[Senate Report 104-154]
[From the U.S. Government Publishing Office]



   104th Congress 1st            SENATE                 Report
         Session
                                                       104-154
  _____________________________________________________________________



                                                       Calendar No. 203
 
REAUTHORIZATION OF THE TIED AID CREDIT PROGRAM AND AUTHORIZATION OF AN 
                EXPORT-IMPORT BANK DEMONSTRATION PROJECT

                                 ________

                              R E P O R T

                                 of the

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

                              to accompany

                                S. 1309




 October 11 (legislative day, October 10), 1995.--Ordered to be printed
            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

  ALFONSE M. D'AMATO, New York, 
             Chairman
PAUL S. SARBANES, Maryland           PHIL GRAMM, Texas
CHRISTOPHER J. DODD, Connecticut     RICHARD C. SHELBY, Alabama
JOHN F. KERRY, Massachusetts         CHRISTOPHER S. BOND, Missouri
RICHARD H. BRYAN, Nevada             CONNIE MACK, Florida
BARBARA BOXER, California            LAUCH FAIRCLOTH, North Carolina
CAROL MOSELEY-BRAUN, Illinois        ROBERT F. BENNETT, Utah
PATTY MURRAY, Washington             ROD GRAMS, Minnesota
                                     BILL FRIST, Tennessee
 Howard A. Menell, Staff Director
  Robert J. Giuffra, Jr., Chief 
              Counsel
 Philip E. Bechtel, Deputy Staff 
             Director
Steven B. Harris, Democratic Staff 
    Director and Chief Counsel
Brent S. Franzel, Staff Director, 
  Subcommittee on International 
              Finance
 Bruce E. Kutz, Professional Staff
  Patrick A. Mulloy, Democratic 
    Chief International Counsel
 Martin J. Greenberg, Democratic 
          Senior Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Introduction.....................................................     1
Tied Aid Credit Fund.............................................     1
Export-Import Bank Demonstration Project.........................     2
Committee Action.................................................     3
    Subcommittee Hearing.........................................     3
    Full Committee Markup........................................     5
Section-by-Section Analysis......................................     6
Regulatory Impact Statement......................................     6
Changes in Existing Law..........................................     6
Cost of Legislation..............................................     6
104th Congress                                                   Report
                                 SENATE

 1st Session                                                    104-154
_______________________________________________________________________



REAUTHORIZATION OF THE TIED AID CREDIT PROGRAM AND AUTHORIZATION OF AN 
                EXPORT-IMPORT BANK DEMONSTRATION PROJECT

                                _______


 October 11 (legislative day, October 10), 1995.--Ordered to be printed

_______________________________________________________________________


Mr. D'Amato, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1309]

                              INTRODUCTION

    On September 20, 1995, the Senate Banking Committee marked 
up and ordered to be reported a bill to extend the expiration 
date of the Tied Aid Credit Fund in the Export-Import Bank Act 
of 1945 from September 30, 1995 to September 30, 1997, to 
authorize to be appropriated to the fund such sums as may be 
necessary for fiscal years 1996 and 1997, and to authorize a 
demonstration project at the Export-Import Bank. The measure 
was approved by voice vote.

Tied aid credit fund

    Tied aid is financing offered at below market rates that is 
tied to procurement of goods or services from the donor 
country. Typically, rich country governments offer aid to 
developing country governments provided such aid is used to 
purchase capital goods manufactured in the rich country. It is 
in this sense that the aid is ``tied.'' Although the tied aid 
is ostensibly for the development of the recipient country, the 
real effect of the concessional financing is to provide 
exporters in the donor country with a competitive advantage in 
emerging markets.
    The policy of the United States has been to oppose the use 
of tied aid because it is a market distortion. Tied aid credits 
cause trade to shift from exporters who have price, quantity 
and service advantages to less competitive exporters who 
benefit from financing offered by their government. Moreover, 
exporters who win capital projects contracts based, in part, on 
the availability of tied aid financing gain a ``foot in the 
door,'' and are favorably situated to win future sales.
    The United States has worked within the Organization for 
Economic Cooperation and Development (OECD) to establish limits 
on concessional financing for the purpose of reducing export 
subsidies and ending competition on export financing terms. In 
1992, the OECD concluded the ``Helsinki Package,'' an agreement 
strengthening guidelines on tied previously established by the 
organization.
    In 1986, Congress established the tied aid credit fund 
within the Export-Import Bank ``for the purpose of facilitating 
the negotiation of a comprehensive international agreement 
restricting the use of tied aid and partially untied aid 
credits for commercial purposes...'' Prior to 1992, the fund 
was used for enforcing existing restrictions on the use of tied 
aid and facilitating efforts to negotiate new restrictions. In 
1992, Congress gave the Export-Import Bank authority to use the 
fund to match tied aid credits offered by foreign governments, 
under certain conditions, and to use tied aid credits 
offensively in markets where countries are engaging in 
predatory use of tied aid and are impeding negotiations to end 
their use for commercial purposes.
    This new authority, contained in the Export Enhancement Act 
of 1992, was given for a period of three years and will expire 
on September 30, 1995. The purpose of the three year 
authorization, which is two years short of the expiration of 
the Export-Import Bank Act of 1945, was to give Congress an 
opportunity to assess the use of the new authority and the 
extent to which other governments were continuing to use tied 
aid financing.
    In July of 1995, the Banking Committee received a letter 
from the President of the Export-Import Bank submitting a draft 
of legislation amending the Export-Import Bank Act of 1945. The 
legislation would reauthorize the tied aid credit program and 
allow the Export-Import Bank of the United States to conduct a 
demonstration project for human resource management.

Export-Import Bank demonstration project

    The demonstration project is an Export-Import Bank plan to 
develop classification, pay-for-performance and compensation 
systems that differ from the currently established government-
wide systems. The Bank will institute ``broadbanding,'' 
replacing the existing job classification system with wider 
classifications to allow for promotions. With these new 
systems, the Bank will be able to compete with other employers 
inside and outside the public sector for high-quality 
employees.
    Demonstration projects are carried out jointly with the 
Office of Personnel Management. Each project is limited to no 
more than 5000 employees, and must be evaluated on an ongoing 
basis. Projects last for five years, but may be extended by 
law. Under Demonstration Project authority, laws and 
regulations under Title V of the U.S. Code may be waived, 
except those dealing with leave, benefits, political activity, 
merit principles and equal employment opportunity.

Committee action

                          Subcommittee Hearing

    On March 28, 1995, the Subcommittee on International 
Finance, which is chaired by Senator Bond and has Senator Boxer 
as its ranking minority member, held a hearing on 
reauthorization of the tied aid credit fund. The following 
witnesses testified at this hearing: Honorable Kenneth E. 
Brody, President and Chairman, Export-Import Bank of the United 
States; Honorable William E. Barreda, Deputy Assistant 
Secretary for Trade and Investment Policy, United States 
Department of the Treasury; Peter A. Bowe, Ellicot Machine 
Corporation International; Peggy A. Houlihan, President, 
Coalition for Employment Through Exports; and Jayetta Z. 
Hecker, Director, International Trade, Finance and 
Competitiveness, General Accounting Office.
    At this hearing, there was general consensus that tied aid 
is a market distortion that harms U.S. companies and must be 
countered with government intervention in the form of matching 
offers. One of the witnesses expressed the view that the United 
States should consider initiating tied aid offers. There was 
also consensus that continued use of tied aid by other 
governments requires the reauthorization of the tied aid credit 
fund.
    Mr. Brody testified that the Export-Import Bank has 
aggressively pursued its strategy of matching tied aid offers, 
but stressed that the Bank does not initiate tied aid. He said 
that, since putting the strategy in place, the Bank had 
succeeded in getting foreign governments to back off from 
potential tied aid offers on seven occasions. In twenty two 
other cases, the Bank is pursuing tied aid offers. Four tied 
aid offers existed prior to formal inception of the program, 
bringing the total to twenty four cases worth $1.2 billion.
    Mr. Barreda summarized for the Subcommittee the OECD rules 
governing the use of tied aid. In his judgement, the rules are 
beginning to work because the richer developing countries are 
not receiving tied aid and the universe of projects for which 
tied aid is used is shrinking. Nevertheless, the fund is needed 
to deal with countries who violate the rules or to provide 
matching aid in cases where the OECD rules are followed but 
American exporters are still disadvantaged.
    Mr. Barreda pointed out that tied aid is expensive. He said 
that every dollar used for tied aid supports three dollars in 
exports, as opposed to twenty dollars in the Bank's regular 
financing programs. The real benefit of the tied aid program is 
that, by matching other countries' tied aid offers, the United 
States is removing the commercial incentive to offer the aid.
    Mr. Bowe, the President of a company that manufactures and 
exports dredging equipment, recounted for the subcommittee his 
experiences with tied aid. He said that a competitor in Germany 
had won a contract valued at $150 million in Indonesia, and a 
Dutch competitor had won a $100 million contract in India. He 
cited other cases and made the point that his competition has 
made aggressive use of tied aid. In addition to tied aid 
financing, he said his competition has been able to bring in 
very high level government intercession.
    Mr. Bowe said that amendments to the tied aid fund 
contained in the Export Enhancement Act of 1992 have given 
clout and credibility to the Government's attempts to combat 
the use of tied aid. He stated that conditional tied aid offers 
are a major improvement because they help companies compete for 
contracts before they are lost to better financed foreign 
competitors. He said that his company was on the verge of 
signing a $20 million contract, and that the Export-Import 
Bank's willingness to provide financing was a major factor in 
winning this order. Nevertheless, he said the use of tied aid 
by other governments continues to be a problem for his company.
    Ms. Houlihan voiced the opinion that, from a practical 
point of view, not much has changed over the past 15 years, 
despite the fact that recent progress has been made in 
curtailing the use of tied aid. She pointed out that foreign 
governments often work out in advance with host governments 
their participation in development projects. She said her 
organization has encouraged the Trade Promotion Coordinating 
Committee to look into this process with the goal of getting 
U.S. Government agencies involved early on.
    According to Ms. Houlihan, a major problem is that the U.S. 
foreign assistance program does not have the same goals as 
assistance programs of other countries. These countries 
recognize that they can help the developing country and help 
their exporters at the same time. She said she believes the 
United States should provide more funding for feasibility 
studies and that there should be a stronger tied aid credit 
program. She also believes the United States should consider 
initiating and not just matching tied aid credit offers in some 
circumstances.
    Ms. Hecker testified regarding the harm done by tied aid, 
the efforts to deal with the problem, and GAO's view of the 
effectiveness of these efforts. Last year, the GAO documented 
almost $2 billion worth of lost exports for the period 1989 to 
1991 due to foreign companies having a competitive advantage 
because of their governments' concessional financing. However, 
this understates the real loss because the purpose of 
concessional financing is to get into a market early and thus 
be in a position to benefit from longer term business. So the 
problem is serious, and federal intervention is needed to even 
the playing field. She said the OECD agreement was helpful, but 
it did not end tied aid, which continues to substantially harm 
U.S. business. The new authority in 1992 and the Export-Import 
Bank's more flexible policy, which was instituted in 1994, were 
very important because they allowed a proactive effort to 
counter tied aid offers. In particular, the willingness to 
match allows U.S. business to get into the game early and deter 
other countries's tied aid offers.
    Ms. Hecker said it is too early to fully evaluate the 
efforts to end the use of tied aid. She said that GAO believes 
reauthorization of the tied aid credit fund has merit and would 
clearly appear to contribute to the long-term U.S. goal of 
reducing tied aid and providing a level playing field for U.S. 
competitors.
    A related issue raised at the hearing was the extent to 
which untied aid, which is aid that is not contingent upon the 
purchase of goods or services from the donor country, could be 
implicitly or explicitly tied. An example of this is the 
funding by the donor country of feasibility studies which may 
contain specifications that match the manufacturing 
specifications of companies in the donor country, thereby 
giving these companies a competitive advantage in the bidding 
process.
    Mr. Brody and Mr. Barreda described what the Government is 
doing to deal with the untied aid problem. Mr. Brody said that 
the Export-Import Bank is ready to match so-called ``untied 
aid'' if the Bank determines that it is actually tied. Mr. 
Barreda said the United States can challenge whether aid is in 
fact untied; in one case such a challenge resulted in the donor 
country admitting its aid was tied and agreeing to follow the 
tied aid rules. He said the United States is also seeking 
greater transparency in the area of untied aid, including 
advanced notice of offers and international competitive 
bidding.
    Mr. Bowe and Ms. Houlihan expressed the opinion that untied 
aid is a serious problem, and that the Government response 
should be more aggressive and proactive. Mr. Bowe related his 
experiences with the use of feasibility studies to tie 
ostensibly untied aid. He described how one feasibility study 
produced by a foreign company specified certain horsepower, 
RPM, and fuel consumption for an engine, and that an engine 
with these specifications could only be provided by a company 
in that foreign country. Ms. Houlihan said the Government's 
response of seeking greater transparency is not sufficient, and 
that the Government should help American companies develop 
projects at the earliest stage through feasibility studies and 
engineering design services.
    Ms. Hecker said there is widespread agreement that a 
substantial amount of untied aid really could be tied either 
implicitly or explicitly, and that this is an important area 
for future attention. In addition to the use of feasibility 
studies, the relationships between companies in the donor and 
donee countries should be investigated as a possible way in 
which untied aid can be tied.

                         Full Committee Markup

    On September 20, 1995, the Banking Committee approved a 
measure to reauthorize the tied aid credit fund and to 
authorize a demonstration project at the Export-Import Bank. 
The measure was approved by voice vote.
    The committee expresses the strong opinion that tied aid is 
a serious threat to the competitiveness of U.S. companies in 
important overseas markets. Although the use of tied aid has 
decreased, foreign governments continue to extend tied aid 
offers and the United States must be prepared to match these 
offers to level the playing field for U.S. exporters. The 
committee applauds the aggressive use of the tied aid credit 
fund by the Export-Import Bank and the Bank's proactive 
policies that have preempted tied aid offers from other 
governments. The committee believes that the Bank should 
continue these policies and thus voted to extend for two more 
years the Export-Import Bank's tied aid credit fund until 
September 30, 1997, when the Export-Import Bank Act of 1945 
expires. The committee will examine this issue again in 1997 
when it will have to consider reauthorizing the Export-Import 
Bank's charter.
    The Committee also believes that untied aid which is 
implicitly or explicitly tied is a serious problem that must be 
addressed once the Government has more information on the 
extent of its use. This will be a source of ongoing interest of 
the Committee in the future.

Section-by-section analysis

    Section 1 provides for an extension of the Tied Aid Credit 
Fund in the Export-Import Bank Act of 1945 (12 U.S.C. 635i-
3(c)(2)) for a period of two years from September 30, 1995 to 
September 30, 1997. This section also authorizes to be 
appropriated to the fund such sums as may be necessary for 
fiscal years 1996 and 1997.
    Section 2 authorizes the Export-Import Bank to carry out a 
demonstration project in accordance with section 4703 of title 
5 of the United States Code.

Regulatory impact statement

    Pursuant to rule XXVI, paragraph 11(b) of the Standing 
Rules of the Senate, the Committee has evaluated the regulatory 
impact of the bill and concludes it would result in no net 
increase in the regulatory burden imposed by the Government.

Changes in existing law

    The Committee has determined that it is necessary, in order 
to expedite the business of the Senate, to dispense with the 
requirements of rule XXVI, paragraph 12, of the Standing Rules 
of the Senate, with respect to this legislation.

Cost of legislation

    The cost estimate of the Congressional Budget Office 
appears below:
                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 21, 1995.
Hon. Alfonse M. D'Amato,
Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate on a bill to reauthorize 
the tied-aid credit program of the Export-Import Bank of the 
United States and to allow the Export-Import Bank to conduct a 
demonstration project, as ordered reported by the Senate 
Committee on Banking, Housing, and Urban Affairs on September 
20, 1995.
    The bill would not affect direct spending or receipts and 
thus would not be subject to pay-as-you-go procedures under 
section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                             James L. Blum,
                                   (For June E. O'Neill, Director.)

     Congressional Budget Office--Cost Estimate, September 21, 1995

    1. Bill number: unassigned.
    2. Bill title: a bill to reauthorize the tied-aid credit 
program of the Export-Import Bank of the United States and to 
allow the Export-Import Bank to conduct a demonstration 
project.
    3. Bill status: as ordered reported by the Senate Committee 
on Banking, Housing, and Urban Affairs on September 20, 1995.
    4. Bill purpose: the bill would authorize the appropriation 
of $500 million for the bank's tied-aid credit program in 
fiscal years 1996 and 1997. In addition, the bill would permit 
the bank to undertake a demonstration project on personnel 
management.
    5. Estimated cost to the Federal Government: the following 
table summarizes the estimated budgetary impact of the bill 
which would depend upon subsequent appropriations action. The 
spending falls in budget function 150 (international affairs).

                                    SPENDING SUBJECT TO APPROPRIATIONS ACTION                                   
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                                   1995    1996    1997    1998    1999    2000 
----------------------------------------------------------------------------------------------------------------
Spending Under Current Law:                                                                                     
Budget Authority \1\............................................     100       0       0       0       0       0
Estimated Outlays...............................................      20      19      13       9       3       1
Proposed Changes:                                                                                               
Authorization Level.............................................       0     500     500       0       0       0
Estimated Outlays...............................................       0      52     172     235     203     123
Spending Under the Bill:                                                                                        
Authorization Level.............................................     100     500     500       0       0       0
Estimated Outlays...............................................      20      71     186     244     205    124 
----------------------------------------------------------------------------------------------------------------
\1\ The 1995 figure is the amount already appropriated.                                                         

    6. Basis of estimate: the tied-aid credit program permits 
the bank to finance exports on highly concessional terms. In 
1995, Congress appropriated $100 million for the program. The 
bill would extend the program through 1997 and authorize the 
appropriation of $500 million in fiscal years 1996 and 1997. 
The estimate assumes enactment of the bill and appropriation of 
the authorized amounts of each fiscal year. CBO used historical 
spending rates for estimating outlays.
    CBO estimates that the demonstration project for personnel 
management would not increase the bank's administrative 
expenses.
    7. Pay-as-you-go considerations: None.
    8. Estimated cost to State and local governments: None.
    9. Estimate comparison: None.
    10. Previous CBO estimate: On September 8, 1995, CBO 
prepared an estimate for a companion bill, H.R. 2203, as 
introduced in the House of Representatives.
    11. Estimate prepared by: Joseph C. Whitehill (202) 226-
2840.
    12. Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                                
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