FROM THE OFFICE OF PUBLIC AFFAIRS
May 16, 2000LS-631
TREASURY SECRETARY LAWRENCE H. SUMMERS REMARKS AT THE 65th ANNIVERSARY OF THE EXPORT IMPORT BANK
Thank you, Jim. Let me also take this opportunity to thank you for your leadership of the Export Import Bank that, I am confident, will continue to go from strength to strength.
In the 65 years since the creation of the Export Import Bank, the world has come to a much greater recognition of the crucial role that trade can play in promoting prosperity - and by promoting prosperity, promoting global peace. In the words of Cordell Hull: "When goods do not cross borders, armies do."
Promoting trade and commercial exchange between nations is Ex-Im's mission and it is a mission that has served America extraordinarily well these past 65 years. In a more integrated world, there will continue to be a case for national institutions to support the financing of exports: for example, where national and international capital markets are imperfect or under-informed and governments can provide insurance that the markets do not. This has always been a crucial part of Ex-Im's work and one that we will continue to support.
Today, however, I would like to focus on another, increasingly crucial aspect of Ex-Im's work: what might be termed its role in our national economic defense. Just as the real virtue of a strong military is that it prevents wars and makes it less likely we will have to fight, so the virtue of maintaining a strong and credible Export-Import Bank is that it can help to deter abusive subsidies by other countries - and reduce the chance that we will need to resort to costly subsidies ourselves.
Let me divide my remarks into three parts:
- First, what we have already achieved in scaling back unfair international export subsidies.
- Second, the next frontier in the battle to deter costly international subsidy competition.
- Third, broader issues that we must confront with respect to the global adoption of more socially responsible and sustainable trading practices.
I. Preventing a Race to the Bottom in Export Subsidies: the Record to Date
The OECD Arrangement was created just 22 years ago. It has been an enormous - and under-appreciated - success in preventing large amounts of counter-productive and expensive subsidy competition in international trade. What is more, these benefits have been achieved, not through a legally binding treaty between governments, but a gentleman's agreement.
- By reducing export subsidies, the Arrangement has successfully confronted a particularly insidious form of trade protectionism and saved the American taxpayer billions of dollars. The budget savings for the U.S. alone are probably more than $500 million per year.
- By emphasizing transparent competition, it has helped promote a level playing field for global trade and, thus, a stronger, more efficient global economy
- And, by ensuring the best use of official export finance, the Arrangement has helped to improve the effectiveness of development policy.
The Arrangement is part of a broader US effort to promote free and fair trade by reducing export subsidies in the international arena, most notably through our work at the GATT/World Trade Organization. In fact, we have used the Arrangement to help strengthen the broader system by filling gaps in WTO subsidy rules.
WTO rules rightly permit the use of development assistance to help promote economic development in poorer countries. But, where aid is designed more for the benefit of domestic exporters than the countries for which the assistance is supposedly intended, such distortions undermine the very basis of fair and open trade, and corrode the ideals upon which official development assistance is based.
That is why in the early 1990s this Administration pushed hard to conclude an agreement on tied aid that in many ways is a model of what we should be working to achieve with respect to other aspects of the international economic system. That agreement committed members of the Arrangement to following clear multilateral rules for tied aid.
As a result:
- Trade distortions due to tied aid have reduced by approximately $6 billion a year - or a total of $42 billion - since 1993.
- Open competition for new projects has created additional US exports of around $1 billion a year.
- And the US tax payer has been saved the more than $300 million annual cost of supporting the same level of exports through competing export subsidies - or $2.1 billion since 1993.
II. The New Frontier in the Prevention of International Subsidy Wars
The tied aid agreement has produced enormous benefits. At the same time, perhaps inevitably, these benefits are increasingly threatened by the migration of troubling practices to "untied aid" - or aid that is not covered by OECD rules. At least in a small number of countries, such aid now comes with well-connected strings.
Such "pseudo-untied aid" can take a number of forms. For example, a donor government will ensure that untied aid is linked to domestic exports or to the services of a domestic company by providing detailed project design advice - or "technical" assistance - that leads to very specific conclusions. In practice, it may be hard for the recipient to ignore such recommendations.
And this, in turn, will confer an enormous advantage on national exporters in the bidding for the final contract.
More generally, any project, including one that is commercially viable, can be distorted by the provision of what is supposed to be neutral advice to the recipient, and the discretion involved in administering a bidding process can be abused to promote national exports unfairly. For example, in the not too distant past, we encountered a case in which a major U.S. firm bid against a major foreign competitor for an infrastructure project overseen by the competitor's national agency. Although the bid of the U.S. firm was 10 percent cheaper than the foreign bid, and of at least the same quality, the contract was awarded to the more expensive tender.
These kinds of practices corrode the effectiveness and credibility of the multilateral tied aid disciplines that we have worked to achieve over the past decade. And they corrode the ideals of untied aid. For these reasons, we believe that actual and potential misuse of untied aid poses a serious threat to the credibility and integrity of the OECD system of discipline over the use of concessional aid financing.
Unfortunately, such abuses are not confined to untied aid.
The emergence of "Market Windows".
Several prominent OECD members - including some where the tradition of using aid for commercial advantage is strong - have managed to elude the restrictions on their national export credit agencies by providing or maintaining the ability to provide export subsidies through other state-owned, or controlled, Market Window, institutions. Because Market Window institutions purport to operate under private sector discipline and according to the competitive constraints of privately-owned financial institutions, currently there is no agreement to subject them to disciplines agreed in the Arrangement.
However, we believe that Market Window institutions either directly, or potentially, contravene Arrangement rules because they are controlled and implicitly subsidized by the state. Thus, Market Window institutions operate with an unfair competitive advantage because they benefit from special government concessions including guarantees by the state that enable them to raise funds at a lower costs than their private sector competitors, and because they are exempted from certain taxes and dividend payments. At the same time they act like official export credit agencies in restricting financing to national exporters.
The US response to abuses of multilateral discipline.
The United States cannot stand by and watch a small number of countries undermine the multilateral discipline that we have all worked so hard to achieve. We believe it is both reasonable and necessary to insist that any exemptions from multilateral rules must themselves be agreed on a multilateral basis. Practices that involve the unilateral re-interpretation of multilateral rules undermine the effectiveness of the Arrangement and the competitiveness of U.S. exporters and financial institutions.
Our response is two-fold:
- First, by highlighting the existence of such unilateral practices, I hope today to encourage our partners in the OECD to examine these issues in detail before the OECD Participants meet again in November. It is clearly in all of our interests to undertake serious negotiations with the objective of reaching multilateral agreement on rules and procedures that would clarify when both untied aid and Market Windows should be exempt from existing agreements.
- Second, while we sincerely hope that these problems can be resolved on a multilateral basis, we stand ready to act unilaterally if they are not. The US government has both the responsibility and the tools in hand to protect U.S. exporters from unfair practices that undermine their competitiveness, and we can and will act if multilateral negotiations fail.
III. The Need for Rules to Safeguard the Environment and Combat Bribery
Working to preserve the effectiveness of existing multilateral rules should not prevent us from seeking to broaden those rules to address new issues that can also affect competitiveness and the global economy as a whole. Let me briefly discuss two such areas where we believe that the OECD should take action in the coming months:
First, establishing guidelines for minimum environmental standards.
Each year, export credit agencies provide medium and long-term financing for about $60 billion of exports of equipment that amount to a major source of supply for international power and industrial projects. As a nation, we have taken steps to set environmental standards and guidelines on the exports that Ex-Im Bank supports, and will not provide any support to projects for which environmental harm cannot be adequately mitigated. It makes no sense to have in place multilaterally agreed standards and guidelines for MDB-financed projects and then undermine them with our government-financed projects.
That is why we have taken the lead in the OECD Arrangement in pushing for members to agree on common guidelines that would impose minimum environmental standards for export credit agencies. In this context let me say that we are troubled that progress toward such standards has so far been very limited, because of the hesitancy of other ECAs, including some G-8 agencies, to address this issue with the urgency that it deserves.
Consequently, we are pressing our counterparts at this year's G-8 Summit in Japan to establish an experts group that would develop a common G-8 position on environmental guidelines for official export financing. The G-8 has a responsibility to lead on this issue. It is the right thing to do, and we must act quickly.
Second, strengthening the implementation of anti-bribery agreements.
The Foreign Corrupt Practices Act has been U.S. law for over 20 years. It prohibits bribery in international trade. Ex-Im Bank actively supports our policy against bribery by insisting that exporters sign a suppliers certificate that affirms that no bribes have or will be paid to secure the contract. This puts exporters on notice that bribery makes them ineligible for Ex-Im Bank financing and can assist us in prosecuting those firms that may ultimately found to have violated the law.
The United States has also led a major international effort in a variety of fora to reduce corruption. Now that we have the OECD Anti-Bribery Convention in place, we call upon our partners in the OECD to support the Convention by actively prohibiting bribery in the transactions that their ECAs support. It is one of our priorities to reach agreement among ECAs so that they can be part of an all-out assault on bribery and corruption in international trade.
IV. Concluding Remarks.
In conclusion, I would like to take this opportunity to extend my congratulations to Jim Harmon and the entire Ex-Im Bank staff on the 65th Anniversary of the institution. Institutions survive over time by adapting to meet new circumstances. Of course, one must first identify the challenges correctly, and this conference demonstrates that Ex-Im Bank remains alert to new developments. I have every confidence that Ex-Im Bank will meet the challenges identified during this conference and ensure that U.S. exporters remain competitive.
I also want to note that under Jim's leadership, Ex-Im Bank lead a G-7 ECA initiative to help smooth fluctuations in international capital markets during the Asian financial crisis. By providing lines of trade finance when markets first retrenched, Ex-Im Bank made a major contribution to the orderly functioning of the international economy and at the same time protected and promoted the interests of U.S. exporters.
I look forward to working with Jim Harmon to set a sound policy path for the future of officially supported export financing competition. Thank you, and Happy Birthday Ex-Im Bank.