[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
                     TRADE PROMOTION AGENCIES AND 
                          U.S. FOREIGN POLICY

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

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 19, 2015

                               __________

                           Serial No. 114-40

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
        
        
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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       BRIAN HIGGINS, New York
MATT SALMON, Arizona                 KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina          ALAN GRAYSON, Florida
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas            GRACE MENG, New York
SCOTT PERRY, Pennsylvania            LOIS FRANKEL, Florida
RON DeSANTIS, Florida                TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
TED S. YOHO, Florida                 ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida                BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
TOM EMMER, MinnesotaUntil 
    5/18/15 deg.

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                                 ------                                

         Subcommittee on Terrorism, Nonproliferation, and Trade

                        TED POE, Texas, Chairman
JOE WILSON, South Carolina           WILLIAM KEATING, Massachusetts
DARRELL E. ISSA, California          BRAD SHERMAN, California
PAUL COOK, California                BRIAN HIGGINS, New York
SCOTT PERRY, Pennsylvania            JOAQUIN CASTRO, Texas
REID J. RIBBLE, Wisconsin            ROBIN L. KELLY, Illinois
LEE M. ZELDIN, New York
                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Fred P. Hochberg, chairman and president, Export-Import Bank 
  of the United States...........................................     6
The Honorable Elizabeth L. Littlefield, president and chief 
  executive officer, Overseas Private Investment Corporation.....    14
The Honorable Leocadia I. Zak, director, U.S. Trade and 
  Development Agency.............................................    29
Mr. Daniel J. Ikenson, director, Herbert A. Stiefel Center for 
  Trade Policy, Cato Institute...................................    53
General James L. Jones, USMC, Retired, founder, Jones Group 
  International (former National Security Advisor to the 
  President of the United States)................................    67
Ms. Susan Jaime, founder, Ferra Coffee International.............    76
Carly Seidewand Eppley, vice president, Global Sales and 
  Administration, Resin Technology, LLC..........................    82

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Mr. Fred P. Hochberg: Prepared statement.........................     8
The Honorable Elizabeth L. Littlefield: Prepared statement.......    16
The Honorable Leocadia I. Zak: Prepared statement................    31
Mr. Daniel J. Ikenson: Prepared statement........................    56
General James L. Jones, USMC, Retired: Prepared statement........    70
Ms. Susan Jaime: Prepared statement..............................    78
Carly Seidewand Eppley: Prepared statement.......................    85

                                APPENDIX

Hearing notice...................................................    96
Hearing minutes..................................................    97
General James L. Jones, USMC, Retired: Material submitted for the 
  record.........................................................    98


                     TRADE PROMOTION AGENCIES AND 
                          U.S. FOREIGN POLICY

                              ----------                              


                         TUESDAY, MAY 19, 2015

                     House of Representatives,    

        Subcommittee on Terrorism, Nonproliferation, and Trade,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 10 o'clock 
a.m., in room 2172 Rayburn House Office Building, Hon. Ted Poe 
(chairman of the subcommittee) presiding.
    Mr. Poe. This subcommittee will come to order. Without 
objection, all members will have 5 days to submit statements, 
questions, and extraneous materials for the record, subject to 
the length limitation and the rules.
    I will now make my opening statement. Trade is critical to 
the national economy of the U.S. For example, manufacturing 
jobs related to trade pay 18 percent more than manufacturing 
jobs that are not. Trade plays a key role in new jobs. If a 
company wants to expand, it has to reach new customers because 
95 percent of the customers are outside the United States.
    Trade is the lifeblood of my hometown of Houston, Texas. 
Over half of Houston's economy depends on trade. Houston has 
one of the largest ports in the world and it is the only gas 
capital of the world. Overall, trade supports more than one out 
of five jobs in Texas and Texas has been the top exporting 
state for 12 consecutive years. This is not just for large 
businesses either. Ninety-three percent of Texas exporters are 
small- and medium-size businesses. Texas is the number one 
state and Houston, Texas is the number one city when it comes 
to receiving support from EXIM.
    There is no question about the importance of trade. We need 
trade to grow. What we are looking at today is the Federal 
Government's role in trade. Before us today we have three 
agencies in the Federal Government that promote trade and 
investment.
    The Export-Import Bank is the official U.S. export credit 
agency. It provides direct loans, loan guaranties and export 
credit insurance to help finance U.S. exports of goods and 
services.
    The Overseas Private Investment Corporation, or OPIC, is 
the official U.S. development finance institution. OPIC seeks 
to promote economic growth and developing economies by 
providing political risk insurance, project and investment fund 
financing, and other services to U.S. firms investing in those 
countries.
    The U.S. Trade and Development Agency, or TDA, seeks to 
link U.S. businesses to export opportunities overseas that lead 
to economic growth and development in middle income countries 
by funding a range of pre-export activities.
    The question before us today is do we need these agencies? 
Sixty other countries have export credit agencies of their own. 
Supporters of reauthorizing EXIM Bank argue that if Congress 
allows the EXIM Bank to expire, then these 60 other countries 
will be happy to jump in, put our American companies at a 
competitive disadvantage, and take business away from the U.S.
    Some users of EXIM say they will go out of business without 
EXIM. Critics of the bank respond that subsidizing companies 
has no place in a free market system. But some of these same 
critics support government subsidies for terrorism risk 
insurance, flood insurance, they support the FDIC, and the 
National Credit Union Share Insurance Fund.
    There is also substantial disagreement about exactly what 
this costs the taxpayer. Critics say due to some tricky 
accounting standards, taxpayers are left holding the bag, while 
the agencies themselves argue they return a surplus to the U.S. 
Treasury every year. Critics argue that Congress enacted 
reforms during the EXIM Bank's 2012 reauthorization, but 
claimed that these reforms were never implemented. EXIM 
disagrees, saying that it has completed and implemented all 
reforms.
    While trade promotion agencies are supposed to promote 
trade that helps the U.S., many Americans have questions about 
helping foreign companies that are in the U.S. economy. Do big 
State Owned Enterprises, or SOEs, deserve taxpayer dollars on 
top of the money they get from their own governments? And what 
about American companies that are trying to compete against 
these industries?
    At the same time, these agencies have a special focus on 
helping small business. Twenty-five percent of EXIM authorized 
money went to small businesses last year, exceeding its 20 
percent requirement. Over the past 5 years, 75 percent of 
OPIC's supported projects have involved a U.S. small- or 
medium-size business.
    Just last month, a former Export-Import Bank loan officer 
pled guilty to taking more than $78,000 in bribes for fast 
tracking unqualified loan applications. OPIC has similar 
examples of fraud. This is a good sign that fraud is identified 
and perpetrators are punished, but there seems to me that more 
could be done to prevent fraud in the first place.
    So my hope is that this hearing can bring some clarity to 
this debate.
    The American companies just need a level playing field to 
compete. No one innovates as well as the U.S. from the iPhone 
to hydraulic fracturing the United States is the world's leader 
in coming up with new ideas that create new jobs and a higher 
standard of living for everyone. For example, if you add up the 
20 countries the United States has a trade agreement with, 
American manufacturers run a $50 billion trade surplus with 
them. That is what happens when we combine the strength of 
American spirit with a level playing field. American companies 
win.
    Before turning to the ranking member for his opening 
remarks, I would like to submit to the record the testimonies 
in support of reauthorizing EXIM Bank from the Nuclear Energy 
Institute, Texas Association of Business, Texas Association of 
Manufacturers, and over 300 businesses in Texas. Hearing no 
objection, all of these testimonials from these 300 different 
groups in support of the EXIM Bank will be made part of the 
record.
    Now I will turn to the ranking member, Mr. Keating, and the 
gentleman from Massachusetts may give his opening statement.
    Mr. Keating. Thank you, Mr. Chairman, for conducting this 
timely and bipartisan-spirited hearing. And thank you to our 
witnesses for taking the time to testify here today.
    The agencies that are the subject of this hearing, the 
Export-Import Bank, the Overseas Private Investment 
Corporation, and the Trade and Development Agency each serve 
vital U.S. interests. Since its founding over eight decades 
ago, the EXIM Bank has helped finance U.S. exports of goods and 
services and contribute to U.S. employment where alternative 
financing is unavailable or to counter government backed export 
financing by foreign competitors.
    It is estimated that the EXIM Bank helped to finance 
approximately $27.5 billion worth of American exports and 
supported more than 164,000 American jobs in Fiscal Year 2014 
alone.
    Small- and medium-size U.S. business benefit greatly from 
EXIM Bank's products, particularly its working capital 
guarantee, which enables small businesses to obtain loans, to 
purchase raw materials and supplies, and its export credit 
insurance, which covers the risk of nonpayment by international 
buyers and extends credit to qualified foreign customers.
    The businesses that use these products aren't Fortune 100 
companies. They are companies like Decas Cranberry Products, 
Inc., a family owned, small business in Carver, Massachusetts, 
in my district, that sells cranberries and cranberry products 
to Europe, Canada, Mexico, South America, and Asia as a direct 
result of the support provided by EXIM. Since using EXIM Bank's 
export credit insurance, Decas cranberry sales have reached $60 
million, approximately 15 percent of which is export related.
    The companies like Resin Technology of Groton, Mass., whose 
vice president, Carly Seidewand, is attempting to be here today 
and to share in how EXIM's working capital guarantee has helped 
her company, the company founded by her father. It increased 
sales and it expanded its workforce as a result.
    As our economy continues to grow, it is essential that the 
EXIM Bank continue to provide its valuable services to 
thousands of American exporters and their families. For this 
reason, I am the co-sponsor of H.R. 1031, Promoting U.S. Jobs 
Through Export Act of 2015 which would reauthorize the EXIM 
Bank charter through 2022.
    I am often intrigued by the answers I receive when I ask my 
peers and colleagues which company they believe is the largest 
American auto exporter? In today's ever connected global 
economy the answer should not surprise you. It is BMW 
Manufacturing Company. In 2014 alone, BMW exported $9.2 billion 
worth of passenger vehicles through the Port of Charleston, 
accounting for more than 260,000 vehicles. BMW's facility in 
Spartanburg, South Carolina remains the largest U.S. automobile 
exporter another year running. Last year, this facility 
announced $1 billion investments in production capacity 
increased to 450,000 vehicles, making it the largest BMW plant 
in the world.
    In this increasingly global economy, it would be 
irresponsible for this Congress to fail to reauthorize the EXIM 
Bank which pays for itself and enables U.S. manufacturers to 
sell more products abroad and create new good jobs here at 
home.
    Thank you, Mr. Chairman, and I yield back.
    Mr. Poe. The Chair recognizes the gentleman from South 
Carolina, Mr. Wilson.
    Mr. Wilson. Thank you, Mr. Chairman, for holding this 
important and timely bipartisan hearing. Within the 2nd 
Congressional District of South Carolina which I represent, is 
Zeus Corporation of Orangeburg, Prysmian Cable of Lexington, 
and HEY of Aiken. These three companies share a common bond. 
They all produce parts for the Boeing 787 Dreamliner which is 
currently being built outside of Charleston, South Carolina. 
And in just in the last 5 years, they now have 8,000 employees 
at the facility in Charleston. Zeus Corporation manufactures 
the tubing for the aircraft. Prysmian Cable makes the internal 
cable. And HEY produces the key interior components of the 
Dreamliner. Additionally, Thermal Engineering of Columbia 
provides composite painting of the Dreamliners creating jobs.
    As we continue to debate reauthorization, I hope we can 
focus on the fact of jobs and that there are more than 60 
competing international export credit agencies that undercut 
and destroy American jobs daily. In a perfect work, the Export-
Import Bank would not not be needed, but unfortunately, Mr. 
Chairman, we do not live in a perfect world.
    I am really grateful to hear my colleague from 
Massachusetts. We share a real appreciation of BMW. It is the 
largest single facility of BMW and South Carolina is the 
leading export of cars. We are also the leading manufacturer 
and exporter of tires. And so with Michelon, with Bridgestone, 
Continental, Giti, our state has made such progress and I am 
particularly grateful to find out that our friends and 
neighbors of Massachusetts appreciate this too. I yield back.
    Mr. Poe. I thank the gentleman and I would request that 
members keep their statements to 1 minute, but indeed of 
bipartisan equal time, Mr. Sherman, you have 1 minute and 30 
seconds.
    Mr. Sherman. Mr. Chairman, thank you for holding this 
hearing. I have been very involved in export administration 
agencies. When I sat in that chair, this subcommittee wrote a 
new charter for OPIC which passed the House of Representatives, 
and of course, the full committee overwhelmingly. 
Unfortunately, for reasons that escape me, there is the United 
States Senate. But I want to commend you, Ms. Littlefield, for 
following through regulation many of the policy provisions that 
were in the bill that passed this committee and the full 
committee by an overwhelming vote.
    The hot issue now is EXIM. Mr. Chairman, unlike you, I gave 
100 speeches in favor of the candidacy of George McGovern. But 
even I don't believe----
    Mr. Poe. That is a true statement.
    Mr. Sherman. That is a true statement. All my statements 
are true. I do not believe in unilateral disarmament. Germany, 
Japan, Korea, and China have export promotion authorities which 
as a percentage of their economy dwarf EXIM Bank. And the idea 
that American companies should be trying to export and face 
competition from those agencies without the help of Mr. 
Hochberg would astound me.
    Finally, the EXIM Bank actually makes money. You will hear 
that there is something called fantasy accounting in which they 
lose money. Let me assure you, as a CPA, and I will agree with 
the CBO, if we didn't have EXIM, we would have to cut the 
budget assuming we didn't want to increase the deficit. And 
those cuts might very well come from foreign operations. I 
yield back.
    Mr. Poe. The Chair recognizes the gentleman from 
Pennsylvania, Mr. Perry, for his opening statement.
    Mr. Perry. Thank you, Mr. Chairman. Folks, thanks for being 
here. President Roosevelt created the Export-Import Bank in 
1934 to promote U.S. sales overseas by providing loans to 
foreign entities looking to purchase American goods. Sounds 
like a good deal. However, when the government subsidizes an 
export for one company, other companies in the same sector 
might not get the same benefit and oftentimes hurts their sales 
and job creation.
    The EXIM Bank may help a few American businesses, but at 
times it is definitely at the expense and hurting of others and 
we have heard from them. Some people categorize this as 
corporate welfare programs and pick winners and losers and have 
no rightful place in U.S. trade policy agenda. Although I think 
that unilateral disarmament as has already been stated is 
concerning, I think we should also be focusing on reducing the 
burden of domestic regulations and taxes which will spur 
productivity and employment while reducing the role and the 
necessary role of the Federal Government in the U.S. economy 
and understanding that 98 percent of sales abroad are done 
without the EXIM and I yield back.
    Mr. Poe. The gentleman yields back. The Chair recognizes 
the gentleman from New York, Mr. Higgins.
    Mr. Higgins. Thank you, Mr. Chairman, for holding this 
hearing. The U.S. trade promotion agencies play a critical role 
in boosting U.S. exports. They provide the bulwark against 
foreign governments that heavily subsidize their own domestic 
industries. In my western New York community, the Export-Import 
Bank has supported over $100 million in exports and more than 
600 jobs.
    Furthermore, the Export-Import Bank is self-sustaining and 
has generated more than $7 billion in excess revenues to the 
United States Treasury. Failing to undertake a long-term 
reauthorization of the Bank would only serve to hurt American 
businesses and workers. I look forward to the discussion today. 
Thank you for being here.
    Mr. Poe. The gentleman yields back. Does anybody else wish 
to be recognized for an opening statement?
    Without objection, all witnesses' prepared statements will 
be made part of the record. I ask that each witness please keep 
your presentation to no more than 5 minutes. We have two 
panels. And I will introduce the first panel and then they can 
give their opening statements.
    Fred Hochberg is chairman and president of the Export-
Import Bank of the United States. Mr. Hochberg has previously 
served in a variety of positions in the private and public 
sector including Acting Administrator for the Small Business 
Administration.
    Ms. Elizabeth Littlefield is president and chief executive 
officer of the Overseas Private Investment Corporation. Ms. 
Littlefield previously held several positions relating to 
finance and development and was a recipient of the Secretary of 
State's Distinguished Service Award in 2012.
    Ms. Zak is director of the U.S. Trade and Development 
Agency. Prior to joining the USTDA, Ms. Zak was partner in the 
Washington and Boston Offices of Mintz, Levin, Cohn, Ferris, 
Glovsky and Popeo, P.C. and taught at several law schools 
around the United States.
    Mr. Hochberg, we will start with you and you have 5 
minutes.

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

    Mr. Hochberg. Chairman, Ranking Member, and distinguished 
members of the subcommittee, thank you for inviting me to 
testify about the role that EXIM plays in promoting commercial 
diplomacy, a critical component of American foreign policy.
    In May 2012, EXIM was reauthorized with overwhelming 
bipartisan support, 330 members in the House and 78 in the 
Senate. The 2012 Reauthorization all put in place a number of 
reforms. And let me underscore, each and every one of those 
reforms has been implemented.
    Since then, the Bank has continued to support U.S. private 
sector job growth including 164,000 jobs last year alone. We 
have also generated as has been stated, billions of dollars for 
the taxpayers including $675 million sent to the Treasury for 
deficit reduction in 2014.
    EXIM fully believes and works with the private sector to 
support U.S. job growth. We do this in two ways. One, when the 
private sector is unwilling or unable to provide financing to 
exporters; and secondly, when U.S. exporters face foreign 
competition backed by other governments, EXIM works to level 
the playing field for U.S. businesses and their workers.
    At one time, EXIM financed defense exports. However, since 
1968, Congress has prohibited the Bank from financing most 
military sales. While almost all of EXIM's financing is 
commercial, U.S. companies with a defense presence can still 
benefit from EXIM nonetheless.
    W.S. Darley is a fire equipment producer, headquartered in 
Illinois that manufactures in both Wisconsin and Iowa with a 
supply chain throughout America. Darley is a company that works 
in both the commercial and defense sectors. One way that Darley 
keeps its workforce fully deployed is by balancing between the 
two with roughly half their business being commercial.
    Recently, EXIM financing empowered them to sell 32 fire 
trucks to Nigeria supporting 100 jobs. On top of that, the sale 
included training services for public service employees in 
Lagos. This transaction is but one example of how when 
countries build things together, they often form lasting bonds 
that go far beyond the commercial to serve our national 
interests.
    In addition, as directed by Congress, the Bank requires 
some of our larger transactions to be shipped on U.S. flagged 
vessels, thereby supporting a strong merchant marine. Over the 
past 2 years alone, more than $90 million in shipping fees have 
been paid by foreign buyers to the U.S. Merchant Marine.
    U.S. businesses operate in the global economy. American 
businesses and workers aren't simply competing against Chinese, 
Russian, or French counterparts. Often, they are competing 
against whole nations.
    Last week, I met with my foreign counterparts, discussed 
the future of export credits. Congress has made it clear they 
would like the Treasury Secretary to ratchet down export 
credits. However, what I heard from Europe to Asia to South 
America was just the opposite. Our foreign counterparts intend 
to accelerate financial backing for their exporters as well as 
serving as a much-needed backstop.
    When commercial banks withdraw from regions or sectors that 
are experiencing downturns, export credit agencies step forward 
and fill the gap so that domestic exporters don't lose sales or 
workers. In some way, EXIM is like a fire truck. You don't sell 
of a fire truck just because you haven't had a fire in the past 
few years.
    We appreciate the widespread support, bipartisan support of 
EXIM and we are eager to continue to support American jobs as 
the Bank has done effectively and efficiently for over eight 
decades, providing long-term certainty to U.S. businesses, 
seeking to compete in overseas markets is imperative. 
Businesses need to make long-term plans to grow global sales, 
hire more workers, and invest in innovation. Those sales, in 
turn, lead to greater economic stability, both in the U.S. and 
abroad. And for all nations, economic stability is the 
foundation of security and peace.
    In closing, as Congress considers reauthorization of EXIM 
Bank, I trust this committee will keep American competitiveness 
at the forefront. We appreciate the subcommittee's interest. We 
look forward to working with you to empower your constituents 
to export more, hire more American workers, and strengthen 
America's economic resilience to the global age ahead.
    Thank you and I look forward to answering your questions.
    [The prepared statement of Mr. Hochberg follows:]
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    Mr. Poe. Thank you, Mr. Hochberg. The Chair recognizes Ms. 
Littlefield for her opening statement.

STATEMENT OF THE HONORABLE ELIZABETH L. LITTLEFIELD, PRESIDENT 
   AND CHIEF EXECUTIVE OFFICER, OVERSEAS PRIVATE INVESTMENT 
                          CORPORATION

    Ms. Littlefield. Mr. Chairman, Ranking Member Keating and 
members of the committee, thank you for inviting me here to 
testify before you today.
    I am Elizabeth Littlefield, the President and CEO of the 
Overseas Private Investment Corporation (OPIC). OPIC is the 
U.S. Government's development finance institution. It mobilizes 
private capital investment flows into poor and developing 
countries to help solve critical development challenges and in 
so doing, it advances U.S. foreign policy and national security 
objectives. We do this by providing long-term loans, guarantees 
and political risk insurance to businesses investing much 
needed capital into these developing countries, capital that 
would not be invested there without OPIC's financing and risk-
mitigating services.
    And because businesses are willing to pay the full cost of 
our services and more, OPIC generates income for the taxpayer 
and has done so reliably for 37 straight years.
    Since the end of World War II, a strong, bipartisan 
consensus has recognized the fundamental link between poverty, 
economic instability, and conflict. In conflict, vulnerable 
nations, foreign direct investment helps to create jobs, 
opportunity, hope, and stability. At the same time, OPIC 
support helps our U.S. clients, a large majority of whom are 
small businesses, to tap into those fast growing, dynamic, 
emerging markets creating jobs both at home and abroad.
    Today, OPIC manages just under 600 long term investment 
projects in over 100 developing countries, principally in 
critical infrastructure, in power, private education, private 
healthcare, low-income housing, and microfinance and other 
financial services, all of these being sectors that contribute 
powerfully to sustainable economic development.
    In every one of these projects, our private investors also 
have their capital at risk. Every one of these projects is 
centered on achieving positive and measurable development 
impact and every one of those aims to be commercially viable. 
So OPIC uses the power of the markets and business to tangibly 
deliver American development and foreign policy goals. The 
Agency provides an effective development that pays for itself 
and more.
    More than one third of OPIC's entire portfolio is invested 
in post-conflict nations or nations currently vulnerable to 
conflict. My own work at OPIC reflects these national security 
priorities. While I have been at OPIC, I have been on the 
ground in Haiti, Liberia, South Sudan, Afghanistan, Jordan, 
Egypt, Tunisia, and others to help draw investments into those 
fragile countries.
    In Afghanistan, OPIC's large portfolio of investments 
includes a cashmere processing facility, a state-of-the-art 
water bottling facility, and a highly successful small and 
medium enterprise lending facility, created in partnership with 
USAID which now supports successful job creating businesses in 
and around Kabul.
    In Iraq, OPIC's investment portfolio supported the 
reconstruction of that country in many, many ways, ranging from 
microfinance lending to low-income housing to a dredging 
project to clear Iraq's water ways.
    In Haiti, OPIC worked with USAID and a U.S. company to 
deliver micromortgages and housing reconstruction loans after 
that earthquake.
    Even South Sudan. I traveled to Juba immediately following 
the initial peace agreement to identify critical infrastructure 
projects that could potentially be financed, taxpayer-free, 
with the private sector investment.
    So in closing, OPIC's goal is to help fragile market 
economies grow and stabilize so that the odds of conflict are 
reduced or to help restore the foundation of the market economy 
after a conflict as our troops begin to come home. As former 
Secretary of Defense Robert Gates once put it, ``Development is 
one of America's great giant force multipliers.'' We agree.
    Every single dollar that OPIC extends has a multiplier 
effect for national security. It has a multiplier effect for 
development and it has a multiplier effect for the taxpayer, as 
every $1 into OPIC's operations has generated up to $8 back to 
the Treasury, back in that deficit reduction.
    Mr. Chairman, this is why we believe that OPIC is smart, 
lean, and market-driven development. Thank you very much and I 
welcome your questions.
    [The prepared statement of Ms. Littlefield follows:]
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    Mr. Poe. Thank you, Ms. Littlefield. The Chair recognizes 
Ms. Zak for opening statement.

  STATEMENT OF THE HONORABLE LEOCADIA I. ZAK, DIRECTOR, U.S. 
                  TRADE AND DEVELOPMENT AGENCY

    Ms. Zak. Chairman Poe, Ranking Member Keating, and members 
of the subcommittee, thank you for your interest in USTDA's 
work to help U.S. companies create jobs here at home while 
promoting sustainable development abroad.
    As we were preparing for today, my staff came across a 
quote. It was incredibly relevant to the topic of this hearing. 
It is from former Secretary of State Cordell Hull who said, 
``When goods and products cross borders, armies don't.'' 
Secretary Hull understood what we at USTDA strongly believe, 
that robust, diplomatic trade relationships mean resilient 
economies and secure nations.
    Now more than ever, given the impact of globalization, 
America's prosperity depends on trade with strong, stable 
states. Establishing secure markets and fostering trade ties is 
exactly what we do. In fact, it is part of the unique dual 
mandate that Congress gave us. That is to promote U.S. private 
sector participation in development projects in emerging 
markets with an emphasis on sectors with significant U.S. 
exports.
    USTDA approaches this mission in three important ways. 
First, we help to build infrastructure for economic 
development, stable markets for U.S. exports, and secure routes 
for global trade. Colombia, for example, has been a strategic 
focus of U.S. engagement in Latin America for decades. As part 
of this engagement, USTDA maintained an active portfolio to not 
only build the infrastructure in Colombia, but also to 
strengthen diplomatic and economic ties. During the 
negotiations of the U.S.-Colombia Trade Promotion Agreement, 
USTDA helped the Port of Cartagena comply with the U.S. Customs 
Container Security Initiative. The port implemented changes 
from USTDA's technical assistance with the help of goods and 
services from several states. Moreover, Cartagena's designation 
as a CSI port strengthened commercial relations while enhancing 
the safety and security of cargo.
    Second, our activities facilitate strategic partnerships to 
build long term trade ties. USTDA's public/private partnerships 
help U.S. industry establish long-lasting connections with 
leaders from the world's fastest growing markets. In fact, for 
those of you who have traveled to India, you probably didn't 
realize you were benefitting from the Agency's U.S.-India 
Aviation Cooperation Program. The ACP has enabled U.S. and 
Indian officials to collaborate in several critical areas, 
including safety and security. Because of the relationships 
that the ACP has developed, the Government of India asked USTDA 
for help in successfully restoring their Category 1 safety 
rating from the FAA. They have also asked us to help them 
develop the technical capacity to test, certify, and procure 
state-of-the-art aviation security equipment.
    These projects present a significant opportunity for U.S. 
industry to provide India with the solutions necessary to 
achieve international standards and to meet its security needs. 
The India ACP is critical to the success of these efforts. That 
is because they, like our other PPPs, foster person-to-person 
connections, provide access to key stakeholders, and strengthen 
bilateral trade ties.
    Third, and finally, I could not agree more with the 
chairman's statement regarding leveling the playing field and 
U.S. business doing the rest. That is why USTDA helps level the 
playing field for U.S. firms competing in international 
tenders.
    Both our U.S. and foreign partners have told us about 
challenges presented by low cost procurement systems. I know at 
first blush this doesn't sound exciting, but relying on lowest 
cost often means that a host country is forced to acquire poor 
quality goods and services which is not in their long-term 
interest. We believe there is nothing low cost about buying 
something twice. Because we pride ourselves on listening to the 
needs of our stakeholders, we responded to this challenge by 
partnering with George Washington Law School to launch our 
Global Procurement Initiative. The GPI delivers customized 
solutions that target specific procurement issues.
    One of our first GPI countries was Vietnam, a long-term 
partner of USTDA. They asked for our help in implementing their 
national procurement law which they revised to include low 
cost.
    The GPI embodies our Agency's mandate. It responds to our 
partner countries' efforts to develop sustainable 
infrastructure projects. It also answers U.S. industry's call 
to level the playing field for greater international 
competition. Activities like these produce results for our 
foreign partners and for U.S. industry. And they provide a 
demonstrable return on taxpayer investments.
    USTDA's current multiplier, $76 in exports for every $1 
programmed is the highest in the Agency's history.
    Mr. Poe. Ms. Zak, I would ask you to sum up your statement, 
because it is a part of the record.
    Ms. Zak. Certainly. USTDA leverages the private sector. In 
what we have before us is a development model that is new and 
it is effective. And with this development model, we lay the 
foundation for strong, stable states, states capable of 
preventing conflict, states capable of managing crises, capable 
of promoting prosperity. USTDA's development model advances 
economic interests of the United States and even more 
importantly, it safeguards U.S. national security. It ensures 
that U.S. goods and products cross borders so our military 
doesn't have to.
    Chairman Poe, subcommittee members, thank you very much for 
having us here this morning. I look forward to your questions.
    [The prepared statement of Ms. Zak follows:]
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    Mr. Poe. Thank you. Thank all the witnesses for being here. 
I will start with myself and would ask that the witnesses be as 
brief as possible under the time restraints.
    Chairman Hochberg, I want to start with you. You may know 
that while we are having this hearing, there is a press 
conference down the next building over, a pep rally if you 
will, talking about the demise and end of EXIM Bank as we know 
it. Controversy here in Congress and we have heard a lot on 
both sides as you know.
    A few questions. Is the statement true that Houston, Texas 
is the number one city in the U.S. that uses EXIM Bank for its 
businesses, small businesses?
    Mr. Hochberg. Yes, it is.
    Mr. Poe. And Texas is the number one state, is that 
correct?
    Mr. Hochberg. Texas is the number one state in the country 
for exports.
    Mr. Sherman. Mr. Chairman, I would like to withdraw my 
support for EXIM Bank.
    Mr. Poe. Okay, you may do that. I don't know if you have 
ever heard of Olney, Texas or not. I know you are from New 
York. Have you ever heard of Olney, Texas?
    Mr. Hochberg. Absolutely. One of our great American 
exporters is from Olney, Texas.
    Mr. Poe. Air Tractor.
    Mr. Hochberg. Air Tractor.
    Mr. Poe. Air Tractor makes small planes that fertilize the 
fields and also does other things, fight fires. Olney is a town 
that is near Burnet and Flower Mound in case you were 
interested where they are. David Ickert owns it. Two hundred 
plus employees. And I would like your answers to be based upon 
this statement by him that ``Air Tractor has been using EXIM 
for 20 years. Has never filed a claim for money from the Bank. 
In places such as Spain, Air Tractor has been selling for 
years. EXIM helped us to get a firm footing and they no longer 
need to use the Bank. In other countries in South America, the 
company needs EXIM to get financing because smaller banks don't 
pay any attention to Air Tractor in Olney, Texas.''
    Using this business as an example, the statement has been 
raised and I think it is a fair question, using EXIM Bank, how 
does that, if it does, deny equal competition from other 
businesses that don't use EXIM Bank in the U.S., other 
businesses that need financing as well?
    Mr. Hochberg. I don't believe it does, sir. I mean when we 
support Air Tractor, it is a great company. They have less than 
300 employees in a town with about 3,000 people. It is a big 
business for a town of Olney, Texas with three traffic lights. 
We support their exports to farmers in Argentina, Brazil, a lot 
of their farmers in Latin America that are not credit worthy 
without our export support, without our guarantee. We are not 
helping them when they compete in the United States. When they 
compete in the United States, they compete in a free and open 
market. The only time we help them is how they compete against 
other foreign competitors who are trying to take that sale away 
from them.
    Mr. Poe. All right, does EXIM Bank give loans to foreign 
companies?
    Mr. Hochberg. We will do buyer financing. In the case with 
Air Tractor, we have actually provided a guarantee that the 
foreign buyer will pay over a 5- to 6-year period and then that 
is transferred over to--actually Wells Fargo Bank is the one 
bank that will work with them on these transactions.
    Mr. Poe. Does EXIM work with American banks in the loan 
process like Amegy in Texas, Wells Fargo, and other banks or 
not?
    Mr. Hochberg. Actually, Amegy Bank, we named our lender of 
the year this past year--in 2015. But we also work with foreign 
banks. We will work with the bank that the buyer needs to work 
with in order to make sure we can provide the guarantee that 
will make the transaction go forward.
    Mr. Poe. If EXIM works with foreign companies, how does 
that help the United States?
    Mr. Hochberg. Well, in the case of Air Tractor, using that 
as an example, it is a foreign buyer who has a choice. They can 
buy either American made crop dusters and firefighting 
equipment or foreign. So in that case, we--if the financing is 
the one thing that is needed to make that sale, the customer, 
the exporter has to deal with price, quality, value, service. 
We only can step in if financing is the one stumbling block and 
the private sector can't or won't do it. We can step in and 
make sure there is a level playing field so that they can buy 
an American product versus a foreign product.
    Mr. Poe. How about state-owned enterprises? Some of the 
concern is that EXIM Bank helps foreign state owned enterprises 
with financing. Comment on that if you would.
    Mr. Hochberg. Well, occasionally, yes. In many other 
countries, much more so than the United States. There are a lot 
of state-owned enterprises in transportation, in power, in 
utilities, in a number of those fields. And in that case, those 
state-owned enterprises have a choice, to buy an American 
product or a Chinese or a Russian or a French product, 
particularly in the utility field. So if that is the case, we 
want to make sure there is a level playing field that American 
companies, American workers get an even shot at making that 
sale.
    Mr. Poe. Last question, let us go back to Air Tractor in 
Olney, Texas. There is no EXIM Bank. What are the 
possibilities--what would happen to Air Tractor in Olney, Texas 
without EXIM Bank?
    Mr. Hochberg. Well, Dave Ichert recently said when I asked 
him, he said it is a matter of 68 jobs. That is the number of 
people likely to lose their positions at Air Tractor if the 
Bank isn't reauthorized by June 30th because right now half 
their sales, more than half their sales are export sales.
    Mr. Poe. The Chair will recognize the ranking member, the 
gentleman from Massachusetts, Mr. Keating.
    Mr. Keating. Thank you, Mr. Chairman. Unlike California, we 
are not worried about competition from Texas or any state. In 
Massachusetts, we are prepared to take on any comers. But I 
would like to deal with the critics.
    Chairman Hochberg, get right to the point. Things that are 
heard are that EXIM is corporate welfare and it is for big 
business. I want you to address--I have demonstrated one of my 
districts. It is not a big business. Demonstrate how it is for 
medium and small businesses. Number two, do the U.S. taxpayers 
bear this cost? And number three, how do you address the 
critics that say well, this can be done in the private sector? 
They could just step in and provide the same kind of export 
financing instead of EXIM and take on those three with some 
information that you would have in detail.
    Mr. Hochberg. Well, thank you, sir. Well, your first 
question you asked about corporate welfare. I frankly find that 
term confusing. Customers--people who use the Bank, foreign 
buyers or corporations, they pay a fee. They pay a fee just as 
Elizabeth Littlefield said at OPIC. People pay a fee for that 
service. They pay a fee for the service. We fulfill the service 
and we turn over to Treasury the excess. Last year, $675 
million. Welfare implies taking money from one group of people 
and handing it to somebody else. We have actually customers, 
clients of the Bank, giving us money for a service. We render 
the service and then the excess we send to the taxpayer. So it 
goes the exact opposite direction.
    Ninety percent of our customers are small businesses like 
Air Tractor that the chairman mentioned, like Darley, a company 
I mentioned in my oral testimony. So I am not sure I understand 
what that charge is. It has a nice ring to it, but it doesn't 
really have any meaning. In terms of taxpayer, we have reserves 
that are paid for. We collect a fee. We put aside low loss 
reserves like any responsible lending institution would do. 
Congress, we are a zero appropriation. We are totally self-
sustaining which is required by WTO. However, Congress still 
appropriates about $100 million. The excess goes to the 
taxpayer. That low loss reserve account is there as a backstop 
in the rare cases we have a default. It is about $5 billion 
today and our default rate which we report is one of the 
reforms from Congress in 2012. Every 90 days we report on 
defaults to Congress. They are currently running at 0.167 
percent, less than \1/5\ of 1 percent. But those reserves are 
all paid for by customers and clients of the Bank. They are not 
coming out of the taxpayer.
    And your last question about the private sector, the 
private sector is who brings us in. When a company needs 
support to make a sale and to make sure we have the jobs in 
America, they will usually go to a bank or they will go to an 
insurance broker. The bank or insurance broker is the one that 
calls us in, generally, and says we can't do this transaction 
without a government guarantee. That is certainly the case with 
Air Tractor. They cannot make those sales. A lot of banks are 
not anxious to make loans to farmers in Brazil and Argentina 
and other developing countries.
    Darley has made it very clear, they have said if we are 
going to compete with our competitors in China, Austria and 
Germany, we have to come to the table with government-backed 
financing just like our competitors do. So again, it is the 
private sector that has called us in in order to make sure 
there is a level playing field.
    Mr. Keating. Thank you, Mr. Chairman, I think you were 
really concise on those criticisms. I don't think really 
warrant much material consideration, but it is good we address 
them because I think too many of us here are--it is not a bad 
thing, are all on the same page on this issue.
    Now a question for Ms. Littlefield, you mentioned about 
OPIC's work in developing countries and how much that centered 
on conflict in at-risk areas. You mentioned specifics about 
Afghanistan and Iraq. Could you give us a few specifics about 
Pakistan, Jordan, Egypt, or Tunisia as well? Because I think 
when people hear the details, they will get a sense of how this 
can ameliorate the different conflicts around the world. Could 
you touch on some more examples and then how you find it 
helpful in terms of resolving these conflicts?
    Ms. Littlefield. Absolutely, thank you very much, 
Congressman. I can give you an example or two of each of those 
countries, but perhaps I will start with Jordan because, as we 
all know, Jordan is one of the U.S.' staunchest allies and has 
been extraordinarily brave and outspoken against the forces of 
extremism. That tiny country is extremely poor. They are one of 
the most water insecure countries on the Planet Earth. Ever 
since the pipeline from Egypt, where they were getting their 
gas, has been blown up repeatedly, they are getting all of 
their fuel shipped up from Eilat to Amman in trucks, heavy fuel 
oil. And they have got anywhere between 750,000 and 1.2 million 
Syrian refugees all pouring into this tiny little country.
    This is a country where we have made a significant effort 
to identify U.S. partners that would help us invest in critical 
infrastructure there. For example, now our OPIC projects 
provide 25 percent of the power in that country of Jordan; 22 
percent of the water flowing into Amman, its capital; and in 
partnership with USAID, we have created a small and medium 
enterprise lending facility in Jordan that is made 200 loans 
that are supporting enterprises, that are creating 6,000 to 
7,000 jobs, including jobs for Syrian refugees.
    Mr. Keating. My time is up. But that is a great detailed 
explanation of just one country. In just the last several days, 
I have seen the refugee settlements in Jordan. And I would just 
like to emphasize our Subcommittee of Terrorism and Trade, how 
today's hearing shows the connection between those things. With 
that, I will yield back, Mr. Chairman.
    Mr. Poe. The Chairman yields back his time. The Chair 
recognizes Mr. Perry from Pennsylvania for his questioning. Mr. 
Perry.
    Mr. Perry. Thank you, Mr. Chairman. Mr. Hochberg, in your 
prepared testimony you stated that ``EXIM fills gaps when the 
private sector is unable or unwilling to provide financing for 
U.S. exports,'' a particularly important role for small 
business of which there are several in the district I 
represent.
    What would you say your proportion of EXIM financing goes 
to small business?
    Mr. Hochberg. Well, it is 90 percent of the transactions 
and last year, 39 percent of the exports we financed were 
shipped directly from small businesses and then, of course, 
there are many other small businesses in the supply chain of 
larger companies.
    Mr. Perry. Let me ask you this. How does EXIM define small 
business?
    Mr. Hochberg. We actually follow the Small Business 
Administration's definition, so however the SBA, and I was at 
that agency in the 1990s, they define what a small business is 
and we use their definition.
    Mr. Perry. Which is?
    Mr. Hochberg. Well, it varies industry by industry. 
Basically, it is 500 employees or less or a net worth of $15 
million or less. But it does have some variation depending on 
unique industrial classifications.
    Mr. Perry. I will go with you on the 500 employees, but it 
is my understanding that EXIM defines small business as having 
fewer than 1500 employees which skews the ratios. What can you 
elucidate about that?
    Mr. Hochberg. We follow precisely the SBA definition. We do 
not have any--there is no variance whatsoever between our 
definition and the SBA's definition.
    Mr. Perry. I will hold you to that in the future. Mr. 
Gutierrez, a former Export-Import Bank loan officer, of course, 
pled guilty to taking more than $78,000 in bribes for fast 
tracking unqualified loan applications for approval. And he 
also admitted that in one case he ignored that a company had 
defaulted in ten, ten prior deals backed by EXIM at the cost of 
$20 million. Twenty million dollars is real money to me, real 
money to taxpayers, but still recommended the company for 
approval. I guarantee if I default on one loan, on one, much 
less than $20 million, I am out at the bank. I am out.
    How many open fraud investigations and indictments are 
there currently involving EXIM Bank? Do you know?
    Mr. Hochberg. The Inspector General stated most recently 
that there are 31 investigations, none of which have to do with 
employees. All have to do with outside companies that are 
trying to defraud the government.
    Mr. Perry. And I understand that. Let me ask you that in 
this vein then because I think sometimes we hear that it is--
and there are plenty of anecdotes on either side, but some in 
particular is the appearance of some kind of professional 
nepotism when we look at former New Mexico governor, Bill 
Richardson, regarding his association with the Spanish energy 
company Abengoa's International Advisory Board. An 
investigation by the Daily Caller found that fully half, fully 
half of EXIM's advisors on the board in 2014 were executives at 
companies or unions that directly benefitted from EXIM 
financing during their term. What is EXIM's plan to fix that? 
Or should there be a plan?
    Mr. Hochberg. The advisory committee was established by 
Congress to advise the Bank and a report is going to Congress 
in a few weeks on how competitive we are versus other export 
creditors.
    Mr. Perry. Does it require people to sit on both EXIM's 
advisory board and work for the companies of which are 
receiving the loans from EXIM?
    Mr. Hochberg. Generally speaking, they are clients of the 
Bank because they are in the best position to advise us.
    Mr. Perry. But does it require that they sit on both? I am 
asking you what is EXIM--Congress requires an advisory board. 
But what is EXIM doing to ensure that there is not a quid pro 
quo, that there is not someone on both sides of the arrangement 
putting taxpayer dollars in peril?
    Mr. Hochberg. There are strict ethical rules in place that 
none of them influence whatsoever any----
    Mr. Perry. Do you believe that none of them influence that?
    Mr. Hochberg. Absolutely.
    Mr. Perry. I sleep with my wife. Do you think she doesn't 
influence me on my daily decisions regarding my children, my 
bank account or what clothes--I am serious. Do you believe 
that? And do you think it deserves further scrutiny in that 
regard?
    Mr. Hochberg. Every advisory committee member is fully 
vetted. We have a full ethics briefing----
    Mr. Perry. All right, I hear you.
    Mr. Hochberg. None of them have anything to do with any 
transactions whatsoever.
    Mr. Perry. Let me ask you this. Why does EXIM understate 
the risk regarding being tied to Treasury securities and it 
kind of inflates the appearance of profit because you don't 
consider the changes in the market based on Treasury 
securities? Why does EXIM do that particularly?
    Mr. Hochberg. I am not following your question, sir. We 
completely comply with U.S. accounting rules, FCRA. We have 
been audited by currently Deloitte Touche, previously by 
PricewaterhouseCoopers.
    Mr. Perry. Why does EXIM have a different standard of 
default than every other bank that I have checked with?
    Mr. Hochberg. We follow the default rules that have been 
promulgated by Congress and sent to us. That is how we report 
to Congress every 90 days. That 0.167 percent is in full 
compliance with the way Congress has defined it.
    Mr. Perry. Thank you, Mr. Hochberg. Thank you, Mr. 
Chairman. I yield.
    Mr. Poe. I thank the gentleman from Pennsylvania for his 
questions. The Chair recognizes the gentleman from California, 
Mr. Sherman.
    Mr. Sherman. Mr. Hochberg, I think it is entirely 
reasonable that you have an advisory board made up in chief of 
your customers. You know, there are very few vegans who are on 
the Ruth's Chris Advisory Board. You want to survey your 
customers to see if you are doing a good job.
    Ms. Zak, you quoted, I guess it was Cordell Hull about the 
trade, a beautiful, poetic, often false characterization of 
history. If you make a list of Germany's chief trade partners 
in 1938, then you make a list of the countries they were at war 
with in 1942, it is the same list. Same with Japan having as 
its chief trading partners, China, Britain, and the United 
States, so trade is wonderful, but the idea that it prevents 
wars is more poetry than history.
    Mr. Hochberg, why it is in our national interest that our 
allies buy weapons from us some of the times? Do our weapons 
exporters face foreign governing financing in competition? Do 
we lose military sales because there is a provision now in your 
charter that prevents you from financing military objects?
    Mr. Hochberg. I can't verify whether we lose military 
sales, but I can state that Britain, France, Italy, Germany, 
their export credit agencies do finance their defense sales.
    Mr. Sherman. So unless they are stealing sales from us, 
they are wasting their time and the efforts of those European 
governments. I mean obviously we want to be careful, but we are 
careful as to who we export weapons to and once the State 
Department determines that it is in our interest to export 
weapons, it is very much in our interest to export those 
weapons rather than see those other competing finance agencies. 
So I look forward to working with you after the demonstration 
dies down the hall, not only to keep you in business, but to 
allow you to do the work that will build American export 
capacity, build our defense infrastructure and I love those 
other countries you mentioned, but I would just as soon have 
all the defense infrastructure here. Now and then they are 
going to export weapons to countries we wouldn't want to see.
    Ms. Zak, sometimes companies are going to come to you and 
say we need your effort to help our supply chain, our globals. 
And what they are really doing is they are saying we want you 
to help offshore jobs. Do you ever get sucked into providing 
assistance where in the name of a global supply chain for an 
American company you are helping to build the infrastructure, 
otherwise help exports from other countries to the United 
States?
    Ms. Zak. USTDA's mandate is very clear. We focus on U.S. 
jobs, not jobs abroad. And we do not help with jobs abroad.
    Mr. Sherman. And Mr. Hochberg, I am sure you listen to the 
opponents of the Bank. They have their rallies. Are any of them 
rallying for the elimination of the export financing 
authorities of Britain or Germany or China? Do you see any 
signs on that?
    Mr. Hochberg. Not a single one, sir.
    Mr. Sherman. And are any of them, any of those signs saying 
let us increase the U.S. budget deficit by $670 million per 
year?
    Mr. Hochberg. I haven't heard that either, sir.
    Mr. Sherman. Are any of them proposing tax increases that 
would generate $670 million per year?
    Mr. Hochberg. I have not seen that either.
    Mr. Sherman. So there is a sign shortage. I yield back.
    Mr. Poe. Thank the gentleman from California. The Chair 
recognizes the gentleman from South Carolina, Mr. Wilson.
    Mr. Wilson. Thank you, Mr. Chairman, and I thank each of 
you for being here and the opportunities really provided to 
create jobs and as was stated by Mr. Keating, the State of 
South Carolina, we are so grateful to be the number one 
exporter of cars. Who would imagine in 20 years from zero with 
BMW and the last 3 years the leading manufacturer of tires and 
the leading exporter. And this is by Michelin which has the 
largest single investment in the world in the district I 
represent. Also, we are grateful for Bridgestone Japanese, 
Continental German, and Giti Singapore. So over and over, we 
see the benefit of trade.
    With that, Ms. Littlefield, with the Overseas Private 
Investment Corporation, how is the corporation funded?
    Ms. Littlefield. Thank you very much, Congressman. OPIC was 
capitalized back in 1971 in the Nixon administration and 
subsequently paid back all the capital with which we were 
capitalized in the Reagan administration. And in the ensuing 
years since then, we have generated capital every single year 
back to the Treasury.
    Mr. Wilson. And this would be through fees?
    Ms. Littlefield. Through fees and commissions. We charge 
cost covering fees and commissions and interest rate spreads 
which our clients are more than happy to pay since we are the 
only source of financing or insurance for them in these 
markets.
    Mr. Wilson. And so it is not taxpayer funded?
    Ms. Littlefield. It is not taxpayer funded. We are a net 
reduction of the deficit every single year, sir.
    Mr. Wilson. And how much would be the net reduction on 
average?
    Ms. Littlefield. In the last few years, it has ranged 
between $325 million and $425 million.
    Mr. Wilson. Thank you, and Mr. Hochberg, the same. How is 
the EXIM Bank financed?
    Mr. Hochberg. By WTO in order to be an allowable government 
support for exports, we have to be self sustaining. We have 
been self sustaining since 2007. We have sent to the Treasury 
just under $7 billion over the last 20 years. Last year, as the 
congressman mentioned, it was $675 million. The year before it 
was more than $1 billion that was sent to the Treasury.
    Mr. Wilson. But there are accusations that you are 
conducting crony capitalism. But yet it is actually a payback 
for the benefit of the taxpayers.
    Mr. Hochberg. Well, we actually--we don't receive the 
money. We actually just send the money to the taxpayers for 
deficit reduction each year and CBO scores our budgets so it is 
actually used by the appropriators in budgeting for 2016.
    Mr. Wilson. Well, that is certainly a story that the 
American people and my constituents need to know. So thank you 
very much.
    And Ms. Zak, what types of criteria must a business meet to 
qualify for trade promotion and investment programs? What types 
of factor might prevent a company from receiving assistance?
    Ms. Zak. Thank you very much. The first thing that USTDA 
looks at is one, that it does create jobs in the United States. 
We focus on exports and we also focus on development 
opportunities. We also ensure that there is additionality, that 
our services are needed to be able move an active forward to 
implementation. Then we undergo a very serious due diligence 
process and we look at everything from the financial aspects to 
the legal aspects, and our due diligence process as well. But 
we look for mutual interest, but jobs are one of our number one 
criteria.
    Mr. Wilson. And again, Mr. Hochberg, the EXIM Bank charter 
specifically states that you will not compete with the private 
sector. And because of this, it is a bank of last resort. How 
do you ensure that people have attempted to use the private 
sector and not succeeded?
    Mr. Hochberg. Well, the customers actually have to state 
that on their application. They have to assert and certify that 
they are coming to us because they cannot get financing 
elsewhere. We verify that. I mean frankly, candidly, with small 
businesses, I ran a small business for 20 years. It is pretty 
clear small businesses don't have a lot of options. But again, 
they are coming to us because a bank is bringing to them or an 
insurance broker is bringing them because they cannot secure it 
independently.
    And sometimes we also have to level the playing field. When 
we see the kind of financing that China, Russia, France, 
Germany, others do in different fields, when we see evidence of 
that, we want to make sure there is a level playing field that 
U.S. companies can compete and we don't lose jobs because of 
outsized government financing on the other side of the 
transaction.
    Mr. Wilson. Thank you. And as I conclude, I appreciate 
again Mr. Keating giving me the opportunity to talk about the 
Port of Charleston. Just in the last month, Governor Nikki 
Haley secured from Daimler $\1/2\-billion investment for 
trucks, and then last Monday, Volvo Corporation announced its 
first North American manufacturing facility at Ridgeville, 
South Carolina in the district of Congressman Jim Clyburn. So 
we see a huge benefit. Thank you very much.
    Mr. Poe. The gentleman yields back. The Chair recognizes 
the gentleman from Texas, Mr. Castro.
    Mr. Castro. Thank you, chairman. And thank each of the 
witnesses for your testimony today.
    I want to pick up where the congressman left off, Mr. 
Hochberg. Can you describe some of the infrastructure for 
financing that foreign countries use that are comparable to 
EXIM? What are we competing against basically?
    Mr. Hochberg. Well, we are competing for power, 
transportation. We have got a company called Acrow that builds 
bridges in Cameroon and Ghana. There is intense Chinese 
competition to build that kind of infrastructure in Africa. We 
did a transaction of locomotives just last year. Half the order 
was split between the United States and China for locomotives 
in South Africa. We have done a power project where we also 
competed in West Africa, so I am not just focusing on Africa, 
but frequently developing countries are where we face intense 
competition in the infrastructure.
    Mr. Castro. What are the European governments or the Asian 
governments doing for their businesses?
    Mr. Hochberg. Well, to just give you an example, when I 
have met with the Customer TransNet in South Africa, and 
inquired what were the Chinese terms for the loan so I would 
make sure that we were competitive, I was told well, they asked 
me what I would like, would I like a 10-year, a 15-year, a 20-
year loan? Do I need a grace period? It was somewhat of a menu 
pricing. That was not the case what we can provide. We adhere 
to international standards and it is either 12 or 14 years for 
locomotives and there are very fixed fees attached to that.
    Mr. Castro. Sure. I come from Texas as the chairman does, 
and Texas does more trade than any other state in the nation. 
So this is obviously a very big deal for us. We have companies, 
big and small, but some like Boeing and Caterpillar who have a 
significant presence around San Antonio who benefit from EXIM. 
But I would ask all of you what is at stake for us for a state 
like Texas if your services go away?
    Mr. Hochberg. Well, on the second panel you actually have a 
witness, Susan Jaime, who is from San Antonio who can speak for 
herself about her coffee exports that--we chatted just before 
the hearing about 40 percent of her sales are exports.
    When I talked to Air Tractor, a company mentioned 
previously from Texas, Dave Ichert talked about the potential 
of laying off 68 employees that are attributed to their export 
sales which we are pleased working with them. We have grown 
from 10 percent of sales to 50 percent of sales. And most 
importantly, in the oil and gas field which is laboring over a 
drop in prices, keeping that industry vital is important to 
America's national interest in terms of us having a presence 
globally and keeping our technology up. We do extensive work 
with the oil and gas companies, exploration, engineering, 
equipment manufacturers in the Houston area.
    Ms. Littlefield. Thank you, Congressman. We know that when 
U.S. companies invest capital in emerging markets, that creates 
a magnet in future years for exports to then flow. And we also 
know that 95 percent of the world's customers, as the chairman 
said in the beginning, are outside of these borders. This is 
where the markets are the most dynamic. They are growing and 
this is where the future for American businesses is.
    In Africa alone, we don't talk about Africa much when we 
talk about trade, but in the next 10 years the number of 
households with disposable income is going to grow by 50 
percent. All of those households have reached the tipping point 
beyond subsistence where they can begin to invest in consumer 
goods and other things that U.S. companies are making. So it is 
critically important that we be able to have a level playing 
field as my colleagues have said and provide the services that 
U.S. companies need to access these markets, both in terms of 
their investments which is the business of OPIC as well as the 
exports that may follow which is, of course, the business of 
EXIM.
    Ms. Zak. And just following on from what the chairman 
mentioned at the beginning and President Littlefield mentioned, 
95 percent of the consumers are outside of the United States. 
This is a very important market and that there is a need to 
level the playing field which is one of the things that our 
agency does.
    And last year alone, for every dollar programmed, we are 
seeing $76 in U.S. exports, we noted that there were $5.8 
billion associated with our program which supports 
approximately a little over 32,000 jobs. So it is important to 
jobs, exports, and the future.
    Mr. Castro. Sure. And then I will just make one last remark 
in my last 15 seconds. I support the reauthorization of EXIM 
and support the work that you all are doing. I think every 
agency in the U.S. Government deserves a thorough vetting and 
quite frankly to be improved probably, but you are running in 
the black. You are doing a great service for American companies 
and I hope that this Congress can find a way to preserve the 
services that you are providing. I yield back, Chairman.
    Mr. Poe. The gentleman from Texas yields. The Chair 
recognizes the gentleman from Wisconsin, Mr. Ribble, for his 
questioning.
    Mr. Ribble. Thank you, Mr. Chairman. Mr. Hochberg, I will 
go ahead and start with you and then go on to Ms. Littlefield. 
Just to kind of give you my own historical perspective, I am a 
former business owner and I have voted in support of 
reauthorizing EXIM in the past. I am a little bit more sanguine 
today than I was 2 or 3 years ago and in part I am sanguine 
because of the CBO's fair value accounting method to determine 
the actual cost to the taxpayer.
    I am going to quote from the CBO's 2014 report: ``For 
Fiscal Years 2015 to 2024, CBO found that EXIM Bank's six 
largest credit programs would generate budgetary savings of 
about $14 billion under FCRA accounting, but costs about $2 
billion on a fair value basis.'' They then go on to say later 
in the report, ``In CBO's view, fair value estimates provide a 
more comprehensive measure of the cost of Federal credit 
programs and CBO has provided fair value estimates for many 
programs to help lawmakers more fully understand the tradeoffs 
between certain policies.'' That is a big swing, $14 billion 
plus to $2 billion negative over a decade. Would you care to 
comment on that?
    Mr. Hochberg. Sir, we have one accounting system in the 
United States Government. Congress passed an accounting system 
called Federal Credit Reform Act in 1990. And we fully comply 
with that. I ran a company for 20 years. We don't keep two sets 
of books. There is one set of books. Those are the books that 
Congress has determined. If Congress changes the accounting 
system, we will change our operations. But one thing is 
unmistakable. We transferred, we sent $675 million to the 
Treasury. We sent the year before over a $1 billion. Cash is 
cash. If the accounting system were different, some of that 
cash would remain at the Bank and would not transfer to the 
Treasury. It would build up more and more reserves that would 
be sitting at the Bank's balance sheet instead of the Federal 
Government's balance sheet.
    Mr. Ribble. Wouldn't that go then to reduce taxpayer risk 
in case of default when the economy dips?
    Mr. Hochberg. Well, first of all, we have over $5 billion 
of reserves paid for by customers. These are not taxpayer 
monies. It is paid for by customers. We send the default rate 
report to Congress every 90 days. Our peak default before the 
financial crisis was 1.6 percent in 2006. So if we are looking 
for a real stress test, we have had the most real stress test 
you can devise in the last 5, 6 years, looking at the financial 
crisis we faced. And our default rate has sadly declined from 
that 1.6 level in 2006 going through the worst financial crisis 
we have ever incurred. So nothing is certain in life, sir, but 
I think we have seen one, a demonstration of good underwriting 
by our staff and the fact is we do report this to Members of 
Congress every 90 days. We just sent a report up for the March 
30th period.
    Mr. Ribble. What is the current interest rate that you 
charge your customers?
    Mr. Hochberg. Most of our credit is through either 
insurance or a guaranteed loan. So in a guaranteed loan, a bank 
essentially pays a premium, an insurance premium, and thereby 
we guarantee the loan. Then the Bank makes a direct--makes a 
loan to its customer. So most of the loans are either insurance 
or guarantee. And the rare cases we make a direct loan which is 
an unusual case, sometimes usually government to government or 
certain transactions, it is 100 basis points over Treasury 
which is the global rules that we have to apply to.
    Mr. Ribble. And is that as well what the European Union's 
rates would be?
    Mr. Hochberg. We all have to charge 100 basis points over 
the relevant Treasury rate for that currency.
    Mr. Ribble. You have heard the discussion between--it has 
been pretty widely publicized that Delta Airlines has got a 
problem because they want to buy Boeing airplanes and couldn't 
get it at discount. Air India got it at discount, not that they 
are competing. And so we gained jobs at Boeing, lost jobs at 
Delta. How do you respond to that?
    Mr. Hochberg. Well, two ways, sir. One, we voluntarily do 
what is called an economic impact study. We are the only credit 
agent in the world that does this. We look at the benefits to 
the U.S. economy from an export and we compare that against any 
potential loss to the U.S. economy. And we actually do that on 
every single transaction of the Bank, down to $10 million or 
less to make sure we are adding, we are accretive to the U.S. 
economy. That is number one.
    Number two, Delta has sued us. Four times the courts have 
ruled in favor of the Export-Import Bank. And we did double the 
fees that we charged foreign carriers back in 2011. And we make 
sure that foreign carriers are paying more than any U.S. 
carrier pays.
    Mr. Ribble. I see I am out of time, Mr. Chairman, so I will 
yield back. Mr. Littlefield, I will talk to you offline.
    Mr. Poe. I thank the gentleman. The Chair recognizes the 
gentlelady from Illinois, Ms. Kelly. Turn on your mic, too. 
Thank you.
    Ms. Kelly. Thank you. I would say most of us in this room 
recognize the importance of trade to the future of our economy. 
Accordingly, as we consider future trade deals, we must engage 
in a deeper, broader, and more inclusive dialogue about its 
impact on American families. This stated objective of U.S. 
trade policy is to liberalize markets by reducing trade and 
investment barriers, creating a rules-based trading system, 
enforcing commitments under trade agreements, and supporting 
economic growth.
    What role do EXIM Bank, OPIC, and TDA play in supporting 
U.S. trade policy goals?
    Mr. Hochberg. Well, the Export-Import Bank obviously works 
closely with the other two panelists here, Commerce Department, 
and U.S. Trade Representative, State Department. Our role is 
very narrow and very precise. It is to provide financing when 
the private sector is unable, when it cannot handle that 
transaction. And our focus is really on U.S. jobs and making 
sure that we don't cede jobs to foreign competitors because 
they provide financing and U.S. companies don't have access to 
it.
    Ms. Kelly. Thank you.
    Ms. Littlefield. Thank you, Congresswoman. OPIC's role is a 
little bit different, a development agency rather than a trade 
agency. So I would answer the question slightly differently and 
to say that we are all clearly in this room and elsewhere very 
concerned about the need to pay for stability and development 
in fragile places. And we know that we need to engage in these 
places for strategic, economic, and moral reasons. OPIC's model 
may not be the only solution for stabilizing these markets, but 
it certainly is an incredibly effective one as it calls upon 
the private sector to shoulder some of the burden of helping 
address these issues and do so in a way that is actually 
creating income for those private sector investors as well as 
jobs built at home and abroad. Thank you.
    Ms. Zak. And USTDA helps to build infrastructure. So with 
respect to trade one of the things we do is that we help to 
develop infrastructure in other economies. But we want to 
ensure that it is done in a way that creates a fair playing 
field for U.S. businesses and jobs to be created at the same 
time.
    USTDA has also helped with respect to the implementation so 
that we ensure that standards that are required under trade 
agreements are met as well.
    Ms. Kelly. I yield back the remainder of my time. I have to 
go vote, Mr. Chairman.
    Mr. Poe. I thank the gentlelady. Just for Mr. Rohrabacher's 
information, there is a vote in another committee, not on the 
floor. And with unanimous consent, unless there is an 
objection, the Chair will allow a member of the full committee, 
but not a member of this committee to ask questions, the 
chairman of the European Subcommittee, Mr. Rohrabacher from 
California.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman. There 
is a lot of discussion about trade going on on Capitol Hill 
these days. I am glad that you are here. And just a couple of 
items just for--in terms of OPIC. Is OPIC policy--there has 
been an on-going problem with a constituent that I have had 
that his family owned a major company in Ethiopia and frankly, 
they have been offering like a pittance as compensation for 
this very expensive piece of property and business. OPIC has 
decided not to fund that situation. Not to be involved in 
Ethiopia until situations like that are corrected. Is that 
still the policy that if a government like Ethiopia is engaged 
in these type of activities that are denying the U.S. citizens 
the right to compensation for property that they have 
confiscated, do we still have that policy that we are not 
providing loans in that country?
    Ms. Littlefield. Mr. Rohrabacher, we spoke about this 
before and as it stands now, OPIC continues to operate under 
the guidance of the Secretary of State in terms of selecting 
the countries in which we operate. That being said, we are not 
active currently with any major projects in Ethiopia.
    Mr. Rohrabacher. Right.
    Ms. Littlefield. I am not involved with the details of 
this. We have left it for the State Department, but I know that 
the U.S. Government----
    Mr. Rohrabacher. Let me ask, that is good, number one, 
thank you for that. But is that a standard policy that if we 
have outstanding claims by American citizens against a 
particular government that we are not going to be improving or 
approving transactions in that country?
    Ms. Littlefield. That is not one of our policies. We do 
believe that when U.S. investors invest in these markets, they 
bring with them very high standards of environment, labor, and 
human rights standards as well as an improvement in the 
governance standards in those countries. So we see a direct 
correlation between foreign direct investment flow into 
countries and improvements in the business climate.
    Mr. Rohrabacher. Well, let me note I believe that that is 
encouraging dictatorship and the worst kind of a situation. You 
have American citizens themselves who have been denied due 
compensation for confiscated property, for us to go in is 
ridiculous, but I appreciate the fact that at least in Ethiopia 
that that is kept in mind because my constituent is having that 
problem.
    By the way, I take it that OPIC is engaged in actually 
promoting the development of businesses overseas in these 
various countries. Is that not creating competition for 
American products?
    Ms. Littlefield. It is not. We certify that not one of our 
projects causes any damage to the U.S. economy nor causes the 
loss of any job in the U.S.
    Mr. Rohrabacher. So you don't have any projects that you 
are financing to develop, to build in a foreign country, that 
you are not financing anything that has any competition with 
American counterparts. Is that correct?
    Ms. Littlefield. That is correct, sir.
    Mr. Rohrabacher. All right, we will check into that, but we 
will have to see. In terms of the foreign banks that you 
mentioned about the Export-Import Bank coming to you with these 
banks have come and said well, you are guaranteeing some loans 
with foreign banks, but mainly American banks. Do banks benefit 
from this guarantee?
    Mr. Hochberg. Well, the benefit really goes to the 
exporter.
    Mr. Rohrabacher. That's not the question. Do the banks 
benefit from this?
    Mr. Hochberg. The banks pay a fee.
    Mr. Rohrabacher. Yes.
    Mr. Hochberg. For insurance and in exchange for that fee, 
we ensure the loan.
    Mr. Rohrabacher. Okay, but the banks aren't benefitting?
    Mr. Hochberg. You can say they are benefitting, but they 
are paying for it.
    Mr. Rohrabacher. The banks are benefitting. Let us just put 
it this way, they wouldn't be coming to you with customers if 
they were not benefitting?
    Mr. Hochberg. Right.
    Mr. Rohrabacher. Okay, so we have in some way basically 
guaranteed the banks the profit that they will make from the 
deal or they at least will not have a loss from that deal. Is 
that correct?
    Mr. Hochberg. We provide insurance to the banks that make 
the loan, exactly.
    Mr. Rohrabacher. Let me just suggest that that is crony 
capitalism where we take the banks and we make sure that they 
are not going to lose money and we put our taxpayers' money at 
risk and the question is is whether or not that would happen in 
the private sector. In the film business, they have a thing 
called bonding. You have a project and they bond it. If you are 
making a profit every year, like you suggest, why don't we just 
leave that to the private sector then? Can't they do bonding 
with these banks that are looking for a guarantee that they are 
not going to lose money?
    Mr. Hochberg. Congressman, the private sector does a 
spectacular job. They just don't do all the job. So we finance 
about, as I have said about 2 percent of U.S. exports. A third 
of them go to developing countries. The private sector does a 
great job. They just don't do it in every market and every 
product category.
    Mr. Rohrabacher. Right.
    Mr. Poe. The gentleman's time has expired.
    Mr. Rohrabacher. Thank you.
    Mr. Poe. I thank the gentleman. I thank the witnesses for 
being here. I want to advise the witnesses that all members 
have the opportunity to present written questions to the 
witnesses. Several members were not here, could not be here and 
I would encourage the members to put those questions in writing 
as soon as possible regardless of where they are on this issue 
that we have been discussing today. With that, I thank the 
witnesses for being here and we will begin with our second 
panel as soon as they are seated.
    The Chair is ready to begin the second panel if the 
witnesses will be seated. The Chair will introduce the next 
four witnesses. I want to thank the witnesses for waiting all 
morning to give their testimony. It is appreciated.
    Mr. Daniel Ikenson is director of the Herbert Stiefel 
Center for Trade Policy at the Cato Institute. Mr. Ikenson has 
held several positions focusing on international trade 
planning, and is widely published in the area of trade policy.
    General Jim Jones is the founder of the Jones Group 
International and previously has served as the National 
Security Advisor to the President of the United States. General 
Jones has served our country with a long, distinguished 
military career including leading NATO military operations as 
Commander of the United States European Command and Supreme 
Allied Commander in Europe.
    Ms. Susan Jaime is the founder of Ferra Coffee 
International in San Antonio. In addition to roasting coffee, 
she has joined with Texas A&M's AgriLife projects to teach 
coffee growers around the globe how to grade, roast, and market 
their coffee beans.
    Carly Seidewand is vice president of the Global Sales and 
Administration of Resin Technology, LLC. Ms. Seidewand took 
over the global petrochemical trading and compounding company 
from her father, an entrepreneur chemist.
    We will begin with Mr. Ikenson. You have 5 minutes.

   STATEMENT OF MR. DANIEL J. IKENSON, DIRECTOR, HERBERT A. 
        STIEFEL CENTER FOR TRADE POLICY, CATO INSTITUTE

    Mr. Ikenson. Thank you, sir. Good morning, Chairman Poe, 
Ranking Member Keating, and members of the subcommittee. I am 
Dan Ikenson, Director of the Herbert A. Stiefel Center for 
Trade Policy Studies at the Cato Institute. Thank you for the 
invitation to share my views with you today concerning trade 
promotion agencies and the U.S. foreign policy. The views I 
express are my own and should not be construed as representing 
any official positions of the Cato Institute. To the extent 
today's hearing will help clarify some of these issues and 
prompt a serious effort to reform and retire some of the 
redundant, distortionary, and frankly, scandal-prone agencies 
among the panoply of Federal offerings, I am pleased to be of 
assistance.
    U.S. trade promotion agencies are in the business of 
promoting exports, not trade, in the more inclusive sense. That 
is worth noting because despite some of the wrong-headed 
merchantilist assumptions that undergird U.S. trade policy that 
exports are good and imports are bad, the fact is that the real 
benefits of trade are transmitted through imports, not through 
exports.
    In January 2010, President Obama set a national goal of 
doubling U.S. exports in 5 years and prominent net plan was a 
larger role for government in promoting exports including 
expanded non-market lending programs to finance export activity 
and increase in the number of Commerce Department foreign 
outposts to promote U.S. business and an increase in Federal 
agency chaperoned marketing trips. But the NEI neglected a 
broad swath of worthy reforms by ignoring the domestic laws, 
regulations, taxes, and other policies that handicap U.S. 
businesses and their competition for sales in the United States 
and abroad. For example, nearly 60 percent of the value of U.S. 
imports in 2014 consisted of intermediate goods, capital goods, 
and other raw materials. Those are the purchases of U.S. 
businesses, not consumers. Yet many of those imports are 
subject to Customs duties which raise the cost of production 
for the U.S.-based companies that need them, making less 
competitive at home and abroad.
    U.S. duties on products like sugar, steel, magnesium, 
polyvinyl chloride, and other crucial manufacturing inputs have 
chased companies to foreign shores where those imports are less 
expensive and they have deterred foreign companies from setting 
up shop stateside.
    Policy makers should stop conflating the interests of 
exporters with the national interest and commit to policies 
that reduce frictions throughout the supply chain from product 
conception to consumption. Why should U.S. taxpayers underwrite 
and U.S. policymakers promote the interest of exporters anyway 
when the benefits of those exports accrues primarily to the 
shareholders the companies enjoin the subsidized marketing or 
matchmaking? There is no national ownership of private export 
revenues.
    If policymakers seek a more appropriate target for economic 
policy, it should be to attract and retain direct investment 
which is the seed of all economic activity including exports. 
Given the exalted status of exports in Washington's economic 
policy narrative, it is understandable why agencies would want 
to portray themselves as indispensable to U.S. export success. 
But on that metric, none of the subject agencies is scarcely 
relevant. EXIM supported $27.4 billion in exports in 2014. 
USTDA supports approximately $2.5 billion per year. And OPIC 
less than $2 billion. In aggregate, these agencies support less 
than 2 percent of all U.S. exports.
    But the relevant economic question concerns the cost and 
benefits of these agencies to the U.S. economy. So let me focus 
a little bit on EXIM. EXIM financing helps two sets of 
companies, U.S. firms whose exports are subsidized through 
direct loans or loan guarantees and the foreign firms who 
purchase those subsidized exports. But those same transactions 
impose costs on two different sets of companies, competing U.S. 
firms in the same industry who do not get EXIM banking and U.S. 
firms in downstream industries whose foreign competition is now 
benefitting from reduced capital costs courtesy of the U.S. 
Government.
    EXIM financing reduces the cost of doing business for the 
lucky U.S. exporter and reduces the cost of capital for his 
foreign customer. But it hurts U.S. competitors of the U.S. 
exporter, as well as U.S. competitors of his foreign customer, 
by putting them at relative cost disadvantages. According to 
the findings by a recent CATO Institute study, the downstream 
cost alone amount to a tax of approximately $2.8 billion every 
year and the victims include companies in each of the 21 broad 
U.S. manufacturing sectors.
    The notion that because Beijing, Brasilia, and Brussels 
subsidize their exporters, Washington must too sweeps under the 
rug the fact that the United States is a major export credit 
subsidizer that has been engaged in doling out such largess 
since 1934 well before the founding of the People's Republic of 
China.
    To say that U.S. exporters need assistance with financing 
to level the playing fields suggest that they lack advantages 
among the multitude of considerations that inform the 
purchasing decision. Moreover, the fact that less than 2 
percent of U.S. export value goes through export promotion 
agencies, suggest this rationale for EXIM is bogus. Congress 
should allow EXIM to expire at the end of next month and the 
administration should announce plans to bring cases to the WTO 
against governments operating their export credit agencies in 
violation of agreed-upon limits under the Agreement on 
Subsidies and Countervailing Measures.
    The combination of the carrot of U.S. withdrawal from the 
business of export credit financing and the stick of WTO 
litigation would likely incent other governments to reduce and 
possibly eliminate their own subsidy programs. For better or 
worse, at different times and for different purposes over the 
years, the U.S. trade policy has been a tool of U.S. foreign 
policy, trade preference programs, trade agreements, the trade 
Trans-Pacific Partnership, investment treaties, trade 
sanctions, infrastructure funding and trade financing of all 
bid pursuit or deployed for reasons not entirely economic in 
nature. Pursuing strategic objectives through trade policy has 
a long history.
    The State Department's mission is to shape and sustain a 
peaceful, prosperous, just, and democratic world and foster 
conditions for stability and progress for the benefit of the 
American people and people everywhere. That broad mission may 
justify one or two export promotion agencies, but according to 
the CRS, the Congressional Research Service, there are at least 
20 such agencies within the U.S. Government with overlapping 
responsibilities and in some cases working at cross purposes. 
Thirty seconds.
    EXIM's Inspector General----
    Mr. Poe. I am sorry, you cannot have 30 seconds. Your 
statement is in the record. We all have it.
    Mr. Ikenson. Concluding thought, the United States 
maintains enormous commercial advantages over other countries. 
We have the world's largest market, strong institutions, 
including respect to private property and the rule of law, 
etcetera, etcetera. These things underlie the strength of the 
U.S. economy which is crucial to reaching U.S. security and 
foreign policy goals going forward. Thank you.
    [The prepared statement of Mr. Ikenson follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
            
                              ----------                              

    Mr. Poe. Thank you, Mr. Ikenson. You got more in 6 minutes 
than anybody I have ever heard in my life. But thank you very 
much.
    The Chair recognizes General Jones. First of all, General 
Jones, thank you for your service to our country.

 STATEMENT OF GENERAL JAMES L. JONES, USMC, RETIRED, FOUNDER, 
JONES GROUP INTERNATIONAL (FORMER NATIONAL SECURITY ADVISOR TO 
              THE PRESIDENT OF THE UNITED STATES)

    General Jones. Thank you, sir. Mr. Chairman, Ranking Member 
Keating, committee members, thank you for holding this very 
important hearing and for inviting me to testify before you 
today.
    With your permission, I would like to submit two items for 
the full hearing record; an op-ed I authored on the national 
security implications of the Transatlantic Trade and Investment 
Partnership and Trans-Pacific Partnership and ``The Task 
Ahead'' an article on the dynamics of U.S. global engagement in 
the 21st century.
    As requested by the committee, I will briefly summarize my 
statement and look forward to your questions. I have had the 
honor of serving in our Nation's uniform for over 40 years. 
Much of that time was during the Cold War when the world was a 
very different place, defined by the long struggle between the 
West and the former Soviet Union. Ultimately, democracy 
prevailed over Communism and our ideals proved superior to 
those of our adversaries, as did our resolve and military might 
of the United States and the NATO alliance. As a result, 
freedom prevailed and despite today's many challenges the truth 
is that freer societies, freer markets, and freer trade have 
achieved a great leap forward in the human condition and our 
values have contributed immeasurably to a better world and to 
America's interests around that world.
    But today, the geostrategic operating environment of the 
21st century is vastly different from that of the past century. 
As such, we need a much broader toolkit to be successful. 
Maintaining global stability is essential to America's peace 
and prosperity, it is no longer a function solely of our 
ability to deploy and defeat but of our capacity to engage and 
endow, and ultimately, to turn promise and opportunity into 
jobs and higher quality of life for those seeking true freedom.
    By leading on trade, the United States tightens bonds with 
allies around the globe, strengthens influence and would-be hot 
spots and bolsters greater global stability through expanding 
economic cooperation, the kind envisioned by the Transatlantic 
Trade and Investment Partnership, the Trans-Pacific 
Partnership, and the African Growth and Opportunity Act 
advanced by the extension of trade promotion authority.
    So if America wishes to remain a nation of great leadership 
and influence in the years and decades ahead, we shouldn't 
shrink from competing in the trade-based global economy, the 
world mainly of America's making in the last century and one I 
think we can be extremely proud of.
    But much is riding on our success. Economically and 
geostrategically, 95 percent of the world's customers live 
outside our borders. Most are hungry for American goods and 
services and solutions. And for this reason, America's future 
jobs and prosperity depend greatly on trade and global economic 
engagement and leadership.
    But it is equally true that 95 percent of the hearts and 
minds America must win to achieve a more peaceful and 
prosperous future also live outside our borders, so commercial 
diplomacy, the kind that Secretary of Commerce Penny Pritzker 
advocates, is a key ingredient in the strategy for winning 
them. Importantly, this hearing was conceived to analyze 
whether the U.S. trade promotion agencies play an important 
role in U.S. foreign policy. My answer is an unequivocal yes. 
They play a crucial role.
    Many of the pertinent facts are presented in my full 
statement, but I would simply boil down my reasoning to the 
following points. One, trade and trade promotion are critical 
to American jobs and prosperity. A prosperous America is far 
better able to protect this country's values and advance its 
interests in a dangerous world.
    Two, trade promotion is critical to America's security. As 
the former NATO Commander Service Chief and National Security 
Advisor, I have seen first-hand the geostrategic importance of 
American economic engagement. Where the U.S. private sector is 
not present, America's influence suffers. And this vacuum is 
filled by economic and geostrategic competitors, and in the 
developing world is often filled by those who don't share 
either our values or our principles; the result is a less 
stable and secure world.
    Three, many opponents of trade promotion agencies base 
their arguments on a vision of a world with no export financing 
and no foreign government support for our competitors, where 
markets are untrammeled by state directed export finance and 
other support. But in today's real world, approximately 60 
export credit agencies are jockeying to offer enticing 
financial terms to win more sales for their companies and 
workers, often at the expense of U.S. companies.
    Russia and China have expanded their state backed export 
support even as we continue to deliberate on the future on the 
EXIM Bank and our desire for expanded trade agreements.
    They and the leaders of America's other export competitors 
would welcome the United States ending export finance and trade 
promotion programs, which means more business for their 
companies and more influence for them around the world. 
Although I agree that we should aspire to a world of pure 
private sector competition, unilaterally disarming by 
eliminating the EXIM Bank and our other trade promotion 
agencies is not the answer. It would destroy the U.S. 
Treasury's leverage at negotiating reductions to state backed 
export finance that would be observed by all, creating the 
level playing field that we should all seek.
    Finally, I agree that Congress has a sacred responsibility 
to ensure the taxpayers' dollars are used wisely. Our country 
has yet to see an agency or program that couldn't be improved. 
In that regard, the constant work of reforming and refreshing 
our initiatives is crucial, but let us improve them where we 
can and not eliminate them. After four decades of service to 
the nation, a strong aversion is ingrained in me as I know it 
is in you, to anything that threatens our national well being. 
Among them, anything that would set back our country's economic 
competitiveness in the world. Thank you, Mr. Chairman.
    [The prepared statement of General Jones follows:]
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    Mr. Poe. Thank you, General Jones. The Chair recognizes Ms. 
Jaime.

      STATEMENT OF MS. SUSAN JAIME, FOUNDER, FERRA COFFEE 
                         INTERNATIONAL

    Ms. Jaime. Mr. Chairman and Trade Subcommittee of the House 
of Representatives, thank you for inviting me to share my 
perspective on the importance of the EXIM Bank.
    I have been working in the coffee industry for more than 18 
years, and started my own company, Ferra Coffee International, 
in 2009 with $50 in the bank and a passion for international 
trade and soft commodities. From the start, the heart, soul, 
and goal of my business has always been to help coffee growers 
worldwide. I learned very quickly that the coffee grower is the 
last one in the chain of the coffee trade business to get a 
fair price for their product and the last, if ever, to get 
training to properly assess the quality of their coffee or 
effectively negotiate a fair price with international buyers.
    To make a lasting difference in the lives of those coffee 
growers, by paying them fairly and according to the quality of 
their coffee, to prevent families from being broken apart 
because parents or young adults must leave their home countries 
and families to come to the United States to work illegally, my 
business plan had to change.
    If Ferra Coffee sold only to distributors in the State of 
Texas or any other domestic state, we could only expect to sell 
one or two pallets of approximately 1200 pounds at a time. In 
contrast, when we are able to secure an international contract 
with an international distributor, orders are generally for at 
least one full container, which is 48,000 pounds average. It is 
easy to see the advantage.
    Behind each bag of Ferra Organic Flavor Coffee, or each bag 
of Ferra Liquid Coffee, there are seven U.S. small businesses 
that supply products and services contributing to our finished 
product, that is labeled USDA organic, roasted, Q graded, and 
manufactured in San Antonio, Texas.
    Ferra Coffee has successfully started offering our roasted 
specialty coffees internationally, thanks to the support that 
the EXIM Bank has provided. By their doing due diligence in 
checking that the distributors with whom we establish 
relationships and make contracts are legitimate, and that we do 
not get involved with dubious, unreliable, or criminal groups 
while conducting international trade, the EXIM Bank has truly 
ensured our success.
    The EXIM Bank also literally insures payment of our 
shipments, and has given my company the peace of mind of 
knowing that the value of the product shipped is secure and 
legally insured. The EXIM Bank also allows me the ability to 
offer products that have a higher quality for the gourmet 
market.
    Ferra Coffee International, along with the other small 
companies that are our partners, completely depends for our 
growth and survival on our ability to sell internationally. 
Internationally, there is no market saturation, and USA made 
and USDA organic products have a great deal of value to the 
consumer.
    The EXIM Bank is the one and only entity that we can rely 
on to help us continue to grow, be competitive in markets that 
are not available to us in our own country, and to give us the 
necessary competitive edge in international trade.
    My small company, by purchasing coffee directly from the 
growers is contributing to stopping illegal immigration and the 
displacement of family units. We also help seven other small 
U.S. businesses with opportunities to hire more workers and 
increase their revenue by purchasing more products for 
international contracts.
    Without the EXIM Bank offering their services that allow my 
company to engage in this type of international trade 
contracts, I will not be able to grow my business beyond the 
saturated coffee market that we have in the U.S.A.
    The EXIM Bank can also do so much more. It can help me, and 
other companies like mine which conduct businesses that are 
usually not funded by the regular bank system because we have 
contracts in international markets. By not acting as a 
conventional bank to qualify exporters like me for financial 
low interest loans. Instead of using only a credit score to 
qualify a company for funding, EXIM Bank could look at, and 
assess the overall potential, growth, and increased revenue 
that can be achieved by additional funding. That is the vision 
that is needed, and that what we are asking for.
    My company is not able to get loans from conventional banks 
because all of my products are bought in cash. That is the way 
the majority of specialty coffee and tea companies operate. We 
do not have a history of loan payments or credit with coffee or 
tea growers. We need the EXIM Bank's support.
    The EXIM Bank is a crucial, vital and important entity that 
I and many other U.S. exporting companies depend on for 
survival, growth, and the ability to compete successfully in 
business. Every U.S.A. company that has the capability to 
export and do business internationally, whether that company is 
small or large, contributes to the health of our national 
economy and our country's leadership in innovation, in the 
development of more qualified and competitive businesses, and 
of individuals who see our potential markets as global 
opportunities for the kind of success that is indeed, the 
greater good.
    Every aspect of the EXIM Bank has the potential to create 
positive and strong advancement for the good of all of us, and 
the good of U.S.A.
    Thank you for your time, kind attention, and for inviting 
to share my story on behalf of all exporters in the U.S.A.
    [The prepared statement of Ms. Jaime Jones 
deg.follows:]
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    Mr. Poe. Thank you, Ms. Jaime. Ms. Seidewand.

  STATEMENT OF CARLY SEIDEWAND EPPLEY, VICE PRESIDENT, GLOBAL 
        SALES AND ADMINISTRATION, RESIN TECHNOLOGY, LLC

    Ms. Seidewand. Thank you, Chairman Poe, Ranking Member 
Keating, and the other subcommittee members for inviting me. I 
hope that my story can actually point to the interconnection of 
small- and medium-size businesses across the United States as 
exporters, some direct, and some indirect.
    Resin Technology is a now $100 million global petrochemical 
trading and compounding company. It has been in operation for 
close to 20 years. I am second generation of my family 
business. It was started by my parents and it is still a 
father-daughter run business today. We sell about 98 percent 
U.S.-made petrochemicals in Houston, Texas. It is an extremely 
important area for us. And we export into over 30 countries 
worldwide, some developing nations, and more mature economies. 
The majority of our sales go into vinyl construction products 
worldwide such as water pipe, windows, wire and cable, and even 
some more sophisticated engineered parts, all dependent on the 
level of development in those import countries.
    Today, our largest export markets are Canada, Europe, very 
importantly, the Caribbean and Mexico, Latin and South America 
account for about 50 percent of 2014 sales. It should be noted 
that we started the business at about 70 percent U.S. sales and 
with the help of EXIM financing it is now over 70 percent 
export sales. So it has made a huge difference in sort of where 
our business has gone.
    We have fierce competition from large commodity 
international trading firms and foreign producers, the largest 
ones being between Korea, China, and especially Japan where 
they sell very much on price and very low cost to no cost 
financing in markets where we have to compete.
    Prior to the housing decline, we were solely focused in the 
U.S. and Canadian markets with over 70 percent sales in the 
U.S. We started exporting at the end of '06, doubled our sales, 
year on year for many years. And we didn't really have the idea 
that the housing boom would persist, so we knew that export 
needed to be a part of our future growth plan. And obviously, 
2008, 2009 proved that point very clearly and we needed to 
compensate for those lower sales since everything really--the 
largest portion goes into construction projects.
    In 2011, Bank of America suggested using Export-Import Bank 
to back our export receivables and inventory via a working 
capital guarantee program where domestic sales remain under 
their current structure. We had for probably 2 years tried to 
find other ways to finance our exports with Bank of America by 
increasing the size of our insurance policies. We looked at 
inventory appraisals to try and increase the advance rates. We 
do use an external credit insurance agency which is a big 
portion of our--what is underwritten. But it never could meet 
the size that we needed to really compete in the export market 
on the buy and on the sell side because a very important part 
of our business is being able to finance the supply side with 
these major Fortune 500 companies.
    What we did was increase our advance rates up to 90 percent 
of receivables and 75 percent of export inventory, affording us 
to be able to compete with our Asian counterparts which is the 
most important part because oftentimes they have not only 
subsidies on their freight, but their financing seems almost 
zero to very low in comparison and offer extremely long terms 
where we normally try to finance 60 to 90 days. Sometimes they 
will finance 120, 270 days. It is a very different Wild West in 
certain areas of market. And since our product is a more 
commodity element, the 75 percent loan rate than inventory 
really isn't considered excessive and our credit that we do 
with customers is the Euler-Hermes credit insurance policy or 
via letters of credit all with Bank of America or with local 
banks in the United States.
    In our view, the Working Capital Guarantee Program with 
EXIM has been more disciplined. They have audited us more often 
than even our domestic program has. They have very detailed, 
down to customer level on sales. We have to provide waiver 
letters for foreign currency transactions which is very 
important in our markets. There is tough management on credit 
overseas and we also have to have comprehensive marine and 
warehouse insurance policies.
    EXIM financing is actually somewhat expensive but where we 
couldn't find any other options that didn't include factoring 
or discounting by the bank with letters of credit where none of 
customers can, there really was no other option for us to 
really increase to where we needed to be. And really, Bank of 
America said they just couldn't justify the export receivables 
because they didn't have the global infrastructure or for 
inventory if something did go wrong to actually collect on 
those receivables which is a very important point.
    But the other point that I first brought up was how we 
partner with hundreds of small to medium size U.S. businesses 
across the United States. We are in the Boston market and 
obviously we have people there, but also we have a lot of 
people that are near the ports in Houston and Louisiana that do 
trucking, toll blending, packaging, warehousing, freight 
forwarding, ones that don't even realize how much they would be 
affected if trade by EXIM wasn't financed.
    Three such firms that I have mentioned before, Fleur De Lis 
Worldwide, which is in Chairman Poe's area; TCI, a packaging 
and trucking firm in New Orleans, Louisiana; and JPI South in 
Pasadena, Texas, all have doubled and tripled their workforces 
from our loyalty in working and partnering together.
    Now with the new boom that we may see in front of us, 
petrochemicals, it is even more important for us to capitalize 
on those. We personally have doubled our workforce from 4 to 12 
people and we have actually opened an office in Houston because 
of the concentration that we need there.
    Mr. Poe. Can you summarize the rest of your comments? We 
have your statement for the record.
    Ms. Seidewand. No problem. Basically, for us, if EXIM is 
not authorized, which I think is really the most important 
point for us, personally, as Resin Technology, we would 
probably drop back to just a North American business and 
probably would be somewhere between $30 million and $50 million 
in sales. We wouldn't be able to negotiate the freight, the 
actual export contracts. There are about five major U.S. 
producers that we work with. Three of them are discussing 
export contracts that we have in place now and all of them 
continually ask what is happening with EXIM. And if that isn't 
reauthorized that would obviously--actually signing those 
contracts for expert, so we would have to reduce in sales, 
reduce staffing and obviously all the multitude of other 
businesses that we work with. Because really the foreign 
companies that are our competitors, they just don't have the 
loyalty to our other U.S. businesses that we would. And I think 
that is the most important thing for us.
    Mr. Poe. Thank you, Ms. Seidewand. Thank you.
    Ms. Seidewand. Thank you.
    [The prepared statement of Ms. Seidewand follows:]
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    Mr. Poe. The Chair recognizes itself for 5 minutes. I want 
to thank all four of you for being here. I have a lot of 
questions. I will submit some of them in writing for the 
reasons I mentioned earlier. As I mentioned in my opening 
statement, in Houston, Texas, half of our economy is based upon 
the Port of Houston, and we are an export port. We send stuff 
all over the world that goes through our port, so trade is 
important. Unlike the West Coast, primarily import ports.
    Ms. Jaime and Ms. Seidewand, I want to start with you all 
and then move over to our gentlemen, ladies being first, of 
course. You have heard all of the comments by all of the 
witnesses. You both have been here since we started early this 
morning. You probably read, when you had time and were not 
doing your work in your business to read, the press about EXIM 
Bank and the volatile controversy over it. So my questions will 
be first to both of you specifically, because you are in the 
business world and you use EXIM Bank.
    Ms. Jaime, tell me a little bit more about how your 
business got started in San Antonio.
    Ms. Jaime. Yes, Mr. Chairman. My business got started 
basically by going to Latin America and finding coffees that 
were specialty graded which is one of the highest quality in 
coffee; bringing that coffee into the United States, and 
selling it here in the United States. Microroasters generally 
they do and roast approximately 20 pounds per batch. As time 
developed, we started distributing more to our market in San 
Antonio and we dedicated ourselves to do commercial roasting 
for chefs, restaurants, hospitals. We are not in the retail 
because the retail is over saturated. If you go to the grocery 
stores, you have more than a dozen different labels, of course, 
of coffees. So it is not a good idea for my business to have my 
coffee sitting on a shelf in a supermarket where it is not 
going to be noticeable.
    Mr. Poe. So if there was no EXIM Bank, how would that 
affect your business?
    Ms. Jaime. Tremendously.
    Mr. Poe. How? How would it affect you?
    Ms. Jaime. It would affect it because I am not going to be 
able to grow as quickly and help as many coffee growers as we 
can when we are exporting.
    Mr. Poe. Would you be able to export if you did not have 
the EXIM Bank?
    Ms. Jaime. No.
    Mr. Poe. How much of the business is export business?
    Ms. Jaime. Forty percent of my business right now.
    Mr. Poe. You mentioned in your testimony that EXIM helps 
screen your distributors in foreign countries to make sure you 
are not working with criminals. What does that mean?
    Ms. Jaime. Well, it basically means that when we have a 
submission from a distributor overseas, they give us their 
information. We send that to the EXIM Bank. The EXIM Bank 
checks to make sure that there is no problems with their 
payments. That they have a good record of being an 
international distributor; if they have a history of doing any 
business with any manufacturer in the United States. And once 
we get that information back to us, then we can negotiate 
better with that distributor. If they have never had a history 
of doing business in the United States, then we are not going 
to be able to offer any kind of payment terms and they are 
going to have to pay for that order up front.
    Mr. Poe. You mentioned that your business helps stop 
illegal immigration. How in the world does you business help 
stop illegal immigration?
    Ms. Jaime. In the majority of the countries that coffee is 
grown, the coffee grower is very poor and is very limited in 
the resources they have. It is countless and countless number 
of times, every year that I go to the Latin American countries, 
I find coffee growers that say please represent us well, ma'am. 
Please sell our product well and pay us well, so that I don't 
have to leave my country, my family, and have to go and work in 
the United States illegally.
    Mr. Poe. Ms. Seidewand, same line of questioning for you 
and I will try to move as quick as I can. if you don't have 
EXIM, how does that affect your Boston, Houston business? 
Microphone.
    Ms. Seidewand. It is interesting how it crosses between 
both of you gentlemen. Really what it means for us is no 
growth. Really in the United States when housing did crash, 
there was also a lot of consolidation of U.S. customers. A lot 
of manufacturers started to consolidate. They were bought by 
global conglomerates. So the U.S. market in manufacturing 
actually shrunk which is where we would sell into.
    So the market isn't even still the same then--isn't the 
same now as it was then and really it wouldn't eliminate 
exports, but it would far reduce them and make them much less 
attractive.
    Mr. Poe. Why?
    Ms. Seidewand. Because we just wouldn't have the financing 
to offer terms. When I buy from U.S. producers, they give me 30 
to 60 days terms. I need time to actually export, prepare and 
sell those exports. And then I have to compete on terms. I need 
potentially 60 to 120 days of working capital financing which 
if your line is being held and it is not large enough because 
you can't lend against enough of your inventory and 
receivables, you just don't have enough capacity.
    Mr. Poe. So why not go to Bank of America and get those 
120-day time limits as opposed to 30 to 60?
    Ms. Seidewand. So LCs are wonderful. If I could do every 
single customer on a documentary letter of credit that came 
directly to me and was all the terms that I wanted, then I 
would do every one. But in certain areas, especially Latin 
America, as I am sure she knows, LCs are not something that 
they are able to do.
    Mr. Poe. Banks won't do those?
    Ms. Seidewand. They won't do them.
    Mr. Poe. American banks won't do those?
    Ms. Seidewand. No, the local banks there. The customers 
won't actually open an LC for them. And if they do, it could 
cost as much as 30 or 40 percent. They just don't make sense in 
a commodity market.
    Mr. Poe. Okay, thank you. My time has expired. I will yield 
from the gentleman from Boston, Massachusetts.
    Mr. Keating. Thank you, Mr. Chair. I want to just to follow 
a couple of threads one with you, Ms. Seidewand. You mentioned 
about what other international areas of a company--other 
countries, actually, are offering in terms of some of the 
financial terms that you need. So you are competing against 
them. Can you tell us, you mentioned Asia, generally. Can you 
tell us what countries and what they are doing that makes it so 
hard for you to compete?
    Ms. Seidewand. So the loudest one I would say would 
probably be from the trading companies in Japan where their 
lending rates are so low that they are able to offer terms that 
far outweigh what I can compete with. I may have the same price 
because we have competitive products in the United States. For 
a service, or maybe even offering the same types of products 
from the United States, that they and oftentimes are also them 
and four other countries' worth of products. But they can do so 
maybe doubling my terms. They consistently extend, extend, 
extend, and so if I can't compete with that, I am not able to 
offer that to those customers on a long-term basis.
    Mr. Keating. So it just gives you a level playing field?
    Ms. Seidewand. Absolutely. Absolutely.
    Mr. Keating. The other thread I wanted to just follow up on 
and thank you for service, General Jones, and having you here 
has prompted this question that I wasn't prepared to ask, but 
your background and I think you are uniquely positioned to 
answer this. Looking at our trade issues, shared values with 
Europe and looking at the incidents of what is going on Ukraine 
and some of the other countries around there, can you draw a 
parallel to the advantages of our trade particularly with 
countries who have shared values and our security in this part 
given your NATO background?
    General Jones. Thank you for that question. I think that we 
are living in a very different century and whereas the 20th 
century was characterized by a lot of violence, global wars, 
and who had the strongest and the best armies who wanted to 
fight, the 21st century to me is much more of an economic 
competition. And this is the path that the country--this is a 
national security issue as well. And I believe that if you look 
at Mr. Putin's aggression in the Crimea and Ukraine and the 
response to it, it is primarily economic. And there are 
projects afloat in Europe that the U.S. is also participating 
in to draw up long-term consequences for Mr. Putin's behavior. 
We can do something about reducing Europe's dependence on 
Russian energy, but it is an economic response. We can help 
Ukraine divest itself of being too dependent on Russian energy.
    And so I think the times that we live in, we need to have 
the tools to do that. The Transatlantic Trade and Investment 
Partnership is already our largest alliance of over $1 trillion 
in trade, $4 trillion in investment, and 13 million jobs. And 
this is a way that we can connect with Europe in the 21st 
century, much the same way we did in the 20th century, but with 
a much more balanced approach vis-a-vis military and economic 
development.
    So many of our nation's responses to international threats 
that are facing us are going to be economic. The day that ISIS 
is defeated in Iraq is a day that we need to have an 
international plan, hopefully, with U.S. leadership to have 
economic recovery for that region because if we don't, as we 
did in the Iraq invasion, Iraq will just continue to spiral out 
of control.
    In my view, it is a simple formula. Security plus economic 
development, plus governance and rule of law, are the three 
components that have to be factored into international 
engagements in the 21st century.
    Mr. Keating. I would mention, too, that some of these 
countries wouldn't be able to participate in the sanctions.
    General Jones. Exactly.
    Mr. Keating. If they are not strong and join with us which 
have really thwarted Putin's aggression more than anything 
else. And the second thing, even with NATO, part of their 2 
percent contribution is limited because of their economic well 
being.
    General Jones. Sure.
    Mr. Keating. And that is important, too, because hopefully 
after Wales and the economy that is advancing although too 
slowly to be able to meet that challenge. Do you think that is 
important as well?
    General Jones. The only reason Iran is at the table is 
because of economic sanctions. The only reason Mr. Putin is 
going to find a way out of his problems in Ukraine is because 
the economic conditions will ultimately force him to do that. I 
believe that to be true.
    Mr. Keating. Thank you for your comments.
    General Jones. Thank you, sir.
    Mr. Keating. I yield back.
    Mr. Poe. I thank the gentleman. I have a couple of 
questions left for Mr. Ikenson and General Jones and then I 
will yield to the ranking member if he has further questions.
    Mr. Ikenson, two questions. I will give you both questions 
and then answer both of them. If EXIM Bank is reauthorized, 
what reforms do you think must be in the reauthorization? And 
second, you said that manufacturers are victims of the Export-
Import Bank. National Association of Manufacturers representing 
large and small manufacturers support the reauthorization. So 
could you explain that discrepancy and also answer the first 
question?
    Mr. Ikenson. Sure.
    Mr. Poe. Briefly.
    Mr. Ikenson. Thank you for the question. Well, I hope that 
EXIM is not reauthorized. I believe in free market capitalism 
and I think we should try it. But if it is to be reformed, to 
me, the big problem is not necessarily the burden on taxpayers. 
It is the absence of concern toward other companies when an 
export sale is subsidized, that customer, that foreign customer 
benefits at the expense of the U.S. customers of that U.S. 
exporter. And I know that Mr. Hochberg mentioned that they do a 
cost benefit analysis of all of their pending transactions. I 
rather doubt that they do that with respect to--they never go 
into full mode with respect to the impact on downstream 
industries.
    A study that I did took a look at the costs, the costs that 
are actually imposed on these companies by seeing how important 
the export product is to the downstream industry as a 
manufacturing input. And based on that and based on the largess 
that is doled out to the exporting industry and to the 
downstream industry, I was able to calculate a cost. The 
problem is this is a situation of what is seen and that which 
is not seen. We see the export subsidies and we all seem to 
like exports and we celebrate that, but we don't often see the 
impact on the downstream industries. Delta is a big company and 
it was able to discern it and bring it to the attention of the 
public. But there are lots of companies, smaller companies, 
that rely on inputs that don't even really realize that they 
are being affected in a relative way, vis-a-vis their foreign 
competitors, so some mechanism that brings that to the fore so 
that there is a channel through which companies can evaluate 
the impact on them and maybe seek damages.
    That sort of parlays into the second question, the 
manufacturing sector has many, many victims in a variety of 
states. It costs about $2.8 billion per year.
    Mr. Poe. Then why does the National Association of 
Manufacturers support EXIM Bank?
    Mr. Ikenson. It does because those who benefit, the 
companies that benefit from it are the ones that are speaking 
out. They want EXIM. We have heard some stories here about how 
crucial EXIM is to their businesses. The companies that suffer 
and then incur costs are often unaware of what is going on.
    Mr. Poe. So they don't know they are victims?
    Mr. Ikenson. Many times they don't know that they are 
victims. They are not as big as Delta.
    Mr. Poe. I need to reclaim my time because we are about out 
of time.
    General Jones, be more specific. You make the statement 
that EXIM Bank is important for national security. Why is EXIM 
Bank important for national security and what would be the 
consequences if we didn't have it?
    General Jones. Mr. Chairman, if I could just quote from my 
formal statement and I quote, ``If EXIM Bank is shut down, and 
the United States leaves the field on export financing, such a 
vacuum would not only undermine U.S. business abroad and lose 
jobs at home, but undermine American influence and economic 
leadership at a time when it is needed more than ever.''
    I believe it is an instrument that is valuable. I think the 
numbers are impressive. And I don't believe it is in our 
national interest, if I could use a military term, ``to 
unilaterally disarm.'' If we do this, you can be sure that the 
Russians, the Chinese, our friends in Europe, they are not 
doing this. They are competing. And they are competing every 
single day with their missions, not only trade missions but 
heads of state missions, and I believe that the future is the 
public and private sector finding more ways to work together, 
not ways in which we drift apart. And I think that is a very 
fundamental difference between us and the rest of the 
competitive world that we deal with.
    Mr. Poe. Thank you, General Jones. The Chair will yield to 
the gentleman from Massachusetts, Mr. Keating, the ranking 
member.
    Mr. Keating. Well, briefly. In response to Mr. Ikenson's 
concern, I can only ask the two people that are actually in 
business, Ms. Jaime and Ms. Seidewand. If you are worried about 
downstream affecting it, well in a void like that that 
downstream I am afraid is going to be taken by another country, 
acting in ways that we don't, directly getting involved as a 
country funding. So in a void in that downstream, it is going 
to be filled somewhere by someone. We want it filled by the 
U.S. Could either of you comment on that? Am I right in that 
thinking?
    Ms. Jaime. Yes, Mr. Congressman. Basically, just in my 
field, coffee bean is the second most profitable commodity, 
traded commodity. If we don't act as importers and also 
exporters and be able to fill right now the emerging markets, 
international markets for specialty coffees, you are right. 
Somebody else is going to get it.
    One of the main problems that I have when I go to those 
countries to buy those coffees that are specialty and they are 
high quality is that the Chinese buyers are coming in and being 
very aggressive to be able to get those coffees. And since the 
coffee grower really does not know how to negotiate for those 
contracts, they are still on the losing side. So it is 
important for us not only to go, be competitive in purchasing 
these coffees, but immediately put them in the international 
market that we have a great opportunity to do that right now.
    Mr. Keating. Thank you, Mr. Chair. I yield back and I thank 
all of you for taking the time to be part of this hearing.
    Mr. Poe. The gentleman yields back. I also want to thank 
you four for being here most of the morning, here at the 
testimony and your testimony. And as I mentioned to the first 
panel, there may be questions submitted by members on both 
sides on these issues and they will be submitted to you because 
of the necessity of hearing your answers from other Members of 
Congress that may not have been able to ask questions. In any 
event, I thank you for being here and the subcommittee is 
adjourned.
    [Whereupon, at 12:17 p.m., the subcommittee was adjourned.]
                                     

                                     

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         Material Submitted for the Record
         
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  Material submitted for the record by General James L. Jones, USMC, 
 Retired, founder, Jones Group International (former National Security 
             Advisor to the President of the United States)

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[Note: The article entitled ``The Task Ahead,'' submitted by General 
James L. Jones, is not reprinted here but the link may be found on the 
following Internet page: http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=103486]

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