[Senate Hearing 109-1058]
[From the U.S. Government Publishing Office]
S. Hrg. 109-1058
THE REAUTHORIZATION OF THE EXPORT-IMPORT BANK
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
EXAMINATION OF THE EXPORT-IMPORT BANK'S CHARTER, TO REAUTHORIZE THE
BANK TO CONTINUE ITS WORK AS THE UNITED STATE'S OFFICIAL EXPORT CREDIT
AGENCY
__________
JUNE 20, 2006
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Skip Fischer, Senior Professional Staff Member
Andrew Olmem, Counsel
Joe Cwiklinski, Legislative Assistant
Steve Kroll, Democratic Special Counsel
Dean V. Shahinian, Democratic Senior Counsel
Catherine Cruz Wojtasik, Democratic Legislative Assistant
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
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TUESDAY, JUNE 20, 2006
Page
Opening statement of Senator Hagel............................... 1
Opening statements, comments, or prepared statements of:
Senator Sarbanes............................................. 2
Senator Crapo................................................ 12
WITNESSES
Clay Lowery, Assistant Secretary for International Affairs, U.S.
Department of the Treasury..................................... 4
Prepared statement........................................... 40
Response to written questions of Senator Sarbanes............ 73
James H. Lambright, Acting Chairman and President, Export-Import
Bank........................................................... 6
Prepared statement........................................... 43
James D. McClaskey, President and CEO, Midrex Technologies, Inc.. 21
Prepared statement........................................... 49
Response to a written question of Senator Bayh............... 75
Harry G. Hayman, III, Senior Vice President and Head of Wholesale
Banking, Commerce Bank......................................... 25
Prepared statement........................................... 59
David Ickert, Vice President and CFO, Air Tractor, Inc........... 27
Prepared statement........................................... 62
Robert E. Scott, Ph.D., Director of International Programs,
Economic Policy Institute...................................... 29
Prepared statement........................................... 70
(iii)
THE REAUTHORIZATION OF THE EXPORT-IMPORT BANK
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TUESDAY, JUNE 20, 2006
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, D.C.
The Committee met, pursuant to notice, at 10:08 a.m., in
room 538, Dirksen Senate Office Building, Hon. Chuck Hagel,
presiding.
OPENING STATEMENT OF SENATOR CHUCK HAGEL
Senator Hagel. The Committee will come to order. Good
morning.
This morning the Committee will hear testimony on the
reauthorization of the Export-Import Bank of the United States
(Ex-Im Bank). Ex-Im Bank is the official export credit agency
of the United States. Since its creation in 1934, Ex-Im Bank
has played a vital role in promoting U.S. exports. It provides
financial supports to U.S. exporters when the private sector is
unable or unwilling to do so.
Last year, Ex-Im Bank authorized more than $13 billion in
loan and capital guarantees and insurance to support nearly $18
billion in U.S. exports.
The Bank is governed by a renewable charter and was last
reauthorized in 2002 for a 4-year term that expires on
September 30, 2006.
As the former Chairman of International Trade and Finance
Subcommittee, I helped draft parts of the 2002 Reauthorization
Bill authored by Senator Sarbanes.
Ex-Im Bank serves a valuable role in this Nation's trade
policy. It gives American businesses a tool with which to
compete with foreign competitors. It helps lower our trade
deficit and it promotes growth and jobs in every sector of our
economy. Ex-Im Bank has been an efficient and cost-effective
way of supporting U.S. exports.
Earlier this year, Senator Crapo's Subcommittee on
International Trade and Finance held two Subcommittee hearings
on reauthorization of the Bank.
Today's full Committee hearing will consider whether Ex-Im
Bank is using its resources and legislative authority to assist
U.S. companies efficiently with taxpayer dollars.
Our hearing will examine issues surrounding tied aid, which
generally requires the recipient country to use all or part of
the aid to purchase goods from the donor country.
We will look at how Ex-Im Bank uses its tied aid credit
program to counteract tied aid from other countries, and how
the procedures for administering the program have worked.
In addition, we will discuss small business initiatives,
such as extending underwriting authority to Ex-Im Bank's Small
Business Division.
And finally, we will examine the process by which Ex-Im
Bank implements its economic impact procedures.
The Committee will first hear testimony from Mr. James
Lambright, Acting Chairman and President of Ex-Im Bank, and
Assistant Secretary of Treasury for International Affairs, Clay
Lowery. We welcome back to the Committee both Mr. Lambright and
Assistant Secretary Lowery.
The second panel will consist of Mr. James D. McClaskey,
President and Chief Executive Officer of Midrex Technologies,
Inc., on behalf of the Coalition for Employment Through
Exports; Mr. Harry G. Hayman, Senior Vice President, Commerce
Bank on behalf of the Bankers Association for Finance and
Trade; Mr. David Ickert, Vice President, Air Tractor, Inc., on
behalf of the Small Business Exporters Association; and Dr.
Robert E. Scott, Director of International Programs, Economic
Policy Institute.
We thank the witnesses for appearing before the Committee
today. Before we begin with our first panel, let me ask the
distinguished ranking member of the Senate Banking Committee,
Senator Sarbanes, for any statement he would wish to make.
Senator Sarbanes.
OPENING STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Mr. Chairman, thank you very much.
The charter of Ex-Im Bank expires on September 30 of this
year, so this hearing is certainly timely.
The fundamental purpose of Ex-Im Bank is to finance U.S.
exports in order to create U.S. jobs, and I want to stress
that. There is a linkage, since the time we established Ex-Im
Bank. There has never likely been a time when boosting exports
and the jobs they create was more critical for a strong U.S.
economy.
In my perception, and I have held this view consistently,
Ex-Im Bank has a critical role to play in leveling the playing
field for U.S. exporters. Our rate of export growth shows that
U.S. exporters can compete very effectively in world markets on
the basis of price and quality if they can get a level playing
field.
However, when foreign governments provide subsidies to
their exports, it seems to me the United States has to respond
or U.S. exporters will be placed at a competitive disadvantage,
particularly when small variations in pricing or in credit
terms can mean the difference between a sale and a lost bid.
The work of Ex-Im Bank also provides leverage to U.S.
negotiators attempting to extend international agreements that
limit the use of Government export subsidies altogether.
There is another important reason to support the Bank. Some
developing economies can pose credit risks from which
commercial banks shy away, even when the transaction may
represent significant opportunities for U.S. exporters. By
evaluating the country risk involved the Bank can guarantee a
commercial export loan, opening the way for an export
transaction that would otherwise not take place.
Our approach to Ex-Im Bank should, of course, reflect in
part the progress being made in controlling the growth of
export credits offered by other governments. Regrettably, it
appears that overall funding for other national export credit
agencies has not declined and may in fact be growing, although
it is difficult to make the comparisons because of different
accounting and funding methods. This is a very opaque area, I
must say.
Regrettably, the Committee now faces what appear to be the
same issues we faced, and I thought we had dealt with, in the
reauthorization in 2002. Those issues include the adequacy of
the Bank's procedures to measure whether a particular section
creates a net gain in American jobs, the constant refrain that
the Bank is not adequately servicing the needs of smaller
exports, although the Bank has undertaken some steps in that
regard, and the continued failure to make use of the Tied Aid
War Chest, perhaps because of the apparent determined
opposition to the use of tied aid by the Treasury Department.
I hope today's hearings will shed light on why these issues
persist. We established the Tied Aid War Chest to, on occasion,
use it in order to send a very clear signal to other countries
that if they were going to be underwriting their exports, they
were going to face pretty intense reaction on the part of the
United States. If we never use it, it simply becomes a paper
tiger.
I also want to note my continued concern that Ex-Im Bank
still does not have a full complement of directors. No nominees
have yet been even designated for two open Board positions. The
risk of the Board's work being frozen by its inability to
muster a quorum of three Board members is not one that the
Administration should permit to continue.
This issue has been raised before in this Committee and we
need a response from the Administration to get this matter
taken care of.
I want to welcome Mr. Lambright, the Bank's acting chairman
and president, whose nomination to lead the Bank is pending. We
are disappointed that Treasury Undersecretary Adams was unable
to be with us this morning, but we welcome Assistant Secretary
Lowery in his place.
I also want to welcome the second panel of distinguished
witnesses which the Chairman has already mentioned to the
hearing.
Mr. Chairman, before I conclude my statement, I do want to
note the tragic death of Philip Merrill, who served as Ex-Im
Bank's chairman and president from 2002 to 2005. Mr. Merrill
was born in Baltimore and remained all of his life a proud,
distinguished, and generous citizen of our State. He was indeed
a leading philanthropist. He was a successful publisher whose
influence was first felt in the city of Annapolis. He was also
the guiding force behind Washingtonian Magazine since 1979.
He was also a dedicated public servant at the Department of
Defense, at NATO, and the Bank.
Many Maryland institutions have been the beneficiaries of
his philanthropy, including the Chesapeake Bay Foundation, the
University of Maryland School of Journalism, which is named in
his honor, and the Johns Hopkins University.
I think it is fair to say his life was an American dream
come true and his intensity, his intelligence and his civic
spirit will be very much missed.
Thank you very much, Mr. Chairman.
Senator Hagel. Senator Sarbanes, thank you. And I would
like to associate myself with your last words regarding the
late Mr. Merrill.
For the record, Chairman Shelby is not here this morning
because he is attending a funeral, and has asked if I would
substitute. And that is why I am here in this capacity.
Chairman Shelby will be returning this afternoon.
With that, let us begin. Mr. Lowery, welcome. We will begin
with you. Thank you.
STATEMENT OF CLAY LOWERY, ASSISTANT SECRETARY FOR INTERNATIONAL
AFFAIRS, U.S. DEPARTMENT OF THE TREASURY
Mr. Lowery. Mr. Chairman, ranking member Sarbanes, thank
you for the opportunity to discuss the reauthorization of Ex-Im
Bank.
At the Department of Treasury, our responsibility is to
formulate and implement international economic and financial
policy on behalf of the executive branch, which includes
working with Ex-Im Bank to support its export promotion mission
and working in the OECD to reduce export financing subsidies.
My written testimony highlights some of the successes we
have achieved in bringing more transparency on the practice of
untied aid and working with other donors on limiting market
windows practices.
This morning, however, I would like to focus on tied aid
disciplines and the concerns that some members of this
Committee have raised regarding the use of the so-called War
Chest.
As a bit of context, tied aid is a financing subsidy that a
donor conditions of the purchase of goods or services from the
donor country. However, prior to the OECD tied aid rules agreed
to in 1992, many donor governments, instead of using tied aid
for development purposes, pursued a strategy of subsidizing
their credits in an attempt to gain market share from our
exporters.
The United States faced a choice: go to war with other
export credit agencies by using taxpayer resources to subsidize
credits or negotiate rules in which American exporters could
compete on the price and quality of their goods and services
rather than the financial terms that they could get from their
government. We chose the latter approach, an approach that
highlights agreed eligibility criteria, transparency standards,
international dialog, challenge and enforcement mechanisms.
Over the last 15 years, we have achieved fairly dramatic
results.
Before 1992, tied aid was roughly $10 billion to $12
billion a year. Since Ex-Im Bank's previous authorization in
2002, tied aid has averaged about $4 billion a year. That is a
60 percent cut, which would be much greater if it was
calculated in inflation-adjusted terms.
In addition to the scale of tied aid changing, the scope
has also shifted from large-scale capital projects such as
power, telecommunications and energy projects that are viable
in commercial terms to what most Americans actually think of as
aid, development projects in the areas of agriculture, small
infrastructure and social areas such as education and clean
water projects.
The change in scale and scope of foreign tied aid use has
helped level the playing field for American exporters. We
estimate that U.S. exports are roughly $1 billion per year
greater than they would have been without those rules. The
change in scale and scope has helped American taxpayers. We
estimate that in the absence of the tied aid rules, we would
have needed to request an additional budget appropriation of
roughly $300 million a year.
The success of the OECD rules-based approach has been the
result of a bipartisan effort over a number of years in which
Treasury negotiators have listened to exporters about the
inequities in the playing field, worked with Ex-Im Bank to
design strategies and communicated forcefully with our
competitors to create disciplines on each other.
One vital piece of leverage in these negotiations was the
Tied Aid War Chest created by Congress. Over time the War Chest
has been used by Ex-Im Bank and Treasury as an enforcement
stick, to match export competitors that wanted to avoid
competing with our exporters on price and quality grounds. It
has been used as a deterrent to maintain the disciplines
negotiated in the OECD.
Despite the success of these negotiations, concerns have
been expressed about the War Chest. The three that we have
discerned are the selective and disciplined approach to using
the War Chest, whether the War Chest is really a deterrent, and
finally the role that Treasury plays in the process. Let me try
to address each issue briefly.
Given the voluntary nature of the OECD arrangement, the
United States must be careful in how it decides to implement
its matching policy. A change in policy away from selective and
criteria-based matching, resulting in an increase in the use of
commercially motivated tied aid would be seen as an abandonment
of the agreement. It would give our partners an incentive to
expand the scope of their tied aid programs, hurting our
position in arguing for adherence to a rules-based approach
that benefits all U.S. exporters.
Using the War Chest as a credible threat, or in some cases
to match a competitor, however, is a vital tool to ensure that
tied aid is not used to tilt longer-term competitive conditions
against U.S. exporters. When the U.S. challenges the practices
of another OECD member, our negotiator's hand is strengthened
by demonstrating the resolve to use the power of the purse.
Treasury has lead responsibility for negotiating in the
OECD and, as such, works very closely with Ex-Im Bank to pursue
a rules-based approach to export financing that is beneficial
to exporters and taxpayers. Ex-Im Bank has lead responsibility
for working with exporters and when it should use the War Chest
for matching purposes, it is natural that it consults with the
lead negotiators on the rules that the War Chest could effect.
In other words, Treasury and Ex-Im Bank work cooperatively,
consult frequently and are vital to each other in helping
exporters compete on the most level playing field possible.
Mr. Chairman, OECD tied aid disciplines have been good for
exporters, good for the international finance system by
reducing trade distorting subsidies, good for international
development policy, and most importantly, good for the American
taxpayer.
Thank you, and I will try to answer any of your questions.
Senator Hagel. Secretary Lowery, thank you.
Mr. Lambright.
STATEMENT OF JAMES H. LAMBRIGHT, ACTING CHAIRMAN AND PRESIDENT,
EXPORT-IMPORT BANK
Mr. Lambright. Mr. Chairman, Senator Sarbanes, I would
first like to echo the sentiments of Senator Sarbanes and
acknowledge that the past week-and-a-half has been a time of
sorrow at the Bank due to the tragic loss of our immediate past
chairman, Phil Merrill. Phil's contributions to national
service were so diverse that his tenure at Ex-Im Bank would be
but a chapter in the biography of his public life. Yet we at
the Bank could write volumes on the positive impact that he had
at the Bank.
Phil was proud of the Bank, of its mission and its people,
and we were fortunate to have had him as our leader and friend.
Turning to the Bank's reauthorization, the mandate of the
Bank, as expressed in our charter, is to create and sustain
U.S. jobs by providing loans, guarantees, and insurance to U.S.
exports that otherwise would not go forward, either because of
government-supported competition or because the private sector
is unable or unwilling to assume the risk. That mandate remains
at the core of why the Bank exists and why it should be
reauthorized.
We are requesting an extension of the charter for 5 years,
to September 30, 2011. We at Ex-Im Bank feel the current
charter language provides the institution with sufficient
powers and flexibilities to meet the evolving challenges of the
next 5 years.
Our charter provides guidance as to how to meet our
mandate. We then must set our course by these guideposts, one
representing the aggressive support we provide U.S. workers and
exporters, and the other representing responsible stewardship
of taxpayer dollars.
Since our 2002 reauthorization, Ex-Im Bank has authorized
roughly $48 billion of financing in support of an estimated $63
billion in U.S. exports. Some of those have been big-ticket
items, such as aircraft or power generation equipment. But over
80 percent of those transactions have been made available to
directly support small business exports.
For fiscal year 2005, every taxpayer dollar used by the
Bank yielded financing and support of over $50 in U.S. exports.
Since being appointed acting president and chairman nearly
a year ago, no topic has received more attention than small
business. We have made a number of changes to our business
operations in order to inculcate a culture that strives to meet
our small business customers' needs. These changes include
improving the claims process, establishing a new division for
small business outreach, assigning small business specialists
in each of our product divisions and expanding our online
capabilities.
We have already laid a strong foundation for growing our
small business program. In the last fiscal year, Ex-Im Bank
authorized 47 percent more in dollar volume than in the year of
our last reauthorization for small businesses and 21 percent
more in terms of transactions.
Given Ex-Im Bank's objective of maintaining and increasing
employment of U.S. workers, Ex-Im Bank has long accepted the
principle that it should not extend financing support when such
support would adversely affect the U.S. economy.
Decisions on transactions that raise economic impact
considerations, however, are among the most difficult the Bank
must make because we must weigh the interests of one set of
American workers with those of another. While the Bank must
ensure that potential transactions are properly vetted and all
interested parties have an opportunity to be heard, exporters
have indicated that delay and uncertainty has, in some
instances, frustrated their commercial relationships and caused
them to lose export sales to foreign competitors.
So we look forward to working with the Committee to enhance
the transparency and predictability of our economic impact
procedures.
Looking to the future, certain countries which are not OECD
members such as Brazil, India, and China, are emerging as
significant exporters of capital goods. We are working with
both our inter agency and G-7 counterparts to better define the
rising challenge of government support for these exports and
determine the best array of measures to successfully address
it.
There is no clearer or more fundamental mandate for Ex-Im
Bank than leveling the playing field for our exporters and
keeping jobs here in the United States. And I have every
confidence that Ex-Im Bank will well serve the American
workforce for years to come.
I look forward to working with you in this reauthorization
process and I would be happy to answer your questions.
Thank you.
Senator Hagel. Mr. Lambright, thank you.
Mr. Lowery, let me begin with you. We will pursue the tied
aid issue. It is my understanding that Ex-Im Bank has not
awarded any tied aid projects since the 2002 reauthorization;
is that correct?
Mr. Lowery. That is, sir.
Senator Hagel. What is your perspective on why that has
been the case?
Mr. Lowery. I think there are a couple of reasons. The
first one is the impact of the negotiations over this period of
time in which basically tied aid levels were dramatically
lowered around the world and, more importantly maybe, is that
scope of tied aid changed. We do not challenge development
projects that are for development purposes. What we challenge
is when tied aid is being used to provide subsidized financing
for commercially motivated reason.
And so, because of the fact that we have international
disciplines and are able to challenge countries, countries are
using their tied aid for commercially motivated reasons on a
much less frequent basis. As I said in my testimony, it is down
least 60 percent, probably more.
From a scope basis, it has basically been shifting all
toward development projects.
In the last 4 years, to my understanding, we have had about
12 requests of matching tied aid. Some of those requests have
gone away because the exporter was not interested, we
successfully challenged the actual competitor that they were
competing with on the grounds that they were breaking the tied
aid rules and the offer was withdrawn, or Ex-Im Bank was off
cover. The project did not meet the environmental standards.
Of the ones that I have personally looked at, there has
only been one case since I assumed this job, and the Treasury
Department supported using the War Chest. That case is pending
right now.
Senator Hagel. Mr. Lambright, would you care to respond to
that question and what Secretary Lowery just said in his
explanation?
Mr. Lambright. I think that he is correct in noting a
number of changes in trends in the field of export credits,
particularly with respect to tied aid, and that Treasury and
Ex-Im Bank have worked closely in assessing the merits of an
application for tied aid. Both Assistant Secretary Lowery and I
were quite supportive of a recent application for tied aid that
we felt met both Ex-Im Bank criteria that tend to focus more at
a transaction level and the policy criteria that Treasury tends
to be more concerned about. Given the meeting of the minds
there, both agencies were fully supportive of pursuing this
case.
And I would hope that that would indicate a similar
willingness in the future to work together to support exporters
where tied aid is warranted.
Senator Hagel. Since you have been at Ex-Im Bank, I believe
4 years?
Mr. Lambright. Coming up on 5, yes.
Senator Hagel. You have been there during the time frame
that we are addressing the issue, since 2002. What is your
recollection of disagreements between Treasury and Ex-Im Bank
on the use of tied aid, if there have been any?
Mr. Lambright. Since I have come to the Bank, there have
been roughly a dozen cases that we have consulted with Treasury
on. And while I would say that, in some cases there is a
healthy exchange of viewpoints at the staff level, ultimately,
as we have worked through all of the transactional concerns and
policy concerns, that there has not been a case that has
exhausted the full procedures laid out for us. And so we have
not ended up with a formal disagreement.
Senator Hagel. During that period?
Mr. Lambright. Right.
Senator Hagel. Thank you.
For each of you, in light of the fact that we have seen no
awarding of any tied aid since the 2002 reauthorization, do you
believe that this sends a signal to our exporters that there is
little purpose in applying because it may not happen, or it is
just not worth going through the process? Or do you think in
any way, because of the awards, it has discouraged interested
exporters from using tied aid?
Mr. Lambright. I think that our recent willingness to use
the Tied Aid War Chest for a recent application is a positive
signal. In the course of my time at the Bank, there was one
other instance where the agencies agreed to issue a willingness
to match letter supporting an exporter. In that case, the
exporter ended up not winning the contract and so the funds
from the War Chest were never deployed.
I think we have a strong panel coming up behind us that can
speak to the exporters' views on this, but I do think that both
Treasury and Ex-Im Bank can work collaboratively to make the
procedure more expeditious for applicants so that they can get
faster answers and that there is not a chilling effect in the
market from applying.
I would like all exporters who feel disadvantaged in the
marketplace to feel like there is an open door at Ex-Im Bank
and that we will work quickly to address their financing needs.
Senator Hagel. Secretary Lowery.
Mr. Lowery. I would agree with everything that Acting
Chairman Lambright has said. I would just go one step further
which is to say that what we try to do is work to support
exporters through the tied aid negotiations by fighting where
we see subsidized financing that is against the tied aid rules.
And if we can keep the playing field level, we do not have to
use the War Chest. But the War Chest provides us the stick or
the weapon we need to fight if we cannot solve the problem
through negotiation.
So I would say that that is the only thing that I would add
to what Chairman Lambright said.
Senator Hagel. Thank you, Secretary.
Senator Sarbanes.
Senator Sarbanes. What kind of stick or weapon is the War
Chest if you do not ever use it?
Mr. Lowery. It is a stick or weapon for a couple of
reasons. First, a demonstrated record over a period of years of
being able to use it, in which we have----
Senator Sarbanes. Well, you have not used it in what, more
than 4 years now?
Mr. Lowery. We have already said that we currently have a
case right now pending basically where we said we were going to
use it. We actually had a case, I understand about 2 years ago,
I was not around, where we made a matching offer.
Senator Sarbanes. Are you the responsible person in
Treasury for this issue?
Mr. Lowery. Yes, sir, delegated authority, but obviously I
consult with the Treasury Secretary and the Deputy Secretary
and Undersecretary when need be.
Senator Sarbanes. But on a day-to-day basis, it is on your
desk; is that correct?
Mr. Lowery. No, sir. We have a staff that works on it on a
day-to-day basis.
Senator Sarbanes. You are the immediate supervisor of that
staff?
Mr. Lowery. The structure basically is that the staff would
be working for me, yes, sir.
Senator Sarbanes. You have not used it in 4 years, except
now you are saying you have got a case right now; is that
correct?
Mr. Lowery. I have been in this job for 7 months. I have
had one case come to me and I approved it.
Senator Sarbanes. Come from Ex-Im Bank?
Mr. Lowery. Up from Ex-Im Bank, yes, sir.
Senator Sarbanes. Where they wanted to use the War Chest?
Mr. Lowery. Yes, sir.
Senator Sarbanes. How many times has Ex-Im Bank told
Treasury over the last 4 years they want to use the War Chest?
Mr. Lambright. Senator, there have been roughly a dozen
cases that we have assessed in conjunction with Treasury, but I
would not characterize that necessarily as an Ex-Im Bank
position saying we wanted to use the War Chest.
The way the process works is that when we get an
application that we deem legitimate, we will consult with
Treasury and evaluate the file together. And so we ultimately
will work together to reach a conclusion.
Senator Sarbanes. The statute says, this is the law:
Once the principles, process and standards referred to in
subparagraph (a) are followed, the final case-by-case decisions
on the use of the Tied Aid Credit Fund shall be made by the
Bank.
Now I understand, from previous testimony, from what I hear and
what both of you are saying this morning, that that is not
being followed. These case-by-case decisions are not being made
solely by the Bank. Is that right?
Mr. Lowery. Sir, my understanding is case-by-case decisions
are made in a broader policy framework. It says here that:
The Bank shall not approve the extension of a proposed tied aid
credit if the President of the United States determines, after
consulting with the President of the Bank and the Secretary of
Treasury, that the extension of the tied aid credit would
materially impede achieving the purposes described in
subsection (a)(6).
Subsection (a)(6) regards leveraging negotiations on tied and
untied aid rules.
In order for the Treasury Department to have a chance of
understanding and consulting with the President, we obviously
have to work with Ex-Im Bank on the transactions as they might
apply to the actual policy guidance in the negotiations. So we
work together through these issues.
Ex-Im Bank receives the cases on a transaction basis and we
try to look at them from a policy standpoint on an OECD
negotiations basis.
Senator Sarbanes. I know, but who makes the decision in a
particular case?
Mr. Lowery. I think that we work together, sir.
Senator Sarbanes. That is not what the statute----
Mr. Lowery. In fact, since the reauthorization, as Chairman
Lambright just noted, there has not been one case where the
Treasury Department and Ex-Im Bank saw differently on a Tied
Aid War Chest case.
Senator Sarbanes. I know, because the Treasury says you
cannot do it.
Mr. Lowery. Sir, I do not think that that is correct. I
think that--you are suggesting that we have some sort of a veto
power, and that is not actually what is happening. We are
consulting with Ex-Im Bank on these cases, and there has not
been one case where there has been a disagreement.
Senator Sarbanes. You are intruding into the case-by-case
decisionmaking, which by the statute was placed in the hands of
Ex-Im Bank.
Mr. Lowery. I think the word intruding would be too strong.
I think that the word consulting is the word I would choose.
Senator Sarbanes. Let me ask you this question. You said in
your testimony that tied aid credit had generally been reduced
by about 60 percent?
Mr. Lowery. Probably more than that, yes, sir.
Senator Sarbanes. So that means the other 40 percent of
these OECD countries are continuing to provide an unfair
advantage to their exporters; is that correct?
Mr. Lowery. No, that is not correct, sir. The 40 percent,
as I also said, represents the change in the scale of the
financing. There has also been a change in the scope of the
financing.
If they are providing credits that are going for legitimate
development purposes, for instance if you were doing a rural
electrification program on a small-project basis and it is tied
aid, that would be allowed under the rules and we would not try
to challenge that.
However, if you were trying to provide financing for a
project that addresses a power grid or something that is
commercially viable over a longer time period, that is
something that we would challenge and potentially use the War
Chest to match, if need be.
Senator Sarbanes. We understand that a number of countries
have worked out all sorts of arrangements to provide support or
underwrite for their exports. Is that your perception?
Mr. Lowery. If you could provide a little more detail, I am
sorry?
Senator Sarbanes. That a number of countries with whom our
exporters compete with their exporters are engaged, in one way
or another, in providing favorable opportunities for their
exporters.
Mr. Lowery. I think that Ex-Im Bank obviously worries very
much, as does Treasury, about the competitiveness of our
exporters versus other exporters based on export credit
financing. If a country is subsidizing in a way that is against
the disciplines that we have set up, then we will challenge
that.
In fact, we have been primarily successful in around 90 or
95 percent of our tied aid challenges.
Senator Sarbanes. What study do you undertake to ascertain
what other countries are doing in underwriting their exporters?
Mr. Lowery. The first thing we do is we look at the country
and the eligibility. Basically, we are trying to go toward the
least developed countries, so basically below around $3,000 per
capita income.
Second, we look at the terms that they are giving. If there
is a grant element of----
Senator Sarbanes. No, I am trying to get at a broader
question.
Mr. Lowery. Sorry.
Senator Sarbanes. Do you do continuous studies that say
countries X, Y, and Z are engaged in the following practices,
which underwrite their exporters? Can you tell me what these
OECD countries are actually doing? And does the survey
encompass all forms of export credit?
Mr. Lambright. Speaking for Ex-Im Bank, Senator, we conduct
an annual competitiveness report that we send up to this
Committee annually that addresses how Ex-Im Bank is positioned
vis-a-vis our export credit agency competitors. Historically,
this has been looking at the behavior of OECD or, more
narrowly, G-7 export credit agencies.
Within the past 2 years, we have introduced chapters on
non-OECD export credit agencies, most prominently China, to try
to track the behavior of other government's support for their
exporters.
Senator Sarbanes. What is Treasury's position on the non-
OECD countries? In terms of us using tied aid credit in cases
involving competition with exports financed by export credit
agencies of non-OECD countries?
Mr. Lowery. We think that we should be able to use the War
Chest in circumstances that fit the criteria that we have
talked about in cases of non-OECD matching----
Senator Sarbanes. But you do not think any such
circumstances have yet come to your attention; is that the
idea?
Mr. Lowery. I cannot say that any have come to my attention
but I know that there is growing competition out there from
India, China, Brazil, other countries that are not in the OECD
and it is something that we have to watch very carefully. We
are starting to work more with those countries to try to get
them more involved in the disciplines.
But we do need to be prepared to use the War Chest if we
need to in a matching case.
Senator Sarbanes. It might help if you showed them right at
the outside that this stick meant something.
Mr. Chairman, I have imposed on Senator Crapo. I apologize
to him for going over my time.
Senator Hagel. Senator Sarbanes, thank you.
The Chairman of the International Trade and Finance
Subcommittee, Senator Crapo, welcome.
OPENING STATEMENT OF SENATOR MICHAEL D. CRAPO
Senator Crapo. Thank you very much.
First of all, Mr. Chairman, and to our witnesses, I
apologize for being late. This is one of those mornings where I
literally had four very important things, all of which were
unavoidable, to be at the same time. So I apologize for being
late.
One of those items is a very significant markup in the
Budget Committee that is going on right now as we speak on what
I consider to be one of the most important budget reform
measures that we have before Congress this year. So I am
probably going to have to depart early to get down there and
participate in that battle and that vote.
I go into that only to make it clear that my reason for
being late and my reason for my early departure should not give
any indication of a lack of interest in the matters before this
Committee today.
As the Chairman has indicated, I Chair the International
Trade and Finance Subcommittee. We have already held two
hearings on this issue and I am very pleased that the Chairman
has chosen to hold this full Committee hearing on the issue,
and I look forward to being very involved as we work on the
reauthorization.
Mr. Lambright, I just have a couple of questions before I
am going to have to dash off to the budget battle.
First, at our last two Subcommittee hearings, as you know,
we discussed the economic impact procedures and specific
suggestions on how to improve the efficiency and really to get
greater clarity, fairness and transparency in the economic
impact process. I just want to state at the outset that I
appreciate your willingness to work with me and other Members
of Congress on these issues. I think we are making progress.
I am aware that these economic impact cases can make it
difficult to provide exporters and other transaction parties a
sense early on in the transaction as to where the Bank's
analysis is likely to lead. And while the Bank can continue
with its case-by-case approach, it strikes me that the Bank
might consider establishing or publishing some kind of list of
sectors in which provision of Ex-Im Bank financing is less
likely.
I am interested in what your thoughts are in this approach?
Mr. Lambright. Senator, since we last talked at our
Subcommittee hearing, I have heard, as I am sure you have
heard, a lot of ideas regarding transparency. Many of them are
very good ideas. But some other ideas raise a concern about
adding too much process for the non-contentious transactions to
endure.
And so, in the context of that broader concern, I think a
list seems to be an idea worth pursuing.
Of course, the details would be important, but I would
welcome the chance to work with you on seeing if this is
something that could work.
Senator Crapo. How would the Bank go about creating such a
mechanism?
Mr. Lambright. Well, I could envision a number of ways to
go about it. And again, I would be happy to work with you and
your staff on pursuing that.
I suppose I would want to be careful that whatever list or
mechanism we came up with would give an early warning sign to
applicants where their cases should not go forward, but allow
cases that should go forward to come forth before the Bank.
Senator Crapo. Just one other question in this area, and if
you would, could you give me just an idea of what this list
might look like?
Mr. Lambright. Well, even though we are making decisions on
a transaction-by-transaction basis, these procedures tend to
encompass entire industries at any given time. And so there are
cases where our Board has had to decline an application
because, for example, an indication that that particular sector
would be in a state of oversupply at the time the project would
come on stream.
So, if we were looking for something to add to the
transparency and predictability and provide that early warning,
I would imagine some kind of mechanism whereby if we have
turned down a case that we could have a list where that
industry would be put on the list since we would have made a
determination really on the industry at the time that we
assessed a particular transaction.
But I would also want to make sure that this mechanism or
list would have an opportunity for industries to come off the
list at the time that the supply and demand dynamics were to
change.
But I think that this early warning sign, this transparency
that you mentioned, is important and something that I would be
happy to continue working with you on.
Senator Crapo. Thank you.
I think we are talking the same thing here. We do not want
to have an absolute bar, but a guidance would be very helpful
at the early stages of the process.
Mr. Chairman, if I could just do one more question, I would
appreciate the opportunity.
I want to shift to the small business issue, Mr. Lambright.
Also, I want to commend you for making some needed reforms at
the Bank that advance the needs of small businesses. I also
appreciated your statement that although the Bank of making
progress on these small business issues, there is room for
improvement on that front.
Could you elaborate on some of the reforms that are still
needed?
Mr. Lambright. Well, since coming into my current position,
we have addressed a number of areas in the small business
experience with the Bank. We have developed a group to focus on
outreach to small businesses, to help educate them and help
them apply to the Bank. We have focused on the claims process
to make sure that that is easier to navigate for small
businesses.
And now we are turning our attention to the processing and
approvals of applications. We have recently implemented a
number of managerial and structural changes that we will need
to monitor on an ongoing basis and judge their effectiveness
and make any further necessary adjustments that we may need to
make.
Likewise, we intend to monitor and continue making
refinements to our online capabilities that will be of large
benefit to small business applicants.
But of course, we have a limited discretionary budget and
you mentioned budget issues, Senator. So these plans that we
have could be jeopardized by budget cuts, such as the 8 percent
cut to our administrative budget proposed by the House.
And so, given our very limited discretionary budget, we
intend to devote a large amount of that to working with small
businesses on the whole range of experience that small
businesses have in the Bank.
Senator Crapo. Thank you.
Is legislation needed to institute any of these changes
that you are talking about?
Mr. Lambright. We have already begun to make these changes,
and I believe that the current charter makes it quite clear the
focus the Bank should have on small business exporters. And so
I do not see the need to legislate changes.
But we will continue to monitor the changes we are making
and make further refinements as needed and, of course, continue
to work with the small business community and the Members of
this Committee to see where further refinements may be
necessary.
Senator Crapo. I assume you just expect these changes to
assist the Bank in meeting the 20 percent target?
Mr. Lambright. I do, although in a demand-driven agency it
is always difficult to promise that a particular goal or ratio
will be met. But I think that these are the changes that we
should be making to help maximize our support for small
businesses.
Senator Crapo. Thank you very much.
Mr. Chairman, thank you for letting me go over. As I
indicated, I am going to have to leave but that should not be
any indication of my lack of interest in this manner.
I would encourage everybody to pay attention to what we are
doing in the Budget Committee today, too, because it is, I
think, one of the best things we have got going in this
Congress right now in terms of some major enforcement with some
teeth in it to help get some control over our budget.
So pay attention to what is happening on the sixth floor,
was well, today.
Thank you very much.
Senator Hagel. Chairman Crapo, thank you, and thank you for
your continued leadership on this issue.
Let me pursue what Chairman Crapo was referencing.
Why then, as you have just noted in response to Mr. Crapo's
question, you have not been able to do more in terms of dollars
on that set aside, trying to hit that 20 percent mandate? Is
that, as you have noted, to some extent is it a procedural
issue? Is it? Obviously demand drives a certain amount of this.
Where are the biggest issues that you find in being unable
to fulfill that minimum 20 percent?
And then, if you could give the Committee some sense of
when you believe that we may see that target fulfilled?
Mr. Lambright. Mr. Chairman, I do want to start by saying
that I think a great deal of progress has been made since the
last rechartering on behalf of small businesses.
By dollar terms, our support in the last fiscal year for
small businesses was 47 percent greater than in the year of our
last reauthorization. And though we have never reached the 20
percent goal in the term of this charter, we have never turned
down a small business application for budgetary reasons. We
have always made the resources available to support small
business exporters.
The key, I feel, to deriving that small business number has
been outreach. When I travel and meet with small businesses,
quite frequently they are not even aware that there is a
Federal Government program that is available for them. And so,
educating them and helping them work through the application
process is a key. Which is why we have put together a division
with significant resources targeted on outreach.
Current changes and future refinements are focusing on the
experience that the small business applicant has once they
apply to the Bank. So that is the processing and the
underwriting process that we have turned our attention to most
recently. I am hoping that those will bear fruit shortly in a
way that I can come back to you soon and say that we have
exceeded the 20 percent threshold.
Senator Hagel. Thank you.
Let me ask Mr. Lambright a question about procedures. There
has been, as you have noted, and since you have been at Ex-Im
Bank for almost 5 years, you know that there are some
criticisms about the Bank taking too long to complete
procedures. This obviously injects uncertainty about what
transactions can be supported and when.
Is this a continuing problem? What is Ex-Im Bank doing to
deal with it? Should we be concerned? How much of an impediment
is it, if it is?
Mr. Lambright. I think it is a very fair concern. And I
have heard from a number of exporters in my time at the Bank of
this very concern. It is one that we have to take very
seriously.
Some of our larger transactions, the larger projects, the
turnaround time tends not to be an issue or a source of
complaint because these are large undertakings with large lead
times. So really, where the most frustration is created is
where you are dealing with the smaller applicant or the smaller
transaction where they are trying to get a deal done quickly
and dealing with a Government agency may inject more time than
they would be comfortable with.
One step that we have taken to address this concern is the
rolling out of something we call ``Ex-Im Online,'' which is an
online application system that will be of particular benefit to
small businesses that apply for some of our shorter-term
products, so that the automation will reduce some of that
turnaround time.
And in other products, we are monitoring much more closely
than we used to the cycle time that it takes for applications
to move through the various divisions of the Bank. And it is
something that I am hopeful we will continue to improve.
Senator Hagel. In that same general area, we talked earlier
specifically in regard to some of the questions that Senator
Sarbanes had asked Mr. Lowery, how does Ex-Im Bank measure up
against the export credit agencies that we compete with in the
way of new products, procedures, processes? Where do we lag
behind other ECAs? Where are we significantly better? Is it an
issue that we need to address? Should we be addressing it in a
reauthorization process?
I did not attend the two hearings that Chairman Crapo had,
so you may well have covered this ground in those hearings.
But if there are areas where we are, in fact, lagging in a
competitive world that is becoming more competitive, and we
talked a little bit earlier about some of the specific
countries, we should obviously address those in this
reauthorization process.
Can you answer those general questions for me? And Mr.
Lowery, I would welcome your thoughts on this, as well.
Mr. Lambright. Mr. Chairman, the Administration is
requesting a clean bill, so at the fundamental level there is
no request to change the charter to address the competition
with other governments and their export credit agencies.
But that said, broadly speaking, where Ex-Im Bank fares
well against our counterparts is at the product and program
level, at the acting-as-a-bank side of the house. We tend to
offer competitive terms and products and expertise to help our
exporters get good financial support for their exports.
Where the criticism tends to come, or where our weakness is
with respect to counterpart export credit agencies, is at the
level of flexibilities in implementing and putting to use those
financial skills.
And so these flexibilities are constrained along a number
of lines that are found in our charter. But I am not here to
say that we should eliminate any of them, but other export
credit agencies do not have the same concern for the
environment, let us say, or for economic impact that Ex-Im Bank
has.
We are a very traditional export credit agency, focused on
the jobs in our country. And other export credit agencies have
started to move beyond that narrow focus, looking toward any
benefit to their country, not just to the workforce. And that
is not territory that Ex-Im Bank has ventured into yet. And the
guidance from Congress has been clear to us that that is not
territory that we will soon be venturing into. But in comparing
U.S. Ex-Im Bank to our overseas competitors, that tends to be
how it breaks down.
We have strength in the financial aspects, but we are more
limited in flexibility.
Senator Hagel. Thank you. Secretary Lowery?
Mr. Lowery. I think the only thing that I would add, sir,
is from the Treasury's perspective, we try to help Ex-Im Bank
and the exporters level the competitive playing field through
these OECD negotiations.
I would say that a couple things that we have been
successful in is taking the environmental guidelines that Ex-Im
Bank has and internationalizing them in the OECD process. That
was something that was done in very close coordination between
Treasury, Ex-Im Bank, and the State Department. I think that we
actually achieved a lot back in the 2003-2004 time frame.
Second, and this goes to Senator Sarbanes' concerns, I
think we need to continue to focus on squeezing out the export
subsidies that are a problem for the system through discipline,
challenges, and transparency. And where we need to use it, we
should be prepared to use the War Chest.
In that respect, I completely agree with Senator Sarbanes.
And the Treasury Department is ready to work with Ex-Im Bank on
how we can use it when we receive matches that make good
economic sense.
Senator Hagel. Thank you.
Senator Sarbanes.
Senator Sarbanes. I know we have another panel, Mr.
Chairman. I will be very quick.
Mr. Lambright, how do you respond to criticism of the
Bank's economic impact analysis? You have a mandate that your
financing must generate U.S. jobs. You have been subject to
some pretty strong--actually there are members of this
Committee who have had some direct experiences in their States
on this very issue.
Mr. Lambright. Senator, you have touched on an area that
involves the most difficult decisions we at the Bank have to
make. You correctly note that our mission is to support U.S.
jobs associated with exports. But when that export will be used
to produce a commodity that will then enter the global
marketplace and pose a competitive threat to U.S. producers of
the same commodity, we are charged to be very careful in how we
proceed. We need to balance the interests of the benefits
associated with the export against the potential harm posed by
the future threat of increased commodity production.
We have made changes since the last rechartering to try to
handle these questions more transparently and efficiently. We
have introduced a public comment and notice period so that all
interested parties can be heard. And we have formalized the
involvement of the other trade policy agencies to get their
expertise on various industries and various transactions.
We have taken up this topic at the Subcommittee level, as
you know, to explore these challenges and find out how we can
balance the interest of both the exporters and the affected
industries, so that we can have a transparent and predictable
process that comes to the right outcome.
Senator Sarbanes. Well Mr. Scott, who is going to be on the
panel subsequent to this one, let me just read you a paragraph
from his statement:
In fiscal year 2005, the Bank provided financing for 3,128
projects. The Bank issued only six economic analysis notices,
covering only 0.2 percent of the transactions financed in
fiscal year 2005. Furthermore, there is not a single reference
to or discussion of any of the Bank's economic impact analysis
in its 2005 annual report. Given the unprecedented size of the
U.S. trade deficit
and I would underscore that
which reached $717 billion in 2005, and Congressional concern
with the economic impact issue
I would underscore that, as well
it is surprising that the Bank has provided so little public
information on its economic impact analysis or the results of
those investigations.
What do you say to that?
Mr. Lambright. We have been trying to boost the
transparency of this issue, both by having a public notice and
comment period for the relevant cases and by posting the
procedures on our Ex-Im Bank web site so that applicants can
familiarize themselves with the procedures before they
undertake an application with us.
But because of the nature of the guidance that we have in
the economic impact realm, it is not surprising that it is a
small number of cases that trigger this analysis because it
really is limited to those cases where the export of some piece
of capital equipment will be used to produce a commodity that
may then come and displace U.S. production of the same
commodity.
So, if you export agricultural commodities or spare parts
or most machinery that is not itself producing a commodity,
those cases are going to go through without implicating these
procedures. But when they are implicated, it is a long and
rigorous process that does involve public notification.
Senator Sarbanes. Is the only time you think you should do
an economic impact assessment is cases involving the export of
capital goods that would be used to expand production capacity?
Mr. Lambright. The guidance in the charter addresses when
productive capacity will be increased. It does not necessarily
have to be capital equipment. That could be through licenses or
blueprints or other mechanisms that would allow for a foreign
entity to increase production. But yes, that tends to be the
area that triggers these procedures.
Senator Sarbanes. As I understand it, it is pretty much the
guiding criteria for Ex-Im Bank; is that right?
Mr. Lambright. What is the guiding criteria?
Senator Sarbanes. Expanding production through the export
of capital goods. That is the thing you look for, and then you
do an economic impact statement; is that right?
Mr. Lambright. Right, yes.
Senator Sarbanes. Mr. Scott suggests:
The Bank should also do economic impact assessments for other
goods' export contracts
this is besides the export of capital goods
that include agreements to transfer production technology or
formal or informal offset agreements to transfer production of
related or unrelated products abroad or to serve as a marketing
agent for foreign suppliers in the United States in exchange
for export sales of goods of any type.
What do you say to that?
Mr. Lambright. Well, Senator, I have not read the testimony
and I am not familiar with the argument. But I do think that
Ex-Im Bank tries to be inclusive when approaching the question
of whether economic impact procedures should be relevant. And
as I said to an earlier question of yours, this could be taken
as broadly as licensing rights or blueprints. It does not
necessarily need to be limited to capital equipment.
But for the other items the gentleman suggests, I would
need time to think about those before taking a position.
Senator Sarbanes. Well, I commend this statement to you. I
think it raises a number of interesting questions. I think many
of them go to the concerns that many Members of the Congress
have with respect to the economic impact analysis which Ex-Im
Bank is supposed to conduct.
The essential thrust of this paper is that your parameters
are too narrow, in terms of when you undertake to do an
economic impact analysis, and also that it is not sufficiently
open and transparent, although you mentioned you are trying to
start addressing that problem. So I commend that statement to
you.
Second, I want to ask you about small business. Do you have
a small business division now, within the Bank?
Mr. Lambright. We do have a small business division that
focuses on outreach to the small business community.
Senator Sarbanes. And does that small business division
report directly to the CEO of the Bank?
Mr. Lambright. Yes, it does.
Senator Sarbanes. Are the credit decisions allocated to the
small business division?
Mr. Lambright. No, they are not. Those are made in--
depending on the product, most of them are made in a credit
underwriting division that services all of the divisions of the
Bank.
Senator Sarbanes. Does the credit underwriting division
have a small business division within it?
Mr. Lambright. It does not have a small business division
that is titled as such. It does have specialists in the
division identified to be the credit underwriting officers
focused exclusively on small business applicants, so that those
looking at small business applications are sensitive to the
unique needs of small businesses and expert in those concerns.
Senator Sarbanes. We set a goal for small business, did we
not? What was that goal?
Mr. Lambright. To make available 20 percent of our
resources for small business.
Senator Sarbanes. And has that happened?
Mr. Lambright. We have not hit the 20 percent since the
last rechartering, though we have never turned down a deal from
a small business applicant for lack of resources. We have
always made the resources available.
But we continue to strive, Senator, to meet the 20 percent
goal. And that is why we continue to make these adjustments to
our management structure.
Senator Sarbanes. And what percentage figure are you at?
Mr. Lambright. In the last fiscal year we were at 19.1
percent.
Senator Sarbanes. Is that the highest you have reached?
Mr. Lambright. No. Three fiscal years ago, we were at 19.8
percent.
It tends to knock around, Senator, as a function between
the amount of small business and non-small business that we do.
So in any given year it depends on the pace of growth of all of
our business. But we continue to strive to do as much small
business as possible. Regardless of the percentage, we want to
do as much as we can for small businesses.
Senator Sarbanes. One would think there must be things you
can do in terms of outreach and marketing, that if you are that
close to the 20 percent that you could reach it.
Mr. Lambright. I agree with you.
Senator Sarbanes. Then you would be able to sit at the
witness table and say we have met the goal.
Mr. Lambright. I would like to come before you having well
exceeded the goal, so that this is not an issue anymore. I do
not look at it as a ceiling or a floor. I want to move well
past it and do as much as we can for small business.
Senator Sarbanes. You are not there yet, so let us get
there.
Thank you, Mr. Chairman.
Senator Hagel. Senator Sarbanes, thank you.
I understand there is to be a vote at 11:15, so I think
this is a good opportunity to break as we exchange panels.
We will keep the record open for a few days in the event
other members of the Committee wish to submit questions in
writing.
Again, thank you each for coming this morning.
I am going to go vote and come back. If you would like to
start, are you planning on staying for a while?
Senator Sarbanes. I was going to hear the testimony.
Senator Hagel. Then what we will do is we will not recess
since Senator Sarbanes is going to stay. We would ask the
second panel to come forward and get started. I will go vote.
Gentleman, welcome. Since you each have been introduced, I
will dispense with that activity and again welcome you and tell
you we appreciate your testimony.
Mr. McClaskey, we will begin with you.
STATEMENT OF JAMES D. McCLASKEY, PRESIDENT AND CEO, MIDREX
TECHNOLOGIES, INC.
Mr. McClaskey. Thank you, Mr. Chairman, Senator Sarbanes.
My name is Jim McClaskey. I am President and CEO of Midrex
Technology, Inc., headquartered in Charlotte, North Carolina.
Senator Sarbanes. [Presiding.] Mr. McClaskey, if you could
pull that microphone closer, it would be helpful.
Mr. McClaskey. Is that better?
Senator Sarbanes. Yes.
Mr. McClaskey. I have worked at Midrex for the past 32
years. With me today is my colleague, Rob Klawonn, who is the
Vice President of Commercial for our company.
We sincerely appreciate this opportunity to speak to you
today regarding an issue which is critical to the success of
our company and the hundreds of small businesses we support in
the United States. Specifically, I am directing my remarks to
the pending reauthorization of Ex-Im Bank of the United States.
Midrex needs the support of an active and aggressive export
credit agency to allow us to compete on a level playing field
with our competitors. These competitors in Europe benefit
greatly from the aggressive support of export credit agencies
such as Hermes and Sache.
Midrex is a small technology company with less than 100
full-time employees. We are 100 percent dedicated to the global
iron and steel industry, and nearly all of our clients are
foreign.
This year our revenues will be the highest in our company's
history, more than $200 million. How did we achieve revenues of
more than $2 million per employee? We rely heavily on the
support of hundreds of U.S. and, yes, foreign suppliers and
manufacturers of industrial, electrical and mechanical
equipment, specialty fabrications, refractory, and much more.
We typically sell a technology package of engineering
equipment materials and services for export. The pieces come
together at our customers' plant sites in their home countries.
Although we do not manufacture anything ourselves, the bulk of
our revenues and profits are derived from the supply of goods
manufactured right here in the United States.
Key supply relationships have developed over the past 30
years in States such as Alabama, Florida, Georgia, Illinois,
Indiana, Kentucky, Massachusetts, Missouri, New York, North
Carolina, Ohio, Pennsylvania, South Carolina, Texas, Utah, West
Virginia, Wisconsin, and others.
Many of these companies are small businesses. Furthermore,
we are the market leader in our segment of the industry, with
two-thirds market share. And the Midrex direct reduction
technology has over 90 percent market share in the Middle East-
North Africa region.
In the past, Midrex had received support from Ex-Im Bank,
although there were numerous complaints about its lack of speed
and efficiency. We have developed support for projects in
Mexico, Venezuela, and the Middle East.
We had not been in contact with Ex-Im Bank for
approximately 5 years from 1998 to 2002, due to very poor
global market conditions in the iron and steel business. Upon
returning to Ex-Im Bank in 2003 asking for support, we were
verbally instructed by one business development officer at Ex-
Im Bank, do not waste your time simply because we are
associated with the steel industry.
Unfortunately, we had to spend thousands of dollars over
the past few years educating--and maybe that is not the right
word. Let us say making people more informed, people in
Washington, D.C., more informed about our business and the fit
we have in the global steel industry.
I would like to make one thing very clear at this point--
Midrex technology does not produce steel. Our process is used
to make a metallic iron raw material that is then used to make
steel, much the same way that scrap metal is used.
In December, 2004 Midrex signed a contract with a client in
Saudi Arabia to supply $81 million worth of engineering
equipment and field services. The majority of this revenue is
dedicated to U.S. goods and services. The contract is a minor
but critical part of a $1 billion investment being undertaken
by our client to increase iron and steel-making capacity in
Saudi Arabia.
The metallic iron produced by our technology will be used
in adjacent steel-making operations to produce steel for the
Arab Gulf region's fast growth and also for export to the
global steel consuming customers.
In 2005, the Saudi client made its application to Ex-Im
Bank for loan guarantees as part of an overall financing
effort, using combinations of commercial financing and European
export credit agency support.
It is interesting to note that the lead bank, who was very
much aware of the sensitivities associated with Ex-Im Bank in
support of foreign steel producers, recommended that his Saudi
client not submit an application to Ex-Im Bank due to the high
probability that the application would be denied.
The Saudi client nevertheless expressed an interest in
establishing a relationship with Ex-Im Bank and instructed the
financial arranger to complete the application process.
Ex-Im Bank, based upon the negative findings of the
economic impact analysis, denied the application a few months
ago because the project as a whole will result in the addition
of nearly 1.3 million tons per year of hot-rolled coil
capacity.
On the surface, the system of checks and balances on Ex-Im
Bank worked. The procedures and guidelines which were put in
place as a consequence of the last Ex-Im Bank reauthorization
and fall-out of the Bush 201 trade sanctions imposed in early
2003, worked as intended.
However, I would like to ask you a question. Did the denial
of this application when all other European ECAs approved
respective portions protect the U.S. economy? The answer is a
big ``no.'' Did it make some people feel good because we did
not use U.S. taxpayer dollars to support the project? The
answer is ``yes.'' But let us look at the real outcome.
This project is still moving ahead as planned and will
become operational in April 2007. So ask yourselves, what did
we really accomplish here?
We must admit that hot-rolled coil was being dumped on the
global market in the earlier part of this decade. Anti-dumping
duties and tariffs were imposed on some foreign producers. Many
of these producers were selling at or below their cash cost of
production. You have heard for years from various sources that
there is a glut of steel capacity. However, as we all know,
China has entered the picture now and on its own has raised
total global crude steel-making supply and demand by more than
30 percent.
Furthermore, tremendous efforts have been made by the likes
of Mittal, Nucor, US Steel, Severstal and other major players
to absorb under performing assets through acquisition and
merger. Some inefficient and poorly located assets were simply
taken out of operation altogether, like Gulf States Steel and
Geneva Steel.
The threat of state-owned steel companies dumping steel and
causing prices to plummet has ben diminished, with the
exception of China, of course. As for China, the story is a
young one. We have been told by many analysts and industry
leaders that China is not a near-term threat due to high iron
ore prices. They are expected to import approximately 300
million metric tons of this raw material in 2006 at market
prices.
Iron ore costs are a major factor in determining production
costs. They have other issues facing them, as well, such as the
high cost of energy, high prices for metal iron, rising labor
costs and labor inefficiencies, infrastructure issues,
environmental concerns, currency uncertainties, and so on.
U.S. steel producers face some of these same issues.
Despite this recent explosive growth, China is still a
developing nation when considering its low per capita
consumption of steel and its huge demand for infrastructure
development.
Please do not misunderstand me. I do not mean to imply that
the domestic U.S. steel industry is now well-protected. This is
still, and will always be a commodity business subject to the
ups and downs of the global economic cycles and there will be
some producers willing to sell it any price.
However, I do offer that the future will look much
different than the past because of the huge privatizations
which have taken place, putting capacity in the control of
market-driven companies.
Just look at the recent industry gatherings and you will
find many statements by current U.S. steel executives which are
positive about the future. An American Metal Market article
published last month quoted the CEO of Nucor when he said: ``No
one predicted that 2004 would do what 2004 did. I think we are
going to be in a bull market for the next 10 to 15 years. There
is something much bigger going on here. We are in a place where
things will be very positive.''
An article titled Raw Materials: The Sourcing Game,
published in American Metal Market, dated May 15, 2006, was
making the argument that ``Raw materials remain a key area of
concern'' and cited a few steel leaders here in the United
States on issues of raw material and logistics issues. The Head
of Mittal Steel USA was discussing raw materials and North
America infrastructure when he was quoted. Here is a key
excerpt from the article.
``They, raw materials, are still very tight,'' said Louis
L. Schorsch, chairman of the AISI and President and Chief
Executive Officer of Mittal Steel USA, Inc., Chicago. ``I do
not think there is any bad behavior out there or anything like
that, but I think it is clear that the level of investment in
raw materials or logistics infrastructure needs to improve.
Investment in raw material capabilities is critical for steel
producers. It is the market at work,'' he said. ``Supplies are
tight and demand is high.''
Later in the same article the writer goes on to conclude by
saying: most observers predict that steel consumption will
continue to grow globally for the foreseeable future, putting
further strain on raw material supplies, not only in North
America but worldwide.
So back to the question at hand. How does the denial of the
Saudi application and others like it protect the U.S. economy?
As I said before, the project is still proceeding, the European
export credit agencies have no problem supporting it, and now
Midrex has a free hand to buy its equipment from global sources
rather than right here at home, from American companies.
The denial of the Saudi application by Ex-Im Bank does
absolutely nothing to protect U.S. companies and its employees.
To the contrary, I would like to put forward that it will have
far-reaching negative effects. The Saudi client is now 100
percent sure that their lead bank was correct. They never
should have wasted their time pursuing support from Ex-Im Bank.
I must also mention that its predisposition to avoid Ex-Im
Bank is very common among many of our foreign clients. I would
like to read for you a direct quote from our client's banker,
taken from an e-mail of November 2004, before the application
was submitted to Ex-Im Bank: ``I think the way I would describe
our position with regard to potential Ex-Im Bank support is
that we would much prefer not have a separate Ex-Im Bank
facility and therefore wish to explore all other alternatives
first. Hence, our desire to understand all possible sourcing
options.''
Now let us look at the future for a moment. This same
client has intentions to further expand his business. He will
give Midrex the opportunity to supply its technology. If export
credit is wanted or needed, then our European competitors will
have a distinct advantage over us.
What can we do? Who do we turn to for support? Remember, if
we get the job, many other U.S. companies, especially small
business, get business, especially if Ex-Im Bank would
participate. However, if it does not, then we will have to look
at other alternatives.
Perception is reality, and this view, unfortunately, is
shared by many of our prospective clients. Since 2002, and with
numerous visits to Washington, D.C., we have learned that it is
a widespread opinion shared by many foreign buyers, not only
Midrex clients, who believe that approaching Ex-Im Bank is a
fruitless endeavor. To be truthful, we are also beginning to
feel this way.
Speaking for the thousands of small companies without a
voice here today, the assumption that denial of applications
actually protects the U.S. economy could not be more wrong.
Such decisions deliver a terrible message to foreign buyers
considering U.S. offerings. These buyers will proceed with or
without the support of the U.S. export credit agency, which
means that U.S. offerings are at a competitive disadvantage to
foreign companies using their own export credit agencies to
support clients.
Furthermore, American exporters like Midrex, with the
flexibility to buy goods competitively across the globe will
quickly find ways to regain their competitiveness. European
ECAs, JBIC, Japanese ECA and EDC in Canada are very eager for
Midrex to source more equipment from their respective countries
and are willing to offer promotional support as well as
tremendous flexibility.
Given the restrictive nature of the current economic impact
analysis guidelines, Midrex, and who knows how many other
companies like us, have no other option but to source equipment
needs abroad in order to compete when ECA support is desired by
our clients. Many, however, have their manufacturing here in
the United States and cannot take advantage of foreign supplies
and foreign ECAs.
Thankfully for us, we can change our sourcing patterns. And
we do have some clients who can arrange financing without the
need for ECA support. But there are many prospective Midrex
clients who need and will receive ECA support for their
projects.
Picture this as a headline: A Ukrainian export deal goes to
Japan----
Senator Sarbanes. Mr. McClaskey, I am going to have to,
regrettably and with apologies, recess the Committee hearing.
There is a vote on. And if I do not leave here pretty quickly,
I am not going to make that vote.
Senator Hagel is going to return and he will resume the
hearing when he comes back in. We tried to keep going in order
to get as much in as we could, out of respect for the time of
the members that are on the panel. But all those lights that
are lit on that clock up there behind you mean if you do not
get moving quickly you might miss a vote.
So I recess the hearing and when Senator Hagel returns, he
will pick it up again.
Thank you all very much. We have no control over this.
[Recess.]
Senator Hagel. [Presiding.] Good morning again. I apologize
for the break but, as you know, we had a vote.
I understand that our first witness, Mr. McClaskey, has
completed his statement. Let me remind the witnesses, if you
were not reminded before, first, your entire statement will be
included in the record. And if you could keep your opening
remarks to within 5 minutes, we would very much appreciate it.
Mr. Hayman, thank you.
STATEMENT OF HARRY G. HAYMAN, III, SENIOR VICE PRESIDENT AND
HEAD OF WHOLESALE BANKING, COMMERCE BANK
Mr. Hayman. Thank you, Mr. Chairman.
I am pleased to be with you today to discuss the
reauthorization of Ex-Im Bank of the United States.
I am testifying on behalf of the Bankers Association for
Finance and Trade, of which I am the President. Most of BAFT's
U.S. members are active in trade finance and they account for a
significant portion of the dollar volume of Ex-Im Bank
transactions each year on behalf of our exporting customers.
As you consider reauthorization of the Bank, it is
important to recognize that American businesses are engaged in
fierce competition with foreign companies in the global
marketplace. In the midst of this competition, we cannot afford
to abandon one of the most important weapons in our national
economic arsenal, Ex-Im Bank. Nor can we afford to impose any
new or greater restrictions on its ability to support American
exports.
If we did, the inevitable result for our country would be
fewer export sales, loss of jobs, and an even larger trade
deficit.
Something that other trade bankers and I have observed in
recent years is that the export credit agencies from other
countries are getting to be more strategic and flexible in
their approaches to export finance. I believe that U.S.
companies' efforts to compete in international markets will be
impaired if our Ex-Im Bank does not take a similar approach.
I hope that in reauthorizing the Bank, Congress will
clearly express its support for an aggressive effort by Ex-Im
Bank to meet the needs of American businesses large and small
competing in global markets.
I would like to comment on several issues related to Ex-Im
Bank that concern U.S. banks active in the trade finance
business. The first is economic impact assessment. Ex-Im Bank
is required by law to consider the extent to which the
transaction brought to it are likely to have an adverse effect
on industries and employment in the United States. The
rationale for this requirement is understandable: taxpayer
money should not be used to support a transaction if its
benefits for the U.S. economy are outweighed by adverse
consequences.
You should be aware, however, that the economic impact
requirement itself has an adverse effect on U.S. exports.
Whenever the Bank turns down a transaction on the basis of
economic impact, it means the financing support that a
purchaser expected will not be made available and the
transaction likely will not occur. This adds to a perception in
the market that U.S. exporters are not reliable suppliers.
For that reason, we believe that economic impact
assessments should be required only in the most compelling
cases and we would strongly oppose any steps to expand the
application of economic impact assessments to a broader range
of transactions or to make those assessments more rigorous.
Another issue that affects the competitiveness of U.S.
exports in world markets is the availability of cofinancing
arrangements that facilitate credit support from two or more
export credit agencies for exports that are sourced from more
than one country. Typically, the ECA in that country that is
the principal source of the products takes the lead and is the
sole agency with which the purchaser must interact.
Bankers that finance foreign trade prefer cofinancing
arrangement because they are a straightforward, efficient, and
convenient way of providing credit support for what otherwise
could be a much more complicated transaction.
As Ex-Im Bank noted in its June 2005 report to Congress,
the availability and ease of ECA cofinancing has become an
important and measurable competitive issue. According to the
Ex-Im's web site, it currently has completed cofinancing
agreements with only five countries. We are disappointed that
there are not more.
We would believe that it would be appropriate for this
Committee or the appropriate committee of the Senate to monitor
the Bank's progress in establishing cofinancing arrangements
and we suggest that the Bank be required to report to you
annually on the cofinancing agreements it has in place.
With respect to small business, we would like to commend
Chairman Lambright and John McAdams on recent initiatives to
increase Ex-Im Bank support of small business.
We also would like to congratulate the Bank on the expanded
environmental program that they have developed.
Additional initiatives to coordinate all of the public and
private export development resources would also be critical in
addressing the generally weak export performance of our
country. By that, I mean public and private export initiatives
that are widely in place but are not coordinated.
In conclusion, we believe Ex-Im Bank plays an important
role in our Nation's economic prosperity by helping American
exporters sell their goods and services to purchasers in other
countries. We hope that Congress will act promptly to
reauthorize the Bank and, in so doing, take steps that will
enhance and not detract from its operation and effectiveness.
Thank you.
Senator Hagel. Mr. Hayman, thank you.
Mr. Ickert.
STATEMENT OF DAVID ICKERT, VICE PRESIDENT AND CFO, AIR TRACTOR,
INC.
Mr. Ickert. Chairman Hagel, Senator Sarbanes and the
Committee, thank you for inviting me here today.
I am David Ickert, Vice President and CFO of Air Tractor,
Inc.
Air Tractor is a small business that manufacturers
agricultural airplanes and forestry firefighting airplanes. We
are located in Olney, Texas, a rural town with a population of
about 3,500. We employ 175 folks.
We have manufactured and delivered over 2,100 aircraft to
buyers in more than 20 countries. Over the past 10 years, we
have used Ex-Im Bank financing on about 35 occasions.
I am here also on behalf of the Small Business Exporters
Association (SBEA) of the United States. SBEA is the Nation's
oldest and largest trade association, representing small- to
medium-sized enterprises (SMEs), that export. I am a Board
member and former chair of SBEA.
SBEA, Air Tractor, and I strongly support the
reauthorization of Ex-Im Bank. With our country's trade deficit
now about $700 billion a year and rising rapidly, Federal
agencies like Ex-Im Bank must do all they can to encourage
exports.
Exporting, however, is not easy. Export financing is often
central to it and that can be a daunting task. You have to
balance the customer, who is probably new to the process,
against the uncertainties of the deal and often difficult
underwriting process. Underwriting is a key. A time-consuming
and cumbersome underwriting process ending with a ``no'' can be
demoralizing for the exporter and the buyer, even to the extent
of discouraging future international efforts on the part of
both of them.
As the official export agency of the U.S. Government, Ex-Im
Bank can make or break exports. Commercial banks and brokers
will not take on foreign risk that these transactions entail
without Government guarantees. So for smaller companies, Ex-Im
Bank is not the bank of last resort, it is probably the bank of
only resort.
And yet, the most promising upside potential for exports
come from SMEs in this country, only about 10 percent who now
export.
Ex-Im Bank has a mixed record in handling small business
transactions. Under its new Chairman, Jim Lambright, Ex-Im Bank
has undertaken several initiatives to help small exporters,
such as the appointment of a new Senior VP for Small Business.
Mr. Lambright's openness and willingness to listen are
refreshing and encouraging. We applaud these moves and we have
told the Bank so.
But can these moves be sustained without further
Congressional action? On past experience, it seems unlikely.
Many small business initiatives have come and gone at the Bank
over the past 10 years.
In short, Congress needs to give the Bank some guidance. If
sustainability of small business initiatives is an important
problem, sufficiency is even more critical. Ex-Im Bank's recent
initiatives have come about because of problems. The Bank has
repeatedly failed to meet its Congressional mandate to allocate
20 percent of its financing dollars to small business. In fact,
it has not met that mandate since its reauthorization in 2002.
In recent years, many exporters have complained that the
Bank is not transparent enough, that it is too bureaucratic,
and that its decision cycles are slow and exasperating.
To be frank, we doubt whether the Bank's recent initiatives
are sufficient to solve these problems. The Bank's new Senior
VP for Small Business, for example, still has no authority over
the Bank's products, processes and transactions. His sole
operational function is outreach.
Outreach is useful. But what matters most to small
companies is what happens once they get in the door. Outcomes
are the important issue.
In fact, outreach efforts that over promise and under
deliver risk driving companies away from exporting and hurting
Ex-Im Bank's reputation in the small exporters' community.
Establishing someone as the visible small business leader
within the Agency but giving that person no authority to match
the implied responsibility is a recipe for disappointments. It
will also frustrate Congress' effort to gain accountability,
since real authority for small business transactions will
continue to be scattered across multiple operating units of the
Bank.
Therefore, we strongly recommend that Congress create a
permanent small and medium-sized enterprise finance division at
the Bank, headed by a senior VP who answers directly to the
chairman and authorize that division to direct Ex-Im Bank's
core small business products, processes, and transactions.
This does not have to occur overnight. It can be phased in
one product at a time, one underwriter at a time.
We also ask Congress to help exporters to access the Bank's
medium-term financing, which is to say financial for capital
equipment, by authorizing Ex-Im Bank to delegate more medium-
term underwriting authority to commercial banks, as the Bank
has done with other types of financing.
In our written testimony, we have cited some best practices
of organizations, EDC in Canada, OPIC in the United States,
that have outstanding results in their small business
portfolios.
As small business exporters, our honest advice to you is
without rigorous SME structure and focus, Ex-Im Bank risks
falling behind the export credit agencies of other nations.
That means the Bank will not be able to do its full share of
helping exporters reduce the U.S. trade deficit. A rigorous and
focused small business structure at Ex-Im Bank will address the
outcomes and results of our country's export promotion needs.
Thank you.
Senator Hagel. Mr. Ickert, thank you.
Dr. Scott.
STATEMENT OF ROBERT E. SCOTT, Ph.D., DIRECTOR OF INTERNATIONAL
PROGRAMS, ECONOMIC POLICY INSTITUTE
Mr. Scott. Senator Hagel, thank you very much.
My name is Robert Scott. I am a senior international
economist with the Economic Policy Institute. Thanks again for
inviting me here to testify on the Bank's economic impact
procedures.
I am going to summarize my remarks for the record.
As I say in the statement, I have two primary areas of
concern. First, whether the Bank is living up to its
obligations under existing law to use the economic impact
analysis techniques for certain transactions where the
provisions of Ex-Im Bank financing could cause substantial
injuries to domestic producers. My conclusion is that the Bank
is not fully utilizing this procedure to analyze potential
transactions.
Second, I am going to examine criteria for conducting these
analyses and ways in which they could be expanded and the
procedures could be improved. I note three areas for
improvement here.
First, I think the Bank should expand its definition of
industries covered within the scope of substantially the same
industry in its economic impact methodology.
Second, the bank's policy of only conducting these
assessments for capital goods, that is goods that can be used
to produce exports, should be expanded. In particular, I think
we should also, or the Bank should also, be at least examining
information, collecting information, about contracts that
include offset agreements. These are formal or informal
agreements to transfer production or technology to other
countries. They are extremely common in some industries,
especially in aerospace, a sector that receives a large amount
of financial support from the Bank.
And finally, as noted earlier, I think the Bank should
improve its openness and transparency with the economic impact
process. As Senator Sarbanes noted earlier, the Bank only
carried out about six or issued six economic impact notices in
all of fiscal year 2005.
As he further noted, this is not widely discussed on the
Bank's web site or in its annual report. in fact, I can find
nothing other than the guidelines and the notices of
assessments in my study of that.
Turning to the definition of industries that could be
affected, the Subcommittee heard testimony from Mr. Steven
Appleton of Micron Technology about an application to finance a
semiconductor pure play foundry that was made for the SMIC
Semiconducting Manufacturing Company from China. This foundry
can be used to make two kinds of products, DRAM chips and NAND
flash memory chips. The application listed the purpose as to
make these NAND chips, which are rather specialized. However,
the DRAM market is subject to vast amounts of overcapacity and
boom and bust cycles. And there are U.S. producers in that
industry and I think the Bank should have been concerned from
the outset with the potential for this export to worsen this
cycle of boom and bust in the DRAM market.
Micron was able to intervene in this case and after a
prolonged series of interventions, Ex-Im Bank finally never
voted on this contract. But it is the kind of transaction, I
think, that should be highlighted and the Bank should be
concerned with because it can lead to expansion of production
capacity abroad.
In terms of expanding the Bank's scope, I think that there
is concern in particular with exports in the steel industry,
that was noted earlier. I have been an expert witness in a
large number of steel anti-dumping cases in the last 15 years.
In my experience that industry has suffered again, periodic
crises and capacity gluts that lead to massive dumping,
particularly in the United States, which has the most open
steel market in the world. I think our Government has been
attempting to negotiate an agreement to reduce excess capacity
in the steel industry for many years. And yet China and India,
and many other countries have announced plans to dramatically
expand steel production capacity.
So investments abroad that augment this effort by foreign
governments to build up excess steel production capacity are
simply going to stabilize the market and hurt U.S. steel
producers, which have lost tens of thousands of jobs in the
past decade alone.
With that, I think I will stop and thank you for the
opportunity to testify and I will be happy to answer any
questions.
Senator Hagel. Dr. Scott, thank you. And again, thanks to
each of you for your testimony and your assistance today.
Let me ask each of you about the general points and some
specific points that were covered in each of your testimonies.
You all have focused to some extent on product offerings
and the competitive nature of other ECAs. In Mr. Ickert's
testimony, he spent a good deal of time talking about the small
business facilities, how those should be increased, widened,
deepened, specifically by giving small business individuals at
Ex-Im Bank more authority.
If I could start with you, Mr. McClaskey, now that you have
listened to the other's testimony in light of your own, do you
generally agree with what you have heard from your colleagues
here on some of the general areas that were covered in the four
of your testimonies on small business? Dr. Scott talks about
expanding product bases and coverage areas.
Take any pieces of those that you like but I would be
interested in getting each of your reactions to the testimony
that you heard from your colleagues, specifically during this
time that we are spending to take a look at reauthorization.
And one of the questions that you might recall I asked to the
first panel, specifically Mr. Lambright, are there areas that
we should be focusing on as we go through this reauthorization
process to expand the powers or to broaden authorities, to do
something new, give Ex-Im Bank more options and flexibility?
So with that general context, let me begin with you, Mr.
McClaskey.
Mr. McClaskey. First of all, based on what you were told, I
actually was not finished with my speech, but that is OK.
Senator Hagel. It is because you did not have enough time,
I understand. We will include your entire testimony in the
record.
So if you felt that there was something at the end of your
testimony that you did not have a chance to cover, if you would
like to restate that now within the limits of time here, please
proceed.
Mr. McClaskey. That is OK. We support Ex-Im Bank. I know
there are some times they are between a rock and a hard place,
trying to choose between helping this group of workers over
here and harming this group of workers over there.
But I think that my personal opinion is that they do not do
enough of looking in both directions. They look in one
direction only and they really do not investigate thoroughly
what they need to do, to do a real economic analysis of who
does it really hurt.
For example, the project that we indicated, the project
went ahead anyway. It is going ahead anyway, so who is hurt
here?
The reason why we brought that particular project up was
the fact that this client is going to do another project. We
have competition in Europe. If our European competitors get the
job because they can offer ECA financing, we do not get the
job. If we do not get the job, then the list of these States in
the back, on the attachment here, that we give business to,
which the majority are small businesses, millions of dollars. I
think the total was $147 million since January of 2005, we have
given to small businesses in this country. We have another
approximately $40 million to purchase this year from small
businesses in this country.
If we do not get that opportunity in the future, then they
lose and we lose. That was my point that I did not get to make.
Senator Hagel. Let me ask you specifically, you heard what
Mr. Ickert said in his testimony. He came forward with specific
ideas and thoughts, expanding this general area. Do you agree
with what you heard from Mr. Ickert?
Mr. McClaskey. Yes, I do. I do agree. I would like to see
Ex-Im Bank expand. I would like to see them become more
flexible. I certainly would like them to be more thorough in
their investigation of the economic impact analysis, which
really bothers me, so that we can move on and make some
positive business here in the States. That is what I would
really like to see.
Senator Hagel. Thank you.
Mr. Hayman.
Mr. Hayman. The point that is being discussed now is, I
think everyone understands what that point is, that if the
transaction is going to happen anyway, why should we let the
Germans get the order? And that is probably really at a
Congressional level because Ex-Im Bank is certainly acting
within the rules that are set by Congress.
So that might be an issue that would be discussed with Jim
Lambright.
Senator Hagel. Do you believe that that answers part of the
question that was put to Mr. Lambright by essentially the three
senators that have been here this morning, about why you have
not reached the 20 percent goal? And what have been the
impairments and the difficulties in making that happen?
Mr. Hayman. I think that is part of it. The other one is
the point that was made by Air Tractor on the ability of the
sort of newly created small business division to be able to
accomplish their mission.
And on that point I would say we would support Air
Tractor's views, that over probably a fairly extended period of
time if the small business effort that Jim Lambright talked
about were given more authority and ability, for example, to
approve transactions, that gets them back to 2002 when they
were much more effective.
So we would support that not as something that has to be
done in a short order, because that would just slow down things
again. But we would support that point, yes.
Senator Hagel. Thank you.
Mr. Ickert.
Mr. Ickert. As far as the products of the Bank, from a
small business perspective, I feel like the Bank offers very
good products.
As far as transaction authority, such things as I
mentioned, like giving more delegated authority to Banks to
actually underwrite and to help move transactions along, would
be most helpful.
I guess the one point I would like to come back to, and I
do not mean to go over this over and over, but again we feel
very good about the willingness of Mr. Lambright to listen and
initiate new projects.
The problem is the need for institutionalizing the small
business division. Mr. Lambright could be gone 1 day. And we
have seen in the past, as chairmen change, as policies change,
then you see the ebb and flow of small business on the radar
screen of the Bank.
In fact, we have counted that in the last 10 years there
have been about 15 major changes in the small business area,
from being somewhat high in the organization chart to being in
the middle to not even being on the radar screen.
So again, I am very comfortable with what Jim Lambright is
doing, but we would like to see these things institutionalized
to prevent the ebb and flow that happens with administration
changes from sapping the efforts.
Senator Hagel. Thank you.
Dr. Scott.
Mr. Scott. Thank you.
Two brief comments. In my prepared remarks I noted that
there is a need, I think, for ex poste assessments, after the
Bank has done a number of transactions to look at their impact
on different industries.
I think in this regard also, it is important for the Bank
to develop a strategic outlook on the kinds of industries that
it should or should not be financing export transactions. I
learned of another case yesterday where the Bank was
considering a proposal to finance an export of equipment to
produce soda ash in Turkey. This is an industry that supplies
the global glass-making production. This industry is another
one where there is a chronic global excess capacity glut.
So if we are going to think strategically, I think, at a
minimum, we can ask the Bank to begin to assess what kinds of
exports are actually going to hurt U.S. producers of final
products. I think that is a key area.
Second, I mentioned the onset agreements, a very tough
issue to analyze. I think, at a minimum, it would be useful if
the Bank would simply be able to ask applicant companies to
list or describe formal or informal offset agreements. It could
then use that information. Simply collecting the data would be
useful.
Last, just a point on small business exports. I would just
like to add that I have looked at small business exports, and
between 85 and 90 percent of all of U.S. exports come from
medium and large enterprises. It is very hard for small firms
to penetrate foreign markets to have sufficient scale or
marketing channels.
So encouraging small business exports is a Sisyphean
struggle. It is something that will have to be pursued on a
continuing basis because the structure of international markets
is such that it is just inherently difficult for small
businesses to export.
So I think that it is important to keep that economic
background in mind. Think you.
Senator Hagel. Thank you.
Let me ask each of you this question: what was your
reaction to Mr. Lambright's response to my question when I
specifically asked him were there new authorities required, any
new framing, any new language, anything that should be included
as we move toward reauthorizing Ex-Im Bank for another 4 years?
If you recall, he said we are asking for a clean bill.
Now I was not at Chairman Crapo's two hearings, but the
Acting Chairman and President of Export-Import, at least when I
asked the question do you see any need for more flexibility,
more range, more authority for a SBA division, he said ``no.''
Were you surprised by that, especially in light of what the
four of you have just said? Mr. McClaskey.
Mr. McClaskey. Yes, I was surprised by that. I think they
do need to have more flexibility and to certainly take a look
at exactly how they do support--what they can do to support
small businesses in the country.
Yes, I was surprised by his remarks.
Senator Hagel. Mr. Hayman.
Mr. Hayman. I think the reason for his comment was that
most of the things on the small business side, they already
have the power to do. It is a matter of organization and will
and structure.
On the area of economic impact, I think, their concern
would be that any legislation would make it more difficult for
them to support U.S. exports, so they are probably not looking
for any change.
Senator Hagel. So you essentially would not agree with what
Mr. Ickert said in his testimony on the SBA authority? Mr.
Ickert says they need more authority.
Mr. Hayman. No, I would agree with him. I would agree with
him. In other words, that is not authority. Within Ex-Im Bank,
they can say the small business division has ability to
approve----
Senator Hagel. But you are saying they already have the
authority?
Mr. Hayman. They have already got that.
Senator Hagel. For what reason would they not be exercising
that authority in this specific case?
Mr. Hayman. It used to be that way. They had an insurance
division which would do transactions up to $10 million. They
reorganized 4 years ago and put it all in one kind of neat
block, so big and small transactions were being approved by the
same people.
That has made it much more difficult to get the smaller
transactions done, and I think that is what we have all noted.
What Jim Lambright is trying to do is reverse the field a
little bit, but keeping the same infrastructure but having some
authority or some focus within the larger group to support
small business. He is trying to work his way back to where they
were before, without another massive reorganization, which
nobody probably wants. So the point of doing it over a period
of time, I think, is a good one.
Senator Hagel. Thank you.
Mr. Ickert.
Mr. Ickert. First of all, you asked does it surprise me
that Mr. Lambright answered that way? I would say ``yes'' and
``no.'' It does not surprise me because I think Jim Lambright
has an honest desire to move forward in a lot of these areas,
and I believe he will. And I would like to see more authority,
delegated authority, things of those sorts, to answer your
question specifically.
However, as Mr. Hayman just pointed out, there are changes
that happen, administration changes that happen,
reauthorizations that happen. And without a dedicated,
institutionalized system or division, these things can cause
small business initiatives to disappear. And so,
institutionalization is what I would like to see in order to
foster more small business activity at the Bank and to foster
more small business exporting.
I would disagree to some extent with what Dr. Scott said.
Yes, it is difficult for small companies to export. But it is
not impossible. Small business can do a good job of exporting.
They can do a better job with help, and that comes back to the
processes and the transactions and the procedures at Ex-Im,
which we would like to see become more of an institutionalized
effort. This would also give more accountability for the 20
percent mandate that Congress has put out there that has not
been met since the last reauthorization.
Senator Hagel. Thank you.
Dr. Scott.
Mr. Scott. I have already talked about the need for reform
of the economic impact procedures, and I think that would
require some charter amendments, although I have not looked in
detail at the charter myself. I am an economist, not a lawyer.
I guess the other point that I would make is if we are
going to ask the Bank to expend additional efforts on
conducting economic impact assessments, that will probably
require additional resources, as well. And I think there is
some attention that will have to be paid to that.
Senator Hagel. Thank you.
Again a question for each of you. As you all are aware, and
was noted in the previous testimony, on June 1 Ex-Im Bank
launched Ex-Im Online, which Mr. Lambright noted in his
testimony, a new interactive web-based service which enables
exporters and financial institutions to go online to apply for
insurance, monitor the status of applications, receive and
accept quotes and receive a variety of other services.
My question is this, have any of you had the opportunity to
use this service? If so, what is your initial evaluation of its
effectiveness? Mr. McClaskey?
Mr. McClaskey. I have not had an opportunity to use the
service. I was unaware until today that it existed.
Senator Hagel. You were unaware until today?
Mr. McClaskey. Yes.
Senator Hagel. Thank you.
Mr. Hayman.
Mr. Hayman. We have used it. It is a good effort. I think
it only went into effect June 1 or so.
But as they improve it, it will have some small benefit.
But a technology solution is, you are addressing 5 percent of
the overall--it is nice to have but it does not solve any core
problems.
Senator Hagel. Mr. Ickert.
Mr. Ickert. No, sir, we have not used it. We are aware of
it.
However, from the standpoint of tracking and helping the
process, I applaud that. We do medium-term deals. Our
applications run between 70 to 200 pages long. So I am not for
sure how much this particular effort will benefit our
situation.
Senator Hagel. Thank you.
Dr. Scott.
Mr. Scott. I am not familiar with the new procedure.
Senator Hagel. Mr. Hayman, you noted in your testimony that
other ECAs are becoming more strategic and flexible than Ex-Im
Bank and that was a significant concern you had, that
essentially we are being overrun and will continue to be.
I want you to dwell on that and develop that a little more.
And then I would like very much the other three panelists to
respond to that observation.
Mr. Hayman. I think the other ECAs, the United States has
always had a problem not really being a trading nation.
Obviously, all of our competitors grew up as trading nations.
If they can figure out a way to get a big export order, they
are going to work on it and they are going to get it done.
Specifically, on the cofinancing, we see much more action
from the other ECAs. If their company is producing 30 or 40
percent of its product in Taiwan, which is, as we all know,
getting more and more common, then they are going to support
the transaction. So they are going to support that as if it
were 100 percent French manufacture because it is 60 percent
French, they get exports, they get profits. They pay taxes.
They boost the will of their company. That is probably the
largest one right now.
Senator Sarbanes' questions on the tied aid. We all know
that they are using charitable donations to support
transactions. It was a nice agreement. It has probably helped
some. But they are going to figure out a way to get that big
export order to make it happen.
I would say, as Jim Lambright said, that they tend to be
more--they are quicker in responses, in terms of getting
approvals done. And Jim is trying to address that. But again,
that is another area where we are behind the curve.
Senator Hagel. What do we need to do to pull ourselves back
up into a more competitive position, especially for the long
run?
Mr. Hayman. Clearly, there are some things that have been
suggested on Ex-Im Bank. But one of the others is that we have
so many resources in this country, both public and private,
that are working to promote exports. And they are not
coordinated at all. So you have U.S. Chamber of Commerce, SBA,
Ex-Im Bank, Department of Commerce, Bucks County Economic
Development, the banks. Everybody is working to promote
exports. Banks spend huge amounts of time working with
exporting customers. But there is no coordination.
So as a national policy or a national will, say wow, if we
have all of these resources and they were coordinated, then
would that help us? And being $700 billion in the hole,
strategy would probably be a good thing to have.
Senator Hagel. Do you believe our overall trade policy,
starting with trade promotion authority, is adequate? We have
seen here on the Hill the last few years a trickle of trade
legislation. And I, for one, am very concerned about that
because I see a very dangerous protectionist streak developing
up here, in both political parties by the way. Comment on that.
Mr. Hayman. No, I would 100 percent agree with that. If we
were doing better on the export side, if we were out there
winning orders and getting jobs, I think the protectionist
sentiment would be less. But right now it seems like it is
almost a, well we cannot really compete so we might as well
throw up the barriers, which has some short-term benefit and
some appeal. But I think history shows that long term it does
not work.
So the aggressive export effort, getting behind exports,
using the tools of Ex-Im Bank, SBA, everyone puts us in a
position where we do not have to be protectionist.
Senator Hagel. Thank you.
Mr. McClaskey.
Mr. McClaskey. I agree with Mr. Hayman. It is really, night
and day between our ECA, Ex-Im Bank, and the other ECAs. We do
work with some German companies and they get tremendous support
from Hermes over there. It is unbelievable.
As a matter of fact, I was there last week and one of them
told me they went to meet with one of their clients and Hermes
sent three of their people with the company to meet with the
client to show their support.
I am not exactly sure if I asked Ex-Im Bank to go with me
to visit somebody over in the Ukraine if they would send
anybody with me to do that. So I think it is actually night and
day.
We are actually being courted by JBIC right now because
they want our business because we are doing so good. We are
owned by a Japanese company, Kobe Steel Limited in Japan. They
have opened up the door with JBIC and they are very interested
in financing a project in the Ukraine for us so that we can--
but that means that we will have to go and supply a certain
amount of Japanese-supplied equipment if we do that.
Senator Hagel. All of this, of course, you mentioned tied
aid is why there has been so much interest, particularly in
Senator Sarbanes' line of questioning, as some of mine this
morning as well. It all does connect. Thank you.
Mr. Ickert.
Mr. Ickert. Our experience with other ECAs, is from the
standpoint of Canada, where we do some cofinance work. They
seem to be much faster and much quicker in decisions than Ex-
Im. And I think that is a big issue in this whole discussion,
the process. There are 225,000 small business companies in the
United States that are actually exporting. But there are far
more export-capable companies than that in the United States.
We should encourage more of them to export. The process
sometimes can be discouraging
I am going to be part of a group speaking in Grand Island,
Nebraska, on Thursday to small business exporters. And I would
hope that new people coming out of that would find the process
quick and efficient. Unfortunately, I do not think that has
been the case all the time.
EDC seems more focused, more willing to move and faster to
move.
We have had an example recently, and unfortunately there is
really no answer for it. In Brazil, the government is making
concessionary financing for airplanes to compete with us there.
Those are winning airplane sales from us, using concessionary
financing.
When we talked to Ex-Im Bank about that, they said that
Brazil is not a member of the OECD, so there is nothing really
that we can do. So there are areas like that, I think, that I
would like to see addressed more.
Senator Hagel. Mr. Ickert, if you are going to be in Grand
Island, Nebraska you shall receive special status. Thank you
for your efforts there, as well.
My State, the small State of Nebraska, is very, very
involved, as you know, not just in agriculture but across a
range of products in exports and trade. So thank you.
Dr. Scott.
Mr. Scott. Just a couple of points. I think it is generally
true that many of the other advanced industrial countries that
we compete with are much, much more strategic in terms of their
efforts to buildup industrial capacity and sustain exports. I
think that kind of strategic outlook requires an assessment of
what is going on in other countries. I think that Senator
Sarbanes and others mentioned the need to conduct those kinds
of assessments to understand what other countries are doing on
an industry-by-industry basis and use that information in
planning.
So we need to develop that kind of capacity. Japan has a
Ministry of Industry and Trade. The Chinese have industrial
planning agencies. We shy away from those kinds of activities
and I think that hurts our competitiveness as a nation.
I would just go back in regard to your earlier question
about the broader trends in trade legislation and say I have
studied the broad problems of our trade and current account
deficits and have written extensively on this for a number of
years.
Again, we face a problem with other countries intervening,
particularly in currency markets, in ways to make it very
difficult for the United States to export. I think until we
address those problems, it is going to be tough to bring down
this massive trade deficit that we are confronting.
Senator Hagel. Thank you.
Paperwork. How big a problem is paperwork in the processing
of projects and all that Ex-Im Bank does? Does it impede? Is it
directly attributable to people staying away or shying away or
being reluctant to deal with Ex-Im Bank? Or is it not a
problem?
Mr. McClaskey.
Mr. McClaskey. I do not think that is a big issue, the
paperwork. I think what is required is what is required in
order to do a proper due diligence on the application. So I do
not see that as a hindrance.
Senator Hagel. Mr. Hayman.
Mr. Hayman. It is a problem, yes.
Senator Hagel. Problem?
Mr. Hayman. Yes, problem.
Senator Hagel. Give me an example.
Mr. Hayman. In 2003, our Institution was the largest user
of Ex-Im Bank, among all banks. Our cycle time, from approval,
from acceptance of the transaction to shipment, was 182 days.
Two-and-a-half years later, it was 282 days.
There are a number of factors in that, and I think Chairman
Lambright is working to address them. It is not quite as simple
an issue as I say it is, because there are some other things
that happened at Ex-Im Bank that we would support them being
more careful.
I mean, clearly the ability to evaluate transactions
quickly would be a significant help for U.S. exporters.
And I think they are working on that. But as Jim Lambright
said, they are not there and it is a problem.
Senator Hagel. These are issues that can be resolved within
the current authorities of management?
Mr. Hayman. Absolutely.
Senator Hagel. Thank you.
Mr. Ickert?
Mr. Ickert. First of all, Ex-Im Bank published its the
medium-term credit standards several years ago and that move
significantly helped in the transparency and the understanding
of what was required.
However, as I mentioned earlier, our particular
applications will run 70 to close to 200 pages. So, yes, the
process is difficult. It is also difficult for our buyers on
the other side, as many of them are small buyers and we are
trying to help them gather the information they need to submit.
And that, in itself, makes the process complex.
That being said, I think Ex-Im Bank has a better
sensitivity to that complexity and especially to small
exporters that may be the first or second time through the
process. Unfortunately, the underwriting complexity that exists
without a lack of sensitivity, and the process time that Mr.
Hayman just mentioned, I think discourages more than it
encourages people to export in this country.
Senator Hagel. Thank you.
Dr. Scott.
Mr. Scott. Following up on my earlier comments, my personal
belief is an understanding based on the study of the trade
trends that we need to go beyond Ex-Im Bank to address this
issue. We need to have capacity to plan for competition with
foreign suppliers and to help U.S. industries export, perhaps
to have preapproved forms, to have Government help in filling
out the forms.
This is going to require, I think, other kinds of
institutional support in the Government that go beyond what Ex-
Im Bank can hope to accomplish.
Senator Hagel. Gentleman, thank you. You have been very
generous with your time.
Let me ask, before we adjourn, if there is any one last
comment that any of you would like to make? We will keep the
record open, as I noted with the first panel, because we may
have members of the Committee who would like to send a
question.
So if there is anything else you would like to say, you
have an opportunity to do it. Mr. McClaskey.
Mr. McClaskey. No, I would just like to thank the Chairman
and the Committee for inviting me to be here today to give my
testimony. I really appreciate that. Thank you.
Senator Hagel. Thank you. Mr. Hayman.
Mr. Hayman. Thank you, Senator Hagel.
I think the other thing that we would take away from the
last several comments is that a coordinated approach to U.S.
export performance would be a very valuable thing for our
country.
Senator Hagel. Thank you.
Mr. Ickert.
Mr. Ickert. No, sir. Thank you for the opportunity to be
here.
Senator Hagel. Spend a lot of money in Grand Island.
Mr. Scott.
Mr. Scott. No comments. Thank you, Senator.
Senator Hagel. Thank you all. The hearing is now adjourned.
[Whereupon, at 12:24 p.m., the hearing was adjourned.]
[Prepared statements and response to written questions
follow:]
------
PREPARED STATEMENT OF CLAY LOWERY
Assistant Secretary for International Affairs,
U.S. Department of the Treasury
June 20, 2006
Chairman Shelby, Ranking Member Sarbanes, and members of the
committee, thank you for the opportunity to discuss the reauthorization
of the Export-Import Bank of the United States (Ex-Im Bank). I am
pleased to be here with Acting Ex-Im Bank Chairman James Lambright
because we are in total agreement on the importance of a strong Ex-Im
Bank.
This Administration believes that, given a level playing field,
U.S. exporters can compete with anyone in the world. As the lead U.S.
Government agency on international economic and financial policy,
Treasury leads the U.S. delegation to the OECD export credit
negotiations, which are intended to establish that level playing field.
Working closely with Ex-Im Bank and other U.S. Government financing
agencies, we have successfully developed multilateral rules to reduce
or eliminate the use of foreign export financing subsidies. These rules
help to protect all U.S. exporters by ensuring that the competition for
export sales is driven by price, quality, and service--and not by
unfair government financing. Equally important, these OECD rules
protect U.S. taxpayers from having to pay for a subsidy program that
would be necessary to counter foreign subsidy programs in the absence
of these rules.
Export Financing and the Role of the OECD Arrangement
The OECD members that negotiate these multilateral financing rules
are referred to as the Participants to the Arrangement for Officially
Supported Export Credits (the Participants; the Arrangement). The
Participants are those governments which provide the vast bulk of
export financing for capital goods to developing countries. The
Arrangement rules are critical to ensuring that the export financing
provided by governments promotes market principles, a level playing
field, and transparency. As these rules apply to all sources of
official export financing, policy agencies such as finance and
economics ministries represent their governments among the
Participants. In addition to Treasury and Ex-Im Bank, the U.S.
delegation includes the Departments of Commerce and State, USTR, USAID,
the Trade and Development Agency, and any other agency whose programs
or policy role might be affected by negotiations.
Export subsidies are bad economic policy and very costly to
taxpayers. They close markets to competition and reduce global economic
growth. By distorting trade flows, subsidies also distort the global
allocation of resources and reduce international economic efficiency.
Exporters who become dependent on tied aid subsidies become less
efficient and unable to compete on market terms.
Moreover, using subsidies for export promotion is ultimately self-
defeating because when one nation uses subsidy programs to gain a
competitive advantage, others naturally follow suit to protect their
interests. This inevitably leads to an export-subsidy race which harms
the international economic system and severely undermines or reverses
the gains from trade. This is why successive Administrations have
worked in the OECD to negotiate a trade finance environment driven by
market forces in which all U.S. exporters can compete.
The Arrangement complements the WTO anti-subsidy rules. The WTO
does not restrict the use of aid subsidies--tied or untied--because
resource transfers from rich to poor countries are important for the
latter's development. The United States uses the Arrangement to ensure
that aid-financed subsidies are really development aid and not export
promotion in disguise.
Aid--tied or untied--is normally in the form of official
development assistance (ODA) offered by a donor's development ministry
and can be in the form of grants or credits. However, tied aid also is
a form of export subsidy in which financing is formally linked to the
purchase of goods and services from donor-country firms.
The U.S. offers tied aid through USAID, as part of the ``Buy
America'' mandate. However, U.S. tied aid is usually in the form of
grants which, dollar-for-dollar, distort trade far less than credits
and provide greater assistance to developing country recipients.
Many other OECD donors use tied and untied aid credits in order to
leverage more exports while reducing the budgetary cost of aid and
thereby increase domestic political support for their aid programs.
Before the Arrangement, competitive economic and political pressures
resulted in many foreign tied aid credits being de facto export
promotion. Since tied aid credit terms are more favorable to the
borrower than standard export credit terms, tied aid distorts trade
flows in favor of the tied aid provider's firm when the two forms of
financing compete.
Under the rules, tied aid is now focused on the poorer countries--
those with per capita incomes below $3,255 annually. Wealthier
countries like Mexico, Korea and Malaysia are no longer eligible for
tied aid. Tied aid is now virtually non-existent in major projects for
power (thermal and hydro), oil and gas pipelines, telecommunications,
air traffic control equipment, industry, and manufacturing. This has
enabled U.S. exporters to compete for contracts in these commercial
sectors without the concern of confronting tied aid. Instead, tied aid
now is used primarily for what are generally regarded as bona fide
development projects in sectors such as health, education, water,
sanitation, and roads.
Recent Negotiating Successes
During Ex-Im Bank's 2002 reauthorization, Treasury reported on the
success of disciplining tied aid use and the remaining challenges
associated with two other foreign financing practices that distort
trade and threaten the level playing field that we seek--untied aid and
market windows. Since that testimony, Treasury has continued its work
to address these issues in the OECD. (Efforts were highlighted in two
reports to Congress in June 2004.) I am pleased to report that
significant progress has been made on all fronts, and, as Ex-Im Bank's
latest Competitiveness Report shows, neither untied aid nor market
windows pose the same challenge that they did in 2002.
Untied aid is aid that may not be formally linked to donor country
procurement. Untied aid typically is used for non-commercial projects
with a development impact. However, without formal OECD rules on what
procedures, practices, and procurement results constitute untied aid
for the purposes of exempting it from the tied aid disciplines, donor
governments can use untied aid to circumvent the tied aid rules agreed
to by the OECD members in 1992 and distort trade in favor of the donor.
Examples include requiring aid recipients to use donor-country firms
for design and engineering work or requiring a donor-country firm to
run the bidding process, thereby creating a de facto bias toward the
firms of that country.
Over the last few years, Treasury negotiated an agreement in the
OECD that members would stop offering tied aid for design and
engineering studies for projects that will then be financed with untied
aid. We firmly believe that this practice provided an unfair technical
advantage to donor country firms when bidding for untied aid projects.
In addition, in January 2005, following intensive bilateral
discussions with the EC and Japan (the two largest untied aid donors)
and a Treasury-led initiative in the G-7, a ground-breaking OECD
agreement was reached. This agreement requires that untied aid donors
notify the OECD of projects and bidding information 30 days in advance
of the start of the bidding process. We believe that this will provide
valuable information to U.S. exporters to help them compete effectively
for untied aid projects that have averaged $8 billion a year since 1993
and are currently rising. Moreover, donor governments agreed to
maintain a minimum bidding period of 45 days to further facilitate
participation by U.S. and other exporters. The United States makes this
project and bidding information available on the Commerce Department's
web site at http://web.ita.doc.gov/sif/untied.nsf/.
Furthermore, to ensure that donor governments treat foreign bidders
fairly, donors will report the outcome of untied aid bids to the OECD
on an annual basis. We will review carefully the results of the
transparency agreement later this year to confirm whether U.S.
exporters are winning a fair share of these projects. If not, and this
new transparency shows that untied aid continues to distort trade, the
data will provide a credible foundation for the United States to
request OECD negotiations for comprehensive rules for untied aid.
We also have seen some progress on disciplining market windows
since Ex-Im Bank's 2002 reauthorization. Market windows are quasi-
official institutions that support national exports, but because they
purport to operate as private sector actors, they are not subject to
any transparency or discipline concerning the terms and conditions of
their financing. Market windows have the ability to offer financing on
better terms than either the private markets or export credit agencies.
The two largest market windows are KfW of Germany and EDC of Canada.
Following extensive but inconclusive OECD and bilateral discussions
on the issue, EDC seems to be voluntarily shifting its activities
toward non-export credit support. KfW has been subjected to an EC-
mandated separation of its official and commercial business. We expect
this action to result in far greater transparency and market-like
discipline on its export financing function. While the potential
certainly remains that either institution could offer terms that
undercut the OECD rules and the private market, current trends show
that significant progress is being made. Nevertheless, Treasury and Ex-
Im Bank will continue to monitor the situation closely.
Finally, our success in disciplining tied aid continues since our
last testimony. The benefits to the United States of negotiating and
implementing international rules on the use of tied aid continue to be
dramatic. Prior to 1992--before the OECD tied aid rules came into
effect--donors offered $10-$12 billion of tied aid annually and the
resulting U.S. export losses were estimated to be $2 billion or more
per year. Since 1992, tied aid credits have averaged only $4 billion
annually--a minimum reduction of 60 percent--and therefore have been
cumulatively reduced by about $80 billion.
Treasury estimates that U.S. exports of capital goods are higher by
at least $1 billion a year as the result of tied aid rules that reduce
trade distortions. Furthermore if the United States had competed for
these additional exports by using tied aid, the War Chest would have
required roughly $300 million annually in additional appropriations--a
cumulative savings of $4 billion for U.S. taxpayers since 1993.
The War Chest
Continued success in the OECD rules-based approach to tied aid as
well as untied aid and market windows is dependent in large part on
Treasury's ability to use the War Chest as a policy tool. Removing that
role would undermine U.S. credibility and deter cooperation from our
OECD partners. More importantly, this would seriously weaken the U.S.
position in any effort to negotiate new rules, such as those for untied
aid, and to enforce the existing rules. A weakened U.S. position in the
export financing disciplines arena will almost certainly raise the cost
to the U.S. taxpayer of protecting U.S. exporters against unfair
foreign subsidies.
Congress created the tied aid War Chest in 1986 in order to provide
the Administration with leverage to negotiate economically and
developmentally sound tied aid rules in the OECD. The War Chest was
also intended as a means to enforce these rules and leverage additional
market-opening negotiations, as necessary. As a result of Treasury-led
negotiations, the comprehensive set of tied aid rules outlined earlier
took effect in 1992, providing a better balance between the development
and commercial objectives of the OECD donor governments.
The selective use of War Chest funds to enforce tied aid rules has
worked exceedingly well in reducing trade distortions and leveling the
playing field for U.S. exporters at virtually no cost to the U.S.
taxpayer. As a result of this success, foreign tied aid programs have
been pushed out of most areas of commercial competition, and the demand
by U.S. exporters for tied aid matching has declined dramatically.
Despite this decline in demand, the War Chest remains an important tool
in the U.S. policy arsenal. Treasury uses the War Chest as leverage not
only to enforce existing rules on tied aid and other trade-distorting
activities but also to negotiate new rules as needed--as may be the
case for untied aid.
While we refer to tied aid ``rules,'' they are not legally binding.
They are voluntary, as are all the export credit rules under the
Arrangement. Other donors have voluntarily addressed U.S. concerns and
agreed to stop or limit their financing for the types of capital
projects that the United States has argued should be ineligible for
tied aid credits. The tied aid projects that our OECD partners are now
financing are specifically permitted under the rules and are less
distorting to trade.
Given the voluntary nature of the Arrangement, the United States
must be careful how it decides to implement its matching policy. An
insufficiently judicious policy on use of our tied aid would give our
OECD partners an incentive to abandon the Arrangement and expand the
scope of their tied aid programs to include larger, more commercial
projects.
This would create a vicious cycle of increasing tied aid from all
parties and generating a larger demand for the War Chest. The gains
that the successive Administrations have worked to achieve over the
last fifteen years would quickly unwind. This is not to suggest that
the United States should never match any tied aid offers. Some tied aid
projects pass the OECD eligibility test but can still create longer-
term advantages for foreign exporters by setting technical standards,
providing brand name recognition, allowing maintenance and repair
capabilities to become established, etc. Any of these elements can tilt
the playing field for future commercial sales. War Chest matching is a
vital tool to ensure that tied aid is not used, intentionally or
unintentionally, to tilt longer-term competitive conditions against
U.S. exporters. Treasury fully supports using the War Chest in such
instances.
In addition, the tied aid rules have two systemic shortcomings. The
first relates to small projects below $3 million and the second relates
to projects in the railway and mass transit sectors. Small projects are
exempt from the tied aid rules in order to minimize the administrative
burden of the rules. However, some OECD members used this exemption
aggressively to finance small commercial projects in violation of the
spirit of the rules. In response to this, Treasury has been clear that
it automatically supports using the War Chest to match small commercial
projects.
Passenger railway and mass transit projects also meet the
eligibility rules because they are highly capital intensive, meaning
their costs are normally not recouped from their own earnings over the
term of an export credit agency (ECA) loan. In addition, their revenues
are limited because they are often unable to charge the full economic
value of their services. Therefore, Treasury has been clear that such
projects are frequently good candidates for War Chest matching, and
just such a matching offer was approved earlier this year.
In conclusion, this policy-based approach to matching foreign tied
aid offers allows us to protect U.S. exporters from unfair use of tied
aid, while recognizing the legitimate development objectives of foreign
aid programs. It is in the interest of U.S. exporters and taxpayers
that the War Chest remain a tool to leverage the broader, rules-based
approach. The current Treasury/Ex-Im Bank tied aid principles and
procedures were put in place in close cooperation with Congress in
2002, are working well, and have not produced a single disagreement
between the two agencies.
I appreciate the opportunity to appear before you today and look
forward to your questions. Thank you.
______
PREPARED STATEMENT OF JAMES H. LAMBRIGHT
Acting Chairman and President,
Export-Import Bank
June 20, 2006
Mr. Chairman, Senator Sarbanes, Members of the Committee:
I am pleased to be here today to testify on the 2006
reauthorization of the Export-Import Bank of the United States
(hereinafter ``Ex-Im Bank'', or ``Bank''). Ex-Im Bank was originally
chartered in 1934 and has played an active role in the financing of
U.S. exports ever since. The mandate of the Bank as expressed in our
charter is to create and sustain U.S. jobs by supporting U.S. exports
that otherwise would not go forward. And while there are many issues
pertaining to Ex-Im Bank policies that I will discuss in this
testimony, that mandate remains at the core of why the Bank exists and
why it should be reauthorized.
There is little argument that we are living in a very competitive
global economic environment, and there are many instances when our
exporters cannot be left to go it alone if we are to sustain the well-
paying jobs behind those exports. The specific role of the Bank is to
help provide export financing in instances where creditworthy
transactions would not otherwise go forward. That can occur when a
market or a buyer is too risky to obtain commercial financing, or when
the export credit agencies of other countries offer support to their
exporters in order to secure a sale for their workers and industries.
Make no mistake about it--I believe that U.S. workers make goods
and provide services that can more than match the price and quality of
any of our major competitors. But when other export credit agencies
such as COFACE of France, Hermes of Germany, or ECGD of Great Britain
offer financial support to their exporters, Ex-Im Bank steps in to
``level the playing field'' for our exporters and our workers. We want
to make it possible to keep those jobs here in the United States.
We do this by offering direct loans to foreign buyers of U.S. goods
and services, guaranteeing commercial bank loans to those same buyers,
guaranteeing working capital loans to U.S. exporters to make it
possible for them to make the exports and offering insurance policies
so exporters, especially small business exporters, can offer extended
payment terms to their foreign buyers. It is through working capital
guarantees and our insurance policies that we do the great bulk of our
small business transactions, a topic I will discuss in depth below.
The Congress, through our charter, has offered us clear guidance on
how to meet our mandate. I liken it to driving between two guideposts.
One guidepost represents the benefits we offer to U.S. workers and
exporters when we assist in the financing of exports that otherwise
would not occur. Over the years, those exports have helped to sustain
U.S. jobs, jobs that on the average offer higher wages than non-export
jobs. Since our 2002 reauthorization, we have authorized $47.9 billion
in financing support of an estimated $63 billion in U.S. exports. Some
of those have been big ticket items such as aircraft or power
generation equipment. But over 80 percent of those transactions have
been made available to directly support small business exports.
But we adhere just as strictly to the other guidepost--the one that
represents assuming reasonable risk and responsible stewardship of the
resources provided by taxpayers necessary to bear those risks. The
guidepost of risk is ``reasonable assurance of repayment,'' a term
Congress has explicitly put in our charter as our standard for making
credit judgments.
The results have been tremendous. Currently, every taxpayer dollar
invested in the Bank's program and administrative budgets makes
financing available for over $50 in U.S. exports. The overall loss rate
for Ex-Im Bank over the course of its history has been less than 2
percent. That compares favorably to rates for commercial banks. Loss
rates vary between markets and products, and we keep a close eye on
what is occurring with every type of transaction.
The conclusion is that Ex-Im Bank is a great deal for the
taxpayers. When we manage to drive between the guideposts of supporting
exporters and workers on the one hand, and assuming reasonable risk on
the other, we are of real benefit to the U.S. economy. Congress also
guides us on some course refinements along the way. In 2002, Congress
increased from 10 to 20 percent the amount of financing authority that
must be available for small business transactions, and though the Bank
has not yet authorized the full 20 percent of authorizations for the
direct support of small business, we have never turned down a small
business transaction due to lack of resources. We are still seeking the
best course to drive in order to maximize support for small businesses,
within the context that Congress has instructed us to be a demand-
driven institution and not to compete with the private sector. We are
happy to follow Congress' guidance on that issue. Congress has also
told us to continue our efforts to increase financing commitments for
exports to sub-Saharan Africa. In fiscal year 2005, Ex-Im Bank
supported 115 transactions in 20 countries in the region, totaling
$461.8 million, a $78.6 million increase over fiscal year 2004. In
addition, Congress told us to support exports from businesses owned by
women and minorities, which I will discuss later.
I was privileged to become Acting President and Chairman in July
2005, and I am happy to continue in that role until the Senate acts on
my nomination to be President and Chairman. If I am confirmed, I will
continue to drive the Bank between those guideposts, to keep an even
and predictable course. But I won't be able to do it by myself. I will
need the help of our very capable Bank staff, upon whom all Board
members depend for the vital information that makes it possible for the
Bank to function. Moreover, I want to emphasize that the Chairman and
President of the Bank cannot act in isolation from the other Board
members and expect to have an effective, smooth-running institution. I
depend upon my fellow Board members for advice and counsel right now,
and I can promise that I will continue in that practice if I am
confirmed. That includes assuring that members of the Board have access
to all of the information available on transactions and Bank policies,
and have access to Bank staff to supply that information. That is the
way I work now, and that is the way I will work in the future, if
confirmed.
The Administration's decision not to request any substantive
changes in the policies laid out in our charter is appropriate to our
needs. Although the role and need for official export credit is
constantly evolving in the face of the changing nature of export credit
competitors (from France and Japan to China and Brazil) and the massive
flows of private capital into the emerging markets since 2000, we at
Ex-Im Bank believe the current charter language provides the
institution with sufficient powers and flexibility to adjust our
programs and policies to meet those challenges.
We are requesting an extension of the charter for 5 years, to
September 30, 2011. We are also requesting that our existing authority
to approve dual-use transactions, as well as the life of the Sub-
Saharan Africa Advisory Committee, be extended to that same date.
Ex-Im Bank currently has the authority to approve transactions
supporting the financing of dual-use exports as long as the items are
of a non-lethal nature and are used primarily for civilian activities.
While not widely used, that authority is important to some of our
exporters. And the Sub-Saharan Africa Advisory Committee has proved to
be a valuable source of knowledge to the Bank as we attempt to increase
our exports to this important part of the world that offers great
potential for our exporters.
APPROPRIATIONS
For fiscal year 2007, Ex-Im Bank is requesting $26.4 million for
its program budget. When added to other available budget authority,
that will give us a total estimated program budget of $176.5 million.
We further estimate that it will allow us to authorize financing of
approximately $17.5 billion in support of $22.5 billion in U.S.
exports. From fiscal year 2002 through fiscal year 2005, the Bank has
authorized financing of $48 billion in support of U.S. exports using
$1.6 billion in program budget. That is a bargain for the U.S.
taxpayer. The Administration is also requesting $75.2 million for our
administrative budget, compared to $72.5 million enacted for fiscal
year 2006. This pays for every aspect of our operations, from salaries
to rent. It is the administrative budget that is most important for our
small business initiatives; it covers our outreach efforts and
technological upgrades.
SMALL BUSINESS
Since I was appointed Acting President and Chairman almost a year
ago, I have devoted more attention to small business than any other
issue. We have been working with Congress on its concerns. We have
conferred with small business representatives on changes we have been
implementing which I am about to discuss. And we are institutionalizing
major changes in our administrative structure with the purpose of
continuing to increase our support for small businesses.
I say continuing to increase because we have already laid a strong
foundation for growing our small business program. In fiscal year 2005,
Ex-Im Bank authorized 2,617 transactions that were made available for
the direct benefit of small business, compared to 2,154 in fiscal year
2002, which represents a 21 percent increase. In terms of dollar
volume, the Bank supported $2.66 billion in small business transactions
in fiscal year 2005 compared to $1.8 billion in fiscal year 2002, a 47
percent increase. And the Bank's Working Capital Guarantee Program,
which benefits primarily small business exporters, had a record year in
fiscal year 2005. Of the Bank's total Working Capital authorizations of
$1.096 billion, 78 percent, or $850 million, directly benefited small
business exporters.
While I recognize that we have been making progress, I am also
aware that there is room for improvement. As I stated above, Congress
has placed in our charter the mandate to make available 20 percent of
our authority for direct support for small business. We have
consistently made these resources available but they have never been
utilized at the 20 percent level. We feel that one of the primary ways
to increase support for small business is to improve our outreach
programs in order to increase demand. I have created the new position
of Senior Vice President for Small Business to manage an independent
business development unit with a dedicated staff focused solely on
small business outreach. He reports directly to the President and
Chairman of the Bank. The Senior Vice President for Small Business
serves as the primary small business advocate on the staff level, and
of course works closely with the Board member given responsibility for
small business matters. In addition, the Bank's regional offices in New
York, Florida, Illinois, Texas, and California are now dedicated
exclusively to small business outreach and support.
Although the Senior Vice President for Small Business is
responsible directly to the President and Chairman and he and his staff
comprise an independent business development unit, they still work
closely with the Bank personnel who are responsible for actually
processing the transactions--that is, those in what we call the
``business units.'' This is consistent with what we do for all business
development, large and small, within the Bank. It is part of our credit
culture, and reflective of best practices in the private sector, that
those who must objectively evaluate credit not be the same people as
those responsible for business outreach.
Furthermore, small business transactions are now processed only by
specified personnel experienced in small business and who are sensitive
to the special needs of the small business exporter. To further enhance
our services to small business, I have designated all such employees
throughout our business units as ``small business specialists,'' so
that when small businesses come into the Bank to discuss their
transactions, they will interact with personnel who are familiar to
them and knowledgeable about their needs.
Ex-Im Bank's Small Business Committee
To facilitate seamless interaction between the dedicated small
business outreach division and the small business specialists in the
business units, we have established an Ex-Im Bank Small Business
Committee (SBC) to coordinate, evaluate, and make recommendations
regarding the many Bank functions necessary to successfully execute our
small business plan. The SBC is co-chaired by the Senior Vice President
for Small Business and Senior Vice President for Export Finance, and
reports directly to the President and Chairman of the Bank. And we have
institutionalized this structure by having the Board formally approve
it. The SBC is composed of representatives from a number of Bank
divisions. Other divisions within the Bank, including Congressional
Affairs, also participate at meetings.
The goals of the SBC are to:
Provide a Bank-wide focus on small business;
Report and evaluate each unit's small business performance;
Identify opportunities for cross-selling and expanding the
use of Bank programs for small business;
Measure the progress and take steps toward meeting small
business plan objectives; and
Serve as a forum for exploring new small business
initiatives.
The SBC has already had impact. For example, as a result of SBC-
initiated action, Ex-Im Bank is encouraging brokers to more proactively
market our short-term insurance policies to small businesses through
increased broker commissions. The SBC approved a 25 percent premium
discount for Ex-Im Bank short-term multibuyer insurance policies
offered to small business exporters that are using the Small Business
Administration's international loan programs. Furthermore, in order to
make short-term insurance policies more user-friendly for small
businesses, the SBC approved several endorsements to short-term
insurance policies relative to shipments and delegated authority.
Claims Committee
In addition, we have established a new claims reconsideration
procedure and ``Claims Committee'' consisting of five senior Bank
officials. The Claims Committee is responsible for evaluating and
reconsidering claims originally denied by the Asset Management
Division. I believe these changes are helping all of our customers, but
are particularly useful to small businesses, by improving transparency
in the claims process.
In addition, the new procedure establishes formal consultation
among the business units of the Bank and the Asset Management Division
as part of the reconsideration process. To strengthen customer
education about the reconsideration process, a small-business portal
with information pages has been created on Ex-Im Bank's web site.
Technology Upgrades
We are making significant progress regarding our technology
improvements. The Bank has responded to the Congressional mandate in
our last reauthorization to ``implement technology improvements that
are designed to improve small business outreach, including allowing
customers to use the Internet to apply for the Bank's small business
programs.'' Since the Bank's last reauthorization, the Bank has been
implementing its online capabilities in stages.
Ex-Im Online
Ex-Im Online, our major business reengineering and automation
project, is the latest step. On June 1, small business customers began
using Ex-Im Online for multibuyer products, including support for
special buyer credit limits. These are the products most heavily used
by small business: more than 80 percent of the customers are small
businesses, and these products represent half of Ex-Im Bank's annual
transaction volume. Customers apply online, get quick decisions and
receive online status information.
Ex-Im Online is reengineering, automating and modernizing Ex-Im
Bank's primary business processes, particularly for the products used
by small businesses (short-term export credit insurance) and the
products that provide significant indirect support for small business
exporters and suppliers (medium-term insurance and guarantees). Ex-Im
Online provides exporters, particularly small businesses, the benefits
of electronic application submission, processing and insurance policy
management.
Ex-Im Online reduces customers' paperwork, improves the Bank's
response time, increases productivity and improves risk management. Ex-
Im Online allows customers to:
Apply online. Applications and all supporting documentation
can be submitted and processed electronically.
Get quick decisions. Online retrieval of credit and
demographic information and automated underwriting reduces
review and decision time for short-term transactions.
Receive online information on application status.
Applicants receive email notification of the status of their
application.
Reduce paperwork burden. Automatic data entry and reuse of
existing data permits ``enter once--use many times'' management
of customer information.
Manage export accounts receivable online.
Utilize enhanced products. Ex-Im Bank will be able to
consider a broader range of product enhancements and
modifications, particularly in the short-term insurance area,
as a consequence of better risk quantification and management
capabilities using online systems.
There are also benefits to Ex-Im Bank:
Increased productivity and better resource use. Replacing
manual processes allows staff to focus on meeting growing small
business needs and extending outreach to new customers. We have
redeployed staff from processing to customer service, which
provides more person-to-person service for small business
customers, especially new exporters. As small business
transactions and volume grow as expected from increased
outreach, we will be able to manage the growth without adding
staff.
Increased customer satisfaction. Streamlined application
submission, automated case processing and quicker decisions
will increase satisfaction with Ex-Im Bank services, supporting
our outreach and marketing.
Stronger risk management. Business intelligence tools and
better sharing of information will improve management of the
portfolio.
When considering Ex-Im Bank support for small business, it is
important to note that we are a demand-driven enterprise. We cannot
predict business cycles, or whether applications that come in tomorrow
will be appropriate for the financing we have to offer. But what I can
guarantee is that we will do everything within our power to increase
demand through improved outreach programs. Moreover, I am going to
continue to inculcate a culture that strives to meet all of our small
business customers' needs through improved processing of small business
applications by our small business specialists, the development and
implementation of forward-leaning initiatives by the Small Business
Committee, the careful consideration of the Claims Committee and
further expansion of Ex-Im Online. Ex-Im Bank is going to continue to
seek out and listen to small business input concerning our programs, we
will communicate with Congress and take your concerns seriously, and
our renewed efforts in small business are going to be sustained and
further institutionalized.
ECONOMIC IMPACT
Through the economic impact process the Bank seeks to determine
whether a transaction under consideration would adversely affect U.S.
production or employment, or result in the manufacture of a good
subject to specified trade measures. In analyzing these cases, Ex-Im
Bank must balance the benefits associated with the U.S. export against
the long-range implications of increased foreign production. Given Ex-
Im Bank's objective of maintaining and increasing employment of U.S.
workers, Ex-Im Bank has long accepted the principle that it should not
extend financing support when such support would adversely affect the
U.S. economy. This is the foundation of our economic impact procedures.
Decisions on transactions that raise economic impact considerations,
however, are the most difficult the Bank must make because it must
weigh the interests of one set of American workers against those of
another.
The Bank's economic impact procedures are intended to lay out a
reasonable and logical process for analyzing the impact of Ex-Im Bank
support for a particular export transaction. Ex-Im Bank endeavors to
implement the Congressional mandate in a thoughtful, considered, and
transparent manner, with full participation of interested stakeholders.
In 2001, Ex-Im Bank recognized the shortcomings in the then-
existing economic impact procedures, and initiated a process to improve
them. The process of vetting changes was extensive and included
representation of all stakeholders. In March 2003, Ex-Im Bank released
the new economic impact procedures reflecting changes developed through
public consultation, as well as changes mandated by Congress in the
Bank's 2002 reauthorization. Many of the shortcomings of the prior
economic impact analysis were addressed, including clearer criteria and
definitions, broad consideration of trade measures, enhanced
interagency consultation, and provision of notice to interested
parties.
Since the new procedures took effect, economic impact issues have
arisen in a number of transactions, including those relating to the
production of textiles, chemicals, steel, semiconductors, soda ash, and
solar panels.
Ex-Im Bank must balance the need for inclusiveness with commercial
practices that require efficiency and timeliness on transactions. While
Ex-Im Bank makes every effort to complete the economic impact analysis
expeditiously, it requires a substantial dedication of staff resources,
usually takes 8 to 10 weeks and has even taken up to 1 year, depending
on the extent to which the feedback and information obtained through
the notice and comment period comport with the Bank's analytical
findings. For example, a lack of consensus among industry observers
about the outlook on supply and demand balances can lead to an
inconclusive finding on oversupply and may complicate the Bank's
analysis.
Exporters have indicated that the delay and uncertainty associated
with the Bank's economic impact policy have in some instances
frustrated their commercial relationships and caused them to lose
export sales to foreign competitors. At the same time, the Bank must
ensure that potential transactions are properly vetted and all
interested parties have an opportunity to be heard.
The revisions to the economic impact procedures implemented in 2003
have been successful from a number of perspectives. They clarified the
criteria for Ex-Im Bank's analysis and expanded participation by other
U.S. Government agencies and stakeholders in the process. Yet, economic
impact analysis continues to present challenging issues for Ex-Im Bank.
Despite these challenges, Ex-Im Bank strives to implement the economic
impact procedures so that they are transparent, predictable, effective,
and fair to exporters, affected industry, and other interested parties.
KEEPING THE COMPETITIVE EDGE IN NEW PRODUCTS AND SPECIAL MARKETS
Women- and Minority-Owned Exporters
As a nation, our institutions work best if they reflect the society
in which we live. This holds true especially for business. It is easier
to successfully market a product or services to a community if you know
that community and are part of it. With this in mind, we at Ex-Im Bank
are striving to help the American export community be more competitive
by working to increase our transactions involving women- and minority-
owned businesses. For fiscal year 2005, our authorizations in this area
were $363 million, compared to $296 million in fiscal year 2004. In
fiscal year 2005, transactions involving women- and minority-owned
businesses accounted for over 13 percent of our total small business
authorizations and over 20 percent of our working capital guarantee
authorizations in dollar terms. Ex-Im Bank staff participated in 57
speaking engagements and attended thirteen conferences expressly aimed
at these targeted audiences in fiscal year 2005. We have increased our
outreach with the goal of doing even more this year. We are committed
to continuing and expanding these efforts.
Environmentally Beneficial Exports
Ex-Im Bank established the Environmental Exports program to
increase support of environmentally beneficial goods and services.
Since the program's inception in 1994, Ex-Im Bank's environmental
transactions have grown significantly. That has allowed U.S.
environmental companies to compete in promising emerging markets. From
fiscal year 2002 to fiscal year 2005, Ex-Im Bank has supported more
than $1.1 billion in environmentally beneficial exports. The Bank's
environmental portfolio includes transactions financing U.S. exports of
renewable energy equipment, wastewater treatment projects, air
pollution technologies, waste management services, and many other goods
and services. Renewable energy and water project exports are eligible
for repayment terms of up to fifteen years under an OECD agreement that
became effective July 1, 2005, for a trial period of 2 years. It is our
goal to use these new terms and our outreach programs to expand our
exports in this sector, where we feel the United States has a real
technological edge over its competition.
FUTURE CHALLENGES
Any testimony about Ex-Im Bank must include a discussion of the
challenges the Bank will be facing over the next 5 years, the length of
our request for reauthorization. That is no easy task, because it is
extremely difficult to predict even such major events as the Asian
financial crisis of the late 1990's, or the rise and fall of some or
our major markets in South America such as Venezuela and Argentina. But
there are issues that bear watching and which may have to be dealt with
over the next 5 years.
Developing countries on the upper part of the industrialization
scale (e.g. Brazil, Russia, India and China) are emerging as
significant exporters of capital goods such as airplanes, trains and
construction and telecommunications equipment. Those products are
generally priced very attractively, are steadily improving in their
quality and are typically supported by official financing. This
financing is often on better terms than agreed to by members of the
OECD, U.S. companies, and those in all G-7 countries for that matter,
are noting that these emerging exporters are displacing them in a
variety of markets around the world--and financing is sometimes a key
element in that displacement. We are working with both our interagency
and G-7 counterparts to better define this rising challenge and
determine the best array of measures to successfully address it. There
is no clearer or more fundamental mandate than leveling the playing
field for our exporters and keeping jobs here in the United States.
CONCLUSION
I have every confidence that this institution that I have grown to
admire and respect will continue to serve U.S. workers and taxpayers
for years to come. A flexible charter allowing Ex-Im Bank--with the
guidance of Congress and the exporting community, to develop answers to
the pressing issues facing us now and in the future--is key. There is
no more important economic issue than preserving our job base, and with
the help of Congress in this year of our reauthorization, we will
continue to fulfill that mandate.
I will be happy to answer your questions.
______
PREPARED STATEMENT OF JAMES D. McCLASKEY
President and CEO, Midrex Technologies, Inc.
June 20, 2006
I am Jim McClaskey, President and CEO of Midrex Technologies, Inc.,
headquartered in Charlotte, North Carolina. I have worked at Midrex for
the past 32 years and with me today is Rob Klawonn, Vice President,
Commercial, for our company. We sincerely appreciate this opportunity
to speak to you today regarding an issue which is critical to the
success of our company and the hundreds of small businesses we support
in the United States. Specifically, I am directing my remarks to the
pending reauthorization of the Export-Import Bank of the United States
(Ex-Im Bank). Midrex needs the support of an active and aggressive
export credit agency to allow us to compete on a level playing field
with our competitors. These competitors in Europe benefit greatly from
the aggressive support of export credit agencies such as Hermes and
Sache.
Midrex is a small technology company with less than 100 full-time
employees. We are 100 percent dedicated to the Global Iron & Steel
Industry and nearly all of our clients are foreign. This year our
revenues will be the highest in our company's history, more than $200
million. How did we achieve revenues of more than $2 million per
employee? We rely heavily on the support of hundreds of U.S., and yes,
foreign suppliers and manufacturers of industrial electrical and
mechanical equipment, specialty fabrications, refractory and much more.
We typically sell a technology package of engineering, equipment,
materials and services for export, and the pieces come together at our
customer's plant site in their home country. Although we do not
manufacture anything ourselves, the bulk of our revenues and profits
are derived from the supply of goods manufactured right here in the
United States. Key supplier relationships have developed over the past
30-plus years in states such as Alabama, Florida, Georgia, Illinois,
Indiana, Kentucky, Massachusetts, Missouri, New York, North Carolina,
Ohio, Pennsylvania, South Carolina, Texas, Utah, West Virginia,
Wisconsin, and others. Many of these companies are small businesses.
Furthermore, we are the market leader in our segment of the industry
with two-thirds market share, and the Midrex Direct Reduction
Technology has over 90 percent market share in the Middle-East North
Africa region.
In the past, Midrex had received support from Ex-Im Bank, although
there were numerous complaints about its lack of speed and efficiency.
We had developed support for projects in Mexico, Venezuela, and the
Middle East. We had not been in contact with Ex-Im Bank for
approximately 5 years, from 1998-2002 due to very poor global market
conditions in the iron and steel business. Upon returning to Ex-Im in
2003 asking for support, we were verbally instructed by one business
development officer at Ex-Im ``don't waste your time'' simply because
we are associated with the ``steel'' industry. Unfortunately, we have
had to spend thousands of dollars over the past few years educating
many in Washington, D.C., about our business and the fit we have in the
global steel industry. I'd like to make one thing very clear at this
point; the Midrex technology does not produce steel. Our process is
used to make a metallic iron raw material that is then used to make
steel, much the same way that scrap metal is used.
Saudi Ex-Im Bank Denial: In December 2004, Midrex signed a contract
with a client in Saudi Arabia to supply $81 million worth of
engineering, equipment and field services. The majority of this revenue
is dedicated to U.S. goods and services. The contract is a minor, but
critical part of a $1 billion investment being undertaken by our client
to increase iron and steelmaking capacity in Saudi Arabia. The metallic
iron produced by our technology will be used in adjacent steelmaking
operations to produce steel for the Arab Gulf region's fast growth and
also for export to their global steel-consuming customers.
In 2005, the Saudi client made its application to Ex-Im Bank for
loan guarantees as part of an overall financing effort using
combinations of commercial financing and European export credit agency
support. It is interesting to note that the lead bank, who was very
much aware of the sensitivities associated with Ex-Im Bank and support
of foreign Steel producers, recommended that his Saudi client not
submit an application to Ex-Im Bank due to the high probability that
the application would be denied. The Saudi client, nevertheless,
expressed an interest in establishing a relationship with Ex-Im Bank
and instructed the financial arranger to complete the application
process.
Ex-Im Bank, based upon the negative findings of the economic impact
analysis, denied the application a few months ago because the project
as a whole will result in the addition of nearly 1.3 million tons/year
of hot-rolled coil capacity. On the surface, the system of checks-and-
balances on Ex-Im Bank worked. The procedures and guidelines which were
put in place as a consequence of the last Ex-Im Bank reauthorization
and fall-out of the Bush 201 Trade Sanctions imposed in early 2003
worked as intended.
However, I would like to ask a question: Did the denial of this
application, when all other European ECA's approved their respective
portions, protect the U.S. economy? The answer is a big NO! Did it make
some people feel good because we didn't use U.S. Taxpayer dollars to
support the project? . . . The answer is YES. But, let's look at the
real outcome.
This project is still moving ahead as planned and will become
operational in April 2007. So ask yourselves, what did we really
accomplish here?
We must admit that hot-rolled coil was being dumped on the global
market in the earlier part of this decade--anti-dumping duties and
tariffs were imposed on some foreign producers. Many of these producers
were selling at or below their cash costs of production. You have heard
for years from various sources that there is a glut of steel capacity.
However, as we all know, China has entered the picture now and on its
own has raised total global crude steelmaking supply and demand by more
than 30 percent. Furthermore, tremendous efforts have been made by the
likes of Mittal, Nucor, US Steel, Severstal, and other major players to
absorb under-performing assets through acquisition and merger. Some
inefficient and poorly located assets were simply taken out of
operation altogether like Gulf States Steel and Geneva Steel. The
threat of state-owned steel companies dumping steel and causing prices
to plummet has been diminished, with the exception of China, of course.
As for China, the story is a young one. We have been told by many
analysts and industry leaders, that China is not a near-term threat due
to high iron ore prices (they are expected to import approximately 300
million metric tons of this raw material in 2006 at market prices).
Iron ore costs are a major factor in determining production costs. They
have other issues facing them as well, such as the high cost for
energy, high prices for metallic iron, rising labor costs and labor
inefficiencies, infrastructure issues, environmental concerns, currency
uncertainties, etc. U.S. steel producers face some of these same
issues. Despite this recent explosive growth, China is still a
developing nation when considering its low per-capita consumption of
steel, and its huge demand for infrastructure development.
Please don't misunderstand me, I don't mean to imply that the
domestic U.S. steel industry is now well-protected. This is still, and
will always be, a commodity business subject to the ups-and-downs of
the global economic cycles and there will be some producers willing to
sell at any price. However, I do offer that the future will look much
different than the past, because of the huge privatizations which have
taken place, putting capacity in the control of market-driven
companies. Just look at recent industry gatherings and you'll find many
statements by current U.S. steel executives that are positive about the
future. An American Metal Market article published last month quoted
the CEO of Nucor when he said:
No one predicted that 2004 would do what 2004 did . . . I think
we are going to be in a bull market for the next 10 to 15
years. There is something much bigger going on here . . . We
are in a place where things will be very positive.
An article titled ``Raw Materials: The Sourcing Game'' published in
American Metal Market dated May 15, 2006 was making the argument that
``raw materials remain a key area of concern'' and cited a few steel
leaders here in the United States on issues of raw material and
logistics issues. The head of Mittal Steel USA was discussing raw
materials and North American infrastructure when he was quoted. Here is
a key excerpt from the article:
``They (raw materials) are still very tight,'' said Louis L.
Schorsch, chairman of the AISI and president and chief
executive officer of Mittal Steel USA Inc., Chicago. ``I don't
think there is any bad behavior out there or anything like
that, but I think it is clear that the level of investment in
raw materials or logistics infrastructure needs to improve . .
. investment in raw material capabilities is critical for steel
producers. ``It is the market at work,'' he said. ``Supplies
are tight and demand is high.''
Later in the same article the writer goes on to conclude by saying:
Most observers predict that steel consumption will continue to
grow globally for the foreseeable future--putting further
strain on raw material supplies not only in North America, but
worldwide.
So, back to the question at-hand . . . How does the denial of the
Saudi application and others like it protect the U.S. economy? As I
said before, the project is still proceeding, the European export
credit agencies have no problem supporting it, and now Midrex has a
freehand to buy its equipment from global sources, rather than right
here at home from American companies. The denial of the Saudi
application by Ex-Im Bank does absolutely nothing to protect U.S.
companies and its employees! To the contrary, I would like to put
forward that it will have far-reaching negative effects. The Saudi
client is now 100 percent sure that their lead bank was correct: They
never should have wasted time pursuing support from Ex-Im Bank. I must
also mention that its predisposition to avoid Ex-Im Bank is very common
among many of our foreign clients. I would like to read for you a
direct quote from our client's banker taken from an email of November,
2004 (i.e., before the application was submitted to Ex-Im Bank).
I think the way I would describe our position with regard to
potential Ex-Im Bank support is that we would much prefer not
to have a separate Ex-Im Bank facility and therefore wish to
explore all other alternatives first. Hence our desire to
understand all possible sourcing options.
Now, let's look at the future for a moment. This same client has
intentions to further expand his business. He will give Midrex the
opportunity to supply its technology. If export credit is wanted or
needed, then our European competitors will have a distinct advantage
over us. What do we do? Who do we turn to for support? Remember, if we
get the job, many other U.S. companies get business especially if Ex-Im
Bank would participate. However, if it does not, then we will look at
other alternatives.
Perception is reality, and this view, unfortunately, is shared by
many of our prospective clients. Since 2002 and with numerous visits to
Washington, D.C., we have learned that it is a widespread opinion
shared by many foreign buyers (not only Midrex clients) who believe
that approaching Ex-Im Bank is a fruitless endeavor. To be truthful, we
are also beginning to feel this way.
Speaking for the thousands of small companies without a voice here
today, the assumption that denial of applications actually protects the
U.S. economy could not be more wrong. Such decisions deliver a terrible
message to foreign buyers considering U.S. offerings. These buyers will
proceed with or without the support of a U.S. export credit agency,
which means that U.S. offerings are at a competitive disadvantage to
foreign companies using their export credit agencies to support
clients. Furthermore, American exporters, like Midrex, with the
flexibility to buy goods competitively across the globe will quickly
find ways to regain that competitiveness. European ECAs, JBIC (the
Japanese ECA), and EDC in Canada are all very eager for Midrex to
source more equipment from their respective countries and are willing
to offer promotional support as well as tremendous flexibility. Given
the restrictive nature of the current economic impact analysis
guidelines, Midrex, and who knows how many other companies like us,
have no other option but to source equipment needs abroad in order to
compete when ECA support is desired by our clients. Many, however, have
their manufacturing here in the United States and cannot take advantage
of foreign supplies and foreign ECAs. Thankfully for us, we can change
our sourcing patterns. And, we do have some clients who can arrange
financing without the need for ECA support. But there are many
prospective Midrex clients who need, and will receive ECA support for
their projects.
Picture this as a Headline: A Ukrainian Export Deal Goes to Japan!:
Let me give you another VERY REAL example. In the Ukraine we now have a
client in the process of developing his financing for a 3 million tons
per year steel slab-making facility. The order value for Midrex would
be approximately $150 million. In light of recent experience, we have
already instructed our client to consider other ECA coverage, not Ex-Im
Bank. In fact, we will probably be offering Japanese ECA financing. If
successful, the result is that we would have to place tens of millions
of dollars in orders to Japanese suppliers in order to obtain their
financing support. That means that many of our company's loyal U.S.
suppliers and manufacturers will not get the opportunity to bid on
these items as a result, and Midrex will lose some profit due to the
higher costs of Japanese equipment purchases. Is this a good thing? . .
. Of course not.
Specific Changes to the rules imposed on Ex-Im Bank have been
proposed, and many of them are positive or neutral. Minor changes
relating to notification and public comment periods, as well as methods
of calculating the value trigger point for initiating an economic
impact analysis are not worth debating. Also, specifying that certain
companies with a history of dumping should not receive Ex-Im Bank
support seems reasonable and we agree with that. However, vague but
substantive changes which might encourage unfounded political influence
or oversight into the application review process is likely to destroy
any appearance of objectivity and possibly be seen by many as an effort
designed to grant unchecked influence on specific applications. Not to
mention the fact that people may not take the initiative to really look
at what is the real impact to the American economy of a negative
decision. Could other small American companies get hurt? To what
extent? Would anyone even think to check it out? Is it worth it to make
some people feel good while the project or projects go ahead anyway? We
do not want to see this happen.
Lastly, and perhaps most debatable is the introduction of the
definition of ``substantially the same product''. While on the surface
this request seems reasonable, it could easily be used to prohibit very
legitimate projects intended to manufacture products which are globally
traded and are in high demand and short supply. If you examine the
attached flowchart of the Iron & Steel making processes, you will see
that the Midrex ironmaking technology is far upstream from any finished
steel products. Our technology produces a steelmaking raw material
which is in very high demand and short supply. No one could rightfully
claim that product made from our technology does harm to U.S. steel
interests. To the contrary, increased supply of this metallic iron raw
material does everything to help assure U.S. steelmakers of readily
available and lower cost metallic iron for their steelmaking efforts.
Numerous Electric Arc Furnace steel producers exist in many of your
States. In fact, the States represented by this committee alone have
existing Electric Arc Furnace steelmaking capacity which is
approximately 25 percent of the total U.S. crude steelmaking capacity,
or roughly half of the total U.S. electric furnace steelmaking
capacity. Therefore, your own steel producing companies need our
technology to flourish in the global market so that they can continue
to rely upon plentiful supplies of raw materials at low cost.
Unfortunately, our technology cannot be applied here in the United
States due to exorbitant energy prices, specifically natural gas--the
primary energy source for Midrex plants.
Concluding Remarks: We will conclude our remarks by insisting that
foreign companies abiding by WTO trading policies and guidelines, with
no history of dumping, should be able to receive the support of a U.S.
export credit agency. In fact, we should go out of our way to reward
trading partners abiding by WTO rules, while simultaneously promoting
the export of U.S. goods and services. This should be the ultimate
objective of Ex-Im Bank fully demonstrated by its actions, not just
words. The objective of Ex-Im Bank should be to support exporters, not
to offer itself as a club to protect U.S. producers, because when used
this way the club strikes only the U.S. exporters and not the foreign
producer.
Insisting to place even more stringent rules and guidelines on Ex-
Im Bank will simply render the bank useless to us and even more out of
reach than it already is to the thousands of small businesses trying to
compete globally. And, export-oriented, technology companies like
Midrex will find other ways to compete and support our customers,
unfortunately to the detriment of many U.S. manufacturers, who
otherwise would not have access to these foreign projects.
Lastly and more near and dear to our heart, denial of legitimate
applications for Ex-Im Bank support will greatly impact the competitive
position of Midrex and hurt many U.S. companies, not to mention
undermine the United States' reputation for promoting fair trade.
American exporters, including Midrex, will lose orders and to
compensate we will be forced to take business purchases overseas when
products could have been made available right here in our country. Over
the long-term, continued protectionist actions disguised as medicine to
relieve apparent chronic overcapacity in world markets, will
significantly weaken the technological dominance of hundreds if not
thousands of U.S. companies. Many will close their doors permanently,
or already have, and those that survive will do so only by reducing
profit levels and changing their business model to procure goods and
services from foreign countries which are obviously more supportive of
their exporters. All of this debate is supposedly based on the false
assumption that denial of support for U.S. exporters actually protects
American jobs when it is clearly obvious that the companies most likely
to flaunt WTO rules and incur Anti-Dumping/Countervailing Duties would
never qualify for the loan guarantee in the first place.
Please look at the attached state-by-state breakdown of our recent
purchases. Dozens of suppliers in these states benefit from export
business that they otherwise would not have. There are many millions of
dollars in purchases to be made in the coming 12 months as a result of
new projects as well. How do we explain to these suppliers that, due to
our government's failure to promote exports, we have to go across the
Pacific or Atlantic Ocean to find an export-oriented government willing
to do what is necessary to support us, our clients and its own domestic
manufacturers? Do we tell them that our government stood on principle
based on the best information available at the time? What kind of
explanation would that be? Remember, the projects manage to go ahead
anyway so who wins as a result of an Ex-Im Bank denial, and who are the
REAL losers here?
I submit to you that the application of economic impact analyses
may theoretically determine the possibility of future economic harm,
but the reality is that most investments will move forward with or
without the support of Ex-Im Bank. Thus, restricting the Bank and its
ability to support exporters during a time when manufacturing in this
country is quickly moving abroad and our trade balance is
deteriorating, will do nothing to protect U.S. jobs but will only hurt
the U.S. economy.
I want to thank each and every one of the distinguished committee
members gathered here today for your attention. I am hopeful that this
committee will recognize these challenges we face and we ask that you
please stand behind small companies like Midrex, promoting job creation
rather than job protection, strengthening the United States' reputation
rather than weakening it, and understanding that global trade is a very
dynamic and ever-changing world in which to compete. Please support us
and give us the chance to compete fairly, on a level playing field with
foreign competitors by allowing Ex-Im Bank to meet the goals of its
charter and allow it to operate freely with prudent oversight and
management under the leadership of Mr. Lambright and the many
professional and hard-working managers at Ex-Im. Do not allow Ex-Im
Bank to be used as a protectionist club, because its strike zone does
not extend beyond our own borders!
Thank you.
/s/ JAMES D. McCLASKEY
President & CEO, Midrex Technologies, Inc.
______
PREPARED STATEMENT OF HARRY G. HAYMAN, III
Senior Vice President and Head of Wholesale Banking,
Commerce Bank
June 20, 2006
Introduction
I am pleased to be with you today to discuss reauthorization of the
Export-Import Bank of the United States (Ex-Im Bank). I am testifying
on behalf of the Bankers' Association for Finance and Trade (BAFT), an
organization founded in 1921 by a small group of American bankers from
the Midwest. Their purpose in forming the association was to enable its
members to exchange opinions on the conduct of foreign business, and to
aid in the development and maintenance of foreign trade. Today, BAFT is
an affiliate of the American Bankers Association. Most of its U.S.
members are active in trade finance and they interact with Ex-Im Bank
every business day. I don't have statistics on this, but I believe that
BAFT's members account for a significant portion of the dollar volume
of Ex-Im Bank transactions each year.
I am a senior officer of Commerce Bank, which has its headquarters
in Cherry Hill, New Jersey. Until recently I was a banker with PNC Bank
in Philadelphia and I have spent much of my career in the trade finance
area. I am the President of BAFT, and I have served as a member of Ex-
Im Bank's Advisory Board. I am pleased to be with you today and thank
you for giving me the opportunity to speak with you about a subject
that is very important to American financial institutions and their
exporting clients.
Why We Need Ex-Im Bank
Ex-Im Bank serves the interests of our nation by providing credit
support that is a vital component in the competitiveness of American
products in international markets. There are many examples of
transactions in which the sale of U.S. goods abroad has been made
possible by the participation of the Bank. These transactions represent
incremental export sales by American companies that support the jobs of
American workers and help to reduce our national trade deficit. Surely
it is in our national interest to have Ex-Im Bank continue playing its
role in promoting American exports.
As you consider reauthorization of the Bank, it is important to
remember that American businesses are engaged in fierce competition
with foreign companies in the global market. Among the advantages that
many of those foreign companies enjoy is credit support from their home
country export credit agency (ECA). In the midst of this competition we
cannot afford to abandon one of the most important weapons in our
competitive arsenal--Ex-Im Bank--nor can we afford to impose any new or
more onerous restrictions on its ability to support American exports.
If we did, the inevitable result would be fewer export sales, loss of
jobs, and an even greater trade deficit.
Something that other trade bankers and I have observed in recent
years is that the ECAs from other countries are getting to be more
strategic and flexible in their approaches to export finance. In
addition, new competition is coming from emerging market ECAs, such as
those in China, India, Eastern Europe, and Brazil. They all understand
the extent of international competition and they are taking new
approaches that will enable their exporters to win in the global
marketplace. For example, many ECAs are becoming more aggressive when
it comes to taking on risk and more willing to provide financing for
transactions that generally benefit their country, even if the
transaction does not directly involve the export of 100 percent locally
produced goods. I believe that U.S. companies' efforts to compete in
international markets will be impaired if our Ex-Im Bank doesn't take a
similarly aggressive approach. (This is not to say that Ex-Im Bank
hasn't been aggressive in certain respects in the past, as shown by its
willingness to take on credits that commercial banks have been
unwilling to accept.) I hope that in reauthorizing the Bank, Congress
will clearly express its support for an aggressive effort by Ex-Im Bank
to meet the needs of American businesses--large and small--competing in
global markets. I also believe Congress should support additional
initiatives to coordinate public and private export development
resources, which would help address the generally weak export
performance of our country.
Issues Related to Ex-Im Bank Operations
I would like to comment on a number of issues related to Ex-Im Bank
that concern U.S. banks active in the trade finance business.
Economic Impact
Ex-Im Bank is required by law to consider the extent to which the
transactions brought to it are likely to have an adverse effect on
industries and employment in the United States. The rationale for this
requirement is understandable: taxpayer money should not be used to
support a transaction if its benefits for the U.S. economy are
outweighed by other, adverse consequences. You should be aware,
however, that the economic impact requirement, itself, has an adverse
impact on U.S. exports.
Whenever the Bank turns down a transaction on the basis of economic
impact, it means the financing support that a purchaser expected won't
be made available and the transaction likely won't occur. This adds to
a perception in the market that U.S. exporters aren't reliable
suppliers. Many exports are sold as a package--the goods, plus bank
financing (with an Ex-Im Bank guarantee) to cover the purchase price.
If a foreign purchaser has doubts about whether Ex-Im Bank support for
the financing of their purchase actually will be made available, the
likelihood of the U.S. exporter getting the sale is diminished.
Conversely, the likelihood of a producer in another country getting the
sale is increased, and so far as we are aware none of the other export
credit agencies in other countries are required to make this kind of
economic impact assessment.
The magnitude of the sales that are lost due to economic impact
assessments that are performed is known, but we don't know how many
export sales never are initiated because potential buyers are unwilling
to take the chance that the financing they need won't be available.
Bankers who are active in trade finance believe the volume of U.S.
export sales that don't occur for this reason is significant. That is
why we believe that economic impact assessments should only be required
in the most compelling cases and we would strongly oppose any steps to
expand the application of economic impact assessments to a broader
range of transactions or to make those assessments more rigorous.
Small Business
Small business plays an important role in the American economy and
we believe that it is appropriate for Ex-Im Bank to make special
efforts to ensure that it is meeting the export financing needs of the
small business community. In that regard, we would like to commend
Chairman Lambright and John McAdams for recent Bank initiatives to
increase its support of small business. We are concerned, however, that
the small-business requirement imposed on the Bank (it must make
available an amount equal to at least 20 percent of its aggregate loan,
guarantee, and insurance authority in each fiscal year to finance
exports made directly by small business concerns) can create the wrong
incentives for the Bank's decisionmaking.
Suppose, for example, that the Bank's loans, guarantees, and
insurance extended to support small business exports in a particular
fiscal year exceeded 20 percent of its authority by a small amount near
the end of the year. If an exporter that does not qualify as a small
business brings a large export transaction to the Bank, the 20 percent
standard gives the Bank a strong reason to delay or not do the
transaction in order to stay above 20 percent. That doesn't make sense
if the real purpose of Ex-Im Bank is to promote U.S. exports. At the
same time, the 20 percent standard also creates an incentive for poor
credit decisions if the Bank is below 20 percent and needs more
transactions to reach that target. Neither incentive is a healthy one
for the Bank and, for that reason, we would oppose any effort to make
the Bank's small business goal more rigorous or demanding.
Tied Aid
Ex-Im Bank's Tied Aid War Chest was established to enable the Bank
to combat export subsidies provided by foreign governments in the form
of financing for public-sector projects that is tied to the purchase of
goods and services from exporters in the donor country. Although the
Bank's 2005 Report to Congress on Export Credit Competition (the ``2005
Report to Congress'') expressed the view that OECD tied aid rules have
been a ``great success in reducing the level and distortive influence
of tied aid,'' there is a general perception among American bankers and
exporters that the use by other countries of tied aid and other,
similar or related kinds of export support is growing. China, in
particular, is among the countries that are mentioned. We are concerned
that the Bank has not utilized any tied aid funds since 2002, possibly
because the Bank is unwilling to act unless it has overt proof and
possibly because of the unwieldy procedures that govern the
relationship between the Treasury Department and the Bank regarding use
of the War Chest (and the Treasury Department's unwillingness to use
the War Chest funds). We believe that the Bank should re-examine what
is happening in the market and then determine whether greater use of
the War Chest is needed. Congress should review the procedures followed
by the Treasury Department and Ex-Im Bank for utilizing the War Chest
and consider whether changes would be appropriate in order to combat
the misuse of tied aid and other forms of export support and to better
protect the interests of American exporters.
Cofinancing
Cofinancing is an arrangement whereby exports that are sourced from
more than one country can receive credit or credit support from two or
more ECAs in an efficient manner. Typically the ECA for the country
that is the principal source of the products or services takes the lead
and is the sole agency with which the purchaser must interact. The
cofinancing arrangement allows for one set of documents and one source
of disbursements, in each case provided by the lead ECA which obtains
supporting financial commitments directly from the other participating
ECAs.
Bankers that finance these transactions like cofinancing
arrangements because they are a straightforward, efficient and
convenient way of providing credit support for what otherwise could be
much more complicated transactions. As Ex-Im Bank noted in its June
2005 Report to the U.S. Congress, the ``availability and ease of ECA
cofinancing has become an important and measurable competitive issue.''
According to Ex-Im Bank's web site, it currently has bilateral
cofinancing agreements with ECAs in five other countries: Canada,
Italy, Japan, The Netherlands, and the United Kingdom (and a limited
agreement with K-Exim of Korea). At a hearing before the Senate Banking
Committee prior to the Bank's last reauthorization in 2001, Ex-Im Bank
Chairman John Robson reported that the Bank had entered into a
bilateral agreement with ECGD of the U.K. and that discussions with EDC
of Canada were close to completion. We are disappointed that agreements
have been signed with only three other countries in the ensuing 4 years
(a 1998 GAO report said there were more than 70 ECAs operating
throughout the world; the U.K.'s ECGD has agreements with ECAs in 24
different countries).
Although the Bank has participated in cofinancing arrangements on a
one-off basis with ECAs in countries with which it does not have a
cofinancing agreement, having signed agreements is preferable. The
agreements make it clear to potential purchasers that cofinancing is
available and they establish a framework that facilitates cofinancing
implementation for an actual transaction. When the Bank signed its
cofinancing agreement with Canada in May 2001, its press release said,
``This is another step in the right direction by Ex-Im Bank to deliver
the same type of flexibility offered by a number of ECAs.'' We believe
that the Bank should take more of these steps and make cofinancing
agreements with other ECAs a priority. It would be appropriate for the
congressional committees that have jurisdiction over the Bank to
monitor its progress in this respect and we suggest that the Bank be
required to report to you annually on the cofinancing agreements it has
in place and on its efforts to enter into cofinancing agreements with
ECAs in other countries.
Dual-Use Products
Ex-Im Bank generally is prohibited from providing credit or credit
support in connection with the sale of military defense articles or
services to any country, with the exception that the Bank may provide
such support if it determines that the articles or services are non-
lethal and that their primary end use will be for civilian purposes.
This exception, which we believe is useful and appropriate, sunsets and
requires periodic renewal. It currently is set to expire on October 1,
2006. In 1997 the U.S. General Accounting Office reported, ``Ex-Im Bank
appears to have established procedures that provide a sound basis for
determining whether these exports are nonlethal and primarily used for
civilian purposes, as required by law.'' With this endorsement of the
Bank's approach, we think it would be appropriate to make this a
permanent provision that does not require periodic renewal.
Conclusion
Ex-Im Bank plays an important role in our nation's economic
prosperity by helping American exporters sell their goods and services
to purchasers in other countries. The global competition they encounter
is intense and many countries have well-funded, effective government
agencies that advance the efforts of their exporters by providing them
with credit, credit support, and other assistance. We believe Ex-Im
Bank generally does a good job helping American exporters meet this
competition and at the present time we feel that our association and
its member banks--virtually all of which are in the business of
financing American exports--have effective channels of communication
and a solid working relationship with the Bank.
As Congress acts on the Bank's reauthorization and considers
whether it should take additional steps to improve the Bank's
operations, it should be aware of the concerns of American banks that
work with Ex-Im Bank, which we have addressed in this statement. They
include the adverse consequences of economic impact assessment, the
need to improve utilization of other provisions that should make the
Bank more effective, such as the Tied Aid War Chest; and areas, such as
cofinancing, where the Bank itself could do more to fulfill its mission
of promoting American exports. We hope that Congress will act promptly
to reauthorize the Bank and, in so doing, take steps to make the Bank
more effective; Congress should reject proposals that will make it more
difficult for the Bank to fulfill its mission.
______
PREPARED STATEMENT OF DAVID ICKERT
Vice President and CFO, Air Tractor, Inc.
June 20, 2006
Chairman Shelby, Senator Sarbanes, members of the Committee, thank
you for inviting me here today. I am David Ickert; Vice President and
CFO of Air Tractor, Inc. Air Tractor is a small business that
manufactures agricultural and forestry firefighting aircraft. We are
located in Olney, Texas (population 3,500) and employ 175 people. Air
Tractor has manufactured and delivered over 2,100 aircraft to buyers in
more than 20 countries. Over the past 10 years, we have utilized the
Export-Import Bank (Ex-Im Bank) financing on about 35 occasions.
I am also here on behalf of the Small Business Exporters
Association of the United States (SBEA). SBEA is the nation's oldest
and largest trade association representing small- to medium-sized
enterprises (SMEs) that export.\1\ I am on the Board of SBEA and have
served previously as the Board Chair.
---------------------------------------------------------------------------
\1\ Here, as elsewhere in this testimony, ``small- and mid-sized
enterprises'' (or exporters or ``SME's'') refers to U.S. businesses
defined as ``small'' by the U.S. Small Business Administration (SBA).
Generally these are businesses with fewer than 500 employees, with
certain limited exceptions.
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SBEA, Air Tractor, and I strongly support the reauthorization of
Ex-Im Bank, and we urge Congress to do so expeditiously.
Exports are good for our country.
Companies that began trading internationally between 1993
and 2001 had about five times the employment growth of other
companies, a recent study has shown. Companies that stopped
trading during this period actually lost jobs.\2\
---------------------------------------------------------------------------
\2\ Importers, Exporters, and Multinationals: A Portrait of Firms
in the United States That Trade Goods, Andrew B. Bernard, J. Bradford
Jensen, Peter K. Schott, National Bureau of Economic Research, Working
Paper 11404, June 2005, pp. 4-5.
---------------------------------------------------------------------------
Export-related jobs also pay more--15-20 percent more, on
average, than similar jobs in non-exporting companies,
according to Commerce Department statistics.
Each $1 billion in exports generates an average of over
14,000 of these higher-paying U.S. jobs.
But exports depend critically on financing. In many parts of the world,
financial systems are underdeveloped or prohibitively costly. Buyers in
these countries who need financing almost always ask sellers to provide
them with it.
Thus, exporters in the United States need ready access to:
loans for their own business expansion to meet foreign
demand,
insurance against foreign buyer default, and
the ability to provide financing to foreign buyers who
require it.
In the United States, as in all other industrial nations,
commercial banks are extremely reluctant to accept these foreign risks
without government guarantees. This problem is especially acute for
SMEs, who typically lack the economic power to get banks and brokers to
overcome their hesitancies about this kind of risk.
Thus all major industrial nations have ``export credit agencies''
to judiciously provide this capital, offer this insurance, and extend
these guarantees. Ex-Im Bank is ours. For SME exporters in this
country, Ex-Im Bank is not the ``bank of last resort.'' It is the bank
of only resort.
And not only do smaller exporters need Ex-Im Bank. There are
compelling economic reasons for Ex-Im Bank to actively court these
companies.
With our country's trade deficits now above $700 billion a year and
rising rapidly, Federal agencies like Ex-Im Bank must do all they can
to encourage exports. The most promising upside potential for increased
exporting is the nation's small and medium-sized business community.
Virtually all of the Fortune 1000 companies are active international
traders already, but less than 10 percent of the nation's small
companies export. With 96 percent of the world's consumers living
outside the United States, with global communications rapidly shrinking
the world community, and with trade deficits threatening our future
economic stability, this disappointing overall export performance by
smaller companies is something our nation can no longer afford.
Abroad, it is small company buyers who often represent best upside
potential for U.S. exports. These buyers want to purchase products like
water wells or diagnostic equipment for small medical clinics, or the
know-how to wire an office building for computers or to build a mile-
long road or to access alternative energy. Or perhaps they want to buy
a forest fire-fighting plane like Air Tractor sells. As an exporter, I
can tell you that ``Made In USA'' has never lost its tremendous drawing
power all over the world.
On paper many American companies sell the products and services
that these smaller company buyers overseas want. But it is frequently
only smaller U.S. companies that truly take an interest in these
smaller foreign sales--and can deliver them with the pricing and terms
that the foreign buyers want.
If Ex-Im Bank and other parts of the government can help make
everything go smoothly on this end, then these smaller foreign sales
could collectively deliver tens, and perhaps hundreds, of billions of
dollars in new exports. Look at capital equipment. SMEs play a huge
role in domestic sales of capital equipment, and do a remarkably good
job at capital equipment exports. These are especially valuable exports
because they:
typically utilize parts and sub-assemblies manufactured by
a whole array of U.S. companies.
are usually bundled with service exports like training and
after-sale-service.
help build U.S. product standards and specifications in the
buyer's country, paving the way for future export sales.
offer the biggest and fastest ``bang for the buck'' in U.S.
job creation, and
in the case of capital equipment exports like medical
equipment, construction machinery, road building equipment,
food handling equipment and the like, help demonstrate to our
neighbors that the United States wants to work with them in
improving the health and prosperity of their societies.
If SME capital equipment exports could be increased by just 10 percent
of the domestic sales figure, it would add as much as $280 billion to
U.S. exports. (See attached tables.)
A national campaign to double the volume of U.S. small business
exporting, which is not at all unrealistic, would--by itself--cut the
U.S. trade deficit almost in half.
Such an achievement would also spread the benefits of international
trade to Main Streets across America, which would go a long way toward
addressing the doubts that many people in our country have about trade.
So one of the issues that we encourage Congress to explore fully
during Ex-Im Bank's reauthorization is how the Bank's work with small
businesses can be improved.
Positive Aspects of the Current Small Business Environment at the Bank
Ex-Im Bank has a good foundation for serving SME exporters. SMEs
accounted for over 75 percent of the companies and 89 percent of the
dollars that Ex-Im Bank financed through its Working Capital Guarantee
Program last year. In the Bank's Export Credit Insurance programs, SMEs
were responsible for more than 2,100 transactions valued at about $1.7
billion. About 90 percent of the companies accessing the Bank's short-
term insurance products are SMEs.
Ex-Im Bank is also moving forward with its pledge to put more
transactions online. This is an especially important innovation for
both SME buyers and sellers, because it lowers their transaction costs,
a critical determinant of whether smaller sales occur.
In recent months, under the strong leadership of its Acting
Chairman, Jim Lambright, Ex-Im Bank also has made several
administrative changes designed to aid SMEs. The Bank has created a
Senior Vice President for Small Business, answering directly to the
Chairman, and named a person to occupy the position. It has set up a
``Small Business Committee'' whose members are drawn from various
operating units around the agency. It plans to increase its outreach to
SMEs, notably through its Regional Offices, which have been directed to
focus on SME business. It has designated certain underwriters to focus
exclusively on SME transactions.
For Medium-Term Financing (6 months to 7 years), which is crucial
for capital equipment exporting, the Bank has indicated a willingness
to delegate more authority to commercial banks, as it has done with
other types of transactions. This would help unclog a major Ex-Im Bank
bottleneck.
Dialogue with SMEs, (including SBEA), has increased.
All of these are welcome developments.
The critical questions, however, are these:
Are these changes sustainable without further legislative
backing?
And, are they sufficient to meet the challenge?
Congress clearly intended for Ex-Im Bank to play an important role in
stoking exports by U.S. small business. During the last Ex-Im Bank
reauthorization in 2002, the Bank was given a mandate to allocate 20
percent of its financing dollars to small businesses.
Ex-Im Bank has yet to meet that mandate.
Ex-Im Bank was directed by earlier Congresses to designate a member
of its Board of Directors to keep the Board apprised of the Bank's SME
activities and to serve as an advocate for them.\3\
---------------------------------------------------------------------------
\3\ 12 USC 635(E)(i)(I)(iii-iv).
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No Board member has been named to this position since it became
vacant in July 2003, nearly 3 years ago.
Moreover, complaints about the Bank have increased among smaller
exporters and the commercial banks and brokers who handle their Ex-Im
Bank transactions. Some of these complaints have surfaced in
Congressional hearings.\4\ Others have been expressed privately to
Members of Congress. A recent GAO Report identified weaknesses in Ex-Im
Bank's internal controls for accurately determining its small business
financing,\5\ a problem that a more unified small business management
structure would be better suited to correct.
---------------------------------------------------------------------------
\4\ See, for example, Ex-Im Bank oversight hearings of the House
Financial Services Committee on May 4, 2004 and November 11, 2005, and
the House Small Business Committee on April 6, 2005.
\5\ ``Export-Import Bank: Changes Would Improve the Reliability of
Reporting on Small Business Financing'', GAO Report 06-351, March 2006.
---------------------------------------------------------------------------
Sustainability
Part of the problem at Ex-Im Bank, in our view, is chronic
instability in the Bank's management of its overall SME activities. As
SBEA testified before the International Trade and Finance Subcommittee
of this Committee on March 8 of this year, our analysis indicates that
Ex-Im Bank has had at least 15 major changes in its overall SME
management since 1997, or more than one a year, on average.
During the past 10 years, the point person for SMEs has been at
various times a Group Vice President, a Senior Vice President, a Vice
President, and an Office Director. For at least two substantial periods
of time since 1997, no one was broadly in charge of SMEs. ``Business
Development'' has been included in and excluded from the Bank's small
business operation. Currently it is separated into international
business development, which is excluded, and domestic business
development, which is included. Ex-Im Bank field offices have been told
to concentrate on small business, to concentrate on large business, and
again to concentrate on small business. The SME operation has been near
the top of the organization chart, answering to the President, in the
middle, answering to various Senior Vice Presidents, near the bottom,
and for a while in 2004-5, essentially off the chart, directing no one
and essentially directed by no one. The staffing levels have ranged
from one to more than twenty. Sometimes the person in charge of SMEs
could intervene in specific transactions, but sometimes not. Sometimes
the SME operation has handled insurance products, sometimes guarantee
products, sometimes both and sometimes neither. Sometimes the SME
operation has had the authority to approve credit and authorize
transactions, but sometimes not. Sometimes the head of the Bank's SME
operation has long been involved in Ex-Im Bank's small business
transactions; sometimes the person has had no significant recent SME
experience. And so on.
So while we genuinely respect the SME initiatives that the Bank,
under Jim Lambright, has undertaken during the past 6 months, the
Bank's longer history would suggest that these initiatives probably
cannot be sustained without further Congressional guidance.
Moreover, even if Mr. Lambright is confirmed soon by the Senate,
which we hope happens, his term in office will end in 2\1/2\ years,
well before the end of the 4-6 year reauthorization that the Bank is
likely to get from Congress. So Congress ought to spell out the SME
structure and performance that it expects from the Bank over the longer
haul.
Sufficiency
If Ex-Im Bank's current SME structure were to be maintained through
the next reauthorization, would it be sufficient to meet the challenge?
SBEA doubts it. At present, the Bank's Senior Vice President for
Small Business directs only the Bank's outreach to SMEs, not the actual
handling of SME customers.
To ramp up its SME export financing, Ex-Im Bank needs to impose a
clear management structure over SME products, processes, and
transactions.
As worthy as the agency's ``outreach'' emphasis may be, the new
customer prospects won't last long if they encounter cumbersome or
inappropriate products and processes inside the Bank. Worse still,
customer prospects who find their initial transactions unsatisfactory
will probably never return--and will likely complain about the Bank to
their peers and colleagues, hurting Ex-Im Bank's overall reputation in
the smaller exporter community.
A disconnect between the ``sales''/``outreach'' people who are
promoting Ex-Im Bank to small business, and the Bank personnel actually
handling those transactions, seems almost certain to lead to such
outcomes--through misinformation, over-promising, and unmet
expectations.
Under the current Ex-Im Bank structure, the Senior Vice President
for Small Business has the apparent responsibility for small business,
but not the corresponding authority. If this ``Small Business'' Senior
VP wishes to improve specific aspects of how SMEs are handled within
the Bank, he or she must ask other operating units of the Bank to make
those changes or ask the Chairman of the Bank to intervene. Alone, this
Senior VP can't compel anyone who's actually handling the SME work flow
to do anything.
At the same time, the people who do conduct the actual small
business work inside the Bank will continue answering to the heads of
various other operating units--who may or may not place an emphasis on
successful SME transactions.
If the Bank's SME performance falls below expectations--if, for
example, the Bank again fails to meet Congress' 20 percent mandate--all
eyes will turn to the Senior VP. Yet the Senior VP will be essentially
powerless to offer any remedies beyond ``more outreach'' or perhaps
more requests for the Chairman of the Bank to intervene in assorted
problem situations.
Accountability
For its part, Congress will be stymied in conducting oversight by
the current SME structure. The real authority over SMEs will continue
to be scattered across a half dozen operating units within the Bank.
Accountability will remain elusive.
What should be done?
Best Practices
One way to think about the small business question at Ex-Im Bank is
to look at ``best practices'' elsewhere that have facilitated smaller
companies in international trade.
Over 70 governments around the world actively promote their exports
through export credit agencies (ECAs) like Ex-Im Bank, and most of them
have carefully analyzed small business exporting.
The ECAs of many of our global competitors have targeted smaller
companies as a source of huge and largely untapped exporting potential.
Australia, Canada, France, Germany, Spain and Sweden are among the many
developed nation examples. China and India are among the emerging
nation examples.
These ECAs are assiduously developing export finance products and
processes to get their smaller companies into exporting, particularly
high-value exporting like capital equipment.
Canada's Export Credit Agency. Consider Canada, which in some ways
represents the ``best practices'' in financing smaller exporters.
Canada's ECA, called Export Development Canada, does differ in some
important respects from Ex-Im Bank. It has, for example, a different
legal structure and more employees.\6\ Still, its numbers are
impressive. EDC did business with over 6,200 Canadian small business
exporters in 2005. This represents 18 percent of Canada's total SME
exporter population of about 34,000 companies. EDC supplied them with
over C$15 billion in financing.\7\ Canadian SMEs accounted for over 24
percent of all EDC financing dollars.
---------------------------------------------------------------------------
\6\ Also, one of EDC's product lines competes with the Canadian
private sector, though this is declining, and EDC underwrites more
export sales to the United States than Ex-Im Bank does to Canada.
Still, Canadian SMEs used EDC financing to ship to 170 countries.
\7\ Source: Export Development Canada, Annual Report 2005, p.2,
www.edc.ca/english/docs/2005_annualreport_e.pdf.
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As good as Ex-Im Bank is, and it is certainly well respected, its
numbers pale by comparison. In 2005, the Bank had about 2,500 SME
transactions (probably representing about 2,000 SME exporters), or less
than 1 percent of the estimated 225,000 SME exporters in the United
States. Ex-Im Bank supplied its SME customers with $2.6 billion in
financing, or 19 percent of the Bank's overall total.\8\
---------------------------------------------------------------------------
\8\ Source: Export-Import Bank of the United States, 2005 Annual
Report, p. 18, www.exim.gov/about/reports/ar/ar2005/2005Glance.pdf.
---------------------------------------------------------------------------
Thus, despite the fact that the U.S. economy is seven times larger
than the Canadian economy, Canada's export credit agency managed to
handle three times as many SME customers and underwrite five times as
much SME business as its U.S. counterpart.
For ``best practices'' closer to home, consider the Overseas
Private Investment Corporation (OPIC). Again, there are obvious
differences between OPIC and Ex-Im Bank. But OPIC, if anything, has a
much more difficult mandate to achieve. It must foster investments that
assist the developing nations, don't cost a single American job, make
economic sense on their own, and would not otherwise occur.
If the universe of small companies that want to, or can, export is
relatively small--less than 10 percent of U.S. small businesses at
present--then the universe of small companies that want to make
overseas investments, with these strings attached, is a fraction even
of that.
Five years ago, a debate raged inside OPIC about whether to drop
all efforts to attract SME customers. In the end, under the strong
leadership of Dr. Peter Watson, OPIC went the other way. The agency
created a Small Business Office and then a Small and Medium-Sized
Enterprise Financing unit. In fiscal year 2001, OPIC handled SME
transactions worth about $10 million. Today it is handling about $500
million worth of SME transactions. OPIC is now one of the Federal
Government's most striking SME international trade success stories in
recent years.
What EDC and OPIC have in common is a single, consolidated Small
and Medium-Sized Business unit--with full control over their agency's
SME products, processes and transactions--and answering directly to the
Presidents and the Boards of their respective organizations.
In the private sector, Ex-Im Bank's single most successful small
business export financier--GE Capital--also utilizes a focused and
consolidated small business financing unit. Indeed, Ex-Im Bank itself
has had something approaching this structure at various times in its
past. But, as noted, the Bank has had difficulty sustaining any SME
management structure for long.
Significantly, EDC, OPIC and GE Capital all give their dedicated
SME units enormous praise--and credit--for expanding the scope of their
SME successes. They all report that the focused SME structure fosters
not only a close familiarity with the ``look'' and ``feel'' of SME
transactions, but also an ``SME culture'' within that part of the
agency.
It's difficult to imagine the ``SME culture'' that EDC, OPIC and GE
Capital find so valuable emerging under the current circumstances at
Ex-Im Bank. SME specialists are assigned to slots in assorted operating
units, and the Senior VP for Small Business isn't in charge of any of
them. Therefore SBEA makes the following Ex-Im Bank reauthorization
recommendations to Congress:
1) Create a dedicated Small- and Medium-Sized Export Financing
(SMEF) Division within Ex-Im Bank, headed by the Senior Vice President
for Small Business, and reporting directly to Ex-Im Bank Chairman.
2) Give the SMEF Division responsibility for, and authority over,
SME products, processes, and transaction and Ex-Im Bank personnel
handling them.
3) Allow Ex-Im Bank to allocate such funds as are necessary to
operate the SMEF Division successfully.
4) To assure that the SMEF Division has a clear goal from Congress,
maintain the current law requirement that the Bank allocate 20 percent
of its financing dollars to small business. Should the Bank fail to
achieve this mandate in any Fiscal Year, require the submission to
Congress of a plan for doing so within the following 30 days, and a
follow-up report 60 days later on the implementation of the plan. The
plan should at minimum include the reallocation of funds from Ex-Im
Bank's administrative budget to the Bank's SMEF Division. As part of
any such plan, and to assure that Congress does not have to wait until
the end of the next Fiscal Year to observe the results of the plan, the
Bank should be required to submit quarterly, rather than annual,
reports to Congress on the small business percentage of Ex-Im Bank
financing.
5) To aid Ex-Im Bank in its willingness to improve medium-term
financing, give the Bank Congressional authorization to delegate
medium-term financing authority to commercial banks, subject to final
Ex-Im Bank approval on each transaction, as with the delegated
authority that Ex-Im Bank makes available for other types of
transactions.
SBEA is aware of Ex-Im Bank's concerns about our proposals,
particularly the proposed SMEF Division.
We would note that:
The transition to the new structure need not be abrupt. To
minimize disruptions, the Bank could shift one product line at
a time, or even one underwriter at a time, into the new
structure. And frankly, modest disruptions within
underachieving units, in the interest of improved long-term
effectiveness, would seem to be an acceptable tradeoff.
SBEA is fully prepared to meet with Ex-Im Bank's
Congressional appropriators, as we have done in the past, to
advocate that the Bank be given the funds it needs to carry out
the transition and the SME work flow.
Concerns about any internal ``conflicts of interest'' can
be addressed. While EDC, OPIC, and GE Capital do not seem to
feel that having both underwriters and business development
specialists in the same unit constitutes such a ``conflict of
interest,'' if Ex-Im Bank feels strongly about this, the two
functions can be separated. The best approach would be to
delegate outreach to the commercial banks that utilize Ex-Im
Bank's products, in much the same way that SBA uses commercial
banks to promote SBA lending. This would at least assure that
institutions with a powerful interest in seeing transactions
completed and customers return--namely the commercial banks--
are handling the ``sales pitches.'' Alternatively, outreach
could be assigned to the Bank's communications office. What's
vital, however, is to maintain SMEF Division's responsibility
over--and accountability for--the Bank's core SME products,
processes, and transactions.
There is precedence at the Bank for a more unified approach
to customers. Not only has Ex-Im Bank done so with small
businesses at various times in the past, but the Bank's
Transportation Division--which includes underwriters--is
premised on just such a customer focus.
SBEA is very grateful for the sympathetic hearing that members of
the House and Senate, as well as their staffs, have given to our views.
The sincerity of Congress' interest in expanding U.S. exports,
especially exports by smaller companies, has been heartening to us.
We believe that both the House and the Senate are off to a good
start toward getting Ex-Im Bank's charter renewed well before the
current one expires.
We look forward to working with Ex-Im Bank and both chambers of
Congress on the legislation.
That concludes my remarks. I will be happy to accept any questions
at this time.
______
PREPARED STATEMENT OF ROBERT E. SCOTT, Ph.D.
Director of International Programs, Economic Policy Institute
June 20, 2006
Mr. Chairman, Senator Sarbanes, and members of the Committee, my
name is Robert Scott and I am a senior international economist for the
Economic Policy Institute. Thank you for inviting me here today to
testify on the economic impact procedures of the Export-Import Bank
(Ex-Im Bank). I recognize the important role played by the bank in
providing export financing in cases where such financing is unavailable
to foreign purchasers in commercial markets, or where U.S. firms are
competing for contracts with suppliers from other countries who have
access to below-market financing from their home-country governments.
My remarks today are concerned with two issues. First, whether Ex-
Im Bank is living up to its obligations under existing law to use
economic impact analysis for certain transactions where the provision
of Ex-Im Bank financing could cause substantial injury to domestic
producers. My conclusion is that the bank is not fully meeting its
obligation under existing law to carry out economic impact analyses and
utilize that information in its decisionmaking processes.
Second, the bank's criteria for conducting economic impact analyses
should be expanded and its procedures improved. First, the bank should
expand its definition of industries covered within the scope of
``substantially the same industry.'' Second, the bank's policy of only
conducting economic impact assessments in cases involving the export of
capital goods that will be used to expand production capacity is
excessively narrow. The bank should also do economic impact assessments
for other goods export contracts that include agreements to transfer
production technology or formal or informal ``offset agreements'' to
transfer production of related or unrelated products abroad, or to
serve as a marketing agent for foreign suppliers in the United States
in exchange for export sales of goods of any type. Finally, the bank
should improve the openness and transparency of its economic impact
analysis process. Congress should also require the bank to conduct
formal reviews of the aggregated impacts of its financing of exports of
both capital equipment and contracts involving offset agreements on
particular industries, and to adopt an adjudicatory process for such
reviews that would be modeled on anti-dumping and subsidy case hearings
before the U.S. International Trade Commission.
Ex-Im Bank's interpretation of existing requirements for conducting
economic impact analyses
In fiscal year 2005 the bank provided financing for 3,128
projects.\1\ The bank issued only six economic analysis notices
covering only 0.2 percent of the transactions financed in fiscal year
2005.\2\ Furthermore, there is not a single reference to or discussion
of any of the bank's economic impact analyses in its 2005 annual
report. Given the unprecedented size of the U.S. trade deficit, which
reached $717 billion in 2005,\3\ and congressional concern with the
economic impact issue it is surprising that the bank has provided so
little public information on its economic impact analyses, or the
results of those investigations.
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\1\ Export-Import Bank of the United States, ``Annual Report
2005'', p. 18, http://www.census.gov/foreign-trade/Press-Release/
current_press_release/exh1.pdf.
\2\ Export-Import Bank of the United States, ``Economic Impact
Notices,'' http://www.exim.gov/products/policies/noticeindex.html.
\3\ Census Bureau, ``FT 900: U.S. Trade in Goods and Services'',
April 2006, http://www.census.gov/foreign-trade/Press-Release/
current_press_release/exh1.pdf.
---------------------------------------------------------------------------
The bank has also taken an excessively narrow interpretation of
industries that could be affected by its export financing. In a case
described at the subcommittee hearing on March 29. Testimony by, Steven
R. Appleton of Micron Technology, Inc., about a case in which Ex-Im
Bank entertained a proposal to provide financing for a Chinese firm,
the Semiconductor Manufacturing International Company (SMIC) to
purchase a ``pure-play'' foundry that could be used to manufacture DRAM
memory chips, and also NAND flash memory chips.\4\ The DRAM market is
subject to chronic over-capacity and boom-bust cycles. Furthermore,
Micron was able to demonstrate that the SMIC had excellent access to
domestic and international capital markets. Hence, there was no
evidence that this transaction involved a purchaser with inadequate
access to private financing, nor was there a competing offer from
another vendor with access to below-market credit from another country.
This case should never have been considered by the bank. Yet Micron was
forced to go to considerable expense to intervene and testify before
Ex-Im Bank's Board in this case. Although this particular contract
never came to a vote before the Board, it illustrates that the bank is
failing to use economic impact analysis in the way it was intended by
the Congress.
---------------------------------------------------------------------------
\4\ Statement of Steven R. Appleton before the Subcommittee on
International Trade and Finance of the Committee on Banking, Housing,
and Urban Affairs of the U.S. Senate, March 29, 2006, p. 3.
---------------------------------------------------------------------------
Expanding the scope of and requirements for economic impact assessments
by Ex-Im Bank
Congress should expand the scope of Ex-Im Bank contracts requiring
economic impact assessments in at least three areas.
1. The bank should expand and much more liberally interpret the
definition of ``substantially the same product.'' Testimony at the
subcommittee hearing in March provided referred to two clear examples
where this definition should be much broader. In the SMIC case, the
applicant alleged that the primary purpose for purchasing the ``pure-
play'' foundry was to make NAND chips. However, since the same
equipment could be used to make DRAM, the Bank should have also
considered scenarios in which the plant could be used to make DRAM.
Given the propensity of Chinese producers to flood the United States
with exports of all varieties of computer and electronic products, this
possibility should have been taken seriously by Bank staff in their
analysis of the proposal.
The steel industry is another sector where the bank should rarely,
if ever, finance the expansion of production capacity for basic steel
products. Basic steel is a highly fungible product. I have served as an
expert witness for domestic producers of steel products, including
steel pipe, plate, and flat-rolled products, in numerous antidumping
and countervailing duty cases at the U.S. International Trade
Commission over the past 15 years. The global steel industry has
suffered from a capacity glut for decades, as noted by Thomas M.
Sneeringer of U.S. Steel Corporation in his testimony before the
Subcommittee on International Trade and Finance on March 29. The United
States and other governments have been attempting to negotiate a multi-
lateral agreement to restructure the industry and limit excess capacity
for more than a decade. Yet producers in Asia, Latin America, and other
areas have announced plans for massive steel capacity additions over
the next decade. In particular, the industries in India and China,
working with government support, plan to double and triple their basic
steel-making capacity in this period.
There are anti-dumping orders in place covering the import of steel
plate, reinforcing bars and hot-rolled sheet from China.\5\ Hot-rolled
sheet made in China sells for at least $300 per ton less than in the
United States owing to the market distortions in place there. Since
China cannot directly export this product to the United States, Chinese
producers have begun to produce and export massive quantities of steel
pipe, which is not now subject to antidumping orders, to the United
States. The vast bulk of the production cost of steel pipe is for hot-
rolled plate. Hence, exports of steel pipe to the United States simply
embody illegally dumped and subsidized steel plate.\6\ To reiterate,
Ex-Im Bank should simply not finance the export of any steelmaking
equipment to China, or other countries presently subject to antidumping
orders of any basic steel product.
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\5\ U.S. International Trade Commission, ``Antidumping and
Countervailing Duty Orders in Place as of May 3, 2006, by Country'',
http://info.usitc.gov/oinv/sunset.nsf/269dca91a05d2d878525663c006a6ac3/
96daf5a6c0c5290985256a0a004dee7d/$FILE/orders-ctry-tbl.pdf.
\6\ The U.S. International Trade Commission recently found in a
recent ``421 investigation'' that U.S. producers had been injured by a
surge of imports of steel pipe from China. ``CIRCULAR WELDED NON-ALLOY
STEEL PIPE FROM CHINA'' Investigation No. TA-421-6 (Publication 3807;
October 2005).
---------------------------------------------------------------------------
2. The bank should expand its economic impact assessments' scope to
include goods other that production equipment for which exporters have
reached formal or informal agreements with purchasers or their
respective home-country governments to ``offset'' part or all of the
value of the export sale with any concession that could affect
production in the United States. Such agreements are especially common
in the U.S. aerospace industry. They have included agreements to
transfer production of components to foreign countries, transfer
technology for producing like or unrelated products to producers in the
importer's country, or to market related or unrelated exports from that
country in the United States. Private firms and public agencies in
China have frequently required U.S. aerospace exporters to make offset
agreements in exchange for export sales. Such agreements are also
extremely common in defense products industries, and many governments
explicitly require such offset concessions and maintain public offices
for registering and monitoring offset agreements. In aerospace alone,
increased competition from foreign producers and offset agreements
could displace up to 250,000 workers from jobs in aerospace and related
industries between 1994 and 2013.\7\ Domestic firms applying for Ex-Im
Bank financing should be required to disclose such agreements to the
bank. Disclosure of such agreements should automatically trigger an
economic impact analysis to assess the impact of those agreements on
domestic firms, workers, and communities.
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\7\ Barber, Randy and Robert E. Scott, Jobs on the wing: Trading
away the future of the U.S. aerospace industry, Washington, D.C.: The
Economic Policy Institute, 1995. p. 2, http://www.epi.org/content.cfm/
studies_jobsonthewing.
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3. Finally, the Bank should improve the openness and transparency
of its economic impact analysis process. The Bank should issue written
reports summarizing the findings and decisions made in all of its
economic impact analyses. These reports should not disclose
confidential, business proprietary information provided by applicants.
Their publication would better inform the Congress and affected
communities of the Bank's actions and the factors considered in its
decisionmaking process. In addition, the 14-day window for comments on
economic impact notices should be expanded to 30 days.
Congress should also require the Bank to conduct formal ex-poste
reviews of the aggregate economic impacts of its financing of exports
of both capital equipment and contracts involving offset agreements,
and that it should adopt an adjudicatory process for such reviews that
would be modeled on antidumping and subsidy case procedures at the U.S.
International Trade Commission. This procedure should provide an
opportunity for representatives of exporters and affected domestic
parties to assess and comment on both the public and business propriety
aspects of the contracts being financed by the Bank in particular
sectors. The Bank should give all parties involved aggregated, ex-poste
reviews of transactions in an industry due time to review available
data, file pre-hearing briefs, testify to the Bank's Board and file
post-hearing briefs. At the completion of this process, the Bank's
Board should review and, as needed, revise criteria for making loans
for exports in that sector and release a public report outlining the
reasons for its findings and summarizing the public data from the cases
reviewed. The Board should have the option to reject all applications
for financing exports of products related to import-sensitive
industries, as well as contracts that unduly damage the competitiveness
of U.S. producers of related or unrelated products.
In conclusion, while Ex-Im Bank plays a critical role in supporting
U.S. export sales, it also needs to give greater attention and weight
to the possible negative impacts on domestic producers of some of the
contracts that it is supporting.
Thank you for your interest. I'd be happy to answer any questions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES FROM CLAY
LOWERY
Q.1. Please explain the process used to evaluate tied aid
applications, under the terms of the arrangements agreed to
between the Department of the Treasury and the Export-Import
Bank
A.1. Treasury and Ex-Im Bank follow the Tied Aid Principles and
Procedures that were agreed between the two agencies in 2001.
The principles state that the United States: (1) will not
initiate tied aid; (2) will use tied aid selectively and
purposefully; (3) will use tied aid for negotiating objectives,
including helping to create a level playing field for all U.S.
exporters at minimal cost to U.S. taxpayers; (4) will use tied
aid to counter any instances of untied aid that appear to be de
facto tied; and (5) will use tied aid in situations that could
create a long-run trade advantage for foreign exporters, or
form a threat to long-run U.S. market access. The principles
also state that credible evidence of a foreign tied aid offer
is needed, as well as specific information on financing terms,
before a U.S. tied aid matching offer can be made. Without
this, the United States could inadvertently initiate tied aid.
Factors that are weighed in deciding whether to match
foreign tied aid include: the cost and concessionality level of
the transaction; whether the matching is likely to displace the
foreign offer; whether the recipient country is a market
already spoiled with tied aid, or is a dynamic developing
market; whether a small business exporter or environmentally
beneficial equipment is involved in the proposed transaction;
and any particular patterns of tied aid use by the donor.
Similarly, the tied aid procedures establish: (1) specific
time frames within which information will be shared between the
two agencies; (2) how long agencies have to review information
(including the final Board document); (3) how long agencies
have to make both preliminary and final decisions; (4) steps to
request additional review time, if needed; (5) how long
agencies have to provide written comments on the transaction;
and (6) what steps will be taken in the event of a disagreement
between the two agencies at various levels within each agency,
including at the most senior level.
The final step in the procedures, which was added during
Ex-Im Bank's 2002 reauthorization, mandates referral of the
transaction to the President if the Secretary of the Treasury
does not agree with the Ex-Im Bank Chairman. However, Treasury
and Ex-Im Bank have yet to disagree on War Chest use since the
2001 principles and procedures were put in place.
Q.2. The 2002 legislation reauthorizing the Charter of the
Export-Import Bank attempted to end the dispute about control
of the Tied Aid War Chest by giving the Department of the
Treasury and the Bank a joint role in formulating principles, a
process, and standards for the use of tied aid, but also
stating that ``the final case-by-case decisions on the use of
the Tied Aid Credit Fund shall be made by the Bank.'' Please
explain, step-by-step, citing the provisions of the agreements
between the Treasury and the Bank, how the processes used by
Treasury and the Bank satisfy the terms of the legislation.
A.2. As described in the answer to Question 1, Ex-Im Bank and
Treasury jointly prepared the Tied Aid Principles and
Procedures that were agreed to in 2001. The late Chairman John
Robson, then-Chairman of Ex-Im Bank and then-Under Secretary of
the Treasury John Taylor jointly agreed to this document.
Therefore, a ``joint role'' in formulating principles, a
process, and standards for the use of tied aid has been assumed
by each agency.
While the specific procedures outlined in the 2001 document
are fairly detailed (see question 1), the bulk of the step-by-
step procedures focus on how Treasury and Ex-Im Bank will
consult with each other on tied aid cases and identify the
steps that are required if there is a disagreement between the
two agencies.
Although there is consultation at all levels, prior to a
decision on tied aid, we believe that Ex-Im Bank makes the
final determination. As called for in the statute, it is the
responsibility of Treasury to raise this issue to the President
in the event that Treasury disagrees with Ex-Im Bank's final
determination. We take the requirements of the statute
seriously and understand that the burden of proof in such a
circumstance is clearly on Treasury to show that Ex-Im Bank's
determination--whether supporting or opposing tied aid use--
should be overturned. The current Ex-Im Bank/Treasury tied aid
principles and procedures are working well, however, and have
not produced a single disagreement between the two agencies
with regard to any final determination on tied aid.
Q.3. Does the Department of the Treasury oppose the use of
tied aid in cases that involve competition with exporters
financed by export credit agencies of countries that are not
part of the OECD?
A.3. No. Treasury supports the use of tied aid in cases of
competition from export credit agencies of non-OECD member
countries.
Treasury uses the same underlying market-based principles
behind the OECD Arrangement to evaluate non-OECD members' tied
aid offers, with the goal of ensuring a level playing field for
all U.S. exporters. Treasury fully supports matching non-OECD-
member countries if their financing violates accepted
international financing rules. Even if a non-OECD-member's
financing offer is consistent with these rules, Treasury
supports matching a foreign offer that impacts a U.S.
exporter's ability to compete effectively in that market.
It could be more difficult to get information about a non-
OECD member's tied aid offer, such as the financing terms
necessary to create a matching offer. The U.S. exporter may not
have complete information, and non-OECD members have no
obligation to provide such information when they are asked for
it. Therefore, we would have to look at each case on its
merits. However, if we learn of a foreign tied aid offer and
the donor government does not cooperate when we seek
information, we would likely recommend taking an aggressive
matching posture as a matter of principle.
Q.4. Your testimony emphasizes that the Department of the
Treasury must exercise control over the use of tied aid by the
Export-Import Bank to facilitate Treasury's responsibility at
the OECD. In what other countries do the national finance
ministries control use of tied aid by export credit agencies in
this fashion?
A.4. There are twenty-four * other governments that formally
participate in the OECD Arrangement on Officially-Supported
Export Credits. Not all of those governments provide tied aid.
However, of the OECD countries that do, none of them allows the
export credit agency alone to decide when to use tied aid. In
all of these countries, the export credit agency's ``guardian''
authority--which is usually the finance ministry, or the aid
ministry, or perhaps an inter-ministerial committee--has to
approve the use of concessional financing. The reasons
typically given for this procedure are to ensure the government
properly appraises the feasibility, priority, and developmental
effects of the project, as well as the recipient country's
credit worthiness, and to ensure that the project complies with
the OECD Arrangement.
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*Australia, Austria, Belgium, Canada, Czech Republic, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Japan, Korea,
Luxembourg, Netherlands, New Zealand, Norway, Portugal, Slovak
Republic, Spain, Sweden, Switzerland, United Kingdom.
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RESPONSE TO A WRITTEN QUESTION OF SENATOR BAYH FROM JAMES D.
McCLASKEY
Q.1. Mr. McClaskey, in your testimony on June 20, 2006, you
cited the failure of Ex-Im Bank to approve a recent application
by Midrex for support of a sale of Midrex products to a Saudi
Arabian steel facility as an example of problems your company
had experienced with the Bank. However, earlier this Spring, it
was represented by Midrex officials that Midrex had withdrawn
its support for this very same application and denied that it
was supporting the application only two days before the
application was to be taken up by the Bank's Board. If, as the
U.S. exporter that would have benefited from the Bank's
approval of the application, Midrex withdrew its support, it is
unclear to me how the company could present this as an example
of a failure of the Bank's processes. Could you please provide
an explanation of how the Bank process failed if the U.S.
exporter did not support the application? If the company did
not withdraw its support for the application, why did the
company represent otherwise?
A.1. I appreciate the opportunity to respond to your question.
First, it is important to clarify for the record that Midrex
Technologies never filed an application on behalf of its client
in Saudi Arabia (Hadeed). Rather, it was ANZ Investment Bank,
London, which is/was the applicant of record. Second, Midrex
Technologies, Inc. never said that the Ex-Im Bank process
failed. To the contrary, we stated that the process worked.
Assuming the ``process'' to which you make reference is the
economic impact analysis (EIA), it is our position that the
``process'' functioned as designed because it determined that
the Hadeed project would result in additional (foreign
produced) steel capacity which is expected to be in oversupply.
Pursuant to current EIA guidelines, the denial of the
application was made. I am confident a second, more thorough
reading of my testimony will substantiate that I do not suggest
the process failed. Rather, I challenge the presumption that
the EIA and its attendant outcome (vis-a-vis Hadeed) actually
protected the American economy. I say this because the project
enjoys strong European ECA support which requires the sourcing
of critical equipment from abroad. All the EIA process
accomplished was to pit one American worker against another.
Neither worker benefits from this result because (1) the Ex-Im
Bank denial did nothing to protect the U.S. producer because
the project is proceeding and will ultimately produce the
product expected to be in oversupply--thus injuring that
segment of the U.S. market which the EIA was trying to protect,
and (2) the U.S. exporter, while successful to get the order
without Ex-Im support, has the option to procure from global
sources and will likely do so--thus injuring American
manufacturers with loss of export opportunities.
It is also very interesting to note that this is not the
first time this question has been posed to us, and in fact, the
same question was posed to us by a representative of US Steel
at the committee hearing break. He raised this very same
challenge directly to Midrex during the break at the hearing
and unfortunately, we didn't have time to refute his remarks
since the committee was reconvening. The fundamental basis of
this challenge, if you refer to the written testimony, is
incorrect and we really didn't appreciate his pointed remarks.
1. In summary, Midrex Technologies, Inc. made no
application to Ex-Im Bank on behalf of Hadeed. Rather as
previously herein noted it was ANZ Investment Bank which made
the application on behalf of our Saudi client (SABIC/Hadeed);
Midrex Technologies Inc. never even received a copy of the
application.
2. You will see after a second, more thorough reading of my
testimony in its entirety that the ANZ Bank application for the
Saudi Project was only used as a means of leading up to our
real point, which unfortunately, I didn't get to make.
Specifically, what needs study by you and others is the
Economic Impact Assessment since it is being used solely as a
``protectionist tool'' for one segment of the U. S. economy
while injuring other segments. The purpose of Ex-Im Bank should
be to support all exporters. There are other government
agencies whose mandate is to protect the U.S. Economy and U.S.
producers when the need is legitimate.
3. Midrex Technologies, Inc. recommended on several
occasions to ANZ Investment Bank that they withdraw the
application because we were told by Ex-Im officials that the
application stood little chance of being approved, but the
client decided to pursue it nevertheless because of the desire
to establish a relationship with Ex-Im Bank, which would result
in future U.S. exports. Please refer to the emails below as
reference to clearly show our position. Note: Midrex never
changed its position and I suggest if you or anyone else on the
committee has any more questions concerning our position, we
meet face-to-face to set the record straight.
4. Just for general information, we tried on at least two
occasions since the committee hearing to ask the Steel Lobby
members to meet with us so we could explain ourselves and to
this date, they have not yet responded to our offer.
5. In closing and perhaps most important, more stringent
economic impact requirements will only serve to injure our key
American suppliers--companies such as Dresser Industries, Roots
Division in Connersville, Indiana, which is one of our biggest
suppliers. When you protect one segment of the U.S. economy at
the expense of another--my question to you, Senator Bayh--must
it always be to the detriment of the thousands of American
small businesses which can't afford the high-priced lobbyist
who seem to be so influential in today's Washington, D.C.? One
final comment for clarity, Midrex is in communication with
other ECAs: the result, we will (unfortunately) source millions
of dollars outside the United States simply because our own ECA
is of absolutely no benefit to us in cases involving neutral or
negative EIA findings. Perhaps you should change the EIA
concept to one of achieving the least amount of harm to the
U.S. economy, because, in our opinion, the current EIA concept
only seems to result in the most harm.
Reference: Email Communication:
08/Aug/05 --W. Trotter (Midrex) to J. Miller (V.P. at Ex-Im
Bank)
Jeffrey:
I spoke today with Simon Lee (ANZ) regarding the Hadeed
application. I suggested in view of the stringent opposition
from AISI as well as US Steel, it would be better if ANZ would
consider withdrawing the application. I told Simon it is my
considered opinion the application stands no chance of
obtaining Board approval (again, my opinion only). Simon would
like to discuss this a bit more in detail with Ex-Im and I
suggested he contact you in Barbara's absence. I believe she is
on vacation until August 22.
Please contact me should you need additional information.
Regards,
Wayne Trotter
12/Oct/05--Simon Lee (ANZ) to B. Marcum (Ex-Im Bank)
Bob:
As discussed earlier, Hadeed have now reverted to us and
they have decided that they do not wish us to withdraw the
application; instead they wish the application to proceed such
that a formal decision is made and communicated by U.S. Ex-Im.
Obviously they are hopeful that the application will ultimately
be approved, but they recognise that this may be unlikely.
I would be grateful therefore if you would now take the
application forward. It would be helpful if you could let me
know the likely time scale as to when it will go to the U.S.
Ex-Im Board.
Apologies that it has taken some while to revert on this
issue but this was due to a combination of the end of the long
summer break in Saudi and subsequent travel commitments.
Please let me know if there is any further information or
any other assistance we can provide at this stage.
Regards,
Simon