SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC
OVERSIGHT OF THE EXPORT-IMPORT
BANK OF THE UNITED STATES
Thursday, May 6, 2004
U.S. House of Representatives,
Subcommittee on Domestic and International Monetary,
Policy, Trade and Technology
Committee on Financial Services,
The subcommittee met, pursuant to call, at 10:00 a.m., in Room 2128, Rayburn House Office Building, Hon. Peter King [chairman of the subcommittee] presiding.
Present: Representatives King, Biggert, Paul, Manzullo, Barrett, Maloney, Sanders, Watt and Velazquez.
Chairman KING. [Presiding.] The subcommittee will come to order. The subcommittee meets today to conduct general oversight of the Export-Import Bank of the United States. This is the first oversight hearing since the 2002 Reauthorization Act and we are pleased to have the Honorable Philip Merrill, President and Chairman of the Export-Import Bank testifying before us today.
Chairman Merrill brings a broad range of experience in both the public and private sector, having served in six previous Administrations in various capacities. We are fortunate to have such a distinguished witness before the subcommittee today, especially since he spent his formative years in New York City. He was, as local legend has it, one of the most prominent street hockey players in the history of New York City, but not quite as good at stick ball as he was at street hockey, but there is still time. And also, coming from Queens, I never had that much respect for the street athletes of upper Manhattan, but they were still pretty good. You and Colin Powell were.
Page 2 PREV PAGE TOP OF DOC [Laughter.]
As the chief U.S. government agency tasked with financing American exports, Ex-Im Bank provides American exporters the assistance needed to compete with their foreign competitors and often serves as a lender of last resort. The need for this agency stems from political or commercial uncertainties in foreign markets and competing governments subsidizing their export financing, thus creating an unfair playing field in the marketplace. This is achieved by offering credit insurance, working capital, and loan guarantees to U.S. exporters.
Obviously, the overall goal of the Bank is to use its authority and resources to create and sustain American jobs. Over the last 5 years, 311 New York companies received assistance from Ex-Im. In my district on Long Island, 13 small businesses have benefited from the programs offered by the Bank and I hope this number will increase in the future.
The Bank is not without its problems, however, and was made aware of them during the 2002 reauthorization. It has been 2 years since President Bush signed into law legislation reauthorizing Ex-Im Bank and I am interested in the Chairman's comments on how the Bank has utilized its new authority to assist small businesses, while creating and sustaining American jobs.
It is my understanding the Bank reached 19.7 percent of its 20 percent goal for financing small business exporters. I am interested in hearing the Chairman's comments on whether he views this 20 percent figure as a floor or a ceiling, and if more can be done to increase this level of financing for small businesses.
Lastly, I am concerned over the lack of an inspector general for Export-Import Bank. As you know, the 2002 reauthorization act established a presidentially appointed inspector general for the Bank, yet 2 years have passed and it does not appear as if this provision of the law has been fulfilled. I am not sure if it is an appropriate issue or priority issue, but I would like to hear your comments on this matter as well.
Page 3 PREV PAGE TOP OF DOC Again, thanks for taking the time out of your schedule to testify today. I certainly look forward to working with you as the Bank celebrates its 70th anniversary.
With that, I yield to my distinguished colleague, the Ranking Member, Mrs. Maloney.
[The prepared statement of Hon. Peter T. King can be found on page 24 in the appendix.]
Mrs. MALONEY. Thank you. I thank my distinguished colleague, Chairman King, from the great State of New York, for holding this oversight hearing on the Export-Import Bank.
Good morning, Chairman Merrill. I thank you for joining the subcommittee. It is a pleasure to see you again. I enjoyed our meeting in my office last year following your appointment.
I think today's hearing is especially appropriate given the importance of the Ex-Im Bank's mission of support of U.S. exports abroad. My good friend John LaFalce, the former Ranking Member of this committee, always reminded this committee on this topic that the Bank is actually improperly named, as its sole mission is to support U.S. exports which keep jobs here at home. The Bank does not play a role in encouraging additional imports to the United States. Your mission is so important today because our country is handicapped by a massive trade deficit. In the era of half-billion dollar trade deficits and outsourcing of information-based jobs, I believe support for Ex-Im Bank is more important than ever. I am pleased to have played a role in the Bank's latest reauthorization.
In the authorization in 2002, we included some very important mandates that I believe will make the Bank stronger. Specifically, Congress dictated that 20 percent of bank support must go to small business. I see my good colleague, Nydia Velazquez, who was one of the leaders in achieving this goal. I am pleased that the Bank has come close to this goal, hitting 19.7 percent in 2003.
Page 4 PREV PAGE TOP OF DOC I do look forward to the Chairman's comments on why the Bank has not yet fully implemented its automation program for small business that will make it easier for them to access the Bank. Talking to my constituents, I have been informed that the Bank may be attempting to shift more risk for small business lending onto private banks within the working capital program. I would like very much to hear from Chairman Merrill on this issue.
I am also pleased that the authorization included a new commitment to the Bank's existing mandate to support exports to Africa and imposition of new safeguards on transactions that may fall under existing countervailing duty, antidumping, or section 201 ruling. The authorization also included an amendment I offered in the Financial Services Committee giving the Bank explicit authority to turn down an application for Ex-Im Bank support for companies that have a history of engaging in fraudulent business practices. Unbelievably, in a prior time with a prior Chairman, they insisted on giving a loan to such a company, even though they had all kinds of allegations against them, because they said they were required by law to do so. So I am glad that this was included. I am interested to see if this is being used.
Finally, I am very pleased that the Bank decided against supporting the controversial Camisea project in Peru. More generally, I am also interested in the role that Ex-Im is playing on OECD environmental standards. One of the main reasons that I believe the Bank is important to the U.S. is that it levels the playing field with foreign export credit agencies, so-called ECAs, such as those in Japan, Germany, France, Canada and other countries. In 2000, the ECA support from OECD nations totaled $58 billion in long-term export credits.
In today's increasingly interconnected global economy, the U.S. must not fall behind the international competitors. In my own district, the Bank has supported over $2 billion in exports from October 1994 to April 2004. I thank the Bank for its support of New York City, and I look forward to working on keeping this relationship strong.
I thank the Chairman for being here today. I look forward to your comments. I yield back the balance of my time.
Page 5 PREV PAGE TOP OF DOC [The prepared statement of Hon. Carolyn B. Maloney can be found on page 33 in the appendix.]
Chairman KING. I thank the Ranking Member.
Ms. VELAZQUEZ. I ask unanimous consent to include my opening statement in the record. Thank you.
Chairman KING. Without objection.
The gentleman from Vermont?
Mr. SANDERS. Thank you, Mr. Chairman. Thank you for holding what is a very important hearing on a very important subject.
I thank Mr. Merrill for being with us today.
Mr. Chairman, I think nobody believes that the Export-Import Bank is a huge colossus agency upon whose success or failure the American economy will depend upon. But I think what we have got to look at is the fact that in the United States today we are seeing a collapse of manufacturing; that in the last 3 years we have lost 2.8 million good-paying manufacturing jobs, which has resulted in the decline in the standard of living of millions of American workers. We have got to appreciate that in the United States today we have, the last that I have seen, is a trade deficit of some $500 billion, including I believe a trade deficit with China alone of over $120 billion, and if my memory is correct, the National Association of Manufacturers projects that that deficit will go up and up and up in the next number of years.
Given the fact that the function of the Export-Import Bank as I understand it is to create good-paying jobs in America based on exports, while I am not here to blame the Export-Import Bank alone for all of these issues, I think, Mr. Chairman, what is obvious to anybody who looked for 3 seconds at the issue is they are irrelevant in the process; that we have to re-think our entire approach toward manufacturing in America, and understand why we are failing so abysmally, and that the Export-Import Bank is irrelevant in terms of the entire process.
Page 6 PREV PAGE TOP OF DOC Mr. Chairman, what particularly upsets me about the Export-Import Bank, without blaming them for all of the problems, I do not mean to do that, is that year after year the Export-Import Bank provides billions of dollars in corporate welfare, taxpayer money for the largest corporations in America. You know what those corporations say, Mr. Merrill? They say, thanks America; thanks, taxpayers, for your money; we are off to China; we will send you a postcard from China.
I would like Mr. Merrill when he does his response to tell me how he feels about corporation after corporation, which is very public, these guys do not hide it, who are saying, America, good-bye; we are going to China; we are hiring people for 30 cents an hour. I would like Mr. Merrill to tell me specifically how he feels about the head of General Electric, the CEO of GE, a gentleman named Jeff Immelt, who says a year ago in speaking to GE investors, this is what he says: ''When I am talking to GE managers, I talk China, China, China, China, China. You need to be there. You need to change the way people talk about it and how they get there. I am a nut on China. Outsourcing from China is going to grow to $5 billion.''
And yet, guess what, taxpayers of America? Export-Import Bank funds General Electric. They fund Motorola. They fund corporation after corporation that treats the American worker with contempt and goes abroad. This is absurd.
So I think, Mr. Chairman, that if we are serious, and I am again not here to blame Export-Import for all of these problems. They are a small part of the problem. But we have to say, enough is enough. You cannot continue to give out corporate welfare to corporations who treat American workers with contempt. It is not good enough to say, oh, we have saved 12 jobs over here, when the largest corporations in America that receive your funding are laying off hundreds and hundreds of thousands of workers.
I hope that is an issue, Mr. Chairman, that we will begin to discuss.
[The prepared statement of Hon. Bernard Sanders can be found on page 37 in the appendix.]
Page 7 PREV PAGE TOP OF DOC Chairman KING. The gentleman's time has expired.
Mr. Merrill, it is a privilege to have you here today. We have a copy of your full opening statement. If you could possibly keep your opening remarks to 5 or 10 minutes, we would appreciate it. Without objection, your full statement will be made part of the record.
Mr. Merrill, thank you.
STATEMENT OF HON. PHILIP MERRILL, PRESIDENT AND CHAIRMAN, THE EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. MERRILL. Thank you for all those kind words about me, and even the moderate words from Congressman Sanders about the Bank.
Chairman KING. That is as good as you are going to ever get from Mr. Sanders.
Mr. MERRILL. Thanks. Maybe we can engage him later in a discussion about stickball, wall ball, slug, roller hockey and four corners, but otherwise let me proceed.
Congressman Maloney, Members of the Subcommitte, I am pleased to be here today to report on the progress the Export-Import Bank of the United States has made in achieving our mission as set forth in our Charter. I want to especially acknowledge the role of this subcommittee, as well as the full Committee on Financial Services in our 2002 reauthorization.
The Act reaffirmed the Bank's basic roles and responsibilities in financing and facilitating exports of goods and services and in so doing contributing to the employment of U.S. workers, and establishing a reasonable assurance of repayment before approving a transaction, and in supporting all businesses, large and small, in their efforts to create jobs through exports.
Page 8 PREV PAGE TOP OF DOC We are focusing on three key priorities: putting customers first, improving cycle time and transaction time, and expanding support for knowledge-based and services exports. President Bush has set forth three guiding principles for government, namely that it should be citizen-centered, results-oriented, and market-driven. Those are the right principles to follow.
The Bank supported $12.95 billion in exports in fiscal year 2002; $14.3 billion in fiscal year 2003; and we estimate $15.6 billion for fiscal year 2004, this year; and $16.3 billion in fiscal year 2005, also an estimate. As you know, Ex-Im Bank provides insurance, guarantees and direct finance on behalf of U.S. exports and exporters. Our purpose is to create and maintain American jobs. Indeed, our motto is jobs through exports; and our mantra, of course, is jobs, jobs, jobs.
We require a reasonable assurance of repayment. We only go to markets where the private sector will not go alone, and are accordingly demand-driven. We do business in 90 countries and are open in 150. We also seek to level the playing field for American exporters who have to compete with 28 other OECD developed countries that have export credit agencies supporting their exporters.
Let me review some of the matters raised in our reauthorization and a number of the matters that you raised in your comments already provided. First, Mr. Chairman, small business is a major central concern for the Bank. In fiscal year 2003, the last full year we have numbers, the Bank authorized 2,258 transactions directly supporting small business, a figure representing over 80 percent of the Bank's financings, actually 83 percent, and accounting for 19.7 percent of the total dollar volume value of Ex-Im Bank's business. That is very close to the 20 percent target in our Charter.
Also, Ex-Im Bank announced at its recently concluded annual conference, the signing of a co-guarantee agreement with the Small Business Administration. This enables the financing of transactions of up to $2 million with one single set of documents, so customer-friendly. I might add, no double counting. They take the first $500,000; we take the second $1.5 million up to $2 million, or whatever is appropriate.
Page 9 PREV PAGE TOP OF DOC
[Subsequently Mr. Merill provided the following information]
They take the first $1.5 million or up to their statutory limit, and we take the remaining amount minus the lender's risk on any transaction up to $2 million.
Second, technology improvements. The Bank is developing its business automation project in order to process applications more quickly. We are working away on it. We also participate in the Trade Promotion Coordinating Committee's one-stop/one-form registration system, an Internet-based system enabling small businesses to apply electronically for all government export programs, including ours.
Third, Africa. In fiscal year 2003, Ex-Im Bank authorized 152 transactions, supporting nearly $700 million in U.S. exports to 20 sub-Saharan African countries. Just 5 years earlier in fiscal year 1998, the Bank authorized 91 transactions that supported only $61 million in exports; $61 million to $700 million in U.S. exports to sub-Saharan Africa. Over the last 6 fiscal years, Ex-Im Bank has authorized transactions supporting nearly $2 billion in U.S. exports to sub-Saharan Africa. We have also made a special effort to reach African buyers through our ongoing Short-Term Africa Pilot Program. This program offers Ex-Im Bank support in an additional 16 African countries in which the Bank would otherwise not be open for business, raising the total number of sub-Saharan Africa countries eligible for Ex-Im Bank financing to 39.
Fourth, Ex-Im Bank has continued its outreach to woman-owned and minority-owned businesses through participation in a wide range of trade shows, seminars, and conferences focused on this important area. Fifth, economic impact. Ex-Im Bank's charter requires the Bank to assess whether extending its finance support is likely to yield a net adverse economic impact on U.S. production and employment, or would result in the production of substantially the same product that is the subject of specified trade measures.
Page 10 PREV PAGE TOP OF DOC If a transaction is deemed by Ex-Im Bank to meet the legislatively specified standards, then economic impact can be the basis for denial of bank support. I want you to know that we are very much aware of this responsibility and we are scrupulously applying these procedures.
In conclusion, Mr. Chairman, we take seriously the goals Congress set before us. We have made real progress toward meeting the changes to our Charter enacted in 2002 and fulfilling the purposes for which the Bank was created 70 years ago. We have done so through the diligent efforts of exporters and the hard work of the dedicated staff at Ex-Im Bank.
I would now be happy to respond to any questions you may have. I wrote down four or five, some of which were covered in my remarks. I will proceed in any manner you feel comfortable with.
[The prepared statement of Hon. Philip Merrill can be found on page 39 in the appendix.]
Chairman KING. Thank you, Chairman Merrill. I appreciate your statement. As I said, the full text of your statement will be made part of the record.
Mr. MERRILL. Thank you.
Chairman KING. I just have several questions. One, I mentioned in my statement and you mentioned in yours, that is the targeted number of 20 percent to be allocated toward small business. Do you look upon that 20 percent as a floor or a ceiling? Right now, you are at 19.7 percent, so obviously you are on-target, but do you anticipate going beyond that target or staying at 20 percent?
Mr. MERRILL. As a practical matter, it is about the right number. It is a good question, floor or ceiling. The answer is neither. It is, rather, the right place to be. If you incorporate the small businesses that are subcontractors for companies like GE or Bechtel or Caterpillar and so forth, 83 percent are small business. It is hard for me to see how we can go a lot further upwards without one single contract utterly distorting the 20 percent number. In other words, suppose we went to 99 percent, what would happen if one energy plant, one airline deal would substantially distort the numbers? So I think we are about right.
Page 11 PREV PAGE TOP OF DOC Chairman KING. In the 2002 Reauthorization Act, a major provision was calling for a presidentially appointed inspector general. That has not happened yet. Could you explain why? Is that an appropriation matter? Have you requested it?
Mr. MERRILL. It is in the President's budget. It is in our submission. That is a White House issue. We do not make the appointment.
Chairman KING. Are you pushing for it?
Mr. MERRILL. We are neither pushing or not-pushing. We put it in our budget request. We are not against it. The committee directed us to do it. The President has it in his budget request.
Chairman KING. Okay. From your dialogue with the Administration, do you expect it to happen?
Mr. MERRILL. I do not know. I do not have a good feeling for that. I think this is really more a Congressional issue than a Bank issue. I think it is fair to say that last year, the appropriators sought places to cut. We got cut. We got cut in several places and one of those was that, or so I am told.
Chairman KING. Okay.
Mr. MERRILL. I do not know whether that was the Senate or the House that did it. It is between the two.
Chairman KING. There is probably enough blame to go around.
I just have one final question. The Reauthorization Act allows the Bank to consider the extent to which a nation has been helpful in combating terrorism when you take action. Can you tell me if you have looked into that at all?
Mr. MERRILL. I am sorry. I did not hear the first part of the question.
Chairman KING. The reauthorization act allows the Bank to consider the extent to which a nation has been helpful in eradicating terrorism.
Page 12 PREV PAGE TOP OF DOC Mr. MERRILL. The extent to which a what, a nation?
Chairman KING. A nation has been helpful in eradicating terrorism, when you offer your services. I am just wondering, have you set up any way of looking into whether or not countries you have been dealing with
Mr. MERRILL. We deal with the State Department on those issues. In a general sense, State, Commerce, USTR, OMB, Treasury generally attend our Board meetings and a couple of them are ex officio members of our Board. With respect to the issue you raised, we have a regular representative from the State Department. We deal through him with the relevant agencies, in this case the Human Relations Assistant Secretary in the State Department.
Frankly, I have several years in the State Department, as you know, but when I was there they had five assistant secretaries. Now, they have 26, and I cannot keep all their names straight. But we do deal with the State Department on such issues.
Chairman KING. Okay. So basically, you have been dealing through the State Department when it comes to this.
Mr. MERRILL. We take their lead. We do consult them. We are very interested in what they have to say about that, what they have to say about bad people what they have to say about doing business in countries that either have helped us or hurt us.
Chairman KING. Okay. Thank you.
Mrs. MALONEY. Thank you, Chairman Merrill.
As part of our reauthorization in 2002, we put a great deal of emphasis on increasing Ex-Im support of small businesses. I am glad to see that you have almost met the binding minimum target. I hope that you will be giving us assurances that the Bank's efforts in this area are serious and sustained.
Part of this, a critical component of Ex-Im's efforts to assist small business exporters are the private banks that play the role of ''delegated authority lenders.'' These particular lenders are granted special discretionary authority by Ex-Im to grant credit following Ex-Im guidelines. Under this agreement, transactions can be approved more quickly, with less bureaucracy. My understanding is that these delegated lenders currently account for 90 percent of lending through the working capital program, the core program for small business exporters.
Page 13 PREV PAGE TOP OF DOC Unfortunately, some of these lenders have grown concerned about Ex-Im's efforts to change the nature of the relationship so that more of the risk for these transactions will be borne by the delegated lenders themselves. My understanding is that these lenders are so concerned about this shift in attitude and potentially in practice that they are now contemplating a termination of their relationship with the Ex-Im Bank. Given the strong role that they played in small business finance for Ex-Im, the loss of these lenders would obviously hurt Ex-Im's small business export programs.
Could you comment on these concerns of these lenders? What are you doing to address them?
Mr. MERRILL. Yes, I can. Of course, in the context here, it is an anonymous set of concerns so I cannot address an anonymous thing specifically, but let me make this point. First, the culture of this Bank or this institution is really totally committed to serving the small business person. I was once a small business person myself so I understand small business problems.
More importantly, it is the totality of the culture of the Bank. That is, serve the customer, the small business person. So this is not a thing that is just directed by this Committee. This thing is woof and warp of how our people think. So we are singing the same song to one another with respect to attitude and culture.
With respect to the concerns you are reflecting, my guess is that this is about the fast-track program that we have put in to increase the lending authority, delegated authority to nine principal banks where we delegate authority. I call your attention here that there are 240,000 exporters in the United States and slightly more than 400 employees of this bank. If we were to call on every one of them, we would not get there in this century, that is, the 21st century. The Board approved expanded lending authority at a greater level to a number of banks which were qualified.
Page 14 PREV PAGE TOP OF DOC Mrs. MALONEY. What is the level it expanded it to?
Mr. MERRILL. It went from $10 million to $25 million, under the authority of the board.
Among the Banks, that is, among them there were different interpretations of some of the criteria that incorporated going from $10 million to $25 million. These are within weeks not months, 1 or 2, 3, whatever, short term, of being worked out. They are very minor things. They are things like, would an audit be quarterly or semiannually. That would be the kind of issue that remains to be worked out.
Mrs. MALONEY. Could you tell us where things stand? I am interested in knowing how close the program is to being up and running.
Mr. MERRILL. Weeks.
Mrs. MALONEY. Weeks? So it will be in operation
Mr. MERRILL. We have to come back to the board with it.
Mrs. MALONEY. Okay.
Mr. MERRILL. The differences were between the Banks, not between the Banks and us. There are different issues within the Banks and between the banks on getting consistency.
Mrs. MALONEY. My colleague, for whom I have the greatest respect, Mr. Sanders, really raised some very important issues, the collapse of manufacturing in America; the outsourcing of jobs; a trade deficit that is not beneficial to our country. I would like you to respond to that.
It is my understanding that the whole reason for the Export-Import Bank is to help manufacturing in America. We do not help manufacturing abroad. We only give loans to manufacturing to jobs that are here in America, and part of the agreement, if I understand it correctly, is that we save or create American jobs.
Page 15 PREV PAGE TOP OF DOC Mr. MERRILL. That is exactly right.
Mrs. MALONEY. And that none of this goes to a foreign country, but it stays in America, trying to help us get those jobs and keep those jobs.
I also understand that part of the criteria is that you do not give a loan if they can get it from a private source, so this possibly would be a job that we may lose in America. Could you elaborate more on this, that possibly this will be helping us maintain American jobs? Could you comment?
Mr. MERRILL. Yes, Congresswoman. Yes, I will. First, we are in the business very simply, I repeat it again, of creating American jobs. The issues that Congressman Sanders raises are legitimate issues, and indeed they are issues in the campaign being carried on right now, but these are issues in which our government, the Treasury Department and other government agencies are responsible for dealing with.
We are not in the business of outsourcing any jobs. We are only in the business of supporting jobs here. I think a quick but perhaps aphoristic answer would be this. We just financed a deal for a large American corporation, the one that Congressman Sanders mentioned; $700 million worth of locomotives from the Erie plant of General Electric to Kazakhstan.
[Subsequently Mr. Merill corrected the figure from $700 million to 33.1 million]
There was a reasonable assurance to repay. I personally worked my way through every minister literally without exception of the Kazakhstan government, about 12 of them, all of whom were market-oriented, Western-oriented and interested in doing business with us.
That represented approximately 700 locomotive kits at $1 million apiece, I am rounding the number, from the GE plant in Erie, Pennsylvania.
Page 16 PREV PAGE TOP OF DOC[Subsequently Mr. Merrill corrected that figure from 700 to 54 locomotive kits at $600,000 instead of $1 million.]
GE also operates in New York. I have been through that plant. In its high year, it produced 400 locomotives; here at 700 locomotives. I fail to see how the outsourcing issue which is a legitimate political issue playing in the national arena helps or hurts, if you will, the workers at the Erie plant. The choice is very simple. We can finance GE in Kazakhstan or the French or the Russians, who also build locomotives, will finance their exporters in the same place. That is a lot of jobs in Erie. It is a hell of a plant. So I think that what we do is appropriate for the circumstances.
Mrs. MALONEY. Mr. Merrill, my time is up, but since you mentioned a New York company, I would like more specifics on it and how many jobs it created in New York. New York is very economically devastated upstate, and I would like more information on the jobs that it created in New York State.
Chairman KING. The gentlelady from Illinois?
Mr. MERRILL. We will get back to you. I cannot answer that right here, but we will get back to you.
Mrs. MALONEY. My time is up. Thank you.
Mr. MERRILL. I understand.
[Subsequently Mr. Merrill provided the following information.]
General Electric estimates that the locomotive exports financed with this Ex-Im Bank supported financing helped to sustain 130 jobs during 2003 and is projected to sustain 168 jobs during 2004.
Page 17 PREV PAGE TOP OF DOC
Chairman KING. Mrs. Biggert?
Mrs. BIGGERT. Thank you, Mr. Chairman.
Chairman Merrill, I understand that the Ex-Im Bank has an advisory committee that provided recommendations for improvements in 2002 and 2003. Could you tell us a little bit about this committee and what their recommendations were?
Mr. MERRILL. There is a general advisory committee made up of a cross-section of businessmen, 16 people on it, that has been really very helpful to us. They have been chaired the last 2 years by the Chairman of the Houston Port, Ed Manto. It has had a series of suggestions for how we could be doing what we are doing, that is, be more customer-friendly; support more exporters. We found them very useful. They are actually all very able people. With their help, we identified three states where we ran a test program to see what we could do for the local banks in those states. The three states happen to be, we wanted states not like New York and California, which are so complex, but Maryland, Colorado and Arizona, in which we tried to look at how we could reach more exporters.
We took Colorado as an example. There are five major banks; substantial exports. All five banks were doing business for their exporters with banks in Seattle, with such banks as the Southwest Bank of Texas. So as a result, we identified roughly of the 14,00 banks in the United States, the 175 that do some trade finance, applied it back to state levels, and we are working with city-state partners and so forth, all of this as a result of the work of the advisory committee.
[Subsequently Mr. Merrill provided the following information]
There is a general advisory committee made up of a cross-section of businesspeople, 16 people on it, that has been really very helpful to us. It has been chaired over the last 2 years by Edward Monto, Director of Metrobank, in 2003, and in 2004 by H. Thomas Kornegay, Executive Director of the Houston Port Authority. It has had a series of suggestions for how we could be doing what we are doing, that is, be more customer-friendly; support more exporters. We found them very useful. They are actually all very able people.
Page 18 PREV PAGE TOP OF DOCWith their help, we identified two States where we ran what might be called a test program to see what we could do for the local banks in those States to reach mor exporters. The two States happen to be Maryland and Colorado.
Take Colorado as an example. There are five major banks; substantial exports. All five banks were doing business for their exporters with correspondent banks such as Southwest Bank of Texas.
Of the approximately 14,000 banks in the United States, 175 of them do some trade finance. In addition to the banks, we are working with City/State Partners.
Mrs. BIGGERT. So that was your implementation of their recommendations.
Mr. MERRILL. Yes, exactly.
Mrs. BIGGERT. Do you think that you could provide us with copies of the advisory committee's report?
Mr. MERRILL. Sure.
[The following information can be found on pages 54 and 116 in the appendix.]
Mrs. BIGGERT. Okay. And can you give an itemized list of the recommendations?
Mr. MERRILL. I do not know whether there is an itemized list, but we will give you whatever we have.
Mrs. BIGGERT. Okay. And just the steps that you used to implement?
Mr. MERRILL. Advice is advice. Some things are doable. Some things are advice that they would like to have. For example, they would like to have a change in the MARAD requirements, PR 17. That is Greek to anybody here, but it is the requirement to ship certain exports on American bottoms. We understand the requirement. I personally served in the Merchant Marine. I shipped out when I was 16, so I understand the U.S. Merchant Marine. But we would like to get some waivers on an easier basis on these. Again, just to stick with GE, when they ship a turbine and it takes a special ship to ship it, it may not be available in the time sequence and so forth, so making waivers easier was one of the recommendations and we would like to do that. But implementing it is not within our control, so a lot of the recommendations we agree with, but do not have total control. It is things we have to push on other people for. I will stop there.
Page 19 PREV PAGE TOP OF DOC Mrs. BIGGERT. Would you consider doing that? Let's say, you need statutory change or regulation change. Is this something you look at then and then proceed to either come to the Congress or the regulatory body?
Mr. MERRILL. Yes.
Mrs. BIGGERT. Okay. Thank you, if you would do that.
You talked about the 19.7 percent, or almost reaching the mark figure for assessing the amount of small business support pursuant to the last authorization legislation. Is this the same methodology that was used prior to 2002?
Mr. MERRILL. Yes, it is exactly the same methodology, with one minor exception, not an exception, but the sample is larger just to be certain that it is accurate, but nothing was changed in the methodology, just a larger sample.
Mrs. BIGGERT. Are you planning to make changes in the future to the methodology?
Mr. MERRILL. No, not that I know. Nobody has consulted me on that, but I do not see why we would. Just as a private businessman, I do not like to change methodologies lightly because I like the comparisons from year to year.
Mrs. BIGGERT. Then how will you account for transactions that originated under the memorandum of understanding with the SBA?
Mr. MERRILL. We would account for them, assuming a $2 million transaction, the first $500,000 would be credited to SBA; the second $1.5 million would be credited to us. It would not be double-counted.
[Subsequently Mr. Merrill provided the following information.]
We would account for them, assuming a $2 million transaction, the first $1.5 million or their statuary limitation would be credited to the SBA and the remanining amount minus the lender's portion of the risk would be credited to us. It would not be double-counted.
Page 20 PREV PAGE TOP OF DOC
Mrs. BIGGERT. So there is no change there. Okay. Thank you very much.
I yield back.
Chairman KING. The gentlelady from New York, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
In your exchange or answering the question to Carolyn Maloney, you said that you are in the business, Ex-Im Bank is in the business of supporting jobs.
Mr. MERRILL. Yes, ma'am.
Ms. VELAZQUEZ. We all know that small businesses produce 75 percent of all new jobs. Small businesses account for 50 percent of all sales in this country. Small businesses employ nearly 53 percent of the American workforce. In the last recession, small business fast-growth companies created nearly 3.8 million jobs, compared to 3.3 million jobs created by big companies.
So if you are in the business of creating jobs, how could you come here and say that you so proud about the 19.7 percent financing achieved by Ex-Im Bank, and then to say that the 20 percent is neither the ceiling nor the floor? But if we are facing a jobless recovery in this country, don't you think that then you should focus or reassess what your institution is doing in providing more financing for small companies?
Mr. MERRILL. Madam Congresswoman, the committee's dictate or mandate or instruction was to target 20 percent.
Ms. VELAZQUEZ. At least 20 percent.
Mr. MERRILL. Not including, not counting the subcontractors.
Ms. VELAZQUEZ. Look, sir.
Mr. MERRILL. Look, subcontractors are small businesses.
Page 21 PREV PAGE TOP OF DOC Ms. VELAZQUEZ. The 20 percent is regarding prime contractors, not subcontractors. You know that.
Mr. MERRILL. By definition
Ms. VELAZQUEZ. Your definition.
Mr. MERRILL. Well, anybody's definition. It is not likely that a small business is going to be a prime contractor. You are not going to build a power plant
Ms. VELAZQUEZ. What I am saying to you, sir, is that 20 percent, the law, the reauthorization of 2002, says 20 percent, at least 20 percent. It is just common sense that what we need in this country is to create jobs.
Mr. MERRILL. I agree.
Ms. VELAZQUEZ. You should amend what you are doing and reassess, and make sure that we have more financing for small business.
Mr. MERRILL. We are doing everything. I do not know how I can change and improve the culture of this Bank beyond its focus on small business because we are totally focused on increasing small business. We agree with you. We are almost totally focused.
Ms. VELAZQUEZ. Are you prepared, based on the reality of the economy, to reassess the 20 percent, instead of being the ceiling, instead of being the floor?
Mr. MERRILL. The problem is that we are the lender of last resort. They have to come to us.
Ms. VELAZQUEZ. Okay, sir. In light of the fact that the face of small business in America is changing, that we have more, that women are the fastest-growing sector in terms of small businesses in our economy; there are more women, more Latinos, more Blacks. Do you have any data as to how much money from the 19.7 percent of finance has gone to minority contractors?
Page 22 PREV PAGE TOP OF DOC Mr. MERRILL. Yes, ma'am, I do. I would actually like to read it to you. We have the measurement for the whole Bank. We do not have a measurement on the 19.7 percent.
Ms. VELAZQUEZ. Okay. Would you be prepared to send us, this subcommittee, data?
Mr. MERRILL. Yes, ma'am. I would also like to answer the question.
Ms. VELAZQUEZ. But you said that you do not have the data?
Mr. MERRILL. Not on the basis of the 20 percent, but on the basis of the whole Bank.
Ms. VELAZQUEZ. No. I am referring to the 20 percent.
Mr. MERRILL. In that case, I will have to get back to you.
Ms. VELAZQUEZ. Would you please submit to this committee in writing?
[Subsequently Mr. Merrill provided the following information.]
In terms of number of transactions, minority and woman-owned businesses accounted for 219 of the 2,258 small business transactions or 9.7 percent.
In FY 2003, Ex-Im Bank provided $2.1 billion in small business support. Of the $2.1 billion, minority and woman-owned businesses accounted for $135,808,144, or 6.54 percent of Ex-Im Bank's small business support.
Mr. MERRILL. I will have to get back to you with that. I would like to say that among the larger corporations, that is the Fortune 500 crowd, if you will, the GEs of the world, GE has 11 percent minority contracting. It is 30 percent for Case New Holland. The Bank's administrative contracting awards to small business are 57 percent, and the awards to African American businesses are 18 percent. That is out of the total of the Bank, not out of the 20 percent. I will have to get back to you on the 20 percent.
Page 23 PREV PAGE TOP OF DOC Ms. VELAZQUEZ. Thank you.
If I may, Mr. Chairman, this is a very important question because of the arrangement between SBA and Ex-Im Bank. You know that the Administration's fiscal year 2005 budget drastically cuts the 7(A) guarantee loan program, out of which the small exporters obtain funding such as export working capital. Now that less funding is going to be available for small exporters through the SBA export working capital, is the Ex-Im Bank going to start handling smaller loan requests?
Mr. MERRILL. Yes, ma'am. We will handle them. Last year, we financed $67,000 worth of used clothing to Ghana. We will finance any small business at any level from any State.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Chairman KING. The gentleman from South Carolina?
Mr. BARRETT. Thank you, Mr. Chairman.
Mr. Merrill, thank you for coming today. I appreciate it.
One of my constituents asked a question the other day. I did not know the answer and it was very timely. Does the Ex-Im Bank offer standby letters of credit to foreign purchasers of U.S. goods?
Mr. MERRILL. To foreign purchasers of U.S. goods?
Mr. BARRETT. Yes.
Mr. MERRILL. Yes, we would do that. It is a technical arm, but in a general sense certainly we would lend to a Russian company or Kazakh company or a Vietnamese company, Vietnam Airlines, that was going to purchase something from the United States. Certainly. We will finance 85 percent of an export, whoever buys it. And we will finance 100 percent of working capital for an export. But it has to be the export of goods or services from the United States that creates American jobs. Who the buyer is, the buyer is either sovereign governments or private businesses or banks in 90 foreign countries.
Page 24 PREV PAGE TOP OF DOC Mr. BARRETT. How does that work? What do you think about that policy?
Mr. MERRILL. It is the basic business of the Bank.
Mr. BARRETT. We had a gentleman, a Mr. Taylor from Avondale Mills, that had a proposal that was very similar to this. I think he had some twists in it or was asking a couple of different things. We faxed that proposal to your office.
Mr. MERRILL. I see a head nodding behind me here. We did 2,707 transactions.
Mr. BARRETT. I understand that. But what I would like for you guys to do, just since it is a practice that you all are doing, if you would take a serious look at that proposal and get me back something in writing on it, I would greatly appreciate that.
Mr. MERRILL. I have a note here that says we will. I will just read it to you.
[The following information can be found on page 179 in the appendix.]
Mr. BARRETT. Okay. Great.
Mr. MERRILL. This is information, not secrecy.
Mr. BARRETT. Absolutely.
Mr. MERRILL. We insure LCs. We do not issue them. A letter of credit would be from a foreign bank. We would insure it.
Mr. BARRETT. Okay.
Mr. MERRILL. The staff is reviewing it. This proposal is under review. The case you referenced is obviously known to our General Counsel and our Chief Financial Officer.
Mr. BARRETT. And you guys have been extremely helpful, your whole staff. Mr. Chairman, I want to thank you. But if you all could, as quickly as possible, get that to me and my staff, I would greatly appreciate it.
Page 25 PREV PAGE TOP OF DOC Mr. MERRILL. Let's see what we can do. When you raise something here, I will put a searchlight on it.
Mr. BARRETT. Thank you, Mr. Chairman.
Mr. MERRILL. Thank you.
Chairman KING. Mr. Sanders?
Mr. SANDERS. Thank you, Mr. Chairman.
Let me just read for the record something and let the American people determine how successful the Export-Import Bank has been in creating jobs, jobs, jobs. Is that your motto?
Mr. MERRILL. Yes.
Mr. SANDERS. Okay, here we go. Jobs, jobs, jobs.
Mr. MERRILL. Jobs through exports is the motto.
Mr. SANDERS. Since 1975, General Electric has eliminated more than 260,000 American jobs, while receiving $2.5 billion in loans and guarantees from the Export-Import Bank. It does not sound too successful to me. Boeing is, I believe, the largest recipient of Export-Import taxpayer subsidies and grants. Since 1990, Boeing had laid off 135,000 American workers, increasingly outsourcing design work to China, Russia and Japan, while receiving $18 billion in direct loans and loan guarantees. Now, maybe the loss of 135,000 jobs does not concern Export-Import, but some of us worry a little bit about that. Motorola has laid off close to 43,000 workers since 2001, and received $190 million in direct loans and loan guarantees from the U.S. Export-Import Bank.
Jobs, jobs, jobs. You are right. We are losing jobs, jobs, jobs big time. Now, General Motors since 2001, 3 years ago, GM has laid off 37,500 workers, while receiving over $500 million from the U.S. Export-Import Bank, and in fact, as you know, they are now going to be manufacturing a lot of auto supplies in China, so we expect job loss to go way down.
Page 26 PREV PAGE TOP OF DOC So the first question, and I am going to ask you several questions, the first question is, why do taxpayers in this country provide billions of dollars in loans and loan guarantees and subsidies to companies that are throwing hundreds and hundreds of thousands of American workers out on the street?
Mr. Chairman, I used to be the Mayor of a city. We dealt with the business community. The fallacy of the Export-Import Bank is that Mr. Merrill will come and say, look what we did in Erie, Pennsylvania; we created 700 jobs. But they are not looking at what General Electric did in its entirety. The way sensible government works is you say to the business community, we are prepared to help you. What are you going to do for workers in America? How are you going to grow jobs? Don't tell us you are growing jobs in Erie, New York, when you are laying off hundreds of thousands of people elsewhere, because we do not pay attention to that. We are just looking project by project. That is an absurd philosophy.
I think Ms. Velazquez was right a moment ago in saying job creation is taking place among small businesses, medium-size businesses. What about telling the large corporations that if they are not interested in growing jobs in the United States of America, you are not going to support them; that if they want money from the taxpayers of this country, we will help them when they tell us and promise us they are going to start growing jobs in America, not one project while they are laying off hundreds of thousands of people elsewhere.
Now, to add insult to injury, I gather with a straight face, Mr. Merrill, you are telling us that the Export-Import Bank, did I hear you correctly, is the agency of last resort for loans?
Mr. MERRILL. Yes.
Mr. SANDERS. Okay. You are telling the American people.
Mr. MERRILL. We are the lender of last resort.
Mr. SANDERS. Excuse me. I heard what you said. You are going to tell me with a straight face that General Electric, which itself is one of the largest financial institutions in America, cannot get loans anyplace else but from the taxpayers and the workers of America, many of whom have lost their jobs from General Electric? Are you going to tell me that with a straight face that GE is a struggling small business, a minority business in the barrio of New York, and they just cannot find financing, look as hard as they can. Poor GE. You are going to tell me that and the American people with a straight face?
Page 27 PREV PAGE TOP OF DOC Last question that I would have for you, okay. This is such an absurd argument that only in Washington, D.C. would anyone regard this as a vaguely rational argument. I would hope and appreciate your giving me a list of the top 10 recipients of Export-Import funding and tell me how many hundreds of thousands of jobs those companies have lost, laid off; how many hundreds of thousands of American workers they have laid off.
[The following information can be found on page 180 in the appendix.]
Mr. Chairman, I want you to respond. Mr. Chairman, I think it is time to end this joke of the Export-Import Bank. What we need is serious help for small-and medium-size businesses in this country who want to grow decent-paying jobs in America, who are proud of American workers, not companies like GE who are announcing to the world that they are going to China; they are going all over the world; and they are going to lay off American workers.
Mr. Merrill, tell me why the American taxpayer should be supporting a company like GE who has laid off hundreds of thousands of workers and whose CEO announces to the world he is going to China. Tell me why.
Chairman KING. The gentleman's time has expired. Mr. Merrill will have the opportunity to answer the question.
Mr. MERRILL. There is limited time. I can only say that I agree absolutely with Congresswoman Velazquez that the job creation in the United States for a very long time, quite a few years before I got here, has been mainly or almost completely small business. That is why we are so focused on small business. I could not agree more. Our object is to create as many small-and medium-size business jobs as we possibly can and support as many of the 240,000 exporters as we can. I want to put that on the record.
Second, I think the quickest answer is with a number. I will just leave the one number here. Thirty-five years ago, the U.S. exported $42 billion worth of things. For the last 3 or 4 or 5 years, we have exported $1.1 trillion worth of things, out of an $11 trillion economy. Roughly speaking, $1.1 trillion is about the same size as the entire economy of China. It is three times the total economy of Russia. It is a lot of exports. So the movement toward exports, any way you want to measure it, has substantially created American jobs with or without Ex-Im Bank support. I will just stop there.
Page 28 PREV PAGE TOP OF DOC Mr. SANDERS. You did not answer my question.
Mr. MERRILL. Say again?
Mr. SANDERS. You did not answer my question.
Chairman KING. The time of the gentleman has expired.
Mr. MANZULLO. Thank you.
Before I ask my question, perhaps I can answer it. In the district that I represent, we have a $256 million Boeing presence; $110 million Caterpillar presence; $95 million John Deere presence. Those companies support hundreds and hundreds of small machine shops and mom-and-pop shops throughout the entire district. Whenever one of those machines goes over, whenever an aircraft goes over, that represents thousands of jobs in my district that are all small businesses.
Mr. MERRILL. Thank you.
Mr. MANZULLO. I know that perhaps this will not help Mr. Sanders in his answer, but I do know this, that every time a Boeing aircraft is sold to China or any other place in the world, and China is buying more Boeings this year than America, that represents thousands and thousands of jobs. In the district that I represent, we are at 11 percent unemployment. It just dropped to 10.6 percent, and hopefully next month we will be in the single-digit unemployment. Were it not for the sale of aircraft and this giant machinery which is supported by Ex-Im, I can tell you our unemployment would be 20 or 30 percent.
So thank you for your leadership of the Ex-Im Bank. I especially want to thank you for the job that you are doing with regard to small businesses. I do not know of one small business that has been turned down by Ex-Im Bank because they are too little. Perhaps they did not fit into the parameters, but they are always given a fair shake. They get good service on it, and I think you are doing a great job just to be off .03 percent on your goal for the total dollar amount. I think that is exemplary what you are doing there.
Page 29 PREV PAGE TOP OF DOC Did you like that?
Mr. MERRILL. I thank you for the support.
Mr. MANZULLO. You bet.
Mr. MERRILL. I am honored and flattered. Thank you, thank you, thank you.
Mr. MANZULLO. You bet. Now, I have just a couple of very short questions of Phil. Last year, the Ex-Im Bank, normally they designate one person on the board that is the small business person. We heard that former Senator Cleland was going to be that person.
Mr. MERRILL. Yes.
Mr. MANZULLO. Is that correct?
Mr. MERRILL. That is correct. He wants to do it.
Mr. MANZULLO. Okay.
Mr. MERRILL. He served on the Small Business Committee.
Mr. MANZULLO. That is correct. So he is still the designated person on that?
Mr. MERRILL. Yes.
Mr. MANZULLO. Great.
The second question is, Ex-Im has been working with the business community to develop a new and approved dealer-distributor financing program over the past year that will benefit the small-and medium-size equipment manufacturers, sort of floor financing overseas. Given the strong support for the program, can you tell us when we can expect the dealer financing program to be available to our manufacturers?
Mr. MERRILL. Very shortly is the answer. The floor planning issue is one I understand. The issue at stake is being resolved. I cannot say definitively, but we think it will be resolved. The issue is whether the creditor, the floor planner, that is, the distributor in let's just say Ecuador that takes the Caterpillar tractor, or the ultimate customer to which they are sold are the buyers. And that is being worked out. That is the remaining issue.
Page 30 PREV PAGE TOP OF DOC Mr. MANZULLO. Okay. So it is working out the legals of it, but the desire to do it is all set there?
Mr. MERRILL. The desire to do it is there. We are going to get it.
Mr. MANZULLO. Thank you.
I yield back my time.
Mr. MERRILL. We are going to get it, with as much executive force as I can put behind it, which is not inconsiderable. We are going to try to get it done.
Mr. MANZULLO. Okay. I appreciate it.
Thank you. I yield back.
Chairman KING. Thank you, Mr. Manzullo.
Mr. WATT. Thank you, Mr. Chairman.
Thank you, Mr. Merrill, for being here. I have generally been a supporter of the Ex-Im Bank, but have a couple of questions that hopefully will help me understand a couple of things.
First of all, the name of the Bank is Export-Import Bank. I notice that you gave us all the figures on exports and no figures on imports. Is the name of the Bank inappropriate or do you all keep some records having to do with the extent of imports that the Bank supports? Or do you all support any imports?
Mr. MERRILL. It is a wonderful question. Obviously, you think clearly and logically. The answer is that to change the brand name of Ex-Im would be like taking the ''Cola'' off Coca-Cola.
Mr. WATT. I understand that. That is the public relations statement.
Page 31 PREV PAGE TOP OF DOC Mr. MERRILL. Yes, I understand.
Mr. WATT. Are you saying that the name of the Bank is misleading? You do not do any support of imports? Is that the bottom line?
Mr. MERRILL. No, we do not.
Mr. WATT. Okay. That is fine.
Mr. MERRILL. I will tell you separately later why.
Mr. WATT. Okay. It was not a trick question.
Mr. MERRILL. No imports; all exports.
Mr. WATT. All exports.
The second question was, you indicated, and I tried to find it in your prepared testimony, but could not find the exact wording of what you said in your oral testimony, that Ex-Im Bank operates only where businesses will not or cannot go without assistance or something to that effect.
Mr. MERRILL. Can I straighten it out?
Mr. WATT. Yes, tell me what you said, first, and then I want to ask a question.
Mr. MERRILL. I am very careful not to interrupt a Congressman when he is talking.
What I said was that we only go, we only finance where private capital will not go alone.
Mr. WATT. Okay. I thought that is what you were saying. In this context, I think Mr. Sanders's question about loans to GE and other major, particularly companies that provide financing themselves, either puts you in a situation where the statement that you just made is not true, or the Export-Import Bank is an influence in markets that if you think theoretically would not be an appropriate influence in a free trade context. You are shoring up things that if the market would take care of itself, which most free traders think it should, would resolve itself. Am I missing something here?
Page 32 PREV PAGE TOP OF DOC Mr. MERRILL. No, you are not. You got it right. I would probably be in that camp.
Mr. WATT. Okay, well then
Mr. MERRILL. Wait a minute. I have to get one phrase out here. If there were not 28 other countries providing
Mr. WATT. Okay. That is actually the question I am driving to. Is this really the assistance that the Export-Import Bank is providing a subsidy? And if other countries are doing the same thing, why wouldn't it be a subsidy if they are doing it, and why wouldn't the WTO consider that inappropriate in this free trade international trade world that we are living in?
Mr. MERRILL. The WTO has carved out an exception for the OECD. We have a common arrangement. It is called the Arrangement with the other OECD countries under which we have agreed to common terms, that is long-term loans, 12 years roughly, medium-term and so forth, and common financing arrangements, within certain parameters.
Mr. WATT. But those are on strictly business terms, I would think, not subsidized market terms where ordinary business would not go. Isn't this a market subsidy?
Mr. MERRILL. We are not subsidizing anybody. The Bank, does not subsidize anybody. They pay a fee for us, for political insurance or for risk insurance. If you know somebody who wants to take Bechtel's position or the $160 million we put into the BTC pipeline in Azerbaijan
Mr. WATT. But isn't the whole philosophy of free trade to allow the market to take care of its own risk? Why should the government be playing that role?
Mr. MERRILL. Theoretically, Congressman, I agree with you. Practically, Boeing has to compete with Airbus; Caterpillar has to compete with
Page 33 PREV PAGE TOP OF DOC Mr. WATT. But if all countries withdrew from this, wouldn't that leave us where you say the market should be in a free market context?
Mr. MERRILL. Yes, it would.
Chairman KING. The time of the gentleman has expired.
Mr. MERRILL. Yes, it would. Can I get one crack at your final question?
Mr. WATT. He wants to give it one final context. I think I am laying a platform for where Mr. Paul is probably going to go anyway. I am sounding very libertarian at this point.
Mr. MERRILL. Just let me say, this is a stretch analogy, but you would not need any policemen if there were no criminals either. I mean, the fact that you have all these countries
Mr. WATT. It sounds like the Export-Import Bank is the criminal here, not the policemen.
Mr. MERRILL. That is why it is a stretch analogy.
Mr. WATT. Okay. All right.
Chairman KING. Now that Mr. Watt has laid the foundation and the platform, Mr. Paul?
Mr. PAUL. Thank you, Mr. Chairman.
Welcome, Mr. Merrill.
Mr. MERRILL. Thank you.
Mr. PAUL. You said the gentleman from North Carolina speaks clearly and logically.
Mr. MERRILL. Thanks.
Mr. PAUL. That is good and I will not contest that. But I want to see if I can get the same compliment, so I am going to try and follow-up. I notice in our memorandum from our staff here in the committee, it states tensions exist between the Bank's mission and the United States's commitment to free markets. I would say yes, there certainly are tensions. There is a contradiction. There is a real conflict. I think you indicated maybe that we should not use the word ''subsidies'' too generously, and yet the Bank would not come to the Congress for appropriations and authority if somebody did not get some specific benefits. So I think there is always a special benefit which is a subsidy, whether or not it is in cash. Maybe it is a competitive edge, and there is always a cost. There is involved here an allocation of credit, and the victim is never found, never seen. Especially in an area where there is tighter credit, there are victims that suffer. Although there may be a small businessman who gets the benefit, there is some other small businessman who is getting a disadvantage from the subsidy.
Page 34 PREV PAGE TOP OF DOC My question is, how can you rationalize support for this organization? Because we on our side, we are supposed to be the champions. They are not supposed to be the champions of the marketplace. We are. We are supposed to be the champions of the marketplace. We are not champions of subsidies. We declare freedom and free markets and less government, and yet we are pushing all this and we give all these programs.
So don't you think for your support of this organization, don't you have to do a lot of rationalization and reject some of the very principles that we stand for?
Mr. MERRILL. There are two answers to that question, congressman. Yes, that is a perfectly logical and clear set of principles with which it is hard to argue. I would not argue. I think that answer number one is practical. When a small businessman, I am sorry that Congressman Manzullo left, but when a small businessman in Moline, in a specific case, exported $20 million worth of trucks to Uzbekistan, no bank is going to finance that without a government guarantee. Do we want to make the sale or do we want to have a French or a German or an Italian company make the sale?
Theoretically, you are absolutely right. I agree with you. Practically, I want the guy in Moline to make the sale.
Mr. PAUL. So your argument is that freedom is impractical, which I disagree with.
Mr. MERRILL. I did not say that.
Mr. PAUL. Well, indirectly. But let me follow up with another one, and maybe I will get a little bit further on this next question. I am interested in the Trade Bank of Iraq. That has been set up. We waste no time in trying to get some benefits in there, maybe to our corporations. It has been set up at $500 million. Has that been used yet? And if it has been, has any corporation been participating in Iraq?
Mr. MERRILL. There has only been one use so far, but the Trade Bank of Iraq, which basically we initiated. Peter Saba, Chief Operating Officer, did the basic legwork, I would say. We put $500 million into it, or against it. We raised another $2 billion, $500 million from Japan, $250 million from Italy, and 15 other countries. So far, there has only been one, a consortium of 13 banks administered by J.P. Morgan which won the contract, not with us, but with the Coalition Provisional Authority.
Page 35 PREV PAGE TOP OF DOC There has only been one contract so far to the U.S.; that was $15 million. I hope you have a sense of humor for this, for a fogging machine out of the United States; a set of fogging machines; 200 of them. The problem is very simple in Iraq. First, either the taxpayers are going to put up the money or there is going to be foreign investment which is going to pump oil or invest there.
The three issues are sovereignty, security, which is obvious, and precedence over existing debt. Under the current circumstances, Iraq has $125 billion in existing debt and $30 billion in unpaid compensation awards plus additinal outstanding claims. So companies are understandably unwilling at the moment, or reluctant, to invest over the long term there. Nevertheless, we want to be prepared for when the government, the hand-off takes place and the debt is supposed to be written off by the Paris Club at the end of the year. Whenever a government comes into Iraq, we want to be prepared to make available lending.
One other thing I have to explain, and that is the Trade Bank applies not only for U.S. exporters, but for exporters from other countries as well, any country. It is multilateral. It is not U.S.-only.
Chairman KING. The time of the gentleman has expired. In the interest of fairness, if you want to keep up with your partner, Mr. Watt, you can take one more question.
Mr. PAUL. No, I am not going to.
Chairman KING. Okay. Thank you.
Mr. MERRILL. I thank you both.
Chairman KING. This is new access, Mr. Paul, a broad access here in the committee.
Mr. Merrill, I want to thank you for your testimony this morning. It has really been helpful to us. I would note that some members may have additional questions for you. They can submit them in writing and the record will remain open for 30 days.
Page 36 PREV PAGE TOP OF DOC With that, I thank you for your testimony and the subcommittee stands adjourned.
[Whereupon, at 11:09 a.m., the subcommittee was adjourned.]