[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE EXPORT-IMPORT
BANK OF THE UNITED STATES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC AND INTERNATIONAL
MONETARY POLICY, TRADE AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MAY 6, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-84
U.S. GOVERNMENT PRINTING OFFICE
97-753 WASHINGTON : 2004
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Domestic and International Monetary Policy, Trade and
Technology
PETER T. KING, New York, Chairman
JUDY BIGGERT, Illinois, Vice CAROLYN B. MALONEY, New York
Chairman BERNARD SANDERS, Vermont
JAMES A. LEACH, Iowa MELVIN L. WATT, North Carolina
MICHAEL N. CASTLE, Delaware MAXINE WATERS, California
RON PAUL, Texas BARBARA LEE, California
DONALD A. MANZULLO, Illinois PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California BRAD SHERMAN, California
JOHN B. SHADEGG, Arizona DARLENE HOOLEY, Oregon
MARK R. KENNEDY, Minnesota LUIS V. GUTIERREZ, Illinois
TOM FEENEY, Florida NYDIA M. VELAZQUEZ, New York
JEB HENSARLING, Texas RAHM EMANUEL, Illinois
TIM MURPHY, Pennsylvania CHRIS BELL, Texas
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
C O N T E N T S
----------
Page
Hearing held on:
May 6, 2004.................................................. 1
Appendix:
May 6, 2004.................................................. 23
WITNESS
Thursday, May 6, 2004
Merrill, Hon. Philip, President and Chairman, The Export-Import
Bank of the United States...................................... 5
APPENDIX
Prepared statements:
King, Hon. Peter T........................................... 24
Oxley, Hon. Michael G........................................ 26
Lee, Hon. Barbara............................................ 29
Maloney, Hon. Carolyn B...................................... 33
Ney, Hon. Robert W........................................... 35
Sanders, Hon. Bernard........................................ 37
Merrill, Hon. Philip......................................... 39
Additional Material Submitted for the Record
Merrill, Hon. Philip
Ex-Im Bank 2002 Advisory Committee Recommendations to the
Board of Directors......................................... 54
Ex-Im Bank 2003 Advisory Committee Recommendations to the
Board of Directors......................................... 116
Letter to Mr. Norman Taylor, Avondale Mills, Inc., June 9,
2004....................................................... 179
Top 23 Exporters............................................. 180
OVERSIGHT OF THE EXPORT-IMPORT
BANK OF THE UNITED STATES
----------
Thursday, May 6, 2004
U.S. House of Representatives,
Subcommittee on Domestic and International
Monetary,
Policy, Trade and Technology
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2128, Rayburn House Office Building, Hon. Peter King
[chairman of the subcommittee] presiding.
Present: Representatives King, Biggert, Paul, Manzullo,
Barrett, Maloney, Sanders, Watt and Velazquez.
Chairman King. [Presiding.] The subcommittee will come to
order. The subcommittee meets today to conduct general
oversight of the Export-Import Bank of the United States. This
is the first oversight hearing since the 2002 Reauthorization
Act and we are pleased to have the Honorable Philip Merrill,
President and Chairman of the Export-Import Bank testifying
before us today.
Chairman Merrill brings a broad range of experience in both
the public and private sector, having served in six previous
Administrations in various capacities. We are fortunate to have
such a distinguished witness before the subcommittee today,
especially since he spent his formative years in New York City.
He was, as local legend has it, one of the most prominent
street hockey players in the history of New York City, but not
quite as good at stick ball as he was at street hockey, but
there is still time. And also, coming from Queens, I never had
that much respect for the street athletes of upper Manhattan,
but they were still pretty good. You and Colin Powell were.
[Laughter.]
As the chief U.S. government agency tasked with financing
American exports, Ex-Im Bank provides American exporters the
assistance needed to compete with their foreign competitors and
often serves as a lender of last resort. The need for this
agency stems from political or commercial uncertainties in
foreign markets and competing governments subsidizing their
export financing, thus creating an unfair playing field in the
marketplace. This is achieved by offering credit insurance,
working capital, and loan guarantees to U.S. exporters.
Obviously, the overall goal of the Bank is to use its
authority and resources to create and sustain American jobs.
Over the last 5 years, 311 New York companies received
assistance from Ex-Im. In my district on Long Island, 13 small
businesses have benefited from the programs offered by the Bank
and I hope this number will increase in the future.
The Bank is not without its problems, however, and was made
aware of them during the 2002 reauthorization. It has been 2
years since President Bush signed into law legislation
reauthorizing Ex-Im Bank and I am interested in the Chairman's
comments on how the Bank has utilized its new authority to
assist small businesses, while creating and sustaining American
jobs.
It is my understanding the Bank reached 19.7 percent of its
20 percent goal for financing small business exporters. I am
interested in hearing the Chairman's comments on whether he
views this 20 percent figure as a floor or a ceiling, and if
more can be done to increase this level of financing for small
businesses.
Lastly, I am concerned over the lack of an inspector
general for Export-Import Bank. As you know, the 2002
reauthorization act established a presidentially appointed
inspector general for the Bank, yet 2 years have passed and it
does not appear as if this provision of the law has been
fulfilled. I am not sure if it is an appropriate issue or
priority issue, but I would like to hear your comments on this
matter as well.
Again, thanks for taking the time out of your schedule to
testify today. I certainly look forward to working with you as
the Bank celebrates its 70th anniversary.
With that, I yield to my distinguished colleague, the
Ranking Member, Mrs. Maloney.
[The prepared statement of Hon. Peter T. King can be found
on page 24 in the appendix.]
Mrs. Maloney. Thank you. I thank my distinguished
colleague, Chairman King, from the great State of New York, for
holding this oversight hearing on the Export-Import Bank.
Good morning, Chairman Merrill. I thank you for joining the
subcommittee. It is a pleasure to see you again. I enjoyed our
meeting in my office last year following your appointment.
I think today's hearing is especially appropriate given the
importance of the Ex-Im Bank's mission of support of U.S.
exports abroad. My good friend John LaFalce, the former Ranking
Member of this committee, always reminded this committee on
this topic that the Bank is actually improperly named, as its
sole mission is to support U.S. exports which keep jobs here at
home. The Bank does not play a role in encouraging additional
imports to the United States. Your mission is so important
today because our country is handicapped by a massive trade
deficit. In the era of half-billion dollar trade deficits and
outsourcing of information-based jobs, I believe support for
Ex-Im Bank is more important than ever. I am pleased to have
played a role in the Bank's latest reauthorization.
In the authorization in 2002, we included some very
important mandates that I believe will make the Bank stronger.
Specifically, Congress dictated that 20 percent of bank support
must go to small business. I see my good colleague, Nydia
Velazquez, who was one of the leaders in achieving this goal. I
am pleased that the Bank has come close to this goal, hitting
19.7 percent in 2003.
I do look forward to the Chairman's comments on why the
Bank has not yet fully implemented its automation program for
small business that will make it easier for them to access the
Bank. Talking to my constituents, I have been informed that the
Bank may be attempting to shift more risk for small business
lending onto private banks within the working capital program.
I would like very much to hear from Chairman Merrill on this
issue.
I am also pleased that the authorization included a new
commitment to the Bank's existing mandate to support exports to
Africa and imposition of new safeguards on transactions that
may fall under existing countervailing duty, antidumping, or
section 201 ruling. The authorization also included an
amendment I offered in the Financial Services Committee giving
the Bank explicit authority to turn down an application for Ex-
Im Bank support for companies that have a history of engaging
in fraudulent business practices. Unbelievably, in a prior time
with a prior Chairman, they insisted on giving a loan to such a
company, even though they had all kinds of allegations against
them, because they said they were required by law to do so. So
I am glad that this was included. I am interested to see if
this is being used.
Finally, I am very pleased that the Bank decided against
supporting the controversial Camisea project in Peru. More
generally, I am also interested in the role that Ex-Im is
playing on OECD environmental standards. One of the main
reasons that I believe the Bank is important to the U.S. is
that it levels the playing field with foreign export credit
agencies, so-called ECAs, such as those in Japan, Germany,
France, Canada and other countries. In 2000, the ECA support
from OECD nations totaled $58 billion in long-term export
credits.
In today's increasingly interconnected global economy, the
U.S. must not fall behind the international competitors. In my
own district, the Bank has supported over $2 billion in exports
from October 1994 to April 2004. I thank the Bank for its
support of New York City, and I look forward to working on
keeping this relationship strong.
I thank the Chairman for being here today. I look forward
to your comments. I yield back the balance of my time.
[The prepared statement of Hon. Carolyn B. Maloney can be
found on page 33 in the appendix.]
Chairman King. I thank the Ranking Member.
Ms. Velazquez?
Ms. Velazquez. I ask unanimous consent to include my
opening statement in the record. Thank you.
Chairman King. Without objection.
The gentleman from Vermont?
Mr. Sanders. Thank you, Mr. Chairman. Thank you for holding
what is a very important hearing on a very important subject.
I thank Mr. Merrill for being with us today.
Mr. Chairman, I think nobody believes that the Export-
Import Bank is a huge colossus agency upon whose success or
failure the American economy will depend upon. But I think what
we have got to look at is the fact that in the United States
today we are seeing a collapse of manufacturing; that in the
last 3 years we have lost 2.8 million good-paying manufacturing
jobs, which has resulted in the decline in the standard of
living of millions of American workers. We have got to
appreciate that in the United States today we have, the last
that I have seen, is a trade deficit of some $500 billion,
including I believe a trade deficit with China alone of over
$120 billion, and if my memory is correct, the National
Association of Manufacturers projects that that deficit will go
up and up and up in the next number of years.
Given the fact that the function of the Export-Import Bank
as I understand it is to create good-paying jobs in America
based on exports, while I am not here to blame the Export-
Import Bank alone for all of these issues, I think, Mr.
Chairman, what is obvious to anybody who looked for 3 seconds
at the issue is they are irrelevant in the process; that we
have to re-think our entire approach toward manufacturing in
America, and understand why we are failing so abysmally, and
that the Export-Import Bank is irrelevant in terms of the
entire process.
Mr. Chairman, what particularly upsets me about the Export-
Import Bank, without blaming them for all of the problems, I do
not mean to do that, is that year after year the Export-Import
Bank provides billions of dollars in corporate welfare,
taxpayer money for the largest corporations in America. You
know what those corporations say, Mr. Merrill? They say, thanks
America; thanks, taxpayers, for your money; we are off to
China; we will send you a postcard from China.
I would like Mr. Merrill when he does his response to tell
me how he feels about corporation after corporation, which is
very public, these guys do not hide it, who are saying,
America, good-bye; we are going to China; we are hiring people
for 30 cents an hour. I would like Mr. Merrill to tell me
specifically how he feels about the head of General Electric,
the CEO of GE, a gentleman named Jeff Immelt, who says a year
ago in speaking to GE investors, this is what he says: ``When I
am talking to GE managers, I talk China, China, China, China,
China. You need to be there. You need to change the way people
talk about it and how they get there. I am a nut on China.
Outsourcing from China is going to grow to $5 billion.''
And yet, guess what, taxpayers of America? Export-Import
Bank funds General Electric. They fund Motorola. They fund
corporation after corporation that treats the American worker
with contempt and goes abroad. This is absurd.
So I think, Mr. Chairman, that if we are serious, and I am
again not here to blame Export-Import for all of these
problems. They are a small part of the problem. But we have to
say, enough is enough. You cannot continue to give out
corporate welfare to corporations who treat American workers
with contempt. It is not good enough to say, oh, we have saved
12 jobs over here, when the largest corporations in America
that receive your funding are laying off hundreds and hundreds
of thousands of workers.
I hope that is an issue, Mr. Chairman, that we will begin
to discuss.
[The prepared statement of Hon. Bernard Sanders can be
found on page 37 in the appendix.]
Chairman King. The gentleman's time has expired.
Mr. Merrill, it is a privilege to have you here today. We
have a copy of your full opening statement. If you could
possibly keep your opening remarks to 5 or 10 minutes, we would
appreciate it. Without objection, your full statement will be
made part of the record.
Mr. Merrill, thank you.
STATEMENT OF HON. PHILIP MERRILL, PRESIDENT AND CHAIRMAN, THE
EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Merrill. Thank you for all those kind words about me,
and even the moderate words from Congressman Sanders about the
Bank.
Chairman King. That is as good as you are going to ever get
from Mr. Sanders.
[Laughter.]
Mr. Merrill. Thanks. Maybe we can engage him later in a
discussion about stickball, wall ball, slug, roller hockey and
four corners, but otherwise let me proceed.
Congressman Maloney, Members of the Subcommitte, I am
pleased to be here today to report on the progress the Export-
Import Bank of the United States has made in achieving our
mission as set forth in our Charter. I want to especially
acknowledge the role of this subcommittee, as well as the full
Committee on Financial Services in our 2002 reauthorization.
The Act reaffirmed the Bank's basic roles and
responsibilities in financing and facilitating exports of goods
and services and in so doing contributing to the employment of
U.S. workers, and establishing a reasonable assurance of
repayment before approving a transaction, and in supporting all
businesses, large and small, in their efforts to create jobs
through exports.
We are focusing on three key priorities: putting customers
first, improving cycle time and transaction time, and expanding
support for knowledge-based and services exports. President
Bush has set forth three guiding principles for government,
namely that it should be citizen-centered, results-oriented,
and market-driven. Those are the right principles to follow.
The Bank supported $12.95 billion in exports in fiscal year
2002; $14.3 billion in fiscal year 2003; and we estimate $15.6
billion for fiscal year 2004, this year; and $16.3 billion in
fiscal year 2005, also an estimate. As you know, Ex-Im Bank
provides insurance, guarantees and direct finance on behalf of
U.S. exports and exporters. Our purpose is to create and
maintain American jobs. Indeed, our motto is jobs through
exports; and our mantra, of course, is jobs, jobs, jobs.
We require a reasonable assurance of repayment. We only go
to markets where the private sector will not go alone, and are
accordingly demand-driven. We do business in 90 countries and
are open in 150. We also seek to level the playing field for
American exporters who have to compete with 28 other OECD
developed countries that have export credit agencies supporting
their exporters.
Let me review some of the matters raised in our
reauthorization and a number of the matters that you raised in
your comments already provided. First, Mr. Chairman, small
business is a major central concern for the Bank. In fiscal
year 2003, the last full year we have numbers, the Bank
authorized 2,258 transactions directly supporting small
business, a figure representing over 80 percent of the Bank's
financings, actually 83 percent, and accounting for 19.7
percent of the total dollar volume value of Ex-Im Bank's
business. That is very close to the 20 percent target in our
Charter.
Also, Ex-Im Bank announced at its recently concluded annual
conference, the signing of a co-guarantee agreement with the
Small Business Administration. This enables the financing of
transactions of up to $2 million with one single set of
documents, so customer-friendly. I might add, no double
counting. They take the first $500,000; we take the second $1.5
million up to $2 million, or whatever is appropriate.
[Subsequently Mr. Merill provided the following information]
They take the first $1.5 million or up to their statutory
limit, and we take the remaining amount minus the lender's risk
on any transaction up to $2 million.
Second, technology improvements. The Bank is developing its
business automation project in order to process applications
more quickly. We are working away on it. We also participate in
the Trade Promotion Coordinating Committee's one-stop/one-form
registration system, an Internet-based system enabling small
businesses to apply electronically for all government export
programs, including ours.
Third, Africa. In fiscal year 2003, Ex-Im Bank authorized
152 transactions, supporting nearly $700 million in U.S.
exports to 20 sub-Saharan African countries. Just 5 years
earlier in fiscal year 1998, the Bank authorized 91
transactions that supported only $61 million in exports; $61
million to $700 million in U.S. exports to sub-Saharan Africa.
Over the last 6 fiscal years, Ex-Im Bank has authorized
transactions supporting nearly $2 billion in U.S. exports to
sub-Saharan Africa. We have also made a special effort to reach
African buyers through our ongoing Short-Term Africa Pilot
Program. This program offers Ex-Im Bank support in an
additional 16 African countries in which the Bank would
otherwise not be open for business, raising the total number of
sub-Saharan Africa countries eligible for Ex-Im Bank financing
to 39.
Fourth, Ex-Im Bank has continued its outreach to woman-
owned and minority-owned businesses through participation in a
wide range of trade shows, seminars, and conferences focused on
this important area.
Fifth, economic impact. Ex-Im Bank's charter requires the
Bank to assess whether extending its finance support is likely
to yield a net adverse economic impact on U.S. production and
employment, or would result in the production of substantially
the same product that is the subject of specified trade
measures.
If a transaction is deemed by Ex-Im Bank to meet the
legislatively specified standards, then economic impact can be
the basis for denial of bank support. I want you to know that
we are very much aware of this responsibility and we are
scrupulously applying these procedures.
In conclusion, Mr. Chairman, we take seriously the goals
Congress set before us. We have made real progress toward
meeting the changes to our Charter enacted in 2002 and
fulfilling the purposes for which the Bank was created 70 years
ago. We have done so through the diligent efforts of exporters
and the hard work of the dedicated staff at Ex-Im Bank.
I would now be happy to respond to any questions you may
have. I wrote down four or five, some of which were covered in
my remarks. I will proceed in any manner you feel comfortable
with.
[The prepared statement of Hon. Philip Merrill can be found
on page 39 in the appendix.]
Chairman King. Thank you, Chairman Merrill. I appreciate
your statement. As I said, the full text of your statement will
be made part of the record.
Mr. Merrill. Thank you.
Chairman King. I just have several questions. One, I
mentioned in my statement and you mentioned in yours, that is
the targeted number of 20 percent to be allocated toward small
business. Do you look upon that 20 percent as a floor or a
ceiling? Right now, you are at 19.7 percent, so obviously you
are on-target, but do you anticipate going beyond that target
or staying at 20 percent?
Mr. Merrill. As a practical matter, it is about the right
number. It is a good question, floor or ceiling. The answer is
neither. It is, rather, the right place to be. If you
incorporate the small businesses that are subcontractors for
companies like GE or Bechtel or Caterpillar and so forth, 83
percent are small business. It is hard for me to see how we can
go a lot further upwards without one single contract utterly
distorting the 20 percent number. In other words, suppose we
went to 99 percent, what would happen if one energy plant, one
airline deal would substantially distort the numbers? So I
think we are about right.
Chairman King. In the 2002 Reauthorization Act, a major
provision was calling for a presidentially appointed inspector
general. That has not happened yet. Could you explain why? Is
that an appropriation matter? Have you requested it?
Mr. Merrill. It is in the President's budget. It is in our
submission. That is a White House issue. We do not make the
appointment.
Chairman King. Are you pushing for it?
Mr. Merrill. We are neither pushing or not-pushing. We put
it in our budget request. We are not against it. The committee
directed us to do it. The President has it in his budget
request.
Chairman King. Okay. From your dialogue with the
Administration, do you expect it to happen?
Mr. Merrill. I do not know. I do not have a good feeling
for that. I think this is really more a Congressional issue
than a Bank issue. I think it is fair to say that last year,
the appropriators sought places to cut. We got cut. We got cut
in several places and one of those was that, or so I am told.
Chairman King. Okay.
Mr. Merrill. I do not know whether that was the Senate or
the House that did it. It is between the two.
Chairman King. There is probably enough blame to go around.
I just have one final question. The Reauthorization Act
allows the Bank to consider the extent to which a nation has
been helpful in combating terrorism when you take action. Can
you tell me if you have looked into that at all?
Mr. Merrill. I am sorry. I did not hear the first part of
the question.
Chairman King. The reauthorization act allows the Bank to
consider the extent to which a nation has been helpful in
eradicating terrorism.
Mr. Merrill. The extent to which a what, a nation?
Chairman King. A nation has been helpful in eradicating
terrorism, when you offer your services. I am just wondering,
have you set up any way of looking into whether or not
countries you have been dealing with----
Mr. Merrill. We deal with the State Department on those
issues. In a general sense, State, Commerce, USTR, OMB,
Treasury generally attend our Board meetings and a couple of
them are ex officio members of our Board. With respect to the
issue you raised, we have a regular representative from the
State Department. We deal through him with the relevant
agencies, in this case the Human Relations Assistant Secretary
in the State Department.
Frankly, I have several years in the State Department, as
you know, but when I was there they had five assistant
secretaries. Now, they have 26, and I cannot keep all their
names straight. But we do deal with the State Department on
such issues.
Chairman King. Okay. So basically, you have been dealing
through the State Department when it comes to this.
Mr. Merrill. We take their lead. We do consult them. We are
very interested in what they have to say about that, what they
have to say about bad people what they have to say about doing
business in countries that either have helped us or hurt us.
Chairman King. Okay. Thank you.
Mrs. Maloney?
Mrs. Maloney. Thank you, Chairman Merrill.
As part of our reauthorization in 2002, we put a great deal
of emphasis on increasing Ex-Im support of small businesses. I
am glad to see that you have almost met the binding minimum
target. I hope that you will be giving us assurances that the
Bank's efforts in this area are serious and sustained.
Part of this, a critical component of Ex-Im's efforts to
assist small business exporters are the private banks that play
the role of ``delegated authority lenders.'' These particular
lenders are granted special discretionary authority by Ex-Im to
grant credit following Ex-Im guidelines. Under this agreement,
transactions can be approved more quickly, with less
bureaucracy. My understanding is that these delegated lenders
currently account for 90 percent of lending through the working
capital program, the core program for small business exporters.
Unfortunately, some of these lenders have grown concerned
about Ex-Im's efforts to change the nature of the relationship
so that more of the risk for these transactions will be borne
by the delegated lenders themselves. My understanding is that
these lenders are so concerned about this shift in attitude and
potentially in practice that they are now contemplating a
termination of their relationship with the Ex-Im Bank. Given
the strong role that they played in small business finance for
Ex-Im, the loss of these lenders would obviously hurt Ex-Im's
small business export programs.
Could you comment on these concerns of these lenders? What
are you doing to address them?
Mr. Merrill. Yes, I can. Of course, in the context here, it
is an anonymous set of concerns so I cannot address an
anonymous thing specifically, but let me make this point.
First, the culture of this Bank or this institution is really
totally committed to serving the small business person. I was
once a small business person myself so I understand small
business problems.
More importantly, it is the totality of the culture of the
Bank. That is, serve the customer, the small business person.
So this is not a thing that is just directed by this Committee.
This thing is woof and warp of how our people think. So we are
singing the same song to one another with respect to attitude
and culture.
With respect to the concerns you are reflecting, my guess
is that this is about the fast-track program that we have put
in to increase the lending authority, delegated authority to
nine principal banks where we delegate authority. I call your
attention here that there are 240,000 exporters in the United
States and slightly more than 400 employees of this bank. If we
were to call on every one of them, we would not get there in
this century, that is, the 21st century. The Board approved
expanded lending authority at a greater level to a number of
banks which were qualified.
Mrs. Maloney. What is the level it expanded it to?
Mr. Merrill. It went from $10 million to $25 million, under
the authority of the board.
Among the Banks, that is, among them there were different
interpretations of some of the criteria that incorporated going
from $10 million to $25 million. These are within weeks not
months, 1 or 2, 3, whatever, short term, of being worked out.
They are very minor things. They are things like, would an
audit be quarterly or semiannually. That would be the kind of
issue that remains to be worked out.
Mrs. Maloney. Could you tell us where things stand? I am
interested in knowing how close the program is to being up and
running.
Mr. Merrill. Weeks.
Mrs. Maloney. Weeks? So it will be in operation----
Mr. Merrill. We have to come back to the board with it.
Mrs. Maloney. Okay.
Mr. Merrill. The differences were between the Banks, not
between the Banks and us. There are different issues within the
Banks and between the banks on getting consistency.
Mrs. Maloney. My colleague, for whom I have the greatest
respect, Mr. Sanders, really raised some very important issues,
the collapse of manufacturing in America; the outsourcing of
jobs; a trade deficit that is not beneficial to our country. I
would like you to respond to that.
It is my understanding that the whole reason for the
Export-Import Bank is to help manufacturing in America. We do
not help manufacturing abroad. We only give loans to
manufacturing to jobs that are here in America, and part of the
agreement, if I understand it correctly, is that we save or
create American jobs.
Mr. Merrill. That is exactly right.
Mrs. Maloney. And that none of this goes to a foreign
country, but it stays in America, trying to help us get those
jobs and keep those jobs.
I also understand that part of the criteria is that you do
not give a loan if they can get it from a private source, so
this possibly would be a job that we may lose in America. Could
you elaborate more on this, that possibly this will be helping
us maintain American jobs? Could you comment?
Mr. Merrill. Yes, Congresswoman. Yes, I will. First, we are
in the business very simply, I repeat it again, of creating
American jobs. The issues that Congressman Sanders raises are
legitimate issues, and indeed they are issues in the campaign
being carried on right now, but these are issues in which our
government, the Treasury Department and other government
agencies are responsible for dealing with.
We are not in the business of outsourcing any jobs. We are
only in the business of supporting jobs here. I think a quick
but perhaps aphoristic answer would be this. We just financed a
deal for a large American corporation, the one that Congressman
Sanders mentioned; $700 million worth of locomotives from the
Erie plant of General Electric to Kazakhstan.
[Subsequently Mr. Merill corrected the figure from $700 million to 33.1
million]
There was a reasonable assurance to repay. I personally
worked my way through every minister literally without
exception of the Kazakhstan government, about 12 of them, all
of whom were market-oriented, Western-oriented and interested
in doing business with us.
That represented approximately 700 locomotive kits at $1
million apiece, I am rounding the number, from the GE plant in
Erie, Pennsylvania.
[Subsequently Mr. Merrill corrected that figure from 700 to 54
locomotive kits at $600,000 instead of $1 million.]
GE also operates in New York. I have been through that
plant. In its high year, it produced 400 locomotives; here at
700 locomotives. I fail to see how the outsourcing issue which
is a legitimate political issue playing in the national arena
helps or hurts, if you will, the workers at the Erie plant. The
choice is very simple. We can finance GE in Kazakhstan or the
French or the Russians, who also build locomotives, will
finance their exporters in the same place. That is a lot of
jobs in Erie. It is a hell of a plant. So I think that what we
do is appropriate for the circumstances.
Mrs. Maloney. Mr. Merrill, my time is up, but since you
mentioned a New York company, I would like more specifics on it
and how many jobs it created in New York. New York is very
economically devastated upstate, and I would like more
information on the jobs that it created in New York State.
Thank you.
Chairman King. The gentlelady from Illinois?
Mr. Merrill. We will get back to you. I cannot answer that
right here, but we will get back to you.
Mrs. Maloney. My time is up. Thank you.
Mr. Merrill. I understand.
[Subsequently Mr. Merrill provided the following information.]
General Electric estimates that the locomotive exports financed
with this Ex-Im Bank supported financing helped to sustain 130
jobs during 2003 and is projected to sustain 168 jobs during
2004.
Chairman King. Mrs. Biggert?
Mrs. Biggert. Thank you, Mr. Chairman.
Chairman Merrill, I understand that the Ex-Im Bank has an
advisory committee that provided recommendations for
improvements in 2002 and 2003. Could you tell us a little bit
about this committee and what their recommendations were?
Mr. Merrill. There is a general advisory committee made up
of a cross-section of businessmen, 16 people on it, that has
been really very helpful to us. They have been chaired the last
2 years by the Chairman of the Houston Port, Ed Manto. It has
had a series of suggestions for how we could be doing what we
are doing, that is, be more customer-friendly; support more
exporters. We found them very useful. They are actually all
very able people. With their help, we identified three states
where we ran a test program to see what we could do for the
local banks in those states. The three states happen to be, we
wanted states not like New York and California, which are so
complex, but Maryland, Colorado and Arizona, in which we tried
to look at how we could reach more exporters.
We took Colorado as an example. There are five major banks;
substantial exports. All five banks were doing business for
their exporters with banks in Seattle, with such banks as the
Southwest Bank of Texas. So as a result, we identified roughly
of the 14,00 banks in the United States, the 175 that do some
trade finance, applied it back to state levels, and we are
working with city-state partners and so forth, all of this as a
result of the work of the advisory committee.
[Subsequently Mr. Merrill provided the following information]
There is a general advisory committee made up of a cross-
section of businesspeople, 16 people on it, that has been
really very helpful to us. It has been chaired over the last 2
years by Edward Monto, Director of Metrobank, in 2003, and in
2004 by H. Thomas Kornegay, Executive Director of the Houston
Port Authority. It has had a series of suggestions for how we
could be doing what we are doing, that is, be more customer-
friendly; support more exporters. We found them very useful.
They are actually all very able people.
With their help, we identified two States where we ran what
might be called a test program to see what we could do for the
local banks in those States to reach mor exporters. The two
States happen to be Maryland and Colorado.
Take Colorado as an example. There are five major banks;
substantial exports. All five banks were doing business for
their exporters with correspondent banks such as Southwest Bank
of Texas.
Of the approximately 14,000 banks in the United States, 175 of
them do some trade finance. In addition to the banks, we are
working with City/State Partners.
Mrs. Biggert. So that was your implementation of their
recommendations.
Mr. Merrill. Yes, exactly.
Mrs. Biggert. Do you think that you could provide us with
copies of the advisory committee's report?
Mr. Merrill. Sure.
[The following information can be found on pages 54 and 116
in the appendix.]
Mrs. Biggert. Okay. And can you give an itemized list of
the recommendations?
Mr. Merrill. I do not know whether there is an itemized
list, but we will give you whatever we have.
Mrs. Biggert. Okay. And just the steps that you used to
implement?
Mr. Merrill. Advice is advice. Some things are doable. Some
things are advice that they would like to have. For example,
they would like to have a change in the MARAD requirements, PR
17. That is Greek to anybody here, but it is the requirement to
ship certain exports on American bottoms. We understand the
requirement. I personally served in the Merchant Marine. I
shipped out when I was 16, so I understand the U.S. Merchant
Marine. But we would like to get some waivers on an easier
basis on these. Again, just to stick with GE, when they ship a
turbine and it takes a special ship to ship it, it may not be
available in the time sequence and so forth, so making waivers
easier was one of the recommendations and we would like to do
that. But implementing it is not within our control, so a lot
of the recommendations we agree with, but do not have total
control. It is things we have to push on other people for. I
will stop there.
Mrs. Biggert. Would you consider doing that? Let's say, you
need statutory change or regulation change. Is this something
you look at then and then proceed to either come to the
Congress or the regulatory body?
Mr. Merrill. Yes.
Mrs. Biggert. Okay. Thank you, if you would do that.
You talked about the 19.7 percent, or almost reaching the
mark figure for assessing the amount of small business support
pursuant to the last authorization legislation. Is this the
same methodology that was used prior to 2002?
Mr. Merrill. Yes, it is exactly the same methodology, with
one minor exception, not an exception, but the sample is larger
just to be certain that it is accurate, but nothing was changed
in the methodology, just a larger sample.
Mrs. Biggert. Are you planning to make changes in the
future to the methodology?
Mr. Merrill. No, not that I know. Nobody has consulted me
on that, but I do not see why we would. Just as a private
businessman, I do not like to change methodologies lightly
because I like the comparisons from year to year.
Mrs. Biggert. Then how will you account for transactions
that originated under the memorandum of understanding with the
SBA?
Mr. Merrill. We would account for them, assuming a $2
million transaction, the first $500,000 would be credited to
SBA; the second $1.5 million would be credited to us. It would
not be double-counted.
[Subsequently Mr. Merrill provided the following information.]
We would account for them, assuming a $2 million transaction,
the first $1.5 million or their statuary limitation would be
credited to the SBA and the remanining amount minus the
lender's portion of the risk would be credited to us. It would
not be double-counted.
Mrs. Biggert. So there is no change there. Okay. Thank you
very much.
I yield back.
Chairman King. The gentlelady from New York, Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
In your exchange or answering the question to Carolyn
Maloney, you said that you are in the business, Ex-Im Bank is
in the business of supporting jobs.
Mr. Merrill. Yes, ma'am.
Ms. Velazquez. We all know that small businesses produce 75
percent of all new jobs. Small businesses account for 50
percent of all sales in this country. Small businesses employ
nearly 53 percent of the American workforce. In the last
recession, small business fast-growth companies created nearly
3.8 million jobs, compared to 3.3 million jobs created by big
companies.
So if you are in the business of creating jobs, how could
you come here and say that you so proud about the 19.7 percent
financing achieved by Ex-Im Bank, and then to say that the 20
percent is neither the ceiling nor the floor? But if we are
facing a jobless recovery in this country, don't you think that
then you should focus or reassess what your institution is
doing in providing more financing for small companies?
Mr. Merrill. Madam Congresswoman, the committee's dictate
or mandate or instruction was to target 20 percent.
Ms. Velazquez. At least 20 percent.
Mr. Merrill. Not including, not counting the
subcontractors.
Ms. Velazquez. Look, sir.
Mr. Merrill. Look, subcontractors are small businesses.
Ms. Velazquez. The 20 percent is regarding prime
contractors, not subcontractors. You know that.
Mr. Merrill. By definition----
Ms. Velazquez. Your definition.
Mr. Merrill. Well, anybody's definition. It is not likely
that a small business is going to be a prime contractor. You
are not going to build a power plant----
Ms. Velazquez. What I am saying to you, sir, is that 20
percent, the law, the reauthorization of 2002, says 20 percent,
at least 20 percent. It is just common sense that what we need
in this country is to create jobs.
Mr. Merrill. I agree.
Ms. Velazquez. You should amend what you are doing and
reassess, and make sure that we have more financing for small
business.
Mr. Merrill. We are doing everything. I do not know how I
can change and improve the culture of this Bank beyond its
focus on small business because we are totally focused on
increasing small business. We agree with you. We are almost
totally focused.
Ms. Velazquez. Are you prepared, based on the reality of
the economy, to reassess the 20 percent, instead of being the
ceiling, instead of being the floor?
Mr. Merrill. The problem is that we are the lender of last
resort. They have to come to us.
Ms. Velazquez. Okay, sir. In light of the fact that the
face of small business in America is changing, that we have
more, that women are the fastest-growing sector in terms of
small businesses in our economy; there are more women, more
Latinos, more Blacks. Do you have any data as to how much money
from the 19.7 percent of finance has gone to minority
contractors?
Mr. Merrill. Yes, ma'am, I do. I would actually like to
read it to you. We have the measurement for the whole Bank. We
do not have a measurement on the 19.7 percent.
Ms. Velazquez. Okay. Would you be prepared to send us, this
subcommittee, data?
Mr. Merrill. Yes, ma'am. I would also like to answer the
question.
Ms. Velazquez. But you said that you do not have the data?
Mr. Merrill. Not on the basis of the 20 percent, but on the
basis of the whole Bank.
Ms. Velazquez. No. I am referring to the 20 percent.
Mr. Merrill. In that case, I will have to get back to you.
Ms. Velazquez. Would you please submit to this committee in
writing?
[Subsequently Mr. Merrill provided the following information.]
In terms of number of transactions, minority and woman-owned
businesses accounted for 219 of the 2,258 small business
transactions or 9.7 percent.
In FY 2003, Ex-Im Bank provided $2.1 billion in small business
support. Of the $2.1 billion, minority and woman-owned
businesses accounted for $135,808,144, or 6.54 percent of Ex-Im
Bank's small business support.
Mr. Merrill. I will have to get back to you with that. I
would like to say that among the larger corporations, that is
the Fortune 500 crowd, if you will, the GEs of the world, GE
has 11 percent minority contracting. It is 30 percent for Case
New Holland. The Bank's administrative contracting awards to
small business are 57 percent, and the awards to African
American businesses are 18 percent. That is out of the total of
the Bank, not out of the 20 percent. I will have to get back to
you on the 20 percent.
Ms. Velazquez. Thank you.
If I may, Mr. Chairman, this is a very important question
because of the arrangement between SBA and Ex-Im Bank. You know
that the Administration's fiscal year 2005 budget drastically
cuts the 7(A) guarantee loan program, out of which the small
exporters obtain funding such as export working capital. Now
that less funding is going to be available for small exporters
through the SBA export working capital, is the Ex-Im Bank going
to start handling smaller loan requests?
Mr. Merrill. Yes, ma'am. We will handle them. Last year, we
financed $67,000 worth of used clothing to Ghana. We will
finance any small business at any level from any State.
Ms. Velazquez. Thank you, Mr. Chairman.
Chairman King. The gentleman from South Carolina?
Mr. Barrett. Thank you, Mr. Chairman.
Mr. Merrill, thank you for coming today. I appreciate it.
One of my constituents asked a question the other day. I
did not know the answer and it was very timely. Does the Ex-Im
Bank offer standby letters of credit to foreign purchasers of
U.S. goods?
Mr. Merrill. To foreign purchasers of U.S. goods?
Mr. Barrett. Yes.
Mr. Merrill. Yes, we would do that. It is a technical arm,
but in a general sense certainly we would lend to a Russian
company or Kazakh company or a Vietnamese company, Vietnam
Airlines, that was going to purchase something from the United
States. Certainly. We will finance 85 percent of an export,
whoever buys it. And we will finance 100 percent of working
capital for an export. But it has to be the export of goods or
services from the United States that creates American jobs. Who
the buyer is, the buyer is either sovereign governments or
private businesses or banks in 90 foreign countries.
Mr. Barrett. How does that work? What do you think about
that policy?
Mr. Merrill. It is the basic business of the Bank.
Mr. Barrett. We had a gentleman, a Mr. Taylor from Avondale
Mills, that had a proposal that was very similar to this. I
think he had some twists in it or was asking a couple of
different things. We faxed that proposal to your office.
Mr. Merrill. I see a head nodding behind me here. We did
2,707 transactions.
Mr. Barrett. I understand that. But what I would like for
you guys to do, just since it is a practice that you all are
doing, if you would take a serious look at that proposal and
get me back something in writing on it, I would greatly
appreciate that.
Mr. Merrill. I have a note here that says we will. I will
just read it to you.
[The following information can be found on page 179 in the
appendix.]
Mr. Barrett. Okay. Great.
Mr. Merrill. This is information, not secrecy.
Mr. Barrett. Absolutely.
Mr. Merrill. We insure LCs. We do not issue them. A letter
of credit would be from a foreign bank. We would insure it.
Mr. Barrett. Okay.
Mr. Merrill. The staff is reviewing it. This proposal is
under review. The case you referenced is obviously known to our
General Counsel and our Chief Financial Officer.
Mr. Barrett. And you guys have been extremely helpful, your
whole staff. Mr. Chairman, I want to thank you. But if you all
could, as quickly as possible, get that to me and my staff, I
would greatly appreciate it.
Mr. Merrill. Let's see what we can do. When you raise
something here, I will put a searchlight on it.
Mr. Barrett. Thank you, Mr. Chairman.
Mr. Merrill. Thank you.
Chairman King. Mr. Sanders?
Mr. Sanders. Thank you, Mr. Chairman.
Let me just read for the record something and let the
American people determine how successful the Export-Import Bank
has been in creating jobs, jobs, jobs. Is that your motto?
Mr. Merrill. Yes.
Mr. Sanders. Okay, here we go. Jobs, jobs, jobs.
Mr. Merrill. Jobs through exports is the motto.
Mr. Sanders. Since 1975, General Electric has eliminated
more than 260,000 American jobs, while receiving $2.5 billion
in loans and guarantees from the Export-Import Bank. It does
not sound too successful to me. Boeing is, I believe, the
largest recipient of Export-Import taxpayer subsidies and
grants. Since 1990, Boeing had laid off 135,000 American
workers, increasingly outsourcing design work to China, Russia
and Japan, while receiving $18 billion in direct loans and loan
guarantees. Now, maybe the loss of 135,000 jobs does not
concern Export-Import, but some of us worry a little bit about
that. Motorola has laid off close to 43,000 workers since 2001,
and received $190 million in direct loans and loan guarantees
from the U.S. Export-Import Bank.
Jobs, jobs, jobs. You are right. We are losing jobs, jobs,
jobs big time. Now, General Motors since 2001, 3 years ago, GM
has laid off 37,500 workers, while receiving over $500 million
from the U.S. Export-Import Bank, and in fact, as you know,
they are now going to be manufacturing a lot of auto supplies
in China, so we expect job loss to go way down.
So the first question, and I am going to ask you several
questions, the first question is, why do taxpayers in this
country provide billions of dollars in loans and loan
guarantees and subsidies to companies that are throwing
hundreds and hundreds of thousands of American workers out on
the street?
Mr. Chairman, I used to be the Mayor of a city. We dealt
with the business community. The fallacy of the Export-Import
Bank is that Mr. Merrill will come and say, look what we did in
Erie, Pennsylvania; we created 700 jobs. But they are not
looking at what General Electric did in its entirety. The way
sensible government works is you say to the business community,
we are prepared to help you. What are you going to do for
workers in America? How are you going to grow jobs? Don't tell
us you are growing jobs in Erie, New York, when you are laying
off hundreds of thousands of people elsewhere, because we do
not pay attention to that. We are just looking project by
project. That is an absurd philosophy.
I think Ms. Velazquez was right a moment ago in saying job
creation is taking place among small businesses, medium-size
businesses. What about telling the large corporations that if
they are not interested in growing jobs in the United States of
America, you are not going to support them; that if they want
money from the taxpayers of this country, we will help them
when they tell us and promise us they are going to start
growing jobs in America, not one project while they are laying
off hundreds of thousands of people elsewhere.
Now, to add insult to injury, I gather with a straight
face, Mr. Merrill, you are telling us that the Export-Import
Bank, did I hear you correctly, is the agency of last resort
for loans?
Mr. Merrill. Yes.
Mr. Sanders. Okay. You are telling the American people.
Mr. Merrill. We are the lender of last resort.
Mr. Sanders. Excuse me. I heard what you said. You are
going to tell me with a straight face that General Electric,
which itself is one of the largest financial institutions in
America, cannot get loans anyplace else but from the taxpayers
and the workers of America, many of whom have lost their jobs
from General Electric? Are you going to tell me that with a
straight face that GE is a struggling small business, a
minority business in the barrio of New York, and they just
cannot find financing, look as hard as they can. Poor GE. You
are going to tell me that and the American people with a
straight face?
Last question that I would have for you, okay. This is such
an absurd argument that only in Washington, D.C. would anyone
regard this as a vaguely rational argument. I would hope and
appreciate your giving me a list of the top 10 recipients of
Export-Import funding and tell me how many hundreds of
thousands of jobs those companies have lost, laid off; how many
hundreds of thousands of American workers they have laid off.
[The following information can be found on page 180 in the
appendix.]
Mr. Chairman, I want you to respond. Mr. Chairman, I think
it is time to end this joke of the Export-Import Bank. What we
need is serious help for small-and medium-size businesses in
this country who want to grow decent-paying jobs in America,
who are proud of American workers, not companies like GE who
are announcing to the world that they are going to China; they
are going all over the world; and they are going to lay off
American workers.
Mr. Merrill, tell me why the American taxpayer should be
supporting a company like GE who has laid off hundreds of
thousands of workers and whose CEO announces to the world he is
going to China. Tell me why.
Chairman King. The gentleman's time has expired. Mr.
Merrill will have the opportunity to answer the question.
Mr. Merrill. There is limited time. I can only say that I
agree absolutely with Congresswoman Velazquez that the job
creation in the United States for a very long time, quite a few
years before I got here, has been mainly or almost completely
small business. That is why we are so focused on small
business. I could not agree more. Our object is to create as
many small-and medium-size business jobs as we possibly can and
support as many of the 240,000 exporters as we can. I want to
put that on the record.
Second, I think the quickest answer is with a number. I
will just leave the one number here. Thirty-five years ago, the
U.S. exported $42 billion worth of things. For the last 3 or 4
or 5 years, we have exported $1.1 trillion worth of things, out
of an $11 trillion economy. Roughly speaking, $1.1 trillion is
about the same size as the entire economy of China. It is three
times the total economy of Russia. It is a lot of exports. So
the movement toward exports, any way you want to measure it,
has substantially created American jobs with or without Ex-Im
Bank support. I will just stop there.
Mr. Sanders. You did not answer my question.
Mr. Merrill. Say again?
Mr. Sanders. You did not answer my question.
Chairman King. The time of the gentleman has expired.
Mr. Manzullo?
Mr. Manzullo. Thank you.
Before I ask my question, perhaps I can answer it. In the
district that I represent, we have a $256 million Boeing
presence; $110 million Caterpillar presence; $95 million John
Deere presence. Those companies support hundreds and hundreds
of small machine shops and mom-and-pop shops throughout the
entire district. Whenever one of those machines goes over,
whenever an aircraft goes over, that represents thousands of
jobs in my district that are all small businesses.
Mr. Merrill. Thank you.
Mr. Manzullo. I know that perhaps this will not help Mr.
Sanders in his answer, but I do know this, that every time a
Boeing aircraft is sold to China or any other place in the
world, and China is buying more Boeings this year than America,
that represents thousands and thousands of jobs. In the
district that I represent, we are at 11 percent unemployment.
It just dropped to 10.6 percent, and hopefully next month we
will be in the single-digit unemployment. Were it not for the
sale of aircraft and this giant machinery which is supported by
Ex-Im, I can tell you our unemployment would be 20 or 30
percent.
So thank you for your leadership of the Ex-Im Bank. I
especially want to thank you for the job that you are doing
with regard to small businesses. I do not know of one small
business that has been turned down by Ex-Im Bank because they
are too little. Perhaps they did not fit into the parameters,
but they are always given a fair shake. They get good service
on it, and I think you are doing a great job just to be off .03
percent on your goal for the total dollar amount. I think that
is exemplary what you are doing there.
Did you like that?
Mr. Merrill. I thank you for the support.
Mr. Manzullo. You bet.
Mr. Merrill. I am honored and flattered. Thank you, thank
you, thank you.
Mr. Manzullo. You bet. Now, I have just a couple of very
short questions of Phil. Last year, the Ex-Im Bank, normally
they designate one person on the board that is the small
business person. We heard that former Senator Cleland was going
to be that person.
Mr. Merrill. Yes.
Mr. Manzullo. Is that correct?
Mr. Merrill. That is correct. He wants to do it.
Mr. Manzullo. Okay.
Mr. Merrill. He served on the Small Business Committee.
Mr. Manzullo. That is correct. So he is still the
designated person on that?
Mr. Merrill. Yes.
Mr. Manzullo. Great.
The second question is, Ex-Im has been working with the
business community to develop a new and approved dealer-
distributor financing program over the past year that will
benefit the small-and medium-size equipment manufacturers, sort
of floor financing overseas. Given the strong support for the
program, can you tell us when we can expect the dealer
financing program to be available to our manufacturers?
Mr. Merrill. Very shortly is the answer. The floor planning
issue is one I understand. The issue at stake is being
resolved. I cannot say definitively, but we think it will be
resolved. The issue is whether the creditor, the floor planner,
that is, the distributor in let's just say Ecuador that takes
the Caterpillar tractor, or the ultimate customer to which they
are sold are the buyers. And that is being worked out. That is
the remaining issue.
Mr. Manzullo. Okay. So it is working out the legals of it,
but the desire to do it is all set there?
Mr. Merrill. The desire to do it is there. We are going to
get it.
Mr. Manzullo. Thank you.
I yield back my time.
Mr. Merrill. We are going to get it, with as much executive
force as I can put behind it, which is not inconsiderable. We
are going to try to get it done.
Mr. Manzullo. Okay. I appreciate it.
Thank you. I yield back.
Chairman King. Thank you, Mr. Manzullo.
Mr. Watt?
Mr. Watt. Thank you, Mr. Chairman.
Thank you, Mr. Merrill, for being here. I have generally
been a supporter of the Ex-Im Bank, but have a couple of
questions that hopefully will help me understand a couple of
things.
First of all, the name of the Bank is Export-Import Bank. I
notice that you gave us all the figures on exports and no
figures on imports. Is the name of the Bank inappropriate or do
you all keep some records having to do with the extent of
imports that the Bank supports? Or do you all support any
imports?
Mr. Merrill. It is a wonderful question. Obviously, you
think clearly and logically. The answer is that to change the
brand name of Ex-Im would be like taking the ``Cola'' off Coca-
Cola.
Mr. Watt. I understand that. That is the public relations
statement.
Mr. Merrill. Yes, I understand.
Mr. Watt. Are you saying that the name of the Bank is
misleading? You do not do any support of imports? Is that the
bottom line?
Mr. Merrill. No, we do not.
Mr. Watt. Okay. That is fine.
Mr. Merrill. I will tell you separately later why.
Mr. Watt. Okay. It was not a trick question.
Mr. Merrill. No imports; all exports.
Mr. Watt. All exports.
The second question was, you indicated, and I tried to find
it in your prepared testimony, but could not find the exact
wording of what you said in your oral testimony, that Ex-Im
Bank operates only where businesses will not or cannot go
without assistance or something to that effect.
Mr. Merrill. Can I straighten it out?
Mr. Watt. Yes, tell me what you said, first, and then I
want to ask a question.
Mr. Merrill. I am very careful not to interrupt a
Congressman when he is talking.
What I said was that we only go, we only finance where
private capital will not go alone.
Mr. Watt. Okay. I thought that is what you were saying. In
this context, I think Mr. Sanders's question about loans to GE
and other major, particularly companies that provide financing
themselves, either puts you in a situation where the statement
that you just made is not true, or the Export-Import Bank is an
influence in markets that if you think theoretically would not
be an appropriate influence in a free trade context. You are
shoring up things that if the market would take care of itself,
which most free traders think it should, would resolve itself.
Am I missing something here?
Mr. Merrill. No, you are not. You got it right. I would
probably be in that camp.
Mr. Watt. Okay, well then----
Mr. Merrill. Wait a minute. I have to get one phrase out
here. If there were not 28 other countries providing----
Mr. Watt. Okay. That is actually the question I am driving
to. Is this really the assistance that the Export-Import Bank
is providing a subsidy? And if other countries are doing the
same thing, why wouldn't it be a subsidy if they are doing it,
and why wouldn't the WTO consider that inappropriate in this
free trade international trade world that we are living in?
Mr. Merrill. The WTO has carved out an exception for the
OECD. We have a common arrangement. It is called the
Arrangement with the other OECD countries under which we have
agreed to common terms, that is long-term loans, 12 years
roughly, medium-term and so forth, and common financing
arrangements, within certain parameters.
Mr. Watt. But those are on strictly business terms, I would
think, not subsidized market terms where ordinary business
would not go. Isn't this a market subsidy?
Mr. Merrill. We are not subsidizing anybody. The Bank, does
not subsidize anybody. They pay a fee for us, for political
insurance or for risk insurance. If you know somebody who wants
to take Bechtel's position or the $160 million we put into the
BTC pipeline in Azerbaijan----
Mr. Watt. But isn't the whole philosophy of free trade to
allow the market to take care of its own risk? Why should the
government be playing that role?
Mr. Merrill. Theoretically, Congressman, I agree with you.
Practically, Boeing has to compete with Airbus; Caterpillar has
to compete with----
Mr. Watt. But if all countries withdrew from this, wouldn't
that leave us where you say the market should be in a free
market context?
Mr. Merrill. Yes, it would.
Chairman King. The time of the gentleman has expired.
Mr. Merrill. Yes, it would. Can I get one crack at your
final question?
Mr. Watt. He wants to give it one final context. I think I
am laying a platform for where Mr. Paul is probably going to go
anyway. I am sounding very libertarian at this point.
Mr. Merrill. Just let me say, this is a stretch analogy,
but you would not need any policemen if there were no criminals
either. I mean, the fact that you have all these countries----
Mr. Watt. It sounds like the Export-Import Bank is the
criminal here, not the policemen.
Mr. Merrill. That is why it is a stretch analogy.
Mr. Watt. Okay. All right.
Chairman King. Now that Mr. Watt has laid the foundation
and the platform, Mr. Paul?
Mr. Paul. Thank you, Mr. Chairman.
Welcome, Mr. Merrill.
Mr. Merrill. Thank you.
Mr. Paul. You said the gentleman from North Carolina speaks
clearly and logically.
Mr. Merrill. Thanks.
Mr. Paul. That is good and I will not contest that. But I
want to see if I can get the same compliment, so I am going to
try and follow-up. I notice in our memorandum from our staff
here in the committee, it states tensions exist between the
Bank's mission and the United States's commitment to free
markets. I would say yes, there certainly are tensions. There
is a contradiction. There is a real conflict. I think you
indicated maybe that we should not use the word ``subsidies''
too generously, and yet the Bank would not come to the Congress
for appropriations and authority if somebody did not get some
specific benefits. So I think there is always a special benefit
which is a subsidy, whether or not it is in cash. Maybe it is a
competitive edge, and there is always a cost. There is involved
here an allocation of credit, and the victim is never found,
never seen. Especially in an area where there is tighter
credit, there are victims that suffer. Although there may be a
small businessman who gets the benefit, there is some other
small businessman who is getting a disadvantage from the
subsidy.
My question is, how can you rationalize support for this
organization? Because we on our side, we are supposed to be the
champions. They are not supposed to be the champions of the
marketplace. We are. We are supposed to be the champions of the
marketplace. We are not champions of subsidies. We declare
freedom and free markets and less government, and yet we are
pushing all this and we give all these programs.
So don't you think for your support of this organization,
don't you have to do a lot of rationalization and reject some
of the very principles that we stand for?
Mr. Merrill. There are two answers to that question,
congressman. Yes, that is a perfectly logical and clear set of
principles with which it is hard to argue. I would not argue. I
think that answer number one is practical. When a small
businessman, I am sorry that Congressman Manzullo left, but
when a small businessman in Moline, in a specific case,
exported $20 million worth of trucks to Uzbekistan, no bank is
going to finance that without a government guarantee. Do we
want to make the sale or do we want to have a French or a
German or an Italian company make the sale?
Theoretically, you are absolutely right. I agree with you.
Practically, I want the guy in Moline to make the sale.
Mr. Paul. So your argument is that freedom is impractical,
which I disagree with.
Mr. Merrill. I did not say that.
Mr. Paul. Well, indirectly. But let me follow up with
another one, and maybe I will get a little bit further on this
next question. I am interested in the Trade Bank of Iraq. That
has been set up. We waste no time in trying to get some
benefits in there, maybe to our corporations. It has been set
up at $500 million. Has that been used yet? And if it has been,
has any corporation been participating in Iraq?
Mr. Merrill. There has only been one use so far, but the
Trade Bank of Iraq, which basically we initiated. Peter Saba,
Chief Operating Officer, did the basic legwork, I would say. We
put $500 million into it, or against it. We raised another $2
billion, $500 million from Japan, $250 million from Italy, and
15 other countries. So far, there has only been one, a
consortium of 13 banks administered by J.P. Morgan which won
the contract, not with us, but with the Coalition Provisional
Authority.
There has only been one contract so far to the U.S.; that
was $15 million. I hope you have a sense of humor for this, for
a fogging machine out of the United States; a set of fogging
machines; 200 of them. The problem is very simple in Iraq.
First, either the taxpayers are going to put up the money or
there is going to be foreign investment which is going to pump
oil or invest there.
The three issues are sovereignty, security, which is
obvious, and precedence over existing debt. Under the current
circumstances, Iraq has $125 billion in existing debt and $30
billion in unpaid compensation awards plus additinal
outstanding claims. So companies are understandably unwilling
at the moment, or reluctant, to invest over the long term
there. Nevertheless, we want to be prepared for when the
government, the hand-off takes place and the debt is supposed
to be written off by the Paris Club at the end of the year.
Whenever a government comes into Iraq, we want to be prepared
to make available lending.
One other thing I have to explain, and that is the Trade
Bank applies not only for U.S. exporters, but for exporters
from other countries as well, any country. It is multilateral.
It is not U.S.-only.
Chairman King. The time of the gentleman has expired. In
the interest of fairness, if you want to keep up with your
partner, Mr. Watt, you can take one more question.
Mr. Paul. No, I am not going to.
Chairman King. Okay. Thank you.
Mr. Merrill. I thank you both.
Chairman King. This is new access, Mr. Paul, a broad access
here in the committee.
Mr. Merrill, I want to thank you for your testimony this
morning. It has really been helpful to us. I would note that
some members may have additional questions for you. They can
submit them in writing and the record will remain open for 30
days.
With that, I thank you for your testimony and the
subcommittee stands adjourned.
[Whereupon, at 11:09 a.m., the subcommittee was adjourned.]
A P P E N D I X
May 6, 2004
[GRAPHIC] [TIFF OMITTED] T7753.001
[GRAPHIC] [TIFF OMITTED] T7753.002
[GRAPHIC] [TIFF OMITTED] T7753.003
[GRAPHIC] [TIFF OMITTED] T7753.004
[GRAPHIC] [TIFF OMITTED] T7753.005
[GRAPHIC] [TIFF OMITTED] T7753.006
[GRAPHIC] [TIFF OMITTED] T7753.007
[GRAPHIC] [TIFF OMITTED] T7753.008
[GRAPHIC] [TIFF OMITTED] T7753.009
[GRAPHIC] [TIFF OMITTED] T7753.010
[GRAPHIC] [TIFF OMITTED] T7753.011
[GRAPHIC] [TIFF OMITTED] T7753.012
[GRAPHIC] [TIFF OMITTED] T7753.013
[GRAPHIC] [TIFF OMITTED] T7753.014
[GRAPHIC] [TIFF OMITTED] T7753.015
[GRAPHIC] [TIFF OMITTED] T7753.016
[GRAPHIC] [TIFF OMITTED] T7753.017
[GRAPHIC] [TIFF OMITTED] T7753.018
[GRAPHIC] [TIFF OMITTED] T7753.019
[GRAPHIC] [TIFF OMITTED] T7753.020
[GRAPHIC] [TIFF OMITTED] T7753.021
[GRAPHIC] [TIFF OMITTED] T7753.022
[GRAPHIC] [TIFF OMITTED] T7753.023
[GRAPHIC] [TIFF OMITTED] T7753.024
[GRAPHIC] [TIFF OMITTED] T7753.025
[GRAPHIC] [TIFF OMITTED] T7753.026
[GRAPHIC] [TIFF OMITTED] T7753.027
[GRAPHIC] [TIFF OMITTED] T7753.028
[GRAPHIC] [TIFF OMITTED] T7753.029
[GRAPHIC] [TIFF OMITTED] T7753.030
[GRAPHIC] [TIFF OMITTED] T7753.031
[GRAPHIC] [TIFF OMITTED] T7753.032
[GRAPHIC] [TIFF OMITTED] T7753.033
[GRAPHIC] [TIFF OMITTED] T7753.034
[GRAPHIC] [TIFF OMITTED] T7753.035
[GRAPHIC] [TIFF OMITTED] T7753.036
[GRAPHIC] [TIFF OMITTED] T7753.037
[GRAPHIC] [TIFF OMITTED] T7753.038
[GRAPHIC] [TIFF OMITTED] T7753.039
[GRAPHIC] [TIFF OMITTED] T7753.040
[GRAPHIC] [TIFF OMITTED] T7753.041
[GRAPHIC] [TIFF OMITTED] T7753.042
[GRAPHIC] [TIFF OMITTED] T7753.043
[GRAPHIC] [TIFF OMITTED] T7753.044
[GRAPHIC] [TIFF OMITTED] T7753.045
[GRAPHIC] [TIFF OMITTED] T7753.046
[GRAPHIC] [TIFF OMITTED] T7753.047
[GRAPHIC] [TIFF OMITTED] T7753.048
[GRAPHIC] [TIFF OMITTED] T7753.049
[GRAPHIC] [TIFF OMITTED] T7753.050
[GRAPHIC] [TIFF OMITTED] T7753.051
[GRAPHIC] [TIFF OMITTED] T7753.052
[GRAPHIC] [TIFF OMITTED] T7753.053
[GRAPHIC] [TIFF OMITTED] T7753.054
[GRAPHIC] [TIFF OMITTED] T7753.055
[GRAPHIC] [TIFF OMITTED] T7753.056
[GRAPHIC] [TIFF OMITTED] T7753.057
[GRAPHIC] [TIFF OMITTED] T7753.058
[GRAPHIC] [TIFF OMITTED] T7753.059
[GRAPHIC] [TIFF OMITTED] T7753.060
[GRAPHIC] [TIFF OMITTED] T7753.061
[GRAPHIC] [TIFF OMITTED] T7753.062
[GRAPHIC] [TIFF OMITTED] T7753.063
[GRAPHIC] [TIFF OMITTED] T7753.064
[GRAPHIC] [TIFF OMITTED] T7753.065
[GRAPHIC] [TIFF OMITTED] T7753.066
[GRAPHIC] [TIFF OMITTED] T7753.067
[GRAPHIC] [TIFF OMITTED] T7753.068
[GRAPHIC] [TIFF OMITTED] T7753.069
[GRAPHIC] [TIFF OMITTED] T7753.070
[GRAPHIC] [TIFF OMITTED] T7753.071
[GRAPHIC] [TIFF OMITTED] T7753.072
[GRAPHIC] [TIFF OMITTED] T7753.073
[GRAPHIC] [TIFF OMITTED] T7753.074
[GRAPHIC] [TIFF OMITTED] T7753.075
[GRAPHIC] [TIFF OMITTED] T7753.076
[GRAPHIC] [TIFF OMITTED] T7753.077
[GRAPHIC] [TIFF OMITTED] T7753.078
[GRAPHIC] [TIFF OMITTED] T7753.079
[GRAPHIC] [TIFF OMITTED] T7753.080
[GRAPHIC] [TIFF OMITTED] T7753.081
[GRAPHIC] [TIFF OMITTED] T7753.082
[GRAPHIC] [TIFF OMITTED] T7753.083
[GRAPHIC] [TIFF OMITTED] T7753.084
[GRAPHIC] [TIFF OMITTED] T7753.085
[GRAPHIC] [TIFF OMITTED] T7753.086
[GRAPHIC] [TIFF OMITTED] T7753.087
[GRAPHIC] [TIFF OMITTED] T7753.088
[GRAPHIC] [TIFF OMITTED] T7753.089
[GRAPHIC] [TIFF OMITTED] T7753.090
[GRAPHIC] [TIFF OMITTED] T7753.091
[GRAPHIC] [TIFF OMITTED] T7753.092
[GRAPHIC] [TIFF OMITTED] T7753.093
[GRAPHIC] [TIFF OMITTED] T7753.094
[GRAPHIC] [TIFF OMITTED] T7753.095
[GRAPHIC] [TIFF OMITTED] T7753.096
[GRAPHIC] [TIFF OMITTED] T7753.097
[GRAPHIC] [TIFF OMITTED] T7753.098
[GRAPHIC] [TIFF OMITTED] T7753.099
[GRAPHIC] [TIFF OMITTED] T7753.100
[GRAPHIC] [TIFF OMITTED] T7753.101
[GRAPHIC] [TIFF OMITTED] T7753.102
[GRAPHIC] [TIFF OMITTED] T7753.103
[GRAPHIC] [TIFF OMITTED] T7753.104
[GRAPHIC] [TIFF OMITTED] T7753.105
[GRAPHIC] [TIFF OMITTED] T7753.106
[GRAPHIC] [TIFF OMITTED] T7753.107
[GRAPHIC] [TIFF OMITTED] T7753.108
[GRAPHIC] [TIFF OMITTED] T7753.109
[GRAPHIC] [TIFF OMITTED] T7753.110
[GRAPHIC] [TIFF OMITTED] T7753.111
[GRAPHIC] [TIFF OMITTED] T7753.112
[GRAPHIC] [TIFF OMITTED] T7753.113
[GRAPHIC] [TIFF OMITTED] T7753.114
[GRAPHIC] [TIFF OMITTED] T7753.115
[GRAPHIC] [TIFF OMITTED] T7753.116
[GRAPHIC] [TIFF OMITTED] T7753.117
[GRAPHIC] [TIFF OMITTED] T7753.118
[GRAPHIC] [TIFF OMITTED] T7753.119
[GRAPHIC] [TIFF OMITTED] T7753.120
[GRAPHIC] [TIFF OMITTED] T7753.121
[GRAPHIC] [TIFF OMITTED] T7753.122
[GRAPHIC] [TIFF OMITTED] T7753.123
[GRAPHIC] [TIFF OMITTED] T7753.124
[GRAPHIC] [TIFF OMITTED] T7753.125
[GRAPHIC] [TIFF OMITTED] T7753.126
[GRAPHIC] [TIFF OMITTED] T7753.127
[GRAPHIC] [TIFF OMITTED] T7753.128
[GRAPHIC] [TIFF OMITTED] T7753.129
[GRAPHIC] [TIFF OMITTED] T7753.130
[GRAPHIC] [TIFF OMITTED] T7753.131
[GRAPHIC] [TIFF OMITTED] T7753.132
[GRAPHIC] [TIFF OMITTED] T7753.133
[GRAPHIC] [TIFF OMITTED] T7753.134
[GRAPHIC] [TIFF OMITTED] T7753.135
[GRAPHIC] [TIFF OMITTED] T7753.136
[GRAPHIC] [TIFF OMITTED] T7753.137
[GRAPHIC] [TIFF OMITTED] T7753.138
[GRAPHIC] [TIFF OMITTED] T7753.139
[GRAPHIC] [TIFF OMITTED] T7753.140
[GRAPHIC] [TIFF OMITTED] T7753.141
[GRAPHIC] [TIFF OMITTED] T7753.142
[GRAPHIC] [TIFF OMITTED] T7753.143
[GRAPHIC] [TIFF OMITTED] T7753.144
[GRAPHIC] [TIFF OMITTED] T7753.145
[GRAPHIC] [TIFF OMITTED] T7753.146
[GRAPHIC] [TIFF OMITTED] T7753.147
[GRAPHIC] [TIFF OMITTED] T7753.148
[GRAPHIC] [TIFF OMITTED] T7753.149
[GRAPHIC] [TIFF OMITTED] T7753.150
[GRAPHIC] [TIFF OMITTED] T7753.151
[GRAPHIC] [TIFF OMITTED] T7753.152
[GRAPHIC] [TIFF OMITTED] T7753.153
[GRAPHIC] [TIFF OMITTED] T7753.154
[GRAPHIC] [TIFF OMITTED] T7753.155
[GRAPHIC] [TIFF OMITTED] T7753.156
[GRAPHIC] [TIFF OMITTED] T7753.157