oversight

Export-Import Bank: Key Factors in Considering Eximbank Reauthorization

Published by the Government Accountability Office on 1997-07-17.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on International Finance,
                          Committee on Banking, Housing, and Urban Affairs,
                          U.S. Senate


For Release on Delivery
Expected at
9:30 a.m., EDT
                          EXPORT-IMPORT BANK
Thursday,
July 17, 1997

                          Key Factors in Considering
                          Eximbank Reauthorization
                          Statement of JayEtta Hecker, Associate Director,
                          International Relations and Trade Issues, National
                          Security and International Affairs Division




GAO/T-NSIAD-97-215
              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 four key factors that the Congress might consider in
              debating Eximbank reauthorization:

          •   the rationales regarding the Eximbank’s programs,
          •   foreign competitors’ export finance programs,
          •   available options to achieve budgetary savings at the Eximbank, and
          •   the ways in which Eximbank’s assistance is distributed.

              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.)


              Proponents and opponents continue to debate the economic benefits of
Summary       Eximbank activity to the U.S. economy and the extent to which it helps
              achieve U.S. trade and foreign policy objectives. The most compelling case
              that can be made for these programs is that they help “level the
              international playing field” for U.S. exporters and provide leverage to
              induce foreign governments to reduce export subsidies. Their overall
              contribution to U.S. economic performance is less certain.

              Seventy-three countries have export credit agencies. However, about half
              of all export credit support worldwide is extended by the seven largest
              (Group of 7 (G-7)) industrial nations, each of which maintains various
              types of export finance assistance programs. Although considerable
              differences exist among these programs, they all help exporters compete
              for market share in developing markets by providing loans, guarantees,
              and insurance. The Eximbank provides similar types of assistance. The
              Eximbank also administers a tied aid capital projects fund (known as the
              “war chest”) as part of its programs to counter other countries’
              trade-distorting tied aid practices. Tied aid is concessionary (low-interest
              rate) financing that is linked to the procurement of goods and services
              from the donor country. During 1994-1996, the Eximbank board of
              directors approved the use of war chest funds in 40 cases. Overall, the
              Eximbank financed about 2 percent of total U.S. exports in fiscal
              year 1995, the lowest level of support provided by G-7 nations’ export
              credit agencies.




              Page 1                                    GAO/T-NSIAD-97-215 Export-Import Bank
The Eximbank’s programs require substantial levels of taxpayer support
(about $4 billion over the last 5 years). We recently completed a review of
Eximbank activities and concluded that it could possibly achieve
budgetary savings by raising fees or reducing program risks while still
maintaining a competitive position relative to other export credit agencies.1
These options would not require a change in law because they fall within
Eximbank’s present authority. However, we recognize that such changes
should be considered within the full context of their trade and foreign
policy implications and Eximbank’s other statutory obligations.

The U.S. government’s ultimate objectives continue to be reducing and
eliminating export financing subsidies—allowing exporters to compete on
the basis of price, quality, and service—not subsidized financing. The U.S.
government continues to use international forums such as the
Organization for Economic Cooperation and Development (OECD)2 in its
efforts to reduce and eventually eliminate subsidized export finance
programs. We are encouraged that the OECD recently reached agreement to
standardize and set minimum fees (beginning in 1999) for all member
export credit agencies. This agreement has the potential to reduce
government subsidies for these programs. However, given the growing
importance of exports to national economic performance, and the belief
that government export finance programs contribute to this performance,
achieving the ultimate objective of eliminating all financial subsidies may
prove difficult.

Regarding the ways its financing assistance is distributed, 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 the
Eximbank’s financing commitments. While about 80 percent of its
assistance went to support large and medium-sized companies, the
Eximbank also reported that 20 percent of its assistance went to support
small business during the same period. The Eximbank believes that these
small business transactions would not otherwise have been financed by
private lenders. In geographical terms, China, Indonesia, and Mexico were
Eximbank’s top three markets in fiscal year 1996.


1
See Export-Import Bank: Options for Achieving Possible Budget Reductions (GAO/NSIAD-97-7,
Dec. 20, 1996).
2
 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, sets the terms and conditions for official export credits.



Page 2                                                  GAO/T-NSIAD-97-215 Export-Import Bank
                 The Eximbank also supports the sale of dual-use (military and civilian)
                 export items provided that the items are non-lethal and for primarily
                 civilian use. The report that we are releasing today shows that dual-use
                 exports constitute a small share of Eximbank’s financing activities and
                 remains well under the 10-percent cap established by law. In fiscal
                 years 1995-97, the Eximbank made financing commitments totaling
                 $226 million—less than 1 percent of its total financing commitments made
                 during that period—to support 10 dual-use exports to 4 countries. Our
                 review indicated that the Eximbank appears to have established
                 procedures that should provide a sound basis for determining whether
                 these exports are nonlethal and primarily used for civilian purposes, as
                 required by law.


                 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
                 (12 U.S.C. 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.

                 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.




                 Page 3                                  GAO/T-NSIAD-97-215 Export-Import Bank
                            I would first like to briefly discuss the various rationales that have been
Rationales Regarding        advanced for and against government involvement in export finance. They
Eximbank Programs           provide a useful framework for evaluating whether Eximbank should be
                            reauthorized. Supporters of the Eximbank export finance programs say
                            that this assistance provides leverage in trade policy negotiations while
                            helping to “level the international playing field” for U.S. business, corrects
                            “market failures,” and helps to increase exports and employment.
                            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 helps U.S. companies compete
                            against foreign companies that receive government support and provide
                            leverage in trade policy negotiations. 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 gradual progress since the late 1970s in
                            negotiating reductions in officially supported export subsidies, including a
                            June 1997 agreement that requires export credit agencies to establish
                            minimum fees based on country risk ratings. 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 case 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.

                            The 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.

                            Opponents hold that there is no credible evidence that private capital
                            markets do not function efficiently and that government intervention can
                            potentially distort markets.



                            Page 4                                    GAO/T-NSIAD-97-215 Export-Import Bank
Employment and Trade   According to the Eximbank, the exports it financed in fiscal year 1996
Effects                “supported or maintained” nearly 300,000 jobs.3 It is generally recognized
                       that some jobs are directly supported through the Eximbank’s programs.
                       However, economists and policymakers 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 in a period of full
                       employment.

                       Eximbank programs cannot produce a substantial change in the 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.


                       The six G-7 countries we studied—Canada, France, Germany, Italy, Japan,
Foreign Competitors’   and the United Kingdom—all have export credit agencies, each with
Export Finance         different roles and structures (see table I.1). According to Euromoney, a
Programs               total of 73 export credit agencies now exist worldwide.5 The support the
                       G-7 export credit agencies provide for their exporters can be measured in
                       various ways.

                       In terms of the share of financing commitments extended by export credit
                       agencies 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).6




                       3
                        See Keeping America Competitive: 1996 Annual Report (Washington, D.C.: Eximbank), p. 5.
                       4
                        See Export Promotion: Rationales for and Against Government Programs and Expenditures
                       (GAO/T-GGD-95-169, May 23, 1995).
                       5
                        Euromoney publishes an annual survey of world export credit agencies.
                       6
                        The United States and the six major industrialized countries we studied provided $258 billion of the
                       total $553 billion in total export financing.



                       Page 5                                                  GAO/T-NSIAD-97-215 Export-Import Bank
    In terms of the percentage of national exports these export credit agencies
    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 export
    credit agencies 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.

    Comparing export credit agency programs is difficult for a number of
    reasons:

•   Each nation has structured its export financing differently—there is no
    single export finance model. Export credit agencies 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 export credit agency. However, in the United
    States, in addition to the Eximbank insurance program, overseas
    investment insurance is offered through a separate agency, the Overseas
    Private Investment Corporation. (Table I.1 provides a summary of the
    principal differences between the Eximbank and the six export credit
    agencies we studied.)
•   Unlike the Eximbank, which is prohibited by law from competing with
    private sources of capital, other export credit agencies appear to compete
    to varying degrees with private sources of export financing. For example,
    the Japanese government’s export insurance provider is Japan’s only
    export insurer. It 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 does not function as
    a lender of last resort.
•   Other export credit agencies we studied cover 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. European export credit agencies (with the exception of the United
    Kingdom) 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 export credit agencies.




    Page 6                                    GAO/T-NSIAD-97-215 Export-Import Bank
                         •   Finally, export credit agencies 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.7 Other
                             nations operate on a cash basis8 and are not subject to similar budget
                             requirements. Under this cash approach, a government reimburses an
                             export credit agency 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 Export Development
                             Corporation 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 I.2 provides
                             information on the costs of the G-7 nations’ export-financing programs.)


Export Credit Agency         Although direct cost comparisons between Eximbank and other national
Costs Are Difficult to       programs are difficult to make, the available cost data we reviewed
Compare                      suggests that several export credit agencies in the six countries we studied
                             have reported improved financial results. France, Germany, and the
                             United Kingdom all reported positive financial results for their export
                             credit agencies 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 1994.9 According to the Berne Union, this
                             change was attributed to an improved global debt scenario and tighter
                             export credit agency underwriting standards.


                             As part of the reauthorization debate, the Congress may wish to focus on
Opportunities for            ways to achieve greater Eximbank operating efficiencies. In our recent
Achieving Possible           report,10 we identified two options for reducing the cost of the Eximbank’s
Budget Reductions            programs while allowing it to remain competitive with other export credit




                             7
                              Present value analysis calculates the value today of a future stream of income or expenses.
                             8
                             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.
                             9
                              The Berne Union is an association of 43 export credit insurance agencies that includes the G-7
                             nations’ export credit agencies.
                             10
                                 See (GAO/NSIAD-97-7).



                             Page 7                                                  GAO/T-NSIAD-97-215 Export-Import Bank
agencies: (1) raising the fees11 charged for Eximbank financing and
(2) reducing the risk of its programs by, for example, limiting program
availability in higher risk markets or offering less than 100-percent risk
protection. These options fall within its present authority and would not
require a change in the Export-Import Bank Act of 1945, as amended.

Both of these options could result in significant reductions in the
Eximbank’s subsidy costs. To illustrate the potential savings associated
with fee increases, we estimated that the Eximbank could have saved
about $84 million in fiscal year 1995 if had raised its fees to the mid-range
of those charged by other export credit agencies. The second option,
reducing program risks, would have resulted in larger subsidy savings in
the same year—up to $157 million—with only a slight effect on the overall
level of U.S. exports supported with Eximbank financing. The
Congressional Budget Office concurs with our assessment that subsidy
savings could occur. Their work concluded that (1) increasing fees could
save the Eximbank up to $450 million over 5 years and (2) reducing
program risks could save up to $1.2 billion over 5 years.12

In our report, we acknowledged that these options could raise several
trade and foreign policy issues that decisionmakers would need to address
before making any changes in the Eximbank’s programs. For example, a
large share of the Eximbank’s subsidy budget is spent supporting
transactions to high-risk markets, such as the newly independent states of
the former Soviet Union, that exhibit promising long-term potential. In
fiscal year 1996, financing commitments for high-risk markets represented
about one-fourth of total financing commitments yet absorbed almost
three-fourths of the Eximbank’s total subsidy budget.

Our report also stated that any proposed fee increases should be
considered in the broader context of ongoing OECD efforts to negotiate
minimum fee schedules and that the magnitude and timing of such an
increase should take into account progress in these negotiations. Thus, we
are encouraged by the recent progress made in OECD to establish minimum
fees across all major export credit agencies. These new rules will take
effect on April 1, 1999, and should help eliminate some of the trade
distorting effects of subsidized export financing. Although many details of
the new agreement have yet to be worked out, these new rules will likely


11
 The Eximbank must set fees that are “fully competitive” with the pricing and coverage offered by
other major export credit agencies.
12
 See Addressing the Deficit: Budgetary Implications of Selected GAO Work for Fiscal Year 1998
(GAO/OCG-97-2, Mar. 14, 1997).



Page 8                                                 GAO/T-NSIAD-97-215 Export-Import Bank
                     require the Eximbank to raise its fees for many transactions and could
                     allow it to operate at reduced taxpayer cost.


                     During fiscal years 1994-96, the Eximbank provided an annual average of
Distribution of      $12.8 billion in export financing commitments (loans, guarantees, and
Eximbank Financing   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. (See table II.1 for a more
                     detailed description of Eximbank’s past and projected financing
                     commitments and program costs.)

                     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. II.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. goods13 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 most frequent 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. II.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
                     period. These data do not capture the full range of U.S. companies
                     associated with Eximbank-financed deals such as subcontractors and
                     other suppliers.

                     While about 80 percent of the Eximbank’s assistance was provided to large
                     and medium-sized companies, 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.14 (See table II.2.)



                     13
                       Department of Commerce data on service exports to these markets were unavailable.
                     14
                      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 regulations.



                     Page 9                                                 GAO/T-NSIAD-97-215 Export-Import Bank
             The Eximbank has participated in international (OECD) negotiations to
             limit the use of tied aid and has used its tied aid capital projects fund (also
             known as the “war chest”) 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 1995.15 During
             1994-96, the Eximbank board of directors approved the use of war chest
             funds in 40 instances. (See app. III for a list of transactions in which tied
             aid funds were actually used.) The balance in the tied aid war chest was
             $343 million as of June 30, 1997.

             The Eximbank also supports the sale of dual-use (military and civilian)
             export items provided that the items are nonlethal and for primarily
             civilian use (see app. IV). The report that we are releasing today shows
             that dual-use exports constitute a small share of Eximbank’s financing
             activities and remains well under the 10-percent cap established by law. In
             fiscal years 1995-97, the Eximbank made financing commitments totaling
             $226 million—less than 1 percent of its total financing commitments made
             during that period—to support 10 dual-use exports to 4 countries. Only
             one of these exports—involving aircraft parts and services to
             Indonesia—has actually been delivered overseas. Our review indicated
             that the Eximbank appears to have established procedures that should
             provide a sound basis for determining whether these exports are nonlethal
             and primarily used for civilian purposes, as required by law. In the spring
             of 1997, for the one dual-use export that has taken place, Eximbank
             officials, assisted by other U.S. government officials, were able to verify
             that it was primarily used for civilian purposes.

             Since fiscal year 1993, the Eximbank has issued guarantees related to 25
             project finance deals totaling $6.4 billion (the estimated value of these
             projects was $22.6 billion). 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). (See table V.1.) Because these projects tend to be
             large, the Eximbank often shares project risk with other export credit
             agencies, the Overseas Private Investment Corporation, or multilateral
             institutions such as the International Finance Corporation.


             In sum, the Congress may wish to consider Eximbank’s reauthorization
Conclusion   within the context of the international competition. While the export

             15
               Tied aid notifications occur through the OECD’s reporting mechanism.



             Page 10                                               GAO/T-NSIAD-97-215 Export-Import Bank
credit agencies we identified 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 the Eximbank’s programs need to be weighed against their
benefits to exporters and the leverage they provide in international
negotiations to reduce foreign government support for these types of
programs. Our recent work identified some options—raising fees and
reducing program risks—that the Congress may wish to consider in
reducing the cost of these programs while still allowing the Eximbank to
assist U.S. exporters and support efforts to reach additional international
agreements to reduce export subsidies.


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




Page 11                                  GAO/T-NSIAD-97-215 Export-Import Bank
Appendix I

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


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

                                            BFCE = Banque Francaise du Commerce Exterieur
                                            COFACE = Compagnie Francaise d’Assurance Pour Le Commerce Exterieur
                                            KfW = Kreditanstalt fur Wiederaufbau




                                            Page 12                                            GAO/T-NSIAD-97-215 Export-Import Bank
                                         Appendix I
                                         Comparison of G-7 Nations’ Export Credit
                                         Agency Structures and Roles




Table I.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                                        ECA                                                               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
                                         Legend

                                         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: Amounts in parentheses 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 13                                                  GAO/T-NSIAD-97-215 Export-Import Bank
Appendix II

Distribution of Eximbank Financing



Table II.1: Eximbank 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. The 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 14                                                 GAO/T-NSIAD-97-215 Export-Import Bank
                                                       Appendix II
                                                       Distribution of Eximbank Financing




Figure II.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 committments    Estimated program costs


                                                       Source: Eximbank.




                                                       Page 15                                               GAO/T-NSIAD-97-215 Export-Import Bank
                                                                          Appendix II
                                                                          Distribution of Eximbank Financing




Figure II.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
1,000                                                            813
                                                                             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        on                       el          ri                       c.                      l                                      s                                   a
               in                       tri
                                            c
                                                    ht        ve            la
                                                                               s
                                                                                        le             & T iona             uo
                                                                                                                               r          dy           ie            ny         CC         el
           e              he          c            c        o             g           E            A T           t        l           u n          o g             a          &        z u
        Bo             yt
                                 El
                                    e          Be         B            ou           e                         na
                                                                                                                        F           L           ol              p
                                                                                                                                                            om ntal
                                                                                                                                                                            E        e
                    Ra        al                       wn        llD           o us                      t er                  t &
                                                                                                                                           c hn          C                       Ven
                             r                       o                                                In                      n                                      e
                          ne                       Br      nn
                                                               e            gh                                              e
                                                                                                                                       tT
                                                                                                                                         e          gy            in           e
                     Ge                        e a        o           s tin                     s o n                  a rg
                                                                                                                                   e n         n er          o nt         ol. d
                                                       cD                                     i                      S                                                  tr
                                            As                       e
                                                                                          Ed                                 Lu
                                                                                                                                 c           lE            C
                                                                                                                                                                     Pe
                                                     M          W                                                                        Ca


                                                           Financing Committments                              Estimated program costs

                                                                          Source: Eximbank.




                                                                          Page 16                                                                      GAO/T-NSIAD-97-215 Export-Import Bank
                                         Appendix II
                                         Distribution of Eximbank Financing




Table II.2: Eximbank Small Business Financing Commitments, Fiscal Years 1994-96
Dollars in millions
                                                                                                                        Percentage of
                                Number of financing                                                                Eximbank financing
                        Total        commitments                                         Value of financing           commitments to
                    Eximbank      supporting small           Percentage of total             made to small             small business
Fiscal year      transactions            businessa                 transactions                   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 II.1 for Eximbank budget figures for fiscal years 1994-96.




                                         Page 17                                               GAO/T-NSIAD-97-215 Export-Import Bank
Appendix III

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 18                                         GAO/T-NSIAD-97-215 Export-Import Bank
Appendix IV

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 the following tables, the Eximbank 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 on July 17, 1997.


Table IV.1: Summary of Eximbank’s Cap on Dual-Use Financing Commitments, 1995-97
Dollars in millions
                                                                                                     Dual-use financing
                                                       Amount allowed under                          commitments as a
                                 Total financing          dual-use financing   Dual-use financing percent of total export
Fiscal year                       commitments              commitment cap           commitments financing commitments
1995                                   $11,864.9                    $1,186.5               $15.4                      0.1
1996                                    11,516.9                     1,151.7               102.4                      0.9
                                                   a                                            b
1997                                    16,521.7                     1,652.2               108.3                      0.7
                                       a
                                        Projected commitment.
                                       b
                                           As of June 1997.

                                       Source: Eximbank.




                                       Page 19                                      GAO/T-NSIAD-97-215 Export-Import Bank
                                         Appendix IV
                                         Eximbank’s Financing of Dual-Use Exports




Table IV.2: Eximbank Dual-Use Financing Commitments, Fiscal Years 1995-97
Dollars in millions
                                  Type of Eximbank
                  Recipient       financing /                Amount of Eximbank
Fiscal year       country         description of export                financing End user               Intended end use
1995              Indonesia       Loan/aircraft parts                       $15.4 Indonesian            Territorial
                                  and services                                    Air Force             development
1996              Romania         Guarantee/air traffic                      79.5 Romanian civil        Civil air traffic control
                                  control system                                  aviation authority
                  Indonesia       Loan/helicopters                           22.9 Indonesian            Territorial
                                                                                  Army                  development
1997              Venezuela       Guarantee/radio                             8.8 Venezuelan            Territorial
                                  systems                                         Army                  development
                  Venezuela       Guarantee/radio                             3.4 Venezuelan            Civil air traffic control
                                  systems                                         Air Force
                  Brazil          Loan/aircraft                              34.0 Brazilian             Territorial
                                  components                                      Air Force             development
                  Venezuela       Guarantee/trucks                           25.5 Venezuelan            Territorial
                                                                                  Army                  development
                  Venezuela       Guarantee/trucks                           14.1 Venezuelan            Territorial
                                                                                  Army                  development
                  Venezuela       Guarantee/aircraft                         10.1 Venezuelan            Territorial
                                  parts                                           Army                  development
                  Venezuela       Guarantee/motor                            12.4 Venezuelan            Territorial
                                  vehicles                                        Army                  development
                                         Source: Eximbank.




                                         Page 20                                        GAO/T-NSIAD-97-215 Export-Import Bank
Appendix V

Project Finance



Table V.1: Eximbank Project Finance Transactions, Fiscal Years 1993-97
Dollars in millions
Fiscal year        Project              Country                       Sector                          Eximbank support    Total project 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
                   Alumbreraa           Argentina                     Mining                                        228                 600b
                   Atlantic LNGa        Trinidad                      Petrochemical                                 391               1,100b
1997               Avantel              Mexico                        Telecom.                                      292               1,200
                   Halliburton          Angola                        Petrochemical                                  88                 200b
                   Alestra              Mexico                        Telecom.                                      307                 670b
                   Batu Hijau           Indonesia                     Mining                                        425               2,000c
                   Qatargas             Qatar                         Petrochemical                                  60                 300
                   Quezon               Philippines                   Power                                         457                 828
                   Ras Laffan           Qatar                         Petrochemical                                 465               3,400
Grand Total                                                                                                      $6,362             $22,584
                                          Source: Eximbank.
                                          a
                                          Political risk coverage only.
                                          b
                                              Project has been authorized, but deal has not closed.
                                          c
                                          Awaiting congressional approval.




                                          Page 21                                                     GAO/T-NSIAD-97-215 Export-Import Bank
                                            Appendix V
                                            Project Finance




Table V.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 22                                                 GAO/T-NSIAD-97-215 Export-Import Bank
Page 23   GAO/T-NSIAD-97-215 Export-Import Bank
Related GAO Products


              U.S. Export-Import Bank: Process in Place to Ensure Compliance With
              Dual-Use Export Requirements (GAO/NSIAD-97-211, July 17, 1997).

              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).




(711289)      Page 24                                 GAO/T-NSIAD-97-215 Export-Import Bank
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