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House of Representatives,
Subcommittee on Domestic and International Monetary Policy,
Committee on Banking and Financial Services,
Washington, DC.
  The subcommittee met, pursuant to notice, at 1:03 p.m., in room 2128, Rayburn House Office Building, Hon. Michael N. Castle, [chairman of the subcommittee], presiding.
  Present: Chairman Castle, Representatives Lucas, Metcalf, Fox, Paul, Manzullo, Roukema, Bereuter, Weldon, Flake, Kennedy, Maloney, and Bentsen.
  Chairman CASTLE. The hearing will come to order.
  I would like to welcome my witnesses before this maiden hearing of our newly reconstituted and expanded—you would not know it from looking at the crowd here, Mr. Flake, but we have expanded—Subcommittee on Domestic and International Monetary Policy. As Members may be aware, we have added five distinguished new Members to the Majority side of the subcommittee, for a net increase of two. On the Majority side we are adding Marge Roukema, the distinguished Chairwoman of the Financial Institutions Subcommittee; Doug Bereuter, a former Ranking Member on this subcommittee and the Chairman of the Subcommittee on Asia and the Pacific; Merrill Cook, of the Second District of Utah, who also serves, I understand, on six other subcommittees. You are not going to see him a heck of a lot here, I guess. Don Manzullo, of the 16th District of Illinois; and Mark Foley, of the 16th District of Florida.

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  At present we have two vacancies on the Minority side, and we look forward to meeting those new Members as well.

  We are here this afternoon to consider the case for a 4–year reauthorization of the charter for the Export-Import Bank of the United States, or Eximbank, as we all know it. Eximbank is an independent Federal agency established to provide export financing to United States businesses. Its purpose is twofold: to neutralize predatory financing techniques by foreign export credit agencies, and to furnish prudent export credit financing when the availability or terms of private financing are insufficient.

  In previous years, reauthorization of the Bank's charter would not have been a controversial issue. The rationale for Eximbank appeared self-evident. But as we all understand, times have changed. At the policy level, some at both ends of the philosophical spectrum have criticized Eximbank as being a costly form of ''corporate welfare.'' With respect to Bank management, a variety of issues over the last several years caused Congress to ultimately lose confidence in the previous president and chairman of the institution. Likewise, media and Congressional scrutiny of allegedly irregular or illegal fundraising activities has included the activities of a current director of the Bank. This combination of factors makes the job of this subcommittee more difficult, and highlights the importance of considering again the basic rationale and mission for the Bank.

  I suspect that most Americans would strongly prefer an international trading environment in which purchase decisions are made solely on the basis of market factors like price, quality, and service, and not the availability of lower-cost official financing. But that world does not yet exist. Japan and France, for example, devote 6.4 percent and 4.3 percent of their gross domestic product, respectively, to export assistance, compared with 0.22 percent for the United States. As a percentage of exports, Export Credit Agency financing accounts for 32 percent of Japan's, and 18 percent of France's exports, compared with 2 percent for the United States. While Congress has mandated that Eximbank complement the market and not compete with the private sector, other well-supported official ECAs have historically demonstrated less commitment to free markets or fair trade.
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  I would like to reduce and eliminate export credit subsidies, but it is apparent that at the moment the United States needs Eximbank to bring more market discipline to international trade finance. Without Eximbank, the United States would have no leverage in international negotiations to further reduce or eliminate official trade finance. International trade would become more distorted, and U.S. workers would suffer as a result.

  Since its founding, Eximbank has supported more than $300 billion of U.S. exports, $98 billion in this decade alone. Most of the exports financed by Eximbank are capital equipment going to fast-growing developing countries in Asia, Latin America, Eastern Europe, and the former Soviet Union. It is impressive to note that in recent years overall economic growth in the developing world has averaged more than 5 percent annually, about twice the rate of the advanced industrial economies. In fact, the Department of Commerce projects that U.S. exports to the developing world could quadruple between now and the year 2010. In this context, failure to reauthorize Eximbank would leave U.S. exporters defenseless against the aggressive official export financing practiced by our trade competitors.

  We will hear extensive testimony this afternoon about the variety of loan, guarantee, and insurance programs offered by Eximbank. As a former Governor, one I would like to highlight is the City/State Program, and particularly its efforts to target small- and medium-sized businesses that are seeking to learn how to export. However, I would like to hear more about its efforts to make the processing of applications less cumbersome; its efforts in multilateral negotiations aimed at reducing the submarket pricing of risk protection provided by our competitors; and its level of outreach to exporters and in educating lenders on the importance of assisting the small businessman or woman.
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  If Congress allows Exim's charter to expire, what would be the effect on the U.S. economy? Is the Bank a drain on scarce budgetary resources and an impediment to free trade, or does it serve the national interest by generating Federal, State, and local tax revenues and neutralizing foreign ECAs and helping our companies enter new developing markets?

  Chairman CASTLE. I look forward to hearing from our distinguished witnesses on these and many other questions, and I turn to our distinguished Ranking Member, Mr. Flake, for his opening statement.

  Mr. FLAKE. Thank you very much, Mr. Chairman. Good afternoon, and we would like to welcome everyone who has come to share in these hearings. We consider this to be a very important moment for us as talk about it, deliberate on the reauthorization of the Export-Import Bank. The importance of today's hearing is reflected by the vast array of witnesses prepared to testify before us. I join with you in welcoming Dr. Rita M. Rodriguez, Acting Chairman and Member of the Board from Exim. I also extend my greetings to the other witnesses, and will make just a few points, as we have lengthy testimony here, and you and I have committee business on the floor, to give proper attribution to Mr. Sinatra.

  Let me say that we need the Export-Import Bank. We need the institution because the global market for U.S. products shrinks when foreign companies consume lucrative opportunities. Furthermore, this market contraction is most often due to the fact that these companies have the complete support of their export credit agencies. While these companies have the explicit support from their governments, our companies face financing reluctance from private capital markets, and tend to find it extremely difficult to finance their exports and thus maintain a viable employment base of economically empowered U.S. citizens. Their lender of last resort has thus become the Export-Import Bank.
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  Exim also is the financier of companies willing to export to risky markets. As we all know, taking risks is in the great American tradition of creating opportunities through entrepreneurship. Export-oriented entrepreneurs are the entrepreneurs which Government should assist, and supporting new opportunities in emerging markets will continue job growth where we need it most, here in our own labor markets. As many should come to realize, Exim operates under the adage ''Jobs Through Exports.''

  My last remarks will focus attention on Africa. We have a tremendous opportunity to foster trade with the last untapped market in the world. The export markets in Europe, Latin America, and Asian Tigers are saturated. New opportunities will come far and few between in the years to come. Africa, on the other hand, is still ripe for business. Countries like South Africa, Zimbabwe, Botswana, and Namibia are growing economies with sophisticated indigenous business cultures, and represent viable markets for U.S. exports. French, English, German, and Malaysian businesses are moving aggressively into these markets, and they are doing so with tremendous support for foreign export credit agencies. U.S. businesses need the same type of support, and that support comes from Exim.

  Toward that end I am pleased to note that Exim has recently sent a delegation to sub-Saharan Africa to explore the opportunities for U.S. exports. I am equally delighted to see efforts by the Administration and colleagues of ours like Mr. Rangel and Mr. Crane to promote trade between the U.S. and Africa. I would encourage Exim to work within these discussions and signal my intent to encourage and craft a working system within Exim to exploit the many new opportunities in sub-Saharan Africa.

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  I close by noting that there are detractors of the agency, and we certainly are cognizant of corporate welfare arguments. This line of reasoning, however, ignores the fact that 81 percent of Exim's financing deals go to small businesses. It also ignores the reality that for the 29 percent of deals that Exim does with large enterprises, it inherently still maintains the operations of small business subcontractors and suppliers. These institutions operate throughout the Nation, and employ thousands of our constituents. Thus, if you examine the institution's impact on American employment, you could not come to the conclusion that Exim is the exclusive concessional window of credit to corporate America. Rather, it is the lender of last resort, and is successful in financing billions of dollars in U.S. exports for a rather small budget. In short, we need Exim, and I intend to give my full support to its reauthorization.

  Thank you, Mr. Chairman, and I look forward to the testimony from those who are our witnesses here today.

  Chairman CASTLE. Thank you, Mr. Flake. In these proceedings we try to limit the opening statements that are spoken orally to the Chairman and the Ranking Member in order to proceed quickly to our witnesses, but we are honored to have on this subcommittee Mr. Doug Bereuter, who has been the Ranking Member of this subcommittee before and probably has as much interest in these issues as anybody. By the way, Mr. Manzullo was not here when I welcomed him as well. Another Member who has shown a great deal of interest in these issues. We welcome you both.

  Mr. Bereuter did want to make a comment.

  Mr. BEREUTER. Thank you very much, Mr. Chairman. It is nice to be back after some interim.
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  I wanted to just read a very brief paragraph from a White Paper on the Export-Import Bank and the OPIC on behalf of the Global Electric Power business. This is a statement of testimony from Tanasca Inc., which is an energy development company headquartered in Omaha, Nebraska, and it says as follows: ''Exim's support was integral to the project and provided a substantial portion of the financing, thus ensuring that U.S. goods and services would be utilized. Without Exim, over $200 million in goods and services would have been purchased from other countries. Initially Siemens A.G., a turbine manufacturer headquartered in Germany, provided a competitive package of equipment including financing with Hermes. So, in this one instance it was extraordinarily important.'' They go on to list others. So I offer that as a way of starting our discussion about Eximbank and its importance.

  Thank you, Mr. Chairman.

  Chairman CASTLE. Thank you very much, Mr. Bereuter, and we welcome you and of course all of our returning Members.

  We will now turn to our witnesses, and we have two panels. The first panel consists of Dr. Rita Rodriguez, who is the Acting Chairman and President of the Export-Import Bank of the United States, and Ms. Meg Lundsager, who is the Deputy Assistant Secretary of Trade and Investment Policy of the Treasury Department.

  We will start with Dr. Rodriguez and go to Ms. Lundsager. We welcome you both. I have to run off here for about a minute or two, and let me apologize, because Mr. Flake and I at some point, probably—not while you are testifying, but while the second panel is here—are going to have to go to the floor to manage a Congressional Gold Medal for Frank Sinatra. That is one of our responsibilities, so we may have to excuse ourselves. So we may have a little bit of coming and going here, but we are vitally interested in this topic, maybe on both sides of it, some in favor, some in opposition. I think the testimony of all of you who are here today is extremely important.
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  With that, let us turn to our witnesses.

  Dr. Rodriguez.


  Dr. RODRIGUEZ. Thank you very much, Mr. Chairman. I first would like to thank you for the opportunity to testify in front of this subcommittee today.

  Just for the record, I am Dr. Rita M. Rodriguez, the Acting President and Chairman of the Export-Import Bank of the United States, the official export credit agency of the U.S. Government. We are an independent Government agency, wholly focused on preserving and expanding jobs here in the United States by supporting U.S. exports which otherwise would not happen in the United States. Exports and jobs which in the absence of Eximbank will go to other countries, to our competitors with the support of their respective governments.

  I am proud to appear here today to ask for a simple extension of authority for Eximbank to continue doing for 4 years what we are doing now. Namely, we are asking for a renewal of our charter, a renewal of our authority to approve ''tied aid'', and a renewal of our authority to approve transactions involving dual use.

  The theme of this hearing is competitiveness. Nothing could be more descriptive of the mandate that Congress has given us. It says it very clearly in our charter, ''...Thou shall be fully competitive.'' That is what Eximbank is about.
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  In a perfect world, where other export credit agencies did not exist, where other governments did not intervene to support their exporters with special financial packages, Eximbank would not be needed. We are needed only because other countries do.

  These other countries in reality are supporting their exporters to go after markets which by and large are growing at much faster rates. Emerging markets are growing at the rates of over—in the two digits, a 10–percent and more growth rates which the developed world is not experiencing anymore with imports growing at comparable rates or higher.

  These are export sectors also which research has shown come from sectors in the economy where wages tend to be higher than in the remaining part of the economy. Eximbank's role, in one sense, is to level the playing field against other governments' support for their exporters.

  Since we were last rechartered in 1992 to today, 5 years, we have supported $75 billion of exports and we have done that with only $3.7 billions of budget money. That is, for each dollar of budget Congress has given us, we have been able to support 20 times that much in exports. That has meant direct support for high paying jobs and indirect support for many more, up to a million on an annual basis.

  What exports do we support? In fact, we support all sectors in the economy. We support exports from all our communities. We do it on a first-come, first-served basis. We do no targeting; we do not pick winners or losers.

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  What standards do we use? Very simple. The standard of creditworthiness of the borrower. We expect to get paid back and we do get paid back.

  In what countries do we operate? We are demand-driven, subject to some Congressionally-mandated restrictions. But we are not an instrument of foreign policy.

  Now, what jobs do we support? We support both large and small businesses. In fact, as Congressman Flake mentioned, one of our great successes has been in increasing our support for small business.

  Last year, 81 percent of the transactions approved by the Bank were in support of the small business. This represents an increase of 60 percent since last time that we asked for rechartering. That represented 21 percent of the budget which, in other words, means twice as much as Congress has mandated us to set aside for the support of small business.

  Now, this support has been spread over a very large number of companies. Back in 1992, the support for small business included 610 companies. Five years later, that support more than doubled to above 1,200 companies.

  This has been made possible with the size of a staff that has been coming down, but it has been made possible thanks to the Delegated Authority that we have given to commercial banks around the country, some 80 such banks. It has been possible also thanks to the partnership with cities and States that we have with 33 associate entities.

  I said that the role of Eximbank is to level the playing field for our supporters. However, it is our goal also to decrease the cost of such leveling. A very important role for Eximbank is to be at the negotiating table with our counterparts in other countries, to negotiate to reduce the cost of expropriated finance. Our goal is to have market forces be the guiding principle instead of just direct government principles.
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  Two great successes, interest rates. Back in 1982, when I came to the Bank for the first time, I remembered making loans at 6 and 7 percent interest rate when the prime rate in the United States was close to 20 percent, I think, in some months it went over that. Let me tell you, you cannot make up in volume what you are losing per transaction in that way.

  We were losing an average of $50– to $100–million for each billion supported in exports. For the period as a whole, our books showed losses on interest of about $3.5 billion thanks to that mismatch. But, on the other hand, through negotiation, through tough bargaining with support of Congress, today, beginning really in the early 1990's, the rules have been changed to a point now where all our loans are 1 percent above the cost of funds to Eximbank. In fact, from just a straight financing point of view, we make money on every loan that we make.

  The other great success story has been in the area of ''tied aid.'' ''Tied aid'' is a horrible practice of mixing concessionary credits with export credit. Instead of using developmental money for development, using development money for buying export sales, before 1992 those ''tied aid'' offers were running at the tune of $8– to $10–billion per annum.

  Again, through tough negotiations, again with support of Congress who gave us a War Chest to go and fight in the field fire with fire, in 1992 we succeeded in what has come to be called the Helsinki Agreement. That obtained us three major accomplishments.

  One, you can see it in the charts, the offers that were running $8–, $10–billions, now are $2–, $4–billions. But, more important, we succeeded in restricting that practice to the poorer countries and excluding the wealthier countries. We also succeeded in restricting it to projects which are not commercially viable, purely developmental projects and keeping the practice out of projects that should be able to be financed in commercial terms.
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  The next part of the agenda of negotiation is premium. That is, the fee that we charge for the risk that we are taking in different countries. These have been extremely difficult negotiations. I can tell you personally, because I have been involved in them with my colleagues at Treasury, and recently have been particularly more difficult because, frankly, we are perceived as an institution under attack in our own country.

  Between our discussions about the budget, the discussions about the existence of Eximbank, it has become easy for our counterparts to believe that Eximbank may go ahead and increase premiums unilaterally. That is what Eximbank is about. Not reauthorizing Eximbank is equivalent to unilateral disarmament.

  Mr. Chairman, we may not like the fact that we have to go out and fight against practices of foreign governments in order to keep our exporters competitive. We want to change the system and we are working to do that. But let me show you one more chart which shows the surgical way in which Eximbank goes about this.

  Though many of our counterparts do support their exports up to 40 percent of their total export, at Eximbank, we carefully choose those transactions by policy where we really make a difference. We support only 3 percent of the U.S. exports.

  Our supporters are fighting to increase productivity and in many cases have sacrificed to do so. If U.S. exporters are already doing so much, can the U.S. Government desert the field and leave them to fight foreign governments alone? I don't think so.

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  I will be happy to answer questions. Thank you.

  Mr. BARR [presiding]. Thank you very much, Dr. Rodriguez. And, of course, all of your remarks will be contained in the record.

  Now we would like to hear from Ms. Meg Lundsager, Deputy Assistant Secretary for Trade and Investment Policy at the U.S. Treasury Department.


  Ms. LUNDSAGER. Thank you, Mr. Chairman.

  Mr. Chairman and Members of the subcommittee, I welcome this opportunity to discuss the reauthorization of the Export-Import Bank of the United States. Eximbank is a key element in our policy to keep U.S. exporters competitive in international markets and to combat foreign financing subsidies.

  The engine of U.S. economic growth has shifted over the last 30 years from almost sole reliance on the domestic market to an ever-increasing reliance on international markets as economic globalization and interdependence continue to deepen. To take full advantage of these export opportunities, the U.S. has moved aggressively to open foreign markets.

  We have completed the Uruguay Round, NAFTA, Information Technology Agreement, Telecommunications Agreement. These are all part of a concerted effort to break down trade barriers around the world. This effort allows U.S. exporters to compete fairly and effectively in international markets.
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  Since foreign export subsidies have the same negative impact on U.S. exports as do tariffs, the U.S. has also pushed hard to remove export subsidies in both the World Trade Organization and the Organization for Economic Cooperation and Development.

  Treasury works very closely with Eximbank to ensure that, one: U.S. exporters remain internationally competitive. Two: that U.S. policies and financing programs are coordinated to reduce foreign export financing subsidies. And, three: that Eximbank's programs and policies are consistent with the U.S. Government's broad international economic and financial policies.

  Treasury chairs the National Advisory Council that reviews individual Eximbank transactions and leads the U.S. delegation to OECD export credit participants negotiations. These negotiations set international rules for Eximbank and other industrialized country official export credit agencies. Treasury works closely with Eximbank on ''tied aid'' issues, including advising it on use of its ''tied aid'' capital projects fund.

  Eximbank is an indispensable tool to neutralize competitive advantages arising from official export financing offered by our industrialized competitors; to overcome market failure in the provision of export financing by private capital markets; and to generally reduce through multilateral negotiations others' ability to use export financing subsidies as a tool to undermine U.S. comparative advantages in international export competition.

  Let me discuss each of these in turn.

  In meeting foreign competition, we have noted all our major developed country competitors have Eximbank-type institutions. Eximbank neutralizes foreign official financing offers and protects the competitive position of U.S. exporters. It is critically important that Eximbank financing programs are available to level the playing field for U.S. exporters. This permits export competition based on price, quality and service, not financing, to determine export contract awards.
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  In most developing countries, the availability of medium- and long-term financing is far more important than small price advantages in determining contract awards. Anecdotal evidence suggests that in the absence of Eximbank, even our closest developing country trading partners, such as Mexico, would readily shift sources of supply to other exporters with access to foreign official financing, all other things being equal.

  Second, market failure. It is a long-established U.S. Government policy that private capital continue to play the leading role in U.S. export finance. However, market failure arises in private sector export financing because capital markets have traditionally demonstrated significant risk aversion toward providing adequate levels of and terms for financing U.S. exports in many developing countries. Private financing is often also constrained by the more general desire to limit risk in bank portfolios. Without action to correct this failure, U.S. exports would be constrained and jobs lost. Eximbank fills these financing gaps for economically sound projects.

  Third, reducing subsidies and official export financing. Eximbank programs provide a lever for the U.S. to negotiate international reductions in official export financing subsidies provided by foreign governments. Treasury leads U.S. Government work within the OECD arrangements on guidelines for officially supported export credits—we call it the ''Arrangement''—both to set standard terms for official export credits to avoid an international export credit race and to promote the use of market principles rather than subsidies in setting these financing terms.

  The ''Arrangement'' is made up of representatives from OECD official export credit agencies and their guardian authorities, usually finance ministries and treasuries. The existence of Eximbank as an official export credit agency provides the U.S. access to this group and we use it to negotiate reductions in the use of subsidies in the provision of official export financing.
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  Let me provide some examples.

  First, the U.S. has been successful in implementing an OECD-wide system to ensure that interest rates offered by export credit agencies are market-based and above the cost of funds to governments.

  These interest rates are adjusted monthly to keep up with market interest rate developments. The reduction of interest rate subsidies in international export financing is one of our major accomplishments and has improved the cost effectiveness of Eximbank's programs.

  Second, the U.S. has also successfully used the Arrangement to negotiate international rules for the use of ''tied aid''. ''Tied aid'' is concessional financing that is tied, or linked to, procurement from the donor country. Prior to the adoption of OECD ''tied aid'' rules in 1992, competitor export credit agencies, often in cooperation with their official aid agencies, mixed ''tied aid'' with official export credits to promote their capital goods exports to the disadvantage of U.S. exporters.

  In concert with Congressional appropriations for the ''tied aid'' War Chest, the U.S. negotiated and continues to implement aggressive OECD rules limiting ''tied aid'' use. These rules prohibit ''tied aid'' for projects that are commercially viable and therefore able to repay export financing on commercial terms.

  These rules have reduced foreign ''tied aid'' subsidy offers in the highly competitive sectors of manufacturing, power generation, telecommunications, and transportation from about $8 billion annually prior to 1992 to around only $2 billion annually over 1993 to 1995.
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  Recently received data for 1996 confirmed that these gains have been preserved. According to Treasury Department estimates, U.S. exports to these sectors can be expected to increase by approximately $1 billion annually solely due to the success of the OECD ''tied aid'' negotiations.

  If, rather than negotiating OECD rules, the U.S. Government had to match ''tied aid'' subsidies to defend U.S. exporters, the budget costs would be some $300–$350 million annually.

  Third example, the U.S. is currently negotiating in the OECD to increase risk premia fees to further reduce Eximbank's need for appropriations while maintaining its ability to provide competitive financing to U.S. exporters.

  What are the costs of not rechartering Eximbank? Without Eximbank U.S. exporters would not be able to compete with financing offers available from other ECAs. In addition, the U.S. would stand to lose about $15 billion worth of existing exports. Lost exports now would reduce future levels of commercially financed U.S. exports as foreign demand for spare parts declined.

  Such losses would allow foreign technology and products to set capital goods standards in developing countries with the result that U.S. products would face further competitive disadvantages in the future.

  Finally, the U.S. would lose a highly effective tool to reduce further subsidies and official export financing and to preserve the substantial reductions in these subsidies achieved to date.
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  Without U.S. leadership on these issues in the OECD there is likely to be an erosion of subsidy-reducing disciplines that will further disadvantage U.S. exporters over time.

  In conclusion, I can say the Administration strongly supports the reauthorization of Eximbank. It is an indispensable weapon to ensure that U.S. exporters can continue to compete internationally and to maintain disciplines in other official export finance programs.

  This concludes my remarks. Thank you very much for this opportunity, and I will be happy to take your questions.

  Chairman CASTLE [presiding]. Thank you. We appreciate the remarks of both of you and we will now have questions from the Members, alternating sides, taking 5 minutes each for questions and answers so efficiency is urged where at all possible.

  I will start.

  As you know and I stated in my opening statement, Members often hear criticism of the Eximbank, and I want to specifically list four points that I have noted here.

  I would like to get the response of each of you in turn to these four points:

  Eximbank lending is an example of corporate welfare, is one thing that we hear;

  Eximbank favors large corporations, is another;
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  Eximbank distorts free trade and capital markets, is yet another; and

  Eximbank has had large losses on loans and large contingent liabilities.

  Those are the four points I hear a lot just talking to Members and some who are opposed to it. You may want to divide those up. I don't know how you want to handle it, but I would like to get some responses to those questions, if we could, and you can choose who starts.

  Dr. RODRIGUEZ. Thank you very much, Mr. Chairman. I think I will try to address the four issues because we also hear them a lot. We believe that they are not right.

  Eximbank, as I said earlier, is about competing with other export credit agencies. We are in the business of supporting corporations large and small. As I showed in the chart, 81 percent of our transactions are going to small business and that is over 20 percent of our budget that is going to small business and I could cite a large number of cases where that is the case.

  We are certainly not in the business of distorting trade. We are very careful about not competing with the private sector. We price our transactions. We follow policies to make sure that there is no private sector competition that could finance a transaction. We are very careful that there is high additionality in our transactions, meaning that there is competition from other export credit agencies and terms and conditions that private sector could not do it.

  As to the large losses, I think if one looks at the record of Eximbank and one measures corporate welfare as even something without any return, Eximbank has given enormous return in the form of exports and jobs. Three hundred and fifteen billion dollars of it actually through the history of the Bank, $75 billion in the last 5 years, but more importantly, it has done that with a fantastic financial record.
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  Through the whole history of the Bank if you add up cash losses, money, loans that had to be written off, that is just a little bit more than $2.5 billion.

  You say, ''Well, that is not quite fair, you are not taking into account the portfolio you have now.'' Well, we are fully reserve. We don't have any unfunded liabilities. We have nearly $7 billion in reserve. If you add the $7 billion approximately in reserve plus add the $2.5 billion or so in cash losses, and you compute that as a percentage of $315 billion that we have supported, you have losses of less than 3 percent.

  I would like to find a private institution with such a record. We are very proud of the analysis that we conduct and the credit-worthiness standards that we maintain.

  Eximbank is not corporate welfare. It is about creating jobs that otherwise would not happen because of foreign competition.

  Chairman CASTLE. Thank you. Let me add a little bit to that on the corporate welfare aspects and the distorting free trade and financing.

  First of all, I agree strongly that it is not corporate welfare. Eximbank is, if we look at corporate welfare as supporting corporations for production or exports that they would do on their own without Eximbank, I think clearly that is not the case here.

  What we have is that without Eximbank we would not be able to make those sales. One: either the market, private sector, would not do it because of the high risk in a number of these markets and these products would not be sold because the financing would not be available; or Two: our competitors would finance the products of their producers, their exporters and therefore we would not get the business, so I don't think it is production that would occur without Eximbank in terms of those particular exports.
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  In terms of distorting free trade in financing, the one reason we have spent so many years and worked so hard in the OECD to fight export credit financing subsidies is so that we do level the playing field in the financing area.

  What we are trying to do is make sure that financing moves to market-based principles and we have succeeded in a number of areas and, as Dr. Rodriguez noted, there is a little bit more we are working on in terms of premia, but by putting financing out of the question, we are allowing U.S. products to compete on the basis of price, quality, and service. These are the areas where U.S. products are good. They are wanted around the world and we want them to be chosen on the basis of their inherent criteria not on the basis of subsidies, export credit financing subsidies that are provided by our competitors, so that is the effort we have been making with Eximbank and I think that is why it is not corporate welfare, and if anything tries to restore an element of fair trade in the financing arena.

  I thank you both. My time is up, but I'd just close by saying that perhaps those questions which I have posed, which you have also heard yourselves I'm sure, numerous times, can be a little primer on what is going to have to be repeated many, many times in the course of the next few weeks as we go through this reauthorization process.

  With that, let me turn to Mr. Flake.

  Mr. FLAKE. Thank you very much, Mr. Chairman, and it seems to me our line of thinking goes the same way as it relates to questions, particularly those for which we have received concern on the part of Members of both sides of the aisle.
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  I think both have answered them adequately and have gone far beyond your question to the degree that they have I think focused in on three or four questions that I had that really have already been answered by them. Therefore, I will not ask any questions but just offer support wherever necessary and possible to make sure that we get Eximbank to the best possible position, and so that we can continue to derive the benefits for small businesses here as well as help to develop those countries abroad.

  With that, I will yield, Mr. Chairman.

  Chairman CASTLE. Thank you. Do either of you wish to comment at all? You don't have to, but if you wish to.

  Dr. RODRIGUEZ. I would like to say thank you.

  Chairman CASTLE. OK. Thank you, Mr. Flake.

  We are going to take Members in the order in which they arrived, and Mr. Manzullo is next on the list.

  Mr. MANZULLO. Thank you, Mr. Chairman. It is a real pleasure to be here this afternoon.

  I have got a couple of comments and perhaps you could respond to them.

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  I am a cosponsor of H.R. 1370, which will reauthorize Eximbank, but I still have concerns about the direction of the Bank.

  First, I have grave concerns about the precedent set by Eximbank when it evaded its obligations in the charter and its own environmental procedures to turn down a letter of interest to U.S. companies which had willing buyers in China for products associated with the Three Gorges Dam project.

  We have now seen the fruit of this decision where China will only consider bids for the hydroelectric turbine generators from Japan, Switzerland, Germany, and Canada. Eximbank's decision effectively eliminated a potential $125 million sale from Voith Hydro of York, Pennsylvania or the equivalent of 4 years of work for 600 employees.

  Now Eximbank is trying to raise this issue at the G–7 Summit to reverse the decision of our foreign competitors. I find that to be quite inconsistent and to lack direction.

  The second problem deals with Beloit Corporation. Beloit is in the Congressional District I represent. Beloit is one of three worldwide manufacturers of paper-making machines and we welcome the decision by Eximbank to help Beloit with the sale of paper-making machines to Asia Pulp and Pacific in Indonesia. The problem is the process took over 6 months.

  While Beloit anxiously awaited Eximbank's decision, its major competitors in Finland and Germany had already lined up financing from home government export credit agencies.

  The point is that Eximbank took so long that Beloit almost lost out. Had Beloit lost this deal it could have meant the loss of up to a couple thousand jobs in the State line Wisconsin-Illinois area. As I said, I am a cosponsor of H.R. 1370, but I am concerned over the lack of underwriting criteria which gave rise to the tremendous delay in Beloit.
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  I am also concerned about the complete lack of direction and inability to comprehend the easily readable charter with regard to environmental policies associated with the Three Gorges Dam.

  If either one of you wants to comment on that, I would appreciate it.

  Dr. RODRIGUEZ. I believe that is straight in Eximbank's court since they are case-specific.

  Two cases that you cite—perhaps I should begin by thanking you for support for the Bank and the support of the reauthorization bill.

  Three Gorges, that is easily one of the toughest decisions I have been confronted with at the Bank in my nearly 15 years of service at the Board.

  It was a case clearly—it was information that we had at the time, a clear conflict between two mandates that we have, one to be fully competitive—clearly there was competition, clearly we knew there will be more competition—but it is also a mandate to look at the impact of the exports we support on the environment, so we did.

  It was very clear that there is some very potentially devastating impact of these projects. We did not say that the project was not doable. We just said we want to know how the Chinese government is going to address these issues.

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  We asked for the information. We continue asking for the information. We are waiting for it.

  Mr. MANZULLO. I don't mean to interrupt your answer and I don't want to turn this into a debate on Three Gorges, but the Eximbank charter is very, very simple. It says when considering an environmental situation the first standard is but for Eximbank's participation the project would not take place.

  I know we discussed this at length with people from Eximbank and Eximbank plays a very small part in this project. Thus, as far as I am concerned, Dr. Rodriguez, Eximbank still has yet to be able to clearly read the charter because you can examine the environmental impact, you can examine all the standards, but there was a reading of that charter that simply did not make sense, and I don't accept your explanation today.

  I never have accepted it, because as you sit there now, if you go through the three criteria you can't get off the second one because if I asked you ''Would this project take place without Eximbank's participation?'', the answer to that is ''yes.''

  That being the case, Eximbank has to follow the mandate of its charter and simply didn't do that and I am very much concerned.

  You said that Eximbank is not used as a policy tool. Well, Eximbank was used as a policy tool in the Three Gorges Dam debate, and Eximbank became misguided. They went off the wrong track on that. As we reauthorize Eximbank, I want to make sure you folks read your charter because Congress was very, very clear about environmental standards. You can go to the other two criteria of it, on the environmental standards, but I don't know how clear Congress can be that you only have the latitude that Congress gives you.
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  You can't expand it. You can't diminish it. If Congress meant these to be baseline and gave you the authority to expand it, it would have been so in that charter. We are going to insist that you read the charter, that you memorize those standards, and that you be able to utilize them. To wait months and years on information that we supplied you, and then to sit back knowing full well that other countries would come in to take those contracts. Now we are here talking of $40 billion trade surplus China has with the United States. Eximbank blew the opportunity to help many American manufacturers and suppliers to be involved in the world's largest public works project. I would hope that somebody at Eximbank hopefully will say ''We made a mistake, we are no longer going to defend that policy,'' and then come back to this Congress, ask for reauthorization, and anticipate that Congress will hold you to the letter of the charter.

  Chairman CASTLE. Thank you, Mr. Manzullo. We appreciate it. Mrs. Maloney.

  Mrs. MALONEY. Thank you, Mr. Chairman. I am an original cosponsor of H.R. 1370. I know that exports are necessary for our continued economic growth and I know that the Eximbank's trade promotion programs are really critical to that effort.

  As many of us know, since 1990 one-third of the total growth in U.S. output has been in exports.

  I would like to ask how much export support do other countries provide to their businesses, and given that foreign support, how important is the U.S. Eximbank to our continued competitiveness in emerging markets? Either one of you?

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  Ms. LUNDSAGER. Well, thank you. I was just pulling out the chart that Dr. Rodriguez had referred to earlier, which shows the extent of financing by the other countries.

  We have Japan and France. Japan itself supports something like 36–38 percent of its exports through official finance. France, it appears to be around 18–20 percent. We are very low at around 2–, 3–percent. We are the lowest of the G–7 by far, so what we find is it's pretty stiff competition out there.

  Mrs. MALONEY. How important do you think your support is for our continued competitiveness? Do you think we would be as competitive without it?

  I mean can you comment on our competitiveness without the support of the Eximbank?

  Ms. LUNDSAGER. I think that our competitiveness would be undermined if we didn't have Eximbank and I say this because our competition would be out there, ready to jump in and take the contracts that we would not be getting.

  The reason they would be doing this is a lot of these other countries have very high unemployment. They could use these different programs to try to reduce their unemployment, to try to use export-generated growth.

  I think we have succeeded in the U.S. in achieving export-generated growth by having a competitive economy, a lean economy so to speak that has managed to stand on its own two feet and become very competitive, but I think that having Eximbank protects us against the unfair competition of our trading partners, and without it we would lose some of our most competitive jobs. I would say our leading edge jobs in these very high tech sectors that do lay the groundwork for future contracts, for future sales of spare parts, and for setting the international standards in these high tech products, so that is why we want the U.S. out there.
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  Furthermore, in some of the emerging markets that we are exporting to, Eximbank supported exports are maybe 20– to 40–percent of the high tech exports of the U.S. economy to those markets. So a substantial amount of our sales to certain particular markets, some of these very fast-growing, emerging markets are supported by Eximbank.

  Mrs. MALONEY. Thank you.

  Mr. Chairman, I have a conflict with another subcommittee meeting and I would like to yield the remainder of my time to Mr. Bentsen and I will be back.

  Chairman CASTLE. Certainly, without objection.

  Mr. Bentsen, or do you want to wait for your turn? Either way sir.

  Mr. BENTSEN. Whatever you want, sir.

  Chairman CASTLE. Well, why don't you wait? Then you will have the full time, probably get a little more.

  We will get to you very quickly.

  Anyhow, we will give you a little bit of extra time if you need it.

  We will go to Mr. Bereuter next.
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  Mr. BEREUTER. Thank you, Mr. Chairman.

  I follow with some interest Mr. Manzullo's line of questioning and I do think that the Export-Import Bank has been misused recently by the Administration as a foreign policy tool and you are going to need Republican votes to reauthorize this legislation. So while I am an original cosponsor of your reauthorization legislation and strongly supportive of it, I think we need to have a change.

  I understand you had intense pressure brought on you by staff at the Vice President's office, but it shouldn't be used for environmental politics.

  Lately when you cut off all use of the Export-Import Bank because of alleged sales of ring magnets to Pakistan, all sales to the PRC, I know that in the case of a Guangzhou subway contract, American contractors were excluded from the competition because the United States, by the use of the Export-Import Bank under the Chafee Amendment, I think a misuse of the Chafee language, Americans were deemed to be unreliable. So we have lost some work in Guangzhou and our reputation has suffered.

  So I would say to my colleagues that since the Administration is taking a questionable view of the Chafee language, I suggest that we either amend it or eliminate the Chafee language as a part of the authorization.

  Now, if I could ask either of the two witnesses here, particularly I think Dr. Rodriguez, however, in an effort to try to expand the use of the Export-Import Bank for small business transactions, I wonder if you could respond to the idea of the Export-Import Bank allowing small U.S. financial institutions to extend a foreign line of credit under the so-called Delegated Authority Program, if the U.S. Bank would then assume a percentage of the risk?
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  Dr. RODRIGUEZ. Thank you.

  Certainly, that is a program in which we are working to develop. We will be about to roll out the first phase of it in a few days, sort of accelerating the whole process. But the intent is to have Delegated Authority to commercial banks as long as there is some risk-sharing involved in the proposition.

  Mr. BEREUTER. I am not asking you to do this but I am asking you to consider doing it and if you think it is an appropriate idea for this kind of risk-sharing arrangement? I think it would be advantageous if you could move that proposal along so there will be one more assurance that small business is involved in the Export-Import Bank's programs as well as the larger businesses.

  I just wanted to add a little bit of reason for support to the Export-Import Bank reauthorization in the time available that I have here. We have had some comments, including from the Budget Committee Chairman about the United States and our use of our resources from the Government in a greater extent than our competitors and I have tried to convince him to the contrary.

  But, as a share of GDP, Japan provides 30 times more funding and export assistance than the U.S.; France provides 20 times; Germany provides 7 times more; and, the United Kingdom about twice as much. So that today as a percentage of exports, Japan provides government support for 32 percent of all exports; France, 18 percent; Spain, 10 percent; Canada, 7 percent; Germany, 5 percent; Italy, 4 percent; the United Kingdom, 3 percent; and, the United States, 2 percent. So I think that kind of statistic suggests that the United States, if we would stop using this kind of subsidy to our exports, is not going to cause the other countries to abandon their ''tied aid'' or mixed credit arrangements, despite our best efforts in the OECD.
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  Thank you, Mr. Chairman.

  Chairman CASTLE. Thank you very much, Mr. Bereuter.

  Mr. Bentsen.

  Mr. BENTSEN. Thank you, Mr. Chairman. I have a few questions.

  One, Dr. Rodriguez, in your testimony, you stated that Eximbank ranks dead last at 3 percent in terms of percentage of exports from our country that are subsidized. That is the percentage of gross exports.

  How would that relate on the volume of exports, I guess, proportionately? The United States has a higher export level or higher volume than other countries. Do you know what percentage that would be?

  I guess I am trying to figure out how to look at it in terms of our exports compared to the total exports of Japan, for instance.

  Dr. RODRIGUEZ. I can tell you that in terms of the percentage of the economy, exports in the United States tend to be a smaller, though growing, much higher than it used to be, percentage of the total economy than they are, for example, in Japan or individual European countries. However, the thing to focus on when you compare the percentage of exports supported by Eximbank with the other agencies, really, is the different policies that we pursue. We are very careful to concentrate only on those transactions that really need export credit support.
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  This, in contrast, for example, in Japan where insurance policy and support will be sold to the total book of business of a trade association, for example.

  Mr. BENTSEN. So you are saying that the 32 percent Japan includes maybe half as many that the private market could ensure in lieu of the public sector?

  Dr. RODRIGUEZ. Correct.

  Mr. BENTSEN. Let me ask you, and this is just for my own information, a couple of questions about the structure of the program.

  One, you are required to set aside a loss reserve and you set it aside per loan based upon the credit risk of the loan. Two, you have I think in some information I read that you all have about a 2 percent loss on your total portfolio, 2 percent against capital or 2 percent against the total volume. And then also I would ask, how is the money accounted for once it is paid back? Does it go straight back into Treasury? Is it rolled over? Do you build up capital in the program as you go forward?

  Dr. RODRIGUEZ. Perhaps we should concentrate on current history rather than ancient one. Under credit reform——

  Mr. BENTSEN. Right.

  Dr. RODRIGUEZ.——There is the budget that Congress approves every year essentially is set aside against the risk of the transactions done in that particular year. What happens in the future will depend on whether our estimates as to the potential loan do materialize or not. And the funds do come back to the what we call ''cohort'' for that particular year until the whole thing gets worked out.
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  The loans either totally get repaid or, if there is a default, go through the whole recovery process. It does not go back into capital under credit reform.

  Mr. BENTSEN. It goes back to the general fund and then it is reauthorized? OK.

  On your 2 percent loss, or whatever it is, on your approximately 2 percent loss, that is the net loss after full recovery and the cost and recovery?

  Dr. RODRIGUEZ. That is on a cash basis, does not include the total recovery. A number of those defaults are still in process of recovery.

  Mr. BENTSEN. With respect to both testimony talked about discussions with OECD and trying to engage our trading partners, if you will, in under-pricing export subsidies, has there been any real success in that or is it just a discussion that is ongoing and is this at all subject to WTO or could the United States take action against our trading partners for undercutting their price?

  Dr. RODRIGUEZ. I would say this is, the OECD arrangement, is one of the great successes of the postwar period in negotiating history. If one looks at the accomplishment just in the matter of 15 years, what we have done at the OECD is quite substantial. The interesting thing is that it is not an international treaty; it is just a consensus, it is a gentle people agreement, which is perhaps why it has moved faster than an international agreement that required parliamentary approval in several governments.

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  It has been successful and we are hopeful that we will continue to move in that direction.

  Mr. BENTSEN. But have you had any—I know my time is up—but have you had any success? For instance, do you pursue with Japan that they are providing a subsidy far beyond what we would consider necessary where the public market or the nonpublic market, the private market, rather, could provide insurance, could provide export finance, presumably at a higher cost, less subsidized cost?

  Have we pursued that with the Japanese? Have we pursued that with the French, to try and push them out of those markets and let their private markets come in and fill that void? Because that is in effect a subsidy that we are competing against.

  Dr. RODRIGUEZ. You are correct. In fact, the core of the current negotiations on premiums, the objective is that in the long term, the revenue will recover costs. The problem is, how do you define it and how do you measure what the market is?

  That separation of breaking this kind of subsidy actually was broken aside from the WTO, negotiated within the OECD. The idea being that it was more productive to have the negotiations among countries that have export credit agencies rather than among all the countries that belong to the then-GATT, now WTO.

  Mr. BENTSEN. Mr. Chairman, I have another question but I will wait. If there is time, then I will——

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  Chairman CASTLE. OK, if we have time at the end, we will try to come back to you if you are still here, Mr. Bentsen.

  Mr. Barr.

  Mr. BARR. Thank you, Mr. Chairman.

  Dr. Rodriguez, on page 26 of your written testimony, you state right up at the top there, this is the section on aircraft, and I will tell you right off the bat I have a concern with the whole notion here of providing so much support for large aircraft manufacturers in which we lead the world anyway.

  You state ''The answer is that commercial banks will not offer 12–year terms for the countries with which Eximbank conducts transactions.'' Is that a blanket statement that no commercial banks will offer those terms?

  Dr. RODRIGUEZ. The real reason Eximbank finances aircraft is called Airbus. Airbus and its four countries that support financing for those aircraft in terms and conditions usually below what the market will be able to offer.

  You're right, the number of airlines that we have financed are capable of raising funds in the capital markets. However, when confronted with an offer from Airbus on financial terms that are more attractive than what the market offers, it is difficult to explain to our manufacturers that you should tell the airline to go to the market, they can raise money in the market. Because when they do that, they are confronted with the answer, ''Yes, but why should I? Look what Airbus can do, why can't you do the same?''
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  That is the reason we are in many of those airlines. Now, there are other airlines that clearly do not have access to the market and export credit agencies will be the only way to get to the long term required for aircraft.

  Mr. BARR. Has Communist China purchased any Airbus or signed any contracts with Airbus?

  Dr. RODRIGUEZ. They have been looking into it. I don't know that any sales have been done recently but I think they have. I mean, that is one example where we thought that it was a total U.S. market or was for a number of years. And that is not the case anymore.

  Mr. BARR. Let me go back, I'm not sure, maybe I didn't make my question clear.

  You make a statement that commercial banks will not offer 12–year terms for the countries with which Eximbank conducts transactions. This is in the context of the airline business.

  I mean, is that a blanket statement that no commercial banks will offer 12 year terms?

  Dr. RODRIGUEZ. That is a deficient statement, I'm sorry.

  Mr. BARR. It's a what?

  Dr. RODRIGUEZ. It is a deficient statement in the testimony.
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  Mr. BARR. That's not accurate?

  Dr. RODRIGUEZ. It is not accurate, yes. There are private banks that will offer 12–year financing against aircraft. The question is at what interest rate?, and that is where the discrepancy really comes. Not for all airlines but for a number of airlines that they will.

  Mr. BARR. Are there other inaccurate statements or is this the only one in your testimony?

  Dr. RODRIGUEZ. That is the only one I can see there, yes. I apologize for that.

  Now, let me make a point that is worth making, that aircraft financing, if you think of it in terms of the budget used, aircraft financing in the last 4 years has been running anything between 1/2–percent and 4–percent of the total budget of Eximbank.

  Mr. BARR. I don't know that that is the criteria that we should use, just the percentage. I am not sure that that is really relevant, although I understand that.

  There has been some criticism in recent years that Eximbank is not among the most efficient organizations with which our Government is connected. What is the rate of losses on outstanding transactions that Eximbank has sustained?

  Dr. RODRIGUEZ. On a cash basis, over the last 17 years, which is really the bulk of when the losses have taken place in the Bank, on a cash basis, the losses run about 1.9 percent, which is the number that Congressman Bentsen quoted before, around 2 percent.
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  In addition to that, we are fully reserved for what we have in the portfolio at the moment. We have about $7 billion of reserve which runs about 25–, 35–percent reserve of what we have in loans and guarantees outstanding. No unfunded liabilities.

  Mr. BARR. If I am not mistaken, excuse me.

  I think, I was trying to find it in your testimony, but I think that you indicated that for fiscal years 1994 to 1996 that China is the top country recipient for fiscal year 1996, followed by Indonesia. What would account for those results in particular?

  Dr. RODRIGUEZ. Rate of growth of those countries. Countries that are growing above 10 percent in their GDP do tend to have imports that grow at as much or faster rates of growth. With the support of Eximbank, a larger percentage of our portfolio has been going to countries with growth.

  Mr. BARR. So, in other words, if we listed all of the countries during this time period, 1994 to 1996, in which Eximbank is involved, China and Indonesia would have the two highest rates of growth of GDP?

  Dr. RODRIGUEZ. They are among the highest. You will have other countries that will have as high and we have not been needed. For example, Malaysia and Thailand has been much less need for Eximbank, also countries with very high rates of growth. But they have pretty much graduated, particularly Malaysia has graduated to using private capital sources.

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  Mr. BARR. OK, thank you.

  Chairman CASTLE. Thank you very much, Mr. Barr.

  Mr. Fox.

  Mr. FOX. Thank you, Mr. Chairman.

  With respect to small business lending, Congress has mandated that 10 percent of the Bank's financing be set aside directly for small business. Has the Bank met or exceeded this goal?

  Dr. RODRIGUEZ. We have exceeded it. Last year, 21 percent of our budget supported small business exports.

  Mr. FOX. I understand your working capital guarantee program is designed to provide small- and medium-size exporters access to working capital that is loaned to them by commercial lenders; is that correct?

  Dr. RODRIGUEZ. That is correct.

  Mr. FOX. Are there any other ways that the Bank can increase small business transactions, in your opinion?

  Dr. RODRIGUEZ. Other ways in which we are currently doing it are, for example, in our insurance program. We do give special incentives to brokers to work with small business. There is a financial incentive. The same way there are insurance policies which do provide greater coverage; they are more user-friendly for a small business than for larger business.
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  But, perhaps more important, we are constantly looking for partnership with commercial banks and cities and States, as Congressman Bereuter has said, possibilities for risk-sharing with financial institutions in the field, which is the only way that with a limited staff we can really get our programs to the small businesses around the Nation.

  Mr. FOX. Thank you.

  I have no further questions, Mr. Chairman.

  Chairman CASTLE. Thank you very much, Mr. Fox.

  Mr. Metcalf.

  Mr. METCALF. Thank you, Mr. Chairman.

  Just for the record, relative to the China thing, China did agree to an Airbus purchase of and I believe it was 75 A–320s about a year ago, so that's the record on it.

  It is my view that Eximbank has been essential in maintaining jobs in this country. However, I am deeply concerned about the general loss of family wage jobs in America. I feel the American middle class is being decimated and I think that—I am deeply concerned about that trend.

  What is being done at Eximbank to further the ability to ensure that we are not shipping more American jobs overseas? Are there mechanisms to make sure that we are not empowering foreign markets and foreign workers at the expense of the American worker?
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  Dr. RODRIGUEZ. Clearly, every export that we support means jobs in this country. If you are referring to the possibility that these exports may generate production capacity in the other country later on, that is an analysis we conduct. We look for the economic impact of our export as to the possibility of having a net negative economic impact. Though the exports create jobs, clearly, if an equal amount of imports took place as a result of the transaction, it will be a wash or a loss.

  So we are quite mindful to have procedures in place to look at transactions, individually every transaction over $10 million which potentially could have a negative impact in the U.S. economy.

  Mr. METCALF. OK, so you are then pretty certain or very certain that we, though there might be some spinoff, that we are not in any way with Eximbank really empowering foreign markets and foreign workers at the expense of the American worker?

  Dr. RODRIGUEZ. That is our mission, our policy.

  Mr. METCALF. Thank you. I have no further questions.

  Chairman CASTLE. Thank you very much, Mr. Metcalf.

  We have been joined by our distinguished colleague, the Chairwoman of another subcommittee on this important Committee, and she is just fresh to this. I don't know if she has any questions on this or not.
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  But, Mrs. Roukema.

  Mrs. ROUKEMA. Well, thank you for that nice welcoming.

  I have not heard the testimony. I was in late from New Jersey. But I can assure you that I am supportive of the work that you have done over the years and that, in reading over your testimony, should there be follow-up questions, I will contact you directly.

  But I believe that this has been a most instructive and helpful hearing for all of us to arrive at a quick conclusion supportive of Eximbank.

  Thank you very much.

  Chairman CASTLE. Let me thank you both very much.

  We have come to the end of the testimony, which is timely, because we have been called to the floor to do our bill. So I will have to leave.

  So what we will do now is take a 2–minute break while we have the other panel, second panel, come forward. We do appreciate the testimony of both of you. We will have a chair in place and be ready to go here in a couple of minutes. We will get the name tags up and we will be all set. So we will stand in recess for a couple of minutes until that gets done.

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  Chairman CASTLE. The hearing will come to order.

  The second panel failed to live out its mission to find its seats while we were in break, but I guess you are lurking nearby.

  We appreciate all of you being here. What we will do is go through your testimony in order from my left, your right, to the other end, and then each of the Members will have the same 5 minutes, so it will not be compounded by the fact that we have more witnesses. So this will probably be a little faster than one might realize.

  We have a very distinguished group for our second panel, and unfortunately we do not have time to talk about the illustrious backgrounds of all of you, but we have Mr. Benjamin F. Nelson, who is the Director of International Relations and Trade Issues, U.S. General Accounting Office; Mr. Rick Ferris is the Executive Vice President, World Banking Group, Norwest Corporation; Mr. John H. Robinson, Jr., is Managing Partner of Black & Veatch, on behalf of the National Foreign Trade Council; Mr. Gary Groom is Vice President, Project Finance, for Raytheon Engineers and Constructors International, Inc., on behalf of The National Association of Manufacturers and The Coalition for Employment Through Exports; Mr. Peter A. Bowe is the President of Ellicott International, on behalf of The Small Business Exporters Association; Mr. Howard D. Samuel is Executive Director, Labor/Industry Coalition for International Trade; and Mr. Peter Ferrara is General Counsel and Chief Economist, Americans for Tax Reform.

  And we do appreciate all of you being here. We do have your written testimony, and I do not know if it is in each instance, but in almost each instance. If it is not, and we hope that you can summarize your testimony in fairly rapid order, so that we can move through from one to the other and make sure that we have as good attendance as possible.
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  With that, Mr. Nelson, we turn to you as the leadoff hitter, sir.


  Mr. NELSON. Thank you, Mr. Chairman.

  I am pleased to be here today to discuss issues concerning the reauthorization of the U.S. Export-Import Bank. My statement will focus on three factors that the Congress should weigh as it debates Eximbank's reauthorization: the rationale for and against the Eximbank's programs; the way in which its assistance is distributed; and foreign competitors' export finance programs.

  My comments are based on the results from our current and past reviews of Eximbank and Governmentwide export promotion issues.

  I will give a brief account of the results of our work in the areas outlined and then give GAO's overall conclusion on these matters.

  Before I speak about the rationale for Eximbank, I would like to provide some context, a little background. First, Eximbank must comply with several statutory requirements. The Bank is required to supplement and encourage but not compete with private sources of capital. It must seek to reach international agreements to reduce government-subsidized export financing and provide financing at rates and on terms that are fully competitive with those of other foreign government-supported export credit agencies.
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  How does Exim assist U.S. firms? Exim provides loans to foreign buyers of U.S. exports, loan guarantees to commercial lenders, export credit insurance to U.S. exporters and lenders, and working capital guarantees for pre-export production.

  Exim also administers a War Chest which is designed to counter other countries' ''tied aid.''

  Reflecting the growing move toward privatization in the developing world, Exim has recently expanded its activities to include project finance. Project finance involves deals where repayment is provided through the project's anticipated revenues rather than through sovereign or other forms of guarantee. Exim is also authorized to support the sale of nonlethal defense items.

  Let me turn to the various rationales that have been advanced for and against Government involvement in export finance. The arguments for and against Eximbank programs focus on three issues: trade policy leverage, industry effects, or so-called market failures; and the third, employment and trade effects. Supporters of Eximbank export financing programs say that the assistance provides leverage in trade policy negotiations, helps to ''level the international playing field'' for U.S. businesses, corrects ''market failures,'' and helps to increase exports and employment. According to Eximbank officials and industry groups, the direct and indirect benefits of Exim-supported transactions include follow-on sales and support contracts, high paying jobs, and Federal tax revenues. Opponents on the other hand say that Eximbank programs result in no net increase in national employment and output, misallocate resources, and are a form of corporate welfare.

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  With respect to trade leverage, supporters believe Eximbank helps companies compete against foreign companies that receive similar types of support from their governments and provides leverage in trade policy negotiations. Supporters also hold that Exim helps to neutralize foreign exporters' advantage in such situations by providing U.S. Government-supported financing. Critics, however, question the usefulness of these programs in getting countries to reduce their subsidies.

  As already noted, Exim is required to seek international agreements to reduce government-subsidized export financing. OECD nations, including the United States, have made progress since the late 1970's in negotiating reductions in officially supported export subsidies. The OECD efforts have resulted in a decrease of reported international levels of ''tied aid''. ''Tied aid'' decreased from about $10 billion in 1990 to approximately $4 billion in 1995. Treasury officials who participate in these negotiations told GAO that the Eximbank programs have provided them with leverage in these negotiations.

  Another rationale advanced by proponents of Eximbank programs is that markets do not always lead to an optimal allocation of resources, and that so-called ''market failures'' provide an additional justification for Government export finance programs.

  Supporters of Government export finance programs assert that correcting such failures can improve economic efficiencies and overall economic well-being. Opponents hold that there is no credible evidence that capital markets do not function efficiently and that Government intervention can potentially distort markets.

  The third and most controversial issue is the employment and trade effects of Eximbank programs. According to the Eximbank, the exports it financed in fiscal year 1996 supported or maintained nearly 300,000 jobs. We do not dispute that some jobs are directly supported through the Eximbank's programs. However, economists and policymakers recognize that employment levels are substantially influenced by macro-economic policies, including the actions of the Federal Reserve. At the national level, under conditions of full employment, Government export finance assistance programs largely shift production among sectors within the economy rather than raise the overall level of employment in the economy. Hence, the job figures that the Eximbank reports may not represent net job gains.
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  With respect to the trade effects, the Eximbank programs no doubt may raise the level of exports at the industry or at the firm level. However, they cannot produce a substantial change in the overall U.S. trade balance. The trade balance is largely determined by macro-economic conditions such as savings and investment and Government budget deficits.

  Next I would like to discuss the distribution of Eximbank financing. That is, who receives the assistance. During fiscal years 1994 to 1996 the Eximbank provided an annual average of $12.8 billion in export financing commitments. These commitments cost the taxpayers an average of $877 million annually.

  Geographical distribution: In fiscal 1996 China was Exim's top export market, followed by Indonesia, Mexico, Trinidad and Tobago, and Brazil. Relative to total exports to these markets Exim supported about 11 percent of U.S. exports to China, about 22 percent of U.S. exports to Indonesia, about 1 percent to Mexico, 93 percent to Trinidad, and 4 percent to Brazil.

  Industry distribution: During fiscal years 1994 to 1996, 38 percent of Eximbank commitments went to the 15 largest users. These export finance transactions absorbed about 27 percent of Eximbank's total budget, or about $682 million over the 3 year period. These data, however, do not capture the full range of U.S. companies associated with Eximbank-financed deals such as subcontractors and other suppliers.

  About 20 percent of Eximbank financing commitments—that is about 79 percent of all transactions—went to small businesses, primarily through its insurance programs. During fiscal 1994 to 1996 the Exim board of directors approved the use of the War Chest in 40 instances, and it was actually used 10 times. The balance in the ''tied aid'' War Chest was about $338 million as of September 30, 1996.
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  Since 1993 Exim has issued guarantees for 23 so-called project finance deals that total $5.6 billion.

  Next I would like to briefly discuss competitor export finance programs. The six G–7 countries we studied—France, Canada, Germany, Italy, Japan, and the United Kingdom—all have export credit agencies—ECAs. Each has a different role and a different structure. According to Euromoney, a total of 73 export credit agencies now exist worldwide. The support the G–7 provides their exporters can be measured in various ways. In terms of national exports financed, the Exim is tied for last at 2 percent.

  In terms of the share of financing commitments extended among ECAs during 1995, the Eximbank ranks fourth.

  Direct comparisons of ECAs is difficult, as there is no single model. ECAs in the six nations we studied function either as independent government agencies, sections of ministries, or as private institutions operating under an agreement with the government.

  Unlike Exim, they compete to varying degrees with the private sector.

  In sum, Mr. Chairman, in reviewing the Eximbank's export finance program, the Congress needs to weigh the benefits to the U.S. economy of the Eximbank programs against their cost. While there are numerous arguments for and against government export financing, the most compelling case for these programs appears to be helping to level the international playing field for U.S. exporters and the leverage that it provides for trade policy negotiations to induce foreign governments to reduce and eliminate their subsidies.
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  Thank you, Mr. Chairman. This concludes my opening statement.

  Chairman CASTLE. Thank you very much, Mr. Nelson. We appreciate it.

  Mr. Ferris.


  Mr. FERRIS. Mr. Chairman and Members of the subcommittee, my name is Richard Ferris and I am an Executive Vice President at Norwest Bank Minnesota, headquartered in Minneapolis.

  As part of my responsibilities I manage Norwest international banking activities and serve as the Chairman of its international banking subsidiary. I appreciate the opportunity to appear today to share Norwest's views on the Eximbank programs. In addition, I also serve on the Board of Directors of the Bankers' Association for Foreign Trade, commonly known as BAFT, whose members are dedicated to fostering international trade. I would note that my comments are also supported by BAFT's membership.

  Norwest Corporation is a diversified financial services company headquartered in Minneapolis with assets totaling in excess of $80 billion. As a super-regional bank, we are a leader in providing banking services to small and medium-sized companies. In fact, Norwest is the fifth largest small business lender in the country.
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  As part of Norwest's commitment to meeting all of our customers' needs, I appear before you today to support the case for reauthorizing Eximbank. Small and medium sized businesses are Norwest's largest commercial customer segment.

  Because of the role that Eximbank plays in assisting the small and medium size exporter, we strongly support the charter renewal as well as the provision of sufficient budgetary resources to keep their programs viable.

  In the words of one of our small business customers in Brandon, South Dakota, ''The Eximbank certainly has assisted us in growing from being a domestic manufacturer to one that performs in the global marketplace. This is because the Eximbank presents financing options for foreign entities which would otherwise not exist.''

  In order to convey our position on the renewal of Eximbank's charter, I will cover the following: Norwest international banking focus; the challenges inherent to export financing and how it differs from domestic financing; our experience with Eximbank; and the potential impact on U.S. business and U.S. banks if the charter is not renewed.

  First of all, I will comment about our international banking focus. Small and medium-sized companies are increasingly using and developing competitive technology, pricing and service to expand their business into the international marketplace. Norwest, as other banks, has targeted a significant portion of its international banking resources around meeting the needs of these exporters. We facilitate our customers' trade activities by offering products designed to mitigate the payment risks on export sales, by far and not surprisingly, these companies' biggest concern.
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  Norwest's export financing and trade financing services contributed to our customers' ability to increase their sales and profits, thus improving their local economy. As new exports positively impact our Nation's economic environment, programs that support export growth should not only be maintained by strengthened.

  Export finance has unique features which differ from domestic financing. When a bank approaches a domestic financing opportunity the core evaluation focuses on the financial viability of the borrower and its ability to repay the loan. When a bank analyzes an export opportunity the primary evaluation focus is not only on the financial viability of the transaction but on the political risks inherent in cross-border lending.

  Export finance is generally tied to a specific export transaction of goods and services. Financing needs may include funding for the completion of the U.S. exporter's manufacturing process or offering post-shipment financing and terms for the buyer.

  Export finance presents additional credit sensitive issues not normally found in domestic lending situations. These would include the fact that reliable financial information is often difficult and sometimes impossible to obtain on foreign companies; accounting standards may be different; foreign currency volatility for borrowers may be significant and often uncontrollable adding to the risk; legal jurisdiction and protection may not favor U.S. suppliers or lenders; and political risks and foreign government interference in the commercial activities of private companies are difficult to predict; and lastly, obtaining collateral in inventory receivables of many foreign borrowers may be impossible.

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  Plainly speaking, the credit profile of many foreign companies would not meet our domestic lending standards. Government export credit agencies like Eximbank serve as the primary source of coverage for these political risks inherent in financing exports.

  There are approximately 300 banks in the United States today offering basic international services such as letters of credit and collections. However, when one reviews those banks providing the fullest range of trade finance products involving repayment periods of over 12 months, the number drops to fewer than 30.

  The relatively modest number of banks offering trade finance can be attributed to several factors.

  First of all, although most debt-related trade was eventually paid off, the overall debt crisis of the 1980's caused many U.S. banks to suffer large writeoffs, so they eliminated or scaled back their international departments.

  Second, the banking industry continues consolidating with greater emphasis being placed on domestic banking.

  Third, there was a relatively long period when many of the emerging markets were judged less than creditworthy, causing many banks to stop marketing overseas.

  Fourth, there is an overall scarcity of experienced professionals available to structure export finance transactions in banking today.

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  In the case of Norwest, Eximbank products form the cornerstone of our international export finance strategy. Without these products our ability to offer support to small and medium-sized customers for their sales would be dramatically undermined. Its guarantees and insurance have led us into new foreign markets, markets we otherwise would not have entered, to assist our customers.

  Over time and because of our experience with Eximbank, Norwest has increased its level of credit comfort with these markets to the point where we are more willing to take some uncovered risk for short term periods.

  While the Bank is not the only source of risk mitigation, it holds a unique position which no private sector institution is able to replace at this time.

  Let me make a brief comment about our use of the various Eximbank programs and the various alternatives we see to Eximbank.

  Reflective of Norwest's diverse customer base, we have significant experience with most of the Eximbank programs going back over 20 years. We remain active in many of these programs today. However, as we look at our specific marketplace, Norwest has identified four programs as having the greatest growth potential within our customer base, and this would be the small and medium-sized customers.

  This would be the Medium Term Insurance Program; the Medium Term Guarantees Program; Credit Guarantee Facilities; and the Working Capital and Guarantee Program.

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  We have found that the Working Capital Guarantee Program which finances pre-export production while a relatively small component of the Bank's total programs has the most growth potential for us. The Eximbank Working Capital Program serves Norwest target market small and medium sized companies. These businesses benefit from this program because it allows them to obtain the necessary domestic financing to reduce their goods or services for sale abroad.

  The primary financing alternative to the programs offered by Eximbank is the private sector represented by the international insurance market. In the private market very large corporations maintain a considerable advantage over small and medium size U.S. companies. The private markets are much more willing to take on difficult emerging market risks for a large corporation rather than most small or medium size companies.

  While the international reinsurance market has recently shown a much greater appetite for foreign credit risk, these developments do not provide a significant trickle-down benefit to the small and medium sized companies. Also, the international insurance market's willingness to take on more risk can be very short-lived after any indication of changing market or country conditions.

  There is a growing trend to structure export loans combining Eximbank involvement with other mitigation entities. However, in most cases these transactions can only go forward when Eximbank supports a major portion of the financing structure.

  Eximbank's Working Capital Guarantee Program is a critical factor for commercial banks unwilling to lend to companies with international collateral. The absence of Eximbank's Working Capital Guarantees Program would have a grave impact on many small and medium sized exporters. It would eliminate a unique financing source and leave them with little hope of finding a viable alternative.
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  So what is our view—or Norwest's view—of the consequences of any failure to recharter Eximbank? Failure to reauthorize Eximbank's charter would create some difficulties for banks such as Norwest. However, it is the small and medium sized companies who would truly suffer. Elimination of the Bank would severely inhibit their banks' willingness to offer them credit packages for exports.

  Where Norwest is concerned, since our existing export loan portfolio would remain outstanding, initial impacts of Eximbank's failure to be rechartered would be relatively minimal. However, in the medium to the long term, opportunities for new business would only be pursued on behalf of larger clients who transact high volumes of trade in larger dollar amounts.

  We would most likely cease to market export finance products to small companies. Most medium term export credit business would not be solicited since private insurance coverage is limited at this time.

  I would like to conclude my comments by addressing some issues on which both BAFT and Norwest share similar opinions.

  First, all industrialized countries provide export finance support for their manufacturers. Having our U.S. businesses competing without access to a similar array of programs would leave them at a distinct competitive disadvantage. We support this level playing field, one that allows the U.S. exporter to expand into new markets since this business is often self-sustaining and recurring in these markets.

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  Second, Eximbank has no aid programs. Their credit standards and fees reflect sound credit standards. Reasonable assurance of repayment is a key determinant in all of their programs.

  Third, the Bank's programs create a comfort level in which exporters and their banks can enter emerging or lesser-known markets. After these markets become bankable, Eximbank's role diminishes and the private market can fill the gap.

  Last, a vibrant, growing, competitive exporting industry gives the United States such significant benefits that not supporting it with wisely managed funding is illogical.

  On behalf of Norwest Corporation, we strongly support the charter renewal and the provision of sufficient budgetary resources to the Eximbank of the United States.

  Thank you for offering us the opportunity to testify.

  Mrs. ROUKEMA [presiding]. Thank you.

  Mr. Robinson, please, the Chairman had to leave to attend to a debate on the floor of the House. He will be back shortly. In the interim myself and Congressman Fox will chair the hearing.


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  Mr. ROBINSON. Thank you very much.

  My name is John Robinson. I am Managing Partner of Black & Veatch, and my appearance today is on behalf of the National Foreign Trade Council, which is the largest broadly based trade association dealing exclusively with U.S. public policy affecting international trade and investment.

  My own firm is the leading provider of detailed engineering services globally for the power generation industry. About one-third of the power plants being constructed worldwide today in available markets are designed or being constructed by Black & Veatch. Many of these projects are in highly competitive emerging markets where the Eximbank is a vital asset. For that reason I especially appreciate the opportunity to appear here today.

  I would like to thank Chairman Castle and his professional staff, the other Members of the subcommittee including Ranking Member Congressman Flake as well as the Chairman of the full Committee, Congressman Leach, for their interest in and support of the Eximbank.

  I have a written statement that I hope the subcommittee will include in the hearing record and I added to that today the executive summary of a document that was referenced by Congressman Bereuter entitled, ''Competing for Global Power Projects.'' It was prepared on behalf of the International Energy Development Council, and I will attach it to my statement today and would like it included in the record. It is a very informative, thorough document.

  I would like now to highlight several elements of my statement for the subcommittee.

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  First, one mandate of the Eximbank is to counter foreign government assistance to their exporters. They provide this assistance because of the high caliber of most export jobs, typically from high value-added industries such as aircraft, engineering, electronics, capital goods, power, and telecommunications.

  Thus in levelling the playing field, the Eximbank plays a vital role in preserving and enhancing our most productive economic sectors.

  Indeed, foreign governments have spent billions of dollars in efforts to duplicate U.S. sectors like aircraft. It would be strikingly short-sighted for U.S. policymakers to abandon those sectors to trade competitors abroad by weakening the Eximbank and the Overseas Private Investment Corporation, OPIC.

  I mentioned the Eximbank and OPIC together because in a number of foreign projects the participation of both has been critical to U.S. success.

  Examples include the Dabhol, India power plant being developed by Enron, and the Paiton, Indonesia project by Mission Energy.

  Second, uninformed groups allege that the Eximbank represents welfare for large firms. In fact, of the small and mid-sized U.S. firms who export, many do so only as suppliers to Eximbank clients like G.E. or Black & Veatch.

  Our reliance on suppliers is absolute. They account for well over half of the value of our work and we rely on hundreds of them. Over 250 U.S. suppliers from more than 30 States are involved in a typical power plant project in a developing country.
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  In short, the Eximbank creates jobs, not welfare, and it is a major facilitator for the invisible exporters, those small and medium-size firms which form the backbone of our economy. We are all very much in this together.

  Regarding the issue of corporate welfare, I hope the subcommittee will be mindful that no private U.S. firm can possibly compete with the deep pockets of foreign government export assistance programs. U.S. firms can compete against any foreign firm but they cannot compete against foreign governments.

  Third, some suggest that the Eximbank is doing what the private sector could do instead. In fact, the Eximbank is mandated not to compete with the private sector and it does not compete. Those Members of Congress who are anxious to promote the private sector should realize that without the Eximbank, the U.S. private sector would not be involved in these exports. Rather than operating at the expense of the private sector, the Eximbank promotes a larger and more robust U.S. private sector.

  Finally, some argue that Eximbank represents managed trade. In fact, the reverse is the case. This is an issue of great sensitivity to my firm because we believe profoundly that our prosperity is maximized by the freest possible global trading regime. That devotion to free trade is why we are such fans of the Eximbank. It is the anvil on which the U.S. strategy of paring down foreign export assistance programs is being hammered out. The muscle behind this strategy is Eximbank's ability to level the international trade field by matching foreign export assistance.

  The good news is that this strategy is succeeding. Indeed, according to Eximbank's 1996 annual report, there has been an enormous 75 percent decline in ''tied aid'' export assistance offers by foreign governments, down to fewer than 4,000 in 1995 from over 16,000 in 1991.
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  Let me give you an example of how this strategy is succeeding. Several years ago, a Japanese competitor responded to a solicitation from the Malaysian government with a below-market interest rate ''tied aid'' offer provided through the Japanese Export-Import Bank. We asked the U.S. Eximbank to match that offer in order for Black & Veatch to remain in the competition. After an investigation, they did match it. Subsequently, to our delight, both Japan and the Eximbank agreed to withdraw their ''tied aid'' offers and Black & Veatch won the contract.

  My comments point out the two great ironies of the Eximbank debate. Congressional critics who oppose the Eximbank are blocking progress toward freer trade and away from managed trade, and they are voting to export well-paid, private sector jobs to Japan, France and Germany, replacing them here with higher welfare rolls.

  Before concluding, let me briefly mention OPIC. While this subcommittee does not have oversight responsibility for that agency, my comments regarding the Eximbank apply equally to OPIC. Indeed, I believe OPIC warrants a special emphasis because of its pivotal role in privatization efforts abroad.

  I believe that privatization offers the best hope for rapid economic growth in the developing world. Frequently, however, governments in developing countries are loathe to provide sovereign guarantees for privatized infrastructure projects. OPIC must fill that gap if U.S. firms are to participate in such privatizations which, individually, can total a billion dollars or more. Clearly, it is in our national interest for privatization to become the wave of the future in emerging markets. Just as clearly, it is in our interest for OPIC to be preserved in order for U.S. firms to ride that wave.
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  In conclusion, the NFTC strongly supports H.R. 1370, to reauthorize the Eximbank through the year 2001. That reauthorization is critical to continued U.S. job growth, particularly export jobs for small and medium-size firms. Moreover, that reauthorization is vital to continued progress toward freer international trade.

  The Eximbank is a win/win issue for firms, their employees, for freer trade and for a continued healthy, high technology sector in America.

  Thank you very much.

  Mrs. ROUKEMA. Thank you very much.

  Congressman Fox will now take over the Chair.

  Mr. FOX [presiding]. Thank you, Madam Chairwoman.

  At this time, we will introduce Mr. Gary Groom, Vice President of Project Finance, Raytheon Engineers and Constructors International, on behalf of the National Association of Manufacturers and the Coalition for Employment Through Exports.

  You may proceed.

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  Mr. GROOM. Mr. Chairman and Members of the subcommittee, thank you for inviting me to speak today.

  You have my written statement but all of you can read that later. I would like to take time today to talk about the real world of international trade, which is where I work.

  I am in charge of financing projects for Raytheon Engineers and Constructors, a wholly-owned subsidiary of Raytheon Company. I have come down from Massachusetts today to speak on behalf of the Coalition for Employment Through Exports and the National Association of Manufacturers.

  To show you how Eximbank creates U.S. exports and U.S. jobs, I would like to walk you through one of our projects. Raytheon Engineers is a $3 billion business with over 16,000 employees. In 1993, just over 20 percent of our business was international. In 1996, this had grown to over 33 percent and, at year end, fully 50 percent of our business backlog, the future awards that we have already attained, was in the international arena. Frankly, this international business is the future of our company and the future of our employees.

  My job is to finance the projects that we attain overseas. I spend a great deal of my time on the road, meeting with our overseas customers and checking what our international competition is doing. Let me assure you that our competitors do not lack support from their governments.

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  The real issue here is why is financing so important. Unfortunately, it is very simple. Finance is necessary in order for us to win. Even if we are ahead on quality, price, delivery and service, our customers often give the projects to the company that can arrange the best financing, regardless of the other factors. This is especially true in the growth markets of the developing countries because financing is the most important element of getting a project constructed in these markets.

  This isn't only true in my business; it is true across the board. Let me tell you about a project in Thailand and how Eximbank helped save us a U.S. export.

  In 1993, we bid on a $450 million petrochemical project south of Bangkok. Just submitting this bid cost us over $250,000, money we spent at risk up front. But this cost was only the tip of the iceberg.

  In order for any U.S. exporter to succeed, we need to commit millions of dollars each year just to be in a position to bid on these projects. This is before we ever have to consider coming to Eximbank for financing support.

  On this bid, in Thailand, $250,000 cost was just an average cost. If we were bidding on a major refinery, the bid cost could easily approach $4 million and, afterwards, we would be looking at 1 year to develop and receive an award. So you can see that we must have all the tools to win before we decide to bid.

  In the Thailand project we faced three competitors, Chiyoda and Tomen of Japan and Dae Lim of South Korea. All of us were fully qualified to do the job. Their strategy to beat us included offering finance for the entire project on very attractive terms. To do this, all three competitors had financing support from their respective governments.
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  This is not unusual, especially for the Japanese. In fact, our own Government estimates that one-third of all Japanese exports have some form of government finance.

  Now, the President, Congress, USTR can argue all day about Japanese trade policy but those of us on the firing line have our employees and shareholders expecting us to figure out a way to compete against this type of foreign government support. This is the crux of the matter.

  No U.S. company, no matter how big, can compete against a foreign government in international finance. Neither can U.S. commercial lenders.

  In the Thailand project, it became clear that we could not match the financing packages of our Japanese and Korean counterparts without the support of our Government. So we turned to Eximbank.

  Let me make one thing clear about Eximbank. I consider it the last stop for finance, not the first. Whenever possible, I prefer to arrange private finance and this is for two basic reasons. First, Eximbank fees can occasionally be high in certain markets. For the Thailand project, Eximbank charged $2.44 for each $100 of finance supported. In some developing countries, Eximbank's fees can range as high as $9.89 for each $100 of finance. This is a fee of nearly 10 percent. That is something for each of you to keep in mind. Eximbank charges user fees for its services. It is not corporate welfare. Moreover, Eximbank's participation in a project does not allow U.S. companies to make windfall profits; it simply allows us to compete.

  Second, Eximbank can be slow. Not because they are inefficient but because they are very careful. That is why they have a loss rate below 2 percent which is about half the loss rate of commercial banks. So I go to Eximbank only when I have to, which is when foreign government financing is being offered on behalf of my competitors. If I need Eximbank and they are not available, I know that I have lost a deal to an overseas company.
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  The bottom line, in the Thailand project is that Eximbank gave us the support we needed to neutralize foreign government support. Eximbank's support allowed us to compete on the commercial merits of our proposal and, in February 1994, we won this project.

  The moral of this story is that when I go to Eximbank, I need their help to confront foreign government financing, period. Our U.S. suppliers and subcontractors, the invisible exporters of America, are the real winners in this process.

  I brought a map to show this ripple effect and the broad impact of one project on a large number of companies and I have also brought some books that perhaps we could pass out now that I would refer to later. Would there be some staff assistant to pass them out, please?

  In the interest of time, I will continue.

  The map that I am passing out shows that 47 major suppliers in the U.S. benefited from the Thailand project and they were located in 21 States. This project alone generated $160 million in U.S. exports.

  This ripple effect occurs in two ways. First, the prime contractor spreads the business across dozens and often hundreds of suppliers and subcontractors. Generally, over 70 percent of the work on one of my projects for U.S. content goes to these suppliers and subcontractors.

  The second ripple effect is follow-on business. Supplies, replacement parts, upgrades and actual leads to other projects help create additional export opportunities. As a rule of thumb, follow-on business can represent 10– to 15–percent of the original sale for each year that the original project remains in operation. Our Thailand project should create new U.S. jobs and exports for up to 15 years.
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  So one Eximbank transaction produces benefits far beyond those of the original deal. That is the way it worked in Thailand. The original plant that we built has led to two other plants which are now under construction. Both are using significant American engineering services and U.S. products. None of this would have happened without Eximbank's support for our original deal.

  This story is repeated hundreds of times a year for companies across the country. To show you exactly how each State benefits from Eximbank, I brought a book showing which companies have actually received support from the Bank over the past 5 years.

  In conclusion, it is vitally important that the Export-Import Bank be reauthorized. Most of America's international business is privately financed, which is how it should be. But, for me and others in my job across the U.S., Eximbank is our lifeline when foreign companies have the support of their governments. Thirty percent of U.S. domestic economic growth now depends on exports with 11– to 12–million jobs at stake. Eximbank is an essential agency and I urge you to support Chairman Castle's reauthorization legislation.

  Thank you.

  Mr. FOX. Thank you, Mr. Groom.

  Now we will hear from Mr. Peter A. Bowe, President, Ellicott International, on behalf of the Small Business Exporters Association.

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  Mr. Bowe.


  Mr. BOWE. Thank you, Mr. Chairman.

  I am testifying today on behalf of the Small Business Exporters Association, the SBEA, the Nation's leading organization of small businesses whose principal market is the export market. Our members' businesses range from high tech to rust belt, from products to services. Despite our differences, we stand together in support of reauthorization of Eximbank.

  Just as exports are crucial to our economy, so are Eximbank's programs crucial to the ability of America's exporters to provide the financing our customers frequently require. Our principal competitors all provide substantial financing assistance to their exporters, more than Eximbank according to almost any measurement. The SBEA has done its own study which confirmed some of the numbers you have heard in previous testimony today about the higher levels of support offered by the Japanese, German, French, and so forth.

  I am speaking for companies and workers who compete in the real world of global competition, not as you or I might like it to be but as it is. In the real world, we must have agencies like Eximbank and TDA and OPIC to compete and win.

  Before I turn to the story of how my company has used Eximbank, let me make three points. First, Eximbank is essential to the big, emerging markets in Asia and Latin America. Asia and Latin America will soon exceed Europe as our principal export market. American banks are, for the most part, however, unwilling to finance deals to these markets, either because of their size, especially if they are too small from the banks' perspective, or because of the perceived country risk. Capital goods exports to these critical growth markets is typically 15– to 40–percent of total American sales there, which is clearly a very material percentage.
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  Second, Eximbank has a proven track record of increasing American exports and therefore jobs. The $15 billion in annual exports it has supported recently has directly sustained over 200,000 jobs, and about 1 million indirectly.

  Third, Exim has dramatically and successfully increased its participation in small business exports. Last year over 80 percent of Eximbank deals were small business related, and that trend is increasing. That was about 2,000 small business deals. Most SBEA members have only one factory. Therefore, unlike large global corporations which can shift their source of production to whichever country whose export credit agency offers the best export financing, we are limited to one option—Eximbank. Eximbank has made a very credible effort toward meeting our needs. Anyone who says the private sector marketplace offers viable small business export financing simply has not had the real-world experience of trying to arrange a small business export financing loan.

  Let me take a minute to describe how Eximbank has helped Ellicott International sell dredges worldwide in competition with some of Europe's biggest industrial conglomerates. We are not new to exporting ourselves. We sold all of the dredges used in the original construction of the Panama Canal over 80 years ago, but today our international competition is fierce. One of our competitors is the German company Krupp, which built weapons and battleships in World War I and World War II. That fact helps to remind me that the global marketplace commercially is still a lot like warfare. Krupp today, despite its $15 billion size, still gets all kinds of financing support and subsidies from the German Government, not to mention direct trade advocacy by Chancellor Kohl.

  I noted in the paper today that Chancellor Kohl is leaving today on yet another Asian trade mission. I am holding here in my hand three examples of KFW letters—that is the German Export Credit Agency—all for $20 million-plus deals where we lost a sale to a developing market because of competitive financing by the Germans.
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  Our Dutch competitor, which is also in the same league as Krupp, gets about $5 million a year in annual subsidies for being in the shipbuilding business, plus R&D grants, plus financing, plus prime ministerial advocacy.

  Despite all that, we have been successful in many cases. We have sold to the Government of Indonesia for decades. After we lost market share in the early 1990's because of more aggressive German financing, Eximbank's more aggressive posture was solely responsible for our winning a $20 million deal there last year, which is now under way.

  Second, Exim has developed a new program which is of great interest to small exporters and the members of the SBEA. Sales to foreign governments usually require bid guarantees or performance guarantees, sometimes called bonds. Foreign banks have much more flexible rules issuing these bonds on behalf of our foreign competition than American banks do for American exporters. American rules frequently tie up an exporter's capital and liquidity to support these bonds. Exim's new program helps to solve this problem by evaluating existing collateral more flexibly. This subtle distinction has allowed my company to bid on several large contracts for the Government of Thailand, which otherwise would have been out of our reach. Coincidentally, in the last 24 hours we have some interesting feedback on those two bids, two bids worth roughly $50 million each. On one bid where there was no financing competition it appears that Ellicott will win. On another bid where our prime competitor was German it appears that the Germans will win based on a perceived better financing offer and German subsidies.

  Lastly, Exim has reconfigured its Working Capital Guarantee Program for small business exporters. The SBEA is very satisfied with this program, which plugs the difficult financing gap caused by preshipment financing needs. Ellicott's use of this program has enabled us to increase our inventory of small dredges—a small dredge is $300,000 or $400,000—whose sales are won or lost based on delivery times. In the past 2 months alone we have beaten our Dutch competition on sales to Portugal and Indonesia because of faster delivery with a dredge we had in stock financed with the Exim program.
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  The growth in Ellicott's exports supported by Exim has led to a permanent increase in our work force of about 50 percent. More significantly, we have increased our purchases of American-made components by over 100 percent, and over half of our sales dollar goes to vendors for components. This has meant jobs for our key vendors in Ohio, Michigan, Louisiana, Georgia, Alabama, and Illinois as an example.

  Exim deserves praise for effectively partnering with commercial banks via the Delegated Authority Programs and for its cooperation with State and local governments. Such innovative thinking has helped Exim do more with less and do it faster and better as well.

  I am concerned that Congress may judge Eximbank according to an impossible no-win standard. Even though Exim already does less than many of our competitors' export credit agencies, our free-trade principles force us to say Eximbank's goal should be not to replicate our competitors' financing efforts, however effective they might be. On the other hand, if Exim reduces its scope too much, it risks marginalizing its capability, subjecting it to attack for being inconsequential. We need to accept that Exim has a legitimate goal of leveling the playing field. If it is ever to be successful in deterring the use of financing as a competitive weapon, it must negotiate with sufficient resources to be credible.

  We cannot forget that in the real world of trade finance, our competitors' objective is explicit, to create a competitive advantage for their exporters through financing terms. It is naive to think that this will change anytime soon, even though we are right to try to discourage the practice. Unilateral disarmament will create job loss and an export of companies instead of American goods. Now what do I mean by that? Right now, two countries are soliciting my company to open a factory in their country. Why are they doing that? They are offering me inducements of superior export financing and a business-government culture which accepts without question the paramount importance of export financing to export success and jobs.
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  We strongly support the reauthorization of Eximbank to keep jobs and companies in this country.

  Mr. FOX. Thank you, Mr. Bowe.

  Now we will hear from Mr. Howard D. Samuel, Executive Director, Labor/Industry Coalition for International Trade.


  Mr. SAMUEL. Thank you, Mr. Chairman.

  The Labor/Industry Coalition for International Trade, known as LICIT, is an alliance of about a dozen and a half companies and industrial unions which for the past 15 years have joined forces to work for a U.S. trade policy that is practical and equitable and promotes the living standards of all Americans.

  My own background includes more than 40 years with the labor movement, including 13 years as President of the Industrial Union Department, a semi-autonomous affiliate of the AFL–CIO.

  Although my career has been spent largely with labor, since I retired in 1992 from the Industrial Union Department, I cannot now speak for the Federation. However, in my remarks I will seek to reflect the hopes and fears and convictions of labor, as well as of LICIT's membership as a whole.
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  About 6 months ago, realizing that the Export-Import Bank might be facing opposition in achieving reauthorization, LICIT asked the Economic Strategy Institute to prepare a thorough analysis of the impact of the Bank on our economy. This is not the first time LICIT had come to the support of Exim. About 15 years ago when Exim came under attack, LICIT sponsored the preparation of a similar document, and also testified in its behalf. At that time, as well as today, I am convinced that because LICIT represents a unique coalition of business and labor, our point of view has won special consideration.

  I should add that this year LICIT has been joined in its efforts by two groups which you have already heard from, the Coalition for Employment through Exports, and the National Foreign Trade Council.

  Now you have heard already today, from this panel and the preceding panel, a number of points which would recommend to you that the Eximbank be continued, and I am going to hope that you will accept my willingness not to repeat those points at this time.

  Mr. FOX. We appreciate that.

  Mr. SAMUEL. In my view—especially taking into account my labor background—the most important single reason for continuing the Eximbank is its impact on jobs. In 1995 U.S. manufactured exports supported by Exim activities came from industries employing nearly 16 million workers. Exim supports high productivity jobs. Firms that export have higher productivity growth than firms that do not export. According to a recent Government study, a copy of which I have here, the productivity level of workers in jobs supported by exports exceeded the national average for private business by 13 percent.
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  In addition, high productivity jobs pay higher wages. Productivity growth is a key element in noninflationary wage growth. The same Government study found that in 1994, wages of all production and related workers in jobs supported by exports of goods were 13 percent higher than the U.S. average. The wages supported directly by those exports were 20 percent higher than the U.S. average.

  In all of 1996, Exim helped sustain 200,000 jobs directly and another 1 million jobs indirectly through its activities. In a more recent period, October 1996 to March of 1997, Exim helped sustain 100,000 jobs by backing $7.6 billion worth of sales.

  Most important, about 246,000 jobs a year would be lost in the near term, and about 580,000 jobs per year after the 10th year, a large proportion of which would be in relatively high productivity, high paying manufacturing industries, if Exim were not continued.

  It is for these reasons that LICIT, industry and labor members alike, supported the Eximbank in 1982, and still support it in 1997. We consider it a valuable ally in the struggle to expand our exports, reduce our trade deficit, and maintain good jobs in the manufacturing sector.

  I would like to add one other point, if I may, Mr. Chairman, which is an issue which has come to our attention since I wrote this original testimony. Clearly the demise of the Eximbank would have sizable adverse macro-economic effects. Exports would fall sharply, because most of the bank-supported exports would not occur without Exim financing, and because of the loss of follow-on orders and other exports that would result. This would have multiplier and spillover effects on the rest of the economy, resulting in a sizable loss of jobs.
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  Some argue, and this has just come to our attention, that the Federal Reserve Board can offset these macro-economic effects by easing monetary policy so that there will be no macro-economic impact of the failure to recharter the Bank. However, easier monetary policy may not fully offset the job impact caused by the Bank's demise. Furthermore, even if it did, the new jobs on average would be lower paying jobs than those lost. This, coupled with a weaker dollar and a higher inflation and interest rates, would lower real incomes. Thus, either jobs and/or real income would be lower if the Bank is not rechartered regardless of any changes in domestic economic policy.

  For these and these other reasons, we do recommend the reauthorization of the Bank.

  Mr. MANZULLO [presiding]. Thank you.

  Our next and last witness is Peter Ferrara.

  Mr. Ferrara.


  Mr. FERRARA. Thank you, Mr. Chairman.

  Americans for Tax Reform is the Nation's largest grassroots taxpayer activist group. Unlike many of my colleagues today here on this panel, I do not represent people receiving money from this program one way or another, but rather the people who are paying for the program.
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  Americans for Tax Reform has identified over 70 Federal programs spending over $70 billion per year that qualify as corporate welfare. ATR defined corporate welfare as Government spending programs that advance the narrow business interests of particular companies rather than the broad public interest.

  One of the clearest examples of corporate welfare is the Eximbank. That program spends substantial sums each year precisely to advance the narrow corporate business interests of particular companies. It also leaves the taxpayers liable for tens of billions in loan guarantees merely to advance the same interests.

  Now advocates of the Eximbank argue that it creates jobs. We have heard that here today, but this is a complete fallacy. The mistake is to overlook what would have been done in the private sector with the money if the Government had not redirected it through some corporate welfare program. You see this over and over again in these corporate welfare debates. A business comes to you and says ''Look at this project. We could not have done this project without the Eximbank,'' or some other corporate welfare program, so obviously it creates jobs. Well, that is only 10 percent of the story. The rest of the story is what would have been done with all that financing elsewhere in the private sector if the Eximbank or some other wonderful corporate welfare program had not redirected it to this particular favored special interest? Left in the private sector, the money would have created jobs as well. At best, corporate welfare programs like the Eximbank merely redistribute funding from the firms that would have received it in the private marketplace to the politically well-connected.

  In the process, jobs are probably lost as the market picks the most efficient and effective firms where the most jobs are created. The politically well-connected firms that receive the money instead through corporate welfare like the Eximbank most likely will not create as many jobs and as much general prosperity as the firms picked by the market. This is especially true when the funds are used to subsidize overseas construction projects where more of the jobs created by the funds go to foreign workers.
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  Now, another argument for the Eximbank is that foreign countries subsidize their exports and if the U.S. doesn't do it, then its companies will lose out. But corporate America cannot have access to the pockets of U.S. taxpayers to match every foolish special interest subsidy provided by foreign governments. Many foreign governments are heavily dominated by special interests that gain substantial government assistance as a result. The general public is the loser in these countries as they are held up for the benefit of fat cat big business interests in those countries.

  We cannot allow that to be a justification for doing the same in the U.S. Moreover since, admittedly, here the subsidies in the U.S. go to only about 2 percent of U.S. exports, clearly our exports will not collapse without corporate welfare and, moreover, contrary to some of the statements we have heard here today, almost all small business exports are conducted without any Government assistance.

  Now, corporate interests that want to do business overseas are big boys that will have to take the world as they find it and utilize the opportunities that are there. They cannot expect the taxpayers to hold their hands to ensure that they make a profit. The bottom line is that the countries who utilize corporate welfare heavily have weak economies and are not doing well.

  We have heard here today, for example, about France and all the great corporate welfare that they give to all their business interests. Well, the French economy is awful and we certainly would not want that in the United States. The way to create jobs and promote general prosperity has been proven over and over, it is not corporate welfare. It is cutting taxes, Government spending, Federal deficits and unnecessary regulations while maintaining a sound general monetary policy and an overall free market economic program.
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  In other words, American business, large and small, would be far better off abolishing the Eximbank and other forms of corporate welfare and using the funds to abolish the capital gains tax or some other tax as well.

  Thank you very much.

  Mr. MANZULLO. We appreciate it very much. Peter, as usual, you always have an opinion on something so we put you at the end. But somebody has to be on the Right side.

  I have a pretty easy question but I want to throw it out to each of the folks who have been involved with Eximbank financing and, Peter and Ben, I know you are on the outside of the financing, but if you want to join in, I would request your response also, if any.

  If you could sit down with pen and paper and draw up a list of a couple of suggestions on how to improve Eximbank, what would they be? Do we still have folks from Eximbank in the room here? Are they here?

  Yes, if you want to take notes on it, I would appreciate it very much because in the reauthorization process, we also want to improve the manner in which Eximbank provides services to its clients.

  Mr. Nelson, did you have any suggestions from the GAO's perspective on how to improve the quality of Eximbank services or otherwise?

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  Mr. NELSON. Mr. Chairman, we have not focused any of our work on the management issues or management concerns at the Eximbank. I would prefer to have the other panelists here who work with Eximbank on a day-to-day basis comment of these issues.

  Mr. MANZULLO. Thank you.

  Mr. Ferris.

  Mr. FERRIS. Chicken.

  I would say one of the experiences that we had is the fact that they need to do a better job of marketing themselves. Both the banks and the country, as well as to the ultimate consumer, which is small and medium-sized businesses.

  We have made a concerted effort, really, over the last 6 to 8 months relative to the Working Capital Guarantee Program to get into the marketplace. We have made in excess of 150 presentations to customers and bankers over 16 States in the Midwest and have generated tremendous enthusiasm for the program. I sense that there are probably pockets in the country that aren't quite as aggressive in marketing that program and I think it is incumbent upon the banks and Eximbank to work together and make sure companies realize what this program is and what it can do for them.

  Mr. MANZULLO. Mr. Robinson. It could be management or policy suggestions, whatever you want.

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  Mr. ROBINSON. I am going to have trouble coming up with a detailed response. My focus is the end result which is that the Eximbank has helped to level the international playing field and successfully generated exports.


  Mr. Groom.

  Mr. GROOM. I think the simplest way to address it would be the comment that Eximbank needs to compete much the same as U.S. business needs to compete and they have to adapt to what the competition offers.

  I see the major growth area in the world as that of project finance, which Eximbank started out very strongly on and I think they need to continue to adjust to the reality that much of their lending in the future is going to be in the project finance arena.

  I also think that the resignation of the chairman and the leadership at the Bank requires us to send a message to our competitors that we have reliable financing available to us is very critical at this time. I have a number of instances where my foreign customers are reluctant to deal with us or need special assurances because they are concerned about the long-term commitment and the process of attaining financing from Eximbank.

  Mr. MANZULLO. Mr. Bowe.

  Mr. BOWE. Yes, sir.
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  I think that there is an inherent tension in the objective of Eximbank matching or being competitive with the foreign export credit agencies and the desire to have as minimum support from the taxpayer as possible. One of the ways I think that gets reflected is in the question of fees.

  The private sector bank that we are working with, First National Bank of New England, one of the Delegated Authority banks, has done a very good job. Interestingly, I just looked at their statement, their financial statement last year and their income is exploding because of their Eximbank-related business. Well, that is good for exporters and obviously people are willing to pay those fees but I think Eximbank needs to be continually aware that there is a level at which the fees that it already is charging will become, I won't say prohibitive, but negative to the customers' competitiveness in the marketplace. That may also apply to some of the bigger fees.

  Mr. Groom mentioned 9.88 percent. We faced that as well for Indonesia and the customer was shocked and sort of perceived that as an insult. You know, ''Why are we at such a high risk fee?'' So that is one suggestion.

  I think it is in the vein of how to do better what they are already doing pretty well.

  Mr. MANZULLO. Mr. Samuel.

  Mr. SAMUEL. I would like to make one point, Mr. Chairman, that the Bank, contrary to Mr. Ferrara, does not represent a drain on the budget. In fact, it more than pays for itself.

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  Eliminating the Bank will not help balance the budget. It will increase the deficit.

  Every one dollar budgeted to the Eximbank generates between $15– and $20–worth of primary exports and $30– to $40–worth of secondary exports, which resulted in $143 of gross domestic product and $29 of Federal tax revenue. So it seems to me that one thing perhaps we ought to look at very carefully is the funding of the Bank since it does help us reduce the budget deficit as well as create jobs. It should not be a target of budget reduction but, perhaps, of more substantial budgeting.

  Mr. MANZULLO. Mr. Ferrara.

  Mr. FERRARA. Mr. Samuel's comment reflects a complete fallacy for the reasons I have already explained.

  The only good Eximbank would be a dead Eximbank. Thank you.

  Mr. MANZULLO. Peter, I would counsel you that you have to have an opinion when you come here.


  Mr. MANZULLO. Mr. Bentsen.

  Mr. BENTSEN. Thank you, Mr. Chairman.

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  Mr. Ferrara, is your argument that the Eximbank is just inefficient and that at least the United States should operate in a pure, efficient world of economics, whether or not it exists in the world marketplace?

  Mr. FERRARA. The argument is that the Eximbank is inefficient in concept and I daresay to you that the arguments I have given you here are not peculiar to me. I challenge you to—the panel here—I come to these hearings and——

  Mr. BENTSEN. I understand. I am just asking you—I am just trying to get at what your opinion is.

  Mr. FERRARA. I am explaining this. You know, this reflects standard economic analysis. Invite a panel here of objective academic economists who are not receiving funds for research by some bank involved in this process and I will tell you, they will tell you the same thing I am telling you here, that these programs do not create jobs on net. They redistribute funds from one job-creating activity to another and, most likely, as a result, there is a net loss of jobs in the process.

  In fact, if you want to create jobs and promote general prosperity, you are not going to do it by Government funding programs; you are going to do it by cutting taxes and spending and you can look around the world and compare the countries with corporate welfare with the countries who have low taxes and spending and you will see what I am saying is right.

  Mr. BENTSEN. I would be more than happy to have a panel of economists come and go through and actually look at the data rather than talk theory. Because I haven't seen the data that backs that up.
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  But let me ask you this, if it is indeed a subsidy and we don't have the data before us as to whether or not it pays for itself, and I am eager to get that from Eximbank, is it really proper domestic or foreign policy to say it is an inefficient marketplace but we will not participate? We will allow other countries to engage in inefficient economic activity but for the sake of efficiencies and our belief in a perfect world that doesn't exist that we are not going to provide some subsidy?

  Mr. FERRARA. If it pays for itself, wonderful. Then it should be privatized and the Government should not be running it. But these people are not all here today because they are paying their own way. These people are here today because they are getting money out of the taxpayers' pockets.

  Mr. BENTSEN. I am not talking about the others. I am just trying to see where you are at.

  Mr. FERRARA. Well, I'm telling you.

  Mr. BENTSEN. I am new to this subcommittee, so bear with me on this.

  But let me ask you this. You state that some of the projects being financed through Eximbank, which Eximbank tells us the private market won't touch, but you say those are mostly jobs—well, those are all jobs that are overseas being conducted by foreigners overseas.

  If, in fact, a U.S. company could not engage in that project because they couldn't get the financing from the private market, would you advocate that our companies should not be going after those projects overseas because they are not employing U.S. workers domestically? I mean, shouldn't we go wherever demand exists?
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  Mr. FERRARA. Look, those companies should go wherever demand exists but not at the expense of the U.S. taxpayers or not with subsidies from the U.S. taxpayers. Remember, here the key argument is what you are doing is redirecting private sector capital from one source to another. And in the process, you are probably losing jobs on net, particularly when that capital is going to finance foreign construction projects.

  Mr. BENTSEN. If the program does pay for itself, and you say it is a fallacy, it doesn't, and I would appreciate getting your data which shows it doesn't pay for itself. But, if the program does pay for itself and all it is doing is providing the guarantee and it is paying for itself and the private market is not providing it, what is so wrong with that?

  Mr. FERRARA. If it pays for itself——

  Mr. BENTSEN. It may not fit within classical economics but if we are dealing with an inefficient market which apparently we are because other countries are doing similar financing if not greater amounts of financing, why shouldn't, if you are in an efficient market, why not make amends for that?

  Mr. FERRARA. If it pays for itself, then it fits very well within classical economics. If the fees it is charging cover its costs, then it should be a private sector business and you guys should get out of the business of messing with it, because it is going to operate perfectly well in the private sector.

  Mr. BENTSEN. Isn't a key part of it that the reason the private sector is not there that the one implicit aspect is the Government guarantee that the private sector can't provide but, from a budgetary standpoint, it does pay for itself?
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  Mr. FERRARA. Government guarantees are not free, sir. As a matter of economic analysis.

  Tell me if you can find one of the objective academic economists that you are willing to invite here to tell you a Government guarantee is free and does not involve a cost. Surely it involves a cost and if that is what is making the system operate, yeah, you are holding up the taxpayers, they have contingent liabilities for a huge amount of money.

  Now, for many years, the FDIC or the savings and loan deposit insurance, those fees covered its cost too and all it had was guarantees. And then one day we woke up and the taxpayers had a $600 billion bill for those guarantees.

  So Government guarantees are not costless and the——

  Mr. BENTSEN. Depending on how they are managed, I think that is correct, exactly, depending on how they are managed.

  Mr. FERRARA. It is not a matter of depending—why are you giving them the guarantee? You are undertaking a risk when you give them the guarantee. There is no sound argument to be made to say, ''Well, we will issue all these guarantees, but if it is properly managed then we will never have to pay for them.'' That is not sound analysis at all.

  Mr. BENTSEN. Let me just bring up another example. I don't want to run down a rabbit trail with you but you use the S&L as one example. Let's talk about Freddie Mac and Fannie Mae as another example. Again, there is an implicit guarantee that exists, maybe not an explicit guarantee. Would you argue that that is inefficient as well, that even though there may be an inefficiency in the housing market in the United States that we shouldn't be engaged in that activity?
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  Mr. FERRARA. Freddie Mac and Ginnie Mae, as I understand it, are almost entirely privatized and if you can fit this program into that box, then you should do so. I am not in favor of any taxpayer—look, as a matter of classical economic analysis, all these Government guarantees do is redirect funds from the most efficient use in the marketplace to the politically-favored uses. And then you get the politically-favored businesses coming here and saying, ''Look, our business has jobs, it is creating jobs.''

  Well, you are missing the rest of the story which is where those funds would have gone elsewhere in the private marketplace and it is not advancing the broad public interest.

  Mr. BENTSEN. Well, believe me, I would love to have the panel of economists and we have had them for Fannie and Freddie and they have given us differing views.

  My time is up, but if you would provide for the record and provide my office your data that backs up the claims of fallacy I would be interested to look at it.

  Thank you.

  Mr. MANZULLO. Thank you, Mr. Bentsen.

  Dr. Paul.

  Dr. PAUL. Thank you, Mr. Chairman.

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  I would like to make a few comments and address a few questions to Mr. Ferrara.

  The complaint here is that we need the Eximbank and yet it pays for itself. They are asking, if it is paying for itself, and last year they claim they made a profit of $1.2 billion, why are they here for an appropriation?

  I mean, why? Why do we need to be in this business if they are making good profit?

  So there is the claim of the $1.2 billion profit last year, that looks pretty good. They ought to be able to make it on their own.

  I was interested in your point of jobs. They claim that they create jobs but those who didn't get a job, you can't defend and you can't find those jobs that we don't see that weren't gotten.

  The same way with trade. They indicate that this is a tremendous boost to trade. What says that we wouldn't have had that trade otherwise? Maybe it would have been market-directed rather than directed by politics, so the trade doesn't mean it wouldn't be there. It might be a little bit different. The competition might have been a little bit different.

  They talk about jobs, but one thing I would like you to comment on is is there any possibility that a program like this could export jobs? To me, that would be very important and important to a lot of people in this country.

  Earlier today we heard testimony that this was a tremendous program for the small businessman and then by numbers it was supposed to be 80 percent of the clients were small businesspeople, but for some reason I suspect what you have handed out in that this is more of a benefit to the politically-privileged rather than the little guy who has a hard time filling out forms and getting these benefits.
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  Another area that I would like you to comment on is the area of guarantees, and to me I call this a ''credit allocation'', because once you get a Government guarantee, you know, if you are a banker you are surely going to make a guaranteed loan. You are not going to go out and work and decide on the market who is the gamble and who is a risk, and where does that money come from? The little guy, the small entrepreneur trying to get started. He is a risk. We are not going to gamble with that. We are going to go with this guarantee.

  But they talk about these small amounts that they don't really need because they are making profits, but then they guarantee these hundreds of billions of dollars—or at least tens of billions of dollars—that they guarantee. But isn't there also a monetary effect to this? If there is an easy guarantee for credit, all of a sudden the banks, if they use this credit for a guaranteed loan, then if they want to allow some credit to exist in the market for somebody else, this I would see puts the pressure on the Fed also to create more credit and contributes to a monetary problem as well.

  If you would comment on that, I would appreciate it.

  Mr. FERRARA. Well, Mr. Congressman, I am always glad to hear from a Congressman who understands economics.

  I think you are exactly 100 percent correct.

  Yes, there is a possibility that this program is causing a net loss of jobs overseas if you take into account what would have been done with the finance capital if it hadn't been reallocated, as you say, from the use the market would have chosen here in America to, say, some overseas construction project.
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  Most likely, the net result is the net loss of jobs due to this redirection process from where the market would pick the firms to where the politicians are picking the firms.

  For small businesses, small businesses have a hard time accessing a program like this. They don't have Washington lobbyists. A true small business out in Kansas or Utah or Texas doesn't pay for someone to come here today and testify on how they need the Eximbank. They don't have Washington representatives and Washington lobbyists and all the rest.

  That is why almost all small business exports that take place from America do so without Government assistance.

  Here we have 2 percent of Government exports financed with these subsidies and then we hear, ''Oh, woe is me. If the Government doesn't do that, America will lose its ability to export,'' and all the rest.

  The fact is, if you want to have a prosperous economy, let's get back to what we said we were for during the election time, which is cutting spending, cutting taxes, reducing the total Federal deficit.

  Dr. PAUL. Could you comment on the monetary pressure?

  Mr. FERRARA. Well, I think that there is a problem there. There may be that in addition to, as you mentioned, some person—we are not looking at the person who may not have a job, because the money was redirected to this program. We are also not looking at the person who may not have a loan, because the money was redirected to the politically-favored.
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  Look at all the small businessmen who go to their bankers and their bankers say ''Sorry, I don't have any money for you because you don't have a Government guarantee. So, I won't give you a loan to start up a business here in Topeka, because I am giving the money to someone to do a construction project in China and that is guaranteed, so I am going to get paid no matter what'', and so, yes, then that puts pressure on—I would say that that does create monetary policy pressure. But I think that mostly you want to look at the small businesses who are losing out, because their bankers are having the capital reallocated to the politically-favored—through these politically-favored programs.

  Dr. PAUL. Thank you. I think we settled it.

  Mr. MANZULLO. To settle it, Mr. Kennedy.

  Mr. KENNEDY. Yes. Well, you have got one vote anyway. I guess that might be settling it.

  But this program, I think the Eximbank can play a very significant and important role in assisting both large and small companies in dealing with a lot of the problems that we face in terms of entering foreign markets.

  I spent 10 years running companies and starting companies that sold a lot of products and bought a lot of products from foreign countries before I came to the Congress, and I believe the Eximbank has been enormously important and perhaps, I think, very underutilized by this country in terms of the role that it can play in the future.
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  Now, I take as an example—shortly after the NAFTA Agreement, I took the time to visit Mexico and deal with some of the problems that we were facing in that country where the United States Congress had actually negotiated some much higher standards in terms of the kind of environmental protections and labor standards that we expected Mexico to follow up on.

  What happened was that by the time I got there, and I took a number of companies, environmental export companies, from Massachusetts down to Mexico, and found that in most cases the standards which our country had negotiated were being fulfilled by foreign countries' companies that were providing all sorts of new technologies that were being funded by the Japanese Export-Import Bank, and in fact the Japanese Export-Import Bank was financing products that were made by Germans and Japanese and a whole range of other countries, and so it was kind of a bizarre situation where we had created the standard in the negotiation with the Mexicans. We have companies in the United States, thousands of small companies, that are creating all sorts of new and innovative, creative approaches to solving the kinds of problems that these countries are facing, and yet the companies here in the United States have no idea that these kinds of opportunities even exist.

  I wondered if anyone—I apologize for not being able to be here for the panel, but I had some other meetings this afternoon—but if any of you might want to comment on what you think the potential that exists for organizations like, not only the Eximbank but OPIC and the like, where the United States Government can play a very active role in unleashing some of the tremendous forces that exist in smaller companies as well as bigger companies, to take advantage of the kind of growing markets that are existing, particularly throughout the Third World?

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  If you have some comments about where you think this could grow into the future, I would certainly appreciate hearing about it.

  Mr. FERRIS. Mr. Kennedy, I had commented earlier that I think one of the opportunities that we have with Eximbank in representing the banking industry as well is we have not done a particularly good job of marketing the programs or even understanding the programs within our own banks.

  We have since November of last year made a concerted effort in the small business community to go out and market the Working Capital Guarantee Program and have had tremendous results in a 16–State area in which we have commercial banks. I think the opportunities for that type of program with a well-informed marketplace and a well-informed commercial banking marketplace is really boundless, particularly given the demographics of how the exports are increasing in this country.

  One of the concerns I would have is if I look at how we intend on expanding our presence with Eximbank over the next 12– to 48–months is the issue of whether or not, even if they are rechartered, they are going to have the budgetary capability to be able to meet the demands out there, particularly in with the growth of exports in the United States, and I think that has to be a real concern as well.

  I don't necessarily understand the budget that they have put forward to you or whether this can meet all of the demands that we do have in the market.

  Mr. KENNEDY. Anybody else?
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  Mr. ROBINSON. A quick observation. There is a tremendous sphere of influence that is created by every mega-project that any one of our organizations or any other major U.S. exporter create when we go offshore.

  Small business is referred to in several of the statements as the ''invisible'' part of the U.S. economy. They are not sitting here at this table, and no, they are not spending hundreds of thousands of dollars, or millions of dollars, to travel around the world and sell mega-projects like the rest of us are. But, there have been some very thorough, well documented evaluations done over the past few months that clearly document hundreds of small businesses and millions and millions of export opportunities that are created in the spheres of influence of these big projects.

  A second observation is that most of us, whether it is the financing end or the designing, building, or the equipment supply end, are finding opportunities offshore that just quite honestly don't exist in this country today.

  New capacity construction by the power industry has been flat at best and gone at worst. The water and waste-water industries are mature and there is not near as much money being spent in this country today on such projects as there is being spent in the developing parts of the world. The petrochemical market certainly has been flat, and there are not near the number of mega-project opportunities in the U.S. that are occurring in other parts of the world.

  We are creating opportunities for jobs and exports from this country that, quite frankly, would not exist here otherwise. We are creating great opportunities for small businesses when we go out and sell a billion-dollar job and bring it back and spread the subcontracts everywhere. Certainly, it creates jobs in places like Thailand and Indonesia, but it creates vast numbers of jobs and export opportunities here as well.
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  Mr. KENNEDY. Thank you.

  Mr. BOWE. Mr. Kennedy, the Small Business Exporters Association, representing companies that say by definition are less than 500 people. My own company is under 150, and we export to 20 countries a year. The first question any small business exporter, or potential small business exporter, asks is, ''How am I going to get paid, how am I going to finance this contract?'' If he has been offered a contract which has a letter of credit, maybe the payment 30 days after you ship or something, how does he finance that? That is where Exim comes into play. I think that their strategy of going with this Delegated Authority thing through banks is exactly the right way to go, because it regionalizes Exim to get local, and it gives Exim the operating leverage that with their staff freeze they will never be able to handle the deal flow that the small businessman might have.

  I just sold a dredge to Argentina for half a million bucks. Exim financed it through a bank, through a commercial bank. The commercial bank did all the work. And that kind of thing, there is a lot more potential for that.

  I think you are going to see more Internet-based stuff. It is pretty remarkable how much the Internet is opening international commerce. We get inquiries in our little business now from a dozen different countries a day where people have found our page on the Internet. Anybody, as you know, can set up a home page on the Internet. So that is going to be a way that communication is going to grow faster and faster, and it is not just an American phenomenon, but it is always going to need financing, and the Eximbank is going to have a role in that

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  Mr. KENNEDY. Thank you.

  Thank you, Mr. Chairman.

  Mr. MANZULLO. Just a couple of comments.

  With regard to it is only the large companies that benefit from Exim, Bechtel Corporation is one of the five largest construction companies in the world, and they and four other American construction and engineering companies pieced together a list of their subcontractors, and it came out to over 10,000 companies. Many of these are one- and two-person firms, because a corporation does not make all of the parts. A corporation is comprised of people, some of whom may belong to your organization, Mr. Ferrara. A corporation is also the sum of the suppliers to it, and being a good corporate manager means that you want to diversify as much as possible the number of suppliers to you so in the event of a strike or a slowdown at one particular company you will be guaranteed to get your supplies.

  What we have been seeing is a proliferation of tiny companies who really are the direct beneficiaries of Eximbank, because they supply the companies with parts and labor that are directly shipped or used overseas. So I just wanted to dispel the notion that Exim is for the big companies.

  The second, regarding those who are politically-favored becoming the beneficiaries of Exim loans. I do not know where that comes from. I do not represent labor unions. I do not represent corporations. I represent people. The Congressional District I represent runs from the Mississippi River across the top of the State of Illinois to within one county of Lake Michigan. It has over 1,500 manufacturing facilities. The key city there of Rockford, Illinois, exports 10 percent of all of U.S. exports of machine tools, and the city is the fastener capital of the world.
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  I have visited over 181 of those industries as a Member of Congress over the last 4 1/2 years. It is amazing to me how so many, especially of the small companies, directly benefit and have their lifeline in exports. We simply cannot imagine, for example, what it would mean to deny MFN status to China, and the incredible impact it would have here in the United States.

  Peter, you know, we have talked about this before. I think everybody at this panel agrees with your philosophy if it were being practiced by the other 72 countries in the world that finance export opportunities for the companies located within their country. The problem is we are only 1 out of the 73 Export-Import Banks worldwide. If we applied your philosophy, with which I agree 100 percent, across the board and everybody in the world agreed with that philosophy and practiced it as you do in theory, then there would not be any need for an Eximbank. I really appreciate your enthusiasm for your philosophical stance.

  But when I see situations like the one that faced Beloit Corporation, which has a facility in Beloit, Wisconsin, and in Rockton, Illinois, in the District that I represent. If they could not have obtained financing from Exim, they would have lost out to one of the other two paper-making machine companies in the world. One in Germany and one in Finland. Exim came through, guaranteed $270 million in loans, and saved 2,000 jobs. As I went through their plant, I walked alongside the management. The head of the labor union, and the men and women were lined up. It was incredible. They said, ''Congressman, thank you for helping to save our jobs.''

  Now there was no capital to redirect in that case. That was a situation where if Exim had not gotten involved, there would not have been the sale, and there would have been possibly a closure of that company. I agree with you philosophically, and I really wish the rest of the world did the same thing, but unfortunately the rest of the world does not think that way, and sometimes we have to use other methods in order to counter what is going on the foreign countries.
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  Mr. FERRARA. May I respond briefly to what you said?

  Mr. MANZULLO. Of course, Peter.

  Mr. FERRARA. You know, when the funds go in the private market, instead of being redirected through the Eximbank to particular projects, the projects those funds go to instead in the private market, which may be shoe manufacturing or whatever, they have small business subcontractors as well. What you have got here is—what it was called in free-market writings throughout the years—is the fallacy of the ''seen versus the unseen.'' You get taken on a tour by a company which says, ''Look, this Government subsidy saved our 2,000 jobs.'' But you do not see where the investment capital would have gone otherwise if it had——

  Mr. MANZULLO. It would have gone to Finland or Germany.

  Mr. FERRARA. Because it finances a project that would have gone overseas otherwise does not mean that there is not investment capital in America that instead of going to that company would have gone to another company in America, maybe one not involved in exports. So there is a lot that is unseen in the economy, and the fact is that is, it is a classic—I understand, you know, how that kind of experience leads you to think that this program is doing something worthwhile on net. What I am urging you to do is study the broader economics of this, and you will see that on net you are not creating 2,000 jobs. On net you are redirecting 2,000 jobs from one company to another, and maybe losing in the process.

  Mr. MANZULLO. Peter, the situation here is that there was not a pool of capital that would have gone somewhere else in the economy. Either the loan guarantee would have been made or would not have been made. That is the nature of borrowing.
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  Mr. FERRARA. But no, because a loan goes with the loan guarantee, and that money would have gone somewhere else, and you do not know where—you have not—you know, that would have created 2,000 jobs somewhere else in the American economy.

  Mr. MANZULLO. Well, if you could have come to the plant——

  Mr. FERRARA. That is what I mean by politically-favored, in that you had a company there that has the Congressman come on a tour. I mean, I am not trying to be difficult about it. I am trying to open up some new thinking here, because this is how we get to the situation where discretionary spending in America has increased by 100 percent over the last 10 years. The people who are licking envelopes at the grassroots are not doing that so we can continue to have business as usual. They want their money back, and the small businesses who are members of my group would rather have you abolish the Eximbank and OPIC and the rest of them and abolish the estate tax and the capital gains tax in the process. That would create prosperity and net jobs in America.

  Mr. MANZULLO. Do you think that depreciation of equipment is corporate welfare?

  Mr. FERRARA. No, no. Not at all. We do not include any tax provisions in our definition of corporate welfare, because allowing people to keep their own money is definitely not welfare. So in our 70 programs, not a one of them is a tax provision.

  Mr. MANZULLO. Mr. Bentsen, you had some more questions.

  Mr. BENTSEN. Thank you, Mr. Chairman.
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  Mr. Ferrara, you will have to excuse Mr. Manzullo and I. We both studied economics at American University, although he was a few years ahead of me, but——

  Mr. MANZULLO. No, I was with the Young Republicans and the Conservative Union there. We did not believe our professors of economics.


  Mr. BENTSEN. I will not say what I was going to say about what they used to say about the economics department, because I do not want it to end up in the record, but it was Fed staffers when I went there, which may be held in just as much contempt.

  It is, you know, what you say is quite possible. I mean, there was a theory of that which was, in 1980, called ''vote with your feet.'' That the loan might not be made along the Mississippi River in Illinois, but it might be made in Texas, or it might be made in California, and if you happened to be in that town in Illinois, you were just out of luck. But there is also, I think, a theory that rather than just a reallocation, a one-for-one reallocation, that there could be an expansion of activity.

  Black & Veatch may say ''Yes, we are going to go out for a project in Saudi, and we are going to go after a project in Texas, and we are going to go after another project if we can find the capital to support the activities to do it.'' My personal experience in business before coming to Congress was not ''We are going to go after this one client, we do not have time to go after this other client.'' We went after as many clients as we felt we could cover and had an opportunity to get. So I think there is that. But we otherwise disagree. But I will look forward to seeing your data on this.
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  I did want to ask Mr. Groom a question. This is sort of a market viewpoint, and it follows up a little bit on what Mr. Manzullo was saying. Let us say the United States decided to get out of the export-import financing business altogether and said we are just going to go it alone and let the other countries do what they want. Would Raytheon continue to pursue a chemical plant in Thailand, and would you do it with all the suppliers that you have on this list, or would you go to find suppliers in Germany or France or anywhere else where you could then access their export-import subsidy programs—because, you know, a subsidy is a subsidy, it all falls to the bottom line, and it might still be cheaper? Would that be an avenue that Raytheon would consider, instead of using domestic suppliers, use foreign suppliers, because their cost of capital is going to be cheaper, because their government is going to provide that subsidy?

  Mr. GROOM. It is an excellent question. We have resisted, and I think to a large part many of the EPC contractors—engineering, procurement, and construction contractors—in the United States have done the same, maintaining, or moving jobs offshore. We have tried very hard to maintain our core competence right here in the United States. Out of a combined 125,000 employees, we only have 9,400 overseas, and that is reflective of both the parent company, Raytheon, and Raytheon Engineers and Constructors.

  There is no question, however, that the major projects of the world divide themselves up amongst companies that can provide the best financing, and there is also no question that many times I am partnered with major suppliers that are of equal size to me for the express purpose of accessing financing their companies are offering. It reduces the burden on Eximbank, spreads the risk, but more importantly, allows a $1 billion or $2 billion project to go forward without dependency on a singular export credit agency.
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  If Exim did not exist, as difficult as it is to say, we would have no choice but to shift our resources offshore to take advantage of equivalent ECA export credit agency support from other countries. To not do so would leave us in a position where we could not win these overseas projects.

  Mr. BENTSEN. And you would not otherwise reallocate your overseas operations to trying to find other domestic projects?

  Mr. GROOM. Well, you said something very similar a moment ago. We do not ignore U.S. opportunities in order to pursue international opportunities. It is simply that the growth rates in these developing countries provide that much more opportunity for business than does the U.S. economy at present.

  The point I was trying to make in my testimony where we have in 3 years—closer to 4, excuse me—grown from 20 percent, or 22 percent, international business to 50 percent of our sales in the international marketplace, is not a testimony of intent on our part, it is where the growth is.

  Mr. BENTSEN. Thank you.

  Thank you, Mr. Chairman.

  Chairman CASTLE [presiding]. Thank you, Mr. Bentsen.

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  Dr. Paul, do you have any questions?

  Dr. PAUL. Yes. Thank you, Mr. Chairman.

  I would like to address my comments to Mr. Ferrara. I think we are making progress. Mr. Manzullo has already conceded that he agrees with the philosophy, so we are half way, we are half way there. And I hear that all the time. They agree with my philosophy, but, you know, we have to live in the world of practicalities.

  As I am sure you know, there is no way you can reject philosophy; you just have to pick which one you believe in. So if you believe in the philosophy of the market, you endure certain things. If you believe in the philosophy of welfareism, interventionism, inflationism and corporatism, then you go another route.

  So I don't think it is a choice of being philosophically pure. I think our opposition is philosophically pure in that they endorse principles that we wouldn't necessarily agree with.

  I would like you to restate your answer, because it has come up again, that one of the most practical reasons that we must do this is that our competitors do it and therefore we can't compete. But I think you touched on that earlier.

  You said that some of these countries that do this actually are penalized by it, so why do we want to further penalize our people if, indeed, it is a penalty to other countries when they do it?

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  Mr. FERRARA. Yes, thank you, Mr. Congressman.

  Well, you know, many countries overseas, a number of countries, they are completely dominated by corporate special interests and those corporate special interests raid the national treasury and hold up the nation's taxpayers for all kinds of benefits. We can't have American companies come to us and now say, ''We've got to do that to our taxpayers too, or else, you know, we will be out of luck, we will be at a disadvantage.''

  Those countries are losing on net by being dominated by these special interests. I mean, we heard the example of how France spends so much more on corporate welfare than we do. Well, they have double-digit unemployment in France and they have had no economic growth for God knows how long in France. Now, look, every one of you know up there that if you want to create economic prosperity for the country as a whole, for working people, for people from the bottom of the ladder to the top, what you need is a strong free market economy. What you need is to cut taxes, cut spending, cut the Federal deficit, get rid of these 70 programs and spend $70 billion.

  You know, get some small businesses up there and ask them whether they think they would be better off without the capital gains tax and without the estate tax, as opposed to all these corporate welfare programs. And in countries that follow, the proof is in the pudding. Go around the world and look at the countries that follow this general low tax, low government spending, low government regulation policy, and you will see those are the countries that are booming and have the most jobs and the most rapidly-increasing wages and the most exports. Whenever we have done that in America, we have had the same result. So that is the thing that is best in the general public interest.

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  Dr. PAUL. Thank you. That's all I have.

  Chairman CASTLE. Thank you, Dr. Paul.

  Well, I think that is the end to the questions for the day.

  I apologize for my own absence, but you will be glad to know that the Frank Sinatra Congressional Gold Medal did pass, we did get that done.

  We very much appreciate you being here. It takes a large chunk of your afternoon. We understand that.

  Your testimony, by the way, of course, is on record with everybody, so staff will have a chance to go over it and they may have some other questions for you, but it will be observed by more people than just attended this hearing.

  So, we do thank you very much for being here and we stand adjourned.

  [Whereupon, at 4:11 p.m., the hearing was adjourned.]