oversight

Export-Import Bank: Reauthorization Issues

Published by the Government Accountability Office on 1997-04-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Domestic and International
                          Monetary Policy, Committee on Banking and Financial
                          Services, House of Representatives


For Release on Delivery
Expected at
1:00 p.m., EDT
                          EXPORT-IMPORT BANK
Tuesday,
April 29, 1997

                          Reauthorization Issues
                          Statement of Benjamin F. Nelson, Director, International
                          Relations and Trade Issues, National Security and
                          International Affairs Division




GAO/T-NSIAD-97-147
              Mr. Chairman and Members of the Subcommittee:

              I am pleased to be here today to discuss issues concerning the
              reauthorization of the U.S. Export-Import Bank (Eximbank). My statement
              today will focus on three key factors that the Congress should weigh in the
              reauthorization debate:

          •   the rationale for and against the Eximbank’s programs,
          •   the ways in which its assistance is distributed, and
          •   foreign competitors’ export finance programs.

              My comments are based on the results from our current and past reviews
              of the Eximbank and governmentwide export promotion issues. (A listing
              of related GAO products is at the end of this statement.)


              In reviewing the Eximbank’s export finance programs, the Congress needs
Summary       to weigh the benefits to the U.S. economy of the Eximbank’s programs
              against their costs. While there are numerous arguments for and against
              government export financing programs, the most compelling case for
              these programs appears to be in helping to “level the international playing
              field” for U.S. exporters and providing leverage in trade policy
              negotiations to induce foreign governments to reduce and ultimately
              eliminate such subsidies.

              During fiscal years 1994 to 1996, the top 15 users (lead U.S. exporters or
              contractors) of Eximbank financing accounted for about 38 percent of the
              value of Eximbank’s financing commitments. During the same period, the
              Eximbank also reported that 20 percent of its assistance went to support
              small business. The Eximbank believes that these small business
              transactions would not otherwise have been financed by private lenders.
              In geographical terms, China, Indonesia, Mexico, Trinidad and Tobago,
              and Brazil were Eximbank’s top markets in fiscal year 1996.

              The six major industrialized countries we reviewed all maintain various
              types of export finance assistance programs. Although considerable
              differences exist among these programs, they all help exporters in
              competing for market share in developing markets by providing varying
              types of financial assistance (loans, guarantees, and insurance). The
              Eximbank provides similar types of assistance. The Eximbank also
              administers a tied aid capital projects fund (also known as the “war
              chest”) as part of its programs. Tied aid is concessionary (low interest



              Page 1                                  GAO/T-NSIAD-97-147 Export-Import Bank
                 rate) financing that is linked to the procurement of goods and services
                 from the donor country. The war chest is designed to counter other
                 countries’ trade-distorting tied aid practices. Eximbank’s assistance
                 programs have cost the U.S. taxpayers about $4 billion over the last
                 5 years.

                 The Eximbank’s programs require substantial levels of taxpayer support
                 and the U.S. government’s ultimate objectives continue to be aimed at
                 reducing and eliminating such export financing subsidies—allowing
                 exporters to compete on the basis of price, quality, and service—not
                 subsidized financing. The U.S. government needs to make make renewed
                 efforts to use international forums such as the Organization for Economic
                 Cooperation and Development (OECD)1 to reduce and eventually eliminate
                 such subsidized export finance programs. However, given the growing
                 importance of exports to national economic performance, achieving the
                 objective of eliminating all financial subsidies may prove difficult.


                 Created in 1934, the Eximbank is an independent U.S. government agency
Background       that operates under a renewable congressional charter that expires on
                 September 30, 1997. In conducting its operations, the Eximbank must
                 comply with several statutory requirements. The Eximbank is required to

             •   supplement and encourage, but not compete, with private sources of
                 capital;
             •   seek to reach international agreements to reduce government-subsidized
                 export financing; and
             •   provide financing at rates and on terms that are “fully competitive” with
                 those of other foreign government-supported export credit agencies (ECA)
                 (12 U.S.C. sec. 635 (b)(1)(A)(B)).

                 Eximbank financing programs include

             •   loans to foreign buyers of U.S. exports,
             •   loan guarantees to commercial lenders,
             •   export credit insurance to U.S. exporters and lenders, and
             •   working capital guarantees for pre-export production.

                 1
                  The OECD, created in 1960, is a forum for monitoring economic trends and coordinating economic
                 policy among 29 countries, including the United States, and serves as the forum for negotiating
                 limitations on government export credit subsidies and developing guidelines for export-financing
                 assistance programs. The OECD’s “Arrangement on Guidelines for Officially Supported Export
                 Credits,” which was established in 1978, establishes the terms and conditions for official export
                 credits. Although OECD lacks authority to enforce compliance with its agreements, member states
                 generally take upon themselves responsibility for monitoring compliance.



                 Page 2                                                GAO/T-NSIAD-97-147 Export-Import Bank
                        Reflecting the growing move toward privatization in the developing world,
                        the Eximbank has recently expanded its activities to include project
                        finance. Project finance involves financing where repayment is provided
                        through the project’s anticipated future revenues rather than through
                        sovereign (government) or other forms of guarantee. In fiscal year 1997,
                        the Eximbank estimates project-financing deals will account for about
                        30 percent of its total financing commitments (these deals accounted for
                        about 14 percent of its assistance in 1996).



                        I would first like to discuss the various rationales that have been advanced
Rationales Regarding    for and against government involvement in export finance and GAO’s
Eximbank Programs       position on this matter. The arguments for and against the programs focus
                        on three issues: (1) trade policy leverage, (2) industry effects, and
                        (3) employment and trade effects. Supporters of the Eximbank export
                        finance programs say that this assistance provides leverage in trade policy
                        negotiations, helps to “level the international playing field” for U.S.
                        business, corrects “market failures,” and helps to increase exports and
                        employment.2 According to Eximbank officials, the direct and indirect
                        benefits include follow-on sales and support contracts, high-paying jobs,
                        and federal tax revenues. Opponents say that the Eximbank’s programs
                        result in no net increase in national employment and output, misallocate
                        resources, and are a form of corporate welfare.


Trade Policy Leverage   Supporters believe that the Eximbank’s programs (1) help assist U.S.
                        companies to compete against foreign companies that receive similar
                        types of government support and (2) provide leverage in trade policy
                        negotiations. Supporters hold that the Eximbank helps to neutralize the
                        foreign exporter’s advantage in such situations by providing similar
                        financing for U.S. exports. However, critics have questioned the usefulness
                        of these programs in getting countries to reduce subsidies. As discussed
                        below, the foreign competitor countries we studied offer a variety of
                        government-supported export finance programs.



                        2
                         In the last 15 years, some trade economists have argued that a targeted industrial trade policy of
                        promotion (or protection) could increase national income. The cases are quite specific, however, and
                        apply to industries with “external” economies that involve the spillover of knowledge between firms or
                        economies of scale. These rationales have been associated with infant industries in the developing
                        world and with high-tech industries such as aircraft and semiconductors in the developed world. While
                        these interventions have been recognized in principle, economists are generally cautious about their
                        policy usefulness and application.



                        Page 3                                                 GAO/T-NSIAD-97-147 Export-Import Bank
                           As already noted, the Eximbank is required to seek international
                           agreements to reduce government-subsidized export financing. OECD
                           nations, including the United States, have made progress since the late
                           1970s in negotiating reductions in officially supported export subsidies.
                           U.S. Treasury officials who participate in these negotiations told us that
                           the Eximbank’s programs have provided them with leverage in negotiating
                           subsidy reductions.


Industry Effects           Another rationale that proponents make is that markets do not always lead
                           to an optimal allocation of resources and that so-called “market failures”
                           provide an additional justification for government export finance
                           programs.

                           Eximbank claims that the following are examples of market failures:

                       •   Private financial institutions may be unwilling to support exports to
                           emerging markets even when the risk is correctly priced.
                       •   Foreign buyers in certain markets may be unable to secure long-term
                           financing for capital equipment.
                       •   Finally, and probably the most often-cited example is that small business
                           exporters may have difficulty in obtaining export financing.

                           Supporters of government export finance programs believe that correcting
                           such “market failures” can improve economic efficiencies and overall
                           economic well-being. Opponents hold that there is no credible evidence
                           that private capital markets do not function efficiently and that
                           government intervention can potentially distort markets.


Employment and Trade       According to the Eximbank, the exports it financed in fiscal year 1996
Effects                    “supported or maintained” nearly 300,000 jobs.3 We do not dispute that
                           some jobs are directly supported through the Eximbank’s programs.
                           However, economists and policy makers recognize that employment levels
                           are substantially influenced by macroeconomic policies, including actions
                           of the Federal Reserve. At the national level, under conditions of full
                           employment, government export finance assistance programs may largely
                           shift production among sectors within the economy rather than raise the
                           overall level of employment in the economy. Hence, the jobs figure that
                           the Eximbank reports may not represent net job gains.


                           3
                            See Keeping America Competitive: 1996 Annual Report (Washington, D.C.: Eximbank), p. 5.



                           Page 4                                               GAO/T-NSIAD-97-147 Export-Import Bank
                     Others have supported export promotion programs as a way to
                     substantially reduce the U.S. trade deficit. These programs, however,
                     cannot produce a substantial change in the overall U.S. trade balance.4 The
                     trade balance is largely determined by macroeconomic conditions, such as
                     savings and investment and the government budget deficit. According to
                     the President’s Council of Economic Advisers, significantly reducing the
                     trade deficit will require macroeconomic policy measures, such as
                     eliminating the federal budget deficit.


                     During fiscal years 1994 to 1996, the Eximbank provided an annual
Distribution of      average of $12.8 billion in export financing commitments (loans,
Eximbank Financing   guarantees, and insurance) at an annual average program cost of
                     $877 million. The Eximbank projects that it will provide about $16.5 billion
                     of export finance support in fiscal year 1997, an all-time high. Program
                     costs are projected to fall from $934 million in fiscal year 1996 to
                     $773 million in fiscal year 1997 and to $681 million in fiscal year 1998
                     because of a projected increase in lower-risk financing (such as project
                     finance and aircraft transactions, which consume relatively lower amounts
                     of its program budget). (See table I.1.) Another reason for the decrease is
                     that no additional money for tied aid was included in the Eximbank’s fiscal
                     year 1998 budget request.

                     In fiscal year 1996, China was the Eximbank’s top export market
                     ($1.2 billion), followed by Indonesia ($825 million), Mexico ($753 million),
                     Trinidad and Tobago ($632 million), and Brazil ($488 million). (See fig. I.1
                     for a list of the Eximbank’s top 10 markets and their associated program
                     costs for fiscal year 1996.) Relative to total U.S. goods5 exported to these
                     markets, the Eximbank supported about 11 percent of U.S. exports to
                     China, about 22 percent of U.S. exports to Indonesia, about 1 percent of
                     U.S. exports to Mexico, about 93 percent of U.S. exports to Trinidad and
                     Tobago, and about 4 percent of U.S. exports to Brazil.

                     During fiscal years 1994 through 1996, the 15 largest users (lead U.S.
                     exporters or contractors) of Eximbank financing accounted for about
                     $14.4 billion, or about 38 percent, of the Eximbank’s total export-financing
                     commitments made during that period. (see fig. I.2). The export finance
                     transactions involving these companies absorbed about 27 percent of the
                     Eximbank’s total program budget, or about $682 million over the same

                     4
                      See Export Promotion: Rationales for and Against Government Programs and Expenditures
                     (GAO/T-GGD-95-169, May 23, 1995).
                     5
                      Department of Commerce data on service exports to these markets were unavailable.



                     Page 5                                               GAO/T-NSIAD-97-147 Export-Import Bank
                       period. However, these data do not capture the full range of U.S.
                       companies associated with Eximbank-financed deals such as
                       subcontractors and other suppliers.

                       About 20 percent ($7.5 billion) of the Eximbank’s financing
                       commitments—about 79 percent of its total transactions—went to small
                       business, primarily through its insurance programs.6 (See table I.2.) The
                       Eximbank also supports the export of several dual-use (military and
                       civilian) items. (See app. V).

                       The Eximbank has participated in international (OECD) negotiations to
                       limit the use of tied aid and has used its tied aid capital projects fund to
                       counter foreign countries’ use of tied aid. The OECD efforts have resulted in
                       a decrease in reported international levels of tied aid—the annual average
                       level of tied aid decreased from about $10 billion in 1992 to approximately
                       $4 billion in 1995.7 During 1994-96, the Eximbank board of directors
                       approved the use of war chest funds in 40 instances. (See app. II for a list
                       of firms and countries that actually received war chest assistance in
                       1994-96.) The balance in the tied aid war chest was $337.7 million as of
                       September 30, 1996.

                       Since fiscal year 1993, the Eximbank has issued guarantees related to 23
                       project finance deals totaling $5.6 billion (the estimated value of these
                       projects was $21.5 billion). (See table III.1.) Because these projects tend to
                       be large, the Eximbank often shares project risk with other export credit
                       agencies, the Overseas Private Investment Corporation (OPIC), or with
                       multilateral institutions such as the International Finance Corporation.
                       With regard to project finance, the Eximbank’s activity in this rapidly
                       expanding area has increased from one deal in fiscal year 1993 to seven in
                       fiscal year 1996. According to the Eximbank, this growth is a reflection of
                       the rising demand for capital projects in emerging market economies.


                       The six G-7 countries we studied—Canada, France, Germany, Italy, Japan,
Foreign Competitors’   and the United Kingdom (U.K.)—all have ECAs, each with different roles
Export Finance         and structures. (According to Euromoney, a total of 73 ECAs now exist
Programs               worldwide). The support the G-7 ECAs provide for their exporters can be
                       measured in various ways. In terms of the percentage of national exports

                       6
                        Since 1986, the Eximbank has been legislatively required to allot at least 10 percent of its financing
                       authorizations to small business concerns as defined by the Small Business Administration (SBA)
                       regulations.
                       7
                        Tied aid notifications occur through the OECD’s reporting mechanism.



                       Page 6                                                   GAO/T-NSIAD-97-147 Export-Import Bank
    these ECAs have financed, the Eximbank is tied for last. In 1995, the
    Eximbank supported 2 percent of total U.S. exports (the latest year for
    which comparative data are available). This figure is at the bottom of the
    range of support provided by the other G-7 nations. In contrast, Japan’s
    ECAs supported 32 percent of its country’s exports in that year. France was
    second, with 18 percent. The support provided by Canada, Germany, the
    United Kingdom, and Italy ranged from 7 to 2 percent.

    In terms of the share of financing commitments extended by ECAs in 1995,
    the Eximbank ranks fourth: Japan, France, and Germany accounted for
    the largest shares. Japan extended over half (56 percent), followed by
    France (20 percent), and Germany (9 percent). The United States and
    Canada extended smaller shares—5 percent each—followed by the United
    Kingdom (3 percent) and Italy (2 percent).8

    Comparing ECA programs is difficult for a number of reasons:

•   Each nation has structured its export financing differently — there is no
    single export finance model. ECAs in the six nations we studied function as
    independent government agencies, sections of ministries, or private
    institutions operating under an agreement with the government. Most of
    the countries we studied offered overseas investment insurance through
    their ECA. However, in the United States, overseas investment insurance is
    offered through a separate agency, OPIC. (Table IV.1 provides a summary of
    the principal differences between the Eximbank and the six ECAs we
    studied.)
•   Unlike the Eximbank, other ECAs appear to compete to varying degrees
    with private sources of export financing. They do not aim to function
    exclusively as “lenders of last resort,” as the Eximbank strives to do. For
    example, the Japanese government’s export insurance provider is Japan’s
    only export insurer and reported that it insured about 28 percent
    ($124 billion) of all Japanese trade transactions in 1995—the highest level
    of trade and investment insurance underwriting in the world (private or
    public). Similarly, Canada’s Export Development Corporation (EDC) does
    not function as a lender of last resort. The Eximbank aims to complement
    and not compete with private sources of capital.
•   ECAs also have different fee structures. As stated earlier, the Eximbank
    must set fees that are “fully competitive” with the pricing and coverage




    8
     The United States and the six major industrialized countries we studied provided $258 billion of the
    total $553 billion in total export financing.



    Page 7                                                  GAO/T-NSIAD-97-147 Export-Import Bank
                                  offered by other major ECAs.9 The Eximbank has interpreted “fully
                                  competitive” by setting its fees at levels below most of the foreign
                                  competition (as low or lower than about 75 percent of those offered by
                                  other major export credit agencies). U.K.’s ECA aims to set fees at levels
                                  high enough to cover operating costs.
                              •   Other ECAs we studied over different amounts of political and commercial
                                  risks. Currently, the Eximbank provides 100-percent, unconditional
                                  political and commercial risk protection on most of the medium- and
                                  long-term coverage (coverage over 5 years) it issues. Other ECAs generally
                                  require exporters and banks to assume a portion of the risks (usually 5 to
                                  10 percent) associated with such support. This concept of risk-sharing is a
                                  fundamental difference between the Eximbank and these ECAs.
                              •   Finally, ECAs use different budgetary and reporting standards thus making
                                  it difficult to directly compare the Eximbank’s program costs. The 1990
                                  Federal Credit Reform Act (P.L. 101-508, Nov. 5, 1990) requires the
                                  Eximbank to estimate and budget annually for the total long-term costs of
                                  its credit programs on a net present value basis. Other nations operate on
                                  a cash basis10 and are not subject to similar budget constraints. Under this
                                  approach, a government reimburses an ECA for total cash losses sustained
                                  on its operations during the year. Moreover, costs reported may not
                                  always represent total expenses to the government. For example, Canada’s
                                  EDC uses a separate national interest account (“Canada Account”) to
                                  support some export finance activity. The costs of this support are
                                  accounted for separately in its year-end reports. (Table IV.2 provides
                                  information on the costs of the G-7 nations’ export-financing programs.)


ECAs Costs Are Difficult to       Although direct cost comparisons between Eximbank and other national
Compare                           programs are difficult to make, the available cost data we reviewed
                                  suggests that several ECAs in the six countries we studied have reported
                                  improved financial results. France, Germany, and the United Kingdom all
                                  reported positive financial results for their ECAs in 1995, the most recent
                                  year for which complete information was available. The Berne Union
                                  reported that among its member countries there was an aggregate loss of
                                  $501 million in 1995 compared with $6.5 billion in 1994.11 According to the



                                  9
                                  See Export-Import Bank: Options for Achieving Possible Budget Reductions (GAO/NSIAD-97-7,
                                  Dec. 20, 1996). This report discusses how the Eximbank sets its fees in relationship to other ECAs.
                                  10
                                   Under cash-based budgeting, receipts are recorded when received and expenditures are recorded
                                  when paid regardless of the accounting period in which the receipts are earned or the costs incurred.
                                  11
                                   The Berne Union is an association of 43 export credit insurance agencies that includes the G-7
                                  nations’ ECAs.



                                  Page 8                                                  GAO/T-NSIAD-97-147 Export-Import Bank
Berne Union, this change was attributed to an improved global debt
scenario and tighter ECA underwriting standards.

In sum, the Congress may wish to assess Eximbank’s reauthorization
within the context of the international competition. While these ECAs
operate under different mandates and are subject to different budgeting
and reporting standards than the Eximbank, they all help their exporters
compete for contracts in the world market. The costs of these programs
need to be weighed against their benefits to exporters and the leverage
they provide in international negotiations to reduce government support
for these types of programs.


Mr. Chairman and Members of the Subcommittee that concludes my
prepared statement. I will be happy to answer any questions you may have.




Page 9                                  GAO/T-NSIAD-97-147 Export-Import Bank
Appendix I

Distribution of Eximbank Financing



Table I.1: The U.S. Export-Import Bank’s Financing Commitments and Program Costs, 1994-98
Dollars in millions
                                                                                            Fiscal year
                                                               1994               1995             1996              1997            1998a
Value of export financing commitments                     $14,886.4         $11,864.9         $11,516.9         $16,521.7              N/A
Administrative costs                                            42.6              41.4              40.8              46.6            48.6
Estimated program costs                                        936.7            $674.8            893.6              726.0           632.0
Total costsb                                                 $979.3             $716.2           $934.4            $772.6           $680.6
                                         Legend

                                         N/A = Not available.

                                         Note: The cost figures for 1994-96 are based on amounts obligated, while the 1997 figures
                                         represent the amount appropriated. Under the Federal Credit Reform Act of 1990 (P.L. 101-508,
                                         Nov. 5, 1990), the Eximbank is required to estimate and budget for the total long-term costs of
                                         their credit programs on a net present value basis. Present value analysis calculates the value
                                         today of a future stream of income or expenses. Congress funds the Eximbank’s estimated credit
                                         subsidy costs through the annual appropriations process. Subsidy costs arise when the
                                         estimated program disbursements by the government exceed the estimated payments to the
                                         government on a net present value basis. Administrative expenses receive a separate
                                         appropriation and are reported separately in the budget.
                                         a
                                             President’s fiscal year 1998 budget request.
                                         b
                                             Total costs are defined as the Eximbank’s program costs and administrative costs.

                                         Source: Eximbank.




                                         Page 10                                                 GAO/T-NSIAD-97-147 Export-Import Bank
                                                       Appendix I
                                                       Distribution of Eximbank Financing




Figure I.1: Top 10 Country Recipients of Eximbank Financing Authorizations and Associated Estimated Program Costs,
Fiscal Year 1996
Dollars in millions
1500


          1,272




1000

                        825
                                    753


                                                 632


                                                                 488        480
 500
                                                                                          370         351           334
                                                                                                                                 262



                                          79                                                    71          87
                              53                                       49                                                 48
                  14                                                              25
                                                         0                                                                             0
   0
       China (Mainland) Indonesia   Mexico Trinidad and Tobago Brazil       Argentina      Ghana      Russia        Pakistan Republic of Korea

                                                  Financing commitments     Estimated program costs




                                                       Source: Eximbank.




                                                       Page 11                                                 GAO/T-NSIAD-97-147 Export-Import Bank
                                                                         Appendix I
                                                                         Distribution of Eximbank Financing




Figure I.2: Top 15 Recipients of Eximbank Financing, Fiscal Years 1994-96

Dollars in millions
5,000
          4,426




4,000



3,000



                        1,923
2,000

                                    1,259

                                                 938          813
1,000                                                                      745        704
                                                                                                  662
                                                                                                              540          530         434
                                                                                                                                                    431         366         357
                            254                                                                                                                                                          312
                                                                                                                                 1                                              74             37
                                         95            37           46                                              9                      39             33
                15                                                                        47            4                                                          15
                                                                                 3
    0
               g           n                        el          ri                        c.         &T
                                                                                                                      l          r                        s                                  a
            ein        eo         c tri
                                        c
                                               c ht       o ve           g la
                                                                              s
                                                                                       le          T           i o na        l uo        n dy         gie         a ny        & CC       uel
          o           h                                                              E           A            t                                     o           p                      z
        B          yt        El
                                e          Be           B            ou            e                        a              F          Lu       no
                                                                                                                                                  l                        lE        e
                Ra                                   wn          lD             us                       rn                         &                       om         ta         en
                         ral                      o            l              o                       te                          t         c h          C            n          V
                      ne                       Br        nn
                                                             e            gh                        In                         en         e            y
                                                                                                                                                                tin
                                                                                                                                                                    e          e
                                                                       in                         n                        rg           tT          rg                       .d
                 Ge                        e a
                                                     cD
                                                        o           s t                      is o                       Sa
                                                                                                                                    ce
                                                                                                                                       n        n e          o n
                                                                                                                                                                        tro l
                                        As                    W
                                                                   e
                                                                                         Ed                                     Lu
                                                                                                                                             lE            C
                                                                                                                                                                    Pe
                                                  M                                                                                       Ca


                                                        Financing commitments                               Estimated program costs


                                                                         Source: Eximbank.




                                                                         Page 12                                                                      GAO/T-NSIAD-97-147 Export-Import Bank
                                         Appendix I
                                         Distribution of Eximbank Financing




Table I.2: Eximbank Small Business Financing Commitments, Fiscal Years 1994-96
Dollars in millions
                                         Number of
                                          financing                                                   Value of
                                      commitments                                              financing made      Percentage of Eximbank
                  Total Eximbank        supporting                 Percentage of total                 to small     financing commitments
Fiscal year          transactions   small businessa                      transactions                business             to small business
1994                        1,984                  1,576                               79                  2,690                        18
1995                        2,415                  1,910                               79                  2,461                        21
1996                        2,422                  1,934                               80                  2,405                        21
Total                       6,821                  5,420      Average for Period: 79%                     $7,556     Average for period: 20%
                                         Source: Eximbank.
                                         a
                                             See table I.1 for Eximbank budget figures for fiscal years 1994-96.




                                         Page 13                                                   GAO/T-NSIAD-97-147 Export-Import Bank
Appendix II

U.S. Firms That Received Tied Aid War
Chest Assistance, 1994-96


                                                          Total
                                                      Eximbank
Firm                                                  financing    Contributing country/recipient country     Sector
Ellicott Machine Corp., International                $21,994,295   Norway/Indonesia                           Transport
U.S. China Industrial Exchange                         2,921,520   Austria/China                              Medical
U.S. China Industrial Exchange                         2,921,520   Austria/China                              Medical
U.S. China Industrial Exchange                         2,921,520   Austria/China                              Medical
Motorola, Inc.                                        43,870,988   U.K. and European Community/Indonesia      Telecommunication
Cubic Automatic Revenue Collection Group              35,948,268   Germany/China                              Transport
Zond Systems, Inc.                                     3,700,073   Denmark/China                              Power
Zond Systems, Inc.                                     3,675,075   Denmark/China                              Power
Zond Systems, Inc.                                     3,695,400   Denmark/China                              Power
Interdigital Communications                           35,928,415   France and Australia/Indonesia             Telecommunication
                                           Source: Eximbank.




                                           Page 14                                         GAO/T-NSIAD-97-147 Export-Import Bank
Appendix III

Project Finance



Table III.1: Eximbank Project Finance Transactions, Fiscal Years 1993-97
Dollars in millions
                                                                                                                  Eximbank      Total project
Fiscal year             Project                      Country                    Sector                              support              size
1993                    Pagbilao                     Philippines                Power                                  $185             $933
1994                    Upper Mahiao                 Philippines                Power                                    166             229
                        Mahanagdong                  Philippines                Power                                    200             320
1995                    Paiton                       Indonesia                  Power                                    540           2,600
                        Samalayuca                   Mexico                     Power                                    477             644
                        Cilicap                      Indonesia                  Petrochemical                            296             633
                        Sual                         Philippines                Power                                    164           1,200
                        El Abra                      Chile                      Mining                                   151           1,400
                        Termobarranquilla            Colombia                   Power                                    161             756
                        Marmara                      Turkey                     Power                                    228             544
                        Comsigua                     Venezuela                  Manufacturing                             67             270
1996                    Jawa                         Indonesia                  Power                                    390           1,600
                        Saba                         Pakistan                   Power                                     84             141
                        Leyte                        Philippines                Power                                     50              69
                        Uch                          Pakistan                   Power                                    255             612
                        Farmland                     Trinidad                   Petrochemical                            235             335
                                    a
                        Alumbrera                    Argentina                  Mining                                   228           1,000
                        Atlantic LNGa                Trinidad                   Petrochemical                            391           1,100b
1997                    Avantel                      Mexico                     Telecom.                                 306           1,100b
                        Halliburton                  Angola                     Petrochemical                             82             200b
                        Qatargas                     Qatar                      Petrochemical                             45            1000
                        Quezon                       Philippines                Power                                    456             800
                        Ras Laffan                   Qatar                      Petrochemical                            465           4,000
Grand Total                                                                                                           $5,622         $21,486
                                            Source: Eximbank.
                                            a
                                                Political risk coverage only.
                                            b
                                                Project has been authorized, but deal has not closed.




                                            Page 15                                                     GAO/T-NSIAD-97-147 Export-Import Bank
                                            Appendix III
                                            Project Finance




Table III.2: Infrastructure Projects in Emerging Markets Utilizing ECA Financing
                                                                            Emerging market
Export credit agency                  Turkey      Thailand     China       Indonesia        India       Argentina   Brazil     Mexico
Japan                                 •                        •           •                •                       •          N/A
United States                         •           N/A                      •                •           •           •
Germany                               •           •            •           •                •                       N/A        N/A
United Kingdom                        •           N/A                                       •           N/A                    N/A
France                                •                        •           N/A                          N/A         N/A        N/A
Austria                               •           •            N/A         N/A              N/A         N/A         N/A        N/A
Italy                                                          N/A                          N/A                     N/A        N/A
Belgium                               •                        N/A         N/A              N/A         N/A         N/A        N/A
Spain                                 N/A                      •           N/A              N/A         N/A         N/A        N/A
Netherlands                                       N/A          N/A         N/A              N/A         N/A         N/A        N/A
Switzerland                           N/A         N/A          N/A                          N/A         N/A         N/A        N/A
Sweden                                N/A                      N/A         N/A              N/A         N/A         N/A        N/A
Norway                                N/A                      N/A         N/A              N/A         N/A         N/A        N/A
Canada                                            N/A          N/A         N/A              N/A         N/A         N/A        N/A
Brazil                                N/A         N/A          N/A         N/A              N/A                                N/A
Korea                                 N/A         N/A                      N/A              N/A         N/A         N/A        N/A
                                            Legend

                                            N/A = Not applicable because no projects reported.

                                            • At least one completed project with ECA financing.

                                              Proposed project(s) with ECA financing.

                                            Source: Compiled from U.S. government information and foreign data.




                                            Page 16                                                 GAO/T-NSIAD-97-147 Export-Import Bank
Appendix IV

Comparison of G-7 Nations’ Export Credit
Agency Structures and Roles


Table IV.1: G-7 Nations’ Export Credit Agency Organization and Roles
Country                          Export credit agency           Public or private                         Role
United States                    Eximbank                             Public, independent                 —Statutory mandate to
                                                                      government agency.                  supplement and encourage, but
                                                                                                          not compete with, private
                                                                                                          sources of capital.
                                                                                                          —Receives a credit subsidy
                                                                                                          appropriation each year from
                                                                                                          the U.S. Congress.
Canada                           Export Development                   Public, independent                 —Some competition with
                                 Corporation (EDC)                    government agency.                  private sector.
                                                                                                          —Aims to be financially
                                                                                                          self-sustaining.
France                           COFACE provides export               Private. Both COFACE and            —COFACE exercises a dual
                                 finance insurance and                BFCE have recently been             role by administering
                                 guarantees                           privatized. Government covers       export-financing support on
                                 BFCE provides interest-rate          deficits incurred on state          behalf of the French
                                 support on commercial bank           account activities.                 government and offering export
                                 loans                                                                    finance assistance through its
                                                                                                          own programs.
Germany                          Hermes, C&L Deutsche                 Private consortium. Hermes and      —Hermes and C&L exercise a
                                 Revision, and KfW                    C&L Deutsche Revision jointly       dual role by operating the
                                                                      administer German export            government’s export finance
                                                                      finance program on behalf of        programs and offering export
                                                                      the state. KfW offers export        finance assistance privately.
                                                                      loans to German exporters.
                                                                      Government covers deficits on
                                                                      state account activities.
Italy                            Special Section for Export           Public agencies.                    —Some competition with
                                 Credit Insurance (SACE) and                                              private sector as Mediocredito
                                 Central Institute for Medium                                             Centrale also functions as
                                 Term Credits (Mediocredito                                               commercial bank.
                                 Centrale)
Japan                            Export-Import Bank of Japan          Public. JEXIM is a independent      — JEXIM aims to supplement
                                 (JEXIM) provides financing.          government agency. EID-MITI is      and encourage commercial
                                 Export Insurance                     housed in Japan’s Ministry of       bank financing but not compete
                                 Division-Ministry of International   International Trade and Industry.   with it.
                                 Trade and Industry (EID-MITI)                                            —EID-MITI competes with
                                 provides insurance                                                       private sector providers.
U.K.                             Export Credits Guarantee             Public, independent                 —Short-term business was
                                 Department (ECGD)                    government department.              privatized.
                                                                                                          —Has a specific mandate to
                                                                                                          break even financially.
                                            Legend

                                            COFACE = Compagnie Francaise d’Assurance Pour Le Commerce Exterieur.

                                            BFCE = Banque Francaise du Commerce Exterieur.




                                            Page 17                                            GAO/T-NSIAD-97-147 Export-Import Bank
                                         Appendix IV
                                         Comparison of G-7 Nations’ Export Credit
                                         Agency Structures and Roles




Table IV.2: Reported Financial Results of Government-Supported Export-Financing Programs in the United States and Six
Competitor Countries, 1994-96
U.S. dollars in millions
Country                                        Export credit agency                                         1994            1995           1996
United Statesa                                 Eximbank                                                    ($979)          ($716)          ($934)
Canadab                                        EDC                                                            N/A            N/A              N/A
France                                         COFACE and BFCE                                             ($503)              $7        $1,151
Germanyc                                       Hermes/C&L and Deutsche Revision                          ($1,985)            $38           $605
Italy                                          SACE and Mediocredito Centrale                            ($1,501)        ($1,821)          ($822)
Japand                                         JEXIM and EID-MITI                                            ($80)         ($113)             N/A
United Kingdome                                ECGD                                                           $29           $362              N/A
                                         N/A = Not available.

                                         Note 1: There are several caveats with regard to how the numbers in this table should be
                                         interpreted. The type and nature of each nation’s export credit agency (ECA) business varies in
                                         ways that ultimately influence its costs. In the case of Japan’s Export-Import Bank, 44 percent of
                                         its fiscal year 1995 commitments were for loans not “tied” to Japanese exports, 37 percent were
                                         for overseas investment loans, and 8 percent for import loans. Only 11 percent of JEXIM’s total
                                         financing in that year was reported to have been used for export loans. Where there are two
                                         ECAs, we have combined financial results.

                                         Note 2: Negative amounts indicate a deficit. Positive amounts indicate a surplus.
                                         a
                                           The figures for the Eximbank represent the credit subsidy obligation and administrative costs
                                         obligated for the fiscal year.
                                         b
                                          Canada’s EDC reported net income of $171 million, $44 million, and $112 million in 1994, 1995,
                                         and 1996, respectively. However, these amounts do not include the support separately provided
                                         through the Canadian national interest account ($200 million in 1996 but not available for 1994
                                         and 1995). EDC conducts a significant (42 percent) level of business with Organization for
                                         Economic Cooperation and Development (OECD) nations, which influences its profitability.
                                         c
                                             The totals for Germany include interest revenues from debt reschedulings.
                                         d
                                          The Japanese fiscal year ends March 31. The figures for Japan’s EID-MITI include direct
                                         transfers from the Ministry of Finance for Paris Club debt writeoff of $272 million in fiscal
                                         year 1994 and $233 million in 1995.
                                         e
                                           The United Kingdom’s fiscal year ends March 31. ECGD figures include amounts spent on
                                         foreign exchange insurance and interest rate subsidies.




                                         Page 18                                                 GAO/T-NSIAD-97-147 Export-Import Bank
Appendix V

Eximbank’s Financing of Dual-Use Exports


                                   For the last 3 fiscal years, the Eximbank has had the authority to finance
                                   exports of nonlethal defense items whose primary end use is for civilian
                                   purposes. The Eximbank is authorized to use up to 10 percent of its annual
                                   commitments to finance the exports of these dual-use (military and
                                   civilian) items. As depicted in tables VI.1 and VI.2 the Bank has financed
                                   several items but well below the 10-percent annual cap. The Eximbank’s
                                   authority to finance these items expires on September 30, 1997. We are
                                   required to report to the Congress no later than September 1, 1997, on the
                                   end use of these items. We plan to issue a report to the Congress on this
                                   matter by late July 1997.

Table V.1: Summary of Eximbank’s
Cap on Dual-Use Financing          Dollars in millions
Commitments, 1995-97                                                                        Cap on
                                                                                           dual-use
                                                                                     commitments
                                                                  Value of export     (10% limit of         Actual
                                                                       financing    total projected      dual-use
                                   Fiscal year                     commitments      commitments)      commitments
                                   1995                                $11,864.9            $1,186           $15.5
                                   1996                                 11,516.9             1,151           102.5
                                           a
                                   1997                                 16,521.7             1,652           108.3
                                   a
                                       Projected commitment.

                                   Source: Eximbank.




                                   Page 19                                  GAO/T-NSIAD-97-147 Export-Import Bank
                                   Appendix V
                                   Eximbank’s Financing of Dual-Use Exports




Table V.2: Summary of Eximbank’s
Dual-Use Commitments, 1995-97      Dollars in millions
                                                                                            Dual-Use Commitments
                                                                                        Type/
                                   Fiscal year           Country       End user         description           Amount
                                   1995                  Indonesia     Indonesian Air   Loan/aircraft
                                                                       Force            parts                  $15.428
                                   1996                  Romania       Romantsa         Guarantee/air
                                                                       (Romanian Air    traffic control
                                                                       Traffic          system
                                                                       Administration
                                                                       Services)                                79.549
                                                         Indonesia     Indonesian Army Loan/
                                                                                       helicopters              22.907
                                   1997                  Venezuela     Venezuelan       Guarantee/
                                                                       Army             radio systems            8.841
                                                         Venezuela     Venezuelan Air   Guarantee/
                                                                       Force            radio systems            3.400
                                                         Brazil        Brazilian Air    Loan/aircraft
                                                                       Force            components
                                                                                                                34.000
                                                         Venezuela     Venezuelan       Guarantee/
                                                                       Army             trucks                  25.500
                                                         Venezuela     Venezuelan       Guarantee/
                                                                       Army             trucks                  14.057
                                                         Venezuela     Venezuelan       Guarantee/
                                                                       Army             aircraft parts          10.085
                                                         Venezuela     Venezuelan       Guarantee/
                                                                       Army             motor vehicles          12.421
                                   Source: Eximbank.




                                   Page 20                                        GAO/T-NSIAD-97-147 Export-Import Bank
Related GAO Products


              Ex-Im Bank’s Retention Allowance Program (GAO/GGD-97-37R, Feb. 19, 1997).

              Export Finance: Federal Efforts to Support Working Capital Needs of
              Small Business (GAO/NSIAD-97-20, Feb. 13, 1997).

              Export-Import Bank: Options for Achieving Possible Budget Reductions
              (GAO/NSIAD-97-7, Dec. 20, 1996).

              Retention Allowances: Usage and Compliance Vary Among Federal
              Agencies (GAO/GGD-96-32, Dec. 11, 1995).

              Export Finance: Comparative Analysis of U.S. and European Union Export
              Credit Agencies (GAO/GGD-96-1, Oct. 24, 1995).

              Export Promotion: Rationales for and Against Government Programs and
              Expenditures (GAO/T-GGD-95-169, May 23, 1995).

              International Trade: U.S. Efforts to Counter Competitors’ Tied Aid
              Practices (GAO/T-GGD-95-128, Mar. 28, 1995).

              International Trade: Combating U.S. Competitors’ Tied Aid Practices
              (GAO/T-GGD-94-156, May 25, 1994).

              Export Finance: Challenges Facing the U.S. Export-Import Bank
              (GAO/T-GGD-94-46, Nov. 3, 1993).

              Export Finance: The Role of the U.S. Export-Import Bank (GAO/GGD-93-39,
              Dec. 23, 1992).




(711247)      Page 21                                 GAO/T-NSIAD-97-147 Export-Import Bank
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested