Mr. Chairman and members of the subcommittee, I am Dean Dort, Vice President International for Deere & Company. You may know us better as "John Deere" —the world’s premiere producer of agricultural equipment; a leading manufacturer of construction, forestry, commercial and consumer equipment; and a business leader in parts, engines, financial services, health care and special technologies. We compete globally and create smart and innovative solutions in the form of advanced machines, services and concepts for customers on the farmsites, worksites, and homesites of the world, where our distinctive brand and special competencies bring added dimensions of value.
Our company, founded by John Deere in 1837, has been a leader in product innovation and service to agriculture since its inception. Throughout most of our company’s history we have focused solely on the challenges and opportunities of providing products and services to American farmers and ranchers. We are proud of our relationship with our American customers and will continue to provide them the highest level of attention, but this segment of our business represents a very mature market. Therefore, it has become increasingly important that we look globally for expanded business opportunities in our agricultural, construction, and other product and service lines. Much of that global market is in developing countries, where the Export-Import Bank is a crucial business partner.
EX-IM SHOULD BE REAUTHORIZED FOR 5 YEARS
I am here today representing the National Foreign Trade Council and the Coalition for Employment through Exports. The membership of those organizations includes our country’s major exporters. CEE and NFTC urge Congress to reauthorize the Export-Import Bank of the United States (Ex-Im Bank) for five years. It is essential to American exporters and workers that the Bank’s charter be renewed until September 30, 2006. This would avoid the difficulty which occurred in 1997, and again this year, when reauthorization occurs in the first year after a Presidential election and in the same year when the Ex-Im Chairman’s and Vice Chairman’s terms expire.
Adequate appropriations are as important as reauthorization in ensuring that the Ex-Im Bank is able to promote U.S. exports around the world. Ex-Im’s budget must be adequately funded and its policies and procedures must be aligned with the realities of today’s global marketplace.
THE GLOBAL MARKETPLACE: THE RACE IS ON
Although Deere was selling product overseas under the direction of Mr. Deere’s son, Charles, at the turn of the century, there has been a substantial increase in business outside the U.S. over the recent past. The net result is that in a relatively short period of time we have gone from an essentially midwestern company to a global enterprise.
Customers around the world today expect and are demanding a higher level of performance from John Deere. And Deere delivers, not just in products, but in the total John Deere experience—from ordering, to delivery, to billing, and especially to aftermarket service. Global customers judge us by the totality of dealing with us.
Why have customers become more demanding? Because they have at their fingertips more and better information, more choices from global competitors, and more experiences in a variety of products and services to which they can compare. Financing is a huge part of their expectations—the sale often goes to those who can provide the financing to complete the sale.
Deere had sales in over 160 countries last year, most all of which were on a cash or private credit system basis. However, in some emerging markets, sales will occur only with Ex-Im Bank involvement. Since 1996, Deere has sold over $700 million of equipment—primarily combines, tractors and cotton pickers—to republics of the former Soviet Union. All of these products were manufactured by U.S. employees. None of these sales would have happened without Ex-Im Bank’s guarantee to the commercial banks which provided the money.
EX-IM IS BEING OUTGUNNED BY OTHER EXPORT CREDIT AGENCIES
The United States is significantly behind its major trade competitors, and some of the minor world players as well, in supporting its exporters in emerging markets. This is true in terms of both quantity and quality. While we debate the latest round of proposed budget cuts for Ex-Im, other countries are increasing their budgets for similar programs, leading to increased exports and jobs. Based on 1998 Berne Union data, for example, Ex-Im financed $13.8 billion in U.S. exports that year, while Japan financed more than $130 billion and France financed more than $50 billion. Korea, Germany, Canada, and the Netherlands all financed significantly more exports than the United States.
In fact, the United States ranked seventh among eight advanced industrialized countries in terms of the amount of exports it supported with official export financing programs—behind the Netherlands and just in front of Spain.
Not only do America’s trade competitors have more export credit backing from their respective governments, they also have more innovative programs that are increasingly being used to finance their exports. Additionally, these ECAs do not face the range of policy conditions, restrictions, and periodic unilateral sanctions that have been imposed on Ex-Im by the United States Government.
For example, Germany and Canada have created and are aggressively using so-called "market windows." At least one other government—the United Kingdom—is considering a similar arrangement. These are quasi-official financing arms that operate outside of the OECD rules that establish world market lending rates as restrictive standards of borrowing. These "market window" activities borrow and lend money with the full faith and credit of their governments on much more attractive terms than Ex-Im or private banks. These market windows, such as Germany’s KfW and Canada’s EDC, claim that they operate on a commercial basis. However, there is no transparency or reporting on these activities to verify such claims.
One thing is clear: U.S. private financial institutions cannot match these terms. Moreover, Ex-Im Bank believes it does not have a clear enough legislative mandate to combat these ECA practices by creating its own market window or by matching market window transactions when needed on behalf of U.S. exporters and the jobs they create. We hope that the reauthorization legislation can rectify this serious challenge faced by U.S. exporters.
In examining the practices of other foreign governments—in Europe, Japan and Canada—the one common theme among them is that they are aggressively competing against U.S. exporters and tailoring their export finance programs with the single objective of promoting their respective countries’ exports. We emphasize: the foreign countries are competing against the U.S. companies. Ex-Im Bank must have a similar focus if American exporters and their workers are to succeed in the global marketplace. Without this, U.S. exports and jobs will be lost.
While Ex-Im Bank has made recent progress in updating some of its procedures to improve its competitiveness—with the support and encouragement of U.S. exporters—much more remains to be done. Needed additional steps include combating "tied aid" and "untied aid" practices through aggressive use of the tied aid war chest. We also can no longer afford to ignore the phenomenon of market windows. Ex-Im should have the legislative mandate to combat these practices, alongside a focused government-wide effort to negotiate rules to bring these practices within the OECD Arrangement.
U.S. EXPORTERS AND WORKERS NEED A STRONGER EX-IM BANK
American exporters and our workers need a stronger Ex-Im Bank, with more robust financing products and a more aggressive approach. Today, all of Deere’s operations are bringing out innovative products at an impressive rate—reaping the benefits of years of heavy investment in research and development and capital programs. Over $2.5 billion in R&D expenditures since 1995 has resulted in product lines that are second to none—whether ag tractors, lawn mowers, massive excavators and dump trucks, mobile vehicle electronic controls or navigational devices. We aim to compete and win, serving deeply satisfied customers with breakthrough innovations. And we will work with conviction, knowing we serve society in important ways, notably our vital role in feeding the world.
We can compete with anyone in the world on product, service and price, but no U.S. company can compete on its own against foreign countries’ well-funded and aggressive export credit agencies.
Increasingly, finance determines who wins export sales. Our customers expect us to bring financing. If our competitors are able to bring their governments’ export credit agencies with them to the negotiating table and we do not have Ex-Im backing, we will lose out and the jobs flowing from those sales will go to foreign workers.
Ex-Im is of great importance to our employees. As an illustration of this, we have worked side by side with officials of the United Auto Workers—our largest union—to tell the story about the importance of Ex-Im projects to our factories and employees. We have met jointly on multiple occasions with Members of Congress and the Administration to convey this message.
Like most major exporters, significant numbers of Deere jobs depend on overseas sales. More than that, because we purchase $7 billion of supplies each year, the positions of many thousands of employees in the plants and offices of our suppliers depend directly on our exports. We have suppliers in most states of the nation, including all the states represented by the Senators on this panel. Deere recently participated in a CEE and NFTC study along with twelve other exporters. The study identified 35,000 small to medium sized businesses, so called "invisible exporters," that benefit from Ex-Im participation in export business.
EX-IM BANK IS FINANCIALLY SOUND AND IS NOT A CORPORATE SUBSIDY
There is a widespread misconception that taxpayer funds are used to subsidize the terms of a Bank-backed export transaction. In fact, Ex-Im guarantees are costly to the exporter. Exporters and our overseas customers pay fees for Ex-Im’s participation in export sales, which in the last several years have covered the government’s costs of operating the Bank. Ex-Im charges interest on its direct loans (a program of critical importance to many small and medium-sized business customers but not used by Deere & Company), and premiums for its guarantees and insurance. Therefore, we always prefer private financing without Ex-Im participation, but this option is usually not available in many of the markets where our greatest growth opportunities exist: the emerging markets.
According to the Bank’s FY 2000 annual report, the Bank generated $1.7 billion in revenues through its interest charges, premiums and fees. Its total expenses, including borrowing costs, totaled $1.4 billion. Thus the Bank generated a net $345 million surplus for the U.S. government. Unfortunately, under the Credit Reform Act of 1990, the Bank cannot utilize its own revenues to cover its costs. Instead, the Bank must obtain annual appropriations for both its operating expenses and its loan-loss reserves. On the government’s books, the Bank will appear to have spent $927 million this fiscal year, even though the Bank’s own financial statement will show a surplus. Thus, the Bank is handicapped by the government’s own budget rules.
Moreover, the Bank has a very low loss rate, historically about 2 percent. In FY 2000, the Bank paid out $249 million in claims, even though the federal government’s process for estimating losses required reserves of $938 million for the $12.6 billion in credit which was issued that year. The actual loss rate is far lower than the estimated loss rate that is used to calculate the loan-loss reserves that are required in annual appropriations. As a result, the Bank has accumulated $10 billion in reserves, against its approximately $61 billion in current exposure. That reserve rate is far higher than comparable commercial bank reserves.
THE ADMINISTRATION’S PROPOSED BUDGET CUTS WILL COST U.S. EXPORTS AND JOBS
We would also alert you to our concerns about the Administration’s proposed budget cut for Ex-Im next year.
The Bush Administration has proposed a 25 percent cut in the Bank’s FY 2002 budget. All of this reduction would be taken from the Bank’s loan-loss reserve funds. With fewer funds for the conservative, mandated, loan-loss reserves we have described, the Bank would have to reduce the amount of financing available for U.S. exporters.
The Office of Management and Budget (OMB) indicates that it would implement the budget cut through a combination of steps: 1) unilateral fee increases in some markets; 2) reductions in the amount of a transaction which the Bank finances; 3) restrictions on the availability of financing to some U.S. companies; and 4) a recalibration of the amount of loan-loss reserve required for a given amount of credit.
Of those four specific proposals, the first three would have the effect of reducing the competitiveness of the Bank and U.S. exporters. Unilateral fee increases, cuts in the Bank’s share of a transaction and added hurdles for qualifying for Ex-Im financing all would make U.S. exporters’ financing proposals more costly and less attractive to our overseas customers.
Of particular concern to us is the fact that the Administration’s proposed cut comes while other governments are increasing their own export credit agencies. Canada, for example, has increased the volume of its export credit agency to $30 billion in 2000, up from $19 billion in 1998. By contrast, Ex-Im’s financing volume in FY 2000 was $12.6 billion.
In sum, the Administration is taking the Ex-Im Bank in the wrong direction. U.S. exporters and workers will suffer. We urge you to encourage the Appropriations Committee to oppose the Administration’s ill-advised proposal.
While our corporation has a variety of legislative measures before Congress, none is of greater importance to Deere & Company, its business goals and its workforce than assuring a fair competitive environment for our equipment businesses in developing countries. The Ex-Im Bank must continue to play a key role in helping American companies, and in turn their employees, compete in the global marketplace.
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