Mr. Chairman and Members of the Subcommittee, my name is William M. Murray. I am Treasurer of Fuller Company. My responsibilities, among others, include customer finance. I am a trade finance practitioner experienced with the export finance programs of the U.S., Canada, Japan, France, Germany, and others. Rather than make the usual macroeconomic arguments, I would like to discuss the importance of the Export-Import Bank of the United States (Ex-Im Bank) from a microeconomic perspective, that of Fuller Company, our 1160 employees, our 3000 suppliers and their thousands of employees located in the United States.
My appearance today is on behalf of the National Foreign Trade Council, the largest broadly-based trade association dealing exclusively with US public policy affecting international trade and investment. Founded in 1914, the Council's membership consists of over 500 US manufacturing companies, financial institutions and other firms having substantial international operations or interests.
I would like to thank the Subcommittee for the opportunity to appear here today. I would like to thank Chairman Grams and his professional staff, and the other members of the Sub-committee, including the ranking member, Senator Moseley-Braun, for their interest in and support of the Export-Import Bank.
My comments will focus on Fuller's business, demonstrate our reliance on exports, explain the critical importance of financing to our target markets, and show you the impact of our contracts on our U.S. sub-suppliers -- our indirect exporters. Further, I would like to tell you what happens when U.S. financing is not competitive or is unavailable.
Fuller Company and the Importance of Exports and Trade to Its Business and Workers
Fuller Company is an engineering company which designs and manufactures proprietary equipment for the cement industry. We are the world leader in cement manufacturing technology and the only U.S. cement engineering company. We are based in Bethlehem, Pennsylvania, and have approximately 1,160 employees. A substantial number of our headquarter's employees are professional engineers. Fuller has three plants. Catasauqua, Pennsylvania is a light fabrication facility with 115 employees represented by the International Brotherhood of Boilermakers. Allentown, Pennsylvania is our heavy machine shop with 130 members of the United Steelworkers of America. Our third plant is based in Manheim, Pennsylvania, with 105 employees and organized by the International Association of Machinists.
In fiscal year 1996, Fuller had sales of $316 million. Over the past five years, 66% of Fuller's cumulative sales were export sales, which underscores the critical role of exports to Fuller's business. The US domestic market, representing 33% of our annual sales, also has an international component; over 66% of the U.S. cement plant capacity is owned by non-U.S. companies. If Fuller cannot compete internationally, we cannot compete in our home market. In supplying a complete cement plant, we source equipment from Fuller as well as other U.S. and non-U.S. suppliers. For a large project, approximately 50-60% is sourced from the U.S. The initial job is only one consideration for a capital equipment supplier like Fuller. A cement plant operates in an abrasive environment; the equipment has wear parts. A cement plant will consume between $500,000 and $1.0 million of spare parts annually for 30-40 years after commissioning. Winning the initial contract provides major downstream business for years to come.
Fuller's business activities directly benefit many smaller firms which are suppliers to us. In FY 1996, Fuller purchased $200 million from some 3,000 suppliers in the United States, many of which are small businesses. Half that amount was spent in the State of Pennsylvania with some 750 vendors. One company, Mader Machine Co., Inc. of Elyria, Ohio, is a small, family-owned business with 24 employees and $5 million in annual sales. Approximately 80% of Mader's export orders from Fuller Company have been financed by Ex-Im Bank over the past five years. We understand Fuller represents between 10-15% of Mader's annual sales over that same time period. Mader could not participate in the international market on its own and has benefited from Fuller's introduction to international customers.
The U.S. and Europe are mature markets for the cement industry. Infrastructure investment in housing, roads, bridges and other facilities, as well as cement plants to supply such needs, was made many years ago. The developing world is our target market. Asia represented 85% of Fuller's export sales in FY 1996, and no less than 60% over the past five years originated in Asia. Primary markets include Thailand, Indonesia, Korea, Philippines, Malaysia, India and China. Latin American markets, such as Chile, Venezuela, Peru and Colombia, are also important to Fuller. African markets of interest include South Africa and Egypt.
Critical Role of Ex-Im Bank to Fuller and Its Suppliers
Ex-Im Bank financing is critical to Fuller Company's and our suppliers' export success. In developing or emerging markets, capital is precious and financing is a requirement of many proposals. Over 50% of our export sales during the past five years have been financed by Ex-Im Bank. Excluding spare parts and service export sales, which are not financed by Ex-Im, over 60% of our export sales were Ex-Im Bank financed. Absent Ex-Im financing, Fuller would be forced to source increasingly overseas in order to obtain necessary financing to be competitive with our German, French, Japanese and Korean competitors, all of whom have the active support of their governments in providing export finance assistance.
A chart package has been submitted to the Committee which highlights our export business and provides an example of the important role of Ex-Im. It involves a 1991 contract for $105 million with P.T. Semen Gresik (Persero), an Indonesian cement company, and shows the importance of emerging market entry and follow-on sales. The initial contract used Ex-Im Bank financing and was quite successful. Additional business in the Indonesian market alone over the following five years totaled $416 million. Without Ex-Im Bank, which is a lender of last resort, this project and the follow-on business would not have been possible. The Gresik plant, moreover, has served as our technology show place and has been key to our marketing efforts in Asia.
Competitive U.S. financing is often the determining factor in winning or losing a major export sale. Fuller has, in fact, been forced to move work outside the U.S., or has lost contracts where U.S. financing was not competitive. In China during 1994, for example, the customer required financing that was not available from Ex-Im Bank. This financing was available in Canada through the Export Development Corporation (EDC). In order to win the job, the work was moved to Canada. Further, one bid resulted in two contracts, Chonqing and Wulan. Fuller would have preferred to do the work in the U.S. with our engineers and suppliers. Some U.S. work resulted from these contracts, but not nearly as much as if Ex-Im financing had been available.
A more recent example is particularly difficult for Fuller this year. Over the past 18 months, I have traveled to the Philippines seven times working on a potential major project -- the Southwest Cement Corporation project. Fuller bid this job as an engineering and equipment supplier to a turnkey contractor. The cost alone of preparing our proposal exceeded $500,000. The final competition was between Fuller Company and Halla Corporation of Korea. Fuller's bid was technically preferred and prices were equalized during negotiations. The Halla bid had financing support from the Korea Ex-Im Bank and insurance from the Export Insurance Division of the Korean Ministry of International Trade and Industry. The insurance fee was substantially below the insurance and exposure fees from Ex-Im Bank. By substantially, I mean $1.6 million for a $42.5 million loan, which is 3.15% of contract value.
The loss of this contract will mean the equivalent loss of 49 engineering jobs for one year, based on the fact that our proposal engineering budget will not be created or maintained by Fuller and our suppliers. This does not include manufacturing job loss at Fuller plants or our suppliers. Based upon the Commerce Department's estimate of 14,000 jobs per $1.0 billion of US exports, the US jobs not created or maintained by Fuller and our suppliers is 700 US jobs, plus the spare parts opportunity loss of 14 US jobs annually over the next 30-40 years. I can assure you Korea is happy to have those jobs and that is why the Korea government quoted an insurance premium of 2.62% versus Ex-Im Bank's exposure fee of 7.19%. The global marketplace is a battle for jobs; once lost, such jobs are very difficult to win back.
I personally support and applaud our government's efforts to balance the budget. It is a difficult job. I endorse the economic theories that governments distort market forces and less government is better. Unfortunately, the real world differs from these economic theories. Governments do, in fact, participate in the global marketplace. Jobs are important to our trade competitors just as they are to the United States. As referenced above in my Korean example, governments are intervening in the process to win jobs for their respective countries. Unilateral action by the U.S. to eliminate or weaken our export credit agencies will result in U.S. job loss to our trade competitors. Ultimately, it will impact our ability to balance the budget on the revenue side because reduced economic activity will result in reduced tax revenues, personal and corporate.
The Economic Strategy Institute (ESI) study of May, 1997, The Export-Import Bank: The Case for Reauthorization, makes the case for Ex-Im Bank from a macroeconomic aspect. ESI estimates that without Ex-Im Bank exports will decrease and the trade deficit will increase by $12 billion in the near-term (1-2 years) and $40 billion in ten years. This translates into about 246,000 jobs lost in the near-term and 580,000 jobs each year after the tenth year. Tax revenue loss was projected at $7 billion in the near-term and $24 billion by the tenth year and thereafter. Commercial alternatives will not be competitive with foreign government export credit agencies.
Ex-Im Bank has been a strong factor in reducing and limiting government participation in export finance through negotiations at the Organization for Economic Cooperation and Development (OECD). Agreements in recent years have been reached in aircraft finance, loan term, tied aid, and interest rates, which have reduced the cost of export finance to governments and equalized the proverbial playing field. An agreement on export finance fees was approved by the OECD in May, 1997, to take effect over the next two years. This should help further level the playing field and prevent other contract losses similar to what happened to Fuller in the Philippines. However, Ex-Im Bank must be able to speak with a strong voice. If the Bank is not competitive with its export credit agency competitors due to program and administrative budget constraints, it cannot effectively negotiate to continue to make progress in reducing the role of government in international export finance. Critics calling for the elimination or privatization of Ex-Im Bank will cost the U.S. thousands of high-paying export jobs, which are our foreign competitors are only too eager to capture.
With respect to Ex-Im's budget, the NFTC and its members are very concerned about a serious projected shortfall for this fiscal year and next. As of 31 May 1997, Ex-Im Bank had utilized 75% of its FY 1997 program budget. After deferral of several pending cases to FY 1998, Ex-Im Bank projects a budget shortfall of $95 million in FY 1997. U.S. export financing requirements are projected to increase demand for Ex-Im Bank support in FY 1998, and the projected FY98 shortfall is substantially higher than this current fiscal year. The growing success of U.S. exporters assisted by Ex-Im in critical markets in Russia and the NIS, Latin America and Africa, will overwhelm the Bank's resources. Important U.S. policy objectives will be undermined in the process.
Solutions need to be found to address this serious situation, both short-term and long-term. Over the long-term, allowing Ex-Im to carry over its budget beyond its currently-authorized two years - so called "no-year" budget authority - would help prevent future budget shortfalls due to demand. Modification of the Office of Management and Budget (OMB) scoring model from its static base to a dynamic model to reflect current financial markets would also reduce the utilization of program budget by placing current market realities into the model. Short-term solutions also need to be found for FY98 to address a looming budget shortfall next fiscal year. These solutions could include a limited, temporary use of tied aid funds and a transfer of unallocated funds designated for Russia and NIS programs.
Conclusion
The NFTC and its over 500 member companies and their employees, strongly support reauthorization of Ex-Im Bank through the year 2001. Reauthorization and adequate program and administrative budget authority is critical to continued U.S. job growth, especially jobs for indirect exporters, the small and medium size businesses that participate through large companies, as well as on their own. Ex-Im Bank is not a zero-sum game; it is a win-win situation for the US taxpayer. A strong Ex-Im Bank will continue to negotiate reduced foreign government participation in trade at the OECD and assure the US of our fair share of export jobs until reality gets closer to economic theory.
The unilateral abandonment of US export credit agencies advocated by some is the commercial equivalent of unilateral disarmament. I, for one, am not willing to sacrifice my job, or the jobs of my co-workers and suppliers, on the altar of economic theory. I would rather work toward the free market in an orderly fashion, negotiating from a position of economic strength.
The success of US companies in the global marketplace for capital equipment will create and sustain jobs today and for many years in the future through spare parts sales. The participation of the US government, through a strong Ex-Im Bank, will pay dividends through jobs maintained and jobs created, as well as the broader economic activity that is created. It is clear it is in the best interest of the U.S. and, in particular, of U.S. workers, that Congress and the Executive Branch reauthorize the Export-Import Bank.
Mr. Chairman, thank you very much for the opportunity to testify today.
Home | Menu | Links | Info | Chairman's Page