U.S. GOVERNMENT PRINTING OFFICE

72–290 PS WASHINGTON : 2001

REAUTHORIZATION OF THE

EXPORT-IMPORT BANK

HEARING

BEFORE THE

SUBCOMMITTEE ON

INTERNATIONAL MONETARY POLICY AND TRADE

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MAY 2, 8, 2001

Printed for the use of the Committee on Financial Services

Serial No. 107–13

(

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: (202) 512–1800 Fax: (202) 512–2550

Mail: Stop SSOP, Washington DC 20402–0001

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa

MARGE ROUKEMA, New Jersey, Vice Chair

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

SPENCER BACHUS, Alabama

MICHAEL N. CASTLE, Delaware

PETER T. KING, New York

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

ROBERT W. NEY, Ohio

BOB BARR, Georgia

SUE W. KELLY, New York

RON PAUL, Texas

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

DAVE WELDON, Florida

JIM RYUN, Kansas

BOB RILEY, Alabama

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, North Carolina

DOUG OSE, California

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

GARY G. MILLER, California

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

JOHN J. LAFALCE, New York

BARNEY FRANK, Massachusetts

PAUL E. KANJORSKI, Pennsylvania

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

NYDIA M. VELA ́ ZQUEZ, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

KEN BENTSEN, Texas

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BRAD SHERMAN, California

MAX SANDLIN, Texas

GREGORY W. MEEKS, New York

BARBARA LEE, California

FRANK MASCARA, Pennsylvania

JAY INSLEE, Washington

JANICE D. SCHAKOWSKY, Illinois

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

STEPHANIE TUBBS JONES, Ohio

MICHAEL E. CAPUANO, Massachusetts

HAROLD E. FORD JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

RONNIE SHOWS, Mississippi

JOSEPH CROWLEY, New York

WILLIAM LACY CLAY, Missouri

STEVE ISRAEL, New York

MIKE ROSS, Arizona

BERNARD SANDERS, Vermont

Terry Haines, Chief Counsel and Staff Director

SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY AND TRADE

DOUG BEREUTER, Nebraska, Chairman

DOUG OSE, California, Vice Chairman

MARGE ROUKEMA, New Jersey

RICHARD H. BAKER, Louisiana

MICHAEL N. CASTLE, Delaware

JIM RYUN, Kansas

DONALD A. MANZULLO, Illinois

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

GARY G. MILLER, California

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

BERNARD SANDERS, Vermont

MAXINE WATERS, California

BARNEY FRANK, Massachusetts

MELVIN L. WATT, North Carolina

JULIA CARSON, Indiana

BARBARA LEE, California

PAUL E. KANJORSKI, Pennsylvania

BRAD SHERMAN, California

JANICE D. SCHAKOWSKY, Illinois

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

KEN BENTSEN, Texas

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C O N T E N T S

Page

Hearings held on:

May 2, 2001 ....................................................................................................... 1

May 8, 2001 ....................................................................................................... 35

Appendixes:

May 2, 2001 ....................................................................................................... 73

May 8, 2001 ....................................................................................................... 117

WITNESSES

WEDNESDAY, MAY 2, 2001

Hess, James K., Chief Financial Officer, Export-Import Bank, accompanied

by James Cruse, Group Vice President, Policy; Jeffrey Miller, Group Vice

President, Structured and Trade Finance; and Elaine Stangland, Deputy

General Counsel ................................................................................................... 6

Redway, William, Group Vice President, Small and New Business, ExportImport Bank ......................................................................................................... 7

Ubamadu, Bert, Office of the General Counsel, Export-Import Bank ................ 8

APPENDIX

Prepared statements:

Bereuter, Hon. Doug ........................................................................................ 74

Oxley, Hon. Michael G. .................................................................................... 82

Bentsen, Hon. Kenneth E., Jr. ........................................................................ 84

Maloney, Hon. Carolyn B. ................................................................................ 86

Waters, Hon. Maxine ........................................................................................ 87

Hess, James K. (with charts) ........................................................................... 92

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Bereuter, Hon. Doug:

Ex-Im Bank press release, January 2, 2001 .................................................. 78

Memorandum from Elaine Stangland, Sept. 4, 2000 .................................... 79

Watt, Hon. Melvin L.:

Letter from Richard A. Brenner, April 16, 2001 ............................................ 89

Letter from Winston L. Tennies, April 12, 2001 ............................................ 90

Letter from Wall Industries, Inc., April 11, 2001 .......................................... 91

Hess, James K.:

International Comparisons of Official Export Credit/Export Promotion

Activity and Administrative Resources ....................................................... 113

Letter to Speaker Hastert (with attachment), May 2, 2001 ......................... 107

Written response to a question from Hon. Melvin L. Watt ........................... 109

Written response to a question from Hon. Janice Schakowsky .................... 111

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WITNESSES

TUESDAY, MAY 8, 2001

Page

Becker, George, Retired President, United Steelworkers of America, on behalf

of the United Steelworkers of America .............................................................. 48

Bergsten, C. Fred, Director, Institute for International Economics .................... 42

Blackwelder, Dr. Brent, President, Friends of the Earth .................................... 46

Christman, Richard M., President, Case IH Agricultural Business of

CaseNewHolland Inc., on behalf of the National Foreign Trade Council

and the Coalition for Employment Through Exports ........................................ 39

McLaughlin, Ian Watson, Chairman of the Board and Chief Executive Officer,

Watson Machinery International, on behalf of the National Association

of Manufacturers .................................................................................................. 40

Va ́squez, Ian, Director, Project on Global Economic Liberty, Cato Institute ..... 44

APPENDIX

Prepared statements:

Bereuter, Hon. Doug ........................................................................................ 118

Oxley, Hon. Michael G. .................................................................................... 125

Carson, Hon. Julia ............................................................................................ 121

Roukema, Hon. Marge ...................................................................................... 127

Becker, George .................................................................................................. 173

Bergsten, C. Fred ............................................................................................. 147

Blackwelder, Dr. Brent .................................................................................... 169

Christman, Richard M. .................................................................................... 128

McLaughlin, Ian Watson .................................................................................. 144

Va ́squez, Ian ..................................................................................................... 162

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Citigroup Inc., policy statement ............................................................................. 178

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REAUTHORIZATION OF THE

EXPORT-IMPORT BANK

WEDNESDAY, MAY 2, 2001

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INTERNATIONAL MONETARY

POLICY AND TRADE, COMMITTEE ON FINANCIAL SERVICES, Washington, DC.

The subcommittee met, pursuant to call, at 2:10 p.m., in room

2128, Rayburn House Office Building, Hon. Doug Bereuter,

[chairman of the subcommittee], presiding.

Present: Chairman Bereuter; Representatives Oxley, Ose, Green,

Shays, Miller, Capito, Ferguson, Sanders, Waters, Frank, Watt,

Sherman, C. Maloney of New York, Schakowsky, and Bentsen.

Mr. OXLEY. [Presiding.] The hearing will please come to order.

Obviously, I am not Mr. Bereuter. Mr. Bereuter has been delayed

in another committee, and the Vice Chairman is also delayed on

the floor. So I am either in the right place at the wrong time or

the wrong place at the right time. Whatever it may be, we didn’t

want to keep our distinguished panel waiting. To that end, the

Chair would recognize himself for a brief opening statement.

I want to thank Mr. Bereuter for holding this hearing on the reauthorization of the Export-Import Bank. The Administration is expected to send up legislation renewing the Bank’s charter beyond

its current expiration date of September 30, 2001, soon. I support

the reauthorization of Ex-Im Bank, and I look forward to working

with the Administration, subcommittee Chairman Bereuter and

others, and speedy committee consideration of reauthorization legislation.

My support for the Ex-Im Bank stems from the fact that it has

been an important tool for increasing trade and providing U.S. exporters access to markets that they would otherwise not be able to

reach. With the backing of the full faith and credit of the United

States, Ex-Im Bank has initiated thousands of transactions in foreign markets that commercial banks deem too risky to enter. The

result is that U.S. businesses export more goods and develop new

and stronger trading relationships abroad.

In my home State of Ohio, Ex-Im Bank has authorized trans- actions to over 420 businesses valued at more than $1.1 billion

since 1994. In my district alone, in the Fourth Congressional District, Ex-Im Bank has worked with 10 different small businesses,

enabling them to reach markets they would not normally be able

to reach. Over $62 million in exports have been financed through

Ex-Im Bank in my district over the past 6 years.

2

In a perfect marketplace, there would be no need for export credit agencies; however, the realities of today’s international trading

system demand that Ex-Im Bank operate aggressively to support

the sale of U.S. products abroad. Every major actor in international

trade utilizes an export credit agency similar to the Ex-Im Bank

to support its trade initiatives. Without Ex-Im Bank, U.S. companies would be forced to compete against foreign firms who are receiving assistance from their export credit agencies.

In discussing exports, most people focus on large corporate transactions and tend to overlook the importance of small businesses in

the international trade equation. In 1997, Congress mandated that

Ex-Im Bank expand its outreach to small businesses and work to

facilitate more transactions among these exporters. In fiscal year

2000, Ex-Im Bank approved 2,176 small business transactions, an

increase of over 13 percent from the previous fiscal year. Further,

financing and support of small businesses increased by nearly 10

percent in fiscal year 2000 to $2.3 billion.

This improvement in small business export activities is an encouraging sign that Ex-Im Bank has been successful in helping

small businesses access overseas markets. I commend them on this

progress and hope that they continue to bring more small businesses into the international trade arena.

As we begin the review of Ex-Im Bank, I look forward to hearing

how we can improve the Bank in order to ensure that it has the

resources to compete in the modern international trade environment.

Mr. Chairman, I would like to thank you for your leadership in

reviewing this important program. I yield back the balance of my

time, and I also yield the chair to the distinguished Chairman of

the subcommittee, Mr. Bereuter.

[The prepared statement of Hon. Michael G. Oxley can be found

on page 82 in the appendix.]

Chairman BEREUTER. [Presiding.] Well, thank you, Mr. Chairman. I couldn’t have had a better person to fill in to start the subcommittee hearing.

I apologize for being late. We are holding a markup in International Relations, and there was an amendment which zeroed out

the Asia Foundation I wanted to oppose.

But I am pleased today that we are beginning open session hearing to receive testimony on the reauthorization of the Export-Import Bank, Ex-Im Bank. The Ex-Im Bank was last reauthorized in

1997 for a 4-year term that will expire on September 30 of this

year. As the subcommittee with jurisdiction over the Ex-Im Bank,

this hearing is the first step in an important reauthorization process. So today we are hearing from representatives of the ExportImport Bank.

I would remind my colleagues here on the subcommittee that on

May 8 representatives of the private sector, including NGOs, will

testify regarding the Export-Import Bank. We will have critics and

we will have supporters at that time. I also want to mention to my

colleagues that you probably have noticed, as I have, the recent decisions coming out of the annual meeting of the IMF and the World

Bank here in the Nation’s capital, and they have important implications for our responsibilities on the international financial instiVerDate 11-MAY-2000 09:59 Sep 14, 2001 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 72290.TXT HBANK1 PsN: HBANK1
3

tutions, those two in particular. A number of things they are proposing on Africa, for example, are a major departure from the existing practice, and I know Members of the subcommittee will welcome a hearing soon on that subject, and it is my intention to proceed with that.

Now, back to the Export-Import Bank. Because of Chairman Oxley’s comments, I will abbreviate some of my remarks and provide

all of them for the record. But I think it is important to reiterate

what the Chairman has mentioned with respect to two mandates

that were a part of the 1997 authorization act.

The first one from Congress was to expand the participation of

small and rural businesses. We will be particularly interested in

hearing from the Export-Import Bank witnesses before us today

how well they have done, what problems they have run into in that

respect. My understanding is that for fiscal year 2000, the Ex-Im

Bank invested approximately 18 percent of its lending activity in

small business. Now, that may not sound like a great deal, but it

is an increase, and I believe the number of transactions involving

small businesses was actually 86 percent, so a very large percentage of your activities, your transactions were focused in that area.

Second, as a mandate, we asked for an expansion of the ExportImport Bank’s financial commitments to Sub-Saharan Africa. In

that 1997 language, we established an advisory committee to make

recommendations to the Board of Directors on how the Export-Import Bank can facilitate greater support for trade with Africa. As

a response to this mandate, the Export-Import Bank created an internal African task force to coordinate its activities in Africa. Since

that 1997 mandate, my understanding is that the Export-Import

Bank has increased their activities and the number of exports involving the Export-Import Bank has increased dramatically. But

we started from a low base. In 1998, the Export-Import Bank invested $16 million of exports to Sub-Saharan Africa, in 1999 that

increased to $589 million, and in 2000 it is expected to have

reached $914 million. Did I say $589 thousand? I should have said

$589 million. In particular, I am interested in seeing how the ExIm Bank can continue to increase its investment in Africa, and I

am sure Members have that same interest in light of our mandate.

Third, any hearing on the Export-Import Bank this year must

consider the fact that the Administration has proposed a 25 percent

reduction in Ex-Im Bank funding for fiscal year 2002. It is important to note, I believe, that the Export-Import Bank’s budget includes the following two components: program budget and administrative budget. The program budget includes the cost of loans,

guarantees and insurance programs, administrative budget of

course is self-explanatory, but my understanding is that many people think we have really shorted the kind of upgrading necessary

for administrative capacity.

So we have some statistics on that, and we will look for some interesting information in those areas from our witnesses.

I do have significant concerns about the Administration’s proposed cuts in the Export-Import Bank. I look forward to testimony

today to explain the effects that those proposed cuts would have on

the activities of the Bank.

4

Lastly, I would also like to emphasize the subsidies offered by

foreign governments which have export financing agencies, the developed countries which are major export competitors. We have statistics which I will enter for the record, but the United States in

most ways you could calculate fares pretty badly in comparison

with our competitors.

[The prepared statement of Hon. Doug Bereuter can be found on

page 74 in the appendix.]

So we will now, after we hear from the Ranking Member of the

Minority if he wishes, we will now introduce Mr. Hess, the Chief

Financial Officer of the Bank. Mr. Hess has been with the ExportImport Bank since 1966. He has been the Chief Financial Officer

since 1992. He comes highly recommended as a person who has

great institutional knowledge of the Export-Import Bank.

Next, Mr. William W. Redway, the Export-Import Group Vice

President of Small and New Business, will testify. Mr. Redway, a

graduate of the University of Pennsylvania, is in charge of the

Small Business Group outreach activities. Prior to that current position, he has been the Vice President of the Bank’s Insurance Division and also served as New York Regional Manager of the ExportImport Bank.

Mr. SHERMAN. Mr. Speaker, I am interested in these introductions, but I just want to make sure I am given a chance to make

an opening statement.

Chairman BEREUTER. Indeed, you will be.

Subsequently, Mr. Bert C. Ubamadu will testify. He is an attorney with the Bank, where he works on project, structured, and

trade finance transactions throughout Africa. He is a member of

the Bank’s Africa Task Force. Prior to his position, he worked with

Marriott International, where he served as their representative to

the Corporate Council on Africa.

There are three other people from the Ex-Im Bank at the table

to supplement and to assist: Ms. Elaine Stangland, Deputy General

Counsel; Mr. Jeffrey Miller, Group Vice President for Structured

and Trade Finance; and Mr. James Cruse, Group Vice President of

Policy. As you make your contributions, I would appreciate it if you

would identify yourself for the hearing record beyond this introduction.

So we welcome the distinguished panel. Now I would like to see

if there are other Members who would have a brief opening statement. I turn to Mr. Sherman from California first.

Mr. SHERMAN. Thank you, Mr. Chairman.

The first two opening statements lauded the Export-Import

Bank, but we would be unmindful of the thoughts and concerns of

many if we didn’t hear some of the criticisms.

The Bank is attacked very loudly as a quintessential embodiment

in the eyes of its critics of corporate welfare. The critics point out

that while a large number of transactions involve small business,

that small business as reasonably defined receives a tiny portion

of the dollars disbursed. The President of the United States has

sought to cut this bank by 25 percent, and this is a President who

is the most pro-business President, I think, in our lifetimes.

Mr. Chairman, I have not been able to find a single business in

my district, and I have worked very hard, in conjunction with bank

5

staff, to try to find any business in my district who thought that

the Bank was a significant benefit to them, and we couldn’t find

one.

But that aside, I am not here just to support the narrow economic interests of my own district. This is a bank that is important

and is viewed as important to the national economy, because it promotes American exports. I hope to work with this subcommittee to

fine-tune some aspects of what the Bank does. But before we get

there, we have to deal with what I think is the biggest economic

issue facing not my district, but the entire country, and that is the

energy crisis in the western States.

The charter of the Bank in its own rules says that it should do

nothing to harm the United States economy. Yet, one concern

arises, and that is that the number one beneficiary of the Bank’s

export subsidies through export financing go to the industry that

makes electric turbines. It flabbergasts everyone in California to

hear that in our hour of extreme need, American-built turbines are

the subject of subsidies paid for by California tax dollars.

I won’t take the time, unless someone asks me to, to disprove a

couple of the, I think, rather silly attacks made against California.

The argument that you can’t site a plant in California or couldn’t

a few years ago, that is demonstrably false, and I will answer that

if somebody is concerned, or somehow that California has mishandled the deregulation in some way that others saw as a problem, that we ignored anyone’s warnings, there were no such warnings, and that somehow the crisis that has hit California is somehow just retribution for California’s own governmental decisions.

Now, I know the Bank has distributed documents showing how

its activities affect each of our districts. I believe the Chairman of

the full committee used the figure $61 million. Let me assure everyone here that you can take whatever figure the Bank gives you

for its impact on your district and multiply not by 100, not by

1,000, multiply that figure by 10,000, and that is the economic relationship that your district has with California.

Chairman BEREUTER. Will the gentleman try to conclude his

comments?

Mr. SHERMAN. I will conclude within 1 minute.

So these turbine manufacturers are the number one beneficiaries

of these export subsidies. And during this period of crisis, a period

that I think will not only hurt the economy of California, it will

drag down the economy of the entire country and it is beyond economics, there will be deaths in California, both this summer and

next summer as a result of this.

Before we go forward and reauthorize this bank to do business

as usual, we must make sure that the turbine companies are not

just doing business as usual, but in this extraordinary crisis they

are willing to take extraordinary actions, because they receive and

have received for decades extraordinary subsidies to deal with this

crisis by providing California with the turbines that it needs.

Chairman BEREUTER. The time of the gentleman has expired.

Are there other Members who wish to make an opening statement?

The gentlewoman from New York.

6

Mrs. MALONEY. Thank you, Mr. Chairman. I join my colleagues

in the effort to reauthorize the Export-Import Bank. I have a very

long and thoughtful statement, and I will put it in the record because I would like to hear what everybody has got to say.

Chairman BEREUTER. I thank the gentlewoman, and I am sure

it is, and it will be in the record.

Now, I understand that you will share your testimony with approximately 15 minutes and then proceed to questions, so you may

proceed as you wish. Your entire written statements, if you have

them, will be made a part of the record, and I know that you provided some information already.

STATEMENT OF JAMES HESS, CHIEF FINANCIAL OFFICER,

EXPORT-IMPORT BANK

Mr. HESS. Thank you, Mr. Chairman.

Chairman Bereuter, Members of the subcommittee, my name is

Jim Hess. I am the Chief Financial Officer of the Bank. I am happy

to testify today on behalf of the Bank’s rechartering. Thank you for

entering our full testimony into the record.

Chairman BEREUTER. Would you pull that mike just a little bit

closer, sir?

Mr. HESS. Accompanying me are five of my colleagues who are

prepared to answer your questions in their particular areas of expertise, and two of them to offer testimony.

Mr. Speaker, Export-Import Bank is a sunset agency. Its charter

expires on September 30, 2001. The Administration is requesting

a renewal of the charter until September 30, 2005, including a 4-

year extension for our Sub-Saharan Africa Advisory Committee.

The mandate of the Export-Import Bank is to sustain jobs here

in the United States by helping to finance U.S. exports that would

not take place without us. We only step in where we are needed;

that is, where the markets are too risky for the private sector to

assume the risk, or to meet the government-sponsored export finance provided by our competitors. Also, we are required by our

charter to find a reasonable assurance of repayment for every

transaction we approve. Since our last rechartering in 1997, those

exports have totaled just——

Chairman BEREUTER. Mr. Hess, I am going to ask you to just put

the mike a little lower. We are having a hard time picking it up

for some reason. Thank you.

Mr. HESS. Those exports have totaled just over $60 billion.

We financed those exports by guaranteeing loans from commercial banks to foreign buyers, lending directly to foreign buyers, offering a variety of insurance policies which assure repayment, and

guaranteeing working capital loans to small U.S. exporters.

I want to emphasize that these are not giveaways to corporate

America. We get repaid. Our losses over the last 20 years are only

about 2 percent of disbursements. This compares very favorably

with commercial banks.

I would like to now turn to my colleague, Bill Redway, on my

left, who will briefly describe our small business programs.

7

STATEMENT OF WILLIAM REDWAY, GROUP VICE PRESIDENT

OF SMALL AND NEW BUSINESS, EXPORT-IMPORT BANK

Mr. REDWAY. Thank you, Jim.

Chairman Bereuter and Members of the subcommittee, over 80

percent of our transactions directly benefit small businesses. These

transactions consumed about 18 percent of our authorization expenditures, and this does not take into consideration the tens of

thousands of small businesses that benefit indirectly from exports

from large corporations. Small businesses account for most of the

job growth in our country. We currently directly assist some 2,000

small businesses each year.

I would like to take this opportunity to review some of the major

small business initiatives the Export-Import Bank has undertaken

since we were last rechartered.

First, we have reorganized internally to centralize all of our

small business efforts. In 1997, the Small and New Business Group

was established to provide specific services for the small business

community. This group includes the Insurance, Working Capital,

and Business Development Divisions, along with the regional offices located in New York, Chicago, Miami, Houston, and Long

Beach, California. In 1998, overseas selling was transferred to the

Structured and Trade Finance Group. This move, which consolidated all domestic selling, allowed us to attack the small business

market aggressively. Since then, the Small and New Business

Group has endeavored to aggressively meet the exporting needs of

the small business community.

Chairman BEREUTER. Mr. Redway, I am sorry. I need you to

move that mike a little closer.

Mr. REDWAY. To be specific, we have opened new regional offices

in San Francisco, Orange County, California, and Washington, DC.,

and given all regional officers substantial new business goals. We

have constructed a database of small exporters, which now numbers over 200,000 and have begun a direct mail campaign that has

resulted in over 2,000 qualified small business leads for our regional offices. During this fiscal year, we have scheduled 60 nationwide exporter seminars, where we take Ex-Im Bank’s story to the

marketplace. We have also established an Emerging Market Subgroup to promote Ex-Im Bank products and services to small business in the minority, women-owned, and rural communities.

It is through our short-term insurance program that the majority

of our small business transactions are enacted. Ex-Im Bank has

adopted a detailed strategic approach in supporting and increasing

its support for small business exporters and associated lenders.

Central to this strategy are three key components: offering useful,

high-quality products that are reasonably priced and will attract a

greater number of small business exporters; providing prompt customer service by investing in technology to support a growing volume of small transactions; and, finally, through technology, being

in a position to monitor and adapt risk-taking to the marketplace

on a real-time basis. Insurance small business authorizations increased from $1.2 billion in 1999 to $1.5 billion in 2000, a 25 percent increase.

Another way of assisting small business is through our Working

Capital Guarantee Program, which guarantees commercial bank

8

loans to exporters so that they can tool up to meet export contracts.

The program has grown from $387 million in fiscal year 1998 to

$588 million in fiscal year 2000, an increase of about 52 percent,

of which 88 percent are small business transactions.

In addition to the hard work of our staff, this increase has been

made possible by some program changes. The program has added

additional delegated authority lenders and has increased the

amount of delegated authority afforded to lenders many times in

the last 5 years. Program documentation also has been simplified

for ease of operation. New partners have been added to broaden the

potential marketplace for this product. Asset-based lenders and

community bank initiatives have resulted in additional usage of

the program.

Finally, Ex-Im Bank has joined the Commercial Finance Association and dedicated a business development officer to increase our

exposure to small business lenders.

Mr. Chairman, all of these efforts would be for naught without

superior customer service in all of our programs. I am pleased to

inform you that a study done by the University of Michigan, entitled the American Customer Satisfaction Index, shows that Ex-Im

Bank’s customer service rating is a 70, which is termed excellent

and compares favorably to other U.S. Government agencies and

U.S. commercial banks. This study covers all of Ex-im Bank’s programs, large, medium, and small; and we are proud of these results.

Jim.

Mr. HESS. Thank you, Bill. Of course, we also deal with medium

and large businesses. About 80 percent of our program budget supports exports by larger companies. But, a job in these companies

is no less important than any other job. Also, exports from large

corporations contain inputs from businesses, large and small, all

over the United States.

I would like now to introduce Bert Ubamadu, who is with our

General Counsel’s office, to briefly explain our program in Sub-Saharan Africa.

STATEMENT OF BERT UBAMADU, OFFICE OF THE GENERAL

COUNSEL, EXPORT-IMPORT BANK; ACCOMPANIED BY JEFFREY MILLER, GROUP VICE PRESIDENT, STRUCTURED AND

TRADE FINANCE

Mr. UBAMADU. Thank you, Jim.

Mr. Chairman and Members of the subcommittee, the most notable growth in Ex-Im Bank’s regional programs has been in Sub-Saharan Africa, a market where previously both Export-Import Bank

and U.S. exporters were largely inactive. As a result of Export-Import Bank’s commitment to meet its 1997 congressional mandate to

increase our programs to Sub-Saharan Africa, the Bank has seen

nearly a 15-fold increase in supported exports to the region. Also

to meet this mandate, the board of directors established both an internal Africa Task Force to direct the activities of the Bank pertaining to Africa, and also named the Sub-Saharan Africa Advisory

Committee, as the Chairman pointed out earlier, to bring practitioners from the field, to offer advice to Export-Import Bank in its

efforts.

9

The importance and commitment of the Bank to this market is

also underscored by several bank delegations in fiscal year 2000,

which included missions to Nigeria, Ghana, South Africa, Mozambique, Cameroon and Senegal.

As a result of these efforts, Export-Import Bank’s support to SubSaharan Africa has grown substantially. Again, as the Chairman

pointed out earlier, in 1998, the Bank authorized approximately

$56 million to support U.S. exports to this region. In 1999, the

Bank’s authorizations increased to $589 million. I am happy to let

you know that in 2000, the Bank’s authorizations again increased to $914 million.

In terms of volume, Export-Import Bank authorized 103 transactions in 1999 and 125 in 2000. This is a 25 percent increase. In

1998, the Bank was open for business in 21 countries and has been

open in 32 countries now for the past 2 years. We will work hard

with U.S. exporters and African buyers to continue this progress in

the future.

Thank you.

Mr. HESS. Thank you, Bert. Regarding our budget, the Administration has requested $633

million for our program budget for fiscal year 2002. This is the

budget that serves as our loan loss reserve and is the money we

use to actually do our transactions. The requested budget is approximately a 25 percent reduction from the current fiscal year

level of $863 million. This means that we will have to manage very

carefully in fiscal year 2002. The request for our administrative

budget is $65 million, up from $62 million for this fiscal year. We

will use this increase to further improve our technical infrastructure, including computers, and to reduce our processing time, especially on small business transactions.

Mr. Chairman, Export-Import Bank is a good deal for America

and a bargain for taxpayers. For every dollar invested in our program budget, we support $15 to $20 of exports that would not go

forward without us. This translates into good, high-paying jobs.

At this point, my colleagues and I will be happy to answer any

questions you or the Members of the subcommittee may have.

[The prepared statement of James Hess can be found on page 92

in the appendix.]

Chairman BEREUTER. Mr. Hess, thank you very much. We will

turn directly to questions. I was going to yield to Chairman Oxley

if he had been here, but we will go in the usual fashion in order

of seniority of those Members here at the beginning of the hearing

and then we will proceed to people as they appeared in order of appearance, moving from one side of the aisle to the other.

So therefore, first, I recognize Mr. Green under the 5-minute

rule.

Mr. GREEN. I have no questions at this time, Mr. Chairman.

Thank you.

Chairman BEREUTER. Mr. Sherman is not here, Mr. Bentsen is

not here. Mrs. Maloney. Well, let’s see. We then need to move to

Mr. Shays. All right. He yields to you, Mrs. Maloney.

Mrs. MALONEY. Well, I yield to Mr. Shays, my good friend.

OK. The Bush Administration has put forth a budget that will

reduce your institution’s funding by 25 percent. What impact will

10

this have on the amount of projects that the Bank can support in

the coming year, as well as the U.S.’s ability to compete in industries that the Bank supports?

Mr. HESS. Congresswoman, the budget of $633 million that is requested by the Administration for the Bank is estimated to support

about $11.5 billion of U.S. exports. This figure and all of our figures are estimates of demand. We do not program funds, as you

probably know, but we respond to requests from U.S. exporters for

their export sales. We have estimated that the figure of $633 million will be doable, but tight, for fiscal year 2002. If our demand

estimates are under what the actual call on our resources happens

to be in that year, the Bank will have to look at policy options that

could be taken to stretch our resources while still keeping U.S. exporters competitive in their financing offers for their export sales

efforts. We will not know if we have to do that until we see if demand actually materializes in 2002. It does promise to be tight. We

are keeping a close eye on it, but we have every intention of keeping U.S. exporters competitive in our export efforts, as well as living within the $633 million that the Administration has requested.

Mrs. MALONEY. I would like to go to questions that I raised with

the Bank in 1999 about the Export-Import Bank’s transaction for

the benefit of Halliburton and ABBM Tyumen to develop Russian

oil fields, controlled by Tyumen, a Russian oil company. At the

time a number of constituents came to my office and there were

editorials in the The Washington Post and really front-page articles

in several papers objecting to Tyumen’s business practices, telling

the American public that the company had gained control over a

particular oil field by manipulating Russian policies and through

other acts of crony capitalism. Eventually, the Administration temporarily halted the transaction using the so-called Chafee Amendment.

From the beginning, the Export-Import Bank defended Tyumen’s

business practices and, frankly, I am not concerned about debating

the merits of the Tyumen business transaction. What I am concerned about is the general issue of whether the Export-Import

Bank has the ability to take into consideration past fraudulent acts

committed by companies it works with around the world when

making a decision about a transaction.

I asked CRS to review this question in February of 2000. CRS

responded that, and I quote: ‘‘Congress has placed a number of specific requirements on the Export-Import Bank for it to consider in

authorizing extensions of credit or guarantees to firms seeking

such assistance. These requirements, however, do not specifically

reference the disallowance of credit or credit guarantees based on

acts of fraud or corruption on the part of the beneficiary unless

such fraud occurred on the application for credit.’’

My question is, would it be beneficial for Congress to specifically

give the Bank authority to disallow a transaction based on fraud

or corruption on the part of the beneficiary?

11

ELAINE STANGLAND, DEPUTY GENERAL COUNSEL, EXPORTIMPORT BANK

Ms. STANGLAND. This is Elaine Stangland. If I can try to respond

to you, Congresswoman, I think it is important to know that the

Bank does take into consideration——

Chairman BEREUTER. Will you pull that mike a little closer,

please?

Ms. STANGLAND. I am sorry. The Bank does take into consideration issues of corruption, character, and good governance. We do

that within the framework of finding creditworthiness in our transactions and on two levels. One is an indirect way in the ICRAS

process, which helps us determine the fee levels and our risk rating

for various countries. The ICRAS process is an interagency process

that does take into account business climate, judicial system, and

political climate in each country. But, probably more importantly,

we are required to find a reasonable assurance of repayment on

each transaction we support, and as every banker knows, character, past actions, and past performance does enter into the determination of whether a credit meets the reasonable assurance of repayment standard.

Earlier this year, we submitted a report to the Senate Committee

on Appropriations that outlined the considerations of the Bank,

and its procedures for dealing with issues of this nature within the

context of creditworthiness. We do due diligence, we consult with

our embassies abroad, we consult with other sister agencies, and

we believe these characteristics play an important role in determining the creditworthiness of any transaction.

Mrs. MALONEY. But you mentioned that creditworthiness was

your goal if they will repay the loan. I mean, a lot of crooks have

good credit, a lot of crooks are going to repay a loan.

My question is, given the Tyumen Oil, there was no question

that they had a shady past. Some of the major periodicals in our

country wrote about it, and it is well-known, and several American

companies were suing them, as you know.

But my question is not just creditworthiness, are you going to

pay it back, but shouldn’t we look at what the business practices

are? I mean when people take this example of Russia seeing us giving loans to Tyumen and they feel that they have manipulated the

bankruptcy laws and manipulated politicians and manipulated

this, that and the other, it doesn’t instill confidence in the American form of government. I was just thinking that if a company has

a history of fraud, corruption, fraudulent bankruptcy proceedings

such as Tyumen had, shouldn’t we possibly consider not giving

them a loan, even though they are going to pay us back, just based

on their method of operating?

Chairman BEREUTER. The time of the gentlewoman has expired,

but if you wish to respond, you certainly may.

Ms. STANGLAND. I just want to remind the Congresswoman that

we were aware of the various allegations that were made against

Tyumen.

Mrs. MALONEY. I know I had several conversations with your offices.

12

Ms. STANGLAND. We investigated this by absolutely all means

available to us and did extensive due diligence. However, we did

not find any credible evidence of misconduct.

There are provisions in our charter which allow the President,

and he has delegated that authority to the Secretary of State, to

consider non-commercial and non-financial factors in determining

credit. This happened in Tyumen. A final decision on the case was

postponed until the Chafee Amendment was removed. So there is

a mechanism that Congress has put into our charter that allows for

the consideration of factors other than commercial and financial

when determining whether Ex-Im Bank can support a transaction.

Actually, right now the company that brought most of these allegations and Tyumen are strategic partners.

Mrs. MALONEY. OK. Thank you.

Chairman BEREUTER. The gentlewoman may pursue that again

later if she wishes.

The gentleman from Connecticut, Mr. Shays, is recognized under

the 5-minute rule.

Mr. SHAYS. Thank you, Mr. Chairman.

Mr. Hess, Export-Import Bank is basically supposed to be the

lender of last resort, correct?

Mr. HESS. That is correct, sir.

Mr. SHAYS. And what I am trying to determine is how you determine that you are, in fact, the lender of last resort. I happen to

think if in the end we wouldn’t have these sales without the Export-Import Bank, then thank God we have the Export-Import

Bank. But how do you know we would or would not have these

sales without your involvement?

Mr. HESS. Well, we look at this very carefully. In certain transactions, the U.S. exporter is facing competition from a foreign exporter who is supported by below interest rate financing from their

export credit agency. In those cases, we are directly meeting the

foreign competition and clearly we are needed to do that.

There are other instances where the U.S. exporter is selling into

a situation that the commercial sector is unwilling or unable to go,

simply because it is too risky or because they have found it——

Mr. SHAYS. Let me just ask you, do they attempt to get financing

in the marketplace before they come to you?

Mr. HESS. They try to get financing in the marketplace before

they come to us; and we look at the transaction when it is presented to us to make sure that we are necessary before we authorize the transaction, yes, sir.

Mr. SHAYS. Some of these companies are quite large and some

are actually in my district and I am grateful they have the business. But when you look at a company like General Electric, what

tells you that they do not have the ability to get financing, the

project itself? Certainly their financial capability is quite sound. So

what do you do, you isolate each project, and it is not important—

it has no impact that it is a large company like GE? Walk me

through something like a GE loan.

Mr. HESS. We look at all of the cases that come in, whether they

are from large companies or small companies, and we look to see

if we are needed. We have those two situations, which I just explained, where we find that we are necessary to make the transVerDate 11-MAY-2000 09:59 Sep 14, 2001 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 72290.TXT HBANK1 PsN: HBANK1
13

action go forward. We try to get as much private sector participation in the transaction as we can. You have to remember that we

do not do the entire 100 percent of the financing. We require a 15

percent cash payment, which is frequently financed, and it is done

at the risk of another party, either the exporter or a commercial

lender.

So we are only financing 85 percent of the transactions, and it

is very frequently a strain on resources from the private sector or

the U.S. exporter to put together the other 15 percent.

Mr. SHAYS. When we appropriated the $927 million in this year’s

budget and $62 million of it was administrative expense, does the

balance of the $62 million ultimately come back to us? In other

words, if that is a loan extended, they pay the cost of money? I

mean I am not quite sure that money doesn’t disappear. The money

that we appropriated ultimately just makes your fund larger?

Mr. HESS. That is correct. The money that is appropriated beyond our administrative expenses is, in effect, a loan loss reserve.

We, as a technical matter, put the money into what is called a financing account at the U.S. Treasury where it is available to pay

losses, if necessary, for those credits.

Mr. SHAYS. And then how much of this $927 million minus the

$62 million, how much of it ends up just disappearing in terms of

loans that are not paid and so on? What is our ratio of our loan

to loss?

Mr. HESS. Over time, the ratio of our losses to disbursements is

about 2 percent. Credit reform itself has only been in place since

1992, and our medium and long-term programs generally have repayment terms that are 5 years to 10 years. So, we have not yet

closed out any of the year cohorts for the medium- and long-term

business under credit reform. Therefore, I can’t give you a definitive answer for any of those years.

However, credit reform provides for that type of analysis to be

done, and the information will be available.

Mr. SHAYS. The basic cost to the Government is just the fact that

we are subsidizing very low-interest loans?

Mr. HESS. We are basically charging a risk premium for the risk

that is in the credit, and we are charging an interest rate that is

approximately 1 percent or so above the U.S. Treasury rate.

Mr. SHAYS. You are only having a 2 percent loss? The risk isn’t

as great as I made an assumption. I mean that is a pretty low loss.

Mr. HESS. That is a very low and a very good loss record. This

is a different methodology than the credit reform process uses to

assess losses. That methodology will change over time as the few

losses under credit reform actually become measured, so there is a

difference in methodology there which is a slight dislink between

the two losses.

Mr. SHAYS. Thank you.

Thank you, Mr. Chairman.

Chairman BEREUTER. I appreciate you bringing that out. We

have a committee amendment in the nature of a substitute pending. We will hear from one more Member at this point and then

resume when we return.

The gentleman from North Carolina, Mr. Watt, is recognized.

14

Mr. WATT. Thank you, Mr. Chairman. I will try to be expeditious. I have a couple of questions, though.

Representatives of the Bank visited me recently and in the

course of that conversation advised me that you all basically have

never lost any money for the U.S. Government, that you make

money for the U.S. Government.

Mr. HESS. Well, Congressman, as I said earlier, we have lost

about 2 percent of our total disbursements. Our financial statements of the last 2 years——

Mr. WATT. The question I am trying to get to is does that include

the annual appropriation? Does your premium and the returns you

get on interest cover your operating cost?

Mr. HESS. It does not totally cover the estimate, the current estimate of what may be the losses under our credits. We charge the

minimum fee that is allowed under the OECD agreement so that

we can keep our exporters fully competitive with the foreign packages that are offered by ECAs. But, the fees in higher risk markets

are not sufficient to cover what the Office of Management and

Budget considers to be the risk in those markets. So in order to

cover the risk, we need the appropriation.

However, those are estimates, and over time we may find that

those estimates are on the high side in terms of losses. If so, then

that money will go back to the U.S. Treasury.

Mr. WATT. I guess the question I am asking is, up to this point

in the history of operation of the Bank, have you covered both the

risks and losses that result from that risk and your operating cost,

or have you not?

Mr. HESS. Over the history of the Bank up until now, Congressman, we have not fully covered those losses.

Mr. WATT. How much of a shortfall per year approximately

would there be historically, I mean?

Mr. HESS. Well, for example, recently, by definition, the shortfall

that we are talking about for fiscal year 2002 would be $633 million for an appropriation for the credit risk; and it would be $65

million for administrative expenses. So it would be about $698 million.

Mr. WATT. Well——

Mr. HESS. Like I said, those are estimates.

Mr. WATT. Maybe I am asking the wrong question. You are looking prospectively at risk, I am looking retrospectively at losses. You

are not saying that the $600 some million is needed to cover past

losses; you are saying that it is needed to cover OMB’s estimate of

what future risk of losses; is that what you are saying?

Mr. HESS. That is exactly what I am saying.

Mr. WATT. OK. The question I am asking is not that question.

I am asking a retrospective question. How have you covered the actual losses in the past by the premiums that you have charged or

user fees that you have charged?

Mr. HESS. We have not fully covered actual losses from the

Bank’s inception in 1934.

Mr. WATT. OK. I asked that question. Now, the question is, how

much of a shortfall has there been historically?

15

Mr. HESS. Well, I can provide the figure for the record, but because we have been recapitalized since credit reform began, the figure is in the neighborhood of about $8 billion.

[The information referred to can be found on page 109 in the appendix.]

Mr. WATT. $8 billion ever since 1994?

Mr. HESS. No, no, since 1934.

Mr. WATT. 1934, I am sorry, OK.

Mr. HESS. But this again is a very small percentage of the total activity of the Bank. We have supported over $400 billion of exports in that period of time and our losses have been minimal, less

than 2 percent of our disbursements.

Mr. WATT. You all gave me a list of 28 businesses in my Congressional District who have benefited from the Export-Import Bank,

six of which were banks. Can you give me an example of what you

do for a bank?

Mr. REDWAY. Yes.

Mr. WATT. They are not exporting anything, I take it. They are

not exporting money.

Mr. REDWAY. Congressman, no, they are not. Speaking from a

small business standpoint, the banks will take out policies themselves for some of your constituents in your area and do the project

or do the transaction in their name rather than the exporter’s

name. They also may take an assignment of a policy so that they

would advance against an insurance policy that we issued for one

of your constituents and help them that way, or you could do a

working capital guarantee where they would be advancing funds

against our working capital guarantee to provide funds to produce

the export order.

Mr. WATT. Mr. Chairman, I think I am out of time, but I would

just say that I did write to all of the 28 companies in my Congressional District and asked them to tell me what experience they

have had with the Bank, and that letter went out on April 4, and

I have since gotten three responses which I would like to submit

for the record. I ask unanimous consent to submit these for the

record.

Chairman BEREUTER. Without objection, that will certainly be a

part of the record.

[The information can be found on page 89n the appendix.]

Chairman BEREUTER. We need to proceed now.

Ms. Waters, I don’t know if you can come back or not, but you

can take 2 minutes now if you choose.

Ms. WATERS. Let’s go vote.

Chairman BEREUTER. We will go vote. The hearing will stand in

recess. We have one vote. We will be gone for 15 minutes. If a second vote comes shortly thereafter, it will be a little bit longer.

The hearing is in recess.

[Recess.]

Chairman BEREUTER. The hearing will come to order. I regret we

had such a long intervention in our hearing. We had three votes

awkwardly spaced to complete the votes on the floor. It is part of

democracy. Thanks for your patience to the witnesses and to all the

people interested in the hearing today.

I will begin the questions until we have other Members return.

16

Mr. Hess, I wonder if I might ask you the questions. Of course

you redirect it as you wish or supplement. One of the concerns that

I have heard expressed by the Export-Import Bank’s funding and

its operations relates to the simple technology gap within the agency, which means that you are, I am told, not able to respond as

quickly to potential American businesses, particularly small businesses who do not have the capabilities. We are talking about information technology, computers, and so on. This is the word I

have received from a variety of sources, and I wonder if you would

comment on the state of affairs when it comes to processing information and being able to respond.

Mr. HESS. Mr. Chairman, this is a problem that we have been

working on quite diligently. We have recently put in a couple of

processes that use the internet and computers to reach out to the

exporting community and the banking community. We also have

our claims filing system now working through the internet. We

have a system whereby banks can send to us requests for cover on

disbursements through the internet.

So we are beginning to move in that direction. It is true that we

need to do a lot more. The increase that we are requesting in our

fiscal year 2002 budget will be earmarked virtually entirely for improvements in our automated information systems and in outreach

efforts to use the internet, to use computers, to streamline our insurance program and our small business programs to make them

more user-friendly and more quickly responsive to the community.

This is a valid concern of the exporting community as well as ours,

and we are actively trying to address it.

Chairman BEREUTER. Thank you. To the extent that you had a

problem or still may have a problem on being responsive because

of obsolescence, does that have a greater negative impact upon the

small businesses?

Mr. REDWAY. Mr. Chairman, I would say that the small business

programs would benefit the most from an increase in technology.

If we could basically automate some of our credit decisionmaking,

which can be done, and is being done in the private sector, it would

speed up turnaround time and would free staff for the more difficult cases. So yes, we could very much stand for an increase in

our technological capabilities.

Chairman BEREUTER. Could you provide us with a description of

the problem and what you hope to do to solve that problem during

the upcoming fiscal year based upon the resources that you have

proposed for the agency in the Administration’s budget?

Mr. HESS. Mr. Chairman, we would be happy to do that for the

record, yes, sir.

Chairman BEREUTER. And then would you go further and suggest, if you had more resources, how you would devote the first additional resources beyond that?

Mr. HESS. We will do that, sir.

[The information referred to can be found on page 107 in the

appendix.]

Chairman BEREUTER. Thank you.

Now, one of the interesting things to this committee, I am sure,

and particularly this subcommittee is, to compare the resources

that the Export-Import Bank has as compared to agencies of comVerDate 11-MAY-2000 09:59 Sep 14, 2001 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 72290.TXT HBANK1 PsN: HBANK1
17

petitor export countries, the developed countries like Japan, the

Netherlands, Canada, Germany, France, and so on, which seem to

have substantially more resources in a direct sense than does the

Export-Import Bank of the United States.

Is the OECD a source of objective information about the comparative resources the agencies have, or is there another source

that you would suggest to us?

Mr. HESS. I will let Mr. Cruse address that.

JAMES CRUSE, GROUP VICE PRESIDENT, POLICY, EXPORTIMPORT BANK

Mr. CRUSE. Yes, Mr. Chairman. The OECD is a very good source

of information on activity of export credit agencies. But, it is not

an expert on all export promotion activity that the Commerce Department types or others do.

There have been a variety of studies that have dealt with that

information, which we will be glad to provide to you.

Chairman BEREUTER. Who would be the source of some of those

studies, looking at the resources that are available? For example,

in the various categories, the two to three major categories of the

Export-Import Bank, what your competitors are able to put forth

in the way of resources? Where do we go for objective information?

Mr. CRUSE. On export credit activity, we could generate an extensive detail of activity there. For activities from the Commerce

Department, the Track Promotion Coordinating Committee— TPCC—put together a study on this a couple of years ago in one

of the reports that they had done. So we could get that too. But,

if it is just export credit activity, we have ample and detailed information on that.

Did you want any information on administrative budgets?

Chairman BEREUTER. That would be helpful too.

Mr. CRUSE. We could take care of that.

Chairman BEREUTER. Because we hear that in some ways we are

not able to respond because of the physical and the information

technology resource that you have at your disposal.

Mr. CRUSE. OK. We will get you both, activity and administrative

resources.

[The information referred to can be found on page 113 in the

appendix.]

Chairman BEREUTER. Thank you. I will ask one more question

to open it up and then let Ms. Waters have her 5 minutes and we

will go back for a second round for other Members as the case demands.

I am going to move to Africa where we have had this mandate

in place with respect to the 1997 authorization legislation. Are

there any additional statutory changes needed to facilitate the Export-Import Bank’s supported trade with U.S. supported trade with

Sub-Saharan Africa, and has there been any internal or external

examination of our effectiveness in providing additional resources

to U.S. exporters whose markets are in Africa or who hope to exploit markets in Africa?

Mr. UBAMADU. Mr. Chairman, with regard to the first part of

your question, any additional legislation needed, and I would have

to say that based on the experience that we have had, the answer

18

would be no at this point. Congress has already provided for the

Sub-Saharan Africa Advisory Committee, as you well know, which

is a group of private sector advisors that are experts in Africa, who

meet with the Bank three times a year to give us advice on how

to increase our programs to this region. Beyond these meetings,

Ex-Im Bank is always talking to them on ways to increase our support to the region. So our answer would be no additional legislation

is needed at this time.

With regard to the second part of your question, we are constantly traveling to the region. For example, I just returned in December with a four-member team where we did a bank sector study

in Nigeria to see what the needs of the borrowers are in that community, and we are then able to disperse information out to U.S.

exporters when we meet with them. But, I don’t believe we have

done a comprehensive study to see what our effectiveness is, but

I think you can certainly see by the numbers—where we started

with $58 million in 1998 and we are now up to $914 million—that

our efforts are working. We certainly hope to see an increase next

year.

Chairman BEREUTER. Is there anything you could say, in short,

about the number of U.S. firms coming to you who are asking for

your assistance on Africa-related trade as compared to U.S. companies who have interests they want to exploit in other continents?

Are we meeting a higher percentage or lower percentage of those

businesses wanting to have your assistance for Africa trade?

JEFFREY MILLER, GROUP VICE PRESIDENT, STRUCTURED

AND TRADE FINANCE, EXPORT-IMPORT BANK

Mr. MILLER. Mr. Chairman, Jeffrey Miller. We don’t have statistics that compare the level of interest by continent. But the interest

in Sub-Saharan Africa has certainly increased due to the efforts of

the Sub-Saharan Africa Advisory Committee.

Chairman BEREUTER. The gentlewoman from California is recognized.

Ms. WATERS. Thank you very much.

Mr. Chairman, you started down the road that I would like to

go down in relationship to Sub-Saharan Africa. I was a little bit

distracted here. I heard the response relative to whether or not we

needed additional legislation or they needed additional authority of

any kind. But what I don’t have a sense of is the level of involvement we have in Sub-Saharan Africa.

Could you describe to me since the mandate, generally; basically

what have we done?

Mr. UBAMADU. Congresswoman, are you speaking in general or

for a specific area? I can certainly tell you in general what we are

doing with regard to Africa is both on the continent and as well as

here in the U.S. We work very closely with U.S. exporters and U.S.

banks to inform them about the various programs that we have for

Africa. With regard to the banks, we are trying to encourage more

U.S. banks to get involved in working with Export-Import Bank

where we can provide guarantees for loans that they make to this

region.

19

Ms. WATERS. Could you describe to me in a dollar amount how

much you have been able to do? How many loans have you made,

or loan guarantees?

Mr. UBAMADU. Last year we did 125 transaction loans in Africa

compared to 123 the year before.

Ms. WATERS. All of Africa or Sub-Saharan Africa?

Mr. UBAMADU. In Sub-Saharan Africa.

Ms. WATERS. Did you say 125 loans?

Mr. UBAMADU. I can certainly give you the breakdown. There are

a number of different programs that we have. We have what we

call working capital guarantee, where we provide a guarantee to a

bank, a U.S. bank, that has provided a loan to a U.S. company that

would export the product. Just to let you know, of that 125, 11

transactions were done under the working capital guarantee program. Under loans and guarantees, we had 32 transactions, and for

insurance, we had 82 transactions. This is all in calendar year

2000.

Ms. WATERS. Do you consider that you have done a good job? Are

you happy with what you have been able to do?

Mr. UBAMADU. Congresswoman, if I may, I came to this bank

about 2 years ago specifically for the goal of trying to do work in

Africa, and I can certainly tell you that I have worked in a number

of other institutions that do similar things that have also attempted to do work in Africa. But the answer to that is absolutely

yes. I think more absolutely has to be done, but Export-Import

Bank has a specific mandate and part of that is we have to show

reasonable assurance of repayment for a lot of the transactions

that we do. However, we are working as hard as we can within

that mandate to increase U.S. exports to Africa. We are certainly

making strong progress, but there is always more that can be done,

and we are trying to do that.

Ms. WATERS. Where are we most successful? What country do we

make the most loans to?

Mr. UBAMADU. Ghana probably is our most successful.

Ms. WATERS. Non-African countries. I want to just get some comparisons so I can try and understand this amount as compared to

what? Where do we do the most loans?

Mr. MILLER. Congresswoman, Mexico is our largest market.

Ms. WATERS. And could you give me a dollar amount, total

amount of authorization?

Mr. MILLER. Our authorization amounts in Mexico were $1.4 billion in fiscal year 2000.

Ms. WATERS. And the amount for Sub-Saharan Africa, all of Africa, I guess, is how much?

Mr. UBAMADU. $914 million.

Ms. WATERS. What are your plans to increase it?

Mr. UBAMADU. Congresswoman, we have undertaken a number

of initiatives to increase our activity. First, we have staff that is

constantly traveling to Africa, and we have what we call regional

training seminars in various regions of the continent. For example,

we have one scheduled this month in South Africa, which will basically capture all of the SADC, Southern African countries, where

we are trying to work with them to explain our programs. At the

20

same time, we also encourage U.S. exporters to attend these training seminars.

We also take along with us U.S. financial institutions as a way

of letting them see the market, meet the potential buyers and see

the business that is in these countries. We are doing this all over

the continent. Last year, I was able to participate in two of these

training seminars. I mentioned earlier that we think this is one of

the key aspects of working in this region because there are a lot

of U.S. banks that are looking into this region. We are also trying

to encourage African banks to get involved in our programs. This

is one of the reasons why we were in Nigeria back in December,

where we spent 2 weeks, and had an opportunity to meet with 16

banks to talk to them about the local economy, and to take a look

at their financial position. So we are going to continue these endeavors.

In the U.S., we are also trying to encourage meetings with U.S.

exporters, and U.S. banks to again encourage them to look into this

region.

Ms. WATERS. Mr. Chairman, I know my time is up, but I would

like to set up a meeting with the Bank to talk about a combination

of Sub-Saharan Africa and small businesses in our country and

how we can get more of them involved. Thank you.

Chairman BEREUTER. Would you like to respond to the Congresswoman’s request?

Mr. REDWAY. Yes. We would be delighted to have such a meeting.

Chairman BEREUTER. Thank you. I think it should be productive

for all of us.

The gentleman from New Jersey, Mr. Ferguson, is recognized for

5 minutes.

Mr. FERGUSON. Thank you, Mr. Chairman.

I thank you, Mr. Hess, and the panel for your patience with our

sometimes unpredictable schedule here. I certainly appreciate your

testimony and your willingness to stay and to answer some questions, and I appreciate the chance, Mr. Chairman, to follow up on

a couple of things.

I represent the Seventh District in New Jersey and particularly

with our high-tech industry in New Jersey, I have a particular interest in the health and the activities of the Ex-Im Bank, and I am

concerned, as the Chairman had mentioned before, about the current budget funding request. I want to get into a little bit about

some of your activity, and just a couple of points I would like to

address.

There has been a lot of comment about the need for reform with

Export-Import Bank in order to make it a more effective agency for

U.S. exporters as they strive to compete with foreign competitors.

What are some of the changes that you, Mr. Hess, believe need to

be made in order to make your process more efficient and more in

line with the global economy?

Specifically, do you believe that this market window approach,

which is used by European and some of the other export credit

agencies, do you believe that to be effective? I wanted to get some

of your reaction or thought on that.

Mr. HESS. Congressman, thank you. Let me first comment on the

administrative efficiency. We have asked for an increase in our adVerDate 11-MAY-2000 09:59 Sep 14, 2001 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 72290.TXT HBANK1 PsN: HBANK1
21

ministrative budget to $65 million for 2002. Virtually all of that

has been earmarked for more computerization efforts to streamline

and make the Bank’s operations more efficient. It will also increase

our ability to interface with the U.S. exporting community, particularly small businesses. So we are actively trying to improve in the

area because we feel other ECAs have an edge on us, and we are

not as up-to-the-minute as we should be.

So in this area, we definitely are trying to improve and we believe we will do so.

As far as programmatic changes are concerned, we are also constantly looking at those.

On the market windows issue, I think Mr. Cruse can comment

on that. He has done a significant amount of work on that issue

within the OECD context.

Mr. CRUSE. Yes, thank you. On market windows and other areas,

it is important to say that the world is changing. We are very competitive with our current programs, but given the world of banking

and export credit, most of the export credit agencies are trying to

find new ways to do things. One of them is to be very efficient,

which Mr. Hess just mentioned.

Another one is to provide for specially dedicated institutions

which are called market windows. In the U.S., the closest approximation might be to Fannie Mae. Just imagine to the extent that

you can, an institution dedicated with a Federal charter to exports

and doing anything it can to encourage current and future exports

out of the country without any regulation and with almost unlimited access to funds. That type of an institution has not yet made

a major appearance on the export scene, but two of them are operating. We believe that some time in the future that type of institution would pose a major challenge to us.

Mr. FERGUSON. What about specifically with high-tech folks?

Lucent, for instance, is a company in my district, major company

in my district. Is there anything specifically that Ex-Im Bank is

doing to work with high-tech companies, particularly regarding our

new economy in a global economy?

Mr. MILLER. Congressman, in the high-tech area in the last 2

years, we have increased our exposure fivefold, particularly in sectors such as electronics, telecommunications, information biotechnology, and life sciences; and we currently have a tremendous

interest in more transactions in these areas. We are also expanding

our marketing efforts in those areas.

Mr. FERGUSON. Just finally, I know my time has almost expired,

Mr. Shays was talking before about how Ex-Im Bank is a lender

of last resort and we talked about that a little bit. Does this mean

if Ex-Im Bank isn’t adequately funded or if it were to disappear

somehow that U.S. exports and their related jobs would be completely lost, or would competing export credit agencies end up financing that competition overseas, would they fill the void? I mean

we are talking about a 25 percent reduction in your appropriation.

Can you talk just briefly about how that would affect your activity?

Mr. HESS. Well, we do have a significant reduction in the appropriation request for fiscal year 2002. We estimate demand in the

future, we don’t program our funds, so we do not have precise

22

knowledge today of either the amount of demand or the risk profile

of that demand that will be coming into the Bank.

To the extent that either the risk profile or the total amount of

demand exceeds the amount that it appears that we can do with

the $633 million, we will have to look at program changes with a

strong eye on competitiveness. However, if changes are necessary,

we will try to continue to keep the U.S. exporter competitive, but

at the same time stretch our resources. We have every intention of

making the $633 million last through fiscal year 2002 and providing a strong support for U.S. exporter sales.

Mr. FERGUSON. I know my time has expired. I do have more

questions, but I will be in touch with you directly on those. Again,

thank you for your patience and I appreciate your willingness to

stay and answer these questions.

Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you, Mr. Ferguson. I was going to

call on the Ranking Minority Member, Mr. Sanders, for his comments and questions.

Mr. SANDERS. Thank you, Mr. Bereuter. I apologize for not being

here for this important hearing, but I was on the floor of the House

offering a motion to recommit.

I want to focus on one or two very simple issues and I hope you

can educate me on them.

The United States today has the largest trade deficit in its history, over $400 billion. We have a trade deficit with China which

is over $80 billion. I think economists will tell us that these trade

deficits are costing us hundreds of thousands of decent paying jobs.

So in other words, our trade policy, from my perspective, is failing,

and I think it is hard not to acknowledge that.

Now, the question that I have is I find it ironic, and please tell

me about this, how it is that some of the largest recipients of ExIm Bank subsidies, companies like AT&T, Bechtel, Boeing, General

Electric, and McDonnell Douglas, which is now a part of Boeing,

these are the major recipients of Ex-Im Bank subsidies, and these

are the very same companies that have laid off huge numbers of

American workers. In fact, just those companies that I mentioned

have reduced their overall employment by 38 percent.

So if you have companies like General Electric and if you have

the President of General Electric, he would say, ‘‘Hey, that is how

we are making so much money. We are running to China, we are

running to Mexico, we are throwing American workers out on the

street. That is why we are a very profitable company. And we are

delighted, just ever so delighted that Ex-Im Bank is supporting us.

So thank you. We thank the American taxpayers, especially those

we are throwing out of work as we go to China and Mexico for your

support. We really do appreciate it.’’

So on behalf of a few hundred thousand American workers, some

of them in my own State, who were laid off by these companies

who Ex-Im Bank supports, why isn’t there a link being made?

When these companies are coming to you for their welfare payments, why don’t you say, ‘‘Well, gee whiz, you have been laying

off American workers, sorry.’’? Why don’t you say to some of these

smaller companies, who have been growing companies, creating

23

new jobs, say, ‘‘Thank you, we are going to support you, we like

what you are doing.’’?

So bottom line is, why do you give huge taxpayer subsidies to

corporations who are laying off huge numbers of American workers?

Mr. MILLER. Congressman, we provide financing for the foreign

entities to purchase the goods of those companies you mentioned,

and some of those large corporations also do not have the resources

to stand up against government-subsidized foreign competition or

the reluctance of commercial banks—— Mr. SANDERS. Excuse me. AT&T, General Electric do not have

the resources? Did I hear you say that correctly?

Mr. MILLER. Yes, sir.

Mr. SANDERS. You said that?

Mr. MILLER. Yes, sir.

Mr. SANDERS. You want that on the record. AT&T does not have

the resources. General Electric does not have the resources.

Mr. MILLER. Foreign borrowers do not need the financing to buy

the products.

Mr. SANDERS. OK. I see. I just wasn’t clear. AT&T does not have

the resources. Sorry. All right. I find it frankly hard to believe that

these large corporations who make large sums of money do not

have the resources.

Now, you raised the issue of competing against other companies

which provide the resources, right?

Mr. MILLER. Yes.

Mr. SANDERS. Now, do you also ever raise the question that in

many of these countries, especially European countries, our competitors, France, Germany, that, A, the wages in many of those

countries are substantially higher; that all of those countries guarantee national health care, they guarantee free college education to

their children, they have universal and publicly subsidized child

care? Is that part of the equation?

Mr. MILLER. It is not part of our——

Mr. SANDERS. Not part of the equation, I see. It is only because

they don’t provide, B, subsidies.

Mr. Chairman, as I have indicated, I have a real problem with

the philosophy of the Bank. If somebody wants something from me

and they want a subsidy from the American people, it seems to me

that the representatives of the American people have a right to

say, fine, but what are you going to do for the working people of

this country? Do you want some help? No problem. Tell us about

the jobs you are going to create. But it is not good enough just to

talk about this one project when they go next door—if General

Electric were here, they would tell you that is their philosophy

now; it is to lay off American workers to go to China and hire people at 20 cents an hour. Is that true? Do you agree with me? Is

that largely what they would tell us?

Mr. MILLER. I don’t know that, sir.

Mr. SANDERS. Would you disagree with me?

Mr. MILLER. I don’t know what he would say.

Mr. SANDERS. Does anyone want to disagree with me, that if we

had—what is the name of—who is head of GE? What is his name?

Jack Welch. I think he writes books on this. Does anyone want to

24

disagree with me that Jack Welch is not very proud of the fact that

he has laid off American workers and hired people abroad at low

minimum wages. I don’t think anyone can disagree with that.

Why do you reward companies like that with American taxpayer

subsidies? I would like somebody to respond.

Mr. MILLER. Mr. Chairman, we look at individual transactions,

foreign borrowers to buy U.S. products. We don’t discriminate

against large or small corporations. We look at creditworthiness of

the transactions.

Mr. SANDERS. Not a good enough answer. It is an answer that

says, yes, we are going to look at this particular transaction but oh,

by the way, we forgot the fact that you laid off 10,000 workers last

week; not of concern to the Ex-Im Bank.

I think we need to rethink the whole process. I think we should

provide help to those companies that are committed to the wellbeing of American workers. Many of these corporations are not.

They should not receive our subsidies.

Chairman BEREUTER. I really need to recognize the gentlewoman

from Illinois, but perhaps she will yield to you and I will not take

it out of her time.

I recognize the gentlewoman from Illinois, and she can yield. It

will come out of her time. Would you like to yield to the gentlewoman from California briefly?

Ms. SCHAKOWSKY. I would be happy to.

Ms. WATERS. Mr. Chairman, I am a little bit concerned. At this

panel today we don’t have the person that is in charge of this agency, the Acting Director, so I don’t know who is running the show.

It bothers me because I suspect that there has not been a concentrated, well-defined effort to take care of the mandate in SubSaharan Africa and I don’t have anybody to charge with that.

Chairman BEREUTER. Well, if the gentlewoman from Illinois

would yield, just to respond briefly, I am concerned of course that

we don’t have the Chairman here today too, but we have a Chairman that is on the way out, and frankly I will say at least discouraged from testifying by the current Administration, and we have no

new Chairman in his place at this moment. But I think that we

need to hear from the Chairman as soon as there is, in fact, a

Chairman appointed and confirmed by the Bush—for the Bush Administration.

Now, if the Clerk will start the clock over, I recognize the gentlewoman from Illinois.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

I apologize to the witnesses for not being here for your testimony.

I have been looking through the testimony. I wanted to just echo

to some extent what my colleague Mr. Sanders has said.

When you look at the charter of the Export-Import Bank and it

says that contributing to the promotion and maintenance of high

levels of employment and real income, a commitment to reinvestment and job creation, and so forth, that I would also say that it

would be important in making these decisions with very precious

resources of taxpayer dollars that we do scrutinize more carefully

the overall mission. I understand the mission of looking project-toproject, but I think taxpayers rightfully may question, especially

those, as Mr. Sanders mentioned, who may be out of an a job from

25

one of the very companies that is receiving support for their work

overseas. It seems a little bit like we are using taxpayer dollars

and pouring salt into a very painful wound.

Let me ask you this. I know that there is one issue, and that is,

as I understand the environment, on which project-by-project the

Export-Import Bank may decide to deny a loan, and that that happened, let’s see, the Three Gorges Dam project in China for environmental concerns. But I am concerned about other loans that

have been made which, I guess, were not allowed to look at project

by project, but I think have some unfortunate results. For example, the Export-Import Bank provided $298 million to

the—I am going to say it wrong, probably, Dabhol Power Project

in India, despite documentation by Human Rights Watch of serious

abuses, including beatings and harassment of protestors by state

security forces. With the Chairman’s concurrence, I would like to

submit the Human Rights Watch report on the power project into

the record.

Chairman BEREUTER. Without objection, that will be the order.

[The Committee has received the report and it has been retained

in the Committee’s permanent files.]

Ms. SCHAKOWSKY. And then recently, the Bank announced a $5

billion program to help Africans buy AIDS drugs, but it does nothing to check the pricing policies of the pharmaceutical companies,

which is the biggest roadblock to slowing the pandemic, or at least

addressing parts of the pandemic which are ravaging the continent.

It would just seem to me that again, when we are making these

kinds of loans that it would be useful to have a broader scope when

we examine individual projects and would welcome anyone’s response to those concerns.

Ms. STANGLAND. Elaine Stangland from the Office of General

Counsel, Congresswoman. I would like to address the first part of

your comments with respect to human rights. Our charter does

specifically speak to human rights. It speaks to it in the context of

what is known as the ‘‘Chafee Amendment.’’

The Export-Import Bank’s staff is some 400 people with expertise

in banking, economics and law.

The Chafee Amendment is a reflection of Congress’ determination that the expertise and the resources for determining human

rights abuses and how they should impact the Export-Import

Bank’s financings best lies with the Secretary of State. So our charter does speak to it specifically.

There is other legislation, including an appropriations bill, and

the so-called Leahy Amendment, which provides that we cannot do

financing to security forces of any country without going through

a process with the State Department relating to abuses of human

rights.

Ms. SCHAKOWSKY. Although those deal with countries and not

projects, right?

Ms. STANGLAND. That is correct. Leahy deals with security forces

of governments.

The Chafee Amendment tries to balance the benefit from the export with human rights concerns and our national policy and foreign policy with respect to those issues. The Chafee Amendment is

not limited to government deals at all; it applies to private sector

26

deals as well. But, it is in the realm of expertise of the State Department; and Congress has set forth this procedure to take those

types of issues into account.

Ms. SCHAKOWSKY. Exactly how does that interaction with State

happen?

Ms. STANGLAND. The State Department gets copies of all of our

board agendas and they have a representative attending each of

our board meetings.

With respect to the Chafee Amendment, the way that works is

the Secretary of State, having gotten the powers delegated from the

President, will send us a letter specifically referring to that section

and telling us that we are allowed to consider non-commercial and

non-financial factors in our determination.

But, we do have an ongoing working relationship with the State

Department.

With respect to the Leahy Amendment, we have instituted a procedure where we will notify the State Department any time we

have any request for a financing to security forces and we wait for

their clearance.

Ms. SCHAKOWSKY. My understanding is that credit has been denied because of human rights reasons only twice, right? Argentina

and Cameroon, if I am not mistaken. So this is a fairly—well, a

very rare occurrence.

Ms. STANGLAND. Your facts are correct, according to my records.

On human rights, it has been twice.

Ms. SCHAKOWSKY. Under human rights, would violence against

women and issues related to abuse based on gender be included?

Ms. STANGLAND. Well, the Chafee Amendment does list some

specific concerns. They include international terrorism, nuclear proliferation, environmental protection, and human rights. We have

always taken the position, and it is well accepted throughout the

U.S. Government that the list of examples is not exclusive. If the

State Department were to find that it is in the national interest

and would importantly advance our national policy, they can do a

Chafee Amendment for other foreign policy considerations.

I can’t be more specific in my response than that. I am sorry.

Ms. SCHAKOWSKY. Thank you very much.

Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you for pursuing those questions.

The gentleman from Texas, Mr. Bentsen, is recognized.

Mr. BENTSEN. Thank you, Mr. Chairman.

Let me apologize if you have already gone through these questions. I am sorry for the disjointed nature of this hearing today, but

obviously the floor schedule got in the way.

The Administration has proposed a 25 percent reduction in your

budget for fiscal year 2002 and presumably that would carry on

through the outyears. I am curious, how would the Bank absorb a

reduction in that amount, and second of all, I believe this is correct

that they have argued in the past that—or they have argued in

their budget that in fact the Bank has not necessarily utilized all

of its capital resources. I am not sure that is correct. But I would

like you to comment on both of those issues.

Mr. HESS. On the budget reduction, Congressman, we do, as you

say, have a 25 percent reduction in the proposed $633 million for

27

an appropriation for program budget for fiscal year 2002. The estimates that the Bank makes on the resources necessary for a future

fiscal year are just that, estimates. We don’t program funds; we re- spond to requests that come in. If it turns out that the $633 million

would be insufficient to handle the demand that comes in under

our current programs and policies, we would look to program

changes that could be made while maintaining U.S. exporter competitiveness in their financing packages that would stretch the

$633 million to meet the demand that would, in fact, come in.

We do not necessarily believe that the $633 million would be a

figure that would carry out into future years. We look at each year

separately. Our budget request to OMB goes over each year with

a new analysis of the projected demand for that current budget

year. So we anticipate OMB will respond to our request and our

analysis not based on just moving forward from a $633 million

level, but from the analysis that we present on the demand we

have projected.

Mr. BENTSEN. Let me ask you this, and I am not asking you for

a policy decision here. I know that is not in your bailiwick. But last

year, for the current fiscal year, your appropriated amount is $963,

the prior year it was $865, or this year it is $630, approximately.

Was the Bank fully subscribed in its lending or guarantees for fiscal year 2000 to the $865 figure and is the Bank on track this year

to utilizing the $963 figure? If so, obviously, if by the whims of

Congress and the Administration you end up with $663 million or

whatever the dollar amount that is in the President’s budget is exactly, assuming that the trends continue, then how would you

make up that shortfall? Would you have to raise fees or just underwrite less guarantees? What would you do?

Mr. HESS. Well, the Bank’s estimates sometimes are right on the

mark and sometimes they are over or under. This past year we did

carry over $38.5 million from last year into this year, a program

budget that we did not use. The year before that, we had to budget

our resources very carefully toward the end of the year because we

had sufficient transactions presented to us that used up virtually

our entire budget. The year before that, we had a carryover. So it

goes both ways.

This year, as we look at demand coming up over the next 5

months, we believe there is sufficient demand to use up the entire

appropriation that we have this year. So there will be little or no

carryover from this year into next year’s program budget. Therefore, we will have to rely on the $633 million plus any cancellations

of prior year commitments to carry us through next year.

Mr. BENTSEN. So assuming trends continue the way they are this

year and have been where you have been utilizing between 95 and

100 percent of your appropriated amount, then you would just reduce the number of guarantees that you would make, or would you

raise your fees? What would you do?

Mr. HESS. Well, there are several things that the Bank could do.

One of them, as you just mentioned, is raising fees. A second is

lowering the amount of the transaction that we would finance.

Right now we finance 85 percent of the transaction. By lowering

the overall amount of the transaction financed, we would save

budget authority. A third way would be to simply look with a more

28

stringent eye at additionality and make judgments that some

transactions simply do not need us.

Now, all of these kinds of actions tend to increase the cost to the

U.S. exporter. So we would have to make any changes very carefully in order to ensure that the U.S. exporter’s financing packages

still remained competitive with those offered by other ECAs.

This would be a very delicate balancing act. But, we hope that

we would be successful in doing it.

Mr. BENTSEN. Mr. Chairman, with your indulgence, if I could

just ask the counsel, because I don’t know the answer to this, I was

involved with the 1997 reauthorization. To adjust the guarantee

level or the fee level, does the Bank have that authority under the

current authorization, or is that statutory authority?

Ms. STANGLAND. The 85 percent is not statutory. It is, however,

a reflection of the OECD arrangement.

Mr. HESS. But that is a minimum. We could lower it from 85 percent; however, we just couldn’t go above it to 90 percent.

Mr. BENTSEN. Thank you.

Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you. The time of the gentleman has

expired. I know the hour is late. I do have a number of questions

I would like to ask on a second round and perhaps other Members

do as well.

So first of all I would like to go to the question of the War Chest, over $300 million available that has not been used now for over 3

years. What is the direction to the Export-Import Bank and from

whence did that direction come not to use the War Chest?

Ms. STANGLAND. Mr. Chairman, Elaine Stangland. Under the

legislation that established the Tied Aid War Chest, the administration of the War Chest is lodged with Export-Import Bank. However, our ability to use the War Chest must be done in consultation

and in accordance with the recommendations of the Secretary of

the Treasury.

The legislative history of that provision we believe makes it fairly clear that it is the Secretary of Treasury that has the final word

in how and when the Tied Aid War Chest is used.

Chairman BEREUTER. I would like to see the justification for that

conclusion, if you could provide that to me in writing.

Ms. STANGLAND. I would be happy to, sir.

Chairman BEREUTER. What is the value of having the War Chest

if we rarely use it? Is there any value at all?

Mr. MILLER. Mr. Chairman, obviously we are a demand-driven

organization and the transactions are not coming in, but to the extent that we see them, and we try to do it, it is helpful to many

of our exporters.

Chairman BEREUTER. Do you have any flexibility in using the

War Chest funds for other purposes at the Export-Import Bank? Do

you have any statutory authority to use it for other purposes?

Mr. HESS. Yes, Mr. Chairman, the War Chest can be used for

other purposes, for normal day-to-day business, but we can only do

that after we have consulted with the appropriate congressional

committees.

Chairman BEREUTER. And that is the authorizing committees or

the authorizing and appropriation?

29

Mr. HESS. We would normally consult with both, Mr. Chairman.

Chairman BEREUTER. Thank you. Export-Import Bank has been

accused of facilitating transactions that have a net result of goods

being dumped on U.S. markets to the detriment of U.S. industries.

I know one of our colleagues from Ohio has a concern about steel.

What procedures are in place, if any, to prevent Export-Import

Bank in effect to have a dumping effect, a negative dumping effect

on our country?

Mr. CRUSE. Mr. Chairman, Jim Cruse here. There are procedures

mandated by Congress that evaluate what is called the economic

impact of any Export-Import Bank transaction on the U.S. economy. We have developed a process, rules, and principles for that

procedure. We would be glad to provide them to you if you wish.

In the context of the very specific requests about dumping, we

have added a feature to those procedures that says that if there is

a completed antidumping or countervailing duty determination

against a specific country and a specific buyer that has exported to

the United States, we will not provide any support for capital

equipment to produce the specific goods under penalty to that

buyer.

Chairman BEREUTER. But it takes that official determination?

Mr. CRUSE. Yes, to absolutely prohibit it. The larger review could

come to a same conclusion, but that could take a lot of time.

Chairman BEREUTER. All right. What statutory provision or procedure was utilized to block Export-Import Bank’s involvement in

Three Gorges Dam. Was that the Chafee Amendment?

Mr. CRUSE. No. No, Mr. Chairman. That is the provision in ExIm Bank’s charter that allow the Bank to deny a transaction based

on environmental considerations.

Chairman BEREUTER. So that is not the Chafee Amendment?

Mr. CRUSE. That is not the Chafee Amendment.

Chairman BEREUTER. That is another provision that you must

take into account?

Mr. CRUSE. It is. And moreover, the Congress specifically gave us

the authority to deny a transaction, which, by the way, we did not

deny the Three Gorges. We asked the buyer a lot of environmental

questions which were never answered by the time the transaction

went to the board for a decision.

Chairman BEREUTER. Yes. I remember that. Mr. Manzullo remembers it very well.

That provision traces only back to the 1997 authorizing act, is

that correct?

Mr. CRUSE. The environmental provision came in 1992.

Chairman BEREUTER. 1992. And how long has the Chafee

Aendment been in effect?

Mr. CRUSE. Since 1978, I believe.

Ms. STANGLAND. That is correct.

Chairman BEREUTER. I still have just enough to sneak in one

more here, I think. Can you give us examples of how Export-Import

Bank reaches out to local and regional banks to assist in financing

transactions, and what is your experience, success, or what do you

need, in addition, if anything, in the way of encouragement or statutory authority?

30

Mr. REDWAY. Mr. Chairman, we reach out in a number of ways.

In fiscal year 2001, we are doing 60 seminars across the country,

of which about 25 of those are lender seminars. Those are seminars

where we go into local communities and talk about Export-Import

Bank. We are doing these seminars all of the time. We also run a

training program in Washington, which we have cut back since we

have taken so many on the road. But we are doing about six in

Washington where we have invited lenders.

In addition, on a very regular basis, we talk to the people at

BAFT, the main trade association for the commercial banking industry. I think we reach out to banks just about every which way

we can do it. They are our best customers.

Chairman BEREUTER. Thank you.

Ms. Waters.

Ms. WATERS. I had raised with the Chairman the fact that I was

concerned about the head of the Bank, new or old, not being here,

because I want to ask more questions about Sub-Saharan Africa.

I was looking at—tell me how the Bank is organized so that—do

you all have organizations specifically to take care of the Sub-Saharan mandate? How is it staffed? Who is in charge of it? How does

it work?

Mr. UBAMADU. Congresswoman Waters, as you know, in 1997

there was congressional legislation to establish the Sub-Saharan

Africa Advisory Committee. This group meets with the Bank to advise us on doing more transactions in the region. We also have an

internal task force called the Africa Task Force that is composed

of individuals from different divisions in the Bank. Just to let you

know, this is the only internal task force that is dedicated to a specific region. This group meets once every Monday to look at issues

that are related to Africa, and to look at transactions that are in

the Bank and try to find ways to move them forward.

Ms. WATERS. Who is in charge of that?

Mr. UBAMADU. The counselor to the Chairman and to the Board,

Gloria Cabe.

Ms. WATERS. Counselor to the Chairman of the Board.

Mr. UBAMADU. Yes. And we can give you specific information on

the record.

Ms. WATERS. So this counselor has as her responsibility this

issue only?

Mr. MILLER. Congresswoman, she chairs the African Task Force.

In addition to the task force and the advisory committee within the

International Business Relations area, we have a Sub-Saharan Africa team that is committed just to that region, and within different geographic groups in the Bank that process and analyze the

transactions, there is a Sub-Saharan Africa region.

Ms. WATERS. How is it staffed? For the Sub-Saharan Africa region, describe the staff to me.

Mr. MILLER. Within the international business relations—are

you referring, Congresswoman, to the number of staffers?

Ms. WATERS. Yes.

Mr. MILLER. In the international business relations area, we

have three; within the trade finance——

Ms. WATERS. But that is broken up into regions?

31

Mr. MILLER. It is within the region of Sub-Saharan Africa, yes,

ma’am.

Ms. WATERS. Oh, I see. So go back and describe to me again how

the Bank is organized to specifically deal with the Sub-Saharan

mandate. Who is in charge of it? I understand your committees. I

just noticed that when I looked at Mr.—what is your name? Mr.

Ubamadu, there is his name, but no title; he didn’t have one. It

says you are with the Office of the General Counsel. Are you a

Deputy General Counsel?

Mr. UBAMADU. No. I am just a Counsel in the office. But, I am

a member of the Africa Task Force.

Ms. WATERS. Do you work for the General Counsel’s Office, or do

you do something else with Sub-Saharan Africa?

Mr. UBAMADU. I do work for the General Counsel’s Office, but we

also have three representatives from the General Counsel’s Office

that are members of the Africa Task Force and I am a member of

the Africa Task Force. As I mentioned before, as part of the task

force, we work very closely with our Regional Director for Africa on

various issues that are related to where there is market or trying

to structure transactions in the region.

Ms. WATERS. So I take it that with this mandate, there has never

been a structure where you have had something like a Vice President or other officer with the specific responsibility for Sub-Saharan Africa, with the staff that is advised by a task force and an

advisory committee. What you have done is you have kind of taken

someone from the General Counsel’s Office to do some coordinating

work of the task force or the advisory group; is that what you do?

Mr. MILLER. Congresswoman, each of the divisions within the

Bank, the General Counsel’s Office, the Small and New Business

Group, the Structured and Trade Finance Group, which includes

International Business Relations, are part of the Africa Task Force

and coordinate with the Sub-Saharan Africa Advisory Committee to

focus on activities for developing business and doing transactions

in the region.

Ms. WATERS. Who is in charge of it?

Mr. MILLER. The task force is headed, as Mr. Ubamadu said before, by Gloria Cabe. The Sub-Saharan African Advisory Committee

has a private sector chair, and the Small and New Business Group

obviously is Mr. Redway and the Structured and Trade Finance

Group is myself. So we all contribute to this effort.

Ms. WATERS. Is that the same way that you work with Mexico,

for example?

Mr. MILLER. We don’t have a specific task force for Mexico.

Ms. WATERS. How do you work with Mexico? Give me the structure.

Mr. MILLER. We have regional people within Latin America also,

yes.

Ms. WATERS. Give me the structure of your Mexico operation.

Mr. MILLER. Within International Business Relations we have a

Latin America team, and in the Structured and Trade Finance

Group we have people focused on Latin America.

Ms. WATERS. What is different about what I am hearing about

Sub-Saharan Africa and Mexico, for example, and the way that it

is staffed?

32

Mr. UBAMADU. Congresswoman, if I may take that——

Ms. WATERS. I can’t hear you.

Mr. UBAMADU. Sub-Saharan Africa is the only region at ExportImport Bank that has a task force which is specifically tasked to

work in this area. It is also the only region that has a specific advisory committee that provides advice and counsel to the board on

how to improve its business to the region. So unlike let’s say Mexico or other regions where you have business development officers

that are responsible for it, for Sub-Saharan Africa we have both

business development officers plus individuals on the task force

that work very closely with the business development officers, and

the board, and the advisory committee to meet the 1997 legislative

mandate.

Ms. WATERS. So is the business development officer considered

the key person with responsibility for making things happen?

Mr. MILLER. Congresswoman, to develop the business, and the

credit officer that would get the transaction would make the transaction happen and bring it to the authorizing decisionmaking body.

Ms. WATERS. They would bring it to the board?

Mr. MILLER. Correct. But it all feeds into the task force so that

the whole region is looked at as a whole and there is initiative to

direct the activities in the region.

Ms. WATERS. I have lots more questions, but we can’t do it today.

But I want to talk about again the staffing and I want to talk

about how the decisions actually get made.

Chairman BEREUTER. Thank you. I think it would help this

Member, the Chairman, perhaps Ms. Waters, if we had an organizational chart which is specified exactly as you can about the Africa effort.

Mr. MILLER. Mr. Chairman, we will provide it for the record.

Chairman BEREUTER. At this point we are looking for some sort

of an overall organization chart for Ex-Im Bank, and either we do

not have one with us, or we have not received one.

Mr. MILLER. We will provide it for the record.

Chairman BEREUTER. The gentlelady from Illinois, Ms.

Schakowsky, is recognized again for 5 minutes.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

I wanted to go back to some parts of the questions that were not

answered before. I wanted to talk about the $290 million that went

to the Dabhol project in India, which is a subsidiary of the Enron

Development Corporation in India, and wondered were there any

considerations, was that even part of the debate, the human rights

abuses that took place around that project which were brought to

my attention by Human Rights Watch and are very carefully documented. And I wondered if that was even a consideration.

Ms. STANGLAND. Congresswoman, I did not personally participate

in that transaction but, I would be very happy to check with our

staff and get you a response.

Ms. SCHAKOWSKY. It is the single largest foreign investment in

India, so what we do there has an enormous implication.

Ms. STANGLAND. I don’t mean any ignorance to be taken as——

Ms. SCHAKOWSKY. And I didn’t mean that as a criticism.

Ms. STANGLAND. We will get you that answer.

33

Chairman BEREUTER. And will you share that with the subcommittee?

Ms. STANGLAND. Yes.

[The information referred to can be found on page 79 in the

appendix.]

Ms. SCHAKOWSKY. Five million dollars to help with AIDS is very

important. I guess I just wanted to make a suggestion. There are

many Members of Congress, including Representative Waters and

Representative Lee and myself and others, who are very concerned

about this issue, and when a huge investment like that is made,

is there ever any process that would involve consultation with

Members who have weighed in heavily on issues like this to look

at that kind of loan, that kind of commitment to such a project?

Mr. UBAMADU. Congresswoman, the initiative that was an- nounced last year was to provide $1 billion per year in support to

exports that would be HIV/AIDS-related. What this program does

is allow us to export such items as medical supplies, AIDS testing

kits, hospital supplies, equipment and services, which we traditionally finance right now on longer terms. So, what we basically announced was that for some pharmaceuticals and other products

that traditionally we finance on a 180-day to 1-year term, we are

now willing to provide up to a 5-year term.

With regard to consultation with the Congress, Congress has

given us legislation to carry on the program; and there really is

nothing new within this program that requires additional legislation. But, we can certainly discuss these issues with the Members

if they would like, and with the subcommittee Members if they

would like.

The key aspect of this program is that Ex-Im Bank was trying

to help in this severe humanitarian crisis. This is not really within

Ex-Im Bank’s mandate in some sense. We are not a grant agency.

We provide loans where we are required to show reasonable assurance of repayment, and many of these countries are heavily indebted. However, we did not want to stand to the side of such a

catastrophic issue and do nothing. In the instance where perhaps

grants are not available but infrastructure products are not needed, Ex-im Bank is willing to help finance this.

Clearly what we are looking at with this program is more in the

private sector, but there are some countries where we are open in

the public sector and we would be willing to look at this.

Ms. SCHAKOWSKY. I would say there is a lot of expertise on this

committee and in this Congress and interest in this particular

issue.

I wanted to just end quickly with this. While you defer to the

State Department on human rights, you are not environmentalists

either, and yet on environmental policy you do make decisions

project by project within the Bank. Why is that not also true of any

other subject, including human rights?

Mr. CRUSE. The environment is one of the two areas besides commercial creditworthiness where the Bank is granted independent

authority to deny a case, and the other is economic impact. Only

in those two areas can we go beyond the issue of commercial and

financial creditworthiness. Everything else is prohibited by Chafee

and requires going through the Chafee process.

34

Ms. STANGLAND. I would just add that we do have an engineering

department that has expertise in the environment. It is a much

more contained area than some of the other areas that you have

talked about; and we have an engineer who focuses solely on environmental matters.

Ms. SCHAKOWSKY. Thank you.

Chairman BEREUTER. Thank you very much.

I would like to conclude the hearing, which is the first of at least

several we are going to be holding on the Export-Import Bank, with

a question and to encourage you, Mr. Hess, to invite members of

the Export-Import Bank to be here in the audience on May 8, when

we hear from supporters and critics of the Export-Import Bank programs.

But my question to you now, a concluding question, is, as objectively as you can, as candidly as you can, without pushing you into

policy, what in your judgment are the implications for U.S. Exporters of a proposed 25 percent cut in the budget for the Export-Import Bank?

Mr. HESS. I think that if the estimates of demand, which are

fairly conservative, in the budget are, in fact, exceeded by the calls

on our authority, that it will be very tricky to fashion program

changes that continue to have the Export-Import Bank offer competitive financing packages while still remaining within the $633

million. Candidly that will be a real challenge, but one that we will

try to meet.

Chairman BEREUTER. Thank you very much. This will be a subject of considerable discussion within the subcommittee and on

May 8 for the next hearing of the Export-Import Bank.

Again, I want to mention to Members of this subcommittee and

the staff who are here watching for other Members that I expect

we are going to be revising to some extent our proposed hearing

schedule to take into consideration some of the changes that have

been approved by the World Bank in the IMF meeting, specifically

as it relates to AIDS, HIV. And, Ms. Stangland, I am anxious to

see the information that you will provide me on which you base the

interpretation that we mention with respect to the U.S. Treasury.

Ms. STANGLAND. Yes, sir.

Chairman BEREUTER. Thanks to all of you for taking time today

to help us begin our examination of the Export-Import Bank reauthorization legislation. I very much appreciate it. Thank you.

Mr. HESS. Thank you, Mr. Chairman. We appreciate the subcommittee’s attention.

Chairman BEREUTER. The hearing is adjourned.

[Whereupon, at 5 p.m., the hearing was adjourned.]

(35)

REAUTHORIZATION OF THE EXPORT-IMPORT

BANK

TUESDAY, MAY 8, 2001

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL MONETARY

POLICY AND TRADE,

COMMITTEE ON FINANCIAL SERVICES,

Washington, DC.

The subcommittee met, pursuant to call, at 2:00 p.m., in room

2128, Rayburn House Office Building, Hon. Doug Bereuter,

[chairman of the subcommittee], presiding.

Present: Chairman Bereuter; Representatives Ose, Roukema,

Capito, Sanders, Sherman, Schakowsky, and Bentsen.

Chairman BEREUTER. Good afternoon. The Subcommittee on

International Monetary Policy and Trade meets today in open session to receive testimony on the reauthorization of the Export-Import Bank, the Ex-Im Bank.

The Ex-Im Bank was last reauthorized in 1997 for a 4-year term

that expires on September 30th of this year. At this hearing the

subcommittee will hear from representatives of a large corporation

and a small business which use the Ex-Im Bank, as well as organizations who have differing opinions or criticisms of the Export-Import Bank’s programs.

This is the subcommittee’s second hearing on the Ex-Im Bank,

and I am pleased to say we have only one panel today. I have been

concerned for some time that we tend to hear from the Administration witnesses and then we don’t have enough time for people who

come to testify about the subject matter from the private sector and

from the nonprofits.

So today we’ll have, I think, a good break in that respect. Also,

the House is not expected to cast votes until 6:00 p.m.

On May 2nd, the subcommittee heard from an experienced panel

of professional staff from the Export-Import Bank. In addition to

giving their testimony, the Ex-Im Bank submitted a legislative proposal just recently which would be a straightforward reauthorization of the Export-Import Bank for 4 years until 2005, and the extension of the life of the Sub-Saharan Africa Advisory Committee

to that date. I look forward to receiving the panel’s views on this

legislation and the bank in general.

Before introducing our outstanding panel, I am going to briefly

stress the following items which were discussed in the first hearing

of the Export-Import Bank: Proposed cuts in funding; possible net

income; small business activities; Ex-Im Bank activities in Africa;

36

and types of subsidies offered by export financing agencies in other

countries, including tied aid war chests.

I would like the witnesses today to address those issues if they

can and will and any others that they are planning to address will

be most welcome.

I am going to summarize my following remarks and ask unanimous consent that my entire statement be made a part of the

record, and to extend that privilege to all Members. Hearing no objection, that will be the order.

First, on May 2, the Ex-Im Bank testified regarding the proposed

reduction in funding for fiscal year 2002. The Administration requested $633 million to fund its program budget which administers

the Ex-Im Bank loan, insurance and guaranty programs. This is an

approximately 25 percent cut from fiscal year 2001.

I do have significant concerns about the Administration’s proposed cut, but we’ll see what this panel has to say about it.

Furthermore, the Ex-Im Bank also testified that they need additional funding for upgrading their technology. As a result, the Administration proposed $65 million for fiscal year 2002 for Ex-Im

Bank administrative budget, which is an increase of $3 million

from the prior year.

Second, at the May 2nd hearing, some questions were asked regarding the annual and cumulative net income for the Ex-Im Bank.

And that’s a subject in which the membership showed considerable

interest.

Third, with respect to small businesses, the 1997 authorization

law mandated that the Export-Import Bank make additional efforts

to enhance its programs to small and rural companies. When the

Ex-Im Bank testified, they explained how they continued to try to

meet this mandate.

Today our small business witnesses will testify as to the efforts

of the Ex-Im Bank in that regard from his perspective.

And also in the 1997 authorization bill, another mandate, an increase in the Ex-Im Bank’s financial commitment to Sub-Saharan

Africa.

I would like to pass over some comments about tied aid, but as

I said before would welcome your suggestions about whether or not

we’ve been successful in our efforts in OECD to reduce tied aid on

the part of the other countries or whether or not some of them have

found other ways to achieve the same purposes.

[The prepared statement of Hon. Doug Bereuter can be found on

page 118 in the appendix.]

Chairman BEREUTER. To assist the subcommittee in examining

these reauthorization issues, I am pleased we have an opportunity

to hear from a distinguished panel. First we will receive testimony

from Mr. Richard Christman, President, Case IH Agricultural Businesses. I understand you have at least a 4:00 o’clock time constraint to catch a flight, and I think that should be no problem.

Case New Holland, which uses Ex-Im Bank, is the number one

manufacturer of agriculture tractors and combines, the world’s

third-largest maker of construction equipment.

Next, Mr. Ian McLaughlin, the Chairman and CEO of Watson

Machinery International based in Patterson, New Jersey will testify. He will bring the perspective of a small business owner who

37

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 Va ́squez, the Director of Cato Institute’s Project on

Global Economic Liberty. He will testify. His writings have appeared in newspapers throughout the United States and Latin

America, and we look forward to his testimony.

Dr. Brent Blackwelder, President of Friends of the Earth will

testify. He was the founder of the Environmental Policy Institute

which merged with the Friends of the Earth and Oceanic Society

in 1989.

The final witness is Mr. George Becker, the former President of

the United Steelworkers of America. He recently retired as President, was first elected to that position in November 1993. He is a

second generation steel worker and a native of Granite City, Illinois.

We welcome the distinguished panel to our hearing. Without objection, their entire written statements will be included in their entirety in the record.

But now before we proceed with the panel, I would like to turn

to the distinguished Ranking Member, the gentleman from

Vermont, Mr. Sanders, for opening comments.

Mr. SANDERS. Thank you very much, Mr. Chairman, and thank

you for putting together an excellent panel which I think will give

us different viewpoints of the pluses and minuses of the Ex-Im

Bank.

This is the major concern that I have. We do not discuss it as

a government very much, but right now the United States has a

recordbreaking trade deficit of well over $400 billion a year. And

I think that the work of the Ex-Im Bank has got to be looked at

within the context of a failed—f-a-i-l-e-d—failed trade policy, which

is costing us hundreds of thousands of jobs. So that’s the first

thing.

Our trade policy is failing, to my mind. We have a recordbreaking trade deficit. We have an $83 billion trade deficit with

China, and Ex-Im Bank has got to be looked at within that context.

And it is not good enough to say, well, gee, we have a huge trade

deficit. That’s why Ex-Im Bank is so important, that we can create

a few more jobs. I think we have to look at Ex-Im Bank from a different perspective.

Second of all, I think that it is bad public policy to say to some

of the largest corporations in America, companies like Boeing and

General Electric, who have made substantial reductions in their

workforce, who have laid off huge numbers of American workers,

and say to them, well, thank you very much for laying off large

numbers of American workers. Here is a subsidy from the ExportImport Bank.

38

It seems to me that if the United States is going to provide subsidies to employers, what we want to say to those employers, we

are giving you this subsidy because we appreciate the work that

you have done in increasing decent-paying jobs in the United

States. And there are certainly companies in the United States who

are working under very difficult odds. Small businesses, large businesses who are saying we want to grow jobs in the United States

of America. Those, it seems to me, are the companies that we want

to give support to.

When you have a company—and I will just single out G.E.—but

there are many others. G.E., if Jack Welch were here today, what

he would say, one of the things that we have focused on in recent

years is globalization. One of the reasons that we are such a profitable corporation is that we are intentionally laying off American

workers at decent wages and hiring people all over the world at

very low wages. That’s what we are doing. And for the Ex-Im bank

to simply come and say, G.E., thank you for that policy of laying

off American workers. We are going to make you one of the major

beneficiaries of the Ex-Im Bank, is to me absolutely absurd.

It is not good enough to look at Ex-Im Bank from a project-toproject-to-project basis, to say, OK, this project is creating 400 jobs,

but we are forgetting the fact that you’ve laid off 10,000 workers,

and that’s your intention. Your intention is to move to China and

pay people 20 or 30 cents an hour. But we don’t care about that.

This particular project will create a few jobs. Not good enough.

If you have a carrot, use the carrot, and use the carrot to benefit

the people of the United States of America who are paying for

these subsidies in general.

I am particularly impressed in reading through Mr. Becker’s

presentation to learn that the Export-Import Bank is financing a

multi-million-dollar project to modernize a Chinese steel mill that

is under investigation for illegally dumping steel into the United

States. Now, that may make sense to some people. It does not

make a lot of sense to me.

I think Mr. Blackwelder will talk in a moment about how some

of the Ex-Im Bank projects have been very anti-environmental and

at a time when every sane human being is worried about global

warming and other negative things that are happening to our environment, I think we want to take a hard look at that as well.

So, Mr. Chairman, thank you for putting together this excellent

panel, and I look forward to participating in the discussion.

Chairman BEREUTER. Thank you, Mr. Sanders, and thank you

for your recommendations. Under the Committee rules, we will recognize other Members for opening statements of 3 minutes each.

Gentleladies? Thank you very much.

We will now proceed with testimony. First we will hear from

Richard M. Christman. He is the President of Case IH Agricultural

Business, but I failed to mention he is also appearing in behalf of

the National Foreign Trade Council and the Coalition for Employment Through Exports.

Gentlemen, we would appreciate it if you could each limit your

presentations to approximately 5 minutes. And as I said, your entire statement will be made a part of the record. Mr. Christman,

you may proceed as you wish.

39

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 ExIm Bank for 5 years. It is essential to American exporters and our

workers that the bank’s charter be reauthorized until September

30th, 2006. This would avoid the difficulty which occurred in 1977,

and then again this year, when the reauthorization occurs during

the first year after a Presidential election and in the same year as

when the Ex-Im Bank chairman’s and vice chairman’s terms expire.

And we look to your leadership in ensuring that the bank is fulfilling its mandate to promote U.S. exports and, importantly, U.S.

jobs, by being fully competitive with other major export credit

agencies.

Now in this regard, adequate appropriations are just as important as the reauthorization in accomplishing this critical goal. ExIm Bank’s budget must be funded adequately and its policies and

procedures must recognize the realities of today’s very fierce competitive marketplace.

CEE and NFTC recently issued a port on the important benefits

of Ex-Im Bank to small and medium businesses. The report highlights that thousands, literally thousands of what we call ‘‘invisible

exporters’’ across this nation by listing 35,000 primary suppliers of

goods and services to 13 major U.S. exports, and CNH was one of

those 13.

Now at CNH, our construction equipment moves the earth, and

our agricultural equipment helps feed the world. Well, how do we

do this? By exporting this construction equipment and ag equipment to over 160 countries. Now why do we do it? It’s because trading gives us an opportunity to grow our business. It also gives then

our suppliers an opportunity to grow their business. Because

through our exports, their products then ultimately reach global

customers.

So each of our suppliers can be viewed as what we call an ‘‘invisible exporter.’’ Now many of our exports are assisted by Ex-Im Bank. The result: Exporting CNH equipment means that we are really importing business to our U.S. suppliers and to our factories in the U.S.

Ex-Im Bank serves as what we call our ‘‘lender of last resort’’ for

U.S. exporters. And we use it when commercial bank financing is

not available for those export sales, and the U.S. exporters, when

we are confronted with foreign competitors that do have financing

40

available from their governments. Currently there are some 70 governments around the world that have ECAs similar to Ex-Im Bank.

And they provide $500 billion a year in government-backed financing.

Now increasingly, as we try and sell across the world, financing

is a key to winning these export sales. Great products are not

enough in today’s marketplace. Customers demand that exporters

arrange financing for sales. However, in many emerging markets

where the export potential is the greatest, commercial banks are

often unwilling to provide financing even for creditworthy customers.

And at this juncture, we cannot risk foreign suppliers stepping

into these markets because of financing support from their ECAs.

Lack of a viable or a fully funded Ex-Im Bank would adversely impact the ability of our company to compete against some very formidable foreign suppliers. From 1977 through 2000, CNH financed more than $420 million

worth of sales of Ex-Im Bank board-approved transactions to

Uzbekistan, Turkmenistan, and Ukraine. Without Ex-Im Bank,

none—and I stress none—of these sales would have been completed.

And this does not even consider the impact of hundreds of thousands of other employees at our suppliers’ factories or their subsuppliers in the U.S.

For example, as shown on the charts here, to build one combine,

we engage 235 suppliers from 30 states representing in total

100,000 employees.

To build a magnum tractor out of Racine, Wisconsin, we engage

200 suppliers, 27 states, and another 75,000. And while you probably can’t read all the suppliers, many of those—— Chairman BEREUTER. I hate to interrupt you, but could you summarize and conclude in about 30 seconds?

Mr. CHRISTMAN. OK. Are under 100. Real life stories. In

Uzbekistan, we have sold these. We need Ex-Im Bank financing to

defend ourselves against the likes of Claas, Deuz-Fahr, Fendt. The

key success factors is to get the financing, have it at a competitive

rate, and make sure that we are competitive with those foreign

governments out there that are competing for our business.

Thank you, Mr. Chairman.

[The prepared statement of Richard M. Christman can be found

on page 128 in the appendix.]

Chairman BEREUTER. Thank you very much, Mr. Christman.

Next, we will hear from Mr. Ian McLaughlin. He is the Chairman and CEO of Watson Machinery International, but he is also

speaking and appearing on behalf of the National Association of

Manufacturers. Please proceed.

STATEMENT OF IAN WATSON McLAUGHLIN, CHAIRMAN OF

THE BOARD AND CEO OF WATSON MACHINERY INTERNATIONAL

Mr. MCLAUGHLIN. Good afternoon, Mr. Chairman. As you introduced me, I am Ian McLaughlin. Watson Machinery is a leading

manufacturer of machinery and production systems that essentially

make wire and cable, fiber optic cable, and wireless cable. We are

41

based in Patterson, New Jersey, and I have prepared testimony

that I ask to be submitted in the written record, and I have some

brief remarks.

I am also testifying on behalf of the National Association of Manufacturers.

Thank you for the opportunity to testify on the reauthorization

of the Export-Import Bank. Many might be surprised that Watson

Machinery, a small American business with 90 employees, is even

remotely interested in Ex-Im Bank. After all, the claim is often

made that Ex-Im Bank is the financial boutique of the Fortune

100.

I am here to let you know that Ex-Im Bank is actually vital to

small manufacturers such as myself and/or my company, and it

does fill a gap in the financial market that we could not find elsewhere.

Bottom line is that about as much as 60 percent of the sales of

Watson are outside the United States. And without Ex-Im Bank,

these deals would go to my competitors in Italy, in France, in Germany and elsewhere, all of whose export credit agencies do provide

the working capital guarantees necessary to support small businesses in their countries.

An illustration of the critical role Ex-Im Bank plays occurred at

the end of 2000 for Watson Machinery. We signed a contract to sell

capital machinery worth $4.6 million, and that machinery represented two lines of production for fiber optic cabling equipment

and two lines to manufacture radio frequency wireless cable to

Ocean Cable Communications, called OCC, in Tochigi, Japan. This

sale would not have occurred without help from Ex-Im Bank’s

Working Capital Guarantee Program.

To get to the essence of the matter, our banking facility does not

allow work-in-process inventory financing. As this order represented our first penetration into the Japanese marketplace, we

had intense competition from Europe. We did not ask for progress

payments, and that is where Ex-Im Bank came in.

Watson filed an application for an Ex-Im Bank working capital

loan guarantee. Now that Working Capital Loan Guarantee Program encourages commercial lenders to make loans to U.S. businesses for various export-related activities, including the purchase

of raw materials, labor and overhead to produce the goods and

services which we export.

The guarantee may be used to cover working capital loans to a

U.S. business only if the lender shows that the loan would not have

been made without the assistance and guarantee of Ex-Im Bank,

and that Ex-Im Bank determines that the exporter is creditworthy.

In the case of Watson, Ex-Im Bank approved a $3 million guarantee that backed our ability to be able to produce $4.6 million in

equipment to sell to Japan. And I can tell you, it would not have

happened otherwise. We have been dealing with one of the largest

banks in New Jersey, and they are still skitterish on providing export financing.

I emphasize two points. Again, the transaction would not have

gone forward without Ex-Im Bank, and that this support doesn’t

come for free. Ex-Im Bank only entered into the transaction when

the lender showed that the loan would not have been made, and

42

our lender in fact is a bank that’s headquartered out of Connecticut, that would not have been made with Ex-Im Bank’s guarantee. In other words, Ex-Im Bank proved that it can fill gaps in

financial markets for small companies.

No corporate subsidy here, particularly when you consider that

the export credit agencies of my competitors overseas are not holding back in this area. We paid a $500 processing fee and an up-front facility fee of 1.5

percent of the total loan amount. And that helped ensure that

there was an adequate loan loss reserve and an acceptable risk

level for the U.S. Government.

Watson Machinery International will continue to do everything

in its power to remain competitive in global markets. And I am

here to ask you to do your part to help in filling those gaps in financial markets.

I see that my time is up, and I will cease at that point.

[The prepared statement of Ian Watson McLaughlin can be found

on page 144 in the appendix.]

Chairman BEREUTER. Thank you very much, Mr. McLaughlin.

Next we will hear from Dr. C. Fred Bergsten. He is the Director

and founder of the Institute for International Economics. Dr.

Bergsten, you may proceed as you wish.

STATEMENT OF DR. C. FRED BERGSTEN, DIRECTOR,

INSTITUTE FOR INTERNATIONAL ECONOMICS

Dr. BERGSTEN. Mr. Chairman, thank you very much. Let me

start with the bottom line. I think it would be a huge mistake to

substantially cut the budget and program of the Export-Import

Bank as the Administration has proposed.

To the contrary, I believe there should be a substantial increase

in funding for the Ex-Im Bank because that is the only way to assure a level playing field for American exporters in world trade.

I give calculations in my paper suggesting that the increase

should be about 50 percent, and I trace what that would mean for

budget authority, the authorization ceiling, and the annual program level.

I stress, only with such an increase will we provide a level playing field for American exporters in the world economy.

I also believe the reauthorization bill, far from being a clean bill,

should give the bank new authorities to compete with the market

windows through which other competitors are eating our lunch,

and authority to compete with so-called untied aid, which often

amounts to de facto tied aid and is also eating our lunch in key

markets like power equipment in China.

We should use the current war chest availability for that purpose

and the new legislation should authorize it.

Why do I make these strong proposals? I agree with Mr. Sanders.

We have to see the Ex-Im Bank issue in a much broader context,

not just the individual transactions, important as they are, but in

the context of our whole economy and indeed our whole trade deficit, exactly as Mr. Sanders said.

But my conclusions are very different from his. First, we have to

recognize that export expansion has been a major driver of U.S.

economic growth for two to three decades. The share of exports in

43

our economy has tripled over the last generation. It has been a

major source of the dynamic improvement of the U.S. economy,

particularly over the last decade. My Institute has published two

studies showing why this is so. We’ve another one coming in the

next few months. I’m happy to share the details on that with you

if you wish.

The second big picture reason is, as Mr. Sanders said, the trade

deficit. I’ll go him one better. It’s getting close to $500 billion this

year, 5 percent of the economy. It’s a financial risk because the dollar could fall sharply at any moment, and it’s a trade policy risk,

as he implies.

There are only two ways to correct the big trade deficit. One is

to reduce imports, the other is to expand exports. I would argue

that export expansion is by far and away the overwhelmingly better way to do it. The Ex-Im Bank is not going to do that by itself,

but it can certainly help, and that’s one reason we should want to

promote it.

I should add that in both the overall economic and trade balance

contexts, according to a series of studies, including those by my institute, export jobs are considerably better than other manufacturing jobs, let alone other average jobs in the economy. They pay

5 to 10 percent better, benefits are even better than that by comparison, productivity is 20 percent higher in export firms, and they

are 10 percent less likely to go out of business and destroy jobs.

So, on both quantity and quality grounds, it’s a big plus for the

economy.

Mr. Sanders rightly asks the question, what about those firms

that get big Ex-Im Bank credits but reduce jobs? My answer is

quite straightforward. Without the Ex-Im Bank credits and the exports, they would have reduced more jobs. Indeed, the jobs they

have created with the credits are very good, high-paying, stable

jobs, and that is what we want.

Moreover, if you look at the whole economy, it has, until quite

recently, been at full employment by anybody’s definition. We cannot look at just one firm or even one industry. We have to look at

the impact on the economy as a whole, and that is where the payoff

has been.

The final policy reason to support a stronger Ex-Im Bank is overall trade policy. The President is about to come to the Congress for

trade promotion authority—fast track as it used to be called—to

enable the U.S. to negotiate new reductions in trade barriers

around the world. As you know better than me, that’s going to be

a big battle. And those of us who support increased trade activity

and authority to do it need all the help we can get. This for sure

means strong support from the exporting community. That in turn

means working with them in constructive ways where the government can help, like supporting a bigger and more effective ExportImport Bank program.

The final point, Mr. Chairman, is to suggest that the basic strategy we need for the Ex-Im Bank is a two-track strategy. We want

to get a level playing field for American industry in world trade,

which means getting foreign countries to stop providing excessive

subsidies. We want to negotiate reductions or preferably elimination, of their subsidies wherever possible.

44

We know from history, not theory, that the only way to do this

is to have sufficiently serious programs of our own so that we can

bring the foreign competitors to the negotiating table.

So, we not only want to increase our own programs to support

exports on their merits but also use those programs to get others

to reduce their subsidies.

We know from history that it works. When I was running the

international part of the Treasury, we did it in the late 1970s—we

created the OECD agreement that eliminated excessive maturities

and excessive interest rate subsidies.

It was done in the mid-1980s. The war chest was used to stop

tied aid practices that amounted to export subsidies. But today,

new practices have crept in. We need to seriously deal with them.

I believe that, in your reauthorization legislation, you need to increase the amounts, not cut them; broaden the authorities; and

promote an effective U.S. policy in this area.

[The prepared statement of Dr. C. Fred Bergsten can be found

on page 147 in the appendix.]

Chairman BEREUTER. Thank you very much, Dr. Bergsten.

I mispronounced the next panelist’s name, giving him the name

of our colleague. It’s Mr. Ian Va ́squez, not Velasquez. Senior Fellow—apologize for that—Cato Institute. Accent on the last syllable

or first syllable?

Mr. VA ́SQUEZ. First syllable.

Chairman BEREUTER. Mr. Va ́squez, you may proceed as you

wish.

STATEMENT OF IAN VA ́ SQUEZ, DIRECTOR, PROJECT ON

GLOBAL ECONOMIC LIBERTY, CATO INSTITUTE

Mr. VA ́SQUEZ. Thank you. I would like to thank Chairman Bereuter for inviting me to testify. In the interest of transparency, let me

point out that neither the Cato Institute nor I receive government

money of any kind.

President Bush has called for a 25 percent cut in the funding of

the Export-Import Bank. I believe that the proposed cuts are a

good start, but that Congress should go much further in recognition

that the rationales for using the Export-Import Bank and its credit

do not justify its current level of authorizations.

The Ex-Im Bank and its proponents cite a number of reasons

that the credit agency benefits the United States. Yet because the

bank takes resources from the U.S. economy and diverts them toward politically determined less efficient uses, its intervention creates distortions in the national economy and imposes opportunity

costs that surely outweigh the value of the bank’s intervention.

Moreover, as the GAO and the Congressional Research Service

and numerous economists have pointed out, subsidized export credits do not create jobs, nor noticeably affect the level of trade. Indeed, only about 1.5 percent of all U.S. exports are backed by the

Ex-Im Bank, far too small to make an impact on trade.

Other factors play a much larger role in influencing jobs and

trade, including interest rates, capital flows and exchange rates.

Rather, the effect of subsidized exports is to subsidize foreign consumption and to alter the composition of employment and producVerDate 11-MAY-2000 09:59 Sep 14, 2001 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 72290.TXT HBANK1 PsN: HBANK1
45

tion in the U.S. economy without increasing economic activity or

levels of employment.

A principal rationale for use of Ex-Im Bank resources is that the

agency provides its services when the private sector is unable or

unwilling to do so. Yet the bank has been providing the bulk of its

services to countries like China and Mexico that have had little difficulty in attracting private investment on their own. Ten countries

account for 50 percent of the agency’s total exposure.

At best, then, the bank provides financing to countries that do

not have trouble obtaining credit, and in many cases may be merely displacing private investment. At worst, the credit agency underwrites exports that should not be financed and would not otherwise

receive support.

Indeed, the lack of private sector finance is not an example of

market failure but rather an important market signal about a

project’s prospects or a country’s investment regime. In the cases

where the bank provides credit into a bad policy environment, it

discourages host governments from introducing the types of market

reforms that are necessary to genuinely attract private capital.

And so I believe that it is worrisome that the Ex-Im Bank has

significantly expanded its operations in sub-Saharan Africa in the

past few years since the majority of those countries lack economic

freedom and are on the World Bank and the IMF’s list of highly

indebted nations unable to pay their debts.

In sum, if the private sector is not already providing export credit or insurance to a project, there are probably good reasons for

that, and the bank should not step in. The risks of government failure far outweigh that of so-called ‘‘market failure,’’ and examples

of that include the fact that Ex-Im Bank credit helps to postpone

market reforms, imposes large opportunity costs and finances firms

abroad that compete with U.S. firms.

The other principal rationale for Ex-Im Bank credit is that it is

used to countersubsidize competition that U.S. firms sometimes

face. But much Ex-Im Bank credit helps U.S. firms that do not face

competition subsidized by foreign governments. In 1999, for example, only 18 percent of medium-and long-term loan guarantee

transactions went to counter government-backed export credit competition, representing about $6.3 billion of the Ex-Im Bank’s activity.

Those figures suggest that the bank could significantly reduce its

activities without undermining its mission to counter foreign-subsidized competition. The Bush Administration’s proposal to cut the

bank’s funding by 25 percent should be viewed as a starting point

even by those who believe that the agency has a legitimate role in

countering subsidized foreign exports. At the very least, then, the

Export-Import Bank should be limited to financing exports that

meet that criteria.

But the idea that the United States suffers from a playing field

that is not level is questionable. The United States exports about

$1 trillion of goods and services per year. The Ex-Im Bank backs

only $15.5 billion of that amount, or 1.5 percent of total exports,

only some of which face government-subsidized competition.

When only a fraction of 1 percent of U.S. exports faces competition supported by foreign export credit agencies, it is difficult to

46

conclude that the U.S. economy is threatened by a playing field tilted against it.

If the goal is to help U.S. exporters, there are other, more preferable ways in which to do so; namely, by making the United

States a more competitive economy, and Congress can do much by

addressing issues related to tax and regulatory policy.

It is time that Congress retire this corporate welfare agency. The

bank benefits a small number of firms at the expense of the rest

of us. Moreover, the tiny percentage of U.S. exports supported by

Ex-Im Bank shows that the U.S. economy does not suffer from a

lack of a level playing field.

Finally, and most importantly, Congress does not have the Constitutional authority to use general taxpayer money to support specific groups.

Thank you.

[The prepared statement of Ian Va ́squez can be found on page

162 in the appendix.]

Chairman BEREUTER. Mr. Va ́squez, thank you very much.

Next we will hear from Dr. Brent Blackwelder, President,

Friends of the Earth. He reminded me he had appeared 18 years

ago before the predecessor subcommittee. We were looking at the

World Bank. And you may well have had some impact on us enhancing the environmental review process of the World Bank because of the oversight activities of this subcommittee and our push

to their executive director.

Dr. Blackwelder, please proceed as you wish.

STATEMENT OF DR. BRENT BLACKWELDER, PRESIDENT,

FRIENDS OF THE EARTH

Dr. BLACKWELDER. Thank you, Mr. Chairman. We are very

grateful for the opportunity to testify. And in my testimony I’m

going to stress several ways in which once again Congress could

make some decisive changes as you have in the past with respect

to the World Bank, and those produce very beneficial results in

terms of the projects which they support.

Friends of the Earth is a national environmental group. We’re

part of Friends of the Earth International with member groups in

69 countries. So we bring a global perspective to these recommendations.

Before I go forward with these suggestions, I want to commend

outgoing Chairman Harmon, because the Export-Import Bank has

some of the very best environmental standards. And rather than

leading to a downward harmonization, these have led to an upward

harmonization, because Australia and Japan’s export credit agencies are moving up with their guidelines to improve the environmental performance.

Furthermore, those guidelines have helped us avoid giving a

blessing to projects which are environmentally damaging. So I

think there is a good thing that we can look at there.

Now I want to turn to several suggestions for changes which you

could put into the authorization bill. One is to ensure timely public

input and comment on projects, making environmental assessments available. The disclosure. This could be similar to what is

required in the case of OPIC. We suggest a 120-day period.

47

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. ExportImport Bank adopt and abide by those recommendations. They are

outstanding. And right now, there are several major dams being

proposed which may be eligible for export credit financing. Not only

would they create serious environmental and social impacts, but

some of them would actually destroy places of great cultural significance to human civilization. I’m referring, for example, to the Ilisu

Dam in Turkey.

Next let me turn to the final and most significant area in which

I think what the Export-Import Bank does has huge and major implications to the environment of Planet Earth, implications that affect everybody on the Earth.

What the U.S. Export-Import Bank and OPIC did, according to

our study, between 1992 and 1998, was to provide support for fossil

fuel projects which will emit as much carbon dioxide over their lifetimes as the entire world economy emitted in 1996. So, there has

been discussion mentioned earlier, is Export-Import Bank that big?

I’m telling you, in the environmental area, they are huge.

And their energy policy is undermining the climate concerns and

objectives that President Bush has articulated and others have expressed concern about. And this is typical also of what export credit

agencies have been dong around the world. They are not respecting

the G–8 communique saying that we need to be aware of climate

change and we should not with our financing be supporting

projects that keep countries like China and India hooked on fossil

fuels. And this was one of the concerns the U.S. Congress raised

about the Kyoto Treaty.

So it makes no sense on the one hand to say, well, we want to

go ahead, but we’re not going to do it if China and India are going

to stay hooked, and then with our Export-Import Bank and other

resources, provide only funding for this kind of project.

We would say that the big reform needs to be to shift to clean

energy sources. Because the Export-Import Bank’s financing has

gone from 3 percent to 28 percent of the portfolio in terms of fossil

fuel projects between fiscal’ 99 and fiscal 2000.

So you can make a decisive difference, and I would urge you to

do so. We would really support this. Because it’s absolutely crucial

to the health of people throughout the world that we shift our approach to energy, and the Export-Import Bank could help do so.

[The prepared statement of Dr. Brent Blackwelder can be found

on page 169 in the appendix.]

Chairman BEREUTER. Thank you, Dr. Blackwelder, and right on

time.

48

Next we will hear from Mr. George Becker, former President,

United Steelworkers of America. Mr. Becker, you may proceed as

you wish.

STATEMENT OF GEORGE BECKER, FORMER PRESIDENT,

UNITED STEELWORKERS OF AMERICA

Mr. BECKER. Thank you, Mr. Chairman, Ranking Member Sanders and Members of the Committee. It’s an honor to be with you.

You have my testimony. I’m not going to repeat the testimony. You

can read that.

I’d like to make some comments, though. I was the President of

the United Steelworkers of America. We have about 750,000 members in two countries. We’re a manufacturing union. We’re the largest steel union. We’re the largest aluminum union. When I say ‘‘aluminum’’, I’m representing the members in those industries.

We’re the largest union representing rubber workers in the

United States and in manufacturing generally throughout those

countries. We had a broad diversification in our union, touching all

segments. Most people tend to think of us as steel only. That’s really not true.

I want to make one point with the Committee very clear. We are

not opposed to trade. We’re a trading union. At conferences and

conventions I would many times ask the people in attendance, the

delegates in attendance, to hold up their hand if they’re involved

in exports. And so clearly some 85 percent of our members across

the boards from the representative leaders as these sessions indicate that they are involved in export in one way or another.

We are opposed to unfair trade. This is clear. We’re opposed to

dumping. We’re opposed to the virtual dismantling of American industry in the United States that’s taking place today. Literally

hundreds of thousands of jobs are being wiped out in the manufacturing sector annually.

We’re under an assault like we’ve never faced, at least within my

lifetime, which is far longer than what I care to think about anymore these days.

I guess the one thing that—we deal with trade, we deal with imports coming into the country, and we know there are prices to pay,

but we want it to be fair competition. But even if it’s predatory

competition, we have to deal with that. The one thing that we don’t

understand, we don’t like, is when our institutions in the United

States, in which we contribute a lot, workers do, in supporting the

tax base, is used against their own best interest, like in the Ex-Im

Bank and the $18 million that was fed into Benxi, I think is how

you pronounce it, the iron and steel company in China, strictly for

the purpose of increasing its capacity.

We have a worldwide glut of steel in the world today. We’re suffering from that here in the United States, and people tell us continually—this Administration and the one previous told us that we

have to deal somehow with the world capacity. Somebody has to

deal with it, but nobody has dealt with it. This is the wrong way

to increase that capacity.

This is an export mill that’s in China, and it’s going to be used

to bring product back into the United States. We do not need to

increase capacity of that kind. We don’t need to use our tax money

49

to do that. What we’re wiping out is family supportive jobs, what

I call the American Dream, where you can buy a house, you can

buy a car, you can educate your children, you can pay your taxes,

you can support the social network in the United States, you can

afford to pay the taxes on Social Security and Medicare. You can’t

do that on minimum wage jobs. We’re wiping out the family supportive jobs.

Let me be blunt, if I haven’t been up to now. I’m outraged over

the fact that our tax base money is being used to put our industry

in jeopardy. Right now we’ve got 18 steelmaking plants in bankruptcy in the United States. We’ve got hundreds of thousands of

jobs at risk. Some of these are going to be wiped out. Our pricing

structure has been destroyed by the imports coming in. You can’t

sell steel at the prices today that the import levels have driven it

to.

The answer is what? Do we want to wipe out the steel industry?

We’re operating at 76 percent last week, 76 percent capacity in the

United States. That’s not enough to keep it going. We’re going

down the drain. Big mills are going down the drain. I mean, the

third largest is in bankruptcy and is in danger of going into Chapter 7, which means you turn the lights out on it, and others aren’t

far behind.

You can’t borrow money. They can’t reinvest in the industry. You

talk about Ex-Im Bank pouring money in for the Chinese to build

steel capacity to take our markets in the United States? Why don’t

they invest somewhat in the United States to where we can build

the capacity and make more efficient industry and keep the jobs

here in the United States, the kind that pays all of our freight—

yours, mine, and everybody else in this country?

I think it’s outrageous for us to deal with China this way. It’s

a predator nation. We have over a $400 billion deficit, trade deficit

with China. They don’t respect human rights. They’re a repressive

government. People cannot share in a wealth they help create in

China. They can’t take collective action like we can in the United

States, and you can in the rest of democracies. I think it’s a terrible

situation.

Surely this can’t be what Ex-Im Bank was designed to produce,

to wipe out jobs.

You know, there was a comic strip I used to refer to years and

years ago. Maybe everybody’s forgot it—‘‘Pogo’’. He said, ‘‘We have

met the enemy and he are us’’. Sometimes I think this is where

we’re heading right now. We should come to grips with who’s side

we’re really on.

In conclusion, let me say I think this is an excellent opportunity

for your Committee to examine the functions of the Ex-Im Bank,

to take a good look at this, and let’s get it back on track while we

still have time.

Thank you.

[The prepared statement of George Becker can be found on page

173 in the appendix.]

Chairman BEREUTER. Thank you, Mr. Becker. And may I say

that I think all of you have made your points very concisely and

very ably.

50

The subcommittee will now proceed under the 5-minute question

rule. And I can assure Members that we expect to have a second

round of questions, so if you don’t complete your first line of questioning, we’ll come back to you shortly.

So I’ll begin with the questioning under the 5-minute rule, and

we will recognize Members here in order of seniority at the beginning of the hearing and those who arrived slightly after it began,

we’ll recognize you as you appeared.

Mr. Christman, I would begin with you and ask you two questions. If it’s possible, can you estimate what effect a cut in Ex-Im

Bank funding would have on Case? Would you have had to lower

your production levels if we had this proposed level of authorization, a 25 percent cut? And that’s a difficult one to answer, I imagine.

But here’s the second one. Case is a large—I’ve got to make sure

I get ‘‘IH’’ in there, having some family history in it—is a large corporation with a strong credit history. Please explain why a major

corporation such as yours could not finance these export transactions without the Export-Import Bank.

Would you take a crack at those two questions, please?

Mr. CHRISTMAN. I’d be happy to, Mr. Chairman. If we look at the

impact of a 25 percent reduction, let’s just put it in perspective. If

we look at the tractors that we build at a union facility in Racine,

Wisconsin and the production that goes into just those former Soviet Union countries that require Ex-Im Bank financing, represent

one month of production at that factory.

Out of our combine factory, Ex-Im Bank finance production accounts for 21⁄2 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

21⁄2 weeks. So a major impact to our factories and the workers in

those factories for a 25 percent cut.

It’s important as we compete on a world market, relative to the

second part of your question, we are willing to compete with any

company in the world on product, on pricing and financing, company to company. It’s when we’re up against government-subsidized financing that we’re not able to compete, even with a fairly

large company. When we’re up against Hermes financing from Germany or Kolke from Poland or wherever, that is where we’re not

competitive, and that’s where we need Ex-Im Bank’s support.

Chairman BEREUTER. Thank you very much.

Dr. Bergsten, you have quite a discussion on page 6 on market

windows. And you’re describing a situation where the official institution of a competitor country is the official lender and a private

bank. And you suggest that together, the Canadian and German

market windows, these hybrid institutions, did $12 billion of financing in 1999. Can you enlarge a little bit as to what you think

the overall impact of that is?

And since OECD arrangement appears not to have covered this

issue, what should be the policy of our government with respect to

these market window competition factors that we face?

51

Dr. BERGSTEN. On the second question, I think our policy, as I

suggested in broad terms in my statement, should be to bring these

market windows, like all other aspects of export credit finance,

under the international restraint agreement.

The problem has been that the nature of those new market windows has enabled their proprietors—particularly the Canadians

and Germans, but more are coming—to argue that they are not

covered by the arrangement. I know the Ex-Im Bank has tried to

take them to court, so to speak, but they have rejected it. As a result, those operations have clearly won contracts that our people

didn’t even know about.

Part of the international arrangement on export credits is prior

notification so that the various export credit agencies can match

the offers made by their competitors. In these cases, the foreigners

do not even notify. So our people, like Case or somebody else, wind

up losing the contract for which they didn’t even know there was

competition from an official export credit agency abroad. I think

that’s an egregious practice, and we certainly want to bring it

under control.

As I argued, however, we’re going to bring it under control only

if we’re willing first to fight fire with fire.

What’s the nature of the beast? It’s an invention by foreign countries that literally provides market-type operations under a government guise. The two countries involved have brought in a lot of private-sector expertise—incidentally at higher salaries—people with

experience in the banking sectors, but they’ve brought them under

a government program in which the government provides the startup capital. It requires no payment of dividends and there is no taxation of earnings, therefore that money can be plowed back into the

program. Also, where there are implicit government guarantees for

any of the credits being made.

In addition, they even shift some of their administrative cost to

the government payroll. In the German case, for example, through

an institution that does a lot of domestic finance as well as international finance.

So it’s a clever invention on the part of the foreign competitors.

It reveals once again the old truth that people in this business are

always trying to stay one step ahead of the judge. The problem is,

if we don’t catch up and match it, and then try to bring it back

under the rules, we lose.

Chairman BEREUTER. Thank you, Dr. Bergsten.

The gentleman from Vermont, Mr. Sanders is recognized.

Mr. SANDERS. Thank you, Mr. Chairman. Let me say a few words

on an issue that I think almost everybody has touched on, and then

I have a couple of questions. That is the issue of the level playing

field. And I think Dr. Bergsten and others have said that it seems

to be unfair that some of the European countries, for example, provide higher subsidies than we do and it creates an unfair level

playing field.

But let me talk about comparisons between the United States

and Europe. I find it interesting that people pick out this issue. In

Germany, wages today are about 25 percent higher than they are

in the United States for manufacturing.

52

Every worker in Europe has a national health care program, and

I hope that those people who are speaking in favor of the ExportImport Bank will tell us that they want to level that playing field

and we can count on your support for national health care program, higher wages for our workers. I hope you’ll be talking about

leveling the playing field.

In Europe, most of the countries have very strong family leave

programs, as you know, not like we have where we don’t pay workers, but in Europe I think they pay 50, 80 percent of the wages of

women who have babies, and I look forward to your support on

that issue, and it will level the playing field. In Germany we heard college education is free, not $20,000 or $30,000, because the government puts money into college education. So we’ll look forward to your support for my legislation to

double and triple Pell Grants.

In Germany I think it is, the workers have 6 weeks’ paid vacation, and we want to know obviously as we level the playing field

with Europe, for your support in that area as well.

And I think probably in Europe, although I’m not an expert on

that, you probably don’t have situations where large multinationals

pay zero taxes like General Motors does in the United States. They

probably have a more progressive tax system.

The point being, Mr. Chairman, when we talk about a level playing field, let’s look at all aspects of our society and not just one.

And if they want to talk about a level playing field in terms of the

social services that are provided to the working people in Europe,

let’s work together on that issue.

Also when we talk about a level playing field, I would like some

of the gentlemen who are supporting MFN either now or later to

talk about a level playing field for an American worker competing

against somebody in China who makes 25 cents an hour, who can’t

form a union, who can’t demand democratic representation for their

government. I want to talk about a level playing field in that respect as well.

Let me ask Mr. Becker a question. Mr. Becker, the United States

has today something like a $450 billion trade deficit. We hear

many people telling us, as we have today, about all of the jobs that

are created through exports, and that is very clearly true. Good

jobs are created from exports. I have no argument with that. But

I seem not to hear another part of that equation. Maybe my ears

didn’t hear it. And that is if you have a $400 billion trade deficit,

there has to be at least one or two jobs that seem to be lost.

In other words, economists tell us—I know they differ on this—

that for every $1 billion of export, you create 14,000 new jobs.

What about every $1 billion of trade deficit? Mr. Becker, do you

want to comment on that?

Mr. BECKER. Absolutely. I was a member, as you’ll see on my testimony, I was a member of the Congressional Trade Deficit Review

Commission that was just terminated at the beginning of this year.

The figures that they use, that the Commerce Department has used and Labor has used, that 13,000 jobs exist for every $1 billion

of exports, and they point to that with a great degree of pride, you

can multiply that. If you use that same figure and turn it around.

Now maybe it wouldn’t be precise. Incidentally, it’s between 13,000

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and 20,000 jobs. It’s somewhere in that range, according to the pricing of the product and that. You turn that around with a $400

billion deficit, you’re talking somewhere in the neighborhood of six

million jobs that have been lost as a result of that.

Could I add one thing? You referred to Germany. Something

that’s always bothered me. You know, a lot of the transfer of jobs

from the United States to Mexico and other places in the world is

to escape the union. And I point out the value of having family supportive jobs. We have an adversarial relationship in the United

States which bothers me. You know, it’s not all from our side. The

industry would like to move.

Industry in the United States, and in some respects a lot in government, has never accepted the union’s right to exist as an institution in this country in spite of the law. They will do everything

they can to break the union. They’ll do everything they can to run

from the union. One individual of a leading company in the United

States, maybe the world’s largest company, has said to—which represents a lot of union workers—ideally, every plant I own would be

on a barge’’. Every plant I own would be on a barge.

Mr. SANDERS. I think that’s Jack Welch.

Mr. BECKER. And I could float it anywhere in the world to the

lowest price and move it at will.

Mr. SANDERS. That’s Jack Welch I think of G.E., isn’t it?

Mr. BECKER. You know who he is, too. Yes.

Mr. SANDERS. Thank you, Mr. Becker.

Chairman BEREUTER. The time of the gentleman has expired.

Mr. BECKER. Incidentally, they are the contractor on the Benxi

that I’m talking about. That’s the only reason I make reference to

that. They’re the ones who will be the recipient of electronics that

goes in there, into that plant.

Chairman BEREUTER. The time of the gentleman has expired.

Now, in accordance with the rules, we’ll call on those Members who

were here at the beginning of the hearing. So the gentlelady from

Illinois, Ms. Biggert is recognized for 5 minutes.

Ms. BIGGERT. Thank you, Mr. Chairman. First of all, I would like

to thank Mr. Christman for taking the time to be here. Case’s Burr

Ridge, Illinois Agriculture Equipment Research and Development

facility is located in my district. So I’m glad to welcome you here.

As the number one manufacturer of agricultural tractors and

combines in the world, certainly Case’s operations are important to

both the 13th Congressional District and the entire State of Illinois. So I know that Ex-Im Bank has been a large part of the success of Case and many other companies like Case.

In Illinois alone, the Ex-Im Bank has supported 118 commu- nities, 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

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down here 40 percent. And one of the decisions that CNH had to

make was relocating axial flow combine production. And we had a

choice of two factors, one in Grand Island, Nebraska, and another

in Brazil. And when we look at the differences between those two

and even the differences in labor. And in a combine, labor is only

about 8 percent of the total cost of the product. Most of it is, you

know, the iron and steel that goes in it.

One of the factors in that decision to keep that production in the

United States was Ex-Im Bank financing. As I indicated, that is a

large part of our production of axial flow combines. Had we not had

Ex-Im Bank financing, the decision could have had a very different

outcome. Because then we might have just looked at total lowest

cost of production.

But because of Ex-Im Bank and the importance—because Ex-Im

Bank only finances U.S. production, our decision was to keep not

only the production in the U.S. but the jobs in the U.S.

Ms. BIGGERT. In your testimony, you offered the example of the

Ukraine as an instance where Ex-Im Bank support was withdrawn

and a foreign corporation completed the transaction. Can you give

us more detail on why the Ex-Im Bank support was withdrawn in

this instance?

Mr. CHRISTMAN. I must confess, I don’t know the details of that.

That was before I came into this present job. That was a couple of

years ago. But I could just—on a little associated note, in

Uzbekistan where we have been very successful, not only did ExIm Bank complete, you know, with the financing of the initial

sales, but our company then made additional investments for the

long term in joint ventures to service the equipment. Because as

you know, farmers look for much more than just the initial purchase price.

So we are making investments, long-term investments, and

that’s why for us a very stable policy out of Ex-Im Bank is very

important for us to take that risk and make those investments.

Ms. BIGGERT. OK. Would you have any suggestions for improvements or increased efficiencies that Ex-Im Bank could implement

in its transaction procedures?

Mr. CHRISTMAN. I think the flexibility. As we indicated, there are

other countries out there that are our competitors on a financing.

We need to be aggressive in those, be able to look at and evaluate

what that competition is and also make decisions on a fairly quick

basis. Because a lot of times, especially for seasonal products, you

need fairly fast decisions in order that you can complete your production cycle and get it into a customer’s hand to be productive.

Ms. BIGGERT. Thank you. I see my time is just about up, so I’ll

yield back.

Chairman BEREUTER. Thank you very much. Unless Ms. Kelly

returns, we’re going to go to Ms. Roukema and Mr. Bentsen and

Mr. Sherman. The gentlelady from New Jersey is recognized.

Mrs. ROUKEMA. Thank you, Mr. Chairman. And I apologize for

not being here earlier. My plane at Newark Airport was long delayed, I’ve got to tell you, but we did make it. They repaired it and

we got here.

I see I have a gentleman from New Jersey whom I haven’t yet

met, but we should have met I’m sure, because we’re not far from

55

each other if your firm is in Patterson. And I do appreciate what

you have said here. And that’s a good example, this Watson Machinery International is a good example that we’re not talking

about corporate welfare, we’re talking about real jobs at real wages

in a small business. And I really appreciated what you said, Mr.

McLaughlin. I don’t know whether you want to add anything.

Oh, there was a part of what you said that you may want to amplify on, but you used the word ‘‘skitterish’’. Skitterish about the

banks, both in New Jersey and Connecticut, that you were not able

to get help from or get financial assistance from, and that forced

you to the Ex-Im Bank, if I understood your testimony. Can you

amplify on that? Because that is central to this whole question of

how we deal with the global economy and how we deal with establishing a level playing field. Would you like to comment further?

Mr. MCLAUGHLIN. Understood. Well, I’d like to say, on the one

hand, if we have a foreign receivable, our bank will not support

that in the way that we have our financing. In other words, we

sometimes finance our accounts receivable. And if it’s foreign, they

don’t want to have anything to do with it. And that, you know, for

a company that, I mean, we as Watson have, you know, 4 years ago

we only had about 10 percent export sales. So we’re still learning

the ropes in how to do all this.

But that is one example. And when I say this happens to be

something that’s probably more specific to our company. In other

words, we’ve transitioned the company from being a distributor— we were a manufacturer. We became a distributor of foreign equipment made in Japan, and now we’ve gone back into manufacturing

ourselves. And frankly, we’ve been doing that in an environment

where the banks are not—the flow of credit today is not exactly

what it was a number of years ago, and that’s where we have run

into this problem, and that’s why we need the support and guarantee of Ex-Im Bank.

Mrs. ROUKEMA. Good. I think that’s very helpful to us. I appreciate that. I do want to acknowledge that Mr. Bergsten really gave

us excellent, excellent testimony, and I took note of that. And

‘‘they’re eating our lunch’’ phrase, I generally agreed with.

But I do want to observe that Mr. Va ́squez, 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. Va ́squez, 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.

Va ́squez? 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. Va ́squez would agree on. I can’t grab

one right of the sky right now. But let me say this. It’s hard for

56

me to imagine a steel company like Benxi getting a loan or a grant

from the Ex-Im Bank without some strong pressure from the

United States companies that’s going to supply them with the technology. I think that’s a given that that was done.

Mrs. ROUKEMA. Well, we’ll look into that.

Mr. BECKER. Pardon? Well, General Electric is going to supply X

millions of dollars worth of electronic equipment and the upgrading, which is a very laudable thing. I have no problem with that.

I was trying to say that we are in favor of exports. And I’ve had

some people ask me, well what about the 1,600 people that’s going

to benefit from that in the United States in doing that? And I understand that.

But I think you have to look deeper at what’s going to be the end

result. Sixteen hundred people that’s going to get a short-life job

in order to supply the electronic equipment for a permanency of capacity expansion that’s going to butcher our industry here. And I

think you have to examine General Electric. This is a company that

moved their engine division down to Mexico and held seminars and

forced all the suppliers in the United States to attend the seminars

and told them if you want to continue supplying General Electric,

you’re going to move your operation to Mexico.

That is not trade. And that’s where I draw the difference. When

you close a place in the United States and you build it in another

country and you bring the product back into the United States,

that isn’t trade. That’s relocation. That’s a transfer of technology

and wealth and capacity. And I think that’s a big difference that

we fail to come to grips with when we talk about Ex-Im Bank and

creating jobs.

Chairman BEREUTER. Ms. Roukema, you’ve generated a little interest in the possibility for interaction here which could serve the

subcommittee. So, Mr. Va ́squez, 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. VA ́SQUEZ. OK. Perhaps we can begin by agreeing with the

approximately correct pronunciation of my name is Va ́squez.

[Laughter.]

Mr. VA ́SQUEZ. 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 11⁄2 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.

57

So I again see that the government failure of Ex-Im Bank lending is bigger than the so-called market failure that it is purportedly

trying to correct.

Chairman BEREUTER. Thank you.

Dr. Bergsten.

Dr. BERGSTEN. I’d like to make one comment, Mr. Chairman,

specifically on both Mr. Becker’s and Mr. Va ́squez’ 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. Va ́squez’ statements, he forgets a very fundamental principle of economics called the ‘‘theory of the second best.’’ Mr.

Va ́squez is giving us, as his Cato Institute does all the time, and

admirably so, good free market economics. But this is not a free

market. This is a rigged market where the foreign export credit

agencies subsidize their output.

The theory of the second best in good classical economics says

that when a distortion is created by government action the welfareenhancing outcome is to counter it with government intervention to

offset the subsidy. So even in welfare economics terms, it’s a winner.

Mr. Va ́squez 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.

58

Chairman BEREUTER. Thank you, gentlemen, for this exchange.

Members may want to pull you back to it again, but I want to turn

now to Mr. Bentsen for his 5 minutes.

Mr. BENTSEN. Thank you, Mr. Chairman. I’m going to follow up

on that. Because Mr. Va ́squez, you went on to say when we subsidize an aircraft for sale, a Boeing aircraft—since that’s the only

commercial aircraft manufacturer left in the United States—to a

foreign country, then it competes with our airlines.

And the next logical step, if that would appear to be a problem,

would be that we then have some form of an export control regime

on U.S. aircraft and other equipment to ensure that it doesn’t end

up in the hands of our competitors, which I think would be a catastrophe in the long run.

I think Dr. Bergsten is right that we are trying to sell goods and

services. The fact is the rest of the world does manufacture steel

plants, or create steel plants. They do operate airlines. They do a

lot of things that we do in this country. But aren’t we better off

that among the ingredients of providing those services are ingredients that are produced in the United States as opposed to ingredients that are produced in other industrialized countries or emerging countries around the world?

The second thing I would ask is this. And this is an issue that’s

come up in the past when we’ve talked about this, that somehow

there is a zero sum in terms of capacity in our manufacturing. That

somehow if we provide an export subsidy, we are swapping manufacturing or job creation manufacturing from the United States to

another locale.

And that would seem to me, the logic of that—I think it’s illogical, but it would seem to me that would be saying that there’s a

limit on, an absolute limit on what U.S. corporations can manufacture, you know, the number of turbines, that we’ve hit those limits

and somehow we’re either creating wealth over there or wealth

over here, as opposed to being able to create wealth in both places.

And I’m not sure that even Cato would agree with that. And I

apologize for missing your testimony. But again, I have to agree

with Dr. Bergsten that otherwise you’re taking the position that we

should be purely free market, purely classical, all others be

damned, regardless of whether it’s at our disadvantage in the long

run or not. Is that the position?

Mr. VA ́SQUEZ. 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. VA ́SQUEZ. 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

59

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 oppor- tunity costs on $800 million per year that could be spent or reduced

taxes or something along those lines. Is that what you were getting

at?

Mr. VA ́SQUEZ. 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. VA ́SQUEZ. 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. VA ́SQUEZ. No, we haven’t. It’s a difficult cost to measure.

Mr. BENTSEN. Anyone else?

Dr. BERGSTEN. Yes, I would just add a word. Mr. Va ́squez 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. Va ́squez 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. VA ́SQUEZ. May I briefly say—— Chairman BEREUTER. We’ll hear briefly from you again, Mr.

Va ́squez.

60

Mr. VA ́SQUEZ. I am not comparing the opportunity costs of one

Federal program against another. I’m comparing the benefits of ExIm Bank spending to the benefits of ordinary citizens keeping their

money and spending it on their own.

Chairman BEREUTER. I appreciate the interaction in the panel.

I think it’s probably in the best interests of the subcommittee to

let it proceed. The gentleman from California, Mr. Sherman, is recognized.

Mr. SHERMAN. Thank you, Mr. Chairman. I think that what’s before us is not just whether we reauthorize this bank for 5 years,

no changes, congratulate them on the one hand, or pull the plug

completely on the other.

We ought to explore whether to reauthorize for 1 year or 2 years.

If we do otherwise, we’re basically abdicating our responsibility to

oversee this bank and giving all that authority to the Appropriations Committee, which will then decide year after year whether

the bank is worthy of its appropriation, and will in that process try

to give the bank some direction.

I think we have more expertise in this subcommittee to give the

bank direction. I think that it’s particularly important that we do

so, because the witnesses here today have illustrated that sometimes the bank violates its own rule against financing activities

that hurt the United States economy.

We’re told that the Chinese are going to build the plant anyway,

and therefore, Ex-Im Bank isn’t displacing the steelworkers that

we’re concerned about. But one would suspect that the total

amount of subsidized financing that’s available to China is being

ratcheted up. We offer a 5 percent loan, so Europe offers a 4 percent loan, so we offer a 3 percent loan, Europe offers a 2 percent

loan, so Ex-Im Bank really isn’t involved in the transaction, but the

Chinese then get a 2 percent financing of their plant. And I see

Fred even nodding.

I think that having Europe and the United States compete to

subsidize Chinese industrialization has got to lower the cost of capital to China and lead to more competition for American steelworkers.

And so I’ll ask Mr. Va ́squez, 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. VA ́SQUEZ. 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

61

a limited amount of time. I want to go onto what is the most important issue.

Mr. VA ́SQUEZ. Over the years there has been limited success, but

countries have found ways around it. Those same countries are also

finding less expensive ways to operate.

Mr. SHERMAN. All of my colleagues have been given kind of this

recapitulation of Ex-Im Bank as district pork. I was given a list 6

months ago or less of companies in my district who are helped. We

called them all. None of them thought they got any significant

help. I’ve been given two more companies, and we will be calling

them as well.

What concerns me is, yes, you can add up your sheet and maybe

find that in your district, $5, $10, $20 million worth of productivity

is occurring in your district supported by Ex-Im Bank. But you

have to weigh that against the adverse effect that I think Ex-Im

Bank is having on the California energy situation. And if you were

to look at the number of jobs dependent in every one of your districts on trade with California, it would dwarf the one percent of

the five or ten percent of our economy that’s involved in exports,

the one percent of that that is somehow involved in the Export

Bank.

Do no harm to the American economy means not only don’t lead

to the production of more steel plants in China. It also means, don’t

finance those companies that are telling California, go to the back

of the line when it comes to getting electric turbines. This is a crisis that will kill people in California and perhaps put the entire

country in a recession. And yet the Export Bank is, I believe their

number one category, number one or number two, is the very electric turbines that California needs.

So I would hope that through continued oversight, we can make

sure that this bank does no harm and perhaps that at least in the

electric turbine area, we restrict our subsidies to those companies

that really treat this American tragedy in California seriously.

I don’t know if I have any more time, but I know that

several——

Mr. BECKER. Could I make some comments?

Chairman BEREUTER. Briefly you may respond, certainly.

Mr. BECKER. Pardon?

Chairman BEREUTER. Briefly, you certainly may respond.

Mr. BECKER. This is something we always wrestle with. I mention that we represent aluminum companies. I want you to know

what’s happening in the Bonneville Power Basin up in Washington

where the largest concentration of aluminum smelters are located,

some of them steelworkers, some of them not. The Bonneville

Power Association is trying to get them to voluntarily shut down

all of the aluminum capacity and the power will go down to California.

That may sound very noble on the surface, but we shut down

steel, we shut down aluminum, we’re shutting down the rubber industry. I mean, where does this end? These are the jobs that keeps

this engine of America going. And I think we need to look at this

on a broad basis.

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You know, the Ex-Im Bank was empowered—is a creature of our

own policies in this country. And the policy of this country should

not be to create permanent competition for America abroad.

Dr. BLACKWELDER. Mr. Chairman, could I also respond?

Chairman BEREUTER. Dr. Blackwelder.

Dr. BLACKWELDER. In my testimony I tried to emphasize that the

Export-Import Bank was doing serious environmental harm by its

energy portfolio. And what it’s doing is essentially subsidizing a

very mature fossil fuel industry, neglecting all of the potential opportunities in wind, solar renewables and so forth that are possible

to pursue.

And so this is a very, very serous choice that I think the Committee has, what kind of policy is this bank supposed to be pursuing in the energy sector? Because that lending grew to 28 percent of its total portfolio between fiscal 1999 and the year 2000.

Chairman BEREUTER. I thank the gentleman. I think we should

move to our second round. It’s a little difficult to be consistent with

a national energy policy, though, I can’t help saying, when we don’t

have one.

I’d like to ask briefly Mr. McLaughlin, can you tell me exactly

how you came to use the Export-Import Bank for the first time?

We’ve had questions about information technology and whether it’s

small business-friendly or not. Tell us how you first became involved, if you would, just briefly.

Mr. MCLAUGHLIN. Yes. I had been going to seminars by a group

called the Capital Equipment Export Council, and there was a

presentation there by Ex-Im Bank that raised our interest, and

that’s how it got started.

Chairman BEREUTER. Thank you. Have you had more than one

involvement with Export-Import Bank? Have you had more than

one export?

Mr. MCLAUGHLIN. Transaction?

Chairman BEREUTER. Yes.

Mr. MCLAUGHLIN. Yes. We’re doing ongoing transactions at this

stage.

Chairman BEREUTER. Thank you.

Mr. Va ́squez, 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. VA ́SQUEZ. There are about 200,000 medium and small businesses that export in the United States. About one percent of that

receives Ex-Im Bank credit. So I suppose that you’re talking about

the tiny proportion of companies that face this problem.

I think that they would have to begin just as other companies

begin, by looking at the options that are available in the market.

And sometimes if a company cannot find financing in the market,

there are good reasons for that. The risks may be too high. Apparently this is not too much of a problem for the U.S. economy or for

small businesses.

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Chairman BEREUTER. I’ll just venture a view that some parts of

the country are not served well with banks that have experience

with exports at all, and so there’s quite a differential in the quality

and experience in the banking sector across the country.

I’d like to ask Mr. Blackwelder whether or not you have raised

or if you know that anyone has raised the issue that you raise with

respect to a public comment period such as the World Bank has,

and if so, what the reaction has been.

Dr. BLACKWELDER. Well, I would just say, we have had discussions with a lot of people, and most recently was with the Committee when you proceeded to provide a 60-day comment period

with OPIC. And we are suggesting that you ought to do this with

the Export-Import Bank as well, in addition to requiring disclosures of their environmental assessments and so forth.

Chairman BEREUTER. Dr. Bergsten, you before wanted a chance

to respond to the basic question in which the panel involved itself,

and I have about a minute and 20 seconds left here. Do you want

to start that process, and we will hear at least from one or two

other panel members, and that will conclude my time?

Dr. BERGSTEN. Right. Both Mr. Sanders and Mr. Becker raised

the question of the effect of the trade deficit and aggregate economic conditions on the issue we’re talking about today.

I’m with Mr. Sanders. I would like higher wages, better pensions,

better health care, more paid vacations for American workers. But

countries make different choices about such variables. And what

happens in the big picture of the world economy is that those are

evened out by exchange rate changes.

When countries adopt fundamental national standards or outcomes, like wages, a couple of things are in play. One is, they reflect underlying productivity levels. The reason German wages are

higher than American wages, the reason they take more paid vacations, and so forth, is that German productivity is considerably

higher than American productivity. They earn it.

Then in terms of the international effects, it is equated over time

by exchange rate movements. Now, they’re not perfect. If they

were, we wouldn’t have these huge surpluses and deficits. Germany, incidentally, for all its high productivity, has been running

a trade deficit for the last 10 years since the unification of the

country.

But you have to look at wages and everything else in the context

of underlying productivity. There is one place where I believe that

you have to fight fire with fire. That’s when you compete directly

across borders, as with export credits or import tariffs and quotas,

where you have direct international economic competition. That’s

where I would argue you have to find a level playing field, whether

it’s on trade barriers or export subsidies or whatever.

Mr. Becker picked up the point and said we’ve lost six million

jobs over a recent representative period. Well, of course, he cannot

be speaking about net jobs, because over the recent 10 to 20 years,

we’ve created 20, 30, 40 million jobs on balance. We certainly lost

some jobs, but we’ve created many more than we lost. So there has

been net job creation.

And the point about international trade, both exports and imports—I agree with him on that—is that the impact is not on the

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total number of jobs, it’s on the quality of jobs and their composition. And as I said, the export jobs turn out to be the best jobs, the

highest-paying, and the most stable. So to the extent we can shift

in that direction, we’re better off.

But the fact that we’ve had a large and growing trade deficit,

which I incidentally have criticized, attacked, and tried to remedy

more than most outside economists, does not mean we haven’t created jobs. That large and growing trade deficit has coincided with

the most dramatic period of job creation in the history of the

United States; and in recent years, with creation of good jobs with

rising wages at all levels of the income stream.

So this puts those basic economics on the table.

Chairman BEREUTER. Thank you. I think undoubtedly this question may generate more responses, but on other Members’ time.

The gentleman from Vermont is recognized for a second round of

questions.

Mr. SANDERS. A fascinating discussion. I think we can go on a

long time with it. Let me make a few comments and then ask some

questions. Marge Roukema before mentioned that our competition

is quote/unquote, ‘‘eating our lunch’’. I think she is right.

I would hope then that she would reconsider support and Members of Congress—and I want opinions up here—about Most-Favored-Nation status for China, which has led us to an $83 billion

trade deficit; NAFTA, which has led us to a trade deficit. We can’t

say, gee, they’re eating our lunch. No kidding.

We’ve opened our entire market. We’re competing against people

who make very terrible wages. American corporations are running

to these countries investing all kinds of money, not in Vermont but

in China, and lo and behold, they’re eating our lunch. What a great

shock. I am not shocked. So I would like to ask briefly the members

up there, are you prepared to ask for revoking MFN with China?

Just go right down the line, based on the failure of an $84 billion

trade deficit.

Mr. Christman.

Mr. CHRISTMAN. No.

Mr. SANDERS. Mr. McLaughlin.

Mr. MCLAUGHLIN. No.

Mr. SANDERS. Mr. Bergsten.

Dr. BERGSTEN. No. Because China is about to join the WTO.

Mr. SANDERS. I have to keep it narrow here.

Dr. BERGSTEN. When they join the WTO and you don’t give them

MFN, we lose the market and the $83 billion becomes $100 billion.

Mr. SANDERS. Sorry. I’ve got limited time. I’ll get back to you.

Mr. Va ́squez.

Mr. VA ́SQUEZ. 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

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the decline of manufacturing, we have also seen that real wages,

inflation accounted for wages today for the average American worker is 8 percent less than in 1973.

So we have seen the growth of jobs. Many of them are part-time

jobs. Many of them in fact are low-wage jobs. And I would agree

with you that manufacturing jobs and export jobs are good jobs.

But it is not in my view, Dr. Bergsten, good enough to say, well,

we are creating these jobs. They’re becoming a more important part

of our economy.

What about the issue of lost opportunity? And that has to be part

of the equation. When people are investing billions in China, they

are not investing in the United States of America. When we’re seeing steel going down, textiles going down, bicycles going down,

those are jobs—sneakers—those are jobs that could have been done

by American workers.

Let me get back to a point I raised earlier, and very briefly because we have very little time and I’d like all the people to speak

very briefly about it. Over and over again we’ve heard about ‘‘level

playing fields’’. Does anybody up there honestly believe that when

we, quote/unquote, ‘‘compete’’ with China, a country where workers

are paid 20 cents an hour, can’t form a union, can’t speak up for

their rights without going to jail, how does anybody talk about that

being a level playing field?

Just go right down the line and be very brief. And I apologize

for the brief. Mr. Christman, do you believe that you can have a

level playing field under those conditions?

Mr. CHRISTMAN. Well, our competitors exist in Europe and

they’re not manufacturers in China.

Mr. SANDERS. OK. Fair enough.

Mr. McLaughlin.

Mr. MCLAUGHLIN. Well, I mean, there’s competition, and we have

to figure out a way to become better at it.

Mr. SANDERS. But we represent the American people. Do you

think we should put American workers to quote/unquote ‘‘compete’’

against people who are forced to work for 20 cents an hour?

Mr. MCLAUGHLIN. We have to figure out—yes. I think we have

to figure out how to do that. I think we do.

Mr. SANDERS. Dr. Bergsten.

Dr. BERGSTEN. You certainly can have a level playing field in

those conditions because of the much lower productivity in China.

Having said that, I’m with you on trying to use every lever we have

to get them to permit free association, unionization of the workforce, and democratization of their labor force.

I think the best way to do it is to engage with them, not divorce

from them.

Mr. SANDERS. OK. Good discussion.

Dr. BERGSTEN. And therefore move in that direction.

Mr. SANDERS. I apologize. I’ve got to move on.

Mr. Va ́squez.

Mr. VA ́SQUEZ. 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

66

but also looks at the opportunity to improve worker rights, improve

their environmental conditions and so forth, and it’s not the kind

of trade agreement which you had the opportunity to vote on last

year.

Mr. SANDERS. Right.

Mr. Becker.

Mr. BECKER. Yes. With all of those things. If I could say, there’s

two kinds of trading partners that we have. One are like the G– 7, industrial countries that have the same kind of standards we do,

the same laws, the same environment, the same respect for human

rights.

Mr. SANDERS. Right. Brief.

Mr. BECKER. And then we have the other kind that comes under

those same laws like, more than China, but China for sure, Russia,

Indonesia and several of the South American countries.

Mr. SANDERS. Let me just say this. I think there is probably

widespread agreement from everybody in this room that we want

a trade policy which creates good paying American jobs. Nobody in

this room is against trade. You’ve got to be crazy to be against

trade.

It is my feeling, and I think the evidence is overwhelming—I

cannot believe that people cannot see it—is that our current trade

policy in general is failing, and failing big time. That doesn’t meant

to say that Mr. Christman is not going to create some good jobs.

Of course there are good jobs being created.

But overall, if you look at what is going on in terms of lost opportunity, lowering wages, huge trade deficits, I think we have got to

be rethinking our entire trade policy, rethinking Ex-Im Bank, and

say how do we use these $800 million in a much better way than

we are currently using it to create decent-paying jobs in this country?

Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you, Mr. Sanders.

The gentlelady from Illinois, Ms. Biggert is recognized.

Ms. BIGGERT. Thank you, Mr. Chairman.

Mr. Bergsten, in testimony before this subcommittee, the Ex-Im

Bank suggested some options that it might have to consider to operate with the lower appropriation, including increased transaction

fees, reducing the percentage of a transaction it will finance or limiting the number of high-risk transactions it undertakes.

What is your reaction to these possibilities, and do you think

that such changes in Ex-Im Bank’s operations would hurt U.S. exporters?

Dr. BERGSTEN. I think all those changes would be bad, and I

think they would hurt U.S. exports. The bank’s staff apparently

has given you an honest rendition of what they would have to do

if forced to live within a tighter budget. But by definition, all those

would raise the cost of exports and thus hurt our market share or

reduce our responsiveness.

I particularly worry about the part that says they would take

less risky transactions, because—I’m with Mr. Va ́squez 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 ExVerDate 11-MAY-2000 09:59 Sep 14, 2001 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 72290.TXT HBANK1 PsN: HBANK1
67

Im Bank to take some of the riskier business that can generate

new sales, which otherwise wouldn’t occur.

That option would be particularly harmful. But I think they’re all

bad. That’s why I propose a sharp increase in the bank’s level and

certainly would strongly oppose any decrease like that proposed by

the Administration.

Ms. BIGGERT. Thank you.

Mr. Va ́squez, 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. VA ́SQUEZ. 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. VA ́SQUEZ. Yes. That’s what Ex-Im Bank does. And in my testimony I explained why I thought that was not a good idea, because in many cases, the Ex-Im Bank is actually financing investments that would not otherwise take place and should not.

I gave examples of Sub-Saharan Africa, for example, that for

some reason many projects in many countries there are not able to

attract private capital genuinely on their own. And a large part of

the reason is because they have economic policies that are poor,

that are inimical to growth. They need to change those polices. We

should not be rewarding them with Export-Import Bank credit.

That merely discourages the spread of market reforms.

Ms. BIGGERT. So the alternative would just be not to have anything to do with those markets and let somebody else come in if

they wanted to?

Mr. VA ́SQUEZ. 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

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look for pragmatic and workable solutions. And all I know is that

we are facing a global economy that’s a revolution in world history,

OK? And people like those of us in this room and those that we’re

representing here are going to have deal with it and not look at

ideological resolutions and look at the past centuries, because it

won’t work, as the Boeing Airbus question pointed out.

And I don’t know if Mr. Bereuter will agree with me, but I’m a

member of the—we are members of the NATO Assembly and we

go to these NATO meeting assemblies and I serve on the Economic

Committee. And if there’s anything I’ve learned over the past several years, it’s that we’re in competition. We have a lot of competition with the Europeans.

If we don’t deal with the Chinese and these other countries, the

Europeans are going to very quickly—Airbus—are going to very

quickly step in, whether it’s WTO or not, OK?

So I just want to say, I think we have to deal with this, not

thinking that the Ex-Im Bank is perfect. I’d like to have some constructive recommendations on how we improve it, but recognizing

that it’s the real global world, globally economic revolution that’s

out there, and it’s not going to go away, and we can’t close our

doors and build trade barriers up and ignore it.

So I’d like to see if anybody has a closing comment in that respect.

Mr. Bergsten.

Mr. BERGSTEN. Well, perhaps just two quick ones. It’s certainly

a revolution in the world, but it’s also a revolution for the United

States. As indicated, the share of trade in our economy has tripled

in a generation. That’s a stunning change for a mature industrial

economy. We could think of ourselves as self-contained, continental

economy only a generation ago.

Today, we have a bigger share of trade in our economy than

Japan, and the European Union as a group. We’re deeply dependent. We have to fight fire with fire to compete internationally.

The second point is to link what you said to something Mr. Becker said. Mr. Becker said trade with Europe is fine because they

have the same high standards, they’re not low wage, and so forth.

He’s exactly right on that. But you are also right that they are the

ones with whom we frequently compete the most intensely in this

area. It’s the Germans who have pioneered the market window,

and close behind them are our northern friends——

Ms. ROUKEMA. I should have mentioned specifically the European Union as a component of this.

Mr. BERGSTEN. Well, in this area, interestingly, the individual

European countries still operate on a national basis and not as a

group. So the Germans, French, Italians, the British, all compete

with each other, as with us.

Incidentally, that’s part of the answer to Mr. Sherman’s point.

Mr. Sherman said if we offer export credit to China for a steel

plant, they’ll ratchet the interest rate down and benefit. Again,

they’ll do it with or without us. The Europeans compete with each

other, the Japanese are in, the Canadians are in. It’ll still happen

the same way.

We’re no longer a dominant force. And that’s the other element

of the world revolution. We can no longer call the shots. The others

69

outnumber us. They’re bigger than we are in economic terms.

They’re even getting bigger in political terms. We’re still the most

important single country, but we are subject to very intense competition from others, and if we don’t forcefully try to lead everybody

to a more rational outcome, we will continue to have our lunches

eaten.

Mr. BECKER. Could I answer some of these things? They keep

referencing me.

Ms. ROUKEMA. Please, Mr. Becker.

Mr. BECKER. First of all, I’d like to back up a little bit. I want

to talk about Europe.

Ms. ROUKEMA. Yes.

Mr. BECKER. The United States steel industry, if we’re talking

about steel, is the most efficient steel industry in the world. At

least there’s none higher. This is not me, this is not our industry,

this is the Department of Commerce. So when you talk about competition, we’re there.

When you talk about Europe, examine their trade deficit with

China. It’s almost nonexistent. It’s not anywhere like we are now.

We’re targeted here. We’re the ones. We’re the only free market in

the world. You don’t have a free market for goods coming in from

those countries in China or Japan, Japan the number two economy.

It doesn’t happen.

Second, the steel industry—— Mrs. ROUKEMA. If you could provide some objective data on that

score, I would appreciate it for the record. I hear testimony all the

time. We can accumulate it. We’ll have our people put it together

for you.

Mr. BECKER. This is true. Second, the steel industry in Europe,

the government picks up all the health care costs, one of the most

tremendous costs our industry faces, the only steel industry in the

world that has to pay what we call legacy costs, health care for retirees. It’s an incredible amount of money. It’s in the billions of dollars. We’re the only country that we have to compete against. The

Chinese don’t have it. The Japanese don’t have it. The Canadians

don’t have it. Europe doesn’t have it. England doesn’t have it. The

Scandinavians, the Italians, none of them. That’s a government

cost.

And when you talk about competition, our industry has to pay

that right straight up front. Bethlehem, that’s skirting on the edge

of bankruptcy—they’re not bankrupt—their health care costs run

somewhere in the neighborhood of $250 million a year. They

haven’t made $250 million profit probably in my lifetime.

Chairman BEREUTER. If there are other panelists.

Dr. BLACKWELDER. Might I respond?

Chairman BEREUTER. The gentleman from Case IH. It’s 4:00

o’clock, and I promised you’d be out of here. Do you want to respond briefly before you——

Mr. CHRISTMAN. Just very quickly, because I’m actually headed

to Europe to see some of our competitors there.

[Laughter.]

Mr. CHRISTMAN. All we ask for is something very simple. We’re

looking for policies and procedures that can match the foreign governments that we compete against. What we want to do is very

70

simple: Give our U.S. workers a chance to compete on the technology and the products we build against anybody in the world.

If you just give us equal financing, we know that we can win on

the product and technology side. Just give our workers a chance.

Give us the policies, procedures, and give us the funding. Thank

you.

Chairman BEREUTER. Mrs. Roukema, yours was the last question. Do you want to hear from any of the other panelists on it?

It looks like there are several.

Mrs. ROUKEMA. Yes, I would.

Chairman BEREUTER. Mr. Christman, if you need to leave, thank

you for your testimony, and we’ll be concluding shortly.

Dr. BLACKWELDER. If I could just give an environmental perspective on your question.

Mrs. ROUKEMA. Yes.

Dr. BLACKWELDER. Number one, I think you want to make sure

that the Export-Import Bank is not lending for socially and environmentally destructive projects. We have suggested a number of

ways that you can improve those standards, which have actually

been a model and served to increase the environmental standards

of other export credit agencies around the world.

But second, the Export-Import Bank is loaning for highly destructive and damaging fossil fuel projects, as I stressed. If in fact

we are as a government going to subsidize in the energy area, we

ought to be subsidizing some of the innovative new things that are

happening in wind, solar efficiency and so forth, and not being in

the position of maximizing and augmenting and subsidizing global

pollution. And that is something fundamentally that has to change

if the Export-Import Bank is going to exist.

Mrs. ROUKEMA. All right. Thank you. I think what we’ve learned

is that there is a little more complexity to this than any of us

would like to have faced.

Chairman BEREUTER. Mrs. Roukema, I notice the gentleman

from New Jersey, who I think wants to make a couple—now you

wouldn’t want to miss him.

Mrs. ROUKEMA. Oh, absolutely. He may even be my neighbor.

Yes?

Mr. MCLAUGHLIN. Thank you. I’m just going to quote very briefly

from some remarks that Chairman Harmon made recently when he

was—I guess he was in the process of leaving the bank. ‘‘We should take note that in 1998, the U.S. ranked seventh in

terms of export credits provided. As a proportion of GDP in 1999,

France spent 16 times more on export promotion, Canada 13 times

more, and the United Kingdom 9 times more. These disparities are

a wake-up call for all who are concerned about the U.S. economy.’’ Mrs. ROUKEMA. Thank you very much. I appreciate that contribution New Jersey has made. Thank you.

Chairman BEREUTER. Thank you very much. Mr. Sanders and I

agree, and I think the Members of the subcommittee that participated agree that this has been an excellent panel. The interaction

among you has only added to the benefit to the subcommittee.

And I want to thank all of you gentlemen and the organizations

that you represent for your effort to help advise us, to give us your

suggestions and recommendations. We appreciate it.

71

And as we conclude, I want to ask unanimous consent to include

three things in the record. One is the recent transmittal of the proposed draft legislation for the reauthorization of the Export-Import

Bank. Very simple, straightforward, conveyed by letter of May 2nd.

A memorandum responding to a request to Elaine Stenglin, counsel of the Export-Import Bank, which answers our question of the

previous hearing related to Treasury’s role in Export-Import Bank

tied aid program, a memorandum dated September 4, 2000.

And an Export-Import Bank press release dated January 2, 2001,

which goes to the Benxi hot steel mill modernization grant—excuse

me—assistance that went to General Electric Company of Salem,

Virginia.

Is there objection?

[No response.]

Chairman BEREUTER. Hearing no objection, that will be the

order.

Mr. SANDERS. I just want to conclude by concurring with you,

Mr. Chairman. I think this was an excellent panel, and it was a

good diversity of viewpoints, and I want to thank all the panelists

for being with us today.

Chairman BEREUTER. Indeed, thank you. The hearing is adjourned.

[Whereupon, at 4:05 p.m., the hearing was adjourned.]

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A P P E N D I X

May 8, 2001

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