Thank you, Mr. Chairman.
My remarks this afternoon are submitted on behalf of USX Corporation, which has followed the activities of the U.S. Export-Import Bank very closely over many years. Recently I have been privileged to be appointed a member of Ex-Im Bank’s Advisory Committee. I look forward to working with the Ex-Im Bank Board of Governors to develop policies that will foster global economic growth and create increased export opportunities for U.S. businesses. USX strongly supports the policies of the Bush Administration which seek to open foreign markets to American-produced goods and services.
There are some concerns on our part, however, that I would like to present in my testimony today. My concerns rest on a simple core point: it does not make sense for the United States, or any other nation, to facilitate or subsidize the expansion of capacity to produce any major commodity which is already in massive world oversupply. To do so will inflict great harm on all world producers of that commodity leading to loss of revenue, falling prices and cash flow and, in the extreme, the collapse of the producers themselves.
But this is precisely the situation in which the American steel industry finds itself today. I won’t repeat the points made in the written testimony submitted for this hearing by the American Iron and Steel Institute. I certainly support the proposition that the Ex-Im Bank's provision of funding to produce still more steel in a world market which has the capacity to produce nearly 300 million tons more than its needs, doesn’t make any economic or political sense. Indeed, U.S. government economic policy, which is based on the fundamental principle that free markets should dictate the flow of capital, should not subsidize increased production of a product when there already is an oversupply of that product. The hundreds of millions of tons of foreign steel overcapacity, and the misguided policies by foreign governments that led to this overcapacity, was well documented by the Department of Commerce in its report issued last year: "Global Steel Trade - Structural Problems and Future Solutions." I am submitting a copy of that report for the record.
Let me cite a real life example of this problem: last year the Ex-Im Bank decided to provide export financing to support a steel project in China by the Benxi Iron and Steel Company which would add a million and a half tons to the company’s capacity. This investment clearly further aggravated the foreign excess capacity problem. It didn’t make economic sense, of course, but exacerbating this problem is that the Department of Commerce found just last month that this same producer has been dumping their exported steel into the U.S. market at margins of greater than 65 percent. Promoting U.S. exports must not be at the cost of American jobs. In other words, the Ex-Im Bank must review its existing policies to make certain that it not only promotes U.S. exports but that it also makes certain that other U.S. industries are not adversely effected by imports arising from the Ex-Im Bank investment. This clearly did not occur in the consideration of the loan to Benxi Iron and Steel Company.
USX absolutely understands the value of exports. We export steel ourselves, and we sell through our subsidiary, USX Engineers and Consultants, a business we value highly and which we want to grow. In fact, in the 1990's UEC, which provides worldwide steel consulting services, participated in an Ex-Im Bank program to assist a former Soviet producer in Romania to become more environmentally efficient by providing technical and engineering services and equipment. This initiative, which has since ended, was not designed to increase production capacity but rather to help the producer become more environmentally sound.
But this China example, which actually increased production capacity, throws economic and business logic on its head. USX Chairman Thomas Usher, following appeals to the Ex-Im Board of Directors by then-Commerce Secretary Mineta, by then-Treasury Secretary Summers and by Members of Congress, to halt the financing of the China project, described the financing as "an affront to the hardworking men and women of my company and other U.S. steelmakers, struggling to remain in business despite a massive glut of world steel production." This, from a CEO who enthusiastically supports U.S. trade promotion objectives and policies, but believes they must not violate common sense. I have submitted for the record copies of the letters on this matter from Secretary Mineta, Secretary Summers, Congressmen Regula, Murtha, Quinn and Visclosky and from Mr. Usher.
What, then should U.S. policy be? I suggest three guiding principles:
First: by all means continue to have the Ex-Im Bank support the export of U.S. – produced goods, and services.
Second: enforce a policy under which:
Third: encourage foreign governments to engage with the U.S. government in negotiations to ensure internationally agreed policies that will prevent a recurrence of the tragic, and tragically wasteful, crisis we have today in steel. In fact, USX is prepared to assist in any appropriate manner in such governmental negotiations.
Thank you, Mr. Chairman.
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