Emergency Committee For American Trade - Publications

SECTION 8: EXPORT PROMOTION AND FINANCING

U.S. export credit agencies are critical to promoting U.S. export growth and creating export-related jobs. The Export-Import (Ex-Im) Bank, the Overseas Private Investment Corporation (OPIC), and the Trade and Development Agency (TDA) have distinct and important export-promotion functions. Ex-Im Bank provides financing to respond to market distortions that would put U.S. exports at a competitive disadvantage. It played a significant role in promoting the recovery of Asian economies. OPIC and TDA encourage trade and investment by providing investment insurance and feasibility-study financing for overseas development projects with potential to benefit U.S. trade. The outlook for funding for each of these agencies is described below.

Export-Import Bank

The Export-Import (Ex-Im) Bank is an independent federal agency that is chartered by Congress. The bank’s charter was renewed in June 2002 for a period through September 30, 2006, pursuant to the Export-Import Bank Reauthorization Act of 2002 (Pub. L. 107-189). The bank was established in 1934 as the official export credit agency of the United States government. It promotes exports by providing short- and long-term export financing to small, medium-size, and large U.S. exporters.

In FY 2003, it authorized $10.5 billion in export financing (loans, guarantees, and export credit insurance), supporting approximately $14.3 billion in U.S. exports and 2,707 export transactions. Approximately 20 percent of the total authorizations in FY 2003 were in direct support of small businesses. Exporters pay fees, interest and premiums for the use of Ex-Im’s financing. Fees typically range from 5 to 17 percent of the financing obtained.

The Ex-Im Bank plays an important role in offsetting the competitive disadvantage many U.S. companies face as the result of export-finance subsidies by foreign governments. More than 80 countries provide financial assistance to their exporters. Japan, Canada, and many European countries supplement their export credit assistance with foreign assistance funds that allow them to offer financing at low rates with favorable terms. Foreign government export financing on favorable terms is causing U.S. companies to lose business. A U.S. government study tracking 200 projects over eight years found that foreign government financing played a role in diverting $25 billion in contracts away from U.S. companies.

In addition to reauthorizing the Bank through FY 2006, the Export-Import Bank Reauthorization Act of 2002 included the following key provisions:

Increases the aggregate amount of Bank loans, guarantees, and insurance that may be outstanding at any one time to support financing.
Extends the authority of a Bank advisory committee related to its activities in sub-Saharan Africa and for an annual report to Congress on policies and programs in sub-Saharan Africa through September 30, 2006.
Increases from 10 percent to 20 percent the amount of its financing that must be provided to small businesses and requires an officer of the Bank to be designated to encourage the participation of small businesses.
Requires technology improvements designed to improve small business outreach and an electronic system designed to track all pending Bank transactions.
Revises requirements for the tied-aid credit program to require the Secretary of the Treasury and the Bank to jointly develop a process for, and the principles and standards to be used in, determining how the Tied Aid Credit Fund could be used most effectively and efficiently to target the export markets of countries which make extensive use of tied aid or partially untied aid credits for commercial advantage. The law also directs the Treasury Secretary to negotiate an Organization for Economic Cooperation and Development (OECD) Arrangement on Untied Aid.
Requires the U.S. government to seek greater transparency of foreign market windows in the Organization for Economic Cooperation and Development (OECD) Export Credit Arrangement; and to seek negotiations if it finds that such market windows are disadvantaging U.S. companies.
Requires an annual competitiveness report by the Bank to Congress to include a survey of all other major export-financing facilities around the world.
Requires the Bank, as one of its functions, to promote the export of goods and services related to renewable energy sources.
Grants the Bank the authority to deny an application for assistance with respect to a transaction if it has substantial credible evidence that any party to the transaction has committed an act of fraud or corruption in connection with the transaction.
States that only in cases where the President has determined that such action would be in the national interest and would clearly and importantly advance U.S. policy in certain areas such as international terrorism or the enforcement of certain U.S. laws, should the Bank deny applications for credit for nonfinancial or noncommercial considerations.
Prohibits the Bank from financing a transaction if the product involved is substantially the same product that is subject to a final antidumping or countervailing duty order. It would also require a review of proposed transactions involving products for which there has been a preliminary finding of material injury.
Requires the Bank, in making a determination whether to extend direct credit or guarantee transactions involving more than $10 million with respect to the production of any commodity for export by a foreign country, to consider import relief investigations under title II of the Trade Act of 1974 that have been initiated at the request of the President, the United States Trade Representative, the Committee on Finance of the Senate, or the Committee on Ways and Means of the House of Representatives, or by the International Trade Commission on its own motion.
Directs the Bank to require disclosure of whether an applicant has been found in violation of the Foreign Corrupt Practices Act of 1977, the Arms Export Control Act, the International Emergency Economic Powers Act, or the Export Administration Act of 1979 within the preceding 12 months.
Expresses the sense of Congress that, when considering a proposal for assistance for a project of $10 million or more, the management of the Bank should have available for review a detailed assessment of the potential human rights impact of such project.

On September 17, 2001, the Ex-Im Bank Board of Directors approved an extensive change in the policy and procedures for determining whether an Ex-Im Bank transaction’s benefit to U.S. industry and jobs outweighs potential injury to U.S. producers of competing commodities. These changes establish a screening process to provide a full domestic impact analysis of transactions (1) that are more than $10 million; (2) that support capital equipment to produce an export good; and (3) where the foreign producer’s production of the product is at least one percent of U.S. production. The resulting analysis will have more scope and depth and be more transparent. Transactions will automatically be denied where the buyer and product are subject to a final antidumping or countervailing duty order.

H.J. Res. 2, the Consolidated Appropriations Resolution, enacted on February 20, 2003, provided $512.9 million for financing support and $68.3 million for administrative expenses for FY 2004. The FY 2005 budget seeks $125.7 million in new budget authority and provides for approximately $300.7 million in carryover funds from prior fiscal years, a projected $45 million from cancelled authorizations that the Bank had previously approved, and $73.2 million for administrative expenses for FY 2005. The Bank estimates that this budget will help support $16.3 billion in U.S. exports.

Overseas Private Investment Corporation

OPIC was founded in 1971 to sell risk insurance and provide loans to help American companies compete in emerging markets. OPIC insurance covers political risks such as currency inconvertibility, expropriation, and political violence. OPIC also provides loans and loan guarantees that would otherwise be unavailable or only available at a high cost in high-risk emerging markets. As discussed below, OPIC’s charter has been extended through fiscal year 2007.

OPIC is financially self-sustaining and operates at no cost to taxpayers. In 2000, OPIC earned a profit of $185 million and had reserves of about $4 billion. Since its founding, OPIC has supported $150 billion worth of investments that have helped generate approximately $66 billion in U.S. exports, which supported over 257,000 jobs. In 2003, OPIC invested $2 billion in 73 projects around the world.

In 2003, OPIC established a new Small Business Center to assist companies with revenues under $35 million with streamlined application procedures. By year’s end, more than 40 small businesses had taken advantage of this new framework, such that almost 60 percent of OPIC’s projects in 2003 involved small businesses. OPIC also created the Small and Medium Enterprise Finance Department to assist small and medium-sized businesses with greater revenues. In 2003, OPIC also established specific criteria to evaluate the developmental impact of its projects.

Previous proposals to privatize OPIC have been demonstrated to be costly and self-defeating. A 1997 J.P. Morgan study revealed that privatizing OPIC would result in a net loss to the U.S. government and deprive the government of an important source of funding to offset foreign assistance spending. The study also found that private banks and insurance companies could not duplicate OPIC’s leverage in recovering insurance claims, ensuring that overseas projects produce U.S. benefits, and maintaining U.S. investor confidence.

Along with Ex-Im Bank financing, OPIC insurance is critical to the ability of U.S. exporters to take advantage of opportunities in high-risk emerging markets. OPIC has played a major role in supporting infrastructure projects in Russia and Eastern Europe, Asia, and more recently in Afghanistan. It also has had a prominent role in project finance in Latin America and Africa.

In December 2003, the Overseas Private Investment Corporation Amendments Act of 2003 was enacted to extend through fiscal year 2007 OPIC’s authority to issue investment insurance and guaranties. This statute also made several other changes to OPIC’s operations including the following:

Authorizes OPIC to make transfers from its noncredit activities to pay for administrative costs of its investment guaranties and direct loan programs.
Extends OPIC coverage to loss of investment in an approved project due to expropriation or confiscation by any political subdivision of, or a corporation owned or controlled by, a foreign government (not just the foreign government itself).
Authorizes OPIC to issue loan guaranties: (1) denominated in currencies other than U.S. dollars (local currencies); and (2) to local financial institutions.
Requires OPIC to collect and report to Congress annually data on the involvement of minority- and women-owned businesses in OPIC-supported projects.

FY 2004 funding appropriated by H.J. Res. 2, the Consolidated Appropriations Resolution, provides $24 million in new credit subsidy funding for OPIC and an administrative budget of almost $40 million. The FY 2005 budget 2005 seeks no new credit funding, given the funds already available based on collections and carryovers. The FY 2005 budget does include $42.9 million for administrative expenses.

Trade and Development Agency

The U.S. Trade and Development Agency (TDA) plays a significant role in promoting the international competitiveness of U.S. firms by enabling them to be involved in the initial development stage of major infrastructure projects in emerging markets. TDA provides funding for feasibility studies, orientation visits, specialized training, and business workshops, which allow U.S. companies to be in a better position to be chosen to design and construct the final project. TDA also provides technical training and assistance in the use of U.S. technologies and equipment in overseas projects. TDA exposes foreign government officials to U.S. technologies and products during "reverse" trade missions that provide them the opportunity to meet with American companies and learn about their products. This support is particularly critical since foreign government financing of feasibility studies is far more extensive than U.S. funding, further disadvantaging U.S. exporters competing against foreign firms that benefit from subsidized export financing.

Since 1981, TDA programs have helped to promote $21 billion in U.S. exports, approximately $35 in exports for every TDA dollar expended. In 2003, TDA obligated more than $52 million for U.S firms in more than 67 developing and middle-income countries in the following regions: Africa/Middle East, Asia/Pacific, Central and Eastern Europe, Latin America and the Caribbean, and Eurasia. TDA provides support in numerous sectors, including energy, environment, health care, information technology, mining and minerals development, telecommunications, transportation, and water resources. In 2004, TDA will continue to be increasingly active in trade technical assistance activities, many of which are associated with the free trade agreement negotiations described in section 2.

FY 2004 appropriations provided $50 million for the TDA program. The President’s budget for FY 2005 seeks $50 million for TDA.

Multilateral Development Banks and International Monetary Fund

ECAT believes that the United States should meet its commitments to support international lending agencies. U.S. support of international lending agencies is a vital part of maintaining U.S. leadership in promoting global growth and stability. It is also critical to ensuring the growth of U.S. exports and the expansion of world export markets. The multilateral development banks also represent another avenue for the United States to help promote trade and investment liberalization. For example, the World Bank has played a valuable role in providing technical assistance to countries during previous WTO sector-specific services negotiations and the Inter-American Development Bank is currently providing assistance to the negotiations to form a Free Trade Area of the Americas.

Progress has been made in the last several years in funding the outstanding U.S. commitments to the multilateral development banks and development funds. As well, U.S. efforts to promote transparency and other U.S. objectives at the International Monetary Fund (IMF) have met with some success. A January 2001 study by the General Accounting Office (GAO), International Monetary Fund: Efforts to Advance U.S. Policies at the Fund, found that the Treasury Department had established a formal process to promote Congressionally mandated policies at the IMF and had actively promoted legislative mandates, such as sound banking procedures and other issues.

The World Bank and other international financial institutions should also play critical roles in helping to address human capital concerns in the areas of labor, the environment and health. Proposals have been made, for instance, to develop an international program to battle the HIV-AIDs crisis (and other health crises) in Africa through coordinated financial assistance for capacity-building, prevention, and treatment. In this regard, the World Bank and other institutions could play an important role in providing financial support, as well as in coordinating and dispensing assistance to Africa and other parts of the world. Capacity-building programs regarding labor and environmental initiatives should also be pursued with these institutions as well.

ECAT POSITION: ECAT supports full funding for the Ex-Im Bank and OPIC, which help support the competitiveness of U.S. companies. ECAT also supports full funding for the Trade and Development Agency, which provides important project funding and trade technical assistance to developing countries in a manner that helps support U.S. exports. ECAT also supports full funding for the multilateral development banks and development funds, as well as efforts to use these organizations to address human capital issues, including health, labor and environmental matters.