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73–638 2001

WHAT HAS EX-IM DONE FOR SMALL BUSINESS

LATELY?

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JUNE 13, 2001

Serial No. 107–12

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN THUNE, South Dakota

MIKE PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

WILLIAM PASCRELL, New Jersey

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANIBAL ACEVEDO-VILA, Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on June 13, 2001 ............................................................................... 1

WITNESSES

Weaver, Vanessa, Board Member, Export-Import Bank of the United States ... 4

Watters, Joseph, President, Hoffman International ............................................. 6

Barr, George, Founder, Anatech, LTD ................................................................... 8

DeDoncker, Sharon, Vice President/International, Aqua-Aerobic Systems ........ 10

Petrilla, Kenneth, Senior Vice President, Wells Fargo HSCB Trade Bank ........ 12

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 28

Velazquez, Hon. Nydia ..................................................................................... 33

Davis, Hon. Danny ........................................................................................... 35

Ferguson, Hon. Mike ........................................................................................ 36

Tubbs Jones, Hon. Stephanie .......................................................................... 37

Udall, Hon. Tom ............................................................................................... 39

Prepared statements:

Weaver, Vanessa ............................................................................................... 42

Watters, Joseph ................................................................................................ 53

Barr, George ...................................................................................................... 56

DeDoncker, Sharon ........................................................................................... 64

Petrilla, Kenneth .............................................................................................. 68

(1)

WHAT HAS EX-IM DONE FOR SMALL

BUSINESS LATELY?

WEDNESDAY, JUNE 13, 2001

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC.

The Committee met, pursuant to call, at 10:05 a.m. in Room

2360, Rayburn House Office Building, Hon. Donald Manzullo

(chairman of the Committee) presiding.

Chairman MANZULLO. Good morning. We are going to call this

committee hearing to order. First of all, I would like to welcome to

the Small Business Committee Congressman Bill Shuster of the

great state of Pennsylvania.

Welcome.

Mr. SHUSTER. Thank you very much. I looking forward to serving

on the committee with the chairman and the other members and,

as a small business owner myself, I look forward to working with

the business community across the country and I believe that I

have a knowledge of the trials and tribulations that small business

face, so I am looking forward to working with you.

Chairman MANZULLO. Well, as the owner of an automobile agency, you are having some interesting times, correct?

Mr. SHUSTER. Absolutely. Not such good times, but interesting.

Chairman MANZULLO. We look forward to the additions that you

can make to our committee.

Mr. SHUSTER. Thank you.

Chairman MANZULLO. This morning, we launch the committee’s

trade agenda with an examination of how the Export-Import Bank

of the United States helps small businesses. Later this year, Congress must decide on Ex-Im’s reauthorization. In addition, Congress must decide what it wants to do with the president’s budget

request to cut Ex-Im by 25 percent. With these upcoming policy debates, it is imperative the members understand Ex-Im’s programs.

The bank has been derisively called ‘‘Boeing’s Bank’’ for years. I

do not mind that Ex-Im helps large businesses win export deals.

Last year, Boeing purchased over $231 million from 55 companies,

mostly small businesses, in the congressional district that I am

proud to represent. The 16th District of Illinois is the largest supplier to Boeing in all of Illinois. Much of these products eventually

wound up overseas.

However, we must make sure the Ex-Im does not lose sight of

its mission to also help small business exporters. Nine years ago,

after much resistance from Ex-Im, this committee played a crucial

role in moving the bank to help more small business exporters.

2

Thanks in part to the leadership of a tremendous friend, a great

member of Congress, Norm Sisisky of Virginia, Congress required

that Ex-Im allocate at least 10 percent of their resource dollars to

help small business exporters.

Ex-Im will be pleased to tell you today that they have more than

met this goal. Eighty-six percent of transactions and 18 percent of

the dollar volume is devoted to small business. With the change in

administration, I want to make sure that we do not return to the

pre-1992 days when Ex-Im did not realize the growing importance

of small business exporters. I cannot believe I said that, but I did.

This is a non-partisan—I think we are more non-partisan than bipartisan up here and I guess I just chastised the Bush administration if it has any indication it wants to go back to where we were

before the Clinton administration took power on it. Not chastised,

encouraged to continue to help out small businesses.

We have to remember that the number of small business exporters has more than tripled over the past decade and they comprise

97 percent of all U.S. exporters.

This is only part of the story. Only 12 companies in the 16th District of Illinois and 285 firms throughout the entire state of Illinois

directly benefitted from Ex-Im’s programs since 1995, yet the 13

largest exporting companies in the U.S. who use Ex-Im’s programs

more frequently have 186 suppliers, most of them small businesses,

from the 16th District alone.

These include Scott Force in Spring Grove: Prem Magnetics and

Modine Manufacturing in McHenry; Chemtool of Crystal lake;

Cherry Valley Tool and Machine Company of Belvedere; Clinton

Electronics of Loves Park; J. Rubin & Company and Bergstrom

Manufacturing, and Kysor/Westram, et cetera. There are more

than 35,000 suppliers to these large companies nationwide. Thus,

the benefit of Ex-Im goes way beyond big exporting companies to

workers who may not even know what they product eventually

makes its way overseas.

Thus, at a time of zero economic growth and the largest trade

deficit in U.S. history, it makes no sense to make cuts as dramatic

as proposed for Ex-Im.

I hope someone from the administration is here today and I am

sure you have something to say about that, too.

Our foreign competitors are not making any cuts to their export

credit agencies. A 25 percent cut in Ex-Im program, budget would

be a gift to our foreign competitors. At a time when we are trying

to encourage more small businesses to get into the global marketplace, we should not be cutting trade finance for small business exporters.

I look forward to the testimony of the witnesses before us. I want

to particularly thank those who have traveled a long distance to be

with us, especially my constituent, Sharon DeDoncker of Aqua-Aerobics in Rockford.

I now yield for an opening statement from our good friend, the

ranking minority member from New York, Mrs. Velazquez.

[Chairman Manzullo’s statement may be found in appendix.]

Ms. VELAZQUEZ. Thank you, Mr. Chairman.

When discussions turn to accessing new markets, it is commonly

thought that the major forces in trade are large, multi-national corVerDate 11-MAY-2000 08:26 Sep 26, 2001 Jkt 010199 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 E:\HEARINGS\73638 pfrm04 PsN: 73638
3

porations. Of course, this is a misnomer because just as small businesses are setting the pace in the domestic economy, they are also

trailblazers on the international front, leading the way by opening

new markets every day.

Today, small businesses make up one-third of our trade and, according to the Department of Commerce, 88 percent of all small

businesses engage in exporting products.

A key mechanism in ensuring that this country’s small businesses have the support they need to succeed is the Ex-Im Bank.

By providing loan guarantees and insurance credits to U.S. companies, they promote business growth. This hearing comes at a time

when both the Financial Services and the International Relations

Committee are preparing to move forward with the reauthorization

of the agency.

Today, we are going to look specifically at what Ex-Im is doing

to help our nation’s small businesses. Although the vast majority

of this nation’s small businesses export something, still relatively

little of Ex-Im funding, approximately 18 percent, go to small businesses. While this is a slight increase, clearly with the dominant

role that small businesses play in the economy, much more needs

to be done. This is especially true in the areas of women and minority owned businesses. The face of business is changing. Currently, Latinas represent the fastest growing sector of the business

community. With this reality, agencies like Ex-Im not only have to

be sensitive, but their strategic planning must reflect that reality.

This being said, it is unrealistic to expect Ex-Im to do the job if

they are not given the necessary resources. Unfortunately, the

president’s budget request will leave the agency woefully underfunded. Through the cuts to many of the critical programs, billions

less in loans will be provided this year.

We all know what happens when funding is cut for these programs. First, we will withdraw from some of the markets that have

less than secure economic foundations, like the former Soviet

Union republics, Africa and the Caribbean. These are countries

who benefit not only economically from trade, but politically as

well.

Also, lending will be denied to those riskier businesses, many of

which will be small businesses. This is the wrong approach and

coupled with the 43 percent cut to the SBA small businesses will

take it on the chin. This is not how we should be treating the driving force of this economy.

We must ensure that small business exporters are given the necessary tools to succeed in a competitive marketplace. To do this,

Ex-Im must remain a viable source of capital and being able to provide the necessary protection for these firms, not just in an uncertain economy, but in an increasingly uncertain world.

I thank the witnesses for appearing before us today and look forward to hearing your suggestions on how this committee can help

small businesses continue to lead the way in the international market.

Thank you.

[Ms. Velazquez’ statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

4

All the complete statements of members of Congress and members of the panel will be introduced and made a part of the permanent record without objection.

Our first witness is Dorian Vanessa Weaver. I had the opportunity to talk personally with Vanessa yesterday. She is a member

of the board of directors of the Ex-Im Bank. There are five members of the board of directors. It is a full-time position. Her duty

there is dedicated to helping out small business and she knows

something about small businesses.

You did not tell me this yesterday, but your father was the SBA

administrator during President Carter’s years.

Ms. WEAVER. Yes.

Chairman MANZULLO. From 1983 to 1994, Ms. Weaver developed

a highly successful high technology, Engineering Research Associates, which was named National Small Business of the year. She

was actively engaged in the key management and strategic decisions. She advanced an improved software and systems technology,

creating highly acclaimed computer systems for U.S. and international markets. She is an attorney who graduated from Georgetown University. I look forward to your testimony, Mrs. Weaver.

Ms. WEAVER. Thank you very much, Congressman.

Chairman MANZULLO. You bet. Go ahead.

We have these lights up here that—if it gets to yellow, you have

about a minute; when it gets to red, if you could begin to wind up,

we would appreciate it.

Thank you.

TESTIMONY OF VANESSA WEAVER, BOARD MEMBER, EXPORT–

IMPORT BANK OF THE UNITED STATES, WASHINGTON, DC

Ms. WEAVER. Thank you very much. Mr. Chairman, Congresswoman Velazquez, members of the committee, I want to thank you

for giving me this opportunity to testify before you today. Your advice and the advice of your staff is enormously important to me and

to us. I want to thank you for guiding us over the years and look

forward to working with you in the future, particularly to help

small business and to keep the heat on to provide the kinds of services and products that they need.

We turn to you today to seek your advice and ideas and I look

forward to working with you throughout the next year and a half

of my term and certainly the Export-Import Bank will continue to

do so throughout its history.

I have a long and special interest in small business. My greatgrandmother and my grandmother and grandfather both had small

businesses and, of course, my father had a great interest in small

business when he was administrator of the Small Business Administration. So it is sort of a family tradition and it is one that I follow with great pride and vigor.

During the last decade, we saw a period of great economic prosperity and it is my belief that in order for us to sustain that long

period of economic growth we must provide the financial resources

to businesses, particularly to small businesses, encouraging them

to move into emerging markets. Those are markets which have

greater risk, but I think they also will provide much greater opportunity and without us those exports would not go forward.

5

So, in short, we exist to encourage exports to emerging markets

and provide financial support in those markets where financial and

economic information is weak. Frequently, the private sector will

not fund exports to those regions because they do not have enough

information to judge whether the credit is good. But as a government entity working with other emerging market governments, we

have the kind of clout to ask for financial information, determine

whether the credit is good and move forward. It is one of our best

justifications. Last fiscal year, we supported $15.5 billion in exports. For every taxpayer dollar invested, we allowed $18 of exports to go forward.

We supported 2176 small business transactions, 86 percent of

those, of course, of all of our transactions were for small business.

Eighteen percent of our financing was for small business, 377 were

first-time users of the bank.

We saw remarkable increases in our two primary programs, the

Working Capital Program and the Insurance Program.

As the congressman mentioned, we saw a 25 percent decrease in

the amount of requested authorizations from last fiscal year to this

fiscal year and when I first heard that, I became very concerned

for the benefits of small business. We did an evaluation internally

and figured out that the risk premium that OPM sets up to measure the risk of a particular country or transaction had decreased,

which meant that we could use more of our program budget, so

when we took into consideration that we would be able to use less

of the program budget, less per transaction, which meant that we

could support more transactions, and then we added the cancellations in the previous years, sometimes exporters decide not to go

with something or there are not as many disbursements on a particular policy as expected, at any rate, that amount was about $90

million. So when we added the $633 million and the $90 million,

we figured out we had about $723 million to work with.

Insurance programs are zeroed out. They do not count against

the program budget, but the working capital and loan guarantees

do count against the program budget. So I asked all around the

bank about whether or not this decrease in program budget would

affect small business transactions and I have been assured that we

expect to be able to finance every single small business authorization next year.

That means that we do not anticipate increasing fees. We do not

anticipate reducing the amount financed for small business or in

any way affecting the financial support for small business. In short,

we expect to be able to fund all the small business transactions

next year.

We are continuing to push to let small businesses know more

about us. We have aggressive marketing campaigns. We have direct mail programs. We conduct seminars, conferences, we work

with established groups, we have city/state partners we turn to, the

TAP program for working with other organizations and associations. We particularly reach out to minority-owned businesses and

women businesses. We have people dedicated to this. In fact, a

number of full-time employees dedicated to small business in the

bank is about 112. The actual resources that get dedicated to processing small business applications and handling those processes is

6

actually substantially more, perhaps 50, 60, even higher percent of

our administrative budget.

At any rate, in our efforts to move forward, we rely on an administrative budget and we are asking for more of a share in an administrative budget to help us retain the high quality staff to carry

out our goals which are to reach out to more and more small businesses. And we would also like to look at improving some of our

systems so that we can automate a few things to take the kind of

more routine transactions, automate them and spend more time

providing the kind of services and programs and marketing efforts

to reach small businesses.

So, in short, in conclusion, while the global economy has changed

substantially since our inception in about 1930, our mission, which

we are going to stay true to, is to provide and sustain U.S. jobs and

we are going to do so by helping small businesses. I will go anywhere to help a small business, I will come to any conference, I will

speak to anyone. Please let us know how we can help. We really

appreciate your support and any kind of advice. We are doing a

good job, we can always do better, so we turn to you for any ways

in which we can do better.

Thank you very much. I would be happy to answer questions.

[Ms. Weaver’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much for your testimony.

Our next witness will be Joseph Waters. Mr. Watters is the

president of Hoffman International out of Piscataway, New Jersey

and he is the immediate past chairman of the Small Business Exporters Association.

Mr. Watters.

TESTIMONY OF JOSEPH WATTERS, PRESIDENT, HOFFMAN

INTERNATIONAL, PISCATAWAY, NJ

Mr. WATTERS. Good morning, ladies and gentleman. I appreciate

the opportunity to appear before this distinguished committee.

May I open by advising and repeating what the chairman just

told you, that I am appearing here wearing two hats. The first involves my position as president of Hoffman International, an 80-

year-old, 50-employee private New Jersey company, and a second

hat as a director and the immediate past chairman of the Small

Business Exporters Association.

I do not want to overstate the case, but I do want to assure all

the members of this committee that there exists no subject that is

closer to hearts, the minds and, yes, even the pocketbooks of small

business exporters than an adequate budget for the growing activities of the Ex-Im Bank. All of our association members, small businesses such as Air Tractor of Olney, Texas; Leawood Export of

Kansas; Transcon Trading of Irmo, South Carolina; MD International of Miami; Systems Integrated of Orange, California;

Princeton Medical of Marietta, Georgia; OMI of Versailles, Ohio;

and, yes, even Hoffman International of Piscataway, New Jersey

can and do become quite passionate about this subject.

Let me be clear, every one of our members is substantially dependent upon a competitive, efficient and viable Ex-Im Bank to

provide the financing assistance which is so critical for all of us to

7

compete and do business in the global marketplace. And that marketplace is not the same as it existed some 10, 15, or 20 years ago.

There was a time when the USA mousetrap was far and away

the best on the market. Today, mousetraps from Japan, China, Europe, Canada and elsewhere can compete very well. And while we

can enjoy enormous pride over the high value of the U.S. dollar and

it may reduce the cost of our overseas holidays as well, it also creates a much more competitive pricing environment today.

Today’s marketplace demands turnkey package pricing, including

competitive financing arrangements, providing a customer with

payout terms that can match its cash flow requirements.

Frankly speaking, without the Ex-Im source for providing this

kind of financing, a significant number of our members would simply have to fold their tents. It is just not possible to sell agricultural planes to Costa Rica, package hospitals to Mexico, or, in my

case, new and used construction road building equipment and

spare parts to Ghana without short and long-term financing which

are either guaranteed or insured by our Ex-Im Bank.

My company has been involved in exporting for the past 30 years

and I have personally observed a continued slippage of traditional

letter of credit sale terms to that of financed sales. For example,

at this moment, for Africa, our company is working on five to six

transactions involving approximately $8 million worth of forestry,

construction and road building equipment for clients in Cameroon,

Senegal, Mali and Uganda. In Latin America, we just completed

the sale of a used $270,000 crane based on a three-year loan for

Guatemala and have three similar transactions financed in Mexico.

In Russia, where our company delivered over $10 million of road

building equipment in 1995 and 1996, we are in the midst of finalizing new sales of approximately $3 million and see enormous potential in Russia for years and years to come.

All of these activities are supported by one or more Ex-Im Bank

finance programs. Emerging markets such as the countries I mentioned represent key opportunities for small business sales, but financing by our U.S. commercial banks is simply not possible in

those areas without Ex-Im’s support. Absent Ex-Im’s medium term

insurance, the crane built in Shady Grove, Pennsylvania does not

go to Guatemala. Without Ex-Im’s working capital medium term

bank guarantee, the new Mack Trucks from Allentown, Pennsylvania, the kilns from Bartlett, Tennessee and the forestry equipment from Franklin, Virginia are not moving to Ghana. And without the new Ex-Im program of accepting Russian bank guarantees,

machinery components from Madison, South Dakota are not moving to Kransogorsk, Russia where they are assembled with other

Russian made components for road patching machines that fix potholes.

With this new program alone, we can foresee the manufacture of

100 to 150 of these machines every year versus the 10 to 15 we do

now. The impact of all these increased sales on the economy of

Madison, South Dakota as well as the filtered-down effect across

the national economy is enormous.

Government statistics indicate an explosive growth in the export

sector by U.S. small businesses and yet still only 1 percent of all

such small firms are involved. The untapped dimension of small

8

businesses exporting is staggering and the potential contribution of

fuel to our economic engine is quite dramatic.

And with the current economy softening, these exports take on

an even added importance. And yet despite all this tangible, undeniable evidence of a dire need for an Ex-Im Bank that can handle

greater volume more efficiently and more competitively, we are

faced with an administration proposal that wants to reduce its

budget.

Frankly, all of our association members, whether Democrat, Republican or Independent, are quite dismayed when we hear the administration tell us how importantly it values the role of small

business and how vital it is for us to be in the global marketplace

and, at the same time, proposes to reduce the budget of a critical

organization that is already severely limited and working at full capacity. The contradiction of these positions is mind boggling to me

and my peers.

As president of a small exporting business and chairman of an

association of such firms, I not only encourage this committee to

overwhelmingly reject the suggestion of reducing the Ex-Im budget,

but rather find a way to increase it.

Thank you very much.

[Mr. Watters’ statement may be found in appendix.]

Chairman MANZULLO. Thank you very much. I appreciate the

way you mentioned the names of those towns. Did you notice how

members perk up when they hear their states that are mentioned?

We have a firm, Bergstrom Manufacturing, just bought out Kaiser-Westram that provides all the HVAC systems for Mack Trucks,

so I really appreciate that.

We have a vote coming up right now. I would suggest that we

take the vote and then come back. I think it is one vote, it is a general vote, so we are going to stand adjourned for a few minutes and

then we will be right back and start with your testimony, Mr. Barr.

[Recess.]

Chairman MANZULLO. I will call the committee back to order.

Our next witness is George Barr, who is testifying on behalf of

the U.S. Chamber of Commerce.

Mr. Barr, I look forward to your testimony.

TESTIMONY OF GEORGE BARR, FOUNDER, ANATECH, LTD.,

SPRINGFIELD, VA, REPRESENTING U.S. CHAMBER OF COMMERCE

Mr. BARR. Thank you. I appreciate the invitation to come and

testify today. I am a founder and part-owner of Anatech. We are

a systems manufacturing company. We basically are making scientific and production equipment used for modifying surfaces at

the molecular level. It is a little arcane, but I would also say that

I agree with both the introductory testimonies of the committee

and of the prior two speakers.

We started exporting in 1984. We were open about a month and

an order came in from Kuwait. We have seen sporadic orders over

the years that have helped us with revenues from time to time, but

I do want to touch on the Boeing Bank issue because that is something that I have heard many times as well and we happen to be

a supplier to not only Boeing, but to at least two known subVerDate 11-MAY-2000 08:26 Sep 26, 2001 Jkt 010199 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HEARINGS\73638 pfrm04 PsN: 73638
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contractors of Boeing and probably several third tier subcontractors

to Boeing. We have been selling systems for about 30 years, we

have over 5000 of them in the field. That includes domestically and

internationally. And these systems are in businesses in the U.S.

and overseas that are some of the largest businesses that you will

bump into. They are the Who’s Who of practically any business

that has a product as a part of its business, we are there. And so

a lot of our domestic business does go to support exports.

The subject today in my mind could just as well be expansion of

Ex-Im, how it could be made more competitive, rather than whether funding should be cut or it should be renewed. Ex-Im does a

great job in a number of areas. I will not go into all of them, but

one of them that has been particularly useful to Anatech was the

city/state program in Virginia that helped us get started with exporting. That was almost exactly ten years ago.

The Ex-Im Bank also recognizes the needs of small businesses,

that they are different than large business. And one example of

that, for instance, is the contract is a lot simpler, but we do not

have to get very expensive accounting help that would be at an audited level, as opposed to a reviewed level.

A few other things that may be important. My wife happens to

be Hispanic. She shares in the risk of the business, but she shares

in the rewards as well as I do believe that since we employ people

from—we are faceless, colorless, we are looking for people who can

get the job done and employ people from all different areas.

On a perspective a little broader than Ex-Im Bank, U.S. Government interagency coordination is an urgent requirement for positive results.

Congress passed in 1992 the Trade Promotion Coordinating Committee, legislation to create that committee. It requires the president to submit an annual export development plan to serve as a

comprehensive blueprint for federal trade development activities,

including strategy to coordinate federal programs and so on. And

it has been partially successful. I think that there is room for improvement there to cross over OPIC, Trade Development Agency

and Small Business Administration.

It is impossible for my small business to export more than minimally if I must fund exports internally with domestic cash flow. I

need an Ex-Im Bank or SBA program to turn exports to domestic

business so that our bank will fund that activity. We typically

would export between $150,000 and maybe $450,000 worth of product a year. It may not sound like a lot, but we are a $2.5 million

a year business, we employ anywhere from 10 to 15 people and we

have somewhere on the order of one to three people per year engaged directly in building systems and supporting systems for export.

There literally have been times when we might not have been

able to survive in a domestic downturn without the ability to export. I cannot say that strongly enough, so it is hard for me to

imagine how Ex-Im can function effectively with a decrease in

funding. I believe that it would be appropriate to see how much

more Ex-Im can do and what level of funding it takes to support

that effort.

Thank you.

10

[Mr. Barr’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

Our next witness is Sharon DeDoncker. Sharon is with AquaAerobic Systems, Inc., whose home is Rockford, Illinois, in the

midst of the great 16th Congressional District of Illinois.

Sharon, I look forward to your testimony.

TESTIMONY OF SHARON DeDONCKER, VICE PRESIDENT/

INTERNATIONAL, AQUA-AEROBIC SYSTEMS, INC., ROCKFORD, IL

Ms. DEDONCKER. Thank you for allowing me to come here today.

As mentioned, my name is Sharon DeDoncker and I am Vice President of Sales for Aqua-Aerobic Systems in Rockford, Illinois. Aqua

is a small business which manufactures water and wastewater

treatment equipment used for municipal sewage treatment plants

and industrial wastewater treatment plants. The company employs

140 and has annual sales of about $40 million.

To achieve growth in the international market, we have participated in local trade shows, conducted regional rep training sessions, and held in-country engineering seminars. As a result, our

company name is now more widely recognized; our representatives

are trained to respond to the growing number of inquiries we are

receiving; and the local engineers have confidence in our abilities.

We feel we are in an excellent position for international growth.

Our primary market is municipal sewage treatment plants in developing countries. Developing countries are sorely lacking in

wastewater treatment and want to improve their quality of life and

reduce the health risks caused by poor sanitation. Most are establishing guidelines and deadlines for the treatment of their wastewater and setting up agencies to monitor and enforce compliance.

For Aqua and the other wastewater equipment companies in the

U.S., this represents a huge, immediate growth market.

The biggest obstacle being faced by these municipalities is funding. They have a pressing need to build sewage treatment plants

and a desire to do so, but the funds are not there. U.S. companies

may do an excellent job of selling the municipalities on the superiority of our systems and equipment, but if we cannot bring the

project financing, these municipalities are forced to go to companies

that can.

Aqua is still in the learning phase of how to put together funding

packages for international projects and until we learn to do so, we

will not be able to expand our international sales.

We have met with our bankers, private financing agencies and

representatives of Export-Import Bank. We have learned that even

if we elect to offer financing through our bankers or private

sources, these organizations want the Export-Import Bank to guarantee the loan.

For example, we have been working on a project in a suburb of

Shanghai. We began working this project many years ago when it

was still in the early design stages and we have invested considerable time and money in providing design assistance to the engineers and the government officials. We have been careful to develop and maintain a relationship with all parties involved and feel

we are in an excellent position to sell our system.

11

The remaining obstacle we have to overcome on this particular

sale is offering an attractive funding package. We have taken this

project to our U.S. bank and a private financing agency and both

organizations have prepared quotes using Export-Import Bank

guarantees. Without the Export-Import Bank guarantee, neither

lender will be willing to take the risk and offer a financing package

to the buyer. Without this financing package, our chances of being

successful on this project are greatly reduced.

Other countries have agencies similar to the Export-Import

Bank, and these agencies are aggressively pursuing projects that

will benefit companies in their countries. Other countries rely more

heavily on their export business than the U.S. does. As a result,

they are more aware of customer needs and more aggressive in

meeting those needs. The U.S. is frequently seen as a latecomer to

this market and behind in having the tools needed to match our

foreign competitors. A key tool U.S. companies need is the financing package, and the Ex-Im Bank is our primary source for this.

Ex-Im still has work to do to be as visible and active as some

of the other foreign export credit agencies. We should be increasing, not cutting, their budget. They need additional funds in order

to be able to expand their offerings to a level that gives U.S. companies the same advantage as our foreign competitors.

U.S. funding, requiring Export-Import Bank involvement, of

overseas projects is not a luxury. It is a necessity if U.S. companies

want to work abroad. If the U.S. is not funding these projects, another country is and companies from the funding country will receive the orders and U.S. companies will lose out.

The Export-Import Bank fills a need of U.S. companies, large and

small, by providing export credit insurance, working capital guarantees, and loans and loan guarantees which help finance the sale

of U.S. goods and services to foreign markets. Last year, ExportImport Bank financed nearly $15.5 billion of U.S. exports worldwide, which supported more than 1 million U.S. jobs. It is a fallacy

to think that Ex-Im Bank works only with large companies, as

nearly 86 percent of Ex-Im Bank’s transactions in fiscal year 2000

were on behalf of small business.

The Ex-Im Bank offers real needed services to both large and

small companies. If the proposed budget cuts do go into effect, it

will be more difficult for Ex-Im to continue to support the efforts

of companies like Aqua Aerobic Systems.

The export market cannot be ignored. It represents great growth

potential and higher returns for U.S. businesses and more employment and higher quality, better paying jobs for U.S. employees. But

without the availability of financing packages, which means Ex-Im

Bank involvement, the participation of U.S. companies in this market will be restricted.

I urge you to reauthorize the programs of the Ex-Im Bank and

vote against any proposed budget cuts. Small businesses need the

support of the Export-Import Bank in order to survive in the international marketplace.

Thank you.

[Ms. DeDoncker’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

12

I have just instructed our staff to tell the people in the hall they

do not have to make so much noise. They think that they are not

going to get the money. [Laughter.]

You know, they show up around here and start circling the waters and we have to get them to—just tell them to cool it out there,

that, you know, they will have an opportunity to get their money

somehow.

Our next witness is Ken Petrilla, a senior vice president at the

Wells Fargo Bank and Wells Fargo HSBC Trade Bank.

You came out from San Francisco?

Mr. PETRILLA. Yes, I did.

Chairman MANZULLO. I appreciate that very much. Welcome to

Washington and I look forward to your testimony.

TESTIMONY OF KENNETH J. PETRILLA, SENIOR VICE PRESIDENT, WELLS FARGO BANK AND WELLS FARGO HSBC TRADE

BANK

Mr. PETRILLA. Thank you very much. Good morning, Mr. Chairman and members of the committee. I have bested my panel members a bit, two of them said that they were wearing two hats, I am

actually wearing three hats. I represent Wells Fargo Bank, Wells

Fargo HSBC Trade Bank, as well as BAFT, the Bankers Association for Finance and Trade.

Wells Fargo, I think, is a reasonably well known name. We are

headquartered in San Francisco and we are a diversified financial

services company that since its inception has been focused on small

to medium sized companies. The Trade Bank is a joint venture between Wells Fargo and the HSBC group and is the vehicle that

Wells Fargo uses to deliver international trade finance and trade

services. The Trade Bank is the only nationally chartered, FDIC insured bank in the U.S. that is devoted solely to international trade

finance. As part of my responsibilities, I manage the Trade Bank’s

export finance activities which are focused on small and medium

sized businesses in the United States. In addition, as I said, I am

also representing the views of the Bankers Association for Finance

and Trade.

Wells Fargo is one of the leading users of the Ex-Im Bank programs and particularly those of the small and medium sized businesses, and in particular, the Working Capital Guarantee Program.

Very briefly, the Working Capital Guarantee Program is a program that supports small businesses that cannot get enough working capital to build the widgets that they sell overseas. Ex-Im Bank

adds their guarantee which entices us to lend the money to the

small company to provide the financing to allow them to build their

product to sell overseas. This is a fully collateralized loan, usually

supported by foreign receivables and exportable inventory, but,

again, it is Ex-Im Bank’s guarantee that entices us to provide the

working capital.

Last year, Wells Fargo Bank made more working capital loans

guaranteed by Ex-Im Bank under this program than any other

lender and we are proud of this fact. This accomplishment allows

small exporters to do business they might not otherwise do.

The Trade Bank, our joint venture, is a little over five years old

and, in those five years, we have made working capital loans supVerDate 11-MAY-2000 08:26 Sep 26, 2001 Jkt 010199 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HEARINGS\73638 pfrm04 PsN: 73638
13

ported by Ex-Im Bank totalling about $180 million. The significance of that number is that these were all not only to small and

medium sized companies, but they were small loans. The typical

size of a loan of this nature is usually between $500,000 and maybe

$2 million, so you can see $180 million total supported a lot of

small companies.

In addition, we do other things in the Trade Bank, of course. Our

total of export loans supported by Ex-Im Bank, in addition to the

Working Capital Guarantee Program, totaled about $500 million in

our almost six years of existence. And, I can tell you that all of

these transactions were on behalf of small or medium sized businesses. Not one financing arrangement supported a large multi-national corporation.

I also want to point out that Wells Fargo does not look first to

Ex-Im Bank, only after we have exhausted our own in-house capabilities do look to Ex-Im Bank to help us mitigate the risk. Therefore, Ex-Im Bank is needed to make transactions happen that

might not otherwise happen.

A couple of examples would be appropriate, but because I do not

want to take too much time, let me just give one really good example. There is a San Diego-based company that is called Orgil International Greenhouses. It is 30 years old. Its total employment is 15

people. They have sales under $5 million. This year, we have financed three separate sales of greenhouses to Mexico. Each sale

was under $1 million, each individual buyer in Mexico asked for

five-year terms. We provided the financing and it was insured by

Ex-Im Bank under a medium term insurance policy. Again, that is

what motivated us to provide the financing. Without this coverage

and the risk of non-payment, the sale would have been lost, most

probably to an Israeli competitor.

We at Wells Fargo, HSBC Trade Bank, and BAFT question the

administration’s proposed 25 percent budget cut. We are fearful

that if this cut goes through it would damage the bank’s ability to

support small business and support the kind of transactions that

I have just explained. We do not think that they will be able to

handle all the applications that will come in fiscal year 2002. Any

reduction in support by Ex-Im negatively impacts small and medium sized businesses directly. Without the bank’s support, they

will have no alternative financing sources and thus will forfeit opportunities to non-U.S. companies.

Wells Fargo, the Wells Fargo HSBC Trade Bank and BAFT

strongly support the programs of Ex-Im Bank, specifically those directed to small business. In order to be certain these programs are

maintained and expanded, we would urge the restoration of the

budget cuts to at least the level equal to this year. I am happy to

hear my panel members ask for even more than that. That would

be wonderful.

I am pleased to provide this testimony and I am happy to answer

any questions. Thank you.

[Mr. Petrilla’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much for the excellent testimony of all the witnesses, especially the anecdotal testimony.

Mr. Shuster will have the first round.

Go ahead, please.

14

Mr. SHUSTER. Thank you, Mr. Chairman. My first committee

meeting, the first time I ask questions. This is a big moment for

me.

I also want to say the chairman mentioned when you were giving

testimony when you mention somebody’s district or something in

the district, their ears perked up. Well, mine certainly perked up

when I heard Shady Grove and those cranes. I want them to sell

a lot of cranes to Guatemala because Shady Grove Manufacturing

is based in the 9th Congressional District of Pennsylvania, so my

ears did perk up.

My question is to Ms. Weaver.

When you are talking about small businesses, I guess typically

it is based of size of employees or a sales figure, 500 employees or

less constitutes a small business? Is that what you are talking

about, under 500 employees?

Ms. WEAVER. Yes, Congressman. We use SBA’s definition of

small business.

Mr. SHUSTER. I would be interested to see under 500 the breakdown as to who is receiving what. In our district, 300, 400 is a

large company, so I would like to see if I could under 500 sort of

that breakdown and who is receiving what and how they are faring

in this program.

Ms. WEAVER. We will get that right to you.

Mr. SHUSTER. Okay. A second question I have, if I understand

your testimony, and I do not know how much you got into it, but

you supported $15.5 billion in transactions so a decrease of 25 percent is going to be pretty much dollar for dollar, there will be 25

percent decrease in what you will be able to support going forward?

I think I read in here 11.5 billion is what you will be able to support in transactions based on this new amount that they are going

to budget for you.

Ms. WEAVER. Yes. The latter part definitely is correct. Because

of the change in the risk premia being decreased, we will be able

to use more of our program budget and we will be able to add to

that $633 million requested from OMB, but, basically, you are

right. Yes.

Mr. SHUSTER. And the final question is—and you mentioned you

would be willing to go anywhere, what programs do you have out

there that small businesses can tap into to find out about your programs? I do not know in my district if there is that much knowledge of it.

Ms. WEAVER. We will get you a full list. We have city/state partners. We work with the TAP, the Trade Association Partners Association. We are happy to come to your district. We have regional

offices that will serve your area. We look for and participate in

women-owned, minority owned businesses, rural conferences. Any

opportunity that we believe will bring together anywhere from a

handful to even upwards of 10 to 100 small businesses. We will create a seminar, a program or participate in any kind of thing that

helps small businesses learn about Export-Import Bank.

Mr. SHUSTER. Would it be the best way to bring the banks together, local banks?

15

Ms. WEAVER. We also offer seminars and informational exchanges for banks and we are happy to work with any bank in your

area.

Mr. SHUSTER. Okay. Thank you very much.

Ms. WEAVER. Thank you.

Mr. SHUSTER. I appreciate everybody coming here today to testify. It was very enlightening. Thank you.

Chairman MANZULLO. Ms. Velazquez.

Ms. VELAZQUEZ. Thank you, Mr. Chairman.

Ms. Weaver, it seems based on the testimony presented here by

yourself and the rest of the witnesses here that it seems to me that

there is a special disconnect between the White House budget and

small businesses in America. On the one hand, you are saying that

you could live with a budget cut of 25 percent and we have to also

factor in the fact that the Small Business Administration is going

to be cut by 43 percent and then most of the other witnesses are

saying that that is not how we should proceed. If we are here committed to help small businesses, we need to provide every tool that

we can to strengthen and to help those small businesses flourish

in America.

So having said that, let me ask you the first question. The administration budget for the Small Business Administration has

proposed to eliminate all direct funding for the SBA’s 7(a) loan program, making up the difference through increased fees on small

businesses. This is of particular concern to me because from my understanding the Ex-Im Bank can unilaterally raise fees without

congressional action. Your written testimony is not clear on this

subject.

At one point, you indicate that the president’s budget suggests

raising fees as a possible way to meet a budget shortfall, but you

go on to say that you do not anticipate raising fees on small businesses.

Ms. Weaver, can you tell this committee definitively that the ExIm Bank will not raise user fees on small businesses next year to

offset any budget cuts?

Ms. WEAVER. We will not raise fees on small business transactions.

Ms. VELAZQUEZ. You will not raise fees?

Ms. WEAVER. Will not.

Ms. VELAZQUEZ. Well——

Ms. WEAVER. On small business transactions. I think that the

testimony that you alluded to references any kind of difference between the program budget and actual authorizations for the next

fiscal year.

On non-small business transactions, if there is not enough program budget, our new chairman, Chairman John Robson, is considering various kinds of alternatives, but I do not anticipate any

changes to small business fees. I would object to any changes. I do

not see any kind of change to increase small business fees.

Ms. VELAZQUEZ. I am glad to hear that.

Ms. Weaver, I am also concerned about the level of assistance

that the Ex-Im Bank provides to women-owned businesses. I understand that in fiscal year 2000 the bank provided $24 million in

working capital guarantees to women-owned firms. That is a record

16

high for the bank. However, this is significantly less than the $47

million in working capital guarantees that went to minority-owned

firms in the same year. Even more staggering is the fact that in

fiscal year 1999 only $1 million went to women-owned businesses.

How can this possibly happen?

Ms. WEAVER. Well, we have aggressive means of reaching out to

women-owned businesses and whatever we can do to reach out

more, encourage more women-owned businesses to take advantage

of the kinds of programs that we have, we will do.

We have gone to a number of different conferences. For example,

this year, we are going to go—— Ms. VELAZQUEZ. Ma’am, let me interrupt you for a second. There

are 9.1 million women-owned businesses in our country, so I want

to understand how you are reaching out and only $1 million has

been provided to help those women-owned businesses.

Ms. WEAVER. We want as many women as possible to come to us,

to take advantage of our programs. It is not that this is just the

amount that we are setting aside, this is the actual amount requested by women businesses. I would love to see that dollar figure

increase substantially. So what we try to do is we hold seminars,

conferences, we meet with as many people as possible to encourage

them to take the risk of exporting to other countries. We will step

in, we will talk to people, we will help them understand.

It is not that we are limiting it. We are trying to encourage more

women businesses to take insurance policies and to apply for working capital guarantees.

Ms. VELAZQUEZ. What type of action plan will you have in place

in order to reach out to those women? Because I do not understand,

whatever plan you put in place to reach out to women-owned businesses, how could you achieve that when you are asking for 13 percent less in funding?

Ms. WEAVER. Well, the amount for reaching out to women-owned

businesses actually comes out of our administrative budget and we

are going to ask for more money this year. So the amount of money

that we will spend reaching out to small businesses, the kind of resources that we are going to use to reach out to women-owned businesses will not decrease, it will increase.

We have regional offices. We try as much as possible to use our

225–entry exporter database which has prospective businesses who

may be interested in exporting. We try to send them literature, we

try to organize conferences, we call them up. Last year, our regional offices reached out to—let me give you some interesting figures. We actually called about 30,000 people. We paid 3000 office

visits. We did a lot of direct mail.

Ms. VELAZQUEZ. Mr. Chairman, if you will allow me another—

well, I will come back. I have not finished. I will come back with

you, Ms. Weaver.

Ms. WEAVER. Okay.

Mr. SHUSTER [presiding]. Thank you, Ms. Velazquez. We have a

number of other people lined up here.

Mr. Davis, I believe, is next.

Mr. DAVIS. Thank you very much, Mr. Chairman.

I see the chairman has left. I wanted to tell him the reason that

the people were so noisy is they were afraid that the money was

17

going to run out before it got to them, but I will let him know when

he returns.

Let me also welcome Mr. Shuster to this committee.

It is a pleasure to see you and to be with you on your maiden

voyage.

Let me also appreciate all of the witnesses. I certainly listened

rather intently to your testimony.

And I must confess, Ms. Weaver, that I was somewhat trying to

reconcile your testimony with that of the other witnesses in terms

of the recognition of need for resources.

Are you suggesting that the risk of doing business in the countries that we are exporting to has decreased and as a result of that

risk the insurance premiums are not as high and therefore we are

going to have more money to actually lend to businesses?

Ms. WEAVER. Sort of. OMB has determined that for this fiscal

year the value or the calculation of those risk premia will decrease,

so that means that our country portfolio, in their estimation, will

decrease in terms of the value of the risk against the program

budget. It does mean that we will be able to stretch those program

budget dollars farther next fiscal year than this fiscal year.

Mr. DAVIS. I was just in Nigeria the week before last and I ran

into a young woman from the Export-Import Bank who was there.

Of course, I did not see how anything was decreasing in terms of

risk. They were in rather difficult shape, no traffic signs, no traffic

lights. I mean, how you can do anything in a city as big as Lagos

and have no traffic signs and all—but that is kind of an aside. But,

yes, I was pleased to see her and she was indeed engaged even

with some of the people that we visited because we spend a great

deal of time with the governor of the state and it was just good to

see her there.

Ms. WEAVER. Great. Thank you.

Mr. DAVIS. The question that I have is really to other panel

members. It seems to me that each one of you have sort of indicated—and I am a strong supporter of the Export-Import Bank. I

mean, there are some people who suggest that it is a subsidy for

big businesses and all kinds of other things, but it seems to me

that in order to penetrate these markets and to be able to do business we need the assistance that the bank provides relative to absorbing risk that other institutions may not want to absorb all of

without some guarantees.

Do you have any ideas of how your thoughts about this seem to

be so different rather than that of the White House or that of the

budget preparers or that of those who are recommending that we

not have as much in the way of money and that is not the case

with you?

Mr. PETRILLA. I will try to respond to that. In our business portfolio, only about one-third of all of our export finance business we

do is supported by Ex-Im Bank in some way, shape or form. So

that means two-thirds of our business of providing export finance

is funded by ourselves with our taking the risk or working with

private sector underwriters. There is a great deal of capacity in the

private sector market, so therefore I think I am answering your

question, I hope I am, there are plenty of techniques to provide assistance to support exports without Ex-Im Bank, but, indeed,

18

where we need Ex-Im Bank it is absolutely essential because the

private market is closed, or our own internal appetite is such that

we will not take that risk, and so the transaction will not happen

without Ex-Im Bank, even though there are a great many transactions being done without Ex-Im Bank.

Mr. DAVIS. Anyone else?

Mr. WATTERS. I would just say this to you, sir, with respect to,

I guess, the contradiction between Ms. Weaver and myself or our

testimony, the four of us, relative to the reduction and what it

means to Ex-Im Bank, to me, I think, and maybe perhaps I do not

understand all of the nitty grit of the Ex-Im Bank budget, which

is about a 10–page document with lots of different line items, but

frankly speaking when I hear any organization where it is suggested that their operating budget would be reduced 25 percent, it

seems to me that that is going to hurt the organization in some

way, form or fashion. I mean, you just cannot work the same way

when you are only receiving 75 percent of what you had the previous year.

I also think it is a very bad signal to the business community of

America in terms of trying to encourage exporting, which is so important, I think, to today’s economy and tomorrow’s economy as

well.

What does it mean to the future if you reduce the budget this

year from 100 to 75? What happens next year? Are we going to be

back at the table looking to increase in case OMB comes up with

different numbers or different calculations? And is that going to be

a problem?

And I guess, finally, I would say if there is some room in the ExIm budget because of this calculation of risk, how else could we use

those funds to enhance or increase programs that Ex-Im has developed over the years?

You talked about Africa. I think Ex-Im has been a leader in

opening sub-Saharan Africa marketplaces like Nigeria and Senegal

and Gabon and Ghana and those areas that for a company like

ours are very, very important. Totally new markets for us that I

never, frankly, never thought that we would involve our company

in those markets. And now we are there and there is enormous potential for us. Similarly in Russia, as I mentioned in our comments.

Chairman MANZULLO. Thank you very much.

Mr. DAVIS. I know that my time is up.

Chairman MANZULLO. Thank you.

Mr. DAVIS. I thank you very much.

I think you missed my comment while you were gone. I was just

sharing that perhaps the reason there was so much consternation

outside is because people were afraid that the money would run out

before the appropriations got to them.

Chairman MANZULLO. That is a good thought.

Congressman Christian-Christensen?

Ms. CHRISTIAN-CHRISTENSEN. I did not realize I was going to get

a chance to ask any questions.

I thank the panelists for being here.

Several of you have said in your testimony that the Ex-Im Bank

is not aggressive enough and that the credit agencies in the foreign

countries are more aggressive. Can you elaborate on that, anyone?

19

Ms. DEDONCKER. I will make a comment. A lot of the projects

that we run when we are promoting our systems overseas, we find

out that there are a lot of commerce department—the equivalent

commerce departments of other countries that are there and they

say when they come they bring funding from the French, from the

Japanese, from the Germans or whatever, and we very rarely hear

them say that the U.S. has been there offering a promotion with

special funding. Or you will see that they are offering special

projects that might have ten-year funding where it is difficult for

us to get that.

I would like to see Ex-Im Bank have more programs that would

be—where they are doing the marketing instead of our companies

bringing the projects to Ex-Im Bank, you have Ex-Im there on site

with people that are promoting to the municipalities or the industries there, the larger industries, saying, hey, the U.S. is also here

and we can finance our companies. Or there are special projects

like the environmental projects, special programs for them where

they are funding ten years on environmental projects. There could

be more programs like that for other industries.

Ms. CHRISTIAN-CHRISTENSEN. I definitely agree with you. I come

from the Caribbean. I represent the Virgin Islands. We are not

really considered a developing country, but we have a lot of wastewater treatment needs and I know the rest of the Caribbean does

as well.

Ms. Weaver, when I came in, I think you were outlining how

many staff you had who were dedicated to small businesses. Is that

an adequate number of staff? And you said you were going to increase your administrative budget; would there be any increase in

staffing to meet the needs of small businesses?

Ms. WEAVER. Well, you know, I would always like to see more

staff and more resources being applied to small business. We have

asked for $3 million more in our administrative budget to keep hiring the kinds of persons who are very aggressive and very interested in bringing women-owned, minority-owned, environmentally

important small business opportunities to us so that we can help

finance them.

A lot of the increase in our program budget this year will go to

assessing and helping us automate programs to free up some time

for people to spend more time marketing.

So, in short, we try to work with what we have. Obviously, a lot

more would be great also, but I think spending the time that we

have, again, we have regional offices, we have a staff who cares

deeply about bringing in small business and making sure that we

attend to them and that we provide them with the kind of financing solutions they need.

I think a lot of small businesses fear exporting, particularly to

emerging markets. A lot of them do not know about us and we are

trying very, very hard to let them know that we are here and we

want to finance them.

Ms. CHRISTIAN-CHRISTENSEN. How does a business get on your

database? Is that what you use to share information and do outreach? How does a business get on your database?

Ms. WEAVER. In large measure, we turn to a number of different

sources to find out who is interested in exporting and who has been

20

exporting from the Department of Commerce and other government

agencies to local sort of representatives, we call them city/state

partners. A lot of them are on the ground in local areas so they

know the markets, they know the businesses, they know how to get

in touch with them and they let us know sort of who is out there.

Ms. CHRISTIAN-CHRISTENSEN. I think that would—— Ms. VELAZQUEZ. Ms. Christian-Christensen—she has some

time—would you please yield to me?

Ms. CHRISTIAN-CHRISTENSEN. Certainly.

Ms. VELAZQUEZ. Ms. Weaver, you know, the budget negotiations

are not over until it is over, right? So are you prepared to tell me

in front of these small business people that a 25 percent cut is fine

with you, that we, members of Congress and especially members of

the Small Business Committee, today that we should fight to see

that funding restored because it is fine?

Ms. WEAVER. Well, I do not see us as on different sides of this

question. Internally, when I found out that there would be a 25

percent reduction, I was very, very concerned and I did not think

personally that I could support a reduction. In fact, I would have

preferred more. But, unfortunately, that is not what happened. So

internally, I had to fight for small business to ensure that the program budget that we got would not impair in any way small business.

Ms. VELAZQUEZ. Please, Ms. Weaver, answer my questions. Tell

me today if we, the members of this committee, should not fight to

restore the 25 percent cut. Yes or no, should we fight or not.

Ms. WEAVER. I believe that you should continue to fight for small

business in any areas—— Ms. VELAZQUEZ. No, I am talking about your budget, ma’am.

Ms. WEAVER. My belief is that our budget will be completely sufficient to handle any small business request. I am not saying that

there are small businesses that will not be taken care of, I am saying that any small business that comes to us and asks us for

money and it is an approved transaction, we will do it.

Ms. VELAZQUEZ. You answered my question. Thank you.

Ms. WEAVER. Thank you.

Chairman MANZULLO. Could I answer that?

Ms. VELAZQUEZ. Sure.

Chairman MANZULLO. I will join you in a fight.

Our next member is Congressman Acevedo-Villa.

Mr. ACEVEDO-VILLA. Good morning. I am also a little bit confused with the numbers. I just want to be clear. You are not saying

that nobody is going to be hurt. The way I understand you, the way

you responded to Congresswoman Velazquez’s question is that the

small business sector program is not going to be affected. Is that

what you are saying?

Ms. WEAVER. That is correct.

Mr. ACEVEDO-VILLA. And, for example, to another question she

made, in terms of fees to the small business, you are not going to

raise fees to the small business.

Ms. WEAVER. That is correct.

Mr. ACEVEDO-VILLA. But the bank might raise fees to others.

Ms. WEAVER. Yes. My large concern is that in the event that we

run out of program budget for larger transactions, in the event that

21

they turn to other small businesses as sub-suppliers, my concern

is that they may be affected. So Congresswoman Velazquez’s interest in this may affect an indirect kind of application to small businesses but if small businesses come to us and ask us for a working

capital guarantee or an insurance program, we will evaluate that

project and move forward with it and I anticipate that there will

be no problem with approving and financing any authorization.

Mr. ACEVEDO-VILLA. In terms of small business, last year they

represented 18 percent of your lending levels, way above the 10

percent.

Ms. WEAVER. Yes.

Mr. ACEVEDO-VILLA. What is your estimate based on this budget

for next year?

Ms. WEAVER. Well, that is a good question. It is very hard for

us to estimate. I think it is going to be approximately the same.

Maybe little higher.

Mr. ACEVEDO-VILLA. Eighteen?

Ms. WEAVER. I hope higher. Yes.

Mr. ACEVEDO-VILLA. You said that you estimate you can support

11.4 billion in export credit authorizations for year 2002. What is

that number for this year and for last year?

Ms. WEAVER. Well, we anticipate that this year the number will

be—I will get you the exact number. I think it is going to be—in

fact, I may have it here. Next year we anticipate the range will be

between 11.9 and 14.4 with the mid range at about 12.5. So in the

event that the projected authorizations, that range, meets the actual authorizations, then we may have a deficit, a reduction, a differential between the program budget and the amount that is actually requested.

Mr. ACEVEDO-VILLA. No, that was not my question, not what actually was requested. You said that the bank estimates based on

the budget numbers for 2002, I am reading on page 6, that you can

support about 11.4 billion in export credit authorizations.

Ms. WEAVER. Right.

Mr. ACEVEDO-VILLA. That is for year 2002.

Ms. WEAVER. That is right.

Mr. ACEVEDO-VILLA. What is the number for year 2001 and for

year 2000? The actual numbers. So we can compare.

Ms. WEAVER. Let me see. The actual number for fiscal year 2001 is $10.9 billion in authorizations.

Mr. ACEVEDO-VILLA. So even with the 25 percent reduction, you

still are projecting an increase in terms of export credit authorizations?

Ms. WEAVER. Right. And that is because of the decrease in the

risk premia. I may not have explained this very well. OMB has decided that the way that we evaluate the use of that——

Mr. ACEVEDO-VILLA. So I have to conclude that the decrease is

more in terms of—the risk is more than 25 percent. That is the

only way it can add up.

Ms. WEAVER. What it means is that the—— Mr. ACEVEDO-VILLA. That is a number we do not have here. Because OMB calculated risk premia for fiscal year have substantially decreased.

Ms. WEAVER. Right.

22

Mr. ACEVEDO-VILLA. But for me then the only answer is that it

has decreased for more than 25 percent. That is the only way you

can——

Ms. WEAVER. In fact, it probably has. It probably means that in

actual terms that that 25 percent is more in the teens, in the 15

or so percent. What it means is that our program budget dollars

will go farther.

Mr. ACEVEDO-VILLA. Okay. Do you have any special program in

terms of exports to the Caribbean?

Ms. WEAVER. We do. We have a special program to focus on both

sub Saharan Africa and the Caribbean. We are very interested in

promoting experts from the U.S. and certainly Puerto Rico. In fact,

I am going to Puerto Rico.

Mr. ACEVEDO-VILLA. Yes, I know.

Ms. WEAVER. In about a week or so to try to encourage Puerto

Rican businesses to export. A great market for them, obviously, is

the Caribbean.

Mr. ACEVEDO-VILLA. Thank you.

Chairman MANZULLO. Thank you.

Mr. Pascrell?

Mr. PASCRELL. I have a few questions, Mr. Chairman. The appropriations being slashed 25 percent down to $633 million, that represents the second highest budget cut in the entire

federal government, only superseded by the 43 percent to the entire

small business budget. I am sure I am not telling you something

you do not already know.

I find that to be unacceptable, right, Mr. Chairman?

Chairman MANZULLO. Yes, I will fight with you. I agree. We may

have to get in line out there and make noise, Bill.

Mr. PASCRELL. We will. We will.

The Export-Import Bank will provide $11.4 billion in lending for fiscal year 2002 and that represents a $2 billion cut in the amount

of capital available.

Are my figures correct?

Ms. WEAVER. $2 billion from—the midpoint of our projections for

fiscal year 2002?

Mr. PASCRELL. Yes. 2001.

Ms. WEAVER. You mean the amount that we expect to authorize

in fiscal year 2002?

Mr. PASCRELL. I am talking about what we—yes.

Ms. WEAVER. We anticipate that the amount that we will authorize, the projected authorizations will be between 11.9 and 14.4.

Mr. PASCRELL. We are looking a pretty steep cut even though—

I think we have been struck by your—I do not mean cavalier response, but your ho-hum response. That is a little less sharp. I did

not mean it to be sharp. Because, you know, we are dealing here

with people’s lives. We are talking about jobs here, we are not simply talking about money being exchanged. You know, the 7(a) loan

program which has been eliminated in the small business budget,

that is the program where all export working capital guarantee

programs are financed.

We are talking about a big amount of money here in terms of it

being very productive within the marketplace, having a lot of success, a lot of success. And our concern—and I know that you are

23

trying to communicate to us that there are ways to compensate for

that other than fee increases or new fees, and I take you at your

word, but nonetheless we are very, very concerned and you should

know that we feel that this has been a very, very productive program, as other small business programs, programs affecting small

business, and we want—we would like to hear, I guess, more of an

aggressive approach on your part so that no one in the administration minimizes the role of the Export-Import Bank.

This is not corporate welfare, this is helping folks. We want to

get that 18, 19 percent figure up in terms of how much we assist

small businesses rather than large corporations which have been

mostly the beneficiary of the programs and yet we are moving in

the right direction along those lines.

Let me ask you this question. What is the relationship of the Export-Import Bank with regard to the trade zones that exist in many

of our states?

Mr. Watters.

Mr. WATTERS. Actually, sir, you know, there is a trade zone in

New Jersey, up in Mount Olive, but I think the trade zones, frankly, are dealing with imports.

Mr. PASCRELL. Right.

Mr. WATTERS. In which products are imported to this country

and then are able to be frozen in a free trade zone until they are

either improved or prepared for sale within the United States market.

Mr. PASCRELL. Should there not be a connect between what you

are doing and those zones in terms of a two-way street? What do

you think?

Mr. WATTERS. Well, I suppose what you are suggesting, could

there be trade zones for our products, U.S. made products, in foreign countries? Is that where you are leading with that?

Mr. PASCRELL. That was part B.

Mr. WATTERS. Okay. Well, I think that certainly would be an advantage for us, to be able to put USA made products in various foreign countries, pending sale to another customer. I mean, it would

avoid the payment of customs and other formalities in foreign countries. How that could be affected, I am not sure.

Mr. PASCRELL. Should that not be part of our trade policy? I

mean, you know, manufacturing jobs become less and less in America, we have exported those jobs, manufacturing jobs, to many

countries throughout the world and it would seem to me if we lose

any more of our manufacturing base we will not be able to sustain

the present economy. And, therefore, I would think that we would

look to the benefits and we would look to the positive aspects of the

Export-Import Bank so that we can produce a greater market for

our manufactured products. Why one hand does not watch what

the other is doing is beyond me.

Mr. WATTERS. I could see where this, you know, the trade zone

policy with respect to foreign countries as we have here in a limited

way would be beneficial in the overall picture to U.S. trade. Whether or not it is the role of the Ex-Im Bank to involve itself in that

issue is another question, sir.

Mr. PASCRELL. Well, I was suggesting a proactive part on the Export-Import Bank. I was suggesting that there is a two-way street

24

here and we are going to be dealing with trade issues, we are going

to be dealing with trade issues in the near future and we want a

two-way street. We want reciprocal trade agreements that impact

positively on the marketplace right now. And I would just throw a

suggestion, one quick final question.

We have two banks in New Jersey that are delegated as authority lenders. They are Summit Bank and First International Bank.

Are the number of banks in the states that are part of the ExportImport Bank process, is that determined by population? How is

that determined? I mean, why are there two banks in New Jersey

and five zillion banks in New York?

Ms. WEAVER. I think it is a matter of their interest in becoming

delegated lending authority lenders. We are happy to go there and

encourage them to become delegated authority lenders. I am happy

to reach out to them.

Mr. PASCRELL. So in other words, if there are more banks that

communicate with you that are interested in becoming part of the

Export-Import Bank they would be more than welcome.

Ms. WEAVER. We would look forward to it.

Mr. PASCRELL. Thank you, Mr. Chairman.

Mr. SHUSTER. Thank you.

The chair recognizes Ms. Tubbs Jones.

Ms. TUBBS JONES. Good afternoon. I have submitted a statement

for the record.

[Ms. Tubbs Jones’ statement may be found in appendix.]

Ms. TUBBS JONES. I apologize for my delay in getting here to all

the witnesses. Thank you for hanging around for me to be the

last—may I am not the last, but next to the last.

I am concerned. I sit on the Banking Committee as well as the

Small Business Committee and it is important for small business

to have access to the programs that are available through Ex-Im

Bank. I suppose the question I would ask is with a 25 percent cut

in the budget, how have you prioritized who or what will take the

hit?

Ms. WEAVER. I am sorry.

Congresswoman, we do not expect any group to take a hit, which

is to say that if a small business asks us to finance an export, we

will evaluate it and if approved we will finance it.

Ms. TUBBS JONES. Okay. Let me ask my question in a different

fashion, then. I have $100 to buy groceries last week. This week,

I only have $75 to buy groceries. I have to decide what I am not

going to buy in light of the fact that I have $25 less. Ex-Im has

$100 to buy groceries. Under this budget you now have $75. What

are you not going to buy?

Ms. WEAVER. For our small business budget, there is not that decrease. It is still $100.

Ms. TUBBS JONES. So you are saying that even though Ex-Im experienced a 25 percent budget cut, that the small business budget

is not going to be cut by 25 percent?

Ms. WEAVER. That is correct.

Ms. TUBBS JONES. How much is it going to be cut by?

Ms. WEAVER. I am saying that it will not be. I am saying——

25

Ms. TUBBS JONES. So you are saying for the record that there

will be no cut in the dollars available to small business in this upcoming year.

Ms. WEAVER. That is correct. And——

Ms. TUBBS JONES. And I can take that to the bank, right?

Ms. WEAVER. Yes. We argued internally that if there was going

to be a cut to the bank as a whole that small business not suffer.

Ms. TUBBS JONES. Well, that is good to know.

My colleagues want to follow up. I will yield for a moment.

Yes, ma’am?

Ms. VELAZQUEZ. No, I just would like to hear their interpretation

of her statement regarding that.

Mr. PETRILLA. May I respond to that?

Ms. TUBBS JONES. Yes, you may.

Mr. PETRILLA. From our point of view as a bank that is doing

this kind of business, we would aggressively fight any cut in the

existing budget of Ex-Im Bank. How we see it at the ground level

is not that there is going to be a cut in this program or that program, but what happens is we have transactions that come in and

we cannot get an authorization from Ex-Im Bank because they

have no authorization left at the end of the fiscal year. That transaction is going to go away or more practically speaking on the administrative side transactions do not get handled in an efficient

and timely manner, so they go away. They are lost to competition

or the exporter gets frustrated and pretty soon he is not selling

overseas or she is not selling overseas and that business goes away.

So without pinpointing program by program, we as a bank that

funds international exports and uses Ex-Im Bank extensively, we

would be extremely disappointed to see any budget cut. Overall, it

is going to slow down the process and the business.

Ms. TUBBS JONES. My next question——

Go right ahead, Mr. Watters.

Mr. WATTERS. I will just echo my fellow panelist’s comments. As

I said before, I think it is a very bad signal to exporters of this

country that you are reducing the Ex-Im Bank’s budget by 25 percent. That is not a good signal or a good sign for us. If these funds

could be used in a different way, increasing the staff to expedite

the processing of export transactions through the bank would help

enormously. I have a saying within my own company, time kills

deals. And when you make applications in to the Ex-Im Bank, and

they are working at full capacity now, but it takes a month or six

weeks to get approvals, to get things done, that can kill a deal, particularly for a small business.

Ms. TUBBS JONES. Well, if I gave you $100 one week and the

next week I gave you $75 to go to the grocery store, you would be

in trouble, would you not?

Mr. PETRILLA. Yes, ma’am.

Ms. TUBBS JONES. Okay. Thanks.

Let me go ask another question of you, Ms. Weaver. What types

of technical assistance does Ex-Im offer now will you continue to

do this in the face of the budget cuts for technical assistance, working their way through the process, businesses working their way

through the process?

26

Ms. WEAVER. We have actually asked for an increase in our administrative budget to ensure that any of the kinds of outreach

programs and marketing programs are not affected in a serious

detrimental way.

Ms. TUBBS JONES. You have asked for an increase in your administrative budget to compensate for the decrease in the dollars available otherwise?

Ms. WEAVER. Well, no. What we did is we asked for an increase

in the administrative budget so that our staff could continue to

reach out to businesses and let them know about Ex-Im Bank and

to process their applications when they came in. We think we will

have enough—we know we will have enough on the program budget side to support small businesses when they ask us for financing.

Ms. TUBBS JONES. I am going to give you my $75 to work with

since you can work magic like that.

I yield the balance of my time, Mr. Chairman.

Mr. SHUSTER. Thank you, Ms. Velazquez.

Ms. VELAZQUEZ. Thank you, Mr. Chairman.

Mr. Petrilla, some opponents of the Ex-Im Bank have argued

that the proposed cuts in the budget will provide an opportunity for

private insurers to play a larger role in the export market and they

also argue that because private insurers do not have U.S. content

requirements their policies are more flexible.

In your opinion, are there private insurers out there who are

champing at the bit to make these deals for small businesses?

Mr. PETRILLA. In other words, that private insurers would like

to see the 25 percent budget cut?

Ms. VELAZQUEZ. Sure.

Mr. PETRILLA. No, I do not believe that at all. I think that private insurers are aggressively underwriting cross-border risk and

they see a significant role for themselves, but they also see a significant and important role for Ex-Im Bank. When private underwriters will not mitigate the risk because of the country, term or

other considerations, this is the role of Ex-Im Bank. I do not think

that they would be licking their lips saying, wow, this is going to

give us more business. They are—there is a lot of capacity in the

underwriting market, they are writing a lot of business. I think

that the overall U.S. Exporters need to be supported by a vibrant

consistent export credit agency and that is to their benefit as well.

Ms. VELAZQUEZ. So who in your opinion will fill the gap left by

the 25 percent cut and provide the export credit insurance that will

allow small businesses to compete in the international market?

Mr. PETRILLA. I do not know if the gap will be completely filled,

if that happens, at all. Transactions will go unfinished. They will

not get done. And more and more manufacturers may consider

manufacturing overseas where they can get other export credit insurance support or they will simply lose to competition. I do not

think the gap will be filled.

Ms. VELAZQUEZ. Mr. Watters, would you like to comment on

that?

Mr. WATTERS. With respect to—I do not have that much experience with private insurance, although I have some, they generally

follow the lead of the Ex-Im Bank. I mean, really, they are not participating in some of these, for example, these sub-Sahara areas.

27

We would not be able to do the deals that we are doing in some

of the countries that I mentioned based on private insurance companies. So I would have to agree with my fellow witness here that

the gap would probably not be filled and we would not be able to

do the deal. The deal would be lost.

Ms. VELAZQUEZ. Ms. DeDoncker.

Ms. DEDONCKER. I really cannot comment on the private insurers

but it seems like we are talking about keeping everything even and

this is a time when we should be adding new programs, becoming

more aggressive rather than keeping the status quo of what it has

been in the past when maybe export has not been as important as

it is now and will be in the future.

Ms. VELAZQUEZ. Thank you, Mr. Chairman.

Mr. SHUSTER. Thank you.

Mr. Davis, do you have any further questions?

Mr. DAVIS. For the Export-Import Bank, what is the cap for

small businesses?

Ms. WEAVER. There is no cap.

Mr. DAVIS. So when you say small business, I mean, what is a

small business? When do you stop being a small business?

Ms. WEAVER. We use the SBA definition.

Mr. DAVIS. All right.

Ms. WEAVER. With respect to the insurance programs, we expect

no decrease or a gap in insurance because our insurance programs

do not come out of the program budget, so the program budget can

be cut or increased dramatically and it would not affect the insurance program, so we will continue to do the full scale insurance

programs and provide policies to small businesses who request it.

Mr. SHUSTER. Thank you.

Further questions?

Ms. VELAZQUEZ. Seems like there is two different interpretations

here, one from the small business bank and the Export-Import

Bank.

Thank you, Mr. Chairman.

Mr. SHUSTER. Thank you.

I think it is pretty clear from the questioning today that many

of the members of this committee will fight to see increased funding for this program.

Ms. VELAZQUEZ. I am not going to do anything. She is saying

that it is fine.

Mr. SHUSTER. Well, again, we have the ability to weigh in on

this.

Again, I want to thank all the witnesses for coming out today.

We certainly appreciate you taking the time and sitting before us

and giving us the information you have. Thank you very much.

The committee meeting is adjourned.

[Whereupon, at 12:00 noon, the committee was adjourned.]

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