[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

                               ----------
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62-687 PDF                       WASHINGTON : 2010 

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                 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

                              ----------                              
                                                                   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.]

















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                           September 29, 2010

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