Subcommittee on International Trade and Finance

Hearing on Reauthorization of the U.S. Export-Import Bank

Mr. Chairman, thank you for the invitation to appear before the panel today. My name is Peter Bowe, and I am offering this testimony for Eximbank renewal on behalf of the U.S. Chamber of Commerce, and on behalf of two small companies I run as president: Ellicott International, a dredge exporter, and Liquid Waste Technology, a waste water treatment plant equipment manufacturer.

The subject today really should not be renewal of Eximbank, but rather its expansion — and how its export programs can be made more competitive. We should be considering not how Congress can legislate export financing guidelines for the world, but how to deal with the realities of the aggressive practices of export credit agencies (ECAs) from other countries which understand how important exporting is to their economy. Exim needs a mandate to be more flexible, more aggressive, less restrictive about U.S. content, and less expensive with respect to fees.

First let me review what Exim is doing well in pursuing its role of export promotion:

• The concept of delegated authority, whereby Exim lets private sector banks issue commitments on its behalf is a great idea and should be expanded further. This is especially appropriate for small business which may find the task of dealing with Washington-based bureaucrats daunting.
• Secondly, Exim's program to support standby letters of credit for bid bonds and performance bonds is innovative and should be continued. This program covers an important need for exporters — and bridges a difference between foreign banks which issue bank guarantees, as opposed to letters of credit, for this purpose and do not charge the exporter's credit line. My company Ellicott has found this program effective.

• Exim has a small business working capital program which means that the bank recognizes that the needs of small business can be different, and has dedicated staff trained to appreciate these needs.
• A further positive comment: Exim's staffing an office in China shows that it has the ability to act strategically, recognizing where potential for export growth is greatest and the impact of financing the most significant.

There are a few areas where Exim can improve its value to small business exporters:

• First it needs to reduce its exposure fees which on a per transaction basis often appear unfavorable compared to foreign competition. By way of example, our Vietnamese customers have said it is cheaper for them to arrange financing on their own than use Exim. Even though Exim should not be a bank of first resort, it should not be comparably so expensive.

• Second, Exim is often too slow to respond in those cases where staff response is required. We lost a $1 million transaction in India because of an inability to deliver a firm proposal in a time period satisfactory to our contractor customer who had to mobilize for a job. I have heard similar anecdotes from other small business exporters. I believe more staff may be required to solve this problem.

• Third, Exim's requirements for U.S. content have traditionally been far more restrictive than what other exporter credit agencies allow. While understanding that the objective of Exim is to create export related jobs, one must often be willing to give up a piece of the pie to get some pie. By contrast, Canada's Exim equivalent would say that a CAT engine bought through a Canadian CAT dealer is all Canadian content, and that freight arranged through a Canadian freight forwarder is Canadian content even if the conveyance is not Canadian flagged. As commerce gets more global and sourcing more international, it becomes increasingly more difficult to achieve Exim's local content requirements despite their recent relaxation.

No doubt a major problem for Exim is Congressional mandates. These affect subjects such as allowable local content or foreign content. There are other mandates which interfere with Exim's business such as unilateral trade sanctions and perhaps most of all, too strict a policy objective of avoiding taxpayer loss through credit decisions about foreign buyers, and exposure fees designed to generate income from export financing.

Small business has special constraints compared to big business with respect to exports. Typically small businesses are limited to production in one or two plants and can't move that production to meet customer financing requirements. Multinationals with many factories can move sourcing to a host country where superior export financing is available. Thus, for a small business exporter the choice is to move manufacturing to a foreign country altogether, or to lose a particular deal if Exim financing is not on a par with that offered by competitive sources.

Small businesses, as well as large businesses, complain about the use of tied aid by foreign countries. The U.S. continues to fail to come to grips with this problem. Our policy intent has typically been to occasionally engage in matching tied aid with the intent of dissuading its use by others such as France, Germany, or Japan, rather than accepting its use by such countries as what they consider to be a legitimate export tool. A country as small as Holland can boast of $500 million of exports to China through a 10-year mutual collaboration based on Dutch special financing (ORET program) and Chinese acknowledgement of the need to source from Dutch suppliers.

Our company recently lost a $15 million project for Bangladesh where Exim was unwilling to even consider making a proposal due to the per capita income status of the country, even though we had evidence in advance of the Dutch loan offer. Within the last year we can point to our two Dutch competitors having received orders worth approximately $30 million to $40 million based on special financing for Bangladesh, China, and Vietnam. Such financing is under the auspices of the ORET Program which typically initiates a 35% grant element.

Within the last five years our German competitor has used similar financing from KFW for Vietnam, Thailand, and elsewhere.

Our current understanding is that the U.S. Treasury has restricted any further use of the Exim "war chest" to match tied aid loans. Even in the era of matching, Exim still was oriented towards what I call the "dead body" approach meaning that the evidence required to justify a matching loan was burdensome, and that the only truly convincing evidence was a lost contract — the "dead body". I should acknowledge that in the mid 90's Exim did adopt more realistic procedures to assess the existence of foreign tied aid offers.

A further problem with the tied aid issue has been the technical interpretation of a "matching" proposal or project. In the one case where we successfully received a tied aid match, Exim actually forced us to "dumb down" our superior product by deleting environmental features so that we would be no better than our competition, i.e. our exact technical specification match. This also delayed project implementation by most of a year.

One policy comment: Exporters know that U.S. government interagency coordination is an urgent requirement for better results. Yet we have no real consensus about what needs to be done.

In 1992 the Congress passed (and the U.S. Chamber supported) legislation (introduced by our Maryland Senator Paul Sarbanes) to create the Trade Promotion Coordinating Committee (TPCC), chaired by the Secretary of Commerce. It also required the President to submit an annual export development plan that would serve as a comprehensive blueprint for federal trade development activities, including strategy to coordinate federal programs involved, budget issues, etc.

The TPCC and the annual submission served for a while to improve interagency coordination especially when the late Commerce Secretary Ron Brown devoted his personal energy to the concept. However, the hoped for setting of priorities across agency lines has failed to materialize consistently. I urge that this Subcommittee examine this issue further not only in the context of the reauthorization of the U.S. Export-Import Bank, but also in terms of its interaction with the Office of the U.S. Trade Representative, the Overseas Private Investment Corporation, the Trade Development Agency, and the Small business Administration.

It is frankly inconceivable to think of an export world without an Eximbank. It is also hard to imagine how Exim can function in any practical way with a budget cut of the magnitude of the one proposed by the Administration. The real question should be, how much more Exim can and should do, especially in a continuing strong dollar era, and how much more money it needs.

I close with one sober note. Last week the CEO of a major independent power producer based in Baltimore noted to me that all of its major equipment vendors are now foreign-based in part because of the superior financing programs from their host governments. A world without Exim is likely to be one where strategic industries such as power plant equipment makers adapt to the changing market environment by sourcing all their production where financing is available on terms attractive to their customers. That's how the world works. It is not only unrealistic but dangerous to think it can be changed unilaterally through American legislation.

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