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


                      EVALUATING THE EXPORT-IMPORT BANK IN THE 
                                 GLOBAL ECONOMY

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

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 23, 2015

                               __________

                           Serial No. 114-102

                               __________

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

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       BRIAN HIGGINS, New York
MATT SALMON, Arizona                 KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina          ALAN GRAYSON, Florida
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas            GRACE MENG, New York
SCOTT PERRY, Pennsylvania            LOIS FRANKEL, Florida
RON DeSANTIS, Florida                TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
TED S. YOHO, Florida                 ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida                BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
TOM EMMER, MinnesotaUntil 5/18/
    15 deg.
DANIEL DONOVAN, New YorkAs 
    of 5/19/15 deg.

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

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

         Subcommittee on Terrorism, Nonproliferation, and Trade

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

                              ----------                              
                                                                   Page

                               WITNESSES

Ms. Diane Katz, senior research fellow in regulatory policy, The 
  Institute for Economic Freedom and Opportunity, The Heritage 
  Foundation.....................................................     4
Mr. T.J. Raguso, executive vice president, International 
  Division, Amegy Bank National Association......................    18
Mr. Tyler Schroeder, financial analyst, Air Tractor Inc..........    26
Loren B. Thompson, Ph.D., chief operating officer, Lexington 
  Institute......................................................    33

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Ms. Diane Katz: Prepared statement...............................     7
Mr. T.J. Raguso: Prepared statement..............................    20
Mr. Tyler Schroeder: Prepared statement..........................    28
Loren B. Thompson, Ph.D.: Prepared statement.....................    35

                                APPENDIX

Hearing notice...................................................    54
Hearing minutes..................................................    55
The Honorable Ted Poe, a Representative in Congress from the 
  State of Texas, and chairman, Subcommittee on Terrorism, 
  Nonproliferation, and Trade: Statements from:
  R. Bruce Josten, Chamber of Commerce of the United States of 
    America......................................................    56
  Nate LeMar, Draper Inc.........................................    57
  Don Nelson, ProGauge Technologies Inc..........................    58
  Steve Wilburn, CEO, FirmGreen Inc..............................    59
  Linda Menghetti Dempsey, Vice President, International Economic 
    Affairs, National Association of Manufacturers...............    60
The Honorable Ted Poe: The Heritage Foundation Issue Brief, 
  ``Export-Import Bank Impervious to Reform,'' by Diane Katz, 
  dated February 24, 2015........................................    68

 
        EVALUATING THE EXPORT-IMPORT BANK IN THE GLOBAL ECONOMY

                              ----------                              


                        FRIDAY, OCTOBER 23, 2015

                     House of Representatives,    

        Subcommittee on Terrorism, Nonproliferation, and Trade,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 2172, Rayburn House Office Building, Hon. Ted Poe 
(chairman of the subcommittee) presiding.
    Mr. Poe. The subcommittee will come to order. Without 
objection, all members may have 5 days to submit statements, 
questions, extraneous materials for the record subject to the 
length limitation in the rules.
    I want to welcome all of our witnesses.
    And at this time, I will give my opening statement and then 
yield to the ranking member Mr. Keating.
    If the United States' economy wants to grow, it has to 
export. Ninety-five percent of a business' potential customers 
are not in the United States. They are in other countries. The 
more foreign customers we can sell American-made goods to, the 
more jobs we create right here in the United States.
    Trade is the lifeblood of Houston in the State of Texas. 
Houston exports more than any other city in the United States. 
In Texas, more than one in five jobs are supported by trade. 
Fifty percent of the economy of Houston, Texas, is based on the 
Port of Houston. The Port of Houston is an export port. It 
exports all types of items throughout the world. The question 
for us today, does the Export-Import Bank help U.S. businesses 
trade and grow exports in a global economy?
    Congress founded the Export-Import Bank to facilitate 
American trade overseas and help guarantee financing for U.S. 
businesses. The charter has been renewed every year since 1934. 
That streak of 80 years ended this year. The bank expired on 
July the 1st.
    The concept of an export credit agency is not unique to the 
United States. The U.S. Ex-Im Bank is one of at least 85 export 
credit agencies throughout the world. Some countries have more 
than one. Supporters of reauthorizing Ex-Im Bank argue that 
eliminating the bank is tantamount to unilateral disarmament, 
putting U.S. companies at a competitive disadvantages with 
their competitors worldwide. There is no reason to believe, 
they say, that other counties will follow our lead to abolish 
their export credit agency. Instead, other countries like China 
and Russia will be happy to take our business for themselves.
    In the last few months, we have seen that start to happen. 
GE announced that 100 jobs will be moved next year from a 
facility near my district in Houston, Texas, to Hungary and 
China. Why? So GE can access foreign credit export credit for 
its customers of gas turbines. The lapse in reauthorization 
impacts more than the big companies like GE. It affects many 
small businesses. Cindy Lewis, president of AirBorn Inc., an 
electronic connector manufacturer in Georgetown, Texas, put it 
this way: ``Maybe Boeing can weather a shutdown of the Ex-Im 
Bank, but small businesses in Texas that make up nearly 90 
percent of transactions cannot.''
    Supporters of the bank also argue that Ex-Im only finances 
deals that the private sector cannot finance alone. For some 
large infrastructure projects in international markets, the bid 
will not even be accepted if a company does not have access to 
an export credit agency.
    And some billion-dollar opportunities for American 
companies and international markets require the availability of 
export credit before they will even entertain a bid. Without 
Ex-Im Bank to level the playing field, supporters say American 
companies will continue to lose out to foreign competitors 
backed by aggressive government support.
    However, on the other hand, opponents of the bank see it as 
corporate welfare subsidized by taxpayer dollars. They believe 
the companies will be able to get the private financing needed 
for their business opportunities overseas. In a free market, 
the United States Government, opponents argue, should not pick 
winners and losers. While they admit that some people may lose 
their jobs, they also say this is a global economy and the 
companies moving jobs overseas, that will happen regardless of 
the Ex-Im Bank. They also say that this is only a minor 
fraction of U.S. exports being only 2 percent.
    The bottom line is this: Buyers overseas want American 
products and no one innovates better than the United States 
worker. When a person combines the strength of the American 
spirit with a level playing field, American companies can win 
and can compete. The purpose of this hearing is to find out 
whether the unilateral eliminating of the American Ex-Im Bank 
has put American export industry and jobs at a global 
disadvantage.
    And I will now yield to the ranking member from 
Massachusetts, Mr. Keating.
    Mr. Keating. Thank you, Chairman Poe.
    And thank you for the timely and urgent hearing we are 
having today on the Ex-Im Bank. It is important to recognize, 
first of all, that the Ex-Im Bank is an independent nonpartisan 
agency that has helped finance the export of American goods and 
services for over eight decades. Not only does the agency 
operate at no cost to taxpayers, but it has been very prolific 
in sustaining 1.5 million jobs and increasing our private-
sector jobs back here at home.
    It produced funds each year without any participation of 
taxpayer funding. Yet today, partisan politics has allowed this 
important tool of American business interest to lapse. Since 
its expiration in June, our businesses and workers have been 
placed at a disadvantage to their international competitors and 
American jobs are moving overseas. This month, two major 
American job supporters announced that they are forced to send 
jobs overseas due to the Ex-Im Bank's expiration and the 
ongoing battle over its reauthorization.
    At the very least, 500 Americans will lose their jobs and 
this is only the beginning. Small businesses and businesses 
that do exporting need certain protections to tackle the new 
markets and the expanding markets that are there creating the 
most growth in jobs in the U.S. With nearly 60 other export 
credit agencies around the world trying to win jobs for their 
own countries, Ex-Im Bank helps level the playing field for 
American businesses contributing to decreasing our trade 
deficit and encouraging exports. This agency ensures that U.S. 
companies do not lose out on a sale because attractive 
financing exists in foreign countries.
    Now, I have been to the Port of Houston that the chairman 
has mentioned. If you just visualize the scope of that and the 
international commerce that is coming through that, you can see 
at one glance the impact of our not being able to be 
competitive with other countries. But you don't have to go to 
the Port of Houston to see that. You can go to each and every 
State in the United States.
    One of our witnesses, Mr. Thompson, is here from my home 
State and he comes from Plymouth, Massachusetts. And we could 
have witnesses from every State in the Union here testifying 
today as to what the Ex-Im Bank does. In Massachusetts, the Ex-
Im supported over $3 billion in exports and 22,000 jobs while 
on the whole, the country has had $235 billion in exports that 
is supported by the bank.
    However, as a result of the lapse of authority on July 1, 
Ex-Im has halted all activities on new and pending 
applications. Since then, over 400 insurance policies, many of 
which were predominantly small businesses, have expired 
totaling over $490 million in that period. Once more, at the 
time of the lapse, more than $9 billion in transactions were 
sitting in the pipeline. Last May, the chairman and I held a 
hearing on the important role of trade and promotion agencies. 
We were joined by business owners and supporters from both 
sides of the aisle in discussing the critical role of Ex-Im and 
the imperative to reauthorize its role. And we were warned of 
the job losses and disadvantages that would result in such a 
lapse.
    Regrettably, we are now starting to see those predictions 
come true. So I welcome the testimony and the insight of our 
witnesses today, and look forward to the conversation that will 
ensue. And it is my hope that today's hearing will serve as a 
resource for all of our colleagues who are not sold on the 
economic import of reauthorizing this agency. It is a critical 
and urgent hearing. It is timely, and I hope it produces swift 
results in reauthorizing the bank.
    With that, I yield back, Mr. Chairman.
    Mr. Poe. I thank the gentleman.
    The Chair will yield 1 minute to Mr. Heck from Washington 
for his opening statement.
    Mr. Heck. Thank you very much, Mr. Chair. Might I just 
begin by extending my sincere appreciation to both you and the 
ranking member for the privilege to sit in and participate in 
this committee. I am not a member of this committee. I am 
instead a member of the Committee on Financial Services, which 
is the general committee of jurisdiction for this issue and one 
with which I have incredible familiarity in the long effort.
    I want to make just one point as it relates to the impact 
on the economy and businesses. Much is often made about the 
fact that the Boeing Company is the major user of the Export-
Import Bank. Not much is made about the fact that the Boeing 
Company doesn't actually make airplanes. They don't. They 
design and assemble them. The people who actually make the 
airplanes are the 15,000 businesses in their supply chain, 
6,000 to 8,000 of which are small businesses, and that is who 
will be hurt most by our failure to reauthorize the Bank.
    Thank you again, Mr. Chair, very much.
    Mr. Poe. Mr. Castro, do you want to make an opening 
statement?
    Mr. Castro. No. Please, go ahead.
    Mr. Poe. All right. Thank you.
    The Chair will now introduce the witnesses and remind the 
witnesses that you have 5 minutes. We have all of your 
statements made part of the record. And then, after the 
witnesses make their comments, then members of the committee 
will ask questions.
    Diane Katz is a senior research fellow in regulatory policy 
under the Institute of Economic Freedom and Opportunity at The 
Heritage Foundation. Prior to joining Heritage in 2010, she 
served as director of risk, environment, and energy policy at 
the Fraser Institute.
    T.J. Raguso is the executive vice president and 
international division manager for Amegy Bank. He has 22 years 
of experience in trade finance, letters of credit, commercial 
lending, and international correspondent banking.
    Tyler Schroeder is a financial analyst for Air Tractor in 
Texas. He works directly with Ex-Im Bank and their U.S. 
commercial banking partner to facilitate the sale of Air 
Tractor's foreign receivables and assignment of Ex-Im Bank 
insurance coverage.
    And Dr. Loren Thompson is the chief operating officer at 
the Lexington Institute. He previously served as deputy 
director of the Security Studies Program at Georgetown 
University.
    Welcome to all of you.
    Ms. Katz, you may proceed.

    STATEMENT OF MS. DIANE KATZ, SENIOR RESEARCH FELLOW IN 
   REGULATORY POLICY, THE INSTITUTE FOR ECONOMIC FREEDOM AND 
              OPPORTUNITY, THE HERITAGE FOUNDATION

    Ms. Katz. Thank you, Mr. Chairman, Ranking Member Keating, 
and members of the committee. I appreciate your invitation to 
testify this morning. My name is Diane Katz, and I am a senior 
research fellow in regulatory policy at The Heritage 
Foundation. The views expressed in this testimony are my own 
and should not be construed as representing any official 
position of The Heritage Foundation.
    My testimony will address whether expiration of the Export-
Import Bank charter is affecting U.S. trade. The short answer 
is no. As I detail in my written testimony, there is no 
shortage of private export financing, and the primary 
beneficiaries of Ex-Im subsidies continue to secure billions of 
dollars of new orders without it. For small businesses in 
particular, there are numerous other State and Federal programs 
to facilitate exporting--not that they are necessary.
    Bank proponents have spent tens of millions of dollars 
trying to convince you that Ex-Im is a lifeline for American 
jobs. But export subsidies do not create or even support jobs; 
they simply redistribute them from unsubsidized firms to 
subsidized firms.
    It is also important to recognize that Ex-Im finances a 
meager 2 percent of all U.S. exports. That means, of course, 
that 98 percent of exports rely on other forms of financing. 
And, as the chart before you illustrates, it is private 
financing that drives export growth.
    Some Members think that the charter should be reauthorized 
because Ex-Im is helpful to business in their district. But 
helpfulness does not justify government superseding a fully 
functioning export finance market, particularly when the 
subsidies produce more harm than benefit overall. Were 
helpfulness the proper standard, the size and scope of 
government would be boundless, as it is in, say, China.
    Instead, there are a great many tax and regulatory reforms 
that would help many more businesses to a far greater extent. 
As it is, the Federal Government backs an astonishing 60 
percent of all financial liabilities in the U.S. The Federal 
Reserve Bank of Richmond, which monitors this expanding safety 
net, has dubbed the exercise ``the bailout barometer.''
    In analyzing whether the charter expiration has impeded 
trade, we must identify the primary beneficiaries of Ex-Im 
programs. That turns out to be a select few multinational 
conglomerates. Between 2007 and 2014, more than 51 percent of 
Ex-Im subsidies benefited just 10 corporations. These 
companies--Boeing, General Electric, Bechtel, and the like--do 
not lack access to capital. Some even run export finance 
divisions of their own. And most of these industry titans also 
have billions of dollars of back orders that will keep them 
busy for years. The foreign firms that receive most Ex-Im 
financing are likewise corporate giants that primarily purchase 
products from other conglomerates, not mainstream businesses.
    A tremendous amount of media attention has largely focused 
on the supposed travails of small businesses without Ex-Im. In 
actuality, Ex-Im has assisted less than \1/2\ of 1 percent of 
small businesses. And even that number is overstated, as 
detailed in my written testimony.
    The small businesses that have benefited from Ex-Im in the 
past can instead tap the private financing sources used by the 
vast majority of their brethren. Consider this: Small and 
medium-size businesses account for 98 percent of all exporters, 
and exports have reached record levels of late. Obviously, 
then, access to financing is not a problem. In the event a 
business cannot access private capital, it can still export 
through wholesalers or associate its operations with larger 
firms or global supply chains.
    Notwithstanding all the fear-mongering about the loss of 
Ex-Im subsidies, finance costs are only one among a variety of 
factors that affect a purchaser's choice of supplier. 
Availability, reliability, and stability all play significant 
parts in purchase decisions. And there should be no question 
that American ingenuity can trump the export subsidies doled 
out by foreign governments.
    It is, of course, understandable that Ex-Im beneficiaries 
want to keep their subsidies, but the impact on the rest of the 
economy cannot be overlooked. Because Ex-Im lowers operating 
costs for foreign businesses, all the American firms without 
subsidies suffer a competitive disadvantage in the global 
market.
    The only way to eliminate the economic distortions and 
taxpayer risks of export subsidies and the rampant cronyism it 
perpetrates is to reject reauthorization of the Ex-Im charter.
    Thank you.
    [The prepared statement of Ms. Katz follows:]
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    Mr. Poe. Thank you, Ms. Katz.
    Mr. Raguso, you have 5 minutes.

    STATEMENT OF MR. T.J. RAGUSO, EXECUTIVE VICE PRESIDENT, 
    INTERNATIONAL DIVISION, AMEGY BANK NATIONAL ASSOCIATION

    Mr. Raguso. Chairman Poe, Ranking Member Keating, and 
members of the subcommittee, thank you for the opportunity to 
appear before you this morning.
    Amegy Bank is a commercial bank with offices in Houston, 
Dallas, and San Antonio. We are primarily a commercial lender, 
which is to say we are especially focused on lending to 
businesses. We have more than 40,000 commercial customers in 
Texas, many of which are small businesses.
    As a bank with a regional focus, we make loans that reflect 
the markets we serve. We have a strong energy focus, but our 
lending supports many industries, including manufacturing and 
service.
    Trade is important to our bank, as Texas has been the 
largest exporting State for the last 12 years and accounts for 
roughly 12 percent of U.S. exports. Amegy Bank has a 
significant presence in Houston, the largest exporting city in 
the U.S. Simply put, when you are a bank, you play with the 
cards you are dealt. In Texas, that means international 
business.
    Amegy Bank has used Ex-Im programs for over 20 years. Last 
year, Amegy Bank authorized more than $100 million in Ex-Im-
guaranteed loans in Texas, 60 percent of which were to small 
businesses.
    Exporting provides revenue diversification to our customers 
and to the economy. This is especially true when conditions are 
weak in the domestic market, as they are now. As we saw in the 
last downturn, Ex-Im utilization increases when the economy is 
in recession. We see an increased need now, given the impact of 
lower commodity prices and reduced global trade.
    Access to commercial bank borrowing is critical to a 
company's competitiveness. However, lending to an exporting 
company presents additional risks. Some of these risks include 
foreign receivables, geopolitical risk, unfamiliar legal 
system, and longer delivery or payment terms.
    Amegy Bank uses the Ex-Im Working Capital Guarantee Program 
to mitigate these risks because bank credit policies require a 
conservative view of international risk and restrict borrowing 
against export-related collateral. This means less money to our 
customers to finance their businesses. There is no equivalent 
private-sector alternative for this program. Ex-Im complements, 
rather than competes, with Amegy Bank.
    CECA Supply and Services, an oil field equipment exporter 
focused on the Algerian market, is an example of an Amegy Bank 
customer whose success depends on Ex-Im Bank. CECA encouraged 
me to share their story with the committee today.
    CECA exports 100 percent of its product and benefits from 
both an Ex-Im working capital loan as well as Ex-Im insurance. 
Over the last 9 years, CECA's revenues and export financing 
levels have more than tripled. Ex-Im programs have directly 
supported this growth. The words of CECA's CEO, Maher Touma, 
explain it best: ``For us, it is not a cheaper source of 
financing. We are either in business or we are not. For us, it 
is the only financing option.''
    No Ex-Im programs would lead to direct job loss at CECA and 
possibly its suppliers and logistics suppliers. These indirect 
exporters contribute to exports by supplying and supporting 
larger companies that are the ultimate exporters.
    Charter expiration negatively impacts both Amegy Bank and 
its customers. Most importantly, we cannot approve new deals or 
modify existing ones. One customer has a $33 million contract 
opportunity, but no viable private-sector solution has been 
found.
    Charter expiration makes long-term planning difficult. 
Uncertain about the availability and the cost of financing has 
made some customers reluctant to bid on new projects. Our 
customers invest years in developing international markets, so 
the effects of the recent uncertainly and charter lapse may be 
felt for years to come.
    Our customers already report increased competition 
supported by foreign export credit agencies, especially the 
Chinese. China's ECAs have financed more in the last 2 years 
than Ex-Im has in its entire 81-year history.
    The future of Amegy's existing Ex-Im loan portfolio is 
uncertain. Current deals remain in effect until maturity, when 
they must be repaid or refinanced through other sources. Given 
the lack of private-sector alternatives, Amegy will look at 
each transaction to evaluate options, which will likely result 
in less financing available and increased cost.
    In conclusion, Amegy Bank uses Ex-Im programs to support 
Main Street businesses, and the loans approved by Amegy Bank 
have supported the creation of hundreds of jobs. We have never 
experienced a loss on an Ex-Im working capital loan, and our 
customers have paid over $8 million in Ex-Im guarantee fees 
over the last 18 years.
    Our customers need Ex-Im and have no confidence that global 
trade policy or unilateral disarmament will level the playing 
field. They are primarily concerned with winning the next deal, 
investing in their businesses, making payroll, and beating 
foreign competitors. No Ex-Im means fewer financing options, 
higher costs, and decreased competitiveness.
    The future of Ex-Im Bank matters to my bank because it 
matters to our customers. Thank you for allowing me the 
opportunity to present our views on this important subject.
    [The prepared statement of Mr. Raguso follows:]
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    Mr. Poe. Mr. Schroeder?

   STATEMENT OF MR. TYLER SCHROEDER, FINANCIAL ANALYST, AIR 
                          TRACTOR INC.

    Mr. Schroeder. Good morning. Chairman Poe, Ranking Member 
Keating, members of the committee, I thank you for allowing me 
the opportunity to be here today to provide testimony on behalf 
of the 270 employee owners of Air Tractor, Incorporated. Today 
I am going to tell you the wide-ranging benefits that the 
Export-Import Bank has had on our businesses and to thousands 
of small businesses across the country.
    My name is Tyler Schroeder. I am a financial analyst at 
Olney-based Air Tractor. Mr. Poe, you have been in Abilene for 
some time; you probably know where Olney is. But for the rest 
of you who don't know, Olney is the epitome of the middle of 
nowhere. We are 100 miles west of Fort Worth, and we are 200 
miles east of Lubbock.
    Air Tractor is a small business manufacturing firefighting 
and agricultural airplanes, more commonly known as crop 
dusters. We were founded in 1972 by a gentleman named Leland 
Snow. We are a small business. We have 270 employees, and, 
since 2007, we have been 100-percent employee-owned.
    Like most small businesses in the country, we began by 
selling, producing, and marketing our product mainly to the 
domestic market. Up until 1995, we only exported 10 percent of 
our sales each year. Those were only facilitated through the 
requirement of cash in advance or an acceptable letter of 
credit.
    It was in the mid-1990s that Air Tractor began to realize 
that our domestic market was becoming saturated and that for 
the future growth of Air Tractor the only option was to go 
overseas. We also realized at this time that the requirement of 
cash in advance was not an acceptable method to grow our export 
portfolio. We had to be able to compete on financing in 
country.
    Naturally, with little expertise in the global export 
finance arena, we turned to our U.S. banking sector, to quickly 
find that no one was willing or able to give medium-term credit 
to our foreign small-business purchasers.
    It was shortly after this that we were eventually led to 
the Medium-Term Credit Insurance Program at the Export-Import 
Bank of the United States. Through this Medium-Term Credit 
Insurance Program, Air Tractor is able to extend 5- to 7-year 
medium-term financing, normally in the form of a 5- to 7-year 
promissory note, whereas we purchase an insurance policy from 
the Export-Import Bank and attach it to this particular 
promissory note to defend us in the event of a default or 
economic risk.
    What this also does is allows us to quickly turn around and 
liquefy that paper by selling it to our U.S. commercial bank 
for cash. Air Tractor is a small business. We are not a bank. 
We do not have the capacity on our balance sheet to extend 5- 
to 7-year terms and then withhold that paper for the long term.
    We have been using the Medium-Term Credit Insurance Program 
at Export-Import Bank for over 20 years now. In the meantime, 
we have completed 200-plus transactions in the medium-term 
program, and, to this day, we have never filed a medium-term 
insurance claim with the Ex-Im Bank.
    What we have done, though, is we have increased our exports 
from 10 percent in the mid-1990s to 50 percent annually today. 
We have also increased our employment base, from 120 employees 
in 1995 to 270 today. We have over doubled our production.
    However, since the charter lapsed in June, Air Tractor has 
felt the pain. It comes at a time when our largest exporting 
market of Brazil is facing its own economic constraints. The 
Brazilian real is depreciating, the U.S. dollar is 
appreciating, and it is becoming more and more expensive to 
purchase a U.S.-based Air Tractor aircraft.
    At the time that the Bank lapsed, we had 16 airplanes that 
were destined for our South American emerging markets, and they 
all required Ex-Im Bank financing. When the charter lapsed, Air 
Tractor scrambled to put a short-term patch together that 
included the private insurance sector. It was really to no 
avail. Of those 16 aircraft, thus far we have only been able to 
finalize the sale and export of 6 of those aircraft. Make no 
mistake that there is no alternative in the private sector for 
what Ex-Im Bank provides Air Tractor.
    I have sat here and I have told you who Air Tractor is, how 
we are impacted by Ex-Im Bank, how it has helped us succeed. I 
would like to tell you a few things that Air Tractor is not. 
Air Tractor is not a deep-pocketed investor trying to push our 
own political agenda. Air Tractor is not a lobbying firm. We 
don't have a team of lobbyists up here for us talking to you 
guys. We do this on our own dime, on our own time.
    Air Tractor is a small business in a very small town of 
3,000 people who has been able to create jobs through exports. 
Nobody sees Olney, Texas, as a place that that happens, but 
indeed it does. It does. It is in small-town America. We can do 
this. And Ex-Im Bank is the tool that allows us to do this. 
Please, let us continue to do that.
    Thank you.
    [The prepared statement of Mr. Schroeder follows:]
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    Mr. Poe. Thank you, Mr. Schroeder.
    Dr. Thompson?

STATEMENT OF LOREN B. THOMPSON, PH.D., CHIEF OPERATING OFFICER, 
                      LEXINGTON INSTITUTE

    Mr. Thompson. Thank you for the opportunity to be here 
today.
    I have been asked to assess the consequences of failing to 
reauthorize the Ex-Im Bank, which, as you noted in your opening 
remarks, has been a significant contributor to U.S. trade 
competitiveness for eight decades. The Bank's authority to 
extend new credit only lapsed 4 months ago, so it is a bit 
early to assess all the fallout. My statement will focus on 
consequences that can be confidently predicted in the years 
ahead if no reauthorization occurs and, therefore, the Bank has 
to wind down its programs.
    Near as I can tell, there will be no positive consequences, 
no gains to the United States from losing Ex-Im. Taxpayers 
won't save any money because Ex-Im already pays for itself. The 
government won't get smaller because other steps will need to 
be taken in order to level the playing field for U.S. exports. 
And the economy won't become more competitive because it will 
operate at a disadvantage with countries that still offer 
export credit.
    So the consequences of shutting down the Export-Import Bank 
are negative for pretty much everybody, except perhaps our 
trade rivals. I will therefore devote the balance of my remarks 
to what America will lose if Ex-Im permanently ceases 
operations.
    First, we will lose American's sole export credit agency. 
Every major trading nation has a government agency dedicated to 
mitigating risk and facilitating finance in international 
trade. America would be the only big industrial country without 
such an agency, leaving its exporters dependent on private 
lenders who have already stated that they will not fill the 
vacuum created by Ex-Im's demise.
    Second, we will lose global market share in key industries. 
Many overseas buyers require government guarantees as a 
condition of bidding, which U.S. exporters could no longer 
secure. Even if such guarantees were not required, foreign 
customers would find it easier to obtain financing on favorable 
terms from countries with export credit agencies, so that is 
where they would go for their jet liners, for their earth 
movers, for their locomotives.
    Third, we will lose more ground in the U.S. trade balance 
at a time when America's non-petroleum trade balance is already 
the worst on record. The tidal wave of foreign goods reaching 
these shores has reduced our growth rate by a full percentage 
point in recent quarters. In other words, instead of having 
2.6, we could have had 3.6. But allowing Ex-Im to die would 
make that problem even worse.
    Fourth, we will lose tens of thousands of jobs if companies 
like Boeing and General Electric--and, by the way, Boeing is 
not a multinational conglomerate. It sources 80 percent of its 
content in the United States. We will see Boeing and GE, the 
big companies, have to move overseas in order to remain 
competitive. Hundreds of small companies will simply cease 
exporting.
    Initially, the job losses would come within the companies 
and among their suppliers. But there will be additional job 
losses because all the money that export workers spent on 
groceries, on teachers, on policemen, on dry cleaners in their 
communities, that will be reduced, and so there will be ripple 
effects.
    Fifth, we will lose even more of America's domestic 
manufacturing base, which once was said to be the arsenal of 
democracy but now has shrunk to barely 12 percent of our 
economy. It simply isn't feasible anymore for big manufacturers 
to achieve economies of scale without having sizable overseas 
sales because, as the chairman said in his opening remarks, 95 
percent of the world lives outside the United States. So when 
financing for foreign trade is impaired, the whole enterprise 
suffers.
    Sixth, we will lose the most important ally of U.S. 
commercial banks and other private lenders in assuming the risk 
of financing foreign trade. Almost all of Ex-Im's transactions, 
98 percent, involve commercial financial institutions, and, in 
many cases, those institutions could not participate without 
Ex-Im loans, guarantees, or insurance.
    Seventh, we will lose the level playing field that Ex-Im 
provides for U.S. exporters when it steps in to counter the 
predatory financing of state-supported foreign competitors. 
China has become especially active in assisting its exporters 
to undercut U.S. sales in third markets by extending financing 
on concessionary terms, and Ex-Im works constantly to counter 
such unfair practices.
    Eight, we will lose the main point of leverage that America 
has in deterring other countries from pursuing unfair practices 
in their own export financing. Because foreign companies and 
credit agencies know that Ex-Im might step in to counter 
predatory practices, they are less likely to engage in market-
distorting activity.
    I might mention that the Financial Times, Britain's most 
respected newspaper, opined last year that it would be odd were 
the United States to disarm unilaterally by abandoning one of 
the few tools it possesses for disciplining the behavior of 
trading partners.
    Ninth, we will lose one of the very few agencies in 
Washington that is a bargain, an agency that doesn't cost 
taxpayers a cent and, in fact, sends hundreds of millions of 
dollars to the Treasury every year while sustaining thousands 
of jobs in the export sector.
    And, finally, if Ex-Im goes down, there is one other thing 
that we will lose: A political discourse based on rational 
analysis rather than unbending ideology. The arguments for 
killing Ex-Im are illogical and they are fact-free, whereas the 
case for keeping it is empirically and analytically 
overwhelming.
    There is nothing wrong with espousing the principle of 
limited government, but in the case of the Export-Import Bank, 
we should listen to Winston Churchill, arguably the most 
important Western leader of the 20th century, who observed, 
``The duty of government is to be, first of all, practical.'' I 
would not sacrifice my own generation to a principle.
    Thank you.
    [The prepared statement of Mr. Thompson follows:]
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    Mr. Poe. I thank all of our witnesses.
    I will recognize myself for 5 minutes of questions.
    Mr. Schroeder, may I ask you about your small business? 
And, yes, I know where Olney, Texas, is, and only because I was 
lost going to Abilene and I found it.
    You heard Ms. Katz say that Ex-Im Bank, the taxpayers are 
on the hook, it is a subsidy to businesses. Would you comment 
on that, if you can, from your point of view as a small 
business?
    Mr. Schroeder. Absolutely.
    Well, the argument that it is a subsidy has never really 
made much sense to us at Air Tractor in Olney. We pay very good 
money for this particular product. It is the only thing that we 
have to be able to compete in our emerging markets. And a lot 
of people don't understand the----
    Mr. Poe. Explain it. Explain it then. Make it simple. I 
know you are a financial guy, but make it simple.
    Mr. Schroeder. So the argument against the subsidy, 
basically, is Air Tractor has paid over 1 million U.S. dollars 
each year for the past several years. As a matter of fact, in 
the past 4, we have paid 4.8 million U.S. dollars to the U.S. 
Government for this Medium-Term Credit Insurance Program, and 
we have never lost a dime on it.
    Mr. Poe. Do you pay a fee to use Ex-Im Bank?
    Mr. Schroeder. We pay a fee on every single--every single 
aircraft that we sell with Ex-Im support is attached to an 
insurance policy, and we pay a premium on every single 
insurance policy.
    Mr. Poe. Do you partner with a private bank?
    Mr. Schroeder. Absolutely, on the back end.
    Mr. Poe. Like Amegy sitting next to you. So you not only 
pay a fee to Ex-Im to use that service, you also partner with a 
U.S. bank, a local bank, community bank normally, to--for what 
purpose? Why do you partner with a bank like Amegy?
    Mr. Schroeder. Well, because we are not a bank. We don't 
have the ability--we extend the financing, but we can't hold it 
on our balance sheet. We don't have the capacity to do that. So 
we turn around and sell that bank to a U.S. commercial bank, 
who then collects from our customer with interest. So, yes, we 
are getting business through Ex-Im Bank; we are giving business 
to the U.S. banks as well.
    Mr. Poe. And who is paying the interest?
    Mr. Schroeder. The customer is.
    Mr. Poe. In Brazil, primarily.
    Mr. Schroeder. Yes, in our South American emerging markets, 
the customers.
    Mr. Poe. Okay.
    You use Ex-Im Bank to sell those crop dusters. And I assume 
you didn't fly one of those up here to Washington.
    Mr. Schroeder. No.
    Mr. Poe. Have you had any job loss because you don't have 
Ex-Im?
    Mr. Schroeder. That is tough to say. So, naturally, 
businesses are going to be kind of resolute in laying people 
off. You know, that is a last-ditch effort for us. We are going 
to try to maintain our employment base as is for as long as 
possible.
    Mr. Poe. Have you lost sales?
    Mr. Schroeder. Yes, absolutely, we have lost sales.
    Mr. Poe. You were selling 16 of those planes to Brazil, and 
you were able to sell 6 now. Is that what you said?
    Mr. Schroeder. Yes, sir. And last year we sold 28 aircraft, 
I believe, into the Brazilian market. This year we will 
probably do eight or nine.
    Mr. Poe. And, as far as jobs, if the current trend occurs 
in your business, you think maybe there might be a possibility 
of people losing their job at Air Tractor?
    Mr. Schroeder. Absolutely. We have been able to sustain 
them this year because we have put a short-term patch together 
and taken a lot of risk on the company. But if next year's 
export season comes around, we have no idea. There will be----
    Mr. Poe. What do people do? Do they build these airplanes? 
Is that what they do?
    Mr. Schroeder. Yes, we build everything by hand. So it is 
100 percent made in Olney, Texas.
    Mr. Poe. And what do these planes do? What are they are? 
Are they for crop dusting?
    Mr. Schroeder. They are for crop dusting. Agricultural 
airplanes is our bread and butter, obviously. So big yellow and 
blue airplanes that you see flying around spraying crops.
    Mr. Poe. All right.
    Ms. Katz, let me ask you a couple of questions. You did use 
the terms ``a subsidy,'' the taxpayer is on the hook, so to 
speak, and ``government-based.''
    I assume that you have a bank account somewhere?
    Ms. Katz. Yes.
    Mr. Poe. I am not going to ask you where. We are not going 
to advertise for them.
    Now, whatever you have put in that bank as an individual, 
the Federal Government guarantees that deposit up to $250,000. 
That is right?
    Ms. Katz. Yes.
    Mr. Poe. So isn't that a government-backed program of 
financing but for an individual at an American bank? Isn't that 
a government-backed program, the FDIC?
    Ms. Katz. It is, and it is one that I would argue could be 
better managed through the private sector.
    Mr. Poe. And you don't have a problem----
    Ms. Katz. If I could explain what the subsidy is----
    Mr. Poe. Excuse me. I am reclaiming my time because we only 
have a few minutes.
    It is an insurance program that if the bank goes insolvent, 
that the customer, the depositor, the Federal Government will 
back that deposit up to $250,000. It is a government-backed 
program for an individual. I don't know that Americans have any 
problem accepting that insurance program.
    And, Mr. Raguso, last question. Isn't that what Ex-Im Bank 
does too? It insures a loan on a project but goes through a 
private bank as well?
    Mr. Raguso. It does. It does.You know, premiums are paid, 
or guarantee fees are paid. And this is, kind of, the risk-
sharing that happens between a private bank and the Ex-Im Bank.
    Mr. Poe. All right. My time has expired.
    I yield to the gentleman from Massachusetts, Mr. Keating.
    Mr. Keating. Thank you, Mr. Chairman.
    I think, Mr. Schroeder, if we were flying one of your 
planes over our district, one of the things you would see is 
these huge crops of red that are cranberries. And when you are 
talking about big conglomerates, I just wanted to share briefly 
the experience of the cranberry industry, whether it is 
Massachusetts or Wisconsin.
    They have been successful in terms of supply, and, because 
of that, they have either had to shrink, lose profits, or 
diminish their own markets. But they have had the opportunity 
to find markets where they never existed before, in Asia and in 
Europe, places where there is no word for ``cranberry'' and 
where getting conventional financing is nearly impossible for 
something there is no word for. Yet we have continued to grow 
in our country on this because of the Ex-Im Bank, because we 
gave that opportunity initially.
    So I just wanted to clarify, these are small businesses, 
and whether it is what Mr. Heck, you know, said in terms of 
Boeing, Mr. Thompson said in terms of Boeing, those are small, 
medium American businesses that are affected.
    Now, there is one thing that Mr. Thompson mentioned that I 
think is very important to maybe elaborate on, and that is the 
fact that the role of the Ex-Im Bank is--one of the things that 
just doesn't jump out at you is, in the marketplace, they are 
there to provide an alternative, a credible alternative, one 
that doesn't engage in practices that are engaged in in other 
countries, sort of a referee or an alternative or at least an 
option that brings the rest of the market competitively to 
where it should be.
    And you mentioned some of the predatory practices that are 
there. In the absence of Ex-Im, what kind of actions do you 
think--and ``unfair advantage'' is a better word, maybe--that 
some of these foreign export credit agencies, what will they 
have over American businesses? And what are the kind of things 
you see or you would see more of in terms of these predatory 
practices if there wasn't an Ex-Im alternative?
    Mr. Thompson. Congressman, because we are now a relatively 
small part of the global economy, barely 20 percent of economic 
output around the world, we have to sell overseas in order to 
achieve the economies of scale necessary to be on pricing 
parity with foreign competitors.
    But what will happen is, if there is not access to Ex-Im 
loan facilities, guarantees, and so on in countries that are 
considered high-risk, like Pakistan, like Ethiopia, like nearly 
100 other countries you could mention, then they will just 
naturally turn to the Europeans, they will turn to China. And 
so locomotive sales from Erie, Pennsylvania, will dry up to a 
point where they will no longer be competitive.
    China has recently, with its own export-import bank, 
proposed to lead the construction of high-speed rail in 
California--in California--because they are willing to front 
the money to do that. Small companies, even medium- and large-
size companies, can't compete with a foreign government. They 
have to have the assistance of the U.S. Government, 
particularly in those markets where it is not feasible for the 
local economic system, the financial structures, to support a 
large-size loan or it is just outside the risk profile of the 
private sector.
    In that regard, I would just like to mention, this is not a 
subsidy. The World Trade Organization requires that export 
credit agencies be self-sustaining so they will not be 
subsidies.
    Mr. Keating. Well, thank you.
    And Ms. Katz mentioned that 98 percent of the reason that 
business transactions occur aren't dealing with the Export-
Import Bank. And I will take our country and place it 
competitively against these countries any day on the 98 
percent, but because of this one leverage point, we are not 
getting on the playing field to compete.
    Mr. Thompson. Right.
    Mr. Keating. We are not allowed to compete on the 98 
percent----
    Mr. Thompson. Right.
    Mr. Keating [continuing]. Of the reasons people choose from 
another country to buy American products. And that is the 
critical point.
    And I think Mr. Raguso mentioned this a little bit too, or 
Mr. Thompson. This program also helps support traditional 
private American financing, because there is available 
financing, but a lot of that wouldn't exist if the Ex-Im Bank 
wasn't there for that one----
    Mr. Thompson. That is exactly right.
    Mr. Keating [continuing]. That one space that is necessary 
in the transaction.
    Mr. Thompson. A typical Ex-Im transaction is brought to the 
Bank by a private lender. They just need the support of the Ex-
Im Bank in order to achieve an acceptable risk profile.
    Like, for example, if there is a danger somebody in 
Pakistan will default, Ex-Im will guarantee, for a fee, that 
that default would be covered. It is not a high risk; they make 
a big profit every year. But because they are willing to make 
that guarantee, the private lender can extend the credit, 
knowing that it is not outside of what they are allowed to----
    Mr. Keating. This helps the private financing stay in the 
U.S.----
    Mr. Thompson. Exactly.
    Mr. Keating [continuing]. Banks, not in foreign banks.
    I yield back.
    Mr. Poe. I thank the gentleman.
    Without objection, the Chair will introduce into the record 
statements by 80 business owners throughout the United States 
on how Ex-Im Bank affects them and/or the failure to 
reauthorize has hurt their businesses.
    The Chair will now recognize the gentleman from 
Pennsylvania, Mr. Perry.
    Mr. Perry. Thank you, Mr. Chairman.
    Mr. Raguso, what risk does the bank accept in partnering 
with Ex-Im and a business like Mr. Schroeder's?
    Mr. Raguso. Right, so I will speak primarily from the 
perspective of our bank and the programs that we use.
    In a working capital loan, we access this working capital 
guarantee program that Ex-Im has. It provides a 90-percent 
guarantee on the loan that we make to our customer. And so, in 
that circumstance, you know, we are----
    Mr. Perry. You are accepting a 10-percent share of the 
risk? Is that what you are saying?
    Mr. Raguso. Right. Right.
    Mr. Perry. All right.
    Mr. Raguso. But the bigger picture is that Ex-Im, as a 
solution, is not something that we offer in isolation. It is 
part of a relationship, a lot of credit that we offer our 
customers. So, typically, on our portfolio of Ex-Im business, 
the loans that we make that are Ex-Im-backed represent about 
half of what we lend to a customer. So we have a broader 
relationship.
    So it is not as if we make an Ex-Im loan and something 
happens to that loan and we move on down the road. If a loan 
goes past due, it affects all of the lending that we do to a 
customer.
    Mr. Perry. I understand that, but the risk is what the risk 
is. It is what it is, right? It is 10 percent in that scenario 
that you just gave.
    Mr. Raguso. On that particular thing, yes.
    Mr. Perry. Okay.
    All right. Ms. Katz, what percentage of Ex-Im financing did 
you say goes to the top 10? What was that statistic? Fifty-one 
percent or something like that?
    Ms. Katz. That was 51 percent between the years 2007 and 
2014.
    Mr. Perry. Okay. To who?
    Ms. Katz. I could read you the list of the top----
    Mr. Perry. No, no. Just what was--so the top 10 Fortune--
what was----
    Ms. Katz. Fifty-one percent went to just 10 companies.
    Mr. Perry. Just 10 companies.
    Ms. Katz. Right.
    Mr. Perry. Okay.
    What appropriate reforms have been requested of the Ex-Im 
Bank regarding small-business loans but have not been 
implemented, if you know?
    In other words, one of the problems or one of the--I will 
maybe call it a problem, a challenge, or a criticism of Ex-Im 
is that it claims all this small-business activity, but when 
you have 51 percent going to only 10 companies--and I imagine 
they are probably large companies. I don't want to take that 
for granted, but I am just supposing they are.
    What reforms have been requested either in past legislation 
that has been signed but not enacted or in current legislation 
that you know of?
    Ms. Katz. Most of the reforms that I am referring to in my 
testimony have to do with the operations of Ex-Im in terms of 
managing risk, in terms of transparency, in terms of how their 
operations are monitored.
    I have an entire study about this. I would be glad to 
forward that to----
    Mr. Perry. Sure. But----
    Ms. Katz [continuing]. You. But the GAO and the inspector 
general have issued a number of reports over the years pointing 
out systemic flaws within Ex-Im in terms of its operations as 
well as in its, you know, risk management.
    Mr. Perry. Right. And I agree with you, and I accept that. 
But I guess my point is, of all the serious reforms that have 
been proffered, none are really dealing with making sure that 
Ex-Im supports small businesses like Mr. Schroeder's here more 
than what they currently do. It is all process, which is fine, 
but nothing really to require them to do more in the small-
business market that you know of.
    Ms. Katz. That I know of. But the problem is that what Ex-
Im calls a small business and what the rest of the world calls 
a----
    Mr. Perry. Right.
    Ms. Katz [continuing]. Small business is very different.
    Mr. Perry. And I was thinking that, as well. I just want to 
keep moving here.
    Let me ask you this. There has been a number of indictments 
at the Ex-Im Bank. Do private banks have the same level of 
indictments and board-member involvement, board-member-on-the-
Bank involvement with the same companies that the Bank is 
lending to? Do regular commercial banks or private banks or 
financial institutions have the same level of criminal or 
alleged criminal activity or nepotism between the financial 
institution and the receiving institutions?
    Ms. Katz. I don't know, but what I can say is that, if you 
are managing public funds, funds that aren't your own, that I 
would hope you would have the highest level of security and 
risk management rather than just what is average.
    Mr. Perry. Well, I mean, do you know what the percentage is 
of board members on the Bank that also have involvement with 
the people that they are lending to, the companies or the 
concerns?
    Ms. Katz. No, I don't.
    Mr. Perry. I think there was testimony in a recent hearing 
in this committee that it is upward of 50 percent, just to 
remind everybody what we heard here.
    And I think, what, 13 current pending indictments or 
something like that? Are you familiar with that?
    Ms. Katz. The last I checked, I think that there were 47 
active investigations.
    Mr. Perry. Okay.
    All right. My time has expired. I yield.
    Mr. Poe. The gentleman's time has expired. Thank you.
    Ms. Katz, you referred to a document, a report, analysis 
that you wrote. Would you make that available to the committee?
    Ms. Katz. Absolutely.
    Mr. Poe. I am not talking about the GAO report. We will get 
that.
    Ms. Katz. No, no.
    Mr. Poe. Based on what Mr. Perry said, and make that a part 
of the record, without objection.
    Ms. Katz. Absolutely.
    Mr. Poe. All right. The Chair recognizes the gentleman from 
California, Mr. Sherman.
    Mr. Sherman. I would point out there are more allegations 
about government agencies than the private sector because the 
press covers government agencies, we have political disputes 
about government agencies, we have theological and ideological 
disputes about the existence of government agencies. So I would 
expect that there would be a lot more articles, scrutiny, and 
allegations.
    We should point out that when a big company, a big American 
company exports, it usually has supported hundreds of small 
businesses buying the parts. And even if you care not at all 
about Airbus or Boeing and only care about small companies, 
there are a lot more small companies, American small companies, 
selling to Boeing than selling to Airbus.
    This isn't a practical dispute. This is a theological 
dispute. The holy scriptures of libertarianism have no place in 
their sacred novels for an entity like Export-Import Bank 
because they create a perfect world, an ideologically pure 
world. I would like to live in such a world--maybe not their 
world, but a world just as pure.
    Ms. Katz, what is your organization doing to cause Europe 
and Asia and China to drop their finance authorities? Or do you 
really imagine a world in which every one of our competitors 
has subsidized financing and we don't?
    Ms. Katz. Well, first, I will say that I don't base my 
policy recommendations on what I imagine but on what the 
empirical evidence shows me.
    That said, it has been the United States policy with 
respect to Ex-Im to negotiate with OECD countries to eliminate 
the use of export credit agencies----
    Mr. Sherman. If I can interrupt, where would I get any 
leverage to do that?
    Look, I gave over 100 speeches for George McGovern. If 
anybody here can be accused of advocating unilateral military 
disarmament, it might be me. I was a teenager, and I didn't go 
that far. And I hung out with some people who really believed 
that if we didn't have a military other countries wouldn't.
    How would we possibly persuade other countries to cut back 
if we had nothing to trade in return?
    Ms. Katz. We have a lot to trade in return. And the idea 
that there is unilateral disarmament here is just wrong. I am--
--
    Mr. Sherman. So what would you offer the Japanese to get 
rid of their subsidized financing for their exports if we 
already didn't have an Export-Import Bank? Should we----
    Ms. Katz. I am not going to try to make----
    Mr. Sherman. Should we write them a check every year from 
the taxpayers?
    Ms. Katz. I am not going to try to make the Chinese do 
anything. What I am going to say is that the United States is 
better off than Japan is if we don't offer subsidies. Because, 
you know, subsidies, on the whole, detract from the overall 
economic benefit of countries. So if----
    Mr. Sherman. Okay. So you are trying to sell a U.S. 
product, and you have a strong European or Asian competitor. 
The products might be equal, the price might be equal. One side 
has concessionary financing; the other doesn't. Why in the 
world would somebody fail to buy the foreign product if it was 
just as good and it came with better financing?
    Ms. Katz. Well, if it is just as good is open to great 
question, but as I said before----
    Mr. Sherman. Okay, look, I love American companies. Yes, 
all of our products are better. But the fact is that there are 
circumstances where we face tough competition and our product 
is just as good as the competitor, not better.
    Ms. Katz. This is sort of illogical, because if you are 
going to say that, then we should be financing every single 
product that we sell overseas.
    Mr. Sherman. Only when we face concessionary financing and 
competition.
    Ms. Katz. We should do it with everything. In China, we 
cannot keep up with China's subsidies, and so----
    Mr. Sherman. We are talking here about export financing----
    Ms. Katz. I know.
    Mr. Sherman [continuing]. Where we face not only from one 
country like China, we face from every major competitor.
    And the idea that products don't sell because of the 
financing package, just watch a sports game. How many 
commercials are you going to see advertising this car or that 
car, U.S. and foreign, where the focus of the commercial is not 
on torque, it is not even on cup holders, it is on the leasing 
terms, it is on the financing terms. And I would say that it 
may very well be that a Ford and a Chevy are equal, but one 
comes with better financing.
    Ms. Katz. You are presuming that the decision on a product 
is made based on its financing. And as I indicated earlier----
    Mr. Sherman. Everybody who is watching a sports game comes 
to that conclusion when it comes to buying what they buy with 
financing, and that is an automobile.
    Ms. Katz. I am not sure that is exactly true.
    Mr. Poe. The gentleman's time has expired.
    The Chair recognizes another gentleman from California, Mr. 
Rohrabacher.
    Mr. Rohrabacher. Unilateral disarmament. My gosh, Brad, 
that is a fantastic admission.
    Mr. Sherman. It is an admission that I knew some people.
    Mr. Rohrabacher. All right.
    I would like to ask, I guess--is it ``Raguso''? Is that how 
you pronounce this?
    Mr. Raguso. Yes.
    Mr. Rohrabacher. Thank you. Mr. Raguso, we just came to the 
fact that the bankers, of which you are representing the 
financial interests, take only 10 percent of the risk of these 
loans that are going to selected people who get this subsidy. 
What percentage of the profit of that loan does the private 
bank get?
    Mr. Raguso. Right. So I guess to clarify, I am speaking 
about one Ex-Im program--there are many--but the program that 
is used by my bank, which is designed to help small U.S. 
exporters export their product competitively and unlock 
collateral that would otherwise be unavailable.
    Mr. Rohrabacher. Okay. So that doesn't include the big 
guys, then.
    Mr. Raguso. What is that?
    Mr. Rohrabacher. You are saying it is just the small guys.
    Mr. Raguso. Well, the way----
    Mr. Rohrabacher. Because the big guys are--51 percent of 
the loans, at least, we know, go to the 10 major corporations, 
so I assume they are the big guys. But you are only talking 
about little guys, then.
    Mr. Raguso. I am talking about, again, the programs that we 
access, where, again, our customer is the U.S. exporter.
    Mr. Rohrabacher. Okay. And what percentage of the profit do 
you get of those loans?
    Mr. Raguso. Right. So, after we charge an Ex-Im Bank fee, 
which ranges in today's world anywhere from 1.25 percent to 
1.75 percent----
    Mr. Rohrabacher. Right.
    Mr. Raguso. You know, our bank makes the loan. And so those 
fees go to Ex-Im, we make the loan, and so the interest income 
on the loan----
    Mr. Rohrabacher. But 90 percent of the loan, of course, is 
being guaranteed, you have no risk whatsoever, but you assume 
10 percent of the risk. How much of the profit from that loan 
goes to your bank?
    Mr. Raguso. A hundred percent of the profit.
    Mr. Rohrabacher. Oh, all right. So we get 100 percent of 
the profit but 10 percent of the risk. Ah, I think there are a 
lot of businesses that would love to have that kind of 
relationship with the government.
    Why is it that certain businesses have that right but other 
businesses don't?
    Mr. Raguso. Right. So----
    Mr. Rohrabacher. Is it just size? Are we talking about 
every big business in America has that right to have that type 
of guarantee, a subsidy, as Ms. Katz is saying? Oh, no, 
somebody has to select them. I wonder if they select people 
that are close to them. Oh, wait a minute, there is an 
investigation going on to that.
    You say 47 people are being investigated now, Ms. Katz, for 
some sort of conflict of interest there on choosing who gets 
those loans? Is that right?
    Ms. Katz. The nature of each of those investigations 
varies.
    Mr. Rohrabacher. Right. All right.
    Well, let me note, what we have here is--I am sorry, you 
can call it ``principle'' if you want, but I think it is also 
practical that when we decide to set up a system in which 
certain people like this gentleman will get all the profit but 
only assume 10 percent of the risk, I think that is an insult 
to the rest of the American people who are trying to be 
enterprisers and have to assume all the risk for the things 
they do in order to make a profit.
    And Ms. Katz's arguments, I don't consider that to be 
philosophical. I consider that to be also something that is 
very practical in terms of the people who don't get the money--
--
    Mr. Thompson. Well, Congressman, you understand that 
anybody----
    Mr. Rohrabacher [continuing]. Who don't get the subsidy.
    Please go right ahead.
    Mr. Thompson [continuing]. Can apply for these financial 
benefits if they comply with the standards established by 
Congress in the charter. Anybody can. It is not----
    Mr. Rohrabacher. No, anybody can't. You are----
    Mr. Thompson [continuing]. Hoarding of benefits.
    Mr. Rohrabacher. First of all, anybody can't get it. They 
have to be selected and go through the process. And, as we have 
heard, it is possible that the people involved in the process 
might take their self-interest into consideration, which 
happens, by the way, every time you get a big government 
program.
    One last note here, Mr. Chairman, and that is: How is this 
different than the actual guarantee that we put on people's 
bank accounts? All right. You know, Ms. Katz has a certain 
amount of money in her savings, and that is guaranteed. The 
difference is every American is eligible for that--every single 
American.
    What we have here is crony capitalism. And I am happy that 
you have a company that is all employee-owned. I am a big 
supporter of employee ownership. I want to encourage that. But 
there are other companies down the road that might want to get 
that subsidy as well. And the fact is that we are picking and 
choosing who is going to be the winner and who--and especially 
the banks are the big winners in all of this.
    Thank you very much, Mr. Chairman.
    Mr. Poe. Thank you, Mr. Rohrabacher.
    The Chair now recognizes Mr. Heck from Washington.
    Mr. Heck. Thank you, Mr. Chairman. Thank you very much for 
the privilege to be here today.
    First, fact check time. In fact, the Kirk-Heitkamp bill and 
that which we will vote on Monday night does change the small-
business formula and increases the minimum requirement from 20 
percent to 25 percent.
    Fact check two: The previous legislation does not require 
negotiating the elimination of ECAs. It requires the 
negotiation of eliminating subsidies. And there are no 
subsidies. Well, that is not true. That is not true. The Ex-Im 
subsidizes the Federal Government for a generation in billions 
of dollars transferred.
    Fact three: Not a single member of the board of directors 
of the Ex-Im works for or is on the board of directors of a 
company that receives financing--not a single member.
    Look, I have heard a lot of arguments over a long period of 
time, and here is the harsh and blunt conclusion I have come 
to: To accept the arguments of the opponent is the equivalent, 
the moral equivalent, of looking Mr. Raguso and Mr. Schroeder 
in the eye and saying to them, ``You are either stupid or 
lying.'' And I absolutely know that that is not the truth 
today.
    In fact, Mr. Schroeder, there is no person on the face of 
the earth in the last 3 years who has listened to more 
witnesses on this issue. You have done the finest job of 
reflecting and representing your company of anybody I have ever 
heard. I commend you for your eloquence and for your heartfelt 
testimony.
    More importantly, you go home to Olney, Texas, and, as a 
proud son of Texas, I want you to tell the 270 employees that 
an overwhelming majority of the Members of the House of 
Representatives are not going to stop until we reauthorize the 
Export-Import Bank, including the chair of this subcommittee 
and the ranking member. Help is on the way, Mr. Schroeder.
    Dr. Thompson, first of all, it is 85-percent minimum 
domestic content, sir, if I may correct you.
    Mr. Thompson. Correct.
    Mr. Heck. Secondly, the purpose of today's hearing is to 
discuss the impact on the economy of the disappearance of the 
Ex-Im. But insofar as this is the Foreign Affairs Committee, I 
would like to actually take the conversation in a slightly 
different direction, and that is the issue of our Nation's 
security and its defense.
    Let me lay out just a couple or three beliefs on my part--
some are facts, some are beliefs--and have you respond to the 
question.
    Boeing and GE constitute the heart of this Nation's 
manufacturing base. And, by the way, I don't know how often I 
have to say: Supply chain, supply chain, supply chain. An 
appalling lack of understanding of the private economy, that 
there are 8,000 small businesses behind the Boeing Company.
    Number two, China is now the second-largest economy in the 
world and a fierce competitor of ours.
    Number three, China is aggressively involved in expansion 
of its interest to the building of islands and in the market. 
Code named C919, they are building a wide-body aircraft to 
compete with Airbus and the Boeing Company.
    All that said, Dr. Thompson, impact on economy aside, is 
there an impact on our Nation's security and defense if we 
indeed unilaterally disarm in the export credit authority 
world? And if so, how would you describe it?
    Mr. Thompson. Well, it is a complicated question, but to 
just offer a simple answer, Ex-Im's benefits accrue primarily 
to companies that are in the business of exporting capital 
equipment, like jetliners, like locomotives--the big, expensive 
things that are hard for foreign buyers and countries to 
afford. It is in precisely those sorts of technologies where we 
put much of our defense acquisition dollars.
    Mr. Heck. From some of these same companies.
    Mr. Thompson. Right. Exactly. In fact, there is definitely 
a multiplier effect and an economy of scale at places like 
Boeing. Because a lot of future aircraft for the Pentagon will 
be leveraged off of commercial transports. So if Boeing becomes 
less efficient, if it loses economies of scale, then it will 
cost the Pentagon more.
    At some point, though, you get forced out of markets 
entirely. I saw this happen in my hometown of Plymouth, where, 
one after another, the factories closed because of foreign 
competition. Not unnecessarily unfair competition, but, you 
know, we live in a country where people don't make penicillin 
or flatware or rebar anymore. Eventually, you get forced out of 
markets entirely, and then your defense establishment becomes 
dependent on potential enemies for things it must have to win a 
war.
    Mr. Heck. Exactly. Thank you, sir.
    Mr. Rohrabacher. Would the gentleman yield for a question 
before your time is up?
    Mr. Heck. With the chair's indulgence, as I am out of time.
    Mr. Poe. A short question, Mr. Rohrabacher.
    Mr. Rohrabacher. You would concede that those of us asking 
tough questions do not assume that those people who disagree 
with us or have answers that we consider to be wrong--you would 
concede that we can respect people who we disagree with and 
don't consider them stupid or lying.
    Mr. Heck. I certainly respect you, sir, even though we 
disagree on a lot.
    Mr. Rohrabacher. Right, but you would agree----
    Mr. Poe. The gentleman's time has expired.
    Mr. Rohrabacher [continuing]. But you would agree that is 
not----
    Mr. Poe. The gentleman's time has expired.
    Mr. Rohrabacher. Thank you very much.
    Mr. Poe. The Chair recognizes the gentlelady from Wisconsin 
for 5 minutes.
    Ms. Moore. Thank you so much, Chairman Poe, for this 
extraordinary opportunity to sit on this panel.
    I want to thank the witnesses for appearing today for this 
very important discussion of our economy.
    My name is Gwen Moore, and I hail from Milwaukee, 
Wisconsin. And I am old enough to remember the glory days of 
Milwaukee being sort of the manufacturing center of the 
universe, where our economy was based on producing the most 
tanned leather, steel, iron ore--the glory days of the great, 
huge factories like A.O. Smith and Allis-Chalmers. And so now 
Milwaukee still relies on manufacturing, but it is struggling.
    So I can understand, to some extent, the argument that has 
often been made about the Ex-Im Bank only supporting, sort of, 
large corporations like GE or Boeing. And, of course, we are 
losing 350 jobs out of GE because of the lack of financing from 
Ex-Im Bank. But what I want to make sure that the panel 
understands is that Milwaukee and many other places in the 
United States are no longer in those glory days.
    And so I would ask, first of all, Ms. Katz--and excuse me 
if I have missed some of your testimony. I have a company in my 
district called Maxon, and, you know, they make mining 
equipment. They are part of the supply chain you have heard 
about, and they say they absolutely cannot function without Ex-
Im Bank. They have 30 employees. Part of their supply chain is 
a group right down the street that has four employees.
    And we heard testimony here--I think my colleague Mr. Heck 
just mentioned that Boeing alone has 8,000 companies in their 
supply chain.
    And so I guess I am wondering--I am confused--are you 
advocating that if the Maxons of the world can't make it that 
we ought to just let them wither on the vine? Is that your 
testimony today?
    Ms. Katz. What I am saying and pointing out is that without 
Ex-Im it is wrong to presume that there won't be other avenues 
of financing that would keep these supply chains going. And, in 
fact, for the biggest beneficiaries of Ex-Im, they have years 
and years of back orders to keep these suppliers, you know, 
working.
    Now, in terms of anecdotes, like you are bringing up in 
your district, you know, anecdotes are heart-tugging, there is 
no question about it, but the small business that you refer to 
is only half the equation. The other half of the equation is 
the company that is not getting the subsidy.
    And, Congressman Heck, I will explain to you what the 
subsidy is, because there is an----
    Ms. Moore. Okay, well, this is my time. It is not Mr. 
Heck's time. Thank you so much for that.
    So you are saying there is some other way, and you don't 
necessarily know what that other way is.
    Ms. Katz. No, I do. I know exactly what the other way is. 
It is the way that 98 percent of other exporters do it, which 
is through private financing.
    Ms. Moore. With their own money or something.
    Ms. Katz. Well, they borrow. Some use their own money. 
There are various bonding----
    Ms. Moore. Okay.
    So who on the panel is for the TPP? I guess I want to know 
how the TPP might be impacted by the lack of an export credit 
agency. Who supports the TPP?
    No one?
    Ms. Katz. I don't speak on that.
    Ms. Moore. Okay.
    Mr. Raguso?
    Mr. Raguso. I am not an expert on TPP. All I would say is, 
you know, for our customers, more trade means more business for 
their businesses. And so you could say I am not trying to, I 
guess, join the two together, but, yet again, freer trade means 
more opportunities for our customers.
    Ms. Moore. Okay.
    And just in my last 20 seconds, who can answer the 
question--I was talking to Ms. Katz. The 2 percent of the 
businesses that need this financing, what kinds of businesses 
are they?
    Ms. Katz. The data is in my testimony, but about 80 percent 
of the Ex-Im financing is benefiting larger companies.
    Ms. Moore. This is a dollar amount. It is not because they 
are big.
    Ms. Katz. Well, but what we care about is the money.
    Ms. Moore. No, we care about the--well, I care about the 
two employees in my district that get decent wages every day.
    Mr. Thompson. Could I clarify something?
    Ms. Katz. Can we fix every problem that every person in 
America has? I don't think so.
    Mr. Thompson. Ninety percent of the transactions that Ex-Im 
did last year were small-business transactions.
    Ms. Moore. Right.
    Mr. Thompson. Nearly 40 percent, by volume, of the exports 
were small-business exports. Roughly 25 percent of the actual 
money that was disbursed or the benefits that were disbursed 
went to small business. And that is not counting all the small 
businesses that support companies like Boeing or General 
Electric.
    Ms. Moore. Thank you so much.
    My time has expired. I want to thank the chairman for his 
indulgence.
    Mr. Poe. I thank the members of the committee and the 
guests of the committee that came to inquire about this issue. 
I think the testimony of all four witnesses was excellent. 
Appreciate your expertise in this area.
    And this subcommittee is adjourned. Thank you again.
    [Whereupon, at 10:52 a.m., the subcommittee was adjourned.]

                                  

                                     

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         Material Submitted for the RecordNotice deg.
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     Material submitted for the record by the Honorable Ted Poe, a 
   Representative in Congress from the State of Texas, and chairman, 
         Subcommittee on Terrorism, Nonproliferation, and Trade
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