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REAUTHORIZATION OF THE EXPORT-IMPORT BANK
TUESDAY, MAY 8, 2001
U.S. House of Representatives,
Subcommittee on International Monetary Policy and Trade,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 2:00 p.m., in room 2128, Rayburn House Office Building, Hon. Doug Bereuter, [chairman of the subcommittee], presiding.
Present: Chairman Bereuter; Representatives Ose, Roukema, Capito, Sanders, Sherman, Schakowsky, and Bentsen.
Chairman BEREUTER. Good afternoon. The Subcommittee on International Monetary Policy and Trade meets today in open session to receive testimony on the reauthorization of the Export-Import Bank, the Ex-Im Bank.
The Ex-Im Bank was last reauthorized in 1997 for a 4-year term that expires on September 30th of this year. At this hearing the subcommittee will hear from representatives of a large corporation and a small business which use the Ex-Im Bank, as well as organizations who have differing opinions or criticisms of the Export-Import Bank's programs.
This is the subcommittee's second hearing on the Ex-Im Bank, and I am pleased to say we have only one panel today. I have been concerned for some time that we tend to hear from the Administration witnesses and then we don't have enough time for people who come to testify about the subject matter from the private sector and from the nonprofits.
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So today we'll have, I think, a good break in that respect. Also, the House is not expected to cast votes until 6:00 p.m.
On May 2nd, the subcommittee heard from an experienced panel of professional staff from the Export-Import Bank. In addition to giving their testimony, the Ex-Im Bank submitted a legislative proposal just recently which would be a straightforward reauthorization of the Export-Import Bank for 4 years until 2005, and the extension of the life of the Sub-Saharan Africa Advisory Committee to that date. I look forward to receiving the panel's views on this legislation and the bank in general.
Before introducing our outstanding panel, I am going to briefly stress the following items which were discussed in the first hearing of the Export-Import Bank: Proposed cuts in funding; possible net income; small business activities; Ex-Im Bank activities in Africa; and types of subsidies offered by export financing agencies in other countries, including tied aid war chests.
I would like the witnesses today to address those issues if they can and will and any others that they are planning to address will be most welcome.
I am going to summarize my following remarks and ask unanimous consent that my entire statement be made a part of the record, and to extend that privilege to all Members. Hearing no objection, that will be the order.
First, on May 2, the Ex-Im Bank testified regarding the proposed reduction in funding for fiscal year 2002. The Administration requested $633 million to fund its program budget which administers the Ex-Im Bank loan, insurance and guaranty programs. This is an approximately 25 percent cut from fiscal year 2001.
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I do have significant concerns about the Administration's proposed cut, but we'll see what this panel has to say about it.
Furthermore, the Ex-Im Bank also testified that they need additional funding for upgrading their technology. As a result, the Administration proposed $65 million for fiscal year 2002 for Ex-Im Bank administrative budget, which is an increase of $3 million from the prior year.
Second, at the May 2nd hearing, some questions were asked regarding the annual and cumulative net income for the Ex-Im Bank. And that's a subject in which the membership showed considerable interest.
Third, with respect to small businesses, the 1997 authorization law mandated that the Export-Import Bank make additional efforts to enhance its programs to small and rural companies. When the Ex-Im Bank testified, they explained how they continued to try to meet this mandate.
Today our small business witnesses will testify as to the efforts of the Ex-Im Bank in that regard from his perspective.
And also in the 1997 authorization bill, another mandate, an increase in the Ex-Im Bank's financial commitment to Sub-Saharan Africa.
I would like to pass over some comments about tied aid, but as I said before would welcome your suggestions about whether or not we've been successful in our efforts in OECD to reduce tied aid on the part of the other countries or whether or not some of them have found other ways to achieve the same purposes.
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Chairman BEREUTER. To assist the subcommittee in examining these reauthorization issues, I am pleased we have an opportunity to hear from a distinguished panel. First we will receive testimony from Mr. Richard Christman, President, Case IH Agricultural Businesses. I understand you have at least a 4:00 o'clock time constraint to catch a flight, and I think that should be no problem.
Case New Holland, which uses Ex-Im Bank, is the number one manufacturer of agriculture tractors and combines, the world's third-largest maker of construction equipment.
Next, Mr. Ian McLaughlin, the Chairman and CEO of Watson Machinery International based in Patterson, New Jersey will testify. He will bring the perspective of a small business owner who uses the Export-Import Bank and lots of machinery, supplies high performance machinery and production systems for wire, cable, fiber optics and wireless industries.
Our third panelist is Dr. Fred Bergsten, the Director of the Institute for International Economics. Since its creation in 1981, among other past positions, he was Assistant Secretary of the Treasury for International Affairs. He has testified before this panel and before the full Banking Committee and expects to be before the Financial Services Committee on many future occasions.
Next, Mr. Ian Vasquez, the Director of Cato Institute's Project on Global Economic Liberty. He will testify. His writings have appeared in newspapers throughout the United States and Latin America, and we look forward to his testimony.
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Dr. Brent Blackwelder, President of Friends of the Earth will testify. He was the founder of the Environmental Policy Institute which merged with the Friends of the Earth and Oceanic Society in 1989.
The final witness is Mr. George Becker, the former President of the United Steelworkers of America. He recently retired as President, was first elected to that position in November 1993. He is a second generation steel worker and a native of Granite City, Illinois.
We welcome the distinguished panel to our hearing. Without objection, their entire written statements will be included in their entirety in the record.
But now before we proceed with the panel, I would like to turn to the distinguished Ranking Member, the gentleman from Vermont, Mr. Sanders, for opening comments.
Mr. SANDERS. Thank you very much, Mr. Chairman, and thank you for putting together an excellent panel which I think will give us different viewpoints of the pluses and minuses of the Ex-Im Bank.
This is the major concern that I have. We do not discuss it as a government very much, but right now the United States has a recordbreaking trade deficit of well over $400 billion a year. And I think that the work of the Ex-Im Bank has got to be looked at within the context of a failed—f-a-i-l-e-d—failed trade policy, which is costing us hundreds of thousands of jobs. So that's the first thing.
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Our trade policy is failing, to my mind. We have a recordbreaking trade deficit. We have an $83 billion trade deficit with China, and Ex-Im Bank has got to be looked at within that context. And it is not good enough to say, well, gee, we have a huge trade deficit. That's why Ex-Im Bank is so important, that we can create a few more jobs. I think we have to look at Ex-Im Bank from a different perspective.
Second of all, I think that it is bad public policy to say to some of the largest corporations in America, companies like Boeing and General Electric, who have made substantial reductions in their workforce, who have laid off huge numbers of American workers, and say to them, well, thank you very much for laying off large numbers of American workers. Here is a subsidy from the Export-Import Bank.
It seems to me that if the United States is going to provide subsidies to employers, what we want to say to those employers, we are giving you this subsidy because we appreciate the work that you have done in increasing decent-paying jobs in the United States. And there are certainly companies in the United States who are working under very difficult odds. Small businesses, large businesses who are saying we want to grow jobs in the United States of America. Those, it seems to me, are the companies that we want to give support to.
When you have a company—and I will just single out G.E.—but there are many others. G.E., if Jack Welch were here today, what he would say, one of the things that we have focused on in recent years is globalization. One of the reasons that we are such a profitable corporation is that we are intentionally laying off American workers at decent wages and hiring people all over the world at very low wages. That's what we are doing. And for the Ex-Im bank to simply come and say, G.E., thank you for that policy of laying off American workers. We are going to make you one of the major beneficiaries of the Ex-Im Bank, is to me absolutely absurd.
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It is not good enough to look at Ex-Im Bank from a project-to-project-to-project basis, to say, OK, this project is creating 400 jobs, but we are forgetting the fact that you've laid off 10,000 workers, and that's your intention. Your intention is to move to China and pay people 20 or 30 cents an hour. But we don't care about that. This particular project will create a few jobs. Not good enough.
If you have a carrot, use the carrot, and use the carrot to benefit the people of the United States of America who are paying for these subsidies in general.
I am particularly impressed in reading through Mr. Becker's presentation to learn that the Export-Import Bank is financing a multi-million-dollar project to modernize a Chinese steel mill that is under investigation for illegally dumping steel into the United States. Now, that may make sense to some people. It does not make a lot of sense to me.
I think Mr. Blackwelder will talk in a moment about how some of the Ex-Im Bank projects have been very anti-environmental and at a time when every sane human being is worried about global warming and other negative things that are happening to our environment, I think we want to take a hard look at that as well.
So, Mr. Chairman, thank you for putting together this excellent panel, and I look forward to participating in the discussion.
Chairman BEREUTER. Thank you, Mr. Sanders, and thank you for your recommendations. Under the Committee rules, we will recognize other Members for opening statements of 3 minutes each. Gentleladies? Thank you very much.
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We will now proceed with testimony. First we will hear from Richard M. Christman. He is the President of Case IH Agricultural Business, but I failed to mention he is also appearing in behalf of the National Foreign Trade Council and the Coalition for Employment Through Exports.
Gentlemen, we would appreciate it if you could each limit your presentations to approximately 5 minutes. And as I said, your entire statement will be made a part of the record. Mr. Christman, you may proceed as you wish.
STATEMENT OF RICHARD M. CHRISTMAN, PRESIDENT, CASE IH AGRICULTURAL BUSINESS OF CASENEWHOLLAND INC.
Mr. CHRISTMAN. Thank you, Mr. Chairman and Members of the subcommittee. My name is Richard Christman, President of Case IH Agricultural Business of CaseNewHolland Inc. CNH is the number one manufacturer of agricultural tractors and combines in the world, and as indicated, the third largest manufacturer of construction equipment, and has one of the largest equipment finance operations within our industry.
I am also testifying today on behalf of the National Foreign Trade Council and the Coalition for Employment Through Exports, whose members comprise major U.S. exporters and financial institutions.
Now at the onset, let me emphasize that CNH and the other members of CEE and NFTC urge Congress to reauthorize the Ex-Im Bank for 5 years. It is essential to American exporters and our workers that the bank's charter be reauthorized until September 30th, 2006. This would avoid the difficulty which occurred in 1977, and then again this year, when the reauthorization occurs during the first year after a Presidential election and in the same year as when the Ex-Im Bank chairman's and vice chairman's terms expire.
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And we look to your leadership in ensuring that the bank is fulfilling its mandate to promote U.S. exports and, importantly, U.S. jobs, by being fully competitive with other major export credit agencies.
Now in this regard, adequate appropriations are just as important as the reauthorization in accomplishing this critical goal. Ex-Im Bank's budget must be funded adequately and its policies and procedures must recognize the realities of today's very fierce competitive marketplace.
CEE and NFTC recently issued a port on the important benefits of Ex-Im Bank to small and medium businesses. The report highlights that thousands, literally thousands of what we call ''invisible exporters'' across this nation by listing 35,000 primary suppliers of goods and services to 13 major U.S. exports, and CNH was one of those 13.
Now at CNH, our construction equipment moves the earth, and our agricultural equipment helps feed the world. Well, how do we do this? By exporting this construction equipment and ag equipment to over 160 countries. Now why do we do it? It's because trading gives us an opportunity to grow our business. It also gives then our suppliers an opportunity to grow their business. Because through our exports, their products then ultimately reach global customers.
So each of our suppliers can be viewed as what we call an ''invisible exporter.''
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Now many of our exports are assisted by Ex-Im Bank. The result: Exporting CNH equipment means that we are really importing business to our U.S. suppliers and to our factories in the U.S.
Ex-Im Bank serves as what we call our ''lender of last resort'' for U.S. exporters. And we use it when commercial bank financing is not available for those export sales, and the U.S. exporters, when we are confronted with foreign competitors that do have financing available from their governments. Currently there are some 70 governments around the world that have ECAs similar to Ex-Im Bank. And they provide $500 billion a year in government-backed financing.
Now increasingly, as we try and sell across the world, financing is a key to winning these export sales. Great products are not enough in today's marketplace. Customers demand that exporters arrange financing for sales. However, in many emerging markets where the export potential is the greatest, commercial banks are often unwilling to provide financing even for creditworthy customers.
And at this juncture, we cannot risk foreign suppliers stepping into these markets because of financing support from their ECAs. Lack of a viable or a fully funded Ex-Im Bank would adversely impact the ability of our company to compete against some very formidable foreign suppliers.
From 1977 through 2000, CNH financed more than $420 million worth of sales of Ex-Im Bank board-approved transactions to Uzbekistan, Turkmenistan, and Ukraine. Without Ex-Im Bank, none—and I stress none—of these sales would have been completed.
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And this does not even consider the impact of hundreds of thousands of other employees at our suppliers' factories or their sub-suppliers in the U.S.
For example, as shown on the charts here, to build one combine, we engage 235 suppliers from 30 states representing in total 100,000 employees.
To build a magnum tractor out of Racine, Wisconsin, we engage 200 suppliers, 27 states, and another 75,000. And while you probably can't read all the suppliers, many of those——
Chairman BEREUTER. I hate to interrupt you, but could you summarize and conclude in about 30 seconds?
Mr. CHRISTMAN. OK. Are under 100. Real life stories. In Uzbekistan, we have sold these. We need Ex-Im Bank financing to defend ourselves against the likes of Claas, Deuz-Fahr, Fendt. The key success factors is to get the financing, have it at a competitive rate, and make sure that we are competitive with those foreign governments out there that are competing for our business.
Thank you, Mr. Chairman.
Chairman BEREUTER. Thank you very much, Mr. Christman.
Next, we will hear from Mr. Ian McLaughlin. He is the Chairman and CEO of Watson Machinery International, but he is also speaking and appearing on behalf of the National Association of Manufacturers. Please proceed.
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STATEMENT OF IAN WATSON McLAUGHLIN, CHAIRMAN OF THE BOARD AND CEO OF WATSON MACHINERY INTERNATIONAL
Mr. MCLAUGHLIN. Good afternoon, Mr. Chairman. As you introduced me, I am Ian McLaughlin. Watson Machinery is a leading manufacturer of machinery and production systems that essentially make wire and cable, fiber optic cable, and wireless cable. We are based in Patterson, New Jersey, and I have prepared testimony that I ask to be submitted in the written record, and I have some brief remarks.
I am also testifying on behalf of the National Association of Manufacturers.
Thank you for the opportunity to testify on the reauthorization of the Export-Import Bank. Many might be surprised that Watson Machinery, a small American business with 90 employees, is even remotely interested in Ex-Im Bank. After all, the claim is often made that Ex-Im Bank is the financial boutique of the Fortune 100.
I am here to let you know that Ex-Im Bank is actually vital to small manufacturers such as myself and/or my company, and it does fill a gap in the financial market that we could not find elsewhere.
Bottom line is that about as much as 60 percent of the sales of Watson are outside the United States. And without Ex-Im Bank, these deals would go to my competitors in Italy, in France, in Germany and elsewhere, all of whose export credit agencies do provide the working capital guarantees necessary to support small businesses in their countries.
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An illustration of the critical role Ex-Im Bank plays occurred at the end of 2000 for Watson Machinery. We signed a contract to sell capital machinery worth $4.6 million, and that machinery represented two lines of production for fiber optic cabling equipment and two lines to manufacture radio frequency wireless cable to Ocean Cable Communications, called OCC, in Tochigi, Japan. This sale would not have occurred without help from Ex-Im Bank's Working Capital Guarantee Program.
To get to the essence of the matter, our banking facility does not allow work-in-process inventory financing. As this order represented our first penetration into the Japanese marketplace, we had intense competition from Europe. We did not ask for progress payments, and that is where Ex-Im Bank came in.
Watson filed an application for an Ex-Im Bank working capital loan guarantee. Now that Working Capital Loan Guarantee Program encourages commercial lenders to make loans to U.S. businesses for various export-related activities, including the purchase of raw materials, labor and overhead to produce the goods and services which we export.
The guarantee may be used to cover working capital loans to a U.S. business only if the lender shows that the loan would not have been made without the assistance and guarantee of Ex-Im Bank, and that Ex-Im Bank determines that the exporter is creditworthy. In the case of Watson, Ex-Im Bank approved a $3 million guarantee that backed our ability to be able to produce $4.6 million in equipment to sell to Japan. And I can tell you, it would not have happened otherwise. We have been dealing with one of the largest banks in New Jersey, and they are still skitterish on providing export financing.
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I emphasize two points. Again, the transaction would not have gone forward without Ex-Im Bank, and that this support doesn't come for free. Ex-Im Bank only entered into the transaction when the lender showed that the loan would not have been made, and our lender in fact is a bank that's headquartered out of Connecticut, that would not have been made with Ex-Im Bank's guarantee. In other words, Ex-Im Bank proved that it can fill gaps in financial markets for small companies.
No corporate subsidy here, particularly when you consider that the export credit agencies of my competitors overseas are not holding back in this area.
We paid a $500 processing fee and an up-front facility fee of 1.5 percent of the total loan amount. And that helped ensure that there was an adequate loan loss reserve and an acceptable risk level for the U.S. Government.
Watson Machinery International will continue to do everything in its power to remain competitive in global markets. And I am here to ask you to do your part to help in filling those gaps in financial markets.
I see that my time is up, and I will cease at that point.
Chairman BEREUTER. Thank you very much, Mr. McLaughlin.
Next we will hear from Dr. C. Fred Bergsten. He is the Director and founder of the Institute for International Economics. Dr. Bergsten, you may proceed as you wish.
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STATEMENT OF DR. C. FRED BERGSTEN, DIRECTOR, INSTITUTE FOR INTERNATIONAL ECONOMICS
Dr. BERGSTEN. Mr. Chairman, thank you very much. Let me start with the bottom line. I think it would be a huge mistake to substantially cut the budget and program of the Export-Import Bank as the Administration has proposed.
To the contrary, I believe there should be a substantial increase in funding for the Ex-Im Bank because that is the only way to assure a level playing field for American exporters in world trade.
I give calculations in my paper suggesting that the increase should be about 50 percent, and I trace what that would mean for budget authority, the authorization ceiling, and the annual program level.
I stress, only with such an increase will we provide a level playing field for American exporters in the world economy.
I also believe the reauthorization bill, far from being a clean bill, should give the bank new authorities to compete with the market windows through which other competitors are eating our lunch, and authority to compete with so-called untied aid, which often amounts to de facto tied aid and is also eating our lunch in key markets like power equipment in China.
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We should use the current war chest availability for that purpose and the new legislation should authorize it.
Why do I make these strong proposals? I agree with Mr. Sanders. We have to see the Ex-Im Bank issue in a much broader context, not just the individual transactions, important as they are, but in the context of our whole economy and indeed our whole trade deficit, exactly as Mr. Sanders said.
But my conclusions are very different from his. First, we have to recognize that export expansion has been a major driver of U.S. economic growth for two to three decades. The share of exports in our economy has tripled over the last generation. It has been a major source of the dynamic improvement of the U.S. economy, particularly over the last decade. My Institute has published two studies showing why this is so. We've another one coming in the next few months. I'm happy to share the details on that with you if you wish.
The second big picture reason is, as Mr. Sanders said, the trade deficit. I'll go him one better. It's getting close to $500 billion this year, 5 percent of the economy. It's a financial risk because the dollar could fall sharply at any moment, and it's a trade policy risk, as he implies.
There are only two ways to correct the big trade deficit. One is to reduce imports, the other is to expand exports. I would argue that export expansion is by far and away the overwhelmingly better way to do it. The Ex-Im Bank is not going to do that by itself, but it can certainly help, and that's one reason we should want to promote it.
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I should add that in both the overall economic and trade balance contexts, according to a series of studies, including those by my institute, export jobs are considerably better than other manufacturing jobs, let alone other average jobs in the economy. They pay 5 to 10 percent better, benefits are even better than that by comparison, productivity is 20 percent higher in export firms, and they are 10 percent less likely to go out of business and destroy jobs.
So, on both quantity and quality grounds, it's a big plus for the economy.
Mr. Sanders rightly asks the question, what about those firms that get big Ex-Im Bank credits but reduce jobs? My answer is quite straightforward. Without the Ex-Im Bank credits and the exports, they would have reduced more jobs. Indeed, the jobs they have created with the credits are very good, high-paying, stable jobs, and that is what we want.
Moreover, if you look at the whole economy, it has, until quite recently, been at full employment by anybody's definition. We cannot look at just one firm or even one industry. We have to look at the impact on the economy as a whole, and that is where the payoff has been.
The final policy reason to support a stronger Ex-Im Bank is overall trade policy. The President is about to come to the Congress for trade promotion authority—fast track as it used to be called—to enable the U.S. to negotiate new reductions in trade barriers around the world. As you know better than me, that's going to be a big battle. And those of us who support increased trade activity and authority to do it need all the help we can get. This for sure means strong support from the exporting community. That in turn means working with them in constructive ways where the government can help, like supporting a bigger and more effective Export-Import Bank program.
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The final point, Mr. Chairman, is to suggest that the basic strategy we need for the Ex-Im Bank is a two-track strategy. We want to get a level playing field for American industry in world trade, which means getting foreign countries to stop providing excessive subsidies. We want to negotiate reductions or preferably elimination, of their subsidies wherever possible.
We know from history, not theory, that the only way to do this is to have sufficiently serious programs of our own so that we can bring the foreign competitors to the negotiating table.
So, we not only want to increase our own programs to support exports on their merits but also use those programs to get others to reduce their subsidies.
We know from history that it works. When I was running the international part of the Treasury, we did it in the late 1970s—we created the OECD agreement that eliminated excessive maturities and excessive interest rate subsidies.
It was done in the mid-1980s. The war chest was used to stop tied aid practices that amounted to export subsidies. But today, new practices have crept in. We need to seriously deal with them. I believe that, in your reauthorization legislation, you need to increase the amounts, not cut them; broaden the authorities; and promote an effective U.S. policy in this area.
Chairman BEREUTER. Thank you very much, Dr. Bergsten.
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I mispronounced the next panelist's name, giving him the name of our colleague. It's Mr. Ian Vasquez, not Velasquez. Senior Fellow—apologize for that—Cato Institute. Accent on the last syllable or first syllable?
Mr. VASQUEZ. First syllable.
Chairman BEREUTER. Mr. Vasquez, you may proceed as you wish.
STATEMENT OF IAN VASQUEZ, DIRECTOR, PROJECT ON GLOBAL ECONOMIC LIBERTY, CATO INSTITUTE
Mr. VASQUEZ. Thank you. I would like to thank Chairman Bereuter for inviting me to testify. In the interest of transparency, let me point out that neither the Cato Institute nor I receive government money of any kind.
President Bush has called for a 25 percent cut in the funding of the Export-Import Bank. I believe that the proposed cuts are a good start, but that Congress should go much further in recognition that the rationales for using the Export-Import Bank and its credit do not justify its current level of authorizations.
The Ex-Im Bank and its proponents cite a number of reasons that the credit agency benefits the United States. Yet because the bank takes resources from the U.S. economy and diverts them toward politically determined less efficient uses, its intervention creates distortions in the national economy and imposes opportunity costs that surely outweigh the value of the bank's intervention.
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Moreover, as the GAO and the Congressional Research Service and numerous economists have pointed out, subsidized export credits do not create jobs, nor noticeably affect the level of trade. Indeed, only about 1.5 percent of all U.S. exports are backed by the Ex-Im Bank, far too small to make an impact on trade.
Other factors play a much larger role in influencing jobs and trade, including interest rates, capital flows and exchange rates. Rather, the effect of subsidized exports is to subsidize foreign consumption and to alter the composition of employment and production in the U.S. economy without increasing economic activity or levels of employment.
A principal rationale for use of Ex-Im Bank resources is that the agency provides its services when the private sector is unable or unwilling to do so. Yet the bank has been providing the bulk of its services to countries like China and Mexico that have had little difficulty in attracting private investment on their own. Ten countries account for 50 percent of the agency's total exposure.
At best, then, the bank provides financing to countries that do not have trouble obtaining credit, and in many cases may be merely displacing private investment. At worst, the credit agency underwrites exports that should not be financed and would not otherwise receive support.
Indeed, the lack of private sector finance is not an example of market failure but rather an important market signal about a project's prospects or a country's investment regime. In the cases where the bank provides credit into a bad policy environment, it discourages host governments from introducing the types of market reforms that are necessary to genuinely attract private capital.
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And so I believe that it is worrisome that the Ex-Im Bank has significantly expanded its operations in sub-Saharan Africa in the past few years since the majority of those countries lack economic freedom and are on the World Bank and the IMF's list of highly indebted nations unable to pay their debts.
In sum, if the private sector is not already providing export credit or insurance to a project, there are probably good reasons for that, and the bank should not step in. The risks of government failure far outweigh that of so-called ''market failure,'' and examples of that include the fact that Ex-Im Bank credit helps to postpone market reforms, imposes large opportunity costs and finances firms abroad that compete with U.S. firms.
The other principal rationale for Ex-Im Bank credit is that it is used to countersubsidize competition that U.S. firms sometimes face. But much Ex-Im Bank credit helps U.S. firms that do not face competition subsidized by foreign governments. In 1999, for example, only 18 percent of medium-and long-term loan guarantee transactions went to counter government-backed export credit competition, representing about $6.3 billion of the Ex-Im Bank's activity.
Those figures suggest that the bank could significantly reduce its activities without undermining its mission to counter foreign-subsidized competition. The Bush Administration's proposal to cut the bank's funding by 25 percent should be viewed as a starting point even by those who believe that the agency has a legitimate role in countering subsidized foreign exports. At the very least, then, the Export-Import Bank should be limited to financing exports that meet that criteria.
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But the idea that the United States suffers from a playing field that is not level is questionable. The United States exports about $1 trillion of goods and services per year. The Ex-Im Bank backs only $15.5 billion of that amount, or 1.5 percent of total exports, only some of which face government-subsidized competition.
When only a fraction of 1 percent of U.S. exports faces competition supported by foreign export credit agencies, it is difficult to conclude that the U.S. economy is threatened by a playing field tilted against it.
If the goal is to help U.S. exporters, there are other, more preferable ways in which to do so; namely, by making the United States a more competitive economy, and Congress can do much by addressing issues related to tax and regulatory policy.
It is time that Congress retire this corporate welfare agency. The bank benefits a small number of firms at the expense of the rest of us. Moreover, the tiny percentage of U.S. exports supported by Ex-Im Bank shows that the U.S. economy does not suffer from a lack of a level playing field.
Finally, and most importantly, Congress does not have the Constitutional authority to use general taxpayer money to support specific groups.
Thank you.
Chairman BEREUTER. Mr. Vasquez, thank you very much.
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Next we will hear from Dr. Brent Blackwelder, President, Friends of the Earth. He reminded me he had appeared 18 years ago before the predecessor subcommittee. We were looking at the World Bank. And you may well have had some impact on us enhancing the environmental review process of the World Bank because of the oversight activities of this subcommittee and our push to their executive director.
Dr. Blackwelder, please proceed as you wish.
STATEMENT OF DR. BRENT BLACKWELDER, PRESIDENT, FRIENDS OF THE EARTH
Dr. BLACKWELDER. Thank you, Mr. Chairman. We are very grateful for the opportunity to testify. And in my testimony I'm going to stress several ways in which once again Congress could make some decisive changes as you have in the past with respect to the World Bank, and those produce very beneficial results in terms of the projects which they support.
Friends of the Earth is a national environmental group. We're part of Friends of the Earth International with member groups in 69 countries. So we bring a global perspective to these recommendations.
Before I go forward with these suggestions, I want to commend outgoing Chairman Harmon, because the Export-Import Bank has some of the very best environmental standards. And rather than leading to a downward harmonization, these have led to an upward harmonization, because Australia and Japan's export credit agencies are moving up with their guidelines to improve the environmental performance.
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Furthermore, those guidelines have helped us avoid giving a blessing to projects which are environmentally damaging. So I think there is a good thing that we can look at there.
Now I want to turn to several suggestions for changes which you could put into the authorization bill. One is to ensure timely public input and comment on projects, making environmental assessments available. The disclosure. This could be similar to what is required in the case of OPIC. We suggest a 120-day period.
Second, you could put into place an ombudsman or an independent review panel. This is what you did in the case of the World Bank, and one of the beneficial results of that review was that they put the red flags up on a very dangerous and damaging World Bank project, the Western China Poverty Project, and that was scrapped. So I think Congress, in particular this Committee, could take credit there. And once again, the Export-Import Bank could use some sort of ombudsman or independent review panel or function.
Next, the World Commission on Dams has just completed its series of recommendations. And we would urge that the U.S. Export-Import Bank adopt and abide by those recommendations. They are outstanding. And right now, there are several major dams being proposed which may be eligible for export credit financing. Not only would they create serious environmental and social impacts, but some of them would actually destroy places of great cultural significance to human civilization. I'm referring, for example, to the Ilisu Dam in Turkey.
Next let me turn to the final and most significant area in which I think what the Export-Import Bank does has huge and major implications to the environment of Planet Earth, implications that affect everybody on the Earth.
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What the U.S. Export-Import Bank and OPIC did, according to our study, between 1992 and 1998, was to provide support for fossil fuel projects which will emit as much carbon dioxide over their lifetimes as the entire world economy emitted in 1996. So, there has been discussion mentioned earlier, is Export-Import Bank that big? I'm telling you, in the environmental area, they are huge.
And their energy policy is undermining the climate concerns and objectives that President Bush has articulated and others have expressed concern about. And this is typical also of what export credit agencies have been dong around the world. They are not respecting the G–8 communique saying that we need to be aware of climate change and we should not with our financing be supporting projects that keep countries like China and India hooked on fossil fuels. And this was one of the concerns the U.S. Congress raised about the Kyoto Treaty.
So it makes no sense on the one hand to say, well, we want to go ahead, but we're not going to do it if China and India are going to stay hooked, and then with our Export-Import Bank and other resources, provide only funding for this kind of project.
We would say that the big reform needs to be to shift to clean energy sources. Because the Export-Import Bank's financing has gone from 3 percent to 28 percent of the portfolio in terms of fossil fuel projects between fiscal' 99 and fiscal 2000.
So you can make a decisive difference, and I would urge you to do so. We would really support this. Because it's absolutely crucial to the health of people throughout the world that we shift our approach to energy, and the Export-Import Bank could help do so.
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Chairman BEREUTER. Thank you, Dr. Blackwelder, and right on time.
Next we will hear from Mr. George Becker, former President, United Steelworkers of America. Mr. Becker, you may proceed as you wish.
STATEMENT OF GEORGE BECKER, FORMER PRESIDENT, UNITED STEELWORKERS OF AMERICA
Mr. BECKER. Thank you, Mr. Chairman, Ranking Member Sanders and Members of the Committee. It's an honor to be with you. You have my testimony. I'm not going to repeat the testimony. You can read that.
I'd like to make some comments, though. I was the President of the United Steelworkers of America. We have about 750,000 members in two countries. We're a manufacturing union. We're the largest steel union. We're the largest aluminum union. When I say ''aluminum'', I'm representing the members in those industries.
We're the largest union representing rubber workers in the United States and in manufacturing generally throughout those countries. We had a broad diversification in our union, touching all segments. Most people tend to think of us as steel only. That's really not true.
I want to make one point with the Committee very clear. We are not opposed to trade. We're a trading union. At conferences and conventions I would many times ask the people in attendance, the delegates in attendance, to hold up their hand if they're involved in exports. And so clearly some 85 percent of our members across the boards from the representative leaders as these sessions indicate that they are involved in export in one way or another.
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We are opposed to unfair trade. This is clear. We're opposed to dumping. We're opposed to the virtual dismantling of American industry in the United States that's taking place today. Literally hundreds of thousands of jobs are being wiped out in the manufacturing sector annually.
We're under an assault like we've never faced, at least within my lifetime, which is far longer than what I care to think about anymore these days.
I guess the one thing that—we deal with trade, we deal with imports coming into the country, and we know there are prices to pay, but we want it to be fair competition. But even if it's predatory competition, we have to deal with that. The one thing that we don't understand, we don't like, is when our institutions in the United States, in which we contribute a lot, workers do, in supporting the tax base, is used against their own best interest, like in the Ex-Im Bank and the $18 million that was fed into Benxi, I think is how you pronounce it, the iron and steel company in China, strictly for the purpose of increasing its capacity.
We have a worldwide glut of steel in the world today. We're suffering from that here in the United States, and people tell us continually—this Administration and the one previous told us that we have to deal somehow with the world capacity. Somebody has to deal with it, but nobody has dealt with it. This is the wrong way to increase that capacity.
This is an export mill that's in China, and it's going to be used to bring product back into the United States. We do not need to increase capacity of that kind. We don't need to use our tax money to do that. What we're wiping out is family supportive jobs, what I call the American Dream, where you can buy a house, you can buy a car, you can educate your children, you can pay your taxes, you can support the social network in the United States, you can afford to pay the taxes on Social Security and Medicare. You can't do that on minimum wage jobs. We're wiping out the family supportive jobs.
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Let me be blunt, if I haven't been up to now. I'm outraged over the fact that our tax base money is being used to put our industry in jeopardy. Right now we've got 18 steelmaking plants in bankruptcy in the United States. We've got hundreds of thousands of jobs at risk. Some of these are going to be wiped out. Our pricing structure has been destroyed by the imports coming in. You can't sell steel at the prices today that the import levels have driven it to.
The answer is what? Do we want to wipe out the steel industry? We're operating at 76 percent last week, 76 percent capacity in the United States. That's not enough to keep it going. We're going down the drain. Big mills are going down the drain. I mean, the third largest is in bankruptcy and is in danger of going into Chapter 7, which means you turn the lights out on it, and others aren't far behind.
You can't borrow money. They can't reinvest in the industry. You talk about Ex-Im Bank pouring money in for the Chinese to build steel capacity to take our markets in the United States? Why don't they invest somewhat in the United States to where we can build the capacity and make more efficient industry and keep the jobs here in the United States, the kind that pays all of our freight—yours, mine, and everybody else in this country?
I think it's outrageous for us to deal with China this way. It's a predator nation. We have over a $400 billion deficit, trade deficit with China. They don't respect human rights. They're a repressive government. People cannot share in a wealth they help create in China. They can't take collective action like we can in the United States, and you can in the rest of democracies. I think it's a terrible situation.
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Surely this can't be what Ex-Im Bank was designed to produce, to wipe out jobs.
You know, there was a comic strip I used to refer to years and years ago. Maybe everybody's forgot it—''Pogo''. He said, ''We have met the enemy and he are us''. Sometimes I think this is where we're heading right now. We should come to grips with who's side we're really on.
In conclusion, let me say I think this is an excellent opportunity for your Committee to examine the functions of the Ex-Im Bank, to take a good look at this, and let's get it back on track while we still have time.
Thank you.
Chairman BEREUTER. Thank you, Mr. Becker. And may I say that I think all of you have made your points very concisely and very ably.
The subcommittee will now proceed under the 5-minute question rule. And I can assure Members that we expect to have a second round of questions, so if you don't complete your first line of questioning, we'll come back to you shortly.
So I'll begin with the questioning under the 5-minute rule, and we will recognize Members here in order of seniority at the beginning of the hearing and those who arrived slightly after it began, we'll recognize you as you appeared.
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Mr. Christman, I would begin with you and ask you two questions. If it's possible, can you estimate what effect a cut in Ex-Im Bank funding would have on Case? Would you have had to lower your production levels if we had this proposed level of authorization, a 25 percent cut? And that's a difficult one to answer, I imagine.
But here's the second one. Case is a large—I've got to make sure I get ''IH'' in there, having some family history in it—is a large corporation with a strong credit history. Please explain why a major corporation such as yours could not finance these export transactions without the Export-Import Bank.
Would you take a crack at those two questions, please?
Mr. CHRISTMAN. I'd be happy to, Mr. Chairman. If we look at the impact of a 25 percent reduction, let's just put it in perspective. If we look at the tractors that we build at a union facility in Racine, Wisconsin and the production that goes into just those former Soviet Union countries that require Ex-Im Bank financing, represent one month of production at that factory.
Out of our combine factory, Ex-Im Bank finance production accounts for 2 1/2 months of our production. So if you just do very simple math, if the budget is cut 25 percent and our share of that business goes down 25 percent, we would have to take temporary shutdowns at our tractor facility of an additional week, workers would be off work. And at our combine factory it would be a little over 2 1/2 weeks. So a major impact to our factories and the workers in those factories for a 25 percent cut.
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It's important as we compete on a world market, relative to the second part of your question, we are willing to compete with any company in the world on product, on pricing and financing, company to company. It's when we're up against government-subsidized financing that we're not able to compete, even with a fairly large company. When we're up against Hermes financing from Germany or Kolke from Poland or wherever, that is where we're not competitive, and that's where we need Ex-Im Bank's support.
Chairman BEREUTER. Thank you very much.
Dr. Bergsten, you have quite a discussion on page 6 on market windows. And you're describing a situation where the official institution of a competitor country is the official lender and a private bank. And you suggest that together, the Canadian and German market windows, these hybrid institutions, did $12 billion of financing in 1999. Can you enlarge a little bit as to what you think the overall impact of that is?
And since OECD arrangement appears not to have covered this issue, what should be the policy of our government with respect to these market window competition factors that we face?
Dr. BERGSTEN. On the second question, I think our policy, as I suggested in broad terms in my statement, should be to bring these market windows, like all other aspects of export credit finance, under the international restraint agreement.
The problem has been that the nature of those new market windows has enabled their proprietors—particularly the Canadians and Germans, but more are coming—to argue that they are not covered by the arrangement. I know the Ex-Im Bank has tried to take them to court, so to speak, but they have rejected it. As a result, those operations have clearly won contracts that our people didn't even know about.
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Part of the international arrangement on export credits is prior notification so that the various export credit agencies can match the offers made by their competitors. In these cases, the foreigners do not even notify. So our people, like Case or somebody else, wind up losing the contract for which they didn't even know there was competition from an official export credit agency abroad. I think that's an egregious practice, and we certainly want to bring it under control.
As I argued, however, we're going to bring it under control only if we're willing first to fight fire with fire.
What's the nature of the beast? It's an invention by foreign countries that literally provides market-type operations under a government guise. The two countries involved have brought in a lot of private-sector expertise—incidentally at higher salaries—people with experience in the banking sectors, but they've brought them under a government program in which the government provides the startup capital. It requires no payment of dividends and there is no taxation of earnings, therefore that money can be plowed back into the program. Also, where there are implicit government guarantees for any of the credits being made.
In addition, they even shift some of their administrative cost to the government payroll. In the German case, for example, through an institution that does a lot of domestic finance as well as international finance.
So it's a clever invention on the part of the foreign competitors. It reveals once again the old truth that people in this business are always trying to stay one step ahead of the judge. The problem is, if we don't catch up and match it, and then try to bring it back under the rules, we lose.
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Chairman BEREUTER. Thank you, Dr. Bergsten.
The gentleman from Vermont, Mr. Sanders is recognized.
Mr. SANDERS. Thank you, Mr. Chairman. Let me say a few words on an issue that I think almost everybody has touched on, and then I have a couple of questions. That is the issue of the level playing field. And I think Dr. Bergsten and others have said that it seems to be unfair that some of the European countries, for example, provide higher subsidies than we do and it creates an unfair level playing field.
But let me talk about comparisons between the United States and Europe. I find it interesting that people pick out this issue. In Germany, wages today are about 25 percent higher than they are in the United States for manufacturing.
Every worker in Europe has a national health care program, and I hope that those people who are speaking in favor of the Export-Import Bank will tell us that they want to level that playing field and we can count on your support for national health care program, higher wages for our workers. I hope you'll be talking about leveling the playing field.
In Europe, most of the countries have very strong family leave programs, as you know, not like we have where we don't pay workers, but in Europe I think they pay 50, 80 percent of the wages of women who have babies, and I look forward to your support on that issue, and it will level the playing field.
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In Germany we heard college education is free, not $20,000 or $30,000, because the government puts money into college education. So we'll look forward to your support for my legislation to double and triple Pell Grants.
In Germany I think it is, the workers have 6 weeks' paid vacation, and we want to know obviously as we level the playing field with Europe, for your support in that area as well.
And I think probably in Europe, although I'm not an expert on that, you probably don't have situations where large multinationals pay zero taxes like General Motors does in the United States. They probably have a more progressive tax system.
The point being, Mr. Chairman, when we talk about a level playing field, let's look at all aspects of our society and not just one. And if they want to talk about a level playing field in terms of the social services that are provided to the working people in Europe, let's work together on that issue.
Also when we talk about a level playing field, I would like some of the gentlemen who are supporting MFN either now or later to talk about a level playing field for an American worker competing against somebody in China who makes 25 cents an hour, who can't form a union, who can't demand democratic representation for their government. I want to talk about a level playing field in that respect as well.
Let me ask Mr. Becker a question. Mr. Becker, the United States has today something like a $450 billion trade deficit. We hear many people telling us, as we have today, about all of the jobs that are created through exports, and that is very clearly true. Good jobs are created from exports. I have no argument with that. But I seem not to hear another part of that equation. Maybe my ears didn't hear it. And that is if you have a $400 billion trade deficit, there has to be at least one or two jobs that seem to be lost.
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In other words, economists tell us—I know they differ on this—that for every $1 billion of export, you create 14,000 new jobs. What about every $1 billion of trade deficit? Mr. Becker, do you want to comment on that?
Mr. BECKER. Absolutely. I was a member, as you'll see on my testimony, I was a member of the Congressional Trade Deficit Review Commission that was just terminated at the beginning of this year.
The figures that they use, that the Commerce Department has used and Labor has used, that 13,000 jobs exist for every $1 billion of exports, and they point to that with a great degree of pride, you can multiply that. If you use that same figure and turn it around. Now maybe it wouldn't be precise. Incidentally, it's between 13,000 and 20,000 jobs. It's somewhere in that range, according to the pricing of the product and that. You turn that around with a $400 billion deficit, you're talking somewhere in the neighborhood of six million jobs that have been lost as a result of that.
Could I add one thing? You referred to Germany. Something that's always bothered me. You know, a lot of the transfer of jobs from the United States to Mexico and other places in the world is to escape the union. And I point out the value of having family supportive jobs. We have an adversarial relationship in the United States which bothers me. You know, it's not all from our side. The industry would like to move.
Industry in the United States, and in some respects a lot in government, has never accepted the union's right to exist as an institution in this country in spite of the law. They will do everything they can to break the union. They'll do everything they can to run from the union. One individual of a leading company in the United States, maybe the world's largest company, has said to—which represents a lot of union workers—ideally, every plant I own would be on a barge''. Every plant I own would be on a barge.
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Mr. SANDERS. I think that's Jack Welch.
Mr. BECKER. And I could float it anywhere in the world to the lowest price and move it at will.
Mr. SANDERS. That's Jack Welch I think of G.E., isn't it?
Mr. BECKER. You know who he is, too. Yes.
Mr. SANDERS. Thank you, Mr. Becker.
Chairman BEREUTER. The time of the gentleman has expired.
Mr. BECKER. Incidentally, they are the contractor on the Benxi that I'm talking about. That's the only reason I make reference to that. They're the ones who will be the recipient of electronics that goes in there, into that plant.
Chairman BEREUTER. The time of the gentleman has expired. Now, in accordance with the rules, we'll call on those Members who were here at the beginning of the hearing. So the gentlelady from Illinois, Ms. Biggert is recognized for 5 minutes.
Ms. BIGGERT. Thank you, Mr. Chairman. First of all, I would like to thank Mr. Christman for taking the time to be here. Case's Burr Ridge, Illinois Agriculture Equipment Research and Development facility is located in my district. So I'm glad to welcome you here.
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As the number one manufacturer of agricultural tractors and combines in the world, certainly Case's operations are important to both the 13th Congressional District and the entire State of Illinois. So I know that Ex-Im Bank has been a large part of the success of Case and many other companies like Case.
In Illinois alone, the Ex-Im Bank has supported 118 communities, 285 companies, and financed a total of $3 billion in exports over the last 5 years. So this certainly is, in addition also to the 42,000 jobs that it has helped to sustain in Illinois. So we're very happy to have you there.
Maybe you could expand on these numbers, Mr. Christman, and share with us how the Ex-Im Bank benefits you and other exporters.
Mr. CHRISTMAN. OK. Let me just make another comment, and also relative to production. The merger of New Holland and Case brought some capacity rationalization. As I said, the industry is down here 40 percent. And one of the decisions that CNH had to make was relocating axial flow combine production. And we had a choice of two factors, one in Grand Island, Nebraska, and another in Brazil. And when we look at the differences between those two and even the differences in labor. And in a combine, labor is only about 8 percent of the total cost of the product. Most of it is, you know, the iron and steel that goes in it.
One of the factors in that decision to keep that production in the United States was Ex-Im Bank financing. As I indicated, that is a large part of our production of axial flow combines. Had we not had Ex-Im Bank financing, the decision could have had a very different outcome. Because then we might have just looked at total lowest cost of production.
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But because of Ex-Im Bank and the importance—because Ex-Im Bank only finances U.S. production, our decision was to keep not only the production in the U.S. but the jobs in the U.S.
Ms. BIGGERT. In your testimony, you offered the example of the Ukraine as an instance where Ex-Im Bank support was withdrawn and a foreign corporation completed the transaction. Can you give us more detail on why the Ex-Im Bank support was withdrawn in this instance?
Mr. CHRISTMAN. I must confess, I don't know the details of that. That was before I came into this present job. That was a couple of years ago. But I could just—on a little associated note, in Uzbekistan where we have been very successful, not only did Ex-Im Bank complete, you know, with the financing of the initial sales, but our company then made additional investments for the long term in joint ventures to service the equipment. Because as you know, farmers look for much more than just the initial purchase price.
So we are making investments, long-term investments, and that's why for us a very stable policy out of Ex-Im Bank is very important for us to take that risk and make those investments.
Ms. BIGGERT. OK. Would you have any suggestions for improvements or increased efficiencies that Ex-Im Bank could implement in its transaction procedures?
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Mr. CHRISTMAN. I think the flexibility. As we indicated, there are other countries out there that are our competitors on a financing. We need to be aggressive in those, be able to look at and evaluate what that competition is and also make decisions on a fairly quick basis. Because a lot of times, especially for seasonal products, you need fairly fast decisions in order that you can complete your production cycle and get it into a customer's hand to be productive.
Ms. BIGGERT. Thank you. I see my time is just about up, so I'll yield back.
Chairman BEREUTER. Thank you very much. Unless Ms. Kelly returns, we're going to go to Ms. Roukema and Mr. Bentsen and Mr. Sherman. The gentlelady from New Jersey is recognized.
Mrs. ROUKEMA. Thank you, Mr. Chairman. And I apologize for not being here earlier. My plane at Newark Airport was long delayed, I've got to tell you, but we did make it. They repaired it and we got here.
I see I have a gentleman from New Jersey whom I haven't yet met, but we should have met I'm sure, because we're not far from each other if your firm is in Patterson. And I do appreciate what you have said here. And that's a good example, this Watson Machinery International is a good example that we're not talking about corporate welfare, we're talking about real jobs at real wages in a small business. And I really appreciated what you said, Mr. McLaughlin. I don't know whether you want to add anything.
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Oh, there was a part of what you said that you may want to amplify on, but you used the word ''skitterish''. Skitterish about the banks, both in New Jersey and Connecticut, that you were not able to get help from or get financial assistance from, and that forced you to the Ex-Im Bank, if I understood your testimony. Can you amplify on that? Because that is central to this whole question of how we deal with the global economy and how we deal with establishing a level playing field. Would you like to comment further?
Mr. MCLAUGHLIN. Understood. Well, I'd like to say, on the one hand, if we have a foreign receivable, our bank will not support that in the way that we have our financing. In other words, we sometimes finance our accounts receivable. And if it's foreign, they don't want to have anything to do with it. And that, you know, for a company that, I mean, we as Watson have, you know, 4 years ago we only had about 10 percent export sales. So we're still learning the ropes in how to do all this.
But that is one example. And when I say this happens to be something that's probably more specific to our company. In other words, we've transitioned the company from being a distributor—we were a manufacturer. We became a distributor of foreign equipment made in Japan, and now we've gone back into manufacturing ourselves. And frankly, we've been doing that in an environment where the banks are not—the flow of credit today is not exactly what it was a number of years ago, and that's where we have run into this problem, and that's why we need the support and guarantee of Ex-Im Bank.
Mrs. ROUKEMA. Good. I think that's very helpful to us. I appreciate that. I do want to acknowledge that Mr. Bergsten really gave us excellent, excellent testimony, and I took note of that. And ''they're eating our lunch'' phrase, I generally agreed with.
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But I do want to observe that Mr. Vasquez, from a conservative think tank group, and the labor union here seems to be the left and the right coming to some of the same conclusions. But I'm not so sure how we get back, as was said by the, I believe—maybe I misunderstood you, Mr. Becker, but I believe you made a statement about how do we deal with China and get them back on track, some reference to that.
It seems to me that unless we can deal, Mr. Vasquez, with the predatory lending that is out there, and countries like China, we are really going to lose an awful lot of business and jobs, regardless of what level the pay scale is. If the job isn't there, the job isn't there. I don't know. Mr. Becker, do you want to comment, or Mr. Vasquez? We don't have a lot of time here. But the conflict there between the left and the right I thought was an interesting observation here.
Mr. BECKER. I don't know what—I would like to think there's some point that me and Mr. Vasquez would agree on. I can't grab one right of the sky right now. But let me say this. It's hard for me to imagine a steel company like Benxi getting a loan or a grant from the Ex-Im Bank without some strong pressure from the United States companies that's going to supply them with the technology. I think that's a given that that was done.
Mrs. ROUKEMA. Well, we'll look into that.
Mr. BECKER. Pardon? Well, General Electric is going to supply X millions of dollars worth of electronic equipment and the upgrading, which is a very laudable thing. I have no problem with that. I was trying to say that we are in favor of exports. And I've had some people ask me, well what about the 1,600 people that's going to benefit from that in the United States in doing that? And I understand that.
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But I think you have to look deeper at what's going to be the end result. Sixteen hundred people that's going to get a short-life job in order to supply the electronic equipment for a permanency of capacity expansion that's going to butcher our industry here. And I think you have to examine General Electric. This is a company that moved their engine division down to Mexico and held seminars and forced all the suppliers in the United States to attend the seminars and told them if you want to continue supplying General Electric, you're going to move your operation to Mexico.
That is not trade. And that's where I draw the difference. When you close a place in the United States and you build it in another country and you bring the product back into the United States, that isn't trade. That's relocation. That's a transfer of technology and wealth and capacity. And I think that's a big difference that we fail to come to grips with when we talk about Ex-Im Bank and creating jobs.
Chairman BEREUTER. Ms. Roukema, you've generated a little interest in the possibility for interaction here which could serve the subcommittee. So, Mr. Vasquez, if you wish to comment, and Dr. Bergsten I noticed thought he would like to comment, so we'd like to hear from each of you briefly if you wish.
Mrs. ROUKEMA. Thank you. I thank the Chairman.
Mr. VASQUEZ. OK. Perhaps we can begin by agreeing with the approximately correct pronunciation of my name is Vasquez.
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[Laughter.]
Mr. VASQUEZ. I think that it's important to keep the big picture in mind. As Mr. Bergsten mentioned, in the past several decades, exports and trade have grown tremendously as a share of the U.S. economy. And it is an important share of the U.S. economy.
However, only 1 1/2 percent of that is supported by the Ex-Im Bank, and only a fraction of that is supported by the Ex-Im Bank in order to counter subsidies by export credit agencies of other countries.
So the United States has done quite well despite the so-called lack of a level playing field that is harming the U.S. economy.
One area in which we would probably also agree on is that the United States should not be financing through the Export-Import Bank firms such as steel mills in China that compete with United States firms. And yet this is not an uncommon aspect of Ex-Im Bank lending. When the Ex-Im Bank provides financing for airplanes in other countries, those airlines that benefit from that subsidized financing then compete with U.S. airlines.
So I again see that the government failure of Ex-Im Bank lending is bigger than the so-called market failure that it is purportedly trying to correct.
Chairman BEREUTER. Thank you.
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Dr. Bergsten.
Dr. BERGSTEN. I'd like to make one comment, Mr. Chairman, specifically on both Mr. Becker's and Mr. Vasquez' statements. And, if we have time, I'd like to come back to some of the very basic economic questions raised by Mr. Sanders and Mr. Becker.
But just one specific each for now. I have a lot of sympathy for Mr. Becker's concern about investment in additional world steel capacity. It is an industry with overcapacity. This is bad for the world, bad for the U.S., bad for everybody. Agreed.
But here is the problem. The Chinese are going to build that plant and we cannot stop them. The denial of Ex-Im Bank credit to General Electric or anybody else is not going to stop the Chinese from building that plant or adding to world capacity.
The issue is with whose equipment they will build the plant. Mr. Becker acknowledges that if we export some of the electronic equipment, we get 1,600 high-paying jobs. I'm not sure they're only short-term jobs; I don't know the details. But at least we get that. The alternative is to get nothing because we're not going to stop the plant. That is the conundrum, but we have to face the reality.
On Mr. Vasquez' statements, he forgets a very fundamental principle of economics called the ''theory of the second best.'' Mr. Vasquez is giving us, as his Cato Institute does all the time, and admirably so, good free market economics. But this is not a free market. This is a rigged market where the foreign export credit agencies subsidize their output.
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The theory of the second best in good classical economics says that when a distortion is created by government action the welfare-enhancing outcome is to counter it with government intervention to offset the subsidy. So even in welfare economics terms, it's a winner.
Mr. Vasquez has said that only a small percentage of Ex-Im Bank transactions compete with foreigners. I just don't believe it. I will have to look at his numbers and his source. These may be only those that have been notified by the foreign export credit agencies, I'm not sure. But I can tell you, one Boeing aircraft is worth more than all the numbers he cites for being directly competitive. Yet every Boeing aircraft is competing with an Airbus supported, and to a large extent subsidized, by Europe. His numbers just can't be right.
The whole purpose of the Ex-Im Bank—and I trust its management to a reasonable extent in that regard—is to cope with foreign export credit competition. They do not have such an unlimited budget from Congress that they can run around striking whatever deals they want.
So I would submit that most of it is competitive with foreign export credit subsidies. To the extent that's true, the theory of the second best says, I think even to the Cato Institute, you match it and then try to drive it down to a level playing field at the lowest possible subsidy level.
Chairman BEREUTER. Thank you, gentlemen, for this exchange. Members may want to pull you back to it again, but I want to turn now to Mr. Bentsen for his 5 minutes.
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Mr. BENTSEN. Thank you, Mr. Chairman. I'm going to follow up on that. Because Mr. Vasquez, you went on to say when we subsidize an aircraft for sale, a Boeing aircraft—since that's the only commercial aircraft manufacturer left in the United States—to a foreign country, then it competes with our airlines.
And the next logical step, if that would appear to be a problem, would be that we then have some form of an export control regime on U.S. aircraft and other equipment to ensure that it doesn't end up in the hands of our competitors, which I think would be a catastrophe in the long run.
I think Dr. Bergsten is right that we are trying to sell goods and services. The fact is the rest of the world does manufacture steel plants, or create steel plants. They do operate airlines. They do a lot of things that we do in this country. But aren't we better off that among the ingredients of providing those services are ingredients that are produced in the United States as opposed to ingredients that are produced in other industrialized countries or emerging countries around the world?
The second thing I would ask is this. And this is an issue that's come up in the past when we've talked about this, that somehow there is a zero sum in terms of capacity in our manufacturing. That somehow if we provide an export subsidy, we are swapping manufacturing or job creation manufacturing from the United States to another locale.
And that would seem to me, the logic of that—I think it's illogical, but it would seem to me that would be saying that there's a limit on, an absolute limit on what U.S. corporations can manufacture, you know, the number of turbines, that we've hit those limits and somehow we're either creating wealth over there or wealth over here, as opposed to being able to create wealth in both places.
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And I'm not sure that even Cato would agree with that. And I apologize for missing your testimony. But again, I have to agree with Dr. Bergsten that otherwise you're taking the position that we should be purely free market, purely classical, all others be damned, regardless of whether it's at our disadvantage in the long run or not. Is that the position?
Mr. VASQUEZ. Let me begin by saying that my figures come directly from the Ex-Im Bank in terms of what size of exports the Ex-Im Bank helps to support and in terms of the percentage of its loans and guarantees.
Mr. BENTSEN. I'm not asking about that. That's between you and Mr. Bergsten.
Mr. VASQUEZ. Right. I'm answering. I'm making a point. I agree that export controls would be a disaster. That is not something that I would advocate. I think that that would harm the U.S. economy.
In a situation where the foreign country is subsidizing its exports, are we better off doing the same? I think we have to weigh that with the opportunity costs that are implied by Export-Import Bank financing—and I went through some of that at the beginning of my testimony—because we are pulling resources from the rest of the U.S. economy in order to subsidize certain exports. And in that sense, we are imposing opportunity costs that many economists have identified as potentially large. Those are difficult to measure.
Mr. BENTSEN. OK. Well, let's go there for a second. The opportunity costs on $800 million per year that could be spent or reduced taxes or something along those lines. Is that what you were getting at?
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Mr. VASQUEZ. No. I'm saying that when you pull resources from efficient uses to politically determined, less efficient uses, you are reducing the productivity of the U.S. economy and increasing the opportunity costs to the rest of us. Financing that goes to Boeing is not available for financing that would go for something else in the U.S. economy. That is an opportunity cost.
Proponents of the Ex-Im Bank usually never mention those costs.
Mr. BENTSEN. Let me ask you this. And that's a legitimate issue for you to raise. Do you have an analysis of what that opportunity cost is or a theory beyond just the basic theory, do you have some pro forma of where other companies that might produce and create jobs in addition to the jobs that Boeing has that investment would be made in the United States otherwise were Ex-Im Bank not to exist?
Mr. VASQUEZ. I have never seen the Ex-Im Bank or anybody else even look into that in a systematic way.
Mr. BENTSEN. But have you, has Cato or anyone else looked into that?
Mr. VASQUEZ. No, we haven't. It's a difficult cost to measure.
Mr. BENTSEN. Anyone else?
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Dr. BERGSTEN. Yes, I would just add a word. Mr. Vasquez is, of course, right. There's an opportunity cost for any dollar that we as individuals, and we as a Government spend. So you have to ask, what's the cost-benefit payoff on an individual expenditure?
My view is that a dollar spent on Ex-Im Bank programs has a much higher payoff than most dollars spent by the Federal Government. The reason is what I said at the outset. Exporting firms and workers in exporting firms do better, considerably better than the average. They get higher pay. Their jobs are more stable. Productivity is much higher.
If we can use Ex-Im Bank effectively and strategically to bring firms like Mr. McLaughlin's, particularly small firms, into the exporting business where they have faced barriers to entry and have not played as big a role as they can, we will be making a major contribution to raising incomes, wages, and benefits in the U.S. economy.
In fact, expanding the share of exports in our economy is one of the most cost beneficial steps we can take with the use of Federal funds. And so I would submit sure, maybe Mr. Vasquez or somebody else can come up with a still better use of the marginal Federal dollar. But this is a pretty good one, as documented by study after study, including by my own Institute.
Mr. BENTSEN. Thank you.
Mr. VASQUEZ. May I briefly say——
Chairman BEREUTER. We'll hear briefly from you again, Mr. Vasquez.
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Mr. VASQUEZ. I am not comparing the opportunity costs of one Federal program against another. I'm comparing the benefits of Ex-Im Bank spending to the benefits of ordinary citizens keeping their money and spending it on their own.
Chairman BEREUTER. I appreciate the interaction in the panel. I think it's probably in the best interests of the subcommittee to let it proceed. The gentleman from California, Mr. Sherman, is recognized.
Mr. SHERMAN. Thank you, Mr. Chairman. I think that what's before us is not just whether we reauthorize this bank for 5 years, no changes, congratulate them on the one hand, or pull the plug completely on the other.
We ought to explore whether to reauthorize for 1 year or 2 years. If we do otherwise, we're basically abdicating our responsibility to oversee this bank and giving all that authority to the Appropriations Committee, which will then decide year after year whether the bank is worthy of its appropriation, and will in that process try to give the bank some direction.
I think we have more expertise in this subcommittee to give the bank direction. I think that it's particularly important that we do so, because the witnesses here today have illustrated that sometimes the bank violates its own rule against financing activities that hurt the United States economy.
We're told that the Chinese are going to build the plant anyway, and therefore, Ex-Im Bank isn't displacing the steelworkers that we're concerned about. But one would suspect that the total amount of subsidized financing that's available to China is being ratcheted up. We offer a 5 percent loan, so Europe offers a 4 percent loan, so we offer a 3 percent loan, Europe offers a 2 percent loan, so Ex-Im Bank really isn't involved in the transaction, but the Chinese then get a 2 percent financing of their plant. And I see Fred even nodding.
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I think that having Europe and the United States compete to subsidize Chinese industrialization has got to lower the cost of capital to China and lead to more competition for American steelworkers.
And so I'll ask Mr. Vasquez, have we seen the political power that's being used to try to get this bank reauthorized instead used to try to get the United States to pressure the Europeans to stop their corporate welfare? Or put another way, perhaps the best best for the companies involved on both sides of the Atlantic is for the United States companies to demand corporate welfare to match the European corporate welfare, and the European companies get corporate welfare to match the American corporate welfare.
Have you seen any political power whatever being used to stop this escalating process?
Mr. VASQUEZ. There have, of course, been initiatives to reduce this type of unfair competition globally, as Dr. Bergsten has cited. His Institute published a book earlier this year in which it is noted that even the Europeans that have more expensive export financing programs are now reassessing those programs.
Mr. SHERMAN. Have we had any success? Have we been able to reduce the subsidy? I see your colleague also wants to comment, but I get a limited—several do want to comment, but I have such a limited amount of time. I want to go onto what is the most important issue.
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Mr. VASQUEZ. Over the years there has been limited success, but countries have found ways around it. Those same countries are also finding less expensive ways to operate.
Mr. SHERMAN. All of my colleagues have been given kind of this recapitulation of Ex-Im Bank as district pork. I was given a list 6 months ago or less of companies in my district who are helped. We called them all. None of them thought they got any significant help. I've been given two more companies, and we will be calling them as well.
What concerns me is, yes, you can add up your sheet and maybe find that in your district, $5, $10, $20 million worth of productivity is occurring in your district supported by Ex-Im Bank. But you have to weigh that against the adverse effect that I think Ex-Im Bank is having on the California energy situation. And if you were to look at the number of jobs dependent in every one of your districts on trade with California, it would dwarf the one percent of the five or ten percent of our economy that's involved in exports, the one percent of that that is somehow involved in the Export Bank.
Do no harm to the American economy means not only don't lead to the production of more steel plants in China. It also means, don't finance those companies that are telling California, go to the back of the line when it comes to getting electric turbines. This is a crisis that will kill people in California and perhaps put the entire country in a recession. And yet the Export Bank is, I believe their number one category, number one or number two, is the very electric turbines that California needs.
So I would hope that through continued oversight, we can make sure that this bank does no harm and perhaps that at least in the electric turbine area, we restrict our subsidies to those companies that really treat this American tragedy in California seriously.
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I don't know if I have any more time, but I know that several——
Mr. BECKER. Could I make some comments?
Chairman BEREUTER. Briefly you may respond, certainly.
Mr. BECKER. Pardon?
Chairman BEREUTER. Briefly, you certainly may respond.
Mr. BECKER. This is something we always wrestle with. I mention that we represent aluminum companies. I want you
to know what's happening in the Bonneville Power Basin up in Washington where the largest concentration of aluminum smelters are located, some of them steelworkers, some of them not. The Bonneville Power Association is trying to get them to voluntarily shut down all of the aluminum capacity and the power will go down to California.
That may sound very noble on the surface, but we shut down steel, we shut down aluminum, we're shutting down the rubber industry. I mean, where does this end? These are the jobs that keeps this engine of America going. And I think we need to look at this on a broad basis.
You know, the Ex-Im Bank was empowered—is a creature of our own policies in this country. And the policy of this country should not be to create permanent competition for America abroad.
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Dr. BLACKWELDER. Mr. Chairman, could I also respond?
Chairman BEREUTER. Dr. Blackwelder.
Dr. BLACKWELDER. In my testimony I tried to emphasize that the Export-Import Bank was doing serious environmental harm by its energy portfolio. And what it's doing is essentially subsidizing a very mature fossil fuel industry, neglecting all of the potential opportunities in wind, solar renewables and so forth that are possible to pursue.
And so this is a very, very serous choice that I think the Committee has, what kind of policy is this bank supposed to be pursuing in the energy sector? Because that lending grew to 28 percent of its total portfolio between fiscal 1999 and the year 2000.
Chairman BEREUTER. I thank the gentleman. I think we should move to our second round. It's a little difficult to be consistent with a national energy policy, though, I can't help saying, when we don't have one.
I'd like to ask briefly Mr. McLaughlin, can you tell me exactly how you came to use the Export-Import Bank for the first time? We've had questions about information technology and whether it's small business-friendly or not. Tell us how you first became involved, if you would, just briefly.
Mr. MCLAUGHLIN. Yes. I had been going to seminars by a group called the Capital Equipment Export Council, and there was a presentation there by Ex-Im Bank that raised our interest, and that's how it got started.
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Chairman BEREUTER. Thank you. Have you had more than one involvement with Export-Import Bank? Have you had more than one export?
Mr. MCLAUGHLIN. Transaction?
Chairman BEREUTER. Yes.
Mr. MCLAUGHLIN. Yes. We're doing ongoing transactions at this stage.
Chairman BEREUTER. Thank you.
Mr. Vasquez, we heard testimony, written testimony from small businesses, that they are not able to find local and regional banks willing to provide export financing to them. And my question to you is how can these businesses access capital when often the private sector is too inexperienced or unable to provide export financing to the small businesses, particularly if they have no long-term or demonstrated involvement in export?
Mr. VASQUEZ. There are about 200,000 medium and small businesses that export in the United States. About one percent of that receives Ex-Im Bank credit. So I suppose that you're talking about the tiny proportion of companies that face this problem.
I think that they would have to begin just as other companies begin, by looking at the options that are available in the market.
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And sometimes if a company cannot find financing in the market, there are good reasons for that. The risks may be too high. Apparently this is not too much of a problem for the U.S. economy or for small businesses.
Chairman BEREUTER. I'll just venture a view that some parts of the country are not served well with banks that have experience with exports at all, and so there's quite a differential in the quality and experience in the banking sector across the country.
I'd like to ask Mr. Blackwelder whether or not you have raised or if you know that anyone has raised the issue that you raise with respect to a public comment period such as the World Bank has, and if so, what the reaction has been.
Dr. BLACKWELDER. Well, I would just say, we have had discussions with a lot of people, and most recently was with the Committee when you proceeded to provide a 60-day comment period with OPIC. And we are suggesting that you ought to do this with the Export-Import Bank as well, in addition to requiring disclosures of their environmental assessments and so forth.
Chairman BEREUTER. Dr. Bergsten, you before wanted a chance to respond to the basic question in which the panel involved itself, and I have about a minute and 20 seconds left here. Do you want to start that process, and we will hear at least from one or two other panel members, and that will conclude my time?
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Dr. BERGSTEN. Right. Both Mr. Sanders and Mr. Becker raised the question of the effect of the trade deficit and aggregate economic conditions on the issue we're talking about today.
I'm with Mr. Sanders. I would like higher wages, better pensions, better health care, more paid vacations for American workers. But countries make different choices about such variables. And what happens in the big picture of the world economy is that those are evened out by exchange rate changes.
When countries adopt fundamental national standards or outcomes, like wages, a couple of things are in play. One is, they reflect underlying productivity levels. The reason German wages are higher than American wages, the reason they take more paid vacations, and so forth, is that German productivity is considerably higher than American productivity. They earn it.
Then in terms of the international effects, it is equated over time by exchange rate movements. Now, they're not perfect. If they were, we wouldn't have these huge surpluses and deficits. Germany, incidentally, for all its high productivity, has been running a trade deficit for the last 10 years since the unification of the country.
But you have to look at wages and everything else in the context of underlying productivity. There is one place where I believe that you have to fight fire with fire. That's when you compete directly across borders, as with export credits or import tariffs and quotas, where you have direct international economic competition. That's where I would argue you have to find a level playing field, whether it's on trade barriers or export subsidies or whatever.
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Mr. Becker picked up the point and said we've lost six million jobs over a recent representative period. Well, of course, he cannot be speaking about net jobs, because over the recent 10 to 20 years, we've created 20, 30, 40 million jobs on balance. We certainly lost some jobs, but we've created many more than we lost. So there has been net job creation.
And the point about international trade, both exports and imports—I agree with him on that—is that the impact is not on the total number of jobs, it's on the quality of jobs and their composition. And as I said, the export jobs turn out to be the best jobs, the highest-paying, and the most stable. So to the extent we can shift in that direction, we're better off.
But the fact that we've had a large and growing trade deficit, which I incidentally have criticized, attacked, and tried to remedy more than most outside economists, does not mean we haven't created jobs. That large and growing trade deficit has coincided with the most dramatic period of job creation in the history of the United States; and in recent years, with creation of good jobs with rising wages at all levels of the income stream.
So this puts those basic economics on the table.
Chairman BEREUTER. Thank you. I think undoubtedly this question may generate more responses, but on other Members' time.
The gentleman from Vermont is recognized for a second round of questions.
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Mr. SANDERS. A fascinating discussion. I think we can go on a long time with it. Let me make a few comments and then ask some questions. Marge Roukema before mentioned that our competition is quote/unquote, ''eating our lunch''. I think she is right.
I would hope then that she would reconsider support and Members of Congress—and I want opinions up here—about Most-Favored-Nation status for China, which has led us to an $83 billion trade deficit; NAFTA, which has led us to a trade deficit. We can't say, gee, they're eating our lunch. No kidding.
We've opened our entire market. We're competing against people who make very terrible wages. American corporations are running to these countries investing all kinds of money, not in Vermont but in China, and lo and behold, they're eating our lunch. What a great shock. I am not shocked. So I would like to ask briefly the members up there, are you prepared to ask for revoking MFN with China? Just go right down the line, based on the failure of an $84 billion trade deficit.
Mr. Christman.
Mr. CHRISTMAN. No.
Mr. SANDERS. Mr. McLaughlin.
Mr. MCLAUGHLIN. No.
Mr. SANDERS. Mr. Bergsten.
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Dr. BERGSTEN. No. Because China is about to join the WTO.
Mr. SANDERS. I have to keep it narrow here.
Dr. BERGSTEN. When they join the WTO and you don't give them MFN, we lose the market and the $83 billion becomes $100 billion.
Mr. SANDERS. Sorry. I've got limited time. I'll get back to you.
Mr. Vasquez.
Mr. VASQUEZ. No. I don't view the deficit as a sign of failure.
Mr. SANDERS. Dr. Blackwelder.
Dr. BLACKWELDER. We opposed Most-Favored-Nation for China.
Mr. SANDERS. Mr. Becker.
Mr. BECKER. Absolutely. And I'd like to have the opportunity to respond to our steelworkers in productivity, if I could have a second.
Mr. SANDERS. I should also point out, Dr. Bergsten is of course correct in saying that we have seen the growth of many jobs, and unemployment is relatively low. But we should point out that with the decline of manufacturing, we have also seen that real wages, inflation accounted for wages today for the average American worker is 8 percent less than in 1973.
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So we have seen the growth of jobs. Many of them are part-time jobs. Many of them in fact are low-wage jobs. And I would agree with you that manufacturing jobs and export jobs are good jobs. But it is not in my view, Dr. Bergsten, good enough to say, well, we are creating these jobs. They're becoming a more important part of our economy.
What about the issue of lost opportunity? And that has to be part of the equation. When people are investing billions in China, they are not investing in the United States of America. When we're seeing steel going down, textiles going down, bicycles going down, those are jobs—sneakers—those are jobs that could have been done by American workers.
Let me get back to a point I raised earlier, and very briefly because we have very little time and I'd like all the people to speak very briefly about it. Over and over again we've heard about ''level playing fields''. Does anybody up there honestly believe that when we, quote/unquote, ''compete'' with China, a country where workers are paid 20 cents an hour, can't form a union, can't speak up for their rights without going to jail, how does anybody talk about that being a level playing field?
Just go right down the line and be very brief. And I apologize for the brief. Mr. Christman, do you believe that you can have a level playing field under those conditions?
Mr. CHRISTMAN. Well, our competitors exist in Europe and they're not manufacturers in China.
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Mr. SANDERS. OK. Fair enough.
Mr. McLaughlin.
Mr. MCLAUGHLIN. Well, I mean, there's competition, and we have to figure out a way to become better at it.
Mr. SANDERS. But we represent the American people. Do you think we should put American workers to quote/unquote ''compete'' against people who are forced to work for 20 cents an hour?
Mr. MCLAUGHLIN. We have to figure out—yes. I think we have to figure out how to do that. I think we do.
Mr. SANDERS. Dr. Bergsten.
Dr. BERGSTEN. You certainly can have a level playing field in those conditions because of the much lower productivity in China. Having said that, I'm with you on trying to use every lever we have to get them to permit free association, unionization of the workforce, and democratization of their labor force.
I think the best way to do it is to engage with them, not divorce from them.
Mr. SANDERS. OK. Good discussion.
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Dr. BERGSTEN. And therefore move in that direction.
Mr. SANDERS. I apologize. I've got to move on.
Mr. Vasquez.
Mr. VASQUEZ. I am in favor of engagement for many of the same reasons.
Mr. SANDERS. Dr. Blackwelder.
Dr. BLACKWELDER. We should do an entirely different trade arrangement with China which recognizes the unlevel playing field but also looks at the opportunity to improve worker rights, improve their environmental conditions and so forth, and it's not the kind of trade agreement which you had the opportunity to vote on last year.
Mr. SANDERS. Right.
Mr. Becker.
Mr. BECKER. Yes. With all of those things. If I could say, there's two kinds of trading partners that we have. One are like the G–7, industrial countries that have the same kind of standards we do, the same laws, the same environment, the same respect for human rights.
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Mr. SANDERS. Right. Brief.
Mr. BECKER. And then we have the other kind that comes under those same laws like, more than China, but China for sure, Russia, Indonesia and several of the South American countries.
Mr. SANDERS. Let me just say this. I think there is probably widespread agreement from everybody in this room that we want a trade policy which creates good paying American jobs. Nobody in this room is against trade. You've got to be crazy to be against trade.
It is my feeling, and I think the evidence is overwhelming—I cannot believe that people cannot see it—is that our current trade policy in general is failing, and failing big time. That doesn't meant to say that Mr. Christman is not going to create some good jobs. Of course there are good jobs being created.
But overall, if you look at what is going on in terms of lost opportunity, lowering wages, huge trade deficits, I think we have got to be rethinking our entire trade policy, rethinking Ex-Im Bank, and say how do we use these $800 million in a much better way than we are currently using it to create decent-paying jobs in this country?
Thank you, Mr. Chairman.
Chairman BEREUTER. Thank you, Mr. Sanders.
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The gentlelady from Illinois, Ms. Biggert is recognized.
Ms. BIGGERT. Thank you, Mr. Chairman.
Mr. Bergsten, in testimony before this subcommittee, the Ex-Im Bank suggested some options that it might have to consider to operate with the lower appropriation, including increased transaction fees, reducing the percentage of a transaction it will finance or limiting the number of high-risk transactions it undertakes.
What is your reaction to these possibilities, and do you think that such changes in Ex-Im Bank's operations would hurt U.S. exporters?
Dr. BERGSTEN. I think all those changes would be bad, and I think they would hurt U.S. exports. The bank's staff apparently has given you an honest rendition of what they would have to do if forced to live within a tighter budget. But by definition, all those would raise the cost of exports and thus hurt our market share or reduce our responsiveness.
I particularly worry about the part that says they would take less risky transactions, because—I'm with Mr. Vasquez in a sense—wherever you've got private finance available, you use it. The objective of government finance is to come in where the private market fails, in part because of risk. And therefore, you want Ex-Im Bank to take some of the riskier business that can generate new sales, which otherwise wouldn't occur.
That option would be particularly harmful. But I think they're all bad. That's why I propose a sharp increase in the bank's level and certainly would strongly oppose any decrease like that proposed by the Administration.
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Ms. BIGGERT. Thank you.
Mr. Vasquez, when you were talking about how little the bank actually takes on competition, have you done an analysis of who competitors were? I know on page 6 you point out that less than 20 percent of Ex-Im Bank's finance deals were justified on grounds of foreign credit competition. Have you analyzed that 20 percent?
Mr. VASQUEZ. No. The data was not very transparent that was available by the Ex-Im Bank. But I would be interested in getting much more information from the agency to be able to do a more thorough analysis so that we all know what the effects of Ex-Im Bank finance are.
Ms. BIGGERT. Well, it would seem that when Ex-Im Bank has been able to provide the level entry capital in regions where the commercial banks deem that they're too risky, would it be true that after they have helped in these transactions then that other banks are willing to come in and be involved with that so that they really have provided companies to bring in lenders where that wouldn't otherwise be—they wouldn't be viable?
Mr. VASQUEZ. Yes. That's what Ex-Im Bank does. And in my testimony I explained why I thought that was not a good idea, because in many cases, the Ex-Im Bank is actually financing investments that would not otherwise take place and should not.
I gave examples of Sub-Saharan Africa, for example, that for some reason many projects in many countries there are not able to attract private capital genuinely on their own. And a large part of the reason is because they have economic policies that are poor, that are inimical to growth. They need to change those polices. We should not be rewarding them with Export-Import Bank credit. That merely discourages the spread of market reforms.
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Ms. BIGGERT. So the alternative would just be not to have anything to do with those markets and let somebody else come in if they wanted to?
Mr. VASQUEZ. The alternative is to increase the pressure of the market to those countries to introduce market reforms. In some cases other governments will provide that financing. But that's a mistake both for the recipient governments and for the lenders, in my view.
Ms. BIGGERT. OK. Thank you. My time has expired.
Thank you, Mr. Chairman.
Chairman BEREUTER. Thank the gentlelady.
The gentlelady from New Jersey is recognized.
Mrs. ROUKEMA. All right. Thank you. And with respect to my friend from Vermont referencing the fact that I said they're eating our lunch, I was quoting one or two of our panel members and asked them for an explanation of that. That was not my authority. That was not my quote.
But they responded very directly to the question. Now I'm not ideological on this subject. I'm a very pragmatic person. I try to look for pragmatic and workable solutions. And all I know is that we are facing a global economy that's a revolution in world history, OK? And people like those of us in this room and those that we're representing here are going to have deal with it and not look at ideological resolutions and look at the past centuries, because it won't work, as the Boeing Airbus question pointed out.
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And I don't know if Mr. Bereuter will agree with me, but I'm a member of the—we are members of the NATO Assembly and we go to these NATO meeting assemblies and I serve on the Economic Committee. And if there's anything I've learned over the past several years, it's that we're in competition. We have a lot of competition with the Europeans.
If we don't deal with the Chinese and these other countries, the Europeans are going to very quickly—Airbus—are going to very quickly step in, whether it's WTO or not, OK?
So I just want to say, I think we have to deal with this, not thinking that the Ex-Im Bank is perfect. I'd like to have some constructive recommendations on how we improve it, but recognizing that it's the real global world, globally economic revolution that's out there, and it's not going to go away, and we can't close our doors and build trade barriers up and ignore it.
So I'd like to see if anybody has a closing comment in that respect.
Mr. Bergsten.
Mr. BERGSTEN. Well, perhaps just two quick ones. It's certainly a revolution in the world, but it's also a revolution for the United States. As indicated, the share of trade in our economy has tripled in a generation. That's a stunning change for a mature industrial economy. We could think of ourselves as self-contained, continental economy only a generation ago.
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Today, we have a bigger share of trade in our economy than Japan, and the European Union as a group. We're deeply dependent. We have to fight fire with fire to compete internationally.
The second point is to link what you said to something Mr. Becker said. Mr. Becker said trade with Europe is fine because they have the same high standards, they're not low wage, and so forth. He's exactly right on that. But you are also right that they are the ones with whom we frequently compete the most intensely in this area. It's the Germans who have pioneered the market window, and close behind them are our northern friends——
Ms. ROUKEMA. I should have mentioned specifically the European Union as a component of this.
Mr. BERGSTEN. Well, in this area, interestingly, the individual European countries still operate on a national basis and not as a group. So the Germans, French, Italians, the British, all compete with each other, as with us.
Incidentally, that's part of the answer to Mr. Sherman's point. Mr. Sherman said if we offer export credit to China for a steel plant, they'll ratchet the interest rate down and benefit. Again, they'll do it with or without us. The Europeans compete with each other, the Japanese are in, the Canadians are in. It'll still happen the same way.
We're no longer a dominant force. And that's the other element of the world revolution. We can no longer call the shots. The others outnumber us. They're bigger than we are in economic terms. They're even getting bigger in political terms. We're still the most important single country, but we are subject to very intense competition from others, and if we don't forcefully try to lead everybody to a more rational outcome, we will continue to have our lunches eaten.
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Mr. BECKER. Could I answer some of these things? They keep referencing me.
Ms. ROUKEMA. Please, Mr. Becker.
Mr. BECKER. First of all, I'd like to back up a little bit. I want to talk about Europe.
Ms. ROUKEMA. Yes.
Mr. BECKER. The United States steel industry, if we're talking about steel, is the most efficient steel industry in the world. At least there's none higher. This is not me, this is not our industry, this is the Department of Commerce. So when you talk about competition, we're there.
When you talk about Europe, examine their trade deficit with China. It's almost nonexistent. It's not anywhere like we are now. We're targeted here. We're the ones. We're the only free market in the world. You don't have a free market for goods coming in from those countries in China or Japan, Japan the number two economy. It doesn't happen.
Second, the steel industry——
Mrs. ROUKEMA. If you could provide some objective data on that score, I would appreciate it for the record. I hear testimony all the time. We can accumulate it. We'll have our people put it together for you.
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Mr. BECKER. This is true. Second, the steel industry in Europe, the government picks up all the health care costs, one of the most tremendous costs our industry faces, the only steel industry in the world that has to pay what we call legacy costs, health care for retirees. It's an incredible amount of money. It's in the billions of dollars. We're the only country that we have to compete against. The Chinese don't have it. The Japanese don't have it. The Canadians don't have it. Europe doesn't have it. England doesn't have it. The Scandinavians, the Italians, none of them. That's a government cost.
And when you talk about competition, our industry has to pay that right straight up front. Bethlehem, that's skirting on the edge of bankruptcy—they're not bankrupt—their health care costs run somewhere in the neighborhood of $250 million a year. They haven't made $250 million profit probably in my lifetime.
Chairman BEREUTER. If there are other panelists.
Dr. BLACKWELDER. Might I respond?
Chairman BEREUTER. The gentleman from Case IH. It's 4:00 o'clock, and I promised you'd be out of here. Do you want to respond briefly before you——
Mr. CHRISTMAN. Just very quickly, because I'm actually headed to Europe to see some of our competitors there.
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[Laughter.]
Mr. CHRISTMAN. All we ask for is something very simple. We're looking for policies and procedures that can match the foreign governments that we compete against. What we want to do is very simple: Give our U.S. workers a chance to compete on the technology and the products we build against anybody in the world.
If you just give us equal financing, we know that we can win on the product and technology side. Just give our workers a chance. Give us the policies, procedures, and give us the funding. Thank you.
Chairman BEREUTER. Mrs. Roukema, yours was the last question. Do you want to hear from any of the other panelists on it? It looks like there are several.
Mrs. ROUKEMA. Yes, I would.
Chairman BEREUTER. Mr. Christman, if you need to leave, thank you for your testimony, and we'll be concluding shortly.
Dr. BLACKWELDER. If I could just give an environmental perspective on your question.
Mrs. ROUKEMA. Yes.
Dr. BLACKWELDER. Number one, I think you want to make sure that the Export-Import Bank is not lending for socially and environmentally destructive projects. We have suggested a number of ways that you can improve those standards, which have actually been a model and served to increase the environmental standards of other export credit agencies around the world.
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But second, the Export-Import Bank is loaning for highly destructive and damaging fossil fuel projects, as I stressed. If in fact we are as a government going to subsidize in the energy area, we ought to be subsidizing some of the innovative new things that are happening in wind, solar efficiency and so forth, and not being in the position of maximizing and augmenting and subsidizing global pollution. And that is something fundamentally that has to change if the Export-Import Bank is going to exist.
Mrs. ROUKEMA. All right. Thank you. I think what we've learned is that there is a little more complexity to this than any of us would like to have faced.
Chairman BEREUTER. Mrs. Roukema, I notice the gentleman from New Jersey, who I think wants to make a couple—now you wouldn't want to miss him.
Mrs. ROUKEMA. Oh, absolutely. He may even be my neighbor. Yes?
Mr. MCLAUGHLIN. Thank you. I'm just going to quote very briefly from some remarks that Chairman Harmon made recently when he was—I guess he was in the process of leaving the bank.
''We should take note that in 1998, the U.S. ranked seventh in terms of export credits provided. As a proportion of GDP in 1999, France spent 16 times more on export promotion, Canada 13 times more, and the United Kingdom 9 times more. These disparities are a wake-up call for all who are concerned about the U.S. economy.''
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Mrs. ROUKEMA. Thank you very much. I appreciate that contribution New Jersey has made. Thank you.
Chairman BEREUTER. Thank you very much. Mr. Sanders and I agree, and I think the Members of the subcommittee that participated agree that this has been an excellent panel. The interaction among you has only added to the benefit to the subcommittee.
And I want to thank all of you gentlemen and the organizations that you represent for your effort to help advise us, to give us your suggestions and recommendations. We appreciate it.
And as we conclude, I want to ask unanimous consent to include three things in the record. One is the recent transmittal of the proposed draft legislation for the reauthorization of the Export-Import Bank. Very simple, straightforward, conveyed by letter of May 2nd.
A memorandum responding to a request to Elaine Stenglin, counsel of the Export-Import Bank, which answers our question of the previous hearing related to Treasury's role in Export-Import Bank tied aid program, a memorandum dated September 4, 2000.
And an Export-Import Bank press release dated January 2, 2001, which goes to the Benxi hot steel mill modernization grant—excuse me—assistance that went to General Electric Company of Salem, Virginia.
Is there objection?
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[No response.]
Chairman BEREUTER. Hearing no objection, that will be the order.
Mr. SANDERS. I just want to conclude by concurring with you, Mr. Chairman. I think this was an excellent panel, and it was a good diversity of viewpoints, and I want to thank all the panelists for being with us today.
Chairman BEREUTER. Indeed, thank you. The hearing is adjourned.
[Whereupon, at 4:05 p.m., the hearing was adjourned.]