[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
EX-IM BANK OVERSIGHT: THE ROLE
OF TRADE FINANCE IN DOUBLING
EXPORTS OVER FIVE YEARS
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
AND THE
SUBCOMMITTEE ON
INTERNATIONAL MONETARY POLICY
AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 29, 2010
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-162
----------
U.S. GOVERNMENT PRINTING OFFICE
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Washington, DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota KENNY MARCHANT, Texas
RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan
CHARLES WILSON, Ohio KEVIN McCARTHY, California
ED PERLMUTTER, Colorado BILL POSEY, Florida
JOE DONNELLY, Indiana LYNN JENKINS, Kansas
BILL FOSTER, Illinois CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota
JACKIE SPEIER, California LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Oversight and Investigations
DENNIS MOORE, Kansas, Chairman
STEPHEN F. LYNCH, Massachusetts JUDY BIGGERT, Illinois
RON KLEIN, Florida PATRICK T. McHENRY, North Carolina
JACKIE SPEIER, California RON PAUL, Texas
GWEN MOORE, Wisconsin MICHELE BACHMANN, Minnesota
JOHN ADLER, New Jersey CHRISTOPHER LEE, New York
MARY JO KILROY, Ohio ERIK PAULSEN, Minnesota
STEVE DRIEHAUS, Ohio
ALAN GRAYSON, Florida
Subcommittee on International Monetary Policy and Trade
GREGORY W. MEEKS, New York, Chairman
LUIS V. GUTIERREZ, Illinois GARY G. MILLER, California
MAXINE WATERS, California EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina RON PAUL, Texas
GWEN MOORE, Wisconsin DONALD A. MANZULLO, Illinois
ANDRE CARSON, Indiana MICHELE BACHMANN, Minnesota
STEVE DRIEHAUS, Ohio ERIK PAULSEN, Minnesota
GARY PETERS, Michigan
DAN MAFFEI, New York
C O N T E N T S
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Page
Hearing held on:
September 29, 2010........................................... 1
Appendix:
September 29, 2010........................................... 23
WITNESSES
Wednesday, September 29, 2010
Gratacos, Osvaldo Luis, Acting Inspector General, Export-Import
Bank of the United States...................................... 12
Hardy, John, President, The Coalition for Employment Through
Exports........................................................ 14
Hochberg, Hon. Fred P., President and Chairman, Export-Import
Bank of the United States...................................... 5
Yager, Loren, Director, International Affairs and Trade, U.S.
Government Accountability Office............................... 13
APPENDIX
Prepared statements:
Lee, Hon. Christopher J...................................... 24
Manzullo, Hon. Donald A...................................... 25
Paulsen, Hon. Erik........................................... 27
Gratacos, Osvaldo Luis....................................... 28
Hardy, John.................................................. 41
Hochberg, Hon. Fred P........................................ 46
Yager, Loren................................................. 60
Additional Material Submitted for the Record
Moore, Hon. Dennis:
Letter to Gene Dodaro, Acting Comptroller General, GAO, dated
September 29, 2010......................................... 71
Biggert, Hon. Judy:
Written statement of Donna K. Alexander, Chief Executive
Officer, BAFT-IFSA......................................... 72
EX-IM BANK OVERSIGHT: THE ROLE OF
TRADE FINANCE IN DOUBLING EXPORTS
OVER FIVE YEARS
----------
Wednesday, September 29, 2010
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations, and
Subcommittee on International
Monetary Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittees met, pursuant to notice, at 4:10 p.m., in
room 2220 Rayburn House Office Building, Hon. Dennis Moore of
Kansas [chairman of the Subcommittee on Oversight and
Investigations] and Hon. Gregory Meeks [chairman of the
Subcommittee on International Monetary Policy and Trade]
presiding.
Members present: Representatives Moore of Kansas, Meeks;
Biggert, and Lee.
Chairman Meeks. [presiding] This hearing of the
subcommittees is in order. We know the rules. We will have hear
from both of the Chairs and, of course, both of the the ranking
members, in that order. We will then introduce each of the
witnesses that we have here. And I will now recognize myself
for an opening statement.
I want to begin by expressly thanking Representative Moore,
who chairs the Oversight and Investigations Subcommittee, for
co-chairing this hearing with me today. And although he is not
here, I also want to thank Representative Miller, and
Representative Biggert, who is here, the ranking members of the
subcommittees, co-chairing this hearing today for the
bipartisan nature in which this hearing has been planned.
The concern across both sides of the aisle is that we
continue to do as much as possible to support quality job
creation and retention here in America by supporting America's
exporting companies. I strongly support President Obama's
National Exports Initiative which aims to double exports in 5
years, supporting some 2 million high-quality jobs here in
America.
The global financial crises and related recession have
greatly strained access to credit and trade finance for
America's exporters. While our economy struggles to restore and
to create jobs, emerging markets are resuming the pace of pre-
crisis growth.
Just yesterday, the Asian Development Bank increased its
economic growth forecast for Asia to 8.5 percent, excluding
Japan. As Mr. Fred Hochberg, my good friend, puts forward in
his written testimony, 95 percent of global consumers live and
work outside of the United States of America. What's more,
export-related jobs have a higher hourly wage than their peers
focused on the domestic market.
So as the American economy takes only hesitant steps on the
road to recovery, the Nation's exporters have been able to
capture the foreign economic growth to do their part to kick
start the American economy.
Where the growth of the broader economy has been tempered
in 2010, exports have increased some 17 percent thus far this
year. The role of the Export-Import Bank in meeting the
President's goals will be central. It is therefore tremendously
encouraging to read that the Inspector General's and the GAO's
testimony indicates that while there is always room for
improvement, Ex-Im Bank has been making many of the necessary
changes to improve the effectiveness of this institution. And
I'm not surprised by it, because of its leader.
I am very encouraged to hear about the targeted programs
being implemented to promote U.S. experts to emerging markets.
The global recession has led to double speed recovery with
major emerging economies, including in Asia, Latin America, and
Africa, seemingly resuming on the growth path they were on
prior to the global recession. It is critical that American
exporters get a foothold in these emerging economies that are
likely to become major resources or major sources of global
consumption and production in the coming decades.
I was very happy to see the increased focus on small
businesses here in America. We all know and agree that small
businesses are the engine of innovation and job creation in the
United States. Supporting their efforts to expand their
consumer base internationally is the right thing to do, and we
greatly benefit American jobs and economic recovery when we do
so.
Finally, I was happy to see the increased focus on
exporting American services. American service exporters are
likely to remain globally competitive despite market distortion
behavior by certain foreign nations, mainly China. Indeed,
service- and knowledge-based businesses represent a great
opportunity to grow the global share of high-value American
exports, to create high-paying American jobs, and to protect
America's share of the global export market.
I would like to thank the witnesses for agreeing to testify
today, and I look forward to an informative discussion as we
consider the critical role of the Ex-Im Bank in supporting the
goal of doubling American exports over the next 5 years and
supporting the related jobs that will be created here in
America.
And with that, I recognize the ranking member, Mrs. Biggert
for an opening statement.
Mrs. Biggert. Thank you, Chairman Meeks and Chairman Moore,
for holding this joint hearing which is important as we work to
reauthorize and reform operations of the U.S. Export-Import
Bank.
The Bank's authorization expires next year. As many of you
may be aware, Chairman Meeks and I are co-chairs of the
bipartisan Congressional Services Caucus, of which Chairman
Moore is also a member, and in that capacity we work to
highlight the crucial contribution of services to our economy,
to employment, to trade and investment, and to U.S.
competitiveness in the global economy.
This year, our caucus has held briefings on the importance
of finalizing the U.S.-Korea, Colombia, and Panama free trade
agreements, and the time is now for the Administration to
finalize these agreements and submit them to Congress for a
vote. These FTAs are critical to increasing the U.S. services
exports, helping our economy grow and creating jobs here at
home.
Towards that same goal, I wanted to thank Chairman Hochberg
for his commitment to increase Ex-Im's efforts to support the
services sector, particularly in the financial services sector
as he correctly noted in his written statement: ``Services
account for a trade surplus in a real competitive advantage for
U.S. companies.'' During their previous Ex-Im reauthorization,
this committee recognized Ex-Im's important mission to create
and maintain U.S. jobs by providing financial support for U.S.
exports.
That's exactly what this Congress and the Administration
should focus on, creating jobs. And that starts with
facilitating the growth of small businesses, which generate
approximately two-thirds of new jobs. That includes providing
businesses with tax relief, regulatory certainty, and helping
small businesses increase exports. And that's why at a time
when unemployment continues to hover around 10 percent, we must
continue to bolster effective, self-sustaining Federal programs
like Ex-Im that can work to jump-start the economy without vast
expenditures of taxpayer dollars.
I want to note that I appreciate that Ex-Im has partnered
with the SBA and the Department of Commerce to reach out to
small businesses. In particular, Ex-Im has increased its
outreach in the Chicago area. In my district, I recently held
two supermarkets for small businesses, which included Ex-Im,
Commerce, and SBA officials.
The resources and guidance operated by these agencies was
extremely well-received by small business operators eager to
find new economic opportunities. And I encourage my colleagues
on the committee to hold a similar event in their own
districts.
In addition, I hope that we can work together to find new
ways for Ex-Im to expand its small business resources beyond
outreach. The bottom line is coupled with the FTAs. Ex-Im is
one of the best tools we have to increase exports, beat the
competition abroad, strengthen our economy, and create jobs.
Let's face it. In our increasingly competitive global
environment, we as policymakers have to ensure that we provide
every advantage and remove every disadvantage for American
companies to compete successfully abroad. That means all of our
government policies must work in a coordinated manner from tax
to foreign assistance, trade, regulatory, and export financing.
With that, I would like to thank today's witness for
sharing with us expertise and suggestions. And I ask unanimous
consent that testimony be included in today's hearing record
from a family-owned and operated small business, Apac
Engineering products, created in Aurora, Illinois, in my
district, and also testimony from BAFT-IFSA, the Bankers
Association for Finance and Trade and International Financial
Services Association.
With that, I yield back.
Chairman Meeks. Thank you. And I now yield to the Chairman
of the Oversight Subcommittee, Chairman Moore of Kansas.
Chairman Moore of Kansas. Thank you, Mr. Chairman.
Our economy continues to slowly recover following the worst
financial crisis we have seen in generations in this country.
It's well known that lax oversight and poor regulation of our
financial system for too many years sowed the seeds of a near
collapse of our entire economy, the worst of its kind since the
Great Depression. And who paid the price for these mistakes?
Unfortunately, it has been our constituents and small
businesses on Main Street.
So I was pleased when this Congress responded with the
Dodd-Frank Wall Street Reform and Consumer Protection Act. The
new law provides tough but fair financial rules that will end
``too-big-to-fail'' and better protect consumers and investors
while shielding responsible small businesses and community
banks from excessive regulation.
We know that the success of our small businesses is crucial
for a strong economic recovery. Knowing this, the Congress also
passed and the President signed into law this week the Small
Business Jobs Act of 2010. The new law extends successful SBA
recovery loans while offering billions more in tax breaks and
lending support for entrepreneurs and small business owners.
But the work does not end there. Growth and exports can also
help our economy if we have the full participation of small and
large businesses, exporting U.S.-made goods, and competing in
the global marketplace.
So I was pleased when President Obama laid out an ambitious
but achievable goal in his State of the Union address earlier
this year that we double U.S. exports over 5 years. Today, our
Oversight Subcommittee, along with the Subcommittee on
International Monetary Policy and Trade chaired by Chairman
Meeks will look at the issue of finance with respect to this
National Export Initiative, in particular, taking a close look
at the Export-Import Bank of the United States and what role it
plays in providing export finance to our businesses competing
globally.
I am glad we'll hear from the Chairman and the acting
Inspecting General of the Ex-Im Bank, as well as GAO and a
coalition of business exporters to assess how well the Ex-Im
Bank is achieving its mission, and what areas of improvement or
recommendations to Congress they may have.
Thank you, Mr. Chairman, I yield back.
Chairman Moore of Kansas. I yield to the gentleman from New
York, Mr. Chris Lee.
Mr. Lee. Thank you, sir. I'll be brief. And, unfortunately,
due to the lateness of this, I'm not going to be able to stay
for all of my questioning, but I would like to be able to
submit for the record some questions and be able to follow up.
To be honest, there's not a lot of government agencies that
I usually am enamored with, but I think what you do is critical
for this country, and I'm a very large advocate because my
background is manufacturing and getting this country to realize
that if we don't start producing more tangible goods in this
country, we are in a world of hurt, and we need to realize that
we're only 5 percent of the world's population; 95 percent of
the consumers live outside of this country and we should be
having a long-term manufacturing strategy that addresses it,
and your integral part is ensuring that there is capital
available. Many of my questions surround whether or not you
have access to the right amount of staffing support so that we
can continue to grow that.
So, again, I apologize for having to leave, but I look
forward to following up with you, so good luck today.
Chairman Meeks. Thank you. It's now my distinct pleasure to
present our first witness.
Fred P. Hochberg is the Chairman and the 23rd President of
the Export-Import Bank of the United States. He was nominated
by President Obama in April 2009, and as indicated in my
opening statement we know that Ex-Im Bank will play a key role
in the implementation of the President's National Export
Initiative. It should double U.S. exports in 5 years, and I
agree with the ranking member in that we do need to get some of
these trade agreements passed.
I'm with you on that, which will help us do that and help
us open some of these markets. But under the leadership of Mr.
Hochberg, the Bank has broadened its credit offerings and
dramatically improved the loan response time to help small and
medium-sized exporters create local jobs through increased
global sales. He has more than 30 years experience in business,
and when you're talking about having the right man in the right
place at the right time, 30 years of experience in business and
government and philanthropy.
From 2004 to 2008, he was the Dean of the Milano School,
the new school for management and urban policy in New York.
From 1998 to 2001, he served as Deputy, then acting
Administrator of the Small Business Administration, and that
was during the Clinton Administration. And what is most
impressive, he was president and CEO of the Lillian Vernon
Corporation, where he led the transformation of a small,
family-owned mail-order company into an $180 million direct
marketing corporation traded on the American Stock Exchange.
So he understands business. He understands small business
in particular. I am also proud to say that he is a native New
Yorker, and from the New York Metropolitan area where he
received his undergraduate degree from New York University and
his MBA from Columbia University.
Mr. Chairman, it's a pleasure to have you and welcome.
STATEMENT OF THE HONORABLE FRED P. HOCHBERG, PRESIDENT AND
CHAIRMAN, THE EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Hochberg. Thank you, Chairman Meeks, Chairman Moore,
Ranking Members Miller and Biggert, and members of the
subcommittees.
Thank you for inviting me to testify before this joint
hearing on what the Export-Import Bank of the United States is
doing to create jobs here in America. Since its establishment
in 1934, Ex-Im has had but one central objective: to create and
sustain American jobs to exports. The Bank was founded with
this goal during the depths of the Great Depression and remains
true to its mission today.
Let me tell you, ``Made in America'' still resonates around
the world. When the books close tomorrow, on Fiscal Year 2010,
it will be another record-setting year with total
authorizations in the range of $25 billion, supporting
approximately 230,000 American jobs.
The important work is done at no cost to the American
taxpayer. Let me repeat. This work is done at no cost,
whatsoever, to the taxpayer. In fact, since 1992 Ex-Im has
earned and returned more than $4.5 billion to the U.S.
Treasury. The Bank is self-sustaining, meaning it funds its
programs and administrative budgets from fees paid by buyers
and borrowers. We don't make grants and we don't increase the
deficit.
Of the approximately 3,400 transactions the Bank supported
in 2010, about 85 percent of these authorizations support small
American businesses, and that includes more than 600 new small
business clients this year alone. Also, Ex-Im supportive
environmentally beneficial exports have increased dramatically
from $2.6 million in 2006 to an estimated $330 million for this
fiscal year, more than an 125-fold increase over that 4-year
timespan.
As a former business owner, I understand firsthand the
challenges many of these companies face tapping into new
markets. As Chairman of the Export-Import Bank of the United
States, I have made small business a top priority. Chairman
Moore, you may be familiar with one of the companies Ex-Im has
assisted this year: Knit Right in Kansas City. Knit Right
manufactures medical textile products. They have 160 employees,
and their top markets include Mexico, Germany, and Sweden.
Additionally, Ex-Im supported almost $300,000 of export
sales from Apex Engineering of Aurora Illinois, which employees
11 people in Representative Biggert's district. In overall
support last year, the Ex-Im Bank supported about $1.4 billion
in exports from the districts represented by the members of
this subcommittee. That's $1.4 billion from this subcommittee
alone.
As an official credit agency in the United States, Ex-Im
plays a critical role in President Obama's National Export
Initiative that seeks to double exports to $3.1 trillion by
2015. Working with Congress and the Administration, Ex-Im Bank
is helping to lead that effort.
Exports of U.S. goods and services increased 17.9 percent
during the first 7 months of 2010. The United States remains on
track to meet President Obama's goal of doubling exports in 5
years. Ex-Im provides American small businesses with the tools
they need to compete for the 95 percent of the world's
consumers who live outside the borders of the United States.
This past May, Ex-Im expanded access to the Bank's short-term
programs.
Let me give you an example of how it works. There's a small
company in Miami named Demetech that exports surgical supplies
to more than 80 countries. In the past, the Bank could only
cover the cost to export those products that were incurred on
the factory floor. That is the net rules in effect since 1968.
We have now changed that and expanded the eligibility so we
can cover costs such as design, packaging, bookkeeping, and
quality control. This means that a small company like Demetech
has additional access to credit insurance to allow them to ship
to more places, and the result is more sales and more jobs.
This year, the company's sales are up almost 100 percent, and
about 30 percent of this increase is due to the support
provided by Ex-Im.
As Demetech's CEO has told me, about 40 of the company's
100 employees are working because of this increased demand. And
then, just 2 weeks ago, Ex-Im launched a program to help what
are called indirect exporters. These are companies, many of
which are small, that supply components to products that are
then exported. This program injects liquidity into the
marketplace and affords small businesses with ready access to
capital and an increased competitive edge.
So whether a company is exporting surgical sutures or
services, and regardless of whether the final destination is
Brazil or Bulgaria, Ex-Im is determined to help more U.S.
companies export to more countries to find more customers, and
that means more jobs here in America.
Thank you for the opportunity to testify, and I would be
pleased to answer any questions you might have.
[The prepared statement of Mr. Hochberg can be found on
page 46 of the appendix.]
Chairman Meeks. Thank you, Mr. Hochberg.
Let me just start out with, I see that there has been
growth in the first year, and my question is, do you see any
barriers? What happens is sometimes we have great expectations
and then something hits us that's unforeseen that stops growth.
Do you see any barriers in the immediate future that can
prevent Ex-Im and the export market from continuing to grow at
its current rate or even a greater rate as we move forward?
Mr. Hochberg. Thank you for that question. I see tremendous
demand overseas for American products; and, as I mentioned in
my testimony, ``Made in America'' really has resonance and
meaning for quality and service. My concern is that the Bank is
almost--2 to 3 years ago, the Bank did about $12 billion to $14
billion a year. We're going to be in the range of $25 billion
this year.
My concern is having the resources. The Bank was built at
the $14 billion to $15 billion authorization level. We are now
authorizing a full $10 billion on top of that, and I see
greater growth. So I see the concerns about how we are
continuing to meet that market and meet it timely with the
resources that we have.
Chairman Meeks. And one of the things that--in my district
in New York, we try to meet regularly with some of our small
businesses, trying to show them where they should be expanding
so that they can export, so there's a greater market, etc. Is
there anything that the Ex-Im Bank is doing to lay a great
foundation? Or, outwardly--you talked earlier about how the
number of our businesses are doing exports.
Is there anything that you have to lay foundations for
small businesses and districts like ours and others that we can
tap into? Can you talk to me?
Mr. Hochberg. Yes. In October a year ago, this month a year
ago, we launched a program called Exports Live, that would
bring in some small business owners. Some of our sister
agencies, the Small Business Administration, Commerce, USCR,
and others run a half-day seminar or workshop with small
business owners.
To date, we have conducted 16 of these. Since last year,
more than one a month. We have been doing them most recently
working with Members of Congress and would be happy to meet
with any member of this committee or other Members of Congress,
and host one in their district. We did one recently with
Senator Warner in Richmond, Congressman Costello in the St.
Louis area, and Congressman Maffei in the Syracuse area, so
these have been a successful way of getting the word out.
My concern again obviously is if we never were appropriated
that money, we have sort of scraped together and done those.
But they were an important way of making sure particularly
small business owners understand the vast resources that are at
their disposal.
Chairman Meeks. Let me ask you one more question, and then
I'm going to turn it over to Mrs. Biggert.
I am also very interested, and I think that Ex-Im seems to
give American exporters better financial tools to penetrate
emerging markets. How do you see the increased focus on
emerging markets impacting the composition of the global export
market, because I do a lot of work in some of these emerging
markets, and so I would like to get your viewpoint on that.
Mr. Hochberg. Chairman Meeks, both of us have been to
Colombia a number of times. Colombia is one of our target
countries for opportunity. We in the United States are growing
at a rate of 2 or 3 percent. We are growing at a somewhat
slower rate than some of these emerging economies. Economies in
Brazil, India, Vietnam, Indonesia, and Colombia are growing at
rapid rates. There are great opportunities there for American
exporters.
What we need to make sure is that we have the resources to
support them, so when they are able to secure a sale, we can
get an answer, get them to yes quickly so that we can provide
the financial resources. But, clearly, the world has relied on
the American consumer for many years. We're now going to be
looking to rely on many developing countries to sort of power
the global economy.
Chairman Meeks. Are we working in sync, do you think? We
are looking at American companies, those of us in the
legislative bodies and the agencies. Do you think we're in sync
to make sure that we can be successful in getting our
businesses into these emerging markets?
Mr. Hochberg. I think we're in sync. I think one of the
things I see, it is a brutally, brutally competitive market out
there, and American companies have to fight for every single
sale they get and fight with other competitors. My only
concern, as I mentioned, I don't want to repeat it too often. I
want to make sure I have the resources to meet in those small
communities.
It takes longer to do a small business transaction. It's
much more one-on-one, meeting company CEOs in their offices and
sort of explaining and giving them the information so they can
get over the concern about risk they might have selling
overseas.
Chairman Meeks. Thank you. Mrs. Biggert?
Mrs. Biggert. Thank you, Mr. Chairman.
Chairman Hochberg, Ex-Im has been criticized for not fully
engaging key stakeholders and partners before implementing new
procedures or policies, and this is not the same question that
you just addressed, but it seems a collaborative process should
be the norm rather than the exception. That helps to avoid
confusion and errors. What is Ex-Im doing to help enhance
export and lender participation and put input into the Bank
programs and improve their capacity to increase market growth
for U.S. exports?
Mr. Hochberg. I think that we can do a better job of that.
In these 16 Export Live events around the country, easily a
dozen of those I usually meet when I'm in that community with a
group of local bankers, solicit their ideas of how we could
provide better service and better products. We probably could
formalize that a little bit more. Those are more informal
gatherings and I think that input is important so that we can
design a program that banks can implement, and that's our key
goal.
Mrs. Biggert. So when you have been doing this, are you
touching all areas of the country?
Mr. Hochberg. I have been from Billings, Montana, to
Chicago to New York to Boston to Syracuse, to Long Island. I
have lost track of the 16 cities I have been to, and usually
we'll meet, depending on the community. The community bankers
are large bankers. We're also talking to credit unions, but a
range of financial intermediaries to make sure we can meet
particularly small business needs.
Mrs. Biggert. How do you contact them in these different
areas to make sure you're getting the pulse of that?
Mr. Hochberg. Most recently--to give an example--when I was
in upstate New York in Congressman Maffei's district, his
office pulled together the local banks that they work with. So,
frequently, we have done these consultations with a Member of
Congress. I was in Cincinnati and Senator Brown and Congressman
Driehaus brought in all their community Bankers who had an
interest in this area. That has been our prime way. We also
work with BAFT and other trade associations as well.
Mrs. Biggert. Then various reports have been critical of
Ex-Im's application processing times. Is the Administration
doing anything to help improve processing times for
applications?
Mr. Hochberg. I put it in my written testimony. I have
three real priorities in the Bank: small business; renewable
energy; and improving processing time. It is not where it needs
to be. Since I joined the Bank a little over a year ago, we
have reduced it by about a third in the number of our product
areas. My goal is to cut it even more. Regrettably, that does
take resources. It does take people to go through those
finances.
When you're dealing with a small company, they often don't
have fully audited financials, so it takes more effort. And one
of the impediments to really drastically improving our response
time would be two-fold: one is resources of people; and I think
we need to improve our IT systems. Many of these IT systems
have not been touched for 12 to 15 years, and the world has
changed dramatically in those 12 to 15 years.
Mrs. Biggert. On page 6 of your written testimony, you
mention that Ex-Im is expanding the scope of private-public
partnerships. You mentioned that in addition to outreach, Ex-Im
is looking for lenders to participate in the guarantee programs
by originating, and in some cases underwriting transactions. It
seems like a great idea, and I think it will utilize the
private sector resources and significantly expand the ability
of Ex-Im to help more small businesses export and strengthen
our economy and create jobs. Is this your plan, and what's your
timeframe for launching such an initiative?
Mr. Hochberg. We currently at the Export-Import Bank work
with approximately 50 banks. That's clearly not enough banks,
and so one of my goals has been to provide better outreach to
small business owners to expand our network of banks.
I spent almost 3 years at the Small Business Administration
or as senior vice president of small business, formerly worked
at the Small Business Administration. We are looking to
leverage some of the banking relationships that they have with
banks that are experienced working with small businesses to
include them in Export-Import Bank programs; in fact, in
speaking at their annual conference in the month of October to
try and increase that.
That's a clear goal of ours. Again, my concern is as I
bring in more business I want to make sure that I don't want to
over-promise and under-deliver in terms of service time for our
customers.
Mrs. Biggert. Thank you. My time is approaching. I yield
back.
Chairman Meeks. Thank you. Chairman Moore of Kansas?
Chairman Moore of Kansas. Thank you. Chairman Hochberg, I
appreciate the increased role the Ex-Im Bank has played in the
recent financial crisis providing export credit to businesses
that had a difficult time finding credit. But, more important,
I am pleased the Bank has protected taxpayers and even paid
back more than $4.5 billion to taxpayers since 1992.
As we think about an expanded role for Ex-Im Bank to help
meet the important goal of doubling exports in 5 years, what
steps will Ex-Im take to ensure taxpayers are fully protected,
and also, what additional steps can be taken to mitigate fraud
with Ex-Im's financing?
Mr. Hochberg. Our loan write-offs are about 1.5 percent
each year, which is probably better than most of the banks that
this committee comes in contact with.
We have a good working relationship with our acting
Inspector General, Osvaldo Gratacos, and there are two kinds of
things they worry about. One, we will make a bad loan now and
then, that companies make a bet and we're helping them. And
sometimes things--I was in business--don't turn out the way you
think they will. That's one thing.
We really have no tolerance, whatsoever, for fraud. We are
looking. There was some fraud years ago. I think that a number
of the systems have been closed up and the Inspector General is
a very strong ally in us trying to root out any opportunities
for frauds that we make that last. As I said, it's one thing to
lose on a transaction that happens to go south in good faith
versus one that's fraudulent.
Chairman Moore of Kansas. Thank you, sir. An idea you
mentioned, Chairman Hochberg, in our meeting last week to
discuss today's hearing was an idea to look for opportunities
with Canada and Mexico, and see if we can cooperate better in
looking for export opportunities where all three countries can
compete better with other countries.
Would you discuss this idea, sir, and speak to how
aggressively other countries are getting with promoting their
own exports, and how do we make sure the United States doesn't
get outmaneuvered by other countries with these export
opportunities?
Mr. Hochberg. I think the National Export Initiative is
designed to do exactly that. This is the first time that a
President has called a national effort to rally around
exporting, making it: one, easier for exporters to provide the
advice; and two, providing the advocacy that our trade
agreements are upheld, and that, frankly, there's a level
playing field for bidding.
One of the challenges American companies face is that
sometimes countries favor their local suppliers over an
American supplier. The United States Trade Representative and
others, we work hard to make sure there's a level playing field
in accordance with the WTO.
I think that's a major piece, and the important piece that
we supply is the financial resources, so that our companies can
compete against other countries that are also getting Export-
Import Bank from their respective bank's creditors.
Chairman Moore of Kansas. Okay. Thank you, sir. I don't
know if you have had a chance to review the next panel's
testimony, but does your office have good relations with both
the Inspector General's office and GAO, and are there any
particular recommendations they make in their testimony that
you care to respond to? For example, the IG recommends
improving the Ex-Im Bank's information technology platform. Do
you have a response to that, sir?
Mr. Hochberg. When I meet with the Inspector General in my
office, every single month, we have a meeting to review any
open items to make sure that we have an open dialogue. And I do
that with myself and our Chief Operating Officer. I am
delighted that he finds our IT systems deficient. It probably
does not take rocket science to figure that out, but they're
strained. They're older systems where they have not really been
invested in and we're operating at a much higher level, both of
transactions and of dollars in more difficult parts of the
world.
Chairman Moore of Kansas. I yield back. Thank you, Mr.
Chairman.
Chairman Meeks. Let me just ask one last question, and if
anyone else has one final question, feel free, before I turn it
over to Mr. Moore and the second panel.
I know you were with the SBA administrator for a while. I
was wondering, with Ex-Im Bank, I'm finding that to the degree,
if I look at exporters, I don't see the diversity. Is there any
specific outreach that you're doing to work to try to help,
say, women-owned and minority-owned businesses so that they're
more into exporting and getting involved. Is there anything in
that regard?
Mr. Hochberg. We have an office of minority- and women-
owned exporters. We are working with them. We have staff who
are dedicated to that. We have staff, for example, dedicated
purely to veterans as an example. And one of the other areas
we're working on very aggressively is Sub-Saharan Africa. I'll
be making my first trip there in November, partly because
they're offered as a community of interest in that regard.
In 2009, we supported just over a half a billion dollars
worth of exports from minority- and women-owned businesses. In
2010, we were up about 10 percent to about $560 million. I
think we still should do better, and I would look forward, if
members of the committee can help us do that outreach, because
sometime it's a question of getting that information to those
women- and minority-owned businesses that these resources are
there.
Chairman Meeks. Thank you. And I look forward to working
with you on that very endeavor and continuing to focus on the
President's great export initiative so that we can create jobs
here in America. We thank you for your testimony.
Mr. Hochberg. Thank you. Thank you very much.
Chairman Moore of Kansas. [presiding] I am pleased to
introduce our second panel of witnesses today: Mr. Osvaldo Luis
Gratacos, acting Inspector General of the Ex-Im Bank; Mr. Loren
Yager, Director, International Affairs and Trade at GAO; and
Mr. John Hardy, president, Coalition for Employment Through
Exports. Without objection, your written statements will be
made a part of the record.
Mr. Gratacos, you are recognized for 5 minutes, sir.
STATEMENT OF OSVALDO LUIS GRATACOS, ACTING INSPECTOR GENERAL,
EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Gratacos. Good afternoon, Chairman Moore of Kansas, and
distinguished members of these honorable subcommittees. Thank
you for the invitation and opportunity to testify before you
about the activities of the Office of Inspector General and the
programs and operations of the Export-Import Bank.
Before I continue, I would like to thank the Almighty for
this opportunity, my family, and the members of the Ex-Im Bank
OIG for their dedicated work. Ex-Im Bank, as you know, is the
official credit agency of the United States. It supports the
financing of U.S. goods and services, international markets,
turning export opportunities into active sales that help U.S.
companies of all sizes to create and maintain jobs in the
United States.
Ex-Im Bank has programs to address short-, medium-, and
long-term needs of exporters, assuming the credit and country
risk that the private sector is unable or unwilling to accept.
As such, Ex-Im Bank plays and will be playing an important role
in President Obama's National Export Initiative.
As expressed by Chairman Hochberg, recently Ex-Im Bank
announced record authorization levels, reaching $21 billion in
2009, exceeding small business requirements of 20 percent, and
will be reporting Fiscal Year 2010 authorization level,
surpassing 2009 levels.
Today, the opportunity to increase American export is an
important element of our Nation's economic recovery. Extending
Ex-Im Bank financing to more American manufacturer service
providers and exporters, including small businesses, enhances
accessibility to achieve the National Export Initiatives goal.
As presented in our written testimony and discussed with
Chairman Hochberg, Ex-Im Bank has taken some steps and is in
the process of implementing some strategies in its efforts to
increase small business participation under the National Export
Initiative and addressing recommendations issued by GAO. Ex-Im
Bank's role, coupled with the growth levels mentioned, about a
percent of valuable opportunity for the alleged partner with
Ex-Im Bank in support of its mission while exercising our
statutory independence.
Some history on our office: Ex-Im Bank was created in 2002
but the Inspector General did not officially take office until
August 2007. Since routine current staffing levels in April
2009, the OIG has issued 15 audit and special reports
containing over 50 recommendations and suggestions for
improvement, improving Ex-Im Bank operations. Our investigative
efforts have resulted in a number of law enforcement actions
including 51 indictments and arrests relating to over $45
million in claims paid by the Bank.
One conviction, over 80 management referrals for actions
and over $26 million in program savings due to policy
cancellations arising out of investigations. Moreover, the OIG
is currently investigating 48 open matters, representing
approximately $327 million of claims paid by the Ex-Im Bank, or
around 13 percent of all Banks claimed to pay as to the end of
2009. All of this has been accomplished with a modest budget of
2.5 million and a staff of 10 professionals.
The OIG through its statutory mission is committed to
monitor and provide oversight in support of Ex-Im Bank's
mission. Chairman Moore, Chairman Meeks, ranking members and
members of the committee and subcommittees, thank you, once
again, for the opportunity to testify before you today, and I
will be pleased to respond to any questions you might have.
Thank you.
[The prepared statement of Mr. Gratacos can be found on
page 28 of the appendix.]
Chairman Moore of Kansas. Thank you, Mr. Gratacos, for your
statement, and I want to recognize now Mr. Yager for 5 minutes,
sir.
STATEMENT OF LOREN YAGER, DIRECTOR, INTERNATIONAL AFFAIRS AND
TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Yager. Chairman Moore, Chairman Meeks, and Ranking
Member Biggert, thank you for the opportunity to appear before
this joint subcommittee hearing to provide our perspective on
the role of the U.S. Export-Import Bank in the context of the
President's initiative to increase exports.
I know the time of the committee is very valuable, and
given that my written statement is part of the record, let me
just talk about three main contributions that GAO has made to
congressional oversight of the Export-Import Bank.
First, GAO completed a report for the Congress in 2006,
which included a careful examination of the measures and the
systems that Ex-Im had in place to track their progress in
financing small business. One of the very first steps in
ensuring that all efforts are being made to provide assistance
to small business is establishing confidence and accountability
in the measures used to track progress. While we found a number
of weaknesses and problems in that examination, I am pleased to
report that Ex-Im has been very responsive in making
improvements to those systems and that Congress can better rely
on those measures as a fair representation of the Bank's
efforts for small businesses.
Second, GAO completed a report in 2008 in response to a
mandate in Ex-Im's 2006 reauthorization bill that had a number
of important provisions related to small business, including
minority- and women-owned businesses. I'm aware that much of
the language in that reauthorization bill was drafted within
the Financial Services Committee, so I am pleased to appear
before the two key subcommittees to represent that work.
Our 2008 GAO report is a careful cross-check between the
elements in that reauthorization bill and the actions that Ex-
Im had taken in response. Ex-Im had addressed a number of the
elements from that reauthorization, but we observed that they
were in the early stages of using performance measures to
improve their small business programs and results.
Finally, GAO just released a study on one of the other key
agencies involved in the National Export Initiative, and that's
the Foreign and Commercial Service of the Department of
Commerce. A GAO team has recently traveled to a small sample of
key export markets to gain some insights on U.S. efforts to
achieve the goals of the National Export Initiative, as Ex-Im
is only one of a number of agencies that will need to
contribute to the success of that initiative.
While I cut short my travel to participate in this hearing,
I would be happy to provide some insights from that travel, as
I met with many of the same persons as Ex-Im officials who
proceeded me in some of those same locations.
Thank you, once again, for the opportunity to appear before
the hearing, and I would be happy to answer any questions on
the broad range of GAO work related to the Export-Import Bank
or to exports more broadly.
Thank you.
[The prepared statement of Mr. Yager can be found on page
60 of the appendix.]
Chairman Moore of Kansas. Thank you, Mr. Yager.
And now, Mr. Hardy, you're recognized for 5 minutes, sir.
STATEMENT OF JOHN HARDY, PRESIDENT, THE COALITION FOR
EMPLOYMENT THROUGH EXPORTS
Mr. Hardy. Thank you very much.
Chairman Moore, Chairman Meeks, and Ranking Member Biggert,
I am president of the Coalition for Employment through Exports,
a coalition of exporters and banks promoting the expansion of
U.S. exports and jobs that are generated thereby.
CEE appreciates the opportunity to discuss the role of the
Ex-Im Bank in the Administration's National Export Initiative.
Let me start by saying that CEE and its members are strong
supporters of the Bank and view it as playing a critical role
in the government's response to the financial crisis.
As you know, the crisis created a severe liquidity
shortfall as the private sector stopped lending across-the-
board; but, Ex-Im stepped in aggressively to fill the gap. And
as Chairman Hochberg has spoken, it dramatically expanded its
transaction volume. It also expanded lending to small
businesses, but the Bank did not stop there.
The Bank has been engaged in streamlining its processes,
creating new programs to respond to the particular needs of
exporters caught in the liquidity squeeze, such as extending
Ex-Im guarantees to sub-suppliers within a supply chain. In
short, we believe that Chairman Hochberg and the entire staff
at the Bank should be commended for their excellent work
responding to the crisis.
We also believe that for Ex-Im to continue to provide
increased support to exporters, it will have to aggressively
address some of the constraints we have outlined in our
testimony, especially as the liquidity situation continues to
improve. With regard to the National Export Initiative, CEE and
its membership believe that Ex-Im Bank, if fully competitive,
can be a centerpiece in the success of that initiative.
Ex-Im can facilitate the growth of exports and jobs more
readily than almost any other agency in the U.S. Government. In
comparison to other ECAs, which are parties to the OECD
arrangement and its rules regarding premium rates, financing
terms, and local costs, Ex-Im is quite competitive. The Bank is
also a leader in areas such as project finance and support for
small businesses. However, at present, many of the other OECD
ECAs and their governments operate with a flexibility that the
Bank is unable to replicate.
For the NEI to be truly effective, Ex-Im Bank, with support
from the Administration and Congress, should work on addressing
these policy issues. The first is foreign content. The policy
of requiring 85 percent domestic content is flawed in the
context of today's global supply chains, which major exporters
need to maintain their competitiveness internationally.
Among the ECAs, there has been a shift towards more
flexible content rules reflecting the increased emphasis at the
ECAs upon a national interest or benefits approach to
financing. This has been a long-developing trend, but it has
been accelerated by the economic crisis, and indeed represents
the perspective of most OECD ECAs, but of the non-OECD ECAs as
well, particularly China, Brazil and India.
Compared to other ECAs, Ex-Im Bank's content rules are far
and away the most stringent. Austria has the next highest
content rules at 50 percent. Japan and Germany support their
companies with as little as 30 percent domestic content. Moving
on, the MARAD cargo preference requirements and the Tied Aid
war chest restrictions are additional issues that need to be
addressed. In different ways, they adversely affect the
exporter, but we are confident each can be resolved with
stronger government commitment to make Ex-Im fully competitive.
Service exports and small business exports represent great
opportunities for the Bank. The export of services, especially
high-tech services, is one of the fastest growing sectors of
the U.S. economy. While the Bank is mandated to provide
financing for services, it is not doing all that it should. The
reasons include the lack of a services policy for the companies
to refer to, the lack of a clear idea what the export actually
comprises and the current stringent content rules that are
based upon the manufacture of goods. The content rules do not
consider U.S. value received, which comprises in part
intellectual property, research and development, global supply
chain management, and even corporate brand; nor does the
content rule include the high value jobs reflected in those
elements.
We would add only one comment: that supporting small
business exports consumes very substantial staff resources.
Recognizing the importance of this effort to U.S. jobs, CEE
fully supports an increase in administrative appropriations, so
the Bank will have the resources to add much needed staff and
technological resources to continue to reach small businesses
around the country. And, with the Bank operating on a self-
sustaining basis, the burden of an increase is an entirely
different matter than for other agencies.
CEE, in preparation for the Ex-Im reauthorization this
coming year, is already in discussions with Chairman Hochberg,
his staff, and the Administration on these issues, and we will
be preparing a draft bill for the benefit of Congress. We
commend the subcommittee's oversight of the Executive Branch on
these issues and look forward to working with the committee on
the reauthorization bill.
Thank you. I'm happy to answer any questions.
[The prepared statement of Mr. Hardy can be found on page
41 of the appendix.]
Chairman Moore of Kansas. My thanks to the witnesses for
your testimony, and I now recognize myself for 5 minutes for
questions.
Mr. Gratacos, I know your office is relatively new, but you
have announced a number of cases where you have identified and
stopped fraudulent activity with Ex-Im funds. As we think of
the goal to double exports in 5 years and the Ex-Im Bank's
playing a key role in the effort, do you have any
recommendations for building a stronger fraud prevention
mechanism with respect to Ex-Im's activities?
Mr. Gratacos. Thank you for the question, Chairman Moore.
There have been a number of fraudulent cases, the biggest
portion on the Medium Term Program, which is the program that
offers financing terms up to 5 years, sometimes 7 years in some
instances. That was a program that we first got exposed to when
we opened our office, given the losses.
We did a big audit of that program. Some small businesses
actually benefitted from that program, and we found that there
were a number of fraudulent cases, and we heard that part of
them is due to lack of resources. That's one of the points that
we can acknowledge other than the front-end and the back end
oversight in terms of the asset management of those claims;
but, we also know that there was a lack of implementation and
of some due diligence efforts on the Bank's side, and we have
recommended a number of steps where we have highlighted some of
the shortcomings in some of the transactions. We have conveyed
those steps to the Bank in our efforts to promote sound, due
diligent practices, and also a number of lessons learned.
Chairman Hochberg alluded to a number of situations where
some of those buyers did not have financial information
available to them or audit their financial statements. So it
makes it a little bit harder for the Ex-Im Bank staff to
address some of the financials when they see it up front. But
we still believe there's some current improvement within the
current frames of the short-term working capital programs and
medium term programs.
Chairman Moore of Kansas. Thank you. It's clear that global
business is getting more, not less competitive, and other
countries are working hard to promote export or opportunities
for their domestic businesses.
Mr. Yager, our two subcommittees are sending a letter to
GAO today requesting a new report on these issues. I won't read
the entire letter, but we write that, ``We are particularly
interested in the range of goals pursued by export credit
agencies of other developed nations and how they balance the
needs to serve small and medium enterprises while still
supporting other export goals. We are also interested in
whether there are lessons that the United States might learn
from those other nations in terms of providing assistance to
the private sector.''
Would you speak to this request? Generally, Mr. Yager, is
this a good issue for GAO to investigate, and would lessons
learned from this new report help improve the effort to achieve
the goal of doubling exports in 5 years?
Mr. Yager. Chairman Moore, thanks for the letter.
I did take a look at the letter, and I should comment that
I did a testimony last year which addressed in a summary level
the export promotion activities of other nations. I have been
quite surprised at the fact that there were so many people who
have contacted me after that relatively brief testimony where
we did the summary work on the efforts of other nations.
And frankly, that interest has come both from Capitol Hill
as well as from the private sector and others, so it seems like
an issue where there is a great deal of interest, certainly
within the United States and even outside, so we look forward
to looking into that issue. I believe we have the expertise to
look into that, and we have relations with some of the other
countries where we can work with those export credit agencies
to learn more about what they do.
Certainly, I hope that we get some insights that will be
useful to the Congress in making decisions about how Ex-Im can
use those results and make some changes to the way they use
their resources.
Chairman Moore of Kansas. Thank you, sir.
Mr. Hardy, you lay out a number of helpful observations in
your testimony. Do you believe the United States can meet the
President's goal to double our exports in 5 years? And how do
we ensure businesses--both large and small--have every
opportunity to compete globally? What are the top two or three
things the Ex-Im Bank should focus to support this goal?
Mr. Hardy. Chairman Moore, thank you very much for your
question.
We do believe that the President's initiative can be met,
but in order to accomplish that task, we believe that--and this
reverts back in part to the question that you asked Mr. Yager,
and that is we need to understand much better what the
competitive environment is internationally. It is very
aggressive.
As the chairman said, it's brutally competitive and there
will need to be, we believe, changes made to the conditions
under which Ex-Im operates that will allow it to be more
flexible and to be able to match the offers made by other
countries; and, as such, to become more competitive in a very
difficult environment.
If that's the case, then I think there's every possibility
that doubling of exports in this period of time is possible.
Chairman Moore of Kansas. Thank you.
The Chair next recognizes the ranking member, Mrs. Biggert,
for 5 minutes.
Mrs. Biggert. Thank you, Mr. Chairman.
Just following up, Mr. Hardy. It seems like we have delayed
these trade agreements and so many other countries have had so
many more trade agreements in this hemisphere and throughout
the various areas. Aren't we really behind? How are we going to
win back some of the sales that other countries have already
had a much better agreement?
Mr. Hardy. Thank you, Mrs. Biggert.
I think you're right that we are behind, but at the same
time, as Chairman Hochberg said in the very beginning, there's
extraordinary demand for U.S. goods and services; once we do
move forward and the Administration is able to address and
resolve the issues that have held us up, we have the ability to
move quickly and actually to be able to capture back those
exports.
The concern that I think exists, and it exists with a
number of member exporters in CEE, is that for high value
goods, it's extraordinarily competitive. And the longer time
goes on where we are not able to match offers by the export
credit agencies of other countries, which particularly in the
current economic climate are aggressively pursuing not only the
specific transactions, but also trying to get an edge in terms
of establishing footholds in other markets, U.S. exporters will
lose opportunities.
It does become increasingly difficult, so that I think that
there is a concern there. But the United States is resilient
and can be very responsive. The exporting community can be very
responsive, but there is no question that time lost is
certainly a delay, too.
Mrs. Biggert. Isn't it too where we have to pay so many
tariffs for entry into some of these countries? So our goods
are costing so much more, does that lessen our competitiveness?
Mr. Hardy. Absolutely. I don't think there's any question
about it, and, of course, that goes back to the issue of
enforcing the laws that we have entered into; ensuring all
parties to these agreements are complying with their
obligations; and that is an increasingly difficult situation.
Mrs. Biggert. Thank you.
Mr. Hardy. Thank you.
Mrs. Biggert. Mr. Gratacos, and I probably didn't pronounce
that right, I asked Chairman Hochberg about criticism of the
Ex-Im's application processing times. Could you comment on
that?
Mr. Gratacos. That has been one of the biggest criticisms
of the Bank from since I remember. The Bank did take some
actions regarding addressing that issue. One of them was
developing the Ex-Im on-line system. The Ex-Im Bank has helped
lower the processing time, but still has some work to do,
especially once it goes to the second and third phases of the
transaction. It has become more like a data collection type of
system, and it doesn't communicate with the other systems that
the Bank has.
But the Bank has actually taken some steps that they
initiated as part of the National Export Initiative and because
of our recommendations. One of them is they created cell groups
to try to address some of those transactions, especially coming
from certain markets where they can create a team of credit
underwriting and approval people up front, and try to lower the
processing time. And since January-February of this year, we
have been able to use that as a test, and it has achieved some
results. They also are planning on doing something similar for
small businesses down the road.
Mrs. Biggert. Thank you.
And then, Mr. Yager, in your testimony, and I think I asked
this question early on to Mr. Hochberg, too, but you in your
testimony, an area in which Ex-Im could do better is
communicating goals and strategies with the stakeholders.
What's the result of their weakness in this area?
Mr. Yager. One of the interesting examples that we looked
at is a report that was issued quite recently on Ex-Im's
efforts to achieve environmental exports, and they have not
reached that goal. As a matter of fact, the Ex-Im achievements
there are really just a fraction of the 10 percent target.
One of the things that we looked at is that they weren't
speaking with their stakeholders and communicating with the
stakeholders on how important that target was, and so the
stakeholders, who were doing a lot of the front-end work for
Ex-Im Bank, were not even aware that Ex-Im had that priority
target. Therefore, they weren't going out and looking for
business as aggressively in those particular areas as they
obviously would have if Ex-Im would have communicated clearly.
One of our priority areas is environmentally beneficial
products, and so that's just one example of how working with
stakeholders is important. I think another example that we
could give is not just for Ex-Im, but for other U.S. agencies
as well, and that is we all know that resources are very
limited, and they will be limited even further in future years.
That way they have to work with their other stakeholders,
whether it's State export agencies, whether it's Banks, whether
it's other private sector sources. Even if funding is
increased, they will still rely on those other stakeholders to
help them achieve their goals.
Mrs. Biggert. Thank you.
I yield back.
Chairman Moore of Kansas. Thank you. The Chair next
recognizes Chairman Meeks for 5 minutes, sir.
Chairman Meeks. Thank you, Mr. Chairman. I guess I'll start
with Mr. Hardy. What I'm hearing from everyone and everyone we
know about part of the challenge and the keys being competitive
globally. And I know in Mr. Hochberg's remarks, he spoke about
export credit agencies in emerging markets and principally in
China that they use Tied Aid and other market distorting
measures, and use these to promote their exports, and they are
not subject to some of the same fair market rules that the OECD
countries have chosen to impose upon themselves to ensure fair
competition globally.
I was wondering if you could give us examples of such
distortions and share your thoughts on what American exporters
needed to do so that we make sure in competing with exports in
someplace like China who have distorted the market, what do you
think we need to do and what should we be doing?
Mr. Hardy. Thank you very much for the question. This is a
very difficult issue, and it's an issue about which certainly
there's an awful lot of press, indeed, we have anecdotal
information about specific situations, particularly for
American companies in Africa, in which U.S. companies have run
up against this and have had particular difficulties in terms
of contracts that they thought had already been awarded to them
that had been subsequently reversed when the Chinese came in
and offered soft financing.
CEE also represents the business perspective to the OECD;
and in the course of our involvement with the OECD, we have
engaged the OECD on this issue. It's a grave concern to the
OECD, because obviously, as we commented in our testimony,
there are a number of non-OECD ECAs that are not bound by the
arrangement and the rules under which the OECD ECAs are
operating.
China is far and away the most aggressive of the non-OECD
ECAs; at one level we have tried to work with the OECD to bring
China into an improved relationship with the OECD which will
reduce some of these steps, very aggressive steps, that the
Chinese are taking. Within the national context, the United
States has a Tied Aid war chest, and the war chest has existed
for a number of years precisely for these sorts of situations
where an export credit agency has broken the rules of the OECD
arrangement.
And under the rules of the arrangement, countries like the
United States are allowed to match the offers in violation of
OECD rules to basically establish a principle that we are not
going to allow this aggressive and illegitimate behavior that's
outside the bounds of rules that had been internationally
agreed upon, even though China is not part of the arrangement,
but to match those terms in an effort to make the process more
expensive for them.
And it seems to us that there needs to be greater recourse
to the Tied Aid war chest, in order to make the process more
expensive, and to demonstrate that we are not going to walk
away from those efforts, but rather we will match the Chinese
and continue to support our exporters.
Chairman Meeks. And to me, that's one of the key areas of
which we need to move in. And I don't know whether the Ex-Im
Bank can be helpful in that regard, because I think part of the
confusion that the American people have, and you may talk trade
to some, and they said, oh, we're against trade. They don't
understand trade. And when people start talking about trade
deficits, and particularly exporting, it seems like the deficit
we have is with China. China is exporting more than we.
But, if we were able to talk about how we're leveling that
playing field to show how our businesses are competing and, in
fact, that is creating the jobs here, I think it can turn the
tide of the difficulty that we have sometimes here in the
United States Congress to pass some of these trade agreements.
And, so, I do believe that's some of the focus that we need to
have, because it begins to level the playing field when most of
our trade deficit is either with China or dealing with fossil
fuels.
And people don't think of it that way. They think of trade
as being jobs that are just going overseas, when in fact that's
not the case at all. Trade and outsourcing are two different
things, and we have to reeducate the American public in that
regard. And I think that working with you and your
organization, we can move very definitely in that direction.
Lastly, because I see that I'm out of time and I know that
we have votes coming up, it is that same spirit of
competitiveness, finance. Finance. How critical is trade
finance among the challenges that you see in helping our
American companies being able to compete on a global scale in a
global market? And what do you see that's possible that we can
do to help that so that we can move forward too, and, again, to
me open up the greater global opportunities that are out there.
I'll start with you, Mr. Gratacos, and then Mr. Yager and
Mr. Hardy. And then I'm done.
Mr. Gratacos. Thanks for the question, Chairman Meeks. If I
understand correctly, you're talking about access to finance
for American exports.
Chairman Meeks. Correct.
Mr. Gratacos. Obviously, it's a little bit outside of the
IG scope.
Chairman Meeks. I know. The prosecutor wants to do that.
[laughter]
Mr. Gratacos. So there's not much we can add in this
regard.
Chairman Meeks. It's really Mr. Hardy's question.
Mr. Gratacos. Correct. But, obviously, access to finance,
yes, is important to American exports.
Chairman Meeks. Mr. Yager?
Mr. Yager. Chairman Meeks, let me go in a slightly
different direction, because I'm sure that Mr. Hardy will talk
about the importance of finance, but let me make a point about
some of the other partners, some of the other U.S. Government
partners that are also essential in this effort, for example,
the U.S. Foreign and Commercial Service. They provide the
personnel in foreign locations that help U.S. firms learn about
those export markets, and they sell services, such as the Gold
Key service, where they provide information on the markets as
well as connect U.S. exporters with potential buyers in those
other countries abroad.
And that particular service in many of these booming,
emerging markets, is meeting the market test, because the
Foreign and Commercial Service is required to charge full price
for those services to large exporters, and they charge half the
price or half the cost to small exporters. And in many cases,
they're booked up months ahead and find themselves unable to
promote their services, because they're already booked up.
So I think one of the other things to keep in mind is that
as important as export financing is, there is a package of
government services and a number of different kinds of
assistance that is needed by exporters, particularly small
exporters, when they want to make that move from the U.S.
market to a foreign market.
And so a healthy Foreign and Commercial Service as well as
the Small Business Administration, all those parts, are
necessary for many of these exporters, to make that move into
the foreign markets and to be successful there.
Chairman Meeks. Mr. Hardy, do you want to say something?
Mr. Hardy. I'll be brief. The purpose underlying the OECD
arrangement was effectively to take financing out of the
competitive environment so that you would get essentially
equivalent financing for the same transaction, whether you went
to one ECA or an other ECA, as long as they were part of the
OECD. But it has never worked that way.
Gaining an edge in financing has always been absolutely
critical in terms of competitiveness of exports. It's never
just about the quality of the product, even though we would
love to have that. Because at the end of the day, American
products are going to come out ahead and services are going to
come out ahead, but it has never been that straightforward.
Outside of the United States, there has always been
concessional financing, mixed credits, a variety of different
types of financing combined in order to create that edge. And
with the economic climate that we're in now, that edge is all
the more important.
And the question that you raised about China is certainly
absolutely reflective of this: that they have made a decision
at the highest levels to move in a certain direction, and they
have put whatever necessary fundings to obtain that objective
behind it, and that's the nature of the dilemma.
Chairman Moore of Kansas. Thank you, sir.
Mrs. Biggert, do you have a request?
Mrs. Biggert. Yes, I do. At the end of my opening statement
I did ask unanimous consent that testimony be included in
today's hearing record from a small business in my district,
Apex Engineering Products, and also testimony from IFSA, the
Bankers Association for Finance and Trade and International
Financial Services Association.
Chairman Moore of Kansas. Without objection, it is so
ordered.
Mrs. Biggert. Thank you. I yield back.
Chairman Moore of Kansas. Again, the Chair wishes to thank
all of our witnesses for your testimony here today. Today's
joint subcommittee hearing has given us an opportunity to learn
what Ex-Im Bank is focused on and how it will play a key role
in meeting the President's National Export Initiative to double
exports in 5 years. This committee will continue examining
these issues, especially with the Ex-Im Bank's reauthorization
up next year.
The Chair notes that some members may have additional
questions for our witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and to place their responses in the record.
The hearing is adjourned. My thanks to all.
[Whereupon, at 5:23 p.m., the hearing was adjourned.]
A P P E N D I X
September 29, 2010
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