FROM THE OFFICE OF PUBLIC AFFAIRS

I welcome this opportunity to discuss the reauthorization of the Export-Import Bank of the United States (Ex-Im Bank). The Administration is committed to provide greater economic opportunity for all Americans. This requires a healthy, growing U.S. economy, capable of generating and sustaining a large number of high value jobs over time.

The engine of U.S. economic growth has shifted over the last 30 years from almost sole reliance on the domestic market to an ever increasing reliance on international markets as economic globalization and interdependence continue to deepen. Ex-Im Bank is a key element in our policy to keep U.S. exporters competitive in international markets.

Today, exports are fundamental to the health of the U.S. economy and the standard of living of millions of Americans. Almost one-third of U.S. economic growth since 1993 has been generated by exports, creating 1.5 million new jobs along the way. By 1995, 11 million American jobs depended on exports and this number is growing rapidly.

Among foreign markets, developing country markets are a particularly important potential source of U.S. economic and job growth. They are experiencing high rates of economic growth and are absorbing an increasing share of rapidly expanding world exports. In the 1990s, developing countries have been growing twice as fast as industrial countries (5% vs. 2.5%) and this trend is expected to continue.

This growth and development require massive infrastructure investment. Supplying capital goods to these growing markets is an important part of the United States Government’s strategy to promote U.S. economic growth and high value jobs into the next century and beyond. Currently, over half of U.S. capital goods exports go to developing countries and this trend is expected to continue.

To take full advantage of these export opportunities, the U.S. has moved aggressively to open foreign markets. Since 1993, the Administration has successfully completed over 200 trade agreements, most notably the Uruguay Round and NAFTA, and the recent Information Technology Agreement. These are the result of a concerted effort to break down trade barriers around the world to allow U.S. exporters to compete fairly and effectively in international markets.

Since foreign export subsidies have the same negative impact on U.S. exports as tariffs, the U.S. has also pushed hard to discipline export subsidies in both the World Trade Organization (WTO) and the Organization for Economic Cooperation and Development (OECD). For example, in the Uruguay Round, we expanded the list of prohibited subsidies, including domestic subsidies, and applied WTO rules (with derogations) to LDCs.

To complement these efforts, the Trade Promotion Coordinating Committee (TPCC) was created to bring to bear all the resources of the USG in a coordinated way to ensure that U.S. business is fully competitive internationally.

Ex-Im Bank financing is a vital part of the U.S. strategy to create a level playing field for U.S. exports and ensure that the U.S. economy and American workers reap the full benefits of our comparative advantages and rapidly expanding export opportunities.

Ex-Im Bank’s Mission

Ex-Im Bank is an independent agency of the United States Government, originally chartered by Congress in 1934 and rechartered most recently in 1992. Its charter expires this year and its rechartering is among the Administration’s top legislative priorities.

Ex-Im Bank provides short-, medium-, and long-term fixed rate financing (insurance, loans and guarantees) to support U.S. exports to developing country markets. Ex-Im Bank-supported financing is provided to the foreign purchasers of U.S. exports.

Treasury works closely with Ex-Im Bank to ensure that its programs and policies are consistent with the United States Government’s broad international economic and financial policies. Treasury chairs the National Advisory Council that reviews individual Ex-Im Bank transactions and leads the U.S. delegation to OECD Export Credit Participants negotiations that set international rules for Ex-Im Bank and other industrialized country official export credit agencies (ECAs).

Ex-Im Bank also consults with Treasury when it uses its Tied Aid Capital Projects Fund. When there is official credit offered in the U.S. below Arrangement terms, Treasury determines if matching Ex-Im Bank financing is appropriate.

Ex-Im Bank is an indispensable tool to:

1) neutralize competitive advantages arising from official export financing offered by our industrialized competitors;

2) overcome market failure in the provision of export financing by private capital markets;

3) generally reduce, through multilateral negotiations, others’ ability to use export financing subsidies as a tool to undermine U.S. comparative advantages in international export competition.

In the course of achieving these objectives, Ex-Im Bank provides good value to U.S. taxpayers. Ex-Im Bank acts as a "lender of last resort," thereby providing financing for U.S. exports only when no other financing is expected to be available. It achieves a 20-1 ratio between the total volume of its export financing and its budget appropriations. Ex-Im Bank also charges interest rates on its direct loans that are one percentage point above its cost of funds.

U.S. sales financed by Ex-Im Bank also generate a steady stream of additional, commercially-financed sales of U.S. spare parts and equipment. And by ensuring that U.S. goods have competitive financing, Ex-Im Bank helps U.S. producers showcase American technology that generates "brand awareness" generally. Follow-on sales of new U.S. equipment attributable to Ex-Im Bank-financed sales have been estimated to be about 50% of the original purchase over the subsequent 10 years.

1. Meeting Foreign Competition

All our industrial country competitors have, and heavily utilize ECAs -- like Ex-Im Bank. These agencies are prepared to offer aggressively official financing to support their exporters’ bids. For instance, Japan Ex-Im Bank supports 32% of total Japanese exports, and France, Spain and Canada support about 18%, 11% and 5% of their national exports respectively. Ex-Im Bank, by contrast, supports around 3% of U.S. exports and ranks seventh out of the top seven ECAs in terms of percentage of national exports supported.

Ex-Im Bank neutralizes foreign official financing offers and protects the competitive position of U.S. exporters. Most foreign ECAs consciously compete with private sector sources of financing (their own and ours) to maximize the competitiveness of national exports. It is critically important that Ex-Im Bank financing programs are available to level the playing field for U.S. exporters to permit export competition based on price, quality, and service -- not financing -- to determine export contract awards. In this role, Ex-Im Bank programs also promote international economic efficiency by helping allocate resources to the most efficient producers and providing developing countries with the best value for their scarce foreign exchange resources.

It is not always enough to be the lowest bidder in international export competitions. In most developing countries, the availability of medium- and long-term financing is far more important than small price advantages in determining contract awards. Anecdotal evidence suggests that in the absence of Ex-Im Bank, even our closest developing country trading partners, such as Mexico, would readily shift sources of supply to exporters with access to official financing, all other things being equal.

2. Market Failure

It is a long-established United States Government policy to rely on private export financing wherever possible. Private capital will continue to play the leading role in U.S. export finance.

However, "market failure" exists to a significant degree in the provision of private export financing for sound projects in many developing countries. Market failure arises in private sector export financing because capital markets have traditionally demonstrated significant risk aversion toward providing adequate levels of, and terms for, financing U.S. exports in many developing countries. This risk aversion increased sharply as a result of the debt crisis of the early 1980's and has not been fully reversed.

This reluctance to provide sufficient export financing to many developing countries reflects both an exaggerated perception of risk associated with individual export financing deals as well as the more general desire to limit foreign risk in bank portfolios. Without concerted action to correct this failure, U.S. exports would be severely constrained and jobs lost.

Ex-Im Bank programs are specifically designed to address this problem to ensure that U.S. exports and the jobs they support are not constrained by the lack of private sector financing.

3. Reducing Subsidies in Official Export Financing

Ex-Im Bank programs provide a lever for the U.S. to negotiate international reductions in official export financing subsidies provided by foreign governments.

Treasury leads the work of the United States Government within the OECD Arrangement on Guidelines for Officially Supported Export Credits (the Arrangement). This work sets standard terms for official export credits to avoid an international export credit race, and promotes the use of market principles in setting these financing terms.

The Arrangement is made up of representatives from OECD official export credit agencies and their guardian authorities -- usually Finance Ministries. The existence of Ex-Im Bank as an official export credit agency provides the U.S. access to this group. The U.S. has used its participation in the Arrangement to negotiate to systematically minimize the use of subsidies in the provision of official export financing.

One of the United States’ main achievements in the OECD negotiations is an agreement to ensure that interest rates offered by ECAs are market-based and are above the cost of funds to governments. These base interest rates are adjusted monthly keep up with market interest rate developments.

The U.S. has also successfully used the Arrangement to negotiate rules for the use of tied aid. Tied aid is concessional financing that is tied, or linked, to procurement from the donor country. Prior to the adoption of OECD tied aid rules in 1992, competitor ECAs, often in cooperation with their official aid agencies, mixed tied aid with official export credits to promote their capital goods exports to the disadvantage of U.S. exporters.

In concert with Congressional appropriations for the tied aid War Chest, the U.S. negotiated and continues to implement aggressively OECD rules limiting tied aid use. The rules prohibit tied aid for projects that are "commercially viable" -- and therefore able to repay export financing on commercial terms. These rules have reduced foreign tied aid subsidy offers in the highly competitive sectors of manufacturing, power generation, telecommunications and transportation from about $8 billion annually prior to 1992 to around only $2 billion annually over 1993-95. Recently received data for 1996 confirm that these gains have been preserved.

According to Treasury Department estimates, U.S. exports in these sectors can be expected to increase by approximately $1 billion annually solely due to the success of the OECD tied aid negotiations. If, rather than negotiating OECD rules, the USG had to match tied aid subsidies to defend U.S. exporters, the budget cost would be $300-350 million annually. Currently, the U.S. is negotiating in the OECD to increase the risk premia fees that ECAs charge borrowers. This will further increase the cost effectiveness of Ex-Im Bank’s programs.

Costs of not Rechartering Ex-Im Bank

Ex-Im Bank plays a vital role keeping U.S. exports competitive internationally

-- particularly in the fastest-growing developing countries. Without Ex-Im Bank, many U.S. exporters would not be able to compete with the financing offers available from other ECAs. In addition, the U.S. would stand to lose about $15 billion worth of existing exports annually. This reduction of exports would also have a negative multiplier effect throughout the U.S. economy over time, more broadly reducing economic and job growth.

Lost exports now would reduce future levels of commercially-financed U.S. exports as foreign demand for spare parts declines. Such losses would also allow foreign technology and products to set technical standards for capital goods in developing countries with the result that U.S. products would face a further loss of competitiveness in the future.

Finally, the U.S. would lose an effective tool to further reduce subsidies in official export financing and to preserve the substantial reductions in these subsidies achieved to date. Without U.S. leadership on these issues in the OECD, there is likely to be an erosion of subsidy reducing disciplines that will disadvantage U.S. exporters over time.

Conclusion

In conclusion, the Administration strongly supports the reauthorization of Ex-Im Bank. It is an indispensable weapon to ensure that U.S. exporters can continue to compete internationally and to maintain disciplines in others’ official export finance programs.