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S. HRG. 112–294 

STAKEHOLDER PERSPECTIVES ON REAUTHORIZATION OF THE EXPORT–IMPORT BANK OF THE 

UNITED STATES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

SECURITY AND INTERNATIONAL TRADE AND 

FINANCE 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING STAKEHOLDER PERSPECTIVES ON REAUTHORIZATION OF 

THE EXPORT–IMPORT BANK OF THE UNITED STATES 

JUNE 30, 2011 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

DAWN RATLIFF, Chief Clerk 

WILLIAM FIELDS, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON SECURITY AND INTERNATIONAL TRADE AND FINANCE

MARK R. WARNER, Virginia, Chairman 

MIKE JOHANNS, Nebraska, Ranking Republican Member 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

TIM JOHNSON, South Dakota 

MARK KIRK, Illinois 

NATHAN STEINWALD, Subcommittee Staff Director 

SARAH NOVASCONE, Republican Subcommittee Staff Director 

(II)

C O N T E N T S 

THURSDAY, JUNE 30, 2011 

Page 

Opening statement of Chairman Warner .............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Johanns ............................................................................................... 2 

Senator Bennet ................................................................................................. 3 

Senator Kirk 

Prepared statement ................................................................................... 25 

WITNESSES 

Osvaldo Luis Grataco ́s, Inspector General, Export–Import Bank ....................... 5 

Prepared statement .......................................................................................... 25 

Responses to written questions of: 

Senator Shelby ........................................................................................... 37 

Clay Thompson, Director, Global Government Affairs, Caterpillar, Inc. ............ 6 

Prepared statement .......................................................................................... 28 

Douglas Norlen, Policy Director, Pacific Environment ......................................... 8 

Prepared statement .......................................................................................... 31 

David Ickert, Vice President, Air Tractor, Inc., on behalf of the Small Business Exporters Association .................................................................................. 9 

Prepared statement .......................................................................................... 33 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Statement submitted by Thea Mei Lee, Deputy Chief of Staff, American 

Federation of Labor and Congress of Industrial Organizations ....................... 42 

Statement submitted by Owen E. Herrnstadt, Director, Trade and 

Globalization, International Association of Machinists and 

Aerospace Workers ............................................................................................... 43 

Joint statement submitted by American Apparel and Footwear Association, 

National Cotton Council, and National Council of Textile Organizations ...... 45 

Statement submitted by Air Transport Association of America, Inc. .................. 47 

(III)

(1) 

STAKEHOLDER PERSPECTIVES ON REAUTHORIZATION OF THE EXPORT–IMPORT 

BANK OF THE UNITED STATES 

THURSDAY, JUNE 30, 2011 

U.S. SENATE, 

SUBCOMMITTEE ON SECURITY AND INTERNATIONAL TRADE AND

FINANCE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Subcommittee met at 10:06 a.m., in room SD–538, Dirksen 

Senate Office Building, Hon. Mark Warner, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN MARK R. WARNER 

Chairman WARNER. Good morning, and I want to welcome everyone to this hearing of the Subcommittee on Security and International Trade and Finance, ‘‘Stakeholder Perspectives on Reauthorization of the Export-Import Bank of the United States.’’ I 

want to mention, as I was going down and introducing myself to 

the witnesses, a number of them said, ‘‘Hello, Mr. Chairman,’’ and 

I realized that while I have had the chance to sit temporarily in 

this chair before, I have never been addressed that way since it 

seems not that long ago—it was not that long ago that I was the 

last seat on the dais down to the right, so I am anxious to—I look 

forward to chairing this hearing with my good friend, the Ranking 

Member, Senator Johanns, and we look forward to a productive 

morning. 

The hearing this morning adds to the oversight record of the full 

Banking Committee on the Export-Import Bank. Last month Chairman Johnson held a hearing in the full Committee with Chairman 

Hochberg of the Bank. The Senate also recently confirmed two of 

the Bank’s Board members. Those hearings are important not just 

for the normal oversight of the Committee, but because of the 

Bank’s authorization is set to expire on September 30th of this 

year. A new reauthorization must be signed into law before that 

date in order for the Bank to continue operating. That sounds 

strangely reminiscent of another issue which we have got a deadline fast approaching. 

This reauthorization will take place during a period that may be 

as important as any in the Bank’s history. A core objective of the 

Bank is to support American jobs, and the President has outlined 

a national export initiative that seeks to double American exports 

within 5 years. This initiative could not come at a more critical 

2 

time for job creation in this country. Although the United States 

remains the largest exporter in the world, it trails a number of 

countries in terms of trade as an percentage of GDP, and obviously 

we face increasingly sophisticated competition, especially at the 

high end of the value-added global supply chain. And it is remarkable to see countries like Brazil and China and their enormous export gains in the last few years and how some of their export support organizations compete with us. 

Obviously, this hearing and this reauthorization could not come 

at a more critical time as we talk about the Brazils and the Chinas 

and the emergence of the EU countries because other export credit 

assistance organizations around the world are, again, becoming 

more competitive. 

The financial sector, as we all know, is still recovering from the 

crisis of 2008, again, making the Bank’s actions even more important. And some of the deals that Ex-Im supports, such as infrastructure and development in poorer countries, have never been the 

high-yield, low-risk deals that the finance sector would prefer. So, 

again, with the gaps in traditional financing, again, making the 

role that Eximbank plays more important. 

On top of that, as I mentioned earlier, Eximbank faces increasing 

competition from foreign export credit agencies. While the members 

of the G-7 and other countries submit to negotiated limits on credit 

assistance, developing economies such as China, Brazil, and India 

do not adhere to those limitations. In the face of this new form of 

competition, the Bank must have the resources and the flexibility 

to compete. 

However, these resources and any flexibility cannot come without 

heightened transparency and accountability, and we cannot expect 

the Bank to be more competitive without being more efficient. 

The Bank, like many agencies, has a reputation for being bureaucratic and slow. While current leadership has done work to address this issue, the reality at the Bank is we need to ask if more 

can be done. In order to become more competitive, Eximbank must 

become more efficient. We have to look at whether new metrics and 

accountability measures can make the Bank a more attractive and 

customer-friendly source of financing for America’s exports and, as 

a result, help further the policy objective, including its core mission 

of supporting American jobs. 

There are a number of topics that I look forward to hearing from 

the panel on, and we will get to our witnesses in a moment, but 

I would like to turn it over to Senator Johanns, my friend and 

Ranking Member, for his opening comments. And it is great to see 

my colleague Senator Bennet here. I know he will have some lucid 

comments as well at the opening, and then I will introduce the witnesses, and we will go forward. 

Senator Johanns. 

STATEMENT OF SENATOR MIKE JOHANNS 

Senator JOHANNS. Well, let me start out and say thanks to the 

Chairman for holding the hearing today. As we can see from the 

deadline that is approaching, this is just an enormously important 

opportunity to look at what the Bank is doing. 

3 

As a former Secretary of Agriculture, I witnessed firsthand in a 

very real way the value of strong export policy. But I know I speak 

for the Chair and for myself when I say we also witnessed the importance of strong export policy when we were Governors, when we 

first had an opportunity to work together. 

It is without question certainly that one element of a robust export system is a strong Export-Import Bank. When I traveled the 

globe working on various trade agreements, financing was always 

a key point. I always asked myself how our global trading partners 

were accessing capital. That is where the Export-Import Bank 

comes into play, and it is why the Bank’s programs are so important. 

It is without question that the Bank plays an important role in 

supporting the export of American-made goods and American-provided services. This goes for large companies, but I also want to underscore that it needs to also apply for small ones, too. 

During the last reauthorization, many changes were made to improve the structure of the Bank, including economic impact procedures and enhanced small business efforts. It is my hope that we 

can build upon these previous changes and determine if there are 

additional reforms that the Committee should consider. Fundamentally, we are asking what is working and what is not. 

Because there are billions of potential global customers in both 

the emerging and the established markets for goods and services, 

we must ensure that we get them into consumers’ hands across the 

globe. We must do all we can to make sure we have a robust marketplace for our goods in other parts of the world. 

Well, I look forward to hearing the testimony of the witnesses 

today and I look forward to working with my friend and colleague 

Senator Warner on a timely reauthorization. 

Chairman WARNER. Thank you, Senator Johanns. And he does 

bring special expertise, a former Cabinet Secretary of Agriculture, 

and we had many opportunities to talk about export opportunities 

as Governors, and he is a great partner in this effort. 

Senator Bennet, do you have an opening statement? 

STATEMENT OF SENATOR MICHAEL F. BENNET 

Senator BENNET. I would just say, Mr. Chairman, thank you for 

holding the hearing. Thank you for your leadership of the Committee. There is a lot of concern in my State about how we are 

going to get this economy back on track and what we are going to 

do about the jobs that have been permanently lost in this recession. 

Every single month during the course of this recession, when we 

saw the job loss numbers, we also saw the productivity index rise. 

Firms were figuring out how to do what they were doing already 

with fewer people, and we have got to put folks back to work. And 

one of the critical ways of doing that is making sure that these export markets are as robust and as open as they can be for American goods and products. 

So the hearing is important. The work that the Bank does is critical to that, and I look forward to hearing the testimony. 

Thank you, Mr. Chairman. 

Chairman WARNER. Thank you, Senator Bennet. Again, I think 

we have all used the term, and I think probably the witnesses will 

4 

reaffirm this, that 95 percent of all the future customers for American businesses are abroad, and this is the opportunity we have. 

Before I introduce our witnesses today, I would like to state that 

I have several statements from Bank constituencies who have 

asked that their comments be part of the record. If there is no objection, I will enter those into the record. Without objection. And, 

of course, the Committee will consider these statements in the 

work in the future, and the record will stay open after the hearing 

for other statements. 

Chairman WARNER. I will now turn to our panel. We have four 

witnesses today, each with a different perspective on the Bank. 

The Honorable Osvaldo Luis Grataco ́s, Inspector General, Export-Import Bank of the United States. Mr. Grataco ́s and I apologize. 

Mr. GRATACO ́ S. You are more close than other people. 

[Laughter.] 

Chairman WARNER. Mas o menos? 

Mr. GRATACO ́ S. Mas o menos. 

Chairman WARNER. ——was sworn in as the second Inspector 

General of the Export-Import Bank of the United States on October 

18, 2010. Mr. Grataco ́s had been serving as the Acting Inspector 

General since October 2009. Before his nomination, he served as 

Deputy Inspector General and Counsel to the Inspector General. 

Mr. Grataco ́s joined the Eximbank OIG from Motorola where he 

worked as a commercial counsel, and before joining Motorola he 

served as attorney adviser and as legal counsel to the Inspector 

General at USAID. 

Our next witness after that will be Mr. Clay Thompson, director 

of Global Government Affairs, Caterpillar. Clay Thompson joined 

Caterpillar in 1997 and from 1997 to 2005 held positions of increasing responsibility in Caterpillar’s legal department. He left the 

legal department in January 2005 to become Caterpillar’s emerging 

markets strategy integration manager—that is a mouthful—for 

Caterpillar China and in August 2007 was named managing director of product for Caterpillar’s joint venture operations in Japan. 

In April 2009, Mr. Thompson returned to the United States to become director of Caterpillar’s Corporate Government Affairs Department here in Washington. He currently serves as treasurer of 

the U.S.–ASEAN Business Council and chairman of the Council of 

U.S.–Indonesia Business Committee. Mr. Thompson, thank you for 

being here as well. 

Mr. Doug Norlen, policy director, Pacific Environment. Mr. 

Norlen is policy director for Pacific Environment, serving on staff 

since 1995. Mr. Norlen specializes in the reform of multilateral 

trade and finance institutions and bilateral export credit agencies, 

obviously ECAs. In 2000, Mr. Norlen was appointed by U.S. Secretary of Commerce Bill Daley and U.S. Trade Representative 

Charlene Barshefsky to be the first environmental representative 

to the USTR’s Industry Sector Advisory Committee for Paper Products. Mr. Norlen, thank you for being here as well. 

Mr. David Ickert, Air Tractor Inc. on behalf of the Small Business Exporters Association. Mr. Ickert, vice president-finance of Air 

Tractor Inc. of Olney, Texas. Air Tractor is a small business engaged in the manufacture of agriculture and forestry firefighting 

5 

airplanes. The company has been in business since 1972 and is now 

100 percent employee owned. 

We look forward to the testimony of everyone, and let me acknowledge at the front end that Senator Johanns has got to step 

out about 10:35 or so, so if we could try to—I know we give everybody 4 to 5 minutes and try to adhere to that, I would like to let 

Senator Johanns get a first round of questioning in before he has 

to step out. 

Mr. Grataco ́s, if you could start your testimony, and then we will 

go down the line. Thank you. 

STATEMENT OF OSVALDO LUIS GRATACO ́ S, INSPECTOR 

GENERAL, EXPORT–IMPORT BANK 

Mr. GRATACO ́ S. Thank you, Mr. Chairman, Ranking Member 

Johanns, and Senator Bennet. Thanks for the opportunity to testify 

in front of you today about Eximbank and the OIG and the challenges the Bank is facing. Before I continue, I would like to thank 

the Almighty for this opportunity, my family, and the members of 

the OIG staff. 

In my remarks I will provide a brief history of the Office of Inspector General and some of its accomplishments. Then I will discuss some of the challenges and operational weaknesses that 

Eximbank is facing in performing its mission. 

Eximbank OIG was created by law in 2002, but the IG did not 

officially take office until August 2007. Since reaching its current 

staffing levels, the OIG has achieved noticeable success. Specifically, my office has issued 20 audit and special reports containing 

over 85 findings, recommendations, and suggestions for improving 

Eximbank programs and operations. 

On the law enforcement side, we have actions totaling 64 indictments and arrests, 9 convictions, 14 guilty pleas; and over 190 

management referrals for enhanced due diligence efforts. And we 

currently have 37 matters under investigation covering over 500 

transactions and $350 million in claims paid by Eximbank. 

Since 2009 the total overall IG financial impact is approximately 

$250 million, all of this with 11 staff, including myself, and a budget of $2.5 million. 

Eximbank is the official credit agency of the United States. It is 

experiencing an accelerated growth in the last few years. In order 

to provide a more effective and competitive environment, Eximbank 

needs to address some of its operational weaknesses. Some of these 

are—and we will talk in more detail later, but replacing an aging 

and ineffective IT infrastructure. The current IT infrastructure is 

old, fragmented, does not adequately support the Bank’s mission or 

business needs, limits the Bank’s ability to meet the market demands, and it requires manual inputs, leading to human errors. 

Lack of centralized and comprehensive participant data base that 

would allow the Bank to capture and track all the participants and 

all the transactions at once also limits our ability to do forensic 

work when we are doing proactive actions. Currently my office is 

undertaking a comprehensive audit of the IT systems, and we hope 

to have a report by next month that we can share with the Bank. 

Number two, reducing transaction approval times for short-term 

and medium-term programs. Eximbank recognizes this ineffectiveVerDate Nov 24 2008 11:43 Mar 16, 2012 Jkt 048080 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-30 AM DISTILLER\63011AM.TXT JASON
6 

ness in its process and is looking for ways to improve it. At the 

same time, my office is commencing an evaluation and review of 

the process to see where we can improve the business processes 

and improve the deficiencies of the Bank. 

Number three, the Bank needs to develop annual performance 

plans to measure programs and product effectiveness. This is something that my office has shared with the Bank, and the Bank has 

acknowledged the need to do this. So after discussions with my office, the Bank has agreed to develop performance plans starting in 

fiscal year 2012. 

Finally, we think that the Bank needs to continue its efforts to 

meet its small business goals. As you know, the Bank charter imposes a 20-percent small business participation requirement on all 

the authorizations per year. Eximbank has exceeded this mandate 

in the last 2 years and is expecting to exceed this mandate again 

in 2011. Some of the steps the Bank has taken to achieve this are 

the Global Access Forum, some educational forums that they do in 

different States, and also Webinars where small business can actually learn about the Bank products and steps. 

Chairman Warner, Senator Johanns, Senator Bennet, and distinguished Members of the Subcommittee, thank you once again for 

the opportunity to testify before you today, and I would be pleased 

to respond to any questions you may have. 

Chairman WARNER. Thank you for your comments. I look forward to the questioning opportunity. 

Mr. Thompson. 

STATEMENT OF CLAY THOMPSON, DIRECTOR, GLOBAL 

GOVERNMENT AFFAIRS, CATERPILLAR, INC. 

Mr. THOMPSON. Good morning, Mr. Chairman, Ranking Member 

Johanns, and Senator Bennet. Thank you very much for the opportunity to be with you today. 

In my written statement, I describe Caterpillar, Inc., and our 

global business model in some detail. I will not repeat all that for 

your this morning, but I do want to make sure you understand that 

Caterpillar is committed to its significant U.S. production base. We 

are investing $1.5 billion just this year toward expanding production capacity in the United States. Much of that additional capacity 

is intended to allow us to better serve our key export markets 

where our industry is growing rapidly and where our global leadership is being threatened by both our familiar competitors in Europe, Korea, and Japan, as well as new entrants emerging from 

China and India. 

Caterpillar customers have utilized Eximbank financing at relatively moderate levels in the past decade. We anticipate, however, 

that Eximbank will play a more significant role going forward due 

to at least two developments we are currently seeing in the marketplace and also noted in the Chairman’s opening remarks. 

First is the limited appetite of commercial lenders for large infrastructure project financing, especially in key emerging markets. We 

believe going forward that export credit agencies like Eximbank 

will play an important role, enabling us to improve access in 

emerging markets where commercial banks need credit enhanceVerDate Nov 24 2008 11:43 Mar 16, 2012 Jkt 048080 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-30 AM DISTILLER\63011AM.TXT JASON
7 

ments to support large project loans and augment commercial bank 

capacity. 

Second, we are seeing other sovereign export credit agencies targeting these strategic markets and partnering with our competitors 

to aggressively pursue the types of large infrastructure and mining 

projects in which we historically compete very favorably. 

In terms of the size and level of aggressiveness of global ECA activity, we fear the United States is being left behind. 

Make no mistake. Eximbank is a valuable tool for U.S. exporters, 

including Caterpillar. However, it could be much more effective and 

more competitive with other global ECAs. 

To enable this success, certain structural changes are necessary. 

My written statement focuses on three such issues that are most 

relevant to Caterpillar, and I will quickly summarize those this 

morning. 

First, the Bank should be reauthorized with an expanded financing limit. With approximately 90 billion in commitments already 

outstanding, the Bank is nearing its current $100 billion cap. Increasing the cap to $160 billion should create sufficient flexibility 

to allow the Bank to compete with other ECAs. 

Second, Eximbank should revise its local content policy. At 85 

percent, Eximbank’s local content requirement is simply out of 

whack with the rest of the world. The next lowest content percentage requirement belongs to Austria, at 50 percent. 

Finally, the cargo preference barriers should be removed. The 

Bank’s interpretation of a 1934 congressional resolution requires 

most transactions receiving direct loan or guarantee support from 

Eximbank to be shipped by a U.S.-flagged vessel. Due to the severe 

limitation in U.S.-flagged cargo capacity, this requirement drives 

cost increases and time delays that customers are simply unwilling 

to accept. In my written statement I describe a real-life example 

where the cargo preference requirement adds $6 million to a potential customer’s costs. It is not surprising that this requirement is 

leading customers to request that we source equipment to serve 

their order from outside the U.S. so that they can utilize more competitive and flexible ECA financing from other countries. If 

Eximbank is to truly become a competitive ECA fully supporting 

U.S. exporters and their employees, the cargo restrictions must be 

lifted. 

In conclusion, I would like to stress that Eximbank is a good institution staffed by dedicated and hard-working employees. The 

Bank, however, is being constrained by several structural inhibitors that keep it from being globally competitive. Removing constraints such as the ones I have described this morning will improve competitiveness and support U.S. job growth going forward. 

Thank you for your time and attention. 

Chairman WARNER. Thank you, Mr. Thompson. I might just add 

I had the opportunity growing up of living outside of Peoria, where 

Caterpillar obviously had a dominant position, and it really is one 

of the great American success stories, so I appreciate your comments. 

Mr. Norlen. 

8 

STATEMENT OF DOUGLAS NORLEN, POLICY DIRECTOR, 

PACIFIC ENVIRONMENT 

Mr. NORLEN. Good morning, Chairman Warner, Ranking Member Johanns, and Senator Bennet. Thank you for the opportunity 

to testify on the renewal or reauthorization of the charter of the 

Export-Import Bank. 

I would like to speak today about three areas of public interest 

reforms that we believe are necessary to improve the effectiveness 

of Eximbank. These relate to agency accountability, climate 

change/renewable energy, and promotion of alternative export 

paths. 

Regarding agency accountability, Congress should require 

Eximbank to establish an independent accountability mechanism. 

Accountability mechanisms assess complaints from people and communities who claim to be adversely affected by projects supported 

by public banks, including problems caused by breaches of bank environmental and social policies. Such mechanisms are increasingly 

the normal at public finance institutions, such as the World Bank 

Group, the Asian Development Bank, the European Bank for Reconstruction and Development, EBRD, and the U.S. Overseas Private Investment Corporation, OPIC, as well as many others. These 

mechanisms are different from the Offices of Inspector General, 

which focus more on financial problems such as fraud, waste, and 

abuse and agency efficiency. 

In contrast, independent accountability mechanisms have problem-solving and conflict resolution features as well as policy compliance functions and advising services which provide recommendations to management on improving policies and procedures based 

on real-world experience. 

In our 15 years of engagement of banks on projects in Africa, the 

Caucasus, Latin America, Asia, and Russia, we have seen many examples of these kinds of mechanisms addressing impacts to community while enhancing project outcomes and improving agency accountability, which ultimately decreases project risks to Eximbank 

and its clients. Unfortunately, we have seen too many cases in 

which public banks without accountability mechanisms finance 

projects that resulted in local opposition, and sometimes uprisings, 

which could have been avoided but ultimately resulted in higher 

risks to these banks and their clients. I would be happy to provide 

you with examples upon request. 

Regarding climate change, as the world deals with the worsening 

effects of climate change, including severe weather patterns, melting polar ice, and increasing wildfires, it is incoherent public policy 

to provide Government financing for the rapid expansion of carbonpolluting energy projects. Despite Eximbank’s new carbon policy 

and President Obama’s pledge to phase out fossil fuel subsidies, 

Eximbank financing for fossil fuel projects has skyrocketed to a 

record $4.5 billion last year. Congress should curb Eximbank’s fossil fuel financing. 

Meanwhile, a more productive approach for Eximbank would be 

to support more renewable energy and energy efficiency exports 

which would have the simultaneous impact of helping to address 

climate change and promote significant U.S. job and manufacturing 

growth. According to a British Petroleum statistical review, renewVerDate Nov 24 2008 11:43 Mar 16, 2012 Jkt 048080 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-30 AM DISTILLER\63011AM.TXT JASON
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able energy consumption grew 15.5 percent in 2010. The Pew Center for Global Climate Change predicts annual investment in global 

renewable energy markets of $106 to $230 billion by the year 2020. 

While Eximbank has made a worthy effort and has increased renewable energy financing, the GAO has found that the agency has 

consistently failed to meet a legal directive set through congressional appropriators for the agency to allocate 10 percent of its annual financing for renewable energy and energy efficiency. Congress can, therefore, bolster and enforce the congressional appropriators’ directives by integrating the annual 10-percent target in the 

Bank’s charter while increasing the Bank’s capital authority allocations that are specifically linked to renewable energy and improve 

Eximbank’s ability to finance renewable energy upstream in the 

manufacturing process. 

Thank you very much for the opportunity to testify today, and 

I look forward to your questions. 

Chairman WARNER. Thank you, Mr. Norlen. 

Mr. Ickert. 

STATEMENT OF DAVID ICKERT, VICE PRESIDENT, AIR TRACTOR, INC., ON BEHALF OF THE SMALL BUSINESS EXPORTERS ASSOCIATION 

Mr. ICKERT. Chairman Warner, Ranking Member Johanns, Senator Bennet, thank you for allowing me to have this opportunity to 

testify on the reauthorization of Eximbank. I am David Ickert, vice 

president of finance of Air Tractor. 

It is my pleasure to submit testimony to the Committee on why 

Air Tractor and the Small Business Exporters Association strongly 

support the reauthorization of Eximbank. 

Our support for the reauthorization of Eximbank is deeply rooted 

in the experiences of Air Tractor—experience with exports, 

Eximbank, and job creation. I will relate some of the experiences 

of Air Tractor, but this is a much broader and deeper story than 

Air Tractor. I believe this is story of many small business exporting 

companies and businesses across our Nation, and maybe even more 

compelling, it is the promise of the vast potential that exists in this 

country with many small business that could be exporting but are 

not. This potential, when it is properly nurtured and developed, 

will yield jobs. 

Air Tractor is a small business engaged in the manufacture of 

agricultural airplanes and forestry firefighting airplanes. As stated 

earlier, we have been in business since 1972, and we are 100 percent employee owned. We have one location: Olney, Texas. Olney 

is a small rural town 100 miles west of Fort Worth and 200 miles 

east of Lubbock, Texas. The population of Olney: 3,000. 

In 1994, we began exploring ways to find financing for our enduser customers outside the United States. At that time, 10 percent 

of our sales were export sales. With research and study, we ended 

up with two key partners: a commercial bank and Eximbank, both 

of those. 

In 1995, we did our first medium-term transaction—and that is 

what most of ours are, medium-term transactions with the Bank— 

to send two planes to Spain. Since that time we have sent 50 

10 

planes to the Spanish market and not again have we had to use 

Eximbank, but Eximbank was key in getting us into that market. 

Since that time we have completed over 80 medium-term transaction deals with Eximbank. For calendar year 2010, we completed 

20 and we anticipate 30 in 2011. It is worth noting that in those 

80-plus transactions that we completed with Eximbank, we have 

never filed a claim with Eximbank. 

It is instructive maybe to look at the employment and the correlation of export sales of Air Tractor since 2007. At the end of 

2007, we had 165 employees. That year 36 percent of our sales 

were export sales. In 2008, 197 employees; 45 percent of our sales 

were export sales. In 2009, 204 employees; 49 percent of our sales 

were export sales. The year ended 2010, we had 220 employees; 56 

percent of our sales were export sales. 

Thus, while the headlines throughout the country reflected a 

growing unemployment for this period, Air Tractor created jobs. 

For the period of 2007 through 2010, our employment grew 33 percent. Our percent of exports grew 55 percent. It is not coincidental 

that these two factors grew in lockstep. The growth of exports has 

been a significant contributor to the jobs at Air Tractor in recent 

years, and Eximbank has been a significant reason why we have 

been able to grow those jobs. As I said, we went from 10 percent 

in 1995 to 56 percent in 2010. So at the end of 2010, with 56 percent of our sales exports, there were 100 people in Olney, Texas, 

that owed their jobs to exporting. 

During 2010 we did exports to 14 different countries. Now, that 

is significant for a small business like us, but it is not near what 

the world holds for us, and so we have a lot more promise to expand our international footprint. 

International sales, export sales are the reason that we will be 

able to continue to grow and expand and maintain jobs in Olney, 

Texas. 

Bank Chairman Hochberg has done a very good job in promoting 

small business commitment at the Bank. Other administrations 

have not been as committed, so we think it is very important in 

the reauthorization consideration that the small business language 

that now exists be highlighted and be continued in the current reauthorization. 

During 2010, we paid $300,000 in fees to Eximbank, and we were 

glad to do it. We had no expenses—or no claims, so it was a good 

deal for everybody. As Chairman Hochberg made the comment in 

the January speech, ‘‘The Bank makes money. What a wonderful 

situation. Everybody wins—including the U.S. taxpayer.’’ 

Olney, Texas, is my hometown. It is a place that is great to live 

in and work in. I described it before when I was describing it. It 

is a town with three red lights and a Dairy Queen. I am proud of 

it. But it is not exactly what you think of when you think about 

an exporting town. But my point is if we can do it in Olney, Texas, 

small businesses can do it all over the United States. But we need 

the help of Eximbank. 

Thank you. 

Chairman WARNER. Well, thank you, Mr. Ickert. Very impressive 

story, and, you know, in an effort to reinforce the spirit, we want 

to show you that not everybody in the Senate always argues with 

11 

each other, and as opposed to the Chairman going first, I am going 

to let my friend—— 

Senator JOHANNS. That is not true. 

[Laughter.] 

Chairman WARNER. ——I am going to let my friend, the Ranking 

Member, take the first round of questions, recognizing his time 

constraints. 

Senator JOHANNS. I had better jump in here before Senator Bennet objects. 

Mr. Ickert, you have a great story to tell and I know from experience that there are a lot of small businesses in my State of Nebraska and really across the country that would love to be in your 

chair telling the same story. So my question to you is, you have 

had success in accessing the international marketplace. Others 

have not, and maybe it is because it just looks too complex, too 

challenging. I do not know. There could be a whole host of reasons. 

But if you were to give us advice on what we would do in the reauthorization specifically to try to boost our efforts with small businesses accessing the export market, what would you tell us? 

Mr. ICKERT. Delegated authority, I think, would be a continued 

step toward small business, where they could go to banks and 

places, groups, close to them to get not only advice, but underwriting and help. Another big thing, I think, and it is not the subject of the reauthorization, but it is appropriations for the Bank, 

where the Bank would have the proper administrative budget and 

also the proper IT infrastructure to be able to move deals along 

quickly. They have got to have those tools, and the quick turnaround time, I think, is essential, especially to small businesses, in 

embracing exporting. Seeing deals done, seeing success breeds 

more opportunities and more attempts for them to go into the market. 

Senator JOHANNS. Great. Like I said, you have a great story and 

I would love to see that story repeated across our country, because, 

like I said, I have seen businesses that want to be in the export 

market. They would even spend the money to travel with me on 

trade missions. Some would be successful, like you have experienced. Others, they just could not quite figure out how they could 

do it. And so anything that we can do that would be helpful would 

be very positive. 

Mr. Thompson, you are kind of on the other end of the spectrum. 

You are certainly a large enterprise, very familiar with the export 

market. I would like you to give me a practical example, if you 

would, about the content requirement, because as you know, that 

is a very, very sensitive issue. But give me just a practical description about how that can be a stumbling block to actually doing 

more business in the export arena. 

Mr. THOMPSON. Well, the range of Caterpillar’s local content for 

equipment manufactured in the U.S. is roughly from 70 percent to 

about 88 percent, so when you talk about our product that qualifies 

for full Eximbank financing support, it is a pretty narrow slice, 

so—and you have to remember, we are bidding competitively for 

truck deals in places like Indonesia, cited in my written statement, 

against competitors who are coming in with very aggressive bids. 

12 

So the fact that such a narrow slice of our product is even eligible for full financing is a problem, and if you cannot get full financing from your home Eximbank, it is almost guaranteed that other 

countries will come in with full financing for their locally produced 

product. So it sets us at a competitive disadvantage once we get to 

the financing discussion with customers, there is no doubt about it. 

Senator JOHANNS. Mr. Grataco ́s, you talk a little bit about exposure limits. These days, one of the things uppermost in everybody’s 

mind is concern about putting the taxpayers on the dotted line, if 

you know what I am saying. Describe for me your comfort level in 

us going from $100 billion to $160 billion, which I think is the 

House proposal, and witnesses here have supported that, because 

there is exposure here, as you know. I would like, just from your 

standpoint as somebody who kind of looks over this and is looking 

out for the taxpayers’ interests, give me your comfort level on us 

taking that next step. 

Mr. GRATACO ́ S. Well, I think raising the ceiling for the authorization levels is something that the market is asking for. So I think 

this Subcommittee should consider moving the ceiling up. Whether 

or not it is along the lines of the House proposal is something for 

this Subcommittee to debate. 

We think that the real exposure on the Bank side will be enhancing the due diligence practices on the medium-term side and shortterm side. If you look historically, the long-term side has low 

claims. On the medium-term side is a different story. So I think the 

real challenge will be to improve the due diligence practice on that 

side. 

Having said that, I think the Bank historically has demonstrated 

it has been able to handle the increases on authorization levels 

since its inception. There will be some matters that we will be looking at down the road in terms of risk management practices because of the concentration, risk concentration on the portfolio, 

which is on the transportation side, but that is something that we 

will be talking to the Bank down the road. 

Senator JOHANNS. OK. Great. Thank you, Mr. Chairman. 

Chairman WARNER. Thank you, Senator Johanns. 

I want to pick up on a couple lines of questioning that Senator 

Johanns started with. One is on the local content percentage—and 

this is directed to Mr. Thompson, but if anybody else on the panel 

wants to weigh in, please feel free—the challenge, particularly as 

we see other ECAs have more flexibility, it becomes difficult with 

the goal to kind of increase American jobs, as Senator Bennet mentioned, how you mention with the number here. What kind of 

thought has been given? Clearly, the kind of old definition of what 

is local content versus kind of the component part make-up at this 

point and the more global supply chain is really different. Are 

there ways to think about this issue other than on a percentage 

basis kind of in that definitional space around local content? 

Mr. THOMPSON. Well, I think what we see other countries 

doing—Canada, for example, they do not even talk about a local 

content requirement. They talk about, more broadly, whether a 

transaction benefits the economy or the employment base of the 

local country, and other countries adopt a bit more of that type of 

test. 

13 

It is, as I said, a bit short-sighted in our view to have an 85 percent local content requirement that only considers actual physical 

piece parts, does not take into account R&D and other marketing 

services that may have taken place within the U.S. to facilitate the 

ultimate sale of a product. From a job creation standpoint, it is 

only going to benefit Caterpillar to lower that content requirement. 

That means more of our product will be financed. That means more 

of our product will be built. That means more of the people assembling that product in Decatur, Illinois, and other places will be employed and so on and so forth back through the supply chain that 

we robustly use here in the U.S. 

Chairman WARNER. Has there been any thought from industry 

about an either/or, either 85 percent or if you can demonstrate 

more jobs and investment that would come from not having the 

strict percentage? Has anybody worked down to that detail? We 

have had a lot of kind of off-line discussions with folks about this 

issue and I know it is challenging, but have people looked at alternative definitions? 

Mr. THOMPSON. Well, certainly the either/or example you throw 

out would be an improvement over what we face now, but we 

would probably prefer to see that percentage dropped even under 

the either/or scenario. And, you know, that is going to create administrative challenges for the banks to measure a less quantifiable standard, but when you look at the overall competitive situation we are in, we think that is preferable to the situation we are 

in now. 

Chairman WARNER. Let me also ask—and this is for both Mr. 

Norlen and Mr. Thompson, I am going to come back to Mr. Ickert 

in a couple minutes—we talk about, and I think you raise a good 

point in your testimony, again, that for a long time, other than 

ECAs, there was not a lot of backstop for emerging markets, longterm financing, and now we have got the circumstances of, again, 

the Chinas of the world trying to make aggressive policy moves in 

those countries. Yet the credit risk analysis, the underwriting 

standards for some of these countries have got to be a little more 

challenging. Mr. Norlen also talked about the notion of how we 

make sure we move forward with our, I think, appropriate goals 

around climate change. 

But there may be—do you have a different underwriting standard for those type of deals? And I just am curious, comment-wise, 

how we achieve these policy goals—and Mr. Grataco ́s, if you could 

also comment, as well—at the same time making sure that we 

maintain the high underwriting standards that the Bank has had 

to make sure that we get a return on taxpayer investment. We can 

just go down the list, and I am going to come back for a second 

round with Mr. Ickert. 

Mr. GRATACO ́ S. Yes. I think that the way for the Bank, like any 

other bank, to actually conduct different due diligence standards 

based on the risk associated with the transaction. Either when you 

look at a market that you have no experience with, there is actually a set of due diligence steps that you can take to address the 

situation, and it depends on the products, too. If you look at the 

history of the product, the likelihood of having a default in the long 

14 

term is much less, historically speaking, than if you look at the medium-term or short-term. 

So in those transactions, given the new areas that the Bank is 

expanding in, the knowledge or limited knowledge of the market 

and the lack of current information on some of the borrowers, I 

think the Bank had no choice but to enhance the due diligence 

standards, looking at either financial statements or any other steps 

that they can take to minimize the risk that they are undertaking. 

Chairman WARNER. All right. Mr. Thompson and Mr. Norlen, 

and then I will move to—— 

Mr. THOMPSON. I might comment just briefly, just to clarify a little bit on some of the assumptions behind the environmental policies the Bank encourages. It should be remembered that the leverage of a supplier in these types of transactions is limited. So if 

there is a coal mine bid, for example, and Caterpillar mining trucks 

are being considered for the bid, our mining trucks built in Decatur, Illinois, operate with the cleanest diesel engine emissions capable anywhere in the world. 

If we do not get that deal because our financing package from 

Eximbank is not as competitive or Eximbank declines to support it, 

that deal is going to go to a company—someone is going to be mining that coal using equipment that probably is not as environmentally responsible as ours. 

Chairman WARNER. Mr. Norlen. 

Mr. NORLEN. Mr. Chairman, it is very important for the U.S. 

Government to do more internationally through the OECD and 

through the G-20 to press other governments for higher environmental standards. But as discussed by many panelists today, some 

of the projects that we are dealing with in some of these countries 

are extremely high-risk projects which pose risk to the U.S. Government, to Eximbank, and thus to the American public. 

We need to take measures that reduce the risk of environmental 

and social harm and thus reduce the risk of potential opposition to 

projects, and that can take many forms. We have seen instances 

when local people have formed roadblocks. We have seen instances 

where governments have expropriated projects, sometimes on the 

basis of growing frustration because of a lack of concern for environmental and social risks. 

It seems interesting to me that we would compete with other 

countries on the basis of who could increase the greatest amount 

of risks to themselves. It seems illogical to us. And so we need to 

do better. We need to incorporate independent accountability mechanisms and improve standards, and that ultimately will benefit the 

U.S. Government and the U.S. public and the clients, as well, in 

the end. 

Chairman WARNER. Thank you. I will come back to another 

round. 

Senator Bennet. 

Senator BENNET. Thank you, Mr. Chairman, and with your indulgence, I am going to go off topic. I am going to come back to 

this, but I cannot resist because of Mr. Thompson’s personal experience to ask him what, based on the experience of Caterpillar in 

China—I met with your counterpart over there in Beijing with the 

American Chamber of Commerce. If you could give us some 

15 

thoughts about that market in particular, stepping away from the 

Eximbank conversation, and what you see as the real barriers and 

the real opportunities in China for our exporters. What is it that 

we can do? 

There is a lot of discussion about the rising GDP there versus 

here. We still obviously have a huge GDP per capita compared to 

the Chinese that presents an enormous opportunity if we can figure out a trade arrangement that actually makes sense. And since 

you are here, I think it is important to take the opportunity to hear 

your wisdom on that. 

Mr. THOMPSON. Thank you, Senator. I can only speak for our industry, at least knowledgeably, and China is one of the most, if not 

the most, rapidly growing market for our products and services in 

the world. So it is a place that we specifically see the competitive 

landscape for leadership in our industry playing out right now. We 

have to compete there. We have to compete effectively there. 

There are challenges there and things like local procurement and 

indigenous innovation and currency issues have been discussed 

here in another context to a great extent. We are very encouraged 

by the commitments that President Hu made in his state visit earlier this year on the local procurement and the indigenous innovation side to make sure that that is a more even playing field than 

it has been historically, and we are seeing those commitments 

being followed through in China, so that is very encouraging. 

You know, Caterpillar has a little bit different perspective on this 

in terms of the potential competitive landscape. In the 1980s, when 

currency levels were where they were, Komatsu from Japan was 

making huge headway against us in the global marketplace and 

the Japanese industry in general was seen as a big threat and 

there were companies that went to the Government and asked for 

certain levels of protection and there were companies that buckled 

down and said, this is a challenge and we need to improve our 

game and compete more effectively. Caterpillar chose that latter 

route, and in looking back on it, that made us a much, much 

stronger company and into the leader that we are today. That is 

sort of how we are viewing the Chinese landscape, as well. And we 

have seen waves of this from Korea and other places, as well. 

As long as we have got a level playing field in which to compete, 

and we think the signs are heading that way, we are excited about 

the opportunity in China. It is a huge growth opportunity for us. 

Senator BENNET. Thank you. I wanted to follow up on some of 

the questions from the Chairman with Mr. Norlen and Mr. 

Grataco ́s. My understanding is that according to GAO, from 2003 

through the first half of 2010, renewable energy constituted 0.23 

percent of total Eximbank financing exports, despite the Congressional goal that you talked about, Mr. Norlen, of 10 percent. And 

from Colorado’s standpoint, our clean technology energy industry 

grew at a record 32.7 percent in the last 5 years, and we are not 

alone. This is happening all over the country. It is a huge part of 

America’s business outlook. 

I know a lot of exports question whether Eximbank’s lending patterns are doing enough when it comes to clean technology goods 

and services, so I would like to hear you specifically delineate what 

16 

you think the challenges have been to meeting that 10 percent goal 

and what we can do to advance that cause. 

Mr. NORLEN. Thank you, Senator. One of the interesting things 

in the GAO report was a comparison between Eximbank’s efforts 

to promote renewable energy and meet that mandate and its efforts 

to meet its small business support mandate, and it found that it 

had met its small business support mandate, largely by integrating 

this mission more deeply into all the different departments and 

programs, in other words, wiring it more deeply into the DNA of 

the agency. 

Eximbank’s renewable energy promotion program is a bit more 

stovepiped. We have identified several ways that we think can 

help. One, the 10 percent target that we have mentioned is an Appropriations Committee-set target which has to be returned to 

every year, and that is a bit, I think, frustrating for all concerned, 

and if that was in the charter, I think that would be taken a bit 

more seriously and would have a little bit more rigidity to it. 

Second, we believe that, for example, if some of the increase in 

capital authority for Eximbank is linked to specific renewable energy targets and if there are disincentives to not meeting that 

through the capital authority extension, such as withholding capital authority when they do not meet that target, that that might 

help, as well. 

Increased assignment of staff, of existing staff and management 

to the task could also potentially help. With small business, there 

is any number of staff and officials within Eximbank that are specifically tasked to this. Ex-Im Bank currently has a pretty small renewable energy, energy efficiency department, and these and many 

other somewhat practical and simple measures, we think, could 

greatly help. 

Mr. GRATACO ́ S. I think I kind of agree with some points that Mr. 

Norlen made regarding the staffing and some of the other steps. 

But I think we have to take that report it into context, put into 

context. There was a report issued by the Department of Commerce 

talking about renewable energy exports for 2009 and it only mentioned—there were $2.4 or $2.5 billion in renewable energy exports. 

Well, Eximbank’s authorization levels for that year were about $24 

billion, right, and so 10 percent of that will mean that every exporter of renewable energy in the U.S. will have to be supported 

by Eximbank to be able to meet the 10 percent of this authorization. So it is good to put that into context when we look at the report, and that is something that the GAO report actually acknowledges in their report. 

The second point is that there have been steps taken since that 

were actually coordinated by the new Administration that are part 

of the different marketing efforts that the Bank is taking. Before, 

the Bank was pushing all of its products mainly through lenders. 

It was a lender-driven situation. Now, they are doing some of the 

steps that we mentioned before, which is taking the product toward 

the exporter with all these events, and they have created some 

products for renewable energy, like Solar Express and some of 

these other products, and the hope is that at some point it will actually increase the levels of authorization to be able to get as close 

as possible to that 10 percent. 

17 

So there are some things the Bank could do better, like Mr. 

Norlen mentioned, but also, there was some limitation because of 

the market they were servicing. 

Senator BENNET. That is helpful. Thank you. I would like to 

thank all the witnesses. Mr. Ickert, thank you for your testimony. 

It is a great story. And, Mr. Chairman, thanks again for having 

this hearing. 

Chairman WARNER. Thank you, Senator Bennet. I do not know 

if you have got other questions. We could go back and forth, or are 

you—all right. 

Let me go to Mr. Ickert and Mr. Grataco ́s at this point, although 

let me make one editorial comment about your question. I can see 

you turned it on to get a response. I think Mr. Thompson’s comment, celebrate the Caterpillar success story, and I want us to do 

all we can to expand our trade opportunities with China. I am actually pleased that you think—the statement that the Chinese are 

starting to move forward. You know, I do get concerned at times 

that I think many American businesses have this eye of this wonderful opportunity of the Chinese markets and sometimes sacrifice 

standards, intellectual property, adhere to restrictions to get into 

the Chinese market that they would not do for any other country 

in the world and then complain to policymakers that we do not do 

enough to push. Again, Caterpillar has got a pretty good record of 

meeting the competition as long as there is that level playing field, 

but I do think we need that level playing field. 

Senator BENNET. I agree completely, and that is some of what I 

heard when I was over there, is that people are so anxious to get 

into the market, which we need to do, you need to do, but the idea 

that the Chinese would be insisting that you give up your IP to do 

that, you give up your manufacturing processes to do that, that is 

a trade that we are going to regret someday if we make it. 

So I think it is a combination of both, whatever business practice 

it is you are doing to out-compete and whatever policy we can actually—you mentioned currency manipulation, for example. This is 

an interesting topic, particularly in your industry, because as I understand it, what you are looking to do is manufacture in China 

and export within—not export, but sell within that domestic market, which means that maybe in that context, that issue is not really the real issue, the gating issue for you. But the other ones that 

the Chairman mentioned may be more important, and we have just 

got to find a path forward here so that we can build these exports. 

Chairman WARNER. I agree, Senator Bennet. 

Let me, Mr. Ickert, I want to come to some of your, again, tremendous success story and how we see more of these success stories, not just in—it is Olney, Texas? 

Mr. ICKERT. Yes, sir. 

Chairman WARNER. Not just in Olney, Texas. I need them in 

Martinsville, Virginia, as well. And you mentioned the kind of distributed authority, the ability from Eximbank to try to push some 

of this decision making down, and I believe, Mr. Grataco ́s, Mr. 

Ickert’s company would probably be in that short- to medium-term 

financing as opposed to long-term infrastructure category. So—and 

you, I think, appropriately pointed out those are tougher deals to 

underwrite and go through. 

18 

How do we get that balance right and what can we do in the reauthorization legislation to get more success stories on the small to 

midsize? I would like you to follow up more on the distributed authority, and I would also like, Mr. Ickert and you, Mr. Grataco ́s, 

to comment, and again, Mr. Thompson, you may want to weigh in 

on this, as well, the fact that we have hard lots of criticisms of the 

Bank. 

I think there is a recognition that, as you just mentioned, Chairman Hochberg is trying to move this forward in a better way, that 

there has been slow processing time, which is a particular burden 

to small- and medium-size industries, kind of waiting for how long 

to get through the bureaucracy. There was the 2010 competition report that noted that, and I was happy to hear, Mr. Grataco ́s, that 

you as the IG were looking at that, and I would be anxious to 

know, is there kind of a defined goal? People ought to get an answer by X-number of days when they have put their application in, 

put their review process in. Or are you just trying to shorten the 

process or actually get it down to a fixed number of days? 

But, first of all, Mr. Ickert, if you want to comment on either of 

those, and then Mr. Grataco ́s. 

Mr. ICKERT. Thank you, Mr. Chairman. As my testimony focused 

on, it is about jobs and the potential for jobs, especially that small 

business can create in this country, and I think that potential is 

tremendous. I think President Obama was right on the mark with 

the National Export Initiative and that we need to move forward 

and push that deeper. 

Now, it goes back to small business. A lot of small businesses in 

this country are not exporting, but they could. One of the first 

places I think a lot of them go to when they ask and say, what do 

I do, where do I go, is probably their commercial bank. The more 

that we could have delegated authority, and I know the bank does 

have delegated authority now on the working capital, that it is in 

the charter to do medium-term. But the more we can push, say, the 

medium-term—that is what we use—medium-term delegated authority out there and get the banks to be able to be familiar with 

it, to use it, and so when that small business customer comes in 

and says, what do I do, they can get not only answers, but guidance and steps forward to success. Otherwise, I think there is probably a reluctance to—or maybe not even a reluctance as much as 

not knowing where to go in Washington from Olney, Texas, or 

wherever. 

And the other thing is, along your questioning, is the fact of the 

turnaround time. The turnaround time from our standpoint has 

gotten much better under Chairman Hochberg’s administration, 

but at times in other administrations, it has been very slow. 

Chairman WARNER. Can I just ask one—interject one question 

there? 

Mr. ICKERT. Sure. 

Chairman WARNER. Do you think your turnaround time—I like 

Chairman Hochberg. I hope it was because of his administrative 

changes. But do you think the turnaround time improved because 

there was a change in Eximbank administration or do you think 

it was because you had had a good track record of doing business 

with Eximbank? 

19 

Mr. ICKERT. I think actually it was probably a little bit of both, 

but I think it had to start with the administration saying, we are 

going to do things faster. 

But, going back to small business and getting more small business in the exporting, that time, that wait time, if it is 2, 3, 4 

months, they are going to get frustrated and they are not going to 

come back. So I think the turnaround time is very important. So 

that goes back also to delegated authority. It goes back to having 

the budget and the IT infrastructure to move deals through. But 

it goes back from the administration at the Bank, saying we are 

going to do a better job. We recognize we are not doing it as fast 

and we are going to do better. 

Chairman WARNER. But would you have as a goal—and we are 

going to get to you next, Mr. Grataco ́s but is there—the thing I 

wrestle with is some deals, having spent longer still on your side 

of the dais than this side of the dais and as a business guy for 20 

years and having done financing, some deals are tougher to sort 

through than others. I guess the concern I have, if we had a set 

deal and any approval needs to get an answer within 60 days, 

which would be a great goal as business guys we might have, but 

that might knock out certain more complex deals that you cannot 

just get done in 60 days. Should it be more of a flexible rolling goal 

of we want to get 80 percent of the decisions by X-number of days, 

recognizing there are some deals that may be a little more complex? Have you or the kind of the association of small- and medium-sized businesses who are also wanting this time quicker, do 

you have some specific proposals in that area? 

Mr. ICKERT. Well—— 

Chairman WARNER. Or if you would like to think about it beyond 

and get back into the record on some ideas—— 

Mr. ICKERT. I could do that, but also, I think it is—there is—it 

is incumbent on all parties. The exporter submitting the deal needs 

to know that they have a responsibility to have vetted it and to 

submit a complete package, and so, again, that goes back to the 

education process. That goes back to the delegated authority. It 

goes back to being hands-on in the field educating small business. 

So, first of all, there is a responsibility there. I do think that you 

are exactly on point as far as the complexity and that there should 

be—there are some deals that are going to be outside of a time 

limit. We like to see our deals through in 30 to 45 days. Sixty actually is a little bit long. But I think the main thing is if there is 

communication back and forth, that people know the deals are 

moving, they know where the complexities are, they know where 

the issues are, that mitigates to a large extent the wait. It is when 

they go in, you lose them, and you hear three or 4 months back, 

which has been the case in the past, is not the case now. But that 

discourages small business. That discourages job creation in this 

country. 

Chairman WARNER. Thank you, sir, and Mr. Grataco ́s, I would 

be anxious to hear, again, what some of your work—you mentioned 

your three points you were looking at. This kind of more agreedupon time line of getting back to folks, I would be anxious to hear, 

and also the question of whether kind of a more standardized underwriting process would lead to that quicker response. 

20 

Mr. GRATACO ́ S. Well, I like what Mr. Ickert said. I wish some of 

the exporters were that responsible. He is saying that exporters 

should know what they have to do. 

I am going to address some of the points based on your question 

and his question. First of all, delegated authority in the mediumterm program. It is a product that is relatively new. I think it has 

been in place for about 3 years or so. It is not a product that has 

been received well by lenders, and I think that is where the problem lies. There is some back and forth with lenders as to how the 

delegated authority program should look like on the medium-term 

side. 

The reason is you look at the numbers. Only three lenders have 

actually signed up for it insofar as information I have. Two of 

them—one of them has not even finalized all the paperwork. One 

of them finalized the paperwork with no deals. And then there is 

one that has about 30-plus million dollars. 

Chairman WARNER. And the reason why most of the lenders 

have not signed up for this, do you have—— 

Mr. ICKERT. Well, it depends who you ask. I mean, some—if you 

talk to the Bankers Association of Finance and Trade, they are saying, well, asking the bank to have some exposure on the deal, 

which is a tradeoff for the delayed authority, has not been something that they would be looking at. 

Mr. GRATACO ́ S. They also alluded to the fact that that was part 

of the honors requirements that the banks are imposing, but then 

when we look historically, I went back in my office, went back and 

looked to 2000 and 2011, we saw that the actual medium-term 

transactions were going down even before some of these requirements were asked or imposed. 

So the question is, is the market by itself using—minimizing the 

use of medium-term in the ECA context? It is hard to tell. I think 

from the Bank’s perspective, I believe there were 600-plus transactions in 2000 worth $1.8 billion or so. It went down to maybe 200 

transactions in 2009 with $600 million, and the last few years, it 

actually had gone up, where this year the projection says that it 

is going to be in the 300 to 400 transactions, $1.3 billion, almost 

getting to that 2000 level. 

So is it a matter of the product, that it was just created 3 years 

ago, or is it that the bankers or lenders do not feel that it is a product that they can benefit off? It is hard to tell at this moment. I 

agree that it will have a benefit for the exporters, like Mr. Ickert 

is saying, because it will expedite the process since some of the 

work will be done by the lenders on the processing side. 

Going back to the other questions that you have, and I believe 

you said how is the IG review on the processing time, we are actually looking at the way to improve the entire process in terms of 

the cycle time, and there are different levels of approval based on 

the product or the program. If it is short-term, there should be a 

set of times, if it is medium-term, and if it is long-term. Because 

of the complexity of some of the deals that you alluded to, it is hard 

to put the line on all medium-term products. 

But I think in the case—I have not looked at the case of Air 

Tractor specifically, but having someone who has no history of 

claims, having someone who understands the process of exporting 

21 

products and the Bank is familiar with may help expedite the 

transaction, obviously, and that might be the case that he is experiencing. I think the Bank has realized that they have to do something about lowering the time, and I think there is a lot to be done 

internally, where you can create internal deadlines within the 

groups of individuals involved in a transaction and hold those divisions accountable to minimize the length of the transaction. So if 

we have some legal questions, if we impose performance measures 

where we say, legal, you only have 5 days to turn around your concerns, as opposed to spending 20 days looking at the legal arguments. 

You know, that is something the bank can do with no alteration 

to the charter, no improvement in IT systems. I mean, this is something that goes in-house, and I think that is what we are looking 

at, you know, how can we develop a process where the Bank can 

actually lower the cycle time, can minimize the impact on the wait, 

and can actually hold people accountable within the Bank, and I 

think everybody will benefit from that. 

And I think you may have—oh, and that shows, I think something we were talking about earlier, some of the issues that the 

Bank has in terms of performance matrix. I mean, this would be 

something that should be captured. It should be something measured. And that way, you know where your performance lags. And 

I think that it goes with the whole view that we have from the top 

of how we can improve the process of the Bank. But we are focusing on short-term and medium-term first. Long-term, some of these 

deals are more complex and so it is very hard to put the Bank in 

a bind by asking them to get it done in X-number of days. 

Chairman WARNER. Well, thank you, and I do want to give Mr. 

Ickert one chance to respond on the delegated authority. It does 

seem to me this is not appropriate, or I do not believe, at least, the 

appropriate role of Congress to specifically instruct a date certain 

for each deal review, but I do think the policy goal of trying to 

shorten that process or at least make sure, as Mr. Ickert has pointed out, for first-time applicants that they hear from the bank so 

they do not just kind of go into this waiting period forever and policy goals that might not be X-number of days for every deal, but 

a goal that 90 percent of the deals in what category would be done 

at legal within 5 days. You have got to leave some out for those 

complex deals because this is not all cookie-cutter. 

Mr. Ickert, do you have any comment about the fact that not so 

many institutions are taking on this delegated authority opportunity? 

Mr. ICKERT. I think that, as he stated, there is some concern on 

the Bank about how much exposure they have, and I think that is 

where the discussion seems to have a shutdown. If we could have 

more emphasis from the Bank, the Ex-Im Bank, with the commercial banks to try and draw these people in, I think there is some 

room to negotiate and move forward. But I think it is on the matter 

of how much exposure the banks have. But the ultimate thing that we get to, if Eximbank is at $35 billion in authorizations now and their staff is stretched, their budget 

is stretched, and we—I was at EBC last week. They did $88 billion 

last year. If we are going to go to those kind of numbers, we have 

22 

got to look further than just 811 Vermont on how we move deals 

through the channel, and delegated authority seems to be, in my 

humble opinion—and understand, I am from Olney, Texas, that the 

banking system is there and it would—— 

Chairman WARNER. Your numbers have been pretty good the last 

three or 4 years, so keep going. 

[Laughter.] 

Mr. ICKERT. That the banking system is there and delegated authority would be a way to be able to get a system to move more 

deals through and create more jobs in this country. 

Chairman WARNER. I have got one last question I just want to 

raise, and I think, Mr. Grataco ́s, you raised it, and I believe, Mr. 

Thompson, you raised it, as well. I find it interesting when we have 

areas like Eximbank where we have a, I think, a success story, but 

a success story that is under competition from abroad, that is making money, that my inclination is that we need to expand the authority if we are going to reach this goal and we need more Ickerts 

up here telling these small- and medium-sized success stories, that 

we still seem to have this kind of desire amongst some in Congress 

to micromanage the administrative half of the budget, and I may 

be a little biased having a telecom and IT background, but the notion that we would not put in place advanced IT systems to try to 

be able to speed up this processing time, to be able to assist the 

staff, seems a bit short-sighted to me, and I know that was one of 

the points you raised, Mr. Grataco ́s, but maybe we can let, if there 

is any of the other panel that wants to comment on that, and then, 

Mr. Grataco ́s, you get the last word on that issue. Does anyone 

want to raise a comment on that? 

Mr. THOMPSON. Well, Senator, this may be more responsive to 

the last question than your most recent question, but I think Caterpillar does hear from customers frustration about the slowness of 

the Bank. To a certain extent, customers are always going to complain about the slowness of a bank. But I think it is important to 

remember there is the credit side and the policy side of the Bank, 

and I think the type of IT investments and the other process improvements that we are talking about here would definitely speed 

up the credit side. 

I think, respectfully, it would be important, though, for Members 

of the Committee to remember as you are thinking about this 

issue, the policy side, as well. To the extent that we are trying to 

implement public policy through the Bank, and to the extent we 

are going sort of beyond OECD requirements in doing that, those 

steps all require a level of transactional due diligence at the transaction level that add to this slowness, certainly relatively to other 

global ECAs. 

So I am maybe thinking too much in my neighbor’s head here, 

but it seems a little bit unfair for Congress to say, Eximbank, you 

have to go faster, but on the other hand, here are a bunch more 

requirements we want to make sure that are implemented as a result of these financings. 

Chairman WARNER. Mr. Thompson, I am shocked. You are saying 

that Congress might put out contradictory messages? 

[Laughter.] 

Mr. THOMPSON. Uh—— 

23 

Chairman WARNER. Mr. Grataco ́s. 

Mr. GRATACO ́ S. It is Government. 

[Laughter.] 

Mr. GRATACO ́ S. He has a point. I think to be more competitive, 

the Bank needs to upgrade its IT system. I think there is no question about it. It is one of those areas of the Bank where everybody 

understands is a problem, and I have raised this point before. We 

are a big advocate for the Bank to be able to get the resources, not 

only IT-wise but also staff-wise. I mean, look at the growth of the 

Bank the last six, 7 years. Keeping the same levels, staff levels, for 

the past 10 years, the portfolio has grown significantly. 

Because of my position, my concern will always be how is that 

money going to be invested, and my concern always has been if we 

advocate, because we think it is something the Bank needs to be 

more competitive, but make sure that there is a comprehensive 

plan in place where all the business needs and processes are in 

place so that you can actually make the Bank competitive from the 

operational side and, therefore, provide better customer service in 

the long run and to be able to meet the demands that the U.S. 

market is presenting. 

Chairman WARNER. Well, I would like to very much thank the 

panel, I think, for a very good discussion. It has helped me and my 

thinking on this issue. I think you have all brought a very interesting perspective. 

As I said at the outset of the hearing, we will add additional testimony from folks who could not join us today. I know there was 

particular interest from Thea Lee from the AFL–CIO and Owen 

Herrnstadt from the Machinists. I think their testimonies are going 

to go at the issue that we spent some time on today in terms of 

the issue of content, which we all have that policy goal of advancing American jobs and business, and, Mr. Norlen, I believe as well 

as you, in a way that takes advantage of these new business opportunities as well as the valid environmental issues you raise, and 

that is the question of whether a fixed percentage is the only way 

to go at it when this is an issue that deals with not just domestic 

content, local content, global supply chain, margin allocation, company financing. It is more than just a fixed percentage, and I think 

there are examples of other ECAs around the world who have 

taken a different approach that have shown some success. 

But we do at the end of the day need to recognize, as most Members have made—most of the testimony and I think all the Members, we have got a credit deal here and we have got a policy goal, 

and trying to get that balance right and trying to get it right in 

a way that we can get timely responses. The Caterpillars and the 

large companies understand this. There are a host of other smalland medium-sized businesses that need to duplicate your record 

and get advantage of the kind of success story you have got and 

we think Export-Import Bank can be a big piece of that. I think 

we have got to look at an expanded authority if we are going to 

stay competitive. So this Subcommittee will work and work with 

the full Committee and we hope to move forward on this reauthorization. 

24 

As I indicated at the outset for my colleagues who are not here, 

the record will remain open for the next 7 days and they may have 

some written questions for you all. 

Again, I thank the witnesses, and with that, the hearing is adjourned. Thank you all very much. 

[Whereupon, at 11:25 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

25 

PREPARED STATEMENT OF SENATOR MARK KIRK 

I would like to thank Chairman Warner and Ranking Member Johanns for holding this important hearing. 

I support reauthorizing the Ex-Im Bank before its mandate expires on September 

30, 2011. As a self-sustaining agency, it carries no cost to the taxpayer. In fact, it 

has earned $4.5 billion in revenues for the U.S. Treasury since 1992. 

Support from Ex-Im remains important for multinational companies as well as 

small- and medium size enterprises across the U.S. Caterpillar, for example, employs 23,000 people in Illinois and has benefited from $300 million of the Bank’s 

financing since 2006. Since 2007, Ex-Im also provided financing to 180 small businesses across our State. 

As we work to reauthorize Ex-Im, I urge this Committee to adopt commonsense 

reforms to render Ex-Im a more competitive and effective global export credit agency. Foremost, I support increasing Ex-Im’s lending cap to $160 billion by FY2014, 

consistent with the level that passed the House Committee on Financial Services 

on June 22, 2011, as part of the Securing American Jobs Through Exports Act of 

2011 (H.R. 2072). 

I believe the Committee should lower the domestic content requirement for ExIm supported exports. According to the Chamber of Commerce, current policy ‘‘fails 

to account for the present day reality of global supply chains which exporters need 

to maintain their international competitiveness.’’ 

Additionally, I support the recommendations made by Ex-Im’s Office of Inspector 

General to streamline Ex-Im programs and operations and to stamp out fraud and 

abuse. 

Without these reforms, Ex-Im stands to lose additional ground to its global competitors. Despite recent increases in export volumes, Ex-Im still finances less than 

5 percent of U.S. exports. In 2010, China supported over three times the amount 

of medium- and long-term official export credit volume than the United States. 

Ex-Im’s mission remains critical to maintaining U.S. competitiveness, opening 

new markets for our employers and creating American jobs. However, it is no replacement for sound tax and trade policy that provides necessary incentives to keep 

jobs in the U.S. and gives American companies the tools to compete globally. In addition, we must curb the regulatory zeal of Washington’s bureaucrats, which threatens to drive jobs abroad. 

I look forward to working with my colleagues to reauthorize the Export-Import 

Bank of the United States. 

Thank you. 

PREPARED STATEMENT OF OSVALDO LUIS GRATACO ́ S 

INSPECTOR GENERAL, EXPORT-IMPORT BANK

JUNE 30, 2011 

Good afternoon, Chairman Warner, Ranking Member Johanns, and distinguished 

Members of this honorable Subcommittee. 

Thank you for the invitation and opportunity to testify before you about the activities of the Office of Inspector General (OIG) and the programs and operations 

of the Export-Import Bank (Ex-Im Bank) as it relates to Export-Import Bank Reauthorization. Before I continue, I would like to thank the Almighty for this opportunity, my family, and the members of the Ex-Im OIG staff for their hard work. 

I. Ex-Im Bank 

The Ex-Im Bank is the official export credit agency (ECA) of the United States. 

Ex-Im Bank supports the financing of U.S. goods and services in international markets, turning export opportunities into actual sales that help U.S. companies of all 

sizes to create and maintain jobs in the United States. Ex-Im Bank has programs 

to address short, medium, and long-term needs of exporters; assuming the credit 

and country risks that the private sector is unable or unwilling to accept. Ex-Im 

Bank also helps U.S. exporters remain competitive by countering the export financing provided by foreign governments on behalf of foreign companies. At the same 

time, Ex-Im Bank must safeguard taxpayer resources by determining that there is 

a reasonable likelihood of repayment with respect to each of its transactions. 

Ex-Im Bank is experiencing unprecedented growth—achieving 3 straight years of 

record authorization levels. Ex-Im Bank is projecting another record year in 

FY2011. For the first 6 months of FY2011, Ex-Im Bank reported $13.4 billion in 

new authorizations. Ex-Im Bank has achieved this increase with basically the same 

staffing level for the past decade. This not only demonstrates the commitment, 

26 

1 Export-Import Bank Reauthorization Act of 2002, P.L. 107-189, Sec 22 (June 14, 2002). 

knowledge, and expertise of the staff at Ex-Im Bank, but also the need in the market for Government-supported export financing in this very competitive and difficult 

credit market. 

II. Ex-Im OIG 

Ex-Im OIG was statutorily created in 2002 1 but the Inspector General did not officially take office until August 2007. Since reaching current staffing levels, the OIG 

has achieved noticeable success in performing its statutory duties. Specifically, the 

OIG has issued twenty (20) audit and special reports containing eighty-five (85) 

findings, recommendations, and suggestions for improving Ex-Im Bank programs 

and operations. Our investigative efforts have resulted in a number of law enforcement actions, including: sixty-four (64) indictments and arrests; nine (9) convictions, 

fourteen (14) guilty pleas; and over one hundred and ninety-one (191) management 

referrals for enhanced due diligence actions. Since 2009, the total overall OIG financial impact is approximately $250 million. Currently, the OIG is investigating thirty-seven (37) open matters representing approximately $348 million in claims paid 

by Ex-Im Bank (or around 15.3 percent of all Ex-Im Bank claims paid as of the end 

of FY2010). All of this has been accomplished with a very modest annual budget 

of $2.5 million and a staff of 11 professionals. 

III. Competitiveness: Operational Areas 

In order to better meet export credit needs of the American exporters and improve 

the customer service experience of its participants while balancing its responsibilities, it is our opinion that Ex-Im Bank needs to address some operational weaknesses and challenges it is facing. We believe that addressing these operational 

weaknesses and challenges would provide Ex-Im Bank with a more efficient capability to create and maintain jobs in the United States. Besides increasing staffing 

levels to reflect the growth in authorizations, some of the challenges Ex-Im Bank 

needs to address are: 

• Inefficient and Ineffective Information Technology (IT) Platform. Ex-Im Bank 

uses an ineffective, inefficient, and fragmented IT platform and infrastructure 

composed of several systems and databases. These systems and databases do 

not effectively and accurately interface with each other—compromising data integrity, duplicative information, and creating unreliable files. Further, these 

systems make data mining burdensome and time consuming. 

• Ex-Im Bank lacks an end-to-end IT system that allows for seamless management of applications/files and flow of information within the Bank and would 

allow different components within the Bank to work on the same files at the 

same time from the same platform. 

• Ex-Im Bank lacks a centralized and comprehensive participant database that 

would allow the Bank to capture and track all the participants (lenders, buyers, exporters, suppliers, brokers, agents, and others) involved at different 

transactions at any given moment in time. This weakness prevents Ex-Im 

Bank and our office from conducting effective forensic analysis to identify possible patterns in transactions. 

• Because the IT platforms do not fully meet business and operational needs, 

Ex-Im Bank divisions and components have created subsequent data subsystems to address the specific needs of that office or division. Some of these 

subsystems require manual input of data and do not interface with Ex-Im 

Bank’s main IT infrastructure creating additional data repositories. 

• The above described IT system fragmentation creates a number of operational 

consequences for the Ex-Im Bank: 

• delays in approval of transactions 

• data integrity issues (due to manual input or updates of data) 

• multiple data storage locations 

• burdensome and somewhat ineffective management of applications and assets 

• Develop Performance Standards and Metrics for Programs and Products. Ex-Im 

Bank has not developed annual performance plans or product performance 

metrics in order to properly quantify the effect and success of its products. ExIm Bank should develop these metrics in short and medium term products in 

order to determine whether 

27 

• the product is achieving the intended results; 

• the product is reaching the intended audience; 

• the marketing strategy is effective; 

• the product is similar or more competitive than programs offered by other 

ECAs; 

• the product should be altered or eliminated; 

• acceptable levels of defaults and claims have been established; 

• levels of defaults and claims should be improved; and 

• changes in original implementation strategies are needed. 

• Continue Efforts to Expand Small Business Participation. Ex-Im Bank charter 

imposes a twenty (20) percent small business participation requirement of all 

of the authorizations every year. Ex-Im Bank has exceeded this mandate in the 

last 2 years and it is expecting to surpass it again in FY2011. Ex-Im Bank has 

been able to achieve its mandate by 

• conducting Export Forums throughout the United States; 

• developing partnerships with different lenders, local governments and industries; 

• creating products specifically for small businesses (Global Access, Express Insurance, and Reinsurance products); and 

• continuing collaboration and cooperation with other agencies, including the 

Small Business Administration and Department of Commerce, in order to 

reach out to small businesses. Enhancing export opportunities requires the 

participation, training, and collaboration of other Federal agencies. The National Export Initiative addresses and encourages collaboration between agencies. 

• Continue Efforts to Expand Renewable Energy Products and to Create Clean 

Energy Export Opportunities. Ex-Im Bank charter contains a Renewable Energy mandate of ten (10) percent of all the authorizations every year. Ex-Im 

Bank has not met this mandate yet, mainly due to the fact that the renewable 

energy exports have not reached significant numbers (compared with the size 

of Ex-Im Bank’s portfolio). Nonetheless, Ex-Im Bank has taken a proactive approach in developing renewable energy specific products such as Solar Express, 

as well as reaching out to local companies such as wind and solar manufacturers. 

• Improve Operational Efficiency by Reducing the Time it takes to Approve Short 

and Medium Term Transactions. Some Ex-Im Bank participants have complained in the past about the approval times and process. Reducing the time 

it takes to approve transactions would allow American exporters to develop better relationships with clients and customers, would encourage borrowers and 

sellers to use Ex-Im Bank, and would improve the services Ex-Im Bank provides to its users. 

• Absence of systematic approach to measure customer satisfaction. Ex-Im Bank 

does not conduct customer satisfaction surveys on a regular basis. Customer 

surveys provide valuable insight into customer priorities, perceptions of Ex-Im 

Bank performance, areas for improvement, and other ECA best practices. On 

April 27, 2011, President Obama issued Executive Order 12862 instructing Federal agencies (including independent agencies) to develop a customer service 

plan to streamline service delivery and improve customer experience. To this 

end, we recommend that Ex-Im utilize customer surveys to validate the priorities of its customers and the Bank’s performance. 

IV. Other Observations From OIG Cases and Reports 

Ex-Im Bank has the important responsibility of providing export financing in a 

very difficult credit environment while also protecting the taxpayers, the integrity 

of its programs, and the full faith and credit of the United States. In conducting 

our audits, evaluations, inspections, and investigations, the OIG has conveyed to 

Ex-Im Bank the following observations developed from transactions and programs 

under the OIG purview. 

• Enhance Due Diligence and Credit Underwriting Practices (specifically for 

Short and Medium Term programs) and Improve Training Efforts to Address 

the Surge in Applications under a Decentralized Application Approval Process. 

Currently, Ex-Im Bank uses a decentralized underwriting process. Given the 

lessons learned from the Medium Term program, the surge in the number of 

28 

transactions, and insufficient credit information and history from borrowers in 

some regions, it is vital that Ex-Im Bank enhance due diligence practices in 

order to better identify fraudulent transactions. With Individual Delegated Authority (IDA) as high as $10 million, Ex-Im Bank needs to develop effective policies, procedures, and compliance practices to assess effectiveness of the delegations. Some of these policies should address the following: 

• Uniform credit and underwriting standards to be used by all Ex-Im Bank 

credit officers. 

• At a minimum, Ex-Im Bank should make more frequent use of security interest and sporadic inspections in order to better mitigate risks in programs and 

regions where defaults and fraud experience has been high. 

• Use of financial statements in programs where defaults and fraud experience 

is high. Further, Ex-Im Bank should require independently audited financial 

statements in regions where Ex-Im Bank has limited or unfavorable lending 

experience. 

• Encourage Lender Partners and Participants to Conduct, at a Minimum, Industry Standard Due Diligence on Government Guarantees and Insurance Transactions. One of the patterns our office has observed in conducting our investigations is the lack of due diligence efforts conducted by lenders, specifically the 

ones who have a history of defaulted transactions. Even though there is an expectation that such efforts have been taken, Ex-Im Bank does not require participating lenders to conduct due diligence on their transactions. The OIG has 

anecdotal evidence of loan officers in lending institutions expressing their position that the lender would not devote resources on due diligence efforts when 

there is a Government guarantee and such efforts are not required by Ex-Im 

Bank. Although the OIG is not in a position to state that this is a behavior 

demonstrated by all lenders, we can certainly state that this ‘‘moral hazard’’ 

issue has been prevalent in fraud cases involving multiple transactions. Effective implementation of ‘‘Know Your Customer’’ practices by lenders could help 

in minimizing or preventing the number of fraudulent cases Ex-Im Bank has 

experienced. 

• Improve Corporate Governance, Business Processes, and Internal Control Policies and Practices. One of the consistent observations arising out of audits, evaluations, and investigations conducted by the OIG are the weaknesses in governance and internal controls, as they relate to business operations. Internal policies providing clear guidance to staff and establishing clear roles and authorities are not prevalent at Ex-Im Bank. These areas need to be addressed as part 

of creating a better corporate governance culture. 

V. Conclusion 

Ex-Im Bank has an important role in creating and maintaining jobs by facilitating 

exports through export finance products provided to American exporters. Three 

years of record export authorization levels only support that role. While Ex-Im Bank 

continues to provide export credit and financing as part of its export credit agency 

functions, it should work to improve its operational effectiveness and efficiencies in 

its quest of achieving the National Export Initiative’s goal of doubling exports in the 

next 4 years. 

I have highlighted some of those areas based on observations and relevant work 

performed by the OIG in order to illustrate the importance of proper management, 

oversight of strategies, and to incorporate lessons learned from Ex-Im Bank’s prior 

activities. The OIG will continue to enhance its independent oversight role as well 

as strengthen its efforts in preventing and detecting fraud, waste, and abuse. 

Chairman Warner, Ranking Member Johanns, and Members of this honorable 

Subcommittee, thank you once again for the opportunity to testify before you today. 

I would be pleased to respond to any questions you may have. Thank you! 

PREPARED STATEMENT OF CLAY THOMPSON 

DIRECTOR, GLOBAL GOVERNMENT AFFAIRS, CATERPILLAR, INC. 

JUNE 30, 2011 

Good morning, Mr. Chairman and Members of the Committee. Thank you very 

much for the opportunity to be with you today. 

For more than 85 years, Caterpillar, Inc., has been a leader in making sustainable 

progress possible. With 2010 sales and revenue of $42.6 billion, Caterpillar is the 

world’s leading manufacturer of construction and mining equipment, clean diesel 

29 

and gas engines, industrial gas turbines and diesel-electric locomotives. The company is also a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail 

Services. We are headquartered in Peoria, Illinois, and have manufacturing facilities, distribution facilities and offices across the United States. We directly employ 

47,000 people in the United States, and our dealers and suppliers employ well over 

a hundred thousand more. 

Our ability to competitively export from the U.S. has been the key to our success 

historically, and never more so than in the current environment. Slow economic 

growth in the U.S.—historically our largest market—has been offset in recent years 

by strong industry growth in other key markets. In 2010, 70 percent of our sales 

were outside the U.S. and we exported $13.4 billion in goods and services, supporting thousands of American jobs directly and through our supplier network, 

which includes over 5,000 companies in all 50 States. Our ability to successfully 

compete globally from a significant U.S. production base is vital to defending our 

global leadership position. We are fully committed to that U.S. production base, as 

evidenced by our $1.5 billion investment this year alone in constructing and expanding U.S. production facilities. 

Ex-Im Bank has played a role in facilitating our exports and that role is growing. 

From 2006 to 2009, the Bank funded $200 million in Caterpillar equipment exports. 

In 2010, the Bank financed $100 million in Caterpillar exports, and we expect to 

exceed that level in 2011. We greatly appreciate the hard work and dedication of 

Ex-Im employees that has contributed to this support. 

Ex-Im and other Export Credit Agencies played an important role in the recovery 

from the recent financial crisis. During this time, we’ve seen commercial lenders, 

especially in large project finance, become more risk reticent and capital-constrained. In that environment, ECA’s such as Ex-Im have stepped forward and have 

helped facilitate international trade finance in a significant way. 

We anticipate the role of Ex-Im will become even more critical going forward. 

Competition for global leadership in our industry is playing out right now in markets like Asia, Africa, and Latin America. Our global competitors, like us, recognize 

the strategic importance of these markets. Construction of infrastructure such as 

roads, ports, rail, and distributed power—as well as support of large mining 

projects—are key drivers of our product sales. Often, the countries in which this 

type of development is most needed are also the countries where un-enhanced commercial financing is least available. Ex-Im is a critical tool that can be used to gain 

market access in emerging high-growth markets where commercial banks need credit enhancements to support large project loans and augment commercial bank capacity. We’re also concerned that new capital requirements and associated regulations 

will further inhibit commercial lenders’ appetite to take on these projects. 

Meanwhile, we’re seeing other sovereign Export Credit Agencies aggressively targeting these markets on behalf of competitors, creating a potential competitive disadvantage for us and others exporting equipment from the United States. In terms 

of the size and level of aggressiveness of global ECA activity, the United States is 

being left behind. 

According to the Coalition for Employment Through Exports, Ex-Im’s 2010 commitments totaled approximately $25 billion. In contrast, the Japanese export credit 

agencies committed last year well over $100 billion in support of their exporters and 

the Chinese over $300 billion. 

Make no mistake, Ex-Im is a valuable tool for U.S. exporters, including Caterpillar. However, you probably recognized from the numbers cited above, we have not 

utilized Ex-Im to a very great extent—especially considering the percentage of our 

exports financed through the Bank. Ex-Im could be much more effective and more 

competitive with other global ECA’s. 

To enable this success, certain structural changes are necessary. Implementing 

these changes would remove the self-imposed constraints that keep Ex-Im from 

being as effective as it can be. There are three such issues that are most relevant 

to Caterpillar. 

First, the Bank should be reauthorized with an expanded lending limit. With approximately 90 billion in commitments already outstanding, the Bank is near its 

current $100 billion lending cap. Increasing the cap to $160 billion will put the 

Bank in a situation where it should not have to decline a qualifying financing opportunity due to capital authorization concerns. This level of authorization will also 

move the Bank closer to leading global ECA’s. No addition to the Federal budget 

deficit should result from this authorization, as the Bank’s profitability over the 

past several decades should continue in the current environment of global economic 

recovery. 

30 

Second, Ex-Im should revise its local content policy which currently constrains its 

level of support to the lesser of (a) 85 percent of the export value or (b) the value 

of the U.S. content. This level of local content requirement is completely out of line 

with the rest of the world. The next lowest supportable percentage, in Austria, is 

50 percent. The Bank, itself, concludes in its 2010 Competitiveness Report: 

As Ex-Im Bank is the only G-7 ECA that does not allow for any direct support of foreign content and doesn’t consider other factors (e.g., national interest) when determining its level of support, Ex-Im Bank’s foreign content 

policy is increasingly less competitive relative to other G-7 ECAs. 

We agree.Our large mining trucks sole-sourced from Decatur, Illinois, for example, 

have local content between 75–88 percent. In many deals in the strategically important market of Indonesia, our off-highway mining trucks compete head-to-head with 

trucks built and shipped out of Komatsu City, Japan, or Chennai, India. Because 

their production facilities are closer to Indonesia, our Asian competitors already 

have an advantage in quoting these deals due to lower transportation costs. Ex-Im’s 

inability to provide full financing support because our local content is 80 percent, 

rather than 85 percent, puts us at an even bigger competitive disadvantage against 

Japanese and Indian competitors partnering with their respective Export Credit 

Agencies. Lowering the local content requirement to a more competitive level will 

allow Caterpillar customers to use Ex-Im financing to a greater degree, thus supporting thousands of jobs in our U.S. assembly facilities and within our supplier 

base. 

We disagree with those who argue that lowering the local content requirements 

will directly result in the loss of jobs in the U.S. At Caterpillar, we select and develop suppliers based on criteria that will allow us to be globally competitive. Thus, 

we evaluate a supplier’s ability to deliver a quality product, quickly, at a competitive 

cost. On that basis, the local content in our U.S. assembled product typically ranges 

anywhere from 65 to 88 percent. The primary impact of lowering the local content 

requirement will be to make more U.S.-assembled product eligible for Ex-Im support—thus expanding export and job opportunities for our U.S. assembly facilities 

and supply base. In a recent report, the highly respected and nonpartisan Peterson 

Institute for International Economics notes, ‘‘an alignment of Ex-Im’s domestic content requirements with other ECAs will encourage additional U.S. exports and expand the overall export base.’’ 

Finally, although we understand it may be outside the jurisdiction of this Subcommittee, no discussion of Ex-Im Bank competitiveness would be complete without 

at least mentioning the barrier created by cargo preference requirements. A congressional Resolution enacted for security purposes in 1934 requires U.S. Governmentfinanced transactions to be shipped in U.S. flagged vessels. The Bank interprets the 

resolution to require that most transactions receiving direct loan or guarantee support from Ex-Im must be shipped by U.S. flagged vessels. The supply of U.S.-flagged 

vessels is heavily constrained, resulting in cost increases and time delays that customers are simply unwilling to accept. 

Let’s take an example from an actual transaction that is currently pending. In a 

$200 million dollar proposed sale of U.S.-sourced equipment in Indonesia, very similar to the one I cited above, the incremental freight cost driven by the U.S.-cargo 

restriction is $6 million, or roughly 3 percent of the total transaction cost. As you 

can imagine, in a competitive bidding situation, customers view this incremental 

cost as unacceptable. In fact, we are often asked by customers and dealers to source 

product from other locations so that customers can leverage less-restrictive ECA financing outside the United States. 

For Ex-Im Bank to become a truly competitive ECA that fully supports U.S. exporters and their employees, the cargo restrictions must be lifted. 

In conclusion, I would like to repeat that Caterpillar believes that Ex-Im is a good 

institution staffed by dedicated and hard-working employees. The Bank, however, 

is constrained by several structural inhibitors that keep it from being globally competitive. Raising the Bank’s authorization level, relaxing the local content requirements, and doing away with the cargo preference requirements will improve competitiveness and support U.S. job growth going forward. 

Thank you for your time and attention. 

31 

PREPARED STATEMENT OF DOUGLAS NORLEN 

POLICY DIRECTOR, PACIFIC ENVIRONMENT

JUNE 30, 2011 

Chairman Warner, Ranking Member Johanns, and Members of the Committee, 

thank you for the opportunity to testify on the reauthorization of the Charter of the 

United States Export-Import Bank. I am Douglas Norlen, Policy Director, Pacific 

Environment, a Pacific Rim-based nonprofit organization. In this capacity, for 15 

years I have focused on the environmental and social impacts and reforms of public 

and private finance institutions, with a specialization in export credit agencies, including Ex-Im Bank. I am pleased today to speak about three areas of reforms we 

believe are necessary to improve the effectiveness of Ex-Im Bank: agency accountability, climate change, and promotion of renewable energy. 

Agency Accountability: Congress should require Ex-Im Bank to establish an independent accountability mechanism. Such mechanisms are increasingly the norm at 

public finance institutions such as the World Bank, International Finance Corporation, Asian Development Bank, European Bank for Reconstruction and Development, Japan Bank for International Cooperation and the U.S. Overseas Private Investment on financial problems, such as fraud, waste and abuse, and internal economy, efficiency and effectiveness. In contrast, independent accountability mechanisms receive and assess complaints from people and communities who claim to be 

adversely affected by the projects or activities supported by a particular public finance institution because of a violation of the institution’s own policies and procedures. 

An accountability mechanism at Ex-Im Bank could have three functions. One is 

to address complaints by affected people seeking to resolve problems with Ex-Imsupported activities. The purpose of this so-called ‘‘problem-solving’’ or ‘‘conflict resolution’’ function is not only to address existing complaints about real or potential 

harm from Ex-Im Bank activities, but also to prevent such harm from escalating 

or occurring at all. An example of this might be an Ex-Im Bank-supported mining 

project that has failed to compensate local people for use of their land. In this example, the affected communities might seek compensation through a problem-solving 

initiative. Instead of the community members feeling frustrated when attempts to 

raise concerns at the local level go unanswered, which, in turn, can lead—and has 

led—to drastic actions such as a roadblocks to bring attention to their complaint, 

an Ex-Im Bank problem-solving mechanism would allow the complainant and the 

Ex-Im Bank client to enter into a structured dialogue with the help of a mediator 

to effectively address the issues. 

The second function would be compliance review, where the complainant may 

seek an independent review of the Ex-Im Bank’s operation to determine whether 

Ex-Im Bank has violated its own policies and procedures. The purpose of compliance 

review is to identify issues of noncompliance with Ex-Im Bank policy as early as 

possible so that Ex-Im Bank can make timely adjustments to address any issues of 

noncompliance, and to provide the Ex-Im Bank Board of Directors with findings so 

that case-specific and systemic issues of noncompliance may be effectively addressed. 

The third function would be to provide advice to management on policies, procedures, guidelines, resources, and systems established to ensure adequate review and 

monitoring of projects. 

As with other such accountability mechanisms, Ex-Im Bank’s mechanism must 

have appropriate safeguards for independence. The mechanism should be independent from line operations and management and report only to the Board so that 

Ex-Im Bank management takes no part in the mechanism’s operation or oversight. 

The mechanism should operate in an accessible manner such that affected people 

could choose to directly access either the problem-solving or compliance review functions through a simple and timely complaint process. The mechanism should also 

operate in a transparent manner with a public registry of complaints and clear rules 

of procedure. Further, the mechanism should be empowered to issue public followup monitoring reports after agreements are reached through problem solving and 

after issuance of findings of noncompliance. The mechanism should also be able to 

conduct among clients and affected communities. 

An important purpose of these compliance and problem-solving mechanisms is to 

ensure greater likelihood of project support by local communities, which in turn creates a stable environment for business enterprise and more successful project outcomes. Independent accountability mechanisms are good governance tools that ultimately decrease project risk to Ex-Im Bank and its clients. 

32 

1 ‘‘BP Response to Pipe Conflict Found Lacking’’, Financial Times, March 10, 2011. 2See, http://www.cao-ombudsman.org/cases/caseldetail.aspx?id=50. 3See, http://www.opic.gov/doing-business/accountability/registry/cr-1-2006. 

In our 15 years of experience engaging the Bank on specific projects of concern 

in Africa, the Caucuses, Latin America, Asia, and Russia, the agency’s response to 

those that bring evidence of policy violations has been a so-called ‘‘open door’’ policy. 

This practice falls short, for while concerns can be voiced, a substantive agency response in writing is not required, nor is demonstrated evidence of compliance remedies. When the agency offers its own interpretation of compliance, it becomes its 

own judge and jury. By contrast, independent accountability mechanisms provide 

the agency, Congress, and the public an unencumbered independent review of agency compliance and recommendations for problem solving and corrective measures. 

A good example of the need for an independent accountability mechanism is the 

Baku–T’blisi–Ceyhan (BTC) pipeline project transecting Azerbaijan, Georgia, and 

Turkey. In March, 2011, the British Government issued a report which found that 

the project sponsor, BP, failed to act on reports of human rights abuses by project 

security personnel including complaints of intimidation measures used against affected communities in Turkey. The report followed a complaint brought by nongovernment organizations that say public funders, including Ex-Im Bank, knew 

about the intimidation, but failed to check whether BP had procedures in place to 

address and remedy the violations. 1

Years earlier, complaints were filed to the International Finance Corporation Office of Compliance Advisor/Ombudsman concerning environmental impacts on the 

BTC project, resulting in increased public consultation. 2 In 2006, a claim was 

brought to the OPIC Office of Accountability regarding BP’s withholding of information on the failure of the BTC pipeline anticorrosion coating, resulting in improved 

project monitoring on BTC and other projects. 3 However, Ex-Im Bank, which also 

financed the BTC project, provides project-affected communities with no independent accountability mechanism. 

Pacific Environment can provide the Committee with numerous other examples. 

We strongly support the language on the creation of an Ex-Im Bank accountability mechanism that is included in the House Ex-Im Bank reauthorization bill 

that passed the House Financial Services Committee last week by voice vote. We 

would ask only for the inclusion of a requirement that Ex-Im Bank report to Congress in 6 months and 1 year after passage of the bill on its efforts to establish such 

a mechanism so that the House and Senate authorizing committees can more readily carry out its appropriate oversight responsibilities. 

Meanwhile, Congress should improve Ex-Im Bank’s accountability on fraud and 

corruption. Ex-Im Bank’s Office of Inspector General (OIG) has expressed increasing 

concern about fraud and corruption, including such problems associated with Ex-Im 

Bank’s growing number of delegated authority lenders (financial intermediaries). 

The OIG recently issued a report which found that Ex-Im Bank’s Nigerian Banking 

Facility supported a private bank whose Managing Director was removed from office 

for financial malfeasance by the Central Bank of Nigeria (CBN) in 2009, and was 

eventually convicted of fraud and sent to prison. Ex-Im Bank Directors eventually 

revoked this bank’s participation in the Nigerian Banking Facility on the basis of 

the CBN intervention. However, the report also found that: 

[A]t no moment did Ex-Im Bank management state or mention in its October 22, 2009, and October 21, 2010, memoranda to the Board of Directors 

that a local investigation for corruption charges and guilty plea of a former 

managing director had taken place nor cite these as reasons for removal. 

While not all Ex-Im Bank financial intermediaries are associated with corruption, 

we do not believe this is an isolated incident. In testimony to the House Committee 

on Financial Services Subcommittee on International Monetary Policy and Trade, 

the Inspector General stated, 

[I]t is vital that Ex-Im Bank enhances due diligence practices in order to 

better identify fraudulent transactions . . . , 

The OIG has anecdotal evidence of loan officers in lending institutions expressing their position that the lender would not spend resources on due 

diligence efforts when there is a Government guarantee. Although the OIG 

is not in a position to state that this is a behavior demonstrated by all lenders, we can certainly state that this ‘‘moral hazard’’ issue has been prevalent in fraud cases involving multiple transactions. 

33 

4See, http://www.bp.com/subsection.do?categoryId=9037155&contentId=7068627. 

5See, http://www.pewclimate.org/docUploads/CleanlEnergylUpdatelFinal.pdf. 

Congress should act on the Inspector General’s recommendations and require 

more robust policies and procedures for reputational checks, including a requirement of certifications of compliance with foreign and domestic laws including 

anticorruption certifications from participating lender and guarantor decision makers. 

Fossil fuel financing: As the United States and other countries grapple with the 

worsening effects of climate change, including severe weather patterns, melting 

polar ice and increasing wildfires, it is irresponsible and incoherent for a public 

agency to finance the expansion of carbon-polluting energy projects. Despite Ex-Im 

Bank’s new carbon policy, and President Obama’s pledge to phase out wasteful fossil 

fuel subsidies, the agency’s financing for fossil fuel projects increased dramatically 

in recent years and skyrocketed to a record $4.5 billion last fiscal year. Ex-Im 

Bank’s surging financing for fossil fuel projects exacerbates climate change, heaps 

scarce public funding on industries that need it least, and ultimately undercuts U.S. 

Government credibility and leadership towards a global clean energy economy. Congress should curb Ex-Im Bank’s wasteful use of public financing on carbon polluting 

energy projects. 

Renewable Energy: Ex-Im Bank can address both climate change and lead the 

transition to a clean energy economy by seizing the enormous opportunity to finance 

renewable energy and energy efficiency now. According to a BP statistical review, 

renewable energy consumption grew 15.5 percent in 2010, the fastest rate of expansion since 1990. Installed solar power capacity alone grew an amazing 73 percent 

in 2010, while wind grew 24.6 percent. 4 According to the Pew Center for Global Climate Change, this rapid pace is forecast to lead to annual investments in global renewable energy markets of $106–$230 billion a year by 2020 and as much as $424 

billion a year in 2030. Over the next decade, cumulative global investment for renewable power generation technologies could reach nearly $1.7 trillion. 5 Most importantly, the bulk of this market (nearly 90 percent) exists outside of the United 

States. 

Financing appropriate renewable energy and energy efficiency is a compelling opportunity for the United States Export Import Bank to make good on its institutional mandate to stimulate domestic manufacturing, create jobs, position the 

United States in a strategic global sector, and provide international leadership on 

climate change. While Ex-Im Bank has increased financing for renewable energy, 

this volume is still just over 1 percent of the agency’s overall financing. The GAO 

has found that Ex-Im Bank has consistently failed to meet current appropriations 

law to allocate 10 percent of the agency’s annual financing for renewable energy and 

energy efficiency end use technology. Congress can enforce these directives by revising the agency’s Charter to integrate the annual 10 percent target, increase the 

bank’s capital authority allocations specifically for renewable energy, and improve 

Ex-Im Bank’s ability to finance appropriate renewable energy upstream in the manufacturing process. 

Thank you again for inviting my testimony, and I look forward to answering any 

questions that you may have. 

PREPARED STATEMENT OF DAVID ICKERT 

VICE PRESIDENT, AIR TRACTOR, INC., ON BEHALF OF THE SMALL BUSINESS EXPORTERS

ASSOCIATION

JUNE 30, 2011 

Chairman Warner, Ranking Member Johanns, and Members of the Committee, 

thank you for the opportunity to testify on the reauthorization of the Export-Import 

Bank of the United States (Ex-Im). I am David Ickert, Vice President—Finance of 

Air Tractor, Inc. (Air Tractor), of Olney, Texas. It is my pleasure to submit testimony to the Subcommittee on Security and International Trade and Finance stating 

why we at Air Tractor strongly support the reauthorization of Ex-Im. 

Our support for the reauthorization of Ex-Im is deeply rooted in Air Tractor’s experiences—with exports, Ex-Im and job creation. I will relate the experiences of Air 

Tractor, but it is a much broader and deeper story than that of Air Tractor. I believe 

that it is story of many small businesses across our Nation, and maybe more compelling, it is the promise of the vast potential that exists in this country with many 

small business that could be exporting but are not. This potential, when properly 

34 

nurtured and developed, will yield its treasures of a reduced national trade deficit 

and most important of all—JOBS. 

Air Tractor is a small business engaged in the manufacture of agricultural and 

forestry fire fighting airplanes. The company has been in business since 1972 and 

is now 100 percent employee owned. We have one location—Olney, Texas. Olney is 

a small rural town located 100 miles west of Fort Worth, Texas, and 200 miles east 

of Lubbock, Texas. The population of Olney is approximately three thousand (3,000). 

In 1994, Air Tractor started exploring the possibility of finding sources of financing for our end-user customers located outside of the United States. At that time, 

approximately ten percent (10 percent) of our annual new airplane sales (units) 

were delivered outside of the U.S. These export sales were either cash-in-advance 

or acceptable Letter of Credit. Our needs for financing were of a medium-term tenor 

(usually 5 years), and in many cases the end-user customer was a small business. 

After much searching and research, we discovered two key partners that would help 

us in our pursuit of medium term trade finance. These partners were a commercial 

bank and Ex-Im. Our first medium-term transaction (Ex-Im Medium Term Credit 

Insurance) was in 1995 for two fire fighting aircraft sold to a customer in Spain. 

Since that first aircraft sale in Spain, we have sold approximately fifty (50) planes 

into the Spanish market—none requiring Ex-Im support. Since that time, we have 

completed over eighty (80) such medium-term deals through Ex-Im. For the calendar year 2010, we completely twenty (20) medium-term insured transactions with 

Ex-Im (and anticipate 30 such deals for 2011). It is also worth noting that of those 

eighty plus transactions we have completed with Ex-Im, Air Tractor has never made 

a medium-term claim on Ex-Im. In addition to the Medium Term Credit Insurance 

product, Air Tractor has also utilized Ex-Im’s Working Capital Guarantee Program. 

It is instructive to study the employment at Air Tractor since 2007 and to also 

study our percent of export sales (aircraft units) over that same period. There is a 

definite correlation of these two factors. To view these numbers against the backdrop of employment in the U.S. for the same period brightens the light on this correlation. These numbers for Air Tractor are: 

Thus, while the headlines throughout our country reflected a growing unemployment for this period, Air Tractor created jobs. For the period of 2007 through 2010 

our employment grew 33 percent. During that same time period our percent of annual export sales increased 55 percent. It is not coincidental that these two factors 

grew in lockstep. The growth of exports has been a significant contributor to the 

job growth of Air Tractor in recent years. 

The growth of exports at Air Tractor is a direct result of Ex-Im having programs 

such as the Medium Term Credit Insurance program that we could access to provide 

financing for our end-user customers outside of the United States. As noted previously, prior to using Ex-Im, Air Tractor’s export percent was 10 percent. Exports 

have grown from the 10 percent level (with no export finance) to 56 percent in 2010 

(when we had twenty medium-term deals closed at Ex-Im). With 56 percent export 

sales in 2010, there are over 100 employees at Air Tractor in Olney, Texas, that 

directly owe their jobs to exporting. 

During 2010 our exports went to fourteen (14) different countries. That is a significant number of countries for a small business such as ours. However, in the 

scheme of worldwide sales, it reflects the many opportunities we have to continue 

expanding our international footprint. Our future growth is outside of the borders 

of the United States. Those opportunities are the driving force to sustain and create 

additional jobs in Olney, Texas. Air Tractor cannot fully take advantage of these opportunities without Ex-Im. 


63011001.eps
35 

As stated previously, this is not a story of Air Tractor as much as it is a story 

of the job creating force that small businesses are and can be when they engage in 

exporting. Through such entities as the National Small Business Association 

(NSBA) and its affiliate, Small Business Exporters Association (SBEA), both of 

which I am a Board Member, stories such as these can be documented multiple 

times. It is well reported that 95 percent of the world consumers are domiciled outside of the United States. As the world economy has tightened, the global trade 

arena has become more competitive. This global market offers the opportunities for 

growth and job creation, but entities such as Ex-Im are necessary to help businesses, especially small businesses, meet the competitive challenges that exist in the 

global arena. 

Bank Chairman Fred P. Hochberg and the current Ex-Im administration have 

done a very good job of maintaining a focus and long-term commitment to small 

business. That has not always been the case with other Ex-Im administrations as 

it relates to small business. A ‘‘start and stop’’ process on small business focus as 

Ex-Im administrations change is not the best way to engage more small businesses 

in exporting and job creation in our country. Thus, I recommend that the next ExIm congressional reauthorization should continue to institutionalize the Ex-Im small 

business commitment by retaining the current authorization language as to the 

minimum percent of small business approvals by Ex-Im, defining the key roles of 

small business officers at Ex-Im and other small business provisions in the current 

authorization. 

There are several key provisions of the Ex-Im Charter that are very important 

and necessary to small business exporters. While the House bill, H.R. 2072, Securing American Jobs Through Exports Act of 2011, does not change the language, it 

also fails to even mention these critical provisions for small business exporters. 

While remaining unchanged, SBEA and I believe these provisions should at least 

be stated in the Findings section of any reauthorization bill. They include: 

Sec. 2(b)(1)(E)(v)—The not less than 20 percent direct financing authority for small 

business is an absolute must for continuity of emphasis to small business in the 

long term. Leaving this clause unchanged is necessary and any new ‘‘formulas’’ that 

turn the 20 percent into a goal rather than a mandate, or allow Ex-Im to avoid the 

mandate in certain years, should not be an option. The main objective is to improve 

direct access to Ex-Im capital by small business, year in and year out. 

Sec. 3(d)(1)A and 3(d)(2)(A)—Language that mandates the existence of the Advisory 

Committee and the section requiring at least three members of that committee be 

representatives of small business. Representation on input to Ex-Im is vital for 

small business. 

Sec. 8(b)(3)(f)—The section requiring reports to Congress if the small business authority percent is not met and details of how this would be fixed if the 20 percent 

is not met. 

These three sections should be retained without changes, and emphasized in any 

Ex-Im Bank reauthorization bill. 

Other ways to deepen the commitment to small business should also be considered. One such consideration is making the Senior Vice President for Small Business a member of the credit committee, who reports directly to the President, and 

is a voting member of the credit committee or any successor entity. The Senior Vice 

President must have a sense of the ‘‘big picture’’ in terms of how the agency reasons 

as it decides which applicants are approved, and which are declined, for credit worthiness reasons, and therefore must have a say in these decisions. 

Additionally, as Ex-Im continues to grow in both number of approvals and dollar 

volume of approvals as they have in the last couple of years, they will need adequate administrative budget to be staffed and have the electronic infrastructure to 

properly handle the growth that we should see as they continue to increase their 

volume of business. 

Furthermore, I should mention an amendment adopted by the House Financial 

Services Committee during deliberation of H.R. 2072 barring Ex-Im from providing 

assistance to companies that conduct certain business with Iran. In a voice vote, the 

committee approved an amendment sponsored by Reps. John Campbell (R-Calif.) 

and Brad Sherman (D-Calif.), and now goes to the full House for its consideration. 

Denying Ex-Im Bank loans, credits, or credit guarantees for U.S. exports to the 

sanctioned entity would be burdensome for small exporters. These type of mandates 

that interfere with Ex-Im’s business puts extra constraints on small business compared to big business with respect to exports as it further creates controversy, confusion, and costs for U.S. interests. 

36 

During 2010, Air Tractor paid over $300,000 in fees to Ex-Im for products we contracted with them through Ex-Im. As noted earlier we have never made a mediumterm claim on an Ex-Im policy. This is a net plus for Ex-Im—revenue but no corresponding claim expense. This is not always the case, but as I heard Chairman 

Hochberg state in a speech in January of this year, ‘‘The Bank makes money!’’ What 

a wonderful situation—everyone wins, including the U.S. taxpayer. 

President Obama recognized the importance and the powerful impact of exporting 

on job creation when he established the National Export Initiative (NEI) by Executive Order signed March 11, 2010. The NEI is an important step in our country becoming more competitive in the global arena. As we do so, more jobs will be created 

in the United States. The goal to double our country’s exports in 5 years may seem 

ambitious, but it can be done. Small business will play a vital part in meeting this 

goal. Ex-Im is a necessary and key entity needed for business—both small and 

large—to meet the goal of the NEI. 

Olney, Texas, is my hometown. It is a great place to live and work. However, 

when one thinks of a town originating export transactions, a small, west Texas town 

does not immediately come to mind. As I have described it before, Olney has three 

red lights and a Dairy Queen—not an international hub. The significance of this is 

that if we can create jobs through exporting on Main Street, Olney, Texas—anyone 

can do it. We have a great potential for job creation in this country through small 

business exporting. A very key player in that job creation process is Ex-Im. Thus, 

we would urge for the congressional reauthorization of Ex-Im. 

I would like to thank Chairman Warner for holding this hearing, bringing Ex-Im 

Bank to the forefront and for allowing me the opportunity to testify. 

37 

1Working Capital Guarantee Delegated Authority Program, OIG-AR-11-04, July 8, 2011, can 

be found at http://exim.gov/oig/documents/WCGDA%20final%20report%20110708.pdf. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM OSVALDO LUIS GRATACO ́ S 

Q.1. In 2008, GAO found that the lack of performance measures at 

the Bank, particularly the lack of targets to measure progress and 

the lack of time frames regarding small business strategies, prevent Ex-Im bank management from accurately monitoring and reporting progress in achieving its standards. 

Where now, in 2011, is the Inspector General’s Office on this important finding? 

A.1. Ex-Im Bank management agreed to implement GAO’s recommendations on the lack of performance measures and time 

frames regarding small business assistance. The GAO has informed 

Ex-Im Bank OIG that GAO has been in contact with Ex-Im Bank 

management in order to close out the recommendations in the GAO 

report. GAO reports that Ex-Im Bank has been making progress in 

implementing its recommendations. 

Ex-Im Bank has made progress in revising its strategic plan and 

performance metrics for the Small Business program. In fiscal year 

2010, the Bank was able to meet its 20 percent congressionally 

mandated target and increased its outreach to small businesses by 

attending 477 outreach events, including events sponsored by 

women-business centers, small business associations, and minorityfocused chambers of commerce. In January 2011, it announced a 

Global Access for Small Business Initiative with specific goals of 

approving at least $30 billion in small business transactions, supporting a cumulative total of approximately $58 billion in export 

sales, and adding a total of 5,000 small businesses to the Ex-Im 

Bank portfolio. Given the priority of the Small Business program 

within the Administration’s National Exports Initiative, we will 

continue to monitor management’s implementation of GAO’s recommendations. 

We should note, however, that although the Small Business program has made progress in implementing performance metrics and 

response time targets for its products, the Bank has not set similar 

targets for the medium- and long-term structured products. 

Q.2. Absent such performance plans, how does the Bank measure 

the costs and benefits of its initiatives? 

A.2. Under 12 U.S.C. §635g and 39 U.S.C. §9106, Ex-Im Bank is 

required to issue an annual report on its operations and financial 

condition to Congress. In addition, the Bank has issued a strategic 

plan for 2010–2015 with six broad measures to determine whether 

it is making progress on its long-term goals. The annual report and 

the strategic plan, however, do not establish an effective and specific performance plan with targets and timelines to track Ex-Im 

Bank’s program results. For example, in our recent audit report on 

the Working Capital Guarantee Delegated Authority Program 

(WCGDA) we found that Ex-Im Bank did not maintain information 

on this Program to effectively evaluate its performance. 1 The audit 

found that WCGDA data was not maintained separately from the 

non-WCGDA Program. Without the applicable data, it is difficult to 

38 

evaluate the performance level of a Program to determine whether 

it is achieving its intended purpose at the lowest possible cost. 

Further, under the Government Performance and Results Act of 

1993, the Ex-Im Bank is required to submit an annual performance 

plan (APP) to the Office of Management and Budget as part of the 

budget process. On December 2, 2010, the Ex-Im Bank OIG issued 

a memorandum to Ex-Im Bank management requesting clarification on the application of Government Performance and Results Act 

of 1993 and the Report Consolidations Act of 2000 (RCA), which 

would allow Ex-Im Bank to consolidate any statutorily required reports into an annual Performance and Accountability Report. 

On March 16, 2011, Ex-Im Bank’s General Counsel replied that 

Ex-Im Bank had elected not to consolidate reporting requirements 

under the RCA. However, the General Counsel stated that, commencing in FY2012, Ex-Im Bank would begin filing an APP in accordance with the Government Performance and Results Act of 

1993. An APP will enable Ex-Im Bank to have a framework in 

order to measure the costs, benefits, results, and outcomes of its 

programs and initiatives. 

Q.3. Would waiting for emplacement of an effective performance 

plan, before authorization of a higher level of loan guarantees, reduce the likelihood of loan defaults? 

A.3. Well run organizations have a clear strategic and performance 

plan and Government agencies are no exceptions. It is therefore 

good practice for the Ex-Im Bank to have a strategic and performance plan to function efficiently and effectively, to monitor its performance, and to identify successes and shortcomings. Moreover, 

such a plan will enable a continuous improvement environment at 

the Ex-Im Bank. Through such a plan, the Ex-Im Bank may establish a goal of reducing loan defaults and implementing metrics to 

gauge its performance. However, the OIG believes that decreasing 

loan defaults is accomplished by establishing better risk management procedures, as outlined in Question 2, that are not necessarily made part of a strategic and performance plan. 

Q.4. The Ex-Im Bank has experienced a fair number of fraud cases 

in its transactions, due in part to the lack of adequate risk evaluation procedures. In its most recent Semi-Annual Report to Congress, the Office of Inspector General identified Ex-Im Bank’s loan 

guarantee and export credit insurance programs as being ‘‘particularly susceptible to fraud schemes by foreign borrowers.’’ 

What variety of factors specifically make the occurrence of transactional fraud even more acute for Ex-Im Bank? 

A.4. The loan guarantee and export credit insurance programs provide guarantee of payments and protection to lenders and exporters 

to promote the purchases of U.S. goods and services. In general, in 

the transactions we have investigated and inspected, we have uncovered that the most notable factor leading to the transactional 

fraud was that neither lenders nor Ex-Im Bank are conducting effective due diligence on borrowers and buyers. This is mainly due 

to the fact that the Ex-Im Bank’s Master Guarantee Agreement 

does not require lenders to conduct a sufficient level of due diligence on the parties to the transaction as they would a non- ExIm Bank transaction. In addition, the 100 percent threshold guarVerDate Nov 24 2008 11:43 Mar 16, 2012 Jkt 048080 PO 00000 Frm 00042 Fmt 6602 Sfmt 6602 L:\HEARINGS 2011\06-30 AM DISTILLER\63011AM.TXT JASON
39 

2Medium-Term Export Credit Program-Credit Risk and Fraud Management Business Process 

Improvement, OIG-AR-09-04, March 30, 2009, can be found at http://exim.gov/oig/documents/ 

MTlProgramlBusinesslProcesslFinallAuditlReport.pdf. 

antee creates a ‘‘moral hazard’’ for the lender as it insulates the 

lender from the risk of loss on the transaction (no skin in the 

game) and eliminates a financial incentive to perform adequate due 

diligence. 

One of the observations from the cases investigated is that the 

lender does not truly ‘‘know its client’’ in many transactions. This 

allows exporters or agents to orchestrate the fraud by finding willing borrowers and submitting, for example, false identity papers, 

applications, and financial statements to approve the transaction. 

In short, there is a lack of verification of the existence of the borrower, the transaction sourcing agent, the exporter, and the U.S.- 

based supplier. 

In addition, our investigations and inspections have found that 

in many cases there has been no effective verification of material 

documents to the transaction (Receipt of Downpayment, Invoices, 

Shipping Documents, Customs Documents, and Exporter’s Certificate) by the lender and Ex-Im Bank until after the loan defaults. 

This presents an opportunity for exporters or agents to falsify these 

documents. Once these documents have been provided to the lender, the loan proceeds are disbursed. A significant amount of time 

may pass before the loan defaults which triggers Ex-Im Bank’s responsibility to pay the claim and start recovery efforts. 

Another factor that may contribute to this problem is the low 

number of underwriters or loan officers at Ex-Im Bank relative to 

the increasing size of the Bank’s total asset exposure. Over the 

past 5 years, Ex-Im Bank has witnessed significant asset growth 

with total exposure growing by 30 percent to $75 billion as of 

FY2010 and is on target to break a record in FY2011. Ex-Im Bank 

has achieved this increase with basically the same staffing level for 

the past decade. This increase in workload undertaken by the same 

level of staffing may contribute to diminished oversight, due diligence, and resulting high default rates. 

Q.5. What is the instance of fraud occurring in the Medium Term 

Loan Program, and what procedures need to be improved to mitigate the risk of fraud? 

A.5. We currently have 311 Medium Term (MT) program claims 

worth $337,296,551 under investigation. 

On March 30, 2009, Protiviti, an OIG contractor, made several, 

specific recommendations in an audit concerning credit and fraud 

risk management in the MT program. 2 Among them, Protiviti recommended that (1) Ex-Im Bank strengthen its credit underwriting 

due diligence by requiring lenders to do on-site inspections and appraisals of equipment being exported as well as obtain bank/brokerage statements of obligors and guarantors for MT transactions; 

(2) institute an effective early warning/delinquency and performance reporting system by requiring a standardized process for lenders to report borrower payment history; and (3) institute a independent, formal lender oversight function that can effectively oversee transaction due diligence guidelines or requirements, and a 

quality assurance function that can manage and monitor performVerDate Nov 24 2008 11:43 Mar 16, 2012 Jkt 048080 PO 00000 Frm 00043 Fmt 6602 Sfmt 6602 L:\HEARINGS 2011\06-30 AM DISTILLER\63011AM.TXT JASON
40 

3Follow-Up of Audit Recommendations Reported in Medium Term Export Credit Program— 

Credit and Fraud Risk Management and Business Process Improvement, Evaluation Report 

OIG-EV-10-02, can be found at http://exim.gov/oig/documents/FollowlUploflAuditlRecommendationsl10l02.pdf. 4Medium Term Export Credit Program-Information Technology (IT) Systems, Support and 

Governance, OIG-AR-09-05, June 12, 2009, can be found at http://exim.gov/oig/documents/ 

MTITauditreportfinal.pdf. 5Follow-Up of Audit Recommendations Reported In Medium Term Export Credit Program— 

Information Technology (IT) Systems, Support and Governance, Evaluation Report OIG-EV-10- 

01, can be found at http://exim.gov/oig/documents/OIGlEVl10l01.pdf. 

ance of transaction participants, such as agents and appraisers. On 

July 7, 2010, Protiviti issued a follow-up of audit recommendations 

of this report and found that the Bank had taken necessary actions 

to establish appropriate controls in most of the areas that needed 

strengthening. 3

In more general terms, as a result of our fraud investigations 

and inspections, we have determined that Ex-Im Bank may be able 

to mitigate fraud by implementing a comprehensive list of mandatory due diligence steps that must be performed by the lender and 

Ex-Im Bank. For example, such steps may include, but are not limited to: (1) the lender and Ex-Im Bank conducting minimal corporate registration and credit checks on the Borrower, the Sourcing 

Agent for the transaction, the Exporter, and the Supplier; (2) the 

lender and Ex-Im Bank contacting the borrower to review the 

terms of the credit; (3) the lender verifying the borrower’s references and financial statements; and (4) the lender verifying all 

material documents to the transaction prior to the loan’s disbursement. 

Q.6. How much of the managerial challenges faced by Ex-Im Bank 

can be attributed to an inefficient and ineffective IT platform? 

A.6. Ex-Im Bank has significant managerial challenges due to an 

inefficient and ineffective IT platform. For example, on June 12, 

2009, Protiviti, an OIG contractor, issued an audit of the MT Program’s IT Systems, Support and Governance. 4 The audit was initiated at the request of then Chairman James L. Lambright based 

on questions raised regarding the efficiency and effectiveness of IT 

support for the Bank’s MT program in view of adverse economic results of the MT program and user complaints regarding slow response times. The audit found that the Bank had not provided adequate IT program support and governance of the MT program. Significant enhancements to the Bank’s processes for identifying strategic priorities, setting goals, developing plans to achieve them, 

supporting business process and system development and allocating IT resources would be required in order to improve functional support for the MT program and create reasonable accountability for realizing management’s objectives. On June 30, 2010, 

Protiviti issued an evaluation report as a follow up to this audit 

and found that the Bank had taken the necessary actions to establish appropriate controls in most of the areas that needed strengthening in the MT program. 5

In addition, audits we have conducted found the Ex-Im Bank IT 

systems are not flexible, queries are not robust and accuracy of 

data is not always reliable. Because of the above deficiencies, the 

OIG and its contractors primarily rely on manually controlled data 

when conducting audits. We are currently conducting an audit to 

41 

determine whether Ex-Im Bank is minimizing the cost and maximizing the usefulness of its key IT systems to meet Ex-Im Bank’s 

mission. We will share the results of this audit with the Committee 

as soon as it is completed. 

Q.7. The subsidy or loss rates in the Medium Term Loan Program 

are positive, whereas the rates for the Long Term Loan Program 

and the Short Term Working Capital program are net negative and 

near-zero, respectively. What accounts for the difference in performance in the Medium Term program? 

A.7. The subsidy rates differ because the MT program presents enhanced risks not present in the Long-Term and Short-Term programs represented by the historical levels of defaults. 

The difference in default rates between the Medium and LongTerm programs can also be attributed to the fact that most of the 

Long-Term deals are either aircraft or project financings that are 

highly structured with strong collateral while many of the MT 

deals have been done on an unsecured basis, with less due diligence up front. 

In our 2009 audit of the credit and fraud risk management of the 

MT program referenced above, Protiviti found that the Ex-Im Bank 

encountered significant credit and fraud loss, process efficiency 

challenges and IT issues because the Bank had not developed customized policies, controls, systems, and tools to address the enhanced risks of the MT program. The MT program is a high-risk 

program that responds to the Bank’s mission of making export financing available where the private sector is unable or unwilling 

to do so and only requires a reasonable assurance of repayment. 

However, actions that would typically be taken by a high-risk lender in the private sector to effectively manage credit and fraud risk, 

and which are recommended or required by the Office of Management and Budget’s Circular A-129-Policies for Federal Credit Programs and Non-Tax Receivables, have not been consistently required elements of the MT program. 

42 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

STATEMENT SUBMITTED BY THEA MEI LEE, DEPUTY CHIEF OF STAFF, 

AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL 

ORGANIZATIONS 

I appreciate the opportunity to submit testimony on behalf of the twelve and a 

half million working men and women of the AFL–CIO on the reauthorization of the 

Export-Import Bank, and how best to maximize the positive impact of the Ex-Im 

Bank’s actions on American jobs and exports. 

I have had the privilege to serve on the Ex-Im Bank’s Advisory Committee as a 

representative of labor for more than a decade, so I have seen at close range the 

breadth of support provided by the Ex-Im Bank to American exporters, as well as 

the growth and development of the organization over that period of time. I would 

like to take a moment to commend Chairman Fred Hochberg for his leadership of 

Ex-Im Bank and for his unwavering dedication to supporting a strong U.S. export 

sector and American jobs. 

The AFL–CIO supports President Obama’s goal of doubling U.S. exports by 2015, 

and we appreciate the financial support that Ex-Im Bank has provided to help reach 

that goal, especially in the wake of the financial crisis. Ex-Im Bank’s record of increasing its export financing by 70 percent since 2008 is commendable and reflects 

hard work by the leadership and staff, increased outreach to potential exporters, 

and some streamlining of procedures, among other things. The success of Ex-Im 

Bank in substantially increasing its export financing in recent years certainly appears to indicate that exporters find Ex-Im Bank financing attractive and competitive relative to other available options. 

But it is important to keep in mind that the ultimate goal of Ex-Im Bank is not 

just to make more loans, but to support U.S. jobs through increased exports. As Section 2 of the Bank’s 2002 Reauthorization makes clear: ‘‘The Bank’s objective in authorizing loans, guarantees, insurance, and credits shall be to contribute to maintaining or increasing employment of United States workers.’’ 

Ex-Im financing provides exporters support that is in general more accessible or 

more attractive than that available through private channels. While Ex-Im Bank is 

self-financing, the full faith and credit of the U.S. Government supports Ex-Im loans 

and makes possible the favorable terms that make Ex-Im Bank loans attractive to 

exporters. 

The U.S. Congress, in its periodic reauthorization of the Ex-Im Bank, has an opportunity to ensure that Ex-Im financing is meeting its ultimate policy goal of supporting American jobs. The role of the Congress is essential in maintaining the integrity and the public-policy mission of the Ex-Im Bank. The Bank is under constant 

pressure from its clients, the companies that use Ex-Im Bank services, to weaken 

the policy constraints that are in place, in order to facilitate more loans on easier 

terms with fewer strings attached. Congress can and should represent broader 

American interests than just the profit motive of exporting corporations. 

The three ‘‘policy provisions’’ of Ex-Im Bank that often come under sharp criticism 

from exporting companies are the domestic content guidelines (limiting Ex-Im Bank 

financing mainly to U.S.-produced goods and services), the economic impact requirement (ensuring that Ex-Im Bank loans do not undermine U.S. jobs or circumvent 

U.S. trade laws), and the U.S. shipping requirements. All of these create some inconveniences for exporting companies, but serve important public policy purposes for 

the United States. 

The proposed legislation that the House of Representatives has proposed, ‘‘Securing American Jobs Through Exports Act of 2011’’, reauthorizes the Ex-Im Bank 

through 2015 and increases its exposure cap to $160 billion over the next 3 years. 

The AFL–CIO supports the reauthorization of Ex-Im Bank and the expansion of 

available financing. 

Unfortunately, the proposed legislation also alters the Bank’s procedures for establishing domestic content guidelines in a way that could weaken content requirements and undermine U.S. jobs. We strongly oppose the inclusion of Section 5 in 

the legislation and urge the Senate to drop that provision from the bill. 

Rather than attempting to weaken Ex-Im Bank’s domestic content policies, any 

reauthorization legislation should instead clarify the content policies and make 

them more transparent, particularly with respect to how domestic content is calculated and what it includes. 

In addition, we would like to see the economic impact provisions strengthened and 

clarified. There is no evidence that the current economic impact requirements are 

undermining the competitiveness of Ex-Im Bank or posing an undue burden on exporters, contrary to some recent testimony in this Subcommittee. 

43 

In 2008, 2009, and 2010, very few transactions were required to undergo detailed 

economic impact analysis—10, 7, and 8 respectively, according to the draft 2010 ExIm Bank Competitiveness Report. Of those, the majority were withdrawn for reasons having nothing to do with the economic impact requirement. Of the remaining 

handful of transactions, none in the last 3 years were denied because of the economic impact requirement. It should not be asking too much of companies that receive Ex-Im financing to report the likely impact of their transaction on U.S. jobs 

and production, especially where a global excess supply exists (as in steel) or a trade 

case is pending. 

Another area where Ex-Im Bank policies could be improved relates to foreign export credits. The current charter lays out two situations in which the Bank can 

match foreign export credits. Under Section 10(b)(1)(A), Ex-Im can match credits if 

there is a reasonable expectation that a competitor will provide aid in violation of 

the arrangement or aid that, while technically in compliance with the arrangement, 

may require matching because it is grandfathered. Section 10(b)(1)(B) allows matching for exports to countries which are actual or potential export markets for countries that: (i) engage in predatory financing and either impede negotiations or violate the arrangement; or (ii) engage in predatory financing that seeks to circumvent 

agreements on tied aid. The section could be amended to add another category to 

this provision for any financing provided by a country that is not a member of the 

arrangement. This could simplify matters by eliminating the need to show that the 

country is violating the terms of the arrangement, impeding negotiations, or seeking 

to circumvent the arrangement. 

Finally, an important challenge to Ex-Im Bank and the other OECD ECAs comes 

from the rise of China’s Ex-Im Bank, which is rapidly increasing its export finance 

and is in egregious violation of WTO rules. The AFL–CIO would like to see our Government take more forceful action through the WTO to confront these violations, 

which are undermining American exporters and workers. 

Export credits are prohibited export subsidies under WTO rules, but there is a 

safe harbor in WTO rules that permits countries to provide export credits that comply with the interest rate and maturity terms of the OECD Arrangement on Export 

Credits. An export credit agency does not need to be a member of the OECD arrangement to benefit from this safe harbor, it just needs to bring its export credits 

into compliance with the OECD terms in practice. China has been invited to accede 

to the OECD arrangement but has refused to do so. 

China’s ECA is now one of the largest in the world, and it is blatantly flouting 

the basic rules export credit agencies agreed to decades ago, without any challenge. 

China’s Ex-Im Bank is apparently granting loans with interest rates of 1 to 2 percent and repayment terms as long as 20 years, as well as special discounted credits 

that go directly to exporters in priority sectors such as high technology (including 

green technology). China’s Ex-Im Bank explicitly advertises these credits as being 

available at below-market rates. Since China’s export credits are not in compliance 

with OECD rules, they are prohibited export subsidies under WTO rules. We urge 

our Government to bring a WTO challenge, as the United Steelworkers union has 

documented in its Section 301 case, to ensure that China come into compliance with 

international rules in this important area. 

I thank you for your attention and look forward to your questions. 

STATEMENT SUBMITTED BY OWEN E. HERRNSTADT, DIRECTOR, 

TRADE AND GLOBALIZATION, INTERNATIONAL ASSOCIATION OF 

MACHINISTS AND AEROSPACE WORKERS 

The International Association of Machinists and Aerospace Workers, (IAM) AFL– 

CIO, represents several hundred thousand active and retired members throughout 

North America. Our members work in a variety of manufacturing industries including aerospace, electronics, defense, shipbuilding, transportation, and woodworking. 

Given the nature of these industries and the IAM’s membership, the IAM truly understands the importance of manufacturing to our Nation’s economic and physical 

security. We also understand that strong U.S. exports, which are directly related to 

creating and sustaining jobs here at home, are a key to our success in restoring our 

economy and building a prosperous and sustainable future. 

The United States Export-Import Bank (the Bank) exists to promote U.S. exports 

that create and sustain good manufacturing jobs here at home, not in other countries. It fulfills its mission by providing U.S. exporters with more favorable financing than they could obtain privately if they meet various public policies. One of 

those policies encourages exporters to manufacture products for export in the U.S. 

by providing support for the domestic content that is included in the product. ProVerDate Nov 24 2008 11:43 Mar 16, 2012 Jkt 048080 PO 00000 Frm 00047 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-30 AM DISTILLER\63011AM.TXT JASON
44 

posals to require the Bank to lend greater financial support for the foreign content 

of U.S. exports is contrary to the Bank’s mission to support the creation and maintenance of jobs in the U.S. and should be rejected. If these proposals were adopted, 

Congress and the Bank would be providing U.S. exporters with a greater incentive 

to produce their products in other countries. 

Instead of weakening the Bank’s mission to support U.S. jobs by offering greater 

support to U.S. exporters who are increasingly transferring U.S. jobs to other countries, efforts should be undertaken to strengthen the Bank’s ability to satisfy its policy objectives. Among other things, the Bank should be encouraged to adopt a method for precisely calculating the number of U.S. jobs it supports through its financing. The Bank currently extrapolates job estimates based on the value of exports 

it promotes. 

One of the problems with the extrapolation method is that it presumes the entire 

export is produced by U.S. workers. Moreover, current job estimates do not reveal 

with any precision the kind of jobs that are created or supported nor do they indicate their duration or where they are geographically located. Additionally, since the 

Bank supports a limited percentage of foreign content and ‘‘local’’ costs (derived 

from work performed in the country that receives the export), it would be helpful 

to know how many foreign jobs are created or supported by the Bank’s financial 

support. 

This employment information should be reflected in the Bank’s economic impact 

review, which should be applied more broadly to cover projects that are less than 

$10 million. Expanding the application of detailed economic impact reviews should 

not be too burdensome; currently the Bank only applies detailed analysis is to less 

than 10 projects a year. In 2008, zero projects underwent a detailed analysis. 

We encourage the Bank to adopt domestic content standards that strictly reflect 

the direct costs of U.S. production, including manufacturing costs, parts, components, materials and supplies for all of its transactions We also urge the Bank to 

review standards that reflect the Federal Trade Commission’s understanding of 

what domestically made products mean. According to the FTC: ‘‘For a product to be 

called Made in USA, or claimed to be of domestic origin without qualifications or 

limits on the claim, the product must be ‘all or virtually all’ made in the U.S . . . 

‘All or virtually all’ means that all significant parts and processing that go into the 

product must be of U.S. origin. That is, the product should contain no—negligible— 

foreign content.’’ 

Suggestions that the Bank include indirect costs in calculating domestic content 

should be outright rejected. Including marketing, the value of intellectual property/ 

patent rights, property related to research and development, and CEO pay is simply 

inappropriate. Inclusion of these factors dilutes the real domestic content of a product. These factors could also be manipulated by some exporters by enabling them 

to produce a greater percentage of their product in other countries without decreasing the domestic content that they currently claim for their products. 

Some exporters argue that obtaining a sale with greater foreign content is better 

for U.S. workers than losing the sale itself. We have yet to see solid empirical support for this statement. In contrast, industries that were once the bedrock of U.S. 

manufacturing like machine tool, electronics, shipbuilding and many others have 

been decimated, in part, because U.S. production has been shifted to other countries 

to secure the sale of those products. Even leading edge industries like aerospace 

have declined as U.S. aerospace industries transferred technology and production to 

other countries. The European aerospace industry, which has been a great recipient 

of transferred aerospace work, is a strong competitor of the U.S. aerospace industry. 

In addition, given all of the aerospace production that has been transferred to 

China, in large part to penetrate its market, it should be little surprise that China 

now seeks to enter the large commercial aircraft industry. 

While some exporters also argue that the public policies that create the Bank’s 

mission must be weakened so that the Bank can become more competitive, the fact 

remains that the Bank continues to fund a record amount of projects. The question 

over competitiveness seems to be misdirected as well. Shouldn’t the real question 

be how other export credit agencies are competitive with meeting the Bank’s overall 

mission to support exports that create and maintain domestic jobs? This would require an analysis of how other countries are pursuing domestic employment in manufacturing through their export credit banks and other national policies. 

Now more than ever, we need to make certain that the Bank is as effective as 

possible in meeting its mission to support exports that create and maintain U.S. 

jobs. Strengthening the Bank’s domestic content policies and bolstering its economic 

impact analysis is a critical component in this endeavor. Proposals that would permit the Bank to support greater levels of foreign content in a U.S. product, under 

cuts the Bank’s mission. If adopted, they would give greater incentive for companies 

45 

receiving the Bank’s support to further outsource U.S. production to other countries. 

We urge you to strengthen the Bank’s public policy goals to create jobs here at 

home, and reject any attempt to weaken them. 

JOINT STATEMENT SUBMITTED BY AMERICAN APPAREL AND FOOTWEAR ASSOCIATION, NATIONAL COTTON COUNCIL, AND NATIONAL 

COUNCIL OF TEXTILE ORGANIZATIONS 

Thank you for providing the above organizations the opportunity to submit comments regarding stakeholder perspectives on the Export-Import Bank of the United 

States and the pending reauthorization of the Bank. Our organizations strongly believe that today’s hearing will help the Committee better understand how the Export-Import Bank (Ex-Im Bank) can better address the needs of U.S. companies in 

a globally competitive environment while also creating U.S. jobs. 

The Ex-Im Bank could and should play a critical role in supporting and expanding 

U.S. jobs in the U.S. textile industry and in turn anchoring a strong Western Hemisphere textile and apparel supply chain. Regrettably, the Ex-Im Bank has failed to 

fulfill this role because the structure of Ex-Im Bank loans and guarantees do not 

reflect either the realities of the apparel and textile supply chain, U.S. trade policy, 

or today’s global supply chains in general. 

At the direction of U.S. trade policy, the textile and apparel supply chain has developed across the Western Hemisphere and has evolved into a mutually beneficial 

relationship for both U.S. cotton growers and U.S. textile manufacturers as well as 

U.S. apparel importers. 

The Free Trade Agreements and preference program areas in this Hemisphere for 

the most part grant duty-free access to the U.S. market for apparel assembled in 

the region as long as the apparel is made, either entirely or in part, from U.S.- 

grown cotton and U.S.-made yarn and fabric. As a result, all parties in the supply 

chain benefit—from U.S. cotton growers, U.S. yarn and fabric manufacturers, to apparel manufacturers in the region and ultimately the U.S. apparel brands and retailers. All parties are positioned to reap the benefits of U.S. trade policy. However, 

the supply chain is missing the necessary ingredient—reliable supply chain financing. 

Prior to this reauthorization, the Ex-Im Bank did very little to support supply 

chain financing, which, in turn, has had the practical effect of suffocating domestic 

capital investment and job creation. Traditionally, the Bank has only considered the 

creditworthiness of the producer receiving U.S. textile industry exports and has 

failed to acknowledge that these components, once exported to Central and South 

America, return to the United States—to major U.S. brands and retailers—as finished goods. This policy has limited the financing opportunities at the Bank for the 

U.S. textile industry. 

Ex-Im Bank financing would facilitate and grow the Western Hemisphere apparel 

and textile supply chain by increasing the incentives for U.S. apparel brands and 

retailers to increase their sourcing from the region because such financing would 

make access to the U.S. cotton and textiles necessary to obtain the benefits under 

the various free trade agreements and preference programs easier, faster and more 

reliable. As a result, Ex-Im Bank financing would lead to increased exports of U.S. 

cotton, yarn, and fabric to the region. Those increased exports would support and 

grow U.S. jobs. 

U.S. Government—‘‘You Should Export to the Region, but We Won’t Help 

You’’ 

The Ex-Im Bank bases much of its financing decisions on country risk. In the case 

of the Western Hemisphere apparel and textile supply chain, this ‘‘Country Limitation’’ policy outright eliminates the possibility of financing for some countries and 

severely restricts financing and/or significantly increases the interest rates for many 

others that are integral to this supply chain. 

As a result, the U.S. Government strongly encourages U.S. textile manufacturers 

to export their products to Central America and the Dominican Republic through 

the incentives it negotiated through CAFTA–DR while at the same time saying that 

financing U.S. exports to half of the CAFTA–DR countries is too high of a risk to 

provide anything but the most limited loans and loan guarantees, at high interest 

rates to boot. For Haiti, a country that the U.S. Congress has deemed a priority 

through passage of the HOPE and HELP trade preference programs, the Ex-Im 

Bank basically says the country is off limits. 

46 

Improving Products to Better Provide ‘‘Supply Chain Financing’’ 

While the amount of paperwork and the timeline for approval remain major barriers preventing any small business from utilizing Export-Import Bank programs, 

for the Western Hemisphere apparel and textile supply chain we believe that the 

Export-Import Bank must adapt to today’s global supply chain. As in textiles and 

apparel, the United States doesn’t just export final manufactured products anymore. 

Exports of U.S.-made goods today are just one part of a global supply chain. In our 

industry, U.S. exports of cotton, yarn, or fabric, return to the United States as finished apparel or home goods. The programs offered by the Export-Import Bank 

should reflect these realities. 

House Bill Includes Textile Amendment To Help Address Industry Financing Concerns 

The House Financial Services Committee recognized the evolution of the textile 

and apparel industry global supply chain. Essential legislative text was included in 

the version of H.R. 2072 approved by the Committee on June 22, 2011, that would 

address three important issues: Bank Advisory Committee representation, reviewing 

the industry’s use of Bank products and why or why not they are being used, and 

promoting Bank financing of transactions for the textile and apparel industry. 

The legislative text is explained in more detail below and our organizations urge 

the Senate Banking, Housing, and Urban Affairs Committee to adopt similar language. 

1. Representation on Bank Advisory Committee: The textile industry will be included in the list of those to be represented by Advisory Committee members. 

The charter will read: ‘‘Sec. 3(d)(1)(B). Such members shall be broadly representative of environment, production, commerce, finance agriculture, labor, 

services, State government, and the textile industry.’’ 

2. Textile Industry Use of Bank Products—Analysis: The Bank will conduct an 

analysis of textile and apparel industry use of the Bank products, examining 

the impediments to the industry’s use of the Bank as well as then number of 

U.S. jobs supported by the industry, and make proposals for how the Bank 

could provide financing to meet the needs of the industry, including proposals 

for new products. Within 180 days, the Bank will be required to submit a report to Congress that contains the results of the study. 

3. Promotion of Industry Financing by the Advisory Committee: The Advisory 

Committee will be required to consider ways to promote Bank financing of 

transactions for the textile industry, consistent with the requirement that the 

Bank obtain a reasonable assurance of repayment, and determine ways to increase Bank support for exports of textile components or inputs; and increase 

Bank support for the maintenance, promotion and expansion of jobs in the 

United States that are critical to the manufacture of textile components and 

inputs. 

4. Annual Report: The determinations made by the Advisory Committee would be 

included in the Bank’s annual report. In addition, the Bank would be required 

to report on the success of the Bank in providing effective and reasonable 

priced financing to U.S. textile and apparel industry for exports of goods manufactured in the United States and steps the bank has taken to increase the use 

of Bank products. 

It is our belief that the legislative text as included by the Financial Services Committee would be a great first step towards bringing much needed liquidity to the 

Western Hemisphere supply chain at a time when major brands and retailers are 

considering shifting sourcing back to this region of the world. 

Conclusion 

Thank you again for holding a hearing on this important issue. We believe that 

a combination of changes in both Export-Import Bank policies and programs will position the Export-Import Bank to truly assist U.S. companies, particularly small 

businesses, and the hundreds of thousands of U.S. workers they employ, that play 

a critical role in today’s global supply chains. We would be happy to discuss any 

of the above points in more detail with the Subcommittee. 

47 

1 ATA is the principal trade and service organization of the U.S. scheduled airline industry. 

The members of the association are: ABX Air, Inc.; AirTran Airways; Alaska Airlines, Inc.; 

American Airlines, Inc.; ASTAR Air Cargo, Inc.; Atlas Air, Inc.; Continental Airlines, Inc.; Delta 

Air Lines, Inc.; Evergreen International Airlines, Inc.; Federal Express Corporation; Hawaiian 

Airlines; JetBlue Airways Corp.; Southwest Airlines Co.; United Airlines, Inc.; UPS Airlines; 

and US Airways, Inc. 

STATEMENT SUBMITTED BY AIR TRANSPORT ASSOCIATION OF 

AMERICA, INC. 

The Air Transport Association of America (ATA) appreciates this opportunity to 

present the perspective of the leading U.S. airlines on the proposed reauthorization 

of the U.S. Export-Import Bank. 1 U.S. airlines are major contributors to U.S. service exports, and strongly support President Obama’s National Export Initiative 

(NEI). The Administration correctly emphasizes that achieving the ambitious goals 

of the NEI will require contributions from U.S. service as well as manufacturing industries. 

Export credit made available through the Export-Import Bank can play an important and appropriate role in supporting U.S. exports. ATA thus supports reauthorization of the Bank. 

ATA members are not eligible for—and do not seek—export credit made available 

through the Export-Import Bank. Nevertheless, they have a vital stake in the 

Bank’s activities. The facts are that nearly one-half of the value of all guarantees 

issued by the Bank subsidize acquisitions of large civil aircraft by foreign airlines, 

providing those airlines with a significant competitive advantage, which they have 

used to capture more than 50 percent of the international traffic serving the United 

States. 

Almost all of these guarantees support sales by the Boeing Company, and that 

level of support is roughly matched by similarly guaranteed financing by European 

export credit agencies in support of sales by Airbus. The major beneficiaries of such 

credit support include the world’s most profitable airlines outside of the United 

States and the Airbus home countries of France, Germany, and the United Kingdom. 

Consequently, as Congress considers the Bank’s reauthorization—particularly, 

proposals to vastly increase the ceiling on the Bank’s authorized financing commitments—it is essential to examine closely the facts surrounding the Bank’s financing 

activities. The Committee should carefully appraise the consequences of the Bank’s 

work for U.S. companies and workers who compete with beneficiaries of U.S. Government-guaranteed loans and loan guarantees. The Congress must ensure that reauthorization of the Bank does not simply result in a trade-off between more jobs 

supported by Government subsidies and more jobs lost by U.S. companies that compete with the foreign beneficiaries of those subsidies. 

Summary 

With respect specifically to the air transport industry, ATA wishes to make the 

following points: 

• Commercial aviation is a pillar of the U.S. economy. U.S. passenger and cargo 

airlines directly employ 572,000 workers, and the industry more broadly supports millions of jobs. Yet, export credits provided by the Bank have a real and 

adverse impact on U.S. airlines. 

• Those credits support sales of large civil aircraft to foreign airlines that compete 

with U.S. airlines, and that do not need Government credit support. 

• The recently renegotiated Aircraft Sector Understanding (ASU) made a good 

start toward lessening the market distortions caused by subsidies provided by 

Government-backed Export Credit Agencies (ECAs), such as the Export-Import 

Bank and its foreign counterparts. It is essential, however, for the United 

States to press forward on a multilateral basis to achieve even greater global 

discipline over these subsidies. 

• To support ASU negotiations and to ensure that Congress and U.S. taxpayers 

understand the nature and level of the billions of dollars of Government support 

in this one sector, any reauthorization of the Export-Import Bank should require the Bank to make public increased and more consistent information, in 

a timely manner, about the terms and extent of export credits offered to support 

purchases of large civil aircraft. 

Attachment 1 to this Statement is a letter sent by ATA to Secretary of the Treasury Geithner and other senior Administration officials on August 16, 2010. This letter explains the concerns of U.S. airlines about the explosive growth in support by 

48 

the Export-Import Bank and its European counterparts for sales of large civil aircraft. The following comments refer to the facts set forth in that letter while describing recent developments for the Subcommittee and a modest proposal to increase 

the transparency of the Bank’s large civil-aircraft financing activities. 

The Airline Industry Is a Crucial Sector of the U.S. Economy 

As set forth in the August 16 letter, commercial aviation is one of the pillars of 

the U.S. economy. According to the Federal Aviation Administration (FAA), commercial aviation drives approximately $1.2 trillion in annual economic activity in the 

United States and is responsible for 10.9 million U.S. jobs. This is roughly 5.2 percent of our Gross Domestic Product (GDP). Every $1 million of commercial aviation 

activity generates 24.6 jobs. 

The airline industry is an integral part of this picture. According to ‘‘The Economic Impact of Civil Aviation on the U.S. Economy’’, published by the FAA in December 2009, nearly half of the Americans employed directly in commercial aviation 

are employed by U.S. airlines. While operating more than 10 million flights in 2010, 

U.S. airlines enplaned an average of two million passengers and 50,000 tons of 

cargo per day. Exports by air in 2010 topped $392 billion in value. In short, the industry is a powerful creator of jobs throughout the U.S. economy. Every 100 airline 

jobs help support some 388 jobs outside of the airline industry. 

Subsidy Support for Foreign Airline Competition 

As a result of the ‘‘Open Skies’’ international aviation policy pursued by the 

United States over the past two decades, international passenger and cargo service 

involving the United States has largely been deregulated. Foreign airlines now operate more than 50 percent of the passenger capacity on routes to and from the 

United States. 

U.S. airlines strongly support the Open Skies policy and welcome the foreign competition. It has become increasingly clear, however, that official export credits are 

significantly distorting the conditions of competition in the airline industry, resulting in a severe competitive disadvantage to U.S. airlines. 

As shown in Attachment 2 to this Statement, over the past decade (FY2001– 

FY2010), the Export-Import Bank issued guarantees totaling more than $49 billion, 

supporting sales of 835 aircraft. The amount of financing accelerated through those 

years. In FY2009 and FY2010, the Bank provided guarantees of $8.6 billion and 

$7.2 billion, respectively. At the end of FY2010, the Bank’s exposure to the airline 

transportation sector exceeded $35 billion—nearly half (47 percent) of the Bank’s 

total exposure. 

It is important to note that Export-Import Bank support for exports of U.S. large 

civil aircraft is matched by its European counterparts’ support of Airbus sales. The 

United Kingdom’s Export Credits Guarantee Department (ECGD) provided guaranteed financing of approximately £294 million for Airbus sales during its fiscal years 

2001–2010. Although not publicly available, the amounts of official export credits 

extended by France and Germany in support of Airbus most likely matched or exceeded that of ECGD, as the three countries all are ‘‘home countries’’ for Airbus and 

support the same sales. 

Another startling fact about ECA financing is that the major beneficiaries do not 

need it. Those beneficiaries include 9 of the 10 most profitable airlines based outside 

of the United States and the three European Airbus countries. Many of those airlines have credit ratings equal to or exceeding the ratings of U.S. airlines. They can 

access commercial credit markets on at least as favorable terms as the U.S. airlines. 

Yet, for comparable financings, Export-Import Bank credit support will yield significantly more favorable terms and loan proceeds for the foreign airlines. 

As noted in the August 16 letter, the damage caused by subsidized financing is 

particularly acute during declines in the business cycle, because ECA credits and 

guarantees immunize borrowers from market conditions. During the recent economic downturn, U.S. airlines cut capacity by 8 percent and were forced to lay off 

thousands of employees; yet, large aircraft production remained at record highs and 

the large aircraft market grew by more than 10 percent. This happened because the 

ECAs stepped in to help many foreign airlines to expand and to modernize their 

fleets. ATA estimates that U.S. and European export credits have resulted in the 

subsidized foreign carriers acquiring at least 11 percent more capacity than if they 

had to pay market rates. 

From a U.S. airline perspective, the export credit-supported competition among 

Boeing and Airbus amounts to a subsidy war that is comparable to the dispute over 

aircraft launch subsidies that the United States and the European Union have carried to the World Trade Organization. The subsidies simply occur further along the 

49 

sales chain. The export credits make aircraft artificially cheap for the foreign beneficiaries, contributing to capacity unconstrained by market conditions. 

The Aircraft Sector Understanding 

The current market distortion caused by ECA credits may only worsen as Canada, 

Brazil, China, and possibly other countries ramp up support for civil-aircraft exports 

in competition with Boeing and Airbus. The future competitiveness of the U.S. airline industry and the jobs of hundreds of thousands of its employees, will be adversely impacted by massive increases in capacity acquired cheaply by foreign airlines, unless the United States succeeds in negotiating a mutual cease fire. 

ATA applauds the progress achieved by the Administration toward this goal during the recent renegotiation of the OECD Aircraft Sector Understanding (ASU). The 

new ASU, which became effective earlier this year, will not eliminate the unjustified 

subsidization of foreign airline competitors of U.S. airlines. It will, however, close 

the gap by moving the ASU minimum terms closer to commercial market terms. 

The ASU calls for periodic review and adjustment of its terms to reflect market 

conditions. ATA supports aggressive monitoring by the Treasury Department and 

other concerned agencies to ensure that ASU members adhere to the Agreement. 

While the new ASU has a minimum 3-year term, the Administration also should 

initiate early negotiations to bring China and other emerging exporters into the 

agreement and to tighten the minimum terms still further. Ultimately, the ASU 

should ensure that Government-provided export credits are only available as limited 

‘‘backstop’’ financing, not as first-recourse loan sources and not as subsidies for financially sound foreign airlines, as is the case today. 

Increasing Transparency 

On April 14, 2011, Panamanian airline company Copa Holdings, S.A., made the 

following announcement: 

J.P. Morgan has been mandated by Copa Airlines to provide Export-Import 

Bank of the United States (Ex-Im Bank) guaranteed funding for five 737- 

800 aircraft scheduled to deliver in 2011. The Facility, totaling US$178.5 

million, includes 12-year financing terms at very competitive rates and will 

finance all direct Boeing purchases scheduled for delivery to Copa Airlines 

in 2011. J.P. Morgan will act as the sole arranger and facility agent for the 

Term Loan Facility, which is available on delivery of the Aircraft on either 

a floating or fixed rate basis. COPA will also have the option to effect a conversion, subject to Ex-Im Bank’s approval, of the floating rate term facility 

into a fixed rate term facility. ‘‘We are very pleased with J.P. Morgan’s support in securing our 2011 aircraft financing needs under very competitive 

terms. These five 737-800s will play an important role in our future growth 

plans,’’ commented Victor Vial, CFO of Copa Holdings. 

Similarly, on October 8, 2009, Dubai-based Emirates Airline announced: 

the successful pricing of its inaugural U.S. bond offering guaranteed by the 

Export Import Bank of the United States . . . related to a loan facility secured for three new Boeing 777-300ER aircraft. The transaction is in the 

amount of US$413.7m with a fixed rate coupon of 3.465 percent per annum. 

The secured notes are due 21 August 2021 and are payable in installments 

of principal and interest on a quarterly basis. 

Ironically, this type of information is not available from the Export-Import Bank 

itself. It is, in fact, extraordinarily difficult to find the most basic, nonproprietary 

information about the transactions for which the Bank issues billions of dollars of 

U.S. Government guarantees. 

In April 2010, the Office of Management and Budget (OMB) issued a directive to 

Federal agencies explaining the Administration’s requirements for financial disclosures. OMB stated: 

[T]ransparency is a cornerstone of an open Government. This Administration is committed to making Federal expenditures of taxpayer dollars transparent to the public by providing readily accessible, complete, accurate, and 

usable Federal spending data. [Office of Management and Budget, Executive Office of the President, Memorandum for Senior Accountable Officials 

Over the Quality of Federal Spending Information (2010).] 

ATA fully supports that commitment, and believes that a reauthorization of the 

Export-Import Bank should require greater transparency concerning what remains 

by far its largest sector of activity. 

50 

2The Bank reports ‘‘Ex-Im Bank Authorizations’’ by fiscal year (see, e.g., ‘‘Ex-Im Bank Authorizations for FY2008’’, available at http://www.exim.gov/open/datasets/ 

EXIMlAUTHl2008.csv). This data set includes both the authorization amount and export 

value for particular loans. The data set, however, does not report the recipient, recipient’s country or repayment term. The recipient information may be obtained through a different compilation of transaction details, accessible through USASpending.gov. (See, Export-Import Bank of 

the United States, Freedom of Information Act, http://www.exim.gov/about/disclosure/ 

foia.cfm#fr.) 

Specifically, ATA urges that legislation require the Bank, for each guarantee, 

promptly to disclose the following information regarding every financing involving 

large civil aircraft: 

• The number and model of aircraft 

• The repayment term 

• The authorization amount 

• The export value 

• The interest rate 

• Export-Import Bank Fees 

This basic information would permit taxpayers to understand better the Bank’s 

commitments of public funds. In fact, much of this information is already disclosed 

to the public in some form, either by the Bank itself or elsewhere (as demonstrated 

in the press releases quoted above). The Bank’s disclosures, however, are reported 

inconsistently, and in such disjointed fashion that they are difficult to understand. 2

In fact, the Bank reports less today in its annual reports than it did previously. 

ATA believes that the Bank should provide greater advance notice of proposals 

to its Board to approve financing transactions involving large civil aircraft, and 

prompt notice of approvals following Board action. Currently, agendas of Board 

meetings are generally published 2 days in advance. Minutes containing little information about transactions are published afterwards. 

Conclusion 

Current proposals to reauthorize the Export-Import Bank would raise the cap on 

the Bank’s outstanding loans, guarantees, and insurance to $160 billion, up from 

$100 billion currently. If the percentage of the Bank’s exposure to the airline transportation sector continued to remain at 47 percent of its total exposure, then the 

proposed new cap on its exposure limit implies a potential doubling in outstanding 

guarantees for large-civil-aircraft sales, to as much as $75 billion. This level of exposure—or even something significantly less—represents sales of hundreds of new aircraft on subsidized terms to the competitors of U.S. airlines. 

The adverse impact of the Bank’s financing of U.S. airline competitors is not new 

to Congress. In connection with the Bank’s reauthorization in 1986, this Committee, 

under the leadership of Senators Armstrong and Proxmire, sponsored an amendment designed to ensure that the Bank considered potential adverse economic impacts of proposed transactions, specifically including in the aircraft sector. In its report on the Export-Import Bank Act Amendments of 1986, the Committee wrote: 

The current provisions of section 1911 of the Export-Import Bank Act 

Amendments of 1978 require that the Bank consider the potential adverse 

impact that any Eximbank loan or financial guarantee is likely to have on 

domestic industries or employment. As part of this consideration, the Bank 

has implemented procedures to gather information on potentially affected 

parties. 

However, the Committee has found that these procedures have not been 

employed regularly or rigorously. This has resulted in Board approval of a 

loan or guarantee without adequately considering the views of parties likely 

to be affected. A particularly visible example of this occurred in 1983, when 

the Bank offered a guarantee to support Singapore Airlines’ purchase of 

Boeing 747 aircraft. A U.S. competitor of Singapore Airlines, Pan American 

Airways, felt that it was adversely impacted by this support, yet it was not 

consulted by Eximbank, and the Board gave only cursory attention to this 

statutory consideration. 

The bill strengthens the directive to the Bank to consider the views of domestic parties who may be substantially adversely affected by the 

Eximbank loan or guarantee. The Bank is further directed to address these 

views in writing so that the Board of Directors may formally review this 

material before making a decision on the transaction. The intent of this 

51 

3 In fact, as reported by the Bank’s Inspector General, the Bank only rarely conducts economic 

impact analyses for transactions involving any industry. Evaluation Report Relating to Economic Impact Procedures, OIG-EV-10-03, September 17, 2010. 

amendment is to ensure that Eximbank more rigorously implements its existing procedures and the already existing requirements of the law. 

S. Rep. No. 99-273, at 8-9 (1986). During the floor debate of the 1986 Amendments, Senator Armstrong raised the Singapore Air example: 

In 1983, the Bank sought to provide $254 million in direct credit and $426 

million in financial guarantees to Singapore Airlines for the purchase of 

four new Boeing 757’s and six new Boeing 747’s, plus the spare parts. 

It should be noted by the way, that Singapore Airlines is owned 98.2 percent by the Government of Singapore, which gives it some advantage, as 

you might imagine, over its direct competitors, particularly American-based 

Pan Am. 

I bring this up because one element for reform contained in this bill, primarily at the leadership of the Senator from Wisconsin [Mr. Proxmire], is 

contained, I think, in section 112 of this bill, or it is one of the sections, 

which literally will now require the Eximbank to take into consideration 

not only the positive effect of its action but also potential damage to the 

U.S. economy. 

132 Cong. Rec. S9361 (daily ed. July 21, 1986) (statement of Senator Armstrong). 

Twenty-five years later, so far as ATA is aware, the Bank has never once taken into 

consideration the potential damage to the U.S. airline industry of its support for aircraft sales. 3

U.S. airlines face far more competition from foreign airlines for U.S. traffic than 

in 1986. It is thus ever more critical for the Congress and the Administration to 

understand the full prospective consequences of the proposed massive increases in 

Export-Import Bank funding, and not to take steps that will worsen what is, at best, 

already a zero-sum game of supporting one U.S. industry at the expense of another. 

Ultimately, continued vigorous U.S. leadership among the ASU participants and 

elsewhere will be essential to relieve exporters’ calls on the U.S. Government’s credit and to restore a level playing field for the U.S. airline industry. 

52 

Attachment 1: ATA Letter to Secretary of the Treasury Geithner, August 16, 

2010 


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Attachment 2: Ex-Im Bank and ECGD Financing of Boeing and Airbus 

Exports 


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