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.

2006 Reauthorization of Export-Import Bank

Legislation reauthorizing the Ex-Im Bank will be considered in 2006, given the expiry of its charter on September 30, 2006.

Since its reauthorization in 2002, Ex-Im has authorized $47.9 in financing support, promoting approximately $63 billion in U.S. exports. Reauthorization of the Ex-Im Bank is critical to help offset the competitive disadvantage many U.S. companies face as the result of export-finance subsidies by foreign governments and their export credit agencies, which are increasingly active overseas. 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.

FY 2006 appropriations provide $100 million for the cost of loans, and guarantees, and $73.2 million for administrative expenses. The FY 2007 budget seeks $26.382 million in new budget authority and $75.234 million for administrative expenses.

ECAT Position: ECAT strongly supports the reauthorization of Ex-Im Bank for a multi-year term.

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. Since its founding, OPIC has supported over $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 established a new Small Business Center to assist companies with revenues under $35 million with streamlined application procedures. In 2004, OPIC provided loans, guaranties or insurance for 95 projects in which small businesses were involved. OPIC also created the Small and Medium Enterprise Finance Department to assist small and medium-sized businesses with greater revenues.

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 2006 appropriations provided $42.8 for administration expenses and no new credit funding. The FY 2007 budget seeks no new credit funding for OPIC, given the funds already available based on collections and carryovers. The FY 2007 budget does include $45.453 million for administrative expenses.

Trade and Development Agency

The Trade and Development Agency (TDA) is part of the United States’ foreign assistance apparatus that is focused on helping countries establish favorable trading environments and a modern infrastructure that promotes sustainable economic development. 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’s major focus is on trade capacity-building and support for major infrastructure development. In particular, 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 $25 billion in U.S. exports, approximately $43 in exports for every TDA dollar expended. In FY 2005, TDA obligated funds for U.S. firms in more than 66 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.

FY 2006 appropriations provided $50.1 million for the TDA program. The President’s budget for FY 2007 seeks $50.3 million for TDA.

Millennium Challenge Corporation

The Millennium Challenge Corporation (MCC) was established in January 2004 to administer the Millennium Challenge Account (MCA) – a development program to provide more significant financial contributions to countries that adopt good policies in governance and economic growth. Since its inception, MCA compacts have been reached with eight countries, several of which seek to promote economic growth policies in tandem with trade-expansion opportunities.

MCA compacts with Honduras and Nicaragua, in particular, are intended to bolster the opportunities created by the U.S.-Central America Free Trade Agreement (CAFTA). The $215 million compact with Honduras will focus on increasing productivity of small and medium-size farms and reducing transportation costs between production centers and national, regional and global markets. The $175 million compact with Nicaragua is focused on reducing transportation costs, promoting rural productivity and promoting strengthened respect for property rights.

FY 2006 appropriations provided $1.8 billion for the MCC. The President’s budget for FY 2007 seeks $3 billion for MCC.

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 has provided 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.

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 the Overseas Private Investment Corporation, 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 Millennium Challenge Corporation and 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.

Copyright 1999-2002, the Emergency Committee for American Trade