[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                   LEGISLATIVE PROPOSALS ON SECURING
                     AMERICAN JOBS THROUGH EXPORTS:
                   EXPORT-IMPORT BANK REAUTHORIZATION

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         INTERNATIONAL MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 24, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-31






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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

                   Larry C. Lavender, Chief of Staff
        Subcommittee on International Monetary Policy and Trade

                  GARY G. MILLER, California, Chairman

ROBERT J. DOLD, Illinois, Vice       CAROLYN McCARTHY, New York, 
    Chairman                             Ranking Member
RON PAUL, Texas                      GWEN MOORE, Wisconsin
DONALD A. MANZULLO, Illinois         ANDRE CARSON, Indiana
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          ED PERLMUTTER, Colorado
THADDEUS G. McCOTTER, Michigan       JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan







                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 24, 2011.................................................     1
Appendix:
    May 24, 2011.................................................    43

                               WITNESSES
                         Tuesday, May 24, 2011

Alexander, Donna K., Chief Executive Officer, BAFT-IFSA..........    18
Gratacos, Osvaldo Luis, Inspector General, Export-Import Bank of 
  the United States..............................................    22
Hardy, John, President, The Coalition for Employment Through 
  Exports (CEE)..................................................    23
Hochberg, Fred P., President and Chairman, Export-Import Bank of 
  the United States..............................................     5
Lee, Thea Mei, Deputy Chief of Staff, American Federation of 
  Labor and Congress of Industrial Organizations (AFL-CIO).......    20
Slaughter, Matthew J., Associate Dean and Signals Companies' 
  Professor of Management, Tuck School of Business, Dartmouth 
  College........................................................    25

                                APPENDIX

Prepared statements:
    McCarthy, Hon. Carolyn.......................................    44
    Alexander, Donna K...........................................    45
    Gratacos, Osvaldo Luis.......................................    60
    Hardy, John..................................................    69
    Hochberg, Fred P.............................................    74
    Lee, Thea Mei................................................    84
    Slaughter, Matthew J.........................................    88

              Additional Material Submitted for the Record

Miller, Hon. Gary:
    Joint written statement of the American Apparel & Footwear 
      Association (AAFA), the National Cotton Council (NCC), and 
      the National Council of Textile Organizations (NCTO).......    94
    Written statement of the U.S. Chamber of Commerce............    97
McCarthy, Hon. Carolyn:
    Written responses to questions submitted to Donna K. 
      Alexander..................................................   105
    Written responses to questions submitted to Osvaldo Luis 
      Gratacos...................................................   106
    Written responses to questions submitted to Fred P. Hochberg.   109

 
                   LEGISLATIVE PROPOSALS ON SECURING
                     AMERICAN JOBS THROUGH EXPORTS:
                   EXPORT-IMPORT BANK REAUTHORIZATION

                              ----------                              


                         Tuesday, May 24, 2011

             U.S. House of Representatives,
                      Subcommittee on International
                         Monetary Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:55 p.m., in 
room 2128, Rayburn House Office Building, Hon. Gary Miller 
[chairman of the subcommittee] presiding.
    Members present: Representatives Miller of California, 
Dold, Manzullo, Huizenga; Moore, and Scott.
    Chairman Miller of California. This hearing is called to 
order.
    Today, we are having a discussion hearing on a discussion 
draft on the Export-Import Bank.
    Ranking Member McCarthy's sister has passed away, so she is 
not able to be here today. We are praying for her family. It is 
a difficult time for them. Mr. Scott will be sitting in in her 
place. Vice Chairman Dold will be here today, too, and other 
members of the subcommittee.
    I would like to welcome you to this hearing on legislative 
proposals to reauthorize the Export-Import Bank. The hearing 
today will focus on a discussion draft--and I quote 
``discussion draft''--I put forward which seeks to ensure that 
the Export-Import Bank has the tools it needs to help U.S. 
companies to maintain and create jobs in the United States and 
contribute to a stronger national economy through exports of 
their goods and services.
    For this reauthorization of the Export-Import Bank, we are 
focusing on domestic job creation. Job creation is the key to 
our Nation's economic recovery. At a time when the national 
debt is surpassing $14 trillion, and the Federal Government is 
borrowing 40 cents on every dollar spent, it is imperative that 
we stop spending taxpayer dollars and really start focusing on 
ways to grow the economy. Federal Chairman Ben Bernanke has 
said that we need to have a sustained period of strong growth 
creation to establish a true economic recovery, and that is the 
focus of this committee.
    The discussion draft is intended to ensure that Ex-Im Bank 
can help create U.S. jobs by supporting American companies 
seeking to export their goods. When American companies export, 
American workers work. During the reauthorization process, we 
are looking for ways to better the Bank's ability to serve U.S. 
companies, large and small, so they can prevail against foreign 
competitors and, as a result, create U.S. jobs.
    We have watched China grow incredibly large in recent 
years. It is hard to detail exactly how they are doing it, but 
their export programs are highly competitive with other 
countries and their financing exceeds ours in many ways. We are 
trying to make sure U.S. companies have an opportunity to 
compete in that marketplace.
    The Ex-Im Bank's products make it possible for American 
companies to compete in developing world markets, helping them 
secure footholds to expand sales. Half of the global economic 
growth is in developing world countries; 9 of the largest 
emerging market countries are expected to invest $3 trillion in 
infrastructure development over the next 5 years, presenting a 
tremendous export opportunity for U.S. companies. Ex-Im ensures 
American companies can ensure sales in these markets by making 
sure financing terms are not undercut by aggressive foreign 
creditor agencies.
    To get our economy back on track and create jobs, we must 
ensure American companies are competitive with foreign 
companies and have access to affordable export credit. We want 
to ensure the Bank is well-positioned to continue to contribute 
to the employment of U.S. workers who finance exports of U.S. 
goods and services.
    We have a great witness today, Mr. Hochberg.
    We have to look at the future of this country. This is not 
the same world we were in 20 years ago; it is not the same 
world we were in 30 years ago. We need to look at the 
reauthorization period for the first time that helps us really 
compete globally.
    Content guidelines is an issue we need to look at; export 
financing for services; information technology upgrades; and 
accountability. And accountability is, above all, paramount in 
reauthorization. We want to make sure that the American people 
understand that is, first of all, a priority and something we 
are really going to look at.
    At this time, I would like to yield to the ranking member, 
Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Miller.
    And this is, indeed, a very timely hearing and one that 
comes at a time when our Nation is at a crossroads, quite 
honestly, in terms of what we are going to do and what we need 
to do to accomplish two important things that certainly reflect 
the future of our country and the greatness of our country: 
one, to get more Americans working at American jobs in America; 
and two, to make sure that we are coming back to recapture our 
legacy and our position, which we lost, as the world's leader 
in manufacturing. We cannot really look toward improving our 
unemployment situation as long as we continually lose out on 
making things in America.
    So we look forward to this hearing to explore that and to 
make sure that we move forward with a clear understanding, to 
point out what are the merits of domestic content versus the 
merits or demerits of foreign content.
    This is serious for the future of this country. We have 
lost our leadership in the world of making things. And we want 
to certainly recapture that and to stop the outsourcing and to 
keep jobs in America for Americans and making things in 
America.
    So I want to thank you, Chairman Miller, for holding this 
important legislative hearing on the reauthorization of the 
Export-Import Bank. And I look forward to the opportunity to 
discuss proposals for securing American jobs through exports 
with each of the witnesses who are here today.
    Today's hearing is the second Ex-Im hearing this year. And 
I am pleased that our subcommittee is giving appropriate 
consideration to the reauthorization of Ex-Im's charter, which 
expires this September.
    The Export-Import Bank is a self-sustaining agency that 
plays a valuable role in promoting jobs for U.S. workers in 
America through the exports it helps finance. And to meet its 
objectives, to create and sustain U.S. jobs, the Bank uses its 
resources to finance U.S. exports in circumstances when 
private-sector financing is not available or to provide 
financing to support the competitiveness of U.S. exporters in 
circumstances when foreign governments extend export financing 
to their firms.
    Reauthorizing the Bank's charter will allow the Bank to 
continue helping the United States reach the goal outlined in 
the President's national export initiative, to double U.S. 
exports by 2015, and create and sustain millions of American 
jobs in America.
    The Bank's most recent annual report shows the demand for 
the Bank's support remains high, with 2010 being a record-
breaking year of $24.5 billion in export financing, which is up 
70 percent from Fiscal Year 2008. And I believe reauthorization 
of the Export-Import Bank is a critical component of the 
strategy to support jobs for U.S. workers in America.
    But I am concerned that the approach taken in the 
Republican discussion draft before us with respect to the 
Bank's content policy is likely to undermine the Bank's primary 
purpose: to contribute to the employment of United States 
workers in the United States. Ex-Im Bank's content policies--
    Chairman Miller of California. Is the gentleman ready to 
conclude?
    Mr. Scott. Yes, I am ready to conclude, if I could ask for 
1 minute--for medium- and long-range programs, which account 
for the majority of the Bank's financing, allows the Bank to 
finance only the U.S.-made portion of an export up to the OECD 
agreement to a maximum of 85 percent. This policy ensures that 
content serves as a proxy to evidence support for U.S. jobs, 
which is, again, the mission of the Bank.
    Limiting the Bank's support to domestic content for medium- 
and long-term programs also provides valuable incentives for 
companies seeking Ex-Im financing to seek and support domestic 
supply chains as opposed to using foreign components from 
foreign workers.
    And while I support a transparent and open process for how 
the Bank determines its domestic content requirement, in my 
view, each of the required considerations in the Republican 
draft focus solely on Ex-Im Bank's competitiveness with other 
countries' export credit agencies and ignore the possible 
negative--
    Chairman Miller of California. The gentleman's time has 
expired by 2\1/2\ minutes. I am going to have to--
    Mr. Scott. I am wrapping up now--that could have on the 
Bank's primary objective to maintain increasing employment of 
U.S. workers.
    So I look forward to everyone's comments.
    And, Chairman Miller, I appreciate your courtesy in letting 
me getting my full statement out.
    Chairman Miller of California. Mr. Dold, you are recognized 
for an opening statement.
    Mr. Dold. Thank you, Mr. Chairman.
    I want to thank Chairman Miller for his great work and 
leadership on this committee in general and on Export-Import 
Bank reauthorization in particular.
    And, Mr. Hochberg, I certainly appreciate you taking your 
time to be with us here today. We certainly look forward to 
your testimony and answering questions.
    I am a small business owner, and I can personally 
appreciate the importance of ensuring that responsible credit 
is available to all businesses, especially small businesses and 
exporting businesses. Without an adequate credit supply, small 
businesses and other businesses are frequently unable to invest 
in research and development, growth, sales, innovation, and 
ultimately, and most importantly, in job creation.
    Since coming to Congress, my focus has been and remains on 
job creation and growing our economy. One of the most important 
and, I would argue, most effective actions that we can take to 
support job creation and the economy, without increasing our 
paralyzing national debt, is to reauthorize the Export-Import 
Bank.
    The Export-Import Bank serves a critical function: 
providing credit to directly and indirectly support exports by 
small, medium, and large exporting businesses. These activities 
directly facilitate job creation right here in the United 
States. More American exports translates directly into more 
American jobs. In Fiscal Year 2010 alone, the Bank supported 
approximately 227,000 American jobs at over 3,300 different 
companies, helping to finance exports to over 175 different 
countries around the world.
    The Export-Import Bank supports both large businesses and 
small businesses. Small companies benefit from the Bank's 
credit support in two, I would argue, distinct ways: first, 
small businesses directly receive support from 80 percent of 
the Bank's transactions; and second, and less obviously but 
possibly even more importantly, small businesses indirectly 
benefit from large-company export credit support as 
subcontractors to the large-company exporters. When a large 
American company is effectively exporting millions of assembled 
individual parts when they export a locomotive, a commercial 
jetliner, or a wind turbine, many of these parts come from 
thousands of small- to medium-sized businesses. As a small 
business owner, I deeply appreciate these two very distinct 
ways in which the Bank supports small businesses, which are the 
main engine of job creation in our country.
    One of the most important reasons for reauthorizing the 
Export-Import Bank is that every major foreign exporting 
company receives very generous government-supported export 
credit facilities, most of which are on far more favorable 
terms to those foreign companies than those that the Export-
Import Bank provides to American companies. Without the Export-
Import Bank, the global competitive playing field would be more 
uneven and more unfair to American exporting companies, to the 
clear detriment of American jobs.
    To support American jobs without increasing our national 
debt, I hope that my colleagues on both sides of the aisle will 
join Chairman Miller and me in promptly reauthorizing the 
Export-Import Bank.
    Mr. Chairman, I ask unanimous consent to submit a longer 
statement for the record, if I may.
    Chairman Miller of California. It is now my honor to 
introduce Mr. Fred P. Hochberg, chairman and president of the 
Export-Import Bank of the United States.
    Mr. Hochberg is chairman of this bank in the United States 
and one of the highest-ranking business leaders in the Obama 
Administration. Under his leadership, in Fiscal Year 2010, Ex-
Im Bank approved more authorization to support U.S. exporters 
than in any year in its history. This included $24.5 billion in 
export financing, a 70 percent increase over the past 2 years, 
which supports $34.4 billion worth of exports and 227,000 
American jobs at more than 3,300 U.S. companies. Of these 
authorizations, more than $5 billion was for small businesses, 
a record for the Bank.
    Mr. Hochberg, I look forward to your testimony.

 STATEMENT OF FRED P. HOCHBERG, PRESIDENT AND CHAIRMAN, EXPORT-
                IMPORT BANK OF THE UNITED STATES

    Mr. Hochberg. Chairman Miller and distinguished members of 
the subcommittee, thank you for the opportunity to testify 
today about the Export-Import Bank and our reauthorization.
    Like you, Chairman Miller, I was a small business owner, 
and I have just completed my second year at the Bank. I have 
tried to focus the Bank to be ahead of our global competition 
and make sure that we think and run more like the businesses we 
serve. We are more customer-focused, with faster turnaround, 
creating new programs to meet the challenges of today. We are 
growing our small business portfolio, and we are moving 
government at the speed of business. And we continue to do this 
at no cost to the taxpayer.
    The Export-Import Bank is the official export credit agency 
of the United States, and we exist but with one purpose: to 
enable American companies, large and small, to compete for 
sales that help maintain and create U.S. jobs. And, as was 
noted, the competition has never been more fierce, be it China, 
Brazil, France, or other nations. American companies are 
competing for every sale, and Ex-Im is there when the private 
sector is unable or unwilling to provide support so we don't 
lose export sales to foreign competitors due to a lack of 
financing.
    The Bank provides export financing through its loan, 
guarantee, and insurance programs. We level the playing field 
so that U.S. businesses compete based on the quality and price 
of their products and services and are not undercut by overly 
aggressive use of export financing. The ``Made in America'' 
brand is a strong selling point for U.S. companies competing 
overseas, and America makes what the world wants to buy.
    Chairman Miller, as you noted, in our results for Fiscal 
Year 2010, we did authorize $24.5 billion, a record, and 
created or sustained 227,000 jobs at 3,300 companies. We are 
now more than halfway through Fiscal Year 2011, and I am 
confident we will have another record-breaking year.
    As I mentioned earlier, we do this work at no cost to the 
American taxpayer. And, given the importance of lowering our 
Nation's deficit, I am pleased to report that over the past 5 
years, our agency has generated $3.4 billion for the U.S. 
Treasury. On top of that, Congress also rescinded $275 million 
for cuts in the Fiscal Year 2011 continuing resolution.
    We have three congressional mandates. Let me talk briefly 
about them. They are: small business; renewable energy; and 
sub-Saharan Africa.
    More than 85 percent of all our transactions finance small 
companies who export their goods and services. Our totals for 
small business transactions have increased to $5.1 billion in 
2010, a record. And that $5.1 billion authorization exceeds our 
20 percent small business congressional mandate. In fact, in 43 
of the 50 States, we were well above the 20 percent small 
business mandate.
    Let me comment on one particular small business, a company 
that you are familiar with, Mr. Chairman, PacMin, which is just 
a few miles outside of your district. The formal name is 
Pacific Miniatures, and we have been working with this company 
since 2005. They make model aircraft that they sell to 
airlines, airports, and other aviation customers around the 
world. They have 75 employees, and 35 percent of their business 
is now exports. Companies like PacMin need access to capital if 
they are to compete for global sales and continue to grow.
    In renewable energy exports, our authorizations have grown 
more than tenfold in the past 2 years to $332 million in Fiscal 
Year 2010. We are on track to double that number this year. Two 
particular examples: Congressman Scott, in Georgia, we helped a 
company called Suniva that makes solar panels, and we also 
helped a company called Gamesa that makes wind turbines just 
outside of Philadelphia in Pennsylvania.
    In sub-Saharan Africa, Ex-Im Bank expects for the first 
time to top $1 billion in authorizations in Fiscal Year 2011. 
An example of that is we have financed $41 million for 121 
firefighting trucks and equipment that are being shipped to 
Ghana. These trucks are being manufactured and creating jobs in 
Wisconsin, Pennsylvania, Iowa, Illinois, Virginia, and 
Nebraska.
    Let me talk briefly about our legislative proposal. Our 
proposal extends Ex-Im Bank's authorization to September 30, 
2015, and it gradually increases our exposure cap from $100 
billion to $140 billion over 4 years. This will help us meet 
the President's National Export Initiative of doubling exports 
by 2015 and enable us to continue to support U.S. jobs and grow 
small business.
    In conclusion, the ``Made in America'' brand is as strong 
as ever, and we are committed to making sure that we do 
government at the speed of business and to continue to do that 
at no cost to the taxpayers.
    Thank you, and I await your questions.
    [The prepared statement of Mr. Hochberg can be found on 
page 74 of the appendix.]
    Chairman Miller of California. We seem to be having a 
problem with the microphones. Let's try this.
    I was trying to tell you, if you needed more time for your 
opening statement, you could have as much as you wanted. We 
seem to have ample time at today's hearing.
    We were talking about increasing exposure limits, and, as 
we could figure out, you are going to be capped at $100 billion 
probably by 2012. Do the Bank activity levels warrant an 
increase in exposure caps, from your perspective?
    Mr. Hochberg. Mr. Chairman, yes, they do. We are seeing an 
increase in exports. Exports are up 16.7 percent in 2010. We 
are seeing a strong growth in exports. You commented on the 
amount of infrastructure that is being built globally. So 
between that and the continued reluctance of some financial 
institutions to be lending, particularly to emerging economies, 
we do see a need for an increase.
    Chairman Miller of California. If you raise the caps, it 
doesn't mandate that you do anything; it just gives you the 
ability and the authority to do that. Without those increases, 
what position do you think you would be in, in 2 or 3 years?
    Mr. Hochberg. Without an increase, we would be very 
hampered. We are approaching $80 billion right now, and we are 
going to exceed $80 billion before the end of this year. It 
would clearly hamper our ability to create jobs and to help 
support U.S. exports.
    Chairman Miller of California. I put some language in there 
to require you to report on content. It wasn't a mandate. The 
priority in the language was to take into consideration, above 
all, American jobs.
    Can you detail the current process you have in place that 
arrives at content standards?
    We are in a different situation than Europe, for example. 
The way Europe does it is, if Germany is bidding a product, the 
products can be made in France and Belgium, Austria, around 
there, and yet it looks like the contents are made in Germany 
because they use a different--it is like the ``United States of 
Europe'' compared to what we do here in this country.
    What position does that put American companies in, where, 
for an example, you could have a German company bidding 
electric generation facilities and they are lending 85 percent, 
yet only 50 percent of the actual content was made in Germany 
but they are acting as if they can meet the 85 percent 
standard? How does that impact American companies, if we are 
not creative?
    Mr. Hochberg. We exist to help U.S. companies compete for 
both sales and jobs. As you noted, our volume is up 70 percent 
in the last 2 years, so we have clearly stepped up to the 
plate.
    In the case of small business, which is 85 percent of the 
transactions, maybe 20 percent of the dollars but 85 percent of 
the transactions, we expanded the eligibility for content. We 
left it at 51 percent, 50 percent for small business, but we 
expanded what is included in that number.
    So we have been looking at finding ways to make sure that 
American companies can compete, get a competitive edge, and 
make sure that they don't lose sales due to financing.
    Chairman Miller of California. But in that process, we have 
created two standards, one for small businesses and one for 
large businesses. Many of your large business sectors, if they 
don't hit 85 percent, the guarantee decreases according to 
content. Small businesses can have 51 percent, yet qualify for 
the 100 percent guarantee instead of 85 percent, is that not 
the current--
    Mr. Hochberg. The small business actually refers to--
    Chairman Miller of California. And I applaud you for that. 
That is not a criticism.
    Mr. Hochberg. It is particularly for small businesses and 
it applies to short-term transactions, less than a year.
    The company I mentioned that is just outside of your 
district, PacMin, they use our insurance and our short-term 
policy. So they have an advantage now, that they can include 
more of their costs to meet that more than 50 percent criteria.
    Chairman Miller of California. And some of the comments by 
some of my good friends from the other side have made it appear 
that I put a requirement in here that decreases the standard, 
or encourages decreasing of the standard, and more of an 
inclusion of products made in other countries. But if you read 
the language, it is quite the opposite. I repeatedly stated in 
there that, first of all, you must take into consideration the 
impact on American jobs and the creation of American jobs.
    But knowing that the world changes, my language in there 
told you to come back with what you perceived to be the proper 
approach we should take and to report to Congress on that so we 
have something in writing and a clarification for what you are 
doing. Currently, Ex-Im Bank has the authority to go down to 25 
percent if you so choose. There is no mandate by Congress that 
says you must be 85 percent.
    I want my colleagues to clearly understand that my language 
did not say, drop it below a standard that we have mandated, 
because we have never mandated a standard. It said that when 
you do develop a standard, please report back to Congress what 
that is. But I clearly stated in the language that a company 
could not modify their content to compete globally to qualify 
for Ex-Im financing if they dropped their standards below what 
they are currently, using the American product.
    A good example, let's use Boeing for an example. A Boeing 
37, I don't believe they can get above 82 percent content in 
any way. They are stuck at 82 percent. So another country could 
finance them at 85 percent. Or, in the case of China, they 
could be financed at 100 percent; we don't know.
    But my goal in that language was to say, we need to be 
creative. If an American company creates a product and their 
content happens to be 65 percent, and because of the nature of 
the economy and it is a global economy and free-trade 
agreements, they cannot increase their American portion above 
65 percent, should they necessarily be penalized to the point 
where American workers are not working?
    And that is what I think we need to report back to Congress 
on. I would like to hear your side of that.
    Mr. Hochberg. Mr. Chairman, when you mentioned the exposure 
cap at $100 billion, that presumes that we are financing just 
the American portion of those sales.
    Chairman Miller of California. Correct.
    Mr. Hochberg. So if we were to adjust content, it would 
also have an effect on the amount of exposure we might have to 
do because we might be financing more foreign goods and foreign 
services in that number.
    That has not been our policy up to now. With 9 percent 
unemployment, we are focused on doing whatever we can to create 
more encouragement to onshore manufacturing versus offshore 
manufacturing.
    Chairman Miller of California. And I totally agree with the 
approach you are taking. My concern is, we are trying to put 
people back to work. And let's say there is a company out there 
that produces a good or they have a service and the maximum 
content of American product they can arrive at is 65 percent 
and there is no way of getting around that. But in that is 65 
percent of American jobs.
    If that company cannot compete globally because other 
countries are financing their product at a better rate, I think 
that is something that Ex-Im should look at and say, the 
company has made the best-faith effort they could, their 
product percentage cannot get above 65 percent. So should we be 
punishing American workers by excluding them from the process? 
That is something I think we need to look at.
    I am not looking at an opportunity for American companies 
to decrease their percentage. I am saying, let's look and say 
if we are going to bring this economy back, we have to put 
American workers back in the workplace. And if by doing that, 
we have to look at some companies who might only meet 65 
percent compared to competing with a German company who might 
only have a 50 percent content yet is receiving full funding 
from Germany, that is something I would like to have looked at 
in a report.
    I recognize Mr. Scott for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    The unfortunate problem here is that the proposed 
legislation alters the Bank's procedures for establishing 
domestic content guidelines in a way that definitely weakens 
content requirements and undermines the mission of the Bank, 
which is getting U.S. jobs, manufacturing jobs in this country.
    So let me ask you about Section 5, if you could work with 
me on that for a moment, and especially with the language in 
there that says ``required considerations.'' Do you feel that, 
with Section 5 in there, with that language, ``required 
considerations,'' do you feel it allows you to continue 
carrying on the Bank's mission of supporting export financing 
while creating or sustaining U.S. jobs?
    Mr. Hochberg. Congressman Scott, I have been at the Bank 
for 2 years; I was in business for 20 years. I have had more 
time in business than at the Bank. I have not found that we 
have been hampered or held back by the current way the charter 
operates. And it is why we proposed a clean charter, with the 
exception of raising the exposure cap.
    So the existing guidelines we have, content rules have been 
left out of the charter, out of legislation, to give the Bank's 
chairmen, from time to time, the ability to make their 
adjustments as they see fit. So I am comfortable with the 
existing language and the language that we proposed to the 
committee.
    Mr. Scott. ``Required consideration,'' you concur with 
that?
    Mr. Hochberg. I concur with the language that we have sent 
up to Congress, which is essentially a clean authorization.
    Mr. Scott. Not Section 5?
    Mr. Hochberg. Not Section 5.
    Mr. Scott. Okay. Very good. That is very important to get 
clear.
    Currently, what percentage of the Bank's transactions 
involve foreign content? And what percentage of those 
transactions were below the 85 percent content requirement, 
meaning that they didn't qualify in full funding?
    Mr. Hochberg. As you rightly noted, about 40 percent of the 
transactions that go through the Bank have some degree of 
foreign content. And we allow 15 percent foreign content in a 
transaction that is medium or long term and in the case of 
small businesses, for less than a year up to 49 percent.
    But 40 percent has some foreign content. However, when it 
comes to actually funding, only about between 13 and 15 percent 
of transactions were not able to get their full 85 percent role 
in medium and long term. They got proportionately less than 
what was commensurate with the amount of U.S. content.
    Usually, Congressman, to solve that, we have worked on co-
financing. Air Tractor was a company that testified in March. 
They purchased their engines from Canada. We worked with the 
Canadians so there is one loan, one package. We financed the 
American portion; the Canadian export credit agency financed 
the Canadian portion.
    Mr. Scott. And let me ask you about the whole meaning of 
the words, ``Made in the USA.'' In terms of your standards, do 
they reflect what the FTC's understanding is of ``Made in 
America?''
    For example, for a product to be called ``Made in the USA'' 
or claim to be of domestic origin, without qualifications or 
limits on the claim, the product must be all or virtually all 
made in the United States. And ``all or virtually all'' means 
that all significant parts and processing that go into the 
product must be of U.S. origin. That is, the product should 
contain no negligible foreign content--manufacturing costs, 
parts, components, materials, supplies for all its transaction.
    Is that solid, is that concurrent with your understanding 
of ``Made in the USA?''
    Mr. Hochberg. Yes, that is. And, as you also know, we can 
finance the U.S. content. So if an export has 15 percent 
foreign content, which is paid by the buyer as a downpayment, 
then we finance the full American portion.
    Mr. Scott. So you believe that any suggestion--those were 
direct costs that I mentioned. Do you believe that any 
suggestions to you and the Bank to include indirect costs in 
calculating the domestic content, do you believe that they 
should be outright rejected?
    Mr. Hochberg. In most companies, there are both direct and 
indirect costs. We do include as eligible the full cost of 
producing a product. That could be costs associated with 
marketing, design, legal fees, copyright, patents. All of those 
contribute to the manufacturing of a good and service. And 
particularly, as we build an innovative and competitive 
economy, we need to make sure our products have the highest 
product attributes. So it includes the full cost.
    Mr. Scott. But you are careful to know that they won't 
dilute--
    Chairman Miller of California. The gentleman's time has 
expired.
    Mr. Scott. I beg your pardon, sir?
    Chairman Miller of California. Mr. Huizenga, you are 
recognized for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. I appreciate the 
opportunity.
    And Mr. Hochberg, I am glad you could be here.
    I just want to sort of preface this. Having served in the 
Michigan legislature, I experienced a number of these types of 
programs where we, as a State, were trying to be competitive. 
And I am wondering--first, I wanted to take a little broader 
view and have a conversation about some of the criticism and I 
wanted you to address that, whether it is Heritage or Cato, a 
number of those organizations have called for the ending of the 
Export-Import Bank. And those are the same types of discussions 
that we had back in Michigan at the time, as well. What is the 
most effective way of supporting our manufacturers, supporting 
our businesses?
    And I first kind of wanted to start there, and then see if 
you could address a little bit of some of the charges that what 
we are doing somehow violates international agreements for 
unfair practices on our end. And then I have a couple of other 
things, but I thought I would just start there with you. So, 
thanks.
    Mr. Hochberg. In fact, there is a great Michigan company 
that sells firefighting equipment to Istanbul. And what makes 
their firefighting equipment unique is that it is tolerant of 
earthquake zones and so forth. So these are some of the kind of 
manufacturing jobs we are helping to sustain and helping make 
those exports to foreign markets.
    We also provided a working capital loan for Ford Motor 
Company to enhance their exports of American-made cars to 
Canada and Mexico. So those are two examples.
    In terms of unfair competition, a portion of that is from 
non-OECD countries, countries that are not in compliance with 
the rules and regulations, the arrangements that look to make 
sure that products compete fairly on their attributes and 
services and price, not on financing.
    China has been one violator of that. In one case, we have 
two American companies bidding against a Chinese manufacturer. 
We have been working with the Administration, and the OECD in 
one specific transaction are now matching those Chinese 
financing terms to make sure that we don't lose American jobs 
due to financing.
    Mr. Huizenga. And, pretty clearly, I think everybody has 
seen the aggressive stance that China, especially, has taken, 
whether it is in Africa or in Asia or the Middle East or 
wherever else.
    But I guess, again, trying to--I will go at it a little 
differently. How do you respond to the charge that if these 
companies, which are great Michigan companies or great 
companies in California and--since we are the only 2 up here, I 
will exclude all the other 48 States--there are just great 
companies in Michigan and California, right, Mr. Chairman?
    But how do you respond to the charge that, if these 
companies' projects aren't bankable, why should the American 
Government be coming and trying to make them bankable? In other 
words, if they couldn't go get that loan for that deal in 
Istanbul, why should we be doing that?
    Mr. Hochberg. I think that, Congressman, much of global 
trade has moved to emerging markets be that Turkey, India, or 
South Africa. And, candidly, after the financial crisis in 
particular, banks are more reluctant to lend to those parts of 
the world. And sometimes if they are lending, they may have 
reached their exposure cap prematurely in those markets because 
they are growing so much faster than the developed world.
    So we really act as a lender of last resort. We act when 
commercial banks are unwilling or unable to provide financial 
support, we will look at it. We make sure there is a reasonable 
assurance of repayment. And in those cases, we have been able 
to step in where the private sector is not able to provide 
financing.
    Mr. Huizenga. And your default rates are what?
    Mr. Hochberg. Our default rates are in the 1\1/2\ percent 
range.
    Mr. Huizenga. Which is far lower than conventional banks 
even.
    Mr. Hochberg. Yes, it is.
    Mr. Huizenga. And then, how do you view the appropriate 
role for Congress, as we are going through this as well? Are 
there other things that we need to be doing in addition to just 
reauthorizing the Ex-Im Bank? Especially whether it is content 
issues that have been brought up and other things. But what are 
some of those other things that we can be doing to help?
    Mr. Hochberg. This isn't an authorization committee issue. 
But our appropriation is one way that the Congress can help. 
The President asked for an increase in our budget in 2011, and 
again in 2012. We are trying to reach more small businesses, in 
particular, and improve our information technology. So those 
are two areas that would make us more competitive, enable us to 
help more American companies to export and compete.
    Mr. Huizenga. And in my remaining closing seconds here, are 
there specific--you were talking about technology. Are there 
specific programs or types of things that you need to put in? 
Whether it is equipment or computer programs that are going to 
allow--
    Mr. Hochberg. It is mostly in the area of programs, 
software. Most of our IT equipment dates from the 1990s. It is 
somewhat antiquated. It is not customer-friendly. I would like 
to be able to--so that a customer could place an application 
for a loan, track their loan with us the way they track it with 
UPS or FedEx. There are a number of areas where we could be far 
more customer-focused and really help our customers get 
information and get them answers fast.
    The other thing I am working to do with our limited 
resources is just to speed turnaround time. We need to get our 
exporters answers and get them fast answers so that they can 
compete and complete their orders.
    Mr. Huizenga. I know my time is up. Thank you, Mr. 
Chairman.
    Chairman Miller of California. For point of clarification, 
I would like to read ``Content Guidelines for the Provision of 
Financing'' so everybody clearly understands the intent I had 
in the language:
    ``(1) In General.-The Bank shall, after notice and comment, 
establish clear and comprehensive guidelines with respect to 
the content of the goods and services involved in a transaction 
for which the Bank will provide financing, which shall be aimed 
at ensuring that the Bank enables United States companies to 
maintain and create jobs in the United States and contribute to 
a stronger national economy through the export of their goods 
and services.
    ``(2) Required Considerations.-
        ``(A) In General.-In establishing the guidelines, the 
        Bank shall take into account such considerations as the 
        Bank deems relevant to meet the purposes described in 
        Paragraph (1), including the following:''
    Everything I have in ``the following'' says you have to go 
back to (1) to figure out it has to be to produce jobs.
    I yield 5 minutes to Ms. Moore.
    Ms. Moore. Thank you, Mr. Chairman.
    I yield 2 minutes to Mr. Scott.
    Mr. Scott. Thank you very much. I didn't get to the other 
part of my question. I wanted to come back to that.
    This area between indirect and direct costs, I want to--and 
in terms of the definition of what is domestic content. It just 
seems to me that the language in the legislation could be 
interpreted--I want your opinion--as encouraging you and the 
Bank to include indirect costs explicitly in the calculation of 
domestic content, when, in fact, that should not be the case.
    Domestic content should be calculated based solely on the 
production costs, not the marketing, not the CEO's pay and 
bonuses, because I think these factors could be manipulated by 
some of the exporters, enabling them to produce a greater 
percentage of their product in other countries without 
decreasing the domestic content that they currently claim for 
their products.
    So I do think we need to get a little clarity on direct and 
indirect so we can make sure that we don't go down the road of 
including these indirect costs in the definition of the 
domestic product.
    Mr. Hochberg. I think that, if I understand Congressman 
Scott and Chairman Miller, I think we all have the same 
objective, and that is to increase U.S. employment and to 
create jobs in the United States.
    I would be happy to work with you and your staff to 
understand some of those definitions, to make sure there is 
clarity on them, and make sure that they actually benefit 
American workers. So I would be happy to do that.
    Chairman Miller of California. Would the gentleman yield if 
I grant you an additional opportunity to--
    Mr. Scott. Yes.
    Chairman Miller of California. I believe indirect costs are 
already there. A CEO's costs are already part of the company's 
costs that--part of the American jobs. So that is nothing new 
being added that is not already being included in the process. 
Those indirect costs, those overheads, the CEO pays, the 
salaries are all part of their costs in the American content 
side.
    So it is not being added; it is already there. So even if 
they include it, they are already including it today. So we are 
not asking that they include anything that is not already part 
of the calculation today.
    And I will give you an extra 30 seconds. I didn't take that 
much, but--
    Mr. Scott. I appreciate that, Mr. Chairman. And I am not 
belaboring the point here, but I think that these are some very 
serious concerns that people in the community have, to make 
sure that we are doing everything we can.
    Chairman Miller of California. If the gentleman will yield, 
I agree with you 100 percent. What I would like to have, and I 
am asking him to give us, is guidelines we don't have today.
    Mr. Scott. Right.
    Chairman Miller of California. I am asking him to put those 
in writing, taking everything in the global economy into 
consideration and coming back to Congress and say, this is what 
it is and why. And that is what I am asking. I am not asking 
him to drop it to 25 percent or 40 percent.
    I am saying that--and I repeatedly emphasize ``jobs'' in 
here. And I want to work with you on that. We are saying that 
we want to maintain and create American jobs. We want to know 
how they go about the process of determining the type of loans 
they make, what percentages they are, the content. And I would 
like to have that brought back to us. Currently, they can do 
anything they want to. We would like to know what that is.
    Mr. Scott. Right.
    Chairman Miller of California. I yield back.
    Mr. Scott. All I am saying is that--we are all certainly on 
the same page. I just want to make sure--we are at a very 
critical point in American history, quite honestly. And if we 
don't do everything we can to use every tool we can to re-
establish the position of the United States of America as the 
leader of the world in manufacturing, in making things here--I 
see this as an opportunity to move us closer to that, if we are 
careful and keep our eye on the ball and make sure that people 
cannot wiggle in and use this effort to channel any more money 
to--any of our funds into the foreign content but to keep the 
emphasis on--
    Chairman Miller of California. Would you yield a second?
    My language says that. It says they cannot decrease content 
in order to qualify for the financing. It is very specific. And 
if they determine that they have, they are disqualified.
    So I am agreeing with you 100 percent. I have 
accountability in here, saying we need to look and say what 
situation are they in, how do we make sure we ensure 
competitiveness on the part of American companies, which 
creates American jobs. And anybody who wants to modify the 
content to get an advantage is disqualified. So I put that 
language in there.
    Mr. Scott. That is fine.
    Chairman Miller of California. Ms. Moore, you have another 
minute and a half, even though it says 30 seconds. I will grant 
you a little extra time there.
    Ms. Moore. Okay. Thank you, Mr. Chairman.
    And thank you. So nice to see you, Mr. Hochberg. We have 
had a good chance to talk on the phone several times.
    You say that the Ex-Im Bank now reviews all transactions 
for economic impact, first analyzing whether the export being 
financed will result in the production of an exportable good 
that could compete with a U.S.-like product.
    I am wondering if your assessment goes further to try to--
what evidence do you have that changing the content standards, 
raising them or lowering them, would have an impact on 
competitiveness with U.S. products?
    Mr. Hochberg. I think, if I understand your question 
correctly, in terms of--
    Ms. Moore. I am sorry. It was not very well put. I guess I 
should say more simply, we have a current content standard 
that, even though the OECD recommends that it is an internally 
designed standard, on what basis was the 85 percent--give us a 
little history of how that standard was developed and why you 
thought that that would be appropriate to make sure that U.S. 
content was protected.
    Mr. Hochberg. The 85 percent level was established in 1987, 
and it was established in part to be consistent with the OECD. 
Since the OECD requires 15 percent of the purchase price to be 
paid for by the buyer and up to the balance can be financed by 
an export credit agency such as the Export-Import Bank, we 
complied with that standard and said we would accept up to 15 
percent foreign content, which is paid for by the buyer as a 
downpayment, and thereby we only finance the U.S. portion.
    Ms. Moore. Okay. And I know I have a little extra time, so 
could you just go on to explain why you think that, 24 years 
later, that is still an appropriate standard? What evidence or 
what indicators do you have that is still an appropriate 
standard?
    Mr. Hochberg. I believe it is a good standard partly. As 
you all know, we are all wrestling with high unemployment; we 
are dealing with 9 percent unemployment. You and I spoke about 
a transaction from Bucyrus. For them to get U.S. Ex-Im Bank 
financing required a high level of content. I believe that was 
some incentive, not the only incentive, but some incentive to 
make sure those jobs were created in your district in the State 
of Wisconsin. So that the content policy is an incentive for 
companies to onshore more manufacturing and doesn't provide an 
opportunity to offshore.
    To the extent that there are some components, some larger 
companies that need to source both in the United States and 
outside, we do a lot of co-financing. And a portion of our work 
we co-finance. I mentioned Air Tractor, which testified at the 
March 10th hearing. The Canadian export credit agency financed 
the engines; we financed the balance of the plane, about 65 
percent. Canada has 35 percent. And we worked to make that 
seamless for the exporter, as best we could.
    Ms. Moore. Thank you so much.
    I yield back.
    Chairman Miller of California. I yield 5 minutes to the 
vice chairman, Mr. Dold. Good timing, Mr. Dold. We waited for 
you.
    Mr. Dold. I appreciate that, Mr. Chairman.
    Chairman Hochberg, in your recent Senate testimony, you 
made the following statement when asked about adjusting 
domestic content for the United States to remain competitive. 
You said, ``The content rules, as we currently enforce them, 
are the best way to increase employment.'' And I appreciate 
that.
    Are you speaking from data, a feeling, a gut reaction? Do 
you have any studies to support that statement?
    Mr. Hochberg. Congressman, we use content as a proxy for 
American labor. It is very difficult to precisely calculate 
what the actual exporter company is buying a lot of components 
from other suppliers in the supply chain. So it is very hard to 
get precise labor content data if you only go to the direct 
exporter.
    By using a content policy of 85 percent--and our 
engineering department can verify that the money we spend at 
the Export-Import Bank goes to finance overseas purchases, 
buyer financing, is going directly to American workers.
    Mr. Dold. Domestic content, in your competitiveness report, 
is identified as the number-one competitive policy issue of the 
Bank by bankers and exporters. And yet, from recent testimony 
before this committee, both large and small businesses have 
cited this as a major concern.
    And in just talking to businesses--and this is where you 
can help me out on this--they say that the higher the rate, 
they are going to go to other places in order to source, as 
opposed to if that high content is strictly enforced, it may 
actually have the opposite effect of creating American jobs, it 
actually may hurt American jobs.
    What do you say to them?
    Mr. Hochberg. I think there are two questions. One, the 
other export credit agencies, up until very recently, frankly, 
were frequently not about job creation as the United States 
Export-Import Bank is. Our purpose is solely about job 
creation, not national interest.
    To give you an example, the Canadian export credit agency 
finances BlackBerrys, which all of us reluctantly carry. And 
they aren't made in Canada. The research is done in Canada, but 
all the manufacturing is done globally. They have a different 
approach to job creation than we do at the Export-Import Bank.
    The 85 percent content rule, in a number of cases, and 
particularly with large companies, encourages them to purchase 
goods and services from American companies so that they do 
qualify for our financing. I have heard from a chorus of small 
businesses saying, if you lower the content, it will be harder 
for me to maintain those supply-chain jobs, as they have in the 
past.
    Mr. Dold. Okay. I appreciate that. And we appreciate the 
cellular phones and all that sort of stuff that you mentioned 
before.
    Mr. Huizenga was talking before about jobs from Michigan 
and California. We were watching. We want Illinois jobs, as 
well.
    If I can, just--if a product cannot be entirely made in the 
United States because of development partnerships as we become 
far more of a global economy--so, development partnerships or 
patents, supply-chain constraints--would the Bank ever consider 
waivers with regard to the content requirement at such a high 
level?
    Mr. Hochberg. Congressman, what we do now is we provide co-
financing. So, we had a transaction, I believe it was with 
General Electric, selling turbines to Turkey. Some were sourced 
in the United States, some in France, some in Denmark. And we 
put together a seamless co-financing agreement so that the 
three export credit agencies supported that export. So no jobs 
were lost and no Export-Import Bank resources went to finance 
foreign sales.
    Mr. Dold. I appreciate that. And I again want to thank you 
for taking the time.
    People have been knocking on our door and asking, why does 
Germany, for instance, have a threshold of 50 percent? Aren't 
we, in essence, putting American businesses at somewhat of a 
disadvantage? What would you tell them, in terms of, why are we 
not marking it closer to what other nations are doing right 
now?
    Mr. Hochberg. The analogy with Germany is not a perfect 
analogy. I will tell you why. Because a lot of German cars are 
made in Italy. The brakes, for example, on a Porsche are made 
in Germany. Tires come from France or other countries. So, 
looking at Germany and its content rules is like looking at the 
State of Illinois and saying, if you purchase supplies or goods 
from Wisconsin, that is an import.
    In part, Europe, the EU has been merging its manufacturing 
for a number of years. So it is not a perfect analogy, what 
happens in the EU, as happens in the United States.
    Mr. Dold. Mr. Hochberg, I appreciate your time and your 
testimony. And thank you so much for being here.
    Mr. Hochberg. Thank you.
    Chairman Miller of California. Mr. Hochberg, thank you. I 
want to congratulate you on the great job you are doing.
    I think if American companies have an opportunity to 
compete, they will and they will succeed. And if they succeed, 
Americans are put back to work, and that is our goal.
    I look forward to having the next hearing, when we actually 
mark this bill up. And thank you. If you have any closing 
statements, you are welcome to make them.
    Mr. Hochberg. No. Chairman Miller, I just want to thank you 
for your leadership. Working with you and your staff has been 
enormously helpful. As a former businessman, or perhaps a 
current businessman, your ability and flexibility and 
creativity in working with us, I genuinely appreciate. And I 
want to thank you for taking the time, not just at this hearing 
but in the last several months.
    Chairman Miller of California. I want to thank you, and I 
look forward to a continued, long relationship. Thank you, sir.
    Mr. Hochberg. Thank you so much.
    Chairman Miller of California. I would like to call the 
next panel forward. As they are getting seated, I would like to 
take time to introduce each one of them.
    Ms. Donna K. Alexander is chief executive officer of the 
Bankers' Association for Finance and Trade-International 
Financial Services Association, BAFT-IFSA. Ms. Alexander 
formerly served on the U.S. Export-Import Bank Sub-Saharan 
African Advisory Committee, representing the financial services 
industry.
    Ms. Thea Lee has served as a deputy chief of staff for the 
American Federation of Labor and Congress of Industrial 
Organizations, AFL-CIO, since 2009. She is also a member of the 
State Department Advisory Committee for International Economic 
Policy and the Export-Import Bank Advisory Committee.
    Mr. Osvaldo Luis Gratacos--did I pronounce that properly, 
or was I close?
    Mr. Gratacos. Close enough.
    Chairman Miller of California. Close enough, that will 
work. Osvaldo--is that right?
    Mr. Gratacos. Yes.
    Chairman Miller of California. Okay--is the inspector 
general for the Export-Import Bank, serving as acting inspector 
general since October 2009. Before his nomination, Mr. Gratacos 
served as the deputy inspector general and counsel to the 
inspector general, where he served as OIG's principal 
administrative and legal officer.
    Mr. John Hardy--that is an easier one to pronounce--is 
president of the Coalition for Employment Through Exports, CEE. 
Mr. Hardy has spent his career, both in the government and the 
private sector, on export promotion and project of trade 
finance sector.
    Dr. Matthew Slaughter is the associate dean for the MBA 
program and the Signals Company professor of management at the 
Tuck School of Business at Dartmouth College. Professor 
Slaughter is a keynote speaker to many audiences and business 
and policy communities and has testified before both chambers 
of the U.S. Congress.
    I believe, in fact, just last month, you were invited by 
the Minority to testify before the Domestic Monetary Policy 
Committee. Is that correct?
    Mr. Slaughter. That is correct.
    Chairman Miller of California. Ms. Alexander, you are 
recognized for 5 minutes.
    Thank you all for coming.

STATEMENT OF DONNA K. ALEXANDER, CHIEF EXECUTIVE OFFICER, BAFT-
                              IFSA

    Ms. Alexander. Thank you, Mr. Chairman. Thank you for the 
opportunity to appear here today. And thank you, Mr. Scott. And 
our condolences to Mrs. McCarthy. Thank you to the rest of the 
subcommittee, as well.
    As the chairman indicated, I represent BAFT-IFSA, which is 
a newly merged trade association. Prior to the merger, BAFT, 
the Bankers' Association for Finance and Trade, has had a long-
term relationship with this particular body and this particular 
committee. So we are happy to be back here today testifying 
about some of these issues that are very important to us.
    We represent the financial services community globally, and 
our primary emphasis is shaping market practices, influencing 
regulation and legislation around the globe, and trying to find 
good business solutions to regulatory and legislative 
challenges. So we really appreciate the opportunity to be here 
today.
    Our members around the globe are active in trade finance, 
and many deal with export credit agencies in a number of 
countries on a daily basis. Like other export credit agencies, 
or ECAs, Ex-Im plays a crucial role by providing export 
financing products that help fill gaps in trade financing.
    You will hear me say often whenever I do public speaking 
that ``trade finance is the oil to the wheels of commerce.'' 
And I think that bears repeating: ``Trade finance is the oil to 
the wheels of commerce.'' That is why we are here today. And 
that is why the Ex-Im programs have a multiplier effect that 
are very important, particularly in this recovering era for not 
only the United States but other economies around the globe.
    Ex-Im contributed greatly to the recovery of global trade 
finance markets during the crisis, and we really value a 
continued working relationship with them. We worked closely 
with Chairman Hochberg, the COO, Alice Albright, and her staff, 
as well. So we are very grateful for that relationship.
    We would like to emphasize three major points today. First, 
trade finance should continue to be supported as a driver for 
economic growth. And we are still recovering from the crisis, 
as I said, and these public/private-sector partnerships that 
Ex-Im Bank plays a critical role in are really vital to this 
continued recovery. So we strongly support reauthorization, and 
we support the increase of its lending ceiling.
    Second, we ask for expedited reauthorization because that 
helps ensure the availability of affordable finance for U.S. 
exports, and, of course, it is very important for the national 
export initiative.
    And third, we believe that Ex-Im needs to focus on 
streamlining their processes so it can compete more effectively 
with other ECAs. And I can get into that a little bit more. 
Regrettably, some of what we heard is that Ex-Im ranks amongst 
some of the least competitive ECAs in some of their programs 
around the world. And we would like to see that change and be 
part of helping that change.
    We did review the discussion draft and have a number of 
issues to discuss. We look forward to working with you and your 
staff on improving this. And we look forward to working with 
both sides of the aisle on this. There are some recommendations 
we would like to make to you.
    I would like to highlight that we think that Ex-Im Bank 
should continue to enhance its programs even more. You talked 
about content, earlier, as a large part of the competitiveness 
argument around Ex-Im Bank. We also think that enhancing their 
programs that really respond to global economic conditions is a 
good way to go. I am sure you have heard about their supply-
chain program, which is a new one, and we think that is going 
to be very effective.
    We think that sharpening the competitive edge is important. 
And that does require looking at the content and having an open 
discussion with all the stakeholders on content. But we also 
think it is important that there be processes inside of Ex-Im 
Bank that are streamlined, and we have some suggestions on 
that.
    We are proud to say that we have quarterly calls with Ex-Im 
Bank because, as part of a larger constituency of the trade 
finance community, BAFT-IFSA works very closely with Ex-Im. Our 
banks are not necessarily Ex-Im Bank customers, but they 
facilitate the customers and clients, if you will, of Ex-Im 
Bank. And so we are right there focusing constantly on what 
needs to be expedited, how things could run more smoothly to 
get that trade finance and the deals out there, to get the 
credit approved in a more streamlined manner.
    We are focusing--and I am sure you will have some questions 
on some of their programs--on helping advise Ex-Im Bank on how 
they might improve some of their medium-term programs, and I 
can go into that later. The bottom line is that we believe Ex-
Im Bank has a crucial role, and you have all said it here: They 
boost U.S. jobs and exports and support the economy. But it is 
important to the global recovery, as well. I think that you 
should really pull back and look at this from a 60,000-foot 
level, not just at the United States. Ex-Im Bank is a very 
important player and I recognize your jurisdiction is the 
United States, but you also have a global view because of the 
nature of the country you represent.
    The reauthorization will give us an adequate, affordable 
trade finance, and these public-private partnerships are 
absolutely critical going forward. We are not out of the woods 
yet economically, but we are interested in coming out of the 
woods. We are at your disposal to help in modifying 
legislation, advancing it, whatever you would like.
    Thank you.
    [The prepared statement of Ms. Alexander can be found on 
page 45 of the appendix.]
    Chairman Miller of California. Thank you very much.
    Mrs. Lee?

  STATEMENT OF THEA MEI LEE, DEPUTY CHIEF OF STAFF, AMERICAN 
 FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS 
                           (AFL-CIO)

    Ms. Lee. Thank you, Chairman Miller, Vice Chairman Dold, 
and Mr. Scott. It is a great pleasure to be here and to testify 
on behalf of the 12\1/2\ million working men and women who 
belong to the AFL-CIO on the important issue of the 
reauthorization of Ex-Im Bank and how best to maximize the 
positive impact of the Ex-Im Bank's actions on American jobs 
and exports.
    I have had the privilege of serving on the Ex-Im Bank's 
Advisory Committee for more than a decade now, so I have had a 
lot of experience working both with the Ex-Im Bank staff and 
the leadership as well as with a lot of the companies that use 
Ex-Im Bank services.
    I do want to take a moment to commend Chairman Fred 
Hochberg for his leadership of Ex-Im Bank and for his 
unwavering dedication to supporting a strong U.S. export sector 
and American jobs.
    The AFL-CIO supports President Obama's goal of doubling 
U.S. exports by 2015. And we very much appreciate the support 
that Ex-Im Bank has provided to help reach that goal, 
especially in the wake of the financial crisis. Chairman 
Hochberg talked about, and I think you mentioned as well, 
Chairman Miller, the great success that Ex-Im Bank has had over 
the last couple of years in greatly increasing export 
financing, and we would like to see that growth continue.
    It is important to keep in mind that the ultimate goal of 
Ex-Im Bank is not just to make more loans, but to support U.S. 
jobs through increased exports, as I know everyone here has 
mentioned. As Section 2 of the Bank's reauthorization makes 
clear, the Bank's objective in authorizing loans, guarantees, 
insurance, and credit shall be to contribute to maintaining or 
increasing employment of United States workers.
    It is important to recognize the role of the U.S. Congress 
in making sure that the policy backbone of the Ex-Im Bank, so 
to speak, stays strong. The Ex-Im Bank comes under tremendous 
pressure from the companies that use its service, the clients 
of Ex-Im Bank. You can imagine, from the point of view of an 
individual company, of course it is more convenient not to have 
any constraints, not to have limitations, not to have any 
strings attached to the loans it receives. And so the companies 
are very forceful advocates for weakening domestic content 
requirements, for weakening the U.S. flagship requirements, and 
for getting rid of or weakening the economic impact statement. 
Yet, all three of these things are vitally important to the 
work of the Ex-Im Bank. They are what distinguishes the Ex-Im 
Bank from private loans. There is private financing out there 
for companies that don't wish to accede to those kinds of 
strings attached. But I just want to reiterate how important 
they are.
    The proposed legislation that we are discussing today, the 
Securing American Jobs Through Exports Act of 2011, 
reauthorizes Ex-Im Bank through 2015 and increases its exposure 
cap to $160 billion over the next 3 years. The AFL-CIO supports 
the reauthorization of Ex-Im Bank and the expansion of 
available financing.
    We are concerned, however, that the draft legislation that 
is under discussion today would have the impact of providing 
contradictory guidance to Ex-Im Bank, particularly with respect 
to domestic content. And, for that reason, we oppose the 
inclusion of Section 5 in any reauthorization of Ex-Im Bank, 
and we would oppose the final legislation if that provision 
were included.
    I understand from the discussion that happened earlier that 
it is certainly not the intention of Chairman Miller to 
undermine the domestic content requirements, but we are 
concerned when we see the language which is contradictory about 
competing effectively for export opportunities and the impact 
on U.S. manufacturing companies that it could be interpreted by 
a future leadership of the Ex-Im Bank to weaken or dilute the 
domestic content requirements. And we think this would be 
tremendously problematic.
    The Ex-Im Bank has a lot of discretion today in how it 
administers domestic content guidelines. I think the Ex-Im Bank 
leadership recognizes how important the domestic content 
requirement is to the legitimacy of Ex-Im Bank and to the 
support that Ex-Im Bank has received over the years from the 
Congress and from the American people.
    We are also concerned in terms of the question of direct 
and indirect costs. Congressman Scott raised this issue with 
Chairman Hochberg earlier. As you said, Chairman Miller, 
current Ex-Im Bank policy does allow indirect costs to be 
included in the calculation of domestic content. We have 
disagreed with this for a long time. We have raised this issue 
with the Ex-Im Bank. We would like to see domestic content 
calculated on the basis of production costs.
    I think, for most ordinary people, when they hear that a 
product is 85 percent made in the United States, they imagine 
that means that the content of the product, the inputs of that 
product are 85 percent made in the United States. And we are 
concerned, as Congressman Scott said, that with indirect costs 
being included, particularly advertising, marketing, CEO pay, 
overhead, bonuses, and so on, that it is very easy for 
accounting to manipulate those costs in a way which is 
detrimental and which would reduce the number of U.S. jobs.
    So we would like to see the content provisions remain 
strong and at their current level. We would like to see the 
economic impact provisions actually strengthened in any 
legislation, to the extent that there is going to be a change.
    I thank you very much for your attention. I look forward to 
your questions, and I look forward to my fellow panelists' 
presentations.
    [The prepared statement of Ms. Lee can be found on page 84 
of the appendix.]
    Chairman Miller of California. Thank you.
    Mr. ``Gratacos?'' Is that close?
    Mr. Gratacos. ``Gratacos.''
    Chairman Miller of California. Okay. You are recognized for 
5 minutes, sir. And I apologize for butchering your name.

 STATEMENT OF OSVALDO LUIS GRATACOS, INSPECTOR GENERAL, EXPORT-
                IMPORT BANK OF THE UNITED STATES

    Mr. Gratacos. No, it is fine.
    Good afternoon, Chairman Miller, and distinguished members 
of this subcommittee. Thanks for the opportunity to testify 
about the activities of the Office of Inspector General and the 
programs and operations at Ex-Im Bank.
    Before I continue, I would like to thank you for this 
opportunity, my family and members of the Ex-Im OIG staff.
    In my remarks, I will provide a brief history of the OIG 
and some of its accomplishments. Then, I will discuss some of 
the challenges and inefficiencies Ex-Im Bank is facing in 
performing its mission, based on our reports and observations. 
Finally, I will provide some observations on some of the 
charter language proposed of this subcommittee.
    Ex-Im OIG was created by law in 2002, but the inspector 
general, the IG, did not take office until August 2007. Since 
reaching current staff levels, about 11 folks, the OIG has 
achieved noticeable success in performing its duties. 
Especially, the OIG has issued 19 audits and special reports 
containing over 82 findings, recommendations, and suggestions 
for improving Ex-Im Bank programs and operations. Law 
enforcement actions total 59 indictments and arrests, 6 
convictions, 14 guilty pleas, and over 178 management referrals 
for enhanced due diligence actions.
    Currently, we have 37 matters under investigation involving 
534 transactions, totaling $350 million in claims paid by Ex-Im 
Bank. Since 2009, the total overall IG financial impact is 
approximately $209 million, while our budget has remained at 
$2.5 million per year.
    Ex-Im Bank, as the official credit agency of the United 
States, has experienced incredible growth in the last few 
years. In order to provide a more effective and competitive 
environment, Ex-Im needs to address some of its operational 
weaknesses and inefficiencies.
    Number one, replacing an aging and ineffective 
infrastructure. The current infrastructure is old, fragmented, 
does not adequately support Ex-Im Bank's business needs, limits 
the Bank's ability to meet the market demands, and requires 
manual inputs, leading to human errors. Currently, my office 
has undertaken a comprehensive audit of IT systems, subsystems, 
and other infrastructures at the Bank, with the objective of 
looking for ways to improve the systems and to look at 
expenditures throughout the years.
    Number two, Ex-Im Bank needs to reduce transactional 
approval times for its short- and medium-term programs. Ex-Im 
recognizes this inefficiency and is working toward a way to fix 
it. We are commencing work on an evaluation and review of the 
process, with the objective of improving this.
    Number three, develop annual performance plans to measure 
program and product effectiveness. This would allow Ex-Im to 
allocate the resources objectively, based on success or failure 
of its product. After discussion with my office, Ex-Im has 
agreed to develop this plan starting in Fiscal Year 2012.
    Regarding the current language proposed by the 
subcommittee, we have some observations. In Section 5, the 
report to Congress, asking the IG to issue a report on some 
areas regarding domestic content rules, we respectfully 
petition this subcommittee to reconsider the proposed language 
here, because we strongly believe that some of the topics 
covered by the report will fall outside the statutory duties of 
fraud, waste, and abuse of the IG. Further, it contains 
potential negative budget implications for our office, given 
the limited budget that we have.
    Finally, Section 6, talking about IT improvements, 
recognizes Ex-Im IT weaknesses; however, a positive outcome is 
only achievable if Ex-Im Bank develops comprehensive IT 
strategic and implementation plans focused on the business 
needs of the Bank and the markets.
    Chairman Miller and members of this subcommittee, thank you 
once again for the opportunity to testify before you. And I 
will be pleased to respond to any questions you might have.
    [The prepared statement of Mr. Gratacos can be found on 
page 60 of the appendix.]
    Chairman Miller of California. Thank you very much.
    Mr. Hardy? You are recognized for 5 minutes.

     STATEMENT OF JOHN HARDY, PRESIDENT, THE COALITION FOR 
                EMPLOYMENT THROUGH EXPORTS (CEE)

    Mr. Hardy. Chairman Miller, Vice Chairman Dold, and 
Congressman Scott, the Coalition for Employment Through Exports 
thanks you for the opportunity to testify on the 
reauthorization of the U.S. Ex-Im Bank and about the 
competitive playing field for export finance.
    The Coalition believes in a strong, responsive, and 
flexible Ex-Im Bank that enables all U.S. exporters to fully 
compete on a level playing field with the export credit 
agencies of other countries. We believe it is critical that Ex-
Im be reauthorized before the charter expires. Any delay in 
reauthorization beyond that point will have a crippling effect 
on outstanding and future export transactions.
    CEE supports the increase in the Bank's lending authority 
proposed in the subcommittee discussion draft. Ex-Im must have 
the lending capacity to support more transactions in order to 
increase exports and create more jobs.
    CEE also fully supports the direction being considered by 
the subcommittee for a mandated policy review to ensure that 
Ex-Im eligibility requirements are reviewed in light of the 
current competitive climate. This ensures that all American 
exporters have the opportunity to make their case for access to 
Ex-Im Bank financing. By providing an opportunity to lay out 
the facts on the table without predicting an outcome, this 
proposal will begin a critical discussion as to how Ex-Im can 
support increased exports and U.S. jobs.
    I would like to spend the few minutes left discussing Ex-Im 
competitiveness and the content eligibility requirement, which 
the vast majority of our members consider the number one 
priority for reform. We have one member whose overarching 
priority is the timely reauthorization of the Bank.
    In the last 10 years, there has been rapid growth in the 
importance, flexibility, and size of foreign export credit 
agencies as their governments have greatly expanded their 
mission and resources to enhance the competitiveness of their 
countries' exporters. As a consequence, foreign ECAs too often 
are better able to offer comprehensive financing, to the 
detriment of American exporters.
    Ex-Im supports about 1 percent of U.S. exports, with 
commitments in 2010 of approximately $25 billion. The volume is 
nowhere close to what--for example, EDC committed last year at 
$82 billion; the Japanese export credit agency has committed 
well over $100 billion in support of their exporters; the 
Chinese, over $300 billion through several different banks.
    A critical reason for this larger support is that most 
other ECAs have moved to a national interest standard in which 
their objective is to support exports, whatever their nature, 
to maximize the value added to the domestic economy. These ECAs 
are strategic in what they support, are proactive on behalf of 
their exporters, and look at themselves as partnering with 
their business community to support all aspects of their 
national economy. These ECAs also operate with far more 
flexible content rules than Ex-Im.
    Moreover, Ex-Im Bank's content policy limits U.S. 
competitiveness for two reasons: first, as the policy 
determines eligibility based on manufacturing, it ignores all 
value to the U.S. economy generated by high-tech and other 
services; and second, it fails to account for the present-day 
reality of global supply chains.
    CEE believes that the eligibility requirements at Ex-Im 
Bank must always take into account and promote vital 
manufacturing jobs, but the policy needs to be modernized to 
take into account other high-value, high-paying jobs that 
reflect the evolution of the U.S. economy to one based on 
innovation.
    Ex-Im Bank also needs to recognize the present-day reality 
of global supply chains, which exporters need to maintain their 
international competitiveness. An informal survey of a number 
of CEE exporters found, for these multinational corporations, 
that an overwhelming number of their product lines had content 
levels below the 85 percent necessary for full Ex-Im financing 
support. Even by the Bank's own competitiveness reports, each 
year a substantial number of Ex-Im transactions do not qualify 
for full financing support.
    With only partial support from Ex-Im, exports are 
constrained, a reality that is clearly at odds with the 
approach of other ECAs like Germany, that emphasize aggressive 
support for their exports in order to maximize export volume 
and job growth for their significantly unionized workforce.
    In conclusion, Ex-Im Bank is one of the most vital assets 
of the U.S. Government to support exports and job growth. It is 
critical that it be reauthorized. The current draft bill will 
take the Bank forward in broadening its outreach. We pledge to 
work with Congress to assist in this process and to answer any 
questions Members might have.
    Thank you very much.
    [The prepared statement of Mr. Hardy can be found on page 
69 of the appendix.]
    Chairman Miller of California. Thank you, Mr. Hardy.
    Dr. Slaughter?

 STATEMENT OF MATTHEW J. SLAUGHTER, ASSOCIATE DEAN AND SIGNALS 
 COMPANIES' PROFESSOR OF MANAGEMENT, TUCK SCHOOL OF BUSINESS, 
                       DARTMOUTH COLLEGE

    Mr. Slaughter. Chairman Miller and members of the 
subcommittee, thank you very much for inviting me to testify on 
these important issues regarding America's Export-Import Bank 
and the broader economy.
    In my remarks, I will first offer some broad economic 
context. After this, I will discuss two issues regarding the 
global competitiveness of U.S. companies. Linked to each of 
these three points, I will offer a recommendation about how the 
Ex-Im Bank can better foster job creation to benefit American 
workers and families.
    First, let me emphasize how damaged the U.S. labor market 
remains today. Unemployment still sits at 9 percent, with about 
25 million Americans unemployed or underemployed. America needs 
to find a way to grow millions of jobs as soon as possible. But 
to rebalance the U.S. economy away from excessive consumption 
and, thus, trade deficits that helped create the world 
financial crisis, America needs to grow millions of jobs linked 
to the global economy via exporting and related capital 
investment. The President's goal of doubling U.S. exports is 
admirable, but achieving this without substantial policy 
support will be difficult.
    In light of today's still-fragile recovery and the pressing 
need to create millions of jobs linked to exports and related 
investment, I recommend that the Export-Import Bank's funding 
cap be expanded by 200 percent--that is, expand its total 
liability cap from $100 billion to $300 billion. Given Ex-Im 
Bank's long-running record of prudent lending and net transfers 
to the U.S. Treasury, this increase should present little risk 
to America's overall fiscal condition, dire though it is.
    Let me now address one of the most discussed features of 
current Ex-Im operations: its domestic content requirements, 
which exporters and lenders have characterized as the Bank's 
greatest weakness. These domestic content requirements are 
increasingly at odds with the global production networks that 
U.S. exporters are part of and, as such, constitute a major 
constraint on the ability of American companies and workers to 
benefit from Ex-Im support.
    There is no single global strategy that works best for all 
companies at all times. Production arrangements that make one 
company globally competitive can be very different from what 
works for other firms.
    In addition, the common presumption that globally engaged 
U.S. companies tend to rely on a vanishingly small amount of 
domestic U.S. content is simply incorrect. U.S. Government data 
for multinational companies shows this quite clearly. In 2008, 
the U.S. parent operations of U.S.-based multinationals 
purchased over $6.3 trillion in intermediate inputs, of which 
almost 89 percent, $5.6 trillion, was bought from other 
companies in the United States. And this heavy reliance on 
domestic suppliers has been virtually unchanged for decades.
    It is also the case that many of these U.S.-parent input 
purchases are from small- and medium-sized enterprises in 
America. A similar pattern of input purchases applies for the 
U.S. affiliate operations of foreign-based multinationals. In 
2008, these companies purchased almost $2.8 trillion in 
intermediate input, of which almost 80 percent was bought from 
other companies in the United States. And it is important to 
stress that these U.S. subsidiaries of global companies are a 
major source of U.S. exports--in 2008, over 18 percent of total 
U.S. exports of goods.
    The rich variety of global supply configurations of U.S. 
exporters means that domestic content requirements are, 
increasingly, a competitive barrier for these firms that will 
tend to harm, not expand, their U.S. job creation. I recommend 
elimination of the Export-Import Bank's domestic content 
requirements. This should spur more companies to seek Ex-Im 
support for more transactions, the result of which would be 
more export deals, leading to more U.S. employment and other 
U.S. activities.
    Finally, let me address the increasing importance of the 
U.S. services trade. The Ex-Im Bank has historically focused on 
export of goods, yet many of America's strongest export 
industries today are in services, not goods. In recent years, 
the United States has been the world's single largest exporter 
of services. Moreover, the United States has long run a trade 
surplus in services--in 2010, of almost $156 billion--that 
reflects American strengths, including highly skilled labor and 
information technology.
    For America to create millions of jobs linked to exports, 
many of these jobs will have to be linked to services exports. 
Manufacturing trade alone will not be sufficient. I recommend 
that the Ex-Im Bank endeavor to expand its lending for all 
types of services trade: both standalone services and also the 
services related to merchandise exports, such as technical 
support and maintenance. The current Ex-Im Bank charter 
mandates full consideration of services, but this activity is 
only a small portion of overall Bank operations.
    America's economic challenges today remain large. To meet 
these challenges, America needs leaders with the vision and 
courage to craft innovative policies. Reauthorizing the Ex-Im 
Bank to be both larger and nimbler can be one such policy.
    Thank you again for your time and interest in my testimony. 
And I look forward to answering any questions that you may 
have.
    [The prepared statement of Dr. Slaughter can be found on 
page 88 of the appendix.]
    Chairman Miller of California. Thank you. I have enjoyed 
all the testimony.
    My focus in this draft was to do everything we can to 
create American jobs. And, Ms. Lee, I know you are speaking 
from your heart, and I note in your testimony you state that 
``nowhere in the required consideration of Section 5 do 
American jobs come into play.''
    I appreciate that sometimes legislation can be difficult to 
read and understand, but, from the bill, it says, ``The Bank 
shall take into account such considerations to meet the purpose 
described in Paragraph 1, which says the Bank shall establish 
guidelines which shall be aimed at ensuring that the Bank 
enables U.S. companies to maintain and create U.S. jobs.'' I 
specifically put that.
    Does that in any way change your opinion of what you 
thought my intent was?
    Ms. Lee. Of course, I see the language about jobs in the 
overall, the general piece, but it worried me that it was 
absent from the required considerations. And it seemed to me 
that the Bank, in going about to try to meet the purposes of 
the legislation, would be looking at the very specific pieces 
that were laid out here and that there were, as I said, 
contradictory messages embodied in this.
    Chairman Miller of California. Yes, but it referred that 
every one of the subsections had to refer back to Section 1. 
And I know what problem that was stated; I know you had a 
problem with domestic content, should it be calculated, CEO 
pay, overhead, indirect costs. You oppose that. But you support 
the current program, but that is what the current program does. 
They include all that in there.
    So it seemed you are saying one thing and supporting 
another, when they both are identical.
    Ms. Lee. Well--
    Chairman Miller of California. And then you go on, you said 
you think it should be based purely on production costs. Could 
you tell me what that meant?
    Ms. Lee. What I worry about is, in the legislation, if you 
explicitly ask the Bank to incorporate indirect costs, which is 
now an informal policy, that could cause the Bank to make that 
a formal, explicit policy that is hard to change in the future.
    Chairman Miller of California. Okay.
    Ms. Lee. So I am concerned that the legislation would send 
the Bank further in a direction that we think is not--
    Chairman Miller of California. I know you are trying to 
create jobs. I am a business guy by profession. I still have 
some investments going out there. And I found out the most 
difficult thing businesses have is getting somebody to know 
they make a product and getting the product out there. And if 
they can't advertise the product and market the product, 
generally their product does not grow and the company does not 
start major production because there is no market capability.
    But if you can't include marketing as your cost and 
advertising as your cost, especially a CEO who runs the 
company--and if we are talking about production costs, are you 
talking about the manhours or what? I am trying to understand 
what you are saying in production costs. What is production 
costs? What would you define that to be?
    Ms. Lee. That would be, certainly, the labor involved and 
the inputs and the origin of the inputs and so on. So, if you 
have a car, the actual pieces of machinery that go into the 
car--the wheels, the tires--and the labor--
    Chairman Miller of California. Okay. How about the 
equipment that helps manufacture it and the building it is 
manufactured in and the name brand that goes along with that 
and the cost of developing that name brand, is that all not 
part of production costs?
    Ms. Lee. When you get into the name brand and you get into 
the advertising--
    Chairman Miller of California. Is that not part of 
production costs?
    Ms. Lee. It is not part of production costs.
    Chairman Miller of California. Okay, so--
    Ms. Lee. It is part of the overall costs. It is indirect 
costs.
    Chairman Miller of California. Then, you are saying, if you 
are producing a car, we should not include all the mechanized 
systems that are computerized that actually do the welding and 
help the assembly; we should be talking about just the manhours 
that are over there operating that equipment. That is all we 
should be dealing with?
    Ms. Lee. When you are trying to determine what portion of a 
product is made in the United States of America, it is much 
clearer, certainly for the average person, to look at the 
actual product itself. When you take advertising costs--
    Chairman Miller of California. But that is what I am trying 
to do.
    Ms. Lee. --how do you apportion it across all the products 
that a company makes?
    Chairman Miller of California. Are we are talking about 
just the man-labor that is out there that is on payroll? That 
is all we should be looking at?
    Ms. Lee. No, and inputs, as well--raw materials, inputs, 
the--
    Chairman Miller of California. Okay, the wheels, the--but 
what about all the infrastructure that enables them to do that?
    Ms. Lee. Of course--
    Chairman Miller of California. Is that part of a cost or 
not? So--
    Ms. Lee. It is not part of the production cost. It is not 
part of the direct costs.
    Chairman Miller of California. Okay, that is the problem. 
Let's say, then, if we are looking at a product that could meet 
85 percent content, if we are dealing with just the labor side, 
that might only be 20 percent, that might only be 15 percent, 
because of all the associated costs that labor needs to build 
that product.
    And that is why I think we need to be longsighted rather 
than shortsighted. The technology has occurred. Like it or not, 
technology has occurred. And many countries that we are trying 
to compete with stole our technologies that we spent billions 
of dollars and years to develop. They took it. And they are 
using it right now, and they are competing against us at a 
lesser cost because they did not spend all the money to develop 
that technology. They just stole ours, because we have the best 
business sector in the world. And they have parroted it very 
well, in many cases.
    My concern is, I think we need to figure the manhours that 
are out there, but all the things that are associated with that 
manhour. If you look at just going to an automobile plant and 
say--I see men out there, but what about all that cost 
associated with producing that car that is not the tires and 
the seats and the engines? It is all the other things that man 
needs to be able to produce that. If that is not taken into 
consideration and if the marketing and advertising that is 
necessary to generate the revenues to do all that is not taken 
into consideration, I think we are really putting American 
businesses at a disadvantage. And my goal is to not do that.
    Mr. Hardy, have you provided the Bank any suggestions 
regarding the issue of content eligibility for Ex-Im financing? 
And I am out of time, so I am going to take this one question. 
Have you provided them with any suggestions regarding the issue 
of content eligibility for Ex-Im financing?
    Mr. Hardy. Yes, we worked with staff extensively in terms 
of those elements. We are also prepared to work with the 
ranking members, in terms of trying to arrive at a full 
spectrum of guidelines that will make everybody comfortable. 
CEE--
    Chairman Miller of California. And you think they need to 
be more creative in this area?
    Mr. Hardy. I think everybody needs to feel that there is 
going to be a level playing field, in terms of the guidelines. 
And if there is a need to adjust those guidelines for everybody 
to feel comfortable, then we are perfectly happy to work with 
them to try and accomplish that objective.
    We believe that the structure that you have proposed 
represents a tremendous opportunity to re-evaluate a standard 
that is now 20-some years old. It is, in effect, a pre-
globalization standard. And we need to understand the 
consequences of having a standard that is that old and that out 
of date, in light of the reality of the way particularly the 
multinational corporations have found that they, in order to be 
competitive, have had to adjust their manufacturing, their 
assembly operations in order to be competitive.
    The striking thing that we found with regard to the 
informal survey that we did was how high the percentage was of 
product lines that were below the 85 percent content. So that 
something extraordinary or something special had to take place 
in order to make almost all of these product lines fully 
competitive. And it just reflects the fact that the current 
content level simply bears no relationship to the reality these 
companies have to deal with to be competitive.
    Chairman Miller of California. Thank you.
    Mr. Scott, I think I have equalized your opening statement, 
so we are even at this point.
    And I hope we have time for a second round, but I would 
love to--I have many more questions, and I am sure my 
colleagues do, also.
    Mr. Scott, you are recognized for 5 minutes.
    Mr. Scott. Thank you.
    I think we have to look at this whole proposition in light 
of where we are right now as a country. Our unemployment rate, 
while we may be encouraged with it slightly coming down--it is 
right about 8.8 percent now. In my home State of Georgia, it is 
still right at about 10 percent, 9.9-something. So we are 
getting some movement there. But there are, clearly, 13 million 
Americans without work. There are 15 million other Americans 
who are underemployed and/or basically others giving up on 
employment.
    So we are at a very, very difficult state, as far as 
employment is concerned. And so when you make policy and you 
are looking at this, you have to be very sensitive within the 
environment in which we are moving.
    And this Bank's mission, keep in mind, is to create and 
sustain good manufacturing jobs here in America, not in other 
countries. So when we keep all this in front of us, we have to 
be careful to make sure what we institute in policy makes sure 
we keep that mission in mind. And it is clear that any 
proposals that will enable the Bank to lend greater financial 
support for foreign content of U.S. exports is definitely 
contrary to the Bank's mission of creating and sustaining good 
manufacturing jobs here.
    So, with that, the higher the domestic content, the more 
jobs will be created and sustained here in the USA. That is 
what I am concerned about. That is what the American people are 
concerned about. It is their tax dollars we are concerned with 
here. So we have to keep that in mind.
    But if we change this domestic content, if we lessen the 
requirement, it would make it easier to outsource these jobs 
and dilute the definition of domestic content.
    With that, let me ask you, Mr. Hardy, I read in an article 
in Inside U.S. Trade from last July, and you stated that one of 
the top priorities of your group was to lower the Ex-Im Bank's 
domestic content standards. And when asked whether you would be 
able to quantify the effect on U.S. jobs of removing Ex-Im's 
content of shipping restrictions, you acknowledged that the 
data would be substantially anecdotal.
    So my question to you is, do you have any substantive data 
that supports the claim that lowering the domestic content 
standards would create more U.S. jobs in manufacturing in this 
country?
    Mr. Hardy. Thank you, Congressman Scott.
    There is a lot of anecdotal information. As I said, going 
back to the point that I was just making regarding the content 
levels for the product lines of many of the exporters that are 
in CEE, that they are below the 85 percent content level. The 
factor that has actually not been addressed in any of the 
dialogue to date is whether, if you reduce the content level so 
that more products can become fully supported by Ex-Im, whether 
there will not be a significant increase in exports as a 
consequence of that action.
    That is, the dialogue that has continued up to this point 
has been basically on the assumption that it is a zero-sum 
game; that the requirement is that jobs can only be created by 
focusing entirely on U.S. content and U.S. manufacturing, as 
opposed to a modest reduction in the manufacturing in the 
United States as a consequence of the need of the exporters to 
be competitive, which generates, because these products are 
fully competitive now and are fully supported by Ex-Im, that 
you can dramatically increase the volume.
    When you talk to the business community, it is all about 
growing the volume of exports. And yet, in so much of the 
discussion about the content level, it is really not 
underscored. We have one exporter, specifically to your point, 
who said that if the content level was dropped from 85 to 70, 
it would result in an increase of a billion dollars in exports 
for that one exporter.
    Mr. Scott. Thank you. I appreciate that, and I think your 
information you are sharing is more opinionated, less 
substantive. But, again, I value what you are saying. But my 
time is short.
    Let me ask you--
    Chairman Miller of California. I think it is up, or close.
    Mr. Scott. All right, it is close.
    Mr. Slaughter, I read in the Wall Street Journal an article 
from April 19th of this year discussing the economic impact of 
globalization, in which you said, ``For every one job that the 
U.S. multinationals create abroad, they created nearly two U.S. 
jobs in their U.S.-based parents.''
    But recent data released by the Department of Commerce 
shows that, during the 2000s, multinational companies cut their 
workforce in the United States by 2.9 million and increased 
their employment overseas by 2.4 million. This is a reversal 
from the 1990s, when they added jobs everywhere. They added 4.4 
million in the United States and 2.7 million abroad.
    So, in light of this new data, how can you still maintain 
that eliminating content standards could still create U.S. 
jobs?
    Mr. Slaughter. That is a great question.
    I think of it in a couple of ways, Congressman. One is, we 
don't know what is happening in the 2000s with the operation of 
U.S.-based multinationals around the world. In response to the 
good question you asked Mr. Hardy, there have been some 
academic studies that I and others have done looking at earlier 
periods, the 1980s and 1990s. And contrary to what I think a 
lot of the presumption is, there has been some good work done 
in manufacturing firms, in particular, where you can look at 
the company-level data and look at what they are doing outside 
the United States and what they are doing back inside the 
United States. These are based on legally mandated surveys that 
the Commerce Department does with these companies every year.
    And there is some good research that has been done that 
shows, historically, when these companies expanded abroad, when 
they did more capital investment abroad, more hiring abroad, 
they tended to hire more people and do more capital investment 
back in the United States.
    So when I think about a company that might try to get 
financing from the Ex-ImBank, I think it is really important to 
think about eliminating those domestic content requirements, 
because, historically, when firms have been able to reconfigure 
what they do around the world, that has tended to support their 
operations in the United States, not reduce it.
    The 2000s in the aggregate, the numbers you cite are 
correct, in terms of expansion abroad in employment, reduction 
in employment in America. These firms weren't contracting all 
their activities in the United States in the 2000s. Their 
capital investment, their research and development, a lot of 
other activities went up. Their average compensation paid to 
their American workers went up during that time, which is quite 
different from the rest of the economy.
    I think the other thing that is important to keep in mind 
is, you can also get job creation in other firms, in other 
industries at the same time. And my written testimony talks 
about the example of information technology.
    Chairman Miller of California. The gentleman's time has 
expired.
    Mr. Dold, you are recognized for 5 minutes.
    Mr. Dold. Thank you, Mr. Chairman.
    Dr. Slaughter, just while the microphone is hot over there, 
what percentage of U.S. exports are in the service sector?
    Mr. Slaughter. I am going to do the numbers in my head. I 
think about a third of U.S. exports today, total, are services 
as opposed to shipments of goods.
    Mr. Dold. And, traditionally, the Bank, can you just give 
me your take on why you think the Ex-Im Bank does not support 
more service-sector businesses?
    Mr. Slaughter. That is a good question. I think part of it 
is, the expansion in services trade has been pretty dramatic in 
recent years. It is partly because I think what impedes flow of 
services across borders hasn't been the traditional border 
barriers of governments, of tariffs and quotas and things like 
that. It has been natural barriers, communication and 
technology barriers. But with the IT revolution, the ability to 
transact a lot of services around the world has gone up a lot. 
So one of the big educational industries that we run a trade 
surplus in is my line of work, which is educational services.
    So the positive trade balance in services the United States 
has had has grown a lot in recent years. And I think that is 
probably part of the reason that there hasn't been as much of 
an awareness, both of the Bank itself and of a lot of services 
businesses, of that possible connection.
    Mr. Dold. Any idea in terms of how they are going to 
calculate content with service-type businesses or how would you 
try to do that?
    Mr. Slaughter. No. And I don't say that to be coy. I think 
that is part of the reason--I think the effort to measure 
content, domestic versus non-U.S, for any industry is hard; it 
is even harder for services. And so, to come back to some of 
these conversations, when you think about cost of goods sold, 
you are thinking of SG&A expenses, it is very hard even for 
manufacturing companies to know how to allocate those things.
    Mr. Dold. Ms. Lee, if I can come back to you for just a 
second, the Ex-Im Bank's mission is to support American jobs, 
not just manufacturing jobs. Is that your understanding as 
well? And services certainly would be, I would imagine, a big 
part of jobs in the United States.
    The chairman had some questions before when we were looking 
at what goes into it. And we look at if there is not somebody 
out there, if they don't know about the product, obviously they 
are not going to be selling a whole lot of them.
    Would you agree or disagree that if I am using marketing 
firms and aspects of that for a particular product that is just 
going to be coming off the line, would that be considered, in 
your view, something that we could add into content?
    Ms. Lee. That wouldn't be a direct cost of production, no.
    Mr. Dold. I understand it is not a direct cost of 
production. Would you be able to, in terms of Ex-Im Bank, would 
you say we should be including that in production as part of 
content?
    Ms. Lee. No. Our preference is for the calculation of 
content would be that it include only the direct costs of 
production.
    One of the concerns we have is the apportionment of 
indirect costs, whether it is advertising or brand name or CEO 
pay or overhead, across many different products, that there is 
a potential for manipulation of those numbers and that it is 
less straightforward for the average American, the average 
person. The commonsense interpretation of where a product is 
made, I think they are looking at the production costs.
    Mr. Dold. Sure.
    And my colleague, Mr. Scott, had talked before about 
unemployment and the staggeringly high number of Americans who 
are out of work right now and even more of those who are 
underemployed right now. And I certainly agree. I can honestly 
tell you that I don't care what side of the aisle you are on, 
probably the number one thing that we are trying to address 
here in the Congress is, how do we jump-start our economy, how 
do we create more jobs and put more Americans back to work?
    And, certainly, Mr. Hardy, your comments earlier about the 
content, a specific company, if they lowered that content, that 
they actually might be able to increase exports simply because 
they are going to be able to put more of those people back to 
work, and that individual business would be able to hire more 
people in Main Street, USA, or whatever it may be.
    What do you think, if you had to pick a number out there 
for content, what would be the ideal number? We have Germany at 
50 percent. We are looking at something a lot higher than that. 
What would you determine would be best in order to create more 
jobs?
    Mr. Hardy. In a statement for the record that we submitted 
earlier to the subcommittee with regard to the reauthorization, 
we had proposed moving from 85 to 70 percent. And the reason 
for that was that, again, when we held discussions with our own 
companies, which are larger exporters in the United States, we 
found that the overwhelming number of product lines were 
between those two numbers. It was quite startling, in that 
sense, that the content levels are at that level because of 
competitiveness. And for these companies, obviously, as they 
pursue the global market, competitiveness is absolutely 
essential. It is at the core of what they are doing.
    So once they have accomplished that--and this is an 
additional element that is striking--they were all below the 85 
percent, which clearly meant that they were not adjusting their 
content in order to ensure financing. So the content levels are 
a reflection of what it takes to be competitive, which meant 
that if you drop that content level from 85 to 70, suddenly all 
of those product lines would become fully competitive.
    The chairman actually referenced the Air Tractor example. 
Air Tractor testified in an earlier hearing. Air Tractor, as 
its CFO who testified said, there was a co-financing 
arrangement with the Canadians. Air Tractor purchased their 
aircraft engines from Canada. If Canada had the same content 
requirements that U.S. Ex-Im had, they would not be able to 
undertake the co-financing. Because the Canadians have reached 
out and said, we will deem any non-U.S. content to be Canadian 
content, even though there are components from other countries 
that are part of those Canadian engines.
    That is the sort of dilemma that exists, that other EACs 
are bending over backwards, actually, to make these deals 
happen because of the restrictiveness of U.S. content levels.
    Mr. Dold. Thank you so much. I appreciate it.
    My time has expired.
    Chairman Miller of California. Mr. Manzullo, you are 
recognized for 5 minutes.
    Mr. Manzullo. Thank you.
    I was in a hearing at our Subcommittee on Asia and the 
Pacific, and I can't roller skate one with skate here and one 
in the other room, but I had the opportunity to look at some of 
the testimony.
    Ms. Alexander, on page 13 of your testimony, you talk about 
the medium-term program. Are you there?
    Ms. Alexander. Yes, sir.
    Mr. Manzullo. Okay. I know you are there. Are you there on 
the paper, is what I meant.
    Ms. Alexander. I am on the paper.
    Mr. Manzullo. Okay, thank you, thank you.
    Ms. Alexander. Thank you for that.
    Mr. Manzullo. That came out wrong, didn't it?
    Chairman Miller of California. She won't take that as an 
affront.
    Mr. Manzullo. No, it just came out wrong--
    Chairman Miller of California. She did very well in her 
testimony, as a matter of fact.
    Mr. Manzullo. These things happen, okay.
    Anyway, you talk about how the medium-term program supports 
transactions under $10 million for--I guess that word should be 
10 years? Is that--
    Ms. Alexander. The tenor of up to 5 years.
    Mr. Manzullo. Okay. I wrote that medium-term delegated 
authority program in 2006 when I chaired the Small Business 
Committee. And we had that whole small business section 
incorporated into the Export-Import reauthorization bill. And I 
am really distressed to see that a product of my own hands, 
that the use has dropped significantly.
    Then you state, specifically, Ex-Im has added a number of 
onerous requirements to the medium-term program which we feel 
hamper its effectiveness without adding value to the portfolio 
management process.
    Can you tell us what those requirements are so that I can 
perhaps file an amendment to this bill to get rid of them?
    Ms. Alexander. Thank you, sir. And, first of all, since you 
authored that, thank you. We do support the medium-term 
program. We think it is a good program to have, and it is 
important in the whole scheme of the global economy that I 
discussed in my oral statement.
    We have been in conversations with Ex-Im about this. We 
have found that the banks who were involved in the medium-term 
program are pulling back because of administrative 
requirements. They don't really, in the view of the banks, add 
value.
    In all fairness to Ex-Im Bank, we have had several meetings 
with them and discussions with them about this, on how to 
improve their processes. We have some ideas, which we have 
spelled out here. And we are really, quite frankly, in the 
middle of discussions with them on how we--I don't want to beat 
up on them--I want to let you know that they are working very 
closely with us on this.
    I think the main issue is, they were very concerned about 
what came out in the inspector general's report, which stands 
to reason. And so they are trying to respond, to be sure they 
don't land back there again. And I appreciate that.
    But in looking at some of the things that are required--
these thresholds for the banks, for example in delegated 
authority--making sure engagement is worth their while, and is 
worth their resources and their efforts, they are finding that 
it is not. So you have your banks making a business calculation 
as to whether it is worth their while because of exposure that 
they would have under the medium-term program.
    The banks have said, look at what you have going on with 
working capital. You have some great models there. Let's look 
at how that particular process--anything that you can translate 
from working capital into the medium-term program would be 
helpful. I am not sure everything translates because you have 
short-term and different tenors, of course.
    But we think it is a good program, and we would be happy to 
work with you on preserving what you started.
    Mr. Manzullo. What about withdrawing delegated authority 
from problem banks, rather than punishing all the banks?
    Ms. Alexander. That is, don't throw the baby out with the 
bathwater. But if you look at the inspector general's report, 
which I don't need to get into the weeds on, you will have an 
idea of what some of the problems were. They named a couple of 
incidents in particular.
    Most of the banks involved are members, and they are 
members in good standing. And they can't be our members unless 
they are in good standing. That is very important to recognize, 
when you are looking at the universe of banks that participate 
in the delegated authority program.
    So we think that the banks are in a position to advise the 
Ex-Im Bank on ideas that they could use going forward. And we 
are happy to share those with you. We would be happy to--
    Mr. Manzullo. Perhaps we can meet afterwards. The director 
is a good friend of mine, and I will just have him stop by the 
office and say, let's change this. Because it took a lot of 
time to set up this program.
    Ms. Alexander. Yes.
    Mr. Manzullo. We worked literally for years to be able to 
expand the vision, or at least continue the original vision, of 
Ex-Im, which is to help exporters of all sizes.
    In all fairness, I was talking to a constituent who said 
that she could not have exported her product from my hometown 
of Rockford, Illinois, without Ex-Im Bank. And I said, how much 
did you get? She said, $11,000. Some people may not think that 
is a lot of money, but, it is a good thing for the Ex-Im Bank 
to continue that mission that we saw firsthand, that somebody 
took the time to do all the paperwork for $11,000, which 
enabled her to export.
    But we would be glad to meet with you as soon as possible 
and formulate a strategy to see if we can get this corrected.
    Ms. Alexander. Thank you, sir. It is a very vital piece of 
the whole financing puzzle for trade finance.
    Mr. Manzullo. I appreciate that.
    Ms. Alexander. And it is important to our banks because it 
is important to their customers, and you just gave a perfect 
example of how it is. It is part of how the Bank helps service 
those customers, and that goes to keeping the customers viable 
and active in the economy and keeping the jobs going.
    Thank you, sir.
    Mr. Manzullo. Thank you.
    Thank you, Mr. Chairman, for having the hearing.
    Chairman Miller of California. Mr. Manzullo, I know that 
you had the manufacturing base decimated in your district in 
recent years. And I appreciate your testimony. I know it comes 
from your heart. Thank you very much.
    We are going to try to do a second round of testimony if we 
have time. They are not voting on the Floor.
    And I just want to state again, the bill has no content 
requirement in it at all. So my bill does not state that. It 
just basically says we need to support U.S. jobs.
    And I would work my way down. Dr. Slaughter, I had not 
quite gotten to you. But when asked about Ex-Im domestic 
content, labor leaders said, ``It is just common sense that the 
higher domestic content there is, the more jobs that will be 
created and maintained in the U.S.''
    Is that true? And where do you stand with that comment?
    Mr. Slaughter. I think that misses a couple of important 
points. One is, when I think about the pie getting bigger, I 
can perhaps grow jobs in America even if the content for any 
given product is less than 85 percent domestic because I will 
be able to sell a lot more of those parts abroad. So the 
Congressman's example of the constituent with an $11,000 loan--
    Chairman Miller of California. That was a great example.
    Mr. Slaughter. There are a lot of entrepreneurs who, 
because of globalization and all the advances in the world over 
the past generation, they are now able to connect with other 
small entrepreneurs around the world. And a lot of content for 
a lot of those products gets made abroad. But those are 
tangible jobs that are getting created in Rockford, Illinois, 
and other places like that because there is more stuff being 
created and sold to foreign markets, and that is creating jobs 
in America.
    So that is one--I think one important perspective is, for 
any given company, they can have more sales and, therefore, 
more employment, even if the content is something less than 85 
or whatever percent you might choose.
    And, again, my written testimony talks about the links to 
other industries. I think information technology is a great 
example. We were talking about BlackBerrys earlier. IT is one 
of the most globally integrated industries there is. But, boy, 
the job creation that went on in America over the past 
generation thanks to the gains in information technology 
created literally millions and millions of jobs throughout the 
U.S. economy.
    Chairman Miller of California. GE gave me a good example. 
They currently were competing with the German company Siemens 
on a half-billion-dollar deal in India supplying turbines, wind 
turbines. And GE was able to meet a 78 percent content 
requirement. And the German company bought their casings and 
such and many other parts from the same companies that GE did, 
but the German company didn't exceed 50 percent. Yet, the 
German company provided full financing, where the American 
company wasn't able.
    I think it hurts American jobs if we don't make sure that 
this company sells a turbine that has 78 percent content. What 
is your position on something like that?
    Mr. Slaughter. The big answer I would give is, we have 11.7 
million manufacturing jobs in America today. And if you look at 
Bureau of Labor Statistics data, the last time America had that 
few manufacturing jobs was in April of 1941.
    So, when I think about how to grow as many American 
manufacturing jobs as I can, I don't have a strong belief or, 
frankly, knowledge to know whether 85 percent, 78 percent, or 
50 percent is the right number. I am looking to try to find 
ways government policy can support job creation, whether those 
jobs in manufacturing and in services are linked to a high or 
low domestic content value. Because all those things, 
potentially, can help fill in the job holes we have in America 
today.
    Chairman Miller of California. And, obviously, the supply 
chain, the global supply chain, has changed in the last 5 or 10 
years. What do you think is going to happen in the next 5 or 10 
years, based on the information you have generated today?
    Mr. Slaughter. There will be a lot more information for 
both large and small businesses to tap into those global 
production chains--the small entrepreneurs, the General 
Electrics, all size of companies in between.
    And, given the growth that a lot of U.S.-based companies 
see abroad for having new supplier relationships and to make 
greater sales abroad, I want to empower all those American 
companies to try to tap into those foreign markets and 
opportunities and grow jobs as much as possible, which is, 
again, why I see efforts to impose ex-ante rules on domestic 
content as problematic.
    Chairman Miller of California. Do you see the next few 
years as a critical juncture in the global export market?
    Mr. Slaughter. Yes. Again, especially for the United 
States. Part of the reason I think it is not enough to think 
about having Ex-Im Bank in the United States meet other peer 
financing agencies around the world is, we in the United States 
face a pretty special problem, which is, again, as I mentioned, 
not just growing jobs but growing jobs linked to exports and 
capital investment.
    Chairman Miller of California. I am going to cut my 
questions to 4 minutes. I will give you 4 minutes. We will try 
to get through Mr. Dold in 4 minutes, too. Maybe we can do this 
before the votes.
    Mr. Scott, I yield you time for 4 minutes.
    Mr. Scott. Thank you very much, Mr. Chairman.
    Ms. Lee, I would like to talk with you for a moment. I 
spent most of my previous questioning chatting with Mr. 
Slaughter and Mr. Hardy. And I think you remember the questions 
that I put to them and their quotes. I would like to get your 
take on this and your reaction, if you will, to what they said 
in their proposals, in their efforts to, in fact, move to 
dilute the domestic content.
    Ms. Lee. Thank you, Congressman Scott.
    I would oppose any proposal that would weaken or dilute the 
domestic content requirements, and for a very simple reason: 
that one of the great missions of the Ex-Im Bank is to 
incentivize and to reward U.S. companies that are creating U.S. 
jobs on U.S. soil. And one of the ways they can do that is by 
making attractive financing available to companies that are 
doing the right thing, that are creating jobs on American soil.
    Companies, left to their own devices, would like to 
maximize profits by outsourcing more and more and more pieces 
of the production. I think the statistics that you cited 
earlier and that Dr. Slaughter has discussed at great length 
confirm that companies, without these kinds of incentives, are 
likely to outsource greater parts of production.
    I don't think there is any empirical evidence that if we 
reduce the domestic content provisions, that there will be an 
automatic increase in exports that comes from that.
    The Ex-Im Bank financing is attractive, but I think the key 
drivers of exports are other things. It is demand, it is 
currency, it is trade policies. But it is largely effective 
demand. It is also companies having the information. That is 
one of the things that Ex-Im Bank has done really well, trying 
to get information about its products out to small- and medium-
sized businesses, out to companies, to encourage them to export 
and to provide that financing.
    The point that Chairman Hochberg made I think is really 
important, that there is co-financing available for the non-
U.S. portion. All that Ex-Im Bank is saying is that it wants to 
use the full faith and credit of the U.S. Government, the 
taxpayer-supported part of Ex-Im financing, to support 
American-made products.
    And the rest of it--nobody is asking these companies not to 
produce, not to be part of a global supply chain. What they are 
saying is that the portion of that which is produced in the 
United States is a portion that U.S. taxpayers and the U.S. 
Government should be supporting. I think that is just a really 
important distinction.
    Ex-Im Bank is fully aware of the existence of global supply 
chains and the fact that much production is mixed. But the 
examples that Chairman Hochberg gave are very clear, that there 
is financing available for the non-U.S. portions; it just 
doesn't have to come from the U.S. Government. That is the key 
piece.
    It is also important to know that there is a distinction 
between companies earning more profits and finding it more 
convenient to get the Ex-Im Bank financing and the companies 
that are doing the right thing and creating jobs on American 
soil.
    Thank you.
    Mr. Scott. And I think--if I have 1 minute left, Mr. 
Chairman?
    Chairman Miller of California. Yes.
    Mr. Scott. All right, thank you.
    The chairman spoke very clearly of his intent, and I 
certainly respect that and respect his movement in this area, 
because this is very, very critical that we get it right, and I 
look forward to working with him. And he mentioned that what we 
want to do is clarify and bring some transparency to this.
    I would certainly commend you for that, Mr. Chairman.
    So it would be very important, Ms. Lee, if we got your 
thoughts and your views on how the legislation could, in fact, 
clarify the content policy and make it more transparent with 
respect to domestic content, how it is defined and calculated.
    Chairman Miller of California. In 15 seconds.
    Ms. Lee. I would be very happy to do that. I think I will 
submit it in writing, given the time constraints.
    Chairman Miller of California. That would be great.
    Mr. Scott. Thank you.
    Chairman Miller of California. Thank you, Mr. Scott.
    Mr. Dold?
    Mr. Dold. Thank you, Mr. Chairman.
    Mr. Gratacos, we haven't heard from you in a little while, 
so I thought we would at least try to mix it up a little bit.
    Chairman Miller of California. Go to the middle.
    Mr. Dold. Go right to the middle. We will get right in the 
middle of the table.
    Ex-Im Bank has, from what I have been told, a pretty 
antiquated IT system. Would you agree?
    Mr. Gratacos. Absolutely, yes.
    Mr. Dold. Can you tell me, do you believe that this 
represents a risk to the Bank?
    Mr. Gratacos. Not only a risk, we have complaints about how 
some of the human errors have actually affected some of the 
transactions. When you look into the systems, transaction 
information has disappeared or the buyer's name has 
disappeared, so when the claim is going to be submitted, it is 
inconsistent with the paperwork. And so we have included that 
as part of our audit that we are conducting on the systems.
    We have been very outspoken on the changes needed to 
improve the efficiency of the Bank. If the Bank wants to meet 
the growth, this is one of the functions--one of the areas they 
need to improve significantly.
    Mr. Dold. And you talk about growth. Do you believe that 
raising the Ex-Im Bank's exposure cap from $100 billion dollar 
to $160 billion is going to be a risk to the taxpayers?
    Mr. Gratacos. That is a good question. I think the risk to 
the taxpayers is how Ex-Im will handle the internal management 
of the assets and how it conducts the underwriting practices. I 
think that is a focus of the Bank regardless of the level of 
authorization. And I think part of the report that we have 
issued goes along these lines, trying to highlight some of the 
inefficiencies or areas of improvement in the underwriting 
practices across programs.
    Mr. Dold. Okay.
    Dr. Slaughter, in your testimony, you recommend a 
significant increase in Ex-Im's total financing cap. Can you 
tell me and just elaborate on the importance of that? And is 
this a big enough increase? Would you like to see it be higher? 
Can you just elaborate?
    Mr. Slaughter. Sure, Congressman.
    Again, for the United States to have a sustainable 
recovery, we can't just build back the kinds of jobs we had 
before the crisis. Part of the reason we had the crisis was low 
savings, excess consumption in the United States. So, again, I 
think the President's initiative, the thing about doubling 
American exports. But, boy, we can't just kind of hope that 
happens.
    One of the policy mechanisms we could have would be to 
substantially increase the lending cap for Ex-Im Bank to really 
help America, different firms, big and little, have the 
opportunity to grow export sales. And I think Mr. Hardy's data 
that he cited are pretty telling, when you look at how 
aggressive other countries are in their support for exports 
sales by their companies.
    Mr. Dold. One of the things that--we have a number of small 
businesses. We always focus on some of the larger businesses; 
they seem to get a little bit more of the headlines. You get 
the big airplanes that are going over with Boeing or GE or 
something along those lines. In the 10th District in 
Illinois,my hometown, actually, we have a great record because 
over 80 percent of the loans made by Ex-Im are made to small 
businesses, which I think are important.
    What should we be doing to encourage or at least get that 
promotion out for small businesses? When we talk about that 
cap, when we talk about trying to increase exports, I view it 
has to be across all sectors, not just some of the larger ones.
    Mr. Slaughter. So, I think two things. One is the focus on 
services. I think a lot of smaller businesses, some of them are 
manufacturing but others are in a range of activities, and they 
can find these niche markets abroad that they can sell into.
    And I think the observations earlier about the information 
systems, I think a lot of smaller businesses, they need those 
technology-mediated connections to be able to make things work 
for them.
    Mr. Dold. Great.
    Thank you, Mr. Chairman. I yield back.
    Chairman Miller of California. Thank you.
    I would like to thank you for your testimony on the 
discussion draft. It was very informative.
    The Chair notes that some members may have additional 
questions for this panel, 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.
    This hearing is now adjourned. Thank you.
    [Whereupon, at 5:00 p.m., the hearing was adjourned.]





                            A P P E N D I X



                              May 24, 2011




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