    [Senate Hearing 114-108]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-108

          PERSPECTIVES ON THE EXPORT-IMPORT BANK OF THE UNITED STATES

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

     EXAMINING AND EVALUATING EX-IM BANK FINANCING AND THE BANK'S ROLE IN
                        CREATING OR SUPPORTING U.S. JOBS

                                   __________

                                  JUNE 2, 2015

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      RICHARD C. SHELBY, Alabama, Chairman

    MICHAEL CRAPO, Idaho                 SHERROD BROWN, Ohio
    BOB CORKER, Tennessee                JACK REED, Rhode Island
    DAVID VITTER, Louisiana              CHARLES E. SCHUMER, New York
    PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
    MARK KIRK, Illinois                  JON TESTER, Montana
    DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
    TIM SCOTT, South Carolina            JEFF MERKLEY, Oregon
    BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
    TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
    MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
    JERRY MORAN, Kansas

               William D. Duhnke III, Staff Director and Counsel
                     Mark Powden, Democratic Staff Director
                        Dana Wade, Deputy Staff Director
        John V. O'Hara, Senior Counsel for Illicit Finance and National
                                Security Policy
                        Jelena McWilliams, Chief Counsel
                    Shelby Begany, Professional Staff Member
                Laura Swanson, Democratic Deputy Staff Director
                    Graham Steele, Democratic Chief Counsel
                 Megan Cheney, Democratic Legislative Assistant
                           Dawn Ratliff, Chief Clerk
                          Troy Cornell, Hearing Clerk
                          Shelvin Simmons, IT Director
                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                             TUESDAY, JUNE 2, 2015

                                                                       Page

    Opening statement of Chairman Shelby.............................     1

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     2

                                   WITNESSES

    Veronique de Rugy, Senior Research Fellow, Mercatus Center,
      George Mason University........................................     4
        Prepared statement...........................................    37
    Linda Menghetti Dempsey, Vice President, International Economic
      Affairs, National Association of Manufacturers.................     5
        Prepared statement...........................................    89
        Responses to written questions of:
            Senator Sasse............................................   107
    Michael R. Strain, Deputy Director of Economic Policy Studies,
      American Enterprise Institute for Public Policy Research.......     7
        Prepared statement...........................................    94
    John G. Murphy, Senior Vice President for International Policy,
      U.S. Chamber of Commerce.......................................     9
        Prepared statement...........................................    96
        Responses to written questions of:
            Senator Sasse............................................   109
    Daniel Ikenson, Director, Herbert A. Steifel Center for Trade
      Policy Studies, Cato Institute.................................    11
        Prepared statement...........................................    99

                  Additional Material Supplied for the Record

    Newspaper articles submitted by Chairman Shelby..................   113
    Statement from the Bankers Association for Finance and Trade and
      the Financial Services Roundtable submitted by Senator Brown...   121

                                     (iii)

          PERSPECTIVES ON THE EXPORT-IMPORT BANK OF THE UNITED STATES

                                  ----------

                             TUESDAY, JUNE 2, 2015

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10 a.m., in room SD-538, Dirksen
    Senate Office Building, Chairman Richard C. Shelby, Chairman of
    the Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

        Chairman Shelby. The Committee will come to order.
        This is the first of our oversight hearings on the Export-
    Import Bank of the United States, which is currently authorized
    through June the 30th of this year.
        During the May 2012 reauthorization process, we built in
    several reforms for the Bank related to risk management and
    accountability.
        I have long been concerned with the Bank's financial risk
    to the American taxpayers, who ultimately stand behind the
    Bank. I made it clear in 2012 that Congress should not merely
    give Eximbank another blank check.
        That is why I called for a comprehensive Government
    Accountability Office study on Eximbank's risk management
    practices. I also sought to put in place measures that would
    reduce the operational risk and hold accountable the Bank's
    management from the top-down.
        Three years later, I remain disappointed with the Bank's
    lack of progress toward these goals.
        During the past few years, the GAO has identified
    significant weaknesses in areas such as the Bank's analysis of
    the default risk, portfolio stress testing, the underwriting
    process, and the forecasting of exposure. Such weaknesses have
    shown to be part of an overall pattern of failure.
        In addition, the Inspector General has recently reported
    that about 40 percent of its recommendations to the Eximbank
    remain open or unresolved.
        After years of efforts to reform the Bank, I am not
    convinced that it has made enough progress to warrant a long-
    term reauthorization. Taxpayers, I believe, should not be
    compelled to once again stand behind the Bank if the problems
    are impossible to fix.
        Congress cannot leave unaddressed Eximbank's failures to
    properly manage its risk. It is especially important to get
    this right, considering Eximbank's disproportionate exposure in
    certain industries, geographic areas, and large single foreign
    customers.
        In addition, I continue to be concerned about the eventual
    effects of the rapid 40 percent increase in the Bank's lending
    cap, which was enacted in 2012 over my objections.
        In determining whether reauthorization is justified, I
    believe Congress must take another hard look at Eximbank. It
    must assess the true cost of the Bank on American labor,
    industries, and taxpayers, not only the benefits to a select
    few companies.
        There are strong voices in favor of letting the Bank sunset
    and equally strong opinions in favor of trying one more time to
    address serious concerns with the Bank. Those who say Eximbank
    should be allowed to expire argue that the Bank can never be
    reformed and that the subsidies do little, if anything, to
    advance the Nation's overall economic prospects. Those who say
    that the Bank should live to see another day argue that it is a
    necessary evil of export financing that seeks to level the
    playing field among aggressive foreign export policies.
        As the Banking Committee begins to examine these issues, we
    welcome the distinguished panel of witnesses today. Each brings
    a valuable perspective and has been asked to present evidence
    to support his or her assessment of the Bank.
        On Thursday of this week, we will hear from Fred Hochberg,
    the Chairman and President of the Export-Import Bank of the
    U.S. The Committee will then consider next steps as the Bank's
    current reauthorization nears expiration.
        Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman. Thank you for
    holding today's hearings.
        To all our witnesses, for being here, thank you for sharing
    your views on the Export-Import Bank.
        In today's global economy, we should support businesses
    when they sell their products around the globe. Exports are as
    important to the aerospace industry in the Chairman's home
    State of Alabama as they are to my State of Ohio.
        That is why reauthorizing Eximbank by June 30th is
    essential. It should be easy. It should be bipartisan.
        In 2006, when George Bush was in the White House, the Bank
    was reauthorized by a voice vote in the House and by unanimous
    consent in the Senate. As those votes show, Eximbank used to be
    a bipartisan issue until some made its existence an ideological
    litmus test.
        The Bank fills gaps in private export financing to help
    foreign buyers purchase U.S. goods and services.
        During their recent debate on trade promotion authority in
    the Senate, we heard from supporters of the legislation that
    fast-track was needed to boost our U.S. exports, that it was
    needed to increase our role in the globalized economy, that it
    was needed because it was geopolitically important. All that is
    debatable with respect to TPA and with TPP but absolutely true,
    undoubtedly, when applied to the Export-Import Bank.
        With Eximbank, these benefits come without the cost of off-
    shoring jobs and without the cost of exposing U.S. markets to a
    flood of foreign goods. Senators who supported fast-track
    because it would promote U.S. exports and grow our economy
    should support Eximbank for the same reasons.
        We know that competitors around the world have their own
    ex-im banks. There are about 60 export credit agencies
    worldwide.
        One analyst said, quote, ``Killing a Bank is like telling
    an athlete he has to spot a competitor 10 yards in a race.''
        Why would we put our manufacturers and exports at a
    disadvantage to China, to India, to most European countries?
        Last year, Eximbank reported it supported $27 billion in
    exports and 164,000 American jobs, includes more than $250
    million in deals, in my State alone, 60 percent--60 percent--of
    which went to small businesses. In total, Eximbank has provided
    some $3 billion in financing and guarantees to more 300 Ohio
    businesses, more than two-thirds of which were small
    businesses. This means more manufacturing, more middle-class
    jobs, more experts, more jobs overall, particularly in the
    high-paying manufacturing area.
        Finally, for the many conservative organizations that have
    been so concerned about Federal budget deficits, Eximbank is
    self-sustaining. Last year, it returned more than $600 million
    to the U.S. Treasury.
        For all those reasons, we cannot afford to allow the Bank's
    authorization to expire at the end of the month nor can we do
    just a few months at a time. As we talk about predictability,
    we inject more on predictability into the system and into
    financing decisions that companies in our country make.
        I commend Senator Kirk; I commend Senator Heitkamp, for
    their bipartisan efforts to ensure that Eximbank is
    reauthorized with some reforms.
        I look forward to working with Chairman Shelby in addition
    to the two Members of this Committee who are here today,
    Senators Kirk and Heitkamp, to ensure that authority for the
    Eximbank does not lapse for the first time in its 7-0, 70-year
    history.
        Thank you, Mr. Chairman.
        Chairman Shelby. Thank you. Thank you, Senator Brown.
        First, we will hear from Dr. Veronique de Rugy of the
    Mercatus Center at George Mason University.
        Senator Donnelly. Mr. Chairman? Mr. Chairman?
        Chairman Shelby. Oh, Senator Donnelly.
        Senator Donnelly. Are any of the other Members going to be
    allowed to make opening statements?
        Chairman Shelby. I thought we would limit this because we
    have got a vote and get started. We will give you time, though,
    to make an opening statement later.
        Senator Donnelly. Thank you.
        Chairman Shelby. First, we will hear from Dr. Veronique de
    Rugy of the Mercatus Center at George Mason University, who has
    spent a considerable amount of time studying the Bank and
    official export credit financing.
        Next, we will turn to Ms. Linda Dempsey, the Vice President
    of International Economic Affairs at the National Association
    of Manufacturers. Her role at the National Association of
    Manufacturers is to lead efforts to improve global
    competitiveness of U.S. manufacturers.
        Third, we will hear from Dr. Michael Strain, a resident
    scholar and Deputy Director of Economic Policy Studies at the
    American Enterprise Institute.
        Next, Mr. John Murphy, Senior Vice President for
    International Policy at the U.S. Chamber of Commerce, will give
    his remarks.
        And finally, Dr. Daniel Ikenson, Director of the Herbert A.
    Stiefel Center for Trade Policy Studies at the Cato Institute,
    where he serves as an expert on trade and investment policy,
    will offer his perspective on the Export-Import Bank before we
    turn to questions.
        We will start with you, ma'am.
        All of your written testimonies will be made part of the
    record. If you could sum up your basic points in 5 minutes
    because we do have a vote schedule and we are going to have to
    take a break and then come back.

        STATEMENT OF VERONIQUE DE RUGY, SENIOR RESEARCH FELLOW,
                MERCATUS CENTER, GEORGE MASON UNIVERSITY

        Ms. de Rugy. Good morning, Chairman Shelby, Ranking Member
    Brown, and Members of this Committee. It is an honor to appear
    before you today to testify about the Export-Import Bank.
        We do not agree on much in Washington, but everyone should
    agree that the Federal Government should not direct our limited
    public resources primarily to wealthy, politically connected
    companies, and yet, that is what the Export-Import Bank does.
    On the domestic side, 64 percent of Eximbank finances benefits
    10 large corporations, 40 percent benefits Boeing.
        Think about it this way; there is an agency whose entire
    reason for being appears to be promote the specific welfare of
    a handful of corporations.
        On the foreign buyers' side, the top beneficiaries include
    a majority of State-owned companies such as Pemex, the Mexican
    oil and gas giant, and Air Emirates, the airline of wealthly
    United Arab Emirates.
        In spite of this, some say that there are good reasons to
    reauthorize Eximbank--because it promotes exports, it fills a
    critical financing gap, and without it, jobs will instantly
    disappear. But none of these arguments withstand scrutiny, as
    my testimony will show.
        However, I also want to focus on the groups who are
    affected by Eximbank activities that have gone ignored. These
    people do not have connections in Washington. They do not have
    press offices and lobbyists. But they matter, too.
        It is difficult, but extremely important, that we consider
    the unseen cost of political privileges whether they take the
    form of market distortions, resource misallocation, or higher
    prices.
        So let's start.
        First, contrary to what you hear from a supporter, the
    Eximbank plays a marginal role in export financing, backing
    less than 2 percent of exports each year. It means that 98
    percent of U.S. exports are financed using a wide variety of
    private banks and other financial institutions without
    Government interference or assistance. So allowing Eximbank to
    expire would not result in a collapse of the U.S. export
    market.
        Second, the Bank claims that it fills a critical financing
    gap, but according to the Bank's own data 16.6 percent of its
    activities are justified by filling this financing gap. What it
    means is that 83 percent of what the Bank does has nothing to
    do with filling a financing gap. So, basically, Eximbank is in
    the business of extending cheap loans to large foreign
    corporations so they can buy goods and services through massive
    domestic firms.
        Third, the Bank claims that if its charter expires jobs
    will disappear. It takes credit for supporting 164,000 jobs in
    2014, but GAO has criticized the Bank's methodology, among
    other reasons, for omitting to take under consideration the
    jobs that actually would exist without the Bank.
        But even if we accept the Bank's questionable job claims,
    failing to reauthorize Eximbank will not disturb existing loans
    and, hence, the jobs they support. It will simply prevent the
    Bank from asking taxpayers to make new loans.
        Also, top Eximbank beneficiaries have billions of dollars
    of backlogs which will keep their workers and small business
    suppliers busy for years to come. Boeing, for instance, has
    $441 billion in backlogs, meaning that it will have years to
    arrange alternative private financing like many small and large
    exporters do every year.
        Now the 10 large corporations who capture the majority of
    Eximbank benefits have various incentives to make sure their
    voices are heard, but it is critical that we consider the
    unseen victims of political privilege.
        These victims are, first, taxpayers who bear the risk of
    $140 billion in liability.
        Second, they are consumers who pay higher prices for
    purchase of subsidized goods.
        And, third, these victims are unsubsidized firms competing
    with subsidized ones. They not only pay a higher financing cost
    but lose out when private capital flows to politically
    privileged firms regardless of the merit of their projects.
        Indeed, some of these victims are victimized multiple
    times, first as taxpayers, then as consumers, then as
    competitors, and finally as borrowers.
        Unfortunately, we will never see the businesses that could
    have been. We will never hear from the workers whose wages were
    not raised or whose jobs disappeared because of the unfair
    competition from Eximbank-backed firms.
        It took courage and leadership to stand up and represent
    the forgotten firms, workers, taxpayers, and consumers whose
    voices are so easily drowned out by the corporate beneficiaries
    of Government privilege. So thank you very much for organizing
    this hearing, and I am looking forward to your questions.
        Chairman Shelby. Ms. Dempsey.

         STATEMENT OF LINDA MENGHETTI DEMPSEY, VICE PRESIDENT,
        INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF
                             MANUFACTURERS

        Ms. Dempsey. Thank you, Chairman Shelby, Ranking Member
    Brown, and Members of the Committee. I appreciate the
    opportunity to testify today on behalf of the National
    Association of Manufacturers, the NAM, which is the largest
    industrial trade association in the United States and the voice
    for the 12 million men and women who make things in America.
        With 95 percent of the consumers outside the United States
    and global demand for manufactured goods that far exceeds
    domestic consumption of those goods, the United States has to
    win more sales overseas if we are going to sustain and grow
    manufacturing and jobs in this country. While the recent growth
    in exports is impressive, U.S. manufacturers are facing an
    increasingly challenging global economy where growth has slowed
    and America lags behind most major Nations in terms of our
    export success.
        The NAM and its members view the Eximbank as one of the
    most important tools the U.S. Government has to boost U.S.
    exports and support American jobs. In fiscal year 2014,
    Eximbank enabled more than $27 billion in exports, supporting
    over 160,000 American jobs, by providing services that are not
    available commercially for which fees and interest are
    collected and for which there was only a zero--less than 0.2
    default rate.
        It has undergone significant reform in recent years and is
    increasingly supporting small businesses. Indeed, nearly 90
    percent of the 2014 transactions directly supported small
    businesses.
        And every U.S. exporter that wants to apply for an Ex-Im
    service can do so, and if it meets the eligibility criteria it
    will be provided that service; no special access required.
        While Eximbank does not need to finance the great majority
    of U.S. exports, it is critical in a few key areas. Let me
    explain.
        For small businesses, there are already 3,300 small
    business transactions in 2014; 545 companies were first-time
    Eximbank users and probably first-time exporters, too. They are
    the direct Eximbank users, but they also supply to some of the
    big companies out there that export. If Eximbank is closed,
    small businesses would feel it first.
        Current Treasury Department rules put export-intensive
    companies in a bind when it comes to asset-based lending. The
    Eximbank is sometimes the only option to enable crucial working
    capital flow. Without Eximbank, small businesses will be faced
    almost immediately with a loss of that working capital, and
    they will have to face the dilemma about whether they are going
    to pay their workers or pay the mortgage on their facility.
        For infrastructure, a worldwide growth sector, Eximbank
    plays an especially crucial role because this is where long-
    term lending is required. Post-financial crisis, there are a
    whole bunch of new restraints that have been put on this long-
    term commercial ending. And, without Eximbank U.S. exports in a
    wide range of infrastructure, energy, and aerospace sectors
    will be lost to foreign competition.
        For emerging markets, many U.S.-based lenders need to rely
    on Eximbank for expertise and to mitigate geopolitical and
    collateral risk. Without Eximbank, U.S. businesses will lose
    sales in these markets that are showing substantial promise.
        Finally, U.S. exporters from a broad range of sectors are
    increasingly selling to foreign Governments and State-owned
    enterprises. Whether it is a medical equipment company that is
    selling to a State-owned hospital overseas or companies in
    nuclear and power generation that are selling major equipment,
    these Governments and State-owned enterprises expect a
    Government at the other side of that table, at least to begin
    the bidding process. In many cases, Eximbank actually does not
    play a role in the final transaction. If Eximbank is not
    reauthorized, U.S. manufacturers will be out of all of these
    areas that affect both small and large companies.
        As the U.S. Congress debates the future of Eximbank, our
    trading partners are moving forward aggressively. Last year,
    the NAM put out a report, ``The Global Export Credit
    Dimension,'' that documented the over 60 ECAs worldwide and the
    foreign--and their massive foreign export credit.
        The ECAs of our top nine trading partners provided nearly
    half a trillion dollars just in official funding, and countries
    like China, South Korea, and Canada and Brazil are growing
    massively. Without Eximbank, the U.S. will ceding sales to our
    competitors overseas at the cost of manufacturing and jobs
    domestically.
        While the United States is a relatively small player, it is
    actually the U.S. that has led global efforts to eliminate
    subsidies, to eliminate market distortions through export
    credit, and has succeeded with our OECD partners, including
    through sector-specific arrangements such as in nuclear power,
    ships, aircraft, and renewable energy and water.
        The United States has also initiated negotiations with
    developing countries to put disciplines on foreign export
    credit agency funding, but that has been particularly
    difficult, particularly as the U.S. is debating Eximbank's
    future.
        If Eximbank is eliminated, the continued arms race and the
    global ECA activity will expand unchecked, and U.S.
    manufacturers, other businesses, and workers will be the
    victims. Time is of the essence.
        Thank you. I urge this Committee and the Senate to move
    forward now on an Eximbank reauthorization.
        Chairman Shelby. Dr. Strain.

      STATEMENT OF MICHAEL R. STRAIN, DEPUTY DIRECTOR OF ECONOMIC
    POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY
                                RESEARCH

        Mr. Strain. Chairman Shelby, Ranking Member Brown, and
    Members of the Committee, thank you for the opportunity to
    appear before you today to discuss the Eximbank. It is an
    honor.
        I do not believe that the Eximbank should be reauthorized.
    I will outline why, with a special focus on the Eximbank's
    impact on jobs.
        In a healthy economy, one characterized by full employment,
    the Eximbank does not create jobs. This stands in stark
    contrast to the rhetoric of some of the Ex-Im Bank's
    supporters, but it is the correct conclusion, at least to a
    first approximation, for informing the Committee as it debates
    the appropriate course of action for the Eximbank.
        Imagine an economy like ours, with some firms that export
    goods abroad and many more firms that sell only within the
    United States. All labor resources are utilized.
        The Government enters and subsidizes the exporting firms.
    This will surely help those firms, and it may even increase the
    number of jobs those firms can support. But as labor resources
    are fully employed, these new jobs must come from somewhere.
        What the export subsidy is doing, in effect, is shifting
    jobs from firms that do not export to firms that do. This does
    not increase employment on the whole.
        Now it must be said that there is considerable debate among
    economists as to whether the U.S. economy is currently
    characterized by full employment. Many economists believe we
    are quite close to full employment, but I am not among them.
        In such an environment, it can be argued that export credit
    may help support jobs. To this argument, I have three replies.
        The first is that the Congress should not reauthorize a
    permanent export credit agency in order to achieve the
    temporary goal of tightening a slack labor market. Monetary and
    policy fiscal policy are much better tools to tighten the labor
    market.
        The second is that even if the Congress chooses to
    authorize finance to selected sectors to support employment,
    exports would not be high on the list of firms or industries to
    target.
        Finally, failing to reauthorize the Eximbank would not
    immediately terminate its existing financing arrangements, and
    the lives of those arrangements will likely run longer than our
    current labor market conditions.
        I will now turn from the employment impacts of the Ex-Im
    Bank to considerations of the broader economy.
        Textbook models of international trade for a large economy
    predict that export subsidies will lower national welfare, will
    make the United States worse off relative to a situation
    without the subsidies.
        In contrast, some, though far from all, more complicated
    models set in an oligopolistic market environment, featuring
    particular forms of strategic competition, do find situations
    in which export subsidies can make the Nation better off.
        A unifying feature of these models, however, is that the
    Government's policy toward exports requires an incredible
    amount of knowledge that the Government almost surely does not
    possess in reality. To illustrate this, consider some general
    equilibrium effects of a simple subsidy.
        Much discussion of the Eximbank focuses on partial
    equilibrium effects, on the effects of the Eximbank on a single
    market, or on a single set of firms. But economic policy,
    including the decisions of the Eximbank, can effect many firms
    and many markets. And so general equilibrium considerations
    must be taken into account by the Congress when deciding
    whether to allow the Eximbank to continue providing export
    credit.
        And export subsidy will give subsidized firms an advantage
    over their foreign competitors, increasing the demand for those
    firms' output. But this, in turn, will increase the demand for
    inputs to production among the subsidized firms, increasing the
    price of those resources faced by other sectors, and putting
    firms in those sectors--sectors that do not receive export
    credit--at a disadvantage relative to a situation without the
    export subsidy.
        Even if the subsidy helps firms that receive it then, the
    subsidy may hurt the overall economy.
        It is hard to imagine how the Government could understand
    all the interlocking parts of the economy well enough to know
    whether the subsidy is a net positive for the United States.
        The existence of capital market deficiencies and
    imperfections, and the export credit behavior of foreign
    Nations, do not nullify general equilibrium concerns about
    information and uncertainty.
        Political economy presents other concerns as well. The
    default assumption of the Congress should be that well-
    connected, influential corporations will be in a better
    position to exercise influence over whether they receive Ex-Im
    Bank financing than other less-connected corporations. This
    creates important issues that the Congress cannot ignore.
        To conclude, let me offer final thoughts.
        First, it is reasonable to describe the Eximbank as
    dispensing so-called corporate welfare, but the Eximbank is
    hardly the chief offender. After the Eximbank's fate is
    resolved, the Congress should oppose crony capitalism in other
    sectors of the economy, where its magnitude is often larger,
    just as vigorously.
        Second, in the realm of trade policy, future negotiations
    and arrangements should stress the need for foreign Nations to
    limit their provision of export credit.
        Finally, supporters of the Eximbank have a reasonable
    argument that there may be times when limited, temporary,
    strategic trade policy may be appropriate. But such policy
    should address specific, identifiable actions of foreign
    Governments or other strategic goals in a very targeted way. It
    should not be left to an open-ended export credit agency such
    as the Eximbank.
        But regardless of progress on these three fronts, the
    Eximbank should not be reauthorized.
        Chairman Shelby. Mr. Murphy.

        STATEMENT OF JOHN G. MURPHY, SENIOR VICE PRESIDENT FOR
             INTERNATIONAL POLICY, U.S. CHAMBER OF COMMERCE

        Mr. Murphy. Mr. Chairman, Ranking Member Brown, Members of
    the Committee, I am very pleased to be here today to testify on
    the importance of reauthorizing the Eximbank.
        I represent the U.S. Chamber of Commerce, the world's
    largest business federation, representing the interests of more
    than three million businesses of every size, sector, and State.
        You have heard the fundamentals from my colleague, Linda
    Dempsey: Eximbank, last year, supported more than $27 billion
    in American exports, more than the merchandise exports of the
    State of Alabama, more than the merchandise exports of
    Arkansas, Idaho, Nebraska, and South Dakota combined. Eximbank
    is especially important to the small- and mid-sized companies,
    which account for nearly 90 percent of its transactions.
        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 in the U.S.
    business community baffled. Consider how this would put
    specific sectors and industries at a comparative disadvantage
    in global markets.
        First, shutting down Eximbank would mean many small
    businesses could not even export because commercial banks often
    refuse to accept foreign receivables as collateral for a loan
    without an Eximbank guarantee. For these small firms, Eximbank
    is often indispensable.
        In fact, buyers overseas nowadays expect vendors to offer
    financing. Without Eximbank's account receivables 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, Eximbank is not just nice to
    have--it is indispensable--nor is there any assurance that
    eliminating Eximbank would cause commercial banks to step into
    the breach.
        In addition to these direct small business beneficiaries,
    tens of thousands of smaller companies that supply goods and
    services to large exporters also benefit from Eximbank.
        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 the past few years, we have seen major tenders for
    locomotives in African countries and elsewhere hang in the
    balance. These tenders, worth hundreds of millions of dollars,
    required 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
    Eximbank, no sale.
        Third, foreign infrastructure opportunities are another
    area where export credit agency support is often required.
    Closing Eximbank would shut American exporters out of huge
    business opportunities overseas because ECA support is required
    for a company even to bid on overseas infrastructure projects.
        Fourth, nuclear power is another sector where the fate of
    Eximbank will have a major impact. According to the Nuclear
    Energy Institute, just 5 nuclear power plants are under
    construction in the United States, but 61 new plants are under
    construction overseas. So for the U.S. nuclear industry, which
    directly employs more than 100,000 Americans 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
    tenders. Without Eximbank, U.S. nuclear power companies will
    not even be able to bid for business overseas.
        Make no mistake; executives in a number of these industries
    will face hard questions of whether to shift production abroad
    where export credit agency support is available.
        Eximbank'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 it is such a small agency that its
    abolition would do no harm to the U.S. companies that depend on
    it. It cannot be both.
        In fact, Eximbank is modestly and appropriately scaled,
    acting mostly in the circumstances I have described, where it
    is necessary to U.S. competitiveness.
        In closing, Eximbank 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.
    Often, it acts even as a deterrent in cases where it is not
    even used but its availability can make a determination.
        Eximbank does not pick winners and losers, but refusing to
    reauthorize Eximbank is picking foreign companies as winners
    and U.S. exporters as losers.
        The Bank's opponents have attempted to tie it to unsavory
    customers overseas. This is only an attempt to divert attention
    from the true beneficiaries of Eximbank, the tens of thousands
    of American workers whose jobs depend on the Bank's support for
    their exports. Their voice must be heard in this debate.
        Thank you.
        Chairman Shelby. Mr. Ikenson.

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

        Mr. Ikenson. Good morning, Chairman Shelby, Ranking Member
    Brown, Members of the Committee.
        I am Dan Ikenson, Director of the Herbert A. Stiefel Center
    for Trade Policy Studies at the Cato Institute, and I
    appreciate the invitation to share my perspectives on the
    Export-Import Bank of the United States with you today. The
    views I express are my own and should not be construed as
    representing any official positions of the Cato Institute.
        To the extent that today's hearing will help illuminate the
    full impact of Eximbank on the economy and on the market
    process, I am pleased to participate and offer some assistance.
        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.
        But trade is not a competition between us and them. It is
    not a national sport played by countries but a cooperative
    exercise between billions of people seeking to obtain value
    through exchange.
        The purpose of trade policy is not to secure a trade
    surplus but to increase potential for economic growth.
        Why should U.S. taxpayers underwrite, and U.S. policymakers
    even promote, the interests of exports 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.
    As Milton Friedman used to say, exports are the things we
    produce but do not get to consume while imports are the things
    we consume but do not have to produce.
        But given the exalted status of exports in Washington's
    economic policy narrative, Eximbank's self-portrayal as
    indispensable to U.S. export success makes for a good survival
    strategy. Never mind that on that metric Eximbank is scarcely
    relevant and Eximbank supported $27.4 billion in exports last
    year, which is less than 2 percent of the total U.S. export
    value.
        But policymakers should stop conflating the interests of
    exporters with the national interest and commit to policies
    that reduce frictions throughout the supply chain, from product
    conception to consumption.
        For example, over 55 percent of the value of U.S. imports
    last year consisted of intermediate goods, capital goods, and
    other raw materials--the purchases of U.S. businesses. Yet,
    many of those imports are subject to customs duties which raise
    the cost of production for the U.S.-based companies that need
    them, making those firms less competitive at home and abroad.
        U.S. duties on products like sugar, steel, magnesium,
    polyvinyl chloride, and other crucial manufacturing inputs have
    made it more difficult for U.S. companies to compete at home
    and abroad, and it has chased companies to foreign shores where
    those inputs are less expensive, and it has deterred foreign
    companies from setting up shop stateside.
        And just as import duties on intermediate goods adversely
    impact downstream consuming industries, subsidies for exporting
    intermediate goods have the same adverse impact.
        Just as U.S. steel tariffs hurt U.S. manufacturers of
    appliances and auto parts by raising their cost of production
    and lowering the cost of production of foreign competitors,
    subsidies to export steel have the same kind of adverse effect
    on steel-using industries--diverted supply leading to higher
    domestic input prices and lower input costs for competitors
    abroad.
        What is seen and celebrated as the tariff or export subsidy
    that benefits the steel industry, what goes unseen but is every
    bit as real, are the costs imposed on downstream industries.
        Eximbank 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. So high fives all around for the beneficence of
    Eximbank.
        But those same transactions impose costs on two different
    sets of companies--competing U.S. firms in the same industry
    who do not get Eximbank backing and U.S. firms in downstream
    industries whose foreign competition is now benefiting from
    reduced capital costs courtesy of the U.S. Government.
        Eximbank is an exercise in picking winners and losers,
    nothing more.
        Eximbank financing reduces the cost of doing business for
    the lucky U.S. exporter and reduces the cost of capital for his
    foreign customer, but it hurts U.S. competitors of the U.S.
    exporter. It is what I call industry costs.
        It also hurts U.S. competitors of its foreign customer--
    that is what I call the downstream industry costs--by putting
    both groups at relative cost disadvantages.
        According to the findings of a recent Cato Institute study,
    the downstream costs alone amount to a tax of approximately
    $2.8 billion every year.
        And the victims include companies in each of the 21 broad
    U.S. manufacturing sectors and 189 of 237 specific
    manufacturing sectors as defined at the 6-digit level of the
    North American Industry Classification System, and the victims
    are in every State.
        In other words, 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 have to be taken into
    account when rendering judgment about the benefits and costs of
    the policy.
        The auto bailout, to give another example, may have helped
    the workers and shareholders at GM and Chrysler, but it denied
    the spoils of competition to Ford, Honda, Toyota, Nissan,
    Hyundai, Kia, and BMW. A market process that rewards worthy
    firms and punishes less capable ones was subverted.
        So Congress should allow Eximbank to expire at the end of
    the month and refrain from subsequent reauthorization.
        Thank you.
        Chairman Shelby. Mr. Ikenson, you mentioned in your
    testimony that Eximbank may reward some companies but penalize
    others whom you described as collateral damage of the Bank.
        Dr. de Rugy, you also alluded to numerous Eximbank losers
    in your testimony.
        Could you explain in more detail, both of you, why most of
    the cost of Eximbank subsidies are unseen, and how do you
    identify the so-called victims of Eximbank in the U.S. economy?
        I will start with you.
        Mr. Ikenson. OK. Well, the costs to downstream industries,
    I think, are manifest through two channels: Diversion of
    domestic supply, which tends to raise the prices of the input,
    and that raises the cost of production for downstream firms.
    Two, the subsidized export of that input reduces the cost of
    production for the U.S. downstream firms' foreign competitors.
        Often, these costs are small. For example, if a U.S. Steel
    export is subsidized and the cost of steel accounts for only 1
    or 2 percent of the total cost of production for that firm,
    that firm--it may be imperceptible to that firm than to a firm
    for whom steel accounts for 40 or 50 percent of the cost of
    production.
        So this is perpetrated in an insidious way. It is like
    being pickpocketed or getting an extra item on your telephone
    bill for some small tax.
        There are costs that result from the diversion of supply,
    from the underwriting of foreign competition. Sometimes
    companies do not realize it.
        In Delta's case, Delta realized it, but airplanes--Boeing
    aircraft--are a major cost component for Delta. So they were
    able to call Boeing out and complain about the subsidies to Air
    India and other foreign carriers.
        But a lot of other companies do not see that. They might
    detect that their costs are rising or that their revenues are
    being impeded, but they might not know that they can attribute
    that to Eximbank subsidies for their suppliers.
        Chairman Shelby. Doctor.
        Ms. de Rugy. I would add to what Mr. Ikenson said by saying
    that we know who the beneficiaries of Eximbank are, and there
    is no denying that they are liking it. I mean, they like it
    enough, and they would like to keep the benefit enough that
    they have an incentive to organize and to spend considerable
    amount of resources coming and lobbying Members of Congress all
    the time.
        But, in fact, for the victims who, as Mr. Ikenson said, do
    not necessarily realize it and are spread out throughout the
    country, this incentive does not exist.
        And, actually, the cost of doing such a thing is way too
    high.
        Think about in your State, Mr. Chairman, Eximbank backs
    only 34 percent last year of exports. So it means that over 99
    percent of exports without export subsidies.
        These exporters, I mean, they are not marching to your
    office all of the time. They may not even realize; some of them
    do, but they may not realize. And yet, some of these exporters,
    they lose in different ways.
        Maybe some exporters are actually using Boeing planes to
    export their goods, and so they are getting, you know, the
    financing at a higher rate but also--than their competitors,
    but also they pay more for the export of their goods by using
    Boeing planes than they would otherwise.
        But they may know, and certainly, they certainly do not
    have the incentive to come fly to Washington and lobby you.
        Chairman Shelby. I will direct this next question to--I
    will start with Dr. Strain.
        According to the Bank, nearly 90 percent of its customers
    last year were small businesses as a percentage of
    transactions.
        Congress set a 20 percent mandate on the dollar value of
    direct small business export assistance, which the Bank has not
    consistently met.
        The lion's share of the dollar amount of transactions last
    year remained with a handful, as you pointed out, of very large
    companies.
        Dr. Strain, how would you grade the Bank's assistance to
    small business?
        Mr. Strain. Well, I think it has to be acknowledged that if
    you are going to have an export credit agency that a lot of the
    resources are going to flow to large exporters. So when you
    look at the amount of credit provided in dollar figures, a
    large, large share of that goes to big firms. If you look at
    the number of authorizations, a much smaller share goes to big
    firms.
        But I think it is the dollar figure that actually matters,
    certainly to the macroeconomy and to the way that we think
    about economic policy. And so I think it is very accurate to
    characterize the Eximbank as being a bank that primarily
    assists very large corporations that have access to credit
    unlike small competitors.
        And as a consequence, to answer your question directly, I
    would grade the Bank fairly poorly on its congressional mandate
    to help small businesses to a large degree.
        Chairman Shelby. Do you agree with that, Doctor.
        Ms. de Rugy. Yes, I do.
        Chairman Shelby. Thank you.
        Senator Brown.
        Senator Brown. Thank you.
        I found Mr. Ikenson's--one of the last comments he made
    about the auto rescue interesting, and I know that Senator
    Donnelly cares a lot about this, too--that you spoke of that it
    may assisted or helped GM and Chrysler but not the others even
    though we were all lobbied pretty heavily by Honda, big in my
    State because of the supply chain, and Ford, big in my State
    and around the country.
        Senator Donnelly. Mr. Chairman, if I could just say one
    thing, Toyota manufacturing came to my office and sat down with
    me in my office and said it is critical for Chrysler and
    General Motors to survive in order for the supply chain and all
    the suppliers downstream to survive as well, and they asked us
    specifically to make sure we would stand up for Chrysler and
    General Motors as well.
        Senator Brown. And the supply--thank you, Senator Donnelly.
        Let me--and he is right.
        Mr. Ikenson, I understand, too, that in your study you cite
    Nucor as an example of collateral damage in an agreement for
    foreign manufacturers to purchase steel from U.S. Steel. Well,
    the fact is Nucor is supportive of the reauthorization of the
    Eximbank.
        But I want to get to questions with Mr. Murphy and Ms.
    Dempsey.
        The June 30th expiration is, what, 4 weeks away? Your
    testimony touched on some of the consequences of that
    expiration, Ms. Dempsey.
        If Mr. Murphy and Ms. Dempsey would give me thoughts on
    what the economic impact would be if it does expire at the end
    of the month, especially for your members.
        And, Mr. Murphy, it is nice to hear the Chamber of Commerce
    talk so much about its workers, something I do not know that it
    is always focused on, but I appreciated those comments today.
        If you would both give me your thoughts on what exactly it
    means to your companies, especially your smaller businesses and
    to your workers.
        Ms. Dempsey. Well, thank you, Senator Brown. Thank you,
    Senator Brown.
        You know, I think it is important to hear what actually is
    happening on the ground, not just economic theory, because the
    failure to reauthorize the Eximbank on a long-term basis is
    going to put at risk tens of billions of dollars of exports.
        We are not at full employment in this country, and we are
    certainly not at full manufacturing output. In fact, we have a
    lot of industries that have had to shutter or slow down
    facilities.
        We can produce a lot more if we have those export markets
    and if we have the Eximbank continue. But given the amount of
    exports that Eximbank finances on an annual basis, we will be
    putting tens of billions of dollars at risk and tens of
    thousands of U.S. jobs across America because we are going to
    lose those sales to foreign competitors.
        And when I think about a small business company like
    Special Products and Manufacturing, whose CEO said the future
    of American manufacturing is in jeopardy of being seriously
    hurt if the Eximbank is not reauthorized, other companies are
    going to lose sales--small business, large businesses, and this
    is going to have a direct impact on manufacturing in our
    country.
        Senator Brown. Mr. Murphy, your thoughts.
        Mr. Murphy. Out in the global marketplace, amid the tough
    competition we see from new firms and old, from different
    countries around the world, the theoretical concerns that we
    have heard here ring hollow.
        Out in the marketplace, the choice is not one between
    Eximbank on the one hand and the perfection of free markets on
    the other. It is a choice between U.S.-made aircraft, nuclear
    reactors, turbines, locomotives, a host of products and their
    competing products from other countries. And, often tipping the
    balance is official export credit agency support.
        So if Eximbank's critics have their way, the U.S.-made
    products will no longer have that support, and it really could
    tip the balance.
        Stan Veuger, who is an AEI scholar and an expert in applied
    microeconomics and who has participated in what I understand is
    a vigorous debate at AEI on this topic, was asked the question:
    Well, why should we have an Eximbank? His answer: Because the
    world is not one frictionless credit market.
        Faced with foreign ECAs, we have an Eximbank, a Federal
    Government program of, at most, negligible cost that helps U.S.
    exporters compete with foreign firms on a level playing field.
        He warns against the utopian views of some Libertarians who
    believe that a fallen world can make due with the Garden of
    Eden's governing institutions.
        For American companies, they want customers. They do not
    care if they have pointy ears and green blood. They want
    customers who can pay.
        And those customers have alternatives from many other
    countries around the world. And, without Eximbank, those other
    companies are going to have an advantage.
        And I would like to quote, finally, former CBO head,
    Douglas Holtz-Eakin, who has echoed this view. He says, ``I
    would love to live in a world where we do not need the
    Eximbank, but this is not that world.''
        Chairman Shelby. We have a vote on the floor. So we are
    going to recess for about 20 minutes to give us a chance to
    vote.
        So we are in recess.
        [Recess.]
        Chairman Shelby. The Committee will come back to order.
        Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        There is a constant debate over whether or not Eximbank
    helps small businesses. I do not expect to settle the argument
    today.
        But, can you tell me what types of small businesses benefit
    the most from Eximbank and why? And that would be to the panel.
        Ms. Dempsey. I am happy to start, Senator.
        I will say that there are a wide variety of manufacturers
    in all different sectors of the economy. We have food product
    manufacturers. We have companies in Pennsylvania that make wall
    coverings. We have small agricultural airplanes down in Texas.
    And it cross-cuts all of the different sectors.
        In every single State represented on this panel and every
    single State in this country, there are small businesses that
    are using the Eximbank.
        Mr. Strain. If I could add, Senator, it certainly benefits
    the small businesses that receive the credit.
        And so if you imagine a small business--small businesses
    which operate in much more competitive environments than a
    duopolostic market like for large wide-body aircraft--and one
    firm gets the subsidy, gets an Eximbank financing deal, and
    another firm competing in exactly the same industry, trying to
    attract exactly the same customers, does not.
        It is true that this firm is helped; it is also true that
    this firm is placed at a disadvantage.
        And I think that what makes this complicated is that it is
    very easy to say if we let the Bank go these specific
    businesses will be hurt and they will be in a worse position
    than they are in today.
        But we have to take into account this other guy who is
    competing against the small business that receives the export
    financing, whose playing field will be more level, who will be
    better able to compete, and the overall effects in that market
    very well may likely be positive.
        Ms. Dempsey. Could I add something there?
        So the Export-Import Bank is open to any exporter that
    meets very objective qualifications. If there are two exporters
    in the same industry that both want to get Export-Import Bank
    services, they can do so. And, they do do so.
        And in cases where you have foreign bidding overseas for an
    infrastructure project or some other Government activity where
    Governments are looking for bids from around the world,
    Eximbank will actually go in with two or three or any U.S.
    company, any U.S. exporter, that seeks its services and back
    them up and give them that same offer.
        It is not picking winners or losers. This is available to
    everyone.
        You do not need special access to get a loan or a loan
    guarantee or working capital out of the Eximbank. You can go
    onto their Web site and apply. This is something that is widely
    available and does not have that sort of negative impact.
        Mr. Strain. And just 10 seconds, I am sorry.
        If that is true in theory, which it is, it does remain the
    case that some businesses get it and some businesses do not. So
    there must be some reason why these businesses that do not get
    it and are not going through this extremely easy process of
    doing it. And I think the fact that not all businesses are
    subsidized means that the simple story is not actually as
    simple in reality.
        Mr. Murphy. It has been fascinating over the past couple of
    years to prepare a library of interviews with 80 small business
    users of the Bank and their real-world experiences.
        So, for instance, Bridge to Life Solutions in South
    Carolina, they provide cold-storage organ transplant solutions.
    One of their executives says: Without Eximbank, I would have to
    tell my customers, prepay everything up front or we cannot do
    business.
        It is only when they were able to purchase credit insurance
    from Eximbank, which they could not get from a commercial bank,
    that they were able to extend terms to foreign customers. And
    without being able to extend terms, they could not make these
    foreign sales.
        Similarly, Eagle Labs in Rancho Cucamonga, California, they
    use credit insurance to sell their surgical equipment for
    cataract surgery around the world. They explained that despite
    receiving regular payment from foreign customers their local
    commercial banks would not extend them credit based on their
    foreign receivables, but once they were able to get that
    guarantee from Eximbank they were able to double their sales
    and double their workforce.
        Senator Rounds. Mr. Ikenson.
        Mr. Ikenson. Yes. Thank you.
        Just to respond to Ms. Dempsey's point, yes, Eximbank is
    available to whomever qualifies.
        However, some firms have better recourse to exporting. They
    have infrastructure in place. They are more inclined to do so.
        So if two companies are in one firm--in one industry. One
    may be ready to expand abroad where another is not, and the
    availability of the subsidy to that exporter might hasten the
    gap in performance between the two companies.
        Yes, there are small businesses that win--the
    beneficiaries. But there are costs, and I could go through a
    list of companies in many States, as John just did, pointing
    out that these are likely victims and that they should have a
    seat at the table as well.
        Senator Rounds. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Donnelly.
        Senator Donnelly. Thank you, Mr. Chairman.
        First and foremost, I would like to say this is about jobs.
    This is about Indiana jobs. This is about American jobs and
    whether we stand up and fight for them.
        And I feel--as a kid, as I know probably some of you were,
    I was a big fan of Superman comics. And there was a character
    in there, and he was known as Bizarro Superman. And in Bizarro
    Superman's world, up was down and down was up.
        And, Mr. Chairman, I feel like I am in the Bizarro
    testimony here sometimes, where sending money back to the
    Treasury is a bad thing and seeing jobs go overseas is a good
    thing. Well, I would disagree with that.
        And I will say that this Senator will fight, and fight
    nonstop, to try to make sure that the Eximbank survives because
    it is critical to jobs, to families in my State, that when they
    go home want to put food on the table, take care of their
    family, and have a decent life for their children. That is what
    the Eximbank helps do.
        And with that note, Doctor, I would like to ask you: Do you
    know who ABRO Industries is?
        Ms. de Rugy. Are you talking to me?
        Senator Donnelly. Yes.
        Ms. de Rugy. No.
        Senator Donnelly. Do you know who Vertellus is?
        Ms. de Rugy. No.
        Senator Donnelly. Do you know who Polymer Technology
    Systems is?
        Ms. de Rugy. No.
        Senator Donnelly. Do you know who Advanced Machine and Tool
    is?
        Ms. de Rugy. No.
        Senator Donnelly. Those are all companies that have
    benefited from Eximbank. They are not huge multinationals. They
    are companies in South Bend, in Indianapolis, in Ft. Wayne.
        And for them this is not about a theoretical exercise. This
    is about whether or not they have work to do and whether or not
    they have products to export.
        And so I would say that this is the real world. These are
    the people who the Eximbank is helping.
        And then I would like to ask you: You had mentioned that
    part of the people who are victimized are taxpayers.
        Well, here is the taxpayer victimization that has occurred
    in the last years: 2012, $803 million returned to the Treasury
    in profits; 2013, $1.056 billion returned to the Treasury in
    profits; 2014, $675 million returned to the Treasury in
    profits.
        Here in Washington and in our Government, it drives you
    crazy sometimes to see programs that we run deficits time after
    time after time. And here we are with a program that is
    returning money to the Treasury to help reduce the deficit, and
    we are attacking the program. It does not seem to make any
    sense to me.
        And, Dr. Strain, those companies I mentioned, they are not
    politically well-connected. They are just businesses back home,
    who are trying to make ends meet and who are trying to sell
    products.
        So I think that these are the kind of things that are the
    real world that we deal with on a constant basis.
        And, Ms. Dempsey, I would like to ask you a question, that
    as we look at this there was talk about businesses being
    penalized by the Eximbank.
        One of the companies that I mentioned sells motor oil to
    Nigeria, sells automotive aftercare products to Saudi Arabia.
        Do you think that those products, if the Eximbank went
    away, that products like that and products sold around the
    world--do you think it would be a company from Ohio who lost
    the opportunity, or do you think it would be from somewhere
    else?
        Ms. Dempsey. Thank you, Senator.
        I think it would be from somewhere else. As I noted in my
    testimony, you know, we have over 60 export credit agencies
    operating worldwide and much more aggressive than the U.S.
        The U.S. has been much less export-intensive. But when our
    companies export it does support jobs; it supports
    manufacturing. And the companies you cited in Indiana--I would
    mention Draper as well, a window shade manufacturer--they have
    all been able to grow their operations by exports.
        We have not heard of the type of theoretical subsidy or
    problem that Mr. Ikenson is talking about or those types of
    losers.
        The only question is, when there is a foreign deal is that
    deal going to go forward? And that is something the Eximbank
    takes a look at because the Eximbank is not going to operate to
    provide services if that deal were not going forward.
        But if you have a deal going forward overseas and the
    question that the Eximbank answers is not whether someone in
    some other industry or any industry in the U.S. is going to be
    hurt, that deal is going to go forward.
        The question is whether a U.S. manufacturer or other
    business is going to participate, whether U.S. workers will be
    able to work on the products and services that Eximbank would
    support.
        And so this is really just about, from our perspective,
    being able to boost U.S. exports which is all--there is a huge
    amount of gain there. And we are growing exports, but we are
    not growing them fast enough.
        Senator Donnelly. Thank you.
        And, Mr. Chairman, I would just like to say one more thing
    in the matter of setting the historical record straight, and
    that would be this--that last week General Motors held a $1.2
    billion expansion in the Silverado and Sierra Truck plant in
    Ft. Wayne, that in Kokomo, Indiana, in 2009 we went from over
    5,000 transmission workers to almost zero, and that today there
    are over 7,000 people building Chrysler transmissions, and on
    top of that that we had to build an extra plant to contain all
    the work. So that is a little bit of a historical correction as
    to what happened.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Corker.
        Senator Corker. Thank you, Mr. Chairman and Ranking Member
    for having this hearing.
        I am in the category of just trying to understand and to
    try to make a good decision on behalf of the people that I
    represent. You know, the context within which I look at this
    is, you know, with others on this Committee.
        On one hand, I have led the charge to wind down Fannie and
    Freddie, you know, which have $5 trillion in mortgages, and to
    create a more dynamic system where you do not have two
    behemoths that basically dominate the housing industry. So that
    is one end of the spectrum.
        On the other end, we have this entity that it is hard for
    me to determine, you know, exactly why there have not been
    greater reforms, and yet, I understand some of the things that
    Senator Donnelly is pointing out.
        So let me just--Ms. Dempsey, if you would, on Boeing, since
    everybody wants to talk about Boeing--and I have nothing
    against Boeing. I like flying in the airplanes that they build.
        But give me an example of a transaction where Boeing, which
    is a very sophisticated company, would be doing business with
    an entity. We mentioned that many of the entities are State-
    owned enterprises; in many cases, very wealthy countries that
    own these State-owned enterprises.
        Give me an example of a transaction where Boeing really
    would be concerned about the credit on the other side of the
    deal and, therefore, would need to operate through the Bank in
    this way.
        Ms. Dempsey. Thank you, Senator. I think that that is a
    great point to bring up here.
        One of the things that I think gets misunderstood in this
    debate is it is not Boeing that is necessarily going out and
    saying, well, I need Eximbank. Our companies, whether it is a
    large company or a small company, they are getting demands from
    their customers about how that customer wants to purchase.
        In the case of Boeing, you have two major wide-body
    aircraft producers in the world. One is here in the United
    States, supporting tens of thousands of small businesses----
        Senator Corker. Now, if you could--I have got 5 minutes--I
    want you to give me an example. I understand all that.
        Ms. Dempsey. So you have a foreign airline that says: I
    want this type of financing. I know that the French and the
    Germans are going to finance the Airbus. Boeing, can you meet
    that? Can the Eximbank meet that?
        Senator Corker. So it is not that they are worried about
    the credit. It is that the Eximbank is able to give these
    companies--these countries, companies, State-owned
    enterprises--terms that are comparable to what Boeing's
    competition is using. Is that what you are saying?
        Ms. Dempsey. Yes.
        Senator Corker. OK. You want to say something? Yes, ma'am.
        Ms. de Rugy. Yeah. I mean, this assumption is that the
    only--the driving factor for choosing a Boeing plane as opposed
    to an Airbus plane is the existence of credit subsidies.
        I mean, it is worth noting that last year 90 percent of
    Boeing planes were sold without any export subsidies. In fact,
    it is a general rule.
        According to GAO, 85 percent of all airplanes are sold
    without these types of export subsidies. We have ample
    examples.
        I mean, there is no denying that the companies abroad, like
    Air Emirates or Ryanair, who are just like the top
    beneficiaries, foreign beneficiaries of Eximbank, they like
    getting cheap subsidies no matter how wealthy they are.
        That being said, we have ample examples of these companies.
    In the same month for instance, Air Emirates in June 2012,
    bought Boeing planes with export subsidies, 2 of them at the
    same time they bought 4 Airbus planes without any subsidy,
    which says a lot about the banks' willingness to lend without
    export subsidy, the willingness of Air Emirates, and the
    ability for it to actually lend, and also the fact that it is
    not the primary and only deciding factor in buying a plane.
        Senator Corker. So, if I could--you all have been very
    fulsome in your answers, and we may want to follow up.
        But so in that case--and I understand some of the smaller
    enterprises that Donnelly was talking about, that it would be
    difficult for them maybe to go to a sophisticated lender and
    deal with the $50,000 transaction; I got it.
        But in this case it is really about they are dealing with
    other countries, and the other countries want, obviously, the
    best arrangement they can get. And so it gives Boeing, in those
    cases, a competitive, level playing field.
        Ms. Dempsey. Level playing field.
        Senator Corker. All right. So let me ask you this: One of
    the things we have looked at in our office is Eximbank being
    truly the lender of last resort, which would do away with this
    whole scenario you are talking about because Boeing could get
    credit. It is just that they would not be as competitive
    without this type of credit.
        But we have looked at the form that people fill out, and
    you know, you do not really have to be--Eximbank does not
    really have to be the lender of last resort. I mean, you are
    not like violating an oath when you fill this thing out. It is
    pretty loose.
        Is there a way to truly make Eximbank for entities like
    Donnelly was talking about, an entity that deals with folks
    where they are the lender of last resort, and we did not have
    to worry about the level playing field issue?
        Ms. Dempsey. I would say I hear from a lot of the small
    businesses that there is already a lot of paperwork; there is a
    lot of delay.
        One of the things that we constantly have in the U.S. as a
    problem is our paperwork and delay, and because of that we
    sometimes lose the sale. So I think anything that one might
    consider on that you have to be careful.
        But, lender of last resort? Does that mean that when, you
    know, Air Emirates wants to buy a plane, we are--you know.
    Perhaps there is credit available on the commercial market, but
    they are going to get a better deal out of Europe from Airbus,
    from their export credit agencies over there.
        And I think, you know, people keep throwing around the word
    subsidy constantly. Where is this subsidy?
        This is a Government entity that pays fully for itself with
    the fees and the interest it takes in. It raises those fees. It
    raises those interests.
        And in the area of aircraft, the U.S. has led the
    industrialized world at the OECD to have a new aircraft sector
    understanding that has raised the interest rates on this to get
    rid of the market distortions.
        Just saying it is a subsidy does not make it so.
        Senator Corker. Well, if I could, in closing, I think what
    some people may say is a subsidy is the true cost of Eximbank's
    capital is not calculated, and therefore, other private
    entities that might want to do that business are knocked out of
    that business. That might be the subsidy they are talking
    about.
        But, thank you, sir.
        Chairman Shelby. Senator Heitkamp.
        Senator Heitkamp. Thank you, Mr. Chairman.
        The first thing I just want to point is it is always easy
    to talk about Boeing, but behind Boeing is a supply chain where
    very small manufacturers, very small businesses are also
    benefited kind of long-term, and those folks are deeply
    concerned about what is happening right now with the Eximbank.
        In fact, most of the push that I get in North Dakota is
    coming from our very small businesses, whether it is a
    wheelchair manufacturer who said: Look, I have maximized my
    effect in the market today. I need to have access to the
    international market. I do not know about to do it.
        And you say, we have got this great tool.
        I think there is no question that small business is a huge
    beneficiary. Now in proportion to their position in terms of
    their contribution to gross domestic product, they might even
    be in excess of what you might see compared to multinational
    corporations.
        So let's take a couple things off the table, and one of
    those is that there are somehow companies that have been
    disadvantaged, who are pounding the table. In fact, the
    testimony of one of the panelists raises the issue of a couple
    companies, both of which who are outrageous supporters of the
    Eximbank.
        And so what we really have here is a philosophical
    difference. And we are hearing from people who represent an
    ideology that is free enterprise above all else, no
    interference at all of Government, and we are hearing from
    people who actually create jobs.
        And the question is, are we going to listen to the ideology
    of, you know, get rid of all subsidies, which in a perfect
    world might make sense, when we are not operating in a global
    economy where we have institutions exactly like this pouring
    money into their export credit agencies?
        And so we are not in a perfect world.
        And so to me, today, what we need to do is we need to have
    a conversation with the people who are actually on the ground
    with American manufacturing.
        And, Ms. Dempsey, I want to ask you about our current state
    of affairs, which is we are looking like we are going to, for
    the first time in 70 years, let the charter of the Bank expire.
    Expire this year. That is outrageous to me.
        And I want you to tell me what the injury is to American
    manufacturers if we do that.
        Ms. Dempsey. Thank you, Senator, and I could not agree
    more. You know.
        Today starts the NAM manufacturing summit, and we have over
    500 people who have flown in, and they are going to be talking
    to your offices and others about the Export-Import Bank and how
    critical it is.
        This is an issue where my phone rings off, you know, the
    system because this----
        Senator Heitkamp. Not just calls from Boeing?
        Ms. Dempsey. No. This is from small businesses. These are
    emails from small businesses about whether they are going to be
    able to continue to get, you know, assurances that they are
    going to get paid when they send their product overseas, that
    they are going to have the working capital so that they can pay
    their employees and export at the same time--something that
    commercial banks do not provide.
        Senator Heitkamp. Are they recounting to you the disruption
    that is happening as a result of this uncertainty, as a result
    of us not doing our job in a timely fashion?
        Ms. Dempsey. There is a lot of harsh words, and there is a
    lot of uncertainty and fear.
        One of the things we see is foreign competitors to our
    companies here in the United States using the fact that Export-
    Import Bank may shut down at the end of this month to tell
    foreign customers, hey, you cannot trust the Americans; you
    cannot necessarily be guaranteed that they are going to come
    through on this sale.
        And there has been a lot of uncertainty for big sales but
    small sales. This will cost U.S. exports, make no mistake, and
    the jobs that they support.
        Senator Heitkamp. Currently, the last time I checked, there
    is $18 billion in the pipeline that will be stalled out if we
    do not do this. And so while we are arguing philosophically,
    the people you represent are trying to keep people working.
    They are trying to keep their product moving into a market
    where 95 percent of all consumers live outside this country.
        I want to ask Mr. Murphy: When you try and explain the
    resistance to an entity that returns money to the Treasury,
    that actually supports American jobs, what argument do you
    provide for why we are stalling out?
        Mr. Murphy. Well, it is difficult to be able to explain
    that, I think, particularly with the small business users of
    the Bank. They are baffled by it.
        I think that they are a very handful of three of four
    companies that have been identified across the country that do
    not support the Export-Import Bank, that have spoken out
    against it, including Delta, for instance.
        But I work for the broadest business organization in the
    country, an underlying membership of three million companies of
    every size, sector and region. I cannot tell you how broad the
    support is for this and how difficult it is to explain what is
    going on.
        Senator Heitkamp. I think that is a point that we need to
    make, which is that this is not a 51-49 in your membership.
    This is hugely supported compared to everything else.
        Mr. Murphy. It is completely uncontroversial.
        Senator Heitkamp. Yes. And I guess I just want to make one
    final pitch, which is we have got to reauthorize the Eximbank
    before the end of the year, or before the end of this month, or
    else we have crated a huge disruption. We have done something
    again in this body and in this Congress that is so disruptive
    to the marketplace that it is unfathomable that we would risk
    these jobs.
        And so I want to thank you for your testimony.
        Mr. Murphy. Senator, if I could just say briefly, thank you
    to you, Senator Donnelly, Senator Kirk, for your leadership on
    a bill to reauthorize the Bank.
        Chairman Shelby. Senator Kirk.
        Senator Kirk. Thank you, Mr. Chairman.
        I just want to show the Committee the sign that you see
    when you arrive at Beijing Airport. It says, ``Welcome From the
    Export-Import Bank of China.'' It shows exactly what happens
    when we leave the battlefield to the other team.
        I want to show you another picture of the C919. It is the
    competitor to the Boeing 737. This aircraft has now been booked
    400 times over, representing billions in sales lost by the
    United States.
        I would say if you represent the State of Illinois, as I
    do, you think about all the families that depend on Boeing and
    Caterpillar, Caterpillar being based in Peoria.
        Mr. Chairman, I would definitely say that Eximbank plays in
    Peoria.
        So let me ask Dempsey. I just want to go through the panel
    here.
        For Mr. Ikenson, for your think tank, about how many people
    work there?
        Mr. Ikenson. How many people are employed at Cato?
        Senator Kirk. At Cato, yes. About 200?
        Mr. Ikenson. Fewer. About 100 to 150.
        Senator Kirk. And for Ms. Dempsey, you represent about 12
    million Americans, right?
        Ms. Dempsey. Manufacturers do throughout the--there are 12
    million manufacturing workers throughout the American economy.
        Senator Kirk. Well, let's just ask the panel. If you
    represent more than 10 million workers, raise your hand.
        [Ms. Dempsey and Mr. Murphy indicating.]
        Senator Kirk. So, Mr. Murphy, I do not know if you have got
    10 million people at your firm there.
        Mr. Murphy. Well, the underlying membership of the Chamber,
    we estimate is----
        Senator Kirk. It certainly would be.
        Mr. Murphy. ----more than 20 million workers at companies
    that are members of the Chamber.
        Mr. Strain. I would like to think that I represent millions
    of Americans who love the free enterprise system, Senator.
        Senator Kirk. I would say now when we look at the makeup of
    this panel it seems to be a lot of insider, Beltway folks who
    represent very tiny employer bases.
        When you look at the entire employment base of the United
    States, for Eximbank, it supports about 46,000 jobs in the
    State of Illinois. For our State, which could ill afford to
    lose any more, this is the impact on the country.
        We are under the logo of ``ship goods, not jobs.'' For the
    United States, about 164,000 annual jobs supported by Eximbank,
    exports of $27.5 million.
        In the case of Illinois, I have already talked about
    Peoria. Supporting jobs in Chicago and Burr Ridge and
    Lincolnshire and Moline and Decatur and Mount Prospect, I would
    say the impact is pretty huge in my State, right in the middle
    of the Heartland.
        With that, I will yield back, Mr. Chairman.
        Chairman Shelby. Senator Warren.
        Senator Warren. Thank you, Mr. Chairman.
        You know, there has been a lot of talk about who is
    supported by the Export-Import Bank. And as you all know, under
    the terms of the congressional charter, Eximbank is supposed to
    focus on helping America's small businesses grow and export
    goods. In fact, by law, at least 20 percent of the Bank's
    spending each year must go directly to supporting small
    businesses.
        Now in fiscal year 2014, the Eximbank met that target, but
    in the 3 previous fiscal years it did not. That means that
    small businesses in Massachusetts and across the country were
    not receiving the level of support that Congress explicitly
    requires the Bank to provide.
        I am concerned about the Bank's performance in this area.
        Mr. Murphy, I imagine that the Chamber of Commerce must be
    as well. After all, the Chamber often notes in its literature
    that it represents more than 3 million American businesses of
    which more than 96 percent are small businesses with fewer than
    100 employees.
        So I want to ask, Mr. Murphy: I know the Chamber supports
    the reauthorization of Eximbank; you have made that clear
    today. But given the Chamber's overwhelming small business
    membership, does the Chamber also support substantially raising
    the Bank's small business spending requirement from 20 percent
    to some higher number?
        Mr. Murphy. Well, thank you for the question, Senator.
        Our small business members are very active in advocating
    for reauthorization of the Bank, and we have worked closely
    with the Bank to try and forge connections between its staff
    and the small business community so that companies that want to
    export can get their services.
        It is--we kind of scratch our heads about the decline in
    support for small business. However, it does----
        Senator Warren. Well, Mr. Murphy.
        Mr. Murphy. Yes.
        Senator Warren. Let me just--since our time is limited
    here.
        The question I am asking is whether or not you would
    support, you the Chamber of Commerce would support, increasing
    the statutory requirement for what----
        Mr. Murphy. No, we do not. We are----
        Senator Warren. The percentage goes to small businesses.
        I am a little surprised by your answer. I would think that
    the Chamber would strongly support a change that would help
    more than 95 percent of your membership.
        Mr. Murphy. Our close interaction with the Bank has left me
    with the conviction that the Eximbank is doing everything it
    can to track down and find and identify small businesses that
    need its service.
        Senator Warren. So you are----
        Mr. Murphy. In many cases, they can find commercial banking
    services.
        Senator Warren. Well, then let me ask the question a
    slightly different way, Mr. Murphy. Would the Chamber support
    including a stronger enforcement mechanism so that the Bank
    would face some serious consequences if it did not reach the 20
    percent target for small businesses?
        Mr. Murphy. I do not believe it is the sort of objective
    that should have some sort of a punishment as a result for
    failure to comply with it.
        Senator Warren. Well, I am talking about enforcement. You
    know, we ask them to do something. We direct them here in
    Congress to do something.
        And we have talked about the history from the past 4 years.
    In three out of 4 years they have not met the objectives, and
    there evidently has been no consequence that comes from that.
        You are supposed to be here, I thought you always say,
    representing small businesses, and I have just offered you two
    alternatives: Increase the percentage. Add some enforcement to
    it.
        And you are telling me the Chamber is not interested in any
    of that?
        Mr. Murphy. And if I had a folder of examples of companies
    that were seeking Eximbank support so that they could grow
    their exports that were somehow unmet, then I would express it.
        Senator Warren. So you are telling me the Eximbank is not
    responsible for its inability to reach these small businesses?
        Let me just ask you, Ms. Dempsey: How about you? I have the
    same question. Given the overwhelming number of small
    businesses that NAM claims to represent, would you support
    increasing their percentage, the percentage that Ex-Im is
    required to do for small businesses, above 20 percent?
        Ms. Dempsey. Senator, we do not support increasing a
    mandate.
        What we support is the types of tools and getting out the
    information. And like the Chamber, we work to connect Eximbank
    with small businesses.
        But what we----
        Senator Warren. So I am sorry. Let me just make sure I am
    understanding. Are you supporting any change then in the
    authorization, an authorization that has been in place when
    Eximbank has failed to meet even the 20 percent standard?
        Ms. Dempsey. In terms of the mandate, we are not seeking a
    change in that because what we want is for Eximbank to be more
    effective in that and just mandating a higher level is not
    going to succeed in that.
        The U.S., as a Nation----
        Senator Warren. Well, then would you support greater
    enforcement mechanisms?
        Ms. Dempsey. I just agree with focusing on this as
    enforcement.
        The U.S., as a Nation, is much less export-intensive.
    People--our small businesses are very used to selling
    domestic----
        Senator Warren. Ms. Dempsey, if I could stop you there----
        Ms. Dempsey. Sorry.
        Senator Warren. ----because my question is how--who it is
    that Eximbank is supposed to support, and you come in here and
    tell me it is supposed to support small businesses.
        I believe that Eximbank helps create jobs in Massachusetts
    and across America, the kinds of good manufacturing jobs that
    we are losing to other countries far too often, and the Bank
    does that while consistently making money for taxpayers. I
    understand this point.
        But I also believe there is significant room for
    improvement in the Bank's operations, including a commitment to
    make these loans more easily available for small businesses.
    More often than not, big businesses can find private funding
    options for their export deals, but that is not usually the
    case for small businesses.
        I believe that we should push the Bank to do more for small
    businesses, and I would think the people who represent small
    businesses would be strong supporters of that.
        And I believe we should hold the Eximbank accountable if it
    fails to reach those goals, and I would expect the Chamber and
    NAM to support that.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Cotton.
        Senator Cotton. I just want to say for the record to the
    panel that I have been on the receiving end of Senator Warren's
    challenging questions before. She was my professor in law
    school. And you did a much better job handling her questions
    than I ever did when I was in law school.
        We live in a globalized world. America is competing with--
    American companies are competing with companies around the
    world.
        One argument you hear in favor of the Eximbank commonly is
    a reference to arms control language, that we cannot
    unilaterally disarm. Between the Europeans and the Chinese and
    the dozens of other export credit agencies around the world, it
    would be unwise for the United States to let the Eximbank
    unwind its operations and wind down.
        Ms. de Rugy, could you respond to that argument with the
    strongest counterargument you have?
        Ms. de Rugy. So this argument assumption is that it would
    hurt the United States overall to disarm, to drop these export
    subsidies, and I think there is a pretty strong case to be made
    that it is not very clear-cut.
        I mean, I think, as Dr. Strain has shown--I mean, there are
    ways in which actually this type of export subsidies are
    damaging to the economy as a whole.
        Moreover, I think that what we should aspire to do if we
    want to promote export is to do it in a more general basis. And
    there are a lot of actually sound policies that we should be
    implementing rather than actually just targeting on special
    winners without considering the cost, such as, for instance,
    the reform of the corporate income tax, which is extremely
    punishing, especially for companies that are competing abroad.
        Why don't we stop this type of targeted subsidies to a few
    and expand and implement policy that would benefit everyone,
    even the nonexporters?
        Senator Cotton. Mr. Strain, do you have anything to add?
        Mr. Strain. I do, Senator. I agree with that.
        I think that the argument about unilateral disarmament is a
    strong argument that supporters of the Eximbank have. I think
    that the argument presupposes that the policies of the Eximbank
    are a net positive and are engaging in this battle, you know,
    in an effective way.
        And I think that that really is not well-supported by the
    evidence. It very well could be the case that so-called
    unilateral disarmament actually is better for the United States
    as a whole even if it is worse for the, you know, particular
    companies that we have heard from, from the Chamber and from
    NAM.
        And so I think we have to maintain some level of humility
    about what it is exactly that the Government is able to know
    will happen when an economic policy is put in place. We are
    talking about, essentially, a situation of concentrated
    benefits and diffuse costs, and we have heard quite a bit from
    the Chamber and from NAM about who benefits in a concentrated
    way.
        And the question simply is, are the diffuse costs greater
    than the concentrated benefits? They are much harder to
    measure. It is much harder to know.
        And I think that the weight of the evidence suggests that
    with export subsidies they probably are greater than the
    concentrated benefits. And so unilateral disarmament may be bad
    for these specific companies, but it may be good for the United
    States as a whole.
        Senator Cotton. Ms. de Rugy.
        Ms. de Rugy. I am sorry; I forgot to add that it is worth
    pointing that it is not a majority of what Eximbank does. I
    mean, according to its own justification data, only 30--roughly
    a little over 30 percent of what Eximbank does is justified as
    countervailing export subsidies. So almost 70 percent of what
    Eximbank does has nothing to do with competing with export
    subsidies abroad.
        Mr. Strain. And, Senator, if I could just add very
    quickly----
        Senator Cotton. Actually, I would like to hear the other
    side.
        Mr. Murphy.
        Mr. Murphy. So over the weekend I was reading Chairman
    Hochberg's testimony for the House Financial Services
    Committee, and he recounted how he was recently at a meeting of
    the 79 export credit agencies from around the world. Dozens of
    them explained how they plan to be expanding the export finance
    that they make available. Precisely, two said they intended in
    the years ahead to be cutting it; that was Austria and Norway.
    The Chinese were silent.
        China has three, what they call, policy banks. One is China
    Eximbank. Two other banks provide similar levels of support.
        There is a gusher of export credit agency support coming
    out around the world.
        And in our experience, what we hear from our member
    companies time and again is that it can make a determination
    even in cases where it is not used, as a kind of deterrent
    effect. The fact that it could be used in some cases, it can
    turn the sale away from the American exporter to a competitor
    from abroad, and that is why we think we should not be the only
    country in the world not to have one of these agencies.
        Senator Cotton. Ms. Dempsey, you look as if you wanted to
    add something.
        Ms. Dempsey. You know, thank you. I totally agree.
        I wanted to point out that when Dr. de Rugy was talking
    about that a certain percentage of Eximbank's transactions are
    not dealing with subsidies or dealing with market failures, in
    fact, yes, they are.
        The pie chart that she put in her testimony--and I am happy
    to provide one as a follow-up--ignores the small business side,
    ignores the types of loans where the OECD says that Eximbank
    can only finance up to 85 percent, and so that other 15 percent
    is what is unaccounted for. Those loans, of course, would not
    happen but for Eximbank, and they are areas where there is
    market failure.
        The U.S. has led the world in trying to eliminate market
    distortions in export credit. We have been pretty successful at
    the OECD in all--overall and then in sectors like aircraft and
    renewables and lots of other sectors.
        We are having a hard time with the developing world. They
    are trying to increase, as Mr. Murphy explained. And, if the
    U.S. takes itself out, if we do not have an Export-Import Bank,
    what do we think is going to happen?
        You do not know the theory of what is going to happen
    there?
        What we are seeing on the ground is exactly what Mr. Murphy
    was saying. They are expanding. They want to grow their
    economies, and they want to grow it through exports. And they
    are going to go forward regardless. But it is probably going to
    get worse, and it is going to make it harder for manufacturers
    to be able to win these sales overseas.
        Senator Cotton. If in a more perfect world the United
    States could actually persuade all of the countries around the
    world with the ECAs to eliminate theirs, would you then believe
    that we should eliminate the Eximbank?
        Ms. Dempsey. As long as the market can deal with the issues
    that exporters in our country need.
        Small businesses cannot use their exports as collateral
    when they are trying to get a loan from a commercial bank, and
    that means they are not--you know. We have got companies who
    mortgage their personal house.
        We need to deal with that type of failure. We need to deal
    with commercial banks that are not able to do long-term loans
    or loans into emerging countries. So we have got those issues
    to deal with.
        But, yes, if we can move to a system where we have--we
    discipline out these export credit agencies, let's go forward.
        Senator Cotton. Thank you all.
        Chairman Shelby. A couple of observations.
        In Senator Warren's question about reforming the Bank, both
    Mr. Murphy's and Ms. Dempsey's answers were troubling because
    you obviously like the status quo.
        And in your answers, she gathered and I gathered that you
    are not representing small business; you are representing one
    or two big companies that are getting most of the business,
    using the Bank the most. That is troubling.
        So if somebody wanted to reform the Bank, you all would be
    against it, basically, unless you could write the reform. That
    is one of the problems that the Bank has today.
        That was not a question. That was a comment.
        Some of our witnesses have referred to the arguments
    against the reauthorization of the Bank as economic theory
    whereas arguments in favor of the Bank are based on reality--
    quote.
        Certainly, arguments in favor of the Bank benefit from
    real-world examples--we know that--whereas arguments against
    the Bank are more attenuated because the potential economic
    damage done by Government-backed lending is not easily
    measured, as one would expect, but that does not mean it does
    not exist.
        Ms. Dempsey, does the National Association of Manufacturers
    reject all economic theory?
        Ms. Dempsey. Of course not, Senator.
        Chairman Shelby. OK. In other words, you do not reject the
    theory that says Government-backed loan guarantees have
    negative as well as positive effects on American markets and
    manufacturers?
        Ms. Dempsey. Well, Mr. Chairman, you know, we have not
    actually heard that complaint, as Mr. Ikenson and other
    panelists were detailing. That is not the complaint that we
    have actually heard from our businesses.
        We like to ground our views and our policy, which are
    decided by our members, based on our members' experiences. And
    so something like the small business issue, I think we need to
    figure out why Eximbank is not getting more loans and services
    to small businesses before we, you know, dramatically increase
    mandates.
        I will say as well, though, that the NAM supports the
    reform bills that have been introduced by Senators Heitkamp and
    Donnelly, by Senator Kirk, that includes some reform on small
    business as well.
        Chairman Shelby. Dr. Strain.
        Mr. Strain. Well, I agree, Mr. Chairman, that if the point
    of the Eximbank is to help small businesses then presumably
    those who support the Eximbank should be in favor of increasing
    its assistance to small businesses. I think that is a fairly
    common-sensical view, and I think Senator Warren articulated it
    very well.
        I think that with respect to defending economic theory,
    which I am happy to do, you know, sometimes it is very hard to
    measure things. We have a very big economy, a lot of moving
    parts.
        It is very easy for politically connected organizations to
    come to Washington and to find organizations that will say,
    hey, you know, these policies help me; do not get rid of them.
        And it is much harder for organizations and individuals
    that do not have those kinds of resources or who are injured in
    slightly--in slighter ways, in smaller ways, but when you
    aggregate all that up, you end up doing some damage to come and
    organize.
        I think that the fact that the overwhelming majority of
    exports occur in this country without access to special export
    financing----
        Chairman Shelby. About 98 percent.
        Mr. Strain. Something about 98 percent without access to
    export financing does cast doubt on predictions of horrible
    destruction and gloom and doom that will take place if that 2
    percent of deals have to operate under the same circumstances
    as the other 98.
        Chairman Shelby. Senator Brown.
        Senator Brown. Two questions, Mr. Chairman. Thank you.
        And thanks again for the patience of all of you.
        And, again, thanks to Senator Heitkamp for her leadership
    on this, with Senator Kirk.
        Ms. Dempsey, I want to ask you about the supply chain.
        GE Aviation in Evendale, Ohio, provides engines for
    commercial and military aircraft. Some 7,500 employees in the
    Cincinnati area. They are also in Nela Park in Cleveland--
    electric lighting and many other--several other sites around.
        We hear the Export-Import Bank largely benefits, we hear,
    eight or so large corporations.
        Understanding GE has told me they have 19,000 suppliers in
    my State alone, and we are one of the GE States. But 19,000
    suppliers in one State.
        Talk about what--sort of dispel--take 90 seconds and dispel
    this myth that it is all about these 8 large companies.
        Ms. Dempsey. Well, that is exactly right, Senator, and it
    is true. It is true with our biggest exporters. It is true with
    our medium-size exporters. But a company like Boeing or a
    company like GE that has tens of thousands of suppliers around
    the country, some of those are companies with 20 employees,
    with 50 employees.
        One of our companies, Click Bond, is here this week as part
    of our NAM summit. They do not export directly. They provide to
    large capital equipment exporters. Their business grows when
    our exports, and that company's exports, are able to grow
    overseas.
        This benefits all of those companies. It does not, as we
    have seen, you know, impact negatively others.
        It creates more opportunity for manufacturers across all of
    the supply chains, whether you are primary metal or equipment,
    or you are tool and die. If you are talking capital equipment,
    power train, all of those items that go into a large piece of
    capital equipment overseas, they all benefit, and those
    benefits are around the country.
        I will say one of the things that has been difficult is
    identifying those suppliers. We have a lot of companies. Until
    the last year and this debate really heated up and we really
    started spending a lot of time looking for them--they do not
    even know that their product is being exported overseas because
    they are sending on. They might not even be a first-tier
    supplier to a Boeing or Eximbank, but they are benefiting;
    their employees are benefiting.
        And we have seen, you know, real good growth in
    manufacturing in the United States, and we want to keep that
    going because those are really good, high-paying jobs in our
    country, and we want to continue growing them.
        Senator Brown. Thank you, Ms. Dempsey.
        Before my last question, I would ask unanimous consent of
    the Chair that a statement from the Bankers Association for
    Finance and Trade and the Financial Services Roundtable be
    included in the Committee document.
        Chairman Shelby. Without objection, so ordered.
        Senator Brown. Thank you.
        Mr. Murphy, some of the other witnesses argue that Ex-Im--
    crowds out was the term I think being used--crowds out private
    financing, but BAFT and FSR member banks offer financing
    through the working capital and credit insurance programs at
    Eximbank.
        Would these banks use these programs if they could finance
    these transactions through other means?
        Mr. Murphy. I believe there is a real consensus in the
    commercial bank community that Eximbank does not crowd them
    out.
        There was a recent letter that the Business Association for
    Finance and Trade and the Financial Services Roundtable sent to
    Congress that explained that Eximbank cannot be replaced solely
    by the private sector, and they explained balance sheets
    constraints arising from prudential capital and liquidity
    requirements, among other factors, along with institutional
    credit, country and counterparty limitations are among the
    factors that limit the ability of commercial banks to provide
    export finance.
        So there is a niche for Eximbank.
        And the fact that it finances, in fact, a small portion of
    American exports is not a problem; it is a virtue. It is a
    virtue that in the vast majority of cases commercial banks are
    able to provide this.
        However, as I think we have outlined in great detail, there
    are particular circumstances for small business and specific
    industries, where in head-to-head competition or because of
    foreign buyers' requirements Eximbank is necessary.
        Senator Brown. Thank you. Thank you all.
        Chairman Shelby. Senator Rounds, do you have another
    question?
        Senator Rounds. I do, Mr. Chairman.
        It would appear to me in the discussion here that we all
    agree, or we appear to agree, that the Eximbank is a tool which
    is utilized.
        It seems to be a question as to who utilizes the tool, but
    nonetheless, it is a tool which is utilized to compete with
    other similar types of entities throughout the world.
        If that tool simply goes away, it would appear that we find
    our own people who are in the business of exporting to be a
    competitive disadvantage. I understand that the economics would
    suggest then that there are tradeoffs to that.
        But I am just curious because it seems to me that if it is
    such a serious issue that it hurts our economy and, yet, it
    only accounts for 2 percent of the total amount of imports out
    there, it does not appear to have had a major impact on the
    rest of the economy. Nonetheless, for the organizations who are
    exporting, it is of critical importance, or at least that is
    what we are led to believe.
        I am just curious. There were some items brought up here
    that I think kind of stick out.
        Number one, we have heard that there is a subsidy in sort
    for, in particular, Boeing and other organizations, that in
    terms of competitive financing as provided by this particular
    bank that other banks cannot compete with.
        I just--but I am also hearing that there has been an
    agreement internationally that there is not a competitive
    disadvantage provided by this particular bank and that it is a
    fair competition right now.
        So there is not--from what I am hearing, there is not a
    competitive advantage for the interest rates being provided,
    but rather, because this is the way the other people who are
    accepting our exports, they are expecting as a part of business
    to have this tool available in some situations.
        So what--when we get right down to it, what damage is this
    particular entity doing to our economy, and what is the cost
    that we are trying to avoid?
        Sir?
        Mr. Murphy. In 2011 at the OECD, an agreement was reached
    on how export credit agencies, such as Eximbank, would provide
    support for wide-body aircraft. So, basically, Boeing and
    Airbus. That agreement obligated Eximbank to significantly
    raise the fees that it charges Boeing for its--to use its
    services.
        That is--as a result of that, the interest rate implied
    there that Boeing is receiving is actually quite comparable to
    what is available on the public market.
        However, there are many circumstances around the world that
    we continue to see where foreign airlines insist that official
    export credit agency support be part of any deal. They are in a
    position to demand it, and the competition is certainly
    prepared to show up with that support.
        So, in a sense, this is a criticism in the past that was
    addressed.
        Senator Rounds. OK. Let me just move on to just two other
    thoughts here.
        We have just heard--and I want to just verify this one more
    time--that there are, right now, areas in which commercial
    banks are simply not able to utilize these exported products as
    collateral for loans. Could you get into that just a little bit
    for me, please?
        Anyone of you is welcome to, I think.
        Ms. Dempsey. So, you know, private lenders, private
    commercial lenders are prohibited from accepting export
    receivables as collateral.
        Senator Rounds. Under existing U.S.----
        Ms. Dempsey. Commercial. Financial. You know, the rules and
    regulations set by this Committee and beyond.
        This restriction limits credit options, creates a market
    failure, especially for small businesses that do not have other
    collateral that they can use to guarantee that loan, and this
    is where Eximbank steps in with what is called its working
    capital loan.
        Senator Rounds. OK. So then the last item is the discussion
    here about Eximbank and its operational capabilities and
    whether or not there ought to be additional items put on it.
        I am of the opinion, starting out looking at this, that if
    you simply tell them they have got to increase the percentage,
    what you end up doing is either decreasing the total amount
    that they can lend in order to comply with a particular
    arbitrary number or there is a way around it by simply have
    more of the final product broken out into smaller businesses
    coming through. There are ways around it when they want to.
        Are there issues within Eximbank that have to be looked at
    in terms of reforms that should be made to make it work better
    than it does today?
        Ms. Dempsey. So I will say there are two bills that have
    been introduced in the Senate by Members of this Committee that
    have a number of reform provisions as part of that. Our
    organization supports moving forward on both or either of these
    bills. We want to see a long-term Eximbank.
        There are certainly areas where Eximbank's services and
    operations can be improved, and there is a lot of----
        Senator Rounds. What you are telling me is that none of you
    can look at it and say right now that there is a specific
    issue----
        Ms. Dempsey. No.
        Senator Rounds. ----which stands out that needs to be fixed
    at this time.
        Ms. Dempsey. Not on that level. Not on the small business
    level.
        I think the small business level is more a function of our
    economy and how companies operate. And they do not look abroad
    as much as they should. There are ways we can work on that, but
    I agree with you that just mandating a new cap for small
    business is not necessarily going to achieve that.
        Chairman Shelby. I think the doctor wants to comment on
    that.
        Ms. de Rugy. I think it is important to point out that the
    underlying assumption of this conversation is that without the
    export subsidies the sale would not happen.
        Well, let's look at Boeing. Again, Boeing is a primary
    beneficiary, domestic beneficiary. There is a subsidy for the
    foreign companies abroad buying Boeing airplanes because they
    get really a preferential treatment with lower rates and better
    terms. That is where we call it a subsidy.
        I mean, there is an advantage.
        And I like Senator Donnelly's Bizarro superhero because, I
    mean, there was a time where the Democrats were actually very
    concerned about the Export-Import Bank not too long ago, in
    2002, because of U.S. workers and because we were giving such
    an advantage to foreign companies who then compete.
        But if this assumption that without Eximbank, right, planes
    would not be sold, then you would not actually see that 98
    percent of Boeing planes are sold without a subsidy; you would
    not see that Air Emirates actually makes a decision to buy
    Airbus planes without any export subsidies.
        I mean, the fact that companies demand it and like it, I
    mean, it is totally understandable. Wouldn't you want a cheap
    loan that reduced your financing costs? Of course, you would.
    Right?
        But making it sound as if you take it away the business
    would disappear and everyone would be hurt--there is no doubt
    that it is possible that Boeing would sell fewer planes, but
    that the world would collapse or the sky would fall is just a
    wrong assumption.
        Senator Rounds. Thank you.
        Chairman Shelby. Senator Heitkamp.
        Senator Heitkamp. Thank you, Mr. Chairman.
        Just a couple points because I think it is important that
    we kind of understand the reforms that are in the provisions
    that are in the Kirk-Heitkamp bill, but I do want to make the
    point following up on Senator Rounds' point.
        It is always a little difficult for me when somebody comes
    with the argument, look how insignificant it is in the real
    world, 2 percent, and then says, but it is catastrophic to the
    free enterprise system. You know, those are just two really
    inconsistent notions and not particularly persuasive.
        I want to run through some of the concerns that Senator
    Warren expressed.
        The Kirk-Heitkamp bill actually does raise the target for
    small business from 20 percent to 25 percent and requires
    reporting. And we say target, and we understand that the more
    we can tell potential manufacturers and potential exporters
    about the resource so that they can, in fact, increase their
    exports.
        And there are thousands of stories about the pickle lady
    who doubled her order of pickles because she all of a sudden
    found out that she could finance it through the Eximbank. And
    so we have got some great small business stories. I think we
    can build on those if we really make a concerted effort.
        And, I look forward to hearing from Mr. Hochberg.
        But as we look at kind of taxpayer protection and making
    sure, as Senator Corker talked about, eliminating or at least
    reducing the amount of exposure, there are a number of
    provisions in the Kirk-Heitkamp bill that basically allow for
    some restrictions, some backstops, and the one I am
    particularly interested in, which is a pilot program for
    reinsurance so that in fact the taxpayers are not backstopping
    at all, that we are actually looking in the private market for
    reinsurance.
        So I guess my question is to Ms. Dempsey and Mr. Murphy. At
    this point, you have been fairly supportive of the Kirk-
    Heitkamp bill. Can you reinforce that today, that we are
    looking at a reform package?
        It may not be things that you agree with, but you
    understand everything is a compromise and that you are in fact
    supporting these compromises.
        Ms. Dempsey. The NAM strongly supports moving forward with
    the long-term Export-Import reauthorization, and the bill that
    you and Senator Kirk have introduced is going to do that, is
    going to keep the Eximbank functioning at an important level
    that is going to grow manufacturing in the United States.
        Senator Heitkamp. Mr. Murphy.
        Mr. Murphy. Similarly here, we have been pleased to express
    our support for the bill. There are a number of common-sense
    reforms included in it, relating to closer audit scrutiny and
    stronger supervision, a stronger board, that we think make a
    lot of sense going forward.
        My comment earlier to Senator Warren, which was perhaps not
    captured fully, was I simply do not have on behalf of the
    Chamber's membership a compilation of pleas for support from
    small business to the Eximbank that have gone unanswered. My
    point is simply that the Eximbank has actually done a pretty
    good job in terms of outreach there and receiving those.
        But, by all means, we appreciate the bill's contribution to
    moving forward, including in its outreach to small business.
        Senator Heitkamp. And we can continue and build on that
    outreach, and I think we will meet these targets if we make a
    concerted effort, whether it is the manufacturers or the
    chambers, if we are able to get reauthorization.
        I just want to reiterate a point. You know, nothing like
    repetition in terms of communication. We are on track right now
    to allowing the charter of the Eximbank to expire and the
    disruption that we have, whether that is a short-term or long-
    term.
        There are obviously people here in the Congress who want to
    put a stake through the heart of the Eximbank.
        And I understand the other panelists. You know, the sky is
    not--you know, that the sky will not fall tomorrow if that
    happens.
        But there is $18 billion of potential export investment
    that will go unanswered if we allow this to continue.
        And so I just want to put in a plug for getting something
    done in June, getting something done long-term. We will live to
    fight this. Let's go with these reforms. See if they address
    some of the concerns.
        And I just want to reiterate my support for my bill.
    Surprise, surprise.
        Chairman Shelby. Thank you, Senator.
        Because a lot of people do not believe, Senator, with all
    due respect, that the Kirk-Heitkamp is a real reform bill. And
    it does not even have a sunset in it either, among other
    things, but that is neither here nor there.
        We have a hearing on this on Thursday. We will have the
    head of the Bank to testify, and I am sure there will be a lot
    of interest in this.
        I ask unanimous consent at this point to put four articles
    in the record. One is a Washington Post article that is called
    ``A Bank with Congress in Its Pocket;'' two, the Wall Street
    Journal, ``The Bank to Nowhere;'' three, the Wall Street
    Journal article, ``The Peculiar Uses of a Taxpayer Bank;'' and
    four, Roll Call, ``What Happens if the Export-Import Bank
    Expires?''
        Without objection, so ordered.
        I thank all of you for your testimony here today and your
    patience in the interruption because of votes.
        This Committee is adjourned.
        [Whereupon, at 12:11 p.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                    PREPARED STATEMENT OF VERONIQUE DE RUGY
        Senior Research Fellow, Mercatus Center, George Mason University
                                  June 2, 2015
        Good morning Chairman Shelby, Ranking Member Brown, and Members of
    the Committee. Thank you for the opportunity to testify today on the
    important topic of the Export-Import Bank of the United States.
        My name is Veronique de Rugy, and I am a senior research fellow at
    the Mercatus Center at George Mason University, where I study the U.S.
    economy, the Federal budget, homeland security, taxation, tax
    competition, and financial privacy.
        We don't agree on much in Washington. In view of the all of the
    economic and social problems facing our Nation, we should agree that
    the Federal Government ought not direct our limited public resources to
    subsidies that benefit successful politically connected corporations at
    the expense of thousands of companies and millions of American workers
    who compete in the global marketplace without Government favors. This
    is why Congress should not reauthorize the Ex-Im Bank.
        The policy debate surrounding the Ex-Im Bank has focused on
    maintaining the privileges long enjoyed by Boeing and a few other
    similar large corporations. It is vitally important, however, to
    recognize the many unseen costs of political privilege, whether it
    takes the form of market distortions, resource misallocation, destroyed
    potential, higher prices, or the competitive disadvantages imposed upon
    Main Street businesses that lack connections in Washington or access to
    press offices and lobbyists. These Main Street businesses matter, too.
        Contrary to what you will hear from its supporters and
    beneficiaries, the Ex-Im Bank plays a marginal role in export
    financing--backing a mere 2 percent of U.S. exports each year. The vast
    majority of exporters secure financing from a wide variety of private
    banks and other financial institutions without Government interference
    or assistance. With U.S. exports hitting record high levels, it is
    obvious that such financing is abundant and Government assistance is
    superfluous.
        Furthermore, letting the Ex-Im Bank's charter expire won't disturb
    existing deals. Failure to reauthorize will prevent the Ex-Im Bank from
    extending new loans, which would be a win for taxpayers who are
    ultimately on the hook for a total of $140 billion if bank reserves
    fail to cover defaults.
        In this testimony, I would like to address the following points:

      1.  The Ex-Im Bank distorts the market by creating privilege,
            undermining the legitimacy of both Government and the market.

      2.  The Ex-Im Bank fails on its own grounds.

      3.  The Ex-Im Bank suffers from massive transparency issues.
    1. The Ex-Im Bank: The Poster Child of Government-Created Privilege
        There is abundant research about the negative effects of cronyism.
    For example, in a book called The Pathology of Privilege: The Economic
    Consequences of Government Favoritism, my colleague Matt Mitchell
    explained that ``Whatever its guise, Government-granted privilege [to
    private businesses] is an extraordinarily destructive force. It
    misdirects resources, impedes genuine economic progress, breeds
    corruption, and undermines the legitimacy of both the Government and
    the private sector.'' \1\
    ---------------------------------------------------------------------------
         \1\ Matthew Mitchell, ``The Pathology of Privilege: The Economic
    Consequences of Government Favoritism'', Arlington, VA: Mercatus Center
    at George Mason University, 2014, 1-2, http://mercatus.org/publication/
    pathology-privilege-economic-consequences-government-favoritism.
    ---------------------------------------------------------------------------
        The Ex-Im Bank is one of those destructive Government-granted
    privileges. This shows up in two forms, one strikingly visible, and the
    other invisible. Among the top 10 domestic beneficiaries of the Ex-Im
    Bank is Boeing. At a 40 percent share of total Ex-Im Bank loan
    authorizations in 2014, Boeing dwarfs the 25 percent combined share of
    all small businesses. What we do not see are the higher costs borne by
    American exporters, due to the Ex-Im Bank being one of those
    destructive Government-granted privileges.
    A. Government Privilege and ``Boeing's Bank''
        A look at the top 10 domestic beneficiaries for all Ex-Im Bank
    transactions between 2007 and 2014 shows that the Ex-Im Bank lives up
    to its nickname of ``Boeing's Bank''. The aviation giant, which has a
    market capitalization of $100 billion, is by far the biggest
    beneficiary of the Ex-Im Bank's largesse, which provides $66.7 billion
    in subsidized financing to foreign purchasers of Boeing planes. General
    Electric, a company with a market cap of $279 billion, also ranks among
    the biggest beneficiaries, with $8.3 billion in export assistance. The
    $2.2 billion in Ex-Im Bank financing that benefits Caterpillar, a
    company with a market cap of $54 billion, is boosted by the $2.7
    billion loan guarantee to its subsidiary, Solar Turbine Inc. (also on
    the Top 10 list).

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    B. Big Buyers Go With Big Exporters
        On the foreign side, things aren't much different--the subsidized
    financing largely benefits very large companies that either collect
    massive subsidies as State-controlled entities or could easily access
    private financing. The following table shows the top 10 foreign buyers,
    based on the total amount of financing authorized from FY2007 through
    FY2013.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The number one buyer was the Mexican State-owned petroleum company,
    Pemex, which has a market cap of $416 billion but has somehow needed
    more than $7 billion in U.S. taxpayer-backed financing to facilitate
    deals with American exporters in recent years. Pemex, in fact, received
    some 30 percent of the more than $23 billion of Ex-Im Bank financing
    that flowed to foreign buyers in the oil and gas sector between 2007
    and 2013. Overall, 21 percent of Ex-Im Bank financing went to this
    sector, a policy that seems at odds with the current Administration's
    less than favorable view of fossil fuels. In fact, the financing to
    foreign oil and gas firms exacerbates the regulatory burdens imposed by
    the Obama administration, which favors Ex-Im Bank reauthorization, on
    the domestic oil and gas industry. \2\
    ---------------------------------------------------------------------------
         \2\ Veronique de Rugy and Diane Katz, ``The Export-Import Bank's
    Top Foreign Buyers'', Mercatus Research, Mercatus Center at George
    Mason University, Arlington, VA, April 2015, http://mercatus.org/
    publication/export-import-bank-s-top-foreign-buyers.
    ---------------------------------------------------------------------------
        Other top buyers include foreign companies such as Emirates
    airline, which has benefited from $3.4 billion in U.S.-backed financing
    and proudly boasts on its Web site that it has ``recorded an annual
    profit in every year since its third in operation.'' \3\ Other foreign
    airlines also get cheap loans from the Ex-Im Bank, prompting charges of
    unfair competition. According to the lawsuit filed by Delta Airlines,
    along with the Airline Pilots Association, the unfair competition
    granted to Air India alone has resulted in the loss of some 7,500 U.S.
    airline jobs. \4\
    ---------------------------------------------------------------------------
         \3\ ``The Emirates Story'', Emirates, http://www.emirates.com/
    english/about/the_emirates_story.aspx.
         \4\ ``Examining Reauthorization of the Export-Import Bank:
    Corporate Necessity or Corporate Welfare?'' Hearing before the House
    Financial Services Committee (June 25, 2014) (testimony of Richard H.
    Anderson, Chief Executive Officer, Delta Air Lines), http://financial-
    services.house.gov/calendar/eventsingle.aspx?EventID=385048.
    ---------------------------------------------------------------------------
        These subsidies have prompted several American carriers and their
    employee unions to demand a rescission of the open-skies agreements \5\
    with several airlines charging that the subsidies constitute unfair
    competition, including interest-free loans, discounted airport charges,
    Government protection on fuel losses, and below-market labor costs. \6\
    ---------------------------------------------------------------------------
         \5\ The open-skies agreements promote ``increased travel and
    trade'' and enhanced productivity by ``eliminating Government
    interference in the commercial decisions of air carriers about routes,
    capacity, and pricing, freeing carriers to provide more affordable,
    convenient, and efficient air service for consumers.'' See U.S.
    Department of State, Open Skies Agreements, http://www.state.gov/e/eb/
    tra/ata/.
         \6\ ``Emirates, Qatar Airlines and Etihad Airways in Violation of
    U.S. Agreement?'' ETurbo News, March 7, 2015, http://
    www.eturbonews.com/56263/emirates-qatar-airlines-and-etihad-airways-
    violation-us-agreement.
    ---------------------------------------------------------------------------
        The subsidies are largely captured by large producers, domestic and
    foreign, and the subsidies result in a policy mix that is contradictory
    in the goals it seeks to achieve. But there is more to the story.
    C. The Unseen and the Unconnected Victims
        It is difficult, but extremely important, that we consider the
    unseen costs of political privilege. Ex-Im Bank supporters tout
    subsidized firms' successes, but they do not consider the unseen costs
    imposed on the other 98 percent of unsubsidized exports.
        In these cases, it is firms' own Government--not a foreign
    Government--that puts them at a competitive disadvantage. That is,
    foreign firms are receiving subsidized financing, which lowers their
    cost of business. But their American counterparts are paying market
    rates for financing, which means their cost of business is higher. The
    Ex-Im Bank also gives lenders an incentive to shift resources away from
    unsubsidized projects and towards subsidized ones--regardless of the
    merits of each project.
        These capital market distortions have ripple effects. Subsidized
    projects attract more private capital while other worthy projects are
    overlooked. The subsidized get richer while the unsubsidized get
    poorer--or go out of business.
        Unfortunately, we will never see the businesses that could have
    been. Perhaps they would have been better, more efficient, or more
    responsible than politically connected firms. But we will never know as
    long as the Ex-Im Bank exists and continues to distort the market
    through privilege.
        Visible and invisible, this is how the Ex-Im Bank has come to
    exemplify ``the extraordinarily destructive force'' of Government-
    granted privilege, in the words of my colleague Matt Mitchell.
    2. The Ex-Im Bank: Not What It Is Made Out To Be
        Some say that there are good reasons to continue the Ex-Im Bank's
    subsidies and Government privilege. They say that the Ex-Im Bank
    promotes U.S. exports and supports small businesses while leveling the
    playing field and filling an important ``financing gap.'' They also
    claim that jobs would instantly disappear absent the Ex-Im Bank. But
    none of these arguments withstand scrutiny.
    A. The Ex-Im Bank Can't Affect the Trade Balance Overall
        Economists tend to be extremely suspicious of export-subsidy
    schemes like those provided by the Ex-Im Bank and their ability to
    meaningfully boost exports. Sallie James, trade policy analyst at the
    Cato Institute, notes, ``Export promotion programs for certain goods--
    marketing programs for certain commodities, say--may have beneficial
    effects for that industry but cannot affect the trade balance
    overall.'' \7\ The Government Accountability Office (GAO) stated,
    ``Export promotion programs cannot produce a substantial change in the
    U.S. trade balance, because a country's trade balance is largely
    determined by the underlying competitiveness of U.S. industry and by
    the macroeconomic policies of the United States and its trading
    partners.'' \8\
    ---------------------------------------------------------------------------
         \7\ Sallie James, ``Time to X Out the Ex-Im Bank'', Trade Policy
    Analysis No. 47, Cato Institute, Washington, DC, July 6, 2011, http://
    www.cato.org/publications/trade-policy-analysis/time-x-out-exim-bank.
         \8\ Allan I. Mendelowitz, ``Export Promotion: Federal Programs
    Lack Organizational and Funding Cohesiveness'', GAO/NSIAD-92-49,
    Washington, DC: Government Accountability Office, January 1992, http://
    www.gao.gov/assets/220/215530.pdf.
    ---------------------------------------------------------------------------
        The data confirms this point: the Ex-Im Bank backs less than 2
    percent of U.S. exports each year. Considering who a vast majority of
    the buyers and sellers are, it is unreasonable to assume that these
    exports will disappear if the Ex-Im Bank vanishes.
        Also, while there is no doubt that the selected exporters
    benefiting from the subsidies enjoy them, the impact on the overall
    economy should not be overlooked. A review of the academic literature
    on the topic suggests that in most cases export subsidies reduce the
    total income of the country paying the subsidies. In other words, the
    GDP of the country issuing the subsidies is very likely to be
    negatively affected. In all cases, export subsidies reduce worldwide
    income by increasing the wealth of those, and only those, who are
    subsidized--at the expense of other exporters and taxpayers. \9\
    ---------------------------------------------------------------------------
         \9\ Salim Furth, ``The Export Import Bank: What the Scholarship
    Says'', Backgrounder No. 2934, Heritage Foundation, Washington, DC,
    August 7, 2014, http://www.heritage.org/research/reports/2014/08/the-
    export-import-bank-what-the-scholarship-says.
    ---------------------------------------------------------------------------
        Reforming the broader macroeconomic policies that are more likely
    to harm the U.S. trade position, such as the corporate income tax
    system, will help U.S. exports far more than anything the Ex-Im Bank
    could do. \10\
    ---------------------------------------------------------------------------
         \10\ Veronique de Rugy, ``The Right Way To Help Exporters: Kill
    Ex-Im, Reform the Corporate Income Tax'', The Corner, National Review
    Online, April 30, 2014, http://www.nationalreview.com/corner/376826/
    right-way-help-exporters-kill-ex-im-reform-corporate-income-tax-
    veronique-de-rugy.
    ---------------------------------------------------------------------------
    B. Jobs Will Not Vanish If the Ex-Im Bank Charter Expires
        The Ex-Im Bank takes credit for supporting 164,000 jobs in 2014,
    but this number should be viewed with skepticism. In addition,
    economists have shown \11\ that in most cases schemes like the Ex-Im
    Bank redistribute jobs from nonsubsidized industries to subsidized
    ones. \12\
    ---------------------------------------------------------------------------
         \11\ Ike Brannon and Elizabeth Lowell, ``Export-Import Bank:
    Obstacles and Options for Reform'', Research, American Action Forum,
    Washington, DC, May 16, 2011, http://americanactionforum.org/research/
    export-import-bank-obstacles-and-options-for-reform.
         \12\ These increased costs and decreased profits manifest
    themselves through different channels: First, nonprivileged exporters
    lose when their competitors get help, and so do nonexporters. Second,
    anyone who competes with the privileged foreign buyers loses market
    share. Third, consumers trying to buy the good whose demand is
    artificially high must pay a higher price. Finally, anyone trying to
    obtain capital loses since the Ex-Im Bank subsidy raises the cost of
    capital for nonsubsidized firms, and lenders are likely to prioritize
    demand for capital from borrowers with a Government guarantee,
    independently of the merits of their projects. When the higher interest
    rates paid by the nonsubsidized firms are factored in, the net impact
    of the Ex-Im Bank is probably a net loss in terms of jobs and growth.
    ---------------------------------------------------------------------------
        Many in Congress, however, are still worried that letting the Ex-Im
    Bank charter expire will have an immediate impact on existing jobs
    supported by the Ex-Im Bank. They shouldn't worry because even if the
    Ex-Im Bank is not reauthorized, it will have to honor the loans it
    already extended to companies. An orderly wind down means that the Ex-
    Im Bank won't be able to extend new loans.
        The biggest beneficiaries of the Ex-Im Bank know that their
    employees and their suppliers are perfectly safe in the event the
    charter is not reauthorized. That's because Boeing, Caterpillar,
    General Electric, and the like all have billions of dollars of
    backorders that will keep their workers busy for years to come.
        Diane Katz and I have released new research that shows the
    companies' backlogs as reported in their latest annual reports. \13\
    Boeing Co. posted a ``record'' backlog of $441 billion (in 2013);
    General Electric Co. recorded a backlog of $261 billion (in 2014);
    Caterpillar Inc.'s backlog is $16.5 million (in the first quarter of
    2015); and Bechtel Corp. posted a ``strong'' backlog of $70.5 billion
    (in 2014).
    ---------------------------------------------------------------------------
         \13\ Veronique de Rugy and Diane Katz, ``Export Jobs Won't
    Disappear Absent Ex-Im Bank'', Mercatus Center at George Mason
    University, May 21, 2015, http://mercatus.org/publication/export-jobs-
    won-t-disappear-absent-ex-im-bank.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        This means that absent subsidies from the Ex-Im Bank, these
    corporations have production backlogs that will take years to fulfill--
    some with Ex-Im Bank financing in place and others without. Shutting
    down the Ex-Im Bank will not result in job losses--except, perhaps,
    among the ranks of lobbyists who are trying to scare members of
    Congress into maintaining this fount of corporate welfare.
    C. The Ex-Im Bank Does Not Mostly Support Small Businesses
        In recent years, the Ex-Im Bank has tried to recast its role away
    from export subsidies towards other priorities. For instance, Ex-Im
    Bank defenders argue that 90 percent of its deals benefit small firms.
    Of course, this shouldn't be a reason for renewing the Ex-Im Bank's
    charter, since its main function (export subsidies) is harmful to the
    U.S. economy.
        In addition, the Ex-Im Bank's small business claim is dubious. By
    dollar value, in 2014, some 25 percent of the Ex-Im Bank's activities
    benefited small businesses (defined as a company with 1,500 employees
    or less than $21 million in annual revenues).
        Also, even using the Ex-Im Bank's definition, the vast majority of
    U.S. small businesses--over 99.9 percent--receive no benefits from the
    Ex-Im Bank and are placed at a competitive disadvantage against large,
    subsidized competitors.
        Finally, it is worth noting that the Ex-Im Bank has been caught
    mislabeling its data to make it look as if more lending has gone to
    benefit small businesses, \14\ and it has been touting small business
    successes of companies that were large \15\ or already successful
    before any involvement with the Ex-Im Bank. \16\
    ---------------------------------------------------------------------------
         \14\ Howard Schneider and Krista Hughes, ``U.S. Ex-Im Acknowledges
    Errors in Politically Sensitive Small Biz Data'', Reuters, November 14,
    2014, http://www.reuters.com/article/2014/11/14/us-usa-trade-exim-
    idUSKCN0IY11Y20141114.
         \15\ Diane Katz, ``Ex-Im Misrepresents Subsidies to Prominent
    Billionaire'', Daily Signal, May 1, 2015, http://dailysignal.com/2015/
    05/01/ex-im-misrepresents-subsidies-to-prominent-billionaire/.
         \16\ Diane Katz, ``The Real Story Behind the Small Business the
    Export-Import Bank Claims It Built'', Daily Signal, June 4, 2014,
    http://dailysignal.com/2014/06/04/real-story-behind-small-business-ex-
    im-claims-built/.
    ---------------------------------------------------------------------------
    D. The Ex-Im Bank Is Not Really Leveling the Playing Field for U.S.
            Exporters or Filling a Financing Gap
        A common argument about the Ex-Im Bank is that without the export
    subsidies, foreign companies would not purchase U.S. goods and would
    instead buy goods from companies whose countries offer such subsidies.
    For instance, without Ex-Im Bank, Emirates airline wouldn't buy any
    Boeing planes but would instead buy Airbus planes to benefit from
    European subsidies. Defenders of the Ex-Im Bank also claim that private
    lenders are unwilling to risk lending to foreign companies. In our
    example, it implies that lenders would only extend loans to Emirates to
    buy a plane if the U.S. Government or one of the three EU Governments
    offering export credits backs the deal.
        This fear is reflected in the Ex-Im Bank charter. It spells out
    three criteria for Ex-Im Bank financing: (1) ``to assume political or
    commercial risk that exporter and/or financial institutions are
    unwilling or unable to undertake''; (2) ``to overcome maturity or other
    limitations in private-sector export financing''; or (3) ``to meet
    competition from a foreign, officially sponsored export-credit
    agency.''
        However, the data demonstrate that there is a gap between what the
    Ex-Im Bank claims it should be doing and what it actually does. As a
    condition of its most recent reauthorization in 2012, Congress required
    the Ex-Im Bank to designate the purpose served for certain financing
    deals. While the bank still does not provide justifications for all
    transactions in its portfolio, its current charter compels it to
    provide at least some explanation by category for all loans and long-
    term loan guarantees in its annual report. \17\
    ---------------------------------------------------------------------------
         \17\ Export-Import Bank Reauthorization Act of 2012, Pub. L. No.
    112-122, 108 Stat. 4376.
    ---------------------------------------------------------------------------
        The data show that less than one-third of the estimated export
    value of the Ex-Im Bank's portfolio is intended to counteract
    competitive disadvantages created by foreign Governments' own export
    subsidies. Moreover, more than 98 percent of U.S. exports occur without
    Government financing through the Ex-Im Bank, demonstrating that the Ex-
    Im Bank is not critical for helping U.S. exports thrive globally.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        As for the claim that the Ex-Im Bank fills an important ``financing
    gap'' by supporting U.S. exports, it is not supported by data. The Ex-
    Im Bank designates only 16.4 percent of its financing as necessary to
    address a lack of private capital. \18\ That means that most of what
    the Ex-Im Bank does has nothing to do with ``filling a financing gap.''
    ---------------------------------------------------------------------------
         \18\ Veronique de Rugy and Rizqi Razmat, ``Export-Import Bank
    Portfolio Broken Down by Stated Goal'', Mercatus Center at George Mason
    University, http://mercatus.org/sites/default/files/C1-Prop-Export-
    Value-large.jpeg.
    ---------------------------------------------------------------------------
        What about the claim that foreign carriers will not purchase Boeing
    planes without subsidized financing from the United States and would
    instead buy Airbus planes with export credits from foreign Governments?
        The reality is that there is no shortage of private capital to
    finance aircraft purchases, and airlines would continue to purchase
    Boeing products in the absence of Ex-Im Bank subsidies. In my recent
    paper with Diane Katz, we look at the example of Emirates airline. The
    UAE State-owned company is the second biggest recipient of Ex-Im Bank
    financing. We write: \19\
    ---------------------------------------------------------------------------
         \19\ De Rugy and Katz, ``The Export-Import Bank's Top Foreign
    Buyers''.

            In June 2012, Emirates bought two Boeing 777s using Ex-Im Bank
            financing, and four Airbus A380s using private financing. \20\
            Obviously, the State-controlled airline could afford to buy
            planes without subsidies, and subsidies are not the only factor
            in the carrier's choice of aircraft.
    ---------------------------------------------------------------------------
         \20\ ``Examining Reauthorization of the Export-Import Bank:
    Corporate Necessity or Corporate Welfare?'' Hearing before the House
    Financial Services Committee (June 25, 2014) (testimony of Richard H.
    Anderson, Chief Executive Officer, Delta Air Lines) http://
    financialservices.house.gov/calendar/eventsingle.aspx?EventID=385048.

        This is consistent with the results of a study by the GAO that
    found 85 percent of Boeing and Airbus large-aircraft deliveries were
    not subsidized by export-credit agencies. \21\
    ---------------------------------------------------------------------------
         \21\ Government Accountability Office, ``Export-Import Bank:
    Information on Export Credit Agency Financing Support for Wide-Body
    Jets'', July 8, 2014, http://www.gao.gov/assets/670/664679.pdf.
    ---------------------------------------------------------------------------
    3. The Ex-Im Bank Is Suffering From Massive Transparency Issues
        Scholars have been critiquing the poor quality of the Ex-Im Bank
    data for years. A 2014 report by the American Action Forum notes:
    ``There continues to be areas needing additional transparency. For
    instance, publicly available data on program authorizations can often
    be incomplete and inadequate.'' \22\
    ---------------------------------------------------------------------------
         \22\ Andy Winkler, Douglas Holtz-Eakin, ``Reauthorizing the
    Export-Import Bank: A Policy Evaluation'', Research, American Action
    Forum, Washington, DC, May 20, 2014, http://americanactionforum.org/
    research/reauthorizing-the-export-import-bank-a-policy-evaluation.
    ---------------------------------------------------------------------------
        My own research has documented in detail that the dataset stored at
    Data.gov, a Federal Web site launched in 2009, was spotty and
    incomplete--the GAO and the Ex-Im Bank's own inspector general have
    repeatedly found that the agency's recordkeeping is subpar and needs
    improvement. The dataset available at Data.gov is missing a great deal
    of information, and it is common to find beneficiaries marked as
    ``unknown'' or ``various U.S. companies''. It is also common to find
    the names of companies misspelled or identified differently on
    different forms, which makes working with the numbers even harder.
        Let me illustrate how that should present a major problem for
    Congress. The Ex-Im Bank isn't allowed to lend money to customers in
    certain countries, such as North Korea, Libya, and Iran. Russia was
    added to the list last year. But in order to know whether the Ex-Im
    Bank is actually complying with these restrictions and limitations, we
    need to be able to check its data. Unfortunately, as I have mentioned
    before, the Ex-Im Bank's data, when available, are a mess. So much of
    the data are labeled ``unknown'' and ``various countries'' that it is
    hard for Congress to utilize the Ex-Im Bank's data for proper
    oversight.
        The following chart displays the top foreign buyers of exports
    financed by the Ex-Im Bank from 2007 to 2013. (We had to use the old
    dataset that used to be on Data.gov but was one day mysteriously
    removed and later replaced with an abridged dataset that did not list
    critical fields such as ``Primary Buyer.'') This chart shows the total
    dollar amount of deals financed by the Ex-Im Bank in which the Primary
    Buyer is marked as ``unknown'' or ``various'' in data made available to
    the public--33 percent of buyers by dollar value are not named.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        How do we know that some Ex-Im Bank loans didn't go to companies in
    restricted countries if we don't know which companies are getting
    loans? In some cases, the dataset shows the name of a country
    associated with the unknown deal. But how can we be sure that it is
    actually accurate without the name of the company?
        I would like to trust the Ex-Im Bank, but it is hard to in light of
    how it has intentionally mislabeled its data to make it look as if more
    lending was going to benefit small businesses than actually was; how it
    has employees being investigated for taking bribes in exchange for
    loans; and how it indulged in collusion with top corporate executives
    at Boeing by asking for input on bank policies that could benefit their
    firm. \23\ Even without the Ex-Im Bank's past missteps, it's hard to
    see why we should trust it when it does not even release accurate data.
    ---------------------------------------------------------------------------
         \23\ Brody Mullins, ``Boeing Helped Craft Own Loan Rule'', Wall
    Street Journal, March 12, 2015, http://www.wsj.com/articles/boeing-
    helped-craft-own-loan-rule-1426203934.
    ---------------------------------------------------------------------------
    Conclusion
        Beyond its operational lapses and its economic inefficiency, the
    problem with the Ex-Im Bank is that the many groups who its activities
    affect are people who don't have connections, lobbyists, and press
    offices in Washington. These unseen victims matter, too.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                 PREPARED STATEMENT OF LINDA MENGHETTI DEMPSEY
    Vice President, International Economic Affairs, National Association of
                                 Manufacturers
                                  June 2, 2015
        Chairmen Shelby, Ranking Member Brown, and Members of the
    Committee, thank you for the opportunity to testify today. I appreciate
    the chance to highlight on behalf of the National Association of
    Manufacturers (NAM) the importance of reauthorizing the U.S. Export-
    Import Bank to help manufacturers compete in the global marketplace
    that will enable them to support and sustain good-paying manufacturing
    jobs throughout every State.
        The NAM is the Nation's largest industrial association and voice
    for more than 12 million women and men who make things in America.
    Manufacturing in the U.S. supports more than 17 million jobs, and in
    2014, U.S. manufacturing output reached a record of nearly $2.1
    trillion. It is the engine that drives the U.S. economy by creating
    jobs, opportunity and prosperity. The NAM is committed to achieving a
    policy agenda that helps manufacturers grow and create jobs.
    Manufacturing has the biggest multiplier effect of any industry and
    manufacturers in the United States perform more than three-quarters of
    all private-sector R&D in the Nation--driving more innovation than any
    other sector.
    Importance of Exports to U.S. Manufacturing and Jobs
        Since its origin, the United States has recognized the importance
    of exports to promoting industrial and economic growth and supporting
    jobs. The ability of U.S. companies to export has also been a critical
    issue for the NAM since its founding. With 95 percent of consumers
    outside the United States and global demand for manufactured goods that
    far exceeds domestic demand, manufacturers in the United States need to
    win more sales overseas if they are going to sustain and grow
    operations and employment.
        World trade in manufactured goods reached $11.8 trillion in 2013
    \1\ and greatly exceeds U.S. consumption of manufactured goods
    (domestic shipments and imports), which totaled $4.1 trillion in 2014.
    U.S. manufactured goods exports have more than doubled in the past
    decade, reaching a record $1.6 trillion in 2014. While that growth is
    impressive, U.S. manufacturers and exporters are facing an increasingly
    challenging global economy where growth has slowed. America lags behind
    many of its largest trading partners when it comes to exporting. U.S.
    exports comprised only 9.5 percent of global trade in manufactured
    goods in 2013. We can and must do more to expand U.S. exports if we are
    going to grow manufacturing and the jobs it supports in the United
    States.
    ---------------------------------------------------------------------------
         \1\ Data from the World Trade Organization Statistical Database,
    accessed on Jan. 29, 2015. Most recent data available.
    ---------------------------------------------------------------------------
        The importance of exports to the bottom line for manufacturers
    across the United States is not a theoretical issue. More than 40
    percent of respondents in a recent National Association of
    Manufacturers (NAM) survey cited exports as a primary driver of growth
    for their company. \2\ Those survey respondents who were more positive
    about their export potential over the next 12 months were also more
    optimistic in their company's economic outlook, sales and capital
    spending plans.
    ---------------------------------------------------------------------------
         \2\ Moutray, Chad, ``NAM/lndustryWeek Survey: Manufacturers
    Bullish, But Frustrated With Washington'', lndustryWeek, June 9, 2014.
    See http://www.industryweek.com/global-economy/namindustryweek-survey-
    manufacturers-bullish-frustrated-washington?page=1.
    ---------------------------------------------------------------------------
        Nor are exports a theoretical issue for the workers employed in
    every State by our Nation's manufacturers. As new export opportunities
    emerge overseas, manufacturers in the United States are able to both
    sustain and create American jobs. According to the latest figures from
    the U.S. Department of Commerce, every $1 billion in exports creates or
    supports 5,796 jobs.
        Recently, exports have played a significant role in the ongoing
    manufacturing recovery. Since the end of 2009, export-intensive sectors
    with substantial export growth have seen the largest job gains. U.S.
    manufactured goods exports support higher-paying jobs throughout the
    United States. Moreover, jobs supported by exports pay, on average, 18
    percent more than other jobs. \3\ Employees in the ``most trade-
    intensive industries'' earn an average compensation of nearly $94,000,
    or more than 56 percent more than those in manufacturing companies that
    were less engaged in trade. \4\
    ---------------------------------------------------------------------------
         \3\ David Riker, ``Do Jobs in Export Industries Still Pay More?
    And Why?'' International Trade Administration, U.S. Department of
    Commerce, July 2010, accessed at www.trade.gov/mas/ian/build/groups/
    public/@tg_ian/documents/webcontent/tg_ian_003208.pdf.
         \4\ Calculations From the Manufacturers Alliance for Productivity
    and Innovation (MAPI) Foundation, using 2013 input output data from the
    Bureau of Economic Analysis, accessed at
    www.themanufacturinginstitute.org/Research/Facts/About-Manufacturing/
    Foreign-Trade-and-lnvestment/Impact-on-Compensation/Impact-on-
    Compensation.aspx.
    ---------------------------------------------------------------------------
    Importance of Ex-Im Bank to Growing U.S. Exports
        One vital tool that thousands of manufacturers use to compete
    successfully in global markets is the Ex-Im Bank. The NAM strongly
    supports Ex-Im Bank's mission to support U.S. jobs through exports and
    views the Bank as one of the most important tools the U.S. Government
    has to help grow U.S. exports and jobs.
        The Export-Import Bank is essential to boosting exports of U.S.
    products. In FY2014, Ex-Im Bank enabled more than $27 billion in
    exports--leveraging about $20.5 billion in authorizations. Nearly 90
    percent of those transactions directly supported small businesses, with
    an estimated $5 billion in support for small business exporters.
    Furthermore, the Bank has maintained its incredibly low default rate of
    through the recession and through several years of record growth. At
    the end of FY2014, the Bank's default rate was less 0.2 percent.
    Notably, Ex-Im's activities are already targeted and, by law, must not
    compete with private sector lending activity.
        Ex-Im Bank helped promote just under two percent of total U.S.
    exports in FY2014. While it does not need to finance the great majority
    of U.S. exports, it is considered vital in certain areas of significant
    growth, particularly for small- and medium-sized business exporters,
    long-term financing for large projects, sales to emerging markets, and
    sales to foreign State-owned entities.

        Small- and Medium-Sized Business Exports. Ex-Im is vital to
            many and medium-sized businesses to enable them to start to
            export overseas. Small businesses, both those that are direct
            exporters and those that supply domestically to larger U.S.
            exporters, will feel the blow if Congress fails to reauthorize
            Ex-Im Bank. Those companies that utilize Ex-Im Bank insurance
            programs to enable their working capital will be faced almost
            immediately with a dilemma about how to pay their workers and
            make the mortgage payments on their facilities, let alone
            consider growing and hiring. Suppliers whose U.S. customers
            lose out on large infrastructure, aerospace and energy projects
            overseas because they cannot bid without access to Ex-Im Bank
            will also see their orders shrink. Of the Bank's 3,300 small
            business transactions in FY2014, 545 companies were first-time
            Ex-Im users. Ex-Im's role in jump-starting new small- and
            medium-sized exporters is particularly important.

        Many small- and medium-sized manufacturers across the
            country have turned to Ex-Im Bank to take advantage of new
            international trade opportunities and grow their workforce.
            Special Products & Mfg., Inc. (SPM) in Rockwall, Texas, is a
            second generation, family owned business that has grown--with
            the help of exports--from a small garage shop in the 1960s into
            a firm with more than 200 machine operators, welders,
            assemblers, engineers and other associates in a 140,000 square
            foot state-of-the-art factory. Over the past several years, SPM
            has seized opportunities to expand their business into the
            world marketplace. From Europe to South America, SPM is
            exporting products ranging from new and improved gas station
            pumps to large steel enclosures for drill rig drives. SPM also
            supplies many companies like General Electric and Caterpillar,
            and SPM's Chief Operator Officer Ed Grand-Lienard made the trip
            to Washington earlier this year to let Congress know that the
            future of American manufacturing is in jeopardy of being
            seriously hurt if the Ex-Im Bank is not reauthorized. This
            company is just one of the many small businesses that have
            reaped the benefits of expanded market access and tools like
            Ex-Im Bank, and the NAM would be happy to provide others to the
            Committee.

        Long-Term Project Finance. Ex-Im Bank, like foreign export
            credit agencies (ECAs), has taken on an increasingly important
            facilitation role for export financing as the role of
            commercial banks in financing long-term projects continues to
            shrink in the wake of the financial crisis. U.S. regulatory
            guidelines that favor domestic receivables over foreign sales,
            \5\ implementation of Basel III rules \6\ and the European
            sovereign debt crisis \7\ have all impacted the ability and
            appetite of banks to participate in long-term export financing
            projects at competitive rates. While some banks have been able
            to restore effectively their balance sheets, commercial bank
            participation in long-term, high-volume funding (tenors longer
            than 10 years and over a few hundred million dollars) remains
            highly selective. Many experts--including top executives from
            U.K. Export Finance (UKEF), Korea Trade Insurance Corporation
            (K-Sure) and Deutsche Bank--suggest that Basel III will
            continue to constrain commercial banks from playing a
            significant role as long-term funders of large-scale projects
            and other sales. \8\ As a result, ECAs are increasingly a
            driving force for large-scale, long-term projects--particularly
            projects in the infrastructure, energy and aerospace sectors.
            \9\ Infrastructure Journal data show that ECA lending activity
            in commercial project finance transactions increased threefold
            from less than $10 billion in 2009 to more than $30 billion
            projected for 2013, and ECAs are providing the only project
            finance available in some markets. In particular, Japan Bank
            for International Cooperation (JBIC) is a global leader for
            energy and infrastructure project finance \10\ and Korea
            EximBank is rising in prominence, particularly in its priority
            energy sector. \11\
    ---------------------------------------------------------------------------
         \5\ Office of the Comptroller of the Currency, Treasury
    Department, Comptroller's Handbook, at 17-18, accessed at http://
    www.occ.gov/publications/publications-by-type/comptrollers-handbook/
    pub-ch-asset-based-lending.pdf.
         \6\ Basel Committee on Banking Supervision, ``Basel III: A Global
    Regulatory Framework for More Resilient Banks and Banking Systems''.
    December 2010, accessed at http://www.bis.org/publ/bcbs189.pdf.
         \7\ Berne Union Yearbook 2012 at 55, accessed at http://
    www.berneunion.org/wp-contenl/uploads/2013/10/BerneUnion-Yearbook-
    2012.pdf--Quoting Steve Tvardek, Head of the OECD Export Credits
    Division, OECD.
         \8\ Berne Union Yearbook 2014 at 66, accessed at http://
    www.berneunion.org/wp-content/uploads/2012/10/BerneUnion-80-Yearbook-
    2014.pdf.
         \9\ See, e.g., ``Power Shift: The Rise of Export Credit and
    Development Finance in Major Projects''. November 2013; Baker and
    McKenzie with Infrastructure Journal, accessed at http://
    www.bakermckenzie.com/files/Publication/7dc07b54-651f-4168-9c81-
    0abdfdc432ca/Presentation/PublicationAttachment/6943f6ae-5718-42f8-
    a587-9a06c65902d7/fc_global_powershift_nov13.pdf.
         \10\ ``Power Shift: The Rise of Export Credit and Development
    Finance in Major Projects'' [2013].
         \11\ ``Filling the Funding Gap--Korea Eximbank'', Project Finance
    International (March 2013), accessed at http://www.pfie.com/filling-
    the-funding-gap-%E2%80%93-korea-eximbank/21071929.article.

        Emerging Markets. Many U.S.-based lenders also turn to Ex-
            Im to mitigate geopolitical and collateral risk in an effort to
            provide viable trade financing solutions for exporters. Without
            Ex-Im, many private lenders have limited options: opt not to
            finance otherwise viable export activity in emerging markets,
            charge rates that are uncompetitive globally or place limits on
            the overall amount of financing to particular emerging markets.
            Ex-Im Bank, for example, offers medium- and long-term
            guarantees that provide flexible lender financing options for
            buyers of U.S. capital goods and services. Ex-Im also supports
            commercial banks through letter of credit (LC) confirmations
            that reduce a bank's risks, offering private sector lenders
    ---------------------------------------------------------------------------
            greater flexibility in working with their client base.

        Government and State-Owned Enterprise (SOE) Transactions.
            U.S. exporters from a broad number of sectors increasingly are
            selling to foreign Governments and State-owned entities. Be it
            medical equipment sales to foreign State-owned hospitals, power
            generation equipment to foreign State-owned utilities or
            communications satellites to foreign Governments for national
            mobile satellite systems, such sales support greater exports
            and jobs in the United States, but are difficult to win. In
            some cases, the foreign purchaser favors suppliers with a
            Government entity on the other side of the table. In other
            cases, like a nuclear power plant project overseas, an ECA
            lending option is a requirement to participate in the initial
            bidding phase--even if the customer ultimately opts for another
            financing option. While the Governments of most of the United
            States' major trading partners are willing to oblige, Ex-Im is
            the only Government entity able to play such a role for U.S.
            exporters. Without Ex-Im's presence, U.S. exporters simply
            would not be eligible to compete for many of these substantial
            foreign sales.

        In short, while Ex-Im's role is relatively small compared to the
    overall size of U.S. exports, it plays an outsized and highly important
    role in opening the door to U.S. exports for certain types of
    transactions where U.S. exporters continue to see substantial growth
    opportunities.
    The Global Export Credit Dimension
        One of the significant roles that the Ex-Im Bank plays is aiding
    U.S. exporters and their workers to compete in a global economy that is
    characterized by dramatically increasing export credit assistance
    provided by Governments in Europe, Asia, and Latin America. As detailed
    in a study released by the NAM in 2014, The Global Export Credit
    Dimension: The Size of Foreign Export Credit Agencies Compared to the
    United States (2014), \12\ there are more than 60 ECAs worldwide and
    the ECAs of our top nine trading partners--Brazil, Canada, China,
    France, Germany, Japan, Mexico, South Korea, and the United Kingdom--
    provided nearly half a trillion dollars in annual export support. Other
    key findings of that report include:
    ---------------------------------------------------------------------------
         \12\ NAM, ``The Global Export Credit Dimension: The Size of
    Foreign Export Credit Agencies Compared to the United States'' (2014),
    accessed at http://www.nam.org/uploadedFiles/NAM/Site_Content/Issues/
    Global%20Export%20Credit%20Dimension%20Web.pdf; see also NAM,
    ``Forfeiting Opportunity: Ex-Im Bank Reauthorization Is Essential for
    Manufacturers To Compete Globally in the Face of Massive Foreign Export
    Credit Financing'' (2014), accessed at http://www.nam.org/
    uploadedFiles/NAM/Site_Content/Issues/
    Forfeiting%20Opportunity%20Web.pdf.

        The ECAs of China, Japan, South Korea, and Germany are
            already individually larger than the Ex-Im Bank, and all of the
            nine major foreign ECAs are larger as a share of their
    ---------------------------------------------------------------------------
            countries' GDP than the Ex-Im Bank is compared to U.S. GDP;

        China's primary ECA provides more than five times the
            assistance than the U.S. Ex-Im Bank does;

        Major foreign ECAs, including those in Germany, China, and
            Canada, are expanding exports more successfully than the Ex-Im
            Bank. The Ex-Im Bank supported 2.42 percent of total U.S.
            exports in 2013, while Germany (3.63 percent), China (12.50
            percent), and Canada (20.29 percent) helped to support even
            more international sales;

        Foreign ECA activity grew sharply in several major
            countries, including China, South Korea, and Canada, between
            2005 and 2013; and

        Official ECA activity is particularly critical to key and
            growing manufacturing sectors of the global economy, including
            infrastructure and transportation where manufacturers in the
            United States are well positioned to grow in related exports if
            competitive financing is available.

        While the United States is a relatively small player in ECA
    activity, it has worked intensively to negotiate strong rules to
    eliminate market distortions and subsidies that oftentimes characterize
    foreign ECAs. In particular, the United States has led efforts to bring
    developed country members of the Organization for Economic Cooperation
    and Development (OECD) \13\ and non-OECD countries to the negotiating
    table. Largely as a result of U.S. leadership over several decades,
    most of the OECD's industrialized countries have agreed to uniform
    standards for fair and commercially based ECA lending. \14\ Sector-
    specific arrangements have also been negotiated to provide even
    stricter discipline on ECA financing related to ships, nuclear power,
    aircraft, renewable energy, climate change mitigation, and water
    projects. \15\
    ---------------------------------------------------------------------------
         \13\ Members include Australia, Austria, Belgium, Canada, Chile,
    Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
    Hungary, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Mexico,
    Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic,
    Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, United
    Kingdom, and United States. OECD, ``Members and Partners'', accessed at
    http://www.oecd.org/about/membersandpartners.
         \14\ Most prominently, OECD members developed the ``Arrangement on
    Officially Supported Export Credits'' (ECA Arrangement) that sets out
    financial disciplines for standard export credits and for export
    credits for certain sectors that reduce and eliminate potential market
    distortions. In particular, the EGA Arrangement--which has been agreed
    to by Australia, Canada, the European Union, Japan, New Zealand,
    Norway, South Korea, Switzerland, and the United States, emphasizes
    that OECD ECAs should be competing ``on quality and price of goods and
    services exported rather than on the most favorable officially
    supported terms''. OECD, ``Official Export Credit Agencies'', accessed
    at http://www.oecd.org/tad/xcred/eca.htm; see also, OECD, ``Official
    Export Credit Agencies'', accessed at http://www.oecd.orq/tad/xcred/
    eca.htm.
         \15\ OECD, ``Official Export Credit Agencies'', accessed at http:/
    /www.oecd.org/tad/xcred/eca.htm.
    ---------------------------------------------------------------------------
        Work with non-OECD countries has been more difficult and that is
    where the greatest concern about subsidized ECA financing lies. The
    United States has worked intensively to undertake negotiations with key
    developing countries to agree to operate their ECAs based only on
    commercial considerations. As a result of U.S. efforts, 18 major
    providers of export credits \16\ have been invited to participate in
    the International Working Group on Export Credits (IWG), which held its
    first meeting in November 2012 and has met several times. Work is slow
    as many non-OECD participants have been ``cautious'' and not clearly
    committed to the process. \17\
    ---------------------------------------------------------------------------
         \16\ The 18 participants are 9 participants in the OECD
    arrangement (Australia, Canada, the European Union, Japan, New Zealand,
    South Korea, Switzerland, and the United States) and 9 non-OE CD
    members (Brazil, China, India, Indonesia, Israel, Malaysia, Russian
    Federation, South Africa, and Turkey).
         \17\ ``Report on Export Credit Negotiations'', U.S. Department of
    the Treasury, December 2013. The IWG held two full meetings (hosted by
    China in May 2013 and the European Union in September 2013) and one
    technical meeting (hosted by Germany in March 2013); European
    Commission, Report from the Commission to the European Parliament and
    the Council--Annual Report on negotiations undertaken by the Commission
    in the field of export credits, in the sense of Regulation (EU) No.
    1233/2011 (May 28, 2014), accessed at http://eur-lex.europa.eu/legal-
    content/EN/TXT/?uri=COM:2014:299:FIN.
    ---------------------------------------------------------------------------
        The U.S. Ex-Im Bank's role, while small in the global economy, is
    critical to many thousands of exporters. Failing to reauthorize Ex-Im
    is tantamount to unilateral disarmament and will also negate U.S.
    leadership in seeking to eliminate foreign ECA market distortions and
    subsidies.
    Time Is of the Essence
        Last fall, Congress extended Ex-Im Bank's authorization through
    June 30, 2015. Manufacturers need Congress to act quickly on
    legislation to provide a long-term reauthorization of Ex-Im Bank.
    Reliable access to export financing is a vital part of being globally
    competitive, and the Ex-Im Bank has taken on even greater significance
    in today's turbulent financial environment. Manufacturers in the United
    States--and their customers overseas--operate based on long-term plans
    that often involve multiyear projects in which the Ex-Im Bank is a
    critical partner. Without the certainty of a long-term Ex-Im
    reauthorization, U.S. exporters have already been put at a significant
    disadvantage, which will hamper growth here at home and result in lost
    opportunities for American workers and businesses.
        If Congress fails to enact quickly a long-term reauthorization of
    Ex-Im Bank, manufacturers will be forfeiting opportunities to
    competitors overseas and, thereby, risk the loss of not just of
    exports, but of manufacturing growth and good-paying jobs in every
    State.

        If the Ex-Im Bank is not reauthorized, tens of billions of
            dollars in U.S. exports will be put at risk annually.
            Manufacturers overseas will increasingly win foreign sales that
            could have been won by manufacturers in the United States. The
            loss of U.S.-manufactured exports will be at the expense of
            thousands of manufacturers in the United States and hundreds of
            thousands of American workers who rely on Ex-Im services to
            boost their export sales.

        Weakening America's export competitiveness will be
            particularly damaging in the face of intense and growing global
            competition that has already resulted in a substantial decline
            in America's share of the global manufacturing market.

        Even greater manufacturing export opportunities will be
            lost on an annual basis as trade expands and U.S. exporters
            effectively cede foreign sales. The loss of new export
            opportunities will be particularly severe for small- and
            medium-sized businesses and for exports to emerging markets and
            infrastructure sectors where growth is expected to be
            strongest.

        Time is of the essence. The uncertain future of the Ex-Im Bank is
    already putting U.S. export sales as risk.
    Conclusion
        There is broad support for Ex-Im Bank's reauthorization from job-
    creators across the country. Over the past year, more than 83,000
    letters from manufacturers, exporters, and constituents have been sent
    to you and your colleagues. In February, more than 700 people from 41
    States--representing a broad spectrum of manufacturing sectors and
    along the breadth of the supply chain--came to Washington, DC, to ask
    their Members of Congress to support a long-term reauthorization of Ex-
    Im Bank. This week, the NAM is hosting its annual Manufacturing Summit
    in Washington and hundreds of NAM members are here to advocate for
    policies--including the long-term reauthorization of Ex-Im Bank--that
    benefit manufacturers in the United States.
        The Ex-Im Bank is a targeted tool and a last resort that enables
    U.S. businesses to find a foothold in an increasingly competitive
    marketplace. Failure to reauthorize the Ex-Im Bank is already creating
    uncertainty that is putting U.S. exports at risk. The failure to
    reauthorize the Ex-Im Bank will have even greater, more lasting and
    more damaging effects on manufacturers of every size throughout out the
    United States, threatening tens of billions of dollars in export sales
    as well as the security of hundreds of thousands of American jobs that
    depend directly or indirectly on the Ex-Im Bank's export financing. I
    urge you to move forward quickly on a long-term reauthorization for Ex-
    Im Bank to enable it to effectively fulfill its principal mission of
    supporting U.S. jobs through exports.
        Thank you, Chairmen Shelby and Ranking Member Brown for holding
    this hearing and for providing me the opportunity to testify on the
    importance of a long-term reauthorization of the Export-Import Bank to
    our Nation's manufacturers.
                                     ______

                    PREPARED STATEMENT OF MICHAEL R. STRAIN
        Deputy Director of Economic Policy Studies, American Enterprise
                      Institute for Public Policy Research
                                  June 2, 2015
        Chairman Shelby, Ranking Member Brown, and Members of the
    Committee, thank you for the opportunity to appear before you today to
    discuss the Export-Import Bank of the United States. It is an honor.
    ---------------------------------------------------------------------------
        The views expressed in this statement are those of the author. The
    American Enterprise Institute for Public Policy Research does not hold
    institutional positions on any issues.
    ---------------------------------------------------------------------------
        I do not believe that the Export-Import Bank should be
    reauthorized. I will spend the next few minutes outlining why, with a
    special focus on the Ex-Im Bank's impact on jobs.
    Jobs in a General Economy
        In a healthy economy--one characterized by full employment--the Ex-
    Im Bank, an open-ended export credit agency that is properly described
    as offering export subsidies to selected firms, does not create jobs.
    This stands in stark contrast to the rhetoric of some of the Ex-Im
    Bank's supporters. But it is the correct conclusion, at least to a
    first approximation, for informing the Committee as it debates the
    appropriate course of action for the Ex-Im Bank. \1\
    ---------------------------------------------------------------------------
         \1\ Economist David P. Baron puts it succinctly in his book The
    Export-Import Bank: An Economic Analysis (Academic Press, 1983):
    Employment objectives ``do not provide a sufficient justification for
    Eximbank [Ex-Im Bank] programs''.
    ---------------------------------------------------------------------------
        Imagine an economy like ours, with some firms that export goods
    abroad and many more firms that sell only within the United States. All
    labor resources are utilized. The Government enters and subsidies the
    exporting firms. This will surely help those firms, and may even
    increase the number of jobs those firms can support. But as labor
    resources were already fully employed, these new jobs must come from
    somewhere. What the export subsidy is doing, in effect, is shifting
    jobs from firms that do not export to those that do. \2\ This does not
    increase employment on the whole.
    ---------------------------------------------------------------------------
         \2\ Congressional Budget Office, ``The Benefits and Costs of the
    Export-Import Bank Loan Subsidy Program'', March 1981.
    ---------------------------------------------------------------------------
    Jobs in an Economy Without Full Employment
        Now, it must be said that there is considerable debate among
    economists as to whether the U.S. economy is currently characterized by
    full employment. Many economists believe we are quite close to full
    employment, but I am not among them. Despite a rate of unemployment
    that is rapidly approaching one at which the Federal Reserve may be
    properly concerned about inflation, it is still the case that
    employment rates among prime-age workers have not fully recovered from
    the Great Recession, the level of involuntary part-time work remains
    elevated, and wage growth is unsatisfactory.
        In such an environment, it can be argued that export credit may
    help support jobs. To this argument l have three replies. The first is
    that the Congress should not reauthorize a permanent export credit
    agency in order to achieve the temporary goal of tightening a slack
    labor market. Monetary and fiscal policy are much better tools to
    tighten the labor market. The second is that even if the Congress
    chooses to offer financing to selected sectors to support employment,
    exports would not be high on the list of firms or industries to target.
    Finally, failing to reauthorize the Ex-Im Bank would not immediately
    terminate its existing financing arrangements, and the lives of those
    arrangements will likely run longer than our current labor market
    conditions.
    The Economy as a Whole: General Equilibrium Concerns
        I will now turn from the employment impacts of the Ex-Im Bank to
    considerations of the broader economy. Textbook models of international
    trade for a large economy such as the United States predict that export
    subsidies will lower national welfare--will make the United States
    worse off-relative to a situation without the subsidies. In contrast,
    some (though far from all) more complicated models set in an
    oligopolistic market environment featuring particular forms of
    strategic competition do find situations in which export subsidies can
    make the Nation better off. \3\
    ---------------------------------------------------------------------------
         \3\ See, for example: James A. Brander and Barbara J. Spencer,
    ``Export Subsidies and International Market Share Rivalry'', Journal of
    International Economics, vol. 18, 1985. Avinash Dixit, ``International
    Trade Policy for Oligopolistic Industries'', Economic Journal, vol. 94,
    supplement: conference papers, 1984. Jonathan Eaton and Gene M.
    Grossman, ``Optimal Trade and Industrial Policy Under Oligopoly,''
    Quarterly Journal of Economics, vol. 101, no. 2, May 1986. For an
    excellent overview of this literature, see Robert C. Feenstra,
    ``Advanced International Trade: Theory and Evidence'', Princeton
    University Press, 2004.
    ---------------------------------------------------------------------------
        A unifying feature of these models, however, is that the
    Government's policy towards exports requires an incredible amount of
    knowledge that the Government almost surely does not possess in
    reality.
        To illustrate this, consider some general equilibrium effects of a
    simple subsidy. \4\ Much discussion of the Ex-Im Bank focuses on
    partial equilibrium effects--on the effects of the Ex-Im Bank on a
    single market, or on a single set of firms. But economic policy,
    including the decisions of the Ex-Im Bank, can affect many firms and
    many markets, and so general equilibrium considerations must be taken
    into account by the Congress when deciding whether to allow the Ex-Im
    Bank to continue providing export credit.
    ---------------------------------------------------------------------------
         \4\ Of course, the Government also requires other knowledge in
    addition to that of general equilibrium effects to ensure that export
    subsidies are welfare improving. The type of competition in the
    industry, the appropriate design of the subsidy, and the reaction of
    other Nations, to name a few, can be very difficult things for the
    Government to know.
    ---------------------------------------------------------------------------
        An export subsidy will give subsidized firms an advantage over
    their foreign competitors, increasing the demand for those firms'
    output. But this, in turn, will increase the demand for inputs to
    production among the subsidized firms, increasing the price of those
    resources faced by other sectors, and putting firms in those sectors--
    sectors that do not receive export credit--at a disadvantage relative
    to a situation without the export subsidy.
        Even if the subsidy helps firms that receive it, then, the subsidy
    may hurt the overall economy. It is hard to imagine how the Government
    could understand all the interlocking parts of the economy well enough
    to know whether the subsidy is a net positive for the United States.
    The existence of capital market deficiencies and imperfections and the
    export-credit behavior of foreign Nations do not nullify general-
    equilibrium concerns about information and uncertainty.
    Political Economy Concerns
        Political economy presents other concerns as well. The default
    assumption should be that well-connected, influential corporations will
    be in a better position to exercise influence over whether they receive
    Ex-Im Bank financing than other, less-connected corporations. The
    default assumption should not be that political connections will not
    play a role in which firms receive export credit. \5\ This creates
    important issues that the Congress cannot ignore.
    ---------------------------------------------------------------------------
         \5\ For example, Kishore Gawande and Usree Bandyopadhyay, ``Is
    Protection for Sale? Evidence on the Grossman-Helpman Theory of
    Endogenous Protection'', Review of Economics and Statistics, vol. 82,
    no. 1, February 2000.
    ---------------------------------------------------------------------------
    Conclusion: ``Corporate Welfare'' and Trade Policy
        To conclude, let me offer three final thoughts. First, it is
    reasonable to describe the Ex-Im Bank as dispensing so-called
    ``corporate welfare''. But the Ex-Im Bank is hardly the chief offender.
    After the Ex-Im Bank's fate is resolved, the Congress should oppose
    ``crony capitalism'' in other sectors of the economy (where its
    magnitude is often larger) as vigorously.
        Second, in the realm of trade policy, future negotiations and
    arrangements should stress the need for foreign Nations to limit export
    credit.
        Finally, supporters of the Ex-Im Bank have a reasonable argument
    that there may be times when limited, temporary, strategic trade policy
    may be appropriate. But such policy should address specific,
    identifiable actions of foreign Governments or other strategic goals in
    a targeted way. It should not be left to an open-ended export credit
    agency such as the Ex-Im Bank.
        But regardless of progress on these three fronts, the Ex-Im Bank
    should not be reauthorized.
                                     ______

                      PREPARED STATEMENT OF JOHN G. MURPHY
        Senior Vice President for International Policy, U.S. Chamber of
                                    Commerce
                                  June 2, 2015
        The U.S. Chamber of Commerce is the world's largest business
    federation representing the interests of more than three million
    businesses of all sizes, sectors, and regions, as well as State and
    local chambers and industry associations.
        More than 96 percent of Chamber member companies have fewer than
    100 employees, and many of the Nation's largest companies are also
    active members. We are therefore cognizant not only of the challenges
    facing smaller businesses, but also those facing the business community
    at large.
        Besides representing a cross-section of the American business
    community with respect to the number of employees, major
    classifications of American business--e.g., manufacturing, retailing,
    services, construction, wholesalers, and finance--are represented. The
    Chamber has membership in all 50 States.
        The Chamber's international reach is substantial as well. We
    believe that global interdependence provides opportunities, not
    threats. In addition to the American Chambers of Commerce abroad, an
    increasing number of our members engage in the export and import of
    both goods and services and have ongoing investment activities. The
    Chamber favors strengthened international competitiveness and opposes
    artificial U.S. and foreign barriers to international business.
        Positions on issues are developed by Chamber members serving on
    committees, subcommittees, councils, and task forces. Nearly 1,900
    businesspeople participate in this process.
        Chairman Shelby, Ranking Member Brown, and distinguished Members of
    the Committee, my name is John Murphy, and I am Senior Vice President
    for International Policy at the U.S. Chamber of Commerce (Chamber). I
    am pleased to testify today on the importance of reauthorizing the
    Export-Import Bank of the United States (Ex-Im), the charter for which
    will lapse on June 30. The Chamber is the world's largest business
    federation, representing the interests of more than 3 million
    businesses of all sizes, sectors, and regions, as well as State and
    local chambers and industry associations.
        Ex-Im is one of the most important tools at the disposal of U.S.
    companies to level the playing field for trade finance as they seek to
    increase exports and create jobs at home. The benefits of its programs
    to the U.S. economy are plain: In fiscal year 2014, Ex-Im provided
    financing or guarantees for $27.5 billion in U.S. exports, thereby
    supporting more than 164,000 American jobs.
        Last year alone, the volume of exports supported by Ex-Im was more
    than all U.S. merchandise exports to Italy, India, or Australia. It was
    also more than the total merchandise exports of Alabama and more than
    the merchandise exports of Arkansas, Idaho, Nebraska, and South Dakota
    combined.
        Ex-Im is especially important to U.S. small- and medium-sized
    businesses, which account for nearly 90 percent of Ex-Im's
    transactions. In addition to these direct beneficiaries, tens of
    thousands of smaller companies that supply goods and services to large
    exporters also benefit from Ex-Im's activities.
    Competitiveness at Stake
        Unilateral disarmament is rarely a good idea, but this is precisely
    what refusing to reauthorize Ex-Im would accomplish. The Organization
    for Economic Cooperation and Development (OECD) reports that the 79
    official export credit agencies (ECAs) worldwide have extended more
    than $1 trillion in trade finance in recent years.
        Every major trading Nation has at least one official ECA. The ECAs
    of the world's other top trading Nations provided 18 times more export
    credit assistance to their exporters than Ex-Im did to U.S. exporters
    last year, according to a recent report prepared by the National
    Association of Manufacturers with data and analysis from the Economist
    Intelligence Unit.
        However, the competitive challenge is even more daunting in the
    developing world. ECAs in developing countries, which in most cases do
    not abide by the rules of the OECD Arrangement on Officially Supported
    Export Credits, provide far more export financing on much more generous
    terms than Ex-Im does.
        This was especially pronounced during and immediately after the
    2008-2009 financial crisis: In 2008, China's ECAs provided Chinese
    exporters 17 times more export credit as a share of GDP than Ex-Im did
    for U.S. exporters. As late as 2010, Chinese and Brazilian ECAs
    provided 10 times more financing to domestic exporters as a share of
    GDP than Ex-Im did. Even today, ECAs based in China, India, and Brazil
    far outpace Ex-Im in lending volumes.
        Some critics contend that closing Ex-Im would set an example for
    others, or that negotiations could then induce other countries to close
    their ECAs. This is pure fantasy. In discussions at the OECD and in
    other fora, Governments from Germany to China have shown zero interest
    in shuttering their ECAs.
        Even the conservative Government of Canada, which is widely
    recognized for its free-market, free-trade approach to economic policy,
    has shown no interest in placing new limits on its ECA. In fact,
    Canada's equivalent of Ex-Im (Export Development Canada) provided 30
    times more export finance to its exporters than Ex-Im does to U.S.
    firms, relative to the size of its economy.
        The fact that the Treasury has not been able to negotiate an
    agreement to wind down other countries' ECAs is not a valid reason to
    penalize U.S. exporters and the workers they employ. U.S. companies
    produce many of the world's best goods and services, but without Ex-Im
    they would often find themselves at an unfair disadvantage when
    competing with foreign enterprises backed by official export credit
    agencies. For the United States not to have an operating ECA would put
    U.S. exporters at an absolutely unique disadvantage.
    A Key Tool for Small Businesses
        These realities play out differently for various sectors and
    industries. The challenge is especially poignant for small businesses
    as commercial banks often refuse to accept foreign receivables as
    collateral for a loan without an Ex-Im guarantee.
        For example, Bridge to Life Solutions in Columbia, South Carolina,
    provides state-of-the-art cold storage organ transplant solutions. As
    John Bruens, Chief Commercial and Business Development Officer for
    Bridge to Life, explains: ``Without Ex-Im, I would have to tell my
    customers, `prepay everything up front, or we can't do business.' '' By
    purchasing credit insurance from Ex-Im for the firm's foreign
    receivables, Bridge to Life has been able to extend credit terms to its
    international customers.
        Indeed, buyers overseas increasingly expect vendors to offer
    financing. Without Ex-Im's accounts receivables 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 benefits from ECA support.
        Similarly, Eagle Labs in Rancho Cucamonga, California, uses Ex-Im's
    credit insurance to insure orders for surgical equipment for cataract
    surgery. Michael De Camp, Vice President of International Sales for
    Eagle Labs, explains that despite receiving consistent payment from
    foreign customers, local banks would not extend credit to Eagle Labs
    based on uninsured accounts. Once Eagle Labs secured Ex-Im credit
    insurance, the firm was able to secure a line of credit from a private
    bank, bought the capital equipment it needed, doubled its sales, and
    doubled its workforce.
    Head to Head: Exports of Capital Goods
        Looking beyond small- and medium-sized businesses, 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 ECAs. For example, South
    African railway Transnet last year put out a bid for 466 diesel
    electric locomotives at a total contract price of $750 million. As is
    common in such bids, one requirement was that the supplier must finance
    a significant portion of the transaction.
        Backed by aggressive export financing provided by China's export
    credit agency, Chinese locomotive manufacturers won half the order. In
    March 2014, General Electric won the order for the other 233
    locomotives--but only because Ex-Im support was available to level the
    financial playing field. Without Ex-Im, GE would have lost the entire
    order--with real world consequences for workers at its Erie,
    Pennsylvania plant.
        This kind of story plays out time again with capital goods. Last
    month, Reuters reported on another $350 million deal to build
    locomotives for sale in Angola that would be lost if Ex-Im's charter is
    allowed to lapse, endangering 1,800 jobs.
        Foreign infrastructure opportunities are another area where ECA
    support is included in bidding requirements. Closing Ex-Im would shut
    major American exporters out of huge business opportunities overseas
    because ECA support is often required for a company even to bid on
    overseas infrastructure projects. The New York Times reported last
    month that a $668 million drinking water project in Cameroon will go
    not to U.S. vendors but to their Chinese competitors if Ex-Im is not
    reauthorized.
    The Nuclear Power Sector: A Case in Point
        Nuclear power is another sector where the fate of Ex-Im will have a
    major impact. According to the Nuclear Energy Institute, five nuclear
    power plants are under construction in the United States, but 61 new
    plants are under construction overseas. An additional 165 plants are in
    the licensing and advanced planning stages--nearly all abroad. NEI
    explains:

            Over the next decade, exports of up to 15 new nuclear plants
            could hinge on the availability of Ex-Im Bank products. At
            roughly $3 billion to $5 billion per plant, the projects
            represent a potential $45 billion to $75 billion in U.S.
            exports in need of Ex-Im Bank support. Four nuclear power
            projects--including up to seven plants--are already in Ex-Im
            Bank's project pipeline. These projects represent $21 billion
            to $35 billion in potential business that could become
            committed orders within the next 2-3 years . . .

            Export credit agency support is almost always a bidding
            requirement for international nuclear power plant tenders
            [emphasis added]. Ex-Im Bank is therefore vital to the success
            of U.S. exports even in cases where the customer ultimately
            elects not to use Ex-Im financing. Without Ex-Im Bank, U.S.
            commercial nuclear suppliers would suffer a major competitive
            disadvantage or be excluded for failure to meet tender
            requirements . . .

            U.S. suppliers of nuclear technology, equipment and services
            compete against a growing number of foreign firms--many of
            which are State-owned and benefit from various forms of State
            support. All foreign nuclear energy competitors are backed by
            national export credit agencies or other State financing.

        Refusing to reauthorize Ex-Im would put U.S. companies selling
    expensive capital goods such as aircraft, locomotives, turbines, and
    nuclear power plants at a unique competitive disadvantage because their
    foreign competitors all enjoy ample financing from their home-country
    export credit agencies--enough to easily knock U.S. companies out of
    the competition. For some industries, executives will face the question
    of whether to shift production to locations where ECA support is
    available.
        Nor does Ex-Im force commercial banks out of the trade finance
    business. In a recent joint letter to congressional leaders expressing
    strong support for Ex-Im, the Bankers Association for Finance and Trade
    (BAFT) and the Financial Services Roundtable (FSR) explained that Ex-Im
    ``cannot be replaced solely by the private sector.'' ``Balance sheet
    constraints (arising from prudential capital and liquidity
    requirements, among other factors) along with institutional credit,
    country and counterparty limitations'' are among the factors that limit
    the ability of commercial banks to provide export finance.
        The associations added: ``An Ex-Im Guarantee does not make a bad
    deal `bankable' . . . commercial banks share the risk on transactions
    with Ex-Im and so would not enter into arrangements where the risk
    trumps the viability of the deal.''
    No Cost to the Taxpayer
        Ex-Im operates at no cost to the American taxpayer and has amassed
    a $4 billion loan-loss reserve that provides more than adequate
    protection against losses. The fact that Ex-Im loans are backed by the
    collateral of the goods being exported is the principal bulwark against
    losses. Ex-Im's overall active default rate in recent years has hovered
    below one-quarter of 1 percent and stood at 0.167 percent as of March
    31, 2015.
        Ex-Im charges fees for its services that have generated billions of
    dollars in revenue for the U.S. Treasury. In fact, Ex-Im has sent to
    the Treasury $7 billion more than it has received in appropriations
    since 1990. This figure comes from Ex-Im's annual report, which uses
    the accounting method required by law. Contrary to rumor, the
    Congressional Budget Office (CBO) has never denied that Ex-Im continues
    to generate a ``negative subsidy,'' i.e., it is a net contributor of
    revenue to the Treasury.
        Using an alternative ``fair-value'' accounting method, CBO last
    year produced an estimate that Ex-Im might impose costs on the Treasury
    over the next decade. However, this alternative accounting rests on
    questionable assumptions. For instance, this scenario assumed Ex-Im
    would extend loans at a level nearly 40 percent higher than it did last
    year, even though the Bank's lending has been declining steadily as the
    financial crisis of 2008-2009 recedes. Moreover, in 2012, CBO released
    a similar report in which it estimated that Ex-Im would generate a
    ``negative subsidy'' for taxpayers even under the fair-value
    methodology. It is unclear what changed in CBO's approach.
        According to the Merriam-Webster Dictionary, a subsidy is ``money
    that is paid usually by a Government to keep the price of a product or
    service low.'' As noted, Ex-Im provides no such subsidy; on the
    contrary, the fees it charges have risen in recent years. In the
    aircraft sector, a new 2011 multilateral agreement doubled the fees for
    export credit financing, thereby addressing the concern that some
    export credit financing was below market rates.
        Some critics charge that Ex-Im picks winners and losers, skewing
    the marketplace. On the contrary, Ex-Im extends loans and guarantees to
    all applicants that meet its strict lending requirements but does so
    only when commercial credit is unavailable or when it is necessary to
    counteract below-market credit from foreign ECAs. Ex-Im also acted to
    fill the void when the availability of private-sector trade finance
    fell by 40 percent during the 2008-2009 financial crisis.
        At times Ex-Im's opponents have attempted to tie it to unsavory
    customers overseas. In the Chamber's view, this is an attempt to divert
    attention from the true beneficiaries of Ex-Im--the tens of thousands
    of American workers whose jobs depend on the Bank's support for their
    exports. Their voice must be heard in this debate.
    Conclusion
        The breadth and depth of support for Ex-Im's reauthorization across
    the business community is impressive. With Americans overwhelmingly
    focused on the need to generate economic growth and good jobs, business
    owners are perplexed by the campaign against Ex-Im. In particular, the
    thousands of small businesses that depend on Ex-Im to be able to access
    foreign markets are stunned at the threat that Washington could let its
    charter lapse.
        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 ECAs. Ex-Im doesn't pick winners and losers--but refusing to
    reauthorize Ex-Im is picking foreign companies as winners and U.S.
    exporters as losers.
        Ex-Im's critics need to take a broader look at the global economy
    and the serious threats to U.S. industrial competitiveness--including
    in many national security-sensitive sectors. America's modestly scaled,
    properly limited Ex-Im Bank plays a vital role in this context.
        The Chamber appreciates the opportunity to provide these comments
    to the Committee. We are committed to working with Congress to secure
    Ex-Im's reauthorization before June 30.
                                     ______

                      PREPARED STATEMENT OF DANIEL IKENSON
      Director, Herbert A. Steifel Center for Trade Policy Studies, Cato
                                   Institute
                                  June 2, 2015
    Introduction
        Chairman Shelby, Ranking Member Brown, Members of the Committee, it
    is a great pleasure to have been invited to share my ``Perspectives on
    the Export-Import Bank of the United States'' with you today. My
    intention is to focus primarily on the domestic victims of the Export-
    Import Bank (Ex-Im) by describing some of the hidden costs--the
    collateral damage--that are often overlooked or swept under the rug.
        To the extent that today's hearing will help illuminate the
    holistic impact of Ex-Im on the U.S. economy and the market process--in
    contrast to the cherry-picked examples of how Ex-Im has helped
    particular companies meet their particular goals--I am pleased to
    participate and offer some assistance.
        Before turning to that task, however, I would like to applaud the
    Committee for taking up this important subject in a public hearing.
    Committed oversight of the executive branch by the legislative branch
    is crucial to our system of checks and balances, which must remain
    functionally robust to ensure the health of our constitutional
    republic, and protect it from even the most subtle encroachments.
    Insulated in Export Rhetoric
        Everyone loves exports. In fact, many Americans think of trade as a
    competition between ``Us'' and ``Them,'' where exports are ``Team
    USA's'' points, imports are the foreign team's points, the trade
    account is the scoreboard, and the deficit on that scoreboard means our
    team is losing at trade. That narrative is wrong, but certainly ripe
    for exploitation by agencies that portray themselves as serving some
    national goal of boosting exports.
        The economic fact of the matter is that the real benefits of trade
    are transmitted through imports, not through exports. As Milton
    Friedman used to say: imports are the goods and services we get to
    consume without having to produce; exports are the goods and services
    we produce, but don't get to consume.
        The purpose of exchange is to enable each of us to focus on what we
    do best. By specializing in an occupation--instead of allocating small
    portions of our time to producing each of the necessities and luxuries
    we wish to consume--and exchanging the monetized output we produce most
    efficiently for the goods and services we produce less efficiently, we
    are able to produce and, thus, consume more output than would be the
    case if we didn't specialize and trade. By extension, the larger the
    size of the market, the greater is the scope for specialization,
    exchange, and economic growth.
        When we transact at the local supermarket or hardware store, we
    seek to maximize the value we obtain by getting the most for our
    dollars. In other words, we want to import more value from the local
    merchant than we wish to export. In our daily transactions, we seek to
    run personal trade deficits. But when it comes to trading across
    borders or when our individual transactions are aggregated at the
    national level, we forget these basics principles and assume the goal
    of exchange is to achieve a trade surplus. But, as Adam Smith famously
    observed: ``What is prudence in the conduct of every private family,
    can scarce be folly in that of a great kingdom.''
        The benefits of trade come from imports, which deliver more
    competition, greater variety, lower prices, better quality, and
    innovation. Arguably, opening foreign markets should be an aim of trade
    policy because larger markets allow for greater specialization and
    economies of scale, but real free trade requires liberalization at
    home. The real benefits of trade are measured by the value of imports
    that can be purchased with a unit of exports--the so-called terms of
    trade. Trade barriers at home raise the costs and reduce the amount of
    imports that can be purchased with a unit of exports.
        Yet, in Washington, exports are associated with increased economic
    output and job creation, while imports are presumed to cause economic
    contraction and job loss. But that is demonstrably false. The first \1\
    of the two charts below plots annual changes in imports and annual
    changes in GDP for 44 years. If imports caused economic contraction, we
    would expect to see most of the observations in the upper left and
    lower right quadrants--depicting an inverse relationship. Instead, we
    see a strong positive relationship. In 43 of 44 years, imports and GDP
    moved in the same direction.
    ---------------------------------------------------------------------------
         \1\ Data from the U.S. Bureau of Economic Analysis.

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The second \2\ chart plots annual changes in imports and U.S.
    employment. Similarly, there is a fairly strong positive relationship
    between these variables, as well.
    ---------------------------------------------------------------------------
         \2\ Data from the U.S. Bureau of Economic Analysis and the U.S.
    Bureau of Labor Statistics.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In keeping with the conventional Washington wisdom that exports are
    Team America's points and imports are the foreign team's points, in his
    January 2010 State of the Union address President Obama set a national
    goal of doubling U.S. exports in 5 years. That goal was subsequently
    enshrined as the ``National Export Initiative'', which decreed
    establishment of an Export Promotion Cabinet ``to develop and
    coordinate the implementation of the NEI.'' Six months later, the new
    cabinet produced its recommendations in a 68-page report titled ``The
    Export Promotion Cabinet's Plan for Doubling U.S. Exports in Five
    Years'', which became the centerpiece of the Administration's trade
    policy agenda.
        Most prominent in the plan was a larger role for Government in
    promoting exports, including expanded nonmarket lending programs to
    finance export activity, an increase in the number of the Commerce
    Department's foreign outposts to promote U.S. business, an increase in
    Federal agency-chaperoned marketing trips, and other sundry subsidies
    for export-oriented business activities. Ex-Im suddenly had a more
    prominent role to play.
        Shortsightedly, the NEI systemically neglected a broad swath of
    opportunities to facilitate exports by contemplating only the export-
    focused activities of exporters. The NEI presumed that the only
    barriers impeding U.S. exporters were foreign made. But before
    companies become exporters, they are producers. And as producers, they
    are subject to a host of domestic laws, regulations, taxes, and other
    policies that handicap them in their competition for sales in the U.S.
    market and abroad.
        For example, nearly 60 percent of the value of U.S. imports in 2014
    comprised of intermediate goods, capital goods, and other raw
    materials--the purchases of U.S. businesses, not consumers. \3\ Yet,
    many of those imported inputs are subject to customs duties, which
    raise the cost of production for the U.S.-based companies that need
    them, making them less competitive at home and abroad. Indeed, U.S.
    duties on products like sugar, steel, magnesium, polyvinyl chloride,
    and other crucial manufacturing inputs have chased companies to foreign
    shores--where those crucial ingredients are less expensive--and
    deterred foreign companies from setting up shop stateside. \4\
    ---------------------------------------------------------------------------
         \3\ Bureau of Economic Analysis, ``U.S. International Trade in
    Goods and Services, Exhibit 6''. U.S. Exports and Imports of Goods by
    Principal End-Use Category, February 2015, http://www.bea.gov/
    newsreleases/international/trade/tradnewsrelease.htm.
         \4\ Daniel Ikenson, ``Economic Self-Flagellation: How U.S.
    Antidumping Policy Subverts the National Export Initiative'', Cato
    Trade Policy Analysis No. 46, May 31, 2011, http://www.cato.org/
    publications/trade-policy-analysis/economic-selfflagellation-how-us-
    antidumping-policy-subverts-national-export-initiative.
    ---------------------------------------------------------------------------
        To nurture the promise of our highly integrated global economy,
    policymakers should stop conflating the interests of exporters with the
    national interest and commit to policies that reduce frictions
    throughout the supply chain--from product conception to consumption.
    Why should U.S. taxpayers underwrite--and U.S. policymakers promote--
    the interests of exporters, anyway, when the benefits of those efforts
    accrue, primarily, to the shareholders of the companies enjoying the
    subsidized marketing or matchmaking? There is no national ownership of
    private export revenues. And the relationship between revenues
    (domestic or export) and jobs is today more tenuous than in years past.
        Globalization means that companies have growing options with
    respect to where and how they produce. So Governments must compete for
    investment and talent, which both tend to flow to jurisdictions where
    the rule of law is clear and abided; where there is greater certainty
    to the business and political climate; where the specter of asset
    expropriation is negligible; where physical and administrative
    infrastructure is in good shape; where the local work force is
    productive; where there are limited physical, political, and
    administrative frictions; and so on. The crucial question for U.S.
    policymakers is: why not focus on reforms that make the U.S. economy a
    more attractive location for both domestic and foreign investment?
        According to the Congressional Research Service, there are
    approximately 20 Federal Government agencies involved in supporting
    U.S. exports, either directly or indirectly. Among the nine key
    agencies with programs or activities directly related to export
    promotion are the Department of Agriculture, the Department of
    Commerce, the Department of State, the Department of the Treasury, the
    Office of the U.S. Trade Representative, the Small Business
    Administration, the Overseas Private Investment Corporation, the U.S.
    Trade and Development Agency, and the Export-Import Bank.
        Relative to attracting domestic investment, export promotion is a
    circuitous and uncertain path to economic growth and job creation. If
    policymakers seek a more appropriate target for economic policy, it
    should be attracting and retaining investment, which is the seed of all
    economic activity, including exporting.
    Problems With Ex-Im's Rationalizations
        The mission of the Ex-Im is ``to support American jobs by
    facilitating the export of U.S. goods and services.'' Given the exalted
    status of exports in Washington's economic policy narrative, it is
    understandable why Ex-Im would portray itself as indispensable to U.S.
    export success. It's a reasonable survival strategy. But on the metric
    of contribution to export success, Ex-Im is scarcely relevant. It
    supported $27.4 billion in exports in 2014, which is less than 2
    percent of all U.S. exports last year. \5\
    ---------------------------------------------------------------------------
         \5\ http://www.exim.gov/about/facts-about-ex-im-bank
    ---------------------------------------------------------------------------
        Of course, $27 billion is nothing to sneeze at, but the implication
    that most, if not all, of those sales would never have happened in the
    absence of Ex-Im is pure nonsense. But the more important question is
    not whether Ex-Im supports U.S. exports. That's the political question.
    The relevant economic question concerns the costs and benefits of Ex-Im
    to the U.S. economy.
        Proponents limit their analyses to the impact of Ex-Im on
    taxpayers. In recent years, it has generated positive returns to the
    Treasury, but that myopic focus doesn't come close to approximating the
    appropriate cost-benefit analysis.
        While the benefits of Ex-Im's activities are real to the recipients
    and visible to the public (the value of exports supported, projects
    financed, insurance policies underwritten are all highly touted), the
    costs imposed on nonbeneficiaries usually go unseen by its victims--and
    unacknowledged by Ex-Im and its supporters. Identifying and quantifying
    those costs are necessary to measuring the net benefits.
        Ex-Im supporters claim that the bank fills a void left by private
    sector lenders unwilling to finance certain riskier transactions and,
    by doing so, contributes importantly to U.S. export and job growth.
    Moreover, rather than burden taxpayers, the Bank generates profits for
    the Treasury, helps small businesses succeed abroad, encourages exports
    of ``green'' goods, contributes to development in sub-Saharan Africa,
    and helps ``level the playing field'' for U.S. companies competing in
    export markets with foreign companies supported by their own
    Governments' generous export financing programs. So what's not to like
    about Ex-Im?
        First, by dismissing the risk assessments of private-sector,
    profit-maximizing financial firms and making lending decisions based on
    nonmarket criteria to pursue often opaque, political objectives, Ex-Im
    misallocates resources and puts taxpayer dollars at risk. That Ex-Im is
    currently self-financing and generating revenues is entirely beside the
    point. Ex-Im's revenue stream depends on whether foreign borrowers are
    willing and able to service their loans, which is a function of global
    economic conditions beyond the control of Ex-Im. Given the large
    concentration of aircraft loans in its portfolio, for example, Ex-Im is
    heavily exposed to the consequences of a decline in demand for air
    travel. Recall that Fannie Mae and Freddie Mac also showed book profits
    for years until the housing market suddenly crashed and taxpayers were
    left holding the bag.
        Second, even if taxpayers had tolerance for such risk taking, the
    claim that Ex-Im exists to help small businesses is belied by the fact
    that most of Ex-Im's loan portfolio value is concentrated among a
    handful of large U.S. companies. In 2013 roughly 75 percent of the
    value of Ex-Im loans, guarantees, and insurance were granted on behalf
    of 10 large companies, including Boeing, General Electric, Dow
    Chemical, Bechtel, and Caterpillar.
        Third, the claim that U.S. exporters need assistance with financing
    to ``level the playing field'' with China and others doesn't square
    with the fact that the United States is a major export credit
    subsidizer that has been engaged in doling out such largesse since well
    before the founding of the People's Republic of China. It implies the
    United States is helpless at the task of reining in these subsidies.
    And it implies the United States lacks enormous advantages among the
    multitude of factors that inform the purchasing decision. But, somehow,
    98 percent of U.S. export value is sold without the assistance of trade
    promotion agencies.
        Fourth, and perhaps most importantly, by trying to ``level the
    playing field'' with foreign companies backed by their own Governments,
    Ex-Im ``unlevels'' the playing field for many more U.S. companies
    competing at home and abroad. This adverse effect has been ignored,
    downplayed, or mischaracterized, but the collateral damage is
    substantial and should be a central part of the story.
    The Collateral Damage to Ex-Im's Victims
        A proper accounting reveals that Ex-Im's practices impose
    significant costs on manufacturing firms across every industry and in
    every U.S. State. When Ex-Im provides financing to a U.S. company's
    foreign customer on terms more favorable than he can secure elsewhere,
    it may be facilitating a transaction that would not otherwise occur.
    That is the basis for Ex-Im's claim that it helps the U.S. economy by
    increasing exports and ``supporting'' jobs. But the claim is
    questionable because those resources might have created more value or
    more jobs if deployed in the private sector instead. If that is the
    case, Ex-Im's transaction imposes a net loss on the economy. But
    suppose it could be demonstrated that Ex-Im transactions grow the
    economy larger or create more jobs than if those resources had been
    deployed in the private sector instead. Would Ex-Im then be correct in
    its claim? No. Further analysis is required.
        Ex-Im financing helps two sets of companies (in the short-run):
    U.S. firms whose export prices are subsidized by below market rate
    financing and the foreign firms who purchase those subsidized exports.
    It stands to reason, then, that those same transactions might impose
    costs on two different sets of 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 U.S. Government subsidies. While Ex-
    Im financing reduces the cost of doing business for the lucky U.S.
    exporter and reduces the cost of capital for his foreign customer, it
    hurts U.S. competitors of the U.S. exporter, as well as U.S.
    competitors of his foreign customer by putting them at relative cost
    disadvantages.
        These effects are neither theoretical nor difficult to comprehend.
    Yet proponents of Ex-Im reauthorization rarely acknowledge, let alone
    concede, that these are real costs pertinent to any legitimate net
    benefits calculation. Instead, they speak only of the gross benefits of
    export subsidies, which they consider to be the value of exports
    supported by their authorizations.
        But there are at least three sets of costs that are essential to
    determining the net benefits of Ex-Im: (1) the ``Opportunity Cost,''
    represented by the export growth that would have obtained had Ex-Im's
    resources been deployed in the private sector; (2) the ``Intra-Industry
    Cost,'' represented by the relative cost disadvantage imposed on the
    other U.S. firms in the same industry (the domestic competitors) as a
    result of Ex-Im's subsidies to a particular firm in the industry, and;
    (3) the ``Downstream Industry Cost,'' represented by the relative cost
    disadvantage imposed on the U.S. competitors of the subsidized foreign
    customer.
        Opportunity Cost is difficult to estimate, but suffice it to
    recognize that opportunity costs exist. Indeed, opportunity costs exist
    whenever there are foregone alternatives to the path chosen.
        The Intra-Industry Cost is somewhat easier to calculate, in theory.
    If Ex-Im provides a $50 million loan to a foreign farm equipment
    manufacturer to purchase steel from U.S. Steel Corporation, the
    transaction may benefit U.S. Steel, but it hurts competitors like
    Nucor, Steel Dynamics, AK Steel, and dozens of other steel firms
    operating in the United States and competing for the same customers at
    home and abroad. The $50 million subsidy to U.S. Steel is a cost to the
    other firms in the industry, who can attribute a $50 million revenue
    gap between them (aggregated) and U.S. Steel to a Government
    intervention that picked a winner and made them, relatively speaking,
    losers. The $50 million ``benefit'' for U.S. Steel is a $50 million
    cost to the other steel firms.
        But then that distortion is compounded when taking into
    consideration the dynamics that would have played out had the best
    firm--the one offering the most value for the best price--secured that
    export deal instead. Reaching revenue targets, raising capital, and
    moving down the production cost curve to generate lower unit costs all
    become more difficult to achieve on account of the original
    intervention, amplifying the adverse impact on other firms in the
    industry. When Government intervenes with subsidies that tilt the
    playing field in favor of a particular firm, it simultaneously
    penalizes the other firms in the industry and changes the competitive
    industry dynamics going forward. Every Ex-Im transaction touted as
    boosting U.S. exports creates victims within the same U.S. industry.
    Without Ex-Im's intervention, Nucor might have been able to win that
    foreign farm equipment producer's business, which is a prospect that
    undermines the premise that Ex-Im boosts exports at all and reinforces
    the point that it merely shifts resources around without creating
    value, possibly destroys value instead. What is given to U.S. steel is
    taken from Nucor and the other firms, among whom may be the more
    efficient producers.
        The Downstream Industry costs are those imposed by the transaction
    on the U.S. companies that compete with the foreign customer. When a
    foreign farm machinery producer purchases steel on credit at subsidized
    interest rates, it obtains an advantage over its competitors--including
    its U.S. competitors. So, when that subsidized rate comes courtesy of a
    U.S. Government program committed to increasing U.S. exports, it only
    seems reasonable to consider the effects on firms in downstream U.S.
    industries before claiming the program a success: Has the subsidy to
    the foreign farm machinery producer made John Deere, Caterpillar, New
    Holland, or other U.S. farm machinery producers less competitive? Has
    it hurt their bottom lines?
        Delta Airlines has been vocal in its objection to Ex-Im-facilitated
    sales of Boeing jetliners to foreign carriers, such as Air India. Delta
    rightly complains that the U.S. Government, as a matter of policy, is
    subsidizing Delta's foreign competition by reducing Air India's cost of
    capital. That cost reduction enables Air India to offer lower prices in
    its bid to compete for passengers, which has a direct impact on Delta's
    bottom line. This is a legitimate concern and it is not limited to this
    example.
        Consider the generic case. A U.S. supplier sells to both U.S. and
    foreign customers. Those customers compete in the same downstream
    industry in the U.S. and foreign markets. Ex-Im is happy to provide
    financing to facilitate the sale, as its mission is to increase exports
    and create jobs. The U.S. supplier is thrilled that Ex-Im is providing
    his foreign customer with cheap credit because it spares him from
    having to offer a lower price or from sweetening the deal in some other
    way to win the business. The foreign customer is happy to accept the
    advantageous financing for a variety of reasons, among which is the
    fact that his capital costs are now lower relative to what they would
    have been and relative to the costs of his competitors--including his
    U.S. competitors, who are now on the outside looking in. Ex-Im helps
    some U.S. companies increase their exports sales. But it hinders other
    U.S. companies' efforts to compete at home and abroad.
        Moreover, by subsidizing export sales, Ex-Im artificially diverts
    domestic supply, possibly causing U.S. prices to rise and rendering
    U.S. customers less important to their U.S. suppliers. Especially in
    industries where there are few producers, numerous customers, and
    limited substitute products, Ex-Im disrupts the relationships between
    U.S. buyers and U.S. sellers by infusing the latter with greater market
    power and leverage. Delta was able to connect the dots. Other companies
    have, too. But most of the time, the downstream U.S. companies are
    unwitting victims of this silent cost-shifting.
        According to the findings in a recent Cato Institute study that I
    authored, the downstream costs alone amount to a tax of approximately
    $2.8 billion every year. \6\ The victims of this shell game include
    companies in each of the 21 broad U.S. manufacturing industry
    classifications used by the Government to compile statistics. And they
    are scattered across the country in every State.
    ---------------------------------------------------------------------------
         \6\ Daniel Ikenson, ``The Export-Import Bank and Its Victims:
    Which Industries and States Bear the Brunt?'' Policy Analysis No. 756,
    September 10, 2014, http://www.cato.org/publications/policy-analysis/
    export-import-bank-its-victims-which-industries-states-bear-brunt.
    ---------------------------------------------------------------------------
        Among the stealthily taxed were companies such as Western Digital
    and Seagate Technologies--two California-based computer storage device
    producers that employ 125,000 workers; Chicago-based Schneider Electric
    Holdings, which employs 23,000 workers in the manufacture of
    environmental control products, and; ViaSystems, a St. Louis-based
    printed circuit board producer with 12,000 employees. These companies
    haven't received Ex-Im subsidies, but companies in their supplier
    industries have, which effectively lowers the costs of their foreign
    competitors.
        While it is relatively easy for a big company like Delta to connect
    the dots and see that Boeing is being favored at its expense (airplane
    purchases constitute a large share of Delta's total costs), most
    manufacturing companies are unaware that they are shouldering the costs
    of Government subsidies to their own competitors. But the victims
    include big and small producers--of electrical equipment, appliances,
    furniture, food, chemicals, computers, electronics, plastics and rubber
    products, paper, metal, textiles--from across the country. Companies
    producing telecommunications equipment incur an estimated collective
    tax of $125 million per year.
        The industries in which companies bear the greatest burdens--where
    the costs of Ex-Im's subsidies to foreign competitors are the highest--
    are of vital importance to the manufacturing economies of most States.
    In Oregon, Delaware, Idaho, New Jersey, Nevada, and Maryland, the 10
    industries shouldering the greatest costs account for at least 80
    percent of the State's manufacturing output. The most important
    industry is among the 10 most burdened by these costs in 33 of 50
    States. The chemical industry, which bears a cost of $107 million per
    year, is the largest manufacturing industry in 12 States.
        For all the praise Ex-Im heaps upon itself for its role as a
    costless pillar of the economy, it is difficult to make sense of the
    collateral damage left in its wake. Thousands of U.S. companies would
    be better off if Ex-Im's charter were allowed to expire, as scheduled,
    on June 30.
    What To Do About Foreign Export Credit Agencies?
        Of all of the arguments put forward by Ex-Im supporters, the
    ``leveling the playing field'' rationale seems to carry the most sway.
    It is appealing intuitively. But the implication that the United States
    is an innocent party that has no choice but to follow suit is
    laughable. The United States invented this stuff.
        The notion that because Beijing, Brasilia, and Brussels subsidize
    their exporters Washington must, too, is a rationalization that sweeps
    under the rug the fact that there are dozens of criteria that feed into
    the ultimate purchasing decision, including product quality, price,
    producer's reputation, local investment, and employment opportunities
    created by the sale, warranties, aftermarket servicing, and the extent
    to which the transaction contributes toward building a long-term
    relationship between buyer and seller. To say that U.S. exporters need
    assistance with financing to ``level the playing field'' suggests that
    they lack advantages among the multitude of factors that inform the
    purchasing decision. Moreover, the fact that less than 2 percent of
    U.S. export value goes through export promotion agencies suggests this
    rationale for Ex-Im is bogus.
        There is a way to bring foreign subsidies under control, however.
    The United States should allow Ex-Im to expire at the end of this month
    and then announce plans to bring cases to the World Trade Organization
    against Governments operating their export credit agencies in violation
    of agreed upon limits under the Agreement on Subsidies and
    Countervailing Measures. The combination of the carrot of U.S.
    withdrawal from the business of export credit financing and the stick
    of WTO litigation would likely incent other Governments to reduce, and
    possibly eliminate, their own subsidy programs.
    Conclusion
        Most of the rationales for keeping the Export-Import Bank are
    merely rationalizations that don't stand up to close scrutiny. Perhaps
    most problematic are the costs imposed, often on unwitting victims. Ex-
    Im subsidies to particular exporters may help those companies succeed,
    but they impose significant costs on other firms in the same industry
    and firms in downstream industries. Accordingly, Ex-Im penalizes many
    smaller, dynamic, up-and-coming businesses that are often the well
    springs of new ideas, better mousetraps, and smarter business practices
    and which the economy needs to spawn subsequent generations of
    businesses in perpetuity.
        That evolutionary process underlies the strength of the U.S.
    economy, and is essential to U.S. success going forward. On the other
    hand, U.S. economic strength is undermined when subsidies are deployed
    in a spiraling race with other Nations to the detriment of the next
    crop of leading U.S. businesses. Let the Export-Import Bank expire.
            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                      FROM LINDA MENGHETTI DEMPSEY

    Q.1. The Export-Import Bank offers a number of different
    products, including loan guarantees, working capital
    guarantees, and direct loans. Should Congress consider
    eliminating a particular line of products, because the product
    is not particularly useful to companies?

    A.1. Manufacturers and exporters turn to the Ex-Im Bank when
    they identify gaps in private-sector trade finance and need
    each of the current Ex-Im Bank services to enable lending from
    private-sector institutions--whether that is a loan guarantee
    to extend competitive financing terms to foreign customers that
    purchase U.S. goods, a multibuyer export credit insurance
    policy that enables access to working capital, or structured
    financing to help U.S. exporters compete globally in natural
    resource and infrastructure sectors. While direct loans are
    rarely used, they can help U.S. exporters secure competitive
    financing for international buyers by providing fixed-rate
    financing to creditworthy international buyers in both the
    private and public sector.
        Ex-Im Bank is demand-driven, and a variety of customers and
    exporters rely on different programs for different needs. Ex-Im
    Bank has adjusted existing programs and introduced new
    initiatives in the wake of the global financial crisis,
    including a streamlined ``Express Insurance'' for small-
    business exporters. While Ex-Im Bank should continue to
    evaluate its financing tools to ensure they are both efficient
    and effective, the NAM has no recommendations for eliminating
    any line of services.

    Q.2. The Export-Import Bank purports to create a ``surplus''
    for taxpayers, including in 2014.
        Setting aside the debate over the Bank's accounting and
    profits, do all of the Bank's main products have approximately
    the same fiscal record? Or does one program that generates a
    weaker ``surplus'' make up for a program with a weaker track
    record?
        Does each program generate a surplus, under the Bank's
    accounting assumptions?

    A.2. It is my understanding that Ex-Im Bank sets its fees and
    interest rates for programs in order to fulfill its primary
    mission to support U.S. jobs by filling gaps in private export
    financing. Starting in FY2008, Ex-Im Bank has operated on a
    self-sustaining basis using program revenue to fund current
    year administrative expenses and program costs. The surplus
    generated by the Ex-Im Bank in recent years--transferred
    annually to the U.S. Treasury--reflects a rate and fee
    structure that is meeting its purpose of ensuring that Ex-Im is
    self-sustaining. Ex-Im Bank includes substantial information
    about its transactions in its Annual Reports. The Bank,
    therefore, would be the best source of information about the
    profile of its programs and about individual transactions.

    Q.3. The Bank has a number of lending ``mandates,'' including
    that it must make 10 percent of its authority available to
    renewable energy, 20 percent available to small business
    lending and that it must also promote activity in sub-Saharan
    Africa.
        Should we expect, or do we have evidence to suggest, that
    these transactions have a higher default rate than the
    nonmandated transactions?
        How should this inform Congress' treatment of the mandates
    in the Bank's reauthorization?

    A.3. I have no reason to believe those transactions that
    fulfill the congressional mandates to support small business
    exports, renewable energy exports and exports to sub-Saharan
    Africa would be exempt from the Bank's overarching standards--
    including a standard for reasonable reassurance of repayment.
    Although the Ex-Im Bank is a demand-drive institution, Ex-Im
    Bank works to identify transactions that would meet its
    standards and also fulfill the mandates set by Congress.
        Ex-Im Bank is required by P.L. 112-122 to report to
    Congress on a quarterly basis its default rate for short-,
    medium-, and long-term financing. Additionally, Ex-Im Bank is
    required to report quarterly to Congress about default rates
    for short-term loans, medium-term loans, long-term loans,
    insurance, medium-term guarantees, or long-term guarantees;
    each key market involved; and each industry sector involved.
    The Bank would be the best source of information about the
    default rates associated with specific transactions.

    Q.4. We've heard how the Export-Import Bank ``supports'' job
    and exports. For example, according to the Bank's analysis, in
    2014 the Bank ``supported'' 164,000 jobs and $27.4 billion in
    exports. Notably, there's a difference between ``supporting''
    jobs and ``creating'' jobs.
        Do we have evidence about what percentage of those jobs and
    exports would disappear without the Bank and why?
        What percentage of this economic activity would exist, but
    in a different sector?

    A.4. We hear from manufacturers that their lenders have balance
    sheet constraints that arise from prudential capital and
    liquidity requirements as well as institutional credit,
    country, and counterparty limitations--creating real challenges
    for lenders who work with exporters. Further, Ex-Im Bank
    complements rather than competes with private-sector lenders
    and each transaction undergoes analysis by Ex-Im to determine
    whether its support is necessary to facilitate the financing of
    the company's export sales, including an evaluation of why
    funds are not available from commercial sources. Standalone
    private-sector funding of trade transactions is not always
    available or affordable. The Asian Development Bank released
    its most recent annual report on the trade finance gap in
    December 2014, highlighting results from a 2013 survey. That
    report found trade finance gaps are a persistent feature of the
    global trade landscape--even as the global economy has
    recovered. Their earlier 2012 survey provided evidence that
    trade finance gaps, which had only expanded after the global
    financial crisis, were continuing to negatively impact growth
    and job creation. In 2013, the global trade finance gap was
    estimated at $1.9 trillion. \1\
    ---------------------------------------------------------------------------
         \1\ ``ADB Trade Finance Gap, Growth, and Jobs Survey'', December
    2014. Found at http://www.adb.org/sites/default/files/publication/
    150811/adb-trade-finance-gap-growth.pdf.
    ---------------------------------------------------------------------------
        Given the competitive nature of foreign export credit
    agencies (ECAs), the tens of thousands of exports that Ex-Im
    supports annually would be put at risk if the Ex-Im Bank is not
    reauthorized. As explained in my testimony and above, Ex-Im's
    services are used when there are gaps in private sector
    financing. Without Ex-Im, many--if not most--of these sales
    would be lost to foreign competitors that have easy access to
    the more than 60 ECAs worldwide that oftentimes provide very
    generous support for their country's exports. As a result,
    there is a strong possibility that these exports would be lost
    to foreign competitors. In turn, the tens of thousands of
    American workers that produce those goods would no longer have
    secure jobs filling those orders.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                          FROM JOHN G. MURPHY

    Q.1. The Export-Import Bank offers a number of different
    products, including loan guarantees, working capital
    guarantees, and direct loans. Should Congress consider
    eliminating a particular line of products, because the product
    is not particularly useful to companies?

    A.1. Based on conversations with our members, particularly
    small- and medium-sized companies that use the services of the
    Export-Import Bank of the United States (Ex-Im), we believe the
    full range of these products offers value and should be
    retained.
        For example, its working capital guarantees allow an
    exporter to tap otherwise excluded collateral in its borrowing
    base to pay for inputs and thus fulfill export orders. Resin
    Technology, located in Groton, Massachusetts, uses this
    program. Carly Seidewand, Direct of Sales and Marketing/Global
    Markets says: ``We're a small business, and we don't have hard
    assets to lend against other than accounts receivable and
    inventory.''
        In the case of many small businesses, commercial banks
    often refuse to accept foreign receivables as collateral for a
    loan without an Ex-Im guarantee. Ex-Im working capital
    guarantees back 90 percent of a private bank's loans to an
    American exporter. With this tool, Resin Technology can
    generate the cash flow it needs to compete with large,
    international trading companies.
        Kim Crooks, Finance Director at Zeigler Bros.--based in
    Gardners, Pennsylvania--observes that when the firm exports,
    particularly to developing countries, payment cycles can take
    60 to 90 days. Zeigler needs to be able to finance those sales,
    but private banks generally will not lend against foreign
    receivables for small businesses. ``We wouldn't be able to get
    bank support without Ex-Im,'' explains Crooks. Once Zeigler
    bought Ex-Im credit insurance for its foreign invoices, it was
    able to secure the working capital it needed to grow.
        Based on our interactions with many American small
    businesses that have used Ex-Im's services, we believe there
    are substantial benefits for the fully array these products.

    Q.2. The Export-Import Bank purports to create a ``surplus''
    for taxpayers, including in 2014.
        Setting aside the debate over the Bank's accounting and
    profits, do all of the Bank's main products have approximately
    the same fiscal record? Or does one program that generates a
    weaker ``surplus'' make up for a program with a weaker track
    record?
        Does each program generate a surplus, under the Bank's
    accounting assumptions?

    A.2. Using the accounting method established by the United
    States Congress and required by law, there is wide
    acknowledgment that Ex-Im does not cost the American taxpayer a
    dime. Ex-Im charges fees for its services that have allowed it
    to send to the U.S. Treasury $7 billion more than it has
    received in appropriations since 1990. Regarding the
    performance of different financial products, Ex-Im Bank staff
    are in best situated to answer these questions.

    Q.3. The Bank has a number of lending ``mandates,'' including
    that it must make 10 percent of its authority available to
    renewable energy, 20 percent available to small business
    lending and that it must also promote activity in sub-Saharan
    Africa.
        Should we expect, or do we have evidence to suggest, that
    these transactions have a higher default rate than the
    nonmandated transactions?
        How should this inform Congress' treatment of the mandates
    in the Bank's reauthorization?

    A.3. Ex-Im Bank staff are in best situated to answer these
    questions regarding default rates. As for past or future
    mandates, the Chamber has argued that Ex-Im should provide
    financing in a nondiscriminatory manner for exporters that can
    meet its rigorous standards.

    Q.4. We've heard how the Export-Import Bank ``supports'' job
    and exports. For example, according to the Bank's analysis, in
    2014 the Bank ``supported'' 164,000 jobs and $27.4 billion in
    exports. Notably, there's a difference between ``supporting''
    jobs and ``creating'' jobs.
        Do we have evidence about what percentage of those jobs and
    exports would disappear without the Bank and why?

    A.4. Ex-Im's methodology to calculate the number of U.S. jobs
    associated with exports for which it provides a loan or
    guarantee relies on a number of elements used widely across the
    U.S. Government, including, for instance, the ratio of jobs
    needed to support $1 million in exports (which varies by
    industry). These ratios are provided by the Bureau of Labor
    Statistics (BLS). Ex-Im Bank staff are best situated to address
    this methodology in detail.
        The U.S. Chamber of Commerce is hearing from a growing
    number of companies that the lapse in Ex-Im's authorization is
    causing or will soon cause them to lose sales and may lead
    directly to layoffs in the near term. It is clear that some
    companies were able to take measures before the June 30 lapse
    in Ex-Im's authorization that have blunted the immediate
    impact. For example, one company was able to extend its Ex-Im
    working capital loan before June 30; another requested that a
    foreign Government grant a 30-day extension (to early
    September) for a bid due date. However, these measures will
    hold off the cost of closing Ex-Im only for a short time.
        Press accounts have presented the possibility that some of
    the largest U.S. exporters will consider moving some operations
    overseas to countries where official export credit agency (ECA)
    support is available in the event Ex-Im is not reauthorized. In
    our view, executives are contemplating these moves because ECA
    support is often required even to bid on a wide variety of
    foreign business opportunities. This includes requests for
    tender from both public and private sources, including
    opportunities as diverse as infrastructure projects, nuclear
    power plants, and contracts to provide medical equipment to
    hospitals. U.S. lawmakers and regulators are powerless to alter
    these requirements, which are imposed by foreign Governments.
        Further, it is commonplace for long-lived capital goods
    such as aircraft, turbines, and locomotives to be sold
    worldwide with ECA backing, the availability of which can make
    or break a deal.
        The ripple effects in the U.S. economy could be
    substantial. It is well known that the largest U.S. exporters
    rely on supply chains made up of thousands of small- and
    medium-sized businesses, some of which are only remotely aware
    that the components they manufacture are intended for export
    and reliant on Ex-Im support. In some cases, tens of thousands
    of small firms are involved.
        To take one sector as an example, the U.S. aerospace sector
    employs approximately 1.5 million Americans directly and
    indirectly. Within this ecosystem, smaller companies rely on
    large firms which are in turn highly export dependent. Further,
    it is characteristic of the aerospace sector that the presence
    of ECA support often determines which firm from which county
    wins a sale. The availability of ECA support can be
    determinative even in cases where private finance is ultimately
    used.
        In sum, the costs of closing Ex-Im will be substantial and
    are likely to mount over time as industrial networks are
    rearranged to shift production of costly capital goods and
    other products that tend to rely on ECA support to countries
    where it is available.

    Q.5. What percentage of this economic activity would exist, but
    in a different sector?

    A.5. Permanently closing Ex-Im will result not in a shift of
    resources from one U.S. industrial sector to another but rather
    a shift in production and employment from a U.S. company to a
    competing company in another country where ECA support is
    available.
        To this point, the D.C. District Court in March ruled
    against Delta Airlines in its suit against Ex-Im, rejecting
    every argument that Delta made. The Court concluded that Ex-Im
    financing for foreign airlines does not affect airlines'
    decision to purchase new airplanes. As the prevalence of air
    travel around the world expands, foreign airlines will
    assuredly purchase aircraft. However, once an airline has made
    the decision to purchase new airplanes, Ex-Im financing does
    affect whether those airlines purchase American- or foreign-
    made airplanes, the Court reasoned.
        The Court found that, without Ex-Im support, ``airlines
    simply will purchase from Airbus instead of Boeing due to the
    presence of foreign ECA financing.'' This is certainly the real
    world experience of many Chamber members.
        Delta's complaint is similar to that of Cliffs Natural
    Resources, a U.S. mining enterprise that protested the sale of
    U.S.-made Caterpillar equipment to Australia's new Roy Hill
    mine with Ex-Im support. Crucially, the owners of the Roy Hill
    mine made it abundantly clear to Caterpillar that they would
    buy their heavy equipment from manufacturers in Japan or
    Korea--with support from those countries' ECAs--if Ex-Im
    support for Caterpillar were not made available. The Roy Hill
    mine was clearly going forward; the only choice was whether its
    owners would buy U.S.-made or foreign-made equipment.
        This is the choice before Congress: Will Ex-Im be
    reauthorized, or is Congress content to hand a significant
    competitive advantage to our trade competitors? The
    repercussions for high-skill, high-wage jobs in a number of
    U.S. industries will be significant.

                  Additional Material Supplied for the Record

                NEWSPAPER ARTICLES SUBMITTED BY CHAIRMAN SHELBY

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

     STATEMENT FROM THE BANKERS ASSOCIATION FOR FINANCE AND TRADE AND THE
            FINANCIAL SERVICES ROUNDTABLE SUBMITTED BY SENATOR BROWN

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