[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE EXPORT-IMPORT BANK'S.
REAUTHORIZATION REQUEST AND THE
GOVERNMENT'S ROLE IN EXPORT FINANCING
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JUNE 3, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-29
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
June 3, 2015................................................. 1
Appendix:
June 3, 2015................................................. 109
WITNESSES
Wednesday, June 3, 2015
Boyle, Michael P., President and CEO, Boyle Energy Services &
Technology, Inc................................................ 65
Cox, Rachael, Vice President, Business Development, Conway
Machine, Inc................................................... 63
Hirst, Richard B., Executive Vice President and Chief Legal
Officer, Delta Air Lines....................................... 70
Hochberg, Hon. Fred P., President and Chairman, Export-Import
Bank of the United States...................................... 5
Ikenson, Daniel J., Director, Herbert A. Stiefel Center for Trade
Policy Studies, Cato Institute................................. 61
McCarthy, Michael T., Deputy Inspector General, Export-Import
Bank of the United States...................................... 7
Murphy, John, Senior Vice President, International Policy, U.S.
Chamber of Commerce............................................ 68
Smith, Clifford, Executive Vice President, Business Development,
Cliffs Natural Resources Inc................................... 66
APPENDIX
Prepared statements:
Beatty, Hon. Joyce........................................... 110
Sinema, Hon. Kyrsten......................................... 113
Boyle, Michael P............................................. 114
Cox, Rachael................................................. 118
Hirst, Richard B............................................. 121
Hochberg, Hon. Fred P........................................ 144
Ikenson, Daniel J............................................ 170
McCarthy, Michael T.......................................... 180
Murphy, John................................................. 189
Smith, Clifford.............................................. 196
Additional Material Submitted for the Record
Hensarling, Hon. Jeb:
Letter from Delta Air Lines to Ex-Im Bank, dated April 23,
2014....................................................... 199
Written statement of the National Association of
Manufacturers.............................................. 203
Fincher, Hon. Stephen:
Letter to Members of Congress from 1,053 organizations urging
support for long-term reauthorization of the Export-Import
Bank....................................................... 211
Foster, Hon. Bill:
Chart entitled, ``U.S. Manufacturing Jobs Since 1961''....... 224
Sherman, Hon. Brad:
``Treasury Report to the Committee on Banking, Housing, and
Urban Affairs of the Senate and the Committee on Financial
Services of the House of Representatives on Export Credit
Negotiations,'' dated November 2012........................ 225
``Treasury Report to the Committee on Banking, Housing, and
Urban Affairs of the Senate and the Committee on Financial
Services of the House of Representatives on Export Credit
Negotiations,'' dated December 2013........................ 230
``Treasury Report to the Committee on Banking, Housing, and
Urban Affairs of the Senate and the Committee on Financial
Services of the House of Representatives on Export Credit
Negotiations,'' dated December 2014........................ 236
Wagner, Hon. Ann:
Letter to Members of Congress from 1,053 organizations urging
support for long-term reauthorization of the Export-Import
Bank....................................................... 241
Waters, Hon. Maxine:
Letter to Members of Congress from 1,053 organizations urging
support for long-term reauthorization of the Export-Import
Bank....................................................... 241
Written statement of the Bankers Association for Finance and
Trade (BAFT) and the Financial Services Roundtable (FSR)... 254
``GOL Issues $41 Million Ex-Im Bank-Guaranteed Bond for
Services Exported by Delta TechOps, MRO Division of Delta
Air Lines,'' dated March 25, 2014.......................... 263
Hochberg, Hon. Fred P.:
Written responses to questions for the record submitted by
Representatives Murphy and Westmoreland.................... 266
EXAMINING THE EXPORT-IMPORT BANK'S
REAUTHORIZATION REQUEST AND THE
GOVERNMENT'S ROLE IN EXPORT FINANCING
----------
Wednesday, June 3, 2015
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, King, Royce,
Lucas, Garrett, Neugebauer, McHenry, Pearce, Posey,
Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt,
Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross,
Pittenger, Wagner, Barr, Rothfus, Messer, Schweikert, Guinta,
Tipton, Williams, Poliquin, Love, Hill, Emmer; Waters, Maloney,
Velazquez, Sherman, Meeks, Capuano, Hinojosa, Clay, Lynch,
Green, Cleaver, Moore, Ellison, Himes, Carney, Sewell, Foster,
Kildee, Murphy, Delaney, Sinema, Beatty, Heck, and Vargas.
Chairman Hensarling. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``Examining the Export-Import
Bank's Reauthorization Request and the Government's Role in
Export Financing.'' This is our third hearing on Ex-Im this
Congress, and our fifth in the last 24 months. So, for better
or for worse, rarely has such a small agency received so much
attention by our committee.
I now recognize myself for 3 minutes to give an opening
statement. I begin my comments by admitting that Republicans on
my side of the aisle are split on the issue of Ex-Im
reauthorization. I certainly respect the arguments of those who
support H.R. 597, and I look forward to continuing our debate.
I do understand that one person's corporate welfare and
politically driven capital allocation is another person's vital
export support program and level playing field.
However, understanding my Democrat colleagues' arguments is
proving to be more challenging. They claim that Ex-Im is
essential to supporting jobs, but I would ask most of my
Democratic friends, where was your concern for jobs when you
voted for ObamaCare, which according to the Congressional
Budget Office is going to lead to 2.5 million fewer jobs in our
economy? Where was your concern for jobs when your party voted
against the Keystone Pipeline and the 42,000 jobs the State
Department says are connected to it? Where was your concern for
45,000 jobs when most of your caucus voted against legislation
to advance construction of LNG export products?
Democrats claim Ex-Im is essential to U.S. trade, but
almost 99 percent of all U.S. exports are financed without Ex-
Im. If my Democrat friends are so concerned about trade, why
are so many of them opposing trade promotion authority (TPA)?
No less a Democrat than President Obama himself says that TPA
will create more jobs and expand economic opportunities for
middle-income Americans.
The National Association of Manufacturers reports that over
half of the structural cost disadvantage suffered by American
exporters comes from our corporate tax system. Yet few, if any,
Democrats support a fairer, flatter tax system, much less
reducing our corporate tax rate, the highest in the
industrialized world. Now, how many times have we heard
Democrats vilify Wall Street banks, yet the big banks profit
off Ex-Im like few others. The latest data I have seen shows
JPMorgan Chase received $5.1 billion in assistance; Citigroup,
$1.5 billion; Wells Fargo, $.5 billion; and HSBC, almost $1
billion. They all profit from Ex-Im, and as far as I can see,
they all vigorously support its reauthorization. After all,
they have hard-working taxpayers to bail out any Wall Street
losses.
As one Citigroup managing director recently said, ``There
is nothing that a commercial bank loves more than guaranteed
financing.'' Another Wall Street banker was quoted in the press
saying that Ex-Im guarantees are ``free money'' for the big
banks. By reauthorizing Ex-Im, my Democratic colleagues are
simply throwing Wall Street a big wet kiss.
Just 6 weeks ago, the ranking member asked the question,
``Why is it that the richest of the folks in the businesses in
this country who have so many paid lobbyists are able to direct
the public policy in ways the average citizen cannot do?''
Boeing, which receives fully one-third of Ex-Im support,
spent $35 million in lobbying expenses in the last Congress to
help keep Ex-Im afloat. Their top 5 executives made $48.6
million in 2013 alone. The public reports from other top
beneficiaries like GE, Caterpillar, and Exxon Mobil all look
pretty similar. So I would say to my friend the ranking member,
perhaps their paid lobbying is so successful and their
executives are getting so rich because you are doing everything
you can to help them.
To support more robust economic growth and economic
justice, not to mention economic equal opportunity for all, it
is time to wind down Ex-Im. I now recognize the ranking member
for 3 minutes.
Ms. Waters. Thank you, Mr. Chairman.
It is the eleventh hour for the Export-Import Bank, only 14
legislative days remain until this engine of economic growth
shuts down.
For 2 years, Democrats on this committee and many
Republicans have asked the chairman to listen to reason with
respect to the Export-Import Bank's reauthorization. We have
pushed for action in this committee because for the thousands
of American jobs and businesses across every one of our States
and districts that count on Ex-Im support, the stakes are high.
With 190 Democrats on record in support of a multiyear
extension of the Bank's charter, and 59 Republicans on a
separate reauthorization measure, including 5 on this very
committee, the facts are unequivocal: A majority of the Members
of the Financial Services Committee and of the House of
Representatives support keeping the Export-Import Bank up and
running for the long term.
In light of the staunch opposition from this chairman, I
would like to take a minute to thank Representative Stephen
Fincher for having the courage to stand up for what he believes
is right by offering legislation that commits to a long-term
reauthorization of the Bank. Unfortunately, despite the fact
that the Bank faces closure in just 14 legislative days, these
two bills to reauthorize its charter are gathering dust in the
chairman's office.
Mr. Chairman, while you continue playing games with the
Export-Import Bank, today we will do our best to remind you of
the real people who will be impacted by shutting it down. Later
in this hearing, you will hear from Michael Boyle, chief
executive officer of Boyle Energy Services and Technology. Mr.
Boyle is a Republican, and his energy firm is located in
Manchester, New Hampshire, right from the district of
Representative Guinta. He is going to tell this committee about
how the Export-Import Bank took his business of 8 employees and
helped it expand to 60 presently. For some reason, that engine
of economic growth which allowed Mr. Boyle to grow and expand
his business is the latest ideological target of this
committee.
Mr. Chairman, we are not legislating in a vacuum. Closing
the Export-Import Bank will have real consequences for
businesses trying to survive in an increasingly competitive
marketplace. I am disappointed that this game continues, and I
yield back my time.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga, the chairman of our Monetary Policy and Trade
Subcommittee, for 2 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate you
holding this hearing to further examine the Export-Import
Bank's reauthorization request. As I have stated before, I am
dismayed that some of the best American companies believe that
they need special programs and carve-outs like Ex-Im to remain
competitive on the global stage as opposed to dealing with what
I believe are the true hurdles, tax reform as well as
regulatory reform.
If we allow a select few companies to determine the outcome
of the Ex-Im Bank, what happens when we do try to work out
reform of our Tax Code? What happens when we actually try to
close loopholes? How can we address social entitlement programs
if Congress is unwilling to address corporate entitlement
programs as well?
In 2012, although I voted ``no,'' Congress reauthorized Ex-
Im while mandating several modest reform provisions that shared
broad bipartisan support. These reforms were viewed as vital. I
voted ``no'' because I was concerned that the bill was actually
nothing more than window dressing. Although these reforms were
intended to better protect taxpayers and make the Export-Import
Bank more accountable, the Bank and Treasury continued to
ignore congressional intent and instead operated with too
little accountability with regard to the interests of hard-
working American taxpayers. It looks like, unfortunately, I was
right in 2012. American taxpayers have been unwittingly
propping up foreign state-owned programs in Saudi Arabia,
Russia, Colombia, Ethiopia, South Africa, et cetera, while
others have done nothing but work against the best interests of
American taxpayers.
Additionally, the Export-Import Bank has an unsavory track
record involving corruption, bribery, and fraud. The acting
inspector general of the Export-Import Bank testified in our
joint hearings with the Oversight and Government Reform
Committee that 47 people have been convicted of defrauding the
Bank in the past 5 years, and that there are at least 31 open
investigations with a potential for even more indictments. The
more that is unearthed about the Export-Import Bank, the more
concerned I become. While the goals and objectives of the Bank
may be admirable, the current state of the Bank is abhorrent at
best. Why should Congress spend taxpayer dollars on an
organization that has reestablished a track record of
corruption? Why should American tax dollars be used to finance
foreign government-owned or operated companies that compete
against American workers? Why should the hard-working taxpayers
take on unnecessary risk when private companies refuse to do
so? Unfortunately for the folks at Ex-Im, I have come to the
conclusion that the Export-Import Bank is beyond broken, and
that it is time for the Bank's charter to expire.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Wisconsin, Ms.
Moore, ranking member of our Monetary Policy and Trade
Subcommittee, for 1 minute.
Ms. Moore. Thank you so much, Mr. Chairman.
This is an important hearing, as the Export-Import Bank's
charter expires at the end of this month. After several of
these hearings, what do we know? In 2012, a number of
substantive reforms were made by Congress, and the Bank has
implemented an overwhelming number of them. We know that
private finance supports the Bank, cannot fill the void, and
that the Bank is not crowding out private capital. And it is a
straw man fallacious argument about it being corporate welfare
designed to undermine the social safety net for people.
We know that the Bank operates with a low default rate with
meaningful and vigorous oversight by the inspector general
(IG). We know the Bank supports good jobs and small businesses
in the United States of America. The counterpoint we will hear
today from some libertarian academics is the claim that the
Bank somehow creates hidden costs for some companies. But I
think the best evidence against this case they are trying to
make is that several firms mentioned in the research as being
hurt by the Bank, such as Nucor and AK, still support the Bank.
I yield back.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Washington, Mr.
Heck, for 1 minute.
Mr. Heck. Thank you, Mr. Chairman.
We should be skeptical of government lending programs
because private markets are generally better at allocating
credit and it is easy, maybe even reasonable, to become cynical
about our political process.
If a company comes to me and says they are hurt by Ex-Im, I
worry for their employees, but we owe this topic more than a
gut-level skepticism and easy cynicism. Our job as Members of
Congress is to get information on how the world actually works
and base our policy on that.
Stephen Fincher has set the example. He came to Congress as
a skeptic of Ex-Im, asked questions, voted ``no'' initially,
replaced that skepticism with facts, and came to see the
critical need for the Bank. Today is an opportunity for all of
us to do that.
Afraid that the Ex-Im is undercutting private banks? Ask
Mr. Murphy whether the banks see it that way.
Cynical that Ex-Im only helps big companies like Boeing? Go
to Ex-Im and see who gets support in your district.
Skeptical that there is really a need for government to be
making these loans? Ask Mr. Boyle about the alternatives for
small business. Frankly, there are none.
Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
We will now turn to our witnesses.
For our first panel, we welcome the testimony of the
Honorable Fred Hochberg, the president and chairman of the
Export-Import Bank; and Mr. Michael McCarthy, the deputy
inspector general of the Export-Import Bank. Each of you will
be recognized for 5 minutes to give an oral summary of your
testimony.
And without objection, each of your written statements will
be made a part of the record.
Chairman Hochberg, you are now recognized for your
testimony.
STATEMENT OF THE HONORABLE FRED P. HOCHBERG, PRESIDENT AND
CHAIRMAN, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Hochberg. Thank you.
Chairman Hensarling, Ranking Member Waters, and
distinguished members of the committee, thank you for inviting
me today to testify before you about how Ex-Im equips small
businesses, U.S. businesses, to compete in the global economy
and add jobs here at home. Ex-Im complements and works with the
private sector. We provide private sector backstop financing so
American entrepreneurs can seize global opportunities, create
jobs, and not get left behind by their foreign rivals. And we
have been successful, supporting 164,000 jobs last year alone.
Ex-Im does not pick winners and losers, rather it serves any
eligible American business seeking competitive financing to
export. We are, by definition, demand-driven.
Of course, our customers pay fees and interest for this
service, and as a result, Ex-Im is completely self-sustaining.
Last year alone, Ex-Im generated $675 million for the taxpayers
for deficit reduction. If Ex-Im Bank is not reauthorized, we
will no longer generate $.5 billion for the taxpayer. On top of
this, we have truly focused on risk management, demonstrated by
our low default rate of 0.167 percent as of March 2015. And as
you know, in 2012 Ex-Im was reauthorized by overwhelming
bipartisan support. And today, 250 House Members have
cosponsored legislation aimed at giving Ex-Im a long-term
reauthorization.
I take seriously my duty to implement the will of Congress.
That is why I have provided each of you with all of the
documentation outlining Ex-Im's implementation of every single
requirement from the 2012 reauthorization, and why I will work
diligently to implement any future requirements that Congress
chooses to impose. In addition, Ex-Im continuously acts to
proactively implement risk-management improvements to further
ensure that we remain faithful stewards of taxpayer dollars. To
name just two, we increased our staffing in asset monitoring by
33 percent, and we went beyond all Federal requirements and
required mandatory ethics training of every single employee.
Of course, any organization can experience a bad apple, and
let me underscore, Ex-Im has zero tolerance for fraud, waste,
and abuse, and works closely with the IG to take thorough and
immediate action when any hint of misconduct is detected.
In the last 6 years, there has been exactly one indictment
involving an Ex-Im employee, a situation that was uncovered
thanks to a tip from a fellow employee. This infraction goes
back to 2006 during the Bush Administration, before Ex-Im had
an inspector general.
Unfortunately, there are always those outside of the agency
who will try and defraud the government. Ex-Im has 31 such
cases. The Social Security Administration had over 16,000 in
the last 2 years, and DOD had more than 6,000 last year alone.
The point is, there will always be outsiders who attempt to
defraud the government. But, frankly, thanks to our focus on
fraud detection and risk management, Ex-Im has a track record
of successfully protecting the public trust.
Meanwhile, global competition has ramped up, and since our
last reauthorization, it will continue to. American businesses
and workers aren't simply competing against their Chinese,
Russian, and French counterparts. Often, they are competing
against countries. However, Congress has made it clear; they
have asked the Treasury Secretary to ratchet down export
credits. And while it is the Secretary's responsibility, as I
said, I take the will of Congress seriously.
As a result, I recently met with many of my foreign
counterparts to discuss exactly that topic. And here is what I
heard: To the contrary, our counterparts intend to accelerate
financial backing for exports. Their role is clear: When
commercial banks constrict financing, export credit agencies
fill the gap so their domestic exporters don't lose sales or
jobs.
Ex-Im Bank is like a firetruck in that sense. You don't
sell off the firetruck just because there is a fire currently
burning.
In closing, as this committee is aware, businesses need
certainty to make long-term plans to grow, hire, and innovate.
There are now about 80 other export credit agencies around the
world fighting for jobs. And unlike Ex-Im Bank, one of China's
export credit agencies recently noted that they doubled their
activity in 2014 and expect to double it again in the next year
or two. We look forward to working with you to continue
empowering your constituents to export more and to hire more
American workers.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Hochberg can be found on
page 144 of the appendix.]
Chairman Hensarling. Thank you, Chairman Hochberg.
Mr. McCarthy, you are now recognized for your testimony.
STATEMENT OF MICHAEL T. MCCARTHY, DEPUTY INSPECTOR GENERAL,
EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. McCarthy. Thank you, Chairman Hensarling, Ranking
Member Waters, and members of the committee. I am pleased to be
here to present the work of the Export-Import Bank Office of
Inspector General (OIG). The committee has my written testimony
which highlights the work that our professional auditors,
inspectors, and special agents have done to promote efficiency
and detect and deter fraud at Ex-Im Bank. The committee has
asked me to discuss investigations into fraud at the Bank,
recent court activity, and recommendations to improve risk
management and prevent misconduct. Let me briefly cover a few
highlights.
Since 2009, OIG investigations into fraud schemes that
target Ex-Im Bank have yielded 84 criminal indictments and
informations, 50 convictions, and $255 million in judgments and
repayments. The most common fraud schemes we have encountered
involve outside parties obtaining loans or guarantees through
false representations and submission of false documents. We
work closely with the Bank's Asset Management Division, which
makes referrals of transactions or claims with indicators of
fraud. We currently have 30 open investigations, and nearly all
of them address outside persons committing fraud against the
Bank and have no indications of Ex-Im employee involvement.
However, one of those fraud cases involves former Ex-Im loan
officer Johnny Gutierrez, who recently pleaded guilt to one
count of bribery of a public official. Mr. Gutierrez admitted
accepting more than $78,000 in bribes in return for
recommending the approval of unqualified loan applications,
among other misconduct. This case remains an active fraud
investigation against other parties.
We have closed other employee integrity cases in the past
year that led to findings of misconduct and personnel being
separated from employment at the Bank but not criminal charges.
As I have previously testified, our open investigations are at
various stages, and working with the Department of Justice,
some cases may result in prosecutions for bank fraud and money
laundering. At this time, I would not expect charges against
any other Ex-Im Bank employees from our current caseload.
As to our recommendations, we have 48 open and unresolved
recommendations: 24 from the current fiscal year; and 24 from
prior fiscal years. My written testimony summarizes our most
recent audit and inspection work. Our independent audit of the
Bank's financial statements found that they were fairly
presented in all material respects and had no material
weaknesses. Our audits also found substantial compliance with
the cybersecurity requirements of the Federal Information
Security Management Act (FISMA) and found that internal
controls for the short-term multibuyer insurance program
provided reasonable assurance of compliance. Our inspection of
transactions in Ghana found that one project was appropriately
structured and was performing, while we identified engineers
issues with another transaction and made recommendations for
improvement going forward.
Finally, a recent annual audit found noncompliance with the
Improper Payments Act, and we recommended changes to the risk-
assessment process, which the Bank is implementing.
Every year, we review our work and identify the top
management challenges facing the Bank. Last fall, the OIG
reported that the top challenge was managing risk,
specifically, managing the Bank's core business activities to
reduce the risk of loss to the Treasury and, by extension, the
taxpayer. To manage that risk, we have recommended the Bank
design an agency-wide risk-management framework so that in
addition to rating the risk of any individual transaction, the
Bank is also evaluating and mitigating the risks generated by
the overall composition of the portfolio and any outside
exposures the Bank has in certain regions, industry sectors, or
single companies.
To accomplish this, we have recommended a chief risk
officer, which the Bank has established. The Bank has also
conducted stress testing and monitoring of exposure levels. We
hope the Bank will build on these steps by developing and
implementing key risk policies covering both credit and
noncredit risks. We have also recommended improvements to due
diligence, and know-your-customer policies, and the Bank has
deployed improvements in those areas.
Finally, we previously found that internal policies
providing clear guidance to staff had not been prevalent at Ex-
Im Bank. So we recommended that the Bank rely more on clear
policies, controls, and documentation, and less on
institutional knowledge.
Many of our recommendations have been for specific internal
control policies which the Bank is working on implementing.
Mr. Chairman, this concludes my statement. I am happy to
answer questions.
[The prepared statement of Mr. McCarthy can be found on
page 180 of the appendix.]
Chairman Hensarling. Thank you.
The Chair now recognizes himself for 5 minutes of
questions.
Chairman Hochberg, last month the Richmond Federal Reserve
updated a report called the ``Bailout Barometer.'' Is there any
chance that this might have come across your desk?
Mr. Hochberg. No, it did not.
Chairman Hensarling. In this report, the Richmond Fed
states that roughly 60 percent of all financial transactions in
our economy are now either explicitly or implicitly backed by
the Federal Government, up about a third since the financial
crisis. In your testimony, you have a chart showing that
taxpayer exposure has roughly doubled from $58 billion to $112
billion over this same time period, is that correct?
Mr. Hochberg. Yes, that sounds right.
Chairman Hensarling. In the ``Bailout Barometer'' report,
the Richmond Fed says, ``This protection could make financial
crises and bailouts more likely.''
I would commend it to your reading at some time.
Chairman Hochberg, in our last hearing we spoke about Ex-Im
financing different foreign state-owned enterprises. In fact,
do you have a statistic of the financial assistance, how much
of it goes to state-owned enterprises?
Mr. Hochberg. I couldn't give you a precise number. I think
the difference, Mr. Chairman, is that we have a capitalist
society. We have far more private sector enterprises--
Chairman Hensarling. But you admit that it includes a
number of state-owned enterprises like Pemex in Mexico, which I
believe is one of the largest recipients; Air India in India;
and ICBC Leasing in China. We had a rather robust discussion
about Ex-Im's support of China. I think there is currently, at
the end of the last fiscal year, $4.5 billion in exposure to
China. And I think the vast majority of that, according to your
records, is to state-owned enterprises. Several Members,
including myself, essentially asked you the question, ``How are
we supposed to compete with China by subsidizing China?'' And
your reply was, ``It is a complicated world out there.''
Let me try to ask simple questions, then. In your opinion,
do state-owned Ex-Im-supported foreign airlines like Air China
compete with American carriers and their employees?
Mr. Hochberg. We deploy an economic impact review any time
we do a loan to any--
Chairman Hensarling. I understand that. I am just asking
your opinion. Do you believe they compete or not?
Mr. Hochberg. Everybody is competing for airline
passengers, yes.
Chairman Hensarling. So you believe that China Air is
competing with American carriers. How about the Ex-Im-supported
foreign refineries like STAR Refinery in Turkey. Do they
compete with American refineries?
Mr. Hochberg. Yes. It is a global world, sir.
Chairman Hensarling. Okay. In your written testimony, you
state more than once, and you also say in your oral testimony
that Ex-Im doesn't pick winners and losers. I don't know what
is on your schedule for this afternoon. I would commend that
you stick around for the second panel. Maybe you would change
your mind because when you finance a state-owned airline, you
are making Boeing a winner, and Delta a loser. You can hear
Delta's testimony later on today. When you finance a Turkish
refinery, you make Fluor a winner, and you make Valero a loser.
When you finance an Australian mining project, you make
Caterpillar a winner, and you make Cliffs Natural Resources a
loser. You can hear their testimony later on today. And
according to the Congressional Budget Office, if you were
forced to use fair value accounting like the rest of America,
you would be making the taxpayer a loser as well. So if you
have the time, I would commend the second panel to your
attention.
You also brought up in your testimony, and you have it here
as well, a report as an appendix to your testimony entitled,
``Every Reform Completed,'' but when you look at the reforms,
so-called reforms of the 2012 reauthorization, what I see in
your report are the words ``plan,'' ``study,'' ``monitor,''
``report,'' ``notice,'' ``comment,'' ``categorize,''
``examine,'' and ``review.'' I know this was something that was
authorized by Congress, but Chairman Hochberg, I think there
are only two real reforms for most people in the 2012
reauthorization. One is Section 11, which mandated that
Treasury initiate negotiations to substantially reduce, with
the ultimate goal of eliminating, subsidized export financing.
You stated that this is completed annually by the U.S.
Department of the Treasury. Not only is it not completed, there
is scant evidence it has ever been started.
Section 12 requires the Bank to develop and make publicly
available methodological guidelines to be used for conducting
economic analysis. I think, according to The Wall Street
Journal, in conducting this analysis, you allegedly allowed
your largest customer, Boeing, the ultimate beneficiary, to
write the rules--as The Wall Street Journal said itself, ``an
extraordinary level of cooperation.'' Also, according to The
Wall Street Journal, ``The collaboration appears to have
worked. In the nearly 2 years since the rule went into effect,
no Boeing sales have been nixed as a result.
My point is, Chairman Hochberg, you might report, you might
plan, you might study, but I am not sure you actually manage to
enforce the only reforms that counted in the reauthorization. I
see I am over my time.
I now yield to the ranking member for 5 minutes.
Ms. Waters. Mr. Hochberg, I thank you for coming over one
more time to explain to my chairman and the members on the
opposite side of the aisle what harm they are doing to the
American economy and how they are disrespectful of and not
recognizing the trade deficit that we have and how the work
that the Bank is doing with 2 percent of our exports and
dealing with our competitiveness issue.
I thank you for all of that. But what I would like you to
do is to take China and two or three other countries that give
such support to the export industry and talk about how they
hope we will not reauthorize this Bank and what this means for
their economy and what it means for our economy.
Mr. Hochberg. Thank you, Ranking Member Waters. China alone
is not a part of any OECD, any part of global framework. So one
of the difficulties we have is that they don't follow the
rules. They are not transparent. They don't follow any
guidelines. And they have said point blank that they will do
whatever it takes to further their exports and further their
trade increase.
China has up to four different export credit agencies that
actually finance their exports, all government-sponsored, all
government-backed, with not a lot of transparency and not a lot
of accountability.
One of them alone, Sinosure, which does insurance long term
and short term, did about $670 billion in the last 2 years. It
took Ex-Im Bank 80 years to get to $590 billion, and they have
done that in 2 years. They have also indicated they doubled,
and they plan to double again in the next 1 to 2 years. And
Korea is also exceedingly aggressive, as are Japan and a number
of others, particularly in Asia.
Ms. Waters. Also, I would like for you to give us some idea
of what has been happening in this space where we have been
debating whether or not we are going to do reauthorization, and
how some have lost faith in our ability to help with our own
exports, and how we are losing out already to other countries.
Mr. Hochberg. Mike Boyle, who is going to be on the second
panel, can speak directly to that. Additionally, a number of
the banks that we work with to get working capital loans,
overwhelmingly for small businesses, have simply pulled back
while they are waiting to see what happens. They don't want to
go out there and issue a working capital guarantee and then
find the rug pulled out from under them in 14 legislative days
from now. So we are finding a reduction in working capital
applications.
And on insurance, which is the bulk of what our small
businesses use, there has also been a reluctance and a wait-
and-see to make sure that we are really going to be there to
execute those policies.
Ms. Waters. On this business about the private sector, who
is stopping the private sector from investing or supporting
exports? Who is stopping them? What barriers do they have for
not exercising their right to finance and support any business
that they want to support? What is this business about we are
somehow interfering with the private sector's ability to
finance and support exports?
Mr. Hochberg. Oh, you are absolutely right. The private
sector does a spectacular job, a better job in our country than
any other country. And it is the private sector that brings us
in when they hit a barrier or a roadblock that they can't
surmount. So if the private sector tries to do it on their own,
and they can't, is when they call us in for a guarantee to make
sure a loan gets done.
Ms. Waters. When you referred to ``call us in'' or when you
have businesses who come to you and say, ``I can't get private
sector funding, can you take a look at my business and see what
you can do to help me,'' et cetera, et cetera, who is it you
are helping, aside from those that my chairman would have you
believe all of the support is going to one company? Are you
supporting small businesses, and why do they come to you?
Mr. Hochberg. Ranking Member Waters, I was a small-business
owner of a family business for 20 years. Small businesses
always have difficulty getting access to credit. Ninety percent
of our clients are actually small businesses, direct small
businesses, and 39 percent of the exports we finance are
shipped directly from a small company. Then, there are many,
many small businesses in the supply chain of some of the larger
companies we work with that are carried along in the process.
But they come to us, their banks come to us saying, this is a
risk we cannot take on. Maybe it is a country. Maybe it is the
size of the transaction. Maybe it is the product category.
Ms. Waters. And so, does Mr. Hensarling have any of these
small businesses in Texas?
Mr. Hochberg. We have a lot in Texas. We actually have a
couple right in his district as well.
Ms. Waters. Okay, so it is not that some in his district
are not benefiting from it. All over the United States, we have
these small businesses that are benefiting from Ex-Im, not just
in California or some of the other States of these
Representatives. Is that right?
Mr. Hochberg. That is correct.
Ms. Waters. Thank you. I yield back the balance of my time.
Chairman Hensarling. The time of the gentlelady has
expired. The Chair now recognizes the gentleman from Michigan,
Mr. Huizenga, chairman of our Monetary Policy and Trade
Subcommittee, for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman, and I am astounded
that once again, the shifting sands of political expediency is
rearing its ugly head here today. I wasn't necessarily going to
go in this direction, but I feel it needs to be addressed.
There was a call towards our trade deficits. I am curious as to
then why many of my colleagues who are in support of the
Export-Import Bank oppose tax reform, oppose regulatory reform,
and even oppose something called the Trans-Pacific Partnership
(TPP); and TTIP, an agreement with the Europeans; and the
vehicle to get there, TPA.
I am curious what kind of reaction they have when we are
able to read quotes such as this: ``I am not a Democrat who
believes that we can or should defend every government program
just because it is there. The Export-Import Bank has become
little more than a fund for corporate welfare, but if we hope
to meet the challenges of our time, we must make difficult
choices,'' said President, then-candidate, Barack Obama.
You probably would be hard-pressed to guess who actually
said this quote as well: ``Most Americans do not understand
that we put $1 billion into this Export-Import Bank; many would
see this as simply corporate welfare.''
Now, this was in 2002, so closely on the heels of when they
actually did have to put money into the Export-Import Bank. By
the way, it is interesting to note that the corruption and the
fraud cases that are talked about here in the last 6 years
conveniently leave out the fact that we had one of our Democrat
colleagues, William Jefferson, go down and spend, I believe it
is 13 to 15 years, in Federal prison for bribery surrounding
his actions in this Bank.
Another quote: ``Unfortunately, the Bank has a history of
providing assistance to companies that have been exporting
American jobs and hiring cheap foreign labor.''
And then, this is just a good kicker: ``I urge my
colleagues to oppose Senate Bill 1372, the Export-Import Bank
Reauthorization Act of 2002.'' That was none other than our
ranking member, Ms. Waters from California.
So it seems to me the only thing that has really shifted
and changed is that there is a different person in the White
House at this point. I would argue that seeing what happened in
2009, and now most recently with the Gutierrez case, things
have gotten worse, not better, in the Bank itself.
It does lead me to then go to something that I want to
touch on, which is, I think, more evidence that we are beyond
broken here with the Export-Import Bank. In 2012, there were
some requirements for some of these checks and balances to be
put in, something that I am sure is very familiar. The due
diligence standards and the know-your-customer requirements
were finalized on May 20, 2014, after the NewSat deal was
approved. And for those of you who haven't been following this,
NewSat was--I believe it was an Australian company. Is that
correct, Mr. Hochberg?
Mr. Hochberg. Yes, it is.
Mr. Huizenga. An Australian company that at this point
appears to be handing you a $100 million loss. And there was a
report given to Ex-Im by an outside consultant, Brendan Rudd,
who found that NewSat's management showed ``a complete lack of
control on reigning in costs. They included a $1.5 million
raise for the CEO; $400,000 in undisclosed payments to a yacht
business owned by the CEO's son; $10,000 dinners; and various
irregularities in trading and tax reporting.''
And Mr. Rudd in his report concluded, ``I have never seen
nor heard of more appalling corporate behavior than at
NewSat.''
So, Mr. Hochberg, if the Bank had successfully implemented
the 2012 bill and the ``reforms'' that have been put in place,
then we wouldn't even be confronting NewSat, is that correct?
Mr. Hochberg. I think we did a thorough due diligence and
underwriting of that transaction. It was voted on by the board
unanimously in 2012, and there was a revote in 2013 where there
was a change in the transaction.
Mr. Huizenga. So you are saying that this was a good loan?
Mr. Hochberg. Congressman, we are in the business of making
loans and supporting exports, about 250 direct exports from
Lockheed Martin and 650 indirect. Every loan we make is not
going to perform perfectly and flawlessly, and this is one that
is, frankly, right now troubled. We are working through a
solution. We are nowhere near a solution at this point.
Mr. Huizenga. It seems to me that either you knew about it
and had some suspicions and went ahead with it, which would
obviously be a bad decision, or you didn't have the systems in
place to actually root it out. Either one of those is a bad
scenario from my perspective, and again, I come to the
conclusion that it is beyond broken. And we simply are not
going to be able to save the Export-Import Bank from itself.
With that, Mr. Chairman, my time has run out.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
Maloney, ranking member of our Capital Markets Subcommittee.
Mrs. Maloney. Thank you, Mr. Chairman.
And welcome, Mr. Hochberg. I feel that if there is a
challenge such as my Republican colleague put forward, then
correct it.
But with 15 more working days for the House before the Ex-
Im charter expires, I think it is important to look at an index
of numbers which shows the good that it has done for the
American economy: 60, that is the approximate number of export
credit agencies operated by our competitors in an increasingly
competitive global market, and they are just waiting for a
chance to grab new businesses away from American exporters if
our Bank folds; 3,340, that is the number of small businesses
directly supported by the services of the Bank; 164,000, that
is the number of American jobs that will be lost without
congressional action; $1.3 million, that is the number of
private sector jobs the Bank has supported since 2009, at no
cost to the American taxpayer; and finally, zero, that is the
good that will accrue if we allow our Export-Import Bank to
die. And if you look at recent numbers in the last year alone,
they supported $27.4 billion of exports, U.S. exports, at no
cost to the taxpayer, absolutely no cost to the taxpayer.
I ask unanimous consent to place in the record the export
data analysis, and in this, China provided 17 times more
support for their exports than the United States with
approximately half the GDP.
Chairman Hensarling. Without objection, it is so ordered.
Mrs. Maloney. And Canada alone provided more than 3 times
more support for their exports than the United States, and the
United States had a GDP over 9 times larger than Canada. There
are 60 different countries that are providing support for their
exports. So I strongly believe that we should not unilaterally
disarm if there is a challenge. If there is a problem, correct
it. That is the American way. And go forward in supporting good
jobs and our exports. What I find so troubling is that in this
committee, we have hearing after hearing on access to capital,
how difficult it is for startups and small businesses to find
access to capital. Well, this is our access to capital. This is
a way to help small businesses and large businesses export and
create more American jobs.
So I would like to ask you, Mr. Hochberg, have you seen the
private sector trade lenders stepping up during this period
where you said there is uncertainty, and people are looking for
the financing--they don't know if they can get it--but are
these private sector lenders coming in and providing the
support? Or have these businesses simply been moving their
production abroad to take advantage of other countries' export
agencies?
Mr. Hochberg. Thank you, Congresswoman Maloney. What we
have seen in the last 2 years, frankly, is the private sector,
generally speaking, has stepped up a lot more. There is a lot
more liquidity. There is a lot more bank lending, and there has
been less of a requirement for our work, which is a good thing.
It shows that the private sector is working better. However, in
the small business space, they always have a difficulty. We
have not really seen the private sector stepping up that
strongly in small business. And to your last point, I think
that there are--you will see a number of companies, but most of
the larger companies that actually have the ability to move
production may well move production offshore.
You also may see that companies that were looking to locate
here in the United States because we have a great workforce,
rule of law, cheap energy, or inexpensive energy, one of the
things they also come here for is so they can export from here,
and we are an important part of that factor.
Mrs. Maloney. Great. Have you seen with our competitors,
are they increasing their support for their export credit
agencies or decreasing their support?
Mr. Hochberg. By and large, they are overwhelmingly
increasing, and more and more, they are also getting into
short-term lending, which actually benefits their small
businesses. So I think we are going to see more competitive
pressure on small business exporters as a result of more and
more entities getting into the game.
Mrs. Maloney. Thank you.
My time has expired.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from New Jersey, Mr.
Garrett, chairman of our Capital Markets Subcommittee.
Mr. Garrett. I thank the chairman for holding this very
important hearing and when I was listening, Mr. Chairman, to
your questions, I was reminded of the essay, ``What Is Seen and
What Is Not Seen'' by Frederic Bastiat, who wrote that essay to
analyze our economies. Some things you can see, and some things
you can't.
With Ex-Im, as the chairman was going down the list, you
often report on what you can see. I understand you use a ratio
or an analysis to come up with your figure of how many jobs are
either saved or created by looking at the billions of dollars
of sales that multinational corporations make and then
multiplying that by some job ratio to come up with, this is
what all of the good is that you are doing. Is that not an
appropriate analysis of how you come up with your job creation,
in short?
Mr. Hochberg. The jobs that we support are based on the
actual authorizations we have made to support U.S. exports,
large companies and small.
Mr. Garrett. Right, and so you do that by a job ratio by
the sales?
Mr. Hochberg. Right. The Bureau of Labor Statistics. Not
ours, we use the Department of Labor.
Mr. Garrett. Do you do a similar study of what the chairman
was running down as far as the jobs that are lost or not
created?
Mr. Hochberg. We do it in a form which we update. We do an
economic impact study. We do it on every transaction to make
sure that any benefits to our economy outweigh any possible
harm.
Mr. Garrett. Right, and so what it comes down to is that
you really don't go through a list of all of the winners and
losers that the chairman was listing. Basically, you sit there
and make that decision unilaterally; we are going to help these
people, and we are going to hurt those people. We are going to
help these sovereign countries. We are going to hurt American
workers. We are going to help foreign institutions. We are
going to hurt local businesses. You basically make that
decision.
And so, listening to the chairman's question as you ran
down the list of U.S. companies, small and large, that are hurt
in this manner, I think, how do you actually do that? How do
you think about--or do you think about that man, that worker
here in the United States who has just lost his job because of
your decision; the woman who now no longer can make her
mortgage payment because her U.S. job has been outsourced to
another country because of your actions; the child who no
longer is able to go to college because they have lost their
American job because of your action; about the harm that you
are doing to American families on a daily basis because you are
sitting there picking winners and losers? It is a trauma to
people when they lose their jobs. It is a trauma to people when
they are looking at having worked a lifetime with a small
company and seeing that job is now going to be exported
overseas because of your decisions at the Ex-Im Bank. And I
wonder just how does anybody sit there on a daily basis and
make those decisions, support multi-international companies,
support foreign countries, and do that knowing that you are
hurting the litany of companies that the chairman just listed
here?
And it is not the companies; it is the people that you are
hurting. How do you make those decisions on a daily basis
knowing that you are hurting families, hurting people, hurting
children with those decisions? I just find that unimaginable.
And you do it at the same time that you are saying you have an
entity that is self-sustaining.
Really? You are self-sustaining? If that is true, then I
guess you don't need to be here at all. We can separate the
Export-Import Bank as a self-sustaining--your words, not mine--
entity without any U.S. Government backstop, without any U.S.
Government support and allow them, allow it, allow you to be in
that position without the Government backstop. So was your word
a flippant word when you were saying ``self-sustaining,'' or is
there more to it than that?
Mr. Hochberg. Ex-Im is self-sustaining because of the fact
that we collect fees for our work that fully pay for all of our
costs, including loan loss reserves, and the excess--
Mr. Garrett. Of course, that is not actually true over the
history of Ex-Im Bank because Ex-Im Bank has been bailed out in
the past. So it is not truly self-sustaining in that sense, and
also in the sense that when you say, you take on the loans that
banks won't. You take on the bank loans when banks won't step
up to the plate and do it. And I have to think, why is it that
the banks aren't making those loans? Is it because they are
looking at it and saying, ``As a president and CEO or CFO of a
bank, I have a fiduciary duty to my stockholders, my investors,
and the mom-and-pops who invest in my banks not to do something
that is too risky, so I am not going to make this loan to a
risky venture?''
But you are all too willing to do so, aren't you? You are
willing to do so not with your personal money, not with any of
the people who are sitting in front of us right now with your
money. You are willing to do it with my money and everybody
else's money, that person that maybe that you just put out of a
job, his money.
So when you are saying that banks aren't willing to do it,
you are willing to do it and put the American taxpayer, the
worker, that very same worker that you put out of business, you
are using his dollars and putting them at risk.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Ms.
Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Hochberg, small businesses are central to U.S.
international trade, comprising the overwhelming majority of
all exporting firms. Small or medium-sized companies with fewer
than 500 employees comprise 97 percent of all export firms and
were responsible for 33 percent of goods exported by value. So
I would like to discuss with you the bank lending levels for
small businesses.
Since 2002, Ex-Im's reauthorization, the Bank must provide
at least 20 percent of total assistance directly to small
businesses. Since 2007, the percentage has steadily declined
and fell below the 20-percent mandates each year between 2010
and 2013. It recently grew to 25 percent in 2014 as a result of
a sharp decrease in the Bank's large business lending activity.
So it is not, I believe, that because the Bank did more to
increase lending to small businesses, but because of the sharp
decrease in lending to large businesses.
My question to you is, given the fact that--and we are all
using the argument here about the important role that the Bank
plays in lending for small businesses--we assisted 3,200 out of
25,000 small businesses in this country. I would like to see,
first, that there is a commitment to increase the 25 percent,
and what type of outreach will you do to make sure that we go
beyond the 3,000 when we know that 97 percent of all exporters
are small businesses, but yet they get less than 25 percent on
small business lending?
Mr. Hochberg. Congresswoman, I thank you.
Ms. Velazquez. You know that I have been very critical of
the Bank regarding lending to small businesses for ages now.
Mr. Hochberg. We are, right now, above 20 percent. Our
lending to small businesses directly is north of $5 billion. It
was in the 3s when I joined the Bank. We have also, although we
don't count it, a lot of indirect small business exporters. We
now have an 800 number that is answered 8 to 8, Monday to
Friday.
Ms. Velazquez. But we are not here to discuss the indirect
lending.
Mr. Hochberg. You asked about outreach.
Ms. Velazquez. We are talking about direct lending to small
businesses.
Mr. Hochberg. You asked about outreach. I said, we have
telephone operators, 8 to 8, Monday to Friday. If you are on
our website and you can't figure something out, we have online
assistance there. We now have representation in about 12
different cities. We work very closely with the Small Business
Administration (SBA) and the Commerce Department. And on top of
that, many members of this committee have invited me to their
districts and we have done half-day workshops. I just did one
with Congressman Reed in upstate western New York last week.
Ms. Velazquez. Okay, given the fact that the Bank plays
such an important role in providing financing, that the private
market, private financial institutions do not make, would you
support an amendment to increase the mandate to 25 percent?
Mr. Hochberg. I think the 20 percent is a good level to
have. I don't want to, as was discussed at this meeting, pick
winners and losers. I don't want to not do a certain
transaction to simply meet a target, making sure that we hit a
certain target that has been established by Congress.
Ms. Velazquez. Since the reauthorization in 2002, the
mandate has been 20 percent, and you never reached that
mandate.
Mr. Hochberg. We did that the last 2 years. We exceeded it
last year. We are exceeding it this year.
Ms. Velazquez. Until last year. I just want to see that
there is a strong commitment, given the fact that 97 percent of
all exporters are small businesses, that should be reflected
into the kind of financing that the Bank is providing to small
businesses.
Mr. Hochberg. Mr. Boyle will be on the second panel as a
small-business owner. You might be able to ask him what his
experience has been.
Ms. Velazquez. I understand, sir. I just want to make sure
that the lending to small businesses is reflected in terms of
the 25,000 small businesses that we have, only 3,200 were
served.
And I yield back, Mr. Chairman.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from Wisconsin, Mr.
Duffy, chairman of our Oversight and Investigations
Subcommittee.
Mr. Duffy. Thank you, Mr. Chairman, and thank you for
holding today's hearing. For my good friend, the ranking
member, I have to give a couple of her quotes from earlier
today. I think she said the Ex-Im Bank was an engine of
economic growth. And she also said that letting the Ex-Im Bank
expire would be harmful to the American economy.
And, as Mr. Huizenga pointed out, that hasn't always been
the case with my friends across the aisle or the Democrat Party
because when Barack Obama was running for office, he called the
Ex-Im Bank corporate welfare. And my good friend, the ranking
member, she too called the Ex-Im Bank corporate welfare. She
also told us that it would ship American jobs overseas because
of cheap foreign labor.
In the dissenting opinion from the ranking members and one
Bernie Sanders from the House report from 2002, they said there
are many examples of the Export-Import Bank subsidizing
corporations that lay off American workers and move their
production facilities overseas. But today, they are telling us
that it is the engine of economic growth. So the question is,
what has changed? What is different today than what they were
saying in 2012?
Mr. Hochberg, have you ever stayed at the White House?
Mr. Hochberg. In the 1990s.
Mr. Duffy. With Mr. Clinton?
Mr. Hochberg. Yes, sir.
Mr. Duffy. In the Lincoln bedroom?
Mr. Hochberg. No, it was actually a different bedroom.
Mr. Duffy. And you were an Obama bundler, correct? You were
an Obama bundler?
Mr. Hochberg. I raised money for Mr. Obama.
Mr. Duffy. Okay. Is it fair to say we could probably deduce
from those answers what your political affiliation is?
Boeing, the largest beneficiary of Ex-Im financing, their
top lobbyist since 2008 is a former aide to Bill Clinton. In
2009, Secretary Clinton--President Clinton's wife, if you don't
know--made a shameless pitch in Russia that Russian airlines
should buy Boeing airplanes, and while I would like all
airlines to buy great American jets, she was making a pitch as
Secretary of State. And then, in 2010, a short while later,
actually, Boeing got a contract for $3.7 billion. And after
that, it is amazing, Boeing made a $900 million contribution to
the Clinton Foundation--$900,000, I'm sorry. Thank you, Bill.
Boeing Director William Daley was named President Obama's
chief of staff in 2011. In June of 2011, Boeing Director John
Bryson was named Obama's Commerce Secretary. Boeing's top
lobbyist in 2014 hosted a fundraiser for Ready for Hillary, the
PAC that is supporting her campaign for President.
And so I think what has changed is, when you have Democrats
who think they can get support from corporate welfare, they
will support it. If, through corporate welfare, they can get
campaign contributions, they will support it. And then, it is
about the American workers, the American economy.
But if they are not getting contributions and they don't
have their bundlers in the CEO/president position, all of a
sudden it is bad for the American worker, and it is bad for the
American economy.
Mr. Hochberg, did you say that you, the Ex-Im Bank,
supports any eligible American business that seeks exports? Was
that your quote?
Mr. Hochberg. That can't find financing in the private
sector.
Mr. Duffy. Right. And you don't pick winners and losers?
Mr. Hochberg. That is correct.
Mr. Duffy. I was reading an article from Reuters from a
couple of years ago that says, ``The U.S. Export-Import Bank
Board of Directors voted on Thursday not to proceed with the
financing of U.S. exports to help build a coal-fired powerplant
in Vietnam, following a plea from U.S. environmental groups to
stop the project.'' So isn't it fair to say that you support
American jobs as long as it meets your ideological standards,
but you don't support all American jobs, because you would
admit that the American jobs that would have come from building
a coal-fired powerplant are still American jobs?
Mr. Hochberg. Congressman, in 1992 Congress put into our
charter that we must take into account the environmental impact
as well as the reasonable assurance of repayment. That has been
on our charter for 23 years. The Bank was sued under President
Bush for not following that mandate that is in our charter, and
we lost.
Mr. Duffy. So it is fair to say you support some American
jobs, but not all American jobs, correct?
Mr. Hochberg. We support jobs that fall within the mandates
set forth by Congress in our charter.
Mr. Duffy. So if you are making mining equipment in
Wisconsin, or you work for a company that is trying to build
powerplants overseas, those jobs are the ones that won't fall
into the financing of the Ex-Im Bank. Other clean energy jobs
will, but not, in your view, dirty jobs?
Mr. Hochberg. Actually, we support a lot of mining
equipment from Wisconsin. We support coal exports.
Mr. Duffy. After much pressure from the Wisconsin
delegation, I might add.
Mr. Hochberg. No, we supported fully and freely mining
equipment, coal exports as well.
Mr. Duffy. We will talk about that later.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Hinojosa.
Mr. Hinojosa. Thank you, Chairman Hensarling and Ranking
Member Waters, for holding this hearing today.
And thank you to our panelists for your testimony.
I would like to take a moment to state my unwavering
support for the Export-Import Bank, and I call on our honorable
chairman to let the majority of the House work its will and
allow a vote on the reauthorization of the Bank.
The Export-Import Bank is a vital free market, economic
engine for our manufactures, producers, and exporters, as has
been pointed out before me. This March alone, the Bank financed
over $1 million in exports in my south Texas congressional
district. Additionally, the Bank has supported thousands of
jobs in my district over the past 5 years. These are good jobs
in a very high-need area that would not have been possible
without the Bank.
Chairman Hochberg, many claim the Bank is not needed and
that it only supplements would-be private capital. Part of the
Bank's mandate is that the Bank is not to compete with private
capital. Can you tell us how the Bank ensures that its loans go
to support U.S. exports that would not otherwise be able to
secure other financing?
Mr. Hochberg. Certainly, Congressman. Thank you. On every
application, the applicant must state why they are seeking Ex-
Im financing. And they have to state whether it is because they
can't secure financing in the private sector, or they have to
meet foreign competition. So that is part of the application,
just like their financial statements on everything else. They
certify that, and in most cases, we also can verify it
independently.
Mr. Hinojosa. Considering that the Bank is a lender of last
resort that began when private financing alone is not
available, do you believe the Bank distorts the U.S. market
negatively?
Mr. Hochberg. I believe we support--we supplement the
private sector because the private sector is the one that
brings us in. If you go to a bank and you are looking for
export finance, if the bank can't make the loan happen, they
will come. They will say, well, with an Ex-Im guarantee, we
can. I was in Detroit, and a small engineering business wanted
to export to the Mideast, and their bank was at the same
roundtable. The banker said that the Bank of America, without
an Ex-Im guarantee, told their client that they would not take
on that risk. So, in that case, it was the bank that brought us
in and said if we can get some guarantee, we can make that. And
that small engineering firm is now providing services to the
airport authority in Doha.
Mr. Hinojosa. Thank you for that explanation.
Chairman Hochberg, as you well know, the Bank supports
about 2 percent of U.S. exports. Last year, 2014, that amounted
to $27.5 billion worth, and 164,000 jobs. I find it funny that
the Bank's detractors love to point to that 2-percent figure as
evidence that the Bank's role is minuscule and unnecessary but
then, without a hint of irony, turn around and argue that the
Bank has huge negative market-distorting effects. What do you
think?
Mr. Hochberg. I very much value the 164,000 jobs. Those are
family-sustaining jobs. Those are jobs in every State of this
country. And those are jobs--exporter after exporter has said
that without our support, those jobs just go away. Don Nelson
has a company out in Bakersfield, California, and he said, ``We
would probably have to lay off 50 or 60 people without Ex-Im
Bank support.''
Dave Ickert in the State of Texas, in Olney, Texas, has
said, ``We would have to lay off as many as 68 employees if the
Ex-Im Bank is not reauthorized.'' So there is a very direct
impact on jobs whether or not we are reauthorized.
Mr. Hinojosa. I thank you.
Mr. Chairman, I yield back.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from South Carolina,
Mr. Mulvaney, for 5 minutes.
Mr. Mulvaney. I thank the chairman.
Mr. Hochberg, I promised you before the hearing that I
wouldn't badger you today. I am actually going to ask you some
questions. I am looking forward to the change of pace.
I do want to come back and talk about the NewSat
bankruptcy, however, very briefly for folks who aren't familiar
with it. I think you all made a direct loan, a rare direct loan
of roughly $100 million or a little bit more than that to aid
an Australian startup that was going to buy a satellite made by
an American company. So you lent the money to the Australian
company so they could buy an American satellite. The Australian
company has since gone bankrupt. And it looks like you might be
on the hook for $100 million.
That is not my specific question. My questions deal with
some of the comments made by the bankruptcy court, that
apparently the bankruptcy court gave you the opportunity to
protect your investments or your loan by finishing the project.
You chose not to do so. And then, more troubling, and let's
start with this, apparently you had no security interest in the
collateral. How is that possible?
Mr. Hochberg. We had security in the company itself, but
the company is in bankruptcy.
Mr. Mulvaney. No, the satellite.
Mr. Hochberg. But the satellite is right now being
manufactured by Lockheed Martin.
Mr. Mulvaney. And who owns the satellite?
Mr. Hochberg. At the current time, Lockheed Martin has
possession.
Mr. Mulvaney. Free and clear of any security interest of
the Export-Import Bank of the United States of America, right?
Mr. Hochberg. Which is typical because they are making the
products. They actually have possession of it.
Mr. Mulvaney. You lent $100 million to Australian startup
and kept no security interest, no collateral at all?
Mr. Hochberg. We would have had collateral at the
completion of the satellite, not while it is being built.
Mr. Mulvaney. And you had the ability to fund to the
completion of the satellite, and you chose not to do so?
Mr. Hochberg. We chose not to complete the satellite until
we knew there was going to be an actual buyer who was going to
take it.
Mr. Mulvaney. And, ultimately, that has not happened.
Mr. Hochberg. Right now, that is in negotiations.
Mr. Mulvaney. I am reading from an article in Space News,
from just 2 days ago: ``The Export-Import Bank, for reasons
that were not clearly explained, the U.S. Justice Department
lawyer representing the Bank referred vaguely to `policy/
business decisions,' refused to put up any funds to preserve
its sunk cost in the project. The bankruptcy court judge in the
May 21st hearing expressed surprise that the Ex-Im Bank with so
much at stake, was unable to present a credible go-forward
scenario by the May 18th deadline.''
It then goes on to say the status of the satellite--you are
out $100 million, and I think it is Lockheed Martin has a
satellite free and clear that they can sell. You lost $100
million. And you have given a several hundred million dollar
windfall to Lockheed Martin at the expense of the taxpayer. How
do you defend that type of lending?
Mr. Hochberg. First of all, sir, this transaction is still
in negotiations. We are still negotiating for an ultimate buyer
of the satellite.
Mr. Mulvaney. Did the bankruptcy court give you a May 18th
deadline?
Mr. Hochberg. We had a May 18th deadline.
Mr. Mulvaney. How did that go?
Mr. Hochberg. And we could not find a secure buyer. We
could not identify a clear buyer by May 18th. We asked for a
few extra days, and Lockheed Martin refused.
Mr. Mulvaney. So it is a correct statement in the article
where it says that $193 million was mainly Ex-Im money lent to
NewSat in addition to equity NewSat had raised on its own. It
is now in the form of a nearly completed spacecraft that
Lockheed Martin owns and is free to sell without having to pay
anything to Ex-Im.
That is an accurate statement, isn't it?
Mr. Hochberg. No. We are fully backed by NewSat. So NewSat
still has control over that satellite.
Mr. Mulvaney. NewSat is bankrupt.
Mr. Hochberg. NewSat may be bankrupt, but we are secured by
NewSat. And frankly Congressman, when we had an opportunity to
simply ``throw good money after bad'' without a clear exit
plan, we chose not to do that.
Mr. Mulvaney. I will come back. I guess, Mr. McCarthy, I
will ask you this: Was one of your recommended reforms at the
Bank that they actually start looking at their lending
practices with an eye towards getting security interest and
collateral? I don't know of any bank that would lend money like
that with no collateral at all.
Mr. McCarthy. In the 2012 reauthorization, one of the
requirements is that the Bank not be a subordinate lender. And
so, it would be first in line. As far as the due diligence
process--
Mr. Mulvaney. Let me cut you off right there. Hold on a
second. That was part of the 2012 reauthorization. Earlier
today, Mr. Hochberg, you said that this loan was reviewed
twice. It was originally reviewed by your Board and approved, I
can't remember when, but it was reviewed and approved,
reapproved by the Board in 2013, after the 2012
reauthorization. Did you--
Mr. Hochberg. We were not subordinate in any of those
cases, sir.
Mr. Mulvaney. Okay. Mr. McCarthy, help me here, so they are
not subordinate, but why don't they have collateral? I guess
the point is, the reason you would not have to be subordinate
is that would put them in a second position where the
collateral, if any, would be impaired, correct?
Mr. McCarthy. That is correct.
Mr. Mulvaney. And essentially, what you have is a position
where your collateral is impaired because you don't have any to
begin with. So I guess, Mr. Hochberg, again, I promised I
wouldn't badger you. I have 14 seconds. I am sure that is what
people think that I am doing. Do you think you followed good
process when you made the NewSat loan?
Mr. Hochberg. At the time, yes.
Mr. Mulvaney. How about now?
Mr. Hochberg. And I believe now we are working towards a
solution. This is not over yet, sir.
Mr. Mulvaney. If you make a new loan today, will you get
collateral in whatever it is you are financing?
Mr. Hochberg. We have the collateral in NewSat. We have the
collateral in the actual entity.
Mr. Mulvaney. Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Massachusetts,
Mr. Capuano.
Mr. Capuano. Thank you, Mr. Chairman. Mr. Chairman, I don't
have any questions for the witnesses because the truth is, I
don't know how I am going to vote on Ex-Im. I am leaning
towards voting for it, mostly because of competitive reasons.
As I have said many times, every other country we compete with
has one; therefore, we should have one. That doesn't mean
everything you have done is wonderful. It doesn't mean I have
agree with every loan. It doesn't mean there shouldn't be
reform. I came over because as I was watching this, I probably
shouldn't have done that. I probably should have had something
else on, but as I am watching this hearing, I have to be
honest. The people who are arguing against this most
vociferously, not all of them, but many of them are losing the
argument because they turned it into a personal attack on a
political basis. This is an important, substantive issue, one
that I am open to discussing, and one that I am certainly open
to amending. And yet, all I hear is, well, 100 years ago
somebody did this, and somebody said that, and somebody voted
this way and somebody changed their mind.
God forbid an elected official ever changes their mind on
an important and complicated issue like the Ex-Im Bank. God
forbid any of you ever change your mind--and by the way, if you
really want to win the issue, you really need to change some
minds, because you lost the Republican Conference in 2012 when
we voted for it: 147 Republicans voted to reauthorize the Ex-
Im; only 93 voted against it. If you want to change our minds,
you really have to do a little bit better than attacking the
President and attacking the people who did change their minds.
You really have to stick to the subject matter.
And I respect people who disagree with me. But I have to
tell you, I completely lose respect, I lose interest, on the
fact, oh, you changed your mind. I really am--I have the whole
list of names of the Republican side who voted for it in 2012,
many of whom are here right this very minute.
Now, you may change your mind. If you do, God bless you.
But if you ever change your mind on anything else and you keep
this nonsense up, I guarantee you, I will be keeping score. And
we will all get down in the gutter. We will all get down in the
street and call each other names and accomplish nothing. This
is an important, difficult issue that reasonable people can
disagree on.
And, honestly, that is, I appreciate some of the things,
even some of the things I don't agree with. Okay. But I came to
ask my colleagues to stop the nonsense. If you really don't
like the Ex-Im Bank because you really think it is corporate
welfare and bad for America, fine. Argue to win the hearts and
minds of the American people and your colleagues, whom you lost
in 2012. You want some people to change their minds. How are
you going to get people to change their minds when you
constantly say anyone who changes their mind is somehow
inherently wrong and evil? Then you are going to lose again
based on your own Republican Conference. Almost all of the
people who voted on this in 2012 are still here.
So that is what I came to say. I was actually thinking
about reading out names, but I don't want to denigrate down to
that nonsense. I will, and I think you all know I can if I want
to. But on this issue, I really would rather hear substantive
facts, and important questions. I think the last series of
questions was pretty good. They raised some serious issues. I
have to be honest, just because there have been some problems
in the past, I am not interested in shutting something down
because if that is the case, we have to shut down the DOD. They
have had people steal money. We should shut down the entire
Defense Department because somebody stole money; the entire
Agriculture Department because someone once took a loan that
they shouldn't have gotten. I am not saying you shouldn't raise
the issue, but that doesn't go to the basis of whether we need
to open or close the Bank. That might open up some discussion
about reforms. And I am more than interested in hearing it. I
have actually told--who was it?--Delta, that is so opposed to
this, I have also told them, ``Look, you raise some good
issues. Let's talk about how we deal with the issues you
raise.''
But I don't get that. All I get is personal attacks,
political attacks, which I am pretty good at, but on this one,
if you really think you are going to win elections, you are
going to change people's minds, you are going to win the issue,
you are going to have to explain to me how the very people you
need to change their minds, you are calling them names.
With that, Mr. Chairman, I apologize for not asking any
questions of the witnesses, but I look forward to going back to
my office, turning the TV back on, and learning something, I
hope. And if not, I will just change the channel like the rest
of America.
With that, I yield back.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Oklahoma, Mr.
Lucas, for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman, I appreciate the
opportunity to question our good friends.
And I don't know that I have a particular series of
questions I wanted to ask. I just would like to observe that in
my time on this committee, now 20-plus years, I have observed
lots of discourse and lots of discussion. We have always been a
very philosophical group. We have argued the joys of Karl Marx
and Adam Smith, and we have ground on each other day in and day
out on a variety of things.
But the issue that we have now had hearings on into almost
ad nauseam is not just a philosophical issue. It is a real
economic issue. It is a real bread-and-butter issue back home
amongst the good folks.
Everyone knows that my perspective is that in a competitive
world economically, you have to be able to go punch for punch,
blow for blow. You have to do what is necessary to give our
fellow citizens a chance to prosper economically, to have good
jobs, to grow our economy. I view the Export-Import Bank as one
of those tools in the battle with 60 other countries around the
world.
I sincerely believe that, whether it is 14 days, or 14
weeks, or 14 months, this institution will be reauthorized. It
may take a number--if it is allowed to officially expire--of
occasions where U.S. companies lose business, substantial
business, around the world to help us focus. I prefer not to
have that happen, but that is what it may take.
I would ask all of my colleagues, the course we are on here
leads us in the direction of either allegedly ending the Bank
completely or, I fear, reauthorizing it in the exact form it
was or is this moment. That is missing out on an opportunity to
build on the reforms of the previous reauthorization. That is
missing out on an opportunity to address legitimate problems
that have been brought up. It is missing out on an opportunity,
I think, ultimately, to give the participants in our economy
more effective tools to compete around the world.
Right now, this moment, the Agriculture Committee, another
committee I serve on, is having a hearing about foreign
subsidies and how it affects food sales around the world and
production and all of those kinds of things. You might be
surprised to know that it is a pretty tough place out there
competing economically. It is really kind of vicious. Do
whatever you have to do, my friends, from your philosophical
perspectives, but don't--don't--in a competitive world say that
we are going to establish a principle so perfect, so
idealistic, so philosophically straightforward that everyone
else will flock to it. That is not the way it works, just not
the way it works.
You don't negotiate from a position of surrender. You
negotiate from a position of strength. Again, I have enjoyed
these philosophical hearings. It is reminiscent of many
different periods in the last 20 years on this committee. But
in 14 days, 14 weeks, or 14 months, we will reauthorize Export-
Import, and we will, I fear, reauthorize exactly what we have.
That would be a horrible opportunity missed.
With that, Mr. Chairman, I am going to do something out of
character in Congress. I am going to yield back some time.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Texas, Mr.
Green, ranking member of our Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman.
I thank the ranking member as well.
Mr. Chairman, it has been my experience that there is a
process that can extricate us from differences. We have policy
that we differ on, and the process is the thing that can give
us an opportunity to resolve these differences in policy
positions. I recall very vividly the process that allowed us to
make a policy decision with reference to life and death in the
Schiavo case. I recall coming back after having just landed in
Houston, Texas, and on short notice, to take a vote. It was
very late at night when we ultimately took that vote. But the
process allowed us to resolve a question involving life and
death.
The process is the means by which we resolve questions of
war and peace. We can have our differences about where we
should station our military, what the military should be doing,
but ultimately, when these differences are to be resolved, we
have a process that allows us to do so. We vote. And we have
voted in this Congress, not this particular Congress, but in
the Congress of the United States of America on questions of
war and peace, the budget. We have our differences about
whether or not we should cut or expand certain programs,
whether sequestration is a proper process, and when we
confronted the question of sequestration, we allowed the
process itself to dictate a resolution to a policy question.
That process was to vote.
I am calling on all of our leadership to allow the process
to work, not just on the committee level. But let's take this
to the Floor of the Congress of the United States of America.
And let's do what we were sent here to do, debate the great
issues of our time. And let us, after having a robust debate,
have a process function as intended. Let us vote. I may not
like the results. But I will respect the process. I believe the
American people are expecting us to take a vote as to whether
or not the Ex-Im Bank will continue or whether it will become a
part of the ash heap of history.
Personally, I will vote to extend the Ex-Im Bank. It has
done meaningful things. It has made a difference in the lives
of the people that I represent. I and Mr. Hochberg had an
opportunity to visit with a business in Houston, Texas, and
there is an interesting thing about these businesses. Many of
the small businesses that benefit don't benefit directly. They
benefit indirectly from larger businesses that they associate
themselves with. Many of them are off the radar in the sense
that we can identify them immediately as beneficiaries. But
because of their connectivity and their association with larger
businesses, there is an emolument that inures to the benefit of
the people that I represent.
I want the process that has worked with this country, that
has time-honored positive benefits, to continue. I call on all
of our leadership to, please, give the process a chance. The
policy can be resolved if the process is allowed to function.
And I will yield back the balance of my time.
Chairman Hensarling. I thank the gentleman.
Now the gentleman from Georgia, Mr. Westmoreland, is
recognized for 5 minutes.
Mr. Westmoreland. Thank you, Mr. Chairman.
Mr. Hochberg, in November of 2012 the board approved the
economic impact analysis guidelines that were required in
Section 12 of the 2012 Ex-Im Bank reauthorization. Would it
surprise you if the analysis was engineered to favor one
company or another?
Mr. Hochberg. Congressman, we actually revised our entire
economic impact procedures. Congress asked us to review that in
2012, and we made some adjustments throughout the entire
process of economic impact.
Mr. Westmoreland. You made adjustments. Did you make those
adjustments in consultation with any of your customers?
Mr. Hochberg. Without question. We, of course, consulted
many of our customers because we wanted to have a policy that
works for our customers, that works for our exporters. So we,
of course, did that.
Mr. Westmoreland. I am just a slow, country boy from
Georgia, but reading some of the emails, some of the
correspondence between your staff and Boeing's staff, something
just doesn't smell right to me. I don't know if you have ever
heard the word ``collusion,'' but have you read those emails?
Mr. Hochberg. I have read the reports in the paper, sir.
Mr. Westmoreland. Have you read the emails?
Mr. Hochberg. I have seen some of them, yes.
Mr. Westmoreland. And do they seem funny to you?
Mr. Hochberg. Out of context, they look rather funny, but
they are out of context. What we are trying to do, sir, is, if
we were writing regulations, guidelines for farm equipment, we
would talk to the five companies that make farm equipment.
Mr. Westmoreland. Okay.
Mr. Hochberg. So in this case, we only have one aircraft
manufacturer.
Mr. Westmoreland. Okay. I want to read one or part of one
from Mr. Moran, and he was advising the Boeing capital that
subjecting and applying transactions through detailed analysis
under economic impact procedures has had the effect of killing
most of those aircraft deals.
Mr. McCarthy, have you read these emails?
Mr. McCarthy. We are familiar with those emails. We are
familiar with them.
Mr. Westmoreland. You are. And you didn't find anything
funny with them?
Mr. McCarthy. Right now, we are working on a report on the
economic impact guidelines. We had a report in 2010 that made
certain recommendations. We are doing a follow-up report that
is looking at not only implementation of our 2010
recommendations, but also implementation of the requirements in
the 2012 reauthorization. And we are including this matter that
you are raising as part of that--
Mr. Westmoreland. Okay. Well, 2012. It has taken you a
while to get to that. But there is another email where Mr. Cruz
told the board, ``Given the historical distribution in nature
of aircraft cases, it is anticipated only 10 to 15 percent of
the cases would go through the new procedure.'' This comes
after a series of emails that he had had. And besides that, and
the fact that Mr. Moran didn't want the complete transparency,
I just wonder if it was brought to the board's attention of
these specific requests for analysis that would influence their
acceptance of these new procedures?
Mr. Hochberg. We have had--just to go back, we have had
economic impact procedures back to 1968. And we have adjusted
them periodically over time. We actually voluntarily added
aircraft seats as part of that category on our own because of
concerns from the public, so these are things we have done
voluntarily. And we are constantly updating them. We updated
them in 2012. We voted on them. And we actually conduct a
review of every transaction, and if we find there are enough
findings, then we do an in-depth review. But every transaction
is reviewed for its economic impact procedure.
Ours is at the threshold of 1 percent. If it adds 1 percent
or more to foreign production capacity of a good of comparable
U.S. production, it would trigger a more detailed analysis.
Mr. Westmoreland. I know it all depends on what--if you use
the twin aisle, the single aisle, the number of seats. All of
that is discussed in the emails between the Boeing staff and
your staff, as far as what numbers to use.
And as Mr. Green, my friend from Texas stated, the process
needs to work. When you are trying to get this information, do
you think it is proper that your staff would be conversing with
Boeing staff in to how to make these numbers look right to
justify your ability to make them the loans?
Mr. Hochberg. It is a public process. We had a low number
of public meetings. We actually invited committee staff to join
us. We post every transaction in the Federal Register. This is
standard procedure and process at the Bank for economic impact.
Mr. Westmoreland. I don't think that is a standard
procedure process, but my time has expired. I thank the
gentleman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Cleaver, ranking member of our Housing and Insurance
Subcommittee.
Mr. Cleaver. Thank you, Mr. Chairman.
Thank you, Mr. Hochberg, for visiting some of the
subcontractors who are involved with Ex-Im Bank in the Fifth
District of Missouri.
Mr. McCarthy, I would like to ask you a couple of
questions. Do you have any information that would lead you to
believe that Ex-Im Bank is competing with private sector banks
or lending institutions?
Mr. McCarthy. We haven't done that particular analysis. We
did do a report on the direct loan program a few years back
looking at how the Bank tracked that information and made
recommendations that needed to do a better job of requesting
documentation from applicants as to why they were unable to
obtain private sector financing, and they have implemented
changes there.
Mr. Cleaver. But the Bank is self-funding and self-
sufficient?
Mr. McCarthy. Yes. Our audited financial statements have
found that they are fairly presented.
Mr. Cleaver. I am not sure, but prior to Ronald Reagan
being sworn in as President, there was very little controversy
as it relates to the Ex-Im Bank. Since that time, there have
been times when Democrats and Republicans have challenged the
existence of the Ex-Im Bank. I am not sure why or so forth.
But about a year ago, I think, I attended a meeting on the
second floor, I believe, and the amazing thing at that meeting
was that as I sat there with other Members of Congress, all of
the business leaders sitting in front of us, asking that we
support the Ex-Im Bank were people who had given money to my
opponents and to the opponents of most of us sitting up
listening to these folks.
It was one of the amazing moments in Congress. I talk about
this when I am out speaking. Business leaders from all over are
asking me to support something that they felt strongly about,
even though they had given money to my opponents. It is just
amazing. And so I have come to the conclusion that, I guess,
both sides switch and swap and do silly stuff, and sometimes it
is at the detriment of the agency.
Mr. Hochberg, a couple of things. I think there are 60 or
70 other nations with similar banks. Are most of them in the
industrialized world?
Mr. Hochberg. Most of them are, and actually we did a
survey this year, and the number is now above 80, 80 different
export credit agencies that are doing long-, short-, and
medium-term financing.
Mr. Cleaver. And so if we discontinue the Ex-Im Bank, we
are actually withdrawing from what most of the western world is
doing, trying to support the exploitation of goods to foreign
countries?
Mr. Hochberg. Exactly. It would be unilaterally disarming.
We would have no seat at the table if we want to ratchet down
export credits. We would have no say in the matter because we
wouldn't be a participant.
Mr. Cleaver. The way the Export-Import Bank debate is
going, do you think that it is having any impact right now, for
example--because of the uncertainty--are you able to do any
long-term planning, long-term considerations of the requests?
Mr. Hochberg. We have authority until June 30th. Larger
transactions over $100 million come to Congress for a 35-day
review. That period has passed. So we have a number of
transactions that are up here during that 35-day review period.
We hope to consider those before the end of June. But any large
transactions are considered from now on. If we are not
reauthorized, we are not getting a final approval by the Bank.
Mr. Cleaver. Okay. Thank you.
Mr. McCarthy, a one-word answer might be okay since my time
is running out, have you found that there is waste and fraud
and abuse in the Ex-Im Bank?
Mr. McCarthy. We are the inspector general; we always find
waste, fraud, and abuse. We have had some cases, as I reported,
we have had some serious cases of employee misconduct.
Mr. Cleaver. Yes, I am familiar with those.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Mr. Hochberg, there was a review which found that many
businesses had been categorized improperly that were big
corporations, foreign conglomerates who were categorized as
small businesses, those owned by Warren Buffett and others. One
business had 53,000 employees. How do you account for that
categorization?
Mr. Hochberg. Congressman, we obviously take data accuracy
very seriously. It is one of the key principles we have applied
this year. The Reuters report went back over 6, 7, 8 years. It
found a 3 percent error rate. We strive for a 0 percent error
rate. I will tell you one other thing, as a business owner,
this is the dynamics. You may be a small business one year and
then sold to a large business the next.
Mr. Pittenger. 53,000 is quite a number.
Let me ask you this: Is it accurate that 40 percent of the
Export-Import's authorizations in 2014 went to one company,
Boeing?
Mr. Hochberg. I think it is a little less than that, but it
is around a third.
Mr. Pittenger. That is a very significant amount.
Mr. Hochberg. It didn't go to Boeing. It went to customers
of Boeing. Boeing does not get one penny from the Export-Import
Bank. Boeing does not derive a single dime from the Export-
Import Bank.
Mr. Pittenger. According to your own data, 60 percent of
the Ex-Im Bank's financing has benefited just 10 large
corporations in 2013, is that correct?
Mr. Hochberg. And about 39 percent of the total value of
exports financed went to small businesses directly.
Mr. Pittenger. But to just the 10 companies, 10 companies,
60 percent. How big is your loan portfolio?
Mr. Hochberg. Our portfolio is about $112 billion.
Mr. Pittenger. At the end of 2014, less than 45 percent of
Ex-Im import's exposure is concentrated to just air
transportation, correct?
Mr. Hochberg. Air transportation and aircraft is our
largest single export in the country.
Mr. Pittenger. Exactly, and you had 45 percent. And I say
that in light of just folks in small business. There is a lady
who runs a machine business in South Carolina, Rachael Cox. It
has 30 employees. They have a machine business. Here is her
comment. She said, ``When I researched the Ex-Im Bank and
especially the sign-up process, it became clear that it is
designed for large businesses. The amount of information that
was required was overwhelming at best and invasive at least.
After some consideration, I decided against it.''
Now, by the direction or design or how the Ex-Im Bank
executes its plans, it appears very strongly that your efforts
are sizably favoring very large businesses. Ten businesses, 60
percent of your financing. Here is a small business who says it
is too cumbersome for me. It is too overwhelming. So we
multiply that times many times.
How do you justify that in a way of performing an
institution that is really supposed to be favoring small
business, and yet here is someone who can't get access?
Mr. Hochberg. I would actually like to meet that customer
and speak with her. But I will tell you directly, we are trying
to balance ease of doing business with risk management. This
committee has made it very clear that it wants to see our
default reports every 90 days, so we are trying to balance
risk--
Mr. Pittenger. She couldn't even get to your reports to get
access.
Mr. Hochberg. We are trying to balance the information so
we can do good underwriting, but at the same time don't make it
too cumbersome for customers. And we are constantly working to
find the better balance. I would be happy to talk to your
constituent to find out what was it, because I would like to
learn more about our customers.
Mr. Pittenger. Just one other thing, the CBO accounting
reflected that the methods that she used, if you use fair value
accounting, that you would have--significantly higher subsidy
rates would be revealed. You have stated, of course, that you
are profitable. How do you justify not using fair value
accounting, and do you believe that you should?
Mr. Hochberg. The law of the land is the Federal Credit
Reform Act of 1990. So we follow the law of the land and we
used that accounting method. I was in business for 20-plus
years. You have one set of books and you follow the law of the
land.
Mr. Pittenger. The CBO says if you use fair value
accounting, you would cost taxpayers $2 billion. Do you
believe, on your own account, that you should be using fair
value accounting?
Mr. Hochberg. I follow the law of the land, and I also
dispute that number from CBO.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Wisconsin, Ms.
Moore, ranking member of our Monetary Policy and Trade
Subcommittee.
Ms. Moore. Mr. Chairman, I would like to raise a point of
personal privilege, and not be charged time for it.
Chairman Hensarling. Do you have a point of order?
Ms. Moore. Point of personal privilege, yes, sir.
Chairman Hensarling. You can make a parliamentary inquiry.
I am uncertain as to what the point of personal privilege is.
Ms. Moore. My point, I would like to make a point of
personal privilege.
Chairman Hensarling. We will certainly hold the clock and
allow the gentlelady to make her point.
Ms. Moore. Thank you, Mr. Chairman.
I would just like to thank this committee on both sides of
the aisle for really supporting me during a very painful couple
of weeks, due to the death of my sister. I have gotten flowers
and cards and calls. And you just don't know how important that
has been to me, and I am just overwhelmed with gratitude, and I
wanted to thank you, Mr. Chairman, and you, Madam Ranking
Member, for caring about me as a person and not just as a
committee member.
Chairman Hensarling. I know I speak for the entire
committee on both sides of the aisle to let you know what a
valued friend and colleague you are and how our hearts were
heavy with your loss.
Ms. Moore. Thank you so much.
Chairman Hensarling. And now the clock can start anew, and
we will yield the gentlelady her 5 minutes.
Ms. Moore. Thank you so much. I want to thank the panel for
appearing again here. And I can tell you that I am sort of
unhappy that Mr. Huizenga, my very good friend from the
midwest, is not here, because I really want to clear something
up. I think the not-so-surreptitiously-veiled strategy to pluck
the low-hanging fruit of the Ex-Im Bank from the vine as a
raison d'etre to get into Social Security, Medicare, Medicaid,
SNAP, the so-called entitlement programs.
Mr. Huizenga said it very straightforwardly. We heard it
time and again that, how can you pluck into these social
programs if you can't even bring down the Ex-Im Bank? So I
think it is a straw man argument. I guess my for first
question--and I had intended to engage in a colloquy with him
and if the chairman or someone else would like to do that, I
will yield time--is for Mr. Hochberg. How is the structure of
the Ex-Im Bank similar to Social Security, Medicare, Medicaid,
and SNAP, such that it is persistently called corporate
welfare? How is it similar or dissimilar from the gas and oil
business who, through our tax expenditures every year, get
about $4.8 billion from the government? Can you share with us
the structure of the Ex-Im Bank as compared to SNAP?
Mr. Hochberg. I am a little confused as well by some of
these comparisons. Customers, clients, exporters pay a fee for
their service. It is a fee-for-service. They pay a fee. The fee
fully covers all of our operating costs, all of our loan lost
reserves, and then generates a surplus that goes to the
taxpayers for deficit reduction. So we are not transferring
money from one group of taxpayers to another. We are actually
transferring money from customers to the taxpayers, from
outside entities to the taxpayers, and many times, those are
foreign buyers. So I don't understand the comparison.
Ms. Moore. I don't either. I thought maybe you would
understand it better than I do.
Let me ask you, one of the things that seems to get under
the call of some of our members of our committee is the mandate
that you all have to do clean energy stuff, and that you are
picking winners and losers. I am reflecting on the $4.8 billion
that is transferred to the oil and gas industry through tax
expenditures. And I want to compare that $4.8 billion a year to
whatever subsidy that the government perceives that you get
from them, even using their accounting system. How does $4.8
billion a year compare to what the government does for the Ex-
Im Bank?
Mr. Hochberg. We transfer money to the government from the
Ex-Im Bank. We don't receive money from the government. So
there is no subsidy that goes to Ex-Im. And by World Trade
Organization, WTO, we need to be self-sustaining, meaning the
fees we collect have to, at a minimum, cover all of our costs,
and in this case, they cover more than our costs.
Ms. Moore. We usually have a debt clock running, and I am
wondering to what extent would our trade deficit increase were
we not to reauthorize the Bank, in your opinion?
Mr. Hochberg. I can only tell you that in the last 20
years, we have transferred just under $7 billion for deficit
reduction to reduce the debt. Just under $7 billion over that
20-year period. $675 million as recently as October.
Ms. Moore. Okay. So this notion that you pick winners and
losers, I am wondering, Mr. McCarthy, have you seen anything in
your examination of the Ex-Im Bank which suggests that they
pick winners and losers?
Mr. McCarthy. We haven't received any allegations along the
lines of the process being skewed in favor in particular
transactions. The Bank has controls and processes in place.
They have to do due diligence. The applicants have to meet
certain credit standards. We haven't seen any evidence of cases
where they seem to be favoring one particular party or another
and not following their own guidelines on that. The structure
of the guidelines are set by Congress and set by bank policy.
Ms. Moore. Thank you. My time has expired.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Kentucky, Mr.
Barr.
Mr. Barr. Thank you, Mr. Chairman.
Mr. Hochberg, you and I have talked extensively about the
Ex-Im Bank's announcement following President Obama's climate
action plan in June of 2013, and the Bank's guidelines for
high-carbon projects in December. I know you have answered this
question before, but in light of that policy adopted by the
Bank's board of directors, do you believe that the Export-
Import Bank chooses winners and losers in U.S. industries?
Mr. Hochberg. No, we don't, but we have a standard that
Congress has put in our charter since 1992 that we must take
the environment into account.
Mr. Barr. So you have the charter, which is a policy of
picking winners and losers, a policy that favors renewables
over fossil energy projects, and then you have this additional
codification of the policy of picking winners and losers, which
was the December 13th guidelines.
Mr. Hochberg. What you referred to, much of this is
actually in our charter.
Mr. Barr. Right. So the charter is inherently part of the
policy of the Bank, which interjects political judgments about
what energy projects are worthy of financing versus others.
What is wrong with that analysis?
Mr. Hochberg. It is Congress' judgment that makes the
decision on what guides our behavior. So these have all been
passed by Congress.
Mr. Barr. Right. So, okay, fine, you can blame it on
Congress.
Mr. Hochberg. We are not blaming them.
Mr. Barr. But you, sir, in response to President Obama's
climate action plan, and in announcing your board's
discriminatory policy against coal-fired power said, ``Without
guidelines or limits, ever increasing numbers of new coal
plants worldwide will just continue to emit more carbon
pollution into the air we breathe. I strongly support the
Administration's efforts to build international consensus such
that other nations follow our lead in restricting financing of
new coal-fired power plants.''
How is that not a policy of picking winners, renewables or
nuclear or non-coal fossil energy over coal, a loser? How is
that not picking winners and losers?
Mr. Hochberg. Sir, we finance a lot of coal exports. We
finance coal-mining equipment. But we have a restriction about
financing coal-fired powered plants except in very poor
countries.
Mr. Barr. Right. You are not letting the marketplace
dictate this. So what has the marketplace said? Here is what
the marketplace is saying right now. The marketplace is saying
that the demand for coal-fired power, particularly in lesser-
developed countries, is skyrocketing. The International Energy
Agency (IEA) concludes that 1,000 gigawatts of coal capacity
will be built by 2040 at a cost of $2.5 trillion, irrespective
of American policy.
Here is what the IEA says, ``In the world energy outlook,
the use of coal for power generation will continue to increase
until at least 2035 to 2040 and will remain an integral part of
the energy mix long after that.'' Here is the sad conclusion
that I draw: The United States has the best, most
environmentally-friendly, energy technology on the planet with
respect to coal-fired power.
Your Bank's decision to not finance coal-fired power
projects overseas with American clean coal technology is
resulting in China financing these projects and using inferior
electric generation technology. The Bank's policy, ironically,
is contributing to a worse environmental result. Is there any
response to that in China's export credit agencies doing the
job that you won't do?
Mr. Hochberg. First of all, we will finance coal-fired
power plants in poorer countries. In those developing
countries, we will certainly do so. We haven't had an
opportunity--
Mr. Barr. Okay. You are citing an exception with poor
countries. So my question is this: Since you announced the
guidelines, has your board agreed to finance a coal-fired power
plant in a lesser-developed country?
Mr. Hochberg. We have not received an application.
Mr. Barr. Have you invoked that inception? Because China is
not. China is financing coal-fired power. India is financing
coal-fired power projects. Do you think they have better
technology in generating coal power than we do?
Mr. Hochberg. The U.S. Government is in negotiations with
China and others to restrict it globally.
Mr. Barr. Okay, so in 2030, and if you trust China, that is
a great assumption, but doesn't allowing an exception for
lesser-developed countries actually imply in the policy itself
that coal-fired power plants have benefits as cheap and
reliable sources of energy for poor countries?
Chairman Hensarling. Short answer from the witness, please.
Mr. Hochberg. There is a benefit for poor countries,
exactly. That is why the exception is there.
Mr. Barr. Okay. My time has expired, but I think we have
proven the point that the Bank will always pick winners and
losers--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Illinois, Mr.
Foster.
Mr. Foster. Thank you, Mr. Chairman, for holding this
hearing.
I have a graphic that I would like displayed, and without
objection, entered into the record. It is simply a plot of the
number of manufacturing jobs in the United States over the last
several Administrations. It is interesting to look at the trend
here that you see, for example, in the Kennedy Administration,
we had the strongest period of job growth in our country's
history, in the Kennedy and Johnson Administrations.
Then in the Nixon and Ford Administrations, the number of
manufacturing jobs dropped. It went up the during the Carter
years, down during the Reagan years, down further during the
first Bush Administration, roughly level during the Clinton
Administration, and then we suffered a catastrophic drop due to
the policies of the second Bush Administration. We now are
continuing to grow manufacturing jobs again, largely by
returning to the policies that had historically supported
strong growth of U.S. manufacturing.
I am best known as being, I guess, the last Ph.D. scientist
in Congress, but I am also a manufacturer. The company that my
younger brother and I started with 500 bucks from my parents
now manufacturers the majority of theater lighting equipment in
the United States. We do hardware, software, sheet metal
painting, customer support, and we have kept all those jobs in
the midwest, which is something I am extremely proud of.
And so as much as anything, it is this collapse that got me
to lead my career in science and in business, to go into one to
try and make a difference here. Because you can see, it makes a
difference what the policies are. Both parties talk as though
their policies are pro-job, pro-growth, pro-manufacturing, but
you can see there is a real difference in the actual result.
And the statistics on the number of Administrations, the number
of times we have gone back and forth between what we support.
And, as a scientist, I think the conclusions here are pretty
clear. I leave it up to the audience or the students here to
deduce what the color coding on the arrows means.
And so actually, with that out of the way, it is
interesting to talk about what was responsible for this
tremendous drop, that we lost over a third of our manufacturing
jobs in the last decade. The three biggest causes of that, in
my mind, are, first and foremost, currency manipulation. We led
China and the World Trade Organization without any agreement
that they not manipulate their currency. And the U.S.
manufacturers, as a result, have a significant artificial cost
disadvantage for most of a decade or longer than a decade now.
We also had a wave of subsidized or guaranteed credit for
exporters in other countries that frankly we did not match.
That is the subject of this hearing, whether guaranteed export
credit is actually an important countervailing thing that we
have to do. In a perfect world, we would not need the Export-
Import Bank, but I think it provides in the presence of
subsidized credit from around the world, for their exports, I
think it is essential. My attitude is very much that we should
put down our weapon when they put down theirs and not before.
The third factor, of course, is the enormous tax breaks for
those already wealthy that happened during the Bush
Administration, where those already wealthy, instead of
reinvesting their productive assets back into the United States
simply turned the money over to their money managers, who more
and more invested that money offshore. Very different than what
happened during the Kennedy Administration, for example, when
we had very different tax rates.
But since we are concentrating on the second item there,
the credit, the guaranteed credit for exports. I have a couple
of questions for Chairman Hochberg. First, you received some
criticism early in this hearing about your dealings with
foreign state-owned enterprises. Do you run a profit or a loss
in your dealings with foreign state-owned enterprises?
Mr. Hochberg. We run an overall profit at the agency, and
we turn it over to the taxpayers every October.
Mr. Foster. Okay. And does that include your dealings with
foreign-owned enterprises?
Mr. Hochberg. Yes, it certainly does.
Mr. Foster. So the taxpayer is better off because of your
dealings with foreign state-owned enterprises.
And the second thing is, I am increasingly concerned with
these eleventh hour reauthorizations that you are suffering
through. It seems to me that creates exactly the kind of
uncertainty that ruins deals, and drives equipment purchasers
to foreign competitors. What kind of impact along those lines
might you have seen already because of the brinksmanship going
on here?
Mr. Hochberg. We have already seen--there was testimony
last year from Steve Wilburn who lost a deal to the Philippines
that was taken over by South Korea, and we have also seen banks
and insurance brokers pull back and deny credit to small
businesses.
Mr. Foster. Okay. Thank you. It looks like I am out of
time, and I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Pennsylvania,
Mr. Rothfus.
Mr. Rothfus. Thank you, Mr. Chairman.
Chairman Hochberg, Michael Grunwald, in a Politico Magazine
article from earlier this year, the article titled, ``The Real
Bank of America'' described the more than $3 trillion in loans
that the Federal Government--that is the hardworking American
taxpayers--are on the hook for in case of defaults. And that $3
trillion does not count the more than $15 trillion in other
guarantees for which the Federal Government is on the hook.
At a time when our national debt exceeds $18 trillion, and
in the wake of the massive bailouts at Fannie Mae and Freddie
Mac, it is imperative that any efforts, I believe, to
reauthorize Ex-Im must take steps to ensure that taxpayers are
fully protected from the possibility of potential losses. And
here, Mr. McCarthy identified one of Ex-Im's biggest challenges
is risk management.
One way that we could potentially create additional
protections for American taxpayers is by requiring full
collateralization, or sovereign guarantees for all direct loans
or loan guarantees issued by the Bank. As noted in the Bank's
Fiscal Year 2016 congressional budget justification, only 77
percent of the Bank's portfolio is currently backed by a form
of asset or collateral security.
The percentage increases to 80 percent when including
sovereign guarantees. A reasonable person might think this
should be 100 percent collateralization. Would you be
supportive of making that sort of requirement for Ex-Im loans
or loan guarantees?
Mr. Hochberg. I would not.
Mr. Rothfus. Another way that we can protect the American
taxpayer from potential Ex-Im losses is by requiring additional
guarantees from U.S. exporters who directly benefit from the
banks providing of loans or loan guarantees to the foreign
purchasers of their products.
Specifically, we could require that as a prerequisite for
any loan or loan guarantee, the U.S. exporter must both
guarantee full repayment for any money extended to a foreign
purchaser and take the necessary steps to ensure that this
guarantee is senior to other obligations.
This would create an additional barrier and source of
repayment before any losses would be placed on the backs of the
taxpayer. Would you support this reform?
Mr. Hochberg. No, I would not.
Mr. Rothfus. It is interesting to read--I am just learning
about the NewSat bankruptcy. And in this article in Space News,
it says that $193 million was mainly Ex-Im money lent to NewSat
in addition to equity NewSat had raised on its own. It is now
in the form of a nearly complete spacecraft that Lockheed
Martin owns and is free to sell without having to repay
anything to Ex-Im.
Now, if Lockheed sells the satellite, you have no agreement
right now with Lockheed that they would have to go back and pay
Ex-Im for that loss; is that right?
Mr. Hochberg. We are still working on a solution to this
transaction. It is simply in an early stage, sir, and so we are
trying to find an actual buyer together.
Mr. Rothfus. But you have no legal document that you can go
back to if Lockheed goes and sells? Because it owns the
satellite, and it is certainly free to go and sell it, correct?
Mr. Hochberg. Lockheed has possession of it, but we are
working with Lockheed and other creditors to find a solution so
that we do not suffer a loss in this particular case.
Mr. Rothfus. The 2012 reauthorization directed Treasury to
pursue negotiations to substantially reduce, with the ultimate
goal of eliminating, subsidized export financing programs and
other forms of export subsidies. There has been essentially no
progress on this front at all, as most recently confirmed by
Treasury's Under Secretary for International Affairs, Nathan
Sheets, in testimony before the committee on April 15, 2015.
Whom do you blame for that failure?
Mr. Hochberg. First, this is the Secretary of the
Treasury's responsibility. He has issued three reports about
their efforts to reign in export finance globally. I understand
this is the Treasury Secretary's responsibility, but it is to
reign it in. We have to get outside parties like China, Brazil,
India, and Russia that aren't even a party to it before we
ratchet down everybody else. Let's make sure we get everybody
following the rules then we can ratchet everybody down.
Mr. Rothfus. Have you done anything personally to make sure
that this requirement is fulfilled?
Mr. Hochberg. As I mentioned in my own testimony, although
this is the Treasury Secretary's responsibility, I have gone
out of the way to speak to all of my colleagues and ask them
how we would do this.
Mr. Rothfus. Ex-Im is currently open to support foreign
purchases for U.S. exports. In almost 200 countries around the
world, the Bank is prohibited from extending credit and
insurance to certain countries, for example, those that are in
armed conflict with the United States. But it can still provide
services in many countries that have horrific records on issues
pertaining to human trafficking and the protection of
internationally-recognized human rights, including the freedom
of religion.
Would you support simple commonsense reforms that would
further limit the Bank's country limitation schedule to
prohibit countries that are refusing to take the necessary
steps to prevent human trafficking within their borders and
those who are engaged in or tolerate particularly severe
violations of religious freedom?
Mr. Hochberg. We actually subject all transactions to
review by the State Department and follow their guidance in
terms of whether it is an allowable country or not. So that
policy decision is made by the State Department, not by us.
Mr. Rothfus. So you would take no position on any of the
reforms that we propose.
I thank the chairman, and I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. Mr. Chairman, in a second I will yield to you
for the answer to a question.
But I think there are some things we all agree on. This is
a very important issue. We have debated it at length.
Reasonable and good-spirited people can reach different
conclusions, and democracy ought to determine what our policy
should be.
So, Mr. Chairman, will you be doing everything possible so
that this committee or the House is voting on whether to
reauthorize the Ex-Im Bank in the next couple of weeks?
Chairman Hensarling. Is the gentleman yielding to the
chairman?
Mr. Sherman. Yes.
Chairman Hensarling. The Chair will not make a decision
until after this hearing. I will listen to all colleagues. I am
not aware of any bill that is supported by a majority of the
House, much less a majority of this committee. If I am made
aware of such, I assure you, it will influence my thinking.
I thank the gentleman for yielding.
Mr. Sherman. We may have a chance to look at bills
supported by a majority, or perhaps a 60 percent majority of
the United States Senate. And there are many, many bills that
come to this committee that we mark up that are not cosponsored
by a majority of the House or a majority of the members of this
committee.
I think if this committee has a markup, we will devise a
bill that has majority support, perhaps taking into
consideration the comments of the gentleman from Pennsylvania,
that we have restrictions on not allowing Ex-Im Bank to operate
in those countries which have horrific records on human
trafficking.
Also, the gentleman from Pennsylvania focuses on the need
to try to get other countries to ratchet down their export
promotion authorities. That is a responsibility of the
Department of the Treasury. Without objection, I would like to
put in the record the last three annual reports of the
Department of the Treasury.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Sherman. And I will point out that I don't think they
are doing as much as they should. But the next Administration
hopefully will, and the next Administration will have nothing--
like going to a gunfight without even a knife--in its arsenal
if we don't have an export promotion authority. If you go into
arms talks working for disarmament and you have already
unilaterally disarmed, there is no reason for anybody to listen
to you.
Accounting. My favorite subject. Mr. Hochberg, with
generally accepted accounting principles (GAAP), you have a
profit of $750 million, is that correct?
Mr. Hochberg. Last year was $675 million, to be precise.
Mr. Sherman. Okay. And up on the board, whenever a
Republican is speaking we have the debt clock, so that debt
would be $675 million higher if we had abolished your Bank a
year ago?
Mr. Hochberg. Yes. And furthermore, CBO has actually scored
the Ex-Im budget initially at $1 billion. Deficit reduction has
cut that about in half to, again, uncertainty of the
reauthorization.
Mr. Sherman. And that is with reserves for the risk that
you are taking of default. Just like any insurance company, any
lender can calculate its profit only after determining what is
an actuarially sound reserve for bad debts; is that correct?
Mr. Hochberg. That is correct.
Mr. Sherman. Now, I have heard that there is this thing
called fair value accounting--I think it is better called
fantasy value accounting--which would say that you should
determine your profit or loss not based on whether you have a
profit or loss, but whether you would have a profit or loss in
some artificially constructed fair world.
And as you have heard me say before, in a fair world,
Jack's Pizzeria would have the same cost of funds as Pizza Hut.
Now, if you really know Jack, you would not lend him money. But
in a fair world, he might have the same cost of funds and then
he would have a profitable--or Pizza Hut would have a higher
cost of funds. But if Pizza Hut had to pay when it borrowed
money, the risk premium that is appropriate for Jack, they
would be out of business.
So in the real world, generally accepted accounting
principles are the same principles used by all the other
lenders in the country, is that correct, and do you show a
profit?
Mr. Hochberg. The U.S. Government uses the Federal Credit
Reform Act (FCRA). And by that, we put aside reserves, as you
have mentioned, Congressman, about $5 million worth of
reserves, and the rest goes to the taxpayers. Any change in
accounting would actually just increase reserves and then they
would be released to the taxpayer.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Arizona, Mr.
Schweikert.
Mr. Schweikert. Thank you, Mr. Chairman.
Mr. McCarthy, I would love for your help in just trying to
make sure I have my head around some of the mechanics I see
here. I am looking at a report, an audit from September 2012,
if you are willing to track with me to page 6. But I am going
to do this--I think it is the second paragraph--a little bit
backwards.
Apparently, in 2011 it was determined that because of the
way the law is structured, the Ex-Im Bank did not need to
report impairment of assets. So I guess, 2011, they just
stopped the impairment. And it is really important for this
conversation. There is a difference between impaired assets and
write-offs. Can we at least agree to that? Because last time,
we had some fussing back and forth where we were sort of mixing
the two, I think quite disingenuously.
Mr. McCarthy, have there been any attempts since 2011 to
start to say, here is actually what the impairments are on this
book?
Mr. McCarthy. The Bank has some separate reports that it
prepares. One of the reports that it prepares is the default
rate report, and that is--
Mr. Schweikert. I am not asking the default. Impairment.
Mr. McCarthy. There is a different report that is prepared
about impaired assets and a watch list.
Mr. Schweikert. Okay. So it does exist. But in the last
discussion, the Honorable Mr. Hochberg looked at me as if I
were deaf, that no such thing existed. I am not overstating it.
You can go back and see the video.
So right now, if, as Mr. Mulvaney was talking about with
NewSat, would I see that on the impairment report, and was it a
half million dollars? Would I see that as now the impairment
set-aside on that report?
Mr. McCarthy. I don't know the timing of it, but I would
expect that would be something that would appear on that
report, given the recent developments.
Mr. Schweikert. So in some of the opening discussion here
and opening testimony, I am hearing these repeated statements
about how low our default rate is. According to that report, if
you know off the top of your head, what is the actual default?
And remember, default is defined as, ``I am late on a payment.
I am out of compliance in my reps and warrants.''
I am trying to--like for like, my ceteris paribus of here
is the rest of the world that ensures, or does guarantees and
this institution, so we have at least an honest discussion
going on here.
Mr. McCarthy. Right. So as you recognize, default can mean
different things. It can mean a payment default; it can mean
impairment.
Mr. Schweikert. Impairment. Impairment. Default is--they
are different things.
Mr. McCarthy. Let me try to explain. I understand what you
are getting at, and let me try to explain it from our point of
view as the IG. The Bank reports their--what they report as the
default rate was called the default rate by the 2012
reauthorization, and Congress provided the formula to how the
Bank calculates that. They have reported that. They have been
transparent about that formula.
That formula, as you say, is more of a net loss rate than a
default rate. Looking at a default rate as more broadly used,
as you say, of things that are potentially impaired but haven't
yet generated a loss but could potentially do so in a future
would have a different calculation.
Mr. Schweikert. But any other institution out there, when
someone's out of compliance in arrests and warrants, there is
often a scaling of, we need to set aside for this. We heard a
little while ago there is--what was it, $5 billion that is
ultimately set aside for losses. Does that scale in accordance
with the percentage of the book that is an impairment, like
every other institution would be required to? And if so, how
come a couple of weeks ago when we had this very discussion, I
couldn't get near an answer of such a thing as actually scored
and kept.
Mr. McCarthy. On the impairment list, and I can go in and
try to look and answer your question more specifically, some of
the impairments are more qualitative in nature than
quantitative. So in some ways, it is difficult to calculate an
actual--
Mr. Schweikert. No, it is not. No, the industry has been
doing this for about a couple of centuries. And there are
industry standards in how you do this. So what you are telling
me is our institution here doesn't at least just do what is
common practice in the rest of the banking and investment
world?
Mr. McCarthy. The institution has an impaired asset list
and a watch list.
Mr. Schweikert. Okay. Impaired asset and then the reserve
calculation for it.
Mr. McCarthy. The reserve calculation is based on the loss
experience historically under FCRA.
Mr. Schweikert. Mr. Chairman, one more time, I yield back.
One day, I might get an answer.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New York, Mr.
Meeks.
Mr. Meeks. Thank you, Mr. Chairman.
I keep hearing this thing about winners and losers, winners
and losers. It seems to me that what we are talking about is
making the American workers the winners here. Clearly, from my
experience, I understand--and I don't understand why,
especially my friends and colleagues who are supporters of
trade, this seems like a no-brainer. Americans are selling more
goods and services abroad than ever before, and every $1
million in U.S. exports supports an average of more than 5,000
jobs here at home.
American exports supported more than 11.3 million U.S. jobs
in 2013. Ninety-five percent of the world's customers live
outside of the United States, and we need to continue to help
American businesses to export more, so we should all be talking
about how we can export more overseas. I just give you the
benefit of my experience from my small, little State of New
York, something like--in Maine.
Ex-Im has committed over $11 billion in total export value.
That includes $7 billion in insured shipments, guarantees of
disbursed loans, and an additional $4 billion in approved
authorizations. There are 350 New York-based exporters that
benefited from Ex-Im Bank trade facilities last year, of which,
and this is very significant to me, 201 were small businesses.
And 26, I know Chairman Hochberg, and Vice Chair Felton have
been working very hard are minority businesses. They were
minority-owned businesses, giving them the opportunity to
export.
And these businesses operate in various sectors that are
creating jobs here in America. We have exports in food
manufacturing, machinery manufacturing, transportation
services, computer and electronics, insurance, banking,
finance, and the list goes on and on and on. And so we need to
be exporting more, not less, and that is what the Ex-Im Bank
does.
So let me just ask Chairman Hochberg, first, I believe,
isn't it true that Ex-Im operates more like, in this case, a
lender of last resort, in one second correcting the market
failures when private trade finances are unable or unwilling to
invest in U.S. exports at competitive rates? So when that
happens, the bank of last resort, Ex-Im, if you no are longer
there to help these companies move, what happens to them?
Mr. Hochberg. Thank you, Congressman. I have often said
that we are plan B. Plan A is the private sector. Plan C would
be China. They would be more than happy to fill in the gap that
is the vacuum that we would create if we are not there.
I was talking yesterday with an exporter in Chattanooga,
Tennessee. A company that we are working with is going to
finance an export to China. He has hired up for this thing. And
he said that if it wasn't for Ex-Im, he probably would not have
hired those 20 people, and he would lay off another 20 people,
so 40 to 50 people's jobs are at stake on this single order to
China.
Mr. Meeks. And so, it just seems, that is why I am just
baffled that some of my colleagues don't believe we need Ex-Im
Bank, and they say that the private sector can do it all. But
when we look at between 2008 and 2009, the private sector trade
financing fell by 40 percent. And as of today, isn't it true,
Mr. Hochberg, that many of these private banks are still not
willing to extend export financing without additional
guarantees from Ex-Im Bank?
And can you also talk about the gaps our financial crisis--
you know, we had one in 2008--left in trade financing, and how
the Ex-Im Bank filled that void then and continues to fill that
void now.
Mr. Hochberg. Our authorizations hit an all-time high in
2012. We financed over $36 billion of financing, financing over
$50 billion worth of goods. We are operating at about half of
that level now, which is a good sign that the financial markets
are recovering. The banks are more liquid. They are not liquid
in every market. They certainly make it tougher for small
businesses.
But the good news is that when there was a crisis, we
stepped in. We were like the fire truck, my analogy. And now
that the fires of the recession are more behind us, we have
been less active, which is a good sign that the capital
markets, banking markets are recovering.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Williams.
Mr. Williams. Thank you, Mr. Chairman.
Throughout this process, I have heard from many of the
stakeholders involved. I have heard from the Bank, from
businesses, and my constituents, who are the taxpayers. And
some of the biggest complaints I hear are what about taxpayer
liability, and does the Bank pick winners and losers? And as we
have heard today, Ex-Im Bank financed $27.5 billion in exports
in 2014. Now, I personally believe that the Bank needs reform.
We don't seem to talk about reforms. We just defend positions.
But I have yet to see a set of reforms that fixes the two chief
complaints I mentioned before.
Mr. Chairman, you know my background is in retail. I have
been a small business owner for 44 years, a family business
founded in 1939. I am Main Street America. I am a car dealer.
And in my industry, when a car needs to be financed, I often
will guarantee the note for the person to whom I am selling the
car. In other words, I let the bank know that if for some
reason the buyer defaults on his loan, I, as the seller, will
be responsible for the balance of the loan. In my business, we
call that recourse paper.
Now, I am a deal maker. So I want to help you make a deal
today. Chairman Hochberg, why couldn't we do something similar
with the Bank? Why couldn't we say that any money being loaned
out by the Bank be subject to similar requirements and
guarantees? In other words, the seller guarantees the note to
Ex-Im, which gets the taxpayers out of their liability. The
taxpayers are gone then, and that reduces that question. Why
can't we do that?
Mr. Hochberg. Congressman, we work in a very competitive
world, and that is simply not a competitive practice. There are
80-plus export credit agencies. Without Ex-Im's financing, we
put U.S. companies at a severe disadvantage to their global
competitors. And besides which, our default rate which we
report to Congress every 90 days is less than one fifth of 1
percent, it doesn't indicate there is a problem here that needs
to be fixed.
Mr. Williams. Okay. I hear what you are saying. The
taxpayers, though, the taxpayers are guaranteeing this. We need
to get the taxpayers out of this. And I understand competition
as good as anybody, okay. So I know you have mentioned there
are points and fees that you charge. But that doesn't come
anywhere near covering the entire liability of the loan,
correct?
Mr. Hochberg. We have about $5 billion in reserves to back
up any possible default--
Mr. Williams. But it doesn't cover all the loans.
Mr. Hochberg. You never have reserves to cover 100 percent.
Mr. Williams. Yes, you would if you go resource paper.
Okay, now, my next question is this: You said the default
rate for Ex-Im Bank is actually very small, something less than
1 percent, correct?
Mr. Hochberg. It is running less than one fifth of 1
percent.
Mr. Williams. Okay. That is another reason to go recourse
paper.
So in my head, if the businesses are benefiting from Ex-Im
Bank, have skin in the game, like a lot of us do in the private
sector, have skin in the game on the loan, and the default rate
is so low, which you talked about, basically zero, all the more
reason for them to guarantee the note. And, in fact, as you
know, if they guarantee the note, you can give them a better
rate and make them more competitive across the world, which you
just talked about.
So the point I am trying to make, Mr. Chairman, is if the
average taxpayer sees the Bank as doing exactly what I said
before, and just as with other Federal agencies who have been
bailed out, the taxpayer wants to know what happens if all the
loans go bad. I know the possibility of that might be small,
which is good, but, again, we have said that for agencies like
Fannie and Freddie, and guess what, they are bailed out and the
taxpayer pays the money.
I don't know if something like this could actually save the
Bank during this conversation, but by removing the taxpayer
from the equation, again, removing the taxpayer from the
equation, I think it would go a long way to solving a lot of
the problems. So, again, why can't you do this? Think about it.
It is a solution that nobody seems to be talking about. It
fixes. It fixes the questions that I have, and it fixes the
questions that Americans have on the way they have to support
this.
So I would also say in closing, I have heard my colleagues
talk about why the private sector has left. How about Dodd-
Frank? Maybe start thinking about that.
Mr. Chairman, I yield back.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Massachusetts,
Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman. And thanks to the
ranking member.
Thank you, gentlemen, for your willingness to come here to
help the committee with its work. I tend to look at things from
the worker perspective. I was a welder and an ironworker down
at the Quincy Shipyard in the Boston area, down in Quincy,
Massachusetts, for a while, until that shipyard closed down
because of the foreign competition. Some foreign ex-im banks
supported shipbuilding in their countries and put us out of
business.
And I worked at the General Motors plant in Framingham,
Massachusetts, and they closed that plant down and a couple of
others and moved them over to Mexico. So I tend to see the
effects of what other countries are doing.
I just had an opportunity to travel to South Korea, and
also to Japan. And I make it a point of, during my travels, and
I was in both those countries for several days, to try to look
for American products to see how we are doing in Korea and
South Korea and in Japan.
We were in South Korea for several days. It is a major
industrialized country, big highways, millions of cars. I was
there for 3 days, and was stuck in plenty of traffic. I saw two
U.S. cars out of hundreds of thousands of cars in South Korea.
The only two cars I saw were the one I was driving in from the
U.S. Embassy, and the one behind me that had the U.S. Embassy
security team for my detail. That was it. I was in Japan, the
same thing. It looked like nobody's business trying to find a
U.S. car. Nothing. So it just bothers me to no end that the
Korean ex-im banks and the Japanese ex-im banks are picking
winners and losers. And they are picking Korean winners, South
Korean winners, and Japanese winners. And we are criticizing
our Ex-Im Bank because you are picking American winners.
And I have a real problem with what is going to happen here
once America gets off the field, once we surrender, once we
surrender and say: Okay, China, you can push Chinese
manufacturing, and we are going to tie our hands behind our
back.
And what will this do? What will this do to creating U.S.
jobs? I have to say that I hope and understand that your job is
to create American jobs. And there has been some criticism here
today of the way you are going about it, but I do think it is
in the best interest of the American worker to be in the game,
to be trying to push American companies. And I have said
before, your support for Boeing doesn't support necessarily
Massachusetts jobs in my district. But it is okay if you are
putting Americans to work in Washington State, God bless you
for doing that, and any other American company that you help. I
don't think we can be parochial at that level. And can you just
tell me what your ideas are about what is going to happen if we
walk off the playing field and leave it to these foreign
export-import banks to drive the creation of manufacturing jobs
and other jobs around the world?
Mr. Hochberg?
Mr. Hochberg. Thank you for that. We take very seriously
our jobs mandate. We are about U.S. jobs and not really about
U.S. companies. When a U.S. company or a company makes goods in
America, we support it. As I have said before, 164,000 jobs
last year alone. And even when you make the comment about
Boeing, I suspect there are many, many Boeing suppliers in the
State of Massachusetts. So every time a Boeing plane is
delivered to a foreign customer, many small businesses benefit.
I was just in Erie, Pennsylvania, a town that without the
exports from GE locomotive would be a very quiet town with not
very many good jobs. And I met with a number of small
businesses that actually supply machine parts, tools, and die
parts that actually go into the locomotives.
One company I met with, ISM, with 175 employees, a full 15
percent of their work is tied to GE exports. So they are very
much tied to the state of those larger companies making those
exports. But I think what we are putting in jeopardy is 164,000
jobs. That is a lot of jobs. That is a lot of families in their
homes. That is a lot of families who are relying on these
export jobs and the financing we do to make sure that export
happens. And, again, 90 percent of those companies are small
businesses, some in the chairman's district itself.
Mr. Lynch. All right, thank you.
I yield back.
Mr. Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Maine, Mr.
Poliquin.
Mr. Poliquin. Thank you, Mr. Chairman.
Gentlemen, thank you very much for being here. I appreciate
it.
Mr. Hochberg, since 2009 you have run this independent Ex-
Im Bank. It is an entity that was created by the Federal
Government here in the 1930s. You have about 440, 450
employees. And you folks provide low-interest-rate loans to
foreign entities that turn around and buy U.S. products from
U.S. companies, of course. Now, if these foreign companies
cannot repay their loans and the taxpayers are on the hook, in
fact, the reason why you are able to provide foreign companies
with cheaper credit than nongovernment banks is because of the
taxpayers' backstop.
So where I want to go down this path, sir, if I may, is I
have heard today from you and from other folks here in this
hearing room that there is no cost to the taxpayer.
There is no free lunch, Mr. Hochberg, everybody knows that.
Of course, there is a cost to the taxpayer. For example, if you
have a worker at a company and across the street is a
competitor that has the same, roughly the same product, and
that company is financed in part by you folks, so that product
is purchased but not the product from the company that the
other gentleman works for, then you have picked that winner,
and he loses. There is a cost to that individual.
Second of all, is that the only reason why, again, that a
nongovernment bank isn't able to provide credit to some of
these foreign companies is because you folks step in, and you
are backstopped by the U.S. taxpayer who is at risk if
something goes wrong. And so those U.S. banks who might be able
to extend those loans aren't able to do so. So there is a cost
to those banks, sir, in the nongovernment sector and also the
people they employ.
Now, there is one other cost I would like to talk about
today that hasn't been discussed, and that is reputational risk
for the U.S. Government. Now, I understand that you are
appointed by the President and you also serve as the chairman
of the board of your own directors. And you have stated here
today in testimony that you raise money for the President. I
don't see any way, sir, that Congress is able to hold you
accountable. We don't appropriate any money to you.
Now, what does it say to investors around the world who run
companies who are thinking about investing in our economy,
whether in Maine's Second District or throughout the country,
that we have an Export-Import Bank where, if my notes are
right--and I know, Mr. McCarthy, you are the inspector general
for Ex-Im, so correct me if I am wrong--over the last 5 years,
you have had 48 people associated with the Bank who have been
convicted of fraud. You have 37 ongoing investigations for
fraud and corruption right now. There has been about 66 years
of prison time that has been dished out to these folks over the
last 5 years and about $224 million of fines. Now, there was a
Bank employee not long ago who accepted $78,000 in cash as a
bribe to help folks out, foreign companies out to receive your
credit, your cheap credit, and I guess he is going to be
sentenced in July. There is a former Member of Congress who is
in jail in Louisiana right now, and they found $90,000 of cash
in his freezer that was associated with lending practices at
the Bank.
So I am asking myself, Mr. Hochberg--I represent 650,000 of
the hardest working, most honest people that you could ever
find in this country in Maine's Second District. And now you
come before us. And the only way we have accountability, we can
hold you accountable, is to determine whether or not we
reauthorize your charter. I would like to find out how I can go
back to the people that I represent with this trail of
mismanagement, ongoing mismanagement and vote to reauthorize
your Bank.
Now, I would like to turn it over to your inspector general
who is internally working at your Bank. Sir, you are also
appointed by the President, is that correct?
Mr. McCarthy. The position is appointed by the President. I
am currently--
Mr. Poliquin. Do you have subpoena authority?
Mr. McCarthy. Yes, we do.
Mr. Poliquin. You do. Do you have the ability to make
criminal referrals?
Mr. McCarthy. We do.
Mr. Poliquin. Good. And do you have the ability to
investigate employees who are no longer at the Bank but have
left the Bank?
Mr. McCarthy. We do.
Mr. Poliquin. Do you have enough independence from the
gentleman sitting right beside that you work with under the
same roof that you think you can do your work effectively?
Mr. McCarthy. Yes, we do. Under the Inspector General Act,
we have organizational independence. We also have our own
separate appropriation and manage our own budget.
Mr. Poliquin. Good. Mr. McCarthy, you keep doing your work
and keep digging. If you need help, you call our office.
Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Washington, Mr.
Heck.
Mr. Heck. Thank you, Mr. Chairman.
I am reminded of a presentation I was a party to while in
college. One of the faculty members of my school did some of
the seminal field research on the correlation between the
presence of DDT and eggshell damage among peregrine falcons. In
his presentation to us, he had a scatter graph on the
correlations between the presence and mortality rates among
peregrine falcon eggs. And almost all of the dots were
concentrated on, they died. And there was one or two way up
there where they didn't. And when he made that presentation to
the manufacturer of DDT, their response was, what about those
two? I feel a little bit like I am living through that again
almost 50 years later.
There is a lot of semantics going on here as it relates,
for example, to default rates. But the fact is that the Export-
Import Bank has a default rate and a loss ratio that is the
envy of commercial banks. That is the fact.
Mr. McCarthy, you are an incredibly patient human being.
Thank you so much for being here. I want to make sure I
understood you correctly. Is it accurate and fair for me to
infer from your remarks, both in your opening statement and in
answers to questions, that your opinion is that the Export-
Import Bank has made a good-faith and reasonable effort to
embrace and implement the recommendations you have made?
Mr. McCarthy. We have made our recommendations. The Bank
has to implement them. We have closed a number of those
recommendations, and we continue to make progress on them.
Mr. Heck. Thank you.
Mr. Hochberg, I want to get at the issue of harm. At its
essence, some of this has to do with those who advocate that
there will be no harm done if the Export-Import Bank's charter
expires. I happen to share the concerns and worries of Speaker
Boehner, who said he believes there will be lots of job loss if
that happens.
I am beginning to believe that the opponents are beginning
to worry about that as well insofar as their wish casting, my
new favorite word, that the private sector will step in. Let's
break it down. First, for small businesses, I think often
overlooked is the fact that a preponderance of the transactions
aren't direct loans, but loan guarantees, revolving lines of
credit, and what I call accounts receivable insurance. I think
of Pexco in my district, which manufactures traffic cones, with
little tiny quantities sold to Belgium; or Manhasset music
stands, one of the largest music stands in America in Yakima,
Washington.
Is there any evidence to suggest that there is anyplace
within the commercial sector where a bank would step in and
guarantee such small amounts of exports even though those
exports, for example, in Manhasset's case, would constitute
over 30 percent of its business? Is there any evidence to that
effect, Mr. Hochberg?
Mr. Hochberg. Congressman, the reason we are brought in,
and a bank brings us in, as I said, generally, or brokers is
because they can't do it on their own, or they refuse to
because it goes beyond their credit standards, beyond their
risk profile.
Mr. Heck. So let's scale up and deal with the large
business part. Obviously, the name of the manufacturer of the
finest airplane on the face of the planet has been invoked many
times here. I just want to remind everybody that they assemble
planes. They don't manufacture them. Their supply chain is
15,000 businesses, 6,000 to 8,000 of which are small
businesses. They make the parts. I have always thought that the
way the Boeing Company would deal with this is that they would
provision for it if the Ex-Im goes away on their balance sheet.
Now, I come from the private sector, and I think anybody who
does understands what that means. That means there will be a
lot less money available to invest in attracting and retaining
a quality workforce, research and development, remembering that
the manufacturing of commercial airplanes is an exceedingly
competitive business now between Boeing and Airbus, but soon to
be China, and that they would therefore be harmed by it. But
here is my question, Mr. Hochberg. That is how I thought this
would play out. And that it would cause the loss of jobs. But I
have recently read that I think the chairman and the CEO of the
company had indicated that if we unilaterally disarm, the
company would be compelled to consider moving certain parts of
their manufacturing production offshore.
Do you find that to be a plausible response to our shutting
of your bank? And if so, what would the damage be to the
manufacturing sector in America?
Mr. Hochberg. Without question, that is a very real
possibility, and certainly with the company you mentioned, but
there are many others, such as GE, that have facilities all
over the world, and can very easily begin to offshore their
work permanently.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. McHenry, vice chairman of the committee.
Mr. McHenry. Thanks so much, Mr. Chairman, and thank you
all for being here. It has been a long day. But Mr. Hochberg, I
think what Members, policymakers, want to know here with
reauthorization coming at the end of the month, it is some sort
of basic admission that there are some challenges in running an
organization, right? There have been discussions of
indictments. The IG is sitting next to you. There are ongoing
investigations there. So, what would you say?
Mr. Hochberg. I should probably let the IG answer himself,
but we have had one indictment.
Mr. McHenry. No, I am asking you.
Mr. Hochberg. We have had one indictment, sir. One
indictment. And the person pled guilty and that came to light
because another employee saw something that didn't look proper.
In the other investigation, the inspector general said at this
point in the investigation, none of them involve employees, but
you can ask him directly.
Mr. McHenry. Okay. So are there any management challenges?
Mr. Hochberg. Sir, I have run a company for 20 years. Every
organization has management challenges.
Mr. McHenry. So this is no different?
Mr. Hochberg. Every organization is different. But of
course, there are management challenges. We are trying to move
forward. We are trying to be responsive to Congress, responsive
to exporters, work with the private sector, not compete with
the private sector, make sure we are competitive globally and
get more small businesses to export. There are a number of
those challenges.
Mr. McHenry. A government survey of your employees at Ex-
Im--government employees, not your employees, you had the
organization, but they don't work for you, they work for the
American taxpayer. Only 42 percent of Export-Import Bank
employees agree with the statement, ``My organization's leaders
maintain high standards of honesty and integrity.'' Is that
sufficient?
Mr. Hochberg. Pardon me? Forty-two percent said that, and
about 30 percent had no opinion.
Mr. McHenry. So that is fantastic, is what you are telling
me?
Mr. Hochberg. No--
Mr. McHenry. As a policymaker, am I supposed to look at
this and say, ``Keep going man, you are doing fantastic?''
Mr. Hochberg. Without question, sir, I take this very
seriously. We all take this seriously at the Bank and we put a
much higher priority on improving the workplace environment
than we have at Ex-Im Bank. Of course, I am disappointed in
those results.
Mr. McHenry. Okay, some sort of admission is sort of
helpful. I am not trying to inject humility to a grown man
here, but I am simply saying that should not be in any way
acceptable. And there should be a firm desire to improve the
standards you have within the organization that you head.
Mr. Hochberg. One of the--
Mr. McHenry. I am giving you an opportunity to say that, is
what I am telling you.
Mr. Hochberg. Yes. One of the key objectives we have
established.
Mr. McHenry. Just because you say, ``We have only had one
indictment,'' how is that a sales pitch for reauthorization of
the organization that you head up that you explain in great
detail the importance of what you do, and your defense is one
indictment? We have only had one indictment. Would the American
people look at Congress and say, ``Gosh, they have only had one
indictment. Wow, that is good. We are happy?'' Walk me through
this.
Mr. Hochberg. I would be happy to, sir. Some have asserted
on this committee that the organization is full of corruption.
What I tried to indicate is that there is one indictment, one
employee. The other investigations involved outside entities,
companies and individuals trying to defraud the government.
That is what I was referring to.
In terms of improving the workplace environment, last fall
we established four objectives for the Bank, and amongst the
top four was making this a first-tier place to work, improving
management development, improving opportunities, and making
this a better place to work. So, we are working hard at that.
Mr. McHenry. Sir, in the same survey, you have half of your
employees agree, or half of the employees at the organization
you had, agree that if they disclosed suspected violations of
any law, rule, or regulation, they will not fear--actually,
only half say that they would not fear reprisal for that.
Mr. Hochberg. If you look at the data, sir, only 20 percent
actually disagreed with that statement. Not--20 percent of the
employees said they actually did not feel--
Mr. McHenry. That is like bragging, ``I am firmly middle
management.'' Or, ``I am a solid C student.'' Like this sort
of--you should be making a better effort on this to acknowledge
that, yes, there are failures. That would be a helpful thing, I
would think. I am not trying to change your sales pitch, but I
am just telling you that it is just not working. We are not
buying it when you say that the management practices are
sufficient and good, and just because you have raised this as a
higher priority, that is sufficient, and we should be happy as
policymakers when we look at your charter. All right, something
has to change.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Ohio, Mrs.
Beatty.
Mrs. Beatty. Thank you, Mr. Chairman.
Thank you, Ranking Member Waters, and thank you to our
witnesses today.
First, let me say to you, Mr. Hochberg, welcome back to our
committee. And I certainly want to take this opportunity to
thank you for coming to my district. And not just coming to
give a speech or be there for an hour, but to stay there and
walk through the district, and hear concerns from a panel of
some 50 people. It was also my pleasure to have you visit with
a small company, Davenport Aviation, which utilizes Ex-Im
resources to finance exports of its aircraft products
internationally.
Today has been interesting, and disappointing. It has been
about a whole lot of issues for me, from where you slept, what
room you slept in, how much money you took, to this whole
concept of winners and losers. I believe this Congress should
work to lift up America, and we should work day and night to
support small businesses, to help our veterans, to invest in
innovation, but clearly, some of my colleagues on the other
side of the aisle want to pick winners and let the rest of
America suffer as losers. If we are going to have that
discussion, since all morning we have been hearing about
winners and losers, and Democrats are being accused of flipping
our opposition on the Ex-Im Bank, I am going to follow Mr.
Capuano's example and not read off the list of people who have
switched their votes on both sides.
But I would like to draw this committee's attention to some
of the losers under the current Republican Leadership. Last
Congress, if the Majority had its way, the Supplemental
Nutrition Assistance Program (SNAP), the Food Stamp program,
would have suffered over $20.5 billion in cuts. These cuts
would have cost millions of our most at-risk Americans,
seniors, children, and veterans to go hungry. And later today,
the House will vote on another appropriations bill, subject to
the drastic spending caps created under the sequester, the
Commerce-Justice-Science Appropriation bill, where funding for
the Legal Services Corporation is cut by $75 million, reducing
it to just $300 million, and thousands of people who qualify
for legal representation from LSC will be turned away. Well,
that is just another example of losers.
So I get confused when sometimes we are accused of
supporting the big folks, well, in this case, we supported a
lot of folks. And we made the losers the small people.
So I went to my district, and I started asking the small
companies what they thought. And here is a statement: ``The Ex-
Im is 100 percent necessary for my company,'' the president of
Davenport Aviation said. ``My company without Ex-Im Bank would
not be able to exist.''
One of my central Ohio Republican colleagues said that he
had heard from employers in central Ohio and how they directly
benefitted from the Ex-Im Bank and the consequences of not
reauthorizing it. So my point is this, you have been
criticized; you have been asked a lot of questions about the
small businesses. Critics of the Ex-Im claim that the Bank
promotes production in one sector of the economy to the
detriment of the other. And we have heard all of those critics
and that the Ex-Im picks winners and losers.
So can you dispel this notion of Ex-Im picking winners and
losers, and speak to how the Bank actually extends loans and
guarantees to all applicants that meet its strict lending
requirements?
Mr. Hochberg. Thank you, Congresswoman.
It was very good to be out in your district with you. As I
said in my testimony, I will be brief, because we do not pick
winners and losers. Companies come to us when they can't secure
the financing they need to make their exports sales and support
jobs. And there was a comment in Maine, if there are two
companies, if one doesn't need our support and the other one
does, one can find it in the private sector, we are delighted
with that, but we want to make sure it is a level playing field
and that financing is not the thing that gets in the way, we
don't want that to stop creating jobs in America versus jobs
overseas.
Mrs. Beatty. Thank you, and I yield back.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, chairman of our Housing and Insurance
Subcommittee.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
It is interesting--I had a meeting the other day with the
CEO of a large company that buys a lot of large items like
airplanes, train cars, heavy equipment, and I asked him the
question, if Ex-Im went away, what would you do? And his first
response was, the first thing I would do is I would quit buying
Boeing planes and go buy Airbuses, and all of the jobs would go
away. Boeing isn't a manufacturing company. They are a design
and assembly company. They have 1,800 small manufacturers,
small businesses that produce their parts. So those 1,800 small
manufacturers which are relying on this Bank to be able to
exist, to be able to make a profit, to hire people. I think
your numbers, Mr. Hochberg, indicated a minute ago 160,000-plus
was created recently, the last year or so.
It is interesting, also--I sit on the Small Business
Committee as well. I am vice chairman of the committee, and we
have had a couple of hearings. And in those hearings we have,
obviously, small-business people all the time talk about their
concerns, whether it is taxes, regulation, whatever, and the
discussion eventually gets around to Ex-Im Bank. If it doesn't,
I get there with it. And I ask them, what is your opinion of
it? And every single one, not one time in the committee
hearings that we have had has there been one person who said,
we don't need it. Every single one says, we need it. It is
important. We have to compete.
So I guess my first question to you, sir, would be, do you
have any idea of all of the other suppliers that are affected
by--I think the number of small businesses that you loan to
directly is like 3,400, but I am interested if you have Boeing
with 1,800, how many other small businesses do you have
calculated that are affected by your Bank?
Mr. Hochberg. It is hard to get a precise number of the
small businesses in the supply chain, but as you mentioned, I
visited a company called LMI that is a Boeing supplier in
Missouri. There is a company called Tomco that supplies GE with
fire suppression equipment that is used in their power plants
that they export overseas. So, over and over again, the company
that Congresswoman Beatty referred to sells replacement parts
for Boeing aircraft overseas to airlines in sub-Saharan Africa.
And so, there are many small businesses, both direct and
indirect. The indirect are like in a campaign who provides the
catering and the yard signs and the printing; those are
indirect beneficiaries. In the same way, we have Boeing has
15,000 suppliers and I want to say that about 6,000 small
businesses.
Mr. Luetkemeyer. What is the percentage of small businesses
that access your Bank as it is now versus the big guys? In
other words--
Mr. Hochberg. Well, 90 percent of our customers, direct
customers, direct beneficiaries are small businesses. In 2014,
we financed about $27 billion, of which about 39 percent or
about $10 billion of Ex-Im's supported export value of the
goods and services financed were from those small companies,
and that doesn't count all of the indirects, as you referenced.
Mr. Luetkemeyer. I also have a lady in my district who
builds log homes out of oak logs. I come from central Missouri.
Oak logs are very plentiful, and that is what she does. She
also takes those oak logs, packages them up into a kit, and
sells them to China, and your bank helps finance that. I thank
you for that. If you go away, she goes away.
And I think that those jobs are going to go away with it.
One of the arguments that seems to be out there is that these
jobs would all find someplace else to go. I think my first
example was, no, they are not. They are going to go to France
to buy Airbuses. They will not be created at all because that
lady will be no longer to be able to finance the kits that she
sells to China.
And it is interesting that my side is interested in dynamic
scoring. So if you have a job and you do something that--an
exponential economic increase off of that is something, I would
think, that we would be very interested in, and would really
score--this bill would really score well from the standpoint of
the job creation that is out there.
So I think it is a point that needs to be made, and I think
that I understand that sometimes there is--I know our vice
chairman was making some reference to some of the internal
problems that you have in the Bank, and we can't deny that. But
I think that if we are going to throw the baby out with the
bath water, you never go out, and you don't throw away the
whole police department if there is problems in the police
department. You clean it up. You make it better. And I think
that is the responsibility of Congress. For us to disregard
that responsibility and just say no, we don't need the Bank, is
disregarding our responsibility.
It is also interesting to me that I have heard the words,
``level playing field for our companies,'' ``creating jobs,''
``must be able to compete with China,'' ``if we don't, they are
going to fill the void,'' which sounds like some of the
rhetoric that I use when I am trying to defend Ex-Im Bank. Yet,
that is the same rhetoric that my colleagues use to support the
TPA, in going with the trade agreement or the Trans-Pacific--
trade agreement. And yet they are going to vote against versus
for, and I really fail to see the situation here.
But I see I am over my time, and I appreciate the
opportunity to voice a few concerns, and I yield back to the
chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Colorado, Mr.
Tipton.
Mr. Tipton. Thank you, Mr. Chairman. Mr. Hochberg and Mr.
McCarthy, thank you for taking the time to be here.
Mr. Hochberg, I think I would like to follow up a little
bit along the lines of Mr. Williams' questioning in regards to
the need for Ex-Im Bank given that we have the private sector.
Can you name for me a bank in the country with, if we have a
default rate of 0.167 percent, a bank that would not take a
loan?
Mr. Hochberg. The reasons we have a low default rate of
0.167 percent are twofold. One is our underwriting, but most
importantly, it is backed by the full faith of the U.S.
Government. People don't default on the U.S. Government. That
is a very strong incentive for people to pay and to make sure
we have a good credit rating.
Mr. Tipton. So no private sector banks can sell this?
Mr. Hochberg. Private sector banks are those who bring us
to the transaction. That is the only reason we are there. We
don't muscle them out. They actually bring us in because of the
example I gave earlier of a company in Detroit where the fact
is, their bank would not provide financing unless Ex-Im
guaranteed the loan.
Mr. Tipton. And that is because regulatorily they can't
make the loan, is that correct?
Mr. Hochberg. Either it is outside of their strike zone, it
is outside of their risk profile--
Mr. Tipton. But the risk profile is going to be driven by
the regulations that come out of the Federal Government.
Mr. Hochberg. Part of it is also coming through Basel III,
sir, where banks have severe penalties for lending more than
5--
Mr. Tipton. So we are getting the FSB, the FSOC that is
going to be involved. The bottom line is we are getting back to
regulations which are coming out of FSB or FSOC that are coming
in telling banks what those profiles can actually be. So there
is--we are squeezing out the private sector, leaving you as the
sole source of capital.
Mr. Hochberg. Sir, we did, as I mentioned, last year about
$20 billion worth of loans. The private sector did a
spectacular job. We only came into those few situations--
Mr. Tipton. I understand that, sir, but I guess the point I
am trying to be able to get at is that we have to be able to
have the government backstop on this. Can it be filled by the
private sector, and what I am asking you is, is this really
regulatory in nature coming out of policies, be it the FSB, the
FSOC, out of Dodd-Frank, and the implications that are coming
in that are going to be inhibiting the private sector from
being able to participate in this?
Mr. Hochberg. You would have to ask a commercial banker
that question. I can only tell you that we are brought in when
the banks said we cannot--
Mr. Tipton. Ironically, I have asked banks that, and it may
not be in Ex-Im's particular portfolio, loans that they would
like to be able to make, but because of regulations, they
cannot make, and this is an opportunity, actually, for the
private sector to be able to step in and to be able to service
that need, and maybe to be able to create actually more jobs.
Do you think this is actually maybe--your very existence is
an indictment of--and we all know there need to be some
regulations, but overregulation that is literally coming out of
expansive government policy that is being now collaborative
with our European counterparts?
Mr. Hochberg. Ex-Im Bank today--and I look at our foreign
counterparts--we exist when there are crises in the financial
markets globally. That is why we did so much in loans 2 years
ago because of the severe contraction of credit globally in the
aftermath of the worst recession since the 1930s Depression.
Mr. Tipton. Exactly, and we could have probably a great,
great argument on who helped precipitate that crisis in terms
of government policy that was being put forward. But if we look
at really the regulations and if we are talking about being
able to be competitive, right now we are seeing businesses in
this country paying $2 trillion in regulatory costs. We see the
lowest labor participation rate. We have a broken Tax Code. I
just visited with a company that has a 32-percent effective tax
rate. What if we were to shift that policy to be able to make
the United States a place where people want to be able to come
and do business, to where it is easier to be able to get a
loan, where we put risk not on the Federal Government, not
ultimately on the American taxpayer, but back into the private
sector, where it actually should belong? Would you dispute that
is a bad idea?
Mr. Hochberg. We have the best private sector in the world.
We have the best private banking system in the world, and it is
the most expansive. It is just not 100 percent. We try and fill
in a gap when there are certain gaps based on economic
conditions or certain countries or industries at a certain
time. The nuclear industry is a good example of that since it
is very hard to get private sector financing no matter what you
do with the regulations, so we fill in that market.
Mr. Tipton. Again, I think we could probably have a
discussion over whether or not the private sector wouldn't do
it as long as there is going to be the government backstop,
there is no incentive for the private sector to be able to step
in. The risks can actually be taken through that private
sector.
And Mr. Chairman, my time should be up. I yield back.
Chairman Hensarling. The time of the gentleman is yielded
back. For what purpose does the ranking member seek
recognition?
Mrs. Waters. I ask unanimous consent to enter documents
into the record from: the Bankers Association for Finance and
Trade, and the Financial Services Roundtable; and 1,053
organizations from across the country that are urging support
for long-term reauthorization.
Chairman Hensarling. Without objection, it is so ordered.
The Chair now recognizes the gentleman from Minnesota, Mr.
Emmer.
Mr. Emmer. Thank you, Chairman Hensarling and Ranking
Member Waters, and thank you, Mr. Hochberg, and Mr. McCarthy
for being here. I am relatively new to this committee, and I am
working to get up to speed quickly. Again, I appreciate your
being here today and answering these questions. It has been
very informative for me.
Now, Mr. Hochberg, in your opening statement, you reminded
us that Ex-Im was created to support American jobs. And I
believe the mission statement, for example, provides
specifically that it is to contribute to maintaining or
increasing employment of U.S. workers by subsidizing the export
of U.S. goods and services to foreign markets. Further, it is
my understanding that the Ex-Im Bank is primarily a bank that
is--it works for a few large multinational corporations. In
fact, according to some of the information that I have recently
been going through, I think it was 2013, 75 percent of the
loans guarantees and insurance issued through Ex-Im were to 10
large companies.
That number remained pretty much the same last year in
2014. I hear all the time that it is important for small
businesses to have the Ex-Im Bank. And I actually have some
constituents who have used the Ex-Im Bank. The mandate is 20
percent. I am interested to know, if you can do it briefly, how
do you define a small business?
Mr. Hochberg. Small businesses are actually defined by the
Small Business Administration. We don't make our own
definition. We use the SBA's definition.
Mr. Emmer. What is your understanding of the definition?
Mr. Hochberg. It basically depends on the industry. If you
are a manufacturer, it is less than 500 employees, but it
actually varies industry wide. A small car dealer--
Mr. Emmer. If you are a manufacturer, it is less than 500.
Mr. Hochberg. Yes, but it varies, as I say, industry to
industry.
Mr. Emmer. All right, I believe I am correct, and please
correct me if I am wrong, the Ex-Im Bank provides less than 2
percent of the loan guarantees and insurance, in other words
the financing, for American exports?
Mr. Hochberg. About 2 percent of U.S. exports, that is
correct.
Mr. Emmer. And, again, 75 percent of that goes to large
businesses, correct?
Mr. Hochberg. As I said earlier, Ex-Im financed $27 billion
last year, and 39 percent of the total value of the exports we
financed was shipped directly from small companies.
Mr. Emmer. Actually, Mercatus just put out the one for
2014, and it had 76 percent going to the top 10 largest
companies.
I am going to move on from that because my time is limited.
You have focused on how other countries are aggressively
supporting their commercial sectors as a means to enhance their
sphere of influence, and you used China as the example and the
ranking member this morning talked about China. In fact, I
think you said at one point, in the near future, they will
double the financing for their exports. And yet, according to
some information that I have, your Bank last year guaranteed, I
think it was $18 million, for a deal the Chinese ex-im bank was
doing. Why is the Ex-Im Bank in this country helping to
guarantee this wonderfully successful and aggressive Chinese
ex-im bank?
Mr. Hochberg. We do a number of transactions with China. A
lot of them are--for the company I mentioned earlier, Tuftco in
Chattanooga, Tennessee, the debt is guaranteed by the China Ex-
Im bank. So--
Mr. Emmer. I understand--
Mr. Hochberg. --with the buyer in China, we actually have a
government guarantee.
Mr. Emmer. Mr. Hochberg, let me put it this way, if they
are so successful and they are so aggressive, it doesn't seem
to make sense that you are guaranteeing their deals. They
should be able to do it on their own. I will also ask you this:
Apparently last year before they ran in sanctions, your Bank
was actively working with a Russian bank that is doing business
with Russian arms dealers and you didn't stop that until the
sanctions were put in place. All I would suggest is that in my
initial review of this, it looks like we are not staying in
accordance with our mission.
And Mr. Chairman, I would yield my last 30 seconds to the
Chair.
Chairman Hensarling. I thank the gentleman.
Chairman Hochberg, you have heard several members speak of
this NewSat scandal today. We are under the impression that
you, the Ex-Im, have in your possession the report by the
consultant Brendan Rudd, I believe is his name. Our staff has
asked your staff for a copy of this. It is my understanding
that your staff has refused. Will you provide the Rudd report
on NewSat to the committee?
Mr. Hochberg. Mr. Chairman, there is not a report. It is an
email we received from Mr. Rudd which outlines a number of
allegations that we are working with the legal authorities on
to run them down, to find out what is true and what is not true
so we don't have a lot of--
Chairman Hensarling. Okay, sir, will you provide a copy of
this to the committee?
Mr. Hochberg. Right now, it is still business confidential.
We would like to keep this so we can actually move forward. I
am trying to find a way we can get to a good answer and a good
outcome for the American taxpayers and for Ex-Im Bank.
Chairman Hensarling. Okay, the committee has requested
this. We will put in an official request. I hope we don't have
to subpoena it. We would hope that you would voluntarily supply
this.
The time of the gentleman has expired.
The Chair now recognizes the gentleman from Tennessee, Mr.
Fincher.
Mr. Fincher. Thank you, Mr. Chairman.
And thank you, Chairman Hochberg and Mr. McCarthy, for
being here today.
A lot has been said today, many comments on both sides of
the aisle, pro and con. I was just thinking, as I was looking
over some notes, about one of our greatest Presidents,
President Reagan, and how he was able to guide the country in
the direction of prosperity and growth, was able to make things
work, and I was thinking about a lot of the policies that he
championed, and I wonder, in today's political world, on the
Republican side of the aisle, how many of my colleagues would
politically go after President Reagan because he wasn't, in
their mind, conservative enough, which is really ridiculous
because he was able to do a lot for this country with his
leadership?
Also today, as I have been listening to a lot of the
comments, I guess I have to get on my staff, I thought we had
introduced a bill with 60 cosponsors earlier in the year, H.R.
597, to reauthorize and reform the Ex-Im Bank. So many of the
issues that have been brought up today we are addressing in our
reform package. I was just looking over some of the things
making the Office of Ethics statutory.
To my good friend Mr. Williams from Texas, we allowed the
Bank to build its own earnings now. So if there is ever a place
and time that there is a failure, we allow the Bank to build
its own capital so the taxpayer will not be on the hook. We are
actually strengthening and making this--what is frustrating as
a good conservative Republican is we are sent to Washington to
make the government more accountable, more transparent, and
more responsible, and to work for our constituents.
Last night, I had a lot of thoughts go through my head, and
I asked my wife, ``Am I sure I am doing what is right?''
And she said, ``You know in your heart you are doing what
is right.''
And I said: ``Well, it is very difficult on me having a
disagreement with the chairman.''
And she said, ``Well, honey--and she has been wrong before,
but I think she was right this time--you don't work for the
Chairman. You don't work for the President. You don't work for
the Speaker. You work for your district. You work for the hard-
working Americans all over this country, and you are sent to
Washington to do the best you can with what you have.''
Now, look, the easiest thing for us to do here politically
is to blow this thing up and go back home to our districts, and
blame everybody else for it. And you know who is going to be
left holding the bag? The workers who lose their jobs because
these companies are buying products from people in other places
around the world.
Now, we have a challenge here. Are we going to step up and
try to do the right thing? Roger Williams brought up a great
point when it came to reforming this part of the nonrecourse
loan. Do you know how we do that? We do that by bringing
something before this committee in regular order. Chairman
Hensarling has been a champion of regular order. Allow us to
have our day, allow us to have our say, and if the opponents of
this win out, then we lose and the Bank won't be reauthorized.
But we have all of these reforms. We have been working on a
conservative approach to fixing the problems with this Bank,
but yet we somehow can't seem to come together and at least
have an open and honest debate.
The hearings are good. I know they serve their purpose. But
this is getting a little old doing the same thing over, and
over, and over, when we could have a markup. We could have
regular order. The people could offer amendments, amendments if
they wanted to end the Bank, amendments to have nonrecourse,
whatever amendment they wanted to offer. And we could all vote.
We could all have our say. We could all show people where we
stand on these issues. Or we can continue to play the game--it
expires in, what, 14 days? We have an obligation to do what is
right for the American people. And I have an obligation to work
for my district: 160,000 jobs nationwide; 8,300 jobs in the
State of Tennessee; 116 exporting companies in the State of
Tennessee. The American people deserve better and we need to
give it to them.
And I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New Hampshire,
Mr. Guinta.
Mr. Guinta. Thank you, Mr. Chairman.
And thank you, Chairman Hochberg, for being here today to
talk about this issue. I have listened to a lot of the
testimony and a lot of the questions, and I think this is a
very serious and complex issue before this committee, and
before Congress.
I served back in the 112th Congress when this was
reauthorized. And I have met with you, and I have listened to
your testimony. I have read your testimony, and I have tried to
look at this in a way that gives me as much information as I
can possibly have as I try to make a decision. I have met with
companies back home who favor and support reauthorization. I
have talked to constituents who oppose reauthorization for
different reasons.
There are two areas that I think I would like to focus on,
on which I need some clarification. You stated in your
testimony this morning, I think in your written testimony, a
very basic statement: ``To be clear, every action and study
required in the Bank's 2012 bipartisan reauthorization has been
completed and implemented or is being compiled with on an
ongoing basis.'' And you have the attachment to identify that.
What I would like you to walk me through as I looked
through all of these recommendations, I see a number of them
that are fully implemented, but I see quite a number that say,
``concur, working to implement.''
Mr. Hochberg. Concur what?
Mr. Guinta. ``Concur, working to implement.'' And a number
of them going back to 2010, 2012, 2013, so I wonder if you
could clarify for me why would it be taking so long to
implement some of these recommendations? And I can be specific
on some of them, but if you just want to answer generally or
broadly then I can get more specific.
Mr. Hochberg. Well, for example, for me--the inspector
general's are ongoing studies, ongoing audits, ongoing
proposals for improvement. They are currently standing at 145.
We have closed out 97 of them. Two-thirds of them are closed
out. Since we last had a hearing here 6 weeks ago, we have
closed out another 9 or 10 of them in that period. So we are
continually working through that. We reviewed it, and have
agreed with the inspector general on 143 out of 145
recommendations. So once we agree, then the next work is to do
a work plan together to actually implement it. That is what we
are working on.
Mr. Guinta. What about in the area of portfolio risk and
loss reserve allocation policy? Under recommendation 5, it
says: ``Create a position of chief risk officer to oversee the
design implementation of an agencywide risk management.''
And it says, ``concur, working to implement.'' Is that
accurate?
Mr. Hochberg. I added a chief risk officer, C.J. Hall. He
joined the Bank in the fall of 2013.
Mr. Guinta. So are there reports from him?
Mr. Hochberg. C.J. Hall, he chairs the Enterprise Risk
Committee, and then--there are two people under him, two long-
serving employees who are actually the two sort of deputies on
that committee who meet on a regular basis, review the
portfolio; review credit policy; when appropriate, make
recommendations to me and the Board if it requires board
approval; but work closely on providing an enterprise-wide
review of all risk whatsoever. That was one--that was an
earlier recommendation before the 2012 reauthorization that we
implemented voluntarily.
Mr. Guinta. So are there reports which C.J. Hall creates
that Congress should be looking at or can look at?
Mr. Hochberg. One of these they approve is the default
report, which comes to Congress every 90 days.
Mr. Guinta. How about other reports?
Mr. Hochberg. There are other reports. Some of them they
send to the audit committee of the Bank. Some come to me. Some
will go to the inspector general. I prefer that the inspector
general answer the rest of that question.
Mr. Guinta. What about--there is another one from September
28, 2012, Export-Import Bank Short-Term Insurance Program. It
is recommendation 6: ``Development and implement a monitoring
processor for periodically reviewing a sample of
authorizations.'' It says, ``concur, working to implement.'' Is
that not completed?
Mr. Hochberg. I would be probably better served by having
Mike McCarthy respond directly.
Mr. McCarthy. Which one are you referring to?
Mr. Guinta. Recommendation 6, from September 28, 2012,
under Export-Import Bank Short-Term Insurance Program. It is
recommendations 6 and 7; both say, ``concurring, working to
implement.'' I guess my question is, if that is accurate, if
you are working to implement, why would it take from September
2012 to today to not complete?
Mr. McCarthy. I think our view overall is that we have been
working with the Bank to implement these recommendations. We
have drawn a distinction, and I did in my testimony today,
between current recommendations they have been issued in this
fiscal year and older ones. The older ones we would like to see
more progress on.
Mr. Guinta. Okay, thank you.
Chairman Hensarling. The time of the gentleman has expired.
There are no other Members in the queue, so we will excuse
our first panel.
Mr. McCarthy, Chairman Hochberg, thank you very much for
your testimony.
The Chair wishes to alert all Members that there are
currently votes taking place on the Floor. Thus, we will not at
this time convene the second panel, but we will excuse the
first panel.
We expect to be on the Floor for quite some time. We
anticipate convening the second panel in approximately an hour
and a half. Until then, the committee stands in recess.
[recess]
Chairman Hensarling. The committee will come to order.
Before we recessed for Floor votes, we heard testimony from our
first panel of witnesses. We have now impaneled our second
panel, and we will introduce them.
Starting on my left, Mr. Daniel Ikenson is the director of
the Cato Institute's Herbert A. Stiefel Center for Trade Policy
Studies.
I now wish to yield to the gentleman from Arkansas, Mr.
Hill, to introduce our next witness.
Mr. Hill. Mr. Chairman, thank you so much.
It is a pleasure for me to introduce Rachael Cox, who is
vice president of business development for Conway Machine,
Inc., a small, successful, family-owned manufacturer located in
Conway, Arkansas, which is in the Second Congressional
District. Like many small businesses, Conway Machine faced
tough economic times during our Great Recession. But they
adapted and innovated, largely by increasing exports around the
world. And in 2013, Conway Machine received the Governor's
Award for Excellence in Global Trade for small businesses.
I appreciate Mrs. Cox taking time away from her family to
be with us today. Her husband is deployed overseas, and we
appreciate their family's service to our country. And I look
forward to her testimony.
Thank you, Mr. Chairman.
Chairman Hensarling. Thank you.
I now recognize the gentleman from New Hampshire, Mr.
Guinta, to introduce our next witness.
Mr. Guinta. Thank you, Mr. Chairman.
It is an honor today to introduce my fellow Granite Stater,
Mike Boyle. Mike is the CEO and president of Boyle Energy
Services and Technology, Inc., which is located in New
Hampshire's largest City and my hometown, Manchester. After
serving in the Navy, Mike utilized the skills gained in his
training to start his very successful company, Boyle Energy,
back in 1990. He has served our country and he served our great
State, and I very much appreciate him being here. I look
forward to hearing his testimony, and I believe he'll be a
great witness.
Chairman Hensarling. Our next witness, Mr. Clifford Smith,
is the executive vice president of business development at
Cliffs Natural Resources. He graduated from the South Dakota
School of Mines and Technology with a degree in mining
engineering, and previously held mine management positions with
other concerns.
Mr. John Murphy is the senior vice president for
international policy at the U.S. Chamber of Commerce. He
graduated Phi Beta Kappa from the University of Colorado at
Boulder, with a Master's degree from the School of Foreign
Service at Georgetown. He previously served as the Chamber's
vice president for western hemisphere affairs.
Richard Ben Hirst is the executive vice president and chief
legal officer of Delta Air Lines. He graduated from Harvard
College, Harvard Law School. He previously served in general
counsel positions for Northwest Airlines, the Minnesota Twins,
Burger King, KB Home, and Continental Airlines.
I know we have several witnesses who have never testified
before Congress. It is not quite as difficult as it looks, but
there is a little button system and a light system. When it is
your turn, if you can please make certain that your microphone
is on. Green means go, yellow means really go because you are
about to run out of time, and red means stop. Hopefully, that
will be abundantly clear to all.
And at this time, Mr. Ikenson, you are now recognized for 5
minutes to give a summary of your testimony.
STATEMENT OF DANIEL J. IKENSON, DIRECTOR, HERBERT A. STIEFEL
CENTER FOR TRADE POLICY STUDIES, CATO INSTITUTE
Mr. Ikenson. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee. 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, which are my own and should not
be construed as representing any official positions of the Cato
Institute.
Americans tend to view the global economy as an us-versus-
them proposition, where exports are team U.S.A.'s points,
imports are the foreign team's points, the trade account is the
scoreboard, and the deficit on that scoreboard means the home
team is losing at trade. Given the exalted status of exports in
the public's mind, Ex-Im's self-portrayal as indispensable to
U.S. export success insulates it from the level of scrutiny it
deserves.
Trade is not a competition between us and them. It is not a
national sport played between countries. The goal of trade
policy is not to secure a national trade surplus. Why should
U.S. taxpayers underwrite and U.S. policymakers promote the
interests of exporters anyway, when the benefits of those
exports accrue primarily to the shareholders of the companies
enjoying the subsidies?
There is no national ownership of private export revenues.
Policymakers should stop conflating the interests of exporters
with the national interest. Instead, they should aim to make
the United States a more attractive place for companies, both
domestic and foreign, to invest, hire, and engage in production
and commerce.
For example, most of the value of U.S. imports in 2014
consisted of intermediate goods, capital equipment, and raw
materials, which are the purchases of U.S. businesses. Yet many
of those imports, products like sugar, steel, magnesium, and
polyvinyl chloride are subject to Customs duties which raise
the cost of production for the U.S.-based companies that need
them, making those firms less competitive at home and abroad.
Now, that is fairly easy to grasp. But just as U.S. steel
tariffs raise costs for U.S. manufacturers of appliances and
auto parts, subsidies to exports steel have the same adverse
effect on steel-using industries: diverted supply leading to
higher domestic input cost and lower input prices for
competitors abroad. What is seen and celebrated is the tariff
or export subsidy that benefits the steel industry. What goes
unseen but is every bit as real are the costs imposed on the
downstream industries.
Ex-Im 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 U.S. companies: competing U.S. firms in the
same industry who do not get Ex-Im backing; and U.S. firms in
downstream industries whose foreign competition is now
benefiting from reduced capital costs courtesy of the U.S.
Government.
Nearly 55 percent of U.S. manufacturing output is purchased
by other U.S. manufacturers as inputs to their own production.
So subsidizing its diversion abroad amounts to a policy that
does pick winners and losers. Ex-Im financing enables the lucky
U.S. exporter to offer more favorable sales firms to the
foreign customer to win the sale, and it reduces the cost of
capital for that foreign customer. Those two parties are the
beneficiaries.
But hurt by that same transaction are U.S. competitors of
the U.S. exporter, in other words, U.S. firms in the same
industry as the subsidized exporter and U.S. competitors of the
foreign customer who are put at a relative cost disadvantage.
If Ex-Im provides a $50 million loan to a foreign farm
equipment manufacturer to purchase steel from U.S. Steel, the
transaction may benefit U.S. Steel, but it hurts competitors
like Nucor, Steel Dynamics, AK Steel, and the other steel firms
in the United States that compete for the same customers at
home and abroad.
These are what I call the intra-industry costs. The $50
million subsidy of U.S. Steel is a $50 million cost to the
other steel firms. And while Ex-Im would call that a $50
million benefit to the U.S. economy, it is really a $50 million
benefit to U.S. Steel, not the broader economy. What is given
to U.S. Steel is taken from Nucor and other firms.
But there is more, the downstream industry cost of those
imposed by the transaction on the U.S. companies that compete
with the foreign customer. When that foreign farm machinery
producer purchases steel on credit at subsidized interest
rates, it obtains an advantage over its competitors, including
its U.S. competitors. Some percentage of that $50 million loan
to the foreign farm equipment producer is a cost borne by U.S.
farm equipment producers such as John Deere, Caterpillar, New
Holland, et cetera, who compete in the United States and abroad
with foreign producers whose costs are lower courtesy of the
U.S. taxpayer.
Ex-Im measures its success by the exports it underwrites.
Last year, it supported $27.4 billion of U.S. exports, but the
analysis doesn't simply end there. Those are, at best, the
gross benefits. Costs need to be taken into account,
considering only the downstream costs and not the intra-
industry costs or the opportunity costs. A recent Cato
Institute paper found that Ex-Im policies amount to an annual
tax on the U.S. manufacturing sector of approximately $2.8
billion, and the victims include companies across the
manufacturing spectrum and across the United States.
The average firm in four of every five manufacturing
industries is made worse off by the Export-Import Bank. Market
interventions like these, no matter how well-intentioned, have
secondary effects that must be considered when rendering
judgment about the efficacy of policy; in other words, costs
and not just the shiny benefits, must be taken into account.
And when they are, the case is clear, Congress should allow Ex-
Im to expire at the end of the month and refrain from
subsequent reauthorization.
Thank you.
[The prepared statement of Mr. Ikenson can be found on page
170 of the appendix.]
Chairman Hensarling. Thank you.
Mrs. Cox, you are now recognized for 5 minutes for your
testimony.
STATEMENT OF RACHAEL COX, VICE PRESIDENT, BUSINESS DEVELOPMENT,
CONWAY MACHINE, INC.
Ms. Cox. Thank you, Chairman Hensarling. My name is Rachael
Cox. I am the vice president of business development for Conway
Machine. We are a woman-owned, small business specializing in
precision machining, Swiss style and standard CNC turning and
milling, as well as the manufacturer of replacement parts for
the printing and packaging industries.
I am an Air Force wife. My husband is presently deployed.
I, therefore, rely heavily on my network of family and friends
in the caretaking of my two young daughters. My parents
purchased the business when I was about 8 years old, so I have
a lifetime of experience in the industry. And in 2010, as the
economy was crashing and it looked like it was going to take us
down with it, my parents requested that I join the business,
and like any good daughter, I obliged them.
When I came on board, we regrouped, refocused, and decided
if the U.S. economy could not provide the sales that we needed,
we would find the sales in new markets overseas. And it didn't
take long to start seeing results. As we began our recovery, we
were overwhelmed with work. And any small business owner can
tell you that on any given day, you are wearing about five
different hats, of which all you are the expert. So as we
reintroduced Conway Machine to the international stage, we
began to hire new employees as well.
Now, my first full year with the family business saw a
total export of over $300,000 in 2011, and that was 13 percent
of overall sales. And at that time, the shop was running a day
shift with about 15 employees. The next year in 2012, it grew
slightly, $441,000 in exports, about 16 percent of overall
sales.
But in 2013, after we did a trade show in Germany, we saw a
nearly 50 percent increase to $809,000 in exports, about 25
percent of our overall sales. That same year, as Congressman
Hill mentioned, we did receive the Governor's Award for
Excellence in Exporting. We maintained these new customers the
following year with $875,000 in exports, in 2014, again 25
percent of overall sales. And it looks like this year we are
going to maintain that growth.
We have doubled our workforce, and we now employ an average
of 30 full-time workers. We run a day and a night shift and are
in the process of adding a weekend shift as well. Last year,
Conway Machine made a large investment of $1 million in new
equipment, and by the end of this summer, we will be moved into
our new expansion of over 5,000 square feet of production
facility. All of these have served to increase our capacity,
technological expertise, and overall quality of product and
price.
Our 50 percent increase in exports was accomplished without
the assistance of the Ex-Im Bank. That is not to say Conway
Machine is adverse to government resources for small
businesses. We have good relationships with the folks at the
Arkansas World Trade Center, and I am currently taking classes
with the Small Business Administration.
However, Conaway Machine is not dependent on the government
for its success. When I researched the Ex-Im Bank, and
especially the sign-up process, it became clear that it was
designed more for large businesses. The amount of information
required was pretty overwhelming at best and invasive at worst.
And after some consideration, I did decide against it.
As an Air Force wife, I consider myself a bit of a patriot.
It is important to remember that our servicemen sign up because
they wish to protect and defend the Constitution. They
understand and cherish the fact--and I will quote from the
Declaration of Independence--`` that All men are created equal,
endowed by their Creator with certain unalienable Rights, that
among these are Life, Liberty and the pursuit of Happiness.--
That to secure these rights, Governments are instituted among
Men...''
As you consider the renewal of the Ex-Im Bank, I would ask
you to consider our founding documents and the principles from
which they were derived. What is the purpose of government? And
in fulfilling that purpose, what is the role of government? It
seems that if government aims to aid small businesses and their
exports and thereby grow the domestic economy, it would be much
more beneficial to create more free trade agreements with other
countries and decrease the red tape barriers to trade.
While the Ex-Im Bank may work for some companies in other
industries, it has not been a resource for Conaway Machine. As
previously stated, we have grown our exports by 50 percent and
doubled our workforce without the use of the Ex-Im Bank. Given
the complaints that we have seen today, it may be time to
consider whether a good intention by the government has gone
awry yet again.
Thank you, Mr. Chairman.
[The prepared statement of Mrs. Cox can be found on page
118 of the appendix.]
Chairman Hensarling. Thank you.
Mr. Boyle, you are now recognized for 5 minutes for your
testimony.
STATEMENT OF MICHAEL P. BOYLE, PRESIDENT AND CEO, BOYLE ENERGY
SERVICES & TECHNOLOGY, INC.
Mr. Boyle. Thank you, Chairman Hensarling and Ranking
Member Waters.
I am Mike Boyle of Boyle Energy Services & Technology. I
have a unique business. I don't manufacture a product or
machine parts. I am a service provider, a unique person in the
Ex-Im world. My company helps transition the world's largest
energy facilities from construction to operation, a very unique
niche of services that we started 25 years ago, I guess, now,
in 1990.
I went on, 10 years of that time, as a sort of ``me too''
organization working mostly domestically here in the United
States. And then, we invented a new technology that we patented
here in the United States and decided that our best markets for
penetration during the downturn would be overseas, and we were
right. Our opportunities were great because the technology that
we provided as an American engineering corporation were greater
than were available overseas.
During that time, I was very concerned as a small business
that the cash flow for the company be supported, more so for my
vendors and employees than for the benefit of the company as a
whole. But, in fact, that was our greatest fear, our ability to
collect the receivables that we were able to produce overseas.
Having done so, we had a couple of successes, but the
projects grew in large scale. Much, much bigger than a simple
terms of payment would be available to some of these companies.
We were competing with companies such as Abener Abengoa that
had terms of 180 days of payment, which was unconscionable for
a small business. It is impossible for us to work with that
environment.
So what we did is we secured a working capital line of
credit through our bank after we had applied to Bank of America
and were rejected, because our receivables were not able to be
secured overseas, so they were discounted to zero, and
therefore not creditworthy. It wasn't whether or not the
process that we were doing was risky; we had been performing
more than 200 of these projects in the United States at that
time.
Having secured that, we went on to become one of the
leading technologists in the industry. We are considered the
foremost technological leader in the world at what we do. We
patented our program here in the United States. We are seeing 4
times growth in revenue since that time, and 6 times the amount
of employees are now at Boyle Energy Services.
We actually have just made an offer and it was accepted to
buy a 70,000-square foot building, which would now bring us up
to nearly 100,000 square feet in New Hampshire. We are the only
company, outside of Houston in the Texas marketplace, that has
ever done this globally in the commissioning energy industry
from New Hampshire. And this is all from a service I learned
while I was in the Navy. I bill myself as the world's most
successful U.S. Navy-enlisted boiler technician. So until
somebody challenges me on it, I am going to hang that hat on my
award wall.
We have had great success with the Ex-Im Bank. We are the
success story. We have used it appropriately, and as such, we
have repatriated 100 percent of our profits. We pay a nominal
tax rate of 26 percent on those profits, all returned to the
Treasury. We were advised recently on the structure of our
corporation, because we have gone global. We have offices in
Brazil, Mexico City, and Bahrain. We have a laydown yard in
Saudi Arabia.
I have been working in 22 countries, and I think we are in
11 countries tonight, all with American employees. We have
equipment purchased from the United States and shipped
overseas, $75 million since we started exporting. All of that
is at work in support of our working capital line of credit
through the Ex-Im Bank. When I have asked my banks if I could
get additional credit without Ex-Im, they answered, ``no.''
Plain and simple.
I don't know of any other instruments or facilities that
can support. We have sought that out across the United States
and have been unsuccessful. We want to go forth, we want to
continue with our growth. I am hiring at a rate that--I am
putting seats in my office faster than I can hire people right
now. We have enjoyed success, and we have projects going
forward, and we continue to believe that we will be successful
with the Export-Import Bank supporting us.
I am in favor of the Export-Import Bank, and I would ask
that the House of Representatives call for its reauthorization.
Thank you.
[The prepared statement of Mr. Boyle can be found on page
114 of the appendix.]
Chairman Hensarling. Thank you, Mr. Boyle.
Mr. Smith, you are now recognized for 5 minutes for your
testimony.
STATEMENT OF CLIFFORD SMITH, EXECUTIVE VICE PRESIDENT, BUSINESS
DEVELOPMENT, CLIFFS NATURAL RESOURCES INC.
Mr. Smith. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee for allowing me to testify
today. My name is Clifford Smith, and I am the executive vice
president of business development for Cliffs Natural Resources.
We have five major mines in the States of Minnesota and
Michigan, and we are the largest producer of iron ore pellets
for the steel-making industry in the United States.
I am here to speak about the Ex-Im Bank and its $694
million direct loan to the Roy Hill project in Western
Australia that we believe exposes serious flaws in the Bank's
governance and has contributed to the decimation of the global
iron ore trade.
In May of 2013, following the release of the economic
impact notice for the Roy Hill project, Cliffs conducted an
independent economic study on the proposed transaction which
found that the transaction would cause a loss of almost $600
million worth of U.S. exports and the loss of $1.2 billion of
U.S. domestic sales due to price degradation of our products
supplying iron ore.
The total impact to Cliffs over the term of the loan was
estimated to exceed $1.8 billion. These pricing estimates were
based on an assumption that global oversupply would lead
seaborne prices to degrade from an average of $135 a ton in
2013 to $96 a ton in 2018. And, in fact, the global oversupply
of iron ore has become much worse than our own economic
analysis predicted.
Today, the global seaborne iron ore price is in the low
$60-a-ton range, and has dipped as low as $45 in the month of
April of this year. The oversupply situation has been caused by
new projects and the conscious decision of major iron ore
producers like Rio Tinto and BHP Billiton to add unneeded iron
ore capacity, even as the Chinese economy continues to slow
down and demands less iron ore.
Over the past 9 months, we have been reshaping Cliffs to be
a peer U.S.-centric company and to remove us from the iron ore
trade with China. While we still have an international iron ore
mining operation in Australia that participates in the seaborne
iron ore trade, we have initiated court-supervised proceedings
for our Canadian operations to complete our exit from Canada in
an orderly fashion.
This was a difficult but necessary step after considering
and exploring other alternatives for these assets. In addition,
let me point out that there is a direct correlation between low
seaborne iron ore pricing and U.S. steel imports. Low-cost iron
ore is facilitating Chinese steel producers to flood the United
States with cheap steel. The U.S. steel market is experiencing
all-time record levels of imports. A staggering 34 percent of
finished goods hit the United States in the first quarter of
this year.
To put this in perspective, when the Roy Hill transaction
was approved, the U.S. iron ore industry was producing at or
near capacity and at full employment. Today, there are over
1,200 workers in the domestic iron ore business who are
currently on layoff or have been notified of an impending
layoff, including 350 employees at Cliffs Empire Mine in the
State of Michigan.
The Roy Hill project proposes to add even more iron ore to
the market, and then the U.S. industry and aggregate will
compound this oversupply situation when the project begins
later this year in 2015. The Ex-Im Bank's charter precludes the
extension of financing for a material that will be in a state
of global oversupply, and prohibits the Bank from funding the
project that will harm one set of U.S. producers, iron ore
miners, over others, equipment manufacturers.
How then could the Bank justify the Roy Hill loan? The
Bank's own economic analysis found an adverse economic impact
to the U.S. producers of only $25 million, compared to our
study of $1.8 billion in harm. To reach that outcome, there
were widely unsupported claims that the 55 million metric tons
of production for the Roy Hill project would not affect the
global supply demand dynamics.
In short, the Ex-Im Bank second-guessed Cliffs' economic
impact and largely refused to acknowledge our outlook on our
own industry. Going forward, we look forward to working with
the committee to share our thoughts on the necessary amendments
to the Bank's charter to ensure that the Bank can never again
fund a fatally-flawed project such as Roy Hill.
Thank you.
[The prepared statement of Mr. Smith can be found on page
196 of the appendix.]
Chairman Hensarling. Thank you, Mr. Smith.
Mr. Murphy, you are now recognized for 5 minutes for your
testimony.
STATEMENT OF JOHN MURPHY, SENIOR VICE PRESIDENT, INTERNATIONAL
POLICY, U.S. CHAMBER OF COMMERCE
Mr. Murphy. Chairman Hensarling, Ranking Member Waters, and
members of the committee, thank you very much for the
opportunity to be here today. I am pleased to testify on the
importance of reauthorizing the Ex-Im Bank. I represent the
U.S. Chamber of Commerce, the world's largest business
federation representing the interests of more than 3 million
businesses of every size, sector, and State.
At this point in the hearing, you have heard most of the
fundamentals. From the perspective of our business members of
all sizes, the idea that Congress would even consider making
the United States the one major trading nation in the world
without an official export credit agency has left many baffled.
This morning, the Chamber and the National Association of
Manufacturers sent a letter to Congress signed by more than
1,000 companies of every size, sector, and State, calling for
the Bank to be reauthorized swiftly. Consider how refusing to
reauthorize the Bank would put specific sectors and industries
at a competitive disadvantage in global markets.
First, shutting down Ex-Im would mean many small businesses
couldn't even export because commercial banks often refuse to
accept foreign receivables as collateral for a loan without an
Ex-Im guarantee. For these small firms, Ex-Im is often
indispensable. In fact, buyers overseas nowadays expect vendors
to offer financing in many cases. Without Ex-Im's accounts
receivable insurance and lines of credit, many U.S. small
businesses would be unable to extend terms to foreign buyers
and would have to ask for cash in advance.
In such a case, the business will most likely go to a firm
from another country that is able to offer financing. For these
small businesses, Ex-Im isn't just nice to have; it is
indispensable. Nor is there any assurance that eliminating Ex-
Im would cause commercial banks to step into the breach. In
addition to these direct small business beneficiaries, tens of
thousands of smaller businesses that don't even always
recognize it are also benefiting as they supply goods and
services to large exporters that benefit from Ex-Im support.
Second, it is par for the course for expensive capital
goods such as Canadian planes, Chinese trains, and Russian
nuclear reactors to be sold worldwide with unashamed backing
from these firms' national export credit agencies. In past
years, we have seen major tenders for locomotives and a number
of emerging markets hang in the balance.
These tenders, worth hundreds of millions of dollars,
require that the supplier finance a significant portion of the
transaction. Chinese competition, in these cases, has been
fierce, and they come well-prepared with generous financing
from one of China's several export credit agencies. Again, in
these circumstances, the calculus is clear: No Ex-Im, no sale.
Third, with regard to foreign infrastructure opportunities,
closing Ex-Im would shut American exporters out of these huge
and growing business opportunities overseas, because export
credit agencies support is often required for a company to even
bid on overseas infrastructure projects.
Fourth, nuclear power is another sector where the fate of
Ex-Im will have a major impact. According to the Nuclear Energy
Institute, 5 nuclear power plants are under construction in the
United States, but 61 are under construction overseas. So for
the U.S. nuclear industry, which directly employees more than
100,000 American workers in high-skill, high-wage jobs, it is
export or die.
But here is the rub: Export credit agency support is always
a bidding requirement for international nuclear power plant
vendors. Without Ex-Im, U.S. nuclear power companies won't even
be able to bid for business overseas. Make no mistake,
executives in a number of these industries will face the hard
question of whether to shift production to locations abroad
where export credit agency support is available.
Ex-Im's critics would like to have it both ways. On the one
hand, the Bank is a colossus with the power to distort free
markets; but on the other hand, it is such a small agency that
its abolition would do no harm to U.S. companies or their
workers. It can't be both. In fact, Ex-Im is modestly and
appropriately scaled, acting mostly in the circumstances I have
described where it is necessary to U.S. competitiveness.
In closing, Ex-Im does not skew the playing field; it
levels it for U.S. exporters facing head-to-head competition
with foreign firms backed by their own export credit agencies.
It doesn't pick winners and losers, but refusing to reauthorize
Ex-Im is picking foreign companies as winners and U.S.
exporters as losers in many head-to-head competitions.
Ex-Im's opponents have attempted to tie it to unsavory
customers overseas. We believe this is just a diversion from
the true beneficiaries of Ex-Im, the tens of thousands of
American workers who hope and expect to see Congress vote on a
reauthorization bill here in the short term. Thank you.
[The prepared statement of Mr. Murphy can be found on page
189 of the appendix.]
Chairman Hensarling. Thank you, Mr. Murphy.
And Mr. Hirst, you get to bat cleanup. You are now
recognized for 5 minutes for your testimony.
STATEMENT OF RICHARD B. HIRST, EXECUTIVE VICE PRESIDENT AND
CHIEF LEGAL OFFICER, DELTA AIR LINES
Mr. Hirst. Thank you very much, Mr. Chairman, and members
of the committee. On behalf of the more than 80,000 employees
of Delta Air Lines, I very much appreciate the opportunity to
testify on the need for substantial reform of the Export-Import
Bank of the United States. My testimony today is an update for
you of what has happened since Delta last appeared before this
committee one year ago. And we believe the events of the past
year continue to highlight the need for reform of the Bank.
I would like to make three main points in my testimony
today: first, despite the reforms of the 2012 reauthorization
bill, the Bank continues with business as usual, financing more
than $6.8 billion in aircraft transactions in 2014, without any
real analysis as to whether Ex-Im's actions cause harm to
airlines or their employees; second, the courts have recently
ruled that there is no judicial review of the Bank's actions
because of gaps and ambiguities in the Bank's statutory
charter; and third, if there is to be any meaningful progress
to ensure that all U.S. employees are treated fairly, Congress
must take a leadership role to ensure that the Bank only acts
as a lender of last resort.
Since its inception in 1934, the Export-Import Bank has
been charged with promoting U.S. jobs, while ensuring that its
efforts do not harm other U.S. businesses. When it comes to the
airline industry, however, the Bank's loan guarantees to
foreign competitors provide a significant unfair advantage in
the form of low-cost financing, which hurts Delta's competitive
position.
Moreover, the biggest users of Ex-Im financing are some of
the most profitable foreign airlines in the world, which
regularly access the private markets for capital, and do not
need export financing from Ex-Im. Almost half of the Bank's
financial capacity is used to finance these airlines, which
means that a substantial portion of the Bank's financial
capacity is used to harm Delta.
In 2012, we worked with many of you to include two reform
provisions in Ex-Im's reauthorization. The first reform
provision requested that Ex-Im make publicly available the
procedures and methodology for its economic impact analysis. As
we have learned in the past year from the Bank's own emails and
documents obtained through a Freedom of Information Act (FOIA)
request, this effort was never undertaken by the Bank in good
faith; rather, it was engineered to produce a specific result
that would not upset the status quo.
The second reform provision requested that Treasury
undertake negotiations to reduce, and eventually eliminate,
export credits, a directive included in the Bank's charter. We
thought that this reform held the greatest promise to ensure
that a level playing field exists for everyone. Regrettably,
there has been no good faith effort to negotiate.
Recently, as I said, the courts have ruled against Delta
and others in lawsuits challenging Ex-Im's lack of economic
impact analysis in specific transactions. What the committee
may not appreciate is the magnitude of the court's ruling:
first, because of gaps and ambiguities in the Bank's enabling
statute, the court ruled that Ex-Im has near total discretion
about how and whether to consider economic impact, effectively
eliminating any ability for an injured party to obtain judicial
review; second, the court took the view that Congress and only
Congress can impose any meaningful restrictions on Ex-Im's
discretion, and to date, Congress has not done so.
It is now clear that Congress must act if any real reform
is to occur. We continue to believe that the best solution is a
mutually-negotiated reduction in international exports
subsidies, a negotiation that really needs to take place only
with the three countries that provide export credit subsidies
for Airbus's wide-body aircraft: France; the U.K.; and Germany.
For there to be any urgency behind these negotiations, we
continue to believe that Congress must take the lead and
require Ex-Im to adhere to its statutory mandate as a lender of
last resort. If private market financing is available to a
foreign airline, Ex-Im should not be permitted to undercut the
private sector.
Throughout this debate, Delta's sole aim has been to
advocate on behalf of our 80,000 employees, at least one of
whom resides in the State of every member of this committee.
Their request is a simple one, that their government consider
their jobs to be as important as the jobs of every other
American.
Chairman Hensarling, Ranking Member Waters, thank you again
for the invitation to appear before the committee. I look
forward to answering any questions that you may have.
[The prepared statement of Mr. Hirst can be found on page
121 of the appendix.]
Chairman Hensarling. Thank you, Mr. Hirst.
I want to thank all of the panelists. Without objection,
your full written statements will be made a part of the record.
The Chair now recognizes himself for 5 minutes for questioning.
Mr. Murphy, in your testimony, you are a very articulate,
effective advocate for Ex-Im. Indeed, this is some old ground
that is getting plowed here. But having said that, you used a
phrase that Chairman Hochberg used in his testimony, and that
was, ``Ex-Im does not pick winners and losers.'' Now that you
have heard the testimony of Cliffs Natural Resources, now that
you have heard the testimony of Delta Air Lines, do you still
stand by that line?
Mr. Murphy. I do.
Chairman Hensarling. Okay.
Mr. Murphy. In many cases around the world, we have seen
instances where it is very clear that a purchase is going to be
made. And the question is whether or not the U.S. company that
is making an export can get the business or not, and often, it
is the presence or the absence of export credit finance that
will determine that.
Chairman Hensarling. Let me ask this question, then. So in
the vaunted 2012 reforms, I believe it was Section 12 that had
to do with the economic impact statement. And Mr. Hirst, I
think, alluded to it in his testimony. Do you believe that Ex-
Im has executed that reform effectively in the 2012
reauthorization bill, that they effectively take the
detrimental impact on other U.S. companies into account before
engaging in the process of credit allocation?
Mr. Murphy. I do.
Chairman Hensarling. Okay.
Mr. Murphy. And I would cite the court case that was
mentioned earlier as a source of that. The court--
Chairman Hensarling. Mr. Murphy, I will take ``yes'' for an
answer. So that is your answer. Maybe I will get a ``yes''
answer to this, as well.
I think it was a Mr. Brilliant--what a wonderful name--
Myron Brilliant, executive VP head of International Affairs at
the U.S. Chamber who said that, ``TPA is the Chamber's top
priority before Congress.''
Tom Donahue, President and CEO, U.S. Chamber, March 9,
2015, ``Renewal of TPA is priority number one.''
Is renewal of TPA the number one priority of the Chamber?
Mr. Murphy. As a very broad business organization, it is
difficult to prioritize, but we have spared no effort on TPA.
Chairman Hensarling. Apparently, Mr. Donahue and Mr.
Brilliant--
Mr. Murphy. And I am not going to differ from my bosses on
that, Mr. Chairman.
Chairman Hensarling. You are a wise man, Mr. Murphy. You
are a wise man.
I respect the right of all Americans to petition their
government for the redress of grievances. Last I looked, the
Chamber had a pretty healthy lobby budget. But just out of
curiosity, are you expending greater resources on lobbying for
the reauthorization of Ex-Im or are you spending more on the
renewal of TPA?
Mr. Murphy. Mr. Chairman, we believe it is a false choice.
What TPA can do--
Chairman Hensarling. It may be a false choice, but can you
answer the question?
Mr. Murphy. We have a nationwide effort going on to back
TPA.
Chairman Hensarling. I am just asking which are you
spending more on. And if you don't know the answer, I will
accept, ``I don't know the answer.'' But if you do know the
answer, I would appreciate the answer.
Mr. Murphy. I believe we have more resources dedicated to
TPA right now.
Chairman Hensarling. Okay. Thank you.
Mr. Murphy. But it does no good to open a foreign market
if, in fact, we don't have the tools that will allow American
exporters to be competitive--
Chairman Hensarling. The last I looked, particularly at my
friends on this side of the aisle, you might want to look at
investing a few more resources in that particular effort.
You referenced also, I guess, a letter with the National
Association of Manufacturers (NAM). According to NAM, over 50
percent of our competitive disadvantage with our trading
competitors is as a result of our tax structure, and
specifically the corporate tax advantage. Does the Chamber
agree with NAM's analysis?
Mr. Murphy. I am not familiar with the details of it, but
certainly, the world beating high corporate tax rate is a major
factor--
Chairman Hensarling. Okay. So they seem to cite the number
one problem being our tax structure, and not necessarily the
presence or absence of an export credit agency. I just wanted
to note that for the record.
Mrs. Cox, I want to thank you for coming here today, and
thank you for your family's service to our country. I take note
that as a small business person, you don't use Ex-Im.
Apparently, you don't begrudge those who do. But I have heard
from other small businesses, one in Pullman, Washington, who
said, ``If the Ex-Im Bank were to disappear, I believe buyers
and sellers would find attractive commercial options
unencumbered by politics and special interests.''
I heard another one from Cook, Illinois, in the airline
logistics business say, ``Over the long run, Ex-Im subsidies
from foreign carriers creates a tilted playing field that makes
fewer U.S. airline jobs and translates into economic pain for
our employees.'' Is that a fair assessment of your small
business and other small businesses of which you are familiar?
Ms. Cox. I really can't speak for other small businesses. I
will say that the industry for which we are exporting is rather
niche, and so it is a small network and we are able to know
that those companies that we are working with we are able to--
we get credit references from them just like we do any other
kind of domestic customer and try to establish a good business
relationship with them before extending terms of credit.
So I can only speak for my small business and the industry
that we are serving. I hope that is helpful.
Chairman Hensarling. Thank you. I am way over my time. The
Chair now recognizes the ranking member for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman and members.
We have been in a discussion and somewhat of a debate for a
long time about the reauthorization of Export-Import, and we
have said about everything that could be said about it. My
colleagues on the opposite side of the aisle have mentioned
over and over again that back in 2002, I voted against the
Bank. And they did not mention that in 2006, I think it passed
on a voice vote and nobody objected on either side of the
aisle. So there is a mixed history about Ex-Im on this
committee.
But I think it is important for me to say that we have gone
through some very difficult times; 2008 was not a good year.
And we ended up having to bail out some of the biggest banks in
this country because of a failed oversight by regulators, et
cetera. We witnessed a decline in employment, and there was a
lot of unemployment, and people suffered quite a bit.
I am joining with the Chamber of Commerce in ways that I
have never done before, because I am focused on jobs and job
creation. There is a lot of talk now--you are going to hear it
even on both sides of the aisle--about income inequality and
discussion about wealth building, et cetera, et cetera.
I make no apology for the fact that SpaceX is in my
district. I make no apology for the fact that I have a great
number of suppliers to Boeing in my district. They create jobs,
and I am very proud and I am very pleased about that. And I
think that Ex-Im is doing what was designed for them to do.
That is their mission, to create jobs.
I have been involved in working on Ex-Im for reform. I have
been involved in supporting small businesses to make sure that
we have as many small businesses as possible supported by Ex-
Im. I have also worked on other reforms in Ex-Im. And for those
on the opposite side of the aisle, we have been interested in
reform, we join them in looking at ways by which it could be
stronger and better.
What is very interesting about this discussion is that we
have members on the opposite side of the aisle who point to
that one indictment and they try to paint Ex-Im with a broad
brush of corruption and mismanagement. What you don't hear is
anybody on the opposite side of the aisle painting the big
banks in America with the same kind of brush no matter how many
crimes they commit, no matter how much fraud they are
responsible for.
We are watching as we look recently at the manipulation of
LIBOR, which determines the interest rates. We have watched as
the attorneys general in this country had to penalize some of
the big banks for the servicing mismanagement that they were
involved in, on and on and on.
So I think it is important for me to say this, as quickly
as I can with the minute that is left: I support Ex-Im. I
support the job creation. I support the fact that they have put
money into our Treasury. I support the fact that we are more
competitive with Ex-Im, and the fact that we consider ourselves
the number one country in the world, and we are having our
clocks cleaned by China and some of the other nations, and I
don't think we want to do that.
We have always had a deficit for too long in export, and we
should be proud of the fact that we have an agency that is
dedicated to the proposition that we can do better. So there
are problems; if there are, they should be worked out. But to
talk about killing this Bank, not reauthorizing this Bank, is
radical. That is a radical decision. And it does not make good
sense for our country, which prides itself on innovation and
creation and business expansion and job development. So I am
hopeful that for all of those who may be unhappy, find a way to
work with Mr. Hochberg and the Bank to work out these problems.
I am thankful that you are here, Mr. Boyle, because you are
the poster child for what this Bank is all about. And so I
would just implore not only those who are here criticizing the
Bank, to say it is all right to have criticism, but to talk
about the killing the Bank is a radical response to whatever
your concerns are.
And for my friends on the opposite side of the aisle who
have painted this as chronic--what do you call it?--corporate
welfare, et cetera, I think that is an extreme way to deal with
this.
And for you, Mr. Duffy, I must point out to you that you
kind of crossed the line when you implied that there was some
kind of connection between campaign contributions and support
for Ex-Im. I went and took a look at your record and everybody
else's record, and if you want to get into that debate, I am
ready for that one, okay.
I yield back the balance of my time.
Chairman Hensarling. The gentlelady's time has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga, the chairman of our Monetary Policy and Trade
Subcommittee.
Mr. Huizenga. Thank you, Mr. Chairman. I'm glad to see this
has continued to be a high-brow debate here.
Unfortunately, especially for Mrs. Cox and Mr. Boyle and
Mr. Smith, I think you are seeing some of the reasons why
people in America believe that their government is
dysfunctional. That is a sad commentary.
And especially for the three of you, I want to thank you
for taking your time out of your family businesses. I know from
Michigan, Mr. Smith from Cliffs, I am very familiar that when I
served in the State legislature, I was able to go up and see a
number of your facilities in the upper peninsula. And as well
as, Mr. Hirst, from the private sector.
I do have a quick question for Mr. Murphy. Mr. Murphy, what
would have more impact on the U.S. economy in our standing
internationally, tax reform or Ex-Im?
Mr. Murphy. Again, tax reform is a big issue that it is
difficult to assess--
Mr. Huizenga. Okay. How about regulatory reform versus
Export-Import Bank?
Mr. Murphy. When I work for such a broad business
organization with many issues before the Congress, you see
clear the linkages and the importance of moving forward on a
variety of fronts, including reauthorization of Ex-Im Bank.
Mr. Huizenga. Okay. I take that as a regulatory reform.
How about TPA and TPP and TTIP?
Mr. Murphy. Opening up foreign markets for American exports
is vital. Making sure that American exporters have the tools to
be able to serve those foreign markets is also important.
Mr. Huizenga. Okay. So are you comfortable with direct
loans to companies such as NewSat? Foreign companies. Direct
loans. We are not talking loan guarantees. We are talking
direct loans.
Mr. Murphy. In the course of today's hearing, there has
been a lot of discussion about different overseas customers for
American exporters. At a time when we need economic growth and
job creation here at home, we see the primary beneficiaries of
Ex-Im as the workers in American companies who are able to sell
their goods--
Mr. Huizenga. Are you comfortable putting those same
workers' hard-earned taxpayer dollars at risk in a foreign
company with a direct loan, yes or no?
Mr. Murphy. In the case of Ex-Im where the many controls
are in place and where the active default rate is below a
quarter of 1 percent, we are comfortable with the system that
does that, and also welcome reforms that have been proposed in
a number of bills now before the Congress.
Mr. Huizenga. Okay. Which would not get rid of direct
loans, by the way, I might add. All right.
So Mr. Smith, could you just, again, maybe give us a quick
picture on what you think is going to be happening and how this
deal that put you at an economic disadvantage has really, I
think, two things have happened: one, you have obviously seen
the world market change; but two, you have seen your
competitive playing field change, correct?
Mr. Smith. That is correct. The one-off equipment sales
really contributed to a decade of additional global supply.
Picking winners and losers and selling equipment, now this
installed capacity that will come online later this year. We
have struggled to secure further overseas sales in exports, and
we actually ceased exporting pellets from Michigan and
Minnesota in the third quarter of last year as global
oversupply continued to build.
We have lost our ability to export any iron ore pellets to
any steel makers in Europe or anywhere else. So we have lost
that export capacity, and now we are seeing the compounding
effect as cheaply made steel from South Korea and China enters
the country and puts pressure on our customer base. Because
iron is only used for one thing: making steel. There is nothing
else that we can do, no substitute that we can seek out for our
markets.
Mr. Huizenga. Okay. Mr. Hirst, really quickly, I know that
there may be some other options for purchases and leases out
there that are in the private sector or in the nongovernmental
sector, is that the case as people would be looking for
aircraft for their particular airline? Are there lease
programs?
Mr. Hirst. There are many options, and there are leasing
companies that currently make aircraft available to virtually
any buyer.
Mr. Huizenga. Virtually any buyer, even someone who might
have some dubious credit?
Mr. Hirst. Even some that may have difficulty obtaining
credit to purchase aircraft outright.
Mr. Huizenga. But it would be easier to use the loan
guarantee?
Mr. Hirst. It is much easier to use loan guarantees when
the effect is that you are--
Mr. Huizenga. Mr. Chairman, I am just reminded of a few
other conversations being had in this committee and others, and
it goes like this: The Feds currently do X. And X either, ``has
always been done'' or we have seen, as we have seen with FHA
and some other agencies, new responsibilities have been
expanded massively. And now that argument is that there is no
proof that the nongovernmental sector can handle it, and
suddenly we are stuck. And it is time that we actually move
beyond stuck. This is beyond broken. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Green, ranking member of our Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman.
Mr. Chairman, I love my country. I love what it stands for.
I love the great and noble ideals expressed in the Gettysburg
Address, ``Government of the people, by the people, for the
people.'' I love the words in the pledge of allegiance:
``liberty and justice for all.''
But as much as I love these, there is something that I
love, I believe, even more, and it is the respect that we have
for the vote. In this country, every 2 years, Representatives
are elected; every 4 years, a President is elected; every 6
years, Senators are elected. We in this country allow power to
change hands from one President to another the passage of the
keys to the nuclear arsenal, every 4 years because of a vote
that we respect.
So Mr. Ikenson, my dear friend, you and I have a lot in
common. As you can see, we both have beards. But my suspicion
is we have something else in common. I believe you have respect
for the vote. And I just believe that you, while you may not
agree with the results as I might not agree with the results.
There are many elections that I don't agree with, but I respect
the results even when I differ.
Would you respect the will expressed by the Congress of the
United States of America, the will of the American people
expressed by and through their elected representatives? Would
you respect a vote, Mr. Ikenson? A simple yes or no would
suffice. The chairman and I have that in common. We have a
proclivity to ask for yes-or-no answers, kind sir.
Mr. Ikenson. Yes.
Mr. Green. You would. Thank you, sir.
By the way, others, please take note of the paradigm that
has been established here. Excellent job. In court, we would
probably call this voir dire. It is a French term and it
means--or voir dire, depending on where you are from, it means
to speak the truth. So this is sort of the truth-telling
portion of this hearing.
Let me just go down the line and I will ask Mrs. Cox, and I
will go to each of you. Would you respect the will of the
people expressed by and through their duly-elected
Representatives, ma'am?
Ms. Cox. That is a trick question there.
Mr. Green. Not really.
Ms. Cox. I am just considering the percentage of people who
actually vote anymore. It has kind of gotten to where, is it
really representative of the citizenry? I don't know that you
can really say that anymore.
Mr. Green. I can say this: I bemoan the fact that they
don't vote, but I respect the vote.
Ms. Cox. I do, too.
Mr. Green. I respect the vote. When we cease to respect the
vote--
Ms. Cox. Right.
Mr. Green. --we are going to lose a lot of what we call
respect for law and order in the country. So Mrs. Cox, I will
pass on you, I see you are not prepared. I'm sorry.
Ms. Cox. It is not a lack of preparation. I would love to
debate political theory with you.
Mr. Green. I will just pass on you and go to Mr. Boyle.
Would you respect a vote, sir?
Mr. Boyle. Yes, sir.
Mr. Green. All right. Mr. Smith, do you respect a vote?
Mr. Smith. Yes.
Mr. Green. Mr. Murphy, do you respect a vote?
Mr. Murphy. Yes, sir.
Mr. Green. Sir?
Mr. Hirst. Of course.
Mr. Green. All right. And the truth be told, that is what
we are looking for, a vote. And while Mr. Murphy and I agree on
many things, I am sure there are things that we differ on, Mr.
Murphy. But you and I respect the vote. This is all about
whether or not we will have an opportunity to go to the well of
the Congress, have a robust debate, and then take a vote.
TTP, there would be a vote if it is brought before the
Congress.
Ms. Waters, if I may say so, my ranking member whom I
admire greatly, a vote resolved all of the issues. I respect
the vote. She respects the vote. We need to vote and then let
the votes fall wherever they may. And whether one side wins or
loses, I promise you, I will respect the vote even when I
differ with the results.
I yield back, Mr. Chairman.
Chairman Hensarling. The time of the gentlemen has expired.
The Chair now recognizes the gentleman from Wisconsin, Mr.
Duffy, the chairman of our Oversight and Investigations
Subcommittee.
Mr. Duffy. Thank you, Mr. Chairman.
Listen, it has been a fascinating, not just day of
testimony, but also a fascinating couple of months of hearing
the debate go on of Ex-Im Bank, and it is pretty obvious that
we have pretty high passions on both sides. I think a lot of
folks can argue, as we have heard, that Ex-Im Bank helps create
and save American jobs; I think a lot of other people say,
well, it also costs American jobs. I think that has been the
root divide of folks in this debate.
Mr. Hirst, does Delta analyze the consequence of Ex-Im Bank
to cost American jobs in Delta Air Lines?
Mr. Hirst. It is very hard to have a precise analysis of
the total effect of what Ex-Im does, but Ex-Im's support of
Boeing means that it supports our competitors. And we include
in our testimony an analysis of the financing that Emirates
Airlines did a couple of years ago which showed that Ex-Im's
support for Emirates provides them with a subsidy of about $20
million in aircraft, and that kind of subsidy, that level of
impact has an impact on Delta's ability to compete with
Emirates. And in the case of Emirates, we are dealing with an
airline that is already subsidized by its own government. It is
an instrument of state policy. It is owned by the government.
And so the impact is significant and severe, given the
magnitude of the Bank's financing activities in the aircraft
sector.
Mr. Duffy. Mr. Murphy, I appreciate the position of the
Chamber. I have had my local Chambers, my State Chambers, my
neighboring Chambers, the national Chamber, all of your
members, a lot of them have come through to chat with me over
the 5\1/2\ years I have been in Congress, and they usually talk
to me about taxes; say, listen, we can't compete
internationally, because we have the highest tax rate in the
industrialized world. We in Congress here vote inversions where
American companies are buying foreign counterparts and moving
their headquarters overseas because we pay too much in American
taxes. They talk about rules and regulations.
I have to tell you, over the 4\1/2\ years that I have been
here, one of the main things I hear from the Chamber or your
members is not, oh, my gosh, the world is going to fall apart
if we don't have Ex-Im Bank.
I am troubled with your testimony when you say Ex-Im
doesn't pick winners and losers. Mr. Hirst, right next to you
with Delta, would say, listen, yes, it helps Boeing and saves
Boeing jobs, but how do you say that Delta sees a subsidy to
a--its competitors and doesn't hurt Delta and the American
employees with Delta, and the bank therefore isn't picking
winners and losers?
Mr. Murphy. There are, at present, two vendors of wide-body
aircraft in the world today, and soon there will be more out of
China. Every time a foreign airline goes to buy aircraft,
export credit agency support is there from Airbus. In those
situations, if a foreign airline wants to purchase planes, the
absence of Ex-Im support can be determinative.
Mr. Duffy. So what you are telling this committee is, we
value the Boeing jobs more than the Delta jobs, because Delta
is telling you that they are losing jobs because of Ex-Im, and
you are telling me, I know that, but--
Mr. Murphy. I am telling you that if the foreign airline
buys an Airbus plane, it doesn't--
Chairman Hensarling. The time belongs to the gentleman from
Wisconsin.
Mr. Duffy. You are telling me that you care about the
Boeing jobs, and so do I. I am sensitive to the Boeing jobs as
well. I want Boeing to thrive and sell all over the world, but
we can't turn a blind ear to what Delta experiences as a
competitive loss. Even Mr. Boyle is saying--listen, I have been
to the mines in northern Minnesota. They can't compete, and we
are going to say that, listen, I am going to come in and have--
with an honest face, which you usually have, and say there are
not winners and losers being picked with Ex-Im Bank. That is--
listen, I am all about the debate, but to tell me that Ex-Im,
through its subsidies, through its financing, isn't picking
winners and losers, I have a hard time buying that.
And with Mr. Hochberg, I pointed out, even on the
environmental front, you have to point out--you have to
recognize that loans in the carbon space aren't being made. And
so we will say the green jobs in America, we love those jobs,
but if it is a carbon job, not so much. Again, you would agree
in green versus carbon, Ex-Im does pick winners and losers?
Yes?
Mr. Murphy. It is plain that in the aircraft space--
Mr. Duffy. Yes or no?
Mr. Murphy. --since 2011--
Mr. Duffy. I am asking about green. I am not talking about
that. Green versus carbon, winners or losers?
Mr. Murphy. You know--
Mr. Duffy. Mr. Murphy, come on. It's easy.
Mr. Murphy. We support a nondiscriminatory approach to what
Ex-Im supports--
Mr. Duffy. I will take, Mr. Murphy--
Mr. Murphy. --and doesn't.
Mr. Duffy. I will take your nonanswer as a ``yes'' to that
question.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Wisconsin, Ms.
Moore, ranking member of our Monetary Policy and Trade
Subcommittee.
Ms. Moore. Thank you so much, Mr. Chairman, and Ranking
Member Waters. And I thank the panel for your patience and the
time you are spending here with us this afternoon.
I am particularly impressed with you, Mrs. Cox. Being a
woman-owned business and being in the heavy equipment area, I
think you are a fantastic role model for women, and I applaud
you and thank you for being here this afternoon.
I want to ask a little bit about Conway Machine and what
you do. First of all, I am happy to see that you are a
participant in the SBA Step Program, which, by the way, is a
government-funded program, but in addition to that, I was
wondering if you were--if you supplied parts and services to
Galley Support Innovations?
Ms. Cox. Hi, Ms. Moore. Thank you for your kind words.
We do supply parts to Galley Support Innovations.
Ms. Moore. And Galley Support Innovations is a supplier to
Boeing and Gulfstream and other aircraft manufacturers. So you
are part of this supply chain that we have been talking about,
and so even though you may not--and I can understand it if you
say the paperwork is too onerous. So even though you don't
directly benefit, you benefit as part of this supply chain that
I believe the Chamber has talked about constantly. I know in my
own district, for example, I visited a company called Maxin,
which has 30 employees, but they are part of this huge supply
chain, and they pay well, because they are. So I want to thank
you for that.
Let me ask Mr. Ikenson from the Cato Institute, I went on
your website, and I just want to make sure that I have your
objection to the Ex-Im Bank put into some sort of context. You
guys believe climate change is a hoax, and are against central
banking, the Fed, against public education, want voucher
schools, and you are against the Ex-Im Bank, right? I just want
to sort of get a profile of the Cato Institute.
Mr. Ikenson. We all have our own opinions, Congresswoman.
Ms. Moore. That is true.
Mr. Ikenson. So--
Ms. Moore. I just want to make sure that backdrop was
there.
Mr. Ikenson. There was some mischaracterization there,
but--
Ms. Moore. Okay.
Mr. Ikenson. --go on.
Ms. Moore. You will allow it.
But you do agree with--do you think we should have the TPP?
Mr. Ikenson. Well, I want to see it. I support trade
liberalization. And I think in order for us to see TPP, we need
to pass TPA first--
Ms. Moore. Okay.
Mr. Ikenson. --and then we can evaluate TPP.
Ms. Moore. All right. You quoted Milton Friedman, and we
all disagree. He was very brilliant, we know that. You quoted
him, and he said, according to your testimony, that the real
benefits of trade are transmitted through imports and not
through exports.
Now, 95 percent of the consumers on the entire planet are
somewhere other than the United States of America, but we ought
to measure it by imports. So if we get a lot of these foreign--
Asian, China, like Vietnam, cheaper products imported into the
United States, that is how we ought to measure our progress,
versus exporting our goods. Was that your testimony? I am
reading it here.
Mr. Ikenson. Yes. I have made the point that exports are
the things that we produce but don't get to consume.
Ms. Moore. And we have jobs here in the United States when
we export.
Mr. Ikenson. Right. And--
Ms. Moore. Versus importing and supporting some other
economy.
Mr. Ikenson. Right. So the purpose of exchange, like, when
you go to the grocery store, you want to part with as few
dollars as possible for your purchases. That is the same thing
we want to do. We want to give up--
Ms. Moore. But I deliberately don't go to a certain big box
store typically, unless I just have to, because I want to
support American jobs.
It is my time, so I need the next 25 seconds to ask Mr.
Smith a question about Roy Hill. You have your mining project,
and it is--would you agree that it is a regional business, that
iron ore is a regional kind of business?
Mr. Smith. It is a global business. The price of iron ore
is controlled by delivered to China, and indexes are worked
back from that delivered to northern China price based on
freight rates. So it is a global business now.
Ms. Moore. Okay. I see my time has expired. May I have
leeway to ask this question, Mr. Chairman?
Chairman Hensarling. I'm sorry. I didn't hear that.
Ms. Moore. I just wanted to ask him a question, and I
didn't have time. I am wondering if I am going to get the
indulgence of the Chair.
Chairman Hensarling. It depends on how quickly the member
can ask her question.
Ms. Moore. Okay. You supply iron ore to Canada, right?
Mr. Smith. No longer. We do not.
Ms. Moore. Okay. Because the Roy Hill project was
designated for Asian markets, and so I am wondering what your
objection was to places like Caterpillar, which is a big
presence in my State, sending equipment, creating 3,400 jobs.
Mr. Smith. And also creating a--contributing to the
oversupply glut that has seen the price of our commodity drop
50 percent inside of one year, and also locking us out of other
markets in Korea, in Japan, as Roy Hill has secured those long-
term supply agreements.
I was being polite about our Canadian operations. They are
in bankruptcy. At this time last year, we were exporting to
China and to Korea, and I had some 1,600 employees, and they
were Canadian employees. We are down to 100 today. So, it is a
seaborne business.
Chairman Hensarling. The time of the gentlelady has long
expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Westmoreland.
Mr. Westmoreland. Thank you, Mr. Chairman.
Mr. Hirst, I just want to ask you a simple question at
first. Does Delta belong to the U.S. Chamber of Commerce?
Mr. Hirst. I don't think we do here.
Mr. Westmoreland. Oh, okay. Mr. Hirst, earlier today I
asked Mr. Hochberg about some emails between Ex-Im Bank staff
and Boeing regarding these rules on the economic impact. Did
you hear me ask those questions?
Mr. Hirst. Yes, sir, I did.
Mr. Westmoreland. You did? How would you characterize his
answer that he gave me back as far as his analysis was
concerned?
Mr. Hirst. I would characterize it as incomplete. The truth
is that the Bank is required by its charter to give full
consideration to the effects of its actions on employment in
the United States, including industries that would be affected,
like Delta is, by the financing of our competitors, but rather
than considering those effects on a case-by-case basis, the
Bank has designed economic impact procedures that include a
number of screens that a transaction has to pass through before
the Bank will even consider what the effects are on the
employees of other companies.
And what these emails showed was that when the Bank
designed these procedures following the 2012 Reauthorization
Act, it designed them with a view in mind, the clear and
intended view in mind to avoid having to consider individual
transactions. And so in the last year, in 2014, of 20 large
transactions which the Bank considered, averaging over $350
million in aircraft financing each, the Bank only considered
the effects of one of those transactions out of 20, because
these screens, which set up blocks to that consideration, and
that one transaction with Aeroflot, the Russian airline, was a
fundamentally insignificant transaction to the U.S. airlines.
Mr. Westmoreland. Just from me reading, not as a lawyer but
as a builder, did it seem like they were what we would call
cooking the books on this analysis, to you?
Mr. Hirst. They were clearly crafting the procedures so
that the analysis that is called for by the statute would very
rarely be done. And, in fact, one of the documents--this is one
of the documents that was produced by the Bank in its response
to our FOIA request, and it is a chart prepared by Boeing
showing all the steps that a transaction must go through before
the Bank even begins to analyze its economic effect. So you can
see there is one hurdle after another, and the effect is that
very few transactions will get through that test, and that is
intentional.
Mr. Westmoreland. Yes, sir. If this committee were to craft
a reauthorization bill, what would be some of the language in
there that Delta or you would recommend for the ability to come
up with a good comprehensive impact analysis?
Mr. Hirst. Sir, we think the most important thing that the
committee can do and that the Congress can do is to require
that the Bank actually be a lender of last resort, as Mr.
Hochberg repeatedly characterized. He repeatedly said that the
Bank is here to provide back-up financing.
We think that if the Congress were to adopt a reform, the
most important reform would be actually to implement that
requirement, so that a foreign airline seeking Ex-Im's support
would first have to show that it could not obtain financing in
the private market.
Of the 20 largest recipients of Ex-Im financing over the
last 10 years, virtually every one has access to the private
financial market. And that financial market is robust, it is
there, it is available, but it is more expensive, and from
Delta's standpoint, that is the most single important reform.
Mr. Westmoreland. Would your definition of a bank of last
resort be that they had gone through all their other options as
far as financing goes?
Mr. Hirst. Yes. If they certified that they were unable to
obtain private financing, then I believe an airline should then
be available--or accessible--have access to the Bank, but if,
in fact, an airline has access to private financing, it should
not have access to Ex-Im.
Mr. Westmoreland. You would think that Emirates Air and
Qatar and those people would have access to cash, wouldn't you?
Mr. Hirst. Ex-Im has provided about $4 billion of support
over the last 15 years to Emirates, and Emirates regularly
accesses the private markets, they are highly profitable, they
are state-supported.
Mr. Westmoreland. Or a cash deal. Or cash.
Chairman Hensarling. The gentleman's time has expired. I
assume the gentleman yields back the remainder of his
nonexistent time.
So with that, the Chair recognizes Mr. Delaney for 5
minutes.
Mr. Delaney. Great. Thank you, Mr. Chairman.
Mr. Hirst, it is nice to see you again. Thanks for coming
in and testifying. I think it is important for companies to
give their perspective, particularly a great company like
Delta. We appreciate what you do.
Mr. Hirst. Thank you, sir.
Mr. Delaney. But I did want to dwell again on the topic I
talked about last year, which was understanding better this
chart that you lay out between the financing that Emirates is
able to obtain from Ex-Im versus the financing they are able to
obtain in the market, because I do think it is important that
when we are thinking about Ex-Im, that it does provide
financing that is consistent with market terms, which is what
they have represented that they do, which I believe they do.
In fact, I have even suggested that they look at
potentially selling off part of their portfolio from time to
time so that people could get a sense as to how well it is
priced according to the market, but I also do think it is
important that things get presented on an apples-to-apples
basis. And my recollection when I looked at this more carefully
last year was that when you are comparing the Ex-Im terms of
the financing where you show an interest rate of 3.41 percent
to the market terms, that it is not really an apples-to-apples
comparison, because when Emirates borrows from Ex-Im Bank, they
are borrowing on a recourse basis. Is that correct?
Mr. Hirst. I am not sure that I know the answer to your
question, sir.
Mr. Delaney. Well, I think they do. I think when Ex-Im
lends to Emirates, they get a lien on the planes and then
Emirates also promises to pay the loan back. So the Ex-Im Bank
is the lender. It would be like if Ex-Im was lending to Delta.
On a recourse basis, they would get a lien on your planes.
Mr. Hirst. Correct.
Mr. Delaney. Right. And then the corporation would also
guarantee the loan in the event the planes were worth more than
the debt. And it seems to me you are comparing it to examples
where Emirates is borrowing effectively on a nonrecourse basis,
where the market terms are set up as a special purpose entity,
where the borrower is actually this entity, this Irish special
purpose corporation, I can't really read the name in my
footnotes, but it is a special purpose corporation, it owns the
planes, it leases the planes from Emirates, so it gets the
Emirates cash flow during the terms of the lease, but at the
end of the lease, the residual value of the planes cover
whatever debt is outstanding, if any, so therefore it is
nonrecourse.
So my question to you is if Delta Air Lines was borrowing
money from one bank, on what I will call a nonrecourse basis,
in other words, just pledging the planes as collateral, and
from another bank on a recourse basis, where you not only
pledge the planes as collateral, but you also provide a
corporate guarantee that in the event the collateral is worth
less than the debt, that Delta would make up the difference,
wouldn't you expect to pay a lower rate in the second category
and potentially a substantially lower rate?
Mr. Hirst. I think the loan rate results from the
guarantee.
Mr. Delaney. Right. And that is my sense. So when you point
out that Ex-Im lends to Emirates on a lower rate, it is because
they not only have the planes as collateral, but they also have
the Emirates' guarantee.
Mr. Hirst. They have the guarantee of the U.S. Government.
Mr. Delaney. No. But the premise of your point here is that
Emirates can actually borrow from the Ex-Im Bank at terms
cheaper than the market.
My point to you is the market terms you are comparing it to
are not the same terms the Ex-Im Bank is getting. The Ex-Im
Bank is getting a lien on the planes and a guarantee of
Emirates Airline, which is a subsidiary of the Dubai Investment
Corporation, which it a subsidiary of the Dubai Sovereign
Wealth Fund.
Mr. Hirst. Correct.
Mr. Delaney. So basically when Ex-Im is lending in your
first column here, they not only get the planes as collateral,
but they get a guarantee from the Sovereign Wealth Fund of
Dubai, whereas your market terms, they just have the planes as
collateral. So as a lender, I would expect to get paid a much
higher rate if I was just lending on the planes than if I was
lending on the planes plus a guarantee of the Sovereign Wealth
Fund.
Mr. Hirst. Mr. Delaney, my memory is that is not accurate
and that the--and it has been about a year--
Mr. Delaney. Right.
Mr. Hirst. --since I have actually read these documents,
but my memory is that the credit of Emirates, taking into
account--
Mr. Delaney. Yes.
Mr. Hirst. --this provenance was, in fact, a factor.
Mr. Delaney. Yes, during the terms of the lease. So I just
think that--look, I want to go back to my initial premise. I
don't think the Ex-Im Bank should be subsidizing loans relative
to the market, certainly material terms, and I think there are
good ways for us to figure out if that is happening. We could
have Ex-Im sell off part of its loan, see where the market is,
but I do think this premise that this $20 million-per-plane
subsidy that really you build a lot of your arguments on is, in
fact, flawed, because I think the two credits that you lay out
here were very different. It would be like a lender lending to
a government office building and getting the building as
collateral, but not a guarantee by the U.S. Government, versus
if a lender lent on a government office building, got the
building as collateral and then also had a guarantee of the
U.S. Government. I would expect that second lender to get a
much better deal, which is what is effectively happening here.
Mr. Hirst. We do disagree, and I would be happy to talk to
you further about it.
Mr. Delaney. Thank you.
Chairman Hensarling. The time of the gentlemen has expired.
The Chair now recognizes the gentleman from Ohio, Mr.
Stivers.
Mr. Stivers. Thank you, Mr. Chairman. I appreciate the
chairman holding this hearing. And I think there is a group of
witnesses with diverse views that all bring important
perspectives to this debate. And I, for one, believe that Mr.
Hirst and others have some points about some reforms that are
very importantly needed, but I do think that we need to, with
substantial reforms, reauthorize the Bank.
My first question is for Mr. Murphy. Mr. Murphy, you said
during your testimony that 78 different countries have export
credit finance agencies, or 79 countries?
Mr. Murphy. Yes.
Mr. Stivers. Do we compete against those companies in the
marketplace every day?
Mr. Murphy. Yes. There are 79 export credit agencies around
the world, and there is evidence that a large majority of them
are greatly expanding the trade finance that they are making
available. By contrast, if the United States is left as the
only major trading nation that doesn't have an export credit
agency like this, there will be circumstances like the ones I
have described where American companies are uniquely
disqualified from even participating in business opportunities.
Mr. Stivers. Even outside the uniquely disqualified, in the
marketplace, if we are competing against countries that have
export credit finance agencies and we do not, and let's say we
take the assumption on the small end that it is 1 percent of
our exports, what would happen to that 1 percent of our
exports?
Mr. Murphy. It is actually 2 percent, but $27 billion is--
it is not nothing. That is more than the United States exports
to Italy, India or Australia.
Mr. Stivers. What would happen to those exports without an
export credit financing agency?
Mr. Murphy. It may be that in some cases that there can be
an accommodation and they will find commercial support, but in
many cases they won't. And so--and in many of these head-to-
head competitions where the foreign competition, say, heavy
equipment manufacturers from Japan or Korea that have export
credit support--
Mr. Stivers. So who would likely win those deals?
Mr. Murphy. In many of those, where the customer is in a
position to demand that support be available, the American
company would lose.
Mr. Stivers. And where would those jobs be?
Mr. Murphy. They would be elsewhere.
Mr. Stivers. Thank you.
Mr. Hirst, I have some real sympathy and empathy for the
concern you bring up. And I think the first point you brought
about how we really do need to--and it is clear from what Mr.
Ikenson said and others that export credit finance agencies
create an aberration in the marketplace. They are an aberration
in 79 countries, though, and if we unilaterally disarm, that
might not be the smartest strategy, but I would hope that we
would put some teeth in requiring the U.S. trade representative
to negotiate with France, the U.K., and Germany with regard to
wide-body planes that we disarm together. And while we are
doing that--and you only mentioned those three countries. In
the next 5 years through this reauthorization, we need to be
acutely aware that Brazil and China are working on wide-body
planes, and we need to add them to the list that we negotiate
with, even though in the marketplace today, we don't face them.
In the next 5 years, that could easily happen.
Mr. Hirst. Probably not in the next 5 years, sir.
Mr. Stivers. Okay. But they are working on it--
Mr. Hirst. Right.
Mr. Stivers. --and we need to--we definitely need to start
negotiations there too, because, frankly, China's not going to
be easy to negotiate with on that and Brazil might not either,
but I think that is the most important thing we can do. And you
already talked about the lender of last resort reform, which I
think is a good real reform.
What about if we did a reform on the adverse impact to
American businesses that made it clear that injured parties
could bring a judicial review? Would that be a good or a bad
reform?
Mr. Hirst. No. It would be a very good reform, and I think
tied to that would be the--placing obligation on the Bank to
analyze individual transactions and not use screens to do it.
There is no reason why they can't craft regulations that would
require borrowers to file applications far enough in advance to
allow individual transactions to be analyzed.
Mr. Stivers. And my next question is for Mr. Ikenson. You
talked a lot about the aberration in the marketplace that
export credit finance agencies create. And assuming for a
second that the Bank was to be reauthorized, what if there was
a program that guaranteed some type of reinsurance that showed
the true market-based pricing for different transactions as a
percentage--a required percentage of their business? Would that
be a step in the right direction, from your perspective, or
would that just be a waste of time?
Mr. Ikenson. I think it would be a step in the right
direction. However, there are many problems with the Ex-Im
Bank, and if they weren't all addressed at the same time, then
we would be in a position of possibly reauthorizing a slightly
improved aberrational system. We can get rid of this thing. It
is--actually, John, you mentioned 2 percent. It is actually 1.2
percent. So 98.8--
Mr. Stivers. Like I said, there are differences of opinion,
so I even went with the lower number of 1 percent.
I do have one question for Mrs. Cox. I appreciate that. So,
Ms. Cox, you used the Small Business Administration, you don't
choose to use Ex-Im Bank. Do you think we should also do away
with the Small Business Administration, because it also picks
winners and losers and is an aberration in the marketplace and
guarantees credit?
Ms. Cox. I would rather not--I think you will see with any
kind of government welfare type of program that there can be a
lot of overlap in services offered, and you do see that with
the SBA and the Ex-Im Bank. However, the program that I am
using is called the Emerging Leaders Program. It is a
beneficial resource for small business owners, and I would
recommend it.
The way that I see it personally, and I do believe in small
government, but I see it as getting some of my tax dollars
back. I give up 30 percent of my check, and if I am able to get
something back from the government, I am going to take a little
bit of it, so--
Mr. Stivers. I yield back the balance of my time.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. Ah. Mr. Chairman, thank you, and I will be
yielding to you in a second, because I have a question.
We talked earlier about bringing a bill to this committee
or to the Floor, but particularly to this committee for markup,
and you asked me whether any bill had 218 supporters. That is a
rule that we use for bills that involve minting a commemorative
coin, but with that one exception, I don't think any--90
percent of the bills that come before the committee don't have
218 cosponsors when they start. In fact, the whole purpose of
our effort here is to offer amendments and to improve the bill
to the point where we hope it has majority support in the
committee. So, we can have democracy where we all in this room
work together to try to create a bill that is worthy of our
support, or we can have a situation where we don't get a chance
to do that.
Are you planning to bring any version of an Ex-Im
reauthorization bill before the committee in the next couple of
weeks?
Chairman Hensarling. Will the gentleman yield?
Mr. Sherman. I will definitely yield.
Chairman Hensarling. I think I have already answered the
gentleman's question, but I was just curious, when your party
was in the Majority, where was your voice for bringing a
balanced budget amendment to the Floor?
Mr. Sherman. I think I cosponsored the balanced budget
amendment, and certainly would have supported committee
consideration, but sometimes my voice is so soft, it cannot be
heard. My shyness is something I am trying to overcome.
But, Mr. Chairman, do you know, will we have a chance to
work in this room to create a bill worthy of the support of a
majority of the House? I yield to the chairman.
Chairman Hensarling. The chairman has already answered your
question.
Mr. Sherman. Ah. I can't be as tough on the chairman as I
am on witnesses when the answer may not be a complete answer to
a question. I will turn instead to Mr. Murphy and probably give
him less deference than I do our chairman.
Mr. Murphy, we have a couple of businesses here that feel
that, on balance, Ex-Im hurts business. You represent an
organization that pretty much sweeps across American business.
Is this a close call for the Chamber? Is this, like, oh, 60
percent of our members think it helps their business--60
percent of those affected members are on one side and 40
percent are on another, and, gee, it may split our
organization, or is this one of those issues where you can
safely say that for the vast majority of your concerned
members, this is a helpful organization?
Mr. Murphy. I would say there is extremely broad support in
our membership, and I am not aware of any members that are in
opposition. In fact, if you look at press clips, you will find
just a small number of--
Mr. Sherman. The gentleman sitting next to you isn't a
member?
Mr. Murphy. Neither of the gentlemen immediately next to me
are members of the Chamber.
Mr. Sherman. But you do have how many members in total?
Mr. Murphy. We have 300,000 direct members, and through our
State and local Chambers, 3 million.
Mr. Sherman. That is--and within your organization, it is
overwhelming that, on balance, Ex-Im Bank helps American
business?
Mr. Murphy. I have to tell you, I have never gotten a call
from a member in the past months, when it has been quite public
that the Chamber was advocating for a reauthorization of Ex-Im
Bank--never gotten a call from a member protesting.
Mr. Sherman. Now, one issue that arises is the competition
in airlines. One approach is to say if Air India is going to
fly from Dulles to Delhi and they get good financing on their
plane, that might put United Airlines or even Delta at a
disadvantage. Another approach is to say that if a plane is
acquired by a U.S. carrier for use in an Ex-Im-eligible route,
that we should regard that as an export, because a plane flying
from Dulles to Delhi is the same as a plane flying from Delhi
to Dulles; that is to say, United States Airlines flight going
in one direction is the same as the Air India flight going in
the other direction.
Does the Chamber have a position on whether Ex-Im Bank
would be allowed to provide financing when a U.S.-based airline
is operating from Dulles to Delhi in the same way as one flying
the other direction?
Mr. Murphy. I think our position is that this is a problem
that has been addressed pretty successfully. There was a 2011
agreement reached at the OECD which considerably raised the
fees imposed for the purchase of aircraft. It is an aircraft
sector understanding. The cost of using Ex-Im to purchase
aircraft has gone up considerably and is very comparable to
commercial rates now. By contrast, U.S. domestic airlines can
access capital markets here for approximately one-third the
cost of what export credit agency support is. So in that sense,
there has been real progress in this area.
Mr. Sherman. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. Pittenger.
Mr. Pittenger. Thank you, Mr. Chairman.
And thanks to each of you for enduring this process. It is
important for each of us to hear from you and to better
understand your perspective.
And I appreciate my friend, Mr. Green, as well, addressing
the issue of our vote. Our vote is very important to each of
us. We all represent about 750,000 people and we want to make
the right decisions that are fair and equitable for our
constituents, so we are deliberate, we are thoughtful, and we
are concerned, as we probe these issues to see what is really
fair.
As I have reviewed these materials and studied the
information from the Ex-Im Bank, I have read the following,
that from--according to their own data, more than 60 percent of
Ex-Im Bank's financing benefits just 10 large corporations. At
the end of 2014, no less than 45 percent of Ex-Im's exposure
was concentrated just in the air transportation system.
Mr. Murphy, how do you respond to that? How do you consider
the weighted role that Ex-Im has in supporting large
corporations that really don't benefit the same folks that I am
trying to represent every day?
Mr. Murphy. The most important market for small business
isn't Canada or Europe or China, it is big business, and that
is why you see some of the largest exporters in the country
have so many suppliers, like Boeing has nearly 15,000
suppliers, GE has more than 35,000. So those are how small and
medium-sized companies get into the export business--
Mr. Pittenger. Well, Mr. Murphy--
Mr. Murphy. --is as providers to the larger companies.
Mr. Pittenger. --you heard the testimony of Mrs. Cox, and
there are others like it, how cumbersome and how difficult and
challenging it is for a small business time-wise, information-
wise, and cost-wise, to even begin to process this out. And I
think what concerns many of us is the weighted interest that
Ex-Im Bank has from individuals who have strong financial and
political interest. You probably heard the testimony earlier
today, and with recognizing the strong political role and
financial role this has played into this entire process.
And that is really a concern to many of us, that it seems
as though the big guys with huge resources are putting enormous
weight and pressure in this process. They come and they make a
lot of noise. And I appreciate and respect the role of every
business, I am here to represent large and small, but the
reality is that even by the data given by the Ex-Im Bank, 10 of
the large corporations get 60 percent of the benefit.
Mr. Ikenson, do you have any response, do you have any
thoughts or reflections on some of the concerns you have heard
today?
Mr. Ikenson. Yes. I think that the problem you raise is a
big problem. The Bank shouldn't be there to begin with. The
fact is that, I think, it is closer to 70, 75 percent go to the
top 10 users, but more indicting than that is the fact that
98.8 percent of U.S. exports don't go through the Ex-Im Bank.
So this notion of unilateral disarmament or leveling the
playing field by requiring this export credit agency implies
that Americans are selling--or that this small percentage of
Americans are selling perfect substitutes for other--to other
products in 70 other countries with ECAs.
Our products are distinguishable, and yet the financing
terms are not the final say. There are lots of determinants
that go into buying decisions. And there are humongous costs
that are not taken into account. I heard the testimony of Mr.
Hochberg this morning saying that they do an analysis of the
costs of the policies, but I have never been privy to that, I
have never seen the details of that. I did an analysis which
suggests that there are profound costs across the economic, the
manufacturing sector.
Many of these companies are silent to respond to a question
that was brought up earlier to Mr. Murphy about why they don't
raise the issue. Many don't recognize it. The cost of an input
that is subsidized for export might only be 1 or 2 or 3 percent
of its total cost of production. For Delta, it is--airplanes
are huge, it is a huge part of their costs, so they were able
to recognize it. For Cliffs Mines, mining equipment is huge, so
they were able to recognize the impact, but many of the
companies across the manufacturing spectrum don't realize they
are being pickpocketed.
Mr. Pittenger. Thank you, Mr. Chairman. I yield back my
time.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Washington, Mr.
Heck.
Mr. Heck. Thank you, Mr. Chairman. I first want to express
my appreciation to Mr. Hirst for alluding to the litigation
that has been brought on this, but before I do that, I want to
mention in passing that I do not want to be accused of that
which my friend, Mr. Duffy from Wisconsin inartfully described
as turning a blind ear to the claims that Delta is suffering as
a consequence of Export-Import Bank activity. I have a hard
time squaring it with the performance of the last year, when
they had record revenues, when their passenger load was at an
all-time high, when they are aggressively expanding in markets,
especially my own up at Seattle, and the chairman of the board
and the CEO have press conferences touting their historic
performance. I can't square those two things. In fact, I would
say if this is suffering, sign me up.
The assertion has been made by the company that Ex-Im
financing gets foreign airlines to buy new airplanes which are
used to compete against U.S. carriers. It is pretty simple and
straightforward. This point has been litigated. And for the
record, I would like to clarify. This is what the judge said
when Delta lost the case. The record contradicts Delta's
presumption that the availability of Ex-Im Bank financing sways
foreign airlines to purchase new aircraft they would otherwise
would not acquire, thereby causing an increase in competition
with U.S. airlines that otherwise would not exist; rather, the
availability of bank financing, or the lack thereof, is more
likely to affect only the secondary decision of whether to
purchase aircraft from Boeing or Airbus when a specific need
for new planes arises. Thus, Delta's underlying assumption that
U.S. airlines necessarily face less competition if the Bank
does not provide financing to foreign airlines falls apart.
I might add that Delta has litigated not once, but 4 times,
and lost every single case.
Mr. Murphy, it seems to me that we have been down this road
before. I see an antecedent and an analog. I would be
interested in your reaction. Thirty-four years ago, we had the
same kind of policy debate in this chamber, and it was over the
Federal Government's subsidy of shipbuilding. In that instance,
however, there was a bit of a difference. It wasn't an indirect
subsidy, as some allege, in the instance of the Export-Import
Bank, in fact, it was a direct Treasury subsidy. Some people in
this chamber advocated that we needed to continue that subsidy
in order to continue to compete in the global market of
shipbuilding. Congress decided instead that the United States,
as some would argue in this instance, should lead by example
and get rid of the shipbuilding subsidy.
Mr. Murphy, how did that work out?
Mr. Murphy. Congressman, I appreciate that you pointed out
that it is a somewhat imperfect analogy since, after all, in
the case of Ex-Im, it is a curious kind of subsidy program that
returns money to the Federal Treasury. In the case of
shipbuilding, it was actual taxpayers' dollars at work. But
when the U.S. oceangoing shipbuilding industry was--when its
subsidies were taken away in the 1980s, it could not compete,
because other countries around the world continued with those
subsidies, and today the United States has basically very
little, or none, in the way of oceangoing shipbuilding.
It shows the challenge of the world that we live in, where
we would like to see free markets and free enterprise prevail
in every case, but getting rid of Ex-Im just ourselves and not
doing anything about those 79 export credit agencies around the
world could have a very damaging effect for a lot of export
industries.
Mr. Heck. Finally, Mrs. Cox, thank you for being here. I
think you have done the hardest thing in the world to do, which
is stand up a successful small business. I also want to thank
your family and your husband, in particular, for their service.
Bluntly, painfully put, I doubt there are too many people in
this room who better understand the sacrifice or potential
sacrifice that such service can cause than my family, and I
genuinely thank you for that.
I do, however, want to note and hope you appreciate that
you are a part of benefiting from the Export-Import Bank
insofar as you are one of the members of the supply chain for
the Boeing Aircraft Company, which makes the best airplanes on
the face of the planet, in no small part due to your parts, and
I thank you for that as well.
With that, I yield back the balance of my time.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Missouri, Mrs.
Wagner.
Mrs. Wagner. Thank you, Mr. Chairman. I would like to start
off this hearing by asking that this letter, Mr. Chairman, the
letter that Mr. Murphy referenced earlier in his opening
statement, it was sent out and it is dated today by over 1,000
local organizations, Chamber groups, local and the U.S., and
businesses, I should say, of all sizes from all across the
country urging reauthorization of the Export-Import Bank be
submitted for the record, Mr. Chairman.
Chairman Hensarling. Without objection, it is so ordered.
Ms. Wagner. Thank you all for joining us today to talk
about renewing the Export-Import Bank. This is an incredibly
important debate and deals with our global competitiveness and
our country's economic output. However, for reauthorization,
for any kind of reauthorization, Congress must take the
opportunity to consider the merits of the program and whether
any reforms or changes are warranted. So, let's look at the Ex-
Im Bank.
According to its charter, the Bank works on maintaining or
increasing employment of United States workers. I can vouch
that in St. Louis and the State of Missouri, the Bank is
fulfilling that goal in a very large way. Since 2007, the Ex-Im
Bank has supported 125 companies and 9,400 jobs in Missouri,
helping finance $1.5 billion in goods and services for exports.
9,400 jobs. Think about all of the house payments and car
payments and monthly grocery bills and college tuition payments
that those jobs actually support.
These are real jobs and these are real families, and they
are depending on this and they are depending on us. In fact,
just last month the Bank supported 3 small businesses in my
district by financing over $2 million in exports. This is a
packaging company, a children's products company, and a
plastics company.
Now the question is whether those same companies would
still be able to find assistance in the private market in July
should the authorization for the Bank lapse? In addition, would
such financing be able to adequately compete against foreign
export credit agencies?
Let me be clear, as certainly Mr. Murphy has and as my
colleague, Mr. Stivers, has, that every developed country in
the world has their own form of ex-im bank and they are
constantly working against us in the United States of America
to win business.
Mr. Murphy, many people make the argument that if export
financing is, in fact, a good deal, that the private sector is
perfectly capable of taking on the risk of that loan. Is the
private sector, at this time, able to step in and fill the void
that the Bank's expiration would leave behind?
Mr. Murphy. The reality is that the private sector does
provide the vast majority of trade finance in this country, and
that is a virtue, not a weakness of the Ex-Im Bank, but what we
could not do is take care of those particular circumstances
where Ex-Im or ECA support is required in order to participate
in foreign markets in bids on infrastructure projects, in
nuclear energy and in the head-to-head competition. Those are
areas where we would see American companies really competing
with one arm tied behind their back.
Ms. Wagner. In my limited time that I have left, I want to
talk about reforms of the Bank. I believe many of my colleagues
on this committee, including the chairman, have some valid
concerns and criticisms. Everybody is interested in reforms. So
I personally have worked in the past year and a half on at
least two different working groups, the Campbell group and the
Fincher group here in Congress, to put together reform packages
that ensure the Bank is not crowding out private market.
Mr. Murphy, as you listened to the debate today, what
recommendations would you and the Chamber propose to address
criticisms of the Bank, and are there any reforms that you
think the Bank absolutely must implement?
Mr. Murphy. In my limited time, I have to say that we
respect the work that has gone into the Fincher bill and also
Ranking Member Waters' bill. There are quite a few good reforms
on the table there.
What we need most of all, though, is for Congress to take
up these bills and debate them expeditiously, because we have
just days left until American exporters will be at a unique
competitive disadvantage.
Ms. Wagner. Thank you, Mr. Murphy. And I thank all of our
panelists.
I thank you, as well, Mr. Chairman, and I yield back the
rest of my time.
Chairman Hensarling. The gentlelady's time has expired.
The Chair now recognizes the gentleman from Kentucky, Mr.
Barr.
Mr. Barr. Thank you, Mr. Chairman.
Thanks to all of our witnesses in this second panel. We
really appreciate your testimony and your help in fleshing out
some of these issues.
Let me start with Mrs. Cox, because I read your written
testimony, and like others, I share in extending our
appreciation for your family's service to our country. And I
wanted to share with you an example of Ex-Im financing that I
would like for you to comment on as a member of a military
family.
This is from The Wall Street Journal: ``Ex-Im has given
hundreds of millions of dollars in taxpayer-backed guarantees
to the state-owned Russian bank, VEB. Ex-Im only recently
suspended new deals after the Bank was targeted by American
sanctions in the past year. VEB has a long and sordid history.
Known until 2007 as the Bank for foreign economic affairs of
the USSR, VEB maintains an operating agreement with a Russian
arms exporter to promote exports of Russian military products
and boost their competitive edge in the world market. This
Russian arms exporter also handles more than 80 percent of
Russian's weapon exports. In this capacity, it has become a
cheap weapons supplier to Bashar al-Assad's regime in Syria and
has provided advance missile systems to Iran, according to a
reporting last year. VEB has said that its practices fully
comply with the European Union and the United Nations
sanctions. Americans probably assume that Washington wouldn't
use taxpayer money to help a company that supports these
regimes, yet the Bank's records indicate that VEB, this Russian
bank, received a $497 million loan guarantee in 2012 and a
further $703 million loan guarantee in 2014. American taxpayers
still haven't received Thank You cards from President Assad and
the mullahs in Tehran.''
As the wife of a U.S. Air Force airman, can you please
comment on that report from The Wall Street Journal?
Ms. Cox. Thank you for bringing that up. I think anybody
who looks into the support that we have given to Syria will
find that it is very likely that we have supplied arms to
Syrian rebels that may have gone to ISIS, and that is very
disturbing to me.
I would say that today during this hearing, we have found
that Ex-Im Bank may be in need of some reforms. Usually when
you have a government entity, things can get sticky.
Mr. Barr. Mr. Ikenson, I was very interested in your
testimony about the World Trade Organization litigation as a
potential. Much discussion over this reauthorization has gone
into the necessity of an export credit agency where
participation with one is required in order to compete as a
threshold matter for American companies in these nuclear power
plant construction projects and other examples.
Can you elaborate on the alternative to Ex-Im in terms of
pursuing litigation in the WTO so that we do achieve a level
playing field without Ex-Im?
Mr. Ikenson. Yes. First of all, I think characterizing the
existence of our Ex-Im Bank as leveling the playing field
misses an important point, which is that it is unleveling the
playing field for downstream industries, and I have been trying
to point that out.
Ex-Im has been around since 1934. It invented this stuff.
The People's Republic of China didn't come around until 1949,
so it is not like we have to do this because others are doing
it. And what happened to our standing in the world?
Mr. Barr. Let me follow up with a quick question. My time
is short. The argument that the Bank's lending activities yield
an annual return to the Treasury is another argument that we
hear for proponents of reauthorization, but that argument, to
me, suggests that there would be a considerable appetite in the
private sector to enter the space exited or vacated by Ex-Im.
If this is truly a profitable enterprise, it seems to me that a
bank or a group of banks pooling and diversifying risk would
enter that space.
Mr. Ikenson. I think that is absolutely right. We need to
see if that happens.
Mr. Barr. Mr. Murphy, I know you have a contrary opinion to
that, and I will give you an opportunity to respond to that.
Mr. Murphy. Well, just to say that hope is not a strategy.
There are dozens and dozens of companies that we have
interviewed, we have their stories on our website, where they
have found that their commercial banks are unwilling to accept
their foreign receivables as collateral and they have had no
alternative to Ex-Im.
Mr. Barr. I understand that, and you have made a big point
of the nuclear power projects as an example. Members of the
Chamber include coal-fired power and coal companies, a big part
of the U.S. Chamber's portfolio membership. They don't get the
same treatment that the nuclear power industry does. Does that
concern you?
Mr. Murphy. In the past few years through an appropriations
writer, there has been a nondiscriminatory approach.
Mr. Barr. Oh, I know. And I voted for it and fought for
those. And, Mr. Murphy, I fought for those and I believe in
that. The problem is they still haven't provided any financing
for coal-fired powered projects.
Mr. Murphy. Good to include in reform.
Mr. Barr. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
I now recognize the gentleman from Pennsylvania, Mr.
Rothfus.
Mr. Rothfus. Thank you, Mr. Chairman.
I thank the panel for being with us all day. It has been a
long day for a very important discussion.
I think a fair number of us who are in Congress today are
here because of what we saw happening in the late 2000s with
the financial crisis, with the bailouts. I remember as a
private sector citizen back in the early 2000s, some people
started to raise the alarm about Fannie and Freddie, and
attempts at that time to reform Fannie and Freddie, and then we
get to the financial crisis, and all of a sudden there is a
$150 billion bailout after individuals involved with Fannie and
Freddie themselves have made millions of dollars.
I mentioned this in the panel earlier. I cited the work
that Michael Grunwald had done in Politico Magazine in an
article earlier this year. It was titled, ``The Real Bank of
America.'' It described the more than $3 trillion in loans that
the Federal Government, and therefore, the American taxpayer,
the hardworking American taxpayer is on the hook for.
We usually have the debt clock running, $18 trillion in
debt, and obviously, this is a significant concern for many of
us. And so we look at our programs and we think, is there any
way to shield taxpayers from a potential loss. And Fannie and
Freddie were going along great until they weren't. Mr. Ikenson,
I just want to float with you the idea that I spoke with
Chairman Hochberg about this morning. And one way that we could
potentially create additional protections for American
taxpayers is by requiring full collateralization or sovereign
guarantees for all direct loans or loan guarantees issued by
the Bank. We know that the Bank has said that they are 77
percent collateralized right now. What about 100 percent
collateralization? Would that not be a good idea?
Mr. Ikenson. Why not just allow Ex-Im to expire, and just
turn it over to the private sector? Why are we--
Mr. Rothfus. Well, look at what happens in the private
sector when a loan happens. And a private-sector bank is going
to be looking for collateralization. And frankly, it has not
been more than 100 percent. When you have a piece of property
that you are going to buy and it is going to cost a million
bucks and you go down and put--it is commercial property and
they are going to put $200,000, the bank will make a loan for
$800,000 but it is going to take a security interest in the
entire property, even if it is worth more than $800,000, in
case there is a default, and then they have to go and liquidate
and try to recover.
And here we have a situation where I am concerned that
there is going to be an exposure for the taxpayers as we are
seeing with NewSat today. And I am wondering if there might be
a better way to have constructed that transaction so that the
American taxpayers aren't out $100 million right now?
Mr. Ikenson. Yes, I think that is problematic, and I point
to the fact that 98.8 percent of U.S. exports don't require the
Bank, so somehow they are able to manage without it. I think
the necessity of this Bank has been overstated. Just because
other governments have it, doesn't mean we can't differentiate
our offerings on other terms. We can go to the WTO, the
question was asked earlier. I didn't get a chance to respond to
that.
Mr. Rothfus. What about the entity that is doing the
export? Should there be consideration as to whether or not that
entity which is earning a profit from the transaction may think
of guaranteeing the indebtedness of the purchaser?
Mr. Ikenson. Sure, I think that is one way of doing it.
Mr. Rothfus. Just a quick question for Mr. Murphy, we have
had some discussion today about the NewSat transaction. Can you
think of a way that transaction could have been structured so
that the American taxpayers aren't looking at a $100 million
loss?
Mr. Murphy. I am not sufficiently familiar with the case,
but if you look at the record of Ex-Im, under the accounting
rules that were established by Congress and required by law, it
has a $4 billion loan loss reserve and a very low default rate
which has been mentioned many times here. Yes, there will be
cases like this that go south, but the record is not one that
is bad.
Mr. Rothfus. Shouldn't there have been some
collateralization? To me, it is just common business sense that
a lender is going to be seeking a security in something to make
sure that they are going to mitigate any kind of loss.
Mr. Murphy. As I said, I am not familiar with this
particular case.
Mr. Rothfus. I thank the chairman, and I yield back.
Chairman Hensarling. The gentleman yields back. Mrs. Cox, I
have been informed that you have a plane to catch. I don't know
if it is a Delta plane or not. Regardless, we will excuse you
from the panel at this time. Thank you for your testimony. We
hope you found it to be a worthwhile experience. The Chair now
recognizes the gentleman from South Carolina, Mr. Mulvaney.
Mr. Mulvaney. I thank the chairman. Mr. Murphy, I had a
chance to look very briefly at your written testimony. You
mentioned a South Carolina company that I am not familiar with.
But last week I did have a chance to go visit another South
Carolina company that uses the Ex-Im Bank facility, Sage
Automotive in Marietta, South Carolina. They make textiles for
automobile seats. And they take advantage of a small line of
credit that is offered by the Export-Import Bank, and they
asked me to try and figure out ways to preserve that function
so that it is still available to them in the future. Their
argument is, they are not part of the problem. It is very
small. There is no corruption. It is not the type of thing that
really warps markets. And I told them I would give that some
thought.
So I am hoping that you can do that here with me today as
we try and figure out a way to find a compromise. The U.S.
Chamber of Commerce would not support a reform that would limit
the Export-Import Bank to only doing small business
transactions, would it?
Mr. Murphy. No, for the reasons that I mentioned earlier,
it is important for others.
Mr. Mulvaney. It is important for others. So you wouldn't
support ones that would preserve the 90 percent of transactions
because you need a private transaction. So would you support a
reform that would have the Export-Import Bank do the 90 percent
of small business transactions, plus participate where we are
leveling the playing field, where other export credit
facilities are involved in negotiations, and we are simply
meeting the competition? Would the U.S. Chamber of Commerce
support a reform that had the Export-Import Bank do just those
two primary functions?
Mr. Murphy. I think we would have to look at what are the
other particular circumstances where it is uniquely necessary,
so for instance, when it is a bidding requirement, and other
instances that I have mentioned.
Mr. Mulvaney. And my guess is, I could go through the whole
list of adding a little bit here and adding a little bit here.
But the bottom line is that the U.S. Chamber of Commerce
supports a full and clean reauthorization of the Export-Import
Bank without reform, doesn't it?
Mr. Murphy. We express support for the Fincher bill, and
think that there are a number of good reforms in there that are
definitely worth considering.
Mr. Mulvaney. But you told all of my local Chambers that
you support full and clean reauthorization, right?
Mr. Murphy. Our goal at present is to find a path forward.
We know that this is a fierce debate and there are going to
have to be compromises made all around.
Mr. Mulvaney. Let me switch gears with you a little bit
because you mentioned something, and we have sort of gotten,
not sidetracked, but a lot of folks were focusing on the
language of winners and losers. I don't want to use that
language. I want to use your language from your opening
testimony where you said you worried about putting American
firms at a competitive disadvantage in the global marketplace.
It was more or less your words.
Do you believe that the Export-Import Bank puts Delta Air
Lines at a competitive disadvantage in the global market when
it facilitated the purchase of Boeing 777 airplanes by Air
India?
Mr. Murphy. I believe that there are many cases like that
where the foreign airline has a very clear choice between
buying Airbus and Boeing. In those cases, if Ex-Im were not
available, I believe that there will be instances when that can
determine that the sale goes abroad.
Mr. Mulvaney. Thank you, Mr. Murphy. The airplane in
question was the Boeing 777, and it was going to used by Delta
to fly nonstop from the Continental United States to India. In
fact, they were using it for that purpose. Air India sought it
for the same purpose. At that time in the mid-2000s, the Boeing
777 was the only airplane in the world capable of making that
trip.
So I would suggest to you, sir, that it was not a
circumstance where we were competing with Airbus. We were
simply trying to sell the Boeing airplane. So I ask you again,
did that transaction put Delta Air Lines at a competitive
disadvantage?
Mr. Murphy. I believe that these--there are many
substitutes in the different classes--
Mr. Mulvaney. And I am simply telling you, Mr. Murphy, and
you can go look it up if you want to, there were no substitutes
in this instance. Only the 777 extended range, long-range plane
could make the trip. So do you want to change your answer or
are you going to stick by what you told me?
Mr. Murphy. I think we can agree to disagree.
Mr. Mulvaney. No, we can't. So what airplane could Airbus
offer that would make the trip.
Mr. Murphy. Airbus has a variety of different aircraft that
it sells aggressively around the world.
Mr. Mulvaney. They absolutely do. So tell me the one they
had in 2004 that could make a trip nonstop from India to the
United States. And I can assure you, Mr. Murphy, I know this
one, I got you on this. There was no Airbus airplane that could
make it, okay. I don't think there was until about 2012. So I
ask you one last time, would you at least admit that in that
one transaction, the Export-Import Bank put an American
business at a competitive disadvantage?
Mr. Murphy. I don't know further details about it enough to
answer you.
Mr. Mulvaney. Thank you, Mr. Murphy. I appreciate your
time. Thank you, Mr. Chairman.
Chairman Hensarling. The Chair now recognizes the gentleman
from Arizona, Mr. Schweikert.
Mr. Schweikert. Thank you, Mr. Chairman. It keeps getting
more and more interesting. I want to run through a couple of
the mechanics here because some of the sort of hyperbolic
conversations that seem to have gone on in the last month, I
want to sort of distill this down to what is really in debate
moving here. Mr. Murphy, are you comfortable with the
discussion that over 98 percent of U.S. exports either find
loan enhancement surety credit through other avenues other than
the Export-Import Bank?
Mr. Murphy. Yes, that is--
Mr. Schweikert. All right. Mr. Ikenson, tell me if I have
my basic understanding of credit tree set up properly.
I am going to sell widgets around the world, often before
it is able to get in that container and start heading overseas,
I need to--my loan facility, I may need an enhancement on it to
make the bank happy or to be able to make the bank's regulators
happy as it may ultimately be. I may need a surety device,
surety bonding, which is technically not a type of bond. It is
a type of laddering, or an actual credit facility from my
buyers. Am I missing any particular categories?
Mr. Ikenson. Not that I am aware of.
Mr. Schweikert. Isn't it true that every single day around
this world, and maybe in the hundreds of billions of dollars
every week, that secured--or excuse me, that syndication of
risk is done?
Mr. Ikenson. Yes.
Mr. Schweikert. And functionally, it is just like all of us
here who have had a home mortgage. We may have had Fannie,
Freddie, FHA or other types of mortgage insurance.
Functionally, that is what those loan enhancements are doing,
is guaranteeing part of that debt instrument.
Mr. Ikenson. Yes.
Mr. Schweikert. So right now we are basically engaged in
this conversation for less than 2 percent of our exports,
basically saying that there is something that is already
working for over 98 percent of our trade, whether it be the
credit, whether it be the surety, whether it be the
enhancements.
Mr. Ikenson. Right.
Mr. Schweikert. So could you and I tomorrow design a way
where the full faith and credit, which is what many of us
object to, of my 318 million brothers and sisters in this
country that their credit is on the line on this less than 2
percent of the transactions, could you and I design a mechanism
where you could still call it the Export-Import Bank? You could
still have some of the same employees. The fact of the matter
is the majority of their book is actually creating loan
enhancement vehicles to make the money center bank or whoever
the lender is putting up the money, could you see something
like Export-Import Bank being rechartered so we remove the
taxpayers and it basically becomes a risk syndicator out in the
marketplace?
Mr. Ikenson. I haven't given that a whole lot of thought.
But perhaps that is the way to go, and--but it can have a
private charter and just be a regular bank.
Mr. Schweikert. Yes, well functionally, it is not
technically--what is it, only about 20 percent of its book is
actually true lending credit.
Mr. Ikenson. Right.
Mr. Schweikert. So in many ways, it is actually more of a
lending enhancement vehicle than it really is as a bank, which
there are hundreds of companies that do that. On occasion in
these discussions you will hear one of our witnesses refer to
it as the insurance brokerage industry. It is not homeowner's
insurance. It is actually lending enhancement insurance. In
many ways, we are engaging in an absurd debate here. The vast
majority of the world's trade goes without my taxpayers,
without your taxpayers, for my brothers and sisters who are
members here being on the hook.
Mr. Ikenson. I agree.
Mr. Schweikert. If that is what ultimately people like me
mostly object to, I can see a path where it may not give the
Chamber ultimately what they want, which is the easiest path,
but it is already out there. It exists every day. If you all
were economics majors, or finance majors, you used to sit
through a class of how Lloyd's of London was organized and what
it basically was doing which was enhancing or guaranteeing
ships and their cargo. It is time to start to realize the
solution is already out there in the private marketplace. We
actually just need to find a way to have what is already
working in this instance. And with that I yield back, Mr.
Chairman.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Maine, Mr. Poliquin.
Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it.
Thank you all for being here today, and helping us through this
very important discussion. I have been listening to this
discussion since, I don't know, about 10 this morning, and
there are about 4 things that I am guessing that all of us here
in this room, including you folks at the table, agree on.
Number one is that Ex-Im does pick winners and losers. I don't
see how we can debate that. You just listen to everything that
we listened to today and a couple of examples right here with
the nice gentleman from Delta.
Second of all, there is a cost. There is absolutely a cost.
There is a cost to the taxpayers, because the risk that they
are on if something goes wrong. There is a cost to the workers
who work at a company that don't have--have not been supported
by Ex-Im. And I think the third thing, fourth thing that we all
can probably agree on, is that there has been gross
mismanagement at the Bank, gross mismanagement. When you talk
about the fraud, the corruption, and you talk about how a
Member of Congress is in jail down in Louisiana because he had
$90,000 in his freezer as a result of a bribe related to the
Bank. So there has been corruption. There has been gross
mismanagement.
Nobody knows what the result is going to be of this
discussion. I know that in my experience with the private
sector where I came from, and as a business owner currently, I
would never do business with a bank like this. Now, I am not
criticizing those who have chosen to do that. But there is
reputational risk, and if you are dealing with the folks who
have this sort of behavior, who knows what they are going to be
doing.
So my question really is to you, Mr. Murphy, and help me
out with this: Is this normal behavior for export credit
agencies around the world? Your members deal with the folks in
every different space in our economy and throughout the world.
Is this sort of behavior common among other ECAs around the
world?
Mr. Murphy. Your question is a bit like asking me if I
stopped beating my wife yet. On behalf of the Chamber's members
who do business around the world, I would just have to say that
it is a tough global environment where every day they are going
head to head with competitors from around the world. U.S.
merchandise exports are just 8 percent of the world's total.
Everything we make has competition and substitutes around the
world. And they face--and they enjoy support from their ECAs.
Mr. Poliquin. Okay, where I am going with this, if I may,
sir, and all of you, if the Bank is not reauthorized that is
one avenue. If the Bank is reauthorized, it seems like to me,
from what I have heard today, there will be a lot of very badly
needed reforms. I would hope that would be the case if it goes
down that path. And I am hopeful that those of you who have
experience in dealing with the Bank, and with the think tank
over here with Cato and the folks who have other experience in
this room, is that we won't be shy about reforms that deal with
the Bank's structure, management structure, because that, of
course, is what ultimately leads to unacceptable behavior.
For example, earlier this morning, we learned that Mr.
Hochberg effectively reports to nobody. He is appointed by the
President. He has been a fund-raiser for the President. He
chairs his own board. So the only way that management at Ex-Im
is accountable, is if we don't reauthorize the Bank. So if we
go down this path and Ex-Im is reauthorized, and I am not
saying it will be, but if it is, I would hope that all the
stakeholders in this room and outside of this room can bring it
upon themselves to make sure that we have reforms in place that
deal with the management structure that leads to their business
practices such that we don't have to come to this point again
where it is, you are on or you are not. It is all or nothing.
And so I would hope that all of us can keep that in mind as
we move forward. But I do appreciate all of the folks being
here today. This has been a tough discussion. But I will tell
you, I represent about 650,000 people in northern Maine. They
play by the rules. They are as honest a group as you could ever
find. And they see this, and they hear this behavior, and their
hair just stands up on end. So I don't know where this is going
to go. But if it goes down the path of reform, let's fix this
thing. Thank you, Mr. Chairman. I yield back.
Mr. Schweikert [presiding]. Thank you, and we are excited
to watch your hair stand on end.
Mr. Emmer?
Mr. Emmer. Thank you, Mr. Chairman, and I thank the
witnesses for being here today. I have limited time, Mr. Hirst,
but I want to thank you, even though you have moved to the
beautiful State of Georgia, we still have very good feelings
about Delta, and especially Northwest Airlines in Minnesota.
You talked a little bit about not being able to quantify
specifically the jobs. My understanding is that Delta employs
some 80,000 people. I had the number in Minnesota. I don't have
it right in front of me now. Maybe you know it offhand. I am
interested to know what this means to my State, and other
airlines. You are just talking about Delta, but is Delta the
only one that this impacts or have you talked to other
airlines?
Mr. Hirst. No, sir, it impacts the U.S. airlines that
operate in international markets because where the Ex-Im Bank
and the European export credit agencies provide subsidies to
foreign airlines, U.S. airlines cannot receive comparable
subsidies, and we don't want them. We are all affected by that.
I say that in any situation where a foreign airline displaces a
U.S. airline, or a foreign airline serves the market that a
U.S. airline therefore can't enter, subsidize, the effect on
jobs is about 1,000 on net. About 1,000. That is the number
that can have an impact in Minneapolis which is a Delta hub--
Mr. Emmer. Thank you. And Mr. Smith, obviously, mining is a
big deal in Minnesota, and we have had some challenges. I am
glad you are still there. I hope you are still there next year
and the year after. I am concerned. How is this going to affect
Minnesota mining, and specifically the jobs?
Mr. Smith. With the 1,800 jobs we have in Minnesota, some
of those are at risk due to the high levels of steel that are
being imported into the United States. And just to correct
something that I said earlier to Ms. Moore about our exports,
we still export to Canada at a limited tonnage right across to
Sault Ste. Marie, but going through Canada out to other markets
into Europe, and into the Far East, we don't export anymore. So
we have cut back our production tonnage at Northshore already
this year, one our mines in Minnesota. And we have done that
through attrition, but our customers are struggling with high
levels of imports.
Mr. Emmer. How many jobs has that cost us in Minnesota so
far?
Mr. Smith. It is right at probably 200.
Mr. Emmer. Mr. Murphy, quickly, and then I am going to run
out of time. I do have a question for Mr. Boyle if I can get
there. But you are talking about how we would be the only
country without an Export-Import Bank. And contrary to what you
may be suspecting, I want to know why it is important to
maintain it. One of the things that caught me when you were
talking was we need this to offset what other countries are
doing. And yet, I assume you are aware that only a third of the
Ex-Im's portfolio, or Ex-Im's work actually goes to a
countervail, or to a deal with competitive Export-Import Banks
from foreign countries. You are aware of that?
Mr. Murphy. Yes, but some of the remainder goes to the
circumstances I have mentioned where it is a bid requirement,
and so on. And I think Doug Holtz-Eakin, former head of the
CBO, said it well when he said, ``I would like to live in a
world where the Export-Import Bank is not necessary, but this
is not that world.''
Mr. Emmer. Okay, and Mr. Boyle, quickly, you talked about
initially, when you are in this niche market where you take
power plants from construction to operation, and that you went
out initially looking for a line of credit, operating capital,
and your commercial bankers wouldn't do it. They wouldn't take
a security interest in your foreign accounts receivables, I
think is what you had said.
Mr. Boyle. Yes.
Mr. Emmer. And my question is, did they ask for a security
interest in your domestic accounts receivable, in domestic hard
assets?
Mr. Boyle. They have 100 percent of my personal and
corporate assets.
Mr. Emmer. And last question, just because I am going to
run out, is, what is the collateral of the security interest
that Ex-Im Bank asked you for?
Mr. Boyle. Ex-Im Bank didn't ask me for it. Bank of America
did.
Mr. Emmer. No, but you got the credit line with Ex-Im.
Mr. Boyle. No. Bank of America asked Ex-Im Bank for the
backing of my credit. I asked Bank of America. I had never
asked Ex-Im Bank for any credit.
Mr. Emmer. What is the collateral that Ex-Im has?
Mr. Boyle. The same as Bank of America, because Bank of
America would be paid first, which is 100 percent of my
personal and business assets.
Mr. Emmer. Thank you. That is what I want to know. I
appreciate it.
Mr. Schweikert. The gentleman from Tennessee, Mr. Fincher.
Mr. Fincher. Thank you, Mr. Chairman. Just a few comments.
A few minutes ago, my colleague, Mr. Poliquin, was talking
about Ex-Im Bank picking winners and losers, and Mr. Hochberg
said this morning that he didn't feel that it did. But any time
that American workers are picked over other countries, we are
winning. So when we are making products and selling in all of
the world, that is a positive step in the right direction. Mr.
Hirst just listening, and I love Delta Air Lines too, just so
you know, it is a great, great airline company. At Delta Air
Lines, have you ever purchased Airbus airplanes using foreign
Ex-Im financing?
Mr. Hirst. No, sir.
Mr. Fincher. Are you in favor of reauthorization of the Ex-
Im Bank with reforms?
Mr. Hirst. Yes.
Mr. Fincher. Okay. Mr. Murphy, explain to us what happens,
for example, credit insurance, if we don't reauthorize Ex-Im
Bank, the private sector insuring some of these deals, if it
goes away, what happens? Who steps up?
Mr. Murphy. I think many small businesses have already had
the experience that commercial banks are unwilling to provide
that without an Ex-Im backstop. So I think a lot of those small
businesses would no longer be able to export.
Mr. Fincher. It is a shame when we have the conversation, I
have been watching the debt clock, 18-plus trillion dollars
here of all of the things that we could be focusing on trying
to fix the debt problem, but we are spending a lot of time and
a lot of energy here focusing on something that no doubt, I
will be the first to admit, we need to reform. We have the bill
to reform it. But it is actually something that returns money
to the Treasury every year. We are changing the accounting
standards to GAAP accounting standards, so if someone has a
problem with that. But also, I am troubled by some of my
colleagues continuing to go down this path of, well, it is the
bank of 10 big companies. The top 10 get all of the loans,
blah, blah, blah. Well, it is no fault of Boeing, or
Caterpillar, or John Deere, or other companies that build
products that are very expensive.
Boeing puts together airplanes that are built all over the
country, and it just happens to cost a lot of money to sell
these airplanes and to build these airplanes. So we are going
to be now, a country of capitalism, in that you can be
successful, but not too successful. We can be the country, and
this is frustrating for me as a Republican, we can be the
country and the land of opportunity and growth, but don't grow
too much. Because if you do, then you are the enemy.
We somehow have to get our heads around that this goes back
to the American worker, and being competitive around the world.
And there are 60 other countries. I get it. In a perfect world,
it wouldn't be needed. But the world is not perfect, and we
have to stay competitive. And if we don't reauthorize this,
jobs are going to be lost, and so we are, again, we have been
beating this horse all day, and it seems like forever. We have
to get this done. We owe it to the American workers. Let's
don't punish job creators all over the country for something
that is no fault of theirs. And let's continue to be
competitive. And with that, Mr. Chairman, I yield back.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentlelady from Utah, Mrs. Love.
Mrs. Love. Thank you so much, Mr. Chairman. Thank you all
for being here today. I just wanted to point out a couple of
things. I will just get right into it.
Mr. Hochberg said in his statement today that Ex-Im Bank
does not pick winners and losers; rather, it serves any
eligible American business seeking competitive finance to
export goods and services. That sentence alone suggests that
you pick winners and losers when you are deciding who is
eligible and who isn't eligible to receive that.
Mr. Hirst, have you ever been eligible for Ex-Im financing?
Mr. Hirst. No.
Mrs. Love. Okay. We will just leave it at that. I am having
a hard time believing this argument that this bank doesn't pick
winners and losers. I just have a quick slide I wanted to show,
just some pictures here. Those are employees of Delta who
actually just finished building a park for students. The others
volunteered to build homes, on their free time, by the way,
their own vacation time. Other volunteers who are Delta
employees, you can go through the pictures and you can get my
gist there.
We have been advocating for jobs. That is all I keep
hearing about. Jobs here, jobs there. I want to know if their
jobs are expendable? I want to know what about their jobs and
the people that they serve and their families that they serve?
One of the things that I love about my colleague on the other
side of the aisle, Al Green, who talks about--he talked about
justice for all. He talked about liberty and justice for all.
He is incredibly passionate and I know that he loves this
country. But where is the justice for some of these people who
may have their jobs at risk?
This is not about a vote. This is not about you and me. It
is not even about the votes that we make here today. What makes
this country exceptional is not the decision we are going to
make whether we--whether we vote to reauthorize Ex-Im Bank. It
is about allowing people the freedom to make decisions on their
own, to be able to compete in a world and in a country where
government is not picking winners and losers for them.
I think that we would be doing a much better job in this
body if we were spending our time here arguing--instead of
arguing about how we are going to improve the Bank's exercise
in picking winners and losers, that we could actually be
spending our time talking about real justice in terms of how we
reduce regulatory burdens, tax burdens on companies that
prevent them from creating jobs. Why not fight for every single
job by fighting for every single company by reducing the
corporate tax rate that we have, by reducing burdens that we
put on every single company? Why not save as many jobs as
possible? This is what this body should be doing, not making
decisions for other people and saying, hey, by the way, we are
going to choose you, and not choose you. But we are going to
say we are going to give as many people as many options as
possible so that they have the best chance in providing for
themselves and going back and helping their communities.
That is what I came here to do. What are we doing? If we
are in the business of providing every--of making sure that
every company is able to sell their products here and across
the--across this--the great seas, then we are grossly
underperforming.
Again, I want to thank you all for testifying here, for
being here. But I want to be able to live in a world where my
children can be able to compete equally and make choices and
reap the benefits of those choices that they make. Thank you. I
yield the remainder of my time.
Chairman Hensarling. The gentlelady yields back. The Chair
now recognizes the gentleman from Arkansas, Mr. Hill.
Mr. Hill. Thank you, Mr. Chairman. Panel, thank you for
your indulgence and your tenacity. I appreciate you staying
through this process.
Mr. Hirst, you commented on, be a lender of last resort as
a reform idea. And I am curious how you would see that manifest
itself? What would that mean to you? What does that mean?
Mr. Hirst. Any applicant for bank financing, any foreign
airline that would apply for bank financing would have to
certify that it was unable, it had made an effort and was
unable to obtain financing in the commercial markets for the
aircraft that it wants support for.
Mr. Hill. Thank you, and Mr. Murphy, you talked a lot about
international tenders for projects and products that companies
bid on on a global basis. And you said that frequently
financing was a component of that tender, and I don't think you
meant to say ECA-type financing as a component of the tender.
Perhaps you did. So I want you to clarify that for me. Because
why wouldn't it just simply be that we are going to sell large-
scale product X to a country or company and country Y, and that
financing be provided, but are you implying that those tenders
require only the ECA of the selling country?
Mr. Murphy. That is exactly what I am saying. And it is a
common practice in infrastructure projects around the world
which are big business and huge opportunities for American
exporters. That is one of the particular instances where it is
required.
Mr. Hill. Thanks for the clarification. Would you describe
that as a non-tariff barrier to American trade then?
Mr. Murphy. Absolutely.
Mr. Hill. And in Trade Promotion Authority and when we
think about TTIP, and TPP, should we be very cognizant of non-
trade barriers like that when we look at those agreements, non-
tariff barriers?
Mr. Murphy. I think that the emphasis that a number of
members of the committee have put on trying to find a path
forward for international negotiations is something that we can
all support. But I think one of the messages here today that we
hear from around the world is that there is very little
appetite from foreign governments to engage in that. They are
all expanding in almost every instance their ECAs.
Mr. Hill. Particularly the European--we have heard a lot
about Europe, particularly today that didn't affect our friends
in the construction business, which is global, but in the
aviation business, it seems to be Europe is a prime part of the
discussion. And they are the primary countries that are seeking
an Atlantic TTIP treaty with the United States, right, so don't
we have some clout or credibility there in putting this on the
table as a non-tariff barrier to be eliminated?
Mr. Murphy. It is certainly worth trying, but as has been
pointed out, China has four of these banks. They are providing
volumes of export finance that are 10 and 20 times between the
four different policy banks that China has, 10 and 20 times
what our little old Ex-Im Bank is providing, so it is an uphill
struggle.
Mr. Hill. Okay, thank you for that.
Mr. Boyle, I have never had an opportunity to question a
boiler technician of your standing. So it is a treat. Thank you
for coming, and thanks for your passionate story you told.
Following up on Mr. Emmer, I had some of the same questions
which was, when I meet people, some people apply for Ex-Im
because their credit is insufficient to do a transaction.
Others, it is the buyer. There is some buyer-seller problem in
a foreign country, or the lack of credit standing.
So I take it in your discussion with Mr. Emmer, it was
expanding or qualifying your credit on behalf of your primary
bank. Do you think that was the nature of your receivables, and
your inventory, and your balance sheet, or--
Mr. Boyle. Yes and no, because my receivables are foreign-
based and unsecure. They are with foreign corporations, Korean
construction companies, GE, foreign companies overseas, GE's
companies overseas, and large construction companies around the
world.
Mr. Hill. I was a former commercial banker in my previous
life, and we made loans to people who had foreign receivables,
and we tended to take bank letters of credit from those
countries, particularly if they were developed countries, or
countries with a solid banking system. I wondered if you would
explore that aspect of it and just get you to comment on that
as well?
Mr. Boyle. We haven't been able to make that become a
reality. It is not available in the current marketplace that we
can find. This discussion has been ongoing for some period of
time, and we in small business across the United States that
are currently working with the Ex-Im Bank, seek an answer to
that question. And I think, hope as a strategy is what we are
having a problem with at the moment, in that regard, is the
answer isn't out there, and you want us to hope that it
materializes overnight. If it materialized beforehand, we might
have a discussion.
But there isn't anything that we know of. We don't have the
resources to scan the globe looking for this. I have spent a
great deal of time doing this, so you are putting the cart
before the horse.
Mr. Hill. Thank you, Mr. Boyle. My time has expired and,
again, I thank the panel. And thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
I understand the ranking member wishes to be recognized for a
unanimous consent request.
Ms. Waters. Thank you, Mr. Chairman. I seek recognition to
insert into the record a document entitled, ``GOL Issues $41
million Ex-Im Bank-Guaranteed Bond for Services Exported by
Delta TechOps, MRO Division of Delta Air Lines.''
Chairman Hensarling. Without objection, it is so ordered.
There are no other Members in the queue on either side of
the aisle, so this is good news for our panel. I wish to thank
all of our witnesses for their testimony today.
The Chair notes that some Members may have additional
questions for today's panels, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is adjourned.
[Whereupon, at 5:30 p.m., the hearing was adjourned.]
A P P E N D I X
June 3, 2015
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