[Senate Hearing 112-294]
[From the U.S. Government Publishing Office]
S. Hrg. 112-294
STAKEHOLDER PERSPECTIVES ON REAUTHORIZATION OF THE EXPORT-IMPORT BANK
OF THE UNITED STATES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
SECURITY AND INTERNATIONAL TRADE AND FINANCE
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING STAKEHOLDER PERSPECTIVES ON REAUTHORIZATION OF THE EXPORT-
IMPORT BANK OF THE UNITED STATES
__________
JUNE 30, 2011
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Dawn Ratliff, Chief Clerk
William Fields, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Security and International Trade and Finance
MARK R. WARNER, Virginia, Chairman
MIKE JOHANNS, Nebraska, Ranking Republican Member
SHERROD BROWN, Ohio MARK KIRK, Illinois
MICHAEL F. BENNET, Colorado
TIM JOHNSON, South Dakota
Nathan Steinwald, Subcommittee Staff Director
Sarah Novascone, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
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THURSDAY, JUNE 30, 2011
Page
Opening statement of Chairman Warner............................. 1
Opening statements, comments, or prepared statements of:
Senator Johanns.............................................. 2
Senator Bennet............................................... 3
Senator Kirk
Prepared statement....................................... 25
WITNESSES
Osvaldo Luis Gratacos, Inspector General, Export-Import Bank..... 5
Prepared statement........................................... 25
Responses to written questions of:
Senator Shelby........................................... 37
Clay Thompson, Director, Global Government Affairs, Caterpillar,
Inc............................................................ 6
Prepared statement........................................... 28
Douglas Norlen, Policy Director, Pacific Environment............. 8
Prepared statement........................................... 31
David Ickert, Vice President, Air Tractor, Inc., on behalf of the
Small Business Exporters Association........................... 9
Prepared statement........................................... 33
Additional Material Supplied for the Record
Statement submitted by Thea Mei Lee, Deputy Chief of Staff,
American Federation of Labor and Congress of Industrial
Organizations.................................................. 42
Statement submitted by Owen E. Herrnstadt, Director, Trade and
Globalization, International Association of Machinists and
Aerospace Workers.............................................. 43
Joint statement submitted by American Apparel and Footwear
Association, National Cotton Council, and National Council of
Textile Organizations.......................................... 45
Statement submitted by Air Transport Association of America, Inc. 47
(iii)
STAKEHOLDER PERSPECTIVES ON REAUTHORIZATION OF THE EXPORT-IMPORT BANK
OF THE UNITED STATES
----------
THURSDAY, JUNE 30, 2011
U.S. Senate,
Subcommittee on Security and International Trade and
Finance,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 10:06 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mark Warner, Chairman of the
Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN MARK R. WARNER
Chairman Warner. Good morning, and I want to welcome
everyone to this hearing of the Subcommittee on Security and
International Trade and Finance, ``Stakeholder Perspectives on
Reauthorization of the Export-Import Bank of the United
States.'' I want to mention, as I was going down and
introducing myself to the witnesses, a number of them said,
``Hello, Mr. Chairman,'' and I realized that while I have had
the chance to sit temporarily in this chair before, I have
never been addressed that way since it seems not that long
ago--it was not that long ago that I was the last seat on the
dais down to the right, so I am anxious to--I look forward to
chairing this hearing with my good friend, the Ranking Member,
Senator Johanns, and we look forward to a productive morning.
The hearing this morning adds to the oversight record of
the full Banking Committee on the Export-Import Bank. Last
month Chairman Johnson held a hearing in the full Committee
with Chairman Hochberg of the Bank. The Senate also recently
confirmed two of the Bank's Board members. Those hearings are
important not just for the normal oversight of the Committee,
but because of the Bank's authorization is set to expire on
September 30th of this year. A new reauthorization must be
signed into law before that date in order for the Bank to
continue operating. That sounds strangely reminiscent of
another issue which we have got a deadline fast approaching.
This reauthorization will take place during a period that
may be as important as any in the Bank's history. A core
objective of the Bank is to support American jobs, and the
President has outlined a national export initiative that seeks
to double American exports within 5 years. This initiative
could not come at a more critical time for job creation in this
country. Although the United States remains the largest
exporter in the world, it trails a number of countries in terms
of trade as an percentage of GDP, and obviously we face
increasingly sophisticated competition, especially at the high
end of the value-added global supply chain. And it is
remarkable to see countries like Brazil and China and their
enormous export gains in the last few years and how some of
their export support organizations compete with us.
Obviously, this hearing and this reauthorization could not
come at a more critical time as we talk about the Brazils and
the Chinas and the emergence of the EU countries because other
export credit assistance organizations around the world are,
again, becoming more competitive.
The financial sector, as we all know, is still recovering
from the crisis of 2008, again, making the Bank's actions even
more important. And some of the deals that Ex-Im supports, such
as infrastructure and development in poorer countries, have
never been the high-yield, low-risk deals that the finance
sector would prefer. So, again, with the gaps in traditional
financing, again, making the role that Eximbank plays more
important.
On top of that, as I mentioned earlier, Eximbank faces
increasing competition from foreign export credit agencies.
While the members of the G-7 and other countries submit to
negotiated limits on credit assistance, developing economies
such as China, Brazil, and India do not adhere to those
limitations. In the face of this new form of competition, the
Bank must have the resources and the flexibility to compete.
However, these resources and any flexibility cannot come
without heightened transparency and accountability, and we
cannot expect the Bank to be more competitive without being
more efficient.
The Bank, like many agencies, has a reputation for being
bureaucratic and slow. While current leadership has done work
to address this issue, the reality at the Bank is we need to
ask if more can be done. In order to become more competitive,
Eximbank must become more efficient. We have to look at whether
new metrics and accountability measures can make the Bank a
more attractive and customer-friendly source of financing for
America's exports and, as a result, help further the policy
objective, including its core mission of supporting American
jobs.
There are a number of topics that I look forward to hearing
from the panel on, and we will get to our witnesses in a
moment, but I would like to turn it over to Senator Johanns, my
friend and Ranking Member, for his opening comments. And it is
great to see my colleague Senator Bennet here. I know he will
have some lucid comments as well at the opening, and then I
will introduce the witnesses, and we will go forward.
Senator Johanns.
STATEMENT OF SENATOR MIKE JOHANNS
Senator Johanns. Well, let me start out and say thanks to
the Chairman for holding the hearing today. As we can see from
the deadline that is approaching, this is just an enormously
important opportunity to look at what the Bank is doing.
As a former Secretary of Agriculture, I witnessed firsthand
in a very real way the value of strong export policy. But I
know I speak for the Chair and for myself when I say we also
witnessed the importance of strong export policy when we were
Governors, when we first had an opportunity to work together.
It is without question certainly that one element of a
robust export system is a strong Export-Import Bank. When I
traveled the globe working on various trade agreements,
financing was always a key point. I always asked myself how our
global trading partners were accessing capital. That is where
the Export-Import Bank comes into play, and it is why the
Bank's programs are so important.
It is without question that the Bank plays an important
role in supporting the export of American-made goods and
American-provided services. This goes for large companies, but
I also want to underscore that it needs to also apply for small
ones, too.
During the last reauthorization, many changes were made to
improve the structure of the Bank, including economic impact
procedures and enhanced small business efforts. It is my hope
that we can build upon these previous changes and determine if
there are additional reforms that the Committee should
consider. Fundamentally, we are asking what is working and what
is not.
Because there are billions of potential global customers in
both the emerging and the established markets for goods and
services, we must ensure that we get them into consumers' hands
across the globe. We must do all we can to make sure we have a
robust marketplace for our goods in other parts of the world.
Well, I look forward to hearing the testimony of the
witnesses today and I look forward to working with my friend
and colleague Senator Warner on a timely reauthorization.
Chairman Warner. Thank you, Senator Johanns. And he does
bring special expertise, a former Cabinet Secretary of
Agriculture, and we had many opportunities to talk about export
opportunities as Governors, and he is a great partner in this
effort.
Senator Bennet, do you have an opening statement?
STATEMENT OF SENATOR MICHAEL F. BENNET
Senator Bennet. I would just say, Mr. Chairman, thank you
for holding the hearing. Thank you for your leadership of the
Committee. There is a lot of concern in my State about how we
are going to get this economy back on track and what we are
going to do about the jobs that have been permanently lost in
this recession.
Every single month during the course of this recession,
when we saw the job loss numbers, we also saw the productivity
index rise. Firms were figuring out how to do what they were
doing already with fewer people, and we have got to put folks
back to work. And one of the critical ways of doing that is
making sure that these export markets are as robust and as open
as they can be for American goods and products.
So the hearing is important. The work that the Bank does is
critical to that, and I look forward to hearing the testimony.
Thank you, Mr. Chairman.
Chairman Warner. Thank you, Senator Bennet. Again, I think
we have all used the term, and I think probably the witnesses
will reaffirm this, that 95 percent of all the future customers
for American businesses are abroad, and this is the opportunity
we have.
Before I introduce our witnesses today, I would like to
state that I have several statements from Bank constituencies
who have asked that their comments be part of the record. If
there is no objection, I will enter those into the record.
Without objection. And, of course, the Committee will consider
these statements in the work in the future, and the record will
stay open after the hearing for other statements.
Chairman Warner. I will now turn to our panel. We have four
witnesses today, each with a different perspective on the Bank.
The Honorable Osvaldo Luis Gratacos, Inspector General,
Export-Import Bank of the United States. Mr. Gratacos and I
apologize.
Mr. Gratacos. You are more close than other people.
[Laughter.]
Chairman Warner. Mas o menos?
Mr. Gratacos. Mas o menos.
Chairman Warner. ----was sworn in as the second Inspector
General of the Export-Import Bank of the United States on
October 18, 2010. Mr. Gratacos had been serving as the Acting
Inspector General since October 2009. Before his nomination, he
served as Deputy Inspector General and Counsel to the Inspector
General. Mr. Gratacos joined the Eximbank OIG from Motorola
where he worked as a commercial counsel, and before joining
Motorola he served as attorney adviser and as legal counsel to
the Inspector General at USAID.
Our next witness after that will be Mr. Clay Thompson,
director of Global Government Affairs, Caterpillar. Clay
Thompson joined Caterpillar in 1997 and from 1997 to 2005 held
positions of increasing responsibility in Caterpillar's legal
department. He left the legal department in January 2005 to
become Caterpillar's emerging markets strategy integration
manager--that is a mouthful--for Caterpillar China and in
August 2007 was named managing director of product for
Caterpillar's joint venture operations in Japan. In April 2009,
Mr. Thompson returned to the United States to become director
of Caterpillar's Corporate Government Affairs Department here
in Washington. He currently serves as treasurer of the U.S.-
ASEAN Business Council and chairman of the Council of U.S.-
Indonesia Business Committee. Mr. Thompson, thank you for being
here as well.
Mr. Doug Norlen, policy director, Pacific Environment. Mr.
Norlen is policy director for Pacific Environment, serving on
staff since 1995. Mr. Norlen specializes in the reform of
multilateral trade and finance institutions and bilateral
export credit agencies, obviously ECAs. In 2000, Mr. Norlen was
appointed by U.S. Secretary of Commerce Bill Daley and U.S.
Trade Representative Charlene Barshefsky to be the first
environmental representative to the USTR's Industry Sector
Advisory Committee for Paper Products. Mr. Norlen, thank you
for being here as well.
Mr. David Ickert, Air Tractor Inc. on behalf of the Small
Business Exporters Association. Mr. Ickert, vice president-
finance of Air Tractor Inc. of Olney, Texas. Air Tractor is a
small business engaged in the manufacture of agriculture and
forestry firefighting airplanes. The company has been in
business since 1972 and is now 100 percent employee owned.
We look forward to the testimony of everyone, and let me
acknowledge at the front end that Senator Johanns has got to
step out about 10:35 or so, so if we could try to--I know we
give everybody 4 to 5 minutes and try to adhere to that, I
would like to let Senator Johanns get a first round of
questioning in before he has to step out.
Mr. Gratacos, if you could start your testimony, and then
we will go down the line. Thank you.
STATEMENT OF OSVALDO LUIS GRATACOS, INSPECTOR GENERAL, EXPORT-
IMPORT BANK
Mr. Gratacos. Thank you, Mr. Chairman, Ranking Member
Johanns, and Senator Bennet. Thanks for the opportunity to
testify in front of you today about Eximbank and the OIG and
the challenges the Bank is facing. Before I continue, I would
like to thank the Almighty for this opportunity, my family, and
the members of the OIG staff.
In my remarks I will provide a brief history of the Office
of Inspector General and some of its accomplishments. Then I
will discuss some of the challenges and operational weaknesses
that Eximbank is facing in performing its mission.
Eximbank OIG was created by law in 2002, but the IG did not
officially take office until August 2007. Since reaching its
current staffing levels, the OIG has achieved noticeable
success. Specifically, my office has issued 20 audit and
special reports containing over 85 findings, recommendations,
and suggestions for improving Eximbank programs and operations.
On the law enforcement side, we have actions totaling 64
indictments and arrests, 9 convictions, 14 guilty pleas; and
over 190 management referrals for enhanced due diligence
efforts. And we currently have 37 matters under investigation
covering over 500 transactions and $350 million in claims paid
by Eximbank.
Since 2009 the total overall IG financial impact is
approximately $250 million, all of this with 11 staff,
including myself, and a budget of $2.5 million.
Eximbank is the official credit agency of the United
States. It is experiencing an accelerated growth in the last
few years. In order to provide a more effective and competitive
environment, Eximbank needs to address some of its operational
weaknesses. Some of these are--and we will talk in more detail
later, but replacing an aging and ineffective IT
infrastructure. The current IT infrastructure is old,
fragmented, does not adequately support the Bank's mission or
business needs, limits the Bank's ability to meet the market
demands, and it requires manual inputs, leading to human
errors.
Lack of centralized and comprehensive participant data base
that would allow the Bank to capture and track all the
participants and all the transactions at once also limits our
ability to do forensic work when we are doing proactive
actions. Currently my office is undertaking a comprehensive
audit of the IT systems, and we hope to have a report by next
month that we can share with the Bank.
Number two, reducing transaction approval times for short-
term and medium-term programs. Eximbank recognizes this
ineffectiveness in its process and is looking for ways to
improve it. At the same time, my office is commencing an
evaluation and review of the process to see where we can
improve the business processes and improve the deficiencies of
the Bank.
Number three, the Bank needs to develop annual performance
plans to measure programs and product effectiveness. This is
something that my office has shared with the Bank, and the Bank
has acknowledged the need to do this. So after discussions with
my office, the Bank has agreed to develop performance plans
starting in fiscal year 2012.
Finally, we think that the Bank needs to continue its
efforts to meet its small business goals. As you know, the Bank
charter imposes a 20-percent small business participation
requirement on all the authorizations per year. Eximbank has
exceeded this mandate in the last 2 years and is expecting to
exceed this mandate again in 2011. Some of the steps the Bank
has taken to achieve this are the Global Access Forum, some
educational forums that they do in different States, and also
Webinars where small business can actually learn about the Bank
products and steps.
Chairman Warner, Senator Johanns, Senator Bennet, and
distinguished Members of the Subcommittee, thank you once again
for the opportunity to testify before you today, and I would be
pleased to respond to any questions you may have.
Chairman Warner. Thank you for your comments. I look
forward to the questioning opportunity.
Mr. Thompson.
STATEMENT OF CLAY THOMPSON, DIRECTOR, GLOBAL GOVERNMENT
AFFAIRS, CATERPILLAR, INC.
Mr. Thompson. Good morning, Mr. Chairman, Ranking Member
Johanns, and Senator Bennet. Thank you very much for the
opportunity to be with you today.
In my written statement, I describe Caterpillar, Inc., and
our global business model in some detail. I will not repeat all
that for your this morning, but I do want to make sure you
understand that Caterpillar is committed to its significant
U.S. production base. We are investing $1.5 billion just this
year toward expanding production capacity in the United States.
Much of that additional capacity is intended to allow us to
better serve our key export markets where our industry is
growing rapidly and where our global leadership is being
threatened by both our familiar competitors in Europe, Korea,
and Japan, as well as new entrants emerging from China and
India.
Caterpillar customers have utilized Eximbank financing at
relatively moderate levels in the past decade. We anticipate,
however, that Eximbank will play a more significant role going
forward due to at least two developments we are currently
seeing in the marketplace and also noted in the Chairman's
opening remarks.
First is the limited appetite of commercial lenders for
large infrastructure project financing, especially in key
emerging markets. We believe going forward that export credit
agencies like Eximbank will play an important role, enabling us
to improve access in emerging markets where commercial banks
need credit enhancements to support large project loans and
augment commercial bank capacity.
Second, we are seeing other sovereign export credit
agencies targeting these strategic markets and partnering with
our competitors to aggressively pursue the types of large
infrastructure and mining projects in which we historically
compete very favorably.
In terms of the size and level of aggressiveness of global
ECA activity, we fear the United States is being left behind.
Make no mistake. Eximbank is a valuable tool for U.S.
exporters, including Caterpillar. However, it could be much
more effective and more competitive with other global ECAs.
To enable this success, certain structural changes are
necessary. My written statement focuses on three such issues
that are most relevant to Caterpillar, and I will quickly
summarize those this morning.
First, the Bank should be reauthorized with an expanded
financing limit. With approximately 90 billion in commitments
already outstanding, the Bank is nearing its current $100
billion cap. Increasing the cap to $160 billion should create
sufficient flexibility to allow the Bank to compete with other
ECAs.
Second, Eximbank should revise its local content policy. At
85 percent, Eximbank's local content requirement is simply out
of whack with the rest of the world. The next lowest content
percentage requirement belongs to Austria, at 50 percent.
Finally, the cargo preference barriers should be removed.
The Bank's interpretation of a 1934 congressional resolution
requires most transactions receiving direct loan or guarantee
support from Eximbank to be shipped by a U.S.-flagged vessel.
Due to the severe limitation in U.S.-flagged cargo capacity,
this requirement drives cost increases and time delays that
customers are simply unwilling to accept. In my written
statement I describe a real-life example where the cargo
preference requirement adds $6 million to a potential
customer's costs. It is not surprising that this requirement is
leading customers to request that we source equipment to serve
their order from outside the U.S. so that they can utilize more
competitive and flexible ECA financing from other countries. If
Eximbank is to truly become a competitive ECA fully supporting
U.S. exporters and their employees, the cargo restrictions must
be lifted.
In conclusion, I would like to stress that Eximbank is a
good institution staffed by dedicated and hard-working
employees. The Bank, however, is being constrained by several
structural inhibitors that keep it from being globally
competitive. Removing constraints such as the ones I have
described this morning will improve competitiveness and support
U.S. job growth going forward.
Thank you for your time and attention.
Chairman Warner. Thank you, Mr. Thompson. I might just add
I had the opportunity growing up of living outside of Peoria,
where Caterpillar obviously had a dominant position, and it
really is one of the great American success stories, so I
appreciate your comments.
Mr. Norlen.
STATEMENT OF DOUGLAS NORLEN, POLICY DIRECTOR, PACIFIC
ENVIRONMENT
Mr. Norlen. Good morning, Chairman Warner, Ranking Member
Johanns, and Senator Bennet. Thank you for the opportunity to
testify on the renewal or reauthorization of the charter of the
Export-Import Bank.
I would like to speak today about three areas of public
interest reforms that we believe are necessary to improve the
effectiveness of Eximbank. These relate to agency
accountability, climate change/renewable energy, and promotion
of alternative export paths.
Regarding agency accountability, Congress should require
Eximbank to establish an independent accountability mechanism.
Accountability mechanisms assess complaints from people and
communities who claim to be adversely affected by projects
supported by public banks, including problems caused by
breaches of bank environmental and social policies. Such
mechanisms are increasingly the normal at public finance
institutions, such as the World Bank Group, the Asian
Development Bank, the European Bank for Reconstruction and
Development, EBRD, and the U.S. Overseas Private Investment
Corporation, OPIC, as well as many others. These mechanisms are
different from the Offices of Inspector General, which focus
more on financial problems such as fraud, waste, and abuse and
agency efficiency.
In contrast, independent accountability mechanisms have
problem-solving and conflict resolution features as well as
policy compliance functions and advising services which provide
recommendations to management on improving policies and
procedures based on real-world experience.
In our 15 years of engagement of banks on projects in
Africa, the Caucasus, Latin America, Asia, and Russia, we have
seen many examples of these kinds of mechanisms addressing
impacts to community while enhancing project outcomes and
improving agency accountability, which ultimately decreases
project risks to Eximbank and its clients. Unfortunately, we
have seen too many cases in which public banks without
accountability mechanisms finance projects that resulted in
local opposition, and sometimes uprisings, which could have
been avoided but ultimately resulted in higher risks to these
banks and their clients. I would be happy to provide you with
examples upon request.
Regarding climate change, as the world deals with the
worsening effects of climate change, including severe weather
patterns, melting polar ice, and increasing wildfires, it is
incoherent public policy to provide Government financing for
the rapid expansion of carbon-polluting energy projects.
Despite Eximbank's new carbon policy and President Obama's
pledge to phase out fossil fuel subsidies, Eximbank financing
for fossil fuel projects has skyrocketed to a record $4.5
billion last year. Congress should curb Eximbank's fossil fuel
financing.
Meanwhile, a more productive approach for Eximbank would be
to support more renewable energy and energy efficiency exports
which would have the simultaneous impact of helping to address
climate change and promote significant U.S. job and
manufacturing growth. According to a British Petroleum
statistical review, renewable energy consumption grew 15.5
percent in 2010. The Pew Center for Global Climate Change
predicts annual investment in global renewable energy markets
of $106 to $230 billion by the year 2020.
While Eximbank has made a worthy effort and has increased
renewable energy financing, the GAO has found that the agency
has consistently failed to meet a legal directive set through
congressional appropriators for the agency to allocate 10
percent of its annual financing for renewable energy and energy
efficiency. Congress can, therefore, bolster and enforce the
congressional appropriators' directives by integrating the
annual 10-percent target in the Bank's charter while increasing
the Bank's capital authority allocations that are specifically
linked to renewable energy and improve Eximbank's ability to
finance renewable energy upstream in the manufacturing process.
Thank you very much for the opportunity to testify today,
and I look forward to your questions.
Chairman Warner. Thank you, Mr. Norlen.
Mr. Ickert.
STATEMENT OF DAVID ICKERT, VICE PRESIDENT, AIR TRACTOR, INC.,
ON BEHALF OF THE SMALL BUSINESS EXPORTERS ASSOCIATION
Mr. Ickert. Chairman Warner, Ranking Member Johanns,
Senator Bennet, thank you for allowing me to have this
opportunity to testify on the reauthorization of Eximbank. I am
David Ickert, vice president of finance of Air Tractor.
It is my pleasure to submit testimony to the Committee on
why Air Tractor and the Small Business Exporters Association
strongly support the reauthorization of Eximbank.
Our support for the reauthorization of Eximbank is deeply
rooted in the experiences of Air Tractor--experience with
exports, Eximbank, and job creation. I will relate some of the
experiences of Air Tractor, but this is a much broader and
deeper story than Air Tractor. I believe this is story of many
small business exporting companies and businesses across our
Nation, and maybe even more compelling, it is the promise of
the vast potential that exists in this country with many small
business that could be exporting but are not. This potential,
when it is properly nurtured and developed, will yield jobs.
Air Tractor is a small business engaged in the manufacture
of agricultural airplanes and forestry firefighting airplanes.
As stated earlier, we have been in business since 1972, and we
are 100 percent employee owned. We have one location: Olney,
Texas. Olney is a small rural town 100 miles west of Fort Worth
and 200 miles east of Lubbock, Texas. The population of Olney:
3,000.
In 1994, we began exploring ways to find financing for our
end-user customers outside the United States. At that time, 10
percent of our sales were export sales. With research and
study, we ended up with two key partners: a commercial bank and
Eximbank, both of those.
In 1995, we did our first medium-term transaction--and that
is what most of ours are, medium-term transactions with the
Bank--to send two planes to Spain. Since that time we have sent
50 planes to the Spanish market and not again have we had to
use Eximbank, but Eximbank was key in getting us into that
market.
Since that time we have completed over 80 medium-term
transaction deals with Eximbank. For calendar year 2010, we
completed 20 and we anticipate 30 in 2011. It is worth noting
that in those 80-plus transactions that we completed with
Eximbank, we have never filed a claim with Eximbank.
It is instructive maybe to look at the employment and the
correlation of export sales of Air Tractor since 2007. At the
end of 2007, we had 165 employees. That year 36 percent of our
sales were export sales. In 2008, 197 employees; 45 percent of
our sales were export sales. In 2009, 204 employees; 49 percent
of our sales were export sales. The year ended 2010, we had 220
employees; 56 percent of our sales were export sales.
Thus, while the headlines throughout the country reflected
a growing unemployment for this period, Air Tractor created
jobs. For the period of 2007 through 2010, our employment grew
33 percent. Our percent of exports grew 55 percent. It is not
coincidental that these two factors grew in lockstep. The
growth of exports has been a significant contributor to the
jobs at Air Tractor in recent years, and Eximbank has been a
significant reason why we have been able to grow those jobs. As
I said, we went from 10 percent in 1995 to 56 percent in 2010.
So at the end of 2010, with 56 percent of our sales exports,
there were 100 people in Olney, Texas, that owed their jobs to
exporting.
During 2010 we did exports to 14 different countries. Now,
that is significant for a small business like us, but it is not
near what the world holds for us, and so we have a lot more
promise to expand our international footprint.
International sales, export sales are the reason that we
will be able to continue to grow and expand and maintain jobs
in Olney, Texas.
Bank Chairman Hochberg has done a very good job in
promoting small business commitment at the Bank. Other
administrations have not been as committed, so we think it is
very important in the reauthorization consideration that the
small business language that now exists be highlighted and be
continued in the current reauthorization.
During 2010, we paid $300,000 in fees to Eximbank, and we
were glad to do it. We had no expenses--or no claims, so it was
a good deal for everybody. As Chairman Hochberg made the
comment in the January speech, ``The Bank makes money. What a
wonderful situation. Everybody wins--including the U.S.
taxpayer.''
Olney, Texas, is my hometown. It is a place that is great
to live in and work in. I described it before when I was
describing it. It is a town with three red lights and a Dairy
Queen. I am proud of it. But it is not exactly what you think
of when you think about an exporting town. But my point is if
we can do it in Olney, Texas, small businesses can do it all
over the United States. But we need the help of Eximbank.
Thank you.
Chairman Warner. Well, thank you, Mr. Ickert. Very
impressive story, and, you know, in an effort to reinforce the
spirit, we want to show you that not everybody in the Senate
always argues with each other, and as opposed to the Chairman
going first, I am going to let my friend----
Senator Johanns. That is not true.
[Laughter.]
Chairman Warner. ----I am going to let my friend, the
Ranking Member, take the first round of questions, recognizing
his time constraints.
Senator Johanns. I had better jump in here before Senator
Bennet objects.
Mr. Ickert, you have a great story to tell and I know from
experience that there are a lot of small businesses in my State
of Nebraska and really across the country that would love to be
in your chair telling the same story. So my question to you is,
you have had success in accessing the international
marketplace. Others have not, and maybe it is because it just
looks too complex, too challenging. I do not know. There could
be a whole host of reasons. But if you were to give us advice
on what we would do in the reauthorization specifically to try
to boost our efforts with small businesses accessing the export
market, what would you tell us?
Mr. Ickert. Delegated authority, I think, would be a
continued step toward small business, where they could go to
banks and places, groups, close to them to get not only advice,
but underwriting and help. Another big thing, I think, and it
is not the subject of the reauthorization, but it is
appropriations for the Bank, where the Bank would have the
proper administrative budget and also the proper IT
infrastructure to be able to move deals along quickly. They
have got to have those tools, and the quick turnaround time, I
think, is essential, especially to small businesses, in
embracing exporting. Seeing deals done, seeing success breeds
more opportunities and more attempts for them to go into the
market.
Senator Johanns. Great. Like I said, you have a great story
and I would love to see that story repeated across our country,
because, like I said, I have seen businesses that want to be in
the export market. They would even spend the money to travel
with me on trade missions. Some would be successful, like you
have experienced. Others, they just could not quite figure out
how they could do it. And so anything that we can do that would
be helpful would be very positive.
Mr. Thompson, you are kind of on the other end of the
spectrum. You are certainly a large enterprise, very familiar
with the export market. I would like you to give me a practical
example, if you would, about the content requirement, because
as you know, that is a very, very sensitive issue. But give me
just a practical description about how that can be a stumbling
block to actually doing more business in the export arena.
Mr. Thompson. Well, the range of Caterpillar's local
content for equipment manufactured in the U.S. is roughly from
70 percent to about 88 percent, so when you talk about our
product that qualifies for full Eximbank financing support, it
is a pretty narrow slice, so--and you have to remember, we are
bidding competitively for truck deals in places like Indonesia,
cited in my written statement, against competitors who are
coming in with very aggressive bids.
So the fact that such a narrow slice of our product is even
eligible for full financing is a problem, and if you cannot get
full financing from your home Eximbank, it is almost guaranteed
that other countries will come in with full financing for their
locally produced product. So it sets us at a competitive
disadvantage once we get to the financing discussion with
customers, there is no doubt about it.
Senator Johanns. Mr. Gratacos, you talk a little bit about
exposure limits. These days, one of the things uppermost in
everybody's mind is concern about putting the taxpayers on the
dotted line, if you know what I am saying. Describe for me your
comfort level in us going from $100 billion to $160 billion,
which I think is the House proposal, and witnesses here have
supported that, because there is exposure here, as you know. I
would like, just from your standpoint as somebody who kind of
looks over this and is looking out for the taxpayers'
interests, give me your comfort level on us taking that next
step.
Mr. Gratacos. Well, I think raising the ceiling for the
authorization levels is something that the market is asking
for. So I think this Subcommittee should consider moving the
ceiling up. Whether or not it is along the lines of the House
proposal is something for this Subcommittee to debate.
We think that the real exposure on the Bank side will be
enhancing the due diligence practices on the medium-term side
and short-term side. If you look historically, the long-term
side has low claims. On the medium-term side is a different
story. So I think the real challenge will be to improve the due
diligence practice on that side.
Having said that, I think the Bank historically has
demonstrated it has been able to handle the increases on
authorization levels since its inception. There will be some
matters that we will be looking at down the road in terms of
risk management practices because of the concentration, risk
concentration on the portfolio, which is on the transportation
side, but that is something that we will be talking to the Bank
down the road.
Senator Johanns. OK. Great. Thank you, Mr. Chairman.
Chairman Warner. Thank you, Senator Johanns.
I want to pick up on a couple lines of questioning that
Senator Johanns started with. One is on the local content
percentage--and this is directed to Mr. Thompson, but if
anybody else on the panel wants to weigh in, please feel free--
the challenge, particularly as we see other ECAs have more
flexibility, it becomes difficult with the goal to kind of
increase American jobs, as Senator Bennet mentioned, how you
mention with the number here. What kind of thought has been
given? Clearly, the kind of old definition of what is local
content versus kind of the component part make-up at this point
and the more global supply chain is really different. Are there
ways to think about this issue other than on a percentage basis
kind of in that definitional space around local content?
Mr. Thompson. Well, I think what we see other countries
doing--Canada, for example, they do not even talk about a local
content requirement. They talk about, more broadly, whether a
transaction benefits the economy or the employment base of the
local country, and other countries adopt a bit more of that
type of test.
It is, as I said, a bit short-sighted in our view to have
an 85 percent local content requirement that only considers
actual physical piece parts, does not take into account R&D and
other marketing services that may have taken place within the
U.S. to facilitate the ultimate sale of a product. From a job
creation standpoint, it is only going to benefit Caterpillar to
lower that content requirement. That means more of our product
will be financed. That means more of our product will be built.
That means more of the people assembling that product in
Decatur, Illinois, and other places will be employed and so on
and so forth back through the supply chain that we robustly use
here in the U.S.
Chairman Warner. Has there been any thought from industry
about an either/or, either 85 percent or if you can demonstrate
more jobs and investment that would come from not having the
strict percentage? Has anybody worked down to that detail? We
have had a lot of kind of off-line discussions with folks about
this issue and I know it is challenging, but have people looked
at alternative definitions?
Mr. Thompson. Well, certainly the either/or example you
throw out would be an improvement over what we face now, but we
would probably prefer to see that percentage dropped even under
the either/or scenario. And, you know, that is going to create
administrative challenges for the banks to measure a less
quantifiable standard, but when you look at the overall
competitive situation we are in, we think that is preferable to
the situation we are in now.
Chairman Warner. Let me also ask--and this is for both Mr.
Norlen and Mr. Thompson, I am going to come back to Mr. Ickert
in a couple minutes--we talk about, and I think you raise a
good point in your testimony, again, that for a long time,
other than ECAs, there was not a lot of backstop for emerging
markets, long-term financing, and now we have got the
circumstances of, again, the Chinas of the world trying to make
aggressive policy moves in those countries. Yet the credit risk
analysis, the underwriting standards for some of these
countries have got to be a little more challenging. Mr. Norlen
also talked about the notion of how we make sure we move
forward with our, I think, appropriate goals around climate
change.
But there may be--do you have a different underwriting
standard for those type of deals? And I just am curious,
comment-wise, how we achieve these policy goals--and Mr.
Gratacos, if you could also comment, as well--at the same time
making sure that we maintain the high underwriting standards
that the Bank has had to make sure that we get a return on
taxpayer investment. We can just go down the list, and I am
going to come back for a second round with Mr. Ickert.
Mr. Gratacos. Yes. I think that the way for the Bank, like
any other bank, to actually conduct different due diligence
standards based on the risk associated with the transaction.
Either when you look at a market that you have no experience
with, there is actually a set of due diligence steps that you
can take to address the situation, and it depends on the
products, too. If you look at the history of the product, the
likelihood of having a default in the long term is much less,
historically speaking, than if you look at the medium-term or
short-term.
So in those transactions, given the new areas that the Bank
is expanding in, the knowledge or limited knowledge of the
market and the lack of current information on some of the
borrowers, I think the Bank had no choice but to enhance the
due diligence standards, looking at either financial statements
or any other steps that they can take to minimize the risk that
they are undertaking.
Chairman Warner. All right. Mr. Thompson and Mr. Norlen,
and then I will move to----
Mr. Thompson. I might comment just briefly, just to clarify
a little bit on some of the assumptions behind the
environmental policies the Bank encourages. It should be
remembered that the leverage of a supplier in these types of
transactions is limited. So if there is a coal mine bid, for
example, and Caterpillar mining trucks are being considered for
the bid, our mining trucks built in Decatur, Illinois, operate
with the cleanest diesel engine emissions capable anywhere in
the world.
If we do not get that deal because our financing package
from Eximbank is not as competitive or Eximbank declines to
support it, that deal is going to go to a company--someone is
going to be mining that coal using equipment that probably is
not as environmentally responsible as ours.
Chairman Warner. Mr. Norlen.
Mr. Norlen. Mr. Chairman, it is very important for the U.S.
Government to do more internationally through the OECD and
through the G-20 to press other governments for higher
environmental standards. But as discussed by many panelists
today, some of the projects that we are dealing with in some of
these countries are extremely high-risk projects which pose
risk to the U.S. Government, to Eximbank, and thus to the
American public.
We need to take measures that reduce the risk of
environmental and social harm and thus reduce the risk of
potential opposition to projects, and that can take many forms.
We have seen instances when local people have formed
roadblocks. We have seen instances where governments have
expropriated projects, sometimes on the basis of growing
frustration because of a lack of concern for environmental and
social risks.
It seems interesting to me that we would compete with other
countries on the basis of who could increase the greatest
amount of risks to themselves. It seems illogical to us. And so
we need to do better. We need to incorporate independent
accountability mechanisms and improve standards, and that
ultimately will benefit the U.S. Government and the U.S. public
and the clients, as well, in the end.
Chairman Warner. Thank you. I will come back to another
round.
Senator Bennet.
Senator Bennet. Thank you, Mr. Chairman, and with your
indulgence, I am going to go off topic. I am going to come back
to this, but I cannot resist because of Mr. Thompson's personal
experience to ask him what, based on the experience of
Caterpillar in China--I met with your counterpart over there in
Beijing with the American Chamber of Commerce. If you could
give us some thoughts about that market in particular, stepping
away from the Eximbank conversation, and what you see as the
real barriers and the real opportunities in China for our
exporters. What is it that we can do?
There is a lot of discussion about the rising GDP there
versus here. We still obviously have a huge GDP per capita
compared to the Chinese that presents an enormous opportunity
if we can figure out a trade arrangement that actually makes
sense. And since you are here, I think it is important to take
the opportunity to hear your wisdom on that.
Mr. Thompson. Thank you, Senator. I can only speak for our
industry, at least knowledgeably, and China is one of the most,
if not the most, rapidly growing market for our products and
services in the world. So it is a place that we specifically
see the competitive landscape for leadership in our industry
playing out right now. We have to compete there. We have to
compete effectively there.
There are challenges there and things like local
procurement and indigenous innovation and currency issues have
been discussed here in another context to a great extent. We
are very encouraged by the commitments that President Hu made
in his state visit earlier this year on the local procurement
and the indigenous innovation side to make sure that that is a
more even playing field than it has been historically, and we
are seeing those commitments being followed through in China,
so that is very encouraging.
You know, Caterpillar has a little bit different
perspective on this in terms of the potential competitive
landscape. In the 1980s, when currency levels were where they
were, Komatsu from Japan was making huge headway against us in
the global marketplace and the Japanese industry in general was
seen as a big threat and there were companies that went to the
Government and asked for certain levels of protection and there
were companies that buckled down and said, this is a challenge
and we need to improve our game and compete more effectively.
Caterpillar chose that latter route, and in looking back on it,
that made us a much, much stronger company and into the leader
that we are today. That is sort of how we are viewing the
Chinese landscape, as well. And we have seen waves of this from
Korea and other places, as well.
As long as we have got a level playing field in which to
compete, and we think the signs are heading that way, we are
excited about the opportunity in China. It is a huge growth
opportunity for us.
Senator Bennet. Thank you. I wanted to follow up on some of
the questions from the Chairman with Mr. Norlen and Mr.
Gratacos. My understanding is that according to GAO, from 2003
through the first half of 2010, renewable energy constituted
0.23 percent of total Eximbank financing exports, despite the
Congressional goal that you talked about, Mr. Norlen, of 10
percent. And from Colorado's standpoint, our clean technology
energy industry grew at a record 32.7 percent in the last 5
years, and we are not alone. This is happening all over the
country. It is a huge part of America's business outlook.
I know a lot of exports question whether Eximbank's lending
patterns are doing enough when it comes to clean technology
goods and services, so I would like to hear you specifically
delineate what you think the challenges have been to meeting
that 10 percent goal and what we can do to advance that cause.
Mr. Norlen. Thank you, Senator. One of the interesting
things in the GAO report was a comparison between Eximbank's
efforts to promote renewable energy and meet that mandate and
its efforts to meet its small business support mandate, and it
found that it had met its small business support mandate,
largely by integrating this mission more deeply into all the
different departments and programs, in other words, wiring it
more deeply into the DNA of the agency.
Eximbank's renewable energy promotion program is a bit more
stovepiped. We have identified several ways that we think can
help. One, the 10 percent target that we have mentioned is an
Appropriations Committee-set target which has to be returned to
every year, and that is a bit, I think, frustrating for all
concerned, and if that was in the charter, I think that would
be taken a bit more seriously and would have a little bit more
rigidity to it.
Second, we believe that, for example, if some of the
increase in capital authority for Eximbank is linked to
specific renewable energy targets and if there are
disincentives to not meeting that through the capital authority
extension, such as withholding capital authority when they do
not meet that target, that that might help, as well.
Increased assignment of staff, of existing staff and
management to the task could also potentially help. With small
business, there is any number of staff and officials within
Eximbank that are specifically tasked to this. Ex-Im Bank
currently has a pretty small renewable energy, energy
efficiency department, and these and many other somewhat
practical and simple measures, we think, could greatly help.
Mr. Gratacos. I think I kind of agree with some points that
Mr. Norlen made regarding the staffing and some of the other
steps. But I think we have to take that report it into context,
put into context. There was a report issued by the Department
of Commerce talking about renewable energy exports for 2009 and
it only mentioned--there were $2.4 or $2.5 billion in renewable
energy exports. Well, Eximbank's authorization levels for that
year were about $24 billion, right, and so 10 percent of that
will mean that every exporter of renewable energy in the U.S.
will have to be supported by Eximbank to be able to meet the 10
percent of this authorization. So it is good to put that into
context when we look at the report, and that is something that
the GAO report actually acknowledges in their report.
The second point is that there have been steps taken since
that were actually coordinated by the new Administration that
are part of the different marketing efforts that the Bank is
taking. Before, the Bank was pushing all of its products mainly
through lenders. It was a lender-driven situation. Now, they
are doing some of the steps that we mentioned before, which is
taking the product toward the exporter with all these events,
and they have created some products for renewable energy, like
Solar Express and some of these other products, and the hope is
that at some point it will actually increase the levels of
authorization to be able to get as close as possible to that 10
percent.
So there are some things the Bank could do better, like Mr.
Norlen mentioned, but also, there was some limitation because
of the market they were servicing.
Senator Bennet. That is helpful. Thank you. I would like to
thank all the witnesses. Mr. Ickert, thank you for your
testimony. It is a great story. And, Mr. Chairman, thanks again
for having this hearing.
Chairman Warner. Thank you, Senator Bennet. I do not know
if you have got other questions. We could go back and forth, or
are you--all right.
Let me go to Mr. Ickert and Mr. Gratacos at this point,
although let me make one editorial comment about your question.
I can see you turned it on to get a response. I think Mr.
Thompson's comment, celebrate the Caterpillar success story,
and I want us to do all we can to expand our trade
opportunities with China. I am actually pleased that you
think--the statement that the Chinese are starting to move
forward. You know, I do get concerned at times that I think
many American businesses have this eye of this wonderful
opportunity of the Chinese markets and sometimes sacrifice
standards, intellectual property, adhere to restrictions to get
into the Chinese market that they would not do for any other
country in the world and then complain to policymakers that we
do not do enough to push. Again, Caterpillar has got a pretty
good record of meeting the competition as long as there is that
level playing field, but I do think we need that level playing
field.
Senator Bennet. I agree completely, and that is some of
what I heard when I was over there, is that people are so
anxious to get into the market, which we need to do, you need
to do, but the idea that the Chinese would be insisting that
you give up your IP to do that, you give up your manufacturing
processes to do that, that is a trade that we are going to
regret someday if we make it.
So I think it is a combination of both, whatever business
practice it is you are doing to out-compete and whatever policy
we can actually--you mentioned currency manipulation, for
example. This is an interesting topic, particularly in your
industry, because as I understand it, what you are looking to
do is manufacture in China and export within--not export, but
sell within that domestic market, which means that maybe in
that context, that issue is not really the real issue, the
gating issue for you. But the other ones that the Chairman
mentioned may be more important, and we have just got to find a
path forward here so that we can build these exports.
Chairman Warner. I agree, Senator Bennet.
Let me, Mr. Ickert, I want to come to some of your, again,
tremendous success story and how we see more of these success
stories, not just in--it is Olney, Texas?
Mr. Ickert. Yes, sir.
Chairman Warner. Not just in Olney, Texas. I need them in
Martinsville, Virginia, as well. And you mentioned the kind of
distributed authority, the ability from Eximbank to try to push
some of this decision making down, and I believe, Mr. Gratacos,
Mr. Ickert's company would probably be in that short- to
medium-term financing as opposed to long-term infrastructure
category. So--and you, I think, appropriately pointed out those
are tougher deals to underwrite and go through.
How do we get that balance right and what can we do in the
reauthorization legislation to get more success stories on the
small to midsize? I would like you to follow up more on the
distributed authority, and I would also like, Mr. Ickert and
you, Mr. Gratacos, to comment, and again, Mr. Thompson, you may
want to weigh in on this, as well, the fact that we have hard
lots of criticisms of the Bank.
I think there is a recognition that, as you just mentioned,
Chairman Hochberg is trying to move this forward in a better
way, that there has been slow processing time, which is a
particular burden to small- and medium-size industries, kind of
waiting for how long to get through the bureaucracy. There was
the 2010 competition report that noted that, and I was happy to
hear, Mr. Gratacos, that you as the IG were looking at that,
and I would be anxious to know, is there kind of a defined
goal? People ought to get an answer by X-number of days when
they have put their application in, put their review process
in. Or are you just trying to shorten the process or actually
get it down to a fixed number of days?
But, first of all, Mr. Ickert, if you want to comment on
either of those, and then Mr. Gratacos.
Mr. Ickert. Thank you, Mr. Chairman. As my testimony
focused on, it is about jobs and the potential for jobs,
especially that small business can create in this country, and
I think that potential is tremendous. I think President Obama
was right on the mark with the National Export Initiative and
that we need to move forward and push that deeper.
Now, it goes back to small business. A lot of small
businesses in this country are not exporting, but they could.
One of the first places I think a lot of them go to when they
ask and say, what do I do, where do I go, is probably their
commercial bank. The more that we could have delegated
authority, and I know the bank does have delegated authority
now on the working capital, that it is in the charter to do
medium-term. But the more we can push, say, the medium-term--
that is what we use--medium-term delegated authority out there
and get the banks to be able to be familiar with it, to use it,
and so when that small business customer comes in and says,
what do I do, they can get not only answers, but guidance and
steps forward to success. Otherwise, I think there is probably
a reluctance to--or maybe not even a reluctance as much as not
knowing where to go in Washington from Olney, Texas, or
wherever.
And the other thing is, along your questioning, is the fact
of the turnaround time. The turnaround time from our standpoint
has gotten much better under Chairman Hochberg's
administration, but at times in other administrations, it has
been very slow.
Chairman Warner. Can I just ask one--interject one question
there?
Mr. Ickert. Sure.
Chairman Warner. Do you think your turnaround time--I like
Chairman Hochberg. I hope it was because of his administrative
changes. But do you think the turnaround time improved because
there was a change in Eximbank administration or do you think
it was because you had had a good track record of doing
business with Eximbank?
Mr. Ickert. I think actually it was probably a little bit
of both, but I think it had to start with the administration
saying, we are going to do things faster.
But, going back to small business and getting more small
business in the exporting, that time, that wait time, if it is
2, 3, 4 months, they are going to get frustrated and they are
not going to come back. So I think the turnaround time is very
important. So that goes back also to delegated authority. It
goes back to having the budget and the IT infrastructure to
move deals through. But it goes back from the administration at
the Bank, saying we are going to do a better job. We recognize
we are not doing it as fast and we are going to do better.
Chairman Warner. But would you have as a goal--and we are
going to get to you next, Mr. Gratacos but is there--the thing
I wrestle with is some deals, having spent longer still on your
side of the dais than this side of the dais and as a business
guy for 20 years and having done financing, some deals are
tougher to sort through than others. I guess the concern I
have, if we had a set deal and any approval needs to get an
answer within 60 days, which would be a great goal as business
guys we might have, but that might knock out certain more
complex deals that you cannot just get done in 60 days. Should
it be more of a flexible rolling goal of we want to get 80
percent of the decisions by X-number of days, recognizing there
are some deals that may be a little more complex? Have you or
the kind of the association of small- and medium-sized
businesses who are also wanting this time quicker, do you have
some specific proposals in that area?
Mr. Ickert. Well----
Chairman Warner. Or if you would like to think about it
beyond and get back into the record on some ideas----
Mr. Ickert. I could do that, but also, I think it is--there
is--it is incumbent on all parties. The exporter submitting the
deal needs to know that they have a responsibility to have
vetted it and to submit a complete package, and so, again, that
goes back to the education process. That goes back to the
delegated authority. It goes back to being hands-on in the
field educating small business.
So, first of all, there is a responsibility there. I do
think that you are exactly on point as far as the complexity
and that there should be--there are some deals that are going
to be outside of a time limit. We like to see our deals through
in 30 to 45 days. Sixty actually is a little bit long. But I
think the main thing is if there is communication back and
forth, that people know the deals are moving, they know where
the complexities are, they know where the issues are, that
mitigates to a large extent the wait. It is when they go in,
you lose them, and you hear three or 4 months back, which has
been the case in the past, is not the case now. But that
discourages small business. That discourages job creation in
this country.
Chairman Warner. Thank you, sir, and Mr. Gratacos, I would
be anxious to hear, again, what some of your work--you
mentioned your three points you were looking at. This kind of
more agreed-upon time line of getting back to folks, I would be
anxious to hear, and also the question of whether kind of a
more standardized underwriting process would lead to that
quicker response.
Mr. Gratacos. Well, I like what Mr. Ickert said. I wish
some of the exporters were that responsible. He is saying that
exporters should know what they have to do.
I am going to address some of the points based on your
question and his question. First of all, delegated authority in
the medium-term program. It is a product that is relatively
new. I think it has been in place for about 3 years or so. It
is not a product that has been received well by lenders, and I
think that is where the problem lies. There is some back and
forth with lenders as to how the delegated authority program
should look like on the medium-term side.
The reason is you look at the numbers. Only three lenders
have actually signed up for it insofar as information I have.
Two of them--one of them has not even finalized all the
paperwork. One of them finalized the paperwork with no deals.
And then there is one that has about 30-plus million dollars.
Chairman Warner. And the reason why most of the lenders
have not signed up for this, do you have----
Mr. Ickert. Well, it depends who you ask. I mean, some--if
you talk to the Bankers Association of Finance and Trade, they
are saying, well, asking the bank to have some exposure on the
deal, which is a tradeoff for the delayed authority, has not
been something that they would be looking at.
Mr. Gratacos. They also alluded to the fact that that was
part of the honors requirements that the banks are imposing,
but then when we look historically, I went back in my office,
went back and looked to 2000 and 2011, we saw that the actual
medium-term transactions were going down even before some of
these requirements were asked or imposed.
So the question is, is the market by itself using--
minimizing the use of medium-term in the ECA context? It is
hard to tell. I think from the Bank's perspective, I believe
there were 600-plus transactions in 2000 worth $1.8 billion or
so. It went down to maybe 200 transactions in 2009 with $600
million, and the last few years, it actually had gone up, where
this year the projection says that it is going to be in the 300
to 400 transactions, $1.3 billion, almost getting to that 2000
level.
So is it a matter of the product, that it was just created
3 years ago, or is it that the bankers or lenders do not feel
that it is a product that they can benefit off? It is hard to
tell at this moment. I agree that it will have a benefit for
the exporters, like Mr. Ickert is saying, because it will
expedite the process since some of the work will be done by the
lenders on the processing side.
Going back to the other questions that you have, and I
believe you said how is the IG review on the processing time,
we are actually looking at the way to improve the entire
process in terms of the cycle time, and there are different
levels of approval based on the product or the program. If it
is short-term, there should be a set of times, if it is medium-
term, and if it is long-term. Because of the complexity of some
of the deals that you alluded to, it is hard to put the line on
all medium-term products.
But I think in the case--I have not looked at the case of
Air Tractor specifically, but having someone who has no history
of claims, having someone who understands the process of
exporting products and the Bank is familiar with may help
expedite the transaction, obviously, and that might be the case
that he is experiencing. I think the Bank has realized that
they have to do something about lowering the time, and I think
there is a lot to be done internally, where you can create
internal deadlines within the groups of individuals involved in
a transaction and hold those divisions accountable to minimize
the length of the transaction. So if we have some legal
questions, if we impose performance measures where we say,
legal, you only have 5 days to turn around your concerns, as
opposed to spending 20 days looking at the legal arguments.
You know, that is something the bank can do with no
alteration to the charter, no improvement in IT systems. I
mean, this is something that goes in-house, and I think that is
what we are looking at, you know, how can we develop a process
where the Bank can actually lower the cycle time, can minimize
the impact on the wait, and can actually hold people
accountable within the Bank, and I think everybody will benefit
from that.
And I think you may have--oh, and that shows, I think
something we were talking about earlier, some of the issues
that the Bank has in terms of performance matrix. I mean, this
would be something that should be captured. It should be
something measured. And that way, you know where your
performance lags. And I think that it goes with the whole view
that we have from the top of how we can improve the process of
the Bank. But we are focusing on short-term and medium-term
first. Long-term, some of these deals are more complex and so
it is very hard to put the Bank in a bind by asking them to get
it done in X-number of days.
Chairman Warner. Well, thank you, and I do want to give Mr.
Ickert one chance to respond on the delegated authority. It
does seem to me this is not appropriate, or I do not believe,
at least, the appropriate role of Congress to specifically
instruct a date certain for each deal review, but I do think
the policy goal of trying to shorten that process or at least
make sure, as Mr. Ickert has pointed out, for first-time
applicants that they hear from the bank so they do not just
kind of go into this waiting period forever and policy goals
that might not be X-number of days for every deal, but a goal
that 90 percent of the deals in what category would be done at
legal within 5 days. You have got to leave some out for those
complex deals because this is not all cookie-cutter.
Mr. Ickert, do you have any comment about the fact that not
so many institutions are taking on this delegated authority
opportunity?
Mr. Ickert. I think that, as he stated, there is some
concern on the Bank about how much exposure they have, and I
think that is where the discussion seems to have a shutdown. If
we could have more emphasis from the Bank, the Ex-Im Bank, with
the commercial banks to try and draw these people in, I think
there is some room to negotiate and move forward. But I think
it is on the matter of how much exposure the banks have.
But the ultimate thing that we get to, if Eximbank is at
$35 billion in authorizations now and their staff is stretched,
their budget is stretched, and we--I was at EBC last week. They
did $88 billion last year. If we are going to go to those kind
of numbers, we have got to look further than just 811 Vermont
on how we move deals through the channel, and delegated
authority seems to be, in my humble opinion--and understand, I
am from Olney, Texas, that the banking system is there and it
would----
Chairman Warner. Your numbers have been pretty good the
last three or 4 years, so keep going.
[Laughter.]
Mr. Ickert. That the banking system is there and delegated
authority would be a way to be able to get a system to move
more deals through and create more jobs in this country.
Chairman Warner. I have got one last question I just want
to raise, and I think, Mr. Gratacos, you raised it, and I
believe, Mr. Thompson, you raised it, as well. I find it
interesting when we have areas like Eximbank where we have a, I
think, a success story, but a success story that is under
competition from abroad, that is making money, that my
inclination is that we need to expand the authority if we are
going to reach this goal and we need more Ickerts up here
telling these small- and medium-sized success stories, that we
still seem to have this kind of desire amongst some in Congress
to micromanage the administrative half of the budget, and I may
be a little biased having a telecom and IT background, but the
notion that we would not put in place advanced IT systems to
try to be able to speed up this processing time, to be able to
assist the staff, seems a bit short-sighted to me, and I know
that was one of the points you raised, Mr. Gratacos, but maybe
we can let, if there is any of the other panel that wants to
comment on that, and then, Mr. Gratacos, you get the last word
on that issue. Does anyone want to raise a comment on that?
Mr. Thompson. Well, Senator, this may be more responsive to
the last question than your most recent question, but I think
Caterpillar does hear from customers frustration about the
slowness of the Bank. To a certain extent, customers are always
going to complain about the slowness of a bank. But I think it
is important to remember there is the credit side and the
policy side of the Bank, and I think the type of IT investments
and the other process improvements that we are talking about
here would definitely speed up the credit side.
I think, respectfully, it would be important, though, for
Members of the Committee to remember as you are thinking about
this issue, the policy side, as well. To the extent that we are
trying to implement public policy through the Bank, and to the
extent we are going sort of beyond OECD requirements in doing
that, those steps all require a level of transactional due
diligence at the transaction level that add to this slowness,
certainly relatively to other global ECAs.
So I am maybe thinking too much in my neighbor's head here,
but it seems a little bit unfair for Congress to say, Eximbank,
you have to go faster, but on the other hand, here are a bunch
more requirements we want to make sure that are implemented as
a result of these financings.
Chairman Warner. Mr. Thompson, I am shocked. You are saying
that Congress might put out contradictory messages?
[Laughter.]
Mr. Thompson. Uh----
Chairman Warner. Mr. Gratacos.
Mr. Gratacos. It is Government.
[Laughter.]
Mr. Gratacos. He has a point. I think to be more
competitive, the Bank needs to upgrade its IT system. I think
there is no question about it. It is one of those areas of the
Bank where everybody understands is a problem, and I have
raised this point before. We are a big advocate for the Bank to
be able to get the resources, not only IT-wise but also staff-
wise. I mean, look at the growth of the Bank the last six, 7
years. Keeping the same levels, staff levels, for the past 10
years, the portfolio has grown significantly.
Because of my position, my concern will always be how is
that money going to be invested, and my concern always has been
if we advocate, because we think it is something the Bank needs
to be more competitive, but make sure that there is a
comprehensive plan in place where all the business needs and
processes are in place so that you can actually make the Bank
competitive from the operational side and, therefore, provide
better customer service in the long run and to be able to meet
the demands that the U.S. market is presenting.
Chairman Warner. Well, I would like to very much thank the
panel, I think, for a very good discussion. It has helped me
and my thinking on this issue. I think you have all brought a
very interesting perspective.
As I said at the outset of the hearing, we will add
additional testimony from folks who could not join us today. I
know there was particular interest from Thea Lee from the AFL-
CIO and Owen Herrnstadt from the Machinists. I think their
testimonies are going to go at the issue that we spent some
time on today in terms of the issue of content, which we all
have that policy goal of advancing American jobs and business,
and, Mr. Norlen, I believe as well as you, in a way that takes
advantage of these new business opportunities as well as the
valid environmental issues you raise, and that is the question
of whether a fixed percentage is the only way to go at it when
this is an issue that deals with not just domestic content,
local content, global supply chain, margin allocation, company
financing. It is more than just a fixed percentage, and I think
there are examples of other ECAs around the world who have
taken a different approach that have shown some success.
But we do at the end of the day need to recognize, as most
Members have made--most of the testimony and I think all the
Members, we have got a credit deal here and we have got a
policy goal, and trying to get that balance right and trying to
get it right in a way that we can get timely responses. The
Caterpillars and the large companies understand this. There are
a host of other small- and medium-sized businesses that need to
duplicate your record and get advantage of the kind of success
story you have got and we think Export-Import Bank can be a big
piece of that. I think we have got to look at an expanded
authority if we are going to stay competitive. So this
Subcommittee will work and work with the full Committee and we
hope to move forward on this reauthorization.
As I indicated at the outset for my colleagues who are not
here, the record will remain open for the next 7 days and they
may have some written questions for you all.
Again, I thank the witnesses, and with that, the hearing is
adjourned. Thank you all very much.
[Whereupon, at 11:25 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF SENATOR MARK KIRK
I would like to thank Chairman Warner and Ranking Member Johanns
for holding this important hearing.
I support reauthorizing the Ex-Im Bank before its mandate expires
on September 30, 2011. As a self-sustaining agency, it carries no cost
to the taxpayer. In fact, it has earned $4.5 billion in revenues for
the U.S. Treasury since 1992.
Support from Ex-Im remains important for multinational companies as
well as small- and medium size enterprises across the U.S. Caterpillar,
for example, employs 23,000 people in Illinois and has benefited from
$300 million of the Bank's financing since 2006. Since 2007, Ex-Im also
provided financing to 180 small businesses across our State.
As we work to reauthorize Ex-Im, I urge this Committee to adopt
commonsense reforms to render Ex-Im a more competitive and effective
global export credit agency. Foremost, I support increasing Ex-Im's
lending cap to $160 billion by FY2014, consistent with the level that
passed the House Committee on Financial Services on June 22, 2011, as
part of the Securing American Jobs Through Exports Act of 2011 (H.R.
2072).
I believe the Committee should lower the domestic content
requirement for Ex-Im supported exports. According to the Chamber of
Commerce, current policy ``fails to account for the present day reality
of global supply chains which exporters need to maintain their
international competitiveness.''
Additionally, I support the recommendations made by Ex-Im's Office
of Inspector General to streamline Ex-Im programs and operations and to
stamp out fraud and abuse.
Without these reforms, Ex-Im stands to lose additional ground to
its global competitors. Despite recent increases in export volumes, Ex-
Im still finances less than 5 percent of U.S. exports. In 2010, China
supported over three times the amount of medium- and long-term official
export credit volume than the United States.
Ex-Im's mission remains critical to maintaining U.S.
competitiveness, opening new markets for our employers and creating
American jobs. However, it is no replacement for sound tax and trade
policy that provides necessary incentives to keep jobs in the U.S. and
gives American companies the tools to compete globally. In addition, we
must curb the regulatory zeal of Washington's bureaucrats, which
threatens to drive jobs abroad.
I look forward to working with my colleagues to reauthorize the
Export-Import Bank of the United States.
Thank you.
______
PREPARED STATEMENT OF OSVALDO LUIS GRATACOS
Inspector General, Export-Import Bank
June 30, 2011
Good afternoon, Chairman Warner, Ranking Member Johanns, and
distinguished Members of this honorable Subcommittee.
Thank you for the invitation and opportunity to testify before you
about the activities of the Office of Inspector General (OIG) and the
programs and operations of the Export-Import Bank (Ex-Im Bank) as it
relates to Export-Import Bank Reauthorization. Before I continue, I
would like to thank the Almighty for this opportunity, my family, and
the members of the Ex-Im OIG staff for their hard work.
I. Ex-Im Bank
The Ex-Im Bank is the official export credit agency (ECA) of the
United States. Ex-Im Bank supports the financing of U.S. goods and
services in international markets, turning export opportunities into
actual sales that help U.S. companies of all sizes to create and
maintain jobs in the United States. Ex-Im Bank has programs to address
short, medium, and long-term needs of exporters; assuming the credit
and country risks that the private sector is unable or unwilling to
accept. Ex-Im Bank also helps U.S. exporters remain competitive by
countering the export financing provided by foreign governments on
behalf of foreign companies. At the same time, Ex-Im Bank must
safeguard taxpayer resources by determining that there is a reasonable
likelihood of repayment with respect to each of its transactions.
Ex-Im Bank is experiencing unprecedented growth--achieving 3
straight years of record authorization levels. Ex-Im Bank is projecting
another record year in FY2011. For the first 6 months of FY2011, Ex-Im
Bank reported $13.4 billion in new authorizations. Ex-Im Bank has
achieved this increase with basically the same staffing level for the
past decade. This not only demonstrates the commitment, knowledge, and
expertise of the staff at Ex-Im Bank, but also the need in the market
for Government-supported export financing in this very competitive and
difficult credit market.
II. Ex-Im OIG
Ex-Im OIG was statutorily created in 2002 \1\ but the Inspector
General did not officially take office until August 2007. Since
reaching current staffing levels, the OIG has achieved noticeable
success in performing its statutory duties. Specifically, the OIG has
issued twenty (20) audit and special reports containing eighty-five
(85) findings, recommendations, and suggestions for improving Ex-Im
Bank programs and operations. Our investigative efforts have resulted
in a number of law enforcement actions, including: sixty-four (64)
indictments and arrests; nine (9) convictions, fourteen (14) guilty
pleas; and over one hundred and ninety-one (191) management referrals
for enhanced due diligence actions. Since 2009, the total overall OIG
financial impact is approximately $250 million. Currently, the OIG is
investigating thirty-seven (37) open matters representing approximately
$348 million in claims paid by Ex-Im Bank (or around 15.3 percent of
all Ex-Im Bank claims paid as of the end of FY2010). All of this has
been accomplished with a very modest annual budget of $2.5 million and
a staff of 11 professionals.
---------------------------------------------------------------------------
\1\ Export-Import Bank Reauthorization Act of 2002, P.L. 107-189,
Sec 22 (June 14, 2002).
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III. Competitiveness: Operational Areas
In order to better meet export credit needs of the American
exporters and improve the customer service experience of its
participants while balancing its responsibilities, it is our opinion
that Ex-Im Bank needs to address some operational weaknesses and
challenges it is facing. We believe that addressing these operational
weaknesses and challenges would provide Ex-Im Bank with a more
efficient capability to create and maintain jobs in the United States.
Besides increasing staffing levels to reflect the growth in
authorizations, some of the challenges Ex-Im Bank needs to address are:
Inefficient and Ineffective Information Technology (IT)
Platform. Ex-Im Bank uses an ineffective, inefficient, and
fragmented IT platform and infrastructure composed of several
systems and databases. These systems and databases do not
effectively and accurately interface with each other--
compromising data integrity, duplicative information, and
creating unreliable files. Further, these systems make data
mining burdensome and time consuming.
Ex-Im Bank lacks an end-to-end IT system that allows for
seamless management of applications/files and flow of
information within the Bank and would allow different
components within the Bank to work on the same files at the
same time from the same platform.
Ex-Im Bank lacks a centralized and comprehensive
participant database that would allow the Bank to capture and
track all the participants (lenders, buyers, exporters,
suppliers, brokers, agents, and others) involved at different
transactions at any given moment in time. This weakness
prevents Ex-Im Bank and our office from conducting effective
forensic analysis to identify possible patterns in
transactions.
Because the IT platforms do not fully meet business and
operational needs, Ex-Im Bank divisions and components have
created subsequent data subsystems to address the specific
needs of that office or division. Some of these subsystems
require manual input of data and do not interface with Ex-Im
Bank's main IT infrastructure creating additional data
repositories.
The above described IT system fragmentation creates a
number of operational consequences for the Ex-Im Bank:
delays in approval of transactions
data integrity issues (due to manual input or updates
of data)
multiple data storage locations
burdensome and somewhat ineffective management of
applications and assets
Develop Performance Standards and Metrics for Programs and
Products. Ex-Im Bank has not developed annual performance plans
or product performance metrics in order to properly quantify
the effect and success of its products. Ex-Im Bank should
develop these metrics in short and medium term products in
order to determine whether
the product is achieving the intended results;
the product is reaching the intended audience;
the marketing strategy is effective;
the product is similar or more competitive than programs
offered by other ECAs;
the product should be altered or eliminated;
acceptable levels of defaults and claims have been
established;
levels of defaults and claims should be improved; and
changes in original implementation strategies are needed.
Continue Efforts to Expand Small Business Participation.
Ex-Im Bank charter imposes a twenty (20) percent small business
participation requirement of all of the authorizations every
year. Ex-Im Bank has exceeded this mandate in the last 2 years
and it is expecting to surpass it again in FY2011. Ex-Im Bank
has been able to achieve its mandate by
conducting Export Forums throughout the United States;
developing partnerships with different lenders, local
governments and industries;
creating products specifically for small businesses
(Global Access, Express Insurance, and Reinsurance products);
and
continuing collaboration and cooperation with other
agencies, including the Small Business Administration and
Department of Commerce, in order to reach out to small
businesses. Enhancing export opportunities requires the
participation, training, and collaboration of other Federal
agencies. The National Export Initiative addresses and
encourages collaboration between agencies.
Continue Efforts to Expand Renewable Energy Products and to
Create Clean Energy Export Opportunities. Ex-Im Bank charter
contains a Renewable Energy mandate of ten (10) percent of all
the authorizations every year. Ex-Im Bank has not met this
mandate yet, mainly due to the fact that the renewable energy
exports have not reached significant numbers (compared with the
size of Ex-Im Bank's portfolio). Nonetheless, Ex-Im Bank has
taken a proactive approach in developing renewable energy
specific products such as Solar Express, as well as reaching
out to local companies such as wind and solar manufacturers.
Improve Operational Efficiency by Reducing the Time it
takes to Approve Short and Medium Term Transactions. Some Ex-Im
Bank participants have complained in the past about the
approval times and process. Reducing the time it takes to
approve transactions would allow American exporters to develop
better relationships with clients and customers, would
encourage borrowers and sellers to use Ex-Im Bank, and would
improve the services Ex-Im Bank provides to its users.
Absence of systematic approach to measure customer
satisfaction. Ex-Im Bank does not conduct customer satisfaction
surveys on a regular basis. Customer surveys provide valuable
insight into customer priorities, perceptions of Ex-Im Bank
performance, areas for improvement, and other ECA best
practices. On April 27, 2011, President Obama issued Executive
Order 12862 instructing Federal agencies (including independent
agencies) to develop a customer service plan to streamline
service delivery and improve customer experience. To this end,
we recommend that Ex-Im utilize customer surveys to validate
the priorities of its customers and the Bank's performance.
IV. Other Observations From OIG Cases and Reports
Ex-Im Bank has the important responsibility of providing export
financing in a very difficult credit environment while also protecting
the taxpayers, the integrity of its programs, and the full faith and
credit of the United States. In conducting our audits, evaluations,
inspections, and investigations, the OIG has conveyed to Ex-Im Bank the
following observations developed from transactions and programs under
the OIG purview.
Enhance Due Diligence and Credit Underwriting Practices
(specifically for Short and Medium Term programs) and Improve
Training Efforts to Address the Surge in Applications under a
Decentralized Application Approval Process. Currently, Ex-Im
Bank uses a decentralized underwriting process. Given the
lessons learned from the Medium Term program, the surge in the
number of transactions, and insufficient credit information and
history from borrowers in some regions, it is vital that Ex-Im
Bank enhance due diligence practices in order to better
identify fraudulent transactions. With Individual Delegated
Authority (IDA) as high as $10 million, Ex-Im Bank needs to
develop effective policies, procedures, and compliance
practices to assess effectiveness of the delegations. Some of
these policies should address the following:
Uniform credit and underwriting standards to be used by
all Ex-Im Bank credit officers.
At a minimum, Ex-Im Bank should make more frequent use of
security interest and sporadic inspections in order to better
mitigate risks in programs and regions where defaults and fraud
experience has been high.
Use of financial statements in programs where defaults
and fraud experience is high. Further, Ex-Im Bank should
require independently audited financial statements in regions
where Ex-Im Bank has limited or unfavorable lending experience.
Encourage Lender Partners and Participants to Conduct, at a
Minimum, Industry Standard Due Diligence on Government
Guarantees and Insurance Transactions. One of the patterns our
office has observed in conducting our investigations is the
lack of due diligence efforts conducted by lenders,
specifically the ones who have a history of defaulted
transactions. Even though there is an expectation that such
efforts have been taken, Ex-Im Bank does not require
participating lenders to conduct due diligence on their
transactions. The OIG has anecdotal evidence of loan officers
in lending institutions expressing their position that the
lender would not devote resources on due diligence efforts when
there is a Government guarantee and such efforts are not
required by Ex-Im Bank. Although the OIG is not in a position
to state that this is a behavior demonstrated by all lenders,
we can certainly state that this ``moral hazard'' issue has
been prevalent in fraud cases involving multiple transactions.
Effective implementation of ``Know Your Customer'' practices by
lenders could help in minimizing or preventing the number of
fraudulent cases Ex-Im Bank has experienced.
Improve Corporate Governance, Business Processes, and
Internal Control Policies and Practices. One of the consistent
observations arising out of audits, evaluations, and
investigations conducted by the OIG are the weaknesses in
governance and internal controls, as they relate to business
operations. Internal policies providing clear guidance to staff
and establishing clear roles and authorities are not prevalent
at Ex-Im Bank. These areas need to be addressed as part of
creating a better corporate governance culture.
V. Conclusion
Ex-Im Bank has an important role in creating and maintaining jobs
by facilitating exports through export finance products provided to
American exporters. Three years of record export authorization levels
only support that role. While Ex-Im Bank continues to provide export
credit and financing as part of its export credit agency functions, it
should work to improve its operational effectiveness and efficiencies
in its quest of achieving the National Export Initiative's goal of
doubling exports in the next 4 years.
I have highlighted some of those areas based on observations and
relevant work performed by the OIG in order to illustrate the
importance of proper management, oversight of strategies, and to
incorporate lessons learned from Ex-Im Bank's prior activities. The OIG
will continue to enhance its independent oversight role as well as
strengthen its efforts in preventing and detecting fraud, waste, and
abuse.
Chairman Warner, Ranking Member Johanns, and Members of this
honorable Subcommittee, thank you once again for the opportunity to
testify before you today. I would be pleased to respond to any
questions you may have. Thank you!
______
PREPARED STATEMENT OF CLAY THOMPSON
Director, Global Government Affairs, Caterpillar, Inc.
June 30, 2011
Good morning, Mr. Chairman and Members of the Committee. Thank you
very much for the opportunity to be with you today.
For more than 85 years, Caterpillar, Inc., has been a leader in
making sustainable progress possible. With 2010 sales and revenue of
$42.6 billion, Caterpillar is the world's leading manufacturer of
construction and mining equipment, clean diesel and gas engines,
industrial gas turbines and diesel-electric locomotives. The company is
also a leading services provider through Caterpillar Financial
Services, Caterpillar Remanufacturing Services, Caterpillar Logistics
Services and Progress Rail Services. We are headquartered in Peoria,
Illinois, and have manufacturing facilities, distribution facilities
and offices across the United States. We directly employ 47,000 people
in the United States, and our dealers and suppliers employ well over a
hundred thousand more.
Our ability to competitively export from the U.S. has been the key
to our success historically, and never more so than in the current
environment. Slow economic growth in the U.S.--historically our largest
market--has been offset in recent years by strong industry growth in
other key markets. In 2010, 70 percent of our sales were outside the
U.S. and we exported $13.4 billion in goods and services, supporting
thousands of American jobs directly and through our supplier network,
which includes over 5,000 companies in all 50 States. Our ability to
successfully compete globally from a significant U.S. production base
is vital to defending our global leadership position. We are fully
committed to that U.S. production base, as evidenced by our $1.5
billion investment this year alone in constructing and expanding U.S.
production facilities.
Ex-Im Bank has played a role in facilitating our exports and that
role is growing. From 2006 to 2009, the Bank funded $200 million in
Caterpillar equipment exports. In 2010, the Bank financed $100 million
in Caterpillar exports, and we expect to exceed that level in 2011. We
greatly appreciate the hard work and dedication of Ex-Im employees that
has contributed to this support.
Ex-Im and other Export Credit Agencies played an important role in
the recovery from the recent financial crisis. During this time, we've
seen commercial lenders, especially in large project finance, become
more risk reticent and capital-constrained. In that environment, ECA's
such as Ex-Im have stepped forward and have helped facilitate
international trade finance in a significant way.
We anticipate the role of Ex-Im will become even more critical
going forward. Competition for global leadership in our industry is
playing out right now in markets like Asia, Africa, and Latin America.
Our global competitors, like us, recognize the strategic importance of
these markets. Construction of infrastructure such as roads, ports,
rail, and distributed power--as well as support of large mining
projects--are key drivers of our product sales. Often, the countries in
which this type of development is most needed are also the countries
where un-enhanced commercial financing is least available. Ex-Im is a
critical tool that can be used to gain market access in emerging high-
growth markets where commercial banks need credit enhancements to
support large project loans and augment commercial bank capacity. We're
also concerned that new capital requirements and associated regulations
will further inhibit commercial lenders' appetite to take on these
projects.
Meanwhile, we're seeing other sovereign Export Credit Agencies
aggressively targeting these markets on behalf of competitors, creating
a potential competitive disadvantage for us and others exporting
equipment from the United States. In terms of the size and level of
aggressiveness of global ECA activity, the United States is being left
behind.
According to the Coalition for Employment Through Exports, Ex-Im's
2010 commitments totaled approximately $25 billion. In contrast, the
Japanese export credit agencies committed last year well over $100
billion in support of their exporters and the Chinese over $300
billion.
Make no mistake, Ex-Im is a valuable tool for U.S. exporters,
including Caterpillar. However, you probably recognized from the
numbers cited above, we have not utilized Ex-Im to a very great
extent--especially considering the percentage of our exports financed
through the Bank. Ex-Im could be much more effective and more
competitive with other global ECA's.
To enable this success, certain structural changes are necessary.
Implementing these changes would remove the self-imposed constraints
that keep Ex-Im from being as effective as it can be. There are three
such issues that are most relevant to Caterpillar.
First, the Bank should be reauthorized with an expanded lending
limit. With approximately 90 billion in commitments already
outstanding, the Bank is near its current $100 billion lending cap.
Increasing the cap to $160 billion will put the Bank in a situation
where it should not have to decline a qualifying financing opportunity
due to capital authorization concerns. This level of authorization will
also move the Bank closer to leading global ECA's. No addition to the
Federal budget deficit should result from this authorization, as the
Bank's profitability over the past several decades should continue in
the current environment of global economic recovery.
Second, Ex-Im should revise its local content policy which
currently constrains its level of support to the lesser of (a) 85
percent of the export value or (b) the value of the U.S. content. This
level of local content requirement is completely out of line with the
rest of the world. The next lowest supportable percentage, in Austria,
is 50 percent. The Bank, itself, concludes in its 2010 Competitiveness
Report:
As Ex-Im Bank is the only G-7 ECA that does not allow for any
direct support of foreign content and doesn't consider other
factors (e.g., national interest) when determining its level of
support, Ex-Im Bank's foreign content policy is increasingly
less competitive relative to other G-7 ECAs.
We agree.Our large mining trucks sole-sourced from Decatur,
Illinois, for example, have local content between 75-88 percent. In
many deals in the strategically important market of Indonesia, our off-
highway mining trucks compete head-to-head with trucks built and
shipped out of Komatsu City, Japan, or Chennai, India. Because their
production facilities are closer to Indonesia, our Asian competitors
already have an advantage in quoting these deals due to lower
transportation costs. Ex-Im's inability to provide full financing
support because our local content is 80 percent, rather than 85
percent, puts us at an even bigger competitive disadvantage against
Japanese and Indian competitors partnering with their respective Export
Credit Agencies. Lowering the local content requirement to a more
competitive level will allow Caterpillar customers to use Ex-Im
financing to a greater degree, thus supporting thousands of jobs in our
U.S. assembly facilities and within our supplier base.
We disagree with those who argue that lowering the local content
requirements will directly result in the loss of jobs in the U.S. At
Caterpillar, we select and develop suppliers based on criteria that
will allow us to be globally competitive. Thus, we evaluate a
supplier's ability to deliver a quality product, quickly, at a
competitive cost. On that basis, the local content in our U.S.
assembled product typically ranges anywhere from 65 to 88 percent. The
primary impact of lowering the local content requirement will be to
make more U.S.-assembled product eligible for Ex-Im support--thus
expanding export and job opportunities for our U.S. assembly facilities
and supply base. In a recent report, the highly respected and
nonpartisan Peterson Institute for International Economics notes, ``an
alignment of Ex-Im's domestic content requirements with other ECAs will
encourage additional U.S. exports and expand the overall export base.''
Finally, although we understand it may be outside the jurisdiction
of this Subcommittee, no discussion of Ex-Im Bank competitiveness would
be complete without at least mentioning the barrier created by cargo
preference requirements. A congressional Resolution enacted for
security purposes in 1934 requires U.S. Government-financed
transactions to be shipped in U.S. flagged vessels. The Bank interprets
the resolution to require that most transactions receiving direct loan
or guarantee support from Ex-Im must be shipped by U.S. flagged
vessels. The supply of U.S.-flagged vessels is heavily constrained,
resulting in cost increases and time delays that customers are simply
unwilling to accept.
Let's take an example from an actual transaction that is currently
pending. In a $200 million dollar proposed sale of U.S.-sourced
equipment in Indonesia, very similar to the one I cited above, the
incremental freight cost driven by the U.S.-cargo restriction is $6
million, or roughly 3 percent of the total transaction cost. As you can
imagine, in a competitive bidding situation, customers view this
incremental cost as unacceptable. In fact, we are often asked by
customers and dealers to source product from other locations so that
customers can leverage less-restrictive ECA financing outside the
United States.
For Ex-Im Bank to become a truly competitive ECA that fully
supports U.S. exporters and their employees, the cargo restrictions
must be lifted.
In conclusion, I would like to repeat that Caterpillar believes
that Ex-Im is a good institution staffed by dedicated and hard-working
employees. The Bank, however, is constrained by several structural
inhibitors that keep it from being globally competitive. Raising the
Bank's authorization level, relaxing the local content requirements,
and doing away with the cargo preference requirements will improve
competitiveness and support U.S. job growth going forward.
Thank you for your time and attention.
______
PREPARED STATEMENT OF DOUGLAS NORLEN
Policy Director, Pacific Environment
June 30, 2011
Chairman Warner, Ranking Member Johanns, and Members of the
Committee, thank you for the opportunity to testify on the
reauthorization of the Charter of the United States Export-Import Bank.
I am Douglas Norlen, Policy Director, Pacific Environment, a Pacific
Rim-based nonprofit organization. In this capacity, for 15 years I have
focused on the environmental and social impacts and reforms of public
and private finance institutions, with a specialization in export
credit agencies, including Ex-Im Bank. I am pleased today to speak
about three areas of reforms we believe are necessary to improve the
effectiveness of Ex-Im Bank: agency accountability, climate change, and
promotion of renewable energy.
Agency Accountability: Congress should require Ex-Im Bank to
establish an independent accountability mechanism. Such mechanisms are
increasingly the norm at public finance institutions such as the World
Bank, International Finance Corporation, Asian Development Bank,
European Bank for Reconstruction and Development, Japan Bank for
International Cooperation and the U.S. Overseas Private Investment on
financial problems, such as fraud, waste and abuse, and internal
economy, efficiency and effectiveness. In contrast, independent
accountability mechanisms receive and assess complaints from people and
communities who claim to be adversely affected by the projects or
activities supported by a particular public finance institution because
of a violation of the institution's own policies and procedures.
An accountability mechanism at Ex-Im Bank could have three
functions. One is to address complaints by affected people seeking to
resolve problems with Ex-Im- supported activities. The purpose of this
so-called ``problem-solving'' or ``conflict resolution'' function is
not only to address existing complaints about real or potential harm
from Ex-Im Bank activities, but also to prevent such harm from
escalating or occurring at all. An example of this might be an Ex-Im
Bank-supported mining project that has failed to compensate local
people for use of their land. In this example, the affected communities
might seek compensation through a problem-solving initiative. Instead
of the community members feeling frustrated when attempts to raise
concerns at the local level go unanswered, which, in turn, can lead--
and has led--to drastic actions such as a roadblocks to bring attention
to their complaint, an Ex-Im Bank problem-solving mechanism would allow
the complainant and the Ex-Im Bank client to enter into a structured
dialogue with the help of a mediator to effectively address the issues.
The second function would be compliance review, where the
complainant may seek an independent review of the Ex-Im Bank's
operation to determine whether Ex-Im Bank has violated its own policies
and procedures. The purpose of compliance review is to identify issues
of noncompliance with Ex-Im Bank policy as early as possible so that
Ex-Im Bank can make timely adjustments to address any issues of
noncompliance, and to provide the Ex-Im Bank Board of Directors with
findings so that case-specific and systemic issues of noncompliance may
be effectively addressed.
The third function would be to provide advice to management on
policies, procedures, guidelines, resources, and systems established to
ensure adequate review and monitoring of projects.
As with other such accountability mechanisms, Ex-Im Bank's
mechanism must have appropriate safeguards for independence. The
mechanism should be independent from line operations and management and
report only to the Board so that Ex-Im Bank management takes no part in
the mechanism's operation or oversight. The mechanism should operate in
an accessible manner such that affected people could choose to directly
access either the problem-solving or compliance review functions
through a simple and timely complaint process. The mechanism should
also operate in a transparent manner with a public registry of
complaints and clear rules of procedure. Further, the mechanism should
be empowered to issue public follow-up monitoring reports after
agreements are reached through problem solving and after issuance of
findings of noncompliance. The mechanism should also be able to conduct
among clients and affected communities.
An important purpose of these compliance and problem-solving
mechanisms is to ensure greater likelihood of project support by local
communities, which in turn creates a stable environment for business
enterprise and more successful project outcomes. Independent
accountability mechanisms are good governance tools that ultimately
decrease project risk to Ex-Im Bank and its clients.
In our 15 years of experience engaging the Bank on specific
projects of concern in Africa, the Caucuses, Latin America, Asia, and
Russia, the agency's response to those that bring evidence of policy
violations has been a so-called ``open door'' policy. This practice
falls short, for while concerns can be voiced, a substantive agency
response in writing is not required, nor is demonstrated evidence of
compliance remedies. When the agency offers its own interpretation of
compliance, it becomes its own judge and jury. By contrast, independent
accountability mechanisms provide the agency, Congress, and the public
an unencumbered independent review of agency compliance and
recommendations for problem solving and corrective measures.
A good example of the need for an independent accountability
mechanism is the Baku-T'blisi-Ceyhan (BTC) pipeline project transecting
Azerbaijan, Georgia, and Turkey. In March, 2011, the British Government
issued a report which found that the project sponsor, BP, failed to act
on reports of human rights abuses by project security personnel
including complaints of intimidation measures used against affected
communities in Turkey. The report followed a complaint brought by
nongovernment organizations that say public funders, including Ex-Im
Bank, knew about the intimidation, but failed to check whether BP had
procedures in place to address and remedy the violations. \1\
---------------------------------------------------------------------------
\1\ ``BP Response to Pipe Conflict Found Lacking'', Financial
Times, March 10, 2011.
---------------------------------------------------------------------------
Years earlier, complaints were filed to the International Finance
Corporation Office of Compliance Advisor/Ombudsman concerning
environmental impacts on the BTC project, resulting in increased public
consultation. \2\ In 2006, a claim was brought to the OPIC Office of
Accountability regarding BP's withholding of information on the failure
of the BTC pipeline anticorrosion coating, resulting in improved
project monitoring on BTC and other projects. \3\ However, Ex-Im Bank,
which also financed the BTC project, provides project-affected
communities with no independent accountability mechanism.
---------------------------------------------------------------------------
\2\ See, http://www.cao-ombudsman.org/cases/
case_detail.aspx?id=50.
\3\ See, http://www.opic.gov/doing-business/accountability/
registry/cr-1-2006.
---------------------------------------------------------------------------
Pacific Environment can provide the Committee with numerous other
examples.
We strongly support the language on the creation of an Ex-Im Bank
accountability mechanism that is included in the House Ex-Im Bank
reauthorization bill that passed the House Financial Services Committee
last week by voice vote. We would ask only for the inclusion of a
requirement that Ex-Im Bank report to Congress in 6 months and 1 year
after passage of the bill on its efforts to establish such a mechanism
so that the House and Senate authorizing committees can more readily
carry out its appropriate oversight responsibilities.
Meanwhile, Congress should improve Ex-Im Bank's accountability on
fraud and corruption. Ex-Im Bank's Office of Inspector General (OIG)
has expressed increasing concern about fraud and corruption, including
such problems associated with Ex-Im Bank's growing number of delegated
authority lenders (financial intermediaries). The OIG recently issued a
report which found that Ex-Im Bank's Nigerian Banking Facility
supported a private bank whose Managing Director was removed from
office for financial malfeasance by the Central Bank of Nigeria (CBN)
in 2009, and was eventually convicted of fraud and sent to prison. Ex-
Im Bank Directors eventually revoked this bank's participation in the
Nigerian Banking Facility on the basis of the CBN intervention.
However, the report also found that:
[A]t no moment did Ex-Im Bank management state or mention in
its October 22, 2009, and October 21, 2010, memoranda to the
Board of Directors that a local investigation for corruption
charges and guilty plea of a former managing director had taken
place nor cite these as reasons for removal.
While not all Ex-Im Bank financial intermediaries are associated
with corruption, we do not believe this is an isolated incident. In
testimony to the House Committee on Financial Services Subcommittee on
International Monetary Policy and Trade, the Inspector General stated,
[I]t is vital that Ex-Im Bank enhances due diligence practices
in order to better identify fraudulent transactions . . . ,
The OIG has anecdotal evidence of loan officers in lending
institutions expressing their position that the lender would
not spend resources on due diligence efforts when there is a
Government guarantee. Although the OIG is not in a position to
state that this is a behavior demonstrated by all lenders, we
can certainly state that this ``moral hazard'' issue has been
prevalent in fraud cases involving multiple transactions.
Congress should act on the Inspector General's recommendations and
require more robust policies and procedures for reputational checks,
including a requirement of certifications of compliance with foreign
and domestic laws including anticorruption certifications from
participating lender and guarantor decision makers.
Fossil fuel financing: As the United States and other countries
grapple with the worsening effects of climate change, including severe
weather patterns, melting polar ice and increasing wildfires, it is
irresponsible and incoherent for a public agency to finance the
expansion of carbon-polluting energy projects. Despite Ex-Im Bank's new
carbon policy, and President Obama's pledge to phase out wasteful
fossil fuel subsidies, the agency's financing for fossil fuel projects
increased dramatically in recent years and skyrocketed to a record $4.5
billion last fiscal year. Ex-Im Bank's surging financing for fossil
fuel projects exacerbates climate change, heaps scarce public funding
on industries that need it least, and ultimately undercuts U.S.
Government credibility and leadership towards a global clean energy
economy. Congress should curb Ex-Im Bank's wasteful use of public
financing on carbon polluting energy projects.
Renewable Energy: Ex-Im Bank can address both climate change and
lead the transition to a clean energy economy by seizing the enormous
opportunity to finance renewable energy and energy efficiency now.
According to a BP statistical review, renewable energy consumption grew
15.5 percent in 2010, the fastest rate of expansion since 1990.
Installed solar power capacity alone grew an amazing 73 percent in
2010, while wind grew 24.6 percent. \4\ According to the Pew Center for
Global Climate Change, this rapid pace is forecast to lead to annual
investments in global renewable energy markets of $106-$230 billion a
year by 2020 and as much as $424 billion a year in 2030. Over the next
decade, cumulative global investment for renewable power generation
technologies could reach nearly $1.7 trillion. \5\ Most importantly,
the bulk of this market (nearly 90 percent) exists outside of the
United States.
---------------------------------------------------------------------------
\4\ See, http://www.bp.com/
subsection.do?categoryId=9037155&contentId=7068627.
\5\ See, http://www.pewclimate.org/docUploads/
Clean_Energy_Update_Final.pdf.
---------------------------------------------------------------------------
Financing appropriate renewable energy and energy efficiency is a
compelling opportunity for the United States Export Import Bank to make
good on its institutional mandate to stimulate domestic manufacturing,
create jobs, position the United States in a strategic global sector,
and provide international leadership on climate change. While Ex-Im
Bank has increased financing for renewable energy, this volume is still
just over 1 percent of the agency's overall financing. The GAO has
found that Ex-Im Bank has consistently failed to meet current
appropriations law to allocate 10 percent of the agency's annual
financing for renewable energy and energy efficiency end use
technology. Congress can enforce these directives by revising the
agency's Charter to integrate the annual 10 percent target, increase
the bank's capital authority allocations specifically for renewable
energy, and improve Ex-Im Bank's ability to finance appropriate
renewable energy upstream in the manufacturing process.
Thank you again for inviting my testimony, and I look forward to
answering any questions that you may have.
______
PREPARED STATEMENT OF DAVID ICKERT
Vice President, Air Tractor, Inc., on behalf of the Small Business
Exporters Association
June 30, 2011
Chairman Warner, Ranking Member Johanns, and Members of the
Committee, thank you for the opportunity to testify on the
reauthorization of the Export-Import Bank of the United States (Ex-Im).
I am David Ickert, Vice President--Finance of Air Tractor, Inc. (Air
Tractor), of Olney, Texas. It is my pleasure to submit testimony to the
Subcommittee on Security and International Trade and Finance stating
why we at Air Tractor strongly support the reauthorization of Ex-Im.
Our support for the reauthorization of Ex-Im is deeply rooted in
Air Tractor's experiences--with exports, Ex-Im and job creation. I will
relate the experiences of Air Tractor, but it is a much broader and
deeper story than that of Air Tractor. I believe that it is story of
many small businesses across our Nation, and maybe more compelling, it
is the promise of the vast potential that exists in this country with
many small business that could be exporting but are not. This
potential, when properly nurtured and developed, will yield its
treasures of a reduced national trade deficit and most important of
all--JOBS.
Air Tractor is a small business engaged in the manufacture of
agricultural and forestry fire fighting airplanes. The company has been
in business since 1972 and is now 100 percent employee owned. We have
one location--Olney, Texas. Olney is a small rural town located 100
miles west of Fort Worth, Texas, and 200 miles east of Lubbock, Texas.
The population of Olney is approximately three thousand (3,000).
In 1994, Air Tractor started exploring the possibility of finding
sources of financing for our end-user customers located outside of the
United States. At that time, approximately ten percent (10 percent) of
our annual new airplane sales (units) were delivered outside of the
U.S. These export sales were either cash-in-advance or acceptable
Letter of Credit. Our needs for financing were of a medium-term tenor
(usually 5 years), and in many cases the end-user customer was a small
business. After much searching and research, we discovered two key
partners that would help us in our pursuit of medium term trade
finance. These partners were a commercial bank and Ex-Im. Our first
medium-term transaction (Ex-Im Medium Term Credit Insurance) was in
1995 for two fire fighting aircraft sold to a customer in Spain. Since
that first aircraft sale in Spain, we have sold approximately fifty
(50) planes into the Spanish market--none requiring Ex-Im support.
Since that time, we have completed over eighty (80) such medium-term
deals through Ex-Im. For the calendar year 2010, we completely twenty
(20) medium-term insured transactions with Ex-Im (and anticipate 30
such deals for 2011). It is also worth noting that of those eighty plus
transactions we have completed with Ex-Im, Air Tractor has never made a
medium-term claim on Ex-Im. In addition to the Medium Term Credit
Insurance product, Air Tractor has also utilized Ex-Im's Working
Capital Guarantee Program.
It is instructive to study the employment at Air Tractor since 2007
and to also study our percent of export sales (aircraft units) over
that same period. There is a definite correlation of these two factors.
To view these numbers against the backdrop of employment in the U.S.
for the same period brightens the light on this correlation. These
numbers for Air Tractor are:
Thus, while the headlines throughout our country reflected a
growing unemployment for this period, Air Tractor created jobs. For the
period of 2007 through 2010 our employment grew 33 percent. During that
same time period our percent of annual export sales increased 55
percent. It is not coincidental that these two factors grew in
lockstep. The growth of exports has been a significant contributor to
the job growth of Air Tractor in recent years.
The growth of exports at Air Tractor is a direct result of Ex-Im
having programs such as the Medium Term Credit Insurance program that
we could access to provide financing for our end-user customers outside
of the United States. As noted previously, prior to using Ex-Im, Air
Tractor's export percent was 10 percent. Exports have grown from the 10
percent level (with no export finance) to 56 percent in 2010 (when we
had twenty medium-term deals closed at Ex-Im). With 56 percent export
sales in 2010, there are over 100 employees at Air Tractor in Olney,
Texas, that directly owe their jobs to exporting.
During 2010 our exports went to fourteen (14) different countries.
That is a significant number of countries for a small business such as
ours. However, in the scheme of worldwide sales, it reflects the many
opportunities we have to continue expanding our international
footprint. Our future growth is outside of the borders of the United
States. Those opportunities are the driving force to sustain and create
additional jobs in Olney, Texas. Air Tractor cannot fully take
advantage of these opportunities without Ex-Im.
As stated previously, this is not a story of Air Tractor as much as
it is a story of the job creating force that small businesses are and
can be when they engage in exporting. Through such entities as the
National Small Business Association (NSBA) and its affiliate, Small
Business Exporters Association (SBEA), both of which I am a Board
Member, stories such as these can be documented multiple times. It is
well reported that 95 percent of the world consumers are domiciled
outside of the United States. As the world economy has tightened, the
global trade arena has become more competitive. This global market
offers the opportunities for growth and job creation, but entities such
as Ex-Im are necessary to help businesses, especially small businesses,
meet the competitive challenges that exist in the global arena.
Bank Chairman Fred P. Hochberg and the current Ex-Im administration
have done a very good job of maintaining a focus and long-term
commitment to small business. That has not always been the case with
other Ex-Im administrations as it relates to small business. A ``start
and stop'' process on small business focus as Ex-Im administrations
change is not the best way to engage more small businesses in exporting
and job creation in our country. Thus, I recommend that the next Ex-Im
congressional reauthorization should continue to institutionalize the
Ex-Im small business commitment by retaining the current authorization
language as to the minimum percent of small business approvals by Ex-
Im, defining the key roles of small business officers at Ex-Im and
other small business provisions in the current authorization.
There are several key provisions of the Ex-Im Charter that are very
important and necessary to small business exporters. While the House
bill, H.R. 2072, Securing American Jobs Through Exports Act of 2011,
does not change the language, it also fails to even mention these
critical provisions for small business exporters. While remaining
unchanged, SBEA and I believe these provisions should at least be
stated in the Findings section of any reauthorization bill. They
include:
Sec. 2(b)(1)(E)(v)--The not less than 20 percent direct financing
authority for small business is an absolute must for continuity of
emphasis to small business in the long term. Leaving this clause
unchanged is necessary and any new ``formulas'' that turn the 20
percent into a goal rather than a mandate, or allow Ex-Im to avoid the
mandate in certain years, should not be an option. The main objective
is to improve direct access to Ex-Im capital by small business, year in
and year out.
Sec. 3(d)(1)A and 3(d)(2)(A)--Language that mandates the existence of
the Advisory Committee and the section requiring at least three members
of that committee be representatives of small business. Representation
on input to Ex-Im is vital for small business.
Sec. 8(b)(3)(f)--The section requiring reports to Congress if the small
business authority percent is not met and details of how this would be
fixed if the 20 percent is not met.
These three sections should be retained without changes, and
emphasized in any Ex-Im Bank reauthorization bill.
Other ways to deepen the commitment to small business should also
be considered. One such consideration is making the Senior Vice
President for Small Business a member of the credit committee, who
reports directly to the President, and is a voting member of the credit
committee or any successor entity. The Senior Vice President must have
a sense of the ``big picture'' in terms of how the agency reasons as it
decides which applicants are approved, and which are declined, for
credit worthiness reasons, and therefore must have a say in these
decisions.
Additionally, as Ex-Im continues to grow in both number of
approvals and dollar volume of approvals as they have in the last
couple of years, they will need adequate administrative budget to be
staffed and have the electronic infrastructure to properly handle the
growth that we should see as they continue to increase their volume of
business.
Furthermore, I should mention an amendment adopted by the House
Financial Services Committee during deliberation of H.R. 2072 barring
Ex-Im from providing assistance to companies that conduct certain
business with Iran. In a voice vote, the committee approved an
amendment sponsored by Reps. John Campbell (R-Calif.) and Brad Sherman
(D-Calif.), and now goes to the full House for its consideration.
Denying Ex-Im Bank loans, credits, or credit guarantees for U.S.
exports to the sanctioned entity would be burdensome for small
exporters. These type of mandates that interfere with Ex-Im's business
puts extra constraints on small business compared to big business with
respect to exports as it further creates controversy, confusion, and
costs for U.S. interests.
During 2010, Air Tractor paid over $300,000 in fees to Ex-Im for
products we contracted with them through Ex-Im. As noted earlier we
have never made a medium-term claim on an Ex-Im policy. This is a net
plus for Ex-Im--revenue but no corresponding claim expense. This is not
always the case, but as I heard Chairman Hochberg state in a speech in
January of this year, ``The Bank makes money!'' What a wonderful
situation--everyone wins, including the U.S. taxpayer.
President Obama recognized the importance and the powerful impact
of exporting on job creation when he established the National Export
Initiative (NEI) by Executive Order signed March 11, 2010. The NEI is
an important step in our country becoming more competitive in the
global arena. As we do so, more jobs will be created in the United
States. The goal to double our country's exports in 5 years may seem
ambitious, but it can be done. Small business will play a vital part in
meeting this goal. Ex-Im is a necessary and key entity needed for
business--both small and large--to meet the goal of the NEI.
Olney, Texas, is my hometown. It is a great place to live and work.
However, when one thinks of a town originating export transactions, a
small, west Texas town does not immediately come to mind. As I have
described it before, Olney has three red lights and a Dairy Queen--not
an international hub. The significance of this is that if we can create
jobs through exporting on Main Street, Olney, Texas--anyone can do it.
We have a great potential for job creation in this country through
small business exporting. A very key player in that job creation
process is Ex-Im. Thus, we would urge for the congressional
reauthorization of Ex-Im.
I would like to thank Chairman Warner for holding this hearing,
bringing Ex-Im Bank to the forefront and for allowing me the
opportunity to testify.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM OSVALDO LUIS GRATACOS
Q.1. In 2008, GAO found that the lack of performance measures
at the Bank, particularly the lack of targets to measure
progress and the lack of time frames regarding small business
strategies, prevent Ex-Im bank management from accurately
monitoring and reporting progress in achieving its standards.
Where now, in 2011, is the Inspector General's Office on
this important finding?
A.1. Ex-Im Bank management agreed to implement GAO's
recommendations on the lack of performance measures and time
frames regarding small business assistance. The GAO has
informed Ex-Im Bank OIG that GAO has been in contact with Ex-Im
Bank management in order to close out the recommendations in
the GAO report. GAO reports that Ex-Im Bank has been making
progress in implementing its recommendations.
Ex-Im Bank has made progress in revising its strategic plan
and performance metrics for the Small Business program. In
fiscal year 2010, the Bank was able to meet its 20 percent
congressionally mandated target and increased its outreach to
small businesses by attending 477 outreach events, including
events sponsored by women-business centers, small business
associations, and minority-focused chambers of commerce. In
January 2011, it announced a Global Access for Small Business
Initiative with specific goals of approving at least $30
billion in small business transactions, supporting a cumulative
total of approximately $58 billion in export sales, and adding
a total of 5,000 small businesses to the Ex-Im Bank portfolio.
Given the priority of the Small Business program within the
Administration's National Exports Initiative, we will continue
to monitor management's implementation of GAO's
recommendations.
We should note, however, that although the Small Business
program has made progress in implementing performance metrics
and response time targets for its products, the Bank has not
set similar targets for the medium- and long-term structured
products.
Q.2. Absent such performance plans, how does the Bank measure
the costs and benefits of its initiatives?
A.2. Under 12 U.S.C. 635g and 39 U.S.C. 9106, Ex-Im Bank is
required to issue an annual report on its operations and
financial condition to Congress. In addition, the Bank has
issued a strategic plan for 2010-2015 with six broad measures
to determine whether it is making progress on its long-term
goals. The annual report and the strategic plan, however, do
not establish an effective and specific performance plan with
targets and timelines to track Ex-Im Bank's program results.
For example, in our recent audit report on the Working Capital
Guarantee Delegated Authority Program (WCGDA) we found that Ex-
Im Bank did not maintain information on this Program to
effectively evaluate its performance. \1\ The audit found that
WCGDA data was not maintained separately from the non-WCGDA
Program. Without the applicable data, it is difficult to
evaluate the performance level of a Program to determine
whether it is achieving its intended purpose at the lowest
possible cost.
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\1\ Working Capital Guarantee Delegated Authority Program, OIG-AR-
11-04, July 8, 2011, can be found at http://exim.gov/oig/documents/
WCGDA%20final%20report%20110708.pdf.
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Further, under the Government Performance and Results Act
of 1993, the Ex-Im Bank is required to submit an annual
performance plan (APP) to the Office of Management and Budget
as part of the budget process. On December 2, 2010, the Ex-Im
Bank OIG issued a memorandum to Ex-Im Bank management
requesting clarification on the application of Government
Performance and Results Act of 1993 and the Report
Consolidations Act of 2000 (RCA), which would allow Ex-Im Bank
to consolidate any statutorily required reports into an annual
Performance and Accountability Report.
On March 16, 2011, Ex-Im Bank's General Counsel replied
that Ex-Im Bank had elected not to consolidate reporting
requirements under the RCA. However, the General Counsel stated
that, commencing in FY2012, Ex-Im Bank would begin filing an
APP in accordance with the Government Performance and Results
Act of 1993. An APP will enable Ex-Im Bank to have a framework
in order to measure the costs, benefits, results, and outcomes
of its programs and initiatives.
Q.3. Would waiting for emplacement of an effective performance
plan, before authorization of a higher level of loan
guarantees, reduce the likelihood of loan defaults?
A.3. Well run organizations have a clear strategic and
performance plan and Government agencies are no exceptions. It
is therefore good practice for the Ex-Im Bank to have a
strategic and performance plan to function efficiently and
effectively, to monitor its performance, and to identify
successes and shortcomings. Moreover, such a plan will enable a
continuous improvement environment at the Ex-Im Bank. Through
such a plan, the Ex-Im Bank may establish a goal of reducing
loan defaults and implementing metrics to gauge its
performance. However, the OIG believes that decreasing loan
defaults is accomplished by establishing better risk management
procedures, as outlined in Question 2, that are not necessarily
made part of a strategic and performance plan.
Q.4. The Ex-Im Bank has experienced a fair number of fraud
cases in its transactions, due in part to the lack of adequate
risk evaluation procedures. In its most recent Semi-Annual
Report to Congress, the Office of Inspector General identified
Ex-Im Bank's loan guarantee and export credit insurance
programs as being ``particularly susceptible to fraud schemes
by foreign borrowers.''
What variety of factors specifically make the occurrence of
transactional fraud even more acute for Ex-Im Bank?
A.4. The loan guarantee and export credit insurance programs
provide guarantee of payments and protection to lenders and
exporters to promote the purchases of U.S. goods and services.
In general, in the transactions we have investigated and
inspected, we have uncovered that the most notable factor
leading to the transactional fraud was that neither lenders nor
Ex-Im Bank are conducting effective due diligence on borrowers
and buyers. This is mainly due to the fact that the Ex-Im
Bank's Master Guarantee Agreement does not require lenders to
conduct a sufficient level of due diligence on the parties to
the transaction as they would a non- Ex-Im Bank transaction. In
addition, the 100 percent threshold guarantee creates a ``moral
hazard'' for the lender as it insulates the lender from the
risk of loss on the transaction (no skin in the game) and
eliminates a financial incentive to perform adequate due
diligence.
One of the observations from the cases investigated is that
the lender does not truly ``know its client'' in many
transactions. This allows exporters or agents to orchestrate
the fraud by finding willing borrowers and submitting, for
example, false identity papers, applications, and financial
statements to approve the transaction. In short, there is a
lack of verification of the existence of the borrower, the
transaction sourcing agent, the exporter, and the U.S.-based
supplier.
In addition, our investigations and inspections have found
that in many cases there has been no effective verification of
material documents to the transaction (Receipt of Downpayment,
Invoices, Shipping Documents, Customs Documents, and Exporter's
Certificate) by the lender and Ex-Im Bank until after the loan
defaults. This presents an opportunity for exporters or agents
to falsify these documents. Once these documents have been
provided to the lender, the loan proceeds are disbursed. A
significant amount of time may pass before the loan defaults
which triggers Ex-Im Bank's responsibility to pay the claim and
start recovery efforts.
Another factor that may contribute to this problem is the
low number of underwriters or loan officers at Ex-Im Bank
relative to the increasing size of the Bank's total asset
exposure. Over the past 5 years, Ex-Im Bank has witnessed
significant asset growth with total exposure growing by 30
percent to $75 billion as of FY2010 and is on target to break a
record in FY2011. Ex-Im Bank has achieved this increase with
basically the same staffing level for the past decade. This
increase in workload undertaken by the same level of staffing
may contribute to diminished oversight, due diligence, and
resulting high default rates.
Q.5. What is the instance of fraud occurring in the Medium Term
Loan Program, and what procedures need to be improved to
mitigate the risk of fraud?
A.5. We currently have 311 Medium Term (MT) program claims
worth $337,296,551 under investigation.
On March 30, 2009, Protiviti, an OIG contractor, made
several, specific recommendations in an audit concerning credit
and fraud risk management in the MT program. \2\ Among them,
Protiviti recommended that (1) Ex-Im Bank strengthen its credit
underwriting due diligence by requiring lenders to do on-site
inspections and appraisals of equipment being exported as well
as obtain bank/brokerage statements of obligors and guarantors
for MT transactions; (2) institute an effective early warning/
delinquency and performance reporting system by requiring a
standardized process for lenders to report borrower payment
history; and (3) institute a independent, formal lender
oversight function that can effectively oversee transaction due
diligence guidelines or requirements, and a quality assurance
function that can manage and monitor performance of transaction
participants, such as agents and appraisers. On July 7, 2010,
Protiviti issued a follow-up of audit recommendations of this
report and found that the Bank had taken necessary actions to
establish appropriate controls in most of the areas that needed
strengthening. \3\
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\2\ Medium-Term Export Credit Program-Credit Risk and Fraud
Management Business Process Improvement, OIG-AR-09-04, March 30, 2009,
can be found at http://exim.gov/oig/documents/
MT_Program_Business_Process_Final_Audit_Report.pdf.
\3\ Follow-Up of Audit Recommendations Reported in Medium Term
Export Credit Program--Credit and Fraud Risk Management and Business
Process Improvement, Evaluation Report OIG-EV-10-02, can be found at
http://exim.gov/oig/documents/
Follow_Up_of_Audit_Recommendations_10_02.pdf.
---------------------------------------------------------------------------
In more general terms, as a result of our fraud
investigations and inspections, we have determined that Ex-Im
Bank may be able to mitigate fraud by implementing a
comprehensive list of mandatory due diligence steps that must
be performed by the lender and Ex-Im Bank. For example, such
steps may include, but are not limited to: (1) the lender and
Ex-Im Bank conducting minimal corporate registration and credit
checks on the Borrower, the Sourcing Agent for the transaction,
the Exporter, and the Supplier; (2) the lender and Ex-Im Bank
contacting the borrower to review the terms of the credit; (3)
the lender verifying the borrower's references and financial
statements; and (4) the lender verifying all material documents
to the transaction prior to the loan's disbursement.
Q.6. How much of the managerial challenges faced by Ex-Im Bank
can be attributed to an inefficient and ineffective IT
platform?
A.6. Ex-Im Bank has significant managerial challenges due to an
inefficient and ineffective IT platform. For example, on June
12, 2009, Protiviti, an OIG contractor, issued an audit of the
MT Program's IT Systems, Support and Governance. \4\ The audit
was initiated at the request of then Chairman James L.
Lambright based on questions raised regarding the efficiency
and effectiveness of IT support for the Bank's MT program in
view of adverse economic results of the MT program and user
complaints regarding slow response times. The audit found that
the Bank had not provided adequate IT program support and
governance of the MT program. Significant enhancements to the
Bank's processes for identifying strategic priorities, setting
goals, developing plans to achieve them, supporting business
process and system development and allocating IT resources
would be required in order to improve functional support for
the MT program and create reasonable accountability for
realizing management's objectives. On June 30, 2010, Protiviti
issued an evaluation report as a follow up to this audit and
found that the Bank had taken the necessary actions to
establish appropriate controls in most of the areas that needed
strengthening in the MT program. \5\
---------------------------------------------------------------------------
\4\ Medium Term Export Credit Program-Information Technology (IT)
Systems, Support and Governance, OIG-AR-09-05, June 12, 2009, can be
found at http://exim.gov/oig/documents/MTITauditreportfinal.pdf.
\5\ Follow-Up of Audit Recommendations Reported In Medium Term
Export Credit Program--Information Technology (IT) Systems, Support and
Governance, Evaluation Report OIG-EV-10-01, can be found at http://
exim.gov/oig/documents/OIG_EV_10_01.pdf.
---------------------------------------------------------------------------
In addition, audits we have conducted found the Ex-Im Bank
IT systems are not flexible, queries are not robust and
accuracy of data is not always reliable. Because of the above
deficiencies, the OIG and its contractors primarily rely on
manually controlled data when conducting audits. We are
currently conducting an audit to determine whether Ex-Im Bank
is minimizing the cost and maximizing the usefulness of its key
IT systems to meet Ex-Im Bank's mission. We will share the
results of this audit with the Committee as soon as it is
completed.
Q.7. The subsidy or loss rates in the Medium Term Loan Program
are positive, whereas the rates for the Long Term Loan Program
and the Short Term Working Capital program are net negative and
near-zero, respectively. What accounts for the difference in
performance in the Medium Term program?
A.7. The subsidy rates differ because the MT program presents
enhanced risks not present in the Long-Term and Short-Term
programs represented by the historical levels of defaults.
The difference in default rates between the Medium and
Long-Term programs can also be attributed to the fact that most
of the Long-Term deals are either aircraft or project
financings that are highly structured with strong collateral
while many of the MT deals have been done on an unsecured
basis, with less due diligence up front.
In our 2009 audit of the credit and fraud risk management
of the MT program referenced above, Protiviti found that the
Ex-Im Bank encountered significant credit and fraud loss,
process efficiency challenges and IT issues because the Bank
had not developed customized policies, controls, systems, and
tools to address the enhanced risks of the MT program. The MT
program is a high-risk program that responds to the Bank's
mission of making export financing available where the private
sector is unable or unwilling to do so and only requires a
reasonable assurance of repayment. However, actions that would
typically be taken by a high-risk lender in the private sector
to effectively manage credit and fraud risk, and which are
recommended or required by the Office of Management and
Budget's Circular A-129-Policies for Federal Credit Programs
and Non-Tax Receivables, have not been consistently required
elements of the MT program.
Additional Material Supplied for the Record
STATEMENT SUBMITTED BY THEA MEI LEE, DEPUTY CHIEF OF STAFF, AMERICAN
FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
I appreciate the opportunity to submit testimony on behalf of the
twelve and a half million working men and women of the AFL-CIO on the
reauthorization of the Export-Import 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 to serve on the Ex-Im Bank's Advisory
Committee as a representative of labor for more than a decade, so I
have seen at close range the breadth of support provided by the Ex-Im
Bank to American exporters, as well as the growth and development of
the organization over that period of time. I would like 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 appreciate the financial support that Ex-Im
Bank has provided to help reach that goal, especially in the wake of
the financial crisis. Ex-Im Bank's record of increasing its export
financing by 70 percent since 2008 is commendable and reflects hard
work by the leadership and staff, increased outreach to potential
exporters, and some streamlining of procedures, among other things. The
success of Ex-Im Bank in substantially increasing its export financing
in recent years certainly appears to indicate that exporters find Ex-Im
Bank financing attractive and competitive relative to other available
options.
But 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 Section 2 of the Bank's 2002 Reauthorization
makes clear: ``The Bank's objective in authorizing loans, guarantees,
insurance, and credits shall be to contribute to maintaining or
increasing employment of United States workers.''
Ex-Im financing provides exporters support that is in general more
accessible or more attractive than that available through private
channels. While Ex-Im Bank is self-financing, the full faith and credit
of the U.S. Government supports Ex-Im loans and makes possible the
favorable terms that make Ex-Im Bank loans attractive to exporters.
The U.S. Congress, in its periodic reauthorization of the Ex-Im
Bank, has an opportunity to ensure that Ex-Im financing is meeting its
ultimate policy goal of supporting American jobs. The role of the
Congress is essential in maintaining the integrity and the public-
policy mission of the Ex-Im Bank. The Bank is under constant pressure
from its clients, the companies that use Ex-Im Bank services, to weaken
the policy constraints that are in place, in order to facilitate more
loans on easier terms with fewer strings attached. Congress can and
should represent broader American interests than just the profit motive
of exporting corporations.
The three ``policy provisions'' of Ex-Im Bank that often come under
sharp criticism from exporting companies are the domestic content
guidelines (limiting Ex-Im Bank financing mainly to U.S.-produced goods
and services), the economic impact requirement (ensuring that Ex-Im
Bank loans do not undermine U.S. jobs or circumvent U.S. trade laws),
and the U.S. shipping requirements. All of these create some
inconveniences for exporting companies, but serve important public
policy purposes for the United States.
The proposed legislation that the House of Representatives has
proposed, ``Securing American Jobs Through Exports Act of 2011'',
reauthorizes the 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.
Unfortunately, the proposed legislation also alters the Bank's
procedures for establishing domestic content guidelines in a way that
could weaken content requirements and undermine U.S. jobs. We strongly
oppose the inclusion of Section 5 in the legislation and urge the
Senate to drop that provision from the bill.
Rather than attempting to weaken Ex-Im Bank's domestic content
policies, any reauthorization legislation should instead clarify the
content policies and make them more transparent, particularly with
respect to how domestic content is calculated and what it includes.
In addition, we would like to see the economic impact provisions
strengthened and clarified. There is no evidence that the current
economic impact requirements are undermining the competitiveness of Ex-
Im Bank or posing an undue burden on exporters, contrary to some recent
testimony in this Subcommittee.
In 2008, 2009, and 2010, very few transactions were required to
undergo detailed economic impact analysis--10, 7, and 8 respectively,
according to the draft 2010 Ex-Im Bank Competitiveness Report. Of
those, the majority were withdrawn for reasons having nothing to do
with the economic impact requirement. Of the remaining handful of
transactions, none in the last 3 years were denied because of the
economic impact requirement. It should not be asking too much of
companies that receive Ex-Im financing to report the likely impact of
their transaction on U.S. jobs and production, especially where a
global excess supply exists (as in steel) or a trade case is pending.
Another area where Ex-Im Bank policies could be improved relates to
foreign export credits. The current charter lays out two situations in
which the Bank can match foreign export credits. Under Section
10(b)(1)(A), Ex-Im can match credits if there is a reasonable
expectation that a competitor will provide aid in violation of the
arrangement or aid that, while technically in compliance with the
arrangement, may require matching because it is grandfathered. Section
10(b)(1)(B) allows matching for exports to countries which are actual
or potential export markets for countries that: (i) engage in predatory
financing and either impede negotiations or violate the arrangement; or
(ii) engage in predatory financing that seeks to circumvent agreements
on tied aid. The section could be amended to add another category to
this provision for any financing provided by a country that is not a
member of the arrangement. This could simplify matters by eliminating
the need to show that the country is violating the terms of the
arrangement, impeding negotiations, or seeking to circumvent the
arrangement.
Finally, an important challenge to Ex-Im Bank and the other OECD
ECAs comes from the rise of China's Ex-Im Bank, which is rapidly
increasing its export finance and is in egregious violation of WTO
rules. The AFL-CIO would like to see our Government take more forceful
action through the WTO to confront these violations, which are
undermining American exporters and workers.
Export credits are prohibited export subsidies under WTO rules, but
there is a safe harbor in WTO rules that permits countries to provide
export credits that comply with the interest rate and maturity terms of
the OECD Arrangement on Export Credits. An export credit agency does
not need to be a member of the OECD arrangement to benefit from this
safe harbor, it just needs to bring its export credits into compliance
with the OECD terms in practice. China has been invited to accede to
the OECD arrangement but has refused to do so.
China's ECA is now one of the largest in the world, and it is
blatantly flouting the basic rules export credit agencies agreed to
decades ago, without any challenge. China's Ex-Im Bank is apparently
granting loans with interest rates of 1 to 2 percent and repayment
terms as long as 20 years, as well as special discounted credits that
go directly to exporters in priority sectors such as high technology
(including green technology). China's Ex-Im Bank explicitly advertises
these credits as being available at below-market rates. Since China's
export credits are not in compliance with OECD rules, they are
prohibited export subsidies under WTO rules. We urge our Government to
bring a WTO challenge, as the United Steelworkers union has documented
in its Section 301 case, to ensure that China come into compliance with
international rules in this important area.
I thank you for your attention and look forward to your questions.
______
STATEMENT SUBMITTED BY OWEN E. HERRNSTADT, DIRECTOR, TRADE AND
GLOBALIZATION, INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE
WORKERS
The International Association of Machinists and Aerospace Workers,
(IAM) AFL-CIO, represents several hundred thousand active and retired
members throughout North America. Our members work in a variety of
manufacturing industries including aerospace, electronics, defense,
shipbuilding, transportation, and woodworking. Given the nature of
these industries and the IAM's membership, the IAM truly understands
the importance of manufacturing to our Nation's economic and physical
security. We also understand that strong U.S. exports, which are
directly related to creating and sustaining jobs here at home, are a
key to our success in restoring our economy and building a prosperous
and sustainable future.
The United States Export-Import Bank (the Bank) exists to promote
U.S. exports that create and sustain good manufacturing jobs here at
home, not in other countries. It fulfills its mission by providing U.S.
exporters with more favorable financing than they could obtain
privately if they meet various public policies. One of those policies
encourages exporters to manufacture products for export in the U.S. by
providing support for the domestic content that is included in the
product. Proposals to require the Bank to lend greater financial
support for the foreign content of U.S. exports is contrary to the
Bank's mission to support the creation and maintenance of jobs in the
U.S. and should be rejected. If these proposals were adopted, Congress
and the Bank would be providing U.S. exporters with a greater incentive
to produce their products in other countries.
Instead of weakening the Bank's mission to support U.S. jobs by
offering greater support to U.S. exporters who are increasingly
transferring U.S. jobs to other countries, efforts should be undertaken
to strengthen the Bank's ability to satisfy its policy objectives.
Among other things, the Bank should be encouraged to adopt a method for
precisely calculating the number of U.S. jobs it supports through its
financing. The Bank currently extrapolates job estimates based on the
value of exports it promotes.
One of the problems with the extrapolation method is that it
presumes the entire export is produced by U.S. workers. Moreover,
current job estimates do not reveal with any precision the kind of jobs
that are created or supported nor do they indicate their duration or
where they are geographically located. Additionally, since the Bank
supports a limited percentage of foreign content and ``local'' costs
(derived from work performed in the country that receives the export),
it would be helpful to know how many foreign jobs are created or
supported by the Bank's financial support.
This employment information should be reflected in the Bank's
economic impact review, which should be applied more broadly to cover
projects that are less than $10 million. Expanding the application of
detailed economic impact reviews should not be too burdensome;
currently the Bank only applies detailed analysis is to less than 10
projects a year. In 2008, zero projects underwent a detailed analysis.
We encourage the Bank to adopt domestic content standards that
strictly reflect the direct costs of U.S. production, including
manufacturing costs, parts, components, materials and supplies for all
of its transactions We also urge the Bank to review standards that
reflect the Federal Trade Commission's understanding of what
domestically made products mean. According to the FTC: ``For a product
to be called Made in USA, or claimed to be of domestic origin without
qualifications or limits on the claim, the product must be `all or
virtually all' made in the U.S . . . `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.''
Suggestions that the Bank include indirect costs in calculating
domestic content should be outright rejected. Including marketing, the
value of intellectual property/patent rights, property related to
research and development, and CEO pay is simply inappropriate.
Inclusion of these factors dilutes the real domestic content of a
product. These factors could also be manipulated by some exporters by
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.
Some exporters argue that obtaining a sale with greater foreign
content is better for U.S. workers than losing the sale itself. We have
yet to see solid empirical support for this statement. In contrast,
industries that were once the bedrock of U.S. manufacturing like
machine tool, electronics, shipbuilding and many others have been
decimated, in part, because U.S. production has been shifted to other
countries to secure the sale of those products. Even leading edge
industries like aerospace have declined as U.S. aerospace industries
transferred technology and production to other countries. The European
aerospace industry, which has been a great recipient of transferred
aerospace work, is a strong competitor of the U.S. aerospace industry.
In addition, given all of the aerospace production that has been
transferred to China, in large part to penetrate its market, it should
be little surprise that China now seeks to enter the large commercial
aircraft industry.
While some exporters also argue that the public policies that
create the Bank's mission must be weakened so that the Bank can become
more competitive, the fact remains that the Bank continues to fund a
record amount of projects. The question over competitiveness seems to
be misdirected as well. Shouldn't the real question be how other export
credit agencies are competitive with meeting the Bank's overall mission
to support exports that create and maintain domestic jobs? This would
require an analysis of how other countries are pursuing domestic
employment in manufacturing through their export credit banks and other
national policies.
Now more than ever, we need to make certain that the Bank is as
effective as possible in meeting its mission to support exports that
create and maintain U.S. jobs. Strengthening the Bank's domestic
content policies and bolstering its economic impact analysis is a
critical component in this endeavor. Proposals that would permit the
Bank to support greater levels of foreign content in a U.S. product,
under cuts the Bank's mission. If adopted, they would give greater
incentive for companies receiving the Bank's support to further
outsource U.S. production to other countries. We urge you to strengthen
the Bank's public policy goals to create jobs here at home, and reject
any attempt to weaken them.
______
JOINT STATEMENT SUBMITTED BY AMERICAN APPAREL AND FOOTWEAR ASSOCIATION,
NATIONAL COTTON COUNCIL, AND NATIONAL COUNCIL OF TEXTILE ORGANIZATIONS
Thank you for providing the above organizations the opportunity to
submit comments regarding stakeholder perspectives on the Export-Import
Bank of the United States and the pending reauthorization of the Bank.
Our organizations strongly believe that today's hearing will help the
Committee better understand how the Export-Import Bank (Ex-Im Bank) can
better address the needs of U.S. companies in a globally competitive
environment while also creating U.S. jobs.
The Ex-Im Bank could and should play a critical role in supporting
and expanding U.S. jobs in the U.S. textile industry and in turn
anchoring a strong Western Hemisphere textile and apparel supply chain.
Regrettably, the Ex-Im Bank has failed to fulfill this role because the
structure of Ex-Im Bank loans and guarantees do not reflect either the
realities of the apparel and textile supply chain, U.S. trade policy,
or today's global supply chains in general.
At the direction of U.S. trade policy, the textile and apparel
supply chain has developed across the Western Hemisphere and has
evolved into a mutually beneficial relationship for both U.S. cotton
growers and U.S. textile manufacturers as well as U.S. apparel
importers.
The Free Trade Agreements and preference program areas in this
Hemisphere for the most part grant duty-free access to the U.S. market
for apparel assembled in the region as long as the apparel is made,
either entirely or in part, from U.S.-grown cotton and U.S.-made yarn
and fabric. As a result, all parties in the supply chain benefit--from
U.S. cotton growers, U.S. yarn and fabric manufacturers, to apparel
manufacturers in the region and ultimately the U.S. apparel brands and
retailers. All parties are positioned to reap the benefits of U.S.
trade policy. However, the supply chain is missing the necessary
ingredient--reliable supply chain financing.
Prior to this reauthorization, the Ex-Im Bank did very little to
support supply chain financing, which, in turn, has had the practical
effect of suffocating domestic capital investment and job creation.
Traditionally, the Bank has only considered the creditworthiness of the
producer receiving U.S. textile industry exports and has failed to
acknowledge that these components, once exported to Central and South
America, return to the United States--to major U.S. brands and
retailers--as finished goods. This policy has limited the financing
opportunities at the Bank for the U.S. textile industry.
Ex-Im Bank financing would facilitate and grow the Western
Hemisphere apparel and textile supply chain by increasing the
incentives for U.S. apparel brands and retailers to increase their
sourcing from the region because such financing would make access to
the U.S. cotton and textiles necessary to obtain the benefits under the
various free trade agreements and preference programs easier, faster
and more reliable. As a result, Ex-Im Bank financing would lead to
increased exports of U.S. cotton, yarn, and fabric to the region. Those
increased exports would support and grow U.S. jobs.
U.S. Government--``You Should Export to the Region, but We Won't Help
You''
The Ex-Im Bank bases much of its financing decisions on country
risk. In the case of the Western Hemisphere apparel and textile supply
chain, this ``Country Limitation'' policy outright eliminates the
possibility of financing for some countries and severely restricts
financing and/or significantly increases the interest rates for many
others that are integral to this supply chain.
As a result, the U.S. Government strongly encourages U.S. textile
manufacturers to export their products to Central America and the
Dominican Republic through the incentives it negotiated through CAFTA-
DR while at the same time saying that financing U.S. exports to half of
the CAFTA-DR countries is too high of a risk to provide anything but
the most limited loans and loan guarantees, at high interest rates to
boot. For Haiti, a country that the U.S. Congress has deemed a priority
through passage of the HOPE and HELP trade preference programs, the Ex-
Im Bank basically says the country is off limits.
Improving Products to Better Provide ``Supply Chain Financing''
While the amount of paperwork and the timeline for approval remain
major barriers preventing any small business from utilizing Export-
Import Bank programs, for the Western Hemisphere apparel and textile
supply chain we believe that the Export-Import Bank must adapt to
today's global supply chain. As in textiles and apparel, the United
States doesn't just export final manufactured products anymore. Exports
of U.S.-made goods today are just one part of a global supply chain. In
our industry, U.S. exports of cotton, yarn, or fabric, return to the
United States as finished apparel or home goods. The programs offered
by the Export-Import Bank should reflect these realities.
House Bill Includes Textile Amendment To Help Address Industry
Financing Concerns
The House Financial Services Committee recognized the evolution of
the textile and apparel industry global supply chain. Essential
legislative text was included in the version of H.R. 2072 approved by
the Committee on June 22, 2011, that would address three important
issues: Bank Advisory Committee representation, reviewing the
industry's use of Bank products and why or why not they are being used,
and promoting Bank financing of transactions for the textile and
apparel industry.
The legislative text is explained in more detail below and our
organizations urge the Senate Banking, Housing, and Urban Affairs
Committee to adopt similar language.
1. Representation on Bank Advisory Committee: The textile industry
will be included in the list of those to be represented by
Advisory Committee members. The charter will read: ``Sec.
3(d)(1)(B). Such members shall be broadly representative of
environment, production, commerce, finance agriculture, labor,
services, State government, and the textile industry.''
2. Textile Industry Use of Bank Products--Analysis: The Bank will
conduct an analysis of textile and apparel industry use of the
Bank products, examining the impediments to the industry's use
of the Bank as well as then number of U.S. jobs supported by
the industry, and make proposals for how the Bank could provide
financing to meet the needs of the industry, including
proposals for new products. Within 180 days, the Bank will be
required to submit a report to Congress that contains the
results of the study.
3. Promotion of Industry Financing by the Advisory Committee: The
Advisory Committee will be required to consider ways to promote
Bank financing of transactions for the textile industry,
consistent with the requirement that the Bank obtain a
reasonable assurance of repayment, and determine ways to
increase Bank support for exports of textile components or
inputs; and increase Bank support for the maintenance,
promotion and expansion of jobs in the United States that are
critical to the manufacture of textile components and inputs.
4. Annual Report: The determinations made by the Advisory Committee
would be included in the Bank's annual report. In addition, the
Bank would be required to report on the success of the Bank in
providing effective and reasonable priced financing to U.S.
textile and apparel industry for exports of goods manufactured
in the United States and steps the bank has taken to increase
the use of Bank products.
It is our belief that the legislative text as included by the
Financial Services Committee would be a great first step towards
bringing much needed liquidity to the Western Hemisphere supply chain
at a time when major brands and retailers are considering shifting
sourcing back to this region of the world.
Conclusion
Thank you again for holding a hearing on this important issue. We
believe that a combination of changes in both Export-Import Bank
policies and programs will position the Export-Import Bank to truly
assist U.S. companies, particularly small businesses, and the hundreds
of thousands of U.S. workers they employ, that play a critical role in
today's global supply chains. We would be happy to discuss any of the
above points in more detail with the Subcommittee.
STATEMENT SUBMITTED BY AIR TRANSPORT ASSOCIATION OF AMERICA, INC.
The Air Transport Association of America (ATA) appreciates this
opportunity to present the perspective of the leading U.S. airlines on
the proposed reauthorization of the U.S. Export-Import Bank. \1\ U.S.
airlines are major contributors to U.S. service exports, and strongly
support President Obama's National Export Initiative (NEI). The
Administration correctly emphasizes that achieving the ambitious goals
of the NEI will require contributions from U.S. service as well as
manufacturing industries.
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\1\ ATA is the principal trade and service organization of the
U.S. scheduled airline industry. The members of the association are:
ABX Air, Inc.; AirTran Airways; Alaska Airlines, Inc.; American
Airlines, Inc.; ASTAR Air Cargo, Inc.; Atlas Air, Inc.; Continental
Airlines, Inc.; Delta Air Lines, Inc.; Evergreen International
Airlines, Inc.; Federal Express Corporation; Hawaiian Airlines; JetBlue
Airways Corp.; Southwest Airlines Co.; United Airlines, Inc.; UPS
Airlines; and US Airways, Inc.
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Export credit made available through the Export-Import Bank can
play an important and appropriate role in supporting U.S. exports. ATA
thus supports reauthorization of the Bank.
ATA members are not eligible for--and do not seek--export credit
made available through the Export-Import Bank. Nevertheless, they have
a vital stake in the Bank's activities. The facts are that nearly one-
half of the value of all guarantees issued by the Bank subsidize
acquisitions of large civil aircraft by foreign airlines, providing
those airlines with a significant competitive advantage, which they
have used to capture more than 50 percent of the international traffic
serving the United States.
Almost all of these guarantees support sales by the Boeing Company,
and that level of support is roughly matched by similarly guaranteed
financing by European export credit agencies in support of sales by
Airbus. The major beneficiaries of such credit support include the
world's most profitable airlines outside of the United States and the
Airbus home countries of France, Germany, and the United Kingdom.
Consequently, as Congress considers the Bank's reauthorization--
particularly, proposals to vastly increase the ceiling on the Bank's
authorized financing commitments--it is essential to examine closely
the facts surrounding the Bank's financing activities. The Committee
should carefully appraise the consequences of the Bank's work for U.S.
companies and workers who compete with beneficiaries of U.S.
Government-guaranteed loans and loan guarantees. The Congress must
ensure that reauthorization of the Bank does not simply result in a
trade-off between more jobs supported by Government subsidies and more
jobs lost by U.S. companies that compete with the foreign beneficiaries
of those subsidies.
Summary
With respect specifically to the air transport industry, ATA wishes
to make the following points:
Commercial aviation is a pillar of the U.S. economy. U.S.
passenger and cargo airlines directly employ 572,000 workers,
and the industry more broadly supports millions of jobs. Yet,
export credits provided by the Bank have a real and adverse
impact on U.S. airlines.
Those credits support sales of large civil aircraft to
foreign airlines that compete with U.S. airlines, and that do
not need Government credit support.
The recently renegotiated Aircraft Sector Understanding
(ASU) made a good start toward lessening the market distortions
caused by subsidies provided by Government-backed Export Credit
Agencies (ECAs), such as the Export-Import Bank and its foreign
counterparts. It is essential, however, for the United States
to press forward on a multilateral basis to achieve even
greater global discipline over these subsidies.
To support ASU negotiations and to ensure that Congress and
U.S. taxpayers understand the nature and level of the billions
of dollars of Government support in this one sector, any
reauthorization of the Export-Import Bank should require the
Bank to make public increased and more consistent information,
in a timely manner, about the terms and extent of export
credits offered to support purchases of large civil aircraft.
Attachment 1 to this Statement is a letter sent by ATA to Secretary
of the Treasury Geithner and other senior Administration officials on
August 16, 2010. This letter explains the concerns of U.S. airlines
about the explosive growth in support by the Export-Import Bank and its
European counterparts for sales of large civil aircraft. The following
comments refer to the facts set forth in that letter while describing
recent developments for the Subcommittee and a modest proposal to
increase the transparency of the Bank's large civil-aircraft financing
activities.
The Airline Industry Is a Crucial Sector of the U.S. Economy
As set forth in the August 16 letter, commercial aviation is one of
the pillars of the U.S. economy. According to the Federal Aviation
Administration (FAA), commercial aviation drives approximately $1.2
trillion in annual economic activity in the United States and is
responsible for 10.9 million U.S. jobs. This is roughly 5.2 percent of
our Gross Domestic Product (GDP). Every $1 million of commercial
aviation activity generates 24.6 jobs.
The airline industry is an integral part of this picture. According
to ``The Economic Impact of Civil Aviation on the U.S. Economy'',
published by the FAA in December 2009, nearly half of the Americans
employed directly in commercial aviation are employed by U.S. airlines.
While operating more than 10 million flights in 2010, U.S. airlines
enplaned an average of two million passengers and 50,000 tons of cargo
per day. Exports by air in 2010 topped $392 billion in value. In short,
the industry is a powerful creator of jobs throughout the U.S. economy.
Every 100 airline jobs help support some 388 jobs outside of the
airline industry.
Subsidy Support for Foreign Airline Competition
As a result of the ``Open Skies'' international aviation policy
pursued by the United States over the past two decades, international
passenger and cargo service involving the United States has largely
been deregulated. Foreign airlines now operate more than 50 percent of
the passenger capacity on routes to and from the United States.
U.S. airlines strongly support the Open Skies policy and welcome
the foreign competition. It has become increasingly clear, however,
that official export credits are significantly distorting the
conditions of competition in the airline industry, resulting in a
severe competitive disadvantage to U.S. airlines.
As shown in Attachment 2 to this Statement, over the past decade
(FY2001-FY2010), the Export-Import Bank issued guarantees totaling more
than $49 billion, supporting sales of 835 aircraft. The amount of
financing accelerated through those years. In FY2009 and FY2010, the
Bank provided guarantees of $8.6 billion and $7.2 billion,
respectively. At the end of FY2010, the Bank's exposure to the airline
transportation sector exceeded $35 billion--nearly half (47 percent) of
the Bank's total exposure.
It is important to note that Export-Import Bank support for exports
of U.S. large civil aircraft is matched by its European counterparts'
support of Airbus sales. The United Kingdom's Export Credits Guarantee
Department (ECGD) provided guaranteed financing of approximately
294 million for Airbus sales during its fiscal years 2001-
2010. Although not publicly available, the amounts of official export
credits extended by France and Germany in support of Airbus most likely
matched or exceeded that of ECGD, as the three countries all are ``home
countries'' for Airbus and support the same sales.
Another startling fact about ECA financing is that the major
beneficiaries do not need it. Those beneficiaries include 9 of the 10
most profitable airlines based outside of the United States and the
three European Airbus countries. Many of those airlines have credit
ratings equal to or exceeding the ratings of U.S. airlines. They can
access commercial credit markets on at least as favorable terms as the
U.S. airlines. Yet, for comparable financings, Export-Import Bank
credit support will yield significantly more favorable terms and loan
proceeds for the foreign airlines.
As noted in the August 16 letter, the damage caused by subsidized
financing is particularly acute during declines in the business cycle,
because ECA credits and guarantees immunize borrowers from market
conditions. During the recent economic downturn, U.S. airlines cut
capacity by 8 percent and were forced to lay off thousands of
employees; yet, large aircraft production remained at record highs and
the large aircraft market grew by more than 10 percent. This happened
because the ECAs stepped in to help many foreign airlines to expand and
to modernize their fleets. ATA estimates that U.S. and European export
credits have resulted in the subsidized foreign carriers acquiring at
least 11 percent more capacity than if they had to pay market rates.
From a U.S. airline perspective, the export credit-supported
competition among Boeing and Airbus amounts to a subsidy war that is
comparable to the dispute over aircraft launch subsidies that the
United States and the European Union have carried to the World Trade
Organization. The subsidies simply occur further along the sales chain.
The export credits make aircraft artificially cheap for the foreign
beneficiaries, contributing to capacity unconstrained by market
conditions.
The Aircraft Sector Understanding
The current market distortion caused by ECA credits may only worsen
as Canada, Brazil, China, and possibly other countries ramp up support
for civil-aircraft exports in competition with Boeing and Airbus. The
future competitiveness of the U.S. airline industry and the jobs of
hundreds of thousands of its employees, will be adversely impacted by
massive increases in capacity acquired cheaply by foreign airlines,
unless the United States succeeds in negotiating a mutual cease fire.
ATA applauds the progress achieved by the Administration toward
this goal during the recent renegotiation of the OECD Aircraft Sector
Understanding (ASU). The new ASU, which became effective earlier this
year, will not eliminate the unjustified subsidization of foreign
airline competitors of U.S. airlines. It will, however, close the gap
by moving the ASU minimum terms closer to commercial market terms.
The ASU calls for periodic review and adjustment of its terms to
reflect market conditions. ATA supports aggressive monitoring by the
Treasury Department and other concerned agencies to ensure that ASU
members adhere to the Agreement. While the new ASU has a minimum 3-year
term, the Administration also should initiate early negotiations to
bring China and other emerging exporters into the agreement and to
tighten the minimum terms still further. Ultimately, the ASU should
ensure that Government-provided export credits are only available as
limited ``backstop'' financing, not as first-recourse loan sources and
not as subsidies for financially sound foreign airlines, as is the case
today.
Increasing Transparency
On April 14, 2011, Panamanian airline company Copa Holdings, S.A.,
made the following announcement:
J.P. Morgan has been mandated by Copa Airlines to provide
Export-Import Bank of the United States (Ex-Im Bank) guaranteed
funding for five 737-800 aircraft scheduled to deliver in 2011.
The Facility, totaling US$178.5 million, includes 12-year
financing terms at very competitive rates and will finance all
direct Boeing purchases scheduled for delivery to Copa Airlines
in 2011. J.P. Morgan will act as the sole arranger and facility
agent for the Term Loan Facility, which is available on
delivery of the Aircraft on either a floating or fixed rate
basis. COPA will also have the option to effect a conversion,
subject to Ex-Im Bank's approval, of the floating rate term
facility into a fixed rate term facility. ``We are very pleased
with J.P. Morgan's support in securing our 2011 aircraft
financing needs under very competitive terms. These five 737-
800s will play an important role in our future growth plans,''
commented Victor Vial, CFO of Copa Holdings.
Similarly, on October 8, 2009, Dubai-based Emirates Airline
announced:
the successful pricing of its inaugural U.S. bond offering
guaranteed by the Export Import Bank of the United States . . .
related to a loan facility secured for three new Boeing 777-
300ER aircraft. The transaction is in the amount of US$413.7m
with a fixed rate coupon of 3.465 percent per annum. The
secured notes are due 21 August 2021 and are payable in
installments of principal and interest on a quarterly basis.
Ironically, this type of information is not available from the
Export-Import Bank itself. It is, in fact, extraordinarily difficult to
find the most basic, nonproprietary information about the transactions
for which the Bank issues billions of dollars of U.S. Government
guarantees.
In April 2010, the Office of Management and Budget (OMB) issued a
directive to Federal agencies explaining the Administration's
requirements for financial disclosures. OMB stated:
[T]ransparency is a cornerstone of an open Government. This
Administration is committed to making Federal expenditures of
taxpayer dollars transparent to the public by providing readily
accessible, complete, accurate, and usable Federal spending
data. [Office of Management and Budget, Executive Office of the
President, Memorandum for Senior Accountable Officials Over the
Quality of Federal Spending Information (2010).]
ATA fully supports that commitment, and believes that a
reauthorization of the Export-Import Bank should require greater
transparency concerning what remains by far its largest sector of
activity.
Specifically, ATA urges that legislation require the Bank, for each
guarantee, promptly to disclose the following information regarding
every financing involving large civil aircraft:
The number and model of aircraft
The repayment term
The authorization amount
The export value
The interest rate
Export-Import Bank Fees
This basic information would permit taxpayers to understand better
the Bank's commitments of public funds. In fact, much of this
information is already disclosed to the public in some form, either by
the Bank itself or elsewhere (as demonstrated in the press releases
quoted above). The Bank's disclosures, however, are reported
inconsistently, and in such disjointed fashion that they are difficult
to understand. \2\ In fact, the Bank reports less today in its annual
reports than it did previously.
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\2\ The Bank reports ``Ex-Im Bank Authorizations'' by fiscal year
(see, e.g., ``Ex-Im Bank Authorizations for FY2008'', available at
http://www.exim.gov/open/datasets/EXIM_AUTH_2008.csv). This data set
includes both the authorization amount and export value for particular
loans. The data set, however, does not report the recipient,
recipient's country or repayment term. The recipient information may be
obtained through a different compilation of transaction details,
accessible through USASpending.gov. (See, Export-Import Bank of the
United States, Freedom of Information Act, http://www.exim.gov/about/
disclosure/foia.cfm#fr.)
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ATA believes that the Bank should provide greater advance notice of
proposals to its Board to approve financing transactions involving
large civil aircraft, and prompt notice of approvals following Board
action. Currently, agendas of Board meetings are generally published 2
days in advance. Minutes containing little information about
transactions are published afterwards.
Conclusion
Current proposals to reauthorize the Export-Import Bank would raise
the cap on the Bank's outstanding loans, guarantees, and insurance to
$160 billion, up from $100 billion currently. If the percentage of the
Bank's exposure to the airline transportation sector continued to
remain at 47 percent of its total exposure, then the proposed new cap
on its exposure limit implies a potential doubling in outstanding
guarantees for large-civil-aircraft sales, to as much as $75 billion.
This level of exposure--or even something significantly less--
represents sales of hundreds of new aircraft on subsidized terms to the
competitors of U.S. airlines.
The adverse impact of the Bank's financing of U.S. airline
competitors is not new to Congress. In connection with the Bank's
reauthorization in 1986, this Committee, under the leadership of
Senators Armstrong and Proxmire, sponsored an amendment designed to
ensure that the Bank considered potential adverse economic impacts of
proposed transactions, specifically including in the aircraft sector.
In its report on the Export-Import Bank Act Amendments of 1986, the
Committee wrote:
The current provisions of section 1911 of the Export-Import
Bank Act Amendments of 1978 require that the Bank consider the
potential adverse impact that any Eximbank loan or financial
guarantee is likely to have on domestic industries or
employment. As part of this consideration, the Bank has
implemented procedures to gather information on potentially
affected parties.
However, the Committee has found that these procedures have not
been employed regularly or rigorously. This has resulted in
Board approval of a loan or guarantee without adequately
considering the views of parties likely to be affected. A
particularly visible example of this occurred in 1983, when the
Bank offered a guarantee to support Singapore Airlines'
purchase of Boeing 747 aircraft. A U.S. competitor of Singapore
Airlines, Pan American Airways, felt that it was adversely
impacted by this support, yet it was not consulted by Eximbank,
and the Board gave only cursory attention to this statutory
consideration.
The bill strengthens the directive to the Bank to consider the
views of domestic parties who may be substantially adversely
affected by the Eximbank loan or guarantee. The Bank is further
directed to address these views in writing so that the Board of
Directors may formally review this material before making a
decision on the transaction. The intent of this amendment is to
ensure that Eximbank more rigorously implements its existing
procedures and the already existing requirements of the law.
S. Rep. No. 99-273, at 8-9 (1986). During the floor debate of the
1986 Amendments, Senator Armstrong raised the Singapore Air example:
In 1983, the Bank sought to provide $254 million in direct
credit and $426 million in financial guarantees to Singapore
Airlines for the purchase of four new Boeing 757's and six new
Boeing 747's, plus the spare parts.
It should be noted by the way, that Singapore Airlines is owned
98.2 percent by the Government of Singapore, which gives it
some advantage, as you might imagine, over its direct
competitors, particularly American-based Pan Am.
I bring this up because one element for reform contained in
this bill, primarily at the leadership of the Senator from
Wisconsin [Mr. Proxmire], is contained, I think, in section 112
of this bill, or it is one of the sections, which literally
will now require the Eximbank to take into consideration not
only the positive effect of its action but also potential
damage to the U.S. economy.
132 Cong. Rec. S9361 (daily ed. July 21, 1986) (statement of
Senator Armstrong). Twenty-five years later, so far as ATA is aware,
the Bank has never once taken into consideration the potential damage
to the U.S. airline industry of its support for aircraft sales. \3\
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\3\ In fact, as reported by the Bank's Inspector General, the Bank
only rarely conducts economic impact analyses for transactions
involving any industry. Evaluation Report Relating to Economic Impact
Procedures, OIG-EV-10-03, September 17, 2010.
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U.S. airlines face far more competition from foreign airlines for
U.S. traffic than in 1986. It is thus ever more critical for the
Congress and the Administration to understand the full prospective
consequences of the proposed massive increases in Export-Import Bank
funding, and not to take steps that will worsen what is, at best,
already a zero-sum game of supporting one U.S. industry at the expense
of another. Ultimately, continued vigorous U.S. leadership among the
ASU participants and elsewhere will be essential to relieve exporters'
calls on the U.S. Government's credit and to restore a level playing
field for the U.S. airline industry.
Attachment 1: ATA Letter to Secretary of the Treasury Geithner, August
16, 2010
Attachment 2: Ex-Im Bank and ECGD Financing of Boeing and Airbus
Exports