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Federal Document Clearing House Congressional Testimony
May 15, 2002 Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 3005 words

COMMITTEE: HOUSE INTERNATIONAL RELATIONS

HEADLINE: THE ADMINISTRATION'S EXPORT STRATEGY REPORT

TESTIMONY-BY: EDUARDO AGUIRRE, VICE CHAIRMAN

AFFILIATION: THE EXPORT-IMPORT BANK OF THE UNITED STATES

BODY:
STATEMENT OF EDUARDO AGUIRRE VICE CHAIRMAN AND FIRST VICE PRESIDENT THE EXPORT-IMPORT BANK OF THE UNITED STATES

House International Relations Committee U.S. House Of Representatives

MAY 15, 2002

Thank you for the opportunity to appear before you today. As Vice Chairman of the Export-Import Bank (Ex-Im Bank), I also serve as Vice Chairman of the Trade Promotion Coordinating Committee (TPCC), the body designated by Congress to coordinate interagency efforts on trade promotion.

Working in partnership with business and labor, we support exports in order to create and sustain jobs here in the United States. That means the Bank must be in tune with the Administration's trade and foreign policy objectives, as well as the needs of U.S. companies to compete abroad.

I appreciate the efforts of all the agencies represented here today, in addition to others both inside and outside the government, who contributed time and energy in pursuit of our common goal to make U.S. trade promotion efforts second to none by being effective, coordinated and user-friendly.

In keeping with the Administration's firm commitment to free and fair trade, the Ex-Im Bank assists U.S. exporters in competing fairly and successfully in the world marketplace. Participation in foreign trade is a critical component of the nation's economy. In 2001, exports represented about 10% of the nation's GDP and supported approximately 12 million jobs (Department of Commerce, U.S. Trade Facts), including one-in-five manufacturing jobs. Moreover, medium- and small-sized companies represented 97% of U.S. exporters. These companies are an important source of U.S. employment. Moreover, jobs in the export sector on average pay wages that are 13 to 18 percent higher than the national average of non-export jobs (Department of Commerce, U.S. Trade Facts).

Market imperfections and trade distorting subsidies frustrate U.S. exporters' ability to compete and win business in new markets. The Ex-Im mission is to meet both of these challenges head-on. When foreign governments subsidize the financing of products and services sold by their companies, we step in to level the playing field. These unfair practices distort free trade, and we are committed to providing the U.S. exporters a competitive environment where the market drives the process; in other words, the best product at the best price wins the sale, and not government-subsidized financing. Eventually, the hope and the efforts are to eliminate any government trade distorting subsidies.

Capital always moves to its best risk-adjusted rate of return. Especially in dynamic emerging markets, capital tends to be jittery even during the best of times. When these markets begin to slow or experience difficulty, capital flight is swift and can be crippling. Sometimes, especially in the short-term, this phenomenon is counter to the Bank's broader, long-term financing strategy. These sharp market movements most affect small companies. South Korea's economic turmoil during the Asian Financial Crisis was a good example of this phenomenon. When the private market collapsed in 1997-1998, Ex-Im Bank stepped up to the plate and supported almost $2 billion dollars in exports during that critical period. The Bank didn't lose taxpayer dollars, and in fact Ex-Im Bank played a key role in keeping trade relations and businesses open for U.S. exports. Now that the economy has stabilized in South Korea, the private sector has re-entered the market, and the Bank has appropriately scaled back its support. What was Ex-Im Bank's role? The Bank stepped into the breach and covered appropriate short-term risk. We to some degree insulated potential financial contagion from that crisis.

In carrying out its mission in 2001, Ex-Im Bank supported approximately 4% of all U.S. exports to emerging markets and 6% of all U.S. capital goods exports to emerging markets. One of Ex- Im Bank's missions in this changed world is to take the lead in the U.S. commercial effort to penetrate risky emerging markets.

The Bank also steps up in times of crisis -- as Ex-Im Bank did during the 1997-98 Asian financial crisis, and as the Bank did this past fall through supporting the airline industry in the wake of the September 11 attacks. Ex-Im Bank decided not to exercise its requirement that airlines must have the previously agreed amount of third party war risk insurance coverage. This effort was in coordination with other nations. The goal was to keep the airlines of the world flying, until such time as the airline and insurance industries are able to develop a solution that will reinstate liability insurance to the previously agreed levels. The process was successful, aircraft were not grounded, and international commerce continued without any hitches. The Bank and the U.S. government fostered stability and economic growth at home and abroad.

Last year alone, Ex-Im Bank supported $12.5 billion worth of U.S. exports. Of all Bank transactions, 90% were in direct support of small businesses, representing $1.65 billion or 18% of the US exports by dollar volume supported. In fact, 383 new small businesses utilized the Bank for the first time last year to support their exports. Ex-Im Bank is proud of its record and intends to continue these efforts.

The Bank played an important role in supporting U.S. goods and services to key markets such as Mexico, where Ex-Im Bank financed nearly $1 billion of U.S. exports; Brazil, where the Bank supported over $700 million; Korea, to which the Bank supported over $650 million; Algeria, where Ex-Im Bank financed over $500 million; and Russia, where the Bank financed over $150 million. Ex-Im Bank's financing touches nearly every industry sector including exports related to oil and gas, transportation, capital goods, consumer products, telecommunication, environmentally beneficial exports, high-tech software and hardware and a host of services. It is in all of these areas where commercial and developmental interests intersect with overarching TPCC objectives; for example when TDA does a feasibility study in an emerging market and Ex-Im supports the U.S. related exports. As for Ex-Im Bank's Sub-Saharan initiative; the Bank considers financing for transactions in 47 sub-Saharan markets, including 14 countries where, absent the Sub-Saharan Africa program, Ex-Im Bank financing would not be available. Our efforts are paying off, as reflected by recent transactions in the region supported by the Bank: the sale of $450 thousand in cement bagging equipment to Nigeria, a transaction valued at $769 thousand for construction equipment to Senegal and a $1 million sale of road construction equipment to Uganda. These transactions are illustrative of the joint trade and developmental benefits that accrue to both the U.S. and developing country economies made possible by Ex-Im Bank financing programs

At the same time, the Ex-Im Bank has several other mandates:

The Bank is required to ensure that issues such as human rights, international narcotics control, chemical and biological weapons sanctions, and environmental concerns are carefully considered as the Bank reviews transactions. For all of these issues, cooperation and information sharing among U.S. government agencies is key as well. And finally, we have specific advisory committees of private sector representatives to work with and advise the Bank in 3 key areas:

- A Bankwide Advisory Committee, now in its 19th year, helps Ex- Im Bank review policies and programs by providing input from various sectors of the economy.

- Consistent with the President Bush's recommendations, the Bank has established the Renewable Energy Exports Advisory Committee to provide suggestions to the Board as to how to increase its support for US firms selling market-ready U.S. technologies that provide efficient sources of energy and maintain a clean environment. The committee is made up of U.S. exporters and representatives of related trade associations and a non- governmental organization (NGO) and will meet several times to develop recommendations that will benefit U.S. exporters in renewable energy industries.

- A special advisory committee on Sub-Saharan Africa to provide expert guidance to Ex-Im Bank in developing policies to further strengthen the Bank's support of U.S. exports to Africa.

Ex-Im Bank Acts

Ex-Im Bank promotes private sector financing. Where there is not a private sector alternative and there is a creditworthy transaction, the Bank steps up and ensures that U.S. exporters can compete and are not at a disadvantage. In short, Ex-Im Bank's role is to provide official financing support that levels the playing field for U.S. exporters until agreements can be reached to eliminate market-distorting practices.

Ex-Im Bank does not perform this vital job in a vacuum. The Bank works closely with other United States government agencies to capture possible efficiencies and to protect the interests of the taxpayer. The TPCC plays a critical role, as illustrated by the recommendations in the National Export Strategy Report.

Allow me to briefly review some of the prior TPCC initiatives involving Ex-Im Bank and our sister trade agencies and what Ex-Im Bank is already doing to address some of these key needs.

-The Bank maintains offices eight regional offices across the country. Six of these offices are located with the United States Export Assistance Centers (USEACS) with the Department of Commerce (DOC) and the Small Business Administration (SBA). Co- location allows our respective staffs to co-market, pursue, and share trade leads and market information. The Bank has placed offices in strategic locations (Miami, FL, Washington, District of Columbia, New York, New York, Chicago, Illinois, Houston, Texas, and three in California). The states in which these offices are located are home to approximately 65% of the exporters in the U.S. Where we are not co-located, Ex-Im Bank employees cross-train with DOC and SBA employees in the remaining USEACs to ensure that DOC and SBA professionals are kept up-to- date on new initiatives at the Bank.

-For the past two years, the Bank has delivered joint direct mail with the Department of Commerce's Foreign Commercial Service and the Census Bureau's Foreign Trade Statistics Division. This year Ex-Im Bank will deliver close to 50,000 pieces of direct mail. Not only is this partnered approach cost-effective, (it reduces the Bank's costs by two-thirds) it gives the recipient a comprehensive view of the menu of services offered by our respective institutions. Ex-Im Bank's direct mail initiative has been a huge success.

- Educational seminars have long been a primary approach of many of the trade agencies. So what's new? First, the Ex-Im Bank is doing more seminars. Second, the Bank has taken them outside of Washington and reformatted them into efficient one-day mini- courses. Third, Ex-Im Bank almost always either partners with Department of Commerce, a City/State Partner, or one of Ex-Im Bank's sister trade agencies. For example, this spring OPIC participated in a well-received exporter seminar in Indianapolis, and three weeks ago Ex-Im Bank's business development team co- presented with Department of Commerce in Lubbock, Texas. This year Ex-Im Bank executed over 50 of these type seminars, all with some form of sister agency involvement.

- Trade Associations: Attending trade association shows where hundreds, sometimes thousands, of exporters and buyers are gathered is a very cost-effective outreach tactic for Ex-Im Bank. Partnering with DOC and the Census Bureau makes Ex-Im Bank's approach even more effective. The Bank will continue this successful enterprise with DOC and the Census Bureau and expand upon it.

- Ex-Im's Annual Conference: Just two weeks ago, the Bank had 1500 participants in Washington DC to learn about the Bank and to network. Participants included exporters, bankers, brokers, foreign buyers, U.S. government officials and foreign government officials.

National Export Report

Turning to the National Export Report, these recommendations were developed in close coordination among TPCC agencies and with significant input from the U.S. export community. The TPCC listened to the concerns of our customers, U.S. exporters. The TPCC listened to those that distribute and market our services, trade finance lenders. From this dialogue, the TPCC developed the recommendations continued in the report.

Highlights of the recommendations that pertain to the trade finance arena include:

(1) Employ technology to maximize customer service, creating processing efficiencies, and leveraging scarce human resources through automation;

- The TPCC recognized we could never substantially expand our support, especially for small business exporters unless and until we developed automated tools that made our processes faster. We have several upgraded programs currently in place that will assist us with providing faster turn around time and more up to date information and statistics.

- Earlier I mentioned the Ex-Im Bank's direct mail initiatives. The Bank's direct mail, which also includes periodic email contact, is all initiated and managed from customer management tools. Inquiries from direct mail are sent electronically to the Bank's eight field offices for prompt follow-up. When Ex-Im Bank started direct mail two years ago, the Bank used existing database software and low-cost customer management software. Ex- Im Bank is a victim of its own success. The Bank has now outgrown its own database and software system. The database the Bank uses was designed for 50,000 records; Ex-Im now has over 300,000 records. The Bank is now in the process of upgrading this system.

(2) Develop a multi-pronged approach to address the trade- distorting effect of commercially driven tied aid, the means by which other countries provide partial grants and/or concessional loans either alone or combined with export credits and linked to procurement from the donor country, and to add tools to the U.S. cache by combining the resources and expertise of one or more TPCC agencies to address the problem.

Work with Treasury negotiators to use the Tied Aid Credit Fund (TACF) resources to advance the U.S. position in the Organization for Economic Cooperation and Development (OECD) to establish disciplines on the use of untied aid. The goal here is to ensure that untied aid financing is truly untied, and not defacto tied to procurement from donor country suppliers. Thus, the Bank would utilize the TACF to provide a negative incentive that would bring other untied aid donor ECA's to negotiate greater discipline in their use of those funds. For example, as cited in the new TPCC report, the OECD recently notified Japan that a power project they wanted to support in China was not eligible for Tied Aid because it was deemed commercially viable. Within ten days, Japan converted its support from Tied to Untied Aid, thereby raising the question: did the Japanese really change the financing arrangement, or just change what policy they state it falls under?

- Begin a pilot program where the Trade Development Agency would selectively finance FEED (front-end engineering and design) studies until there are multilateral rules that prevent governments from using these studies to promote exports;

- Ex-Im Bank, Treasury, USAID, TDA, and the Commerce Department will work collaboratively to design creative financing arrangements for developmentally sound projects for which commercial financing is not available, achieving Administration trade and aid goals; and

- Use the Tied Aid Credit Fund to defend U.S. exporters from patterns of use of tied aid that effectively (whether intentionally or not) represent a threat to long-run U.S. market share or access to emerging markets.

(3) In response to concerns raised by the small business community, better integrate Ex-Im Bank's and SBA's Working Capital Guarantee Programs, where appropriate. Toward this end, last week Administrator Barreto of the SBA and I signed an agreement where the two agencies would begin to coordinate marketing efforts. We have also directed our respective staff to work together to identify additional opportunities to integrate these programs;

(4) Commission a study to assess the impact of market window activity on U.S. exporter competitiveness, which is also a topic of interest in the Bank's reauthorization bill; and

(5) Examine the unique financing needs of the services sector and develop programs and procedures that address those needs.

Since last year when President Bush's administration re-energized the TPCC committee, we have been working hard to identify innovative ways to serve the TPCC's combined customers -- the nation's exporters. And now, I look forward to working with you and the other TPCC agencies in implementing these critical steps to improve U.S. exporter competitiveness.

Mr. Chairman, throughout my 34 years in banking, I have always tried to make decisions on what's right for the customer. In the private sector, it was a matter of survival-- aligning your organization around your customers needs, expanding your services through strategic alliances - these were and still are one of the best ways for companies to expand market share. In the public sector, the principles of the TPCC are fundamentally issues of efficiency and providing our exporters the best unified and simplified government support possible. Especially in these tough times, our exporters need the best their government can offer. The best will only be realized collective and coordinated actions. While the TPCC has made progress in the past few years, we recognize we have more to do in several areas. The TPCC is committed to this effort. Thank you for your leadership on these issues, and I am now prepared to answer any questions you may have. Thank you.

LOAD-DATE: August 22, 2002