On behalf of the Indiana Department of Commerce, I want to thank the Chairman and Ranking Democrat, Senator Hagel and Senator Bayh, for inviting me to address the Subcommittee on International Trade and Finance of the United States Senate Committee on Banking, Housing, and Urban Affairs. I am Tom McKenna, and I serve as the executive director of the Indiana Department of Commerce. As a representative of the Indiana Department of Commerce, I am here today to support the reauthorization of U.S. Export-Import (Ex-Im) Bank’s charter, so that it may continue in full operation.
The Indiana Department of Commerce
The Indiana Department of Commerce is the lead economic development agency in the State of Indiana. Specifically, Commerce works to assist communities and businesses in efforts to develop, expand and strengthen the quality of life in Indiana. This assistance also includes the promotion of international trade, energy efficiency and tourism development. Commerce’s aim is to ensure secure jobs, higher incomes and competitive communities for Indiana citizens.
Commerce does this by providing grants and services for development throughout the state. Our customers include growing Indiana businesses, companies looking to locate a facility in the Midwest, communities accessing grants, organizations and businesses leveraging tax credits, and individuals who use our services.
Commerce’s International Trade Division
As we move into an increasingly global economy, our International Trade Division continues to play a larger role in economic development. Indiana has been a national leader in export growth and in the attraction of inward investment – foreign-owned companies starting ventures in Indiana. Our International Trade Division stimulates this growth in a variety of ways, targeting our services to small and medium-sized businesses – the ones that need our help the most. Namely, it provides personalized services and networking through our 13 overseas offices, and our Trade Show Assistance Program provides grants to companies that are seeking representation at an overseas trade show.
The benefit of an international presence has been tremendous for Indiana’s economy – both through sending our goods overseas and in attracting foreign businesses to Indiana.
Indiana exports for 2000 ended at $16.52 billion. This represents an all-time high for Hoosier exports and an 18.3% increase over 1999’s performance. Indiana outpaced the nation in terms of growth, with U.S. exports growing by 12.6%.
The most notable increase in Indiana’s exports came in gains to Mexico. Exports to Mexico exploded from $812 million in 1999 to $2.2 billion in 2000 – an increase of $1.4 billion or 173%. Increased exports of machinery and transportation equipment account for most of the jump in exports to Mexico.
Indiana also more than doubled its exports to the Netherlands. Strong gains also occurred in Singapore, Brazil, Australia, France, Japan and Germany. Indiana realized gains to Canada, its leading destination, but not as striking as some other destinations.
Nine out of 10 of Indiana’s top export industries had increased sales to the world in 2000. The fastest growing industry was Primary Metals, with a 56% increase. Transportation Equipment rose by 20% in 2000, after a slow 1% growth in 1999. Other industries with double-digit growth were: Industrial Machinery & Computer Equipment, Food Products, Chemicals and Rubber & Plastic Products.
There are a number of reasons for this superb growth. First, Indiana companies and local development offices do a terrific job of seeking new markets throughout the world for Hoosier goods. Indeed, our efforts at the state level play a small role, too. There is another resource, though, that helps Indiana companies – especially small companies – perform well in the international marketplace: the Export-Import Bank of the United States.
The Export-Import (Ex-Im) Bank of the United States
The Ex-Im Bank assists in the export financing of U.S. goods and services. Ex-Im Bank facilitates exports by creating a level playing field and by providing financing tools to U.S. companies such as loans, guarantees, insurance, and export working capital guarantees. Moreover, because of the nature and size of some these services, they are difficult for smaller companies to access through private lenders.
The purpose of the insurance program is to provide the company with protection against default due to political or commercial risk. Political risk encompasses events caused by government action, which are beyond the control of the exporter or buyer. Commercial risk includes the buyer’s inability to pay due to financial difficulty, such as an exchange rate devaluation. Insurance covering commercial risk does not cover contract disputes. This support is crucial to maintaining and creating U.S. jobs through exports.
The Ex-Im Bank is vital to exports in the U.S., especially for small companies. Without it, quite simply, some exporters would not be able to finance the projects associated with exports. While the Ex-Im Bank works with companies of all sizes, it is of even greater importance for small companies, which help propel increased exports.
For instance, if a small company in Indiana wanted to send a large shipment of exports to an emerging market overseas. The company might have to increase production or purchase new equipment to enter this market, and financing that growth would be difficult. However, Ex-Im Bank can offer a pre-export working capital guarantee, helping the exporter obtain a loan to allow the company to produce goods or provide a service for export. This finances the company’s inventory and accounts receivable, helping make it financially feasible to fill the order. That’s good for the business, the emerging market and the U.S. economy.
The Ex-Im Bank has a very high success rate, primarily because if someone defaulted against it, they would be defaulting against the U.S. Government.
Finally, the Ex-Im Bank also helps exporters by insuring against political risks overseas. This is especially important in smaller markets, which happen to be some of the fastest growing destinations for U.S. exports.
Indiana Success Stories
Indiana is a great success story in the international marketplace, and the Ex-Im Bank has played a role in that story time and again.
Please consider some of the following examples:
This small manufacturer of cryogenic materials is located just outside of downtown Indianapolis. It has been in business since 1980. The company worked with the Indiana Department of Commerce to obtain credit insurance with the Ex-Im Bank. International Cryogenics exports its materials to markets worldwide, but concentrates on Korea. Prior to obtaining credit from Ex-Im Bank, the company was only able to offer cash in advance terms, thereby limiting sales. Now, with the credit insurance, the company can offer more competitive open account terms, which has enabled it to increase sales and maintain its workforce.
G.R. Wood, Inc. in Mooresville manufactures hardwood lumber from logs. In the early 80’s, GR Wood wanted to sizably increase its export of lumber to Europe. It applied for Ex-Im Bank’s multi-buyer insurance policy in order to mitigate some of the risks associated with exporting. Initially, exports were a small part of the business, but today exports represent about 50% of total sales.
Radian Research is a manufacturer of power and energy measurement instruments in Lafayette. In 1996, the company approached Ex-Im Bank for a multi-buyer insurance policy in order to increase the volume of exports. The company needed Ex-Im Bank’s assistance to obtain the necessary financing. Without Ex-Im Bank’s insurance program, Radian’s lender would not approve a credit line, which is necessary to increase exports. Ex-Im Bank approved the insurance policy in 1996 and the company has already increased its export volume.
Stories like this add up. In the last 4 years, the Ex-Im Bank has helped more than 50 Indiana businesses – and 36 of those are small businesses – through its insurance, working capital approvals or loan and guarantee disbursements. The total export value of those projects is more than $116 million. This is clearly a vital service to Indiana, especially considering the emphasis it places on small businesses.
It should be noted, too, that companies that export perform better than non-exporters, and they are better prepared for the future and an increasingly global economy. These companies also provide better jobs, with workers earning 6.5 percent higher pay. Additionally, they are more stable jobs because these companies are less likely to go out of business than comparable non-exporting companies.
The Ex-Im Bank of the United States is an important part of our economic future. Moving more goods into the international marketplace is vital to our growth – something Indiana has done well with the assistance of the Ex-Im Bank.
Exporting leads to a more stable economy and better jobs – both for the companies involved and for the nation as a whole.
By helping companies that may not be able to increase trade otherwise, the Ex-Im Bank plays an essential role. Part of a globalized economy is increased competition from other countries, and it’s vital that the United States operate at full strength. That means encouraging as many companies as possible – in all states – pursue increased exports. The Ex-Im Bank can help achieve that goal. Without the bank, many of our companies will not be able to help us – the equivalent of going into competition but leaving some of your most important players behind.
We feel it is vital to reauthorize the Ex-Im Bank to full operation, and we urge you to do so. From Indiana’s perspective, we know first-hand what kind of positive influence it can have on a state’s economy. But we know we are not an isolated case, and the success Indiana has enjoyed will be shared by the nation through the efforts of the Ex-Im Bank.
Again, we believe it is in the nation’s best interest to reauthorize the Ex-Im Bank of the United States. On behalf of the Indiana Department of Commerce, thank you for this opportunity to testify before the United States Senate Subcommittee on International Trade and Finance.
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