[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
REAUTHORIZATION OF THE
EXPORT-IMPORT BANK
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL MONETARY POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MAY 2, 8, 2001
__________
Printed for the use of the Committee on Financial Services
Serial No. 107-13
U.S. GOVERNMENT PRINTING OFFICE
72-290 WASHINGTON : 2001
_______________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts
Chair PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska MAXINE WATERS, California
RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas
CHRISTOPHER COX, California GREGORY W. MEEKS, New York
DAVE WELDON, Florida BARBARA LEE, California
JIM RYUN, Kansas FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas
DOUG OSE, California STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York JOSEPH CROWLEY, New York
GARY G. MILLER, California WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
Terry Haines, Chief Counsel and Staff Director
Subcommittee on International Monetary Policy and Trade
DOUG BEREUTER, Nebraska, Chairman
DOUG OSE, California, Vice Chairman BERNARD SANDERS, Vermont
MARGE ROUKEMA, New Jersey MAXINE WATERS, California
RICHARD H. BAKER, Louisiana BARNEY FRANK, Massachusetts
MICHAEL N. CASTLE, Delaware MELVIN L. WATT, North Carolina
JIM RYUN, Kansas JULIA CARSON, Indiana
DONALD A. MANZULLO, Illinois BARBARA LEE, California
JUDY BIGGERT, Illinois PAUL E. KANJORSKI, Pennsylvania
MARK GREEN, Wisconsin BRAD SHERMAN, California
PATRICK J. TOOMEY, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
CHRISTOPHER SHAYS, Connecticut CAROLYN B. MALONEY, New York
GARY G. MILLER, California LUIS V. GUTIERREZ, Illinois
SHELLEY MOORE CAPITO, West Virginia KEN BENTSEN, Texas
MIKE FERGUSON, New Jersey
C O N T E N T S
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Page
Hearings held on:
May 2, 2001.................................................. 1
May 8, 2001.................................................. 35
Appendixes:
May 2, 2001.................................................. 73
May 8, 2001.................................................. 117
WITNESSES
Wednesday, May 2, 2001
Hess, James K., Chief Financial Officer, Export-Import Bank,
accompanied by James Cruse, Group Vice President, Policy;
Jeffrey Miller, Group Vice President, Structured and Trade
Finance; and Elaine Stangland, Deputy General Counsel.......... 6
Redway, William, Group Vice President, Small and New Business,
Export-Import Bank............................................. 7
Ubamadu, Bert, Office of the General Counsel, Export-Import Bank. 8
APPENDIX
Prepared statements:
Bereuter, Hon. Doug.......................................... 74
Oxley, Hon. Michael G........................................ 82
Bentsen, Hon. Kenneth E., Jr................................. 84
Maloney, Hon. Carolyn B...................................... 86
Waters, Hon. Maxine.......................................... 87
Hess, James K. (with charts)................................. 92
Additional Material Submitted for the Record
Bereuter, Hon. Doug:
Ex-Im Bank press release, January 2, 2001.................... 78
Memorandum from Elaine Stangland, Sept. 4, 2000.............. 79
Watt, Hon. Melvin L.:
Letter from Richard A. Brenner, April 16, 2001............... 89
Letter from Winston L. Tennies, April 12, 2001............... 90
Letter from Wall Industries, Inc., April 11, 2001............ 91
Hess, James K.:
International Comparisons of Official Export Credit/Export
Promotion Activity and Administrative Resources............ 113
Letter to Speaker Hastert (with attachment), May 2, 2001..... 107
Written response to a question from Hon. Melvin L. Watt...... 109
Written response to a question from Hon. Janice Schakowsky... 111
WITNESSES
Tuesday, May 8, 2001
Page
Becker, George, Retired President, United Steelworkers of
America, on behalf of the United Steelworkers of America....... 48
Bergsten, C. Fred, Director, Institute for International
Economics...................................................... 42
Blackwelder, Dr. Brent, President, Friends of the Earth.......... 46
Christman, Richard M., President, Case IH Agricultural Business
of CaseNewHolland Inc., on behalf of the National Foreign Trade
Council and the Coalition for Employment Through Exports....... 39
McLaughlin, Ian Watson, Chairman of the Board and Chief Executive
Officer, Watson Machinery International, on behalf of the
National Association of Manufacturers.......................... 40
Vasquez, Ian, Director, Project on Global Economic Liberty, Cato
Institute...................................................... 44
APPENDIX
Prepared statements:
Bereuter, Hon. Doug.......................................... 118
Oxley, Hon. Michael G........................................ 125
Carson, Hon. Julia........................................... 121
Roukema, Hon. Marge.......................................... 127
Becker, George............................................... 173
Bergsten, C. Fred............................................ 147
Blackwelder, Dr. Brent....................................... 169
Christman, Richard M......................................... 128
McLaughlin, Ian Watson....................................... 144
Vasquez, Ian................................................. 162
Additional Material Submitted for the Record
Citigroup Inc., policy statement................................. 178
REAUTHORIZATION OF THE
EXPORT-IMPORT BANK
----------
WEDNESDAY, MAY 2, 2001
U.S. House of Representatives,
Subcommittee on International Monetary
Policy and Trade,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 2:10 p.m., in
room 2128, Rayburn House Office Building, Hon. Doug Bereuter,
[chairman of the subcommittee], presiding.
Present: Chairman Bereuter; Representatives Oxley, Ose,
Green, Shays, Miller, Capito, Ferguson, Sanders, Waters, Frank,
Watt, Sherman, C. Maloney of New York, Schakowsky, and Bentsen.
Mr. Oxley. [Presiding.] The hearing will please come to
order. Obviously, I am not Mr. Bereuter. Mr. Bereuter has been
delayed in another committee, and the Vice Chairman is also
delayed on the floor. So I am either in the right place at the
wrong time or the wrong place at the right time. Whatever it
may be, we didn't want to keep our distinguished panel waiting.
To that end, the Chair would recognize himself for a brief
opening statement.
I want to thank Mr. Bereuter for holding this hearing on
the reauthorization of the Export-Import Bank. The
Administration is expected to send up legislation renewing the
Bank's charter beyond its current expiration date of September
30, 2001, soon. I support the reauthorization of Ex-Im Bank,
and I look forward to working with the Administration,
subcommittee Chairman Bereuter and others, and speedy committee
consideration of reauthorization legislation.
My support for the Ex-Im Bank stems from the fact that it
has been an important tool for increasing trade and providing
U.S. exporters access to markets that they would otherwise not
be able to reach. With the backing of the full faith and credit
of the United States, Ex-Im Bank has initiated thousands of
transactions in foreign markets that commercial banks deem too
risky to enter. The result is that U.S. businesses export more
goods and develop new and stronger trading relationships
abroad.
In my home State of Ohio, Ex-Im Bank has authorized
transactions to over 420 businesses valued at more than $1.1
billion since 1994. In my district alone, in the Fourth
Congressional District, Ex-Im Bank has worked with 10 different
small businesses, enabling them to reach markets they would not
normally be able to reach. Over $62 million in exports have
been financed through Ex-Im Bank in my district over the past 6
years.
In a perfect marketplace, there would be no need for export
credit agencies; however, the realities of today's
international trading system demand that Ex-Im Bank operate
aggressively to support the sale of U.S. products abroad. Every
major actor in international trade utilizes an export credit
agency similar to the Ex-Im Bank to support its trade
initiatives. Without Ex-Im Bank, U.S. companies would be forced
to compete against foreign firms who are receiving assistance
from their export credit agencies.
In discussing exports, most people focus on large corporate
transactions and tend to overlook the importance of small
businesses in the international trade equation. In 1997,
Congress mandated that Ex-Im Bank expand its outreach to small
businesses and work to facilitate more transactions among these
exporters. In fiscal year 2000, Ex-Im Bank approved 2,176 small
business transactions, an increase of over 13 percent from the
previous fiscal year. Further, financing and support of small
businesses increased by nearly 10 percent in fiscal year 2000
to $2.3 billion.
This improvement in small business export activities is an
encouraging sign that Ex-Im Bank has been successful in helping
small businesses access overseas markets. I commend them on
this progress and hope that they continue to bring more small
businesses into the international trade arena.
As we begin the review of Ex-Im Bank, I look forward to
hearing how we can improve the Bank in order to ensure that it
has the resources to compete in the modern international trade
environment.
Mr. Chairman, I would like to thank you for your leadership
in reviewing this important program. I yield back the balance
of my time, and I also yield the chair to the distinguished
Chairman of the subcommittee, Mr. Bereuter.
[The prepared statement of Hon. Michael G. Oxley can be
found on page 82 in the appendix.]
Chairman Bereuter. [Presiding.] Well, thank you, Mr.
Chairman. I couldn't have had a better person to fill in to
start the subcommittee hearing.
I apologize for being late. We are holding a markup in
International Relations, and there was an amendment which
zeroed out the Asia Foundation I wanted to oppose.
But I am pleased today that we are beginning open session
hearing to receive testimony on the reauthorization of the
Export-Import Bank, Ex-Im Bank. The Ex-Im Bank was last
reauthorized in 1997 for a 4-year term that will expire on
September 30 of this year. As the subcommittee with
jurisdiction over the Ex-Im Bank, this hearing is the first
step in an important reauthorization process. So today we are
hearing from representatives of the Export-Import Bank.
I would remind my colleagues here on the subcommittee that
on May 8 representatives of the private sector, including NGOs,
will testify regarding the Export-Import Bank. We will have
critics and we will have supporters at that time. I also want
to mention to my colleagues that you probably have noticed, as
I have, the recent decisions coming out of the annual meeting
of the IMF and the World Bank here in the Nation's capital, and
they have important implications for our responsibilities on
the international financial institutions, those two in
particular. A number of things they are proposing on Africa,
for example, are a major departure from the existing practice,
and I know Members of the subcommittee will welcome a hearing
soon on that subject, and it is my intention to proceed with
that.
Now, back to the Export-Import Bank. Because of Chairman
Oxley's comments, I will abbreviate some of my remarks and
provide all of them for the record. But I think it is important
to reiterate what the Chairman has mentioned with respect to
two mandates that were a part of the 1997 authorization act.
The first one from Congress was to expand the participation
of small and rural businesses. We will be particularly
interested in hearing from the Export-Import Bank witnesses
before us today how well they have done, what problems they
have run into in that respect. My understanding is that for
fiscal year 2000, the Ex-Im Bank invested approximately 18
percent of its lending activity in small business. Now, that
may not sound like a great deal, but it is an increase, and I
believe the number of transactions involving small businesses
was actually 86 percent, so a very large percentage of your
activities, your transactions were focused in that area.
Second, as a mandate, we asked for an expansion of the
Export-Import Bank's financial commitments to Sub-Saharan
Africa. In that 1997 language, we established an advisory
committee to make recommendations to the Board of Directors on
how the Export-Import Bank can facilitate greater support for
trade with Africa. As a response to this mandate, the Export-
Import Bank created an internal African task force to
coordinate its activities in Africa. Since that 1997 mandate,
my understanding is that the Export-Import Bank has increased
their activities and the number of exports involving the
Export-Import Bank has increased dramatically. But we started
from a low base. In 1998, the Export-Import Bank invested $16
million of exports to Sub-Saharan Africa, in 1999 that
increased to $589 million, and in 2000 it is expected to have
reached $914 million. Did I say $589 thousand? I should have
said $589 million. In particular, I am interested in seeing how
the Ex-Im Bank can continue to increase its investment in
Africa, and I am sure Members have that same interest in light
of our mandate.
Third, any hearing on the Export-Import Bank this year must
consider the fact that the Administration has proposed a 25
percent reduction in Ex-Im Bank funding for fiscal year 2002.
It is important to note, I believe, that the Export-Import
Bank's budget includes the following two components: program
budget and administrative budget. The program budget includes
the cost of loans, guarantees and insurance programs,
administrative budget of course is self-explanatory, but my
understanding is that many people think we have really shorted
the kind of upgrading necessary for administrative capacity.
So we have some statistics on that, and we will look for
some interesting information in those areas from our witnesses.
I do have significant concerns about the Administration's
proposed cuts in the Export-Import Bank. I look forward to
testimony today to explain the effects that those proposed cuts
would have on the activities of the Bank.
Lastly, I would also like to emphasize the subsidies
offered by foreign governments which have export financing
agencies, the developed countries which are major export
competitors. We have statistics which I will enter for the
record, but the United States in most ways you could calculate
fares pretty badly in comparison with our competitors.
[The prepared statement of Hon. Doug Bereuter can be found
on page 74 in the appendix.]
So we will now, after we hear from the Ranking Member of
the Minority if he wishes, we will now introduce Mr. Hess, the
Chief Financial Officer of the Bank. Mr. Hess has been with the
Export-Import Bank since 1966. He has been the Chief Financial
Officer since 1992. He comes highly recommended as a person who
has great institutional knowledge of the Export-Import Bank.
Next, Mr. William W. Redway, the Export-Import Group Vice
President of Small and New Business, will testify. Mr. Redway,
a graduate of the University of Pennsylvania, is in charge of
the Small Business Group outreach activities. Prior to that
current position, he has been the Vice President of the Bank's
Insurance Division and also served as New York Regional Manager
of the Export-Import Bank.
Mr. Sherman. Mr. Speaker, I am interested in these
introductions, but I just want to make sure I am given a chance
to make an opening statement.
Chairman Bereuter. Indeed, you will be.
Subsequently, Mr. Bert C. Ubamadu will testify. He is an
attorney with the Bank, where he works on project, structured,
and trade finance transactions throughout Africa. He is a
member of the Bank's Africa Task Force. Prior to his position,
he worked with Marriott International, where he served as their
representative to the Corporate Council on Africa.
There are three other people from the Ex-Im Bank at the
table to supplement and to assist: Ms. Elaine Stangland, Deputy
General Counsel; Mr. Jeffrey Miller, Group Vice President for
Structured and Trade Finance; and Mr. James Cruse, Group Vice
President of Policy. As you make your contributions, I would
appreciate it if you would identify yourself for the hearing
record beyond this introduction.
So we welcome the distinguished panel. Now I would like to
see if there are other Members who would have a brief opening
statement. I turn to Mr. Sherman from California first.
Mr. Sherman. Thank you, Mr. Chairman.
The first two opening statements lauded the Export-Import
Bank, but we would be unmindful of the thoughts and concerns of
many if we didn't hear some of the criticisms.
The Bank is attacked very loudly as a quintessential
embodiment in the eyes of its critics of corporate welfare. The
critics point out that while a large number of transactions
involve small business, that small business as reasonably
defined receives a tiny portion of the dollars disbursed. The
President of the United States has sought to cut this bank by
25 percent, and this is a President who is the most pro-
business President, I think, in our lifetimes.
Mr. Chairman, I have not been able to find a single
business in my district, and I have worked very hard, in
conjunction with bank staff, to try to find any business in my
district who thought that the Bank was a significant benefit to
them, and we couldn't find one.
But that aside, I am not here just to support the narrow
economic interests of my own district. This is a bank that is
important and is viewed as important to the national economy,
because it promotes American exports. I hope to work with this
subcommittee to fine-tune some aspects of what the Bank does.
But before we get there, we have to deal with what I think is
the biggest economic issue facing not my district, but the
entire country, and that is the energy crisis in the western
States.
The charter of the Bank in its own rules says that it
should do nothing to harm the United States economy. Yet, one
concern arises, and that is that the number one beneficiary of
the Bank's export subsidies through export financing go to the
industry that makes electric turbines. It flabbergasts everyone
in California to hear that in our hour of extreme need,
American-built turbines are the subject of subsidies paid for
by California tax dollars.
I won't take the time, unless someone asks me to, to
disprove a couple of the, I think, rather silly attacks made
against California. The argument that you can't site a plant in
California or couldn't a few years ago, that is demonstrably
false, and I will answer that if somebody is concerned, or
somehow that California has mishandled the deregulation in some
way that others saw as a problem, that we ignored anyone's
warnings, there were no such warnings, and that somehow the
crisis that has hit California is somehow just retribution for
California's own governmental decisions.
Now, I know the Bank has distributed documents showing how
its activities affect each of our districts. I believe the
Chairman of the full committee used the figure $61 million. Let
me assure everyone here that you can take whatever figure the
Bank gives you for its impact on your district and multiply not
by 100, not by 1,000, multiply that figure by 10,000, and that
is the economic relationship that your district has with
California.
Chairman Bereuter. Will the gentleman try to conclude his
comments?
Mr. Sherman. I will conclude within 1 minute.
So these turbine manufacturers are the number one
beneficiaries of these export subsidies. And during this period
of crisis, a period that I think will not only hurt the economy
of California, it will drag down the economy of the entire
country and it is beyond economics, there will be deaths in
California, both this summer and next summer as a result of
this.
Before we go forward and reauthorize this bank to do
business as usual, we must make sure that the turbine companies
are not just doing business as usual, but in this extraordinary
crisis they are willing to take extraordinary actions, because
they receive and have received for decades extraordinary
subsidies to deal with this crisis by providing California with
the turbines that it needs.
Chairman Bereuter. The time of the gentleman has expired.
Are there other Members who wish to make an opening
statement?
The gentlewoman from New York.
Mrs. Maloney. Thank you, Mr. Chairman. I join my colleagues
in the effort to reauthorize the Export-Import Bank. I have a
very long and thoughtful statement, and I will put it in the
record because I would like to hear what everybody has got to
say.
Chairman Bereuter. I thank the gentlewoman, and I am sure
it is, and it will be in the record.
Now, I understand that you will share your testimony with
approximately 15 minutes and then proceed to questions, so you
may proceed as you wish. Your entire written statements, if you
have them, will be made a part of the record, and I know that
you provided some information already.
STATEMENT OF JAMES HESS, CHIEF FINANCIAL OFFICER, EXPORT-IMPORT
BANK
Mr. Hess. Thank you, Mr. Chairman.
Chairman Bereuter, Members of the subcommittee, my name is
Jim Hess. I am the Chief Financial Officer of the Bank. I am
happy to testify today on behalf of the Bank's rechartering.
Thank you for entering our full testimony into the record.
Chairman Bereuter. Would you pull that mike just a little
bit closer, sir?
Mr. Hess. Accompanying me are five of my colleagues who are
prepared to answer your questions in their particular areas of
expertise, and two of them to offer testimony.
Mr. Speaker, Export-Import Bank is a sunset agency. Its
charter expires on September 30, 2001. The Administration is
requesting a renewal of the charter until September 30, 2005,
including a 4-year extension for our Sub-Saharan Africa
Advisory Committee.
The mandate of the Export-Import Bank is to sustain jobs
here in the United States by helping to finance U.S. exports
that would not take place without us. We only step in where we
are needed; that is, where the markets are too risky for the
private sector to assume the risk, or to meet the government-
sponsored export finance provided by our competitors. Also, we
are required by our charter to find a reasonable assurance of
repayment for every transaction we approve. Since our last
rechartering in 1997, those exports have totaled just----
Chairman Bereuter. Mr. Hess, I am going to ask you to just
put the mike a little lower. We are having a hard time picking
it up for some reason. Thank you.
Mr. Hess. Those exports have totaled just over $60 billion.
We financed those exports by guaranteeing loans from
commercial banks to foreign buyers, lending directly to foreign
buyers, offering a variety of insurance policies which assure
repayment, and guaranteeing working capital loans to small U.S.
exporters.
I want to emphasize that these are not giveaways to
corporate America. We get repaid. Our losses over the last 20
years are only about 2 percent of disbursements. This compares
very favorably with commercial banks.
I would like to now turn to my colleague, Bill Redway, on
my left, who will briefly describe our small business programs.
STATEMENT OF WILLIAM REDWAY, GROUP VICE PRESIDENT OF SMALL AND
NEW BUSINESS, EXPORT-IMPORT BANK
Mr. Redway. Thank you, Jim.
Chairman Bereuter and Members of the subcommittee, over 80
percent of our transactions directly benefit small businesses.
These transactions consumed about 18 percent of our
authorization expenditures, and this does not take into
consideration the tens of thousands of small businesses that
benefit indirectly from exports from large corporations. Small
businesses account for most of the job growth in our country.
We currently directly assist some 2,000 small businesses each
year.
I would like to take this opportunity to review some of the
major small business initiatives the Export-Import Bank has
undertaken since we were last rechartered.
First, we have reorganized internally to centralize all of
our small business efforts. In 1997, the Small and New Business
Group was established to provide specific services for the
small business community. This group includes the Insurance,
Working Capital, and Business Development Divisions, along with
the regional offices located in New York, Chicago, Miami,
Houston, and Long Beach, California. In 1998, overseas selling
was transferred to the Structured and Trade Finance Group. This
move, which consolidated all domestic selling, allowed us to
attack the small business market aggressively. Since then, the
Small and New Business Group has endeavored to aggressively
meet the exporting needs of the small business community.
Chairman Bereuter. Mr. Redway, I am sorry. I need you to
move that mike a little closer.
Mr. Redway. To be specific, we have opened new regional
offices in San Francisco, Orange County, California, and
Washington, DC., and given all regional officers substantial
new business goals. We have constructed a database of small
exporters, which now numbers over 200,000 and have begun a
direct mail campaign that has resulted in over 2,000 qualified
small business leads for our regional offices. During this
fiscal year, we have scheduled 60 nationwide exporter seminars,
where we take Ex-Im Bank's story to the marketplace. We have
also established an Emerging Market Subgroup to promote Ex-Im
Bank products and services to small business in the minority,
women-owned, and rural communities.
It is through our short-term insurance program that the
majority of our small business transactions are enacted. Ex-Im
Bank has adopted a detailed strategic approach in supporting
and increasing its support for small business exporters and
associated lenders. Central to this strategy are three key
components: offering useful, high-quality products that are
reasonably priced and will attract a greater number of small
business exporters; providing prompt customer service by
investing in technology to support a growing volume of small
transactions; and, finally, through technology, being in a
position to monitor and adapt risk-taking to the marketplace on
a real-time basis. Insurance small business authorizations
increased from $1.2 billion in 1999 to $1.5 billion in 2000, a
25 percent increase.
Another way of assisting small business is through our
Working Capital Guarantee Program, which guarantees commercial
bank loans to exporters so that they can tool up to meet export
contracts. The program has grown from $387 million in fiscal
year 1998 to $588 million in fiscal year 2000, an increase of
about 52 percent, of which 88 percent are small business
transactions.
In addition to the hard work of our staff, this increase
has been made possible by some program changes. The program has
added additional delegated authority lenders and has increased
the amount of delegated authority afforded to lenders many
times in the last 5 years. Program documentation also has been
simplified for ease of operation. New partners have been added
to broaden the potential marketplace for this product. Asset-
based lenders and community bank initiatives have resulted in
additional usage of the program.
Finally, Ex-Im Bank has joined the Commercial Finance
Association and dedicated a business development officer to
increase our exposure to small business lenders.
Mr. Chairman, all of these efforts would be for naught
without superior customer service in all of our programs. I am
pleased to inform you that a study done by the University of
Michigan, entitled the American Customer Satisfaction Index,
shows that Ex-Im Bank's customer service rating is a 70, which
is termed excellent and compares favorably to other U.S.
Government agencies and U.S. commercial banks. This study
covers all of Ex-im Bank's programs, large, medium, and small;
and we are proud of these results.
Jim.
Mr. Hess. Thank you, Bill. Of course, we also deal with
medium and large businesses. About 80 percent of our program
budget supports exports by larger companies. But, a job in
these companies is no less important than any other job. Also,
exports from large corporations contain inputs from businesses,
large and small, all over the United States.
I would like now to introduce Bert Ubamadu, who is with our
General Counsel's office, to briefly explain our program in
Sub-Saharan Africa.
STATEMENT OF BERT UBAMADU, OFFICE OF THE GENERAL COUNSEL,
EXPORT-IMPORT BANK; ACCOMPANIED BY JEFFREY MILLER, GROUP VICE
PRESIDENT, STRUCTURED AND TRADE FINANCE
Mr. Ubamadu. Thank you, Jim.
Mr. Chairman and Members of the subcommittee, the most
notable growth in Ex-Im Bank's regional programs has been in
Sub-Saharan Africa, a market where previously both Export-
Import Bank and U.S. exporters were largely inactive. As a
result of Export-Import Bank's commitment to meet its 1997
congressional mandate to increase our programs to Sub-Saharan
Africa, the Bank has seen nearly a 15-fold increase in
supported exports to the region. Also to meet this mandate, the
board of directors established both an internal Africa Task
Force to direct the activities of the Bank pertaining to
Africa, and also named the Sub-Saharan Africa Advisory
Committee, as the Chairman pointed out earlier, to bring
practitioners from the field, to offer advice to Export-Import
Bank in its efforts.
The importance and commitment of the Bank to this market is
also underscored by several bank delegations in fiscal year
2000, which included missions to Nigeria, Ghana, South Africa,
Mozambique, Cameroon and Senegal.
As a result of these efforts, Export-Import Bank's support
to Sub-Saharan Africa has grown substantially. Again, as the
Chairman pointed out earlier, in 1998, the Bank authorized
approximately $56 million to support U.S. exports to this
region. In 1999, the Bank's authorizations increased to $589
million. I am happy to let you know that in 2000, the Bank's
authorizations again increased to $914 million.
In terms of volume, Export-Import Bank authorized 103
transactions in 1999 and 125 in 2000. This is a 25 percent
increase. In 1998, the Bank was open for business in 21
countries and has been open in 32 countries now for the past 2
years. We will work hard with U.S. exporters and African buyers
to continue this progress in the future.
Thank you.
Mr. Hess. Thank you, Bert.
Regarding our budget, the Administration has requested $633
million for our program budget for fiscal year 2002. This is
the budget that serves as our loan loss reserve and is the
money we use to actually do our transactions. The requested
budget is approximately a 25 percent reduction from the current
fiscal year level of $863 million. This means that we will have
to manage very carefully in fiscal year 2002. The request for
our administrative budget is $65 million, up from $62 million
for this fiscal year. We will use this increase to further
improve our technical infrastructure, including computers, and
to reduce our processing time, especially on small business
transactions.
Mr. Chairman, Export-Import Bank is a good deal for America
and a bargain for taxpayers. For every dollar invested in our
program budget, we support $15 to $20 of exports that would not
go forward without us. This translates into good, high-paying
jobs.
At this point, my colleagues and I will be happy to answer
any questions you or the Members of the subcommittee may have.
[The prepared statement of James Hess can be found on page
92 in the appendix.]
Chairman Bereuter. Mr. Hess, thank you very much. We will
turn directly to questions. I was going to yield to Chairman
Oxley if he had been here, but we will go in the usual fashion
in order of seniority of those Members here at the beginning of
the hearing and then we will proceed to people as they appeared
in order of appearance, moving from one side of the aisle to
the other.
So therefore, first, I recognize Mr. Green under the 5-
minute rule.
Mr. Green. I have no questions at this time, Mr. Chairman.
Thank you.
Chairman Bereuter. Mr. Sherman is not here, Mr. Bentsen is
not here. Mrs. Maloney. Well, let's see. We then need to move
to Mr. Shays. All right. He yields to you, Mrs. Maloney.
Mrs. Maloney. Well, I yield to Mr. Shays, my good friend.
OK. The Bush Administration has put forth a budget that
will reduce your institution's funding by 25 percent. What
impact will this have on the amount of projects that the Bank
can support in the coming year, as well as the U.S.'s ability
to compete in industries that the Bank supports?
Mr. Hess. Congresswoman, the budget of $633 million that is
requested by the Administration for the Bank is estimated to
support about $11.5 billion of U.S. exports. This figure and
all of our figures are estimates of demand. We do not program
funds, as you probably know, but we respond to requests from
U.S. exporters for their export sales. We have estimated that
the figure of $633 million will be doable, but tight, for
fiscal year 2002. If our demand estimates are under what the
actual call on our resources happens to be in that year, the
Bank will have to look at policy options that could be taken to
stretch our resources while still keeping U.S. exporters
competitive in their financing offers for their export sales
efforts. We will not know if we have to do that until we see if
demand actually materializes in 2002. It does promise to be
tight. We are keeping a close eye on it, but we have every
intention of keeping U.S. exporters competitive in our export
efforts, as well as living within the $633 million that the
Administration has requested.
Mrs. Maloney. I would like to go to questions that I raised
with the Bank in 1999 about the Export-Import Bank's
transaction for the benefit of Halliburton and ABBM Tyumen to
develop Russian oil fields, controlled by Tyumen, a Russian oil
company. At the time a number of constituents came to my office
and there were editorials in the The Washington Post and really
front-page articles in several papers objecting to Tyumen's
business practices, telling the American public that the
company had gained control over a particular oil field by
manipulating Russian policies and through other acts of crony
capitalism. Eventually, the Administration temporarily halted
the transaction using the so-called Chafee Amendment.
From the beginning, the Export-Import Bank defended
Tyumen's business practices and, frankly, I am not concerned
about debating the merits of the Tyumen business transaction.
What I am concerned about is the general issue of whether the
Export-Import Bank has the ability to take into consideration
past fraudulent acts committed by companies it works with
around the world when making a decision about a transaction.
I asked CRS to review this question in February of 2000.
CRS responded that, and I quote: ``Congress has placed a number
of specific requirements on the Export-Import Bank for it to
consider in authorizing extensions of credit or guarantees to
firms seeking such assistance. These requirements, however, do
not specifically reference the disallowance of credit or credit
guarantees based on acts of fraud or corruption on the part of
the beneficiary unless such fraud occurred on the application
for credit.''
My question is, would it be beneficial for Congress to
specifically give the Bank authority to disallow a transaction
based on fraud or corruption on the part of the beneficiary?
ELAINE STANGLAND, DEPUTY GENERAL COUNSEL, EXPORT-IMPORT BANK
Ms. Stangland. This is Elaine Stangland. If I can try to
respond to you, Congresswoman, I think it is important to know
that the Bank does take into consideration----
Chairman Bereuter. Will you pull that mike a little closer,
please?
Ms. Stangland. I am sorry. The Bank does take into
consideration issues of corruption, character, and good
governance. We do that within the framework of finding
creditworthiness in our transactions and on two levels. One is
an indirect way in the ICRAS process, which helps us determine
the fee levels and our risk rating for various countries. The
ICRAS process is an interagency process that does take into
account business climate, judicial system, and political
climate in each country. But, probably more importantly, we are
required to find a reasonable assurance of repayment on each
transaction we support, and as every banker knows, character,
past actions, and past performance does enter into the
determination of whether a credit meets the reasonable
assurance of repayment standard.
Earlier this year, we submitted a report to the Senate
Committee on Appropriations that outlined the considerations of
the Bank, and its procedures for dealing with issues of this
nature within the context of creditworthiness. We do due
diligence, we consult with our embassies abroad, we consult
with other sister agencies, and we believe these
characteristics play an important role in determining the
creditworthiness of any transaction.
Mrs. Maloney. But you mentioned that creditworthiness was
your goal if they will repay the loan. I mean, a lot of crooks
have good credit, a lot of crooks are going to repay a loan.
My question is, given the Tyumen Oil, there was no question
that they had a shady past. Some of the major periodicals in
our country wrote about it, and it is well-known, and several
American companies were suing them, as you know.
But my question is not just creditworthiness, are you going
to pay it back, but shouldn't we look at what the business
practices are? I mean when people take this example of Russia
seeing us giving loans to Tyumen and they feel that they have
manipulated the bankruptcy laws and manipulated politicians and
manipulated this, that and the other, it doesn't instill
confidence in the American form of government. I was just
thinking that if a company has a history of fraud, corruption,
fraudulent bankruptcy proceedings such as Tyumen had, shouldn't
we possibly consider not giving them a loan, even though they
are going to pay us back, just based on their method of
operating?
Chairman Bereuter. The time of the gentlewoman has expired,
but if you wish to respond, you certainly may.
Ms. Stangland. I just want to remind the Congresswoman that
we were aware of the various allegations that were made against
Tyumen.
Mrs. Maloney. I know I had several conversations with your
offices.
Ms. Stangland. We investigated this by absolutely all means
available to us and did extensive due diligence. However, we
did not find any credible evidence of misconduct.
There are provisions in our charter which allow the
President, and he has delegated that authority to the Secretary
of State, to consider non-commercial and non-financial factors
in determining credit. This happened in Tyumen. A final
decision on the case was postponed until the Chafee Amendment
was removed. So there is a mechanism that Congress has put into
our charter that allows for the consideration of factors other
than commercial and financial when determining whether Ex-Im
Bank can support a transaction.
Actually, right now the company that brought most of these
allegations and Tyumen are strategic partners.
Mrs. Maloney. OK. Thank you.
Chairman Bereuter. The gentlewoman may pursue that again
later if she wishes.
The gentleman from Connecticut, Mr. Shays, is recognized
under the 5-minute rule.
Mr. Shays. Thank you, Mr. Chairman.
Mr. Hess, Export-Import Bank is basically supposed to be
the lender of last resort, correct?
Mr. Hess. That is correct, sir.
Mr. Shays. And what I am trying to determine is how you
determine that you are, in fact, the lender of last resort. I
happen to think if in the end we wouldn't have these sales
without the Export-Import Bank, then thank God we have the
Export-Import Bank. But how do you know we would or would not
have these sales without your involvement?
Mr. Hess. Well, we look at this very carefully. In certain
transactions, the U.S. exporter is facing competition from a
foreign exporter who is supported by below interest rate
financing from their export credit agency. In those cases, we
are directly meeting the foreign competition and clearly we are
needed to do that.
There are other instances where the U.S. exporter is
selling into a situation that the commercial sector is
unwilling or unable to go, simply because it is too risky or
because they have found it----
Mr. Shays. Let me just ask you, do they attempt to get
financing in the marketplace before they come to you?
Mr. Hess. They try to get financing in the marketplace
before they come to us; and we look at the transaction when it
is presented to us to make sure that we are necessary before we
authorize the transaction, yes, sir.
Mr. Shays. Some of these companies are quite large and some
are actually in my district and I am grateful they have the
business. But when you look at a company like General Electric,
what tells you that they do not have the ability to get
financing, the project itself? Certainly their financial
capability is quite sound. So what do you do, you isolate each
project, and it is not important--it has no impact that it is a
large company like GE? Walk me through something like a GE
loan.
Mr. Hess. We look at all of the cases that come in, whether
they are from large companies or small companies, and we look
to see if we are needed. We have those two situations, which I
just explained, where we find that we are necessary to make the
transaction go forward. We try to get as much private sector
participation in the transaction as we can. You have to
remember that we do not do the entire 100 percent of the
financing. We require a 15 percent cash payment, which is
frequently financed, and it is done at the risk of another
party, either the exporter or a commercial lender.
So we are only financing 85 percent of the transactions,
and it is very frequently a strain on resources from the
private sector or the U.S. exporter to put together the other
15 percent.
Mr. Shays. When we appropriated the $927 million in this
year's budget and $62 million of it was administrative expense,
does the balance of the $62 million ultimately come back to us?
In other words, if that is a loan extended, they pay the cost
of money? I mean I am not quite sure that money doesn't
disappear. The money that we appropriated ultimately just makes
your fund larger?
Mr. Hess. That is correct. The money that is appropriated
beyond our administrative expenses is, in effect, a loan loss
reserve. We, as a technical matter, put the money into what is
called a financing account at the U.S. Treasury where it is
available to pay losses, if necessary, for those credits.
Mr. Shays. And then how much of this $927 million minus the
$62 million, how much of it ends up just disappearing in terms
of loans that are not paid and so on? What is our ratio of our
loan to loss?
Mr. Hess. Over time, the ratio of our losses to
disbursements is about 2 percent. Credit reform itself has only
been in place since 1992, and our medium and long-term programs
generally have repayment terms that are 5 years to 10 years.
So, we have not yet closed out any of the year cohorts for the
medium- and long-term business under credit reform. Therefore,
I can't give you a definitive answer for any of those years.
However, credit reform provides for that type of analysis
to be done, and the information will be available.
Mr. Shays. The basic cost to the Government is just the
fact that we are subsidizing very low-interest loans?
Mr. Hess. We are basically charging a risk premium for the
risk that is in the credit, and we are charging an interest
rate that is approximately 1 percent or so above the U.S.
Treasury rate.
Mr. Shays. You are only having a 2 percent loss? The risk
isn't as great as I made an assumption. I mean that is a pretty
low loss.
Mr. Hess. That is a very low and a very good loss record.
This is a different methodology than the credit reform process
uses to assess losses. That methodology will change over time
as the few losses under credit reform actually become measured,
so there is a difference in methodology there which is a slight
dislink between the two losses.
Mr. Shays. Thank you.
Thank you, Mr. Chairman.
Chairman Bereuter. I appreciate you bringing that out. We
have a committee amendment in the nature of a substitute
pending. We will hear from one more Member at this point and
then resume when we return.
The gentleman from North Carolina, Mr. Watt, is recognized.
Mr. Watt. Thank you, Mr. Chairman. I will try to be
expeditious. I have a couple of questions, though.
Representatives of the Bank visited me recently and in the
course of that conversation advised me that you all basically
have never lost any money for the U.S. Government, that you
make money for the U.S. Government.
Mr. Hess. Well, Congressman, as I said earlier, we have
lost about 2 percent of our total disbursements. Our financial
statements of the last 2 years----
Mr. Watt. The question I am trying to get to is does that
include the annual appropriation? Does your premium and the
returns you get on interest cover your operating cost?
Mr. Hess. It does not totally cover the estimate, the
current estimate of what may be the losses under our credits.
We charge the minimum fee that is allowed under the OECD
agreement so that we can keep our exporters fully competitive
with the foreign packages that are offered by ECAs. But, the
fees in higher risk markets are not sufficient to cover what
the Office of Management and Budget considers to be the risk in
those markets. So in order to cover the risk, we need the
appropriation.
However, those are estimates, and over time we may find
that those estimates are on the high side in terms of losses.
If so, then that money will go back to the U.S. Treasury.
Mr. Watt. I guess the question I am asking is, up to this
point in the history of operation of the Bank, have you covered
both the risks and losses that result from that risk and your
operating cost, or have you not?
Mr. Hess. Over the history of the Bank up until now,
Congressman, we have not fully covered those losses.
Mr. Watt. How much of a shortfall per year approximately
would there be historically, I mean?
Mr. Hess. Well, for example, recently, by definition, the
shortfall that we are talking about for fiscal year 2002 would
be $633 million for an appropriation for the credit risk; and
it would be $65 million for administrative expenses. So it
would be about $698 million.
Mr. Watt. Well----
Mr. Hess. Like I said, those are estimates.
Mr. Watt. Maybe I am asking the wrong question. You are
looking prospectively at risk, I am looking retrospectively at
losses. You are not saying that the $600 some million is needed
to cover past losses; you are saying that it is needed to cover
OMB's estimate of what future risk of losses; is that what you
are saying?
Mr. Hess. That is exactly what I am saying.
Mr. Watt. OK. The question I am asking is not that
question. I am asking a retrospective question. How have you
covered the actual losses in the past by the premiums that you
have charged or user fees that you have charged?
Mr. Hess. We have not fully covered actual losses from the
Bank's inception in 1934.
Mr. Watt. OK. I asked that question. Now, the question is,
how much of a shortfall has there been historically?
Mr. Hess. Well, I can provide the figure for the record,
but because we have been recapitalized since credit reform
began, the figure is in the neighborhood of about $8 billion.
[The information referred to can be found on page 109 in
the appendix.]
Mr. Watt. $8 billion ever since 1994?
Mr. Hess. No, no, since 1934.
Mr. Watt. 1934, I am sorry, OK.
Mr. Hess. But this again is a very small percentage of the
total activity of the Bank. We have supported over $400 billion
of exports in that period of time and our losses have been
minimal, less than 2 percent of our disbursements.
Mr. Watt. You all gave me a list of 28 businesses in my
Congressional District who have benefited from the Export-
Import Bank, six of which were banks. Can you give me an
example of what you do for a bank?
Mr. Redway. Yes.
Mr. Watt. They are not exporting anything, I take it. They
are not exporting money.
Mr. Redway. Congressman, no, they are not. Speaking from a
small business standpoint, the banks will take out policies
themselves for some of your constituents in your area and do
the project or do the transaction in their name rather than the
exporter's name. They also may take an assignment of a policy
so that they would advance against an insurance policy that we
issued for one of your constituents and help them that way, or
you could do a working capital guarantee where they would be
advancing funds against our working capital guarantee to
provide funds to produce the export order.
Mr. Watt. Mr. Chairman, I think I am out of time, but I
would just say that I did write to all of the 28 companies in
my Congressional District and asked them to tell me what
experience they have had with the Bank, and that letter went
out on April 4, and I have since gotten three responses which I
would like to submit for the record. I ask unanimous consent to
submit these for the record.
Chairman Bereuter. Without objection, that will certainly
be a part of the record.
[The information can be found on page 89 in the appendix.]
Chairman Bereuter. We need to proceed now.
Ms. Waters, I don't know if you can come back or not, but
you can take 2 minutes now if you choose.
Ms. Waters. Let's go vote.
Chairman Bereuter. We will go vote. The hearing will stand
in recess. We have one vote. We will be gone for 15 minutes. If
a second vote comes shortly thereafter, it will be a little bit
longer.
The hearing is in recess.
[Recess.]
Chairman Bereuter. The hearing will come to order. I regret
we had such a long intervention in our hearing. We had three
votes awkwardly spaced to complete the votes on the floor. It
is part of democracy. Thanks for your patience to the witnesses
and to all the people interested in the hearing today.
I will begin the questions until we have other Members
return.
Mr. Hess, I wonder if I might ask you the questions. Of
course you redirect it as you wish or supplement. One of the
concerns that I have heard expressed by the Export-Import
Bank's funding and its operations relates to the simple
technology gap within the agency, which means that you are, I
am told, not able to respond as quickly to potential American
businesses, particularly small businesses who do not have the
capabilities. We are talking about information technology,
computers, and so on. This is the word I have received from a
variety of sources, and I wonder if you would comment on the
state of affairs when it comes to processing information and
being able to respond.
Mr. Hess. Mr. Chairman, this is a problem that we have been
working on quite diligently. We have recently put in a couple
of processes that use the internet and computers to reach out
to the exporting community and the banking community. We also
have our claims filing system now working through the internet.
We have a system whereby banks can send to us requests for
cover on disbursements through the internet.
So we are beginning to move in that direction. It is true
that we need to do a lot more. The increase that we are
requesting in our fiscal year 2002 budget will be earmarked
virtually entirely for improvements in our automated
information systems and in outreach efforts to use the
internet, to use computers, to streamline our insurance program
and our small business programs to make them more user-friendly
and more quickly responsive to the community. This is a valid
concern of the exporting community as well as ours, and we are
actively trying to address it.
Chairman Bereuter. Thank you. To the extent that you had a
problem or still may have a problem on being responsive because
of obsolescence, does that have a greater negative impact upon
the small businesses?
Mr. Redway. Mr. Chairman, I would say that the small
business programs would benefit the most from an increase in
technology. If we could basically automate some of our credit
decisionmaking, which can be done, and is being done in the
private sector, it would speed up turnaround time and would
free staff for the more difficult cases. So yes, we could very
much stand for an increase in our technological capabilities.
Chairman Bereuter. Could you provide us with a description
of the problem and what you hope to do to solve that problem
during the upcoming fiscal year based upon the resources that
you have proposed for the agency in the Administration's
budget?
Mr. Hess. Mr. Chairman, we would be happy to do that for
the record, yes, sir.
Chairman Bereuter. And then would you go further and
suggest, if you had more resources, how you would devote the
first additional resources beyond that?
Mr. Hess. We will do that, sir.
[The information referred to can be found on page 107 in
the appendix.]
Chairman Bereuter. Thank you.
Now, one of the interesting things to this committee, I am
sure, and particularly this subcommittee is, to compare the
resources that the Export-Import Bank has as compared to
agencies of competitor export countries, the developed
countries like Japan, the Netherlands, Canada, Germany, France,
and so on, which seem to have substantially more resources in a
direct sense than does the Export-Import Bank of the United
States.
Is the OECD a source of objective information about the
comparative resources the agencies have, or is there another
source that you would suggest to us?
Mr. Hess. I will let Mr. Cruse address that.
JAMES CRUSE, GROUP VICE PRESIDENT, POLICY, EXPORT-IMPORT BANK
Mr. Cruse. Yes, Mr. Chairman. The OECD is a very good
source of information on activity of export credit agencies.
But, it is not an expert on all export promotion activity that
the Commerce Department types or others do.
There have been a variety of studies that have dealt with
that information, which we will be glad to provide to you.
Chairman Bereuter. Who would be the source of some of those
studies, looking at the resources that are available? For
example, in the various categories, the two to three major
categories of the Export-Import Bank, what your competitors are
able to put forth in the way of resources? Where do we go for
objective information?
Mr. Cruse. On export credit activity, we could generate an
extensive detail of activity there. For activities from the
Commerce Department, the Track Promotion Coordinating
Committee--TPCC--put together a study on this a couple of years
ago in one of the reports that they had done. So we could get
that too. But, if it is just export credit activity, we have
ample and detailed information on that.
Did you want any information on administrative budgets?
Chairman Bereuter. That would be helpful too.
Mr. Cruse. We could take care of that.
Chairman Bereuter. Because we hear that in some ways we are
not able to respond because of the physical and the information
technology resource that you have at your disposal.
Mr. Cruse. OK. We will get you both, activity and
administrative resources.
[The information referred to can be found on page 113 in
the appendix.]
Chairman Bereuter. Thank you. I will ask one more question
to open it up and then let Ms. Waters have her 5 minutes and we
will go back for a second round for other Members as the case
demands.
I am going to move to Africa where we have had this mandate
in place with respect to the 1997 authorization legislation.
Are there any additional statutory changes needed to facilitate
the Export-Import Bank's supported trade with U.S. supported
trade with Sub-Saharan Africa, and has there been any internal
or external examination of our effectiveness in providing
additional resources to U.S. exporters whose markets are in
Africa or who hope to exploit markets in Africa?
Mr. Ubamadu. Mr. Chairman, with regard to the first part of
your question, any additional legislation needed, and I would
have to say that based on the experience that we have had, the
answer would be no at this point. Congress has already provided
for the Sub-Saharan Africa Advisory Committee, as you well
know, which is a group of private sector advisors that are
experts in Africa, who meet with the Bank three times a year to
give us advice on how to increase our programs to this region.
Beyond these meetings, Ex-Im Bank is always talking to them on
ways to increase our support to the region. So our answer would
be no additional legislation is needed at this time.
With regard to the second part of your question, we are
constantly traveling to the region. For example, I just
returned in December with a four-member team where we did a
bank sector study in Nigeria to see what the needs of the
borrowers are in that community, and we are then able to
disperse information out to U.S. exporters when we meet with
them. But, I don't believe we have done a comprehensive study
to see what our effectiveness is, but I think you can certainly
see by the numbers--where we started with $58 million in 1998
and we are now up to $914 million--that our efforts are
working. We certainly hope to see an increase next year.
Chairman Bereuter. Is there anything you could say, in
short, about the number of U.S. firms coming to you who are
asking for your assistance on Africa-related trade as compared
to U.S. companies who have interests they want to exploit in
other continents? Are we meeting a higher percentage or lower
percentage of those businesses wanting to have your assistance
for Africa trade?
JEFFREY MILLER, GROUP VICE PRESIDENT, STRUCTURED AND TRADE
FINANCE, EXPORT-IMPORT BANK
Mr. Miller. Mr. Chairman, Jeffrey Miller. We don't have
statistics that compare the level of interest by continent. But
the interest in Sub-Saharan Africa has certainly increased due
to the efforts of the Sub-Saharan Africa Advisory Committee.
Chairman Bereuter. The gentlewoman from California is
recognized.
Ms. Waters. Thank you very much.
Mr. Chairman, you started down the road that I would like
to go down in relationship to Sub-Saharan Africa. I was a
little bit distracted here. I heard the response relative to
whether or not we needed additional legislation or they needed
additional authority of any kind. But what I don't have a sense
of is the level of involvement we have in Sub-Saharan Africa.
Could you describe to me since the mandate, generally;
basically what have we done?
Mr. Ubamadu. Congresswoman, are you speaking in general or
for a specific area? I can certainly tell you in general what
we are doing with regard to Africa is both on the continent and
as well as here in the U.S. We work very closely with U.S.
exporters and U.S. banks to inform them about the various
programs that we have for Africa. With regard to the banks, we
are trying to encourage more U.S. banks to get involved in
working with Export-Import Bank where we can provide guarantees
for loans that they make to this region.
Ms. Waters. Could you describe to me in a dollar amount how
much you have been able to do? How many loans have you made, or
loan guarantees?
Mr. Ubamadu. Last year we did 125 transaction loans in
Africa compared to 123 the year before.
Ms. Waters. All of Africa or Sub-Saharan Africa?
Mr. Ubamadu. In Sub-Saharan Africa.
Ms. Waters. Did you say 125 loans?
Mr. Ubamadu. I can certainly give you the breakdown. There
are a number of different programs that we have. We have what
we call working capital guarantee, where we provide a guarantee
to a bank, a U.S. bank, that has provided a loan to a U.S.
company that would export the product. Just to let you know, of
that 125, 11 transactions were done under the working capital
guarantee program. Under loans and guarantees, we had 32
transactions, and for insurance, we had 82 transactions. This
is all in calendar year 2000.
Ms. Waters. Do you consider that you have done a good job?
Are you happy with what you have been able to do?
Mr. Ubamadu. Congresswoman, if I may, I came to this bank
about 2 years ago specifically for the goal of trying to do
work in Africa, and I can certainly tell you that I have worked
in a number of other institutions that do similar things that
have also attempted to do work in Africa. But the answer to
that is absolutely yes. I think more absolutely has to be done,
but Export-Import Bank has a specific mandate and part of that
is we have to show reasonable assurance of repayment for a lot
of the transactions that we do. However, we are working as hard
as we can within that mandate to increase U.S. exports to
Africa. We are certainly making strong progress, but there is
always more that can be done, and we are trying to do that.
Ms. Waters. Where are we most successful? What country do
we make the most loans to?
Mr. Ubamadu. Ghana probably is our most successful.
Ms. Waters. Non-African countries. I want to just get some
comparisons so I can try and understand this amount as compared
to what? Where do we do the most loans?
Mr. Miller. Congresswoman, Mexico is our largest market.
Ms. Waters. And could you give me a dollar amount, total
amount of authorization?
Mr. Miller. Our authorization amounts in Mexico were $1.4
billion in fiscal year 2000.
Ms. Waters. And the amount for Sub-Saharan Africa, all of
Africa, I guess, is how much?
Mr. Ubamadu. $914 million.
Ms. Waters. What are your plans to increase it?
Mr. Ubamadu. Congresswoman, we have undertaken a number of
initiatives to increase our activity. First, we have staff that
is constantly traveling to Africa, and we have what we call
regional training seminars in various regions of the continent.
For example, we have one scheduled this month in South Africa,
which will basically capture all of the SADC, Southern African
countries, where we are trying to work with them to explain our
programs. At the same time, we also encourage U.S. exporters to
attend these training seminars.
We also take along with us U.S. financial institutions as a
way of letting them see the market, meet the potential buyers
and see the business that is in these countries. We are doing
this all over the continent. Last year, I was able to
participate in two of these training seminars. I mentioned
earlier that we think this is one of the key aspects of working
in this region because there are a lot of U.S. banks that are
looking into this region. We are also trying to encourage
African banks to get involved in our programs. This is one of
the reasons why we were in Nigeria back in December, where we
spent 2 weeks, and had an opportunity to meet with 16 banks to
talk to them about the local economy, and to take a look at
their financial position. So we are going to continue these
endeavors.
In the U.S., we are also trying to encourage meetings with
U.S. exporters, and U.S. banks to again encourage them to look
into this region.
Ms. Waters. Mr. Chairman, I know my time is up, but I would
like to set up a meeting with the Bank to talk about a
combination of Sub-Saharan Africa and small businesses in our
country and how we can get more of them involved. Thank you.
Chairman Bereuter. Would you like to respond to the
Congresswoman's request?
Mr. Redway. Yes. We would be delighted to have such a
meeting.
Chairman Bereuter. Thank you. I think it should be
productive for all of us.
The gentleman from New Jersey, Mr. Ferguson, is recognized
for 5 minutes.
Mr. Ferguson. Thank you, Mr. Chairman.
I thank you, Mr. Hess, and the panel for your patience with
our sometimes unpredictable schedule here. I certainly
appreciate your testimony and your willingness to stay and to
answer some questions, and I appreciate the chance, Mr.
Chairman, to follow up on a couple of things.
I represent the Seventh District in New Jersey and
particularly with our high-tech industry in New Jersey, I have
a particular interest in the health and the activities of the
Ex-Im Bank, and I am concerned, as the Chairman had mentioned
before, about the current budget funding request. I want to get
into a little bit about some of your activity, and just a
couple of points I would like to address.
There has been a lot of comment about the need for reform
with Export-Import Bank in order to make it a more effective
agency for U.S. exporters as they strive to compete with
foreign competitors. What are some of the changes that you, Mr.
Hess, believe need to be made in order to make your process
more efficient and more in line with the global economy?
Specifically, do you believe that this market window
approach, which is used by European and some of the other
export credit agencies, do you believe that to be effective? I
wanted to get some of your reaction or thought on that.
Mr. Hess. Congressman, thank you. Let me first comment on
the administrative efficiency. We have asked for an increase in
our administrative budget to $65 million for 2002. Virtually
all of that has been earmarked for more computerization efforts
to streamline and make the Bank's operations more efficient. It
will also increase our ability to interface with the U.S.
exporting community, particularly small businesses. So we are
actively trying to improve in the area because we feel other
ECAs have an edge on us, and we are not as up-to-the-minute as
we should be.
So in this area, we definitely are trying to improve and we
believe we will do so.
As far as programmatic changes are concerned, we are also
constantly looking at those.
On the market windows issue, I think Mr. Cruse can comment
on that. He has done a significant amount of work on that issue
within the OECD context.
Mr. Cruse. Yes, thank you. On market windows and other
areas, it is important to say that the world is changing. We
are very competitive with our current programs, but given the
world of banking and export credit, most of the export credit
agencies are trying to find new ways to do things. One of them
is to be very efficient, which Mr. Hess just mentioned.
Another one is to provide for specially dedicated
institutions which are called market windows. In the U.S., the
closest approximation might be to Fannie Mae. Just imagine to
the extent that you can, an institution dedicated with a
Federal charter to exports and doing anything it can to
encourage current and future exports out of the country without
any regulation and with almost unlimited access to funds. That
type of an institution has not yet made a major appearance on
the export scene, but two of them are operating. We believe
that some time in the future that type of institution would
pose a major challenge to us.
Mr. Ferguson. What about specifically with high-tech folks?
Lucent, for instance, is a company in my district, major
company in my district. Is there anything specifically that Ex-
Im Bank is doing to work with high-tech companies, particularly
regarding our new economy in a global economy?
Mr. Miller. Congressman, in the high-tech area in the last
2 years, we have increased our exposure fivefold, particularly
in sectors such as electronics, telecommunications, information
biotechnology, and life sciences; and we currently have a
tremendous interest in more transactions in these areas. We are
also expanding our marketing efforts in those areas.
Mr. Ferguson. Just finally, I know my time has almost
expired, Mr. Shays was talking before about how Ex-Im Bank is a
lender of last resort and we talked about that a little bit.
Does this mean if Ex-Im Bank isn't adequately funded or if it
were to disappear somehow that U.S. exports and their related
jobs would be completely lost, or would competing export credit
agencies end up financing that competition overseas, would they
fill the void? I mean we are talking about a 25 percent
reduction in your appropriation. Can you talk just briefly
about how that would affect your activity?
Mr. Hess. Well, we do have a significant reduction in the
appropriation request for fiscal year 2002. We estimate demand
in the future, we don't program our funds, so we do not have
precise knowledge today of either the amount of demand or the
risk profile of that demand that will be coming into the Bank.
To the extent that either the risk profile or the total
amount of demand exceeds the amount that it appears that we can
do with the $633 million, we will have to look at program
changes with a strong eye on competitiveness. However, if
changes are necessary, we will try to continue to keep the U.S.
exporter competitive, but at the same time stretch our
resources. We have every intention of making the $633 million
last through fiscal year 2002 and providing a strong support
for U.S. exporter sales.
Mr. Ferguson. I know my time has expired. I do have more
questions, but I will be in touch with you directly on those.
Again, thank you for your patience and I appreciate your
willingness to stay and answer these questions.
Thank you, Mr. Chairman.
Chairman Bereuter. Thank you, Mr. Ferguson. I was going to
call on the Ranking Minority Member, Mr. Sanders, for his
comments and questions.
Mr. Sanders. Thank you, Mr. Bereuter. I apologize for not
being here for this important hearing, but I was on the floor
of the House offering a motion to recommit.
I want to focus on one or two very simple issues and I hope
you can educate me on them.
The United States today has the largest trade deficit in
its history, over $400 billion. We have a trade deficit with
China which is over $80 billion. I think economists will tell
us that these trade deficits are costing us hundreds of
thousands of decent paying jobs. So in other words, our trade
policy, from my perspective, is failing, and I think it is hard
not to acknowledge that.
Now, the question that I have is I find it ironic, and
please tell me about this, how it is that some of the largest
recipients of Ex-Im Bank subsidies, companies like AT&T,
Bechtel, Boeing, General Electric, and McDonnell Douglas, which
is now a part of Boeing, these are the major recipients of Ex-
Im Bank subsidies, and these are the very same companies that
have laid off huge numbers of American workers. In fact, just
those companies that I mentioned have reduced their overall
employment by 38 percent.
So if you have companies like General Electric and if you
have the President of General Electric, he would say, ``Hey,
that is how we are making so much money. We are running to
China, we are running to Mexico, we are throwing American
workers out on the street. That is why we are a very profitable
company. And we are delighted, just ever so delighted that Ex-
Im Bank is supporting us. So thank you. We thank the American
taxpayers, especially those we are throwing out of work as we
go to China and Mexico for your support. We really do
appreciate it.''
So on behalf of a few hundred thousand American workers,
some of them in my own State, who were laid off by these
companies who Ex-Im Bank supports, why isn't there a link being
made? When these companies are coming to you for their welfare
payments, why don't you say, ``Well, gee whiz, you have been
laying off American workers, sorry.''? Why don't you say to
some of these smaller companies, who have been growing
companies, creating new jobs, say, ``Thank you, we are going to
support you, we like what you are doing.''?
So bottom line is, why do you give huge taxpayer subsidies
to corporations who are laying off huge numbers of American
workers?
Mr. Miller. Congressman, we provide financing for the
foreign entities to purchase the goods of those companies you
mentioned, and some of those large corporations also do not
have the resources to stand up against government-subsidized
foreign competition or the reluctance of commercial banks----
Mr. Sanders. Excuse me. AT&T, General Electric do not have
the resources? Did I hear you say that correctly?
Mr. Miller. Yes, sir.
Mr. Sanders. You said that?
Mr. Miller. Yes, sir.
Mr. Sanders. You want that on the record. AT&T does not
have the resources. General Electric does not have the
resources.
Mr. Miller. Foreign borrowers do not need the financing to
buy the products.
Mr. Sanders. OK. I see. I just wasn't clear. AT&T does not
have the resources. Sorry. All right. I find it frankly hard to
believe that these large corporations who make large sums of
money do not have the resources.
Now, you raised the issue of competing against other
companies which provide the resources, right?
Mr. Miller. Yes.
Mr. Sanders. Now, do you also ever raise the question that
in many of these countries, especially European countries, our
competitors, France, Germany, that, A, the wages in many of
those countries are substantially higher; that all of those
countries guarantee national health care, they guarantee free
college education to their children, they have universal and
publicly subsidized child care? Is that part of the equation?
Mr. Miller. It is not part of our----
Mr. Sanders. Not part of the equation, I see. It is only
because they don't provide, B, subsidies.
Mr. Chairman, as I have indicated, I have a real problem
with the philosophy of the Bank. If somebody wants something
from me and they want a subsidy from the American people, it
seems to me that the representatives of the American people
have a right to say, fine, but what are you going to do for the
working people of this country? Do you want some help? No
problem. Tell us about the jobs you are going to create. But it
is not good enough just to talk about this one project when
they go next door--if General Electric were here, they would
tell you that is their philosophy now; it is to lay off
American workers to go to China and hire people at 20 cents an
hour. Is that true? Do you agree with me? Is that largely what
they would tell us?
Mr. Miller. I don't know that, sir.
Mr. Sanders. Would you disagree with me?
Mr. Miller. I don't know what he would say.
Mr. Sanders. Does anyone want to disagree with me, that if
we had--what is the name of--who is head of GE? What is his
name? Jack Welch. I think he writes books on this. Does anyone
want to disagree with me that Jack Welch is not very proud of
the fact that he has laid off American workers and hired people
abroad at low minimum wages. I don't think anyone can disagree
with that.
Why do you reward companies like that with American
taxpayer subsidies? I would like somebody to respond.
Mr. Miller. Mr. Chairman, we look at individual
transactions, foreign borrowers to buy U.S. products. We don't
discriminate against large or small corporations. We look at
creditworthiness of the transactions.
Mr. Sanders. Not a good enough answer. It is an answer that
says, yes, we are going to look at this particular transaction
but oh, by the way, we forgot the fact that you laid off 10,000
workers last week; not of concern to the Ex-Im Bank.
I think we need to rethink the whole process. I think we
should provide help to those companies that are committed to
the well-being of American workers. Many of these corporations
are not. They should not receive our subsidies.
Chairman Bereuter. I really need to recognize the
gentlewoman from Illinois, but perhaps she will yield to you
and I will not take it out of her time.
I recognize the gentlewoman from Illinois, and she can
yield. It will come out of her time. Would you like to yield to
the gentlewoman from California briefly?
Ms. Schakowsky. I would be happy to.
Ms. Waters. Mr. Chairman, I am a little bit concerned. At
this panel today we don't have the person that is in charge of
this agency, the Acting Director, so I don't know who is
running the show. It bothers me because I suspect that there
has not been a concentrated, well-defined effort to take care
of the mandate in Sub-Saharan Africa and I don't have anybody
to charge with that.
Chairman Bereuter. Well, if the gentlewoman from Illinois
would yield, just to respond briefly, I am concerned of course
that we don't have the Chairman here today too, but we have a
Chairman that is on the way out, and frankly I will say at
least discouraged from testifying by the current
Administration, and we have no new Chairman in his place at
this moment. But I think that we need to hear from the Chairman
as soon as there is, in fact, a Chairman appointed and
confirmed by the Bush--for the Bush Administration.
Now, if the Clerk will start the clock over, I recognize
the gentlewoman from Illinois.
Ms. Schakowsky. Thank you, Mr. Chairman.
I apologize to the witnesses for not being here for your
testimony. I have been looking through the testimony. I wanted
to just echo to some extent what my colleague Mr. Sanders has
said.
When you look at the charter of the Export-Import Bank and
it says that contributing to the promotion and maintenance of
high levels of employment and real income, a commitment to
reinvestment and job creation, and so forth, that I would also
say that it would be important in making these decisions with
very precious resources of taxpayer dollars that we do
scrutinize more carefully the overall mission. I understand the
mission of looking project-to-project, but I think taxpayers
rightfully may question, especially those, as Mr. Sanders
mentioned, who may be out of an a job from one of the very
companies that is receiving support for their work overseas. It
seems a little bit like we are using taxpayer dollars and
pouring salt into a very painful wound.
Let me ask you this. I know that there is one issue, and
that is, as I understand the environment, on which project-by-
project the Export-Import Bank may decide to deny a loan, and
that that happened, let's see, the Three Gorges Dam project in
China for environmental concerns. But I am concerned about
other loans that have been made which, I guess, were not
allowed to look at project by project, but I think have some
unfortunate results.
For example, the Export-Import Bank provided $298 million
to the--I am going to say it wrong, probably, Dabhol Power
Project in India, despite documentation by Human Rights Watch
of serious abuses, including beatings and harassment of
protestors by state security forces. With the Chairman's
concurrence, I would like to submit the Human Rights Watch
report on the power project into the record.
Chairman Bereuter. Without objection, that will be the
order.
[The Committee has received the report and it has been
retained in the Committee's permanent files.]
Ms. Schakowsky. And then recently, the Bank announced a $5
billion program to help Africans buy AIDS drugs, but it does
nothing to check the pricing policies of the pharmaceutical
companies, which is the biggest roadblock to slowing the
pandemic, or at least addressing parts of the pandemic which
are ravaging the continent.
It would just seem to me that again, when we are making
these kinds of loans that it would be useful to have a broader
scope when we examine individual projects and would welcome
anyone's response to those concerns.
Ms. Stangland. Elaine Stangland from the Office of General
Counsel, Congresswoman. I would like to address the first part
of your comments with respect to human rights. Our charter does
specifically speak to human rights. It speaks to it in the
context of what is known as the ``Chafee Amendment.''
The Export-Import Bank's staff is some 400 people with
expertise in banking, economics and law.
The Chafee Amendment is a reflection of Congress'
determination that the expertise and the resources for
determining human rights abuses and how they should impact the
Export-Import Bank's financings best lies with the Secretary of
State. So our charter does speak to it specifically.
There is other legislation, including an appropriations
bill, and the so-called Leahy Amendment, which provides that we
cannot do financing to security forces of any country without
going through a process with the State Department relating to
abuses of human rights.
Ms. Schakowsky. Although those deal with countries and not
projects, right?
Ms. Stangland. That is correct. Leahy deals with security
forces of governments.
The Chafee Amendment tries to balance the benefit from the
export with human rights concerns and our national policy and
foreign policy with respect to those issues. The Chafee
Amendment is not limited to government deals at all; it applies
to private sector deals as well. But, it is in the realm of
expertise of the State Department; and Congress has set forth
this procedure to take those types of issues into account.
Ms. Schakowsky. Exactly how does that interaction with
State happen?
Ms. Stangland. The State Department gets copies of all of
our board agendas and they have a representative attending each
of our board meetings.
With respect to the Chafee Amendment, the way that works is
the Secretary of State, having gotten the powers delegated from
the President, will send us a letter specifically referring to
that section and telling us that we are allowed to consider
non-commercial and non-financial factors in our determination.
But, we do have an ongoing working relationship with the
State Department.
With respect to the Leahy Amendment, we have instituted a
procedure where we will notify the State Department any time we
have any request for a financing to security forces and we wait
for their clearance.
Ms. Schakowsky. My understanding is that credit has been
denied because of human rights reasons only twice, right?
Argentina and Cameroon, if I am not mistaken. So this is a
fairly--well, a very rare occurrence.
Ms. Stangland. Your facts are correct, according to my
records. On human rights, it has been twice.
Ms. Schakowsky. Under human rights, would violence against
women and issues related to abuse based on gender be included?
Ms. Stangland. Well, the Chafee Amendment does list some
specific concerns. They include international terrorism,
nuclear proliferation, environmental protection, and human
rights. We have always taken the position, and it is well
accepted throughout the U.S. Government that the list of
examples is not exclusive. If the State Department were to find
that it is in the national interest and would importantly
advance our national policy, they can do a Chafee Amendment for
other foreign policy considerations.
I can't be more specific in my response than that. I am
sorry.
Ms. Schakowsky. Thank you very much.
Thank you, Mr. Chairman.
Chairman Bereuter. Thank you for pursuing those questions.
The gentleman from Texas, Mr. Bentsen, is recognized.
Mr. Bentsen. Thank you, Mr. Chairman.
Let me apologize if you have already gone through these
questions. I am sorry for the disjointed nature of this hearing
today, but obviously the floor schedule got in the way.
The Administration has proposed a 25 percent reduction in
your budget for fiscal year 2002 and presumably that would
carry on through the outyears. I am curious, how would the Bank
absorb a reduction in that amount, and second of all, I believe
this is correct that they have argued in the past that--or they
have argued in their budget that in fact the Bank has not
necessarily utilized all of its capital resources. I am not
sure that is correct. But I would like you to comment on both
of those issues.
Mr. Hess. On the budget reduction, Congressman, we do, as
you say, have a 25 percent reduction in the proposed $633
million for an appropriation for program budget for fiscal year
2002. The estimates that the Bank makes on the resources
necessary for a future fiscal year are just that, estimates. We
don't program funds; we respond to requests that come in. If it
turns out that the $633 million would be insufficient to handle
the demand that comes in under our current programs and
policies, we would look to program changes that could be made
while maintaining U.S. exporter competitiveness in their
financing packages that would stretch the $633 million to meet
the demand that would, in fact, come in.
We do not necessarily believe that the $633 million would
be a figure that would carry out into future years. We look at
each year separately. Our budget request to OMB goes over each
year with a new analysis of the projected demand for that
current budget year. So we anticipate OMB will respond to our
request and our analysis not based on just moving forward from
a $633 million level, but from the analysis that we present on
the demand we have projected.
Mr. Bentsen. Let me ask you this, and I am not asking you
for a policy decision here. I know that is not in your
bailiwick. But last year, for the current fiscal year, your
appropriated amount is $963, the prior year it was $865, or
this year it is $630, approximately. Was the Bank fully
subscribed in its lending or guarantees for fiscal year 2000 to
the $865 figure and is the Bank on track this year to utilizing
the $963 figure? If so, obviously, if by the whims of Congress
and the Administration you end up with $663 million or whatever
the dollar amount that is in the President's budget is exactly,
assuming that the trends continue, then how would you make up
that shortfall? Would you have to raise fees or just underwrite
less guarantees? What would you do?
Mr. Hess. Well, the Bank's estimates sometimes are right on
the mark and sometimes they are over or under. This past year
we did carry over $38.5 million from last year into this year,
a program budget that we did not use. The year before that, we
had to budget our resources very carefully toward the end of
the year because we had sufficient transactions presented to us
that used up virtually our entire budget. The year before that,
we had a carryover. So it goes both ways.
This year, as we look at demand coming up over the next 5
months, we believe there is sufficient demand to use up the
entire appropriation that we have this year. So there will be
little or no carryover from this year into next year's program
budget. Therefore, we will have to rely on the $633 million
plus any cancellations of prior year commitments to carry us
through next year.
Mr. Bentsen. So assuming trends continue the way they are
this year and have been where you have been utilizing between
95 and 100 percent of your appropriated amount, then you would
just reduce the number of guarantees that you would make, or
would you raise your fees? What would you do?
Mr. Hess. Well, there are several things that the Bank
could do. One of them, as you just mentioned, is raising fees.
A second is lowering the amount of the transaction that we
would finance. Right now we finance 85 percent of the
transaction. By lowering the overall amount of the transaction
financed, we would save budget authority. A third way would be
to simply look with a more stringent eye at additionality and
make judgments that some transactions simply do not need us.
Now, all of these kinds of actions tend to increase the
cost to the U.S. exporter. So we would have to make any changes
very carefully in order to ensure that the U.S. exporter's
financing packages still remained competitive with those
offered by other ECAs.
This would be a very delicate balancing act. But, we hope
that we would be successful in doing it.
Mr. Bentsen. Mr. Chairman, with your indulgence, if I could
just ask the counsel, because I don't know the answer to this,
I was involved with the 1997 reauthorization. To adjust the
guarantee level or the fee level, does the Bank have that
authority under the current authorization, or is that statutory
authority?
Ms. Stangland. The 85 percent is not statutory. It is,
however, a reflection of the OECD arrangement.
Mr. Hess. But that is a minimum. We could lower it from 85
percent; however, we just couldn't go above it to 90 percent.
Mr. Bentsen. Thank you.
Thank you, Mr. Chairman.
Chairman Bereuter. Thank you. The time of the gentleman has
expired. I know the hour is late. I do have a number of
questions I would like to ask on a second round and perhaps
other Members do as well.
So first of all I would like to go to the question of the
War Chest, over $300 million available that has not been used
now for over 3 years. What is the direction to the Export-
Import Bank and from whence did that direction come not to use
the War Chest?
Ms. Stangland. Mr. Chairman, Elaine Stangland. Under the
legislation that established the Tied Aid War Chest, the
administration of the War Chest is lodged with Export-Import
Bank. However, our ability to use the War Chest must be done in
consultation and in accordance with the recommendations of the
Secretary of the Treasury.
The legislative history of that provision we believe makes
it fairly clear that it is the Secretary of Treasury that has
the final word in how and when the Tied Aid War Chest is used.
Chairman Bereuter. I would like to see the justification
for that conclusion, if you could provide that to me in
writing.
Ms. Stangland. I would be happy to, sir.
Chairman Bereuter. What is the value of having the War
Chest if we rarely use it? Is there any value at all?
Mr. Miller. Mr. Chairman, obviously we are a demand-driven
organization and the transactions are not coming in, but to the
extent that we see them, and we try to do it, it is helpful to
many of our exporters.
Chairman Bereuter. Do you have any flexibility in using the
War Chest funds for other purposes at the Export-Import Bank?
Do you have any statutory authority to use it for other
purposes?
Mr. Hess. Yes, Mr. Chairman, the War Chest can be used for
other purposes, for normal day-to-day business, but we can only
do that after we have consulted with the appropriate
congressional committees.
Chairman Bereuter. And that is the authorizing committees
or the authorizing and appropriation?
Mr. Hess. We would normally consult with both, Mr.
Chairman.
Chairman Bereuter. Thank you. Export-Import Bank has been
accused of facilitating transactions that have a net result of
goods being dumped on U.S. markets to the detriment of U.S.
industries. I know one of our colleagues from Ohio has a
concern about steel. What procedures are in place, if any, to
prevent Export-Import Bank in effect to have a dumping effect,
a negative dumping effect on our country?
Mr. Cruse. Mr. Chairman, Jim Cruse here. There are
procedures mandated by Congress that evaluate what is called
the economic impact of any Export-Import Bank transaction on
the U.S. economy. We have developed a process, rules, and
principles for that procedure. We would be glad to provide them
to you if you wish.
In the context of the very specific requests about dumping,
we have added a feature to those procedures that says that if
there is a completed antidumping or countervailing duty
determination against a specific country and a specific buyer
that has exported to the United States, we will not provide any
support for capital equipment to produce the specific goods
under penalty to that buyer.
Chairman Bereuter. But it takes that official
determination?
Mr. Cruse. Yes, to absolutely prohibit it. The larger
review could come to a same conclusion, but that could take a
lot of time.
Chairman Bereuter. All right. What statutory provision or
procedure was utilized to block Export-Import Bank's
involvement in Three Gorges Dam. Was that the Chafee Amendment?
Mr. Cruse. No. No, Mr. Chairman. That is the provision in
Ex-Im Bank's charter that allow the Bank to deny a transaction
based on environmental considerations.
Chairman Bereuter. So that is not the Chafee Amendment?
Mr. Cruse. That is not the Chafee Amendment.
Chairman Bereuter. That is another provision that you must
take into account?
Mr. Cruse. It is. And moreover, the Congress specifically
gave us the authority to deny a transaction, which, by the way,
we did not deny the Three Gorges. We asked the buyer a lot of
environmental questions which were never answered by the time
the transaction went to the board for a decision.
Chairman Bereuter. Yes. I remember that. Mr. Manzullo
remembers it very well.
That provision traces only back to the 1997 authorizing
act, is that correct?
Mr. Cruse. The environmental provision came in 1992.
Chairman Bereuter. 1992. And how long has the Chafee
Aendment been in effect?
Mr. Cruse. Since 1978, I believe.
Ms. Stangland. That is correct.
Chairman Bereuter. I still have just enough to sneak in one
more here, I think. Can you give us examples of how Export-
Import Bank reaches out to local and regional banks to assist
in financing transactions, and what is your experience,
success, or what do you need, in addition, if anything, in the
way of encouragement or statutory authority?
Mr. Redway. Mr. Chairman, we reach out in a number of ways.
In fiscal year 2001, we are doing 60 seminars across the
country, of which about 25 of those are lender seminars. Those
are seminars where we go into local communities and talk about
Export-Import Bank. We are doing these seminars all of the
time. We also run a training program in Washington, which we
have cut back since we have taken so many on the road. But we
are doing about six in Washington where we have invited
lenders.
In addition, on a very regular basis, we talk to the people
at BAFT, the main trade association for the commercial banking
industry. I think we reach out to banks just about every which
way we can do it. They are our best customers.
Chairman Bereuter. Thank you.
Ms. Waters.
Ms. Waters. I had raised with the Chairman the fact that I
was concerned about the head of the Bank, new or old, not being
here, because I want to ask more questions about Sub-Saharan
Africa. I was looking at--tell me how the Bank is organized so
that--do you all have organizations specifically to take care
of the Sub-Saharan mandate? How is it staffed? Who is in charge
of it? How does it work?
Mr. Ubamadu. Congresswoman Waters, as you know, in 1997
there was congressional legislation to establish the Sub-
Saharan Africa Advisory Committee. This group meets with the
Bank to advise us on doing more transactions in the region. We
also have an internal task force called the Africa Task Force
that is composed of individuals from different divisions in the
Bank. Just to let you know, this is the only internal task
force that is dedicated to a specific region. This group meets
once every Monday to look at issues that are related to Africa,
and to look at transactions that are in the Bank and try to
find ways to move them forward.
Ms. Waters. Who is in charge of that?
Mr. Ubamadu. The counselor to the Chairman and to the
Board, Gloria Cabe.
Ms. Waters. Counselor to the Chairman of the Board.
Mr. Ubamadu. Yes. And we can give you specific information
on the record.
Ms. Waters. So this counselor has as her responsibility
this issue only?
Mr. Miller. Congresswoman, she chairs the African Task
Force. In addition to the task force and the advisory committee
within the International Business Relations area, we have a
Sub-Saharan Africa team that is committed just to that region,
and within different geographic groups in the Bank that process
and analyze the transactions, there is a Sub-Saharan Africa
region.
Ms. Waters. How is it staffed? For the Sub-Saharan Africa
region, describe the staff to me.
Mr. Miller. Within the international business relations--
are you referring, Congresswoman, to the number of staffers?
Ms. Waters. Yes.
Mr. Miller. In the international business relations area,
we have three; within the trade finance----
Ms. Waters. But that is broken up into regions?
Mr. Miller. It is within the region of Sub-Saharan Africa,
yes, ma'am.
Ms. Waters. Oh, I see. So go back and describe to me again
how the Bank is organized to specifically deal with the Sub-
Saharan mandate. Who is in charge of it? I understand your
committees. I just noticed that when I looked at Mr.--what is
your name? Mr. Ubamadu, there is his name, but no title; he
didn't have one. It says you are with the Office of the General
Counsel. Are you a Deputy General Counsel?
Mr. Ubamadu. No. I am just a Counsel in the office. But, I
am a member of the Africa Task Force.
Ms. Waters. Do you work for the General Counsel's Office,
or do you do something else with Sub-Saharan Africa?
Mr. Ubamadu. I do work for the General Counsel's Office,
but we also have three representatives from the General
Counsel's Office that are members of the Africa Task Force and
I am a member of the Africa Task Force. As I mentioned before,
as part of the task force, we work very closely with our
Regional Director for Africa on various issues that are related
to where there is market or trying to structure transactions in
the region.
Ms. Waters. So I take it that with this mandate, there has
never been a structure where you have had something like a Vice
President or other officer with the specific responsibility for
Sub-Saharan Africa, with the staff that is advised by a task
force and an advisory committee. What you have done is you have
kind of taken someone from the General Counsel's Office to do
some coordinating work of the task force or the advisory group;
is that what you do?
Mr. Miller. Congresswoman, each of the divisions within the
Bank, the General Counsel's Office, the Small and New Business
Group, the Structured and Trade Finance Group, which includes
International Business Relations, are part of the Africa Task
Force and coordinate with the Sub-Saharan Africa Advisory
Committee to focus on activities for developing business and
doing transactions in the region.
Ms. Waters. Who is in charge of it?
Mr. Miller. The task force is headed, as Mr. Ubamadu said
before, by Gloria Cabe. The Sub-Saharan African Advisory
Committee has a private sector chair, and the Small and New
Business Group obviously is Mr. Redway and the Structured and
Trade Finance Group is myself. So we all contribute to this
effort.
Ms. Waters. Is that the same way that you work with Mexico,
for example?
Mr. Miller. We don't have a specific task force for Mexico.
Ms. Waters. How do you work with Mexico? Give me the
structure.
Mr. Miller. We have regional people within Latin America
also, yes.
Ms. Waters. Give me the structure of your Mexico operation.
Mr. Miller. Within International Business Relations we have
a Latin America team, and in the Structured and Trade Finance
Group we have people focused on Latin America.
Ms. Waters. What is different about what I am hearing about
Sub-Saharan Africa and Mexico, for example, and the way that it
is staffed?
Mr. Ubamadu. Congresswoman, if I may take that----
Ms. Waters. I can't hear you.
Mr. Ubamadu. Sub-Saharan Africa is the only region at
Export-Import Bank that has a task force which is specifically
tasked to work in this area. It is also the only region that
has a specific advisory committee that provides advice and
counsel to the board on how to improve its business to the
region. So unlike let's say Mexico or other regions where you
have business development officers that are responsible for it,
for Sub-Saharan Africa we have both business development
officers plus individuals on the task force that work very
closely with the business development officers, and the board,
and the advisory committee to meet the 1997 legislative
mandate.
Ms. Waters. So is the business development officer
considered the key person with responsibility for making things
happen?
Mr. Miller. Congresswoman, to develop the business, and the
credit officer that would get the transaction would make the
transaction happen and bring it to the authorizing
decisionmaking body.
Ms. Waters. They would bring it to the board?
Mr. Miller. Correct. But it all feeds into the task force
so that the whole region is looked at as a whole and there is
initiative to direct the activities in the region.
Ms. Waters. I have lots more questions, but we can't do it
today. But I want to talk about again the staffing and I want
to talk about how the decisions actually get made.
Chairman Bereuter. Thank you. I think it would help this
Member, the Chairman, perhaps Ms. Waters, if we had an
organizational chart which is specified exactly as you can
about the Africa effort.
Mr. Miller. Mr. Chairman, we will provide it for the
record.
Chairman Bereuter. At this point we are looking for some
sort of an overall organization chart for Ex-Im Bank, and
either we do not have one with us, or we have not received one.
Mr. Miller. We will provide it for the record.
Chairman Bereuter. The gentlelady from Illinois, Ms.
Schakowsky, is recognized again for 5 minutes.
Ms. Schakowsky. Thank you, Mr. Chairman.
I wanted to go back to some parts of the questions that
were not answered before. I wanted to talk about the $290
million that went to the Dabhol project in India, which is a
subsidiary of the Enron Development Corporation in India, and
wondered were there any considerations, was that even part of
the debate, the human rights abuses that took place around that
project which were brought to my attention by Human Rights
Watch and are very carefully documented. And I wondered if that
was even a consideration.
Ms. Stangland. Congresswoman, I did not personally
participate in that transaction but, I would be very happy to
check with our staff and get you a response.
Ms. Schakowsky. It is the single largest foreign investment
in India, so what we do there has an enormous implication.
Ms. Stangland. I don't mean any ignorance to be taken as--
--
Ms. Schakowsky. And I didn't mean that as a criticism.
Ms. Stangland. We will get you that answer.
Chairman Bereuter. And will you share that with the
subcommittee?
Ms. Stangland. Yes.
[The information referred to can be found on page 79 in the
appendix.]
Ms. Schakowsky. Five million dollars to help with AIDS is
very important. I guess I just wanted to make a suggestion.
There are many Members of Congress, including Representative
Waters and Representative Lee and myself and others, who are
very concerned about this issue, and when a huge investment
like that is made, is there ever any process that would involve
consultation with Members who have weighed in heavily on issues
like this to look at that kind of loan, that kind of commitment
to such a project?
Mr. Ubamadu. Congresswoman, the initiative that was
announced last year was to provide $1 billion per year in
support to exports that would be HIV/AIDS-related. What this
program does is allow us to export such items as medical
supplies, AIDS testing kits, hospital supplies, equipment and
services, which we traditionally finance right now on longer
terms. So, what we basically announced was that for some
pharmaceuticals and other products that traditionally we
finance on a 180-day to 1-year term, we are now willing to
provide up to a 5-year term.
With regard to consultation with the Congress, Congress has
given us legislation to carry on the program; and there really
is nothing new within this program that requires additional
legislation. But, we can certainly discuss these issues with
the Members if they would like, and with the subcommittee
Members if they would like.
The key aspect of this program is that Ex-Im Bank was
trying to help in this severe humanitarian crisis. This is not
really within Ex-Im Bank's mandate in some sense. We are not a
grant agency. We provide loans where we are required to show
reasonable assurance of repayment, and many of these countries
are heavily indebted. However, we did not want to stand to the
side of such a catastrophic issue and do nothing. In the
instance where perhaps grants are not available but
infrastructure products are not needed, Ex-im Bank is willing
to help finance this.
Clearly what we are looking at with this program is more in
the private sector, but there are some countries where we are
open in the public sector and we would be willing to look at
this.
Ms. Schakowsky. I would say there is a lot of expertise on
this committee and in this Congress and interest in this
particular issue.
I wanted to just end quickly with this. While you defer to
the State Department on human rights, you are not
environmentalists either, and yet on environmental policy you
do make decisions project by project within the Bank. Why is
that not also true of any other subject, including human
rights?
Mr. Cruse. The environment is one of the two areas besides
commercial creditworthiness where the Bank is granted
independent authority to deny a case, and the other is economic
impact. Only in those two areas can we go beyond the issue of
commercial and financial creditworthiness. Everything else is
prohibited by Chafee and requires going through the Chafee
process.
Ms. Stangland. I would just add that we do have an
engineering department that has expertise in the environment.
It is a much more contained area than some of the other areas
that you have talked about; and we have an engineer who focuses
solely on environmental matters.
Ms. Schakowsky. Thank you.
Chairman Bereuter. Thank you very much.
I would like to conclude the hearing, which is the first of
at least several we are going to be holding on the Export-
Import Bank, with a question and to encourage you, Mr. Hess, to
invite members of the Export-Import Bank to be here in the
audience on May 8, when we hear from supporters and critics of
the Export-Import Bank programs.
But my question to you now, a concluding question, is, as
objectively as you can, as candidly as you can, without pushing
you into policy, what in your judgment are the implications for
U.S. Exporters of a proposed 25 percent cut in the budget for
the Export-Import Bank?
Mr. Hess. I think that if the estimates of demand, which
are fairly conservative, in the budget are, in fact, exceeded
by the calls on our authority, that it will be very tricky to
fashion program changes that continue to have the Export-Import
Bank offer competitive financing packages while still remaining
within the $633 million. Candidly that will be a real
challenge, but one that we will try to meet.
Chairman Bereuter. Thank you very much. This will be a
subject of considerable discussion within the subcommittee and
on May 8 for the next hearing of the Export-Import Bank.
Again, I want to mention to Members of this subcommittee
and the staff who are here watching for other Members that I
expect we are going to be revising to some extent our proposed
hearing schedule to take into consideration some of the changes
that have been approved by the World Bank in the IMF meeting,
specifically as it relates to AIDS, HIV. And, Ms. Stangland, I
am anxious to see the information that you will provide me on
which you base the interpretation that we mention with respect
to the U.S. Treasury.
Ms. Stangland. Yes, sir.
Chairman Bereuter. Thanks to all of you for taking time
today to help us begin our examination of the Export-Import
Bank reauthorization legislation. I very much appreciate it.
Thank you.
Mr. Hess. Thank you, Mr. Chairman. We appreciate the
subcommittee's attention.
Chairman Bereuter. The hearing is adjourned.
[Whereupon, at 5 p.m., the hearing was adjourned.]
REAUTHORIZATION OF THE EXPORT-IMPORT BANK
----------
TUESDAY, MAY 8, 2001
U.S. House of Representatives,
Subcommittee on International Monetary
Policy and Trade,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 2:00 p.m., in
room 2128, Rayburn House Office Building, Hon. Doug Bereuter,
[chairman of the subcommittee], presiding.
Present: Chairman Bereuter; Representatives Ose, Roukema,
Capito, Sanders, Sherman, Schakowsky, and Bentsen.
Chairman Bereuter. Good afternoon. The Subcommittee on
International Monetary Policy and Trade meets today in open
session to receive testimony on the reauthorization of the
Export-Import Bank, the Ex-Im Bank.
The Ex-Im Bank was last reauthorized in 1997 for a 4-year
term that expires on September 30th of this year. At this
hearing the subcommittee will hear from representatives of a
large corporation and a small business which use the Ex-Im
Bank, as well as organizations who have differing opinions or
criticisms of the Export-Import Bank's programs.
This is the subcommittee's second hearing on the Ex-Im
Bank, and I am pleased to say we have only one panel today. I
have been concerned for some time that we tend to hear from the
Administration witnesses and then we don't have enough time for
people who come to testify about the subject matter from the
private sector and from the nonprofits.
So today we'll have, I think, a good break in that respect.
Also, the House is not expected to cast votes until 6:00 p.m.
On May 2nd, the subcommittee heard from an experienced
panel of professional staff from the Export-Import Bank. In
addition to giving their testimony, the Ex-Im Bank submitted a
legislative proposal just recently which would be a
straightforward reauthorization of the Export-Import Bank for 4
years until 2005, and the extension of the life of the Sub-
Saharan Africa Advisory Committee to that date. I look forward
to receiving the panel's views on this legislation and the bank
in general.
Before introducing our outstanding panel, I am going to
briefly stress the following items which were discussed in the
first hearing of the Export-Import Bank: Proposed cuts in
funding; possible net income; small business activities; Ex-Im
Bank activities in Africa; and types of subsidies offered by
export financing agencies in other countries, including tied
aid war chests.
I would like the witnesses today to address those issues if
they can and will and any others that they are planning to
address will be most welcome.
I am going to summarize my following remarks and ask
unanimous consent that my entire statement be made a part of
the record, and to extend that privilege to all Members.
Hearing no objection, that will be the order.
First, on May 2, the Ex-Im Bank testified regarding the
proposed reduction in funding for fiscal year 2002. The
Administration requested $633 million to fund its program
budget which administers the Ex-Im Bank loan, insurance and
guaranty programs. This is an approximately 25 percent cut from
fiscal year 2001.
I do have significant concerns about the Administration's
proposed cut, but we'll see what this panel has to say about
it.
Furthermore, the Ex-Im Bank also testified that they need
additional funding for upgrading their technology. As a result,
the Administration proposed $65 million for fiscal year 2002
for Ex-Im Bank administrative budget, which is an increase of
$3 million from the prior year.
Second, at the May 2nd hearing, some questions were asked
regarding the annual and cumulative net income for the Ex-Im
Bank. And that's a subject in which the membership showed
considerable interest.
Third, with respect to small businesses, the 1997
authorization law mandated that the Export-Import Bank make
additional efforts to enhance its programs to small and rural
companies. When the Ex-Im Bank testified, they explained how
they continued to try to meet this mandate.
Today our small business witnesses will testify as to the
efforts of the Ex-Im Bank in that regard from his perspective.
And also in the 1997 authorization bill, another mandate,
an increase in the Ex-Im Bank's financial commitment to Sub-
Saharan Africa.
I would like to pass over some comments about tied aid, but
as I said before would welcome your suggestions about whether
or not we've been successful in our efforts in OECD to reduce
tied aid on the part of the other countries or whether or not
some of them have found other ways to achieve the same
purposes.
[The prepared statement of Hon. Doug Bereuter can be found
on page 118 in the appendix.]
Chairman Bereuter. To assist the subcommittee in examining
these reauthorization issues, I am pleased we have an
opportunity to hear from a distinguished panel. First we will
receive testimony from Mr. Richard Christman, President, Case
IH Agricultural Businesses. I understand you have at least a
4:00 o'clock time constraint to catch a flight, and I think
that should be no problem.
Case New Holland, which uses Ex-Im Bank, is the number one
manufacturer of agriculture tractors and combines, the world's
third-largest maker of construction equipment.
Next, Mr. Ian McLaughlin, the Chairman and CEO of Watson
Machinery International based in Patterson, New Jersey will
testify. He will bring the perspective of a small business
owner who uses the Export-Import Bank and lots of machinery,
supplies high performance machinery and production systems for
wire, cable, fiber optics and wireless industries.
Our third panelist is Dr. Fred Bergsten, the Director of
the Institute for International Economics. Since its creation
in 1981, among other past positions, he was Assistant Secretary
of the Treasury for International Affairs. He has testified
before this panel and before the full Banking Committee and
expects to be before the Financial Services Committee on many
future occasions.
Next, Mr. Ian Vasquez, the Director of Cato Institute's
Project on Global Economic Liberty. He will testify. His
writings have appeared in newspapers throughout the United
States and Latin America, and we look forward to his testimony.
Dr. Brent Blackwelder, President of Friends of the Earth
will testify. He was the founder of the Environmental Policy
Institute which merged with the Friends of the Earth and
Oceanic Society in 1989.
The final witness is Mr. George Becker, the former
President of the United Steelworkers of America. He recently
retired as President, was first elected to that position in
November 1993. He is a second generation steel worker and a
native of Granite City, Illinois.
We welcome the distinguished panel to our hearing. Without
objection, their entire written statements will be included in
their entirety in the record.
But now before we proceed with the panel, I would like to
turn to the distinguished Ranking Member, the gentleman from
Vermont, Mr. Sanders, for opening comments.
Mr. Sanders. Thank you very much, Mr. Chairman, and thank
you for putting together an excellent panel which I think will
give us different viewpoints of the pluses and minuses of the
Ex-Im Bank.
This is the major concern that I have. We do not discuss it
as a government very much, but right now the United States has
a recordbreaking trade deficit of well over $400 billion a
year. And I think that the work of the Ex-Im Bank has got to be
looked at within the context of a failed--f-a-i-l-e-d--failed
trade policy, which is costing us hundreds of thousands of
jobs. So that's the first thing.
Our trade policy is failing, to my mind. We have a
recordbreaking trade deficit. We have an $83 billion trade
deficit with China, and Ex-Im Bank has got to be looked at
within that context. And it is not good enough to say, well,
gee, we have a huge trade deficit. That's why Ex-Im Bank is so
important, that we can create a few more jobs. I think we have
to look at Ex-Im Bank from a different perspective.
Second of all, I think that it is bad public policy to say
to some of the largest corporations in America, companies like
Boeing and General Electric, who have made substantial
reductions in their workforce, who have laid off huge numbers
of American workers, and say to them, well, thank you very much
for laying off large numbers of American workers. Here is a
subsidy from the Export-Import Bank.
It seems to me that if the United States is going to
provide subsidies to employers, what we want to say to those
employers, we are giving you this subsidy because we appreciate
the work that you have done in increasing decent-paying jobs in
the United States. And there are certainly companies in the
United States who are working under very difficult odds. Small
businesses, large businesses who are saying we want to grow
jobs in the United States of America. Those, it seems to me,
are the companies that we want to give support to.
When you have a company--and I will just single out G.E.--
but there are many others. G.E., if Jack Welch were here today,
what he would say, one of the things that we have focused on in
recent years is globalization. One of the reasons that we are
such a profitable corporation is that we are intentionally
laying off American workers at decent wages and hiring people
all over the world at very low wages. That's what we are doing.
And for the Ex-Im bank to simply come and say, G.E., thank you
for that policy of laying off American workers. We are going to
make you one of the major beneficiaries of the Ex-Im Bank, is
to me absolutely absurd.
It is not good enough to look at Ex-Im Bank from a project-
to-project-to-project basis, to say, OK, this project is
creating 400 jobs, but we are forgetting the fact that you've
laid off 10,000 workers, and that's your intention. Your
intention is to move to China and pay people 20 or 30 cents an
hour. But we don't care about that. This particular project
will create a few jobs. Not good enough.
If you have a carrot, use the carrot, and use the carrot to
benefit the people of the United States of America who are
paying for these subsidies in general.
I am particularly impressed in reading through Mr. Becker's
presentation to learn that the Export-Import Bank is financing
a multi-million-dollar project to modernize a Chinese steel
mill that is under investigation for illegally dumping steel
into the United States. Now, that may make sense to some
people. It does not make a lot of sense to me.
I think Mr. Blackwelder will talk in a moment about how
some of the Ex-Im Bank projects have been very anti-
environmental and at a time when every sane human being is
worried about global warming and other negative things that are
happening to our environment, I think we want to take a hard
look at that as well.
So, Mr. Chairman, thank you for putting together this
excellent panel, and I look forward to participating in the
discussion.
Chairman Bereuter. Thank you, Mr. Sanders, and thank you
for your recommendations. Under the Committee rules, we will
recognize other Members for opening statements of 3 minutes
each. Gentleladies? Thank you very much.
We will now proceed with testimony. First we will hear from
Richard M. Christman. He is the President of Case IH
Agricultural Business, but I failed to mention he is also
appearing in behalf of the National Foreign Trade Council and
the Coalition for Employment Through Exports.
Gentlemen, we would appreciate it if you could each limit
your presentations to approximately 5 minutes. And as I said,
your entire statement will be made a part of the record. Mr.
Christman, you may proceed as you wish.
STATEMENT OF RICHARD M. CHRISTMAN, PRESIDENT, CASE IH
AGRICULTURAL BUSINESS OF CASENEWHOLLAND INC.
Mr. Christman. Thank you, Mr. Chairman and Members of the
subcommittee. My name is Richard Christman, President of Case
IH Agricultural Business of CaseNewHolland Inc. CNH is the
number one manufacturer of agricultural tractors and combines
in the world, and as indicated, the third largest manufacturer
of construction equipment, and has one of the largest equipment
finance operations within our industry.
I am also testifying today on behalf of the National
Foreign Trade Council and the Coalition for Employment Through
Exports, whose members comprise major U.S. exporters and
financial institutions.
Now at the onset, let me emphasize that CNH and the other
members of CEE and NFTC urge Congress to reauthorize the Ex-Im
Bank for 5 years. It is essential to American exporters and our
workers that the bank's charter be reauthorized until September
30th, 2006. This would avoid the difficulty which occurred in
1977, and then again this year, when the reauthorization occurs
during the first year after a Presidential election and in the
same year as when the Ex-Im Bank chairman's and vice chairman's
terms expire.
And we look to your leadership in ensuring that the bank is
fulfilling its mandate to promote U.S. exports and,
importantly, U.S. jobs, by being fully competitive with other
major export credit agencies.
Now in this regard, adequate appropriations are just as
important as the reauthorization in accomplishing this critical
goal. Ex-Im Bank's budget must be funded adequately and its
policies and procedures must recognize the realities of today's
very fierce competitive marketplace.
CEE and NFTC recently issued a port on the important
benefits of Ex-Im Bank to small and medium businesses. The
report highlights that thousands, literally thousands of what
we call ``invisible exporters'' across this nation by listing
35,000 primary suppliers of goods and services to 13 major U.S.
exports, and CNH was one of those 13.
Now at CNH, our construction equipment moves the earth, and
our agricultural equipment helps feed the world. Well, how do
we do this? By exporting this construction equipment and ag
equipment to over 160 countries. Now why do we do it? It's
because trading gives us an opportunity to grow our business.
It also gives then our suppliers an opportunity to grow their
business. Because through our exports, their products then
ultimately reach global customers.
So each of our suppliers can be viewed as what we call an
``invisible exporter.''
Now many of our exports are assisted by Ex-Im Bank. The
result: Exporting CNH equipment means that we are really
importing business to our U.S. suppliers and to our factories
in the U.S.
Ex-Im Bank serves as what we call our ``lender of last
resort'' for U.S. exporters. And we use it when commercial bank
financing is not available for those export sales, and the U.S.
exporters, when we are confronted with foreign competitors that
do have financing available from their governments. Currently
there are some 70 governments around the world that have ECAs
similar to Ex-Im Bank. And they provide $500 billion a year in
government-backed financing.
Now increasingly, as we try and sell across the world,
financing is a key to winning these export sales. Great
products are not enough in today's marketplace. Customers
demand that exporters arrange financing for sales. However, in
many emerging markets where the export potential is the
greatest, commercial banks are often unwilling to provide
financing even for creditworthy customers.
And at this juncture, we cannot risk foreign suppliers
stepping into these markets because of financing support from
their ECAs. Lack of a viable or a fully funded Ex-Im Bank would
adversely impact the ability of our company to compete against
some very formidable foreign suppliers.
From 1977 through 2000, CNH financed more than $420 million
worth of sales of Ex-Im Bank board-approved transactions to
Uzbekistan, Turkmenistan, and Ukraine. Without Ex-Im Bank,
none--and I stress none--of these sales would have been
completed.
And this does not even consider the impact of hundreds of
thousands of other employees at our suppliers' factories or
their sub-suppliers in the U.S.
For example, as shown on the charts here, to build one
combine, we engage 235 suppliers from 30 states representing in
total 100,000 employees.
To build a magnum tractor out of Racine, Wisconsin, we
engage 200 suppliers, 27 states, and another 75,000. And while
you probably can't read all the suppliers, many of those----
Chairman Bereuter. I hate to interrupt you, but could you
summarize and conclude in about 30 seconds?
Mr. Christman. OK. Are under 100. Real life stories. In
Uzbekistan, we have sold these. We need Ex-Im Bank financing to
defend ourselves against the likes of Claas, Deuz-Fahr, Fendt.
The key success factors is to get the financing, have it at a
competitive rate, and make sure that we are competitive with
those foreign governments out there that are competing for our
business.
Thank you, Mr. Chairman.
[The prepared statement of Richard M. Christman can be
found on page 128 in the appendix.]
Chairman Bereuter. Thank you very much, Mr. Christman.
Next, we will hear from Mr. Ian McLaughlin. He is the
Chairman and CEO of Watson Machinery International, but he is
also speaking and appearing on behalf of the National
Association of Manufacturers. Please proceed.
STATEMENT OF IAN WATSON McLAUGHLIN, CHAIRMAN OF THE BOARD AND
CEO OF WATSON MACHINERY INTERNATIONAL
Mr. McLaughlin. Good afternoon, Mr. Chairman. As you
introduced me, I am Ian McLaughlin. Watson Machinery is a
leading manufacturer of machinery and production systems that
essentially make wire and cable, fiber optic cable, and
wireless cable. We are based in Patterson, New Jersey, and I
have prepared testimony that I ask to be submitted in the
written record, and I have some brief remarks.
I am also testifying on behalf of the National Association
of Manufacturers.
Thank you for the opportunity to testify on the
reauthorization of the Export-Import Bank. Many might be
surprised that Watson Machinery, a small American business with
90 employees, is even remotely interested in Ex-Im Bank. After
all, the claim is often made that Ex-Im Bank is the financial
boutique of the Fortune 100.
I am here to let you know that Ex-Im Bank is actually vital
to small manufacturers such as myself and/or my company, and it
does fill a gap in the financial market that we could not find
elsewhere.
Bottom line is that about as much as 60 percent of the
sales of Watson are outside the United States. And without Ex-
Im Bank, these deals would go to my competitors in Italy, in
France, in Germany and elsewhere, all of whose export credit
agencies do provide the working capital guarantees necessary to
support small businesses in their countries.
An illustration of the critical role Ex-Im Bank plays
occurred at the end of 2000 for Watson Machinery. We signed a
contract to sell capital machinery worth $4.6 million, and that
machinery represented two lines of production for fiber optic
cabling equipment and two lines to manufacture radio frequency
wireless cable to Ocean Cable Communications, called OCC, in
Tochigi, Japan. This sale would not have occurred without help
from Ex-Im Bank's Working Capital Guarantee Program.
To get to the essence of the matter, our banking facility
does not allow work-in-process inventory financing. As this
order represented our first penetration into the Japanese
marketplace, we had intense competition from Europe. We did not
ask for progress payments, and that is where Ex-Im Bank came
in.
Watson filed an application for an Ex-Im Bank working
capital loan guarantee. Now that Working Capital Loan Guarantee
Program encourages commercial lenders to make loans to U.S.
businesses for various export-related activities, including the
purchase of raw materials, labor and overhead to produce the
goods and services which we export.
The guarantee may be used to cover working capital loans to
a U.S. business only if the lender shows that the loan would
not have been made without the assistance and guarantee of Ex-
Im Bank, and that Ex-Im Bank determines that the exporter is
creditworthy. In the case of Watson, Ex-Im Bank approved a $3
million guarantee that backed our ability to be able to produce
$4.6 million in equipment to sell to Japan. And I can tell you,
it would not have happened otherwise. We have been dealing with
one of the largest banks in New Jersey, and they are still
skitterish on providing export financing.
I emphasize two points. Again, the transaction would not
have gone forward without Ex-Im Bank, and that this support
doesn't come for free. Ex-Im Bank only entered into the
transaction when the lender showed that the loan would not have
been made, and our lender in fact is a bank that's
headquartered out of Connecticut, that would not have been made
with Ex-Im Bank's guarantee. In other words, Ex-Im Bank proved
that it can fill gaps in financial markets for small companies.
No corporate subsidy here, particularly when you consider
that the export credit agencies of my competitors overseas are
not holding back in this area.
We paid a $500 processing fee and an up-front facility fee
of 1.5 percent of the total loan amount. And that helped ensure
that there was an adequate loan loss reserve and an acceptable
risk level for the U.S. Government.
Watson Machinery International will continue to do
everything in its power to remain competitive in global
markets. And I am here to ask you to do your part to help in
filling those gaps in financial markets.
I see that my time is up, and I will cease at that point.
[The prepared statement of Ian Watson McLaughlin can be
found on page 144 in the appendix.]
Chairman Bereuter. Thank you very much, Mr. McLaughlin.
Next we will hear from Dr. C. Fred Bergsten. He is the
Director and founder of the Institute for International
Economics. Dr. Bergsten, you may proceed as you wish.
STATEMENT OF DR. C. FRED BERGSTEN, DIRECTOR, INSTITUTE FOR
INTERNATIONAL ECONOMICS
Dr. Bergsten. Mr. Chairman, thank you very much. Let me
start with the bottom line. I think it would be a huge mistake
to substantially cut the budget and program of the Export-
Import Bank as the Administration has proposed.
To the contrary, I believe there should be a substantial
increase in funding for the Ex-Im Bank because that is the only
way to assure a level playing field for American exporters in
world trade.
I give calculations in my paper suggesting that the
increase should be about 50 percent, and I trace what that
would mean for budget authority, the authorization ceiling, and
the annual program level.
I stress, only with such an increase will we provide a
level playing field for American exporters in the world
economy.
I also believe the reauthorization bill, far from being a
clean bill, should give the bank new authorities to compete
with the market windows through which other competitors are
eating our lunch, and authority to compete with so-called
untied aid, which often amounts to de facto tied aid and is
also eating our lunch in key markets like power equipment in
China.
We should use the current war chest availability for that
purpose and the new legislation should authorize it.
Why do I make these strong proposals? I agree with Mr.
Sanders. We have to see the Ex-Im Bank issue in a much broader
context, not just the individual transactions, important as
they are, but in the context of our whole economy and indeed
our whole trade deficit, exactly as Mr. Sanders said.
But my conclusions are very different from his. First, we
have to recognize that export expansion has been a major driver
of U.S. economic growth for two to three decades. The share of
exports in our economy has tripled over the last generation. It
has been a major source of the dynamic improvement of the U.S.
economy, particularly over the last decade. My Institute has
published two studies showing why this is so. We've another one
coming in the next few months. I'm happy to share the details
on that with you if you wish.
The second big picture reason is, as Mr. Sanders said, the
trade deficit. I'll go him one better. It's getting close to
$500 billion this year, 5 percent of the economy. It's a
financial risk because the dollar could fall sharply at any
moment, and it's a trade policy risk, as he implies.
There are only two ways to correct the big trade deficit.
One is to reduce imports, the other is to expand exports. I
would argue that export expansion is by far and away the
overwhelmingly better way to do it. The Ex-Im Bank is not going
to do that by itself, but it can certainly help, and that's one
reason we should want to promote it.
I should add that in both the overall economic and trade
balance contexts, according to a series of studies, including
those by my institute, export jobs are considerably better than
other manufacturing jobs, let alone other average jobs in the
economy. They pay 5 to 10 percent better, benefits are even
better than that by comparison, productivity is 20 percent
higher in export firms, and they are 10 percent less likely to
go out of business and destroy jobs.
So, on both quantity and quality grounds, it's a big plus
for the economy.
Mr. Sanders rightly asks the question, what about those
firms that get big Ex-Im Bank credits but reduce jobs? My
answer is quite straightforward. Without the Ex-Im Bank credits
and the exports, they would have reduced more jobs. Indeed, the
jobs they have created with the credits are very good, high-
paying, stable jobs, and that is what we want.
Moreover, if you look at the whole economy, it has, until
quite recently, been at full employment by anybody's
definition. We cannot look at just one firm or even one
industry. We have to look at the impact on the economy as a
whole, and that is where the payoff has been.
The final policy reason to support a stronger Ex-Im Bank is
overall trade policy. The President is about to come to the
Congress for trade promotion authority--fast track as it used
to be called--to enable the U.S. to negotiate new reductions in
trade barriers around the world. As you know better than me,
that's going to be a big battle. And those of us who support
increased trade activity and authority to do it need all the
help we can get. This for sure means strong support from the
exporting community. That in turn means working with them in
constructive ways where the government can help, like
supporting a bigger and more effective Export-Import Bank
program.
The final point, Mr. Chairman, is to suggest that the basic
strategy we need for the Ex-Im Bank is a two-track strategy. We
want to get a level playing field for American industry in
world trade, which means getting foreign countries to stop
providing excessive subsidies. We want to negotiate reductions
or preferably elimination, of their subsidies wherever
possible.
We know from history, not theory, that the only way to do
this is to have sufficiently serious programs of our own so
that we can bring the foreign competitors to the negotiating
table.
So, we not only want to increase our own programs to
support exports on their merits but also use those programs to
get others to reduce their subsidies.
We know from history that it works. When I was running the
international part of the Treasury, we did it in the late
1970s--we created the OECD agreement that eliminated excessive
maturities and excessive interest rate subsidies.
It was done in the mid-1980s. The war chest was used to
stop tied aid practices that amounted to export subsidies. But
today, new practices have crept in. We need to seriously deal
with them. I believe that, in your reauthorization legislation,
you need to increase the amounts, not cut them; broaden the
authorities; and promote an effective U.S. policy in this area.
[The prepared statement of Dr. C. Fred Bergsten can be
found on page 147 in the appendix.]
Chairman Bereuter. Thank you very much, Dr. Bergsten.
I mispronounced the next panelist's name, giving him the
name of our colleague. It's Mr. Ian Vasquez, not Velasquez.
Senior Fellow--apologize for that--Cato Institute. Accent on
the last syllable or first syllable?
Mr. Vasquez. First syllable.
Chairman Bereuter. Mr. Vasquez, you may proceed as you
wish.
STATEMENT OF IAN VASQUEZ, DIRECTOR, PROJECT ON GLOBAL ECONOMIC
LIBERTY, CATO INSTITUTE
Mr. Vasquez. Thank you. I would like to thank Chairman
Bereuter for inviting me to testify. In the interest of
transparency, let me point out that neither the Cato Institute
nor I receive government money of any kind.
President Bush has called for a 25 percent cut in the
funding of the Export-Import Bank. I believe that the proposed
cuts are a good start, but that Congress should go much further
in recognition that the rationales for using the Export-Import
Bank and its credit do not justify its current level of
authorizations.
The Ex-Im Bank and its proponents cite a number of reasons
that the credit agency benefits the United States. Yet because
the bank takes resources from the U.S. economy and diverts them
toward politically determined less efficient uses, its
intervention creates distortions in the national economy and
imposes opportunity costs that surely outweigh the value of the
bank's intervention.
Moreover, as the GAO and the Congressional Research Service
and numerous economists have pointed out, subsidized export
credits do not create jobs, nor noticeably affect the level of
trade. Indeed, only about 1.5 percent of all U.S. exports are
backed by the Ex-Im Bank, far too small to make an impact on
trade.
Other factors play a much larger role in influencing jobs
and trade, including interest rates, capital flows and exchange
rates. Rather, the effect of subsidized exports is to subsidize
foreign consumption and to alter the composition of employment
and production in the U.S. economy without increasing economic
activity or levels of employment.
A principal rationale for use of Ex-Im Bank resources is
that the agency provides its services when the private sector
is unable or unwilling to do so. Yet the bank has been
providing the bulk of its services to countries like China and
Mexico that have had little difficulty in attracting private
investment on their own. Ten countries account for 50 percent
of the agency's total exposure.
At best, then, the bank provides financing to countries
that do not have trouble obtaining credit, and in many cases
may be merely displacing private investment. At worst, the
credit agency underwrites exports that should not be financed
and would not otherwise receive support.
Indeed, the lack of private sector finance is not an
example of market failure but rather an important market signal
about a project's prospects or a country's investment regime.
In the cases where the bank provides credit into a bad policy
environment, it discourages host governments from introducing
the types of market reforms that are necessary to genuinely
attract private capital.
And so I believe that it is worrisome that the Ex-Im Bank
has significantly expanded its operations in sub-Saharan Africa
in the past few years since the majority of those countries
lack economic freedom and are on the World Bank and the IMF's
list of highly indebted nations unable to pay their debts.
In sum, if the private sector is not already providing
export credit or insurance to a project, there are probably
good reasons for that, and the bank should not step in. The
risks of government failure far outweigh that of so-called
``market failure,'' and examples of that include the fact that
Ex-Im Bank credit helps to postpone market reforms, imposes
large opportunity costs and finances firms abroad that compete
with U.S. firms.
The other principal rationale for Ex-Im Bank credit is that
it is used to countersubsidize competition that U.S. firms
sometimes face. But much Ex-Im Bank credit helps U.S. firms
that do not face competition subsidized by foreign governments.
In 1999, for example, only 18 percent of medium-and long-term
loan guarantee transactions went to counter government-backed
export credit competition, representing about $6.3 billion of
the Ex-Im Bank's activity.
Those figures suggest that the bank could significantly
reduce its activities without undermining its mission to
counter foreign-subsidized competition. The Bush
Administration's proposal to cut the bank's funding by 25
percent should be viewed as a starting point even by those who
believe that the agency has a legitimate role in countering
subsidized foreign exports. At the very least, then, the
Export-Import Bank should be limited to financing exports that
meet that criteria.
But the idea that the United States suffers from a playing
field that is not level is questionable. The United States
exports about $1 trillion of goods and services per year. The
Ex-Im Bank backs only $15.5 billion of that amount, or 1.5
percent of total exports, only some of which face government-
subsidized competition.
When only a fraction of 1 percent of U.S. exports faces
competition supported by foreign export credit agencies, it is
difficult to conclude that the U.S. economy is threatened by a
playing field tilted against it.
If the goal is to help U.S. exporters, there are other,
more preferable ways in which to do so; namely, by making the
United States a more competitive economy, and Congress can do
much by addressing issues related to tax and regulatory policy.
It is time that Congress retire this corporate welfare
agency. The bank benefits a small number of firms at the
expense of the rest of us. Moreover, the tiny percentage of
U.S. exports supported by Ex-Im Bank shows that the U.S.
economy does not suffer from a lack of a level playing field.
Finally, and most importantly, Congress does not have the
Constitutional authority to use general taxpayer money to
support specific groups.
Thank you.
[The prepared statement of Ian Vasquez can be found on page
162 in the appendix.]
Chairman Bereuter. Mr. Vasquez, thank you very much.
Next we will hear from Dr. Brent Blackwelder, President,
Friends of the Earth. He reminded me he had appeared 18 years
ago before the predecessor subcommittee. We were looking at the
World Bank. And you may well have had some impact on us
enhancing the environmental review process of the World Bank
because of the oversight activities of this subcommittee and
our push to their executive director.
Dr. Blackwelder, please proceed as you wish.
STATEMENT OF DR. BRENT BLACKWELDER, PRESIDENT, FRIENDS OF THE
EARTH
Dr. Blackwelder. Thank you, Mr. Chairman. We are very
grateful for the opportunity to testify. And in my testimony
I'm going to stress several ways in which once again Congress
could make some decisive changes as you have in the past with
respect to the World Bank, and those produce very beneficial
results in terms of the projects which they support.
Friends of the Earth is a national environmental group.
We're part of Friends of the Earth International with member
groups in 69 countries. So we bring a global perspective to
these recommendations.
Before I go forward with these suggestions, I want to
commend outgoing Chairman Harmon, because the Export-Import
Bank has some of the very best environmental standards. And
rather than leading to a downward harmonization, these have led
to an upward harmonization, because Australia and Japan's
export credit agencies are moving up with their guidelines to
improve the environmental performance.
Furthermore, those guidelines have helped us avoid giving a
blessing to projects which are environmentally damaging. So I
think there is a good thing that we can look at there.
Now I want to turn to several suggestions for changes which
you could put into the authorization bill. One is to ensure
timely public input and comment on projects, making
environmental assessments available. The disclosure. This could
be similar to what is required in the case of OPIC. We suggest
a 120-day period.
Second, you could put into place an ombudsman or an
independent review panel. This is what you did in the case of
the World Bank, and one of the beneficial results of that
review was that they put the red flags up on a very dangerous
and damaging World Bank project, the Western China Poverty
Project, and that was scrapped. So I think Congress, in
particular this Committee, could take credit there. And once
again, the Export-Import Bank could use some sort of ombudsman
or independent review panel or function.
Next, the World Commission on Dams has just completed its
series of recommendations. And we would urge that the U.S.
Export-Import Bank adopt and abide by those recommendations.
They are outstanding. And right now, there are several major
dams being proposed which may be eligible for export credit
financing. Not only would they create serious environmental and
social impacts, but some of them would actually destroy places
of great cultural significance to human civilization. I'm
referring, for example, to the Ilisu Dam in Turkey.
Next let me turn to the final and most significant area in
which I think what the Export-Import Bank does has huge and
major implications to the environment of Planet Earth,
implications that affect everybody on the Earth.
What the U.S. Export-Import Bank and OPIC did, according to
our study, between 1992 and 1998, was to provide support for
fossil fuel projects which will emit as much carbon dioxide
over their lifetimes as the entire world economy emitted in
1996. So, there has been discussion mentioned earlier, is
Export-Import Bank that big? I'm telling you, in the
environmental area, they are huge.
And their energy policy is undermining the climate concerns
and objectives that President Bush has articulated and others
have expressed concern about. And this is typical also of what
export credit agencies have been dong around the world. They
are not respecting the G-8 communique saying that we need to be
aware of climate change and we should not with our financing be
supporting projects that keep countries like China and India
hooked on fossil fuels. And this was one of the concerns the
U.S. Congress raised about the Kyoto Treaty.
So it makes no sense on the one hand to say, well, we want
to go ahead, but we're not going to do it if China and India
are going to stay hooked, and then with our Export-Import Bank
and other resources, provide only funding for this kind of
project.
We would say that the big reform needs to be to shift to
clean energy sources. Because the Export-Import Bank's
financing has gone from 3 percent to 28 percent of the
portfolio in terms of fossil fuel projects between fiscal' 99
and fiscal 2000.
So you can make a decisive difference, and I would urge you
to do so. We would really support this. Because it's absolutely
crucial to the health of people throughout the world that we
shift our approach to energy, and the Export-Import Bank could
help do so.
[The prepared statement of Dr. Brent Blackwelder can be
found on page 169 in the appendix.]
Chairman Bereuter. Thank you, Dr. Blackwelder, and right on
time.
Next we will hear from Mr. George Becker, former President,
United Steelworkers of America. Mr. Becker, you may proceed as
you wish.
STATEMENT OF GEORGE BECKER, FORMER PRESIDENT, UNITED
STEELWORKERS OF AMERICA
Mr. Becker. Thank you, Mr. Chairman, Ranking Member Sanders
and Members of the Committee. It's an honor to be with you. You
have my testimony. I'm not going to repeat the testimony. You
can read that.
I'd like to make some comments, though. I was the President
of the United Steelworkers of America. We have about 750,000
members in two countries. We're a manufacturing union. We're
the largest steel union. We're the largest aluminum union. When
I say ``aluminum'', I'm representing the members in those
industries.
We're the largest union representing rubber workers in the
United States and in manufacturing generally throughout those
countries. We had a broad diversification in our union,
touching all segments. Most people tend to think of us as steel
only. That's really not true.
I want to make one point with the Committee very clear. We
are not opposed to trade. We're a trading union. At conferences
and conventions I would many times ask the people in
attendance, the delegates in attendance, to hold up their hand
if they're involved in exports. And so clearly some 85 percent
of our members across the boards from the representative
leaders as these sessions indicate that they are involved in
export in one way or another.
We are opposed to unfair trade. This is clear. We're
opposed to dumping. We're opposed to the virtual dismantling of
American industry in the United States that's taking place
today. Literally hundreds of thousands of jobs are being wiped
out in the manufacturing sector annually.
We're under an assault like we've never faced, at least
within my lifetime, which is far longer than what I care to
think about anymore these days.
I guess the one thing that--we deal with trade, we deal
with imports coming into the country, and we know there are
prices to pay, but we want it to be fair competition. But even
if it's predatory competition, we have to deal with that. The
one thing that we don't understand, we don't like, is when our
institutions in the United States, in which we contribute a
lot, workers do, in supporting the tax base, is used against
their own best interest, like in the Ex-Im Bank and the $18
million that was fed into Benxi, I think is how you pronounce
it, the iron and steel company in China, strictly for the
purpose of increasing its capacity.
We have a worldwide glut of steel in the world today. We're
suffering from that here in the United States, and people tell
us continually--this Administration and the one previous told
us that we have to deal somehow with the world capacity.
Somebody has to deal with it, but nobody has dealt with it.
This is the wrong way to increase that capacity.
This is an export mill that's in China, and it's going to
be used to bring product back into the United States. We do not
need to increase capacity of that kind. We don't need to use
our tax money to do that. What we're wiping out is family
supportive jobs, what I call the American Dream, where you can
buy a house, you can buy a car, you can educate your children,
you can pay your taxes, you can support the social network in
the United States, you can afford to pay the taxes on Social
Security and Medicare. You can't do that on minimum wage jobs.
We're wiping out the family supportive jobs.
Let me be blunt, if I haven't been up to now. I'm outraged
over the fact that our tax base money is being used to put our
industry in jeopardy. Right now we've got 18 steelmaking plants
in bankruptcy in the United States. We've got hundreds of
thousands of jobs at risk. Some of these are going to be wiped
out. Our pricing structure has been destroyed by the imports
coming in. You can't sell steel at the prices today that the
import levels have driven it to.
The answer is what? Do we want to wipe out the steel
industry? We're operating at 76 percent last week, 76 percent
capacity in the United States. That's not enough to keep it
going. We're going down the drain. Big mills are going down the
drain. I mean, the third largest is in bankruptcy and is in
danger of going into Chapter 7, which means you turn the lights
out on it, and others aren't far behind.
You can't borrow money. They can't reinvest in the
industry. You talk about Ex-Im Bank pouring money in for the
Chinese to build steel capacity to take our markets in the
United States? Why don't they invest somewhat in the United
States to where we can build the capacity and make more
efficient industry and keep the jobs here in the United States,
the kind that pays all of our freight--yours, mine, and
everybody else in this country?
I think it's outrageous for us to deal with China this way.
It's a predator nation. We have over a $400 billion deficit,
trade deficit with China. They don't respect human rights.
They're a repressive government. People cannot share in a
wealth they help create in China. They can't take collective
action like we can in the United States, and you can in the
rest of democracies. I think it's a terrible situation.
Surely this can't be what Ex-Im Bank was designed to
produce, to wipe out jobs.
You know, there was a comic strip I used to refer to years
and years ago. Maybe everybody's forgot it--``Pogo''. He said,
``We have met the enemy and he are us''. Sometimes I think this
is where we're heading right now. We should come to grips with
who's side we're really on.
In conclusion, let me say I think this is an excellent
opportunity for your Committee to examine the functions of the
Ex-Im Bank, to take a good look at this, and let's get it back
on track while we still have time.
Thank you.
[The prepared statement of George Becker can be found on
page 173 in the appendix.]
Chairman Bereuter. Thank you, Mr. Becker. And may I say
that I think all of you have made your points very concisely
and very ably.
The subcommittee will now proceed under the 5-minute
question rule. And I can assure Members that we expect to have
a second round of questions, so if you don't complete your
first line of questioning, we'll come back to you shortly.
So I'll begin with the questioning under the 5-minute rule,
and we will recognize Members here in order of seniority at the
beginning of the hearing and those who arrived slightly after
it began, we'll recognize you as you appeared.
Mr. Christman, I would begin with you and ask you two
questions. If it's possible, can you estimate what effect a cut
in Ex-Im Bank funding would have on Case? Would you have had to
lower your production levels if we had this proposed level of
authorization, a 25 percent cut? And that's a difficult one to
answer, I imagine.
But here's the second one. Case is a large--I've got to
make sure I get ``IH'' in there, having some family history in
it--is a large corporation with a strong credit history. Please
explain why a major corporation such as yours could not finance
these export transactions without the Export-Import Bank.
Would you take a crack at those two questions, please?
Mr. Christman. I'd be happy to, Mr. Chairman. If we look at
the impact of a 25 percent reduction, let's just put it in
perspective. If we look at the tractors that we build at a
union facility in Racine, Wisconsin and the production that
goes into just those former Soviet Union countries that require
Ex-Im Bank financing, represent one month of production at that
factory.
Out of our combine factory, Ex-Im Bank finance production
accounts for 2\1/2\ months of our production. So if you just do
very simple math, if the budget is cut 25 percent and our share
of that business goes down 25 percent, we would have to take
temporary shutdowns at our tractor facility of an additional
week, workers would be off work. And at our combine factory it
would be a little over 2\1/2\ weeks. So a major impact to our
factories and the workers in those factories for a 25 percent
cut.
It's important as we compete on a world market, relative to
the second part of your question, we are willing to compete
with any company in the world on product, on pricing and
financing, company to company. It's when we're up against
government-subsidized financing that we're not able to compete,
even with a fairly large company. When we're up against Hermes
financing from Germany or Kolke from Poland or wherever, that
is where we're not competitive, and that's where we need Ex-Im
Bank's support.
Chairman Bereuter. Thank you very much.
Dr. Bergsten, you have quite a discussion on page 6 on
market windows. And you're describing a situation where the
official institution of a competitor country is the official
lender and a private bank. And you suggest that together, the
Canadian and German market windows, these hybrid institutions,
did $12 billion of financing in 1999. Can you enlarge a little
bit as to what you think the overall impact of that is?
And since OECD arrangement appears not to have covered this
issue, what should be the policy of our government with respect
to these market window competition factors that we face?
Dr. Bergsten. On the second question, I think our policy,
as I suggested in broad terms in my statement, should be to
bring these market windows, like all other aspects of export
credit finance, under the international restraint agreement.
The problem has been that the nature of those new market
windows has enabled their proprietors--particularly the
Canadians and Germans, but more are coming--to argue that they
are not covered by the arrangement. I know the Ex-Im Bank has
tried to take them to court, so to speak, but they have
rejected it. As a result, those operations have clearly won
contracts that our people didn't even know about.
Part of the international arrangement on export credits is
prior notification so that the various export credit agencies
can match the offers made by their competitors. In these cases,
the foreigners do not even notify. So our people, like Case or
somebody else, wind up losing the contract for which they
didn't even know there was competition from an official export
credit agency abroad. I think that's an egregious practice, and
we certainly want to bring it under control.
As I argued, however, we're going to bring it under control
only if we're willing first to fight fire with fire.
What's the nature of the beast? It's an invention by
foreign countries that literally provides market-type
operations under a government guise. The two countries involved
have brought in a lot of private-sector expertise--incidentally
at higher salaries--people with experience in the banking
sectors, but they've brought them under a government program in
which the government provides the startup capital. It requires
no payment of dividends and there is no taxation of earnings,
therefore that money can be plowed back into the program. Also,
where there are implicit government guarantees for any of the
credits being made.
In addition, they even shift some of their administrative
cost to the government payroll. In the German case, for
example, through an institution that does a lot of domestic
finance as well as international finance.
So it's a clever invention on the part of the foreign
competitors. It reveals once again the old truth that people in
this business are always trying to stay one step ahead of the
judge. The problem is, if we don't catch up and match it, and
then try to bring it back under the rules, we lose.
Chairman Bereuter. Thank you, Dr. Bergsten.
The gentleman from Vermont, Mr. Sanders is recognized.
Mr. Sanders. Thank you, Mr. Chairman. Let me say a few
words on an issue that I think almost everybody has touched on,
and then I have a couple of questions. That is the issue of the
level playing field. And I think Dr. Bergsten and others have
said that it seems to be unfair that some of the European
countries, for example, provide higher subsidies than we do and
it creates an unfair level playing field.
But let me talk about comparisons between the United States
and Europe. I find it interesting that people pick out this
issue. In Germany, wages today are about 25 percent higher than
they are in the United States for manufacturing.
Every worker in Europe has a national health care program,
and I hope that those people who are speaking in favor of the
Export-Import Bank will tell us that they want to level that
playing field and we can count on your support for national
health care program, higher wages for our workers. I hope
you'll be talking about leveling the playing field.
In Europe, most of the countries have very strong family
leave programs, as you know, not like we have where we don't
pay workers, but in Europe I think they pay 50, 80 percent of
the wages of women who have babies, and I look forward to your
support on that issue, and it will level the playing field.
In Germany we heard college education is free, not $20,000
or $30,000, because the government puts money into college
education. So we'll look forward to your support for my
legislation to double and triple Pell Grants.
In Germany I think it is, the workers have 6 weeks' paid
vacation, and we want to know obviously as we level the playing
field with Europe, for your support in that area as well.
And I think probably in Europe, although I'm not an expert
on that, you probably don't have situations where large
multinationals pay zero taxes like General Motors does in the
United States. They probably have a more progressive tax
system.
The point being, Mr. Chairman, when we talk about a level
playing field, let's look at all aspects of our society and not
just one. And if they want to talk about a level playing field
in terms of the social services that are provided to the
working people in Europe, let's work together on that issue.
Also when we talk about a level playing field, I would like
some of the gentlemen who are supporting MFN either now or
later to talk about a level playing field for an American
worker competing against somebody in China who makes 25 cents
an hour, who can't form a union, who can't demand democratic
representation for their government. I want to talk about a
level playing field in that respect as well.
Let me ask Mr. Becker a question. Mr. Becker, the United
States has today something like a $450 billion trade deficit.
We hear many people telling us, as we have today, about all of
the jobs that are created through exports, and that is very
clearly true. Good jobs are created from exports. I have no
argument with that. But I seem not to hear another part of that
equation. Maybe my ears didn't hear it. And that is if you have
a $400 billion trade deficit, there has to be at least one or
two jobs that seem to be lost.
In other words, economists tell us--I know they differ on
this--that for every $1 billion of export, you create 14,000
new jobs. What about every $1 billion of trade deficit? Mr.
Becker, do you want to comment on that?
Mr. Becker. Absolutely. I was a member, as you'll see on my
testimony, I was a member of the Congressional Trade Deficit
Review Commission that was just terminated at the beginning of
this year.
The figures that they use, that the Commerce Department has
used and Labor has used, that 13,000 jobs exist for every $1
billion of exports, and they point to that with a great degree
of pride, you can multiply that. If you use that same figure
and turn it around. Now maybe it wouldn't be precise.
Incidentally, it's between 13,000 and 20,000 jobs. It's
somewhere in that range, according to the pricing of the
product and that. You turn that around with a $400 billion
deficit, you're talking somewhere in the neighborhood of six
million jobs that have been lost as a result of that.
Could I add one thing? You referred to Germany. Something
that's always bothered me. You know, a lot of the transfer of
jobs from the United States to Mexico and other places in the
world is to escape the union. And I point out the value of
having family supportive jobs. We have an adversarial
relationship in the United States which bothers me. You know,
it's not all from our side. The industry would like to move.
Industry in the United States, and in some respects a lot
in government, has never accepted the union's right to exist as
an institution in this country in spite of the law. They will
do everything they can to break the union. They'll do
everything they can to run from the union. One individual of a
leading company in the United States, maybe the world's largest
company, has said to--which represents a lot of union workers--
ideally, every plant I own would be on a barge''. Every plant I
own would be on a barge.
Mr. Sanders. I think that's Jack Welch.
Mr. Becker. And I could float it anywhere in the world to
the lowest price and move it at will.
Mr. Sanders. That's Jack Welch I think of G.E., isn't it?
Mr. Becker. You know who he is, too. Yes.
Mr. Sanders. Thank you, Mr. Becker.
Chairman Bereuter. The time of the gentleman has expired.
Mr. Becker. Incidentally, they are the contractor on the
Benxi that I'm talking about. That's the only reason I make
reference to that. They're the ones who will be the recipient
of electronics that goes in there, into that plant.
Chairman Bereuter. The time of the gentleman has expired.
Now, in accordance with the rules, we'll call on those Members
who were here at the beginning of the hearing. So the
gentlelady from Illinois, Ms. Biggert is recognized for 5
minutes.
Ms. Biggert. Thank you, Mr. Chairman. First of all, I would
like to thank Mr. Christman for taking the time to be here.
Case's Burr Ridge, Illinois Agriculture Equipment Research and
Development facility is located in my district. So I'm glad to
welcome you here.
As the number one manufacturer of agricultural tractors and
combines in the world, certainly Case's operations are
important to both the 13th Congressional District and the
entire State of Illinois. So I know that Ex-Im Bank has been a
large part of the success of Case and many other companies like
Case.
In Illinois alone, the Ex-Im Bank has supported 118
communities, 285 companies, and financed a total of $3 billion
in exports over the last 5 years. So this certainly is, in
addition also to the 42,000 jobs that it has helped to sustain
in Illinois. So we're very happy to have you there.
Maybe you could expand on these numbers, Mr. Christman, and
share with us how the Ex-Im Bank benefits you and other
exporters.
Mr. Christman. OK. Let me just make another comment, and
also relative to production. The merger of New Holland and Case
brought some capacity rationalization. As I said, the industry
is down here 40 percent. And one of the decisions that CNH had
to make was relocating axial flow combine production. And we
had a choice of two factors, one in Grand Island, Nebraska, and
another in Brazil. And when we look at the differences between
those two and even the differences in labor. And in a combine,
labor is only about 8 percent of the total cost of the product.
Most of it is, you know, the iron and steel that goes in it.
One of the factors in that decision to keep that production
in the United States was Ex-Im Bank financing. As I indicated,
that is a large part of our production of axial flow combines.
Had we not had Ex-Im Bank financing, the decision could have
had a very different outcome. Because then we might have just
looked at total lowest cost of production.
But because of Ex-Im Bank and the importance--because Ex-Im
Bank only finances U.S. production, our decision was to keep
not only the production in the U.S. but the jobs in the U.S.
Ms. Biggert. In your testimony, you offered the example of
the Ukraine as an instance where Ex-Im Bank support was
withdrawn and a foreign corporation completed the transaction.
Can you give us more detail on why the Ex-Im Bank support was
withdrawn in this instance?
Mr. Christman. I must confess, I don't know the details of
that. That was before I came into this present job. That was a
couple of years ago. But I could just--on a little associated
note, in Uzbekistan where we have been very successful, not
only did Ex-Im Bank complete, you know, with the financing of
the initial sales, but our company then made additional
investments for the long term in joint ventures to service the
equipment. Because as you know, farmers look for much more than
just the initial purchase price.
So we are making investments, long-term investments, and
that's why for us a very stable policy out of Ex-Im Bank is
very important for us to take that risk and make those
investments.
Ms. Biggert. OK. Would you have any suggestions for
improvements or increased efficiencies that Ex-Im Bank could
implement in its transaction procedures?
Mr. Christman. I think the flexibility. As we indicated,
there are other countries out there that are our competitors on
a financing. We need to be aggressive in those, be able to look
at and evaluate what that competition is and also make
decisions on a fairly quick basis. Because a lot of times,
especially for seasonal products, you need fairly fast
decisions in order that you can complete your production cycle
and get it into a customer's hand to be productive.
Ms. Biggert. Thank you. I see my time is just about up, so
I'll yield back.
Chairman Bereuter. Thank you very much. Unless Ms. Kelly
returns, we're going to go to Ms. Roukema and Mr. Bentsen and
Mr. Sherman. The gentlelady from New Jersey is recognized.
Mrs. Roukema. Thank you, Mr. Chairman. And I apologize for
not being here earlier. My plane at Newark Airport was long
delayed, I've got to tell you, but we did make it. They
repaired it and we got here.
I see I have a gentleman from New Jersey whom I haven't yet
met, but we should have met I'm sure, because we're not far
from each other if your firm is in Patterson. And I do
appreciate what you have said here. And that's a good example,
this Watson Machinery International is a good example that
we're not talking about corporate welfare, we're talking about
real jobs at real wages in a small business. And I really
appreciated what you said, Mr. McLaughlin. I don't know whether
you want to add anything.
Oh, there was a part of what you said that you may want to
amplify on, but you used the word ``skitterish''. Skitterish
about the banks, both in New Jersey and Connecticut, that you
were not able to get help from or get financial assistance
from, and that forced you to the Ex-Im Bank, if I understood
your testimony. Can you amplify on that? Because that is
central to this whole question of how we deal with the global
economy and how we deal with establishing a level playing
field. Would you like to comment further?
Mr. McLaughlin. Understood. Well, I'd like to say, on the
one hand, if we have a foreign receivable, our bank will not
support that in the way that we have our financing. In other
words, we sometimes finance our accounts receivable. And if
it's foreign, they don't want to have anything to do with it.
And that, you know, for a company that, I mean, we as Watson
have, you know, 4 years ago we only had about 10 percent export
sales. So we're still learning the ropes in how to do all this.
But that is one example. And when I say this happens to be
something that's probably more specific to our company. In
other words, we've transitioned the company from being a
distributor--we were a manufacturer. We became a distributor of
foreign equipment made in Japan, and now we've gone back into
manufacturing ourselves. And frankly, we've been doing that in
an environment where the banks are not--the flow of credit
today is not exactly what it was a number of years ago, and
that's where we have run into this problem, and that's why we
need the support and guarantee of Ex-Im Bank.
Mrs. Roukema. Good. I think that's very helpful to us. I
appreciate that. I do want to acknowledge that Mr. Bergsten
really gave us excellent, excellent testimony, and I took note
of that. And ``they're eating our lunch'' phrase, I generally
agreed with.
But I do want to observe that Mr. Vasquez, from a
conservative think tank group, and the labor union here seems
to be the left and the right coming to some of the same
conclusions. But I'm not so sure how we get back, as was said
by the, I believe--maybe I misunderstood you, Mr. Becker, but I
believe you made a statement about how do we deal with China
and get them back on track, some reference to that.
It seems to me that unless we can deal, Mr. Vasquez, with
the predatory lending that is out there, and countries like
China, we are really going to lose an awful lot of business and
jobs, regardless of what level the pay scale is. If the job
isn't there, the job isn't there. I don't know. Mr. Becker, do
you want to comment, or Mr. Vasquez? We don't have a lot of
time here. But the conflict there between the left and the
right I thought was an interesting observation here.
Mr. Becker. I don't know what--I would like to think
there's some point that me and Mr. Vasquez would agree on. I
can't grab one right of the sky right now. But let me say this.
It's hard for me to imagine a steel company like Benxi getting
a loan or a grant from the Ex-Im Bank without some strong
pressure from the United States companies that's going to
supply them with the technology. I think that's a given that
that was done.
Mrs. Roukema. Well, we'll look into that.
Mr. Becker. Pardon? Well, General Electric is going to
supply X millions of dollars worth of electronic equipment and
the upgrading, which is a very laudable thing. I have no
problem with that. I was trying to say that we are in favor of
exports. And I've had some people ask me, well what about the
1,600 people that's going to benefit from that in the United
States in doing that? And I understand that.
But I think you have to look deeper at what's going to be
the end result. Sixteen hundred people that's going to get a
short-life job in order to supply the electronic equipment for
a permanency of capacity expansion that's going to butcher our
industry here. And I think you have to examine General
Electric. This is a company that moved their engine division
down to Mexico and held seminars and forced all the suppliers
in the United States to attend the seminars and told them if
you want to continue supplying General Electric, you're going
to move your operation to Mexico.
That is not trade. And that's where I draw the difference.
When you close a place in the United States and you build it in
another country and you bring the product back into the United
States, that isn't trade. That's relocation. That's a transfer
of technology and wealth and capacity. And I think that's a big
difference that we fail to come to grips with when we talk
about Ex-Im Bank and creating jobs.
Chairman Bereuter. Ms. Roukema, you've generated a little
interest in the possibility for interaction here which could
serve the subcommittee. So, Mr. Vasquez, if you wish to
comment, and Dr. Bergsten I noticed thought he would like to
comment, so we'd like to hear from each of you briefly if you
wish.
Mrs. Roukema. Thank you. I thank the Chairman.
Mr. Vasquez. OK. Perhaps we can begin by agreeing with the
approximately correct pronunciation of my name is Vasquez.
[Laughter.]
Mr. Vasquez. I think that it's important to keep the big
picture in mind. As Mr. Bergsten mentioned, in the past several
decades, exports and trade have grown tremendously as a share
of the U.S. economy. And it is an important share of the U.S.
economy.
However, only 1\1/2\ percent of that is supported by the
Ex-Im Bank, and only a fraction of that is supported by the Ex-
Im Bank in order to counter subsidies by export credit agencies
of other countries.
So the United States has done quite well despite the so-
called lack of a level playing field that is harming the U.S.
economy.
One area in which we would probably also agree on is that
the United States should not be financing through the Export-
Import Bank firms such as steel mills in China that compete
with United States firms. And yet this is not an uncommon
aspect of Ex-Im Bank lending. When the Ex-Im Bank provides
financing for airplanes in other countries, those airlines that
benefit from that subsidized financing then compete with U.S.
airlines.
So I again see that the government failure of Ex-Im Bank
lending is bigger than the so-called market failure that it is
purportedly trying to correct.
Chairman Bereuter. Thank you.
Dr. Bergsten.
Dr. Bergsten. I'd like to make one comment, Mr. Chairman,
specifically on both Mr. Becker's and Mr. Vasquez' statements.
And, if we have time, I'd like to come back to some of the very
basic economic questions raised by Mr. Sanders and Mr. Becker.
But just one specific each for now. I have a lot of
sympathy for Mr. Becker's concern about investment in
additional world steel capacity. It is an industry with
overcapacity. This is bad for the world, bad for the U.S., bad
for everybody. Agreed.
But here is the problem. The Chinese are going to build
that plant and we cannot stop them. The denial of Ex-Im Bank
credit to General Electric or anybody else is not going to stop
the Chinese from building that plant or adding to world
capacity.
The issue is with whose equipment they will build the
plant. Mr. Becker acknowledges that if we export some of the
electronic equipment, we get 1,600 high-paying jobs. I'm not
sure they're only short-term jobs; I don't know the details.
But at least we get that. The alternative is to get nothing
because we're not going to stop the plant. That is the
conundrum, but we have to face the reality.
On Mr. Vasquez' statements, he forgets a very fundamental
principle of economics called the ``theory of the second
best.'' Mr. Vasquez is giving us, as his Cato Institute does
all the time, and admirably so, good free market economics. But
this is not a free market. This is a rigged market where the
foreign export credit agencies subsidize their output.
The theory of the second best in good classical economics
says that when a distortion is created by government action the
welfare-enhancing outcome is to counter it with government
intervention to offset the subsidy. So even in welfare
economics terms, it's a winner.
Mr. Vasquez has said that only a small percentage of Ex-Im
Bank transactions compete with foreigners. I just don't believe
it. I will have to look at his numbers and his source. These
may be only those that have been notified by the foreign export
credit agencies, I'm not sure. But I can tell you, one Boeing
aircraft is worth more than all the numbers he cites for being
directly competitive. Yet every Boeing aircraft is competing
with an Airbus supported, and to a large extent subsidized, by
Europe. His numbers just can't be right.
The whole purpose of the Ex-Im Bank--and I trust its
management to a reasonable extent in that regard--is to cope
with foreign export credit competition. They do not have such
an unlimited budget from Congress that they can run around
striking whatever deals they want.
So I would submit that most of it is competitive with
foreign export credit subsidies. To the extent that's true, the
theory of the second best says, I think even to the Cato
Institute, you match it and then try to drive it down to a
level playing field at the lowest possible subsidy level.
Chairman Bereuter. Thank you, gentlemen, for this exchange.
Members may want to pull you back to it again, but I want to
turn now to Mr. Bentsen for his 5 minutes.
Mr. Bentsen. Thank you, Mr. Chairman. I'm going to follow
up on that. Because Mr. Vasquez, you went on to say when we
subsidize an aircraft for sale, a Boeing aircraft--since that's
the only commercial aircraft manufacturer left in the United
States--to a foreign country, then it competes with our
airlines.
And the next logical step, if that would appear to be a
problem, would be that we then have some form of an export
control regime on U.S. aircraft and other equipment to ensure
that it doesn't end up in the hands of our competitors, which I
think would be a catastrophe in the long run.
I think Dr. Bergsten is right that we are trying to sell
goods and services. The fact is the rest of the world does
manufacture steel plants, or create steel plants. They do
operate airlines. They do a lot of things that we do in this
country. But aren't we better off that among the ingredients of
providing those services are ingredients that are produced in
the United States as opposed to ingredients that are produced
in other industrialized countries or emerging countries around
the world?
The second thing I would ask is this. And this is an issue
that's come up in the past when we've talked about this, that
somehow there is a zero sum in terms of capacity in our
manufacturing. That somehow if we provide an export subsidy, we
are swapping manufacturing or job creation manufacturing from
the United States to another locale.
And that would seem to me, the logic of that--I think it's
illogical, but it would seem to me that would be saying that
there's a limit on, an absolute limit on what U.S. corporations
can manufacture, you know, the number of turbines, that we've
hit those limits and somehow we're either creating wealth over
there or wealth over here, as opposed to being able to create
wealth in both places.
And I'm not sure that even Cato would agree with that. And
I apologize for missing your testimony. But again, I have to
agree with Dr. Bergsten that otherwise you're taking the
position that we should be purely free market, purely
classical, all others be damned, regardless of whether it's at
our disadvantage in the long run or not. Is that the position?
Mr. Vasquez. Let me begin by saying that my figures come
directly from the Ex-Im Bank in terms of what size of exports
the Ex-Im Bank helps to support and in terms of the percentage
of its loans and guarantees.
Mr. Bentsen. I'm not asking about that. That's between you
and Mr. Bergsten.
Mr. Vasquez. Right. I'm answering. I'm making a point. I
agree that export controls would be a disaster. That is not
something that I would advocate. I think that that would harm
the U.S. economy.
In a situation where the foreign country is subsidizing its
exports, are we better off doing the same? I think we have to
weigh that with the opportunity costs that are implied by
Export-Import Bank financing--and I went through some of that
at the beginning of my testimony--because we are pulling
resources from the rest of the U.S. economy in order to
subsidize certain exports. And in that sense, we are imposing
opportunity costs that many economists have identified as
potentially large. Those are difficult to measure.
Mr. Bentsen. OK. Well, let's go there for a second. The
opportunity costs on $800 million per year that could be spent
or reduced taxes or something along those lines. Is that what
you were getting at?
Mr. Vasquez. No. I'm saying that when you pull resources
from efficient uses to politically determined, less efficient
uses, you are reducing the productivity of the U.S. economy and
increasing the opportunity costs to the rest of us. Financing
that goes to Boeing is not available for financing that would
go for something else in the U.S. economy. That is an
opportunity cost.
Proponents of the Ex-Im Bank usually never mention those
costs.
Mr. Bentsen. Let me ask you this. And that's a legitimate
issue for you to raise. Do you have an analysis of what that
opportunity cost is or a theory beyond just the basic theory,
do you have some pro forma of where other companies that might
produce and create jobs in addition to the jobs that Boeing has
that investment would be made in the United States otherwise
were Ex-Im Bank not to exist?
Mr. Vasquez. I have never seen the Ex-Im Bank or anybody
else even look into that in a systematic way.
Mr. Bentsen. But have you, has Cato or anyone else looked
into that?
Mr. Vasquez. No, we haven't. It's a difficult cost to
measure.
Mr. Bentsen. Anyone else?
Dr. Bergsten. Yes, I would just add a word. Mr. Vasquez is,
of course, right. There's an opportunity cost for any dollar
that we as individuals, and we as a Government spend. So you
have to ask, what's the cost-benefit payoff on an individual
expenditure?
My view is that a dollar spent on Ex-Im Bank programs has a
much higher payoff than most dollars spent by the Federal
Government. The reason is what I said at the outset. Exporting
firms and workers in exporting firms do better, considerably
better than the average. They get higher pay. Their jobs are
more stable. Productivity is much higher.
If we can use Ex-Im Bank effectively and strategically to
bring firms like Mr. McLaughlin's, particularly small firms,
into the exporting business where they have faced barriers to
entry and have not played as big a role as they can, we will be
making a major contribution to raising incomes, wages, and
benefits in the U.S. economy.
In fact, expanding the share of exports in our economy is
one of the most cost beneficial steps we can take with the use
of Federal funds. And so I would submit sure, maybe Mr. Vasquez
or somebody else can come up with a still better use of the
marginal Federal dollar. But this is a pretty good one, as
documented by study after study, including by my own Institute.
Mr. Bentsen. Thank you.
Mr. Vasquez. May I briefly say----
Chairman Bereuter. We'll hear briefly from you again, Mr.
Vasquez.
Mr. Vasquez. I am not comparing the opportunity costs of
one Federal program against another. I'm comparing the benefits
of Ex-Im Bank spending to the benefits of ordinary citizens
keeping their money and spending it on their own.
Chairman Bereuter. I appreciate the interaction in the
panel. I think it's probably in the best interests of the
subcommittee to let it proceed. The gentleman from California,
Mr. Sherman, is recognized.
Mr. Sherman. Thank you, Mr. Chairman. I think that what's
before us is not just whether we reauthorize this bank for 5
years, no changes, congratulate them on the one hand, or pull
the plug completely on the other.
We ought to explore whether to reauthorize for 1 year or 2
years. If we do otherwise, we're basically abdicating our
responsibility to oversee this bank and giving all that
authority to the Appropriations Committee, which will then
decide year after year whether the bank is worthy of its
appropriation, and will in that process try to give the bank
some direction.
I think we have more expertise in this subcommittee to give
the bank direction. I think that it's particularly important
that we do so, because the witnesses here today have
illustrated that sometimes the bank violates its own rule
against financing activities that hurt the United States
economy.
We're told that the Chinese are going to build the plant
anyway, and therefore, Ex-Im Bank isn't displacing the
steelworkers that we're concerned about. But one would suspect
that the total amount of subsidized financing that's available
to China is being ratcheted up. We offer a 5 percent loan, so
Europe offers a 4 percent loan, so we offer a 3 percent loan,
Europe offers a 2 percent loan, so Ex-Im Bank really isn't
involved in the transaction, but the Chinese then get a 2
percent financing of their plant. And I see Fred even nodding.
I think that having Europe and the United States compete to
subsidize Chinese industrialization has got to lower the cost
of capital to China and lead to more competition for American
steelworkers.
And so I'll ask Mr. Vasquez, have we seen the political
power that's being used to try to get this bank reauthorized
instead used to try to get the United States to pressure the
Europeans to stop their corporate welfare? Or put another way,
perhaps the best best for the companies involved on both sides
of the Atlantic is for the United States companies to demand
corporate welfare to match the European corporate welfare, and
the European companies get corporate welfare to match the
American corporate welfare.
Have you seen any political power whatever being used to
stop this escalating process?
Mr. Vasquez. There have, of course, been initiatives to
reduce this type of unfair competition globally, as Dr.
Bergsten has cited. His Institute published a book earlier this
year in which it is noted that even the Europeans that have
more expensive export financing programs are now reassessing
those programs.
Mr. Sherman. Have we had any success? Have we been able to
reduce the subsidy? I see your colleague also wants to comment,
but I get a limited--several do want to comment, but I have
such a limited amount of time. I want to go onto what is the
most important issue.
Mr. Vasquez. Over the years there has been limited success,
but countries have found ways around it. Those same countries
are also finding less expensive ways to operate.
Mr. Sherman. All of my colleagues have been given kind of
this recapitulation of Ex-Im Bank as district pork. I was given
a list 6 months ago or less of companies in my district who are
helped. We called them all. None of them thought they got any
significant help. I've been given two more companies, and we
will be calling them as well.
What concerns me is, yes, you can add up your sheet and
maybe find that in your district, $5, $10, $20 million worth of
productivity is occurring in your district supported by Ex-Im
Bank. But you have to weigh that against the adverse effect
that I think Ex-Im Bank is having on the California energy
situation. And if you were to look at the number of jobs
dependent in every one of your districts on trade with
California, it would dwarf the one percent of the five or ten
percent of our economy that's involved in exports, the one
percent of that that is somehow involved in the Export Bank.
Do no harm to the American economy means not only don't
lead to the production of more steel plants in China. It also
means, don't finance those companies that are telling
California, go to the back of the line when it comes to getting
electric turbines. This is a crisis that will kill people in
California and perhaps put the entire country in a recession.
And yet the Export Bank is, I believe their number one
category, number one or number two, is the very electric
turbines that California needs.
So I would hope that through continued oversight, we can
make sure that this bank does no harm and perhaps that at least
in the electric turbine area, we restrict our subsidies to
those companies that really treat this American tragedy in
California seriously.
I don't know if I have any more time, but I know that
several----
Mr. Becker. Could I make some comments?
Chairman Bereuter. Briefly you may respond, certainly.
Mr. Becker. Pardon?
Chairman Bereuter. Briefly, you certainly may respond.
Mr. Becker. This is something we always wrestle with. I
mention that we represent aluminum companies. I want you to
know what's happening in the Bonneville Power Basin up in
Washington where the largest concentration of aluminum smelters
are located, some of them steelworkers, some of them not. The
Bonneville Power Association is trying to get them to
voluntarily shut down all of the aluminum capacity and the
power will go down to California.
That may sound very noble on the surface, but we shut down
steel, we shut down aluminum, we're shutting down the rubber
industry. I mean, where does this end? These are the jobs that
keeps this engine of America going. And I think we need to look
at this on a broad basis.
You know, the Ex-Im Bank was empowered--is a creature of
our own policies in this country. And the policy of this
country should not be to create permanent competition for
America abroad.
Dr. Blackwelder. Mr. Chairman, could I also respond?
Chairman Bereuter. Dr. Blackwelder.
Dr. Blackwelder. In my testimony I tried to emphasize that
the Export-Import Bank was doing serious environmental harm by
its energy portfolio. And what it's doing is essentially
subsidizing a very mature fossil fuel industry, neglecting all
of the potential opportunities in wind, solar renewables and so
forth that are possible to pursue.
And so this is a very, very serous choice that I think the
Committee has, what kind of policy is this bank supposed to be
pursuing in the energy sector? Because that lending grew to 28
percent of its total portfolio between fiscal 1999 and the year
2000.
Chairman Bereuter. I thank the gentleman. I think we should
move to our second round. It's a little difficult to be
consistent with a national energy policy, though, I can't help
saying, when we don't have one.
I'd like to ask briefly Mr. McLaughlin, can you tell me
exactly how you came to use the Export-Import Bank for the
first time? We've had questions about information technology
and whether it's small business-friendly or not. Tell us how
you first became involved, if you would, just briefly.
Mr. McLaughlin. Yes. I had been going to seminars by a
group called the Capital Equipment Export Council, and there
was a presentation there by Ex-Im Bank that raised our
interest, and that's how it got started.
Chairman Bereuter. Thank you. Have you had more than one
involvement with Export-Import Bank? Have you had more than one
export?
Mr. McLaughlin. Transaction?
Chairman Bereuter. Yes.
Mr. McLaughlin. Yes. We're doing ongoing transactions at
this stage.
Chairman Bereuter. Thank you.
Mr. Vasquez, we heard testimony, written testimony from
small businesses, that they are not able to find local and
regional banks willing to provide export financing to them. And
my question to you is how can these businesses access capital
when often the private sector is too inexperienced or unable to
provide export financing to the small businesses, particularly
if they have no long-term or demonstrated involvement in
export?
Mr. Vasquez. There are about 200,000 medium and small
businesses that export in the United States. About one percent
of that receives Ex-Im Bank credit. So I suppose that you're
talking about the tiny proportion of companies that face this
problem.
I think that they would have to begin just as other
companies begin, by looking at the options that are available
in the market.
And sometimes if a company cannot find financing in the
market, there are good reasons for that. The risks may be too
high. Apparently this is not too much of a problem for the U.S.
economy or for small businesses.
Chairman Bereuter. I'll just venture a view that some parts
of the country are not served well with banks that have
experience with exports at all, and so there's quite a
differential in the quality and experience in the banking
sector across the country.
I'd like to ask Mr. Blackwelder whether or not you have
raised or if you know that anyone has raised the issue that you
raise with respect to a public comment period such as the World
Bank has, and if so, what the reaction has been.
Dr. Blackwelder. Well, I would just say, we have had
discussions with a lot of people, and most recently was with
the Committee when you proceeded to provide a 60-day comment
period with OPIC. And we are suggesting that you ought to do
this with the Export-Import Bank as well, in addition to
requiring disclosures of their environmental assessments and so
forth.
Chairman Bereuter. Dr. Bergsten, you before wanted a chance
to respond to the basic question in which the panel involved
itself, and I have about a minute and 20 seconds left here. Do
you want to start that process, and we will hear at least from
one or two other panel members, and that will conclude my time?
Dr. Bergsten. Right. Both Mr. Sanders and Mr. Becker raised
the question of the effect of the trade deficit and aggregate
economic conditions on the issue we're talking about today.
I'm with Mr. Sanders. I would like higher wages, better
pensions, better health care, more paid vacations for American
workers. But countries make different choices about such
variables. And what happens in the big picture of the world
economy is that those are evened out by exchange rate changes.
When countries adopt fundamental national standards or
outcomes, like wages, a couple of things are in play. One is,
they reflect underlying productivity levels. The reason German
wages are higher than American wages, the reason they take more
paid vacations, and so forth, is that German productivity is
considerably higher than American productivity. They earn it.
Then in terms of the international effects, it is equated
over time by exchange rate movements. Now, they're not perfect.
If they were, we wouldn't have these huge surpluses and
deficits. Germany, incidentally, for all its high productivity,
has been running a trade deficit for the last 10 years since
the unification of the country.
But you have to look at wages and everything else in the
context of underlying productivity. There is one place where I
believe that you have to fight fire with fire. That's when you
compete directly across borders, as with export credits or
import tariffs and quotas, where you have direct international
economic competition. That's where I would argue you have to
find a level playing field, whether it's on trade barriers or
export subsidies or whatever.
Mr. Becker picked up the point and said we've lost six
million jobs over a recent representative period. Well, of
course, he cannot be speaking about net jobs, because over the
recent 10 to 20 years, we've created 20, 30, 40 million jobs on
balance. We certainly lost some jobs, but we've created many
more than we lost. So there has been net job creation.
And the point about international trade, both exports and
imports--I agree with him on that--is that the impact is not on
the total number of jobs, it's on the quality of jobs and their
composition. And as I said, the export jobs turn out to be the
best jobs, the highest-paying, and the most stable. So to the
extent we can shift in that direction, we're better off.
But the fact that we've had a large and growing trade
deficit, which I incidentally have criticized, attacked, and
tried to remedy more than most outside economists, does not
mean we haven't created jobs. That large and growing trade
deficit has coincided with the most dramatic period of job
creation in the history of the United States; and in recent
years, with creation of good jobs with rising wages at all
levels of the income stream.
So this puts those basic economics on the table.
Chairman Bereuter. Thank you. I think undoubtedly this
question may generate more responses, but on other Members'
time.
The gentleman from Vermont is recognized for a second round
of questions.
Mr. Sanders. A fascinating discussion. I think we can go on
a long time with it. Let me make a few comments and then ask
some questions. Marge Roukema before mentioned that our
competition is quote/unquote, ``eating our lunch''. I think she
is right.
I would hope then that she would reconsider support and
Members of Congress--and I want opinions up here--about Most-
Favored-Nation status for China, which has led us to an $83
billion trade deficit; NAFTA, which has led us to a trade
deficit. We can't say, gee, they're eating our lunch. No
kidding.
We've opened our entire market. We're competing against
people who make very terrible wages. American corporations are
running to these countries investing all kinds of money, not in
Vermont but in China, and lo and behold, they're eating our
lunch. What a great shock. I am not shocked. So I would like to
ask briefly the members up there, are you prepared to ask for
revoking MFN with China? Just go right down the line, based on
the failure of an $84 billion trade deficit.
Mr. Christman.
Mr. Christman. No.
Mr. Sanders. Mr. McLaughlin.
Mr. McLaughlin. No.
Mr. Sanders. Mr. Bergsten.
Dr. Bergsten. No. Because China is about to join the WTO.
Mr. Sanders. I have to keep it narrow here.
Dr. Bergsten. When they join the WTO and you don't give
them MFN, we lose the market and the $83 billion becomes $100
billion.
Mr. Sanders. Sorry. I've got limited time. I'll get back to
you.
Mr. Vasquez.
Mr. Vasquez. No. I don't view the deficit as a sign of
failure.
Mr. Sanders. Dr. Blackwelder.
Dr. Blackwelder. We opposed Most-Favored-Nation for China.
Mr. Sanders. Mr. Becker.
Mr. Becker. Absolutely. And I'd like to have the
opportunity to respond to our steelworkers in productivity, if
I could have a second.
Mr. Sanders. I should also point out, Dr. Bergsten is of
course correct in saying that we have seen the growth of many
jobs, and unemployment is relatively low. But we should point
out that with the decline of manufacturing, we have also seen
that real wages, inflation accounted for wages today for the
average American worker is 8 percent less than in 1973.
So we have seen the growth of jobs. Many of them are part-
time jobs. Many of them in fact are low-wage jobs. And I would
agree with you that manufacturing jobs and export jobs are good
jobs. But it is not in my view, Dr. Bergsten, good enough to
say, well, we are creating these jobs. They're becoming a more
important part of our economy.
What about the issue of lost opportunity? And that has to
be part of the equation. When people are investing billions in
China, they are not investing in the United States of America.
When we're seeing steel going down, textiles going down,
bicycles going down, those are jobs--sneakers--those are jobs
that could have been done by American workers.
Let me get back to a point I raised earlier, and very
briefly because we have very little time and I'd like all the
people to speak very briefly about it. Over and over again
we've heard about ``level playing fields''. Does anybody up
there honestly believe that when we, quote/unquote, ``compete''
with China, a country where workers are paid 20 cents an hour,
can't form a union, can't speak up for their rights without
going to jail, how does anybody talk about that being a level
playing field?
Just go right down the line and be very brief. And I
apologize for the brief. Mr. Christman, do you believe that you
can have a level playing field under those conditions?
Mr. Christman. Well, our competitors exist in Europe and
they're not manufacturers in China.
Mr. Sanders. OK. Fair enough.
Mr. McLaughlin.
Mr. McLaughlin. Well, I mean, there's competition, and we
have to figure out a way to become better at it.
Mr. Sanders. But we represent the American people. Do you
think we should put American workers to quote/unquote
``compete'' against people who are forced to work for 20 cents
an hour?
Mr. McLaughlin. We have to figure out--yes. I think we have
to figure out how to do that. I think we do.
Mr. Sanders. Dr. Bergsten.
Dr. Bergsten. You certainly can have a level playing field
in those conditions because of the much lower productivity in
China. Having said that, I'm with you on trying to use every
lever we have to get them to permit free association,
unionization of the workforce, and democratization of their
labor force.
I think the best way to do it is to engage with them, not
divorce from them.
Mr. Sanders. OK. Good discussion.
Dr. Bergsten. And therefore move in that direction.
Mr. Sanders. I apologize. I've got to move on.
Mr. Vasquez.
Mr. Vasquez. I am in favor of engagement for many of the
same reasons.
Mr. Sanders. Dr. Blackwelder.
Dr. Blackwelder. We should do an entirely different trade
arrangement with China which recognizes the unlevel playing
field but also looks at the opportunity to improve worker
rights, improve their environmental conditions and so forth,
and it's not the kind of trade agreement which you had the
opportunity to vote on last year.
Mr. Sanders. Right.
Mr. Becker.
Mr. Becker. Yes. With all of those things. If I could say,
there's two kinds of trading partners that we have. One are
like the G-7, industrial countries that have the same kind of
standards we do, the same laws, the same environment, the same
respect for human rights.
Mr. Sanders. Right. Brief.
Mr. Becker. And then we have the other kind that comes
under those same laws like, more than China, but China for
sure, Russia, Indonesia and several of the South American
countries.
Mr. Sanders. Let me just say this. I think there is
probably widespread agreement from everybody in this room that
we want a trade policy which creates good paying American jobs.
Nobody in this room is against trade. You've got to be crazy to
be against trade.
It is my feeling, and I think the evidence is
overwhelming--I cannot believe that people cannot see it--is
that our current trade policy in general is failing, and
failing big time. That doesn't meant to say that Mr. Christman
is not going to create some good jobs. Of course there are good
jobs being created.
But overall, if you look at what is going on in terms of
lost opportunity, lowering wages, huge trade deficits, I think
we have got to be rethinking our entire trade policy,
rethinking Ex-Im Bank, and say how do we use these $800 million
in a much better way than we are currently using it to create
decent-paying jobs in this country?
Thank you, Mr. Chairman.
Chairman Bereuter. Thank you, Mr. Sanders.
The gentlelady from Illinois, Ms. Biggert is recognized.
Ms. Biggert. Thank you, Mr. Chairman.
Mr. Bergsten, in testimony before this subcommittee, the
Ex-Im Bank suggested some options that it might have to
consider to operate with the lower appropriation, including
increased transaction fees, reducing the percentage of a
transaction it will finance or limiting the number of high-risk
transactions it undertakes.
What is your reaction to these possibilities, and do you
think that such changes in Ex-Im Bank's operations would hurt
U.S. exporters?
Dr. Bergsten. I think all those changes would be bad, and I
think they would hurt U.S. exports. The bank's staff apparently
has given you an honest rendition of what they would have to do
if forced to live within a tighter budget. But by definition,
all those would raise the cost of exports and thus hurt our
market share or reduce our responsiveness.
I particularly worry about the part that says they would
take less risky transactions, because--I'm with Mr. Vasquez in
a sense--wherever you've got private finance available, you use
it. The objective of government finance is to come in where the
private market fails, in part because of risk. And therefore,
you want Ex-Im Bank to take some of the riskier business that
can generate new sales, which otherwise wouldn't occur.
That option would be particularly harmful. But I think
they're all bad. That's why I propose a sharp increase in the
bank's level and certainly would strongly oppose any decrease
like that proposed by the Administration.
Ms. Biggert. Thank you.
Mr. Vasquez, when you were talking about how little the
bank actually takes on competition, have you done an analysis
of who competitors were? I know on page 6 you point out that
less than 20 percent of Ex-Im Bank's finance deals were
justified on grounds of foreign credit competition. Have you
analyzed that 20 percent?
Mr. Vasquez. No. The data was not very transparent that was
available by the Ex-Im Bank. But I would be interested in
getting much more information from the agency to be able to do
a more thorough analysis so that we all know what the effects
of Ex-Im Bank finance are.
Ms. Biggert. Well, it would seem that when Ex-Im Bank has
been able to provide the level entry capital in regions where
the commercial banks deem that they're too risky, would it be
true that after they have helped in these transactions then
that other banks are willing to come in and be involved with
that so that they really have provided companies to bring in
lenders where that wouldn't otherwise be--they wouldn't be
viable?
Mr. Vasquez. Yes. That's what Ex-Im Bank does. And in my
testimony I explained why I thought that was not a good idea,
because in many cases, the Ex-Im Bank is actually financing
investments that would not otherwise take place and should not.
I gave examples of Sub-Saharan Africa, for example, that
for some reason many projects in many countries there are not
able to attract private capital genuinely on their own. And a
large part of the reason is because they have economic policies
that are poor, that are inimical to growth. They need to change
those polices. We should not be rewarding them with Export-
Import Bank credit. That merely discourages the spread of
market reforms.
Ms. Biggert. So the alternative would just be not to have
anything to do with those markets and let somebody else come in
if they wanted to?
Mr. Vasquez. The alternative is to increase the pressure of
the market to those countries to introduce market reforms. In
some cases other governments will provide that financing. But
that's a mistake both for the recipient governments and for the
lenders, in my view.
Ms. Biggert. OK. Thank you. My time has expired.
Thank you, Mr. Chairman.
Chairman Bereuter. Thank the gentlelady.
The gentlelady from New Jersey is recognized.
Mrs. Roukema. All right. Thank you. And with respect to my
friend from Vermont referencing the fact that I said they're
eating our lunch, I was quoting one or two of our panel members
and asked them for an explanation of that. That was not my
authority. That was not my quote.
But they responded very directly to the question. Now I'm
not ideological on this subject. I'm a very pragmatic person. I
try to look for pragmatic and workable solutions. And all I
know is that we are facing a global economy that's a revolution
in world history, OK? And people like those of us in this room
and those that we're representing here are going to have deal
with it and not look at ideological resolutions and look at the
past centuries, because it won't work, as the Boeing Airbus
question pointed out.
And I don't know if Mr. Bereuter will agree with me, but
I'm a member of the--we are members of the NATO Assembly and we
go to these NATO meeting assemblies and I serve on the Economic
Committee. And if there's anything I've learned over the past
several years, it's that we're in competition. We have a lot of
competition with the Europeans.
If we don't deal with the Chinese and these other
countries, the Europeans are going to very quickly--Airbus--are
going to very quickly step in, whether it's WTO or not, OK?
So I just want to say, I think we have to deal with this,
not thinking that the Ex-Im Bank is perfect. I'd like to have
some constructive recommendations on how we improve it, but
recognizing that it's the real global world, globally economic
revolution that's out there, and it's not going to go away, and
we can't close our doors and build trade barriers up and ignore
it.
So I'd like to see if anybody has a closing comment in that
respect.
Mr. Bergsten.
Mr. Bergsten. Well, perhaps just two quick ones. It's
certainly a revolution in the world, but it's also a revolution
for the United States. As indicated, the share of trade in our
economy has tripled in a generation. That's a stunning change
for a mature industrial economy. We could think of ourselves as
self-contained, continental economy only a generation ago.
Today, we have a bigger share of trade in our economy than
Japan, and the European Union as a group. We're deeply
dependent. We have to fight fire with fire to compete
internationally.
The second point is to link what you said to something Mr.
Becker said. Mr. Becker said trade with Europe is fine because
they have the same high standards, they're not low wage, and so
forth. He's exactly right on that. But you are also right that
they are the ones with whom we frequently compete the most
intensely in this area. It's the Germans who have pioneered the
market window, and close behind them are our northern friends--
--
Ms. Roukema. I should have mentioned specifically the
European Union as a component of this.
Mr. Bergsten. Well, in this area, interestingly, the
individual European countries still operate on a national basis
and not as a group. So the Germans, French, Italians, the
British, all compete with each other, as with us.
Incidentally, that's part of the answer to Mr. Sherman's
point. Mr. Sherman said if we offer export credit to China for
a steel plant, they'll ratchet the interest rate down and
benefit. Again, they'll do it with or without us. The Europeans
compete with each other, the Japanese are in, the Canadians are
in. It'll still happen the same way.
We're no longer a dominant force. And that's the other
element of the world revolution. We can no longer call the
shots. The others outnumber us. They're bigger than we are in
economic terms. They're even getting bigger in political terms.
We're still the most important single country, but we are
subject to very intense competition from others, and if we
don't forcefully try to lead everybody to a more rational
outcome, we will continue to have our lunches eaten.
Mr. Becker. Could I answer some of these things? They keep
referencing me.
Ms. Roukema. Please, Mr. Becker.
Mr. Becker. First of all, I'd like to back up a little bit.
I want to talk about Europe.
Ms. Roukema. Yes.
Mr. Becker. The United States steel industry, if we're
talking about steel, is the most efficient steel industry in
the world. At least there's none higher. This is not me, this
is not our industry, this is the Department of Commerce. So
when you talk about competition, we're there.
When you talk about Europe, examine their trade deficit
with China. It's almost nonexistent. It's not anywhere like we
are now. We're targeted here. We're the ones. We're the only
free market in the world. You don't have a free market for
goods coming in from those countries in China or Japan, Japan
the number two economy. It doesn't happen.
Second, the steel industry----
Mrs. Roukema. If you could provide some objective data on
that score, I would appreciate it for the record. I hear
testimony all the time. We can accumulate it. We'll have our
people put it together for you.
Mr. Becker. This is true. Second, the steel industry in
Europe, the government picks up all the health care costs, one
of the most tremendous costs our industry faces, the only steel
industry in the world that has to pay what we call legacy
costs, health care for retirees. It's an incredible amount of
money. It's in the billions of dollars. We're the only country
that we have to compete against. The Chinese don't have it. The
Japanese don't have it. The Canadians don't have it. Europe
doesn't have it. England doesn't have it. The Scandinavians,
the Italians, none of them. That's a government cost.
And when you talk about competition, our industry has to
pay that right straight up front. Bethlehem, that's skirting on
the edge of bankruptcy--they're not bankrupt--their health care
costs run somewhere in the neighborhood of $250 million a year.
They haven't made $250 million profit probably in my lifetime.
Chairman Bereuter. If there are other panelists.
Dr. Blackwelder. Might I respond?
Chairman Bereuter. The gentleman from Case IH. It's 4:00
o'clock, and I promised you'd be out of here. Do you want to
respond briefly before you----
Mr. Christman. Just very quickly, because I'm actually
headed to Europe to see some of our competitors there.
[Laughter.]
Mr. Christman. All we ask for is something very simple.
We're looking for policies and procedures that can match the
foreign governments that we compete against. What we want to do
is very simple: Give our U.S. workers a chance to compete on
the technology and the products we build against anybody in the
world.
If you just give us equal financing, we know that we can
win on the product and technology side. Just give our workers a
chance. Give us the policies, procedures, and give us the
funding. Thank you.
Chairman Bereuter. Mrs. Roukema, yours was the last
question. Do you want to hear from any of the other panelists
on it? It looks like there are several.
Mrs. Roukema. Yes, I would.
Chairman Bereuter. Mr. Christman, if you need to leave,
thank you for your testimony, and we'll be concluding shortly.
Dr. Blackwelder. If I could just give an environmental
perspective on your question.
Mrs. Roukema. Yes.
Dr. Blackwelder. Number one, I think you want to make sure
that the Export-Import Bank is not lending for socially and
environmentally destructive projects. We have suggested a
number of ways that you can improve those standards, which have
actually been a model and served to increase the environmental
standards of other export credit agencies around the world.
But second, the Export-Import Bank is loaning for highly
destructive and damaging fossil fuel projects, as I stressed.
If in fact we are as a government going to subsidize in the
energy area, we ought to be subsidizing some of the innovative
new things that are happening in wind, solar efficiency and so
forth, and not being in the position of maximizing and
augmenting and subsidizing global pollution. And that is
something fundamentally that has to change if the Export-Import
Bank is going to exist.
Mrs. Roukema. All right. Thank you. I think what we've
learned is that there is a little more complexity to this than
any of us would like to have faced.
Chairman Bereuter. Mrs. Roukema, I notice the gentleman
from New Jersey, who I think wants to make a couple--now you
wouldn't want to miss him.
Mrs. Roukema. Oh, absolutely. He may even be my neighbor.
Yes?
Mr. McLaughlin. Thank you. I'm just going to quote very
briefly from some remarks that Chairman Harmon made recently
when he was--I guess he was in the process of leaving the bank.
``We should take note that in 1998, the U.S. ranked seventh
in terms of export credits provided. As a proportion of GDP in
1999, France spent 16 times more on export promotion, Canada 13
times more, and the United Kingdom 9 times more. These
disparities are a wake-up call for all who are concerned about
the U.S. economy.''
Mrs. Roukema. Thank you very much. I appreciate that
contribution New Jersey has made. Thank you.
Chairman Bereuter. Thank you very much. Mr. Sanders and I
agree, and I think the Members of the subcommittee that
participated agree that this has been an excellent panel. The
interaction among you has only added to the benefit to the
subcommittee.
And I want to thank all of you gentlemen and the
organizations that you represent for your effort to help advise
us, to give us your suggestions and recommendations. We
appreciate it.
And as we conclude, I want to ask unanimous consent to
include three things in the record. One is the recent
transmittal of the proposed draft legislation for the
reauthorization of the Export-Import Bank. Very simple,
straightforward, conveyed by letter of May 2nd.
A memorandum responding to a request to Elaine Stenglin,
counsel of the Export-Import Bank, which answers our question
of the previous hearing related to Treasury's role in Export-
Import Bank tied aid program, a memorandum dated September 4,
2000.
And an Export-Import Bank press release dated January 2,
2001, which goes to the Benxi hot steel mill modernization
grant--excuse me--assistance that went to General Electric
Company of Salem, Virginia.
Is there objection?
[No response.]
Chairman Bereuter. Hearing no objection, that will be the
order.
Mr. Sanders. I just want to conclude by concurring with
you, Mr. Chairman. I think this was an excellent panel, and it
was a good diversity of viewpoints, and I want to thank all the
panelists for being with us today.
Chairman Bereuter. Indeed, thank you. The hearing is
adjourned.
[Whereupon, at 4:05 p.m., the hearing was adjourned.]
A P P E N D I X
May 8, 2001
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