid is not legally tied to donor
country firms. And this is the case of untied aid. You might
think of it as tied aid in disguise.
Currently untied aid is exempt from the tied aid rule
solely because the donor government does not directly tie
procurement to its firms. With untied aid, procurement is
effectively tied to firms from the donor country in a variety
of less direct ways. Without an international agreement to
provide rules for the use of untied aid, it will continue to
distort trade and misallocate global resources much as tied aid
has done in the past.
The second item is the market windows. Market windows are
another threat to the long-term integrity of the existing OECD
rules which have been negotiated over the years. Market windows
are quasi official institutions that support national exports.
The two largest are KfW of Germany and EDC of Canada. Because
market window institutions purport to operate as private-sector
actors, there is currently no agreement in the OECD rules to
discipline them. We at the Treasury plan a major push in the
OECD to establish rules on market windows, and we will work
with OMB and Ex-Im Bank to undertake our own analysis of market
windows.
Let me just conclude, Mr. Chairman, and Members of the
Subcommittee, by saying that I have tried to explain the role
of the Treasury in this operation, and I want to work with this
Subcommittee and with the Ex-Im Bank to take on some of the
goals that I have listed. I particularly look forward to
working with Chairman Robson who was Deputy Treasury Secretary
at one time, and a very close friend. Thank you.
Senator Bayh. Thank you, Mr. Taylor. We will now begin
questions from Members of the Subcommittee, and I am privileged
to begin the questioning.
Mr. Robson, I would like to begin with you. I agree with
what both you and Mr. Taylor said in hoping that we can remove
the provisional status of reauthorization from the Bank in a
very expeditious and timely manner. But of course
reauthorization is only the first step. We need to make sure
you have the resources to robustly fulfill the mission of the
Export-Import Bank.
I find myself in the interesting position of being a
zealous advocate for giving you more tools than perhaps some
other Members of the Administration, of which you are a part,
would give you, but I am going to play that role here today
because I believe in what you are trying to do. I think it is
good for American business. I think it is good for our
macroeconomic situation in terms of fighting the trade deficit,
and a variety of other matters.
So let me specifically mention the budget as an issue. You
indicated that there are $90 million of cancelled commitments
from last year, which I think added to the budget request would
provide you with $723 million of resources with which to go
forward during the next budget year. Is that correct?
Mr. Robson. That is correct.
Senator Bayh. This is still a significant reduction from
the previous funding level and, if my figures are correct,
would support about $4 billion less in financing activity
during the coming year. This is potentially somewhat troubling
in terms of the trade deficit, in terms of other countries
stepping up their efforts at a time when we would be cutting
back, and of course since you are a money-making operation
might actually have an impact to the Treasury. What do you have
to say about this?
Mr. Robson. Well let me, if I may, address this in two
ways, one is to say that the nominal reduction is, much as Mark
Twain said about Wagner's opera, ``it is not as bad as it
sounds.'' The reason for that is that the risk criteria which
determine how much of our resources must be used or set aside
for each of our transactions has gone down. And consequently we
will get out of the resources that have been asked for a bigger
bang for our buck than we are getting in the current year.
Senator Bayh. By ``risk criteria going down,'' you mean we
are taking on riskier projects? Or less riskier projects?
Mr. Robson. This is a calculation, Mr. Chairman, that is
made under the Federal Credit Reform Act of 1990 by the Office
of Management and Budget. It is a fairly arcane process but the
result of it is to make risk assessments for countries and
various kinds of transactions which then govern the amount of
money that Ex-Im Bank needs to set aside as a reserve for
losses in each of the transactions that it does. And that risk
level for the year 2002 has gone down, and consequently we get
a larger bang for our buck.
Senator Bayh. So your risk profile is going down, enabling
you to undertake more activities with somewhat less resource?
Mr. Robson. That is correct. Now that is not a cure for the
entire amount, but it probably makes up about half of it. And
the $11.4 billion of export credit that we think we can support
with the appropriation asked for, plus our cancellations, is
the figure that we have estimated under our historic bang for
the buck ratio.
Senator Bayh. I appreciate that explanation. To the layman
you indicated a range of a potential demand for your services.
Mr. Robson. We did.
Senator Bayh. To the layman it would appear that we are
somewhere closer to the bottom of the range rather than the top
of the range, perhaps putting us at somewhat of a risk of
curtailing your activities, hence your suggestion of perhaps
reducing the percentage of the activities being covered or the
possibility of imposing higher fees for the services of the
bank.
Mr. Robson. It was suggested that that would be a way to
stretch resources. My own feeling about that is that I do not
think we are in a position to do that on a sufficiently broad
or across-the-board basis in order to have anything more than a
negligible effect, and I am prepared to do some experimenting
in that area, but I do not think that I would feel confident in
trying to do it across the board or as a way to try to make up
a budget deficiency.
Senator Bayh. I see my time is about up, and rather than go
into overtime on this round I may reserve some questions for a
subsequent round. This is an issue that concerns several
Members of the Subcommittee, Mr. Robson. We simply want to make
sure that you have the tools with which to get the job done. We
know that you have to be a loyal soldier; that is a part of
being a member of the Administration; and we want to simply
make sure that you have the budget necessary to fulfill the
mission of the Department.
Mr. Robson. Thank you.
Senator Bayh. I will now ask Senator Hagel for his
questions.
Senator Hagel. Mr. Chairman, thank you.
I would like to stay on the budget for a couple of
questions. You noted in your testimony, Mr. Chairman, as you
were developing your answers for the Chairman in response to
his questions that you would look at reducing costs, and you
explained a couple of the issues of risk criteria. Then you
went on to say that examples of these changes would be to raise
fees and/or to lower the percentage of Ex-Im Bank's export
credit coverage of a transaction from its current 85 percent.
A couple of questions there, one do you think that if that
is what you did, and if that was a course of action that you
would take, that that would in fact make the Bank less
competitive?
Mr. Robson. It could, and that is the reason that I
suggested that we do some clinical trials on that and try to
make an assessment. I have met with the exporters on that very
subject and told them that I would like to work with them, and
work with you in Congress in fashioning those experiments, and
then let's come up with some data and see whether the answer to
your question is ``yes,'' ``no,'' or ``we do not know.''
Senator Hagel. What has the response been from the
exporters to this possibility?
Mr. Robson. Well I think they were prepared to look at the
question of doing some limited clinical trials on it if they
were designed with them and with Congress. I cannot say that
they leapt from their chairs in enthusiasm when the idea was
broached, but on the other hand they were I think comfortable
with the notion that this was an experiment and would be done
on a limited basis, and would be done with their collaboration.
And so consequently I think we are going to try to go forward
and see if we can figure out some experiments to work. But this
is not what I would characterize as a way to make up any
substantial amount of resource deficiency.
Senator Hagel. Well that is a decision that you and your
team will have to make, but if that is the case--what you just
said--and if in fact it may well hurt the competitiveness of
your Bank, then that may not be the best, cost-effective way to
make anything up. And one other thing, if I understand the
Bank's mission it is not to look for the safe harbors of
markets. In fact, it is just a bit of the opposite. So I think
we can go the other way to make the books look good, but in
fact not fulfill the mission of the Bank.
Mr. Robson. Well I do not think we have any intention of
walking away from our mission, and the limited experiments are
not ones that are going to be done across the board. They are
limited, and narrow, and the idea is to use them as data-
gathering exercises, not as major changes in the way we do
business. And you are absolutely right. Our job is to go into
places where commercial lending institutions fear to tread.
Senator Hagel. Thank you. On tied aid, you both alluded to
the tied aid issue. And maybe you each could give us some
perspective on where your two agencies are regarding coming to
some understanding and agreement on how tied aid is supposed to
work, not work, who makes the final decisions. Chairman
Sarbanes talked a bit about that. I understand you, Mr.
Chairman, have exchanged correspondence with Secretary O'Neill
on this.
Mr. Robson. I have, and I received a letter back from him
as well. What I told him was that this is something we need to
sit down and get resolved. In my personal judgment as an expert
of 2 weeks on the job, the problems that we have had resulted
centrally from a breakdown in the interagency process; and it
needs to be repaired. We need to get a new tied aid play book
that is simple and is exporter sensitive, because one of the
parties that is affected when the interagency process breaks
down is obviously the exporter. We need to get a set of
principles and a workable mechanism. Secretary O'Neill wrote
back and said you are right. Let's get it done. John Taylor and
I have talked and I have the highest respect and admiration for
John. I think if we sit down and are serious about getting this
behind us, we will.
Senator Hagel. Secretary Taylor.
Mr. Taylor. I agree very much with that. I want to try to
find a way to make this process work as smoothly and
efficiently as possible so we can do the job before us. I have
been on the job just slightly less time than Chairman Robson,
but have been looking at and learning quite a bit. I think the
process can be made to work very effectively and look forward
to working with him and you to do that.
Senator Hagel. Is there a difference of philosophy between
your two agencies about tied aid?
Mr. Taylor. I can just talk a little bit about the
perspective of my agency. My understanding is that there are
always some differences of opinion on particular cases, but
that the general rules of the OECD and existing criteria for
using tied aid are well known. They are documented on pieces of
paper, which is the play book people use to make decisions.
What we try to do is use the resources that are available
in the Tied Aid War Chest, to use them efficiently and
judiciously to make sure that the playing field is level. That
means that you have to consider each case separately to see
whether there is follow-on business, to see what the size of
this business is, and I can assure you there will be
disagreements from time to time, but as long as we have a set
of principles that we can look at, I think we should be able to
work this out smoothly.
Senator Hagel. My time is up, so I will come back on the
next round and follow up on some of these, Mr. Chairman. Thank
you.
Senator Bayh. Thank you, Senator Hagel. We have been joined
by our colleague, Senator Corzine. Senator, I will give you a
choice. I hate to interrupt the line of questioning, but if
you--
COMMENTS OF SENATOR JON S. CORZINE
Senator Corzine. I am very pleased to be here with you in
your first hearing. And I also want folks to know that I feel
very strongly about the Export-Import Bank's effectiveness as a
tool to promote our exports. We are living with maybe one of
the greatest trade deficits that has ever been created in the
human mind, and I am quite concerned about this pulling back.
So I look forward to the testimony.
Senator Bayh. Thank you, Senator. We appreciate your
leadership on this issue.
Senator Miller.
Senator Miller. Chairman Robson, knowing you as I do from
your distinguished tenure at Emory University in Atlanta, I
know that you are not going to walk away from anything, as you
put it. We just want to make sure you have the resources to do
your job, and that is why I was so pleased with Chairman Bayh's
opening questions.
I want to ask Mr. Taylor this, and please indulge me if I
am getting into just the primer of this business, but in your
statement you said the 2002 budget proposes a 25 percent
decrease in program budget resources, in part to reflect lower
estimates of international lending risks. I wish you would tell
me a little bit more. Elaborate on ``reflect lower estimates.''
Who measures that? And what if they are wrong? What happens?
Mr. Taylor. Well the job of estimating this lending risk is
located at the Office of Management and Budget. There are lots
of consultations that go on with respect to how to assess the
risks, but the assessment of the risks determines the budget
impact of U.S. financing programs, loans, or the guarantees, or
whatever it happens to be. As the assessment of the risks comes
down, it lowers the budgetary costs to support any given size
loan or guarantee.
So the question of being right or wrong is really important
for the future in making sure that the overall integrity of
this process works well, but in terms of understanding whether,
say, a half or more of the reduction in the budget can be
explained by this change in rules does not depend on it being
``wrong'' or ``right.'' It is basically a rule that is going to
be used for this budget, and it is lower than previous budgets.
So the same amount of money that is budgeted can be used to
make more loans than in the past. That is the ultimate purpose
of my statement.
Senator Miller. Thank you. Mr. Taylor, Mr. Robson in his
written testimony says that Ex-Im will look at a range for
export credit demand, rather than a single export credit demand
dollar amount. Then he goes on to say of course the range could
be $11.9 to $14.5 billion. If the export demand were to be
$14.5 billion instead of the $11.9 billion, which is what the
budget request is for this year, and Ex-Im was unable to meet
the need of the U.S. exporting community, what does Treasury
say then?
Mr. Taylor. Well, the----
Senator Miller. To your exporting community folks, are we
saying we just do not quite have enough help?
Mr. Taylor. Well the hope with this budget is that it would
be enough to satisfy the demands and needs. In any kind of
budget you rely on forecasts and try to do the best you can.
Sometimes you are off, but the purpose of the appropriation
that the Administration requested is to take into account the
fact that the same amount of money could go further, and that
there are going to be some other adjustments to be more
selective in the activity so that that would be sufficient
funding. But it is always based on some forecast. In any year,
whether the amount was larger or smaller--in fiscal year 2000
for example $811 million was allocated--and I believe that
turned out to be sufficient. But, just like you are asking now,
that could have been off, depending on how the demand actually
evolved. But given the change in scoring that you asked about
in your first question and given the assessments, this request
should be sufficient.
Senator Miller. One other question. This is along the line
that Chairman Sarbanes was getting into about what we heard
from Mr. Meany with Valmont Industries in Nebraska. What can be
done about a situation like that? Why does the Treasury
Department get to nix something that Ex-Im has said ``yes'' to?
And should there be some way of arbitrating that?
Mr. Taylor. Well the Secretary of the Treasury, by
legislation, has a role in this process. It is a role which is
very important for a number of reasons, but one is that the
negotiations take place at the OECD under the auspices of the
Treasury. So the Secretary of the Treasury has some significant
say, and having his advice being taken is very significant. It
is very important for those negotiations to work properly. So
the Secretary of the Treasury has a substantial role, and it is
legislated as Senator Sarbanes indicated in his opening
remarks.
In the case you are referring to, my understanding of the
events is characterized as follows, there was a vote on this
case at Ex-Im Bank. Before that vote took place, the Secretary
of the Treasury indicated that he did not think that that would
be a good use of the tied aid fund, considering the fact that
the resources are scarce, and they have to be used efficiently
to do the best we can to level the playing field. That was the
Secretary's assessment.
That assessment was conveyed to the Ex-Im Bank Board, but
even after that assessment there was still a vote by the Board
to approve. After that vote was taken, it is my understanding
there was a legal consultation as to whether that vote should
stand, given that the Secretary of Treasury had previously
recommended against it. The legal counsel was that it should
not stand, and therefore Ex-Im Bank notified the firm that the
tied aid credit would not be granted.
So that is the sequence of events. I do not know how you
want to characterize it, but it seems to me that the Secretary
of the Treasury did have the role of making the recommendation.
He did so based on the information put before him in this case.
And that is the sequence of events that occurred.
Senator Miller. My time is about up, but if Ex-Im says yes
and the Treasury says no, then there is not an appeal anywhere?
Mr. Taylor. The Secretary of the Treasury by legislation
makes the recommendation and the decision by the Board should
be taken in accord with those recommendations. So it is a very
significant role for the Secretary of the Treasury and one that
I think has worked very well over a long period of time. Again,
I want to work with Chairman Robson to make this process work
as smoothly as possible, but I think the legislation is there
and it has worked effectively. I hope we can continue to make
it work in that same way in the future.
Senator Miller. Do you agree with that, Chairman Robson? Is
Ex-Im's legal view the same as Treasury's?
Mr. Robson. It is my hope that this will be resolved on
grounds of comity and getting the process to work, but the
direct answer to your question is no.
Senator Bayh. That is a very direct answer, Mr. Robson. We
appreciate that. Thank you, Senator Miller.
Senator Miller. Thank you, Mr. Chairman.
Senator Bayh. Senator Dodd.
Senator Dodd. Let me just pick up on my colleague from
Georgia, because I think it is a very important point. I mean I
guess I have always understood it as the role of the Treasury
is a consultative role. Do you disagree with that, Mr. Taylor?
Mr. Taylor. I have to disagree with those terms without
qualification because the legislation says that the decision
should be made in accordance with the Secretary's
recommendations. So there is consultation that takes place
prior to the decision. But the views of the Secretary of the
Treasury should be honored, and that is more than just a
consultation.
Senator Dodd. Of course you have only been on the job a few
days, but I would be very interested in where you could point
me to in the statute that is in effect a veto power. You make a
recommendation to the Treasury you have to follow----
Mr. Taylor. If you would like to use that word, that is
fine. I do not think we need to use that word, but I think the
actual language is ``in accordance with the Secretary's
recommendations''. That is a quote from the statute. Again, I
agree very much with Chairman Robson. I want to work together
with him. I do not want to think about this as something which
is taken to a level at which we can not talk sensibly. But I
think the language is pretty clear. It is ultimately a decision
and discussion that will take place with our counsel. This has
been the way it has worked for a number of years, and I do not
really see a reason for a change.
Senator Dodd. Well my suggestion might be, Mr. Chairman, as
part of the reauthorization, I think there is a need for some
clarity here. And maybe over the next week or two we can work
on this. But certainly I think what Senator Miller has raised
here, and raised by you and others, Chairman Sarbanes as well,
points to a potential, sort of a train wreck potentially along
the way here on this matter, and we need some clear lines or we
are going to be inviting, it seems to me, a very disruptive
process.
I mean this is vague, at best, in my view. Maybe I am a
minority of one on this issue, but I hear very different
responses to the same question from the Senator from Georgia.
It seems to me we need some clarity on this. I see, Mr. Robson,
you sort of want to say something so let me provide you the
opportunity.
Mr. Robson. Well, without in any way changing my ``No.''
Senator Dodd. Yes.
Mr. Robson. In answer to Senator Miller's question about
whether I agreed with Mr. Taylor on his apparent position that
the Treasury had the final say on Tied Aid War Chest use
decisions, Congress clearly conferred on the Treasury a special
consultative role, and we want to give substance to that. And
as I said, I think what we need here is a new play book that is
simple, practical, exporter sensitive, and can make this thing
work. And I believe we can get there, and I know if John Taylor
sits down with me that we can.
Having said that they have a special consultative role, I
do not think that they conferred on the Treasury a veto power
or the authority to impose kind of a moratorium on individual
cases. But I would hope that that is not the resort in this
case, because what we really need to do is work out a system of
operations. And you have my commitment that we are going to
start tomorrow to try to do that.
Senator Dodd. I appreciate that. Because I gather, and I
will stand corrected here, but I do not know if this is the
only example we have ever had where this authority has been
exercised?
Mr. Taylor. Senator, there have been many cases over the
years where there has been a recommendation by the Secretary.
Senator Dodd. I understand that.
Mr. Taylor. And to my knowledge----
Senator Dodd. But actually one has been reversed.
Mr. Taylor. [continuing]. there has never been a case where
his recommendation, specifically the recommendation of the
Secretary of the Treasury, has been overruled, if you like, by
an Ex-Im Board vote. So I think that is what is unusual here.
It is really not appropriate to focus on this one case, however
important it is, and it is very important and----
Senator Dodd. Tell that to the Senator from Nebraska, that
it is not that important.
Mr. Taylor. It is very important.
[Laughter.]
Mr. Taylor. I did not say anything except it was very
important.
Senator Bayh. The Secretary corrected himself.
[Laughter.]
Mr. Taylor. And we will continue to work on that. But the
process over the years has worked well, as I have been able to
understand it and study it. There is a lot of progress that has
been made.
Senator Dodd. Mr. Robson made a good recommendation here.
We need to just work on this a bit, and I think the Committee
clearly wants to, Mr. Chairman. Let me, if I can, just jump to
the budget question because this is clearly an important one,
John. Having sat on this dais here now for 20 years--and
through various Administrations where obviously OMB has the
strong hand--and I am fully understanding of the role that
people are charged with heading up agencies have and must bear
in all of this, but I think it is important just for you to
carry back in a sense--you are getting some sense of it already
here in a bipartisan way of our concern about the budget issue.
I made the--I did not intend to make the mistake. This
Export-Import Bank does not produce revenues, as such, except
through the taxes that come in. It is self-sustaining in that
sense. And it clearly does a tremendous job. Correct me if I am
wrong, but I think it is a dollar leverages about 18 in the
private sector. It is a phenomenal leverage. One dollar gets
you 18.
In a sense of listening to my good friend's, the Chairman,
math on this, he is absolutely right. It is about--I think if
it was a loss of say between 932, last year's level, and 732
here, about $200 million, you are looking at about $4 billion
potentially.
I just know from my own State's perspective, and hearing
this from exporters and others, that at a time when we are in a
global economy, competition is stiff, other countries of course
engage in export financing--we are not alone in this regard--it
is a very difficult environment we operate in. I just would
like you to know from those of us up here that we are concerned
about it. I know you are going to carry this back to the powers
that be that you are hearing from a lot of us up here of ways
in which we might be able to enhance the revenue package here
so that we can contribute to an employment.
I mean the jobs alone, aside from the amount of business
and the consumer habits, and obviously producing tax revenues,
all of the positive things that occur from all this, there is a
strong sense here that we might find some other places to pick
up some resources.
So again I know you want to respond to this, and I will be
happy to listen. There is a great deal of concern about the
overall decision about a 25 percent cut. And I accept your
math, that it does not have to be exactly that amount if you do
some of the things you have properly identified. So it could be
less than that. But even that worries some of us up here.
Mr. Robson. Thank you, Senator Dodd.
Mr. Chairman, may I just say that many of you were here
when I had my confirmation hearing, and I said I would come
back to you and give you my honest appraisal of the real world
impact of the budget. And I feel like I have done that. I have
told you what the resources would be. I have told you what they
would support in terms of export credits. And I have told you a
range of demand, and even a former English major like myself
can figure out, do the arithmetic and figure out where you
would go.
Now the range of demand is uncertain. It is not a perfect
process, and you are obviously dealing with what happens out in
the world, and whether some country falls out of bed, or a deal
gets delayed, or whatever. But we have given you--I have given
you as honest an appraisal as I can and feel like I acquitted
the commitment that I made when you all were here for my
confirmation.
Senator Dodd. You did very well, John. No argument here at
all with you. And as I say, I think you have been very creative
with some of the things that may be done to actually minimize
some of this, and I appreciate that very much.
Thank you, Mr. Chairman.
Senator Bayh. Thank you, Senator Dodd.
Senator Corzine--if I could just make one quick comment,
Mr. Robson. What you are hearing from some of us is that we
appreciate the range that you have given us. At a time when the
trade imbalance is so large, many of us feel that we should be
zealous and aggressive in promoting exports, not doing the bear
minimum within the range. That is the concern you are hearing.
We appreciate your efforts.
Senator Corzine.
Senator Corzine. As I said in the opening remarks, I cannot
do anything but underscore what Chairman Bayh just said. I do
not understand this cut in the context of our current account
deficit, which seems to grow each quarter, and is one of the
gravest imbalances at least I see in the economy. I want to go
back to one of the questions that Senator Miller raised with
regard to the lower estimates of international lending risk.
Is that just a given and there is no challenge to that
relative to real-world circumstances as we see it today? It
strikes me that it does not meet with sort of the common-sense
test of seeing the Japanese economy struggling and, in many
views, deteriorating and the Asian economy which is quite weak.
I do not see grave improvement in Africa. Given the
macroeconomic conditions of the global economy right now, how
can one presume that we are having lower lending risks?
Mr. Taylor. Well, Senator, the factors you suggest
obviously are to be taken into account in these calculations,
but all I can say is when you go through the arithmetic to make
the assessments you get a lower estimate going of the risks
forward for this fiscal year. Some of it has to do with
projects. Some of it has to do with other countries. I think
the main thing is, if you go through the whole arcane analysis,
as John Robson described, you will find that these risk
estimate are lower. But once they are lower, for budget
purposes, then, the bottom line is a smaller amount of
resources goes further for making the loans.
Once that risk estimation decision is made--and we can
discuss that further, and I would be happy to provide any more
information you would like about it--once that decision is
made, then we are in the situation where a smaller amount of
budget resources can give you the same amount of loans, or loan
guarantees, as before. That is most important for the budget.
Senator Corzine. I do accept that part. I just find it
difficult to juxtapose real-world conditions with a conclusion
that there is lower risk. And I do not think you would find
that in the credit rating agencies assessment of credits. So it
looks to me--and I was just talking to Senator Dodd--if you
look where we are forgiving Third World debt, there are just
too many anecdotal and real-world conditions to think that that
rationale is complete, even though I know what its implication
is for the budget fact. And I think again I tie that back to a
macro concern about this growing current account, which does
not seem to jibe.
Then 30 percent of these loans are going to small business,
and that is the most difficult position for companies to be in
the export business, and without having these resources. I do
not know how we can promote that effectively. So it is more of
a statement than it is a question, but I would be concerned
with the analysis.
Mr. Taylor. Well, thank you. I will be happy to provide
some more analysis to support it. One thing I might say is that
the risks may be higher in certain dimensions as you indicate,
but they can be lower from what they were when the analysis was
previously done. So you are coming down from a very risky
situation in the late 1990's with the financial crises in Asia
and Russia. And while things can be improved tremendously, it
is better than it was. That is what these budget figures are
reflecting. But again, we will be able to give you the detailed
calculations, if you like.
Senator Corzine. Thank you.
Senator Bayh. Thank you, Senator Corzine.
Chairman Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman. I
share the concern expressed by my colleagues by this cut in the
resources for the Bank, but I also see this increase in fees,
and the cut back in the amount of loan that would be financed,
and so forth, these OMB proposals now as just an indirect way
to reduce the activities of the Bank. Would they not in effect
amount to that?
Mr. Robson. Well may I address that again, and I tried to
make it clear, Senator Sarbanes, I think when you were not
here, and that is all we have proposed is a very limited
experiment to see what the impact may be on competition. We
would try fee raising and coverage lowering on a very limited
experimental basis, and then we would hopefully gather some
data in that process and be able to come back to Congress and
the export community and say here is what we found out.
But this is--and I hope, again I want to make a record of
it--this is not a budget fix. This is a knowledge-gathering
experiment in which we are going to try something that maybe
would give us the opportunity to stretch our resources in the
future if we found that there was not, in certain kinds of
cases, a significant competitive downside.
Senator Sarbanes. Well----
Mr. Robson. Intuitively you would say, gee, there has to
be. But we do not know.
Senator Sarbanes. [continuing]. I think I would be more
sanguine about that if your starting point or your frame of
reference was what are other countries doing?
Mr. Robson. That is certainly one frame of reference.
Senator Sarbanes. To me that is in a sense the dominant
frame of reference. Because if they were not doing anything, we
might not do anything. In other words, if they were not--now
the Berne Union, I am looking at a sheet here from the Berne
Union of export credit activity. Of course I am not exactly
sure how they define it, but in any event they have well ahead
of us Japan, France, Korea, Canada, Germany, the Netherlands,
Spain just behind us. Of course our economy is much larger than
any of these economies.
So we know these other countries are doing very substantial
things. It is the same thing with the Tied Aid War Chest. We
would not have put it in if these other countries were not
doing these things.
We put it in in order to be competitive with them, and also
we thought if we had it they would be less likely to engage in
these activities since in a sense they would lose out in the
end. But it seems to me we have got to work within that
framework.
Mr. Robson. Let me try to, if I may, Senator Sarbanes,
bring that down to kind of a micro level. In private-sector
transactions, I believe there are a number of cases where Ex-Im
Bank fees are lower than other countries' comparable agencies
charge.
With respect to sovereign transactions, I think all the
OECD countries are pretty much on the same ground. That may not
be the case, however, with respect to private sector
transactions. It is one area that we felt we would take a look
at.
Senator Sarbanes. Okay. All right. That is a responsive
answer. I wanted to ask both of you, this Committee established
a Trade Promotion Coordinating Committee as part of the Export
Enhancement Act of 1992. It was designed to bring together all
the agencies of the Federal Government involved in export
promotion to improve coordination and develop a government-wide
strategy to promote U.S. exports. It actually was provoked. We
had about seven or eight representatives at the witness table
from different departments and agencies when we were examining
export promotion, and I remember asking them the question.
These were the lead people in each agency on exports.
I asked them the question whether they knew one another, or
whether they ever met together. Well first of all, they never
met together. And a number of them did not know the other
people at the table, which it seemed to me it was just an
obvious statement of the problem right there on its face. So we
have put together the Trade Promotion Coordinating Committee.
They come in with a report every year. We treat it seriously in
this Committee in terms of hearings, and we certainly intend to
increase our attention to it.
The Commerce Department heads it up. Now Secretary Evans, I
know, has an interest in it, because I have had a chance to
talk to him. Ex-Im is the vice chair, I think, and Ken Brody,
one of your predecessors, was very active. And the Treasury of
course is part and parcel of it. I would just like to get from
you all some view of how you see the importance of that
Coordinating Committee and what it might do.
Mr. Robson. Well I might offer my view, and we had a
conversation about this when we met before my confirmation, so
I am not entirely unprepared. I have actually a draft of a
letter on my desk to Secretary Evans asking whether he would be
willing to turn the efforts of the Committee toward getting
some broader data on the market window issue, which is
something I think would be very helpful to us in looking
forward as to what U.S. policy might be with respect to those
entities. It is partly a matter, as John Taylor says, of trying
to negotiate this down in OECD. But one of the ways you do that
is by having facts, and I think it would be useful to hopefully
use the resources of that 19 member group to help us gather
those and pull together some data that would really be helpful.
So that is one thing I have on my plate right now. And our
intention is to participate in that actively.
Mr. Taylor. I have not yet been invited to a meeting of the
Trade Promotion Coordinating Committee, so I cannot reflect on
it from firsthand experience. But I think to the extent that it
gives members of different agencies the ability to coordinate
what they want to do in this area, it should be very useful. As
I indicated, I am looking forward to coordinating my activity
with Ex-Im bank as well as with the other agencies. But trade
promotion remains a high priority. So any way we can do that
more effectively is most welcome.
Senator Sarbanes. Is there enough going on in the
negotiations at OECD on tied aid credits, on untied aid, and on
the market window issue to warrant a hearing on what is
transpiring, or is not much happening?
Mr. Taylor. Well, as I indicated, I think it is a high
priority for us to proceed in both of those areas. I would
think at the right time, it would be useful to have a hearing
on those items. As you know, both are growing in size, and if
there is not some effort to contain them, they will be a
problem like tied aid credits were before we developed rules
and disciplines.
So I think it is a good idea. We have a great deal of focus
on them already at the Treasury, and I would be happy to share
that information in a hearing or any other way you would like.
Senator Sarbanes. John.
Mr. Robson. I was just going to say I think on the tied aid
side, it is really more of a question of enforcement than
finding new agreements. Untied aid, as Secretary Taylor said
before, is really tied aid in disguise. And I think again, it
is really an enforcement issue where they do not have a formal
link between the buyer and the donor of funds and the
requirement that you buy the goods from the donor.
On market windows, I think that is something that ought to
be addressed. What I do not know is whether we have adequate
data in hand to be able to come before you and say here's what
the facts are, here's what is going on out there. We hear a lot
of allegations. I am not sure how supported they are by data.
Senator Sarbanes. Thank you very much.
Senator Bayh. Thank you, Mr. Chairman. Second round of
questioning. I have three very brief questions. Mr. Taylor, I
would be interested to know, do you know what--this is with the
lower, the risk analysis. Do you know what the date of that
analysis happened to be? Date of completion?
Mr. Taylor. No, sir, I do not. The date of the completion
of the study?
Senator Bayh. Yes.
Mr. Taylor. I do not know the date, no.
Senator Bayh. The reason I ask--forgive me, I have only
been in Washington a couple of years, but the city is permeated
with skepticism from time to time. I would be fascinated to
know if the data in the study preceded or came after the
submission of the budget request for the Export-Import Bank.
Some of the telltale signs have been the number driving an
analysis rather than the other way around.
Mr. Taylor. I will be happy to find that out for you. I do
know that these risk assessment factors have implications for
the entire budget. It occurs throughout cases where there are
loans and loan guarantees. So it has implications not just for
Ex-Im Bank. But I will get the timing for you.
Senator Bayh. No, I understand.
Mr. Robson. I can tell you that there is a lag. And the
reason is that the budgeting process requires that the budget
go forward. It is not changed every week to pick up what the
latest bond rating may be. The risk assessment factors that OMB
calculates prior to the submission of the 2002 budget were done
significantly ahead of that time in order that, as John points
out, quite a number of agencies would use those data in the
submission of their budgets.
Senator Bayh. Perhaps it is a convenient coincidence that
those things do happen. But was I interested to ask. A couple
of other things I wanted to ask. With regard to tied aid, well,
to either one of you, but particularly Mr. Taylor.
It is been my understanding that there have been
disagreements in the past, perhaps not rising to the level of
the Ex-Im Board actually voting to go in a different direction
from a formal recommendation from the Secretary of the
Treasury, but there have been differences of opinion, at least
expressed at the informal level where the Ex-Im Bank has gone
forward without the sort of outcome we have seen in this
particular case. Can you comment on that? What was different
about this case that rose to this level?
Mr. Taylor. I do not know actually, to be honest with you,
what was different about this case. But I can tell you that in
every case, there is interpretation of how the Administration's
tied aid criteria are applied. My guess is that in this case,
the members of the Ex-Im Board felt that the facts did fit the
criteria of the use of the Tied Aid War Chest.
I believe it had to do with different assessments of the
longer-term impact of this sale for, the firm from Austria, and
its product, in that market. And there are differences of
opinion about that.
But there are sometimes differences of opinion. I even
understand that sometimes the Treasury Secretary has
recommended the use of tied aid when the Ex-Im staff at least
did not think it would be appropriate. I asked a lot of
questions about this. I think it is a difference of opinion
that because of the timing, and perhaps because of the
transition, was not resolved. I have to say, we have to take
that into account. The transition period is still on in many
respects, and I was not on the job at that particular time.
But as I understand the process, we followed the procedures
which we normally would do at the Treasury. The judgment was
made by the staff and the Secretary reviewed it and made the
decision that he thought was appropriate. Then the Ex-Im Board
voted the other direction.
Senator Bayh. As one of my colleagues--yes, Mr. Robson?
Mr. Robson. I wasn't there either when this happened, and I
do not want to play Monday morning quarterback, but I think the
thing was badly mishandled. There is plenty of responsibility
to spread around in the executive branch for it, and I
apologize for whatever Ex-Im Bank contributed to the train
wreck. And my goal here is to try to go forward.
It stemmed, as I said at the very beginning, from a
breakdown in the relationship and the way the thing worked, and
we are going to try to--and I think we will fix it.
Senator Bayh. Yes. I yield to my colleague.
Senator Sarbanes. I want to be clear on one thing. It is my
understanding that this was the first instance in which the
Treasury negated an action in which the Ex-Im Board had
approved it. Is that not correct?
Mr. Taylor. Senator, I would characterize it the following
way, which I do not think is consistent with the way you put
it. So let me just describe it the following way.
The Secretary of the Treasury recommended against the use
of the War Chest for this particular case, based on the facts
and a careful consideration. That advice, that recommendation
was conveyed to the Board of the Export-Import Bank. Subsequent
to that recommendation, the Board voted to approve the use of
the Tied Aid War Chest funding. After that vote occurred, legal
consultation proceeded to see if that was consistent with the
legislation in which the actions of the Ex-Im Board are
supposed to be taken in accordance with the recommendations of
the Secretary of the Treasury.
Legal counsel from both the Treasury and Ex-Im Bank, it is
my understanding, determined that it was therefore not legal or
appropriate--I do not know what the word is exactly--for Ex-Im
Bank to have voted that way. Ex-Im Bank itself notified the
company that they would not be getting the support. So there
was no subsequent action by the Secretary of the Treasury at
any time that could be conveyed as an overruling. So that is
the timing of events as I understand them and can describe them
to you.
Senator Sarbanes. Well, we are going to need to go back and
check it out, because this doesn't correspond with the
understanding I have received. Leaving to one side the argument
of what the statute means and who has the ultimate authorities,
it was my understanding that the Secretary of the Treasury was
unaware that the Ex-Im Bank had voted unanimously to approve
the project when he nixed it.
Mr. Taylor. Well, Senator, my understanding is that the
Secretary made that recommendation before the vote was taken by
the Ex-Im Bank.
Senator Bayh. This is an issue that needs to be resolved.
We appreciate your ongoing efforts to resolve it between the
two departments. I hope you can get that done. If not, it may
be something we need to address within the context of
reauthorization.
I just have two brief requests, John Robson, for you.
First, I would be interested to see the legal analysis from
your former counsel that reached this conclusion on the basis
of somewhat ambiguous statutory language. I mean, it speaks of
consultation in
accordance with recommendations. And I understand the legal
opinion wasn't formally adopted by your board but nevertheless
was acquiesced in.
Mr. Robson. I do not think there has ever been a formal
opinion given by the general counsel of the Agency on the
subject. And indeed, I have requested one, and it is that work
that led me to my answer to Senator Miller.
Senator Bayh. Then I have been somewhat misinformed. I was
under the impression that there had been some legal analysis
done in accordance with this case that we are talking about
that was----
Mr. Robson. I think that there was a staff analysis done
along the way, but I do not believe there ever was a formal
opinion request to the general counsel which I have requested.
Senator Bayh. We will look forward to the results of that.
Senator Hagel has been waiting very patiently. Oh, one final
thing. I do look forward to the adverse economic impact
analysis, and I appreciate your commitment to get that to us in
a timely fashion.
Mr. Robson. We will, and it is something I have personally
been spending time on.
Senator Bayh. I am grateful for that. Thank you, Chairman
Robson. Senator Hagel.
Senator Hagel. Mr. Chairman, thank you. May I pick up on a
line of questioning here that we just went through, initiated
by Chairman Sarbanes. Back on the Valmont case and the
procedure and the process and where you were about 60 seconds
ago. Do I understand that in fact the decision that was made at
the Treasury was in fact made by the Secretary himself? This
was not a staff decision or any part of that process up the
chain on behalf of the Secretary. The Secretary was aware of it
every step of the way, he made the decision and signed the
letter to Valmont himself?
Mr. Taylor. The Secretary of the Treasury made the decision
based on the information he had before him. He conveyed that
information to his staff, who then conveyed the information to
the Ex-Im Bank Board.
Senator Hagel. So he made the decision himself?
Mr. Taylor. He made the decision himself, yes.
Senator Hagel. All right. Thank you. I would be interested
in your answer then to the question. Why, in your opinion, do
you think it is important that Treasury have the final say,
essentially the veto, on tied aid projects?
Mr. Taylor. I think there are several reasons why the
Secretary of the Treasury should have the say. Number one, the
negotiations at the OECD and the enforcement of the OECD
process are handled by Treasury. One reason for that is, all
the other players are finance ministries in this process. So
that is the logical representation for the United States.
So for a negotiator to be talking about ``we are going to
do this'' or ``we are going to do that,'' and not to have the
ability to call out the War Chest if it is necessary, makes the
negotiating more difficult. It is a natural tie between the
negotiations and the actual pulling of the trigger, if you
like--the negotiator having the ability to pull the trigger.
The second reason I think it is important is that the
Secretary of the Treasury has the responsibility for overall
economic policy, international economic policy especially. In
that context, these programs have implications for
international economic policy. So that is a natural reason for
the Secretary of the Treasury to be involved with this process.
Those are the considerations that were put into place.
These are scarce resources. Well, we want to use them in the
most effective way possible to lower the barriers to trade, to
level the playing field. Given that this tied aid negotiation
process is at the Treasury, it is the logical place for----
Senator Hagel. Obviously the Ex-Im Board is not capable of
making that decision.
Mr. Taylor. I wouldn't say that is----
Senator Hagel. Excuse me just a minute because I am going
to run out of time here. But I would like to get the Chairman's
opinion on this. Do you agree with the Secretary?
Mr. Robson. Well, as I have already said, Senator Hagel,
our view is that the Treasury has a significant consultative
role to play in Tied Aid War Chest use. We do not think that
extends to a veto power over individual cases or the ability to
impose by some general rule a moratorium.
But I want to get back to what I started out to say, which
is I do not think this issue is going to get settled in a
lawsuit and I do not think it needs to. But down to the bare
bones of what our view is of the respective roles, we want to
give substance to the Treasury's special consultative role. We
do not think that extends, however, to a veto.
Senator Hagel. But obviously in this case it did not work
very well because it is more than a consultative role.
Mr. Robson. You know, with all due respect, and I wasn't
here when this decision was made but--my sense is, and John
Taylor may or may not agree with me--this thing got wrapped
around the axle and just was badly handled.
Senator Hagel. Well, in all due respect, Mr. Chairman, we
know that. But what we are trying to do is move forward here.
Mr. Robson. I understand. So am I.
Senator Hagel. And why is this not going to happen again?
Mr. Robson. Well, I think we can get a play book in place
that is simple--and by that I mean enunciates some policy
guidance that we are in agreement with. Second, establishes
some mechanism to talk about individual cases which come up
that may be interpretive. Nevertheless, in our judgment, the
ultimate decision as to the application of that in an
individual case would be with the Ex-Im Board.
Senator Hagel. Well, unless you acquiesce to what Treasury
thinks is important, and that is that the Secretary has the
final decision in this, then you are not going to go any
further. But we do look forward to the documentation that you
are going to send forward here on how you intend to deal with
it. Because you heard here this panel this afternoon talk about
maybe a legislative remedy or we put some very clear definition
in the law.
One last question if I could indulge the Chairman, for you,
Mr. Taylor, what is really the criteria for granting tied aid?
What is it in your mind that, for example, Valmont or any
company comes and makes their case? Did they have to prove that
they will lose the entire market, part of the market, follow-on
market? Our colleague, Senator Dodd, said that the Valmont
project was a small one, and he was about right, a little over
$3 million. But the follow-on was $9 million, $10 million. It
was an anchor, obviously, in a very important part of the
world, which is the real value of these kinds of investments,
as you both know. So what do they have to prove? They are going
to lose all of that area or lose one or two projects? Would you
define that?
Mr. Taylor. It doesn't have to be all of the area, but the
important thing is that the effect of the subsidy has to be a
factor in the follow-on business. So there may be follow-on
business for other reasons. But the criterion here is whether
that subsidy that is coming, in this case from Austria, would
be the factor determining that follow-on business. If it were,
that would be a significant factor. So that, perhaps, is where
the differences of opinion were.
I think, Senator, you also mentioned that an important
factor here is that this particular transaction was small by
some measures relative to the whole market. This particular
Austrian firm is not a large player in the world market, and
these are scarce resources. So it is really not possible to use
the War Chest every single time a relatively small case comes
up. Otherwise, we will waste it and won't be able to be
effective.
I will just give you an example. In January a much larger
request to use $50 million tied aid--use of the War Chest, I
should say--was determined, and that was a case in Indonesia.
In that instance there was a very clear sense that there was a
follow-on opportunity, in this case for Japan. So a much larger
amount of the use of the War Chest came in that case, and
Treasury analysis used the existing tied aid criteria to make
that analysis.
So I think it is working. We are going to make it work
better, and I feel it is my responsibility here as Under
Secretary to make it work transparently, clearly, and to just
make it work well. I think we can do that. I do think the
process, if you look over the years, has done a good job in
reducing the amount of tied aid, and that is what the War Chest
is for. So I hope we can work together and make this whole
process work.
Senator Hagel. Well, I can assure you that this U.S.
Senator will look forward to your response. And I suspect, like
all my colleagues, we will reserve our judgment on what we
intend to do next about this if it is not in keeping with the
original mission and purpose of Ex-Im. Thank you.
Senator Bayh. Thank you, Senator Hagel. Senator Sarbanes,
if I could just offer a piece of unsolicited advice, gentlemen.
The next time you confront an unsettled area of law, I would
suggest that you use as your test vehicle a company from a
jurisdiction other than Nebraska.
[Laughter.]
Senator Bayh. Senator Sarbanes. Chairman Sarbanes.
Senator Sarbanes. Well, thank you, Mr. Chairman. I have
been learning more as I go. My understanding is that
traditionally Treasury, Commerce, the USTR are at the Ex-Im
meetings and state their recommendations with respect to
matters that are before the Board for approval. That in the
past, Treasury has recommended against certain loans, and the
Ex-Im Bank Board has gone ahead and approved them, having the
benefit of Treasury's recommendation, and that then those loans
have gone into effect.
Now in this instance I am told that there was a--Treasury
recommended against, as they had done on previous occasions.
The Board went ahead and approved the loan. But Treasury then
in effect with I think a very heavy hand said, well, now, you
cannot go ahead with this loan. And that Treasury staff
interacting with Ex-Im's staff in effect the end result was
they sent the denial letter to the Nebraska company.
So it is a departure from what has transpired in the past.
And the implications of it I think are quite far-reaching.
Because if Treasury is going to be able to micromanage the Ex-
Im Bank to this extent, in effect, you will be calling the
shots in every instance on whether a loan ought to be approved,
the specific shots. Not a sort of a policy framework for the
Ex-Im Bank in order to support OECD negotiations or something
of that sort.
So first of all, I think it is important as the two of you
try to work this out to go back and just look at what the past
history has been in terms of the practice. I would be
interested if you would come back to us and say well this
doesn't represent a departure, because it is generally seen as
a departure, a substantial departure from past practice. And I
think its implications, if you stop and think about it, are
quite far-reaching.
Now there is a difference, of course. Treasury's always
been very chary I think about using the Tied Aid War Chest, and
the Ex-Im Bank has I think, at least under certain leadership,
been more prepared to do so, and I think the Congress has
generally been supportive of that.
And as Chairman Bayh said, this may well be a matter that
we would have to try to address in the authorization process.
Now it may not be, depending on how your discussions go. But I
do think it is a matter of some consequence for the workings of
the Export-Import Bank and the application of the Tied Aid War
Chest and I think it is of great significance to our export
community.
The amount of money was small. It is like Daniel Webster
said. What was it? It is a small college, but there are those
who love it. It is a small company, but there are obviously
those who love it. But the implications of it I think are
pretty far-reaching. Thank you, Mr. Chairman.
Senator Bayh. Thank you, Chairman Sarbanes. Gentlemen,
thank you for your time. The record will remain open for
further questions or statements from Members of the Committee.
But other than that, this Subcommittee is adjourned. Thank you.
Mr. Robson. Thank you very much, Senators, one and all.
[Whereupon, at 4:23 p.m. the hearing was adjourned.]
[Prepared statements and response to written questions for
the record follow:]
PREPARED STATEMENT OF SENATOR EVAN BAYH
The Subcommittee on International Trade and Finance meets today for
the second of two important hearings on the reauthorization of the
Export-Import Bank of the United States. I would like to begin by
thanking Senator Hagel, the Ranking Member of the Subcommittee, for
working with me on this issue.
At this second hearing we will hear testimony from two
distinguished Administration witnesses: John Robson, President and
Chairman of the Export-Import Bank and John Taylor, Under Secretary for
International Affairs, U.S. Department of the Treasury. I welcome you
both here today.
Newly confirmed as Chairman and President of the Bank, John Robson
was formerly an investment banker with the San Francisco-based firm of
Robertson Stephens. He also served as Deputy Treasury Secretary under
former President Bush. I would like to thank Chairman Robson for
providing testimony today regarding the reauthorization of the Bank's
charter as well as other operational issues--such as tied aid
financing, adverse economic impact determinations, and the impact of
the proposed 25 percent cut to Ex-Im's budget.
The Subcommittee is looking forward to hearing Under Secretary
Taylor's testimony on Treasury's views regarding the use of the Tied
Aid Credit War Chest. Previously, Mr. Taylor served as a Senior
Economist and then as a Member of the Council of Economic Advisers
under President George H.W. Bush, and he was also a delegate to the
Uruguay Round of trade negotiations.
The Ex-Im Bank was last reauthorized in 1997, and its charter
expires on September 30 of this year. The Administration has sent
Congress a request to reauthorize the charter for the next 4 years with
no changes in its current operations. We have an opportunity today to
review the Bank's effectiveness and respond to the Administration's
request.
I look forward to working with Chairman Robson and the new
leadership at the Bank on a speedy reauthorization and hope that
certain issues will be addressed--such as the determination of adverse
economic impact.
Indiana produces many things in the agriculture sector, the
automotive sector, pharmaceuticals, consumer electronics, insurance,
banking and a variety of others. But, we make more steel than any other
State in the country. During the first Subcommittee hearing, we heard
testimony from USX Steel Corporation on some of the competitive factors
that exist internationally for steelmakers in a very competitive
environment. That testimony brought to light the fact that there have
been instances in which the Export-Import Bank has lent its support to
exports that have helped foreign companies with a track record, indeed,
ongoing investigations into whether they were engaged in illegal
dumping into our domestic market.
The Export-Import Bank has a standard that is supposed to be
enforced for assessing whether there is an adverse economic impact to
the domestic economy from the activities that they are supporting. We
have assurances that the Bank is going to look into how it implements
the adverse economic impact test and report to us by July 13, 2001. I
look forward to receiving that report, because it is important that we
not inadvertently assist those who are engaged in illegal trade
practices.
The Subcommittee will also address other charter issues that impact
the effectiveness of the Bank--such as tied aid financing and market
windows financing--in order to help our industries compete with
officially supported foreign competition.
Some people favor a pure model of economics which would view the
Export-Import Bank as essentially a subsidy that would be unnecessary
in the give and take of free markets and free economy. My own view is
that while that model has some merit in terms of economic theory, we do
not live in a theoretical world. We live in a real world. We have to
focus very carefully upon what it takes to enable our country to
compete and to level the playing field, particularly at a time when
many of our foreign competitors have financial support for their
exports from their own governments. If our competitors offer their
exporters assistance, so should we.
The magnitude of our country's trade deficit is a very big problem.
At a time when our trade imbalance is so large that over time, it is
going to threaten the vibrancy of our economy, we must do everything we
can to close that gap, including promoting exports. Now is not the time
to cut back--now is not the time for the Administration to cut the
Export-Import Bank's budget by 25 percent.
The Export-Import Bank is important. We need to continue its
function and make sure that it enforces its own regulations and, in so
doing, benefits the American economy as it was intended to do. I look
forward to the testimony we are about to receive from Chairman Robson
and Mr. Taylor, and to working on the speedy reauthorization of the
Bank's charter.
PREPARED STATEMENT OF JOHN E. ROBSON
President and Chairman, Export-Import Bank of the United States
June 19, 2001
I am happy to be here today to testify on behalf of rechartering of
the Export-Import Bank for fiscal year 2002. Ex-Im Bank is a ``sunset''
agency. Our charter needs to be renewed by Congress by September 30,
2001. In this reauthorization, we are requesting a renewal of the
Bank's charter for 4 additional years, through September 30, 2005.
We are also requesting that our Sub-Saharan Africa Advisory
Committee be extended for 4 years. This advisory committee has offered
valuable advice which has been instrumental in our ability to increase
our business in sub-Saharan Africa.
I can assure you that I would not have accepted my position if I
were not convinced that Ex-Im Bank is a valuable part of the U.S.
economic arsenal. It is because working in partnership with business
and labor, it keeps our exporters competitive, helps create good jobs
for U.S. workers that pay above the average, and plays a role in
reducing the trade deficit. This has been the task of Ex-Im Bank in the
past, and with Charter renewal, the Bank will continue its vital work.
It is a highly respected institution of long-standing, staffed by a
group of dedicated professionals.
The Bank can also play an important role in advancing broader U.S.
economic interests abroad. When we help to develop an export market,
not only is there potential for follow-on sales, hopefully without Ex-
Im Bank support, but we can help to hasten the development of lasting
free market mechanisms.
When I talk of Ex-Im Bank's past, I am referring to a very special
history. Since its inception in 1934, the Bank has had a unique role in
our country's history. In 1939, the Bank helped finance the 717 mile
Burma road in China. In 1941, the Bank approved financing for U.S.
exports for the Pan-American highway in Central America and Mexico. In
1946, it authorized $2 billion for the reconstruction of Europe, and in
1948 it administered the funds for the Marshall Plan that rebuilt
Europe after World War II and helped to establish the United States as
a superpower. In that same year, it authorized $100 million for exports
to the newly recognized state of Israel. More recently, in June of
1997, when private sector lending institutions backed out due to the
Asian financial crisis, Ex-Im Bank stepped in to provide short-term
financing that resulted in $2 billion dollars of U.S. exports going
forward to Korea. This helped stabilize both Asia and Latin America in
the wake of the crisis. The Bank is playing a role as Russia moves from
a command economy toward a free market economy. In short, the Bank has
a proud history of not only supporting exports and creating jobs
generally, but also stepping in under circumstances where we can play a
role in advancing broader American interests.
Ex-Im Bank Programs
Our basic programs consist of direct loans to foreign buyers of
U.S. goods and services, guarantees of commercial loans to foreign
buyers, and providing a number of transactional insurance programs that
are of great assistance for short-term, small business sales. In fiscal
year 2000, the Bank authorized $932.6 million in loans, $8.4 billion in
guarantees, and about $3.3 billion in insurance, supporting a total
U.S. export value of $15.5 billion. Since our last rechartering in
1997, we have supported approximately $60.2 billion in U.S. exports.
For every $1 dollar of taxpayer money invested in Ex-Im Bank's program
budget, there have been historical returns of $15 dollars in credit
support for export transactions. Since Ex-Im Bank supports 85 percent
of most transactions, this means that the actual export value is 15
percent higher, raising the ratio to $18 in total value of exports
supported for every $1 of program budget.
Ex-Im Bank programs preserve U.S. jobs by financing exports around
the globe from businesses of all sizes, large and small. And Ex-Im
Bank's services are not free. In the past 5 years, we have collected
$4.2 billion in interest and fees.
The Bank participates in financing export transactions in riskier
markets where the private sector will not extend credit or will not
meet the financing terms and conditions necessary to enable our
exporters to offer a financing package that is competitive to exporters
from other countries who are receiving assistance from their
governments' export credit agencies. We try to reach out to small
businesses and communicate with under served exporters in inner-cities
and rural areas through speeches, briefings, seminars, local
partnerships, and our internet site.
As our charter tells us, our programs have to be ``fully
competitive with the government-supported rates and terms and other
conditions available . . . from the principal countries whose exporters
compete with U.S. exporters.'' And we operate within the policy that we
only participate in financing an export where the private sector will
not extend credit or meet the financing terms and conditions necessary
to enable our exporters to offer a competitive financing package.
We take seriously the long-standing Congressional mandate in our
charter that in approving transactions there must be a ``reasonable
assurance of repayment.'' And while we are not perfect, we do a pretty
good job. The Bank continues to have an excellent repayment record,
with losses running 1.4 percent of disbursements over our 67 year
history. In the last 10 years, these losses have run at 3.4 percent of
disbursements, which reflects the impact of the recent economic
turmoil. It speaks well for our credit judgments and for our Asset
Management Division, which does a very good job at recovering assets
when a buyer gets into financial difficulty.
All-in-all, Ex-Im Bank represents a prudent, intelligent use of
taxpayers' dollars. If we accept the widely embraced proposition that
exports are important to U.S. economic health and jobs and acknowledge
the facts of subsidized competition from our exporters' foreign
competitors as well as the unwillingness of commercial banks to finance
transactions in risky markets, the United States has basically three
choices:
--We can withdraw, and leave the field to our competition at
the cost of American jobs;
--We can engage in a constantly escalating export subsidy
``arms race'' with our competition; or
--We can do what we are doing now--give U.S. exporters a fair
shot at meeting foreign competition and filling in where
commercial banks will not, and simultaneously attempting
through multilateral agreements to eliminate or limit
government export subsidization.
Fiscal Year 2002 Budget Request
Mr. Chairman, my testimony to the House Appropriations Subcommittee
on Foreign Operations was sent to you. This next part of my testimony
draws from it.
In my confirmation hearing and in numerous individual conversations
with Members of Congress, I was persistently asked my opinion of the
Administration's budget proposal for the Ex-Im Bank. Since I had no
participation whatever in the budget preparation, I was not
sufficiently informed to have a useful opinion. So I made a commitment
that when I testified on the Bank's appropriation, I would provide my
honest appraisal of the effect of the Administration's budget request
on Ex-Im Bank's ability to execute its mission.
What is most relevant in assessing the Administration's fiscal year
2002 program budget request of $633 million--and most important to the
execution of the Bank's mission--is an analysis of what dollar amount
of export transactions will the Bank be able to authorize based on
those and other program budget resources which may be available to us
in fiscal year 2002.
In other words, how much export bang from our available program
budget bucks can the Bank get. If Congress and the exporting community
understand this analysis they can make an informed judgment on the
Administration's budget request.
Then, to make an honest appraisal of the real world impact of the
level of the Bank's fiscal year 2002 program budget resources, we
should compare the level of export credit authorization that those
resources will support against the expected level of demand for export
credit for the same period.
Before getting back to the numbers, I should address one critical
point of budget methodology required under the Federal Credit Reform
Act of 1990. I refer to the calculation by the Office of Management and
Budget of the so-called ``risk premia'' cost that Ex-Im Bank must apply
in using its program budget resources. The OMB calculation is
reasonable, extremely complicated, and Ex-Im Bank does not challenge
it. The risk premia, which are essentially a calculation of the level
of credit risk a particular country, region and/or type of transaction
represent, change from period to period. When they rise, it means that
Ex-Im Bank has to set aside a larger reserve for its export
transactions and thus spend more of its program budget funds to support
a smaller level of transactions than when the risk premia are lower.
The contrary is the effect--a bigger bang for our buck--when risk
premia decrease.
With that backdrop, let me return to the fiscal year 2002 program
budget:
1. With an appropriation of $633 million as the
Administration has proposed, plus $90 million in additional
program budget funds that we estimate will be available due to
cancellation of prior year commitments, Ex-Im Bank would have
$723 million in program budget funds available for fiscal year
2002.
2. While the $633 million appropriation request is a nominal
25 percent reduction from the $863 million appropriation for
fiscal year 2001, the actual effect on the level of export
credits the Bank can authorize is less because the OMB
calculated risk premia for fiscal year 2002 have substantially
decreased.
3. The Bank estimates that its total fiscal year 2002,
program budget resources of $723 million ($633 million in
appropriation plus $90 million in prior year cancellations) can
support about $11.4 billion in export credit authorizations. We
make this ``Bang for the Buck'' calculation based on an
historic average of about $15 in export credits authorized per
$1 of program budget used.
4. We have projected the level of demand for export
transaction credit for fiscal year 2002. Let me concede that
the projection of future transaction demand is to some degree
more of an art than a science. But the Bank's staff has
reviewed the transaction ``pipeline'' carefully and identified
specific projects and transaction which make up the estimate.
While some of these might not be consummated or could be
delayed, I am reasonably satisfied with the range of demand
levels we are projecting.
5. Because of some uncertainty, rather than projecting a
single export credit demand dollar amount, we have calculated a
range. The low end of the demand range is $11.9 billion in
authorizations, which is the past 4 year average. The mid range
is $12.5 billion and the high end is $14.5 billion. While,
again, this is not a certainty, we would look at $11.9 billion
to $12.5 billion as the most reasonable range.
6. We have said above that the $723 million in fiscal year
2002 program budget resources can support $11.4 billion in
export credit authorizations. If actual export credit demand
exceeds that level, then the Bank's available resources would
not support the higher increment of export credit demands.
The President's budget suggests the possibility of making up a gap
between exporter credit demand and program budget resources by
instituting changes in the way the Bank does business that would have
the effect of reducing the cost, in terms of program budget usage, for
export transactions. Examples of these changes would be to raise fees
and/or lower the percentage of Ex-Im Bank's export credit coverage of a
transaction from its current 85 percent.
Against the backdrop of Congress' mandate to administer our
programs so that U.S. exporters are competitive with their foreign
export credit agency assisted competitors, and in the absence of any
reliable data as to the competitive impacts and other possible
consequences of such program changes, I would only consider an orderly
and cautious approach to any program changes to determine their impact.
An orderly and cautious exploration of the potential impact of such
changes on the Bank's resource usage and U.S. exporter competitiveness
could possibly illuminate ways in which the Bank could increase the
firepower of its resources without adverse competitive consequences to
our exporters. To that end, and with no opinion on what the data might
show or specific architecture for the experiment in mind, I will
consider conducting some very limited and carefully designed ``clinical
trials'' for the purpose of gathering real world data on these issues.
It would be my plan to work with the exporting community and Congress
in designing these limited experiments and to make what data was
revealed available to Congress and other interested parties. It could
be a responsible means of generating some potentially constructive data
for future policy deliberations.
Administrative Budget
Mr. Chairman, our Administrative budget is essential to our mission
and I urge that our request be fully funded. For fiscal year 2002, we
are requesting $65 million for our Administrative budget, an increase
of $3 million, or 5 percent, over the fiscal year 2001 level of $62
million. The bulk of the budget, 85 percent, is accounted for by staff
salaries, rent and supplies. The increase represents our continuing
effort to improve our case processing and upgrading our information
technology systems.
We want to improve our overall efficiency, decrease our case
processing time, and expand our customer base by reaching greater
numbers of small- and medium-sized businesses. This Subcommittee has
previously been supportive of these objectives which are funded by the
Bank's administrative budget. We are grateful for this past support,
and hope that you will continue it.
We believe there are opportunities for improvements if we are able
to employ technology for faster, more accurate exchange of information
within the Bank and with its customers, the exporters. These are the
changes that our competitors in Canada, Europe and Japan have already
implemented, and if funded and implemented they will allow us to
compete better with them.
The Administrative Budget and Small Business
These changes are important to our efforts to expand our small
business support. In recent years, 86 percent of our total transactions
have directly benefitted small business, mostly through our insurance
and working capital programs.
In fiscal year 2000, we supported $1.8 billion in insurance for
small business. One of the processes we are developing is the Insurance
Automation Project, which will help us address problems in
distribution, productivity, and risk management. The Project is
expected to use available technological solutions to address Ex-Im
Bank's staffing and productivity constraints for expanding support to a
targeted market of small businesses. It will help Ex-Im Bank to move
from a labor and paper-intensive transactional level underwriting
approach to more of a portfolio management approach, and from our
current predominant reliance on brokers and direct sales to hopefully
more of a technology-based acquisition focus. It will also enhance Ex-
Im Bank's risk quantification and management, and provide increased
levels of customer service support that are needed by smaller and less
experienced exporters.
Implementation of the Project will require follow-on investment
over the next few years. This is an investment we believe we should
make if we want to support more small business exports.
Small Business
The benefits of the increased exporting the Bank makes possible
extend to businesses of all sizes in almost all States. By the most
recent data, nationally 96 percent of exporters are small- and medium-
sized businesses. They represent 30 percent of U.S. merchandise exports
by value. Ex-Im Bank tends to track this national average, since in
fiscal year 2000 86 percent of our transactions directly benefit small
businesses, and they consumed about 20 percent of our authorizations.
Small businesses account for most of the job growth in our country.
We currently directly assist some 2,000 small businesses each year, but
this represents just a small fraction of the small businesses which
export. While we are making substantial efforts to expand our small
business base, there is much more that needs to be done. Ultimately,
the most cost effective way to reach the thousands of small businesses
that could make use of our services is to expand our technological
base, ultimately by making use of the internet, which involves
significant capital investment.
I would like to take this opportunity to review some of the small
business initiatives Ex-Im Bank has undertaken since we were last
rechartered. First, we have reorganized internally to centralize all of
our small business efforts. In 1997, the Small and New Business Group
(SNBG) was established to provide specific services for the small
business community. This group included the Insurance, Working Capital
and Business Development Divisions along with the Regional Offices
located in New York, Chicago, Miami, Houston, San Francisco, Newport
Beach, and Long Beach, California. Since then, the SNBG has endeavored
to meet the exporting needs of the small business community with
superior customer service. This has included the establishment of an
Emerging Market team to promote Ex-Im Bank products and services to
small business in the minority, women-owned and rural communities. I
would like to add that the results of a national survey conducted by
the University of Michigan entitled the American Customer Satisfaction
Index, which measures customer service ratings of public and private
companies, show that Ex-Im Bank's customer service rating is a ``70'',
which is ``excellent'' and compares well to not only other U.S.
Government agencies but also commercial banks.
Business Development
Starting in 1998, we transformed to a much more proactive business
development philosophy. We have:
--Changed our regional offices to outreach organizations with
sales goals and objectives.
--Developed an Exporter Database, that includes approximately
200,000 exporting companies.
--Developed a Direct Mail campaign aimed at small businesses.
We send more than 200,000 pieces of mail each year to
exporters, building awareness of how the Bank can support their
export financing needs. We have developed about 2,000 qualified
leads for immediate sales follow-up with new contact management
software.
--Developed a program of Nationwide Exporter Seminars,
throughout the U.S. These have proven to be very popular and
are large cost- and time-savers for exporters, since they do
not have to travel all the way to Washington for our multiday
seminars.
In addition, our regional offices have formed strategic alliances
with our partners in the U.S. Export Assistance Centers (the Department
of Commerce and the Small Business Administration) to facilitate small
business outreach; we are in the process of overhauling our web site to
make it more user-friendly and logical; and we are utilizing more than
100 partnerships with trade associations and our City/State partners to
reach small businesses at the local level.
We have increased our efforts to promote activities linking Ex-Im
Bank with the Congress, State and Federal agencies, and trade promotion
groups. For example, Ex-Im Bank trade briefings have been coordinated
for 10 Members of Congress. These are joint efforts between Ex-Im
Bank's City/State partners, local Chambers of Commerce, and the offices
of various Senators and Representatives.
Export Credit Insurance
Mr. Chairman, our export credit insurance which covers political
and commercial credit risk is the primary tool that supports small
business. Ex-Im Bank has adopted a detailed strategic approach in
supporting and increasing its support for small business exporters and
associated lenders. Central to this strategy are three key components:
offering useful, high-quality products that are reasonably priced and
will attract a greater number of small business exporters; providing
prompt customer service by investing in technology to support a growing
volume of small transactions; and finally, through technology, being in
a position to monitor and adapt risk-taking to the marketplace on a
real time basis. Since 1997, the following initiatives in the Insurance
program have been undertaken in support of these strategic objectives
relating to small business.
Short Term Credit Standards: In 1999, Ex-Im Bank introduced Short-
Term Credit Standards (STCS) designed to achieve greater transparency,
predictability and consistency of application outcomes for small
business exporters under the short-term insurance program. With the
STCS, all participants are informed as to what credit information is
required and on what basis Ex-Im Bank will approve an application. A
critical additional benefit derived from STCS is an improvement in
application turnaround time.
Small Business Product Enhancements: At the same time the STCS were
introduced, Ex-Im Bank also modified a number of its policies to
provide greater flexibility and incentives for small business exporters
and their lenders to use the short-term credit insurance program. These
included the following:
--We have extended the use of Enhanced Assignments, which
transfer the risk of exporter performance from the commercial
bank lender to Ex-Im Bank and make transactions more
``bankable''.
--Reduced the Minimum Annual Premium for small business (and
other applicants as well).
--Expanded use of delegated authority to small business
exporters.
--30-40 percent broker commissions for small business: To
encourage greater broker participation in marketing and selling
Ex-Im Bank's short-term insurance, the Bank increased the
commissions to be paid to brokers specializing in small
businesses.
--Threshold increase for small business from $3 to $5 million:
Ex-Im Bank recently changed its maximum annual export credit
sales ``small business enhancement'' threshold from $3 million
to $5 million. This change allows for a greater number of small
business exporters to be eligible to receive the enhancements
available under its Small Business Policy.
--Short-Term Insurance pricing: In order to provide simplified
insurance premium pricing for small business exporters, Ex-Im
Bank adopted the use of a short-term fee table in which the
Bank charges a flat fee based on term and buyer type, and
excludes the variability of country risk as a factor. This
simplifies pricing for the small exporter.
Working Capital
Mr. Chairman, we have made great strides in our Working Capital
program since 1997. The program has grown from $387.7 million in fiscal
year 1998 to $588.3 million in fiscal year 2000, an increase about 52
percent. About 88 percent of these transactions support small
businesses. In addition to the hard work of our staff, this increase
has been made possible by some program changes:
--Simplified documentation.
--Greater use of delegated authority which is, in effect, a
limited credit line Ex-Im Bank extends to qualifying lenders
who may commit our guarantee for working capital loans. This
allows lenders to conclude qualifying transactions on their
time and with their resources, not ours.
--New partners have been added to broaden the potential
marketplace for this product. Asset-based lenders and community
bank initiatives have resulted in additional usage of the
program. Ex-Im Bank has joined the Commercial Finance
Association and dedicated a business development officer to
enhance this relationship.
Because of the way our budget expenditures are calculated, the
direct impact of the reduction in our program budget on small business
will not be great. However, small businesses make a large contribution
to the exports of large companies.
Looking Ahead
Mr. Chairman, much of my testimony has discussed what our history
has been and examined current policies. But even more importantly, in a
time of rechartering, we have to look to the future. We have an idea of
where some of the challenges are, and I want to discuss these issues.
Tied Aid
Tied aid is essentially highly concessional foreign assistance
conditioned on the purchase of goods and/or services from the donating
country. This combination has the effect of injecting a grant element
into trade finance by lowering interest rates, lengthening terms, or
both.
As the United States has long taken the position that aid in any
form or amount should be used only for development--not commercial--
purposes, the ultimate objective of the United States as regards tied
aid is to discourage its use. During the early nineties, the United
States had success in controlling the use of tied aid through
negotiations at the OECD on rules and procedures. From 1992 to 1997,
tied aid use fell from roughly $10 billion to around $3 billion.
Moreover, several countries effectively ``dropped out'' of the tied aid
game. For instance, Japanese tied aid dropped from several billion
dollars in the early 1990's to literally zero in 1997.
Since 1997 there has been an increase in tied aid, which reached
roughly $5.5 billion in 2000. However, this increase is entirely due to
higher tied aid levels from Japan, which seems to have made a policy
decision to be much more explicitly commercial in all of its aid
giving. Levels of tied aid from all other major donors continue to
decrease. For these other countries, we must maintain vigilance against
the occasional use of tied aid for commercial advantage.
In this context sits the Ex-Im Tied Aid Matching Fund. Established
in 1993 to provide muscle for negotiations and a block to the more
egregious commercial impacts, it has seen episodic use during the
1990's--totaling a little over $100 million (supporting some $300
million in exports). One continuing issue is the use of War Chest
funds.
There needs to be continued scrutiny of tied aid resources and we
need to gather more data to determine the extent of evasion of the OECD
rules.
Increasing Use of the Private Sector
In fiscal year 1992, 32 percent of Ex-Im Bank's transactions
involved the private sector. In fiscal year 2000, 55 percent were
private. The fact that many economies are privatizing is good news, but
it does complicate our job, because we now have to analyze the credit
risk posed by many private buyers as opposed to a relatively few
sovereign buyers. Moreover, we have to do this analysis for many more
countries, as we open in new markets around the world. Trade relations
between countries have become more competitive and complicated. This is
the world U.S. exporters are facing, as they compete with the exporters
of other countries and the export credit agencies which help them.
New Markets and New Initiatives
Over the past few years, Ex-Im Bank has made a concerted effort in
expanding our support to U.S. exporters in new and revitalized markets
such as Mexico, sub-Saharan Africa, Russia, and the NIS as well as
retooling in older markets such as India. As a result, Ex-Im Bank will
expand U.S. export opportunities into markets that may hold great
potential for U.S. export growth.
The most notable growth in Ex-Im Bank's programs has been in sub-
Saharan Africa, a market where previously both Ex-Im Bank and U.S.
exporters were largely inactive. As a result of Ex-Im Bank's commitment
to meet its 1997 Congressional mandate, the Bank has seen nearly a 15-
fold increase in supported exports to the region. Whereas in 1998 the
Bank authorized approximately $56 million to support U.S. exports, it
authorized $589 in 1999 and $914 million in 2000. And while the figures
in the last 2 years may be abnormally high due to especially large
transactions and may go down this year, we are determined to continue
our efforts to support sales to this area.
In Mexico, where exporters are doing a growing business, our
exposure is about $4.4 billion, our second largest. Future prospects
there look bright given further capital expenditure needs and the new
policies being proposed by President Fox.
The Bank is also developing tools to enter new marketplaces as well
as to expand in old markets. For instance, in August of 2000 the Bank
announced a new subsovereign program that will help foreign borrowers
with municipal, State and provincial support gain access to Ex-Im Bank
financing. In the future, through our own efforts as well as the
invaluable assistance of the U.S. Trade Representative, the Department
of Commerce, and others, we hope to expand our availability to many new
markets.
New market mechanisms are also being developed by other countries.
One, ``market windows,'' are State-owned institutions which claim to
operate on a commercial basis in the province of trade credits and thus
arguably outside the disciplines imposed by the OECD Arrangement. These
institutions benefit from many indirect subsidies. For instance, they
may pay no taxes or they may borrow with government backing. Canada and
Germany are the primary users of this new financing concept through the
Export Development Corporation of Canada and KfW of Germany. Market
windows are a condition of today's marketplace and are growing.
One of our jobs at Ex-Im Bank is to examine important policy
issues. In this case, we need to see if the OECD rules of engagement
are being affected, or perhaps even evaded. We will be pulling together
data on this issue to educate ourselves, formulate a position for use
in the OECD if necessary, and bring back information to the
Administration and Congress.
On all of these issues, we will continue to gather data on a broad
basis in order to be helpful to ourselves and the Congress as we work
together to determine exactly what is occurring in the changing
international marketplace. To this end, we are willing to commit some
of our resources to a major research effort.
Economic Impact
I am keenly aware of the Bank's obligation to examine economic
impact. This issue is at the top of my agenda, and it has produced
great interest in Congress and the exporting community. We are
reworking our economic impact guidelines. We are going to include
Congress, the exporting community, and labor in this process. A draft
of our report should be available shortly.
Environment
In 1995, at the direction of Congress, Ex-Im Bank adopted a
comprehensive environmental policy, that included a program to support
environmentally beneficial and renewable energy exports and adopt a set
of environmental procedures and guidelines applicable to its support of
foreign projects. This was in recognition that the United States is a
leader in the manufacture of environmental technology, yet the level of
our exports did not reflect this.
During the next generation, the world market for environmental
technology will grow to nearly $1 trillion. As evidenced in its Annual
Performance Plan, Ex-Im Bank is committed to increasing the level of
support it provides to exporters of environmentally beneficial goods
and services as well as to exporters participating in foreign
environmental projects. To achieve this objective, Ex-Im Bank offers
enhanced financing support with its Environmental Export Credit
Insurance and under its Loan, Guarantee, and Medium-Term Insurance
programs. These programs are intended to emphasize U.S. Government
support for environmental technology exports, thereby enhancing the
competitive position of U.S. environmental exporters. Since 1995, Ex-Im
Bank has supported $3 billion in environmentally beneficial U.S.
exports and environmentally beneficial projects.
In addition to encouraging U.S. companies to export environmentally
friendly goods, Ex-Im Bank instituted review procedures to ensure the
projects it supports are environmentally responsible. If a project does
not meet Ex-Im Bank environmental measures, the Bank will work with the
exporter to implement mitigating measures.
In 1997, we initiated discussions with heads of G-7 export credit
agencies to persuade them to work with the OECD to adopt environmental
policies with meaningful environmental guidelines. The Export-Import
Bank is recognized internationally for its progressive environmental
policy and it spearheaded U.S. Government efforts at recent G-8 Summits
to encourage leaders of other nations to require that their export
credit agencies adopt effective environmental guidelines.
As you are probably aware, these negotiations in the OECD are on-
going. The Export-Import Bank believes that we have to arrive at an
international policy that ``levels the playing field'' for our
exporters. Our competition should agree to specific standards,
assessment in sensitive cases, and transparency. The Congress has laid
out the path for us to follow, and we are pursuing what is right for
the environment and our exporters, and thus right for the agency.
Cofinancing
Let me now turn to the subject of cofinancing. Cofinancing is
sometimes referred to as a ``One-Stop-Shop'' arrangement that allows
buyers to source products from two or more countries without having to
negotiate separate financing packages with each ECA.
The U.S. exporter enhances its competitiveness by offering foreign
buyers the administrative simplicity of a seamless cofinancing package
that contains a common documentary structure for the entire
transaction--one set of terms, conditions and procedures. The buyer
interfaces with only one ECA who leads the financing. The lead ECA
secures a counter-guarantee from the ``follower'' ECA for its portion.
Ex-Im Bank will continue to ensure compliance with its legal and
policy requirements by either making certain that the transaction has
met its standard procedures or by requiring side certifications and
information from the U.S. exporter that demonstrate compliance.
The Bank currently has a bilateral agreement with ECGD of the UK
and is ending discussions with EDC of Canada. Other ECA's--most notably
Coface of France and Hermes of Germany are on the horizon to sign
bilateral agreements also.
Mr. Chairman, that concludes my testimony. I will be happy to
answer questions.
----------
PREPARED STATEMENT OF JOHN B. TAYLOR
Under Secretary, International Affairs, U.S. Department of the Treasury
June 19, 2001
Thank you for the opportunity to discuss the reauthorization of the
Export-Import Bank (Ex-Im) of the United States. Treasury has an
important role in the formulation and implementation of policy related
to Ex-Im and I look forward to working with Ex-Im's new chairman, John
Robson, in this regard. Treasury works closely with Ex-Im to ensure
that international financing rules are developed to limit the scope for
foreign export financing subsidies. Treasury also works with Ex-Im to
ensure that its programs and policies are consistent with the U.S.
Government's broader international economic and financial policies.
Treasury chairs the interagency National Advisory Council (NAC) that
reviews U.S. international economic policies and also individual Ex-Im
transactions.
The Administration supports a clean reauthorization bill without
amendment. It is important for the Administration to have time to
assess the institution and draw its own conclusions about how well Ex-
Im works in supporting U.S. exports, and what, if any, adjustments to
its charter may be necessary. The request is for a 4 year
reauthorization; if, in the course of our analysis, we conclude that
changes in its charter are necessary, we are prepared to seek
additional legislation.
The purpose of Ex-Im is to aid in the financing and promotion of
U.S. exports, which are a vital component of the U.S. economy. Ex-Im
accomplishes this objective in several ways: it assumes commercial and
political risks that exporters or private institutions are unwilling to
take; it assists U.S. exporters to compete on a level playing field
when faced with government-subsidized foreign export credit
competition; and it provides leadership and guidance in export
financing, especially for small- and medium-sized U.S. exporters.
The 2002 budget proposes a 25 percent decrease in program budget
resources, in part to reflect lower estimates of international lending
risk. This means that Ex-Im will be able to support more exports per
budget dollar than in the past. The Administration believes that Ex-Im
can continue to support exporters facing subsidized competition through
policy changes that further target assistance on exporters who cannot
obtain private sector financing when competing with foreign subsidies.
It is important that Ex-Im's programs foster greater levels of
unsubsidized competition in the international market for exported
goods, where U.S. companies will be able to compete freely and most
successfully.
Exports have been one of the key engines of economic growth in the
United States over the last two decades as globalization has
accelerated. Our export growth in recent years has outstripped domestic
growth, and exports have risen as a share of GDP. The U.S. jobs that
exports generate are, on average, higher skill and higher wage jobs
than in the economy at large. These trends will continue in the future
so exports and Ex-Im will remain a high priority for the
Administration.
Ex-Im advances the Administration's pro-export agenda in two very
specific ways. First, it ensures that the official export credit
agencies (ECA's) that other governments have in place do not provide
foreign exporters a competitive advantage in international export
competitions Second, because Ex-Im exists, the United States has a seat
at the international table that sets rules for how official export
financing operates. These rules are made in the OECD by the countries
that are the Participants to the Arrangement on Guidelines for
Officially Supported Export Credits (Arrangement). This is an
arrangement among nations that provide the vast bulk of official export
financing for capital goods to developing countries. These rules, which
are embodied in the OECD Arrangement, are critical to ensuring that the
export financing provided by governments promotes market principles and
fair competition.
U.S. Export Financing Philosophy and the Role of the OECD Arrangement
Reducing export financing subsidies is critically important from an
international policy perspective because they distort trade in favor of
firms in those countries offering subsidies. By distorting trade flows,
they also distort the global allocation of resources and reduce
international economic efficiency. Moreover, subsidized exports
disadvantage U.S. exporters because other governments budget
proportionately more resources for export subsidies than does the
United States.
Limiting these subsidies is also extremely important from a budget
point of view. Simply put, these subsidies drain the budget.
The OECD Arrangement embodies agreed rules that provide
international financing disciplines. The Arrangement plays an important
role in the overall U.S. strategy to promote free trade by reducing
export subsidies in the international arena. It complements the WTO
antisubsidy rules--specifically, by reducing export-financing
subsidies. The United States has used the Arrangement to build an
international rule-based system of limits on export subsidies.
The WTO does not restrict the use of aid-financed subsidies because
resource transfers to LDC's are important for their development. The
United States uses the OECD Arrangement to ensure aid-financed
subsidies are really development aid and not export promotion in
disguise.
Treasury leads the U.S. delegation to negotiations of the OECD
Arrangement. Finance Ministries normally lead this OECD policy-making
body. Ex-Im's representative sits next to Treasury in virtually all
OECD negotiations.
Let me provide two examples of how the OECD Arrangement limits
subsidies.
Limits on Interest Rate Subsidies
Under an agreement negotiated in the 1980's, the Arrangement
ensures that interest rates offered by ECA's are full 100 basis points
above the cost of funds to governments. This means that exporters
compete on the basis of the quality and pricing of their goods and
services, and not on the basis of the most favorable officially
supported financing terms. It also reduces the likelihood that
commercial banks are systematically undercut by subsidized financing.
Annual appropriations that Ex-Im now requires for any given level of
exports are hundreds of millions of dollars lower than they would be
without these disciplines on interest rate
subsidies.
Reductions in Tied Aid
The OECD Arrangement also limits the use of tied aid. Tied aid is
subsidized financing that is offered in the name of economic
development but is tied, or linked, to procurement from a firm in the
donor country. For instance, tied aid is offered by the Japan Bank for
International Cooperation. Tied aid can arbitrarily close markets to
efficient exporters, and misallocate global resources.
The benefits of negotiating and enforcing international
restrictions on the use of tied aid are clear. In 1991, before the OECD
tied aid rules, traditional tied aid donors reported almost $9 billion
of tied aid. In 2000, these same donors reported only $1.8 billion of
tied aid--an 80 percent reduction. (These tied aid figures overstate
the actual volume of tied aid flows. These tied aid figures are based
on OECD notifications of intended offers of tied aid. A significant
number of these credits have been deemed ineligible for tied aid under
the OECD Arrangement and abandoned.)
When one adds in the tied aid now offered by Japan, the figure for
overall tied aid is approximately $5.5 billion. However, the Japanese
component of this figure appears to represent a shift from one type of
potentially trade distorting aid--untied aid--to another--tied aid.
From a policy perspective, this shift in Japanese aid has not increased
the overall amount of potential trade distortions but shifted it from
one official category to another. Therefore, this shift does not offset
the large reductions in trade distortions achieved in the programs of
the traditional tied aid donors.
Tied aid is now focused on the poorer LDC's, those with per capita
incomes below $3,000 annually. Wealthier countries like Mexico, Korea
and Malaysia are no longer eligible for tied aid. Tied aid is now
virtually nonexistent in projects for manufacturing, power (thermal and
hydro), oil and gas pipelines, telecommunications, and sophisticated
air traffic control equipment. This has opened up these sectors to U.S.
exporters to compete for commercial contracts. Treasury has previously
estimated that as the result of reducing tied aid trade distortions,
U.S. exports are higher by $1 billion a year than they would have been
without the Arrangement disciplines.
To better appreciate the success of this policy, if the United
States had been required to compete for these additional exports using
tied aid instead of having negotiated OECD restrictions for tied aid,
Ex-Im would have required about $300 million annually in additional
appropriations--a cumulative total of $2.4 billion of additional
appropriations since 1993, the first full year of implementation of the
tied aid rules.
The OECD tied aid rules have been tremendously successful in
significantly narrowing the scope for tied aid--thereby reducing trade
distortions, leveling the playing field for U.S. exporters, reducing
budget pressures, and promoting a much more appropriate use of aid
resources.
Treasury continues to work very closely with Ex-Im on tied aid
issues. This work includes negotiating Arrangement agreements,
implementing and policing these agreements, and ensuring that tied aid
that meets the OECD rules is not being used to undermine the long-term
competitiveness of U.S. exporters for commercial sales. In carrying out
our tied aid work we also work closely with Ex-Im in use of the Tied
Aid Capital Projects Fund (War Chest).
Future Plans
With tied aid significantly disciplined, Treasury is now focusing
on two new forms of trade distortions that arise in export financing:
untied aid and market windows.
Untied Aid
These distortions can occur even if aid is not legally tied to
donor country firms--the case of so-called ``untied aid.'' Currently,
untied aid is exempt from the tied aid rules solely because the donor
government does not directly tie procurement to its firms. With untied
aid, procurement is effectively tied to firms from the donor country in
a variety of less direct ways. The requirement that the aid recipient
use the design and engineering work for a project provided by firms in
the donor country biases the choice of technologies in favor of donor
firms. Similarly, the requirement by the donor that one of its firms
run the bidding process, including qualifying bidders, evaluating bids,
and awarding bids, can create bias in favor of firms from the donor
country. Finally, the aid relationship itself encourages the recipient
to reward the donor by selecting its firms in an effort to ensure the
continued flow of this aid financing in the future. Nevertheless, in
spite of these biases, untied aid remains free to finance projects that
tied aid cannot--including commercially viable projects, and projects
in countries with per capita income above $3,000.
There are no OECD rules on what procedures, practices and
procurement results constitute untied aid--de facto--for purposes of
being exempt from the tied aid disciplines intended to open markets and
reduce trade distortions. U.S. exporters are concerned that untied aid
programs are not always freely available to finance exports from other
countries calling into question whether untied aid should continue to
be exempt from Arrangement rules that govern the proper use of aid.
Without Arrangement disciplines, untied aid can be used to
circumvent the tied aid rules and distort trade and misallocate global
resources. Perhaps more importantly, without disciplines on untied aid,
existing tied aid donors could ``untie'' their aid programs and escape
the existing tied aid disciplines. This would put the United States
back in the situation we faced in the early 1980's when aid was used to
systematically distort trade. In fact, there is a strong financial
incentive for tied aid donors to ``untie'' aid because the minimum
concessionality--the budget sacrifice--required for untied aid is
approximately half that required for tied aid--about 17 percent vs. 35
percent of the credit is value. Therefore, untied aid requires no more
budget sacrifice now than tied aid did prior to Reagan-era OECD
negotiations that increased these concessionality requirements.
Recognizing the many indirect biases in procurement decisions that
can arise with untied aid financing, Treasury formally proposed in the
OECD to extend the highly successful tied aid disciplines to untied
aid. This would ensure that tied aid and untied aid are available for
the same types of projects in the same countries. Treasury is now
working to build support within the OECD for this proposal.
Market Windows
Market windows are another threat to the longer-term integrity of
existing OECD disciplines. Market windows are quasi-official
institutions that support national exports. The two largest are KfW of
Germany and EDC of Canada. Because Market window institutions purport
to operate as private sector actors, there is currently no agreement in
the OECD to discipline them or to provide transparency concerning the
terms and conditions of this financing. Treasury plans to begin a major
push in the OECD on Market window transparency this Fall. We also will
work with Ex-Im and OMB to undertake our own analysis of Market
windows. We will then work to design and negotiate appropriate
Arrangement disciplines for these institutions.
Conclusion
In summary, in this testimony, I have tried to review the role of
Treasury in working through the OECD and with Ex-Im to reduce the
amount of trade distorting subsidies in the world. We at Treasury look
forward to working closely with Chairman Robson--a former Deputy
Treasury Secretary--to look for and reduce new forms of export
financing subsidies and trade distortions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH FROM JOHN E.
ROBSON
Q.1a. With regard to OMB's proposal for ``greater risk
sharing,'' doesn't this really amount to a reduction in maximum
portion of a transaction which the Bank would finance, leaving
the exporter to find more financing from other sources?
b. Do you have any evidence that commercial banks would be
willing to pick up a larger portion of export transactions in
emerging markets?
c. If commercial banks would be unwilling to pick up a greater
share of an individual transaction, wouldn't this effectively
kill off export opportunities for U.S. companies?
A.1. Ex-Im Bank does not have sufficient evidence to draw a
reasonable conclusion on whether or to what extent the private
sector has the capacity to pick up a larger portion of export
transactions in emerging markets. The Bank is in the process of
gathering data on this issue to establish a factual basis for
its conclusion. However, Ex-Im Bank believes that a lack of
appetite for emerging market risk by the private sector could
limit private sector support for U.S. exports and make
obtaining financing of U.S. exports relatively more difficult.
Q.2. The Bank's statutory charter carries a fundamental
directive to the Bank: that its financing policies must be
competitive with other export credit agencies.
a. Has any study been done of how the OMB proposed policy
changes (that is higher fees, reduced cover) would square with
the policies of other export credit agencies?
b. If not, doesn't that put these OMB proposals in a potential
conflict with the Bank's competitiveness mandate?
c. What will you do to resolve this conflict?
A.2. Since implementation of the new OECD fee system on minimum
fees in April of 1999, the OECD has been operating in a new
world. The point of the fee system is that cover and price are
flip ``sides'' of the competitiveness ``coin,'' when cover goes
down/up, fees go down/up and competitiveness is maintained.
There is limited data available, but so far it indicates that
there may be some room in the nonsovereign area to raise fees
or reduce cover without significantly affecting
competitiveness.
Q.3. According to data from the Berne Union, in 1998 the Bank's
volume of business ($13.8 billion) ranked it only 7th among the
47 Berne Union members. Total export credit volume that year
was $488 billion.
a. Isn't Ex-Im Bank already far behind what other ECA's are
providing to their exporters?
b. Doesn't that disparity, between Ex-Im Bank and other ECA's,
affect the competitiveness of U.S. exporters?
c. Wouldn't the proposed OMB cut further reduce the Bank's
competitiveness against other ECA's?
d. Wouldn't you agree that the Bank should be measured against
the performance of other ECA's, both in terms of volume of
finance and in terms of financing policies?
e. Would you provide the Committee with the latest data from
the Berne Union (which the Bank gets quarterly from the Berne
Union) on how Ex-Im Bank stacks up against other ECA's?
A.3. The Berne Union is an association of about 50 export
credit insurance agencies from about 40 different countries.
Its members include both private and public export credit
agencies. Included within Berne Union activity data are
substantial amounts of short-term export credit insurance, much
of which is provided by private companies at their own risk or
by mutualization of all short-term insurance within a
government program (Japan).
Thus, Berne Union data on total activity is not the best
comparison of official export credit competitiveness.
Ex-Im Bank gauges its competitiveness by comparing its
medium- and long-term program--not volumes--with its G-7
counterparts. (The G-7 export credit programs comprise, on
average, 85 percent of the medium- and long-term official
export credit activity of the OECD countries.) Comparisons of
medium- and long-term activity are significantly influenced by
the fact that, unlike its G-7 counterparts, Ex-Im Bank is
mandated not to compete with private commercial banks.
Q.4. Last year, Secretary Summers stated that the United States
could not stand by and watch a small number of countries
undermine the OECD arrangement on market windows. He stated,
``Practices that involve the unilateral reinterpretation of
multilateral rules undermine the effectiveness of the
Arrangement and the competitiveness of U.S. exporters and
financial institutions.''
Summers indicated that while he hoped that these problems
could be resolved on a multilateral basis, the United States
was ready to act unilaterally if other countries were not. He
also indicated that the U.S. Government has both the
responsibility and the tools in hand to protect U.S. exporters
from unfair practices that undermine their competitiveness, and
the U.S. Government can and will act if multilateral
negotiations fail.
According to the Bush Administration, what should the
policy of our Government be with respect to these market
windows? What does the new Administration plan on doing to
address this issue?
A.4. There is no OECD Arrangement on market windows so we are
hoping to get to the table to negotiate this issue. In the
meantime, we have asked the Trade Promotion Coordinating
Committee to gather data on the problem.
Q.5.a. Does the Bank have the tools it needs to protect U.S.
exporters against market windows?
b. It has been requested that language in the Bank's charter
reauthorization be included to the effect: ``The Bank in its
financing policies shall provide financing that is fully
competitive with that provided by export credit agencies of
other nations, including market window transactions in any
market.''
How would this change help the Bank protect U.S. exports
against market window activities?
A.5. While this would clearly authorize the Bank to counter
foreign market window offers, we do not believe that adequate
data exist to assess this problem. We have asked the Trade
Promotion Coordinating Committee to gather the necessary
information. In fact, rushing in to create such U.S. financing
capacity in advance of this information would signal to others
that the United States is creating its own market window, and
could thereby exacerbate the problem rather than contribute to
a solution. Such a signal would likely encourage the
proliferation of market windows as others would create such
institutions to protect themselves. Once market windows
proliferate, a negotiated solution to discipline their
activities (if deemed necessary) will be much harder to
achieve.
Q.6. As you are aware, the Export-Import Bank is required to
conduct an economic impact assessment to determine whether a
loan or guarantee would have a negative impact on U.S.
production and employment. In setting forth the procedure for
conducting the economic impact analysis, the Bank's ``Policy
Handbook'' states that based on the legislative history, ``the
likelihood of a project going ahead with the support of non-
U.S. suppliers is not to be considered in the analysis of net
economic impact on the United States.'' The Bank's own policy
is clear: it should assess the potential adverse effect of a
loan on U.S. production and employment and not the possibility
that a foreign producer might otherwise supply the project if
the Bank does not approve the loan. Despite this policy, in
approving the loan for the Benxi Iron and Steel Company in
China, the Bank stated as a factor for approval of the loan
that ``had the Board declined to approve the financing of this
transaction, the buyer stated that it would procure the
equipment from French and German companies, thus permitting the
same plant modernization, but with no benefit to U.S.
exporters' jobs and profits.'' This statement appears to be in
conflict with the Bank's own policy guidelines. We do not want
to be in a position where the Bank is funding projects that
will lead to increased global oversupply and injury to U.S.
workers and businesses.
What can we do in the Bank's reauthorization to make more
certain that it will strictly adhere to the proper rules for
making the economic impact analysis?
A.6. Ex-Im Bank is currently reviewing our economic impact
procedures and policies and has made proposed revisions to
these procedures widely available for comment by Congress,
labor, industry, exporters and banks and other interested
parties. Our objective in proposing revisions to the Bank's
economic impact procedures and obtaining broad public comment
on the proposed revisions is to make it more certain that the
Bank's procedures fully reflect our statutory mandates, are
methodologically contemporary and are responsive to the rapidly
changing dynamics of the domestic and global economies. Because
the Bank's procedures will need to evolve in the future with
further changes in the domestic and global economies, we do not
believe that further legislative language is necessary.
Q.7. Do other Export Credit Agencies go through a periodic
reauthorization process, such as the one Ex-Im Bank is now
going through? If yes, how often. If no, what impact does this
process have on Ex-Im's ability to be competitive and its
perceived reliability in the international marketplace.
A.7. No other ECA has periodic reauthorization or a sunset
situation. Most ECA's, like all government agencies, are
subject to a review process every 5 to 20 years which may
significantly
change practice.
In terms of competitiveness, Ex-Im Bank feels that the
Bank's reauthorization process has little effect on our ability
to be competitive. Other ECA's are well aware that this is
standard operating procedure for us and that the Bank has been
regularly reauthorized over its 75 years.
Q.8. Recognizing that it is wise not to have the
reauthorization process occur in a transition year, would the
Bank support a 5 year extension, rather than the 4 year
extension recommended by the Administration?
A.8. Ex-Im Bank supports a 4 year reauthorization as well as a
4 year extension of the sub-Saharan Africa language contained
in our charter.
Q.9. The Export-Import Bank is required by law, as made clear
in its own policy guidelines, to assess whether its loans are
likely to cause substantial injury to U.S. industry, and not to
extend such support if it would have an adverse impact on U.S.
production and employment. Nevertheless, the Ex-Im Bank in
January approved a loan guarantee for a project that will
increase by 1.5 million metric tons hot-rolled steel capacity
at the Benxi Iron and Steel Company in China. This decision was
made at a time when the already existing excessive foreign
steel capacity has been dumped into the U.S. market causing the
loss of over 20,000 steel industry jobs. Further, the loan was
extended over strong opposition from Members of the
Administration. Former Secretary of Commerce Norman Y. Mineta
wrote to the Ex-Im Bank in vigorous opposition to the loan;
former Secretary of Treasury Lawrence Summers wrote to the
World Bank calling on all financial institutions to withhold
financing for overseas steel projects. As you know, President
Bush earlier this month announced that he was initiating a
Section 201 investigation of injury to the U.S. steel industry
due to ``significant excess capacity'' of steel on world
markets. While I recognize that this action by President Bush
comes months after the Ex-Im Bank decision on the Benxi
project, the fact that the domestic steel industry was in a
state of severe crisis caused by foreign producers dumping
their excess production in the U.S. market, was widely known at
the time. Despite all of this, the Bank approved the loan. This
is a deeply troublesome decision. In approving the loan for the
Benxi project, former Chairman of the Bank James A. Harmon
stated that ``in the future the Bank may want to take a look at
its policy regarding economic impact analysis and its effect on
the U.S. economy''. I want to work with you to establish the
appropriate rules, procedures and guidelines to make certain
that such decisions do not reoccur.
What, if anything, should be done with respect to the
Bank's procedure for economic impact analysis in order to
prevent such misguided investment from occurring again?
A.9. Ex-Im Bank is currently revising our economic impact
procedures and policies. The Bank is seeking an economic impact
review process that is transparent and receptive to the views
of any party impacted, either positively or negatively, by a
transaction as well as the views of other U.S. Government
agencies. This information would be integrated into the
analytical process and would be at the disposal of Ex-Im Bank's
board in the deliberative process.
These new procedures and policies have been made available
for public comment by Congress, labor, industry, exporters, and
banks and other interested parties.
Q.10. The United States is a leader in international
negotiations to persuade all Export Credit Agencies (ECA's) to
adopt binding environmental policies such as those of the 1FC
at the World Bank Group. IFC's policies include the advance
disclosure of environmental impact assessments and consultation
with affected communities and stakeholders. Public access to
environmental information and consultation by ECA's is called
for in the 2001 G-8 Trieste Communique (endorsed by EPA
Administrator Christie Todd Whitman). However, Ex-Im Bank
currently does not require minimal advance disclosure and
consultation in its own operations. Doesn't this contradiction
undermine the U.S. Government's position? Is the Ex-Im Bank
willing to implement a requirement for an advance comment
period for environmental assessment and consultation with
affected communities and stakeholders?
A.10. Currently, Ex-Im Bank is the only export credit agency
with Environmental Procedures that provide for the release of
Environmental Assessments (EA) to ``interested parties'' for
their review and comment prior to a financing decision by the
Bank. Ex-Im Bank has required advance disclosure of the EA and
has encouraged public consultation processes with affected
stakeholders since 1998. Although our Procedures do not set an
explicit minimum period for disclosure of the EA and subsequent
public comment, the average period during which these
environmental assessments have been available for comment
exceeds 60 days. Ex-Im Bank will consider formally establishing
a minimum period for comment on the environmental assessments
it releases once our foreign competitors demonstrate their
commitment to the process of releasing environmental
assessments.
Concerning requirements for prior consultation with
affected communities and stakeholders, we are negotiating
within the OECD for guidelines requiring export credit agencies
to adopt World Bank standards, which require such consultation.
Q.11. Ex-Im Bank recently supported the controversial Chad-
Cameroon pipeline project. Human rights and other groups have
been very critical of the project, citing severe abuses of the
rights of project critics, use of project revenues for arms
purchases and, more recently, election fraud. Meanwhile, Ex-Im
Bank project human rights clearances are currently conducted by
the State Department. These clearances only consider whether
Ex-Im involvement contradicts larger U.S. interests, and not
the impact on project viability specifically. Don't human
rights-related issues also affect the risk and viability of
projects, and therefore, fall within Ex-Im Bank's authority to
consider?
A.11. One of several factors assessed in determining the
sovereign risk rating is ``political/social stability.'' While
there is no specific element within this factor called ``human
rights,'' the rating on this factor could be affected by a
country's human rights situation. For example, if abuses in the
human rights area were judged likely to result in widespread
violence that would disrupt economic and political stability
and undermine a government's ability to function, this factor
would score poorly and could drag down the entire sovereign
risk rating.
Q.12. According to Export-Import Bank policy, any project over
$10 million requires the State Department to do a human rights
impact assessment. What is the procedure for that assessment?
A.12. Ex-Im Bank obtains a human rights review from the State
Department for all transactions greater than $10 million where
the buyer's country is not on a pre-cleared list. The list of
pre-cleared countries was issued by the State Department to Ex-
Im Bank in 1998. For all applications above $10 million and not
on the pre-cleared list, Ex-Im Bank sends a clearance request
sheet to State prior to beginning a credit review of a final
commitment application. Generally, both a Human Rights and a
Political desk officer at State review the transaction.
Therefore, all applications presented to the board must pass
the clearance process.
In addition, under the Leahy Amendment contained in the
Foreign Operations appropriations bill, Ex-Im Bank has
interpreted that it is precluded from providing financial
support for the sale of products or services to security forces
of a foreign country without clearance from the State
Department. The law stipulates that State must satisfy itself
that the ``units'' of the security forces that benefit from Ex-
Im Bank support have not committed gross violations of human
rights, or, if such actions have been committed, that the
government of the foreign country is taking effective measures
to bring the responsible members of the security forces unit to
justice. The responsibility for making the determination under
this provision rests solely with the State Department.
The term ``security forces'' is interpreted as extending to
any military buyer and any arm of the foreign country's
federal, regional, or local law enforcement. If there is
ambiguity as to whether a particular buyer falls within the
``security force'' category, Ex-Im Bank submits the application
to the State Department and State makes the determination.
All engineering evaluations for transactions involving
security forces are required to contain language confirming
that the State Department has reviewed the transaction and
provided a clearance for Ex-Im Bank to proceed.
Q.13a. Which countries have been denied export credit from Ex-
Im Bank on human rights grounds under the Chafee Amendment?
A.13a. The Secretary of State has issued two determinations of
national interest under the Chafee Amendment for human rights
concerns. The two determinations were for Argentina and
Cameroon. The Chafee Amendment for Argentina was invoked on
April 30, 1982, because of the Falklands War and human rights
concerns and revoked on July 27, 1982. The Bank also received a
Chafee for a transaction specific sale of automobiles to the
Government of Cameroon on March 25, 1994, because the vehicles
were to be used by security forces.
Q.13b. Which countries have been denied export credit on
terrorism grounds? Please explain the process used to make
these determinations and the grounds for those decisions.
A.13b. The Secretary of State has issued 3 determinations of
national interest under the Chafee amendment for terrorism
concerns. The first instance was Chile, which was invoked on
November 29, 1979, and revoked on February 20, 1981. The second
instance was Libya, which was invoked on April 9, 1985.
Finally, State Department invoked a Chafee for Syria on
December 4, 1986.
As the maker of U.S. foreign policy, State Department made
these determinations for foreign policy reasons.
Q.14a. What specific criteria does Ex-Im Bank use when it makes
a political risk assessment for a country?
b. Former Chairman of the Bank, Jim Harmon, indicated that,
``country ratings could be negatively affected to the extent
that human rights abuses contribute to potential unrest.'' Are
human rights violations considered part of the political
assessment?
A.14. One of several factors determining the sovereign risk
rating is ``political/social stability.'' While there is no
specific element within this factor called ``human rights,''
the rating on this factor could be affected by a country's
human rights situation. For example, if abuses in the human
rights area were judged likely to result in widespread violence
that would disrupt economic and political stability and
undermine a government's ability to function, this would result
in a poor score and could drag down the entire sovereign risk
rating.