U.S. GOVERNMENT PRINTING OFFICE

59–744 WASHINGTON : 1999

WHAT HAS OPIC DONE FOR SMALL

BUSINESS LATELY?

HEARING

BEFORE THE

SUBCOMMITTEE ON

TAX, FINANCE, AND EXPORTS

OF THE

COMMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

WASHINGTON, DC, MAY 18, 1999

Serial No. 106–13

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

MICHAEL P. FORBES, New York

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

JANICE SCHAKOWSKY, Illinois

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

DONALD A. MANZULLO, Illinois, Chairman

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

PATRICK J. TOOMEY, Pennsylvania

CAROLYN MCCARTHY, New York

RUBEN HINOJOSA, Texas

CHARLES A. GONZALEZ, Texas

GRACE F. NAPOLITANO, California

PHILIP ESKELAND, Senior Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on May 18, 1999 ............................................................................... 1

WITNESSES

Munoz, George, Overseas Private Investment Corporation (OPIC) .................... 2

Dauffenbach, Jane, Aquarius Systems .................................................................. 5

Rajadhyaksha, Vikram V., DLZ Corporation ........................................................ 8

Silverman, William, The First Republic Corporation of America ........................ 10

Herbert, William J., Johnson March Systems, Inc ............................................... 12

Bowe, Peter A., Ellicott International .................................................................... 13

APPENDIX

Opening statements:

Manzullo, Hon. Donald A ................................................................................. 27

McCarthy, Hon. Carolyn .................................................................................. 28

Prepared statements:

Munoz, George .................................................................................................. 29

Dauffenbach, Jane ............................................................................................ 42

Rajadhyaksha, Vikram V ................................................................................. 51

Silverman, William ........................................................................................... 54

Herbert, William J ........................................................................................... 56

Bowe, Peter A ................................................................................................... 58

Additional material:

Overseas Private Investment Corporation 1998 Annual Report .................. 63

Post-hearing questions submitted to The Honorable George Munoz, President and CEO, OPIC, by Subcommittee Chairman Donald A. Manzullo 104

Answers of The Honorable George Munoz, President and CEO, OPIC,

to post-hearing questions submitted by Subcommittee Chairman Donald A. Manzullo ............................................................................................. 106

Letter to Subcommittee Chairman Donald A. Manzullo from J.H.

Wertheim, President, Tea Importers, Inc ................................................... 127

Legislative Text of H.R. 1993, The Export Enhancement Act of 1999 ........ 129

(1)

WHAT HAS OPIC DONE FOR SMALL BUSINESS

LATELY?

TUESDAY, MAY 18, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS, COMMITTEE ON SMALL BUSINESS, Washington, DC.

The Subcommittee met, pursuant to call, at 3:03 p.m., in room

311, Cannon House Office Building, Hon. Donald A. Manzullo

(Chairman of the Subcommittee) presiding.

Chairman MANZULLO. The Subcommittee will come to order.

Today, the Subcommittee will open its trade agenda by examining

the Overseas Private Investment Corporation or OPIC. OPIC is not

an oil cartel, but it is a small specialized agency with a narrow focused mission helping to protect U.S. foreign investment abroad

that contributes to job growth in this country. Over the years,

OPIC has been unfairly attacked as an agency that helps only

large Fortune 500 companies. We are here today to specifically examine that charge and to learn more of the efforts of OPIC to reach

out to more small businesses.

Just a few years ago, only 10 percent of small businesses exported. Now, about 25 percent of small businesses have entered the

export arena. The next step in their growth is developing more of

an overseas presence. OPIC can play a crucial role in protecting

foreign investments of small business exporters from political risk.

Unlike larger companies, small business exporters cannot pack

up their bags and relocate operations overseas to take advantage

of foreign equivalents to OPIC. There are 36 nations that have programs similar to OPIC. Just like OPIC, most of these nations have

local content requirements. If forced to, large U.S. multinational

corporations can pick and choose from various foreign government

export credit insurance programs. But the work and the jobs, then,

are transferred overseas. Small business exporters do not have this

luxury. OPIC is needed to maintain the competitive edge of these

small business exporters in the United States. OPIC does all this

at no cost to the taxpayer. That is good news in light of the vote

that is coming up in about 2 hours today.

Last year, OPIC brought in a net of $139 million for the U.S.

Treasury from insurance premiums and fees charged to exporting

companies for their services. Next year, OPIC projects to bring in

$204 million. I wish more U.S. Government agencies could copy

OPIC’s example. This Thursday, I plan to introduce the Export Enhancement Act of 1999 along with my good friends, Mr. Menendez

of New Jersey, and the Chairman and Ranking Minority Member

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of the International Relations Committee, Mr. Gilman, and Mr.

Gejdenson. This legislation would reauthorize OPIC for 4 years.

After listening to the witnesses here today, I invite all of my colleagues on the Subcommittee to consider cosponsoring this bipartisan legislation.

The votes don’t start in the House until 6:00 this evening so we

are hoping that we may be joined by other Members as they find

their way back to Washington.

Our first witness is George Munoz who served as president and

CEO of OPIC since the summer of 1997. Prior to taking that position, he was chief financial officer of the U.S. Treasury Department

from 1993 to 1997. Most of his career has been in international law

and business as a partner in the law firm of Mayer, Brown and

Platt in Chicago, and was a principal with former senator Adlai

Stevenson in an investment banking firm focused on international

transactions. He also headed his own law firm concentrating in corporate and international business. He holds several college degrees,

including a J.D. and a master’s in public policy, a master of law

and taxation, and a business degree from the University of Texas

in Austin. In addition, he is a CPA.

We are not only pleased, George, but we are blessed that you

have taken a leave of absence from the private sector to lend your

expertise to Overseas Private Investment Corporation. It is with

pleasure that we ask you to be our first witness today.

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

STATEMENT OF THE HONORABLE GEORGE MUNOZ, PRESIDENT AND CEO, OVERSEAS PRIVATE INVESTMENT CORPORATION, WASHINGTON, DC

Mr. MUNOZ. Thank you, Mr. Chairman.

Thank you very much for allowing me to come and testify today.

I would like to applaud your leadership and the work of this whole

Subcommittee, especially as it focuses on small business. I am especially pleased to see a stellar group of small businesses represented here, Mr. Chairman, that are cutting the path into the

international arena that all businesses are leading into.

OPIC, as you know, Mr. Chairman, was established 28 years ago

by President Richard Nixon and Congress to mobilize American

private capital and to support the growth of developing countries

and economies that are in transition to democracies and free markets. In today’s global economy, OPIC’s mission is more important

than ever. OPIC is an investment in helping America compete, supporting development and stability in strategic regions around the

world, and encouraging government that operates at no net cost to

the American taxpayer.

To continue OPIC’s work, Mr. Chairman, we are very pleased

that you as well as other leaders of this Congress are introducing

the Export Enhancement Act of 1999, which we certainly hope will

receive broad bipartisan support.

A key to the growth of our economy is because of small business.

The commitment of this Subcommittee to small business is one I

strongly share. When I became president of the Overseas Private

Investment Corporation, I said that helping small business would

be one of my top priorities. I made this pledge for one simple reaVerDate 29-OCT-99 09:52 Nov 11, 1999 Jkt 010199 PO 00001 Frm 00005 Fmt 6633 Sfmt 6633 E:\HEARINGS\59744 txed01 PsN: txed01
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son: the growth of the U.S. economy and the growth of individual

businesses are increasingly linked to their ability to expand overseas in emerging markets. Our competitive strength is directly connected to our ability to compete in the global marketplace.

I also made this commitment because I share your concern that

America’s small businesses must not be left behind in this

globalization process. Although small businesses are the backbone

of the American economy, the overseas investment potential for

this small business sector remains relatively untapped.

According to the 1998 National Export Strategy Report, for example, less than 13 percent of small- and medium-sized manufacturers are active exporters, and even fewer make profitable investments overseas. The report cited the lack of access to financing and

the lack of information as the two principal reasons for this gap.

I am pleased to report to you today that OPIC is not just talking

about small businesses, but we are acting to ensure that small

businesses have the information and the resources they need to

compete. We are building on OPIC’s excellent track record in promoting U.S. interests, creating American jobs, and operating on a

self-sustaining basis at no net cost to the taxpayer.

How can we help small businesses? First, our political risk insurance offers three types of coverages for overseas investment:

Inconvertibility insurance, for example, covers the inability to

convert local currency into U.S. dollars and assures the transfer of

currency out of a host country.

Our expropriation insurance covers the uncompensated taking of

insured investments by a foreign government.

And our political violence insurance covers damages to physical

assets as well as lost income due to interruption of operations.

For a small business looking to invest overseas, political risk insurance helps to ease the uncertainty of this challenge; or it may

be a critical step in the process of securing project financing. OPIC

also offers financing through direct loans for small businesses.

I am pleased to let you know that we have declared 1999 the

‘‘Year Of Small Business’’ at OPIC. This designation will help us

focus OPIC’s attention on building on our solid record of helping

small businesses. This determination to help small businesses is

reflected throughout OPIC.

Let me highlight some of the ways OPIC has changed to meet

the needs of small business. We have reduced our loan size from

$2 million to $250,000 to better address the needs of small businesses and created a new loan structure that is more user friendly.

OPIC’s Contractors’ and Exporters’ Insurance Program is available

for small businesses acting as contractors in international construction, sales, or service contracts.

Our Contractor’s Finance Program provides an OPIC guarantee

for bid bonds, performance bonds and other guarantees issued by

U.S. financial institutions on behalf of U.S. contractors.

We streamline the application process for small businesses and

reduce red tape. For example, our insurance application went from

20 pages down to 5 pages for small businesses.

We are increasing the number of our small business insurance

customers by launching a small business incentive program to encourage insurance brokers to bring small businesses to OPIC.

4

We have refocused our educational efforts to increase OPIC’s outreach activities. Last year, approximately 30 percent of OPIC-assisted projects were with small businesses, and we are working

hard to increase this percentage.

We have created a small business advocacy team which is composed of knowledgeable OPIC staff—some of whom are here with

me today, Mr. Chairman. This team will help small businesses to

take advantage of OPIC products and services.

We have also established a hotline that offers a direct telephone

number for small- and medium-sized enterprises interested in obtaining more information about OPIC’s special services.

Furthermore, OPIC’s award-winning Internet web site contains a

user-friendly small business page that is accessible to small businesses throughout the country.

We have also created new educational materials targeted to

small businesses. Some of this material has been provided to you,

Mr. Chairman, and to the rest of the Committee.

In addition, we are working with State and local officials, because they provide a key link to small businesses interested in

overseas investment. We have held small business meetings and

seminars in 11 states.

OPIC is also working with other trade agencies, small business

organizations, and State and local trade commerce officials to ensure that small businesses are aware of the products and services

that are available at OPIC. I would like to add Mr. Chairman, that

this week I will be visiting the district of one of your Subcommittee

colleagues, Mrs. Napolitano, to promote our activities in the small

business area.

Finding the financial and personnel resources to make an overseas investment on their own is a challenge for many small businesses, but many can benefit from investment by larger U.S. firms

supported by OPIC. For example, larger companies often turn to

U.S. small businesses for products and services to support an overseas project.

We are very impressed, Mr. Chairman, that you have found it

important to invite to this panel one such supplier to one of our

projects. An important component of OPIC’s small businesses outreach program is to identify the small business suppliers which are

contributing to OPIC-assisted projects throughout the world. This

outreach provides suppliers with an opportunity to learn more

about their contribution to OPIC projects and to utilize this opportunity to provide information about OPIC products.

Doing business in today’s global economy can be challenging for

small businesses. But done right, taking advantage of promising

opportunities in international trade and investment offers tremendous opportunities for growth.

OPIC is ready, willing, and able to help America’s small businesses.

Thank you, Mr. Chairman, for helping us get that word out

through this hearing. I would be happy to answer any questions

after the conclusion of the panel.

[Mr. Munoz’ statement may be found in the appendix.]

Chairman MANZULLO. Thank you, Mr. Munoz.

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We are joined by Congresswoman Napolitano and Congressman

Toomey.

Do you have an opening statement or any opening remarks you

wanted to make?

Ms. NAPOLITANO. Thank you.

Just that I am very happy that OPIC is joining us in the trade

conference. This is our fifth trade conference, and certainly, we

want California to have the benefit of OPIC’s financial assistance

in the risk insurance. I intend to do my best to help put the information to small business that OPIC exists.

Chairman MANZULLO. Mr. Toomey.

Mr. TOOMEY. Thank you, Mr. Chairman.

I just had a question on just reading through some of the narrative introduction.

Chairman MANZULLO. Just for opening statements.

Mr. TOOMEY. Oh, okay. I have no opening statement.

Chairman MANZULLO. That is okay.

Our next witness is Jane Marie Dauffenbach. She is president of

Aquarius Systems in North Prairie, Wisconsin. This company has

been involved in designing and manufacturing of surface water

management equipment including aquatic plant harvesters, vegetation cutters, floating excavators, et cetera. You have to excuse me.

I have glasses with four different types of lenses and I still can’t

read. Just forgive me. Once I get the right alignment here, I will

be fine. She is responsible for directing operations, planning, and

general management of corporation and, particularly, the aquarius

division with the completion of a new plant last year that provided

a top quality facility to manufacture some new special equipment.

And we welcome you here to Washington. Please proceed.

STATEMENT OF JANE DAUFFENBACH, PRESIDENT, AQUARIUS

SYSTEMS, NORTH PRAIRIE, WI

Ms. DAUFFENBACH. Mr. Chairman and Members of the Committee, thank you for inviting me to appear before you today.

I understand that there are larger issues to be considered, but

I am going to speak to you from a personal perspective on OPIC’s

success with a small exporting company.

As you said, for 35 years our company has designed, manufactured, and sold aquatic plant management equipment used for

weed control in lakes, rivers, ports, harbors and even oceans where

kelp is harvested as a commercial crop. Weed control is necessary

to make an infested water body usable for transportation and

recreation. Excessive weed growth also negatively impacts fisheries

and the natural balance of the waterway.

The water management equipment line includes, as you mentioned, aquatic plant harvesters and shredding boats that chop up

dense overgrown areas. We also have machines that pick up floating trash and garbage, and a floating excavator. Although our primary business is to manufacture and sell equipment, we have occasionally taken on contract service projects.

Last July we were awarded a World Bank contract which is a

turnkey project in Kenyan Lake Victoria. We are to supply the

equipment, personnel, and management to chop 3,700 acres of the

exotic weed called water hyacinth. The weed floats around in giant

6

masses and closes off entire harbors for weeks, months, or years at

a time. Its presence has severely impacted the fishing that the

locals depend on for food and employment. Because it is an exotic

weed, it is also impacting the natural environment of the lake.

There is no question that exporting is important to our business.

Between 15 and 45 percent of our annual sales in any given year

might be for exports. And this could be in Europe, Asia, Latin

America, the Middle East, or Africa. We go wherever our equipment is needed.

We have dealt with some difficult issues that have impeded our

ability to export. This includes financial assistance that was provided to our foreign competitors by their own governments. This assistance wasn’t equal to programs like export financing or OPIC political risk insurance but far exceeded these trading tools.

For example, when competing for business a few years ago in the

Middle East, the Dutch government ruined one deal by providing

free equipment to the customer that was copied from us and built

by a Dutch company. More recently, in the Far East, we were outcompeted on a large equipment sale when the Canadian government supplied a free harvesting machine as a gift to the king,

which was built by a Canadian competitor.

Our company is in no position to give away free equipment in the

hopes of getting an order. Yet not only are our foreign competitors

well supported in their export efforts, they are being fully subsidized by their governments.

Another example occurred within the last 12 months on our

Kenya project. Negotiations had been moving slowly and with a lot

of frustrations on both sides. In the meantime, an Asian government came and viewed the lake and offered equipment and financing for the whole program. And there have been overtures from

other foreign governments. Situations like this are not uncommon,

and occur almost annually. Simply put, Aquarius Systems is not

competing with foreign companies; we are competing with foreign

governments.

It is difficult out there, and especially before we found out about

the commercial services offered by the Department of Commerce,

the International Trade Administration and the products and services from OPIC and the Ex-Im Bank. It was only about 2 years ago

that we became aware of the activities of these agencies and started using them in our efforts to promote our export sales.

Up until then, the way we used to do things was reactionary. A

representative from another country would come to us with a potential job. Now with the tools provided by OPIC and the Ex-Im

Bank, the International Trade Administration, et cetera, we are in

a better position to go out and initiate business than ever before.

And we are always trying to think of new ways to use these programs.

We learned about OPIC during a visit to the Department of Commerce in Washington. We were already aware of the Export-Import

Bank, but we did not know that OPIC had insurance and financing

products available until then. We came to discuss an Asian project

that did not come to fruition. But a year later when the Kenyan

tender came out, we immediately contacted OPIC to inquire about

7

their political risk insurance so that we could budget the premium

into our quotation.

We would never have considered trying for this business in Africa without the participation of OPIC. American banks in general

are conservative but even more so in the Midwest. When we told

our bankers we won the Kenyan bid, they were very pleased; but

they were also very uncomfortable about the idea of our sending

equipment over to an African country for 12 months or longer. It

was certainly not a typical transaction for us or our bank. Although

they were unfamiliar with OPIC at first, once they understood the

political risk coverages we intended to purchase, they proceeded to

finance our needs.

Another factor with using OPIC on this transaction is that we

had the security that our government is behind us. This is going

to be very helpful should a dispute arise. It also will help us to

maintain proper transparency and give us some muscle to push

through the bureaucratic impediments that might arise. We are

sure if an issue comes up in the next 12 months, our position is

going to be taken more seriously now that it is known that our government is watching and ready to assist.

OPIC is an excellent example of a government initiative that

works well. It provides real value to clients and is a fiscally responsible entity that returns income to the Treasury. It also is a bit of

a secret to many exporters. I would suggest more promotional efforts going forward, not only to small- and medium-size businesses,

but to the small- and medium-size banks who service these exporters.

Every day we are down there working in the trenches trying to

make good business around the world. We don’t ask for much, but

we need a level playing field. If companies like ours are given half

a chance, we will continue to successfully manufacture and export

our American-built equipment.

It is imperative that the financing and insurance programs from

OPIC exist so that we have the necessary tools available to accomplish this. I am sure I speak for most exporters when I say we will

gladly continue to pay the premiums and interest for these financial products and services.

In conclusion, some of the benefits to Aquarius Systems from

working with OPIC include:

One, the political-risk protection so we can get the financing for

our contract.

Two, the perception from our client that the U.S. Government is

behind us.

Three, a more level playing field to compete.

Fourth, while we aren’t supplying free equipment and money like

some other countries have offered, we have secured the chance to

perform and prove to the customer the best decision was made.

And if all goes well, we expect to increase our export sales in all

tropical countries from the positive exposure that the single contract will bring to us.

Thank you.

Chairman MANZULLO. Thank you. I am going to, unless there is

any objection from members of the panel, make all of the statements a part of the record, including these photographs.

8

Ms. DAUFFENBACH. Okay.

Chairman MANZULLO. When you are talking about weeds, you

are talking about weeds. That is on top of a body of water; isn’t

it?

Ms. DAUFFENBACH. It is amazing. That is the Florida Everglades.

We were testing that machine there last week, and I do have some

Kenyan pictures I can give you that will really stun you.

Chairman MANZULLO. We can get to that in the question and answer period shortly. Thank you.

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

Chairman MANZULLO. Our next witness is V.V. Raj—I am going

to call you Raj, if that is okay.

Mr. RAJADHYAKSHA. That is good enough.

Chairman MANZULLO. That is going to have to be good enough.

Chairman and CEO of Dodson-Lindblom International out of Columbus, Ohio. Raj received his bachelor’s degree in civil engineering from the Indian Institute of Technology in Bombay in 1967. He

came to the United States on a scholarship from the University of

Cincinnati where he received his master’s degree in civil engineering.

He is a registered professional engineer in several states. He

began his career with G.K. Jewell and Associates, the geotechnical

engineering consulting firm, and has been involved in all types of

projects in various areas of the world.

Under his direction Dodson-Lindblom grew with the acquisition

of Mason-de Verteuil Geotechnical Services in January of 1984, and

now is chairman and CEO. He is currently involved in buying

small hydroelectric power projects in India with the governments

of various provinces within India itself.

It is with pleasure that we welcome you here to Washington.

When the red light goes on, that is the point where we would like

you to wind up your testimony.

Raj, thank you for coming here.

STATEMENT OF VIKRAM V. RAJADHYAKSHA, CHAIRMAN, DLZ,

COLUMBUS, OH

Mr. RAJADHYAKSHA. Mr. Chairman, thank you for giving me the

opportunity and Members of the Subcommittee.

My name is Vikram V. Rajadhyaksha better known as Raj, and

I am the chairman of the DLZ based in Columbus, which is the

parent of Dodson-Lindblom.

I am an immigrant from India. I arrived in this country with a

scholarship while getting a master’s degree in civil engineering at

the University of Cincinnati in 1967. I have lived—I became a U.S.

citizen in 1972. I have lived in this country for the past 32 years

and have been chairman and chief executive officer of DLZ or its

subsidiary company, Dodson-Lindblom Associates for the past 20

years.

I bought Dodson-Lindblom Associates in 1979 when it had five

employees. I currently employ 670 in the States of Ohio, Michigan,

and Indiana. My businesses are a product of one of your congressional programs, the Small Business Administration’s Section 8(a)

Program. I was admitted to the Small Business Administration’s

Section 8(a) Program in 1980 and graduated from the program in

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1984. But that small stint laid the groundwork for what is now the

DLZ corporation. So thank you very much.

Five years ago, I started looking into international ventures and

very quickly concluded that simply providing the type of consulting

engineering and architectural services that we provide in the

United States would get us nowhere in the international market.

Thereafter, I decided to enter into the Indian market as a developer of hydroelectric energy projects. At this point in time, the Indian government had opened the market for private firms to develop hydroprojects.

Since entering the field, it was obvious to me that the hydroelectric business was a very capital-intensive business, and I would

have to raise a substantial amount of funds both in the form of equity in the project and in the form of debt. After much research,

it quickly became apparent that the Overseas Private Investment

Corporation was the only agency that was active in the financing

of energy projects, and more importantly, they seemed to have at

least a small portion of the debt in every energy project that was

done by a U.S. developer everywhere in the world.

It did not take much analysis to understand the reason for this

simple fact, energy projects are obviously long-term investments in

areas of the world that are politically unstable, and OPIC being

present in these projects provides the good faith and the facilities

of the U.S. Government on every project. This not only provides a

great deal of comfort to other leaders on the project but also to the

equity providers.

Having done this homework, we approached OPIC concerning

our work in India. Ms. Ruth Harkin was president of OPIC at the

time, and low and behold, she advised me that there was some

grant money available for businesses such as ours as seed money

for our India venture. Subsequently, we were granted a $100,000

grant by OPIC through their EPA grants program to get started on

our India venture.

Just recently, on May 6, after completing all the formalities required, we closed on our OPIC loan of $5 million for our first hydroelectric project in India. The project, known as the Bhandardara

hydroelectric Power Project, is located about 150 kilometers north

and east of Bombay at the toe of an irrigation dam that produces

power when water is released for irrigation purposes.

The total project is $13.3 million, out of which OPIC is lending

$5 million. The Indian Renewable Energy Development Agency is

lending another $5 million and the City of Detroit Policemen and

Firemen Retirement System is providing $3.3 million in equity

funding.

The project will generate 47 million units of power annually.

This will serve about—this will be adequate to serve a city of about

10,000 in India.

OPIC will also provide risk insurance that will protect the equity

funding and this is provided by Detroit Policemen and Firemen Retirement System. I can assure the Subcommittee that this venture

would not have occurred without OPIC’s participation in the

project.

We have been awarded 22 small hydroelectric projects that we

expect to be working concurrently. While it has been obvious to us

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that this project would not have happened without OPIC being a

participant in it, this does not mean that working with OPIC has

been easy. My experience with OPIC has taught me that OPIC’s

mindset is focused on large energy developers, such as Enron, and

working with large international contractors such as Bechtel.

I have found their tolerance level is low for working with small

businesses such as ours. One of the biggest problems I have had

in working with OPIC has been the amount of legal documentation

that is required for our project financing. To give you some idea,

a $10 million debt financing has cost us over $1 million in legal

fees, not counting our internal corporate counsel’s time and effort.

Here are a few suggestions I would like to make to this Subcommittee so that OPIC and small businesses can work together:

One, OPIC should advise the small business of what documents

are required for them to be able to make the loan and also be

aware ahead of time how long it will take to put these documents

together and most importantly the cost involved.

OPIC should have more grant money that can be made available

to small businessmen to investigate international projects.

In conclusion, I can assure you, as a small businessman who has

come through the Small Business Administration’s 8(a) Program,

that OPIC is a very needed agency that it is not corporate welfare.

And it is one that provides the good faith and the credit of the U.S.

Government in international projects done by Americans.

Without such backing of the U.S. Government, no projects would

be occurring; and certainly not the project in which I am involved.

I would suggest that OPIC and the SBA, two great organizations

in my mind, work together so that the small businessman is given

every opportunity to succeed and project financing is made readily

available.

Thank you.

Chairman MANZULLO. Thank you very much.

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

Chairman MANZULLO. Our next witness is William Silverman

who is director of the First Republic Corporation and a member of

the law firm of Otterbourg, Steindler, Houston & Rosen P.C. in

New York City.

Mr. Silverman comes from New York and was admitted to the

bar in 1966. He went to Brown University and New York University Law School. He is a member of the U.S. Office of Personnel

Management Panel for Interviewing Candidates for Federal Administrative Law Judges; a member of the Panel of the American

Arbitration Association; and a member of the Association of the

Bar of the City Of New York, Committee on Bankruptcy and Corporate Reorganization.

It is with pleasure that we welcome you to Washington this

afternoon, Mr. Silverman. Please.

STATEMENT OF WILLIAM M. SILVERMAN, FIRST REPUBLIC

CORPORATION OF AMERICA, NEW YORK, NY

Mr. SILVERMAN. Thank you, Mr. Chairman. It is a pleasure to be

before this Subcommittee on such a beautiful day.

I hope the sun isn’t glinting too much off the top of my head and

affecting the vision of the Members of the Committee.

11

Chairman MANZULLO. We can close the curtains if——

Mr. SILVERMAN. It is affecting you then.

Chairman MANZULLO. But you really are quite splendid with

that sunshine. That is very encouraging for us.

Mr. SILVERMAN. Many are called, but few are chosen, Mr. Chairman.

I wanted to thank you and the Members of the Committee for

the opportunity to evaluate the very significant benefits of OPIC

for small business. I think, frankly, OPIC is a success story. And

it is a story that is part of the really greatness of our system, the

free enterprise system. And the fact that a small business or series

of small businesses can come in and speak to this Subcommittee

says a great deal about our process, and I know that we are all

thankful for that.

The First Republic Corporation of America has a 5.6 million loan

from the Overseas Private Investment Corporation. We knew of

OPIC’s overseas work on behalf of U.S. business, and we contacted

OPIC because First Republic is a public company with real estate,

textile and seafood interests.

Our seafood interest, which we have spoken to OPIC about, involve clamming in the Great South Bay in Long Island where we

have 13,000 acres of land under cultivation, and we ship clams all

over the United States. If you have clams on Fisherman’s Wharf,

they probably come at, least some of them, from our clamming

grounds in the Great South Bay.

We also have a very large scallop farming and production business in the State of Florida, in southern Florida. And we have a

business that grows and distributes shrimp. And that business is

primarily based in Ecuador where we have approximately 1,250

acres of land under cultivation.

Ecuador basically has three cash crops. They have petroleum, bananas, and seafood and the runoff of pesticides and herbicides from

the banana growers impacted the shrimp growers. It impacted our

shrimp farm, and the shrimp became ill and developed something

called Taura Syndrome which is now all over Latin America. It is

in Texas and it really is a worldwide problem and, in part, it is

caused by pollution.

What our system did was find a response to the pollution by enclosing our shrimp farm in a way that is environmentally friendly.

And, actually to the extent that we put anything back into the environment, it is cleaner and purer than when it went into the system.

OPIC has been our partner in developing and perfecting the system. They have given us the benefits of access to government and

nongovernmental aquaculture agencies in Ecuador, in Thailand,

and in other Third World nations. We found our reception at OPI—

although we are a small company, they treated us, frankly, as if

we were a Fortune 500 company.

We had a tremendous success in helping our colleagues in Ecuador understand our system. OPIC opened the doors for us. It

helped us—OPIC helped us make the system work more efficiently

and introduced us to expertise that, frankly, was of tremendous

benefit to us. We found the people that we worked with at OPIC

courteous, professional, and a treat to deal with.

12

Jim Polan and Elena Gonzalez were particularly good to work

with. We found them to be extremely efficient, and I think without

OPIC, we would not have the success that we do. We are in the

process now of exporting this technology which is environmental

technology to the Third World, to Thailand, to Ecuador, and we

hope to be able to do that with our colleagues from OPIC.

And again, thank you for the opportunity of speaking with you.

Chairman MANZULLO. Thank you.

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

Chairman MANZULLO. Our next witness is Bill Herbert, who is

a sales manager with Johnson March Systems, Inc., out of Warminster, Pennsylvania, and we want to thank you for coming this

afternoon and welcome you to Washington, Bill.

STATEMENT OF BILL HERBERT, SALES MANAGER, JOHNSON

MARCH SYSTEMS, INC., WARMINSTER, PA

Mr. HERBERT. Mr. Chairman, Committee Members, thank you

very much for the opportunity to appear before you.

My role today is a little bit different than some of the other

attendees in the sense that whereas Johnson March does not have

a direct contract or direct assistance from OPIC, we are a contractor and a supplier to many companies that do enjoy the benefits of your programs and that are able to secure contracts as a result of your efforts.

Just very briefly, our company is approximately 50 employees. Our annual sales are approximately $12 million. All of our facilities, manufacturing plant and office, are located in Bucks County,

Pennsylvania. It is a suburb of Philadelphia.

Our company designs and manufactures custom engineered products for electric power plants and petrochemical plants. The products are utilized for water treatment and chemical process dosing

and for air pollution control. In the late 1970s, Johnson March concentrated its selling efforts in the domestic market, building a customer base and reputation with clients and the engineering firms

that design their plants.

In the early 1990s, the domestic market for Johnson March products began to change very significantly as a result of lower increase

in demand for electrical power and the fact that we have not built

a new refinery in the United States in 20 years. So prospects for

growth in our particular products in the domestic market were not

very bright. But the opportunity for our products overseas was

growing very rapidly due to the large demand for electric power

and for the consequential demand for petroleum products.

Within a matter of 6 to 7 years, the percentage of our sales to

the international market went from 20 percent up to about 75 to

80 percent last year. And during this time period, Johnson March

has shipped millions of dollars worth of products overseas every

year.

A major factor in the transition from the domestic market to the

international market was the success of U.S. plant developers, U.S.

engineering firms, and U.S. contractors in securing international

projects.

The success of the U.S. firms is directly related to the support

provided by OPIC and Ex-Im Bank agencies. Contracts won by U.S.

13

companies provide a direct benefit for small companies like Johnson March.

As a systems manufacturer, we in turn purchase millions of dollars worth of U.S. manufactured products that are the subcomponents of our systems. These include computers, electronic analyzers, structural steel, valves, piping, pumps, et cetera. When U.S.

companies secure large international contracts through the support

of OPIC, the benefits are realized by many small companies that

otherwise would not be able to survive and grow.

Johnson March has had experiences with foreign companies

where they wanted to buy our products and our design and technology. But they could not do so because that project was financed

by the governments of their country, and they were contractually

obligated to buy from suppliers in their country. U.S. companies

benefit when the U.S. Government supports U.S. company efforts.

There is no doubt that without the success of OPIC supporting

U.S. developers, engineering firms, and contractors, Johnson March

would have fewer employees; and this would also be true for our

suppliers. All indications are that the electric power generation and

the refinery petrochemical markets outside of the U.S. will grow at

substantially higher rates than the U.S. markets for many years to

come.

Developing countries require increased electrical generation capacity and, as they develop, these countries increase their demand

for oil, gas, coal, and hydrocarbon-based products. U.S. manufacturers are respected worldwide for their superior technology, their

high efficiency, and their competitive pricing.

The international market is there ready for participation by

small business, but most small companies rely upon U.S. developers as a key to the market. OPIC and Ex-Im Bank support is

vital to the success of U.S. companies and the huge number of

small firms that are dependent upon them.

Johnson March completely supports the efforts of OPIC and

hopes that those involved in OPIC’s reauthorization realize how

very important it is for the strength of the economy, the U.S. balance of payments and American jobs.

Thank you again for your time and continued support. I will be

pleased to answer questions if you have some. Thank you.

Chairman MANZULLO. We appreciate your statement.

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

Chairman MANZULLO. At the same time, we are joined by Congressman Phil English from the State of Pennsylvania.

Our next witness is Peter Bowe, president of Ellicott International out of Baltimore, speaking on behalf of Small Business Exporters Association. Peter.

STATEMENT OF PETER A. BOWE, PRESIDENT, ELLICOTT

INTERNATIONAL, BALTIMORE, MD, ON BEHALF OF THE

SMALL BUSINESS EXPORTERS ASSOCIATION

Mr. BOWE. Thank you, Mr. Chairman.

I have submitted some written remarks which are slightly different from my oral comments in terms of what I am going to emphasize. I am also speaking on behalf of my company, Ellicott Machine directly.

14

Ellicott International has exported dredging equipment for over

a hundred years to dozens of countries worldwide for ports, harbors, mining and everywhere that marine construction is involved.

Over half of our business every year is exported.

The Small Business Exporters Association represents a wide segment of American exporters. We believe that exports are essential

to our economy, essential to the jobs of millions of American workers, and a prerequisite to a healthy economic growth rate.

We stand together in support of OPIC. At least one quarter of

our net job growth over the last 6 years can be directly attributed

to exports. At Ellicott, our employment was up over 25 percent during that period, all attributable to exports.

All industrialized nations, especially the OECD member countries, are looking to exports for their economic growth. Our principal competitors all provide substantial assistance to their exporters—far more than the U.S., according to almost any measurement.

The Small Business Exporters Association has compiled several

analyses showing how much more our competitors support exports

than we do. I am speaking for companies and workers who compete

in the real world of global competition, not as we might like it to

be, not according to economic models, but as it really is. In the real

world, we need programs like OPIC, Ex-Im Bank, the Trade Development Agency, and the Advocacy Center of the Commerce Department to compete and win.

Before I turn to the story of how Ellicott has used OPIC, let me

make three general points about OPIC. First, it is essential to developing countries and especially the big emerging markets designated by the Commerce Department. Prudent investment is facilitated by guarantees and insurance to provide some protection to

overseas assets, especially when private insurance is often not

available or available only with unacceptable conditions.

Second, when American companies invest overseas, they rely

substantially on American exporters for their equipment needs. As

much as one-fourth of all U.S. exports go to foreign subsidiaries of

U.S. companies, so it is in our interest to increase foreign investment. Americans used to complain the Japanese auto assembly

plants in the U.S. relied on parts exports from Japanese suppliers

to the detriment of local American suppliers. The same phenomenon is true in reverse to our benefit with U.S. companies’ foreign subsidiaries.

Third, OPIC is financially self-sufficient and does not rely on

taxes. It is investors like—it is exporters like Ellicott and investors,

not the taxpayers, who pay for OPIC.

Now let me take a moment to describe several specific ways that

OPIC has helped Ellicott sell dredges worldwide in competition

with some of Europe’s biggest industrial conglomerates. One of our

competitors is a German company called Krupp which is still

known for having built battleships and munitions in World War I

and World War II. This helps to remind me that the global marketplace commercially is still a lot like warfare. Krupp today, despite

its $15 billion size, gets all kinds of financing, support, and subsidies from the German Government, not to mention trade advocacy directly by their Chancellor.

15

OPIC has a special program which is of great interest to small

exporters and the members of the SBEA. Sales to foreign governments usually require bank guarantees as performance bonds.

These bank guarantees are subject to arbitrary treatment by the

buying country.

As Mr. Munoz has mentioned, OPIC has a program to insure

such bank guarantees against wrongful taking. The comfort which

comes from this insurance induces many American exporters, small

or large, to bid on projects they would otherwise avoid.

OPIC’s prestige goes a long way towards assuring that foreign

governments treat American exporters fairly. Thus the status of

OPIC as a U.S. government agency, in many cases, prevents any

loss at all to OPIC from inappropriate foreign government actions

where a private insurance company would have no such political

standing. We have used this program in several countries.

Recently OPIC intervened to help solve a problem in Egypt. We

had been unsuccessful through 3 years of negotiation in getting a

performance bond returned. When OPIC decided to attend a TDA

investor conference in Cairo last fall, we asked OPIC to get involved. And they jumped in with both feet.

OPIC’s Sr. Vice President, Kirk Robertson, took a personal interest to see that a fair and proper resolution was achieved. OPIC

contacted the Egyptian entity and let them know the importance

of returning the bank guarantee and that failure to do so could affect U.S. investment in Egypt. The Egyptian government and our

customer responded immediately.

The bottom line is that Ellicott reached an acceptable agreement

because of OPIC and that OPIC earned tens of thousands of dollars

of premiums insuring our guarantees during the life of the project.

The results were achieved with just a couple of letters delivered by

the U.S. Embassy to indicate their official status. It was a textbook

example of how wrongful call insurance was supposed to work.

I strongly doubt that a private sector insurer could have had the

clout with the Egyptian government to achieve the same result. In

the interest of time, I will mention that we also have been successful in selling to American investors overseas.

Here is a picture of a dredge that went to Venezuela for Guardian Industries of Michigan which is building a sand mining plant.

I think I will just conclude there, and I would be happy to answer any further questions you might have.

Chairman MANZULLO. Thank you very much.

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

Chairman MANZULLO. What an interesting group of witnesses

and real life stories of what is going on in international business

geared toward small business.

Mr. TOOMEY, I want to start the questions with you. If we could

watch the five minute clock here.

Mr. TOOMEY. Mr. Munoz, thank you.

I was wondering could you just explain to me briefly the difference between the mission of OPIC versus Ex-Im Bank?

Mr. MUNOZ. Yes, sir. I would be more than happy to.

We are both sister agencies and we work hand-in-hand. Where

Ex-Im leaves off, OPIC takes over. Most U.S. companies can be

quick to export as long as there is a demand for those exports.

16

History has shown that once you have been good at international

business by exporting, the next logical step may very well be to

make an investment in the country. Once a company goes from exporting to investing in a country, the rules of the game change. Assessments of risk and of the political situation change completely.

Even the financing structures for that investment take on a whole

different aspect.

This is when OPIC takes over for a company which is investing

in a foreign country. OPIC and Ex-Im Bank relationships continue,

however. Once they have made an investment overseas, many of

the companies will continue to export repeatedly to that same foreign investment.

So we work together, but we really deal in entirely different

kinds of risk assessment, financing structures, and collateral. I

would like to give you an example. I come from Chicago, and there

are many, many companies there that are very good at exporting.

And they have very good, strong relationships with their banks.

But once they decide to cross the border and go overseas, their

banks may draw the line, saying, since we cannot take over the

plant as collateral—the power plant in India is one example—we

are not interested in financing such a transaction. This creates a

difficult financing situation.

Not all those banks they deal with domestically, for example,

may be available for an investment in a foreign country. Therefore

that same small business would need a different line of players

from the financing-side and from the political assessment-side.

Mr. TOOMEY. As I understand it, the primary services you provide are long-term financing and political-risk insurance.

Mr. MUNOZ. That is correct.

Mr. TOOMEY. I was just wondering if you could comment briefly

perhaps on the criteria you used before getting involved in either

of those activities.

For instance and specifically, maybe you could answer whether

a corporation needs to be turned down by a private sector institution first before you will approach, or whether that is not necessarily part of the criterion. And if—whether or not it is, how do

you price risks that the private sector refuses to take?

Mr. MUNOZ. Yes, sir.

Let me just add to my previous response that Ex-Im in any one

year can do over a thousand, if not thousands of transactions, and

OPIC, in any one year, may do something in the vicinity of 50 to

60 projects because OPIC and Ex-Im have entirely different missions.

When a request for insurance comes to OPIC, for example, we

distribute information to let the client know who the private insurers are in a particular industry so that if there is private insurance

available, the company can tap the private sector first. Because our

products are very different from private sector services, many investments require long-term insurance—sometimes 15 years, sometimes as long as 20 years of coverage.

When OPIC issues an insurance contract, that contract is issued

with full assurances that it will not be terminated at any time during the insurance period. The same cannot be said of the private

sector; but we do point to the private sector first. While they are

17

not required to submit exact letters of refusal, our standard procedure requests that clients tap the private sector first.

With respect to our criteria that we use, we apply criteria mandated by Congress covering four areas.

Number one, we want to make sure the project does not do substantial harm to the environment. This is mandated by statute and

we make sure that the project will not do that.

Number two, we want to make sure the project does not violate

international worker rights according to our statute.

Number three, we want to make sure the project will not harm

the U.S. economy. We have an internal working guideline at OPIC

that if a project were to take jobs away from the United States,

such as a plant which closes down in the U.S. and opens up elsewhere, we would not support that.

And then lastly, an OPIC-supported project must be a project

that is only done by the private sector and is commercially viable.

That is, it is not a government project but a private-sector-driven

project that has commercial viability behind it.

Mr. TOOMEY. I noticed that there is a summary of an income

statement provided in the package.

[OPIC’s 1998 Annual Report may be found in the appendix.]

Mr. TOOMEY. I didn’t—I didn’t notice a balance sheet. I noticed

somewhere there was a reference to about $18 billion in financing

and political risk insurance. I am just wondering approximately

what’s the size of the reserve fund?

Mr. MUNOZ. OPIC maintains approximately $3.3 billion of reserves.

Mr. TOOMEY. Thank you very much.

Chairman MANZULLO. Congresswoman Napolitano.

Ms. NAPOLITANO. Thank you, Mr. Chairman.

Mr. Munoz, there is a slew of questions that I would love to ask.

It would take all afternoon to ask. But I will start off with one of

the statements that was made here by one of the panel members

was, that it takes a long time and it is very intricate for small business and it is very expensive to be able to go through the whole

process.

Could you tell me what can be done to assist small business

through that myriad. Can you cut the time down? Are you tailoring

more to small business rather than to the large business? I say

that tongue in cheek because big business can take care of themselves. They can afford the lawyers. They can have all kinds of

things at their disposal where small business has to pay for them

with funds that they don’t have and makes it a little harder.

And the legal documentation, of course, is a necessity, and I am

certain that part of it has to do with the fact that you have to have

an agreement with the country that you are doing business in.

Mr. MUNOZ. Madam Congresswoman, I think you stated exactly

the right reasons as to why things can take a longer time.

Let me first say that we are making progress. Every new small

business transaction that we do we learn from. We try to streamline the process the next time around, and I have to say that all

of the employees at OPIC are very energized and very desirous of

working closely with small businesses. But having said that, many

countries do not have a clear rule of law, do not have processes and

18

procedures that are always easy to work with, and we must work

within these restrictions.

At the end of the day while we may be financing or insuring a

project, we have to make sure that if something goes wrong with

the project and OPIC is required to step in to help salvage the

project, we must have all the rights under local country laws that

are consistent with our treaty with that country, as well as their

laws. This, unfortunately, is more complicated than any domestic

business transaction.

Ms. NAPOLITANO. Is that the main reason?

Mr. MUNOZ. That is one of the primary reasons, Congresswoman.

I would say, however, that we do learn in every project that we

process and I think that we are getting better at it. I would have

to say that there are many banks in this country who just throw

up their hands and they just refuse to get involved because of the

complications, but we will be there standing beside small business.

Ms. NAPOLITANO. Which brings me to that second question and

that is to the marketing of your services to small business and to

education of the bank’s services for assistance in doing their work,

how is that coming? Are you having success? What outreach are

you doing?

Mr. MUNOZ. We are doing some outreach. I would like to remind

this Subcommittee that we have only about 215 employees at

OPIC, of whom I am very proud, because the performance level is

beyond belief——

Ms. NAPOLITANO. With a budget of?

Mr. MUNOZ [continuing]. That 215 employees can do as good a

job as they do monitoring all the programs and doing all the

projects that we have. And given the limited number of people we

employ, we still do outreach programs. We do try to go to different

seminars and conferences that take place in the international business arena.

I think that the advent of the Internet has helped us tremendously. We have a web site which has been recognized as one of

the best web sites on the Internet, whether private or public. And

we have a specific page there for small businesses. We are getting

a lot of good responses from that.

We also have teamed up with Ex-Im and the Department of

Commerce and other agencies that are working with small business. And we have reached out to the SBA. I think those are the

best ways to do our outreach.

Ms. NAPOLITANO. I may suggest you might try doing some video

work for cable as informational, so you may be able to get that out.

We used that effectively in California.

The fact that everybody indicates a job growth potential because

of the assistance in reaching other international markets, I have

been involved with that for several years. So I know the real value

in that. What would you say would be the job growth wage range

for these new job potentials?

Anybody?

Because we hear a lot from labor we are losing jobs because of

NAFTA and all the other agreements, yet we hear from business

that there are jobs potential that are reaching.

19

Mr. BOWE. Madam Congresswoman, my company is unionized

with a steelworkers. It is somewhat unusual. Our steelworkers endorsed NAFTA because they know that virtually all of our products

are exported. I don’t know how much NAFTA has affected us in

particular, but certainly exports are generating middle-class jobs,

jobs——

Ms. NAPOLITANO. Wage range?

Mr. BOWE. Our guys make up in the mid-50s in the thousands

of dollars a year with overtime. Right now, we have got vacancies,

and people are working 6 and 7 days a week. And I don’t think

there is anybody that feels threatened by our export activities in

terms of job loss.

Ms. NAPOLITANO. Anybody else?

Mr. RAJADHYAKSHA. Congresswoman, we are in the engineering

business and we—all these projects that we have in India, we are

designing them in Columbus, Ohio. And that has created about 20

jobs in my company in Columbus, all in the range of $50,000 to

$100,000 a year, specifically geared up to this international effort

that we are going.

Ms. NAPOLITANO. Thank you, gentlemen. You have made my

point.

And I wish that you would talk to Labor and talk to them about

how important it is for them to understand the reality of some of

those jobs. Thank you.

Chairman MANZULLO. Thank you. Mr. English?

Mr. ENGLISH. Mr. Chairman, thank you for the opportunity.

I simply wanted to follow up on something Mr. Bowe had said

and would like to have the president comment on it. I find that any

of the people who criticize OPIC as corporate welfare, know comparatively little about what American companies are up against in

terms of the incentives provided to their competitors to encourage

purchase, incentives provided in the form of lines of credit provided

by competing governments to potential customers.

I wonder if the panel would comment on that in a little more detail than Mr. Bowe provided. How many of our competitors provide

similar or more expansive programs and incentives to encourage

the purchase of their domestic goods?

Mr. BOWE. Let me give you sort of a brief survey of some things

I am aware of. Dredges can be considered, in some cases, vessels,

in smaller cases not.

Our two primary competitors are Dutch and German. The Germans have spent a lot of money to support what they consider to

be shipbuilding. There are special financing programs which include a subsidized low interest rate loan. By low, I mean, zero, 3

percent, stuff like that, to developing market countries like India

and China, Indonesia, and then so they are giving the money

cheaply to the buyer to buy. And then on the seller’s side, there are

special subsidies. There is a general shipbuilding subsidy up to 9

percent of vessel cost throughout Europe. The Germans have a 30

percent subsidy for yards in the former eastern Europe.

In the case of Holland, they have special financing, sort of an

AID type program, they call it ORET. To give you an example, our

Dutch competitor on a trade mission in China last month led by

a Dutch minister signed $100 million worth of deals all of which

20

involve special financing from the Dutch government. So it is pretty heavy duty support.

And within that, the trickle stuff like, you know, special grants

for training, technological orientation, it is very extensive, and it is

both for heavy industry and for things that would be considered to

have a technological component.

Mr. MUNOZ. I would like to add we have made our own survey,

and all of our counterparts from the G–7 have programs that go

beyond what the United States provides to its private sector. And

this makes it very difficult for the business community from what

we know.

What OPIC does is to try to promote transparent rules of fair

play. The fact of the matter is that there are not always transparent rules of fair play. In our private sector community, I am

sure that once the rules come even close to being level, we will win

in any competition.

OPIC’s support for many of these overseas investments tries to

at least advocate from the American side that these rules of fair

play be put in place. It is not an easy job. Many of our private sector companies are not involved in international business precisely

because of the disadvantages which still exist.

Mr. ENGLISH. Would you be willing to make your survey available to the Subcommittee.

Mr. MUNOZ. Yes, sir.

Mr. ENGLISH. So that it can be included in our report.

And, Mr. Chairman, I would like it to be included in the testimony today if possible when we receive it.

[The information may be found in the appendix.]

Chairman MANZULLO. Without objection, of course.

Mr. ENGLISH. Thank you. And I yield back the balance of my

time.

Chairman MANZULLO. Thank you.

I am intrigued with this dredging going on here. Now, we have

Miss Dauffenbach who is big into eliminating weeds.

Ms. DAUFFENBACH. Right. That is different from dredging, yes.

Chairman MANZULLO. And Mr. Bowe, you actually make the vessels that are used for dredging. But as I went through your CV,

Miss Dauffenbach, you are a member of the Bass Angler Sportsman Society. Now there is somebody who really likes water.

Ms. DAUFFENBACH. Oh, yes. Yes. They suddenly are getting political. A lot of people use our equipment instead of using aquatic herbicides. They find that herbicides are not environmentally friendly.

So the Bass Angler’s Sportsmen’s Society is suddenly putting their

weight behind the mechanical approach to weed control.

Chairman MANZULLO. That really leads into my question because

as I listen to your testimony, a couple of things came out. Number

one is that you created a market that did not exist before.

Ms. DAUFFENBACH.That is right.

Chairman MANZULLO. And the second thing is that the brutal

competition from the Dutch and other of our allies——

Ms. DAUFFENBACH. Canadians, yeah.

Chairman MANZULLO. Could you explain the mechanics of the insurance that you got with OPIC. Walk us through it.

21

Ms. DAUFFENBACH. As Peter mentioned before, we had to put up

guarantees, unconditional bank guarantees, one to cover the down

payment that the Kenyans are paying us and one as a performance

bond. And we were concerned about wrongful calling.

Depending on what the political situation in the country you are

working in may be, you don’t know if something doesn’t go right

if they are going to make a wrongful call on that unconditional

bank guaranty. Because it is unconditional, there are no questions

asked. They call on it, and they get paid.

Our bank was quite concerned about that; as were we. So we

knew from the start that we needed to have some sort of insurance

or something to protect us in case there was a wrongful calling

made.

As I understand, OPIC will go in and argue and demand lots

of——

Chairman MANZULLO. Assurances.

Ms. DAUFFENBACH. Support, yes, as to why that calling was

made. And that gave us a great amount of security knowing that

someone is going to advocate for us.

Chairman MANZULLO. How did you find out about OPIC?

Ms. DAUFFENBACH. Two years ago, I was working on a project in

Asia. We were trying to develop something before the economy

there went to pieces. And we were looking to offer some financing

through Ex-Im Bank to our customer. It was a large project, so the

Department of Commerce also sent us to OPIC to see what financing products were available.

As a result, we originally were working with OPIC on an Asian

project that never developed. A year later when the opportunity to

quote in Kenya came up, I remembered our discussions with the

OPIC people. We called them up right away to see what sort of insurance they had.

Another insurance product that we are getting is dispute insurance. If we have a dispute with our client in Kenya, and if we can

prove that we are right and they are wrong, then the insurance

will kick in.

Chairman MANZULLO. So OPIC doesn’t just sit around and wait

for a loss to occur.

Ms. DAUFFENBACH. No, they fight hard.

Chairman MANZULLO. They fight the battles with you right on

the scene with the foreign government.

Ms. DAUFFENBACH. It probably is why they have such a great

record in losses.

I imagine they don’t give up much.

Mr. MUNOZ. Mr. Chairman, if I could just add to that: our recovery rate for expropriation, for example, is approximately 100 percent. Over time, we will recover the losses, even if we had to pay

claims to an American investor. This is because we have the staying power and we have the ability to call on foreign governments.

Mr. Chairman, you may remember one of your Committee hearings about a year and a half to 2 years ago where you had Monique

Maddy present, and she gave a stellar presentation of how a small

business went to Tanzania and brought telecommunications to that

country.

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OPIC not only sells insurance and financing, but equally important, OPIC stands by these investments. That is why, unlike the

thousands of purely export transactions that Ex-Im does, we are

partners in many ways with our projects and investments.

For the record, I would like to submit an update on Ms. Maddy’s

presentation, which I know, Mr. Chairman, you were very interested in. Monique Maddy continues to be a small business investor

in Tanzania, and is looking at other opportunities. The project that

she had in Tanzania has run into some governmental difficulties.

Although our insurance doesn’t require that we step in and try to

help them resolve their disputes, it is OPIC’s practice, as has been

stated here, to come in and advocate on our client’s behalf. As we

are currently working through those difficulties, Ms. Maddy stays

very much optimistic about opportunities overseas.

Ms. Maddy’s investment offers an example of something that can

look good on one day and cloudy the next, but in the long term,

it is in America’s best interest to be involved in the international

business arena. And our agency is determined to make this a positive experience for American investors.

Chairman MANZULLO. I don’t mean to pick on you, but one other

person mentioned about the foreign competition. Who else did that

on the panel?

You did. Peter, did you want to comment on that? And also Miss

Dauffenbach.

Well, tell us what the foreign companies did when they found out

you were interested in this project.

Ms. DAUFFENBACH. Each situation is different. We really have

troubles with the Canadians. That has been a pain for——

Chairman MANZULLO. I am going to Canada on Thursday as part

of the U.S.-Canadian parliamentary exchange.

Ms. DAUFFENBACH. They do a lot to help their companies. And,

like I said, they actually gave free equipment away. They bought

it from our competitor and gave it away as a gift. I know it has

happened more than one time.

Another thing the Canadian government does is make allowances

for prototype and development or something along those lines,

where they actually subsidize their manufacturers for making engineering changes. So if we are fortunate enough to find ourselves

specified in a tender, and the Canadians have to meet our specs,

they can come in cheaper than us because they get a kickback from

their government to make up the difference of what they call research and development. And that is very frustrating.

Chairman MANZULLO. Peter, did you want to follow up on that?

Mr. BOWE. I think the biggest challenge we have is special financing that is initiated by our foreign competition. This is more

along the lines of Ex-Im Bank-type competitors rather than OPIC

activity. As I mentioned, the case of the Germans and the Dutch,

the Japanese do the same thing where they come in with longterm, 30-, 40-year type financing with very low interest rate.

I was just in China a month ago with Secretary Daley on his

trade mission. And we had the opportunity to hear a number of

ministers, and their first comments to Secretary Daley were always

that if Ex-Im was more aggressive, American companies would sell

more in China.

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And, of course, with respect to OPIC, there is, you know, the

sanctions question. But, I mean, we see that around the world that

our competition initiates special financing, and Ex-Im Bank is playing a game of matching with the end objective of trying to eliminate this policy all together.

Whereas, our competition considers it to be acceptable that in the

normal course of business, that you are supposed to buy business

with cheap financing, and then you gain market share and that enables you, essentially, to subsidize the competition in the free-market areas like in the United States, for example.

Chairman MANZULLO. Peter, I was intrigued with your statement

that approximately one-third of U.S. exports go to U.S. companies

that have an overseas presence. Could you elaborate on that?

Mr. BOWE. I don’t know, off hand, the source of where I read

this. I could find it for you. But the theory is that you have American multinationals, whether it is Ford, Chrysler, IBM, people like

that, FMC Corporation, have operations around the world. I can

tell you about our example, this company Guardian is a glass-making company.

They have a glass manufacturing plant in Venezuela. And glass

uses sand; sand is mined with a dredge. Kerr-McGee Corporation,

Oklahoma, makes paint pigment in Australia. They bought our

equipment for a plant in Australia. They go where the natural resource is located. And they bought from us. That is a type of examples as it relates to us.

Chairman MANZULLO. And that is really what, Bill, you were

talking about. You don’t directly deal with OPIC, but a lot of larger

companies to which you supply your product deal with OPIC.

Mr. HERBERT. Yes, it is——

Chairman MANZULLO. Small and large companies.

Mr. HERBERT. It is really hard to imagine how extensive the

ramifications are. But, for example, a large developer, I heard

Enron’s name mentioned today, they have been a customer of ours

for a long time, but as a general rule if they are developing a power

plant, we don’t deal directly with Enron. The first thing they have

to do is hire an architectural engineering company in the United

States. That is several hundreds of people whose salaries are being

paid by the project. And those engineering companies provide services such as issuing the request for quotes and evaluating the bids,

issuing the purchase orders.

And we are only one subsupplier on the project. But they are

buying equipment. Now, it is true that they source—the larger

these companies get, the more they have the ability to source from

an international standpoint. But we have found that we have no

trouble with that in the sense that we are price competitive. Our

technology is good. And we can provide the after-market service for

them and everything because I have agents in many foreign countries. But the fact that an American developer can win the contract

starts a whole series of events, all of which generate jobs and income and balance of trade benefits to the United States.

So when you hear about a company getting an award, it is not

even the tip of the iceberg if you are trying to figure out or you

are trying to see, at that moment, how important that contract

award is to an American company. It is very, very important. And

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the ramifications go in a lot of different directions, not just equipment people, but bank people and computer people and a lot of

areas, multitiered.

Chairman MANZULLO. Go ahead. I am sorry.

Your company is only 50 employees. Is that correct?

Mr. HERBERT. Yes.

Chairman MANZULLO. And how many of those employees are directly related to exports now?

Mr. HERBERT. Well, virtually all of us. Because what happens is,

I mean, we have our own manufacturing shop. And so our people

that are in that area are working on projects. They may be domestic or they may be international projects. It depends on what their

particular skill is, whether it is welding or wiring or calibration or

that sort of thing.

Every one of our projects is assigned a project engineering manager. So that means we have mechanical, chemical, electrical, civil

engineers on our staff. They run their contracts. Then we have designer drafting people because we have to do all the detail engineering and submit all the documentation.

We happen to have an ISO 9001 Q A program, which means we

have a lot of forms and documents that we have to follow to meet

the requirements of the international community as far as quality

assurance is concerned.

So when you are a company of 50 people, we all interrelate, we

are all in the same building. And we work on various projects. And

a particular person may not know, for example, out in our shop

whether he is welding something for a project in Turkey or whether he is welding it for somebody in another part of our state.

So it is really not possible. All of us work on international,

whether you are in sales or you are in fabrication or engineering.

Chairman MANZULLO. Well, we appreciate all of you testifying

this afternoon. OPIC is, as you know, it is a very unique government agency. There are over 10,000 government programs.

Peter is shaking his head over there. He probably knows every

single one. But one of those that we have found that has a very

close working relationship with its customers is OPIC based upon,

I believe, the integrity of Mr. Munoz who has been in charge of the

program for the last couple of years. But also based upon the fact

that this government program really doesn’t just write a check for

or on behalf of companies but actually goes to battle with them,

first to secure the agreements, then, second, to protect them.

And, one of the unknown stories, that would be appropriate for

another hearing, is how Mr. Munoz eventually gets all of his money

back, especially from countries that broke off relations with the

United States, such as Vietnam, but then when they come back

into wanting our good graces again, somebody shows up with a bill

and the country has to pay the bill. That is why OPIC gets paid

back nearly 100 percent.

And that is why really there is not an opportunity to answer Mr.

Toomey’s question for the private sector to get involved to the extent, not only in the amount of money that is being capitalized but

also in the power and the strength of the U.S. Government standing behind our exporters.

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So, again, we thank you for spending this afternoon with us in

Washington. This meeting is adjourned.

[Whereupon, at 4:24 p.m., the subcommittee was adjourned.]

(27)

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