Export-Import Bank: Key Factors in Considering Eximbank Reauthorization
(Testimony, 07/17/97, GAO/T-NSIAD-97-215).

GAO discussed issues concerning the reauthorization of the U.S.
Export-Import Bank (Eximbank), focusing on: (1) the rationales regarding
the Eximbank's programs; (2) foreign competitors' export finance
programs; (3) available options to achieve budgetary savings at the
Eximbank; and (4) the ways in which Eximbank's assistance is
distributed.

GAO noted that: (1) proponents and opponents continue to debate the
economic benefits of Eximbank activity to the U.S. economy and the
extent to which it helps achieve U.S. trade and foreign policy
objectives; (2) the most compelling case that can be made for these
programs is that they help level the international playing field for
U.S. exporters and provide leverage to induce foreign governments to
reduce export subsidies; (3) 73 countries have export credit agencies;
(4) however, about half of all export credit support worldwide is
extended by the seven largest (Group of 7 (G-7)) industrial nations,
each of which maintains various types of export finance assistance
programs; (5) although considerable differences exist among these
programs, they all help exporters compete for market share in developing
markets by providing loans, guarantees, and insurance; (6) the
Eximbank's programs require substantial levels of taxpayer support,
about $4 billion over r last 5 years; (7) Eximbank could possibly
achieve budgetary savings by raising fees or reducing program risks
while still maintaining a competitive position relative to other export
credit agencies; (8) the U.S. government's ultimate objectives continue
to be reducing and eliminating export financing subsidies, allowing
exporters to compete on the basis of price, quality, and service, not
subsidized financing; (9) regarding the ways its financing assistance is
distributed, during fiscal years 1994 to 1996, the top 15 users (lead
U.S. exporters or contractors) of Eximbank financing accounted for about
38 percent of the value of the Eximbank's financing commitments; (10)
while about 80 percent of its assistance went to support large and
medium-sized companies, the Eximbank also reported that 20 percent of
its assistance went to support small business during the same period;
(11) in geographical terms, China, Indonesia, and Mexico were Eximbank's
top three markets in fiscal year 1996; (12) the Eximbank also supports
the sale of dual-use, military and civilian, export items provided that
the items are non-lethal and for primarily civilian use; (13) in fiscal
years 1995 through 1997, the Eximbank made financing commitments
totalling $226 million, less than 1 percent of its total financing
commitments made during that period, to support 10 dual-use exports to 4
countries; and (14) GAO's review indicated that the Eximbank appears to*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-97-215
     TITLE:  Export-Import Bank: Key Factors in Considering Eximbank 
             Reauthorization
      DATE:  07/17/97
   SUBJECT:  Off-budget federal entities
             Foreign economic development credit
             International economic relations
             Foreign governments
             Exporting
             International trade
             Dual-use technologies
             Export regulation
             Subsidies
IDENTIFIER:  China
             Indonesia
             Mexico
             
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Cover
================================================================ COVER


Before the Subcommittee on International Finance, Committee on
Banking, Housing, and Urban Affairs,
U.S.  Senate

For Release on Delivery
Expected at
9:30 a.m., EDT
Thursday,
July 17, 1997

EXPORT-IMPORT BANK - KEY FACTORS
IN CONSIDERING EXIMBANK
REAUTHORIZATION

Statement of JayEtta Hecker, Associate Director, International
Relations and Trade Issues, National Security and International
Affairs Division

GAO/T-NSIAD-97-215

GAO/NSIAD-97-215T

Export-Import Bank

(711289)


Abbreviations
=============================================================== ABBREV

  OECD - Organization for Economic Cooperation and Development

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss issues concerning the
reauthorization of the U.S.  Export-Import Bank (Eximbank).  My
statement today will focus on four key factors that the Congress
might consider in debating Eximbank reauthorization: 

  -- the rationales regarding the Eximbank's programs,

  -- foreign competitors' export finance programs,

  -- available options to achieve budgetary savings at the Eximbank,
     and

  -- the ways in which Eximbank's assistance is distributed. 

My comments are based on the results from our current and past
reviews of the Eximbank and governmentwide export promotion issues. 
(A listing of related GAO products is at the end of this statement.)


   SUMMARY
---------------------------------------------------------- Chapter 0:1

Proponents and opponents continue to debate the economic benefits of
Eximbank activity to the U.S.  economy and the extent to which it
helps achieve U.S.  trade and foreign policy objectives.  The most
compelling case that can be made for these programs is that they help
"level the international playing field" for U.S.  exporters and
provide leverage to induce foreign governments to reduce export
subsidies.  Their overall contribution to U.S.  economic performance
is less certain. 

Seventy-three countries have export credit agencies.  However, about
half of all export credit support worldwide is extended by the seven
largest (Group of 7 (G-7)) industrial nations, each of which
maintains various types of export finance assistance programs. 
Although considerable differences exist among these programs, they
all help exporters compete for market share in developing markets by
providing loans, guarantees, and insurance.  The Eximbank provides
similar types of assistance.  The Eximbank also administers a tied
aid capital projects fund (known as the "war chest") as part of its
programs to counter other countries' trade-distorting tied aid
practices.  Tied aid is concessionary (low-interest rate) financing
that is linked to the procurement of goods and services from the
donor country.  During 1994-1996, the Eximbank board of directors
approved the use of war chest funds in 40 cases.  Overall, the
Eximbank financed about 2 percent of total U.S.  exports in fiscal
year 1995, the lowest level of support provided by G-7 nations'
export credit agencies. 

The Eximbank's programs require substantial levels of taxpayer
support (about $4 billion over the last 5 years).  We recently
completed a review of Eximbank activities and concluded that it could
possibly achieve budgetary savings by raising fees or reducing
program risks while still maintaining a competitive position relative
to other export credit agencies.\1 These options would not require a
change in law because they fall within Eximbank's present authority. 
However, we recognize that such changes should be considered within
the full context of their trade and foreign policy implications and
Eximbank's other statutory obligations. 

The U.S.  government's ultimate objectives continue to be reducing
and eliminating export financing subsidies--allowing exporters to
compete on the basis of price, quality, and service--not subsidized
financing.  The U.S.  government continues to use international
forums such as the Organization for Economic Cooperation and
Development (OECD)\2 in its efforts to reduce and eventually
eliminate subsidized export finance programs.  We are encouraged that
the OECD recently reached agreement to standardize and set minimum
fees (beginning in 1999) for all member export credit agencies.  This
agreement has the potential to reduce government subsidies for these
programs.  However, given the growing importance of exports to
national economic performance, and the belief that government export
finance programs contribute to this performance, achieving the
ultimate objective of eliminating all financial subsidies may prove
difficult. 

Regarding the ways its financing assistance is distributed, during
fiscal years 1994 to 1996, the top 15 users (lead U.S.  exporters or
contractors) of Eximbank financing accounted for about 38 percent of
the value of the Eximbank's financing commitments.  While about 80
percent of its assistance went to support large and medium-sized
companies, the Eximbank also reported that 20 percent of its
assistance went to support small business during the same period. 
The Eximbank believes that these small business transactions would
not otherwise have been financed by private lenders.  In geographical
terms, China, Indonesia, and Mexico were Eximbank's top three markets
in fiscal year 1996. 

The Eximbank also supports the sale of dual-use (military and
civilian) export items provided that the items are non-lethal and for
primarily civilian use.  The report that we are releasing today shows
that dual-use exports constitute a small share of Eximbank's
financing activities and remains well under the 10-percent cap
established by law.  In fiscal
years 1995-97, the Eximbank made financing commitments totaling $226
million--less than 1 percent of its total financing commitments made
during that period--to support 10 dual-use exports to 4 countries. 
Our review indicated that the Eximbank appears to have established
procedures that should provide a sound basis for determining whether
these exports are nonlethal and primarily used for civilian purposes,
as required by law. 


--------------------
\1 See Export-Import Bank:  Options for Achieving Possible Budget
Reductions (GAO/NSIAD-97-7, Dec.  20, 1996). 

\2 OECD, created in 1960, is a forum for monitoring economic trends
and coordinating economic policy among 29 countries, including the
United States, and serves as the forum for negotiating limitations on
government export credit subsidies and developing guidelines for
export-financing assistance programs.  The OECD's "Arrangement on
Guidelines for Officially Supported Export Credits," which was
established in 1978, sets the terms and conditions for official
export credits. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

Created in 1934, the Eximbank is an independent U.S.  government
agency that operates under a renewable congressional charter that
expires on September 30, 1997.  In conducting its operations, the
Eximbank must comply with several statutory requirements.  The
Eximbank is required to

  -- supplement and encourage, but not compete with private sources
     of capital;

  -- seek to reach international agreements to reduce
     government-subsidized export financing; and

  -- provide financing at rates and on terms that are "fully
     competitive" with those of other foreign government-supported
     export credit agencies
     (12 U.S.C.  635 (b)(1)(A)(B)). 

Eximbank financing programs include

  -- loans to foreign buyers of U.S.  exports,

  -- loan guarantees to commercial lenders,

  -- export credit insurance to U.S.  exporters and lenders, and

  -- working capital guarantees for pre-export production. 

Reflecting the growing move toward privatization in the developing
world, the Eximbank has recently expanded its activities to include
project finance.  Project finance involves financing where repayment
is provided through the project's anticipated future revenues rather
than through sovereign (government) or other forms of guarantee. 


   RATIONALES REGARDING EXIMBANK
   PROGRAMS
---------------------------------------------------------- Chapter 0:3

I would first like to briefly discuss the various rationales that
have been advanced for and against government involvement in export
finance.  They provide a useful framework for evaluating whether
Eximbank should be reauthorized.  Supporters of the Eximbank export
finance programs say that this assistance provides leverage in trade
policy negotiations while helping to "level the international playing
field" for U.S.  business, corrects "market failures," and helps to
increase exports and employment.  Opponents say that the Eximbank's
programs result in no net increase in national employment and output,
misallocate resources, and are a form of corporate welfare. 


      TRADE POLICY LEVERAGE
-------------------------------------------------------- Chapter 0:3.1

Supporters believe that the Eximbank helps U.S.  companies compete
against foreign companies that receive government support and provide
leverage in trade policy negotiations.  As already noted, the
Eximbank is required to seek international agreements to reduce
government-subsidized export financing.  OECD nations, including the
United States, have made gradual progress since the late 1970s in
negotiating reductions in officially supported export subsidies,
including a June 1997 agreement that requires export credit agencies
to establish minimum fees based on country risk ratings.  U.S. 
Treasury officials who participate in these negotiations told us that
the Eximbank's programs have provided them with leverage in
negotiating subsidy reductions. 


      INDUSTRY EFFECTS
-------------------------------------------------------- Chapter 0:3.2

Another case that proponents make is that markets do not always lead
to an optimal allocation of resources and that so-called "market
failures" provide an additional justification for government export
finance programs. 

The Eximbank claims that the following are examples of market
failures: 

  -- Private financial institutions may be unwilling to support
     exports to emerging markets even when the risk is correctly
     priced. 

  -- Foreign buyers in certain markets may be unable to secure
     long-term financing for capital equipment. 

  -- Finally, and probably the most often-cited example, is that
     small business exporters may have difficulty in obtaining export
     financing. 

Opponents hold that there is no credible evidence that private
capital markets do not function efficiently and that government
intervention can potentially distort markets. 


      EMPLOYMENT AND TRADE EFFECTS
-------------------------------------------------------- Chapter 0:3.3

According to the Eximbank, the exports it financed in fiscal year
1996 "supported or maintained" nearly 300,000 jobs.\3 It is generally
recognized that some jobs are directly supported through the
Eximbank's programs.  However, economists and policymakers recognize
that employment levels are substantially influenced by macroeconomic
policies, including actions of the Federal Reserve.  At the national
level, under conditions of full employment, government export finance
assistance programs may largely shift production among sectors within
the economy rather than raise the overall level of employment in the
economy.  Hence, the jobs figure that the Eximbank reports may not
represent net job gains in a period of full employment. 

Eximbank programs cannot produce a substantial change in the U.S. 
trade balance.\4 The trade balance is largely determined by
macroeconomic conditions, such as savings and investment and the
government budget deficit.  According to the President's Council of
Economic Advisers, significantly reducing the trade deficit will
require macroeconomic policy measures, such as eliminating the
federal budget deficit. 


--------------------
\3 See Keeping America Competitive:  1996 Annual Report (Washington,
D.C.:  Eximbank), p.  5. 

\4 See Export Promotion:  Rationales for and Against Government
Programs and Expenditures (GAO/T-GGD-95-169, May 23, 1995). 


   FOREIGN COMPETITORS' EXPORT
   FINANCE PROGRAMS
---------------------------------------------------------- Chapter 0:4

The six G-7 countries we studied--Canada, France, Germany, Italy,
Japan, and the United Kingdom--all have export credit agencies, each
with different roles and structures (see table I.1).  According to
Euromoney, a total of 73 export credit agencies now exist
worldwide.\5 The support the G-7 export credit agencies provide for
their exporters can be measured in various ways. 

In terms of the share of financing commitments extended by export
credit agencies in 1995, the Eximbank ranks fourth:  Japan, France,
and Germany accounted for the largest shares.  Japan extended over
half (56 percent), followed by France (20 percent), and Germany (9
percent).  The United States and Canada extended smaller shares--5
percent each--followed by the United Kingdom (3 percent) and Italy (2
percent).\6

In terms of the percentage of national exports these export credit
agencies have financed, the Eximbank is tied for last.  In 1995, the
Eximbank supported 2 percent of total U.S.  exports (the latest year
for which comparative data are available).  This figure is at the
bottom of the range of support provided by the other G-7 nations.  In
contrast, Japan's export credit agencies supported 32 percent of its
country's exports in that year.  France was second, with 18 percent. 
The support provided by Canada, Germany, the United Kingdom, and
Italy ranged from 7 to 2 percent. 

Comparing export credit agency programs is difficult for a number of
reasons: 

  -- Each nation has structured its export financing
     differently--there is no single export finance model.  Export
     credit agencies in the six nations we studied function as
     independent government agencies, sections of ministries, or
     private institutions operating under an agreement with the
     government.  Most of the countries we studied offered overseas
     investment insurance through their export credit agency. 
     However, in the United States, in addition to the Eximbank
     insurance program, overseas investment insurance is offered
     through a separate agency, the Overseas Private Investment
     Corporation.  (Table I.1 provides a summary of the principal
     differences between the Eximbank and the six export credit
     agencies we studied.)

  -- Unlike the Eximbank, which is prohibited by law from competing
     with private sources of capital, other export credit agencies
     appear to compete to varying degrees with private sources of
     export financing.  For example, the Japanese government's export
     insurance provider is Japan's only export insurer.  It reported
     that it insured about 28 percent ($124 billion) of all Japanese
     trade transactions in 1995--the highest level of trade and
     investment insurance underwriting in the world (private or
     public).  Similarly, Canada's Export Development Corporation
     does not function as a lender of last resort. 

  -- Other export credit agencies we studied cover different amounts
     of political and commercial risks.  Currently, the Eximbank
     provides 100-percent, unconditional political and commercial
     risk protection on most of the medium- and long-term coverage
     (coverage over 5 years) it issues.  European export credit
     agencies (with the exception of the United Kingdom) generally
     require exporters and banks to assume a portion of the risks
     (usually 5 to 10 percent) associated with such support.  This
     concept of risk sharing is a fundamental difference between the
     Eximbank and these export credit agencies. 

  -- Finally, export credit agencies use different budgetary and
     reporting standards, thus making it difficult to directly
     compare the Eximbank's program costs.  The 1990 Federal Credit
     Reform Act (P.L.  101-508, Nov.  5, 1990) requires the Eximbank
     to estimate and budget annually for the total long-term costs of
     its credit programs on a net present value basis.\7 Other
     nations operate on a cash basis\8 and are not subject to similar
     budget requirements.  Under this cash approach, a government
     reimburses an export credit agency for total cash losses
     sustained on its operations during the year.  Moreover, costs
     reported may not always represent total expenses to the
     government.  For example, Canada's Export Development
     Corporation uses a separate national interest account ("Canada
     Account") to support some export finance activity.  The costs of
     this support are accounted for separately in its year-end
     reports.  (Table I.2 provides information on the costs of the
     G-7 nations' export-financing programs.)


--------------------
\5 Euromoney publishes an annual survey of world export credit
agencies. 

\6 The United States and the six major industrialized countries we
studied provided $258 billion of the total $553 billion in total
export financing. 

\7 Present value analysis calculates the value today of a future
stream of income or expenses. 

\8 Under cash-based budgeting, receipts are recorded when received
and expenditures are recorded when paid regardless of the accounting
period in which the receipts are earned or the costs incurred. 


      EXPORT CREDIT AGENCY COSTS
      ARE DIFFICULT TO COMPARE
-------------------------------------------------------- Chapter 0:4.1

Although direct cost comparisons between Eximbank and other national
programs are difficult to make, the available cost data we reviewed
suggests that several export credit agencies in the six countries we
studied have reported improved financial results.  France, Germany,
and the United Kingdom all reported positive financial results for
their export credit agencies in 1995, the most recent year for which
complete information was available.  The Berne Union reported that
among its member countries there was an aggregate loss of $501
million in 1995 compared with $6.5 billion in 1994.\9 According to
the Berne Union, this change was attributed to an improved global
debt scenario and tighter export credit agency underwriting
standards. 


--------------------
\9 The Berne Union is an association of 43 export credit insurance
agencies that includes the G-7 nations' export credit agencies. 


   OPPORTUNITIES FOR ACHIEVING
   POSSIBLE BUDGET REDUCTIONS
---------------------------------------------------------- Chapter 0:5

As part of the reauthorization debate, the Congress may wish to focus
on ways to achieve greater Eximbank operating efficiencies.  In our
recent report,\10 we identified two options for reducing the cost of
the Eximbank's programs while allowing it to remain competitive with
other export credit agencies:  (1) raising the fees\11 charged for
Eximbank financing and (2) reducing the risk of its programs by, for
example, limiting program availability in higher risk markets or
offering less than 100-percent risk protection.  These options fall
within its present authority and would not require a change in the
Export-Import Bank Act of 1945, as amended. 

Both of these options could result in significant reductions in the
Eximbank's subsidy costs.  To illustrate the potential savings
associated with fee increases, we estimated that the Eximbank could
have saved about $84 million in fiscal year 1995 if had raised its
fees to the mid-range of those charged by other export credit
agencies.  The second option, reducing program risks, would have
resulted in larger subsidy savings in the same year--up to $157
million--with only a slight effect on the overall level of U.S. 
exports supported with Eximbank financing.  The Congressional Budget
Office concurs with our assessment that subsidy savings could occur. 
Their work concluded that (1) increasing fees could save the Eximbank
up to $450 million over 5 years and (2) reducing program risks could
save up to $1.2 billion over 5 years.\12

In our report, we acknowledged that these options could raise several
trade and foreign policy issues that decisionmakers would need to
address before making any changes in the Eximbank's programs.  For
example, a large share of the Eximbank's subsidy budget is spent
supporting transactions to high-risk markets, such as the newly
independent states of the former Soviet Union, that exhibit promising
long-term potential.  In fiscal year 1996, financing commitments for
high-risk markets represented about one-fourth of total financing
commitments yet absorbed almost three-fourths of the Eximbank's total
subsidy budget. 

Our report also stated that any proposed fee increases should be
considered in the broader context of ongoing OECD efforts to
negotiate minimum fee schedules and that the magnitude and timing of
such an increase should take into account progress in these
negotiations.  Thus, we are encouraged by the recent progress made in
OECD to establish minimum fees across all major export credit
agencies.  These new rules will take effect on April 1, 1999, and
should help eliminate some of the trade distorting effects of
subsidized export financing.  Although many details of the new
agreement have yet to be worked out, these new rules will likely
require the Eximbank to raise its fees for many transactions and
could allow it to operate at reduced taxpayer cost. 


--------------------
\10 See (GAO/NSIAD-97-7). 

\11 The Eximbank must set fees that are "fully competitive" with the
pricing and coverage offered by other major export credit agencies. 

\12 See Addressing the Deficit:  Budgetary Implications of Selected
GAO Work for Fiscal Year 1998 (GAO/OCG-97-2, Mar.  14, 1997). 


   DISTRIBUTION OF EXIMBANK
   FINANCING
---------------------------------------------------------- Chapter 0:6

During fiscal years 1994-96, the Eximbank provided an annual average
of $12.8 billion in export financing commitments (loans, guarantees,
and insurance) at an annual average program cost of $877 million. 
The Eximbank projects that it will provide about $16.5 billion of
export finance support in fiscal year 1997, an all-time high.  (See
table II.1 for a more detailed description of Eximbank's past and
projected financing commitments and program costs.)

In fiscal year 1996, China was the Eximbank's top export market
($1.2 billion), followed by Indonesia ($825 million), Mexico ($753
million), Trinidad and Tobago ($632 million), and Brazil ($488
million).  (See fig.  II.1 for a list of the Eximbank's top 10
markets and their associated program costs for fiscal year 1996.)
Relative to total U.S.  goods\13 exported to these markets, the
Eximbank supported about 11 percent of U.S.  exports to China, about
22 percent of U.S.  exports to Indonesia, about 1 percent of U.S. 
exports to Mexico, about 93 percent of U.S.  exports to Trinidad and
Tobago, and about 4 percent of U.S.  exports to Brazil. 

During fiscal years 1994 through 1996, the 15 most frequent users
(lead U.S.  exporters or contractors) of Eximbank financing accounted
for about $14.4 billion, or about 38 percent, of the Eximbank's total
export-financing commitments made during that period (see fig. 
II.2).  The export finance transactions involving these companies
absorbed about 27 percent of the Eximbank's total program budget, or
about $682 million over the same period.  These data do not capture
the full range of U.S.  companies associated with Eximbank-financed
deals such as subcontractors and other suppliers. 

While about 80 percent of the Eximbank's assistance was provided to
large and medium-sized companies, about 20 percent ($7.5 billion) of
the Eximbank's financing commitments--about 79 percent of its total
transactions--went to small business, primarily through its insurance
programs.\14 (See table II.2.)

The Eximbank has participated in international (OECD) negotiations to
limit the use of tied aid and has used its tied aid capital projects
fund (also known as the "war chest") to counter foreign countries'
use of tied aid.  The OECD efforts have resulted in a decrease in
reported international levels of tied aid--the annual average level
of tied aid decreased from about $10 billion in 1992 to approximately
$4 billion in 1995.\15 During 1994-96, the Eximbank board of
directors approved the use of war chest funds in 40 instances.  (See
app.  III for a list of transactions in which tied aid funds were
actually used.) The balance in the tied aid war chest was $343
million as of June 30, 1997. 

The Eximbank also supports the sale of dual-use (military and
civilian) export items provided that the items are nonlethal and for
primarily civilian use (see app.  IV).  The report that we are
releasing today shows that dual-use exports constitute a small share
of Eximbank's financing activities and remains well under the
10-percent cap established by law.  In fiscal years 1995-97, the
Eximbank made financing commitments totaling $226 million--less than
1 percent of its total financing commitments made during that
period--to support 10 dual-use exports to 4 countries.  Only one of
these exports--involving aircraft parts and services to
Indonesia--has actually been delivered overseas.  Our review
indicated that the Eximbank appears to have established procedures
that should provide a sound basis for determining whether these
exports are nonlethal and primarily used for civilian purposes, as
required by law.  In the spring of 1997, for the one dual-use export
that has taken place, Eximbank officials, assisted by other U.S. 
government officials, were able to verify that it was primarily used
for civilian purposes. 

Since fiscal year 1993, the Eximbank has issued guarantees related to
25 project finance deals totaling $6.4 billion (the estimated value
of these projects was $22.6 billion).  In fiscal year 1997, the
Eximbank estimates project-financing deals will account for about 30
percent of its total financing commitments (these deals accounted for
about 14 percent of its assistance in 1996).  (See table V.1.)
Because these projects tend to be large, the Eximbank often shares
project risk with other export credit agencies, the Overseas Private
Investment Corporation, or multilateral institutions such as the
International Finance Corporation. 


--------------------
\13 Department of Commerce data on service exports to these markets
were unavailable. 

\14 Since 1986, the Eximbank has been legislatively required to allot
at least 10 percent of its financing authorizations to small business
concerns as defined by the Small Business Administration regulations. 

\15 Tied aid notifications occur through the OECD's reporting
mechanism. 


   CONCLUSION
---------------------------------------------------------- Chapter 0:7

In sum, the Congress may wish to consider Eximbank's reauthorization
within the context of the international competition.  While the
export credit agencies we identified operate under different mandates
and are subject to different budgeting and reporting standards than
the Eximbank, they all help their exporters compete for contracts in
the world market.  The costs of the Eximbank's programs need to be
weighed against their benefits to exporters and the leverage they
provide in international negotiations to reduce foreign government
support for these types of programs.  Our recent work identified some
options--raising fees and reducing program risks--that the Congress
may wish to consider in reducing the cost of these programs while
still allowing the Eximbank to assist U.S.  exporters and support
efforts to reach additional international agreements to reduce export
subsidies. 


-------------------------------------------------------- Chapter 0:7.1

Mr.  Chairman and Members of the Subcommittee that concludes my
prepared statement.  I will be happy to answer any questions you may
have. 


COMPARISON OF G-7 NATIONS' EXPORT
CREDIT AGENCY STRUCTURES AND ROLES
=========================================================== Appendix I



                                    Table I.1
                     
                        G-7 Nations' Export Credit Agency
                             Organizations and Roles

Country       Export credit agency  Public or private     Role
------------  --------------------  --------------------  ----------------------
United        U.S. Export-Import    Public, independent   --Statutory mandate to
States        Bank                  government agency.    supplement and
              (Eximbank)                                  encourage, but not
                                                          compete with, private
                                                          sources of capital.
                                                          --Receives a credit
                                                          subsidy appropriation
                                                          each year from the
                                                          U.S. Congress.

Canada        Export Development    Public, independent   -Some competition with
              Corporation (EDC)     government agency.    private sector.
                                                          -Aims to be
                                                          financially self-
                                                          sustaining.

France        COFACE provides       Private. Both COFACE  --COFACE exercises a
              export finance        and BFCE have         dual role by
              insurance and         recently been         administering export-
              guarantees.           privatized.           financing support on
              BFCE provides         Government covers     behalf of the French
              interest-rate         deficits incurred on  government and
              support on            state account         offering export
              commercial bank       activities.           finance assistance
              loans                                       through its own
                                                          programs.

Germany       Hermes, C&L Deutsche  Private consortium.   --Hermes and C&L
              Revision, and KfW     Hermes and C&L        exercise a dual role
                                    Deutsche Revision     by operating the
                                    jointly administer    government's export
                                    German export         finance programs and
                                    finance program on    offering export
                                    behalf of the state.  finance assistance
                                    KfW offers export     privately.
                                    loans to German
                                    exporters.
                                    Government covers
                                    deficits on state
                                    account activities.

Italy         Special Section for   Public agencies.      --Some competition
              Export Credit                               with private sector as
              Insurance (SACE) and                        Mediocredito Centrale
              Central Institute                           also functions as
              for Medium Term                             commercial bank.
              Credits
              (Mediocredito
              Centrale)

Japan         Export-Import Bank    Public. JEXIM is an   --JEXIM aims to
              of Japan (JEXIM)      independent           supplement and
              provides financing.   government agency.    encourage commercial
              Export Insurance      EID-MITI is housed    bank financing but not
              Division-Ministry of  in Japan's Ministry   compete with it.
              International Trade   of International      --EID-MITI competes
              and Industry (EID-    Trade and Industry.   with private sector
              MITI) provides                              providers.
              insurance

United        Export Credits        Public, independent   --Short-term business
kingdom       Guarantee Department  government            was privatized.
              (ECGD)                department.           --Has a specific
                                                          mandate to break even
                                                          financially.
--------------------------------------------------------------------------------
Legend

BFCE = Banque Francaise du Commerce Exterieur
COFACE = Compagnie Francaise d'Assurance Pour Le Commerce Exterieur
KfW = Kreditanstalt fur Wiederaufbau



                                    Table I.2
                     
                          Reported Financial Results of
                      Government-supported Export-financing
                      Programs in the United States and Six
                          Competitor Countries, 1994-96

                            (U.S. dollars in millions)

Country                      ECA                            1994    1995    1996
---------------------------  ---------------------------  ------  ------  ------
United States\a              Eximbank                     ($979)  ($716)  ($934)
Canada\b                     EDC                             N/A     N/A     N/A
France                       COFACE and BFCE              ($503)      $7  $1,151
Germany\c                    Hermes/C&L and Deutsche      ($1,98     $38    $605
                              Revision                        5)
Italy                        SACE and Mediocredito        ($1,50  ($1,82  ($822)
                              Centrale                        1)      1)
Japan\d                      JEXIM and EID-MITI            ($80)  ($113)     N/A
United Kingdom\e             ECGD                            $29    $362     N/A
--------------------------------------------------------------------------------
Legend

N/A = Not available. 

Note 1:  There are several caveats with regard to how the numbers in
this table should be interpreted.  The type and nature of each
nation's export credit agency (ECA) business varies in ways that
ultimately influence its costs.  In the case of Japan's Export-Import
Bank, 44 percent of its fiscal year 1995 commitments were for loans
not "tied" to Japanese exports, 37 percent were for overseas
investment loans, and 8 percent for import loans.  Only 11 percent of
JEXIM's total financing in that year was reported to have been used
for export loans.  Where there are two ECAs, we have combined
financial results. 

Note 2:  Amounts in parentheses indicate a deficit.  Positive amounts
indicate a surplus. 

\a The figures for the Eximbank represent the credit subsidy
obligation and administrative costs obligated for the fiscal year. 

\b Canada's EDC reported net income of $171 million, $44 million, and
$112 million in 1994, 1995, and 1996, respectively.  However, these
amounts do not include the support separately provided through the
Canadian national interest account ($200 million in 1996 but not
available for 1994 and 1995).  EDC conducts a significant (42
percent) level of business with Organization for Economic Cooperation
and Development (OECD) nations, which influences its profitability. 

\c The totals for Germany include interest revenues from debt
reschedulings. 

\d The Japanese fiscal year ends March 31.  The figures for Japan's
EID-MITI include direct transfers from the Ministry of Finance for
Paris Club debt writeoff of $272 million in fiscal year 1994 and $233
million in 1995. 

\e The United Kingdom's fiscal year ends March 31.  ECGD figures
include amounts spent on foreign exchange insurance and interest rate
subsidies. 


DISTRIBUTION OF EXIMBANK FINANCING
========================================================== Appendix II



                                    Table II.1
                     
                        Eximbank Financing Commitments and
                              Program Costs, 1994-98

                              (Dollars in millions)

                                                       Fiscal year
                                          --------------------------------------
                                            1994    1995    1996    1997  1998\a
----------------------------------------  ------  ------  ------  ------  ------
Value of export financing commitments     $14,88  $11,86  $11,51  $16,52     N/A
                                             6.4     4.9     6.9     1.7
Administrative costs                        42.6    41.4    40.8    46.6    48.6
Estimated program costs                    936.7   674.8   893.6   726.0   632.0
================================================================================
Total costs\b                             $979.3  $716.2  $934.4  $772.6  $680.6
--------------------------------------------------------------------------------
Legend

N/A = Not available. 

Note:  The cost figures for 1994-96 are based on amounts obligated,
while the 1997 figures represent the amount appropriated.  Under the
Federal Credit Reform Act of 1990 (P.L.  101-508, Nov.  5, 1990), the
Eximbank is required to estimate and budget for the total long-term
costs of their credit programs on a net present value basis.  Present
value analysis calculates the value today of a future stream of
income or expenses.  The Congress funds the Eximbank's estimated
credit subsidy costs through the annual appropriations process. 
Subsidy costs arise when the estimated program disbursements by the
government exceed the estimated payments to the government on a net
present value basis.  Administrative expenses receive a separate
appropriation and are reported separately in the budget. 

\a President's fiscal year 1998 budget request. 

\b Total costs are defined as the Eximbank's program costs and
administrative costs. 

Source:  Eximbank. 

   Figure II.1:  Top 10 Country
   Recipients of Eximbank
   Financing Authorizations (and
   associated estimated program
   costs), Fiscal Year 1996

   (See figure in printed
   edition.)

Source:  Eximbank. 

   Figure II.2:  Top 15 Recipients
   of Eximbank Financing, Fiscal
   Years 1994-96

   (See figure in printed
   edition.)

Source:  Eximbank. 



                                     Table II.2
                      
                         Eximbank Small Business Financing
                         Commitments, Fiscal Years 1994-96

                               (Dollars in millions)

                      Number of
Fi                    financing                                       Percentage of
sc       Total      commitments                          Value of          Eximbank
al    Eximbank       supporting     Percentage of  financing made         financing
ye  transactio            small             total        to small    commitments to
ar          ns       business\a      transactions        business    small business
--  ----------  ---------------  ----------------  --------------  ----------------
19       1,984            1,576                79           2,690                18
 94
19       2,415            1,910                79           2,461                21
 95
19       2,422            1,934                80           2,405                21
 96
===================================================================================
To       6,821            5,420       Average for          $7,556       Average for
 t                                    period: 79%                       period: 20%
 a
 l
-----------------------------------------------------------------------------------
Source:  Eximbank. 

\a See table II.1 for Eximbank budget figures for fiscal years
1994-96. 


U.S.  FIRMS THAT RECEIVED TIED AID
WAR CHEST ASSISTANCE, 1994-96
========================================================= Appendix III

                       Total
                    Eximbank
                    financin      Contributing Country/
Firm                       g      recipient country               Sector
------------------  --------  --  ------------------------------  --------------
Ellicott Machine    $21,994,      Norway/Indonesia                Transport
Corp.,                   295
International

U.S. China          2,921,52      Austria/China                   Medical
Industrial                 0
Exchange

U.S. China          2,921,52      Austria/China                   Medical
Industrial                 0
Exchange

U.S. China          2,921,52      Austria/China                   Medical
Industrial                 0
Exchange

Motorola, Inc.      43,870,9      U.K. and European Community/    Telecommunicat
                          88      Indonesia                       ion

Cubic Automatic     35,948,2      Germany/China                   Transport
Revenue Collection        68
Group

Zond Systems, Inc.  3,700,07      Denmark/China                   Power
                           3

Zond Systems, Inc.  3,675,07      Denmark/China                   Power
                           5

Zond Systems, Inc.  3,695,40      Denmark/China                   Power
                           0

Interdigital        35,928,4      France and Australia/           Telecommunicat
Communications            15      Indonesia                       ion
--------------------------------------------------------------------------------
Source:  Eximbank. 


EXIMBANK'S FINANCING OF DUAL-USE
EXPORTS
========================================================== Appendix IV

For the last 3 fiscal years, the Eximbank has had the authority to
finance exports of nonlethal defense items whose primary end use is
for civilian purposes.  The Eximbank is authorized to use up to 10
percent of its annual commitments to finance the exports of these
dual-use (military and civilian) items.  As depicted in the following
tables, the Eximbank has financed several items but well below the
10-percent annual cap.  The Eximbank's authority to finance these
items expires on September 30, 1997.  We are required to report to
the Congress no later than September 1, 1997, on the end use of these
items.  We plan to issue a report to the Congress on this matter on
July 17, 1997. 



                                    Table IV.1
                     
                      Summary of Eximbank's Cap on Dual-Use
                          Financing Commitments, 1995-97

                              (Dollars in millions)

                                                                        Dual-use
                                                                       financing
                              Amount allowed                    commitments as a
                     Total    under dual-use          Dual-use  percent of total
Fiscal           financing         financing         financing  export financing
year           commitments    commitment cap       commitments       commitments
----------  --------------  ----------------  ----------------  ----------------
1995             $11,864.9          $1,186.5             $15.4               0.1
1996              11,516.9           1,151.7             102.4               0.9
1997            16,521.7\a           1,652.2           108.3\b               0.7
--------------------------------------------------------------------------------
\a Projected commitment. 

\b As of June 1997. 

Source:  Eximbank. 



                                    Table IV.2
                     
                     Eximbank Dual-Use Financing Commitments,
                               Fiscal Years 1995-97

                              (Dollars in millions)

                Type of
Fi              Eximbank
sc              financing /            Amount of
al  Recipient   description of          Eximbank                  Intended end
ye  country     export                 financing  End user        use
ar  ----------  --------------  ----------------  --------------  --------------
19  Indonesia   Loan/aircraft              $15.4  Indonesian      Territorial
95              parts and                         Air Force       development
                services

19  Romania     Guarantee/air               79.5  Romanian civil  Civil air
96              traffic                           aviation        traffic
                control system                    authority       control

    Indonesia   Loan/                       22.9  Indonesian      Territorial
                helicopters                       Army            development

19  Venezuela   Guarantee/                   8.8  Venezuelan      Territorial
97              radio systems                     Army            development

    Venezuela   Guarantee/                   3.4  Venezuelan      Civil air
                radio systems                     Air Force       traffic
                                                                  control

    Brazil      Loan/aircraft               34.0  Brazilian       Territorial
                components                        Air Force       development

    Venezuela   Guarantee/                  25.5  Venezuelan      Territorial
                trucks                            Army            development

    Venezuela   Guarantee/                  14.1  Venezuelan      Territorial
                trucks                            Army            development

    Venezuela   Guarantee/                  10.1  Venezuelan      Territorial
                aircraft parts                    Army            development

    Venezuela   Guarantee/                  12.4  Venezuelan      Territorial
                motor vehicles                    Army            development
--------------------------------------------------------------------------------
Source:  Eximbank. 


PROJECT FINANCE
=========================================================== Appendix V



                                    Table V.1
                     
                      Eximbank Project Finance Transactions,
                               Fiscal Years 1993-97

                              (Dollars in millions)

Fi
sc
al
ye                                                        Eximbank         Total
ar  Project         Country         Sector                 support  project size
--  --------------  --------------  --------------  --------------  ------------
19  Pagbilao        Philippines     Power                     $185          $933
93

19  Upper Mahiao    Philippines     Power                      166           229
94

    Mahanagdong     Philippines     Power                      200           320

19  Paiton          Indonesia       Power                      540         2,600
95

    Samalayuca      Mexico          Power                      477           644

    Cilicap         Indonesia       Petrochemical              296           633

    Sual            Philippines     Power                      164         1,200

    El Abra         Chile           Mining                     151         1,400

    Termobarranqui  Colombia        Power                      161           756
    lla

    Marmara         Turkey          Power                      228           544

    Comsigua        Venezuela       Manufacturing               67           270

19  Jawa            Indonesia       Power                      390         1,600
96

    Saba            Pakistan        Power                       84           141

    Leyte           Philippines     Power                       50            69

    Uch             Pakistan        Power                      255           612

    Farmland        Trinidad        Petrochemical              235           335

    Alumbrera\a     Argentina       Mining                     228         600\b

    Atlantic LNG\a  Trinidad        Petrochemical              391       1,100\b

19  Avantel         Mexico          Telecom.                   292        1,200\
97

    Halliburton     Angola          Petrochemical               88         200\b

    Alestra         Mexico          Telecom.                   307         670\b

    Batu Hijau      Indonesia       Mining                     425       2,000\c

    Qatargas        Qatar           Petrochemical               60           300

    Quezon          Philippines     Power                      457           828

    Ras Laffan      Qatar           Petrochemical              465         3,400

================================================================================
Gr                                                          $6,362       $22,584
an
d
To
ta
l
--------------------------------------------------------------------------------
Source:  Eximbank. 

\a Political risk coverage only. 

\b Project has been authorized, but deal has not closed. 

\c Awaiting congressional approval. 



                                    Table V.2
                     
                       Infrastructure Projects in Emerging
                         Markets Utilizing ECA Financing

                                       Emerging market
             -------------------------------------------------------------------
Export
credit               Thailan          Indonesi          Argentin
agency       Turkey        d   China         a   India         a  Brazil  Mexico
-----------  ------  -------  ------  --------  ------  --------  ------  ------
Japan                                                                   N/A
United                  N/A                                        
 States
Germany                                                         N/A     N/A
United                  N/A                                N/A             N/A
 Kingdom
France                                   N/A               N/A     N/A     N/A
Austria                        N/A       N/A     N/A       N/A     N/A     N/A
Italy                            N/A               N/A               N/A     N/A
Belgium                         N/A       N/A     N/A       N/A     N/A     N/A
Spain           N/A                       N/A     N/A       N/A     N/A     N/A
Netherlands              N/A     N/A       N/A     N/A       N/A     N/A     N/A
Switzerland     N/A      N/A     N/A               N/A       N/A     N/A     N/A
Sweden          N/A              N/A       N/A     N/A       N/A     N/A     N/A
Norway          N/A              N/A       N/A     N/A       N/A     N/A     N/A
Canada                   N/A     N/A       N/A     N/A       N/A     N/A     N/A
Brazil          N/A      N/A     N/A       N/A     N/A                       N/A
Korea           N/A      N/A               N/A     N/A       N/A     N/A     N/A
--------------------------------------------------------------------------------
Legend

N/A = Not applicable because no projects reported.
 At least one completed project with ECA financing.
Proposed project(s) with ECA financing. 

Source:  Compiled from U.S.  government information and foreign data. 

RELATED GAO PRODUCTS

U.S.  Export-Import Bank:  Process in Place to Ensure Compliance With
Dual-Use Export Requirements (GAO/NSIAD-97-211, July 17, 1997). 

Ex-Im Bank's Retention Allowance Program (GAO/GGD-97-37R, Feb.  19,
1997). 

Export Finance:  Federal Efforts to Support Working Capital Needs of
Small Business (GAO/NSIAD-97-20, Feb.  13, 1997). 

Export-Import Bank:  Options for Achieving Possible Budget Reductions
(GAO/NSIAD-97-7, Dec.  20, 1996). 

Retention Allowances:  Usage and Compliance Vary Among Federal
Agencies (GAO/GGD-96-32, Dec.  11, 1995). 

Export Finance:  Comparative Analysis of U.S.  and European Union
Export Credit Agencies (GAO/GGD-96-1, Oct.  24, 1995). 

Export Promotion:  Rationales for and Against Government Programs and
Expenditures (GAO/T-GGD-95-169, May 23, 1995). 

International Trade:  U.S.  Efforts to Counter Competitors' Tied Aid
Practices (GAO/T-GGD-95-128, Mar.  28, 1995). 

International Trade:  Combating U.S.  Competitors' Tied Aid Practices
(GAO/T-GGD-94-156, May 25, 1994). 

Export Finance:  Challenges Facing the U.S.  Export-Import Bank
(GAO/T-GGD-94-46, Nov.  3, 1993). 

Export Finance:  The Role of the U.S.  Export-Import Bank
(GAO/GGD-93-39, Dec.  23, 1992). 


*** End of document. ***