I am pleased to welcome before the International Trade and Finance Subcommittee this afternoon John Robson, Chairman and President of the Export-Import Bank, and John Taylor, Under Secretary of Treasury for International Finance, to testify on the reauthorization of the Export-Import Bank.
I would like to begin by commending Senator Bayh, the Chairman of the Subcommittee, and Senator Hagel, the Ranking Member of the Subcommittee, for scheduling today's hearing, the second held by the Subcommittee on the reauthorization of the Eximbank. The charter for the Eximbank expires on September 30. It is therefore very important for the Banking Committee to move expeditiously in its consideration of the reauthorization. After hearing today's testimony from the Eximbank and the Treasury, I hope the Banking Committee will be able to move to a markup of the reauthorization soon after the July 4 recess.
I strongly support the reauthorization of the Eximbank. There are two compelling market-based reasons for the existence of the Eximbank. First, in my view, U.S. exporters are able to compete very effectively in international markets on the basis of price and quality. However, when foreign governments provide subsidies to their exporters, U.S. exporters are placed at a competitive disadvantage. The Eximbank has a critical role in leveling the playing field for U.S. exporters by matching the public financing made available by foreign governments. In addition, the Eximbank provides leverage to U.S. negotiators seeking to achieve international agreements to limit the use of government export subsidies.
Second, certain countries in the developing world pose credit risks of such magnitude that commercial banks are reluctant to finance U.S. exports to those countries even though they may present extraordinary opportunities for U.S. exporters. The Eximbank has the difficult but important task of assessing the country risk and determining if a guarantee should be provided for a commercial export loan that would make possible an export deal that otherwise would not occur.
It is important to note that the Eximbank has an exceptional track record in managing the risk associated with its lending activities. The Eximbank has an excellent repayment record, with losses running 1.4 percent of disbursements over its 67 year history. In the last ten years these losses have been somewhat higher because of the financial crises that have confronted the developing world. In addition, it is my understanding that over the past five years the interest and fees collected by the Eximbank have earned the federal government over $4 billion.
When the Banking Committee last reauthorized the Eximbank four years ago, there was a sense that some progress was being made in controlling the growth of export credits offered by national governments. The OECD Arrangement on tied aid credits seemed to be having some effect, and there was a hope that further progress could be made. I now have the sense that developments are moving in the opposite direction. Funding for export credit agencies (ECAs) of other governments has been growing. In addition, foreign governments have been utilizing other mechanisms such as market windows and untied aid to get around the OECD Arrangement.
In light of these developments, the proposal in the Administration's budget to reduce funding for the Eximbank by 25 percent was particularly disappointing. Given the growing use of export credits by our competitors and efforts to get around the restrictions that exist, this would not seem to be the time to reduce the resources of the Eximbank. Also of concern are proposals that have been floated by OMB to compensate for the proposed reduction in funding by raising the fees on Eximbank loans, reducing the proportion of Eximbank financing in export deals, and imposing a more stringent standard on whether an export deal really requires Eximbank financing. It is not clear that these proposals are being developed with consideration of the lending policies of the export credit agencies of other countries to determine how these proposals would affect the competitiveness of Eximbank financing.
In addition, the Treasury Department appears to be taking an unduly intrusive role in the Eximbank's utilization of the Tied Aid Credit War Chest. The Eximbank Charter provides that the tied aid credit program shall be administered by the Eximbank "in consultation with the (Treasury) Secretary and in accordance with the Secretary 's recommendations on how such credits could be used most effectively and efficiently to carry out the purposes" described in the Charter. These purposes are focused on efforts to enforce and facilitate new international agreements restricting the use of tied aid. The Charter was amended in 1992 to give the Eximbank additional authority to match foreign tied aid credits when it determines that "United States trade or economic interests justify the matching" even if the foreign credits are in compliance with an international agreement.
In the past, Eximbank and the Treasury have collaborated closely on the use of the War Chest. The Treasury, which has lead responsibility in negotiating arrangements in the OECD to limit export credits, has provided general guidance to Eximbank on how the War Chest could be used to advance the negotiating objectives. While agreement has usually been reached on individual tied aid cases, when disagreements have arisen in the past, Treasury has generally deferred to the judgment of the Eximbank Board.
It was therefore disturbing that a case arose earlier this year in which the Eximbank Board voted 4-0 in favor of a tied aid grant case and the Treasury Department then sought to overturn that decision. I know Senator Hagel is familiar with this case since it involved a Nebraska company (Valmont Industries) which in fact testified at the first Subcommittee hearing on the Eximbank reauthorization held in May. The Eximbank, which was supported by the Commerce Department, believed that on the merits this case clearly deserved tied aid credit support. Even the Treasury Department agreed that it was a close call. Yet Treasury insisted on the unprecedented action of trying to overturn the Eximbank Board decision.
This frankly suggests a level of micro-management by the Treasury Department that could seriously disrupt the functioning of the tied aid credit program. It is my understanding that an effort is underway between Eximbank and the Treasury to work out their differences over the operation of the Tied Aid Credit War Chest and reach a common understanding of their respective roles. I very much hope this occurs. In my view the Tied Add Credit War Chest is a very important resource to use to meet the challenge posed by foreign export credits, and its use should not be hampered by disagreements among executive branches agencies.
I look forward to hearing the testimony of our witnesses this morning, and exploring these and other issues with them.