FROM THE OFFICE OF PUBLIC AFFAIRS

Good morning. It is a pleasure to be here atthe annual conference of the Ex-Im Bank.

As Secretary Daley indicated, the Ex-Im Bank isa vital part of this nation's trade strategy and is an importantasset to the US economy.

When we think of the remarkable surge inexports we have seen, with exports rising 10% per year since 1993so that the United States is again the largest exporter in theworld, a large share of the credit must go to the Ex-Im bank.

In 1996, Ex-Im financed an estimated $14.6billion in exports, supporting an estimated 200,000 jobs directly(and indirectly, a million more). Some 80% of these transactionsbenefited small business.

By leveling the playing field for US exporters,Ex-Im lies at the very core of our export strategy. This is afact that the President recognized when he fought successfullyfor its continued authorization in the bi-partisan balancedbudget agreement announced last week.

When we think of what Ex-Im does, we usuallythink of trade financing, in all its forms. However, there isanother side to Ex-Im that is much less well understood, butequally important that I want to talk about today. The U.S.Government uses Ex-Im as its representative within the OECD toreduce subsidies by other countries of official export financing.

Agreements such as NAFTA and the Uruguay Roundhelped us reduce barriers in the form of tariffs and other traderestrictions. But financing subsidies can constitute equally highbarriers to US exports. Reducing them helps US exporters whilesaving taxpayers money.

The Ex-Im Bank is our admission ticket to theOECD's Export Credit Arrangement where international rules forofficial export credit agencies are negotiated, monitored andenforced. And, there, Ex-Im is Treasury’s partner inreducing foreign export financing subsidies.

This morning, I would like to focus on what wein Treasury have been doing in conjunction with Ex-Im to openmarkets for American firms by reducing these harmful subsidies.

Reducing Interest Rate Subsidies

Traditionally, foreign export credit agenciessubsidized exporters by offering below market interest rates. Theuse of this tool by foreign governments put US exporters at amajor disadvantage since we offered no such program. But matchingthe subsidies would have been expensive for the US Treasury andmight well have bid up subsidies further.

As a result, the US took the matter to the OECDwhere we negotiated the elimination of interest rate subsidies.The agreement we won requires that export credit agenciesuniformly charge a 100 basis point spread over government cost offunds (for a given loan duration). This reform has doubled theamount of US exports Ex-Im can support at any given level ofappropriations compared to 10 years ago. The last installment ofthis phased agreement went into effect in 1996 and has savedEx-Im about $200 million annually in required appropriations.

Reducing Tied Aid

In response to our action on this score,however, many countries began to increase their use of tied aidsubsidies. As opposed to interest rate subsidies which applyacross the board, tied aid consists of the use of grants orsubsidized financing to sweeten specific export financing deals.

In most cases, the subsidies take the guise ofaid money. And, in general, the battleground for this form ofsubsidy has been in the fastest growing Asian markets such asChina, Indonesia, India, Thailand, the Philippines--markets whereas you well know, the US cannot afford to lose.

Assessing the problem, the US governmentdetermined that it did not make sense to up the tied aid ante bycreating our own subsidy program or to start an export subsidyrace.

Instead, we pressed for OECD negotiations toset international rules.

In 1992, the US got new rules that barred OECDcountries from giving tied aid to the richer developing countiessuch as Mexico, Korea, Malaysia and Argentina. And theyprohibited tied aid for projects with sufficient cash flows toservice commercial term debt -- i.e. projects that werecommercially viable.

These rules which this Administration hasimplemented have a triggered a sea change in procurementpolicies. Over the last five years, the Treasury Department hasled the OECD in reviewing over 100 projects. In about sixtycases, we determined that the projects were not eligible for tiedaid because they were commercially viable. This created asufficient body of case law to permit the issuance of OECDGuidelines that now clarify which projects are eligible for tiedaid and which are not.

The result of this agreement is that foreigntied aid offers for major capital goods projects dropped fromabout $8 billion per year prior to the agreement to $2 billionafterwards.

The immediate U.S. share of this newly opencapital goods market is about $1 billion annually. But with UStechnology and, in some cases, standards in place, follow-onsales should provide even higher export gains over time.

While this agreement has largely eliminatedunfair tied aid, we have also created the Ex-Im Tied Aid CapitalProjects Fund to match tied aid offers for certain key projectsthat are not commercially viable.

Limiting tied aid is good for Americanexporters. It is also good for the global economy. By stoppingaid financing from crowding out commercial financing, it helpsdirect scarce aid resources to the poorer countries, not thericher countries that can afford commercial financing.

And it has done all that while saving Americantaxpayers the $300-$500 million in annual appropriations thatmatching our competitors' subsidies would have cost.

Other Initiatives

Building on these initiatives, we are now inthe process of negotiating OECD rules to restrict exportsubsidies further by requiring export credit agencies to chargeappropriate risk, or exposure, fees. By agreeing on oneinternational system for setting risk premia, we can furtherlevel the playing field for American exporters. This could saveEx-Im around $50 million annually in required appropriations.

Looking further out on the horizon, we are alsoexploring ways to maximize the ability of US exporters to benefitfrom untied aid programs. Some countries offer aid withoutexplicit ties. Our goal is to ensure that these competitions arefair and transparent.

We have already negotiated an agreement withinthe OECD whereby Japan and Germany now provide notification ofuntied aid they are granting for projects in developingcountries. This information is now published regularly on theDepartment of Commerce's home page on the World Wide Web where itcan be accessed by US firms seeking overseas business.

Conclusion

In conclusion, Ex-Im does more than justprovide financing to US exporters. Through its seat at the tableat the OECD Export Credit Arrangement, it has enabled the USgovernment to eliminate a number of unfair export subsidies,reducing barriers to US exports.

Eliminating these barriers to trade hasreceived less publicity than NAFTA, the Uruguay Round, theFinancial Framework with Japan and the 200 some other tradeagreements this Administration has negotiated. But they areanother vital way that the Ex-Im Bank helps boost exports andcreates more high paying export jobs for the American people.