U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

89–010

" ! SENATE 107TH CONGRESS

1st Session

REPORT

2001

107–52

Calendar No. 141

THE EXPORT-IMPORT BANK

REAUTHORIZATION ACT OF 2001

R E P O R T

OF THE

COMMITTEE ON BANKING, HOUSING,

AND URBAN AFFAIRS

UNITED STATES SENATE

TO ACCOMPANY

S. 1372

AUGUST 3, 2001.—Ordered to be printed

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut

TIM JOHNSON, South Dakota

JACK REED, Rhode Island

CHARLES E. SCHUMER, New York

EVAN BAYH, Indiana

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

DANIEL K. AKAKA, Hawaii

PHIL GRAMM, Texas

RICHARD C. SHELBY, Alabama

ROBERT F. BENNETT, Utah

WAYNE ALLARD, Colorado

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

JOHN ENSIGN, Nevada

STEVEN B. HARRIS, Staff Director and Chief Counsel

WAYNE A. ABERNATHY, Republican Staff Director

MARTIN J. GRUENBERG, Senior Counsel

BRIAN J. GROSS, Republican Deputy Staff Director and Counsel

ADRIENNE VANEK, Republican Economist

CATHERINE CRUZ WOJTASIK, Staff Director, International Trade and Finance Subcommittee

DANIEL M. ARCHER, Republican Professional Staff Member

HEATHER O. WEST, Republican Legislative Fellow

(II)

C O N T E N T S

Page

Introduction .............................................................................................................. 1

History of the Legislation ....................................................................................... 1

Overview ................................................................................................................... 2

Tied Aid Credit Fund ....................................................................................... 4

Term of Reauthorizaion ................................................................................... 5

Market Windows ............................................................................................... 5

Small Business Financing by the Ex-Im Bank .............................................. 7

Inspector General For Ex-Im Bank ................................................................. 8

Ex-Im Bank’s Economic Impact Standard ...................................................... 8

Ex-Im Bank’s Competitiveness Report ........................................................... 9

Section-by-Section Analysis of S. 0000: ‘‘The Export-Import Bank Reauthorization Act of 2001’’ .............................................................................................. 10

Section 1. Short title ........................................................................................ 10

Section 2. Extension of authority .................................................................... 10

Section 3. Sub-Saharan Africa Advisory Committee ..................................... 10

Section 4. Guarantees, Insurance, Extension of Credit ................................. 10

Section 5. Financing for Small Business ........................................................ 10

Section 6. Market Windows ............................................................................. 10

Appendix ................................................................................................................... 15

Regulatory Impact Statement ................................................................................. 10

Changes in Existing Law ........................................................................................ 13

Cost of Legislation ................................................................................................... 10

(III)

Calendar No. 141

107TH CONGRESS REPORT

1st Session " ! SENATE 107–52

THE EXPORT-IMPORT BANK REAUTHORIZATION ACT OF

2001

AUGUST 3, 2001.—Ordered to be printed

Mr. SARBANES, Mr. BAYH, and Mr. HAGEL, from the Committee on

Banking, Housing, and Urban Affairs, submitted the following

REPORT

[To accompany S. 1372]

INTRODUCTION

On July 18, 2001, the Committee on Banking, Housing, and

Urban Affairs marked up and ordered to be reported an original

bill, the Export-Import Bank Reauthorization Act of 2001. This Act

reauthorizes, for a period of five years through September 30, 2006,

(1) the charter of the Export-Import Bank of the United States (ExIm Bank), and (2) the sub-Saharan Africa advisory committee. The

Act also requires the Ex-Im Bank to submit the Bank’s annual

competitiveness report to Congress not later than June 30 each

year. The Ex-Im bank is also required to include a compilation and

analysis of data regarding ‘‘market windows’’ and their effects on

the Bank’s competitiveness in the report and to estimate the annual amount of export financing available from other government

and government-related agencies for the Bank’s annual competitiveness report. An amendment by Senator Allard, as modified by

a second degree amendment by Senator Sarbanes, was adopted by

voice vote which would require that 18 percent of the Ex-Im Bank’s

aggregate loan, guarantee, and insurance authority be used to finance small business exports. An amendment by Senators Hagel,

Bayh, and Sarbanes was adopted by voice vote which would authorize Ex-Im Bank to match foreign market windows financing.

The Committee voted 21–0 in favor of adopting the bill.

HISTORY OF THE LEGISLATION

The Export-Import Bank of the United States was created in

1934 and established under its present law in 1945 to aid in financing and promoting U.S. exports. The Bank operates under a

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renewable charter, the Export-Import Bank Act of 1945, as amended, and was last authorized in 1997 through September 30, 2001.

The Subcommittee on International Trade and Finance of the

Committee on Banking, Housing, and Urban Affairs held two hearings on the reauthorization of the Ex-Im Bank. The principal issues

raised in the hearings were the value of the Ex-Im Bank to U.S.

exporters, the use of the Tied Aid Credit Fund, market windows financing, adverse economic impact determinations, and the impact

of the Administration’s proposed 25 percent budget cut for the ExIm Bank.

On May 17, 2001, the Subcommittee on International Trade and

Finance held a hearing to solicit the views of representatives of

small and large exporting companies, the banking community, as

well as academic experts. Testifying before the Subcommittee were:

Darin P. Narayana, President of Bank One International (representing the Bankers’ Association for Finance and Trade); Dean R.

Dort II, Vice President of Deere & Company (representing the Coalition for Employment through Exports and the National Foreign

Trade Council); C. Fred Bergsten, Director of the Institute for

International Economics; Thomas McKenna, Executive Director of

the Indiana Department of Commerce; E. Robert Meaney, Senior

Vice President of Valmont Industries; Peter Bowe, President of

Ellicott Machinery Corporation International (representing the

U.S. Chamber); and Terrence D. Straub, Vice President of Governmental Affairs of USX Corporation.

On June 19, 2001 the Subcommittee held its second hearing on

the reauthorization of the Ex-Im Bank to solicit the views of the

Administration. Witnesses included: John Robson, President and

Chairman of the Export-Import Bank and John Taylor, Under Secretary of the Treasury for International Finance.

OVERVIEW

The Committee on Banking, Housing, and Urban Affairs last reauthorized the charter of the Ex-Im Bank in 1997. The Committee

has strongly supported the Ex-Im Bank’s role in helping U.S. exporters compete in international markets.

In the Committee’s view, there are two compelling market-based

reasons for the existence of the Ex-Im Bank. First, the Ex-Im Bank

has a critical role to play in leveling the playing field for U.S. exporters by matching the public financing made available by foreign

governments. In addition, the Ex-Im Bank provides leverage to

U.S. negotiators seeking to achieve international agreements to

limit the use of government export subsidies. U.S. exporters are

able to compete effectively in international markets on the basis of

price and quality. When foreign governments provide subsidized financing for their exporters, U.S. exporters are placed at a competitive disadvantage.

Second, emerging market economies can pose credit risks of such

magnitude that commercial banks are reluctant to finance U.S. exports to those countries even though they may present extraordinary opportunities for U.S. exporters. The Ex-Im Bank has the

difficult but important task of weighing the project in light of the

country risk rating and determining if a guarantee should be provided for a commercial export loan that would make possible an export deal that otherwise would not occur.

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The Ex-Im Bank has also played a role in helping to cope with

international financial crises. In 1997, during the Asian financial

crisis, Ex-Im Bank was one of the first banks to finance exports to

the most severely impacted Asian countries, providing them with

important inputs and machinery that helped improve their economies.

It is also worth noting that over the past five years the interest

and fees collected by the Ex-Im Bank have earned the federal government over $4 billion.

When the Banking Committee last reauthorized the Ex-Im Bank

four years ago, there was a sense that progress was being made in

controlling the growth of export credits offered by national governments. The Organization for Economic Cooperation and Development (OECD) Arrangement on tied aid credits seemed to be having

some effect, and there was a hope that further progress could be

made. Tied aid transactions (excluding Japan) have decreased from

$9 billion in 1992 to $3.8 billion in 2000. However, Japan has shifted some of its financing from untied aid to tied aid, and now represents 70 percent of all financing attributable to tied aid.

In addition, according to the most recent international data, in 1998 there was nearly $500 billion in export credit issued around

the world by export credit agencies of other governments. Ex-Im

Bank’s share of that was only $13 billion. The U.S. now ranks seventh in export credit activity behind Japan, France, Korea, Canada, Germany, and the Netherlands. Foreign governments have

also been utilizing other mechanisms such as market windows and

untied aid to get around the OECD Arrangement.

In light of these developments, the proposal in the Administration’s budget to reduce funding for the Ex-Im Bank by 25 percent

was a subject of concern raised by members of the Committee

present at the hearings held on May 17 and June 19. Given the

growing use of export credits by foreign governments and efforts to

get around the restrictions that exist, concern was expressed that

this was not the time to reduce the resources of the Ex-Im Bank.

Concern was also expressed about proposals floated by OMB to

compensate for the proposed reduction in funding by raising the

fees on Ex-Im Bank loans, reducing the proportion of Ex-Im Bank

financing in export deals, and imposing a more stringent standard

on whether an export deal really requires Ex-Im Bank financing.

It was not clear that these proposals were being developed with

consideration of the lending policies of the export credit agencies of

other countries to determine how these proposals would affect the

competitiveness of Ex-Im Bank financing.

During the Committee’s consideration of the Export-Import Bank

Reauthorization Act of 2001, seven issues were the focus of attention and action: the Tied Aid Credit Fund of the Ex-Im Bank; the

term of the reauthorization of the Ex-Im Bank; the competitive

challenge to the Ex-Im Bank posed by foreign market windows; ExIm Bank financing for small business; the need for an Inspector

General for the Ex-Im Bank; the Ex-Im Bank’s policy on the domestic economic impact of exports financed by the Ex-Im Bank;

and the collection of information on the activities of foreign export

credit agencies as part of the Ex-Im Bank’s annual competitiveness

report. Following is a discussion of these issues and the actions

taken by the Committee.

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Tied Aid Credit Fund

Perhaps the issue that gained the most attention during the subcommittee hearings on May 17 and June 19 was the Tied Aid Credit Fund. In particular, the experience of Valmont Industries of

Omaha, Nebraska, a leading irrigation equipment manufacturer,

was the subject of considerable discussion.

The senior vice president of Valmont was a witness at the May

17 hearing. According to his testimony, Valmont had applied to the

Ex-Im Bank for tied aid financing to match the bid of an Austrian

company supported by government tied aid financing. Ex-Im Bank

staff carefully reviewed the application and determined that the

application had merit and could lead to significant follow-on sales

for Valmont. At a meeting of the Ex-Im Bank Board on March 1,

Ex-Im Bank staff joined with the Commerce Department representative present in recommending approval of the application. Disagreeing with the Ex-Im Bank’s analysis, the Treasury Department

recommended against approval. After considering the recommendations, the Ex-Im Bank Board voted 4–0 in favor of the application.

However, after the Board’s vote, discussions were held between

representatives of the Ex-Im Bank and Treasury. Ex-Im Bank

afterward sent Valmont a letter indicating that the Bank was unable to take favorable action on its request. Subsequently Valmont

lost the deal.

At the June 19 hearing with the Ex-Im Bank and Treasury,

members of the Committee expressed deep concerns over the handling of the case. First, there appeared to have been a lack of consultation between the Treasury Department and Ex-Im Bank prior

to the meeting of the Ex-Im Bank Board on March 1. Second, most

previous disagreements between the Ex-Im Bank and the Treasury

Department had been resolved prior to Board meetings. Never before had a case approved by the Board been overturned.

The Ex-Im Bank Charter provides that the tied aid credit program shall be administered by the Ex-Im Bank ‘‘in consultation

with the (Treasury) Secretary and in accordance with the Secretary’s recommendations on how such credits could be used most

effectively and efficiently to carry out the purposes’’ described in

the charter. These purposes are focused on efforts to enforce and

facilitate new international agreements restricting the use of tied

aid. The Charter was amended in 1992 to give the Ex-Im Bank additional authority to match foreign tied aid credits when it determines that ‘‘United States trade or economic interests justify the

matching’’ even if the foreign credits are in compliance with an

international agreement.

As noted, in the past Ex-Im Bank and the Treasury Department

have collaborated closely on the use of the Tied Aid Credit Fund.

The Treasury, which has lead responsibility in negotiating arrangements in the OECD to limit export credits, has provided general

guidance to Ex-Im Bank on how the Tied Aid Credit Fund could

be used to advance the negotiating objectives. While agreement has

usually been reached on individual tied aid cases, when disagreements have arisen in the past, Treasury has deferred to the judgment of the Ex-Im Bank Board. That did not occur in this case.

The Valmont case therefore generated serious concern among

members of the Committee. It is the view of the Committee that

while the Treasury Department has responsibility to provide overVerDate 11-MAY-2000 02:17 Aug 09, 2001 Jkt 089010 PO 00000 Frm 00008 Fmt 6659 Sfmt 6602 E:\HR\OC\SR052.XXX pfrm03 PsN: SR052
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all policy guidance to the Ex-Im Bank on the use of the Tied Aid

Credit Fund as it relates to furthering international negotiations to

restrict the use of tied aid credits, final case by case decisions on

the use of the Tied Aid Credit Fund, after consultation with the

Treasury, are the responsibility of the Ex-Im Bank. The members

of the Committee at the June 19 hearing strongly urged the ExIm Bank and the Treasury Department to work out a set of procedures for consultation that would avoid a recurrence of what happened in the Valmont case.

Subsequent to the hearing, Ex-Im Bank and the Treasury Department engaged in an extended effort to address this problem. As

a result, a written set of procedures and principles were worked

out by Ex-Im Bank and Treasury. The procedures provide for extensive consultations between Ex-Im Bank and Treasury over all

tied aid credit applications, including direct consultations between

the Ex-Im Bank and Treasury over all tied credit applications, including direct consultations between Ex-Im Bank and the Secretary

of the Treasury. The procedures also provide that the ‘‘Ex-Im

Bank’s Board will not take any final action on any tied aid application unless the procedures for Ex-Im Bank/Treasury cooperation’’ are followed. In the view of the Committee this means that once

the procedures are followed, the final case by case decisions on the

use of the Tied Aid Credit Fund are the responsibility of the ExIm Bank Board.

The principles provide that ‘‘Tied aid matching cases are reviewed by Ex-Im Bank’s Board of Directors, with input from other

agencies, especially from the Treasury Department, which has policy oversight responsibility.’’ This is consistent with the Committee’s understanding of Treasury’s role in the Tied Aid Credit Fund.

A copy of the procedures and principles is contained as an Appendix to this Committee Report. The Committee hopes that the

implementation of these procedures and principles will avoid a recurrence of the kind of problem illustrated by the Valmont case.

Term of reauthorization

The Export-Import Bank Reauthorization Act of 2001 provides a

5-year reauthorization of the Export-Import Bank. The Administration recommended a 4-year reauthorization.

The Committee intentionally provides a 5-year authorization in

order to take the reauthorization of the Ex-Im Bank out of the

Presidential election cycle. When the reauthorization of the Ex-Im

Bank falls in the first year of a President’s term, it runs the risk

that a new President will be taking office, as occurred this year.

In that case, a new Administration must struggle not only to put

in place a new Chairman of the Ex-Im Bank but also cope with

providing leadership for the reauthorization of the Ex-Im Bank as

well. The Committee believes that it makes more sense to put the

reauthorization of the Ex-Im Bank in the second year of a President’s term to assure that a new Ex-Im Bank Chairman has been

put in place and has been on the job with sufficient time to provide

leadership for the reauthorization of the Bank.

Market windows

In hearings held in the International Trade and Finance Subcommittee on May 17 and June 19, witnesses from industry, acaVerDate 11-MAY-2000 02:17 Aug 09, 2001 Jkt 089010 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\SR052.XXX pfrm03 PsN: SR052
6

demia, and the Administration commented on the growing challenge to U.S. exporters posed by foreign market windows.

For the purposes of this reauthorization, the term ‘‘market windows’’ means any government-supported entity or any facility provided by a government-supported entity that provides export financing that is claimed not to be subject to the disciplines of the

Arrangement on Guidelines for Officially Supported Export Credit

established through the Organization for Economic Cooperation

and Development (OECD). Since the OECD Arrangement has not

agreed upon a definition of market windows, the Committee refrained from including a definition in the statute. This definition

is provided in the Committee Report as guidance for implementation of the statute with the expectation that the international understanding of the meaning of the term may evolve.

Market windows are government-sponsored enterprises (for example, government owned or directed financial institutions) which

provided export financing at below market rates. However, the foreign governments—notably Germany and Canada—which support

them claim that these enterprises are not official export credit

agencies, and thus not subject to the disciplines of the OECD Arrangement. Currently, two government entities operate very active

market windows. They are the German market window KfW and

the Canadian market window, the Export Development Corporation (EDC). The result is that these foreign market windows can

provide subsidized export financing outside the OECD Arrangement and give their exporters a competitive advantage over U.S.

exporters. Also, because these foreign market windows are not subject to the OECD disciplines, there is often a transparency problem—it is difficult to find out the terms of the financing they provide.

The Ex-Im Bank Act currently authorizes the Ex-Im Bank to ‘‘provide guarantees, insurance, and extensions of credit at rates

and on terms and other conditions which are fully competitive with

the Government-supported rates and terms and other conditions

available for the financing of exports of goods and services from the

principal countries whose exporters compete with the United

States.’’ Since market windows are government-supported entities,

the Ex-Im Bank views its current statute as providing Ex-Im Bank

authority to match market windows financing (but not to create its

own market windows institutions). The Committee agrees with

that view. However, the Committee believed it would be helpful to

make this authority explicit so as to remove any question about ExIm Bank’s authority and also to send a message to the foreign market windows of U.S. concern about their operations.

As a result, the Committee adopted by voice vote at its markup

on July 18 an amendment offered by Senators Hagel, Bayh, and

Sarbanes. The amendment had two provisions. First, it directed the

executive branch to seek increased transparency over the activities

of market windows in the OECD Export Credit Arrangement. If it

is determined that market windows are disadvantaging U.S. exporters, the U.S. would be directed to seek negotiations in the

OECD for multilateral disciplines and transparency for market

windows.

Second, the amendment explicitly authorized the Ex-Im Bank to

provide financing on terms and conditions that are inconsistent

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with those permitted under the OECD Export Credit Arrangement

to match financing terms and conditions that are being offered by

market windows if such matching advances negotiations for multilateral disciplines and transparency within the OECD, or when

market windows financing is being offered on terms that are more

favorable than available from private financial markets. Ex-Im

Bank could also match market window financing when the market

window refuses to provide sufficient transparency to permit Ex-Im

Bank to determine the terms and conditions of the market window

financing. The Committee understands that Ex-Im Bank has the

authority to match market windows financing that is consistent

with the terms of the OECD Arrangment.

In addition, the Committee held the view that increased information was needed on the activities of foreign market windows. As a

result, Section 3 of the bill specifies that the Bank’s annual report

to Congress on export credit competition should include information on export financing available to foreign competitors through

market windows.

The Committee believed that it was very important to make clear

that Ex-Im Bank has the authority to match market windows financing in order to allow U.S. exporters to compete on a level playing field, and to direct the executive branch to seek negotiations in

the OECD for multilateral disciplines and transparency for market

windows financing.

Small business financing by the Ex-Im Bank

The Committee has strongly supported the Ex-Im Bank’s efforts

to provide export financing for small business. The Ex-Im Bank Act

currently requires that ‘‘the Bank shall make available, from the

aggregate loan, guarantee, and insurance authority available to it,

an amount to finance exports directly by small business concerns

which shall not be less than 10 percent of such authority for each

fiscal year.’’

During the Committee’s markup on July 18, Senator Allard offered an amendment which would have increased to 25 percent by

2004 the portion of Ex-Im Bank’s financing devoted to small business. Senator Sarbanes offered a second degree amendment, which

was adopted, to increase the amount to 18 percent.

According to the Ex-Im Bank, in FY 2000 small business comprised 18 percent of the total value of all Ex-Im Bank financing authorizations and 86 percent of all transactions supported by Ex-Im

Bank. In FY 1999 these numbers were 16 percent and 86 percent

respectively. In FY 1998 they were 21 percent and 85 percent respectively.

The Committee believed that the requirement for Ex-Im Bank

small business financing could reasonably be raised to a level of 18

percent without causing disruption to Ex-Im Bank’s lending programs. Ex-Im Bank remains free to go above this level, as it has

in the past, but the Committee was concerned that requiring a

higher level could have the unwanted effect of tying up available

Ex-Im Bank resources if the Ex-Im Bank could not achieve higher

levels of small business financing in a given year.

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Inspector General for Ex-Im Bank

During the Committee markup on July 18, Senator Allard offered

an amendment that would establish an Inspector General for the

Ex-Im Bank. Members of the Committee agreed in principle that

Ex-Im Bank could benefit from having an Inspector General. Senator Dodd suggested, however, that it might be a better use of ExIm Bank’s limited resources for Ex-Im Bank to share an Inspector

General with the Agency for International Development, which already has such a sharing relationship with the Overseas Private

Investment Corporation (OPIC). Senator Gramm suggested that

the Ex-Im Bank share an Inspector General with OPIC, as both are

independent agencies with related purposes. Senator Allard withdrew his amendment with the understanding that an effort would

be made to reach an agreement so that this issue could be addressed on the Senate floor.

Ex-Im Bank’s economic impact standard

The Export-Import Bank Act requires the Ex-Im Bank to assess

whether its loans are likely to cause substantial injury to U.S. industry, and not to extend such support if the loans would have an

adverse impact on U.S. production and employment.

During the Committee markup on July 18, Senator Bayh offered

an amendment with Senators Shelby, Stabenow, and Schumer that

would prohibit the extension of a loan or guarantee by the Ex-Im

Bank to any entity subject to a countervailing duty or antidumping

order. This is consistent with the Bank’s current practice.

In addition, the amendment would also prohibit the extension of

a loan or guarantee by the Ex-Im Bank to any entity subject to an

investigation under the countervailing duty and antidumping laws

unless the Bank determines that the loan or guarantee would not

result in increased imports of the product covered by the investigation and would not adversely affect the domestic industry. It is a

more heightened level of scrutiny than the Bank currently practices. The Bank does not currently take preliminary investigations

into account. Under a proposed revision to current Ex-Im Bank

procedures, the existence of countervailing duty or antidumping investigations could be considered by the Ex-Im Bank when making

loan guarantee decisions.

Under the amendment, the Bank would also be required to solicit

comments from parties who would be substantially adversely affected by a proposed loan or guarantee regarding the existence and

magnitude of excess capacity in the affected industry and the potential adverse impact on U.S. production and employment. Again

a similar approach is being considered by the Ex-Im Bank in its

proposed revisions.

The amendment by Senator Bayh was prompted by Ex-Im Bank’s

approval in December 2000 of a loan guarantee for a project that

will increase by 1.5 million metric tons hot-rolled steel capacity at

the Benxi Iron and Steel Company in China. That decision was

made at a time when, in the view of the proponents of the amendment, the existence of excessive foreign steel capacity was well

known and the domestic steel industry was in a state of severe crisis caused by foreign steel producers dumping into U.S. markets

causing the loss of over 20,000 jobs. The Ex-Im Bank, which previously has both approved and disapproved steel-related projects,

9

in this case approved the guarantee based upon its conclusion that

the additional capacity would not displace U.S. steel production.

The proponents of the amendment expressed concern that the ExIm Bank should not fund projects that will lead to increased global

oversupply and injury to U.S. workers and businesses. The loan

was extended over opposition from other members of the Administration. Secretary of Commerce Norman Y. Mineta wrote to the ExIm Bank in vigorous opposition to the loan; Secretary of the Treasury Lawrence Summers wrote to the World Bank calling on all financial institutions to withhold financing for overseas steel

projects.

After objections were raised by members of the Committee that

the amendment was overly broad, Senator Bayh withdrew the

amendment with an understanding that an effort would be made

to work out an agreement to address the issue prior to Senate floor

consideration of the bill.

Ex-Im Bank competitiveness report

Section 3 of the Export-Import Bank Reauthorization Act makes

a number of changes to Ex-Im Bank reporting requirements to ensure more timely and complete reporting of the activities of foreign

export credit agencies.

Section 3 requires the Ex-Im Bank to submit its annual competitiveness report to Congress not later than June 30 of each year.

Currently, the annual competitiveness report comes to Congress in

late summer/early autumn, too late to be used for any oversight or

legislation in any given year. Also, with the current submission

date, the Advisory Committee’s annual recommendations, completed in December each year, are eight to nine months old. Finally, by moving the reporting date to June 30, the Ex-Im Bank

will have ample time to include data on other report credit agencies, in light of the fact that the Berne Union reports on global export credit agency activity come in forty-five (45) days after the

close of each quarter.

As previously mentioned, Section 3 also specifies that the Bank’s

annual competitiveness report to Congress should include information on export financing available to foreign competitors through

market windows. As noted above, for the purposes of this Act, the

term market windows means any government-supported entity or

any facility provided by a government-supported entity that provides export financing that is claimed not to be subject to the disciplines of the Arrangement on Guidelines for Officially Supported

Export Credit established through the Organization for Economic

Cooperation and Development.

Finally, Section 3 requires the Ex-Im Bank to estimate the annual amount of export financing available from the government

and government-related agencies and include that information in

Ex-Im’s annual competitiveness report. The Ex-Im Bank shall use

the quarterly and annual data from the Berne Union or other

sources in preparing these annual estimates. If the Bank deems

the sources or information to be sensitive, that information may be

transmitted to Congress on a confidential, or classified, basis.

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SECTION-BY-SECTION ANALYSIS

Section 1. Short title

Section 1 provides that this Act may be cited as the ‘‘Export-Import Bank Reauthorization Act of 2001’’.

Section 2. Extension of authority

Section 2 extends the expiration date of the Export-Import Bank

Act from September 30, 2001 to September 30, 2006.

Section 3. Sub-Saharan Africa advisory committee

Section 3 extends the expiration date for the sub-Saharan Africa

advisory committee of the Export-Import Bank from September 30,

2001 to September 30, 2006.

Section 4. Guarantees, insurance, extension of credit

Section 4 requires the Ex-Im Bank to submit its annual competitiveness report to Congress not later than June 30 of each year.

Section 3 also specifies that the Bank’s annual report to Congress

on export credit competition should include information on export

financing available to foreign competitors through market windows.

Finally, Section 3 requires the Ex-Im Bank to estimate the annual

amount of export financing available from the government and government-related agencies and include that information in Ex-Im’s

annual competitiveness report.

Section 5. Financing for small business

Section 5 increases from 10 percent to 18 percent the amount the

Ex-Im Bank must make available of its aggregate loan, guarantee,

and insurance authority each fiscal year to finance exports directly

by small business concerns.

Section 6. Market windows

Section 6 directs the U.S. to seek negotiations for multilateral

disciplines and transparency for market windows within the OECD

Export Credit Arrangement. It also authorizes the Ex-Im Bank to

match market windows financing that is inconsistent with the Arrangement if the matching advances OECD negotiations or the

market windows financing is offered on terms and conditions more

favorable than financing available from private financial markets.

REGULATORY IMPACT STATEMENT

Pursuant to rule XXVI, paragraph 11(b), of the Standing Rules

of the Senate, the Committee has evaluated the regulatory impact

of the bill and concludes it would result in no net increase in the

regulatory burden imposed by the Government.

COST OF LEGISLATION

The cost estimate of the Congressional Budget Office appears

below:

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U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, July 27, 2001.

Hon. PAUL S. SARBANES,

Chairman, Committee on Banking, Housing, and Urban Affairs,

U.S. Senate, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for a bill to reauthorize the Export-Import Bank of the United States.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Joseph C. Whitehill.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

S. 1372—A bill to reauthorize the Export-Import Bank of the United

States

Summary: The bill would extend the authority of the Export-Import Bank of the United States (Eximbank) to enter into new direct

loan obligations and new guaranteed loan commitments through

2006. The bill would authorize new efforts by the U.S. government

to bring export financing (so called ‘‘market windows’’) offered by

certain foreign banks owned or supported by their governments

into compliance with the terms of the export credit arrangement

among the major exporting countries. It would also increase the

Eximbank’s set-aside for financing exports by small businesses

from 10 percent to 18 percent of its credit obligations and commitments. Finally, the bill would continue the sub-Saharan Africa Advisory Committee and add new reporting requirements.

Assuming the appropriation of the necessary amounts, CBO estimates that implementing the bill would cost $202 million in 2002

and $3.2 billion over the 2002–2006 period. Because the bill would

not affect direct spending or receipts, pay-as-you-go procedures

would not apply.

This legislation contains no intergovernmental or private-sector

mandates as defined in the Unfunded Mandates Reform Act

(UMRA) and would not affect the budgets of state, local, or tribal

governments.

Estimated cost to the Federal Government: The estimated budgetary impact of the bill is shown in the following table. The costs

of this legislation fall within budget function 150 (international affairs).

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006

SPENDING SUBJECT TO APPROPRIATION

Spending under current law:

Estimated budget authority 1 .................................. 910 49 41 37 31 31

Estimated outlays .................................................... 813 628 306 186 102 68

Proposed changes:

Estimated authorization level 2 ............................... 0 887 918 946 971 993

Estimated outlays .................................................... 0 202 571 725 834 889

Spending under the bill:

Estimated authorization level 1 2 ............................. 910 936 959 983 1,002 1,024

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By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006

Estimated outlays .................................................... 813 830 877 911 936 957

1 The 2001 level is the amount appropriated for that year.

2 The estimate assumes that funding for Eximbank would continue at the 2001 level adjusted for inflation. Funding at the 2001 level with- out adjustment for inflation would lower outlays by $7 million in 2002 and by $0.2 billion over the 2002–2006 period.

Basis of estimate: The Eximbank provides about $12 billion annually in loans and guarantees to finance the export of United

States’ goods and services. The bill would extend the Eximbank’s

authority to provide financing through 2006, an additional five

years. The estimate assumes the Eximbank would receive appropriations for administrative expenses and the cost of new loans and

guarantees, as defined by the Federal Credit Reform Act, at the

start of each fiscal year and that outlays would follow historical

patterns.

CBO’s estimate of spending under current law assumes there

would be no future appropriations for the cost of new credits and

that administrative expenses would be reduced to the level necessary to service outstanding credits. Under the bill, CBO assumes

that spending by the Eximbank would continue at the 2001 level

adjusted for inflation.

The bill would encourage the Eximbank to seek negotiations that

would bring the terms of market windows and the information

made available about them into compliance with the export credit

arrangement of the Organization for Economic Cooperation and Development. The bill would authorize the Eximbank to offer financing on terms and conditions more generous than permitted under

the arrangement, if necessary, to advance these negotiations, or if

a foreign government refuses to provide information on its market

windows. Based on information from the Administration, it appears

that the most likely variances from arrangement terms that could

be offered under the bill would be longer loan maturities or increased financing to cover 100 percent of value of an export.

Market windows are typically available to borrowers with low or

moderate risk. CBO estimates that increasing the maximum maturity of Eximbank’s credits from 12 years to 15 years would increase

the cost of moderate risk credits by 2 percent. For example, providing $1 billion in financing with longer terms would require an

additional $20 million in subsidy appropriations. Similarly, financing 100 percent of the value of $1 billion in exports would increase

the cost of financing by another $10 million.

Given the uncertainty of how the Eximbank might implement

the new provision and what its potential future financing requirements might be, CBO estimates that Eximbank could continue to

provide $12 billion to $14 billion a year in financing under the bill

with a subsidy appropriation at baseline levels. This estimate takes

into account the fact that, while more generous terms would increase the cost of financing any particular export, the Office of

Management and Budget’s economic and technical assumptions for

2002 would lower the estimated cost of Eximbank financing in general. A program level of $13 billion in new credits in 2002 would

require $100 million less in subsidy appropriations than it did in

2001. Higher costs for credits targeted at market windows could be

offset by the lower estimated cost of lending within arrangement

terms.

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Increasing the set-aside for exports by small businesses to 18

percent would bring the statutory floor to about the ratio of current

operations. Based on information from the Eximbank, CBO estimates that increasing the set-aside would not significantly affect

its lending and that the other provisions in the bill would not significantly increase the institution’s administrative expenses.

Pay-as-you-go considerations: None.

Intergovernmental and private-sector impact: This bill contains

no intergovernmental or private-sector mandates as defined in

UMRA and would not affect the budgets of state, local, or tribal

governments.

Estimate prepared by: Federal costs: Joseph C. Whitehill; Impact

on State, local, and tribal governments: Elyse Goldman; Impact on

the private sector: Paige Piper/Bach.

Estimate approved by: Robert A. Sunshine, Assistant Director for

Budget Analysis.

CHANGES IN EXISTING LAW

The Committee has determined that it is necessary, in order to

expedite the business of the Senate, to dispense with the requirements of rule XXVI, paragraph 12, of the Standing Rules of the

Senate, with respect to this legislation.

(15)

APPENDIX

PROCEDURES FOR ENHANCED EX-IM/TREASURY COOPERATION ON TIED

AID TRANSACTIONS

1. Ex-Im and Treasury staffs shall promptly share with each

other all written materials received from exporters, other government agencies, or third parties, relating to proposed or pending ExIm Bank tied aid transactions. In particular, Ex-Im staff shall provide Treasury staff with a copy of each tied-aid application received

by Ex-Im Bank within 5 business days of receipt.

2. Within 10 business days of receiving an application or inquiry

on possible tied aid use, Ex-Im staff (after consulting with Treasury

staff) will contact the exporter/applicant and either provide a preliminary indication on the likelihood that the transaction would

meet the parameters for tied aid use or identify specific information needed for Ex-Im and Treasury staff to provide such an indication.

3. In order to further the negotiations of improved OECD tied aid

rules or enforce compliance with existing OECD rules, Treasury

staff may recommend that the Bank support specific tied aid applications or that the Bank support tied applications countering certain categories of foreign aid credits.

4. Ex-Im staff shall send Treasury staff a report at each month’s

end indicating the status of pending and outstanding tied aid

transactions. Where there is a significant mid-month status

change, Ex-Im staff shall alert Treasury staff.

5. Within 30 business days of receipt of a tied aid application,

Ex-Im and Treasury staffs shall meet to discuss their preliminary

views on the merits of the application and to develop an approach

regarding processing of the application.

6. Ex-Im staff shall provide Treasury staff drafts of all tied-aid

Board memos at least 10 business days before the projected date

for final-memo distribution. Within 5 business days of receiving

such drafts, Treasury staff shall either provide written comments

to Ex-Im Bank staff or provide written notice that Treasury staff

has no comments. Written comments or a statement of Treasury

staff’s views shall be attached to the Board memos. Treasury staff

may request in writing that distribution of the final memo and

Board consideration of the application be delayed for up to 10 business days in order to provide additional time for consultation or for

Treasury to submit written comments. Any such written request

received prior to the close of the business day immediately preceding the scheduled Board meeting will be honored by Ex-Im

Bank. If, after these consultations, Treasury and Ex-Im staffs disagree on the merits of a particular matching tied aid offer, Board

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consideration of the application shall be delayed for up to an additional 10 business days during which time the Under Secretary of

the Treasury for International Affairs and the Ex-Im Bank Chairman will meet to seek to resolve the differences. Should agreement

not be reached following such consultation, within 10 business days

the Secretary of the Treasury and the Ex-Im Bank Chairman shall

exchange letters setting forth their written views on how agreement might be reached.

7. Ex-Im Bank’s Board will not take any final action on any tied

aid application unless the procedures for Ex-Im Bank/Treasury cooperation described above have been followed.

Review

Treasury and Ex-Im Bank staff will meet on an annual basis to

review and discuss data and trends on the application for and use

of the War Chest and the use of tied aid credit financing by foreign

governments.

Treasury and Ex-Im Bank staff will meet on a semi-annual basis

to review Ex-Im Bank and Treasury cooperation with respect to the

administration of the War Chest and to discuss any changes to the

procedures outlined above that may be necessary to improve cooperation and more effectively administer the program.

The Annual Tied Aid Report to Congress, which Ex-Im Bank

staff and Treasury together prepare, will henceforth contain a section reviewing Ex-Im and Treasury cooperation with respect to this

Understanding.

PRINCIPLES AND GUIDANCE FOR THE TIED AID WAR CHEST

Principle No. 1. The Tied Aid War Chest is a resource that

should be used purposefully and selectively, with the simple standard being that applications would be where there is a clear and

precise purpose evidenced. Such use not only maximizes the probable value of its employment, but also enhances the actual deterrence value of the amounts remaining.

Principle No. 2. The War Chest is not to be applied ‘‘offensively’’;

that is, there will be no initiation of Tied Aid using the War Chest.

Rather, the War Chest will be used to counter situations where

there is a reasonable evidentiary basis that there is (either formally or informally) a foreign tied aid offer. In countering such offers the U.S. offer is not necessarily contained by the terms of the

original offer. Moreover, the ‘‘no initiation’’ principle does not preclude technical initiation when the approach is the only way to effectively counter the offer of another country.

Principle No. 3. A prime use of the War Chest is to ‘‘police’’ the

Helsinki accords—aggressively counter such actions as de facto tied

aid (so called ‘‘untied’’ aid), absence of mandated notification rules,

or refusal to abide by Consultation findings. In this context, Treasury has an explicit right (or ‘‘put’’) to recommend Tied Aid use for

specific cases—or categories of cases—in support of Tied Aid Negotiating objectives.

Principle No. 4. Another prime (not secondary) use is in defending U.S. exporters from examples or patterns of use that effectively

(whether intentional or not) form a threat to long-run U.S. market

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share/access in merging markets. The idea is to respond to reasonable evidence of tied aid use that may create long-run trade advantage for foreign exporters.

Principle No. 5. Any use of the War Chest should be for a project

which meets Ex-Im Bank’s environmental guidelines.

Tied aid defined

Tied aid is government-to-government concessional financing of

public sector capital projects in developing countries. Tied aid is

provided by the aid agencies of OECD member governments, sometimes in joint financing packages with their national export credit

agencies (their ex-im banks), or by their export credit agencies

alone. Tied aid terms are much more concessional than the typical

export credit terms offered by Ex-Im Bank and its counterparts.

Tied aid usually involves total maturities longer than 20 years; interest rates equal to one-half to two-thirds of market rates in the

currency of denomination; or large grants (equal to 35 percent or

more of contract value) offered in conjunction with regular export

credits. Regular export credits—involving terms up to and including 10–12 years—are not tied aid, and are not the subject of this

Fact Sheet.

Principles for use of the Tied Aid War Chest

1. The Tied Aid War Chest is a resource that is governed by the

simple standard of purposeful and selective use to deter or defend

against foreign tied aid that distorts trade, and is utilized so as to

maximize the value of these resources. A prime use of the War

Chest is to leverage OECD negotiations to restrict the scope for

aid-financed trade distortions through new multilateral rules, and

to police existing multilateral rules. Another prime use is to defend

U.S. exporters from examples or patterns of foreign tied aid use

that effectively (whether intentional or not) form a significant

threat to U.S. market share/access in emerging markets. In this regard, its aim is to deter, or if not possible, to match trade distorting

foreign tied aid offers by reopening bid opportunities closed to U.S.

exporters by foreign tied aid offers.

2. The War Chest is not to be applied ‘‘offensively’’ to introduce

tied aid into an export competition; that is, there will be no initiation of tied aid using the War Chest to give exporters an advantage over standard export credits. Rather, the War chest will be

used to counter situations where there is credible evidence that a

foreign government is offering tied aid (formally or informally) to

distort trade to provide a significant competitive advantage for foreign exporters. The War Chest is not an instrument for the routine

support of U.S. exports and jobs. However, the ‘‘no initiation’’ principle does not preclude technical initiation when that approach is

the only way to effectively counter the offer of another country.

3. The War Chest will be used aggressively to counter violations

of the OECD tied aid rules. In pursuing this objective, the War

Chest will be used to counter uses of de facto tied aid (so-called untied aid), absence of mandated notification rules, exploitation of the

OECD exemption for small projects, or refusal to abide by Tied Aid

Consultations findings. More generally, Ex-Im Bank will consider

matching a foreign tied aid offer if it receives credible evidence that

18

another OECD member government’s export credit agency or aid

ministry is violating the internationally-agreed rules in letter or in

spirit for competitive gain. In using the War Chest to leverage negotiations for multilateral agreements to restrict aid-financed trade

distortions, Ex-Im Bank will work with Treasury to identify

projects or categories of projects where such financing can advance

U.S. international negotiating objectives.

4. Any use of the War Chest should be for a project which meets

Ex-Im Bank’s environmental guidelines.

Implementation of War Chest matching policy

Determination of eligibility for tied aid under the OECD rules

Before a foreign tied aid matching offer will be made, the Treasury Department (in coordination with Ex-Im) will try to determine

whether or not the project is eligible for tied aid under the OCED

rules. If the project appears ineligible for tied aid, Treasury will

‘‘challenge’’ the project in the OECD in order to have it formally declared ineligible for tied aid. In this case any OECD government

would be prevented from offering tied aid for the project under the

OECD tied aid rules and competition would proceed on market, or

standard Ex-Im Bank, financing terms. If the donor persists in an

offer determined by the OECD to be ineligible for tied aid, whether

through a direct violation of the rules or by seeking formally to derogate from the rules, Ex-Im Bank will automatically offer matching

financing.

If the project is eligible for tied aid, Ex-Im Bank will proceed consistent with timing needs of the case to evaluate the matching request against its principles.

Ex-Im Bank requires credible information about foreign tied aid

offers before offering specific matching terms. Ex-Im Bank has access to formal prior notifications of foreign tied aid offers required

under OECD tied aid rules. Ex-Im Bank will also review recipient

governments’ written or oral (e.g., to Ex-Im Bank or U.S. Embassy)

confirmations; press reports; and/or copies of correspondence or bilateral aid protocol agreements among foreign exporters, donor,

and recipient governments. Ex-Im Bank seeks as much of the following information as practicable regarding each foreign tied aid

credit for which matching is requested: specific financing terms (including currencies of denomination, grace periods, repayment

terms, interest rates, grant amounts); amounts of tied aid financing; dates of foreign tied aid offers; descriptions of projects; names

of donor agencies; names of recipient government agencies; names

of foreign exporters.

Ex-Im Bank carefully screens tied aid matching requests. Tied

aid matching cases are reviewed by Ex-Im Bank’s Board of Directors, with input from other agencies, especially from the Treasury

Department, which has policy oversight responsibility. Ex-Im Bank

prefers to use standard export credits and does not seek competitive advantage in approving tied aid. Ex-Im Bank does not offer

tied aid in order to reserve otherwise competitive contracts solely

for U.S. exporters; nor to induce approval of contracts that would

not otherwise be approved.

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Ex-Im Bank will consider as many of the following factors as

may be relevant to a specific case at a particular time:

The total budget cost of the transaction;

The clarity and extent of any pattern or trend indicating intent to use tied aid funds to acquire commercial advantage for

specific exporters or products;

The clarity and extent of any pattern or trend indicating intent by donor country to use tied aid funds as part of a national strategy of trade promotion;

The economic/developmental feasibility of structuring such

transactions in the specific market on standard export credit

terms;

The possible effect of the loss of the sale/access to market/

market share on the medium and long-term viability of the

supplier(s) as an entity or exporter;

The small business status of the supplier(s);

The nature of the export or project in terms of environmental

benefits;

The existence/reality of International Competitive Bidding

procedures;

The extent of competitor displacement;

The clarity and specificity of documents relating to the foreign tied aid offer;

The existence and extent of any pattern or trend in terms of

tied aid use by the donor country (i.e., is it a ‘‘spoiled market’’);

The ability of any War Chest use to be successful within the

bounds of the Helsinki rules;

The ability of any War Chest use to be successful without

posing a danger to the parameters to tied aid use derived from

case precedent and laid out in the Ex Ante Guidance; and

The available War Chest resources.

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