[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
WHAT HAS EX-IM DONE FOR SMALL BUSINESS LATELY?
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, JUNE 13, 2001
__________
Serial No. 107-12
__________
Printed for the use of the Committee on Small Business
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For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York WILLIAM PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio DONNA M. CHRISTIAN-CHRISTENSEN,
PATRICK J. TOOMEY, Pennsylvania Virgin Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN THUNE, South Dakota TOM UDALL, New Mexico
MIKE PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on June 13, 2001.................................... 1
Witnesses
Weaver, Vanessa, Board Member, Export-Import Bank of the United
States......................................................... 4
Watters, Joseph, President, Hoffman International................ 6
Barr, George, Founder, Anatech, LTD.............................. 8
DeDoncker, Sharon, Vice President/International, Aqua-Aerobic
Systems........................................................ 10
Petrilla, Kenneth, Senior Vice President, Wells Fargo HSCB Trade
Bank........................................................... 12
Appendix
Opening statements:
Manzullo, Hon. Donald........................................ 28
Velazquez, Hon. Nydia........................................ 33
Davis, Hon. Danny............................................ 35
Ferguson, Hon. Mike.......................................... 36
Tubbs Jones, Hon. Stephanie.................................. 37
Udall, Hon. Tom.............................................. 39
Prepared statements:
Weaver, Vanessa.............................................. 42
Watters, Joseph.............................................. 53
Barr, George................................................. 56
DeDoncker, Sharon............................................ 64
Petrilla, Kenneth............................................ 68
WHAT HAS EX-IM DONE FOR SMALL BUSINESS LATELY?
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WEDNESDAY, JUNE 13, 2001
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:05 a.m. in Room
2360, Rayburn House Office Building, Hon. Donald Manzullo
(chairman of the Committee) presiding.
Chairman Manzullo. Good morning. We are going to call this
committee hearing to order. First of all, I would like to
welcome to the Small Business Committee Congressman Bill
Shuster of the great state of Pennsylvania.
Welcome.
Mr. Shuster. Thank you very much. I looking forward to
serving on the committee with the chairman and the other
members and, as a small business owner myself, I look forward
to working with the business community across the country and I
believe that I have a knowledge of the trials and tribulations
that small business face, so I am looking forward to working
with you.
Chairman Manzullo. Well, as the owner of an automobile
agency, you are having some interesting times, correct?
Mr. Shuster. Absolutely. Not such good times, but
interesting.
Chairman Manzullo. We look forward to the additions that
you can make to our committee.
Mr. Shuster. Thank you.
Chairman Manzullo. This morning, we launch the committee's
trade agenda with an examination of how the Export-Import Bank
of the United States helps small businesses. Later this year,
Congress must decide on Ex-Im's reauthorization. In addition,
Congress must decide what it wants to do with the president's
budget request to cut Ex-Im by 25 percent. With these upcoming
policy debates, it is imperative the members understand Ex-Im's
programs.
The bank has been derisively called ``Boeing's Bank'' for
years. I do not mind that Ex-Im helps large businesses win
export deals. Last year, Boeing purchased over $231 million
from 55 companies, mostly small businesses, in the
congressional district that I am proud to represent. The 16th
District of Illinois is the largest supplier to Boeing in all
of Illinois. Much of these products eventually wound up
overseas.
However, we must make sure the Ex-Im does not lose sight of
its mission to also help small business exporters. Nine years
ago, after much resistance from Ex-Im, this committee played a
crucial role in moving the bank to help more small business
exporters. Thanks in part to the leadership of a tremendous
friend, a great member of Congress, Norm Sisisky of Virginia,
Congress required that Ex-Im allocate at least 10 percent of
their resource dollars to help small business exporters.
Ex-Im will be pleased to tell you today that they have more
than met this goal. Eighty-six percent of transactions and 18
percent of the dollar volume is devoted to small business. With
the change in administration, I want to make sure that we do
not return to the pre-1992 days when Ex-Im did not realize the
growing importance of small business exporters. I cannot
believe I said that, but I did. This is a non-partisan--I think
we are more non-partisan than bipartisan up here and I guess I
just chastised the Bush administration if it has any indication
it wants to go back to where we were before the Clinton
administration took power on it. Not chastised, encouraged to
continue to help out small businesses.
We have to remember that the number of small business
exporters has more than tripled over the past decade and they
comprise 97 percent of all U.S. exporters.
This is only part of the story. Only 12 companies in the
16th District of Illinois and 285 firms throughout the entire
state of Illinois directly benefitted from Ex-Im's programs
since 1995, yet the 13 largest exporting companies in the U.S.
who use Ex-Im's programs more frequently have 186 suppliers,
most of them small businesses, from the 16th District alone.
These include Scott Force in Spring Grove: Prem Magnetics
and Modine Manufacturing in McHenry; Chemtool of Crystal lake;
Cherry Valley Tool and Machine Company of Belvedere; Clinton
Electronics of Loves Park; J. Rubin & Company and Bergstrom
Manufacturing, and Kysor/Westram, et cetera. There are more
than 35,000 suppliers to these large companies nationwide.
Thus, the benefit of Ex-Im goes way beyond big exporting
companies to workers who may not even know what they product
eventually makes its way overseas.
Thus, at a time of zero economic growth and the largest
trade deficit in U.S. history, it makes no sense to make cuts
as dramatic as proposed for Ex-Im.
I hope someone from the administration is here today and I
am sure you have something to say about that, too.
Our foreign competitors are not making any cuts to their
export credit agencies. A 25 percent cut in Ex-Im program,
budget would be a gift to our foreign competitors. At a time
when we are trying to encourage more small businesses to get
into the global marketplace, we should not be cutting trade
finance for small business exporters.
I look forward to the testimony of the witnesses before us.
I want to particularly thank those who have traveled a long
distance to be with us, especially my constituent, Sharon
DeDoncker of Aqua-Aerobics in Rockford.
I now yield for an opening statement from our good friend,
the ranking minority member from New York, Mrs. Velazquez.
[Chairman Manzullo's statement may be found in appendix.]
Ms. Velazquez. Thank you, Mr. Chairman.
When discussions turn to accessing new markets, it is
commonly thought that the major forces in trade are large,
multi-national corporations. Of course, this is a misnomer
because just as small businesses are setting the pace in the
domestic economy, they are also trailblazers on the
international front, leading the way by opening new markets
every day.
Today, small businesses make up one-third of our trade and,
according to the Department of Commerce, 88 percent of all
small businesses engage in exporting products.
A key mechanism in ensuring that this country's small
businesses have the support they need to succeed is the Ex-Im
Bank. By providing loan guarantees and insurance credits to
U.S. companies, they promote business growth. This hearing
comes at a time when both the FinancialServices and the
International Relations Committee are preparing to move forward with
the reauthorization of the agency.
Today, we are going to look specifically at what Ex-Im is
doing to help our nation's small businesses. Although the vast
majority of this nation's small businesses export something,
still relatively little of Ex-Im funding, approximately 18
percent, go to small businesses. While this is a slight
increase, clearly with the dominant role that small businesses
play in the economy, much more needs to be done. This is
especially true in the areas of women and minority owned
businesses. The face of business is changing. Currently,
Latinas represent the fastest growing sector of the business
community. With this reality, agencies like Ex-Im not only have
to be sensitive, but their strategic planning must reflect that
reality.
This being said, it is unrealistic to expect Ex-Im to do
the job if they are not given the necessary resources.
Unfortunately, the president's budget request will leave the
agency woefully underfunded. Through the cuts to many of the
critical programs, billions less in loans will be provided this
year.
We all know what happens when funding is cut for these
programs. First, we will withdraw from some of the markets that
have less than secure economic foundations, like the former
Soviet Union republics, Africa and the Caribbean. These are
countries who benefit not only economically from trade, but
politically as well.
Also, lending will be denied to those riskier businesses,
many of which will be small businesses. This is the wrong
approach and coupled with the 43 percent cut to the SBA small
businesses will take it on the chin. This is not how we should
be treating the driving force of this economy.
We must ensure that small business exporters are given the
necessary tools to succeed in a competitive marketplace. To do
this, Ex-Im must remain a viable source of capital and being
able to provide the necessary protection for these firms, not
just in an uncertain economy, but in an increasingly uncertain
world.
I thank the witnesses for appearing before us today and
look forward to hearing your suggestions on how this committee
can help small businesses continue to lead the way in the
international market.
Thank you.
[Ms. Velazquez' statement may be found in appendix.]
Chairman Manzullo. Thank you very much.
All the complete statements of members of Congress and
members of the panel will be introduced and made a part of the
permanent record without objection.
Our first witness is Dorian Vanessa Weaver. I had the
opportunity to talk personally with Vanessa yesterday. She is a
member of the board of directors of the Ex-Im Bank. There are
five members of the board of directors. It is a full-time
position. Her duty there is dedicated to helping out small
business and she knows something about small businesses.
You did not tell me this yesterday, but your father was the
SBA administrator during President Carter's years.
Ms. Weaver. Yes.
Chairman Manzullo. From 1983 to 1994, Ms. Weaver developed
a highly successful high technology, Engineering Research
Associates, which was named National Small Business of the
year. She was actively engaged in the key management and
strategic decisions. She advanced an improved software and
systems technology, creating highly acclaimed computer systems
for U.S. and international markets. She is an attorney who
graduated from Georgetown University. I look forward to your
testimony, Mrs. Weaver.
Ms. Weaver. Thank you very much, Congressman.
Chairman Manzullo. You bet. Go ahead.
We have these lights up here that--if it gets to yellow,
you have about a minute; when it gets to red, if you could
begin to wind up, we would appreciate it.
Thank you.
TESTIMONY OF VANESSA WEAVER, BOARD MEMBER, EXPORT-IMPORT BANK
OF THE UNITED STATES, WASHINGTON, DC
Ms. Weaver. Thank you very much. Mr. Chairman,
Congresswoman Velazquez, members of the committee, I want to
thank you for giving me this opportunity to testify before you
today. Your advice and the advice of your staff is enormously
important to me and to us. I want to thank you for guiding us
over the years and look forward to working with you in the
future, particularly to help small business and to keep the
heat on to provide the kinds of services and products that they
need.
We turn to you today to seek your advice and ideas and I
look forward to working with you throughout the next year and a
half of my term and certainly the Export-Import Bank will
continue to do so throughout its history.
I have a long and special interest in small business. My
great-grandmother and my grandmother and grandfather both had
small businesses and, of course, my father had a great interest
in small business when he was administrator of the Small
Business Administration. So it is sort of a family tradition
and it is one that I follow with great pride and vigor.
During the last decade, we saw a period of great economic
prosperity and it is my belief that in order for us to sustain
that long period of economic growth we must provide the
financial resources to businesses, particularly to small
businesses, encouraging them to move into emerging markets.
Those are markets which have greater risk, but I think they
also will provide much greater opportunity and without us those
exports would not go forward.
So, in short, we exist to encourage exports to emerging
markets and provide financial support in those markets where
financial and economic information is weak. Frequently, the
private sector will not fund exports to those regions because
they do not have enough information to judge whether the credit
is good. But as a government entity working with other emerging
market governments, we have the kind of clout to ask for
financial information, determine whether the credit is good and
move forward. It is one of our best justifications.
Last fiscal year, we supported $15.5 billion in exports.
For every taxpayer dollar invested, we allowed $18 of exports
to go forward. We supported 2176 small business transactions,
86 percent of those, of course, of all of our transactions were
for small business. Eighteen percent of our financing was for
small business, 377 were first-time users of the bank.
We saw remarkable increases in our two primary programs,
the Working Capital Program and the Insurance Program.
As the congressman mentioned, we saw a 25 percent decrease
in the amount of requested authorizations from last fiscal year
to this fiscal year and when I first heard that, I became very
concerned for the benefits of small business. We did an
evaluation internally and figured out that the risk premium
that OPM sets up to measure the risk of a particular country or
transaction haddecreased, which meant that we could use more of
our program budget, so when we took into consideration that we would be
able to use less of the program budget, less per transaction, which
meant that we could support more transactions, and then we added the
cancellations in the previous years, sometimes exporters decide not to
go with something or there are not as many disbursements on a
particular policy as expected, at any rate, that amount was about $90
million. So when we added the $633 million and the $90 million, we
figured out we had about $723 million to work with.
Insurance programs are zeroed out. They do not count
against the program budget, but the working capital and loan
guarantees do count against the program budget. So I asked all
around the bank about whether or not this decrease in program
budget would affect small business transactions and I have been
assured that we expect to be able to finance every single small
business authorization next year.
That means that we do not anticipate increasing fees. We do
not anticipate reducing the amount financed for small business
or in any way affecting the financial support for small
business. In short, we expect to be able to fund all the small
business transactions next year.
We are continuing to push to let small businesses know more
about us. We have aggressive marketing campaigns. We have
direct mail programs. We conduct seminars, conferences, we work
with established groups, we have city/state partners we turn
to, the TAP program for working with other organizations and
associations. We particularly reach out to minority-owned
businesses and women businesses. We have people dedicated to
this. In fact, a number of full-time employees dedicated to
small business in the bank is about 112. The actual resources
that get dedicated to processing small business applications
and handling those processes is actually substantially more,
perhaps 50, 60, even higher percent of our administrative
budget.
At any rate, in our efforts to move forward, we rely on an
administrative budget and we are asking for more of a share in
an administrative budget to help us retain the high quality
staff to carry out our goals which are to reach out to more and
more small businesses. And we would also like to look at
improving some of our systems so that we can automate a few
things to take the kind of more routine transactions, automate
them and spend more time providing the kind of services and
programs and marketing efforts to reach small businesses.
So, in short, in conclusion, while the global economy has
changed substantially since our inception in about 1930, our
mission, which we are going to stay true to, is to provide and
sustain U.S. jobs and we are going to do so by helping small
businesses. I will go anywhere to help a small business, I will
come to any conference, I will speak to anyone. Please let us
know how we can help. We really appreciate your support and any
kind of advice. We are doing a good job, we can always do
better, so we turn to you for any ways in which we can do
better.
Thank you very much. I would be happy to answer questions.
[Ms. Weaver's statement may be found in appendix.]
Chairman Manzullo. Thank you very much for your testimony.
Our next witness will be Joseph Waters. Mr. Watters is the
president of Hoffman International out of Piscataway, New
Jersey and he is the immediate past chairman of the Small
Business Exporters Association.
Mr. Watters.
TESTIMONY OF JOSEPH WATTERS, PRESIDENT, HOFFMAN INTERNATIONAL,
PISCATAWAY, NJ
Mr. Watters. Good morning, ladies and gentleman. I
appreciate the opportunity to appear before this distinguished
committee.
May I open by advising and repeating what the chairman just
told you, that I am appearing here wearing two hats. The first
involves my position as president of Hoffman International, an
80-year-old, 50-employee private New Jersey company, and a
second hat as a director and the immediate past chairman of the
Small Business Exporters Association.
I do not want to overstate the case, but I do want to
assure all the members of this committee that there exists no
subject that is closer to hearts, the minds and, yes, even the
pocketbooks of small business exporters than an adequate budget
for the growing activities of the Ex-Im Bank. All of our
association members, small businesses such as Air Tractor of
Olney, Texas; Leawood Export of Kansas; Transcon Trading of
Irmo, South Carolina; MD International of Miami; Systems
Integrated of Orange, California; Princeton Medical of
Marietta, Georgia; OMI of Versailles, Ohio; and, yes, even
Hoffman International of Piscataway, New Jersey can and do
become quite passionate about this subject.
Let me be clear, every one of our members is substantially
dependent upon a competitive, efficient and viable Ex-Im Bank
to provide the financing assistance which is so critical for
all of us to compete and do business in the global marketplace.
And that marketplace is not the same as it existed some 10, 15,
or 20 years ago.
There was a time when the USA mousetrap was far and away
the best on the market. Today, mousetraps from Japan, China,
Europe, Canada and elsewhere can compete very well. And while
we can enjoy enormous pride over the high value of the U.S.
dollar and it may reduce the cost of our overseas holidays as
well, it also creates a much more competitive pricing
environment today.
Today's marketplace demands turnkey package pricing,
including competitive financing arrangements, providing a
customer with payout terms that can match its cash flow
requirements.
Frankly speaking, without the Ex-Im source for providing
this kind of financing, a significant number of our members
would simply have to fold their tents. It is just not possible
to sell agricultural planes to Costa Rica, package hospitals to
Mexico, or, in my case, new and used construction road building
equipment and spare parts to Ghana without short and long-term
financing which are either guaranteed or insured by our Ex-Im
Bank.
My company has been involved in exporting for the past 30
years and I have personally observed a continued slippage of
traditional letter of credit sale terms to that of financed
sales. For example, at this moment, for Africa, our company is
working on five to six transactions involving approximately $8
million worth of forestry, construction and road building
equipment for clients in Cameroon, Senegal, Mali and Uganda. In
Latin America, we just completed the sale of a used $270,000
crane based on a three-year loan for Guatemala and have three
similar transactions financed in Mexico.
In Russia, where our company delivered over $10 million of
road building equipment in 1995 and 1996, we are in the midst
of finalizing new sales of approximately $3 million and see
enormous potential in Russia for years and years to come.
All of these activities are supported by one or more Ex-Im
Bank finance programs. Emerging markets such as the countries I
mentioned represent key opportunities for small business sales,
but financing by our U.S. commercial banks is simply not
possible in those areas without Ex-Im's support. Absent Ex-Im's
medium term insurance, the crane built in Shady
Grove,Pennsylvania does not go to Guatemala. Without Ex-Im's working
capital medium term bank guarantee, the new Mack Trucks from Allentown,
Pennsylvania, the kilns from Bartlett, Tennessee and the forestry
equipment from Franklin, Virginia are not moving to Ghana. And without
the new Ex-Im program of accepting Russian bank guarantees, machinery
components from Madison, South Dakota are not moving to Kransogorsk,
Russia where they are assembled with other Russian made components for
road patching machines that fix potholes.
With this new program alone, we can foresee the manufacture
of 100 to 150 of these machines every year versus the 10 to 15
we do now. The impact of all these increased sales on the
economy of Madison, South Dakota as well as the filtered-down
effect across the national economy is enormous.
Government statistics indicate an explosive growth in the
export sector by U.S. small businesses and yet still only 1
percent of all such small firms are involved. The untapped
dimension of small businesses exporting is staggering and the
potential contribution of fuel to our economic engine is quite
dramatic.
And with the current economy softening, these exports take
on an even added importance. And yet despite all this tangible,
undeniable evidence of a dire need for an Ex-Im Bank that can
handle greater volume more efficiently and more competitively,
we are faced with an administration proposal that wants to
reduce its budget.
Frankly, all of our association members, whether Democrat,
Republican or Independent, are quite dismayed when we hear the
administration tell us how importantly it values the role of
small business and how vital it is for us to be in the global
marketplace and, at the same time, proposes to reduce the
budget of a critical organization that is already severely
limited and working at full capacity. The contradiction of
these positions is mind boggling to me and my peers.
As president of a small exporting business and chairman of
an association of such firms, I not only encourage this
committee to overwhelmingly reject the suggestion of reducing
the Ex-Im budget, but rather find a way to increase it.
Thank you very much.
[Mr. Watters' statement may be found in appendix.]
Chairman Manzullo. Thank you very much. I appreciate the
way you mentioned the names of those towns. Did you notice how
members perk up when they hear their states that are mentioned?
We have a firm, Bergstrom Manufacturing, just bought out
Kaiser-Westram that provides all the HVAC systems for Mack
Trucks, so I really appreciate that.
We have a vote coming up right now. I would suggest that we
take the vote and then come back. I think it is one vote, it is
a general vote, so we are going to stand adjourned for a few
minutes and then we will be right back and start with your
testimony, Mr. Barr.
[Recess.]
Chairman Manzullo. I will call the committee back to order.
Our next witness is George Barr, who is testifying on
behalf of the U.S. Chamber of Commerce.
Mr. Barr, I look forward to your testimony.
TESTIMONY OF GEORGE BARR, FOUNDER, ANATECH, LTD., SPRINGFIELD,
VA, REPRESENTING U.S. CHAMBER OF COMMERCE
Mr. Barr. Thank you. I appreciate the invitation to come
and testify today. I am a founder and part-owner of Anatech. We
are a systems manufacturing company. We basically are making
scientific and production equipment used for modifying surfaces
at the molecular level. It is a little arcane, but I would also
say that I agree with both the introductory testimonies of the
committee and of the prior two speakers.
We started exporting in 1984. We were open about a month
and an order came in from Kuwait. We have seen sporadic orders
over the years that have helped us with revenues from time to
time, but I do want to touch on the Boeing Bank issue because
that is something that I have heard many times as well and we
happen to be a supplier to not only Boeing, but to at least two
known subcontractors of Boeing and probably several third tier
subcontractors to Boeing. We have been selling systems for
about 30 years, we have over 5000 of them in the field. That
includes domestically and internationally. And these systems
are in businesses in the U.S. and overseas that are some of the
largest businesses that you will bump into. They are the Who's
Who of practically any business that has a product as a part of
its business, we are there. And so a lot of our domestic
business does go to support exports.
The subject today in my mind could just as well be
expansion of Ex-Im, how it could be made more competitive,
rather than whether funding should be cut or it should be
renewed. Ex-Im does a great job in a number of areas. I will
not go into all of them, but one of them that has been
particularly useful to Anatech was the city/state program in
Virginia that helped us get started with exporting. That was
almost exactly ten years ago.
The Ex-Im Bank also recognizes the needs of small
businesses, that they are different than large business. And
one example of that, for instance, is the contract is a lot
simpler, but we do not have to get very expensive accounting
help that would be at an audited level, as opposed to a
reviewed level.
A few other things that may be important. My wife happens
to be Hispanic. She shares in the risk of the business, but she
shares in the rewards as well as I do believe that since we
employ people from--we are faceless, colorless, we are looking
for people who can get the job done and employ people from all
different areas.
On a perspective a little broader than Ex-Im Bank, U.S.
Government interagency coordination is an urgent requirement
for positive results.
Congress passed in 1992 the Trade Promotion Coordinating
Committee, legislation to create that committee. It requires
the president to submit an annual export development plan to
serve as a comprehensive blueprint for federal trade
development activities, including strategy to coordinate
federal programs and so on. And it has been partially
successful. I think that there is room for improvement there to
cross over OPIC, Trade Development Agency and Small Business
Administration.
It is impossible for my small business to export more than
minimally if I must fund exports internally with domestic cash
flow. I need an Ex-Im Bank or SBA program to turn exports to
domestic business so that our bank will fund that activity. We
typically would export between $150,000 and maybe $450,000
worth of product a year. It may not sound like a lot, but we
are a $2.5 million a year business, we employ anywhere from 10
to 15 people and we have somewhere on the order of one to three
people per year engaged directly in building systems and
supporting systems for export.
There literally have been times when we might not have been
able to survive in a domestic downturn without the ability to
export. I cannot say that strongly enough, so it is hard for me
to imagine how Ex-Im can function effectively with a decrease
in funding. I believe that it would be appropriate to see how
much more Ex-Im can do and what level of funding it takes to
support that effort.
Thank you.
[Mr. Barr's statement may be found in appendix.]
Chairman Manzullo. Thank you very much.
Our next witness is Sharon DeDoncker. Sharon is with Aqua-
Aerobic Systems, Inc., whose home is Rockford, Illinois, in the
midst of the great 16th Congressional District of Illinois.
Sharon, I look forward to your testimony.
TESTIMONY OF SHARON DeDONCKER, VICE PRESIDENT/INTERNATIONAL,
AQUA-AEROBIC SYSTEMS, INC., ROCKFORD, IL
Ms. DeDoncker. Thank you for allowing me to come here
today. As mentioned, my name is Sharon DeDoncker and I am Vice
President of Sales for Aqua-Aerobic Systems in Rockford,
Illinois. Aqua is a small business which manufactures water and
wastewater treatment equipment used for municipal sewage
treatment plants and industrial wastewater treatment plants.
The company employs 140 and has annual sales of about $40
million.
To achieve growth in the international market, we have
participated in local trade shows, conducted regional rep
training sessions, and held in-country engineering seminars. As
a result, our company name is now more widely recognized; our
representatives are trained to respond to the growing number of
inquiries we are receiving; and the local engineers have
confidence in our abilities. We feel we are in an excellent
position for international growth.
Our primary market is municipal sewage treatment plants in
developing countries. Developing countries are sorely lacking
in wastewater treatment and want to improve their quality of
life and reduce the health risks caused by poor sanitation.
Most are establishing guidelines and deadlines for the
treatment of their wastewater and setting up agencies to
monitor and enforce compliance. For Aqua and the other
wastewater equipment companies in the U.S., this represents a
huge, immediate growth market.
The biggest obstacle being faced by these municipalities is
funding. They have a pressing need to build sewage treatment
plants and a desire to do so, but the funds are not there. U.S.
companies may do an excellent job of selling the municipalities
on the superiority of our systems and equipment, but if we
cannot bring the project financing, these municipalities are
forced to go to companies that can.
Aqua is still in the learning phase of how to put together
funding packages for international projects and until we learn
to do so, we will not be able to expand our international
sales.
We have met with our bankers, private financing agencies
and representatives of Export-Import Bank. We have learned that
even if we elect to offer financing through our bankers or
private sources, these organizations want the Export-Import
Bank to guarantee the loan.
For example, we have been working on a project in a suburb
of Shanghai. We began working this project many years ago when
it was still in the early design stages and we have invested
considerable time and money in providing design assistance to
the engineers and the government officials. We have been
careful to develop and maintain a relationship with all parties
involved and feel we are in an excellent position to sell our
system.
The remaining obstacle we have to overcome on this
particular sale is offering an attractive funding package. We
have taken this project to our U.S. bank and a private
financing agency and both organizations have prepared quotes
using Export-Import Bank guarantees. Without the Export-Import
Bank guarantee, neither lender will be willing to take the risk
and offer a financing package to the buyer. Without this
financing package, our chances of being successful on this
project are greatly reduced.
Other countries have agencies similar to the Export-Import
Bank, and these agencies are aggressively pursuing projects
that will benefit companies in their countries. Other countries
rely more heavily on their export business than the U.S. does.
As a result, they are more aware of customer needs and more
aggressive in meeting those needs. The U.S. is frequently seen
as a latecomer to this market and behind in having the tools
needed to match our foreign competitors. A key tool U.S.
companies need is the financing package, and the Ex-Im Bank is
our primary source for this.
Ex-Im still has work to do to be as visible and active as
some of the other foreign export credit agencies. We should be
increasing, not cutting, their budget. They need additional
funds in order to be able to expand their offerings to a level
that gives U.S. companies the same advantage as our foreign
competitors.
U.S. funding, requiring Export-Import Bank involvement, of
overseas projects is not a luxury. It is a necessity if U.S.
companies want to work abroad. If the U.S. is not funding these
projects, another country is and companies from the funding
country will receive the orders and U.S. companies will lose
out.
The Export-Import Bank fills a need of U.S. companies,
large and small, by providing export credit insurance, working
capital guarantees, and loans and loan guarantees which help
finance the sale of U.S. goods and services to foreign markets.
Last year, Export-Import Bank financed nearly $15.5 billion of
U.S. exports worldwide, which supported more than 1 million
U.S. jobs. It is a fallacy to think that Ex-Im Bank works only
with large companies, as nearly 86 percent of Ex-Im Bank's
transactions in fiscal year 2000 were on behalf of small
business.
The Ex-Im Bank offers real needed services to both large
and small companies. If the proposed budget cuts do go into
effect, it will be more difficult for Ex-Im to continue to
support the efforts of companies like Aqua Aerobic Systems.
The export market cannot be ignored. It represents great
growth potential and higher returns for U.S. businesses and
more employment and higher quality, better paying jobs for U.S.
employees. But without the availability of financing packages,
which means Ex-Im Bank involvement, the participation of U.S.
companies in this market will be restricted.
I urge you to reauthorize the programs of the Ex-Im Bank
and vote against any proposed budget cuts. Small businesses
need the support of the Export-Import Bank in order to survive
in the international marketplace.
Thank you.
[Ms. DeDoncker's statement may be found in appendix.]
Chairman Manzullo. Thank you very much.
I have just instructed our staff to tell the people in the
hall they do not have to make so much noise. They think that
they are not going to get the money. [Laughter.]
You know, they show up around here and start circling the
waters and we have to get them to--just tell them to cool it
out there, that, you know, they will have an opportunity to get
their money somehow.
Our next witness is Ken Petrilla, a senior vice president
at the Wells Fargo Bank and Wells Fargo HSBC Trade Bank.
You came out from San Francisco?
Mr. Petrilla. Yes, I did.
Chairman Manzullo. I appreciate that very much. Welcome to
Washington and I look forward to your testimony.
TESTIMONY OF KENNETH J. PETRILLA, SENIOR VICE PRESIDENT, WELLS
FARGO BANK AND WELLS FARGO HSBC TRADE BANK
Mr. Petrilla. Thank you very much. Good morning, Mr.
Chairman and members of the committee. I have bested my panel
members a bit, two of them said that they were wearing two
hats, I am actually wearing three hats. I represent Wells Fargo
Bank, Wells Fargo HSBC Trade Bank, as well as BAFT, the Bankers
Association for Finance and Trade.
Wells Fargo, I think, is a reasonably well known name. We
are headquartered in San Francisco and we are a diversified
financial services company that since its inception has been
focused on small to medium sized companies. The Trade Bank is a
joint venture between Wells Fargo and the HSBC group and is the
vehicle that Wells Fargo uses to deliver international trade
finance and trade services. The Trade Bank is the only
nationally chartered, FDIC insured bank in the U.S. that is
devoted solely to international trade finance. As part of my
responsibilities, I manage the Trade Bank's export finance
activities which are focused on small and medium sized
businesses in the United States. In addition, as I said, I am
also representing the views of the Bankers Association for
Finance and Trade.
Wells Fargo is one of the leading users of the Ex-Im Bank
programs and particularly those of the small and medium sized
businesses, and in particular, the Working Capital Guarantee
Program.
Very briefly, the Working Capital Guarantee Program is a
program that supports small businesses that cannot get enough
working capital to build the widgets that they sell overseas.
Ex-Im Bank adds their guarantee which entices us to lend the
money to the small company to provide the financing to allow
them to build their product to sell overseas. This is a fully
collateralized loan, usually supported by foreign receivables
and exportable inventory, but, again, it is Ex-Im Bank's
guarantee that entices us to provide the working capital.
Last year, Wells Fargo Bank made more working capital loans
guaranteed by Ex-Im Bank under this program than any other
lender and we are proud of this fact. This accomplishment
allows small exporters to do business they might not otherwise
do.
The Trade Bank, our joint venture, is a little over five
years old and, in those five years, we have made working
capital loans supported by Ex-Im Bank totalling about $180
million. The significance of that number is that these were all
not only to small and medium sized companies, but they were
small loans. The typical size of a loan of this nature is
usually between $500,000 and maybe $2 million, so you can see
$180 million total supported a lot of small companies.
In addition, we do other things in the Trade Bank, of
course. Our total of export loans supported by Ex-Im Bank, in
addition to the Working Capital Guarantee Program, totaled
about $500 million in our almost six years of existence. And, I
can tell you that all of these transactions were on behalf of
small or medium sized businesses. Not one financing arrangement
supported a large multi-national corporation.
I also want to point out that Wells Fargo does not look
first to Ex-Im Bank, only after we have exhausted our own in-
house capabilities do look to Ex-Im Bank to help us mitigate
the risk. Therefore, Ex-Im Bank is needed to make transactions
happen that might not otherwise happen.
A couple of examples would be appropriate, but because I do
not want to take too much time, let me just give one really
good example. There is a San Diego-based company that is called
Orgil International Greenhouses. It is 30 years old. Its total
employment is 15 people. They have sales under $5 million. This
year, we have financed three separate sales of greenhouses to
Mexico. Each sale was under $1 million, each individual buyer
in Mexico asked for five-year terms. We provided the financing
and it was insured by Ex-Im Bank under a medium term insurance
policy. Again, that is what motivated us to provide the
financing. Without this coverage and the risk of non-payment,
the sale would have been lost, most probably to an Israeli
competitor.
We at Wells Fargo, HSBC Trade Bank, and BAFT question the
administration's proposed 25 percent budget cut. We are fearful
that if this cut goes through it would damage the bank's
ability to support small business and support the kind of
transactions that I have just explained. We do not think that
they will be able to handle all the applications that will come
in fiscal year 2002. Any reduction in support by Ex-Im
negatively impacts small and medium sized businesses directly.
Without the bank's support, they will have no alternative
financing sources and thus will forfeit opportunities to non-
U.S. companies.
Wells Fargo, the Wells Fargo HSBC Trade Bank and BAFT
strongly support the programs of Ex-Im Bank, specifically those
directed to small business. In order to be certain these
programs are maintained and expanded, we would urge the
restoration of the budget cuts to at least the level equal to
this year. I am happy to hear my panel members ask for even
more than that. That would be wonderful.
I am pleased to provide this testimony and I am happy to
answer any questions. Thank you.
[Mr. Petrilla's statement may be found in appendix.]
Chairman Manzullo. Thank you very much for the excellent
testimony of all the witnesses, especially the anecdotal
testimony.
Mr. Shuster will have the first round.
Go ahead, please.
Mr. Shuster. Thank you, Mr. Chairman. My first committee
meeting, the first time I ask questions. This is a big moment
for me.
I also want to say the chairman mentioned when you were
giving testimony when you mention somebody's district or
something in the district, their ears perked up. Well, mine
certainly perked up when I heard Shady Grove and those cranes.
I want them to sell a lot of cranes to Guatemala because Shady
Grove Manufacturing is based in the 9th Congressional District
of Pennsylvania, so my ears did perk up.
My question is to Ms. Weaver.
When you are talking about small businesses, I guess
typically it is based of size of employees or a sales figure,
500 employees or less constitutes a small business? Is that
what you are talking about, under 500 employees?
Ms. Weaver. Yes, Congressman. We use SBA's definition of
small business.
Mr. Shuster. I would be interested to see under 500 the
breakdown as to who is receiving what. In our district, 300,
400 is a large company, so I would like to see if I could under
500 sort of that breakdown and who is receiving what and how
they are faring in this program.
Ms. Weaver. We will get that right to you.
Mr. Shuster. Okay. A second question I have, if I
understand your testimony, and I do not know how much you got
into it, but you supported $15.5 billion in transactions so a
decrease of 25 percent is going to be pretty much dollar for
dollar, there will be 25 percent decrease in what you will be
able to support going forward? I think I read in here 11.5
billion is what you will be able to support in transactions
based on this new amount that they are going to budget for you.
Ms. Weaver. Yes. The latter part definitely is correct.
Because of the change in the risk premia being decreased, we
will be able to use more of our program budget and we will be
able to add to that $633 million requested from OMB, but,
basically, you are right. Yes.
Mr. Shuster. And the final question is--and you mentioned
you would be willing to go anywhere, what programs do you have
out there that small businesses can tap into to find out about
your programs? I do not know in my district if there is that
much knowledge of it.
Ms. Weaver. We will get you a full list. We have city/state
partners. We work with the TAP, the Trade Association Partners
Association. We are happy to come to your district. We have
regional offices that will serve your area. We look for and
participate in women-owned, minority owned businesses, rural
conferences. Any opportunity that we believe will bring
together anywhere from a handful to even upwards of 10 to 100
small businesses. We will create a seminar, a program or
participate in any kind of thing that helps small businesses
learn about Export-Import Bank.
Mr. Shuster. Would it be the best way to bring the banks
together, local banks?
Ms. Weaver. We also offer seminars and informational
exchanges for banks and we are happy to work with any bank in
your area.
Mr. Shuster. Okay. Thank you very much.
Ms. Weaver. Thank you.
Mr. Shuster. I appreciate everybody coming here today to
testify. It was very enlightening. Thank you.
Chairman Manzullo. Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Ms. Weaver, it seems based on the testimony presented here
by yourself and the rest of the witnesses here that it seems to
me that there is a special disconnect between the White House
budget and small businesses in America. On the one hand, you
are saying that you could live with a budget cut of 25 percent
and we have to also factor in the fact that the Small Business
Administration is going to be cut by 43 percent and then most
of the other witnesses are saying that that is not how we
should proceed. If we are here committed to help small
businesses, we need to provide every tool that we can to
strengthen and to help those small businesses flourish in
America.
So having said that, let me ask you the first question. The
administration budget for the Small Business Administration has
proposed to eliminate all direct funding for the SBA's 7(a)
loan program, making up the difference through increased fees
on small businesses. This is of particular concern to me
because from my understanding the Ex-Im Bank can unilaterally
raise fees without congressional action. Your written testimony
is not clear on this subject.
At one point, you indicate that the president's budget
suggests raising fees as a possible way to meet a budget
shortfall, but you go on to say that you do not anticipate
raising fees on small businesses.
Ms. Weaver, can you tell this committee definitively that
the Ex-Im Bank will not raise user fees on small businesses
next year to offset any budget cuts?
Ms. Weaver. We will not raise fees on small business
transactions.
Ms. Velazquez. You will not raise fees?
Ms. Weaver. Will not.
Ms. Velazquez. Well----
Ms. Weaver. On small business transactions. I think that
the testimony that you alluded to references any kind of
difference between the program budget and actual authorizations
for the next fiscal year.
On non-small business transactions, if there is not enough
program budget, our new chairman, Chairman John Robson, is
considering various kinds of alternatives, but I do not
anticipate any changes to small business fees. I would object
to any changes. I do not see any kind of change to increase
small business fees.
Ms. Velazquez. I am glad to hear that.
Ms. Weaver, I am also concerned about the level of
assistance that the Ex-Im Bank provides to women-owned
businesses. I understand that in fiscal year 2000 the bank
provided $24 million in working capital guarantees to women-
owned firms. That is a record high for the bank. However, this
is significantly less than the $47 million in working capital
guarantees that went to minority-owned firms in the same year.
Even more staggering is the fact that in fiscal year 1999 only
$1 million went to women-owned businesses.
How can this possibly happen?
Ms. Weaver. Well, we have aggressive means of reaching out
to women-owned businesses and whatever we can do to reach out
more, encourage more women-owned businesses to take advantage
of the kinds of programs that we have, we will do.
We have gone to a number of different conferences. For
example, this year, we are going to go----
Ms. Velazquez. Ma'am, let me interrupt you for a second.
There are 9.1 million women-owned businesses in our country, so
I want to understand how you are reaching out and only $1
million has been provided to help those women-owned businesses.
Ms. Weaver. We want as many women as possible to come to
us, to take advantage of our programs. It is not that this is
just the amount that we are setting aside, this is the actual
amount requested by women businesses. I would love to see that
dollar figure increase substantially. So what we try to do is
we hold seminars, conferences, we meet with as many people as
possible to encourage them to take the risk of exporting to
other countries. We will step in, we will talk to people, we
will help them understand.
It is not that we are limiting it. We are trying to
encourage more women businesses to take insurance policies and
to apply for working capital guarantees.
Ms. Velazquez. What type of action plan will you have in
place in order to reach out to those women? Because I do not
understand, whatever plan you put in place to reach out to
women-owned businesses, how could you achieve that when you are
asking for 13 percent less in funding?
Ms. Weaver. Well, the amount for reaching out to women-
owned businesses actually comes out of our administrative
budget and we are going to ask for more money this year. So the
amount of money that we will spend reaching out to small
businesses, the kind of resources that we are going to use to
reach out to women-owned businesses will not decrease, it will
increase.
We have regional offices. We try as much as possible to use
our 225-entry exporter database which has prospective
businesses who may be interested in exporting. We try to send
them literature, we try to organize conferences, we call them
up. Last year, our regional offices reached out to--let me give
you some interesting figures. We actually called about 30,000
people. We paid 3000 office visits. We did a lot of direct
mail.
Ms. Velazquez. Mr. Chairman, if you will allow me another--
well, I will come back. I have not finished. I will come back
with you, Ms. Weaver.
Ms. Weaver. Okay.
Mr. Shuster [presiding]. Thank you, Ms. Velazquez. We have
a number of other people lined up here.
Mr. Davis, I believe, is next.
Mr. Davis. Thank you very much, Mr. Chairman.
I see the chairman has left. I wanted to tell him the
reason that the people were so noisy is they were afraid that
the money was going to run out before it got to them, but I
will let him know when he returns.
Let me also welcome Mr. Shuster to this committee.
It is a pleasure to see you and to be with you on your
maiden voyage.
Let me also appreciate all of the witnesses. I certainly
listened rather intently to your testimony.
And I must confess, Ms. Weaver, that I was somewhat trying
to reconcile your testimony with that of the other witnesses in
terms of the recognition of need for resources.
Are you suggesting that the risk of doing business in the
countries that we are exporting to has decreased and as a
result of that risk the insurance premiums are not as high and
therefore we are going to have more money to actually lend to
businesses?
Ms. Weaver. Sort of. OMB has determined that for this
fiscal year the value or the calculation of those risk premia
will decrease, so that means that our country portfolio, in
their estimation, will decrease in terms of the value of the
risk against the program budget. It does mean that we will be
able to stretch those program budget dollars farther next
fiscal year than this fiscal year.
Mr. Davis. I was just in Nigeria the week before last and I
ran into a young woman from the Export-Import Bank who was
there. Of course, I did not see how anything was decreasing in
terms of risk. They were in rather difficult shape, no traffic
signs, no traffic lights. I mean, how you can do anything in a
city as big as Lagos and have no traffic signs and all--but
that is kind of an aside. But, yes, I was pleased to see her
and she was indeed engaged even with some of the people that we
visited because we spend a great deal of time with the governor
of the state and it was just good to see her there.
Ms. Weaver. Great. Thank you.
Mr. Davis. The question that I have is really to other
panel members. It seems to me that each one of you have sort of
indicated--and I am a strong supporter of the Export-Import
Bank. I mean, there are some people who suggest that it is a
subsidy for big businesses and all kinds of other things, but
it seems to me that in order to penetrate these markets and to
be able to do business we need the assistance that the bank
provides relative to absorbing risk that other institutions may
not want to absorb all of without some guarantees.
Do you have any ideas of how your thoughts about this seem
to be so different rather than that of the White House or that
of the budget preparers or that of those who are recommending
that we not have as much in the way of money and that is not
the case with you?
Mr. Petrilla. I will try to respond to that. In our
business portfolio, only about one-third of all of our export
finance business we do is supported by Ex-Im Bank in some way,
shape or form. So that means two-thirds of our business of
providing export finance is funded by ourselves with our taking
the risk or working with private sector underwriters. There is
a great deal of capacity in the private sector market, so
therefore I think I am answering your question, I hope I am,
there are plenty of techniques to provide assistance to support
exports without Ex-Im Bank, but, indeed, where we need Ex-Im
Bank it is absolutely essential because the private market is
closed, or our own internal appetite is such that we will not
take that risk, and so the transaction will not happen without
Ex-Im Bank, even though there are a great many transactions
being done without Ex-Im Bank.
Mr. Davis. Anyone else?
Mr. Watters. I would just say this to you, sir, with
respect to, I guess, the contradiction between Ms. Weaver and
myself or our testimony, the four of us, relative to the
reduction and what it means to Ex-Im Bank, to me, I think, and
maybe perhaps I do not understand all of the nitty grit of the
Ex-Im Bank budget, which is about a 10-page document with lots
of different line items, but frankly speaking when I hear any
organization where it is suggested that their operating budget
would be reduced 25 percent, it seems to me that that is going
to hurt the organization in some way, form or fashion. I mean,
you just cannot work the same way when you are only receiving
75 percent of what you had the previous year.
I also think it is a very bad signal to the business
community of America in terms of trying to encourage exporting,
which is so important, I think, to today's economy and
tomorrow's economy as well.
What does it mean to the future if you reduce the budget
this year from 100 to 75? What happens next year? Are we going
to be back at the table looking to increase in case OMB comes
up with different numbers or different calculations? And is
that going to be a problem?
And I guess, finally, I would say if there is some room in
the Ex-Im budget because of this calculation of risk, how else
could we use those funds to enhance or increase programs that
Ex-Im has developed over the years?
You talked about Africa. I think Ex-Im has been a leader in
opening sub-Saharan Africa marketplaces like Nigeria and
Senegal and Gabon and Ghana and those areas that for a company
like ours are very, very important. Totally new markets for us
that I never, frankly, never thought that we would involve our
company in those markets. And now we are there and there is
enormous potential for us. Similarly in Russia, as I mentioned
in our comments.
Chairman Manzullo. Thank you very much.
Mr. Davis. I know that my time is up.
Chairman Manzullo. Thank you.
Mr. Davis. I thank you very much.
I think you missed my comment while you were gone. I was
just sharing that perhaps the reason there was so much
consternation outside is because people were afraid that the
money would run out before the appropriations got to them.
Chairman Manzullo. That is a good thought.
Congressman Christian-Christensen?
Ms. Christian-Christensen. I did not realize I was going to
get a chance to ask any questions.
I thank the panelists for being here.
Several of you have said in your testimony that the Ex-Im
Bank is not aggressive enough and that the credit agencies in
the foreign countries are more aggressive. Can you elaborate on
that, anyone?
Ms. DeDoncker. I will make a comment. A lot of the projects
that we run when we are promoting our systems overseas, we find
out that there are a lot of commerce department--the equivalent
commerce departments of other countries that are there and they
say when they come they bring funding from the French, from the
Japanese, from the Germans or whatever, and we very rarely hear
them say that the U.S. has been there offering a promotion with
special funding. Or you will see that they are offering special
projects that might have ten-year funding where it is difficult
for us to get that.
I would like to see Ex-Im Bank have more programs that
would be--where they are doing the marketing instead of our
companies bringing the projects to Ex-Im Bank, you have Ex-Im
there on site with people that are promoting to the
municipalities or the industries there, the larger industries,
saying, hey, the U.S. is also here and we can finance our
companies. Or there are special projects like the environmental
projects, special programs for them where they are funding ten
years on environmental projects. There could be more programs
like that for other industries.
Ms. Christian-Christensen. I definitely agree with you. I
come from the Caribbean. I represent the Virgin Islands. We are
not really considered a developing country, but we have a lot
of wastewater treatment needs and I know the rest of the
Caribbean does as well.
Ms. Weaver, when I came in, I think you were outlining how
many staff you had who were dedicated to small businesses. Is
that an adequate number of staff? And you said you were going
to increase your administrative budget; would there be any
increase in staffing to meet the needs of small businesses?
Ms. Weaver. Well, you know, I would always like to see more
staff and more resources being applied to small business. We
have asked for $3 million more in our administrative budget to
keep hiring the kinds of persons who are very aggressive and
very interested in bringing women-owned, minority-owned,
environmentally important small business opportunities to us so
that we can help finance them.
A lot of the increase in our program budget this year will
go to assessing and helping us automate programs to free up
some time for people to spend more time marketing.
So, in short, we try to work with what we have. Obviously,
a lot more would be great also, but I think spending the time
that we have, again, we have regional offices, we have a staff
who cares deeply about bringing in small business and making
sure that we attend to them and that we provide them with the
kind of financing solutions they need.
I think a lot of small businesses fear exporting,
particularly to emerging markets. A lot of them do not know
about us and we are trying very, very hard to let them know
that we are here and we want to finance them.
Ms. Christian-Christensen. How does a business get on your
database? Is that what you use to share information and do
outreach? How does a business get on your database?
Ms. Weaver. In large measure, we turn to a number of
different sources to find out who is interested in exporting
and who has been exporting from the Department of Commerce and
other government agencies to local sort of representatives, we
call them city/state partners. A lot of them are on the ground
in local areas so they know the markets, they know the
businesses, they know how to get in touch with them and they
let us know sort of who is out there.
Ms. Christian-Christensen. I think that would----
Ms. Velazquez. Ms. Christian-Christensen--she has some
time--would you please yield to me?
Ms. Christian-Christensen. Certainly.
Ms. Velazquez. Ms. Weaver, you know, the budget
negotiations are not over until it is over, right? So are you
prepared to tell me in front of these small business people
that a 25 percent cut is fine with you, that we, members of
Congress and especially members of the Small Business
Committee, today that we should fight to see that funding
restored because it is fine?
Ms. Weaver. Well, I do not see us as on different sides of
this question. Internally, when I found out that there would be
a 25 percent reduction, I was very, very concerned and I did
not think personally that I could support a reduction. In fact,
I would have preferred more. But, unfortunately, that is not
what happened. So internally, I had to fight for small business
to ensure that the program budget that we got would not impair
in any way small business.
Ms. Velazquez. Please, Ms. Weaver, answer my questions.
Tell me today if we, the members of this committee, should not
fight to restore the 25 percent cut. Yes or no, should we fight
or not.
Ms. Weaver. I believe that you should continue to fight for
small business in any areas----
Ms. Velazquez. No, I am talking about your budget, ma'am.
Ms. Weaver. My belief is that our budget will be completely
sufficient to handle any small business request. I am not
saying that there are small businesses that will not be taken
care of, I am saying that any small business that comes to us
and asks us for money and it is an approved transaction, we
will do it.
Ms. Velazquez. You answered my question. Thank you.
Ms. Weaver. Thank you.
Chairman Manzullo. Could I answer that?
Ms. Velazquez. Sure.
Chairman Manzullo. I will join you in a fight.
Our next member is Congressman Acevedo-Villa.
Mr. Acevedo-Villa. Good morning. I am also a little bit
confused with the numbers. I just want to be clear. You are not
saying that nobody is going to be hurt. The way I understand
you, the way you responded to Congresswoman Velazquez's
question is that the small business sector program is not going
to be affected. Is that what you are saying?
Ms. Weaver. That is correct.
Mr. Acevedo-Villa. And, for example, to another question
she made, in terms of fees to the small business, you are not
going to raise fees to the small business.
Ms. Weaver. That is correct.
Mr. Acevedo-Villa. But the bank might raise fees to others.
Ms. Weaver. Yes. My large concern is that in the event that
we run out of program budget for larger transactions, in the
event that they turn to other small businesses as sub-
suppliers, my concern is that they may be affected. So
Congresswoman Velazquez's interest in this may affectan
indirect kind of application to small businesses but if small
businesses come to us and ask us for a working capital guarantee or an
insurance program, we will evaluate that project and move forward with
it and I anticipate that there will be no problem with approving and
financing any authorization.
Mr. Acevedo-Villa. In terms of small business, last year
they represented 18 percent of your lending levels, way above
the 10 percent.
Ms. Weaver. Yes.
Mr. Acevedo-Villa. What is your estimate based on this
budget for next year?
Ms. Weaver. Well, that is a good question. It is very hard
for us to estimate. I think it is going to be approximately the
same. Maybe little higher.
Mr. Acevedo-Villa. Eighteen?
Ms. Weaver. I hope higher. Yes.
Mr. Acevedo-Villa. You said that you estimate you can
support 11.4 billion in export credit authorizations for year
2002. What is that number for this year and for last year?
Ms. Weaver. Well, we anticipate that this year the number
will be--I will get you the exact number. I think it is going
to be--in fact, I may have it here. Next year we anticipate the
range will be between 11.9 and 14.4 with the mid range at about
12.5. So in the event that the projected authorizations, that
range, meets the actual authorizations, then we may have a
deficit, a reduction, a differential between the program budget
and the amount that is actually requested.
Mr. Acevedo-Villa. No, that was not my question, not what
actually was requested. You said that the bank estimates based
on the budget numbers for 2002, I am reading on page 6, that
you can support about 11.4 billion in export credit
authorizations.
Ms. Weaver. Right.
Mr. Acevedo-Villa. That is for year 2002.
Ms. Weaver. That is right.
Mr. Acevedo-Villa. What is the number for year 2001 and for
year 2000? The actual numbers. So we can compare.
Ms. Weaver. Let me see. The actual number for fiscal year
2001 is $10.9 billion in authorizations.
Mr. Acevedo-Villa. So even with the 25 percent reduction,
you still are projecting an increase in terms of export credit
authorizations?
Ms. Weaver. Right. And that is because of the decrease in
the risk premia. I may not have explained this very well. OMB
has decided that the way that we evaluate the use of that----
Mr. Acevedo-Villa. So I have to conclude that the decrease
is more in terms of--the risk is more than 25 percent. That is
the only way it can add up.
Ms. Weaver. What it means is that the----
Mr. Acevedo-Villa. That is a number we do not have here.
Because OMB calculated risk premia for fiscal year have
substantially decreased.
Ms. Weaver. Right.
Mr. Acevedo-Villa. But for me then the only answer is that
it has decreased for more than 25 percent. That is the only way
you can----
Ms. Weaver. In fact, it probably has. It probably means
that in actual terms that that 25 percent is more in the teens,
in the 15 or so percent. What it means is that our program
budget dollars will go farther.
Mr. Acevedo-Villa. Okay. Do you have any special program in
terms of exports to the Caribbean?
Ms. Weaver. We do. We have a special program to focus on
both sub Saharan Africa and the Caribbean. We are very
interested in promoting experts from the U.S. and certainly
Puerto Rico. In fact, I am going to Puerto Rico.
Mr. Acevedo-Villa. Yes, I know.
Ms. Weaver. In about a week or so to try to encourage
Puerto Rican businesses to export. A great market for them,
obviously, is the Caribbean.
Mr. Acevedo-Villa. Thank you.
Chairman Manzullo. Thank you.
Mr. Pascrell?
Mr. Pascrell. I have a few questions, Mr. Chairman.
The appropriations being slashed 25 percent down to $633
million, that represents the second highest budget cut in the
entire federal government, only superseded by the 43 percent to
the entire small business budget. I am sure I am not telling
you something you do not already know.
I find that to be unacceptable, right, Mr. Chairman?
Chairman Manzullo. Yes, I will fight with you. I agree. We
may have to get in line out there and make noise, Bill.
Mr. Pascrell. We will. We will.
The Export-Import Bank will provide $11.4 billion in
lending for fiscal year 2002 and that represents a $2 billion
cut in the amount of capital available.
Are my figures correct?
Ms. Weaver. $2 billion from--the midpoint of our
projections for fiscal year 2002?
Mr. Pascrell. Yes. 2001.
Ms. Weaver. You mean the amount that we expect to authorize
in fiscal year 2002?
Mr. Pascrell. I am talking about what we--yes.
Ms. Weaver. We anticipate that the amount that we will
authorize, the projected authorizations will be between 11.9
and 14.4.
Mr. Pascrell. We are looking a pretty steep cut even
though--I think we have been struck by your--I do not mean
cavalier response, but your ho-hum response. That is a little
less sharp. I did not mean it to be sharp. Because, you know,
we are dealing here with people's lives. We are talking about
jobs here, we are not simply talking about money being
exchanged. You know, the 7(a) loan program which has been
eliminated in the small business budget, that is the program
where all export working capital guarantee programs are
financed.
We are talking about a big amount of money here in terms of
it being very productive within the marketplace, having a lot
of success, a lot of success. And our concern--and I know that
you are trying to communicate to us that there are ways to
compensate for that other than fee increases or new fees, and I
take you at your word, but nonetheless we are very, very
concerned and you should know that we feel that this has been a
very, very productive program, as other small business
programs, programs affecting small business, and we want--we
would like to hear, I guess, more of an aggressive approach on
your part so that no one in the administration minimizes the
role of the Export-Import Bank.
This is not corporate welfare, this is helping folks. We
want to get that 18, 19 percent figure up in terms of how much
we assist small businesses rather than large corporations which
have beenmostly the beneficiary of the programs and yet we are
moving in the right direction along those lines.
Let me ask you this question. What is the relationship of
the Export-Import Bank with regard to the trade zones that
exist in many of our states?
Mr. Watters.
Mr. Watters. Actually, sir, you know, there is a trade zone
in New Jersey, up in Mount Olive, but I think the trade zones,
frankly, are dealing with imports.
Mr. Pascrell. Right.
Mr. Watters. In which products are imported to this country
and then are able to be frozen in a free trade zone until they
are either improved or prepared for sale within the United
States market.
Mr. Pascrell. Should there not be a connect between what
you are doing and those zones in terms of a two-way street?
What do you think?
Mr. Watters. Well, I suppose what you are suggesting, could
there be trade zones for our products, U.S. made products, in
foreign countries? Is that where you are leading with that?
Mr. Pascrell. That was part B.
Mr. Watters. Okay. Well, I think that certainly would be an
advantage for us, to be able to put USA made products in
various foreign countries, pending sale to another customer. I
mean, it would avoid the payment of customs and other
formalities in foreign countries. How that could be affected, I
am not sure.
Mr. Pascrell. Should that not be part of our trade policy?
I mean, you know, manufacturing jobs become less and less in
America, we have exported those jobs, manufacturing jobs, to
many countries throughout the world and it would seem to me if
we lose any more of our manufacturing base we will not be able
to sustain the present economy. And, therefore, I would think
that we would look to the benefits and we would look to the
positive aspects of the Export-Import Bank so that we can
produce a greater market for our manufactured products. Why one
hand does not watch what the other is doing is beyond me.
Mr. Watters. I could see where this, you know, the trade
zone policy with respect to foreign countries as we have here
in a limited way would be beneficial in the overall picture to
U.S. trade. Whether or not it is the role of the Ex-Im Bank to
involve itself in that issue is another question, sir.
Mr. Pascrell. Well, I was suggesting a proactive part on
the Export-Import Bank. I was suggesting that there is a two-
way street here and we are going to be dealing with trade
issues, we are going to be dealing with trade issues in the
near future and we want a two-way street. We want reciprocal
trade agreements that impact positively on the marketplace
right now. And I would just throw a suggestion, one quick final
question.
We have two banks in New Jersey that are delegated as
authority lenders. They are Summit Bank and First International
Bank. Are the number of banks in the states that are part of
the Export-Import Bank process, is that determined by
population? How is that determined? I mean, why are there two
banks in New Jersey and five zillion banks in New York?
Ms. Weaver. I think it is a matter of their interest in
becoming delegated lending authority lenders. We are happy to
go there and encourage them to become delegated authority
lenders. I am happy to reach out to them.
Mr. Pascrell. So in other words, if there are more banks
that communicate with you that are interested in becoming part
of the Export-Import Bank they would be more than welcome.
Ms. Weaver. We would look forward to it.
Mr. Pascrell. Thank you, Mr. Chairman.
Mr. Shuster. Thank you.
The chair recognizes Ms. Tubbs Jones.
Ms. Tubbs Jones. Good afternoon. I have submitted a
statement for the record.
[Ms. Tubbs Jones' statement may be found in appendix.]
Ms. Tubbs Jones. I apologize for my delay in getting here
to all the witnesses. Thank you for hanging around for me to be
the last--may I am not the last, but next to the last.
I am concerned. I sit on the Banking Committee as well as
the Small Business Committee and it is important for small
business to have access to the programs that are available
through Ex-Im Bank. I suppose the question I would ask is with
a 25 percent cut in the budget, how have you prioritized who or
what will take the hit?
Ms. Weaver. I am sorry.
Congresswoman, we do not expect any group to take a hit,
which is to say that if a small business asks us to finance an
export, we will evaluate it and if approved we will finance it.
Ms. Tubbs Jones. Okay. Let me ask my question in a
different fashion, then. I have $100 to buy groceries last
week. This week, I only have $75 to buy groceries. I have to
decide what I am not going to buy in light of the fact that I
have $25 less. Ex-Im has $100 to buy groceries. Under this
budget you now have $75. What are you not going to buy?
Ms. Weaver. For our small business budget, there is not
that decrease. It is still $100.
Ms. Tubbs Jones. So you are saying that even though Ex-Im
experienced a 25 percent budget cut, that the small business
budget is not going to be cut by 25 percent?
Ms. Weaver. That is correct.
Ms. Tubbs Jones. How much is it going to be cut by?
Ms. Weaver. I am saying that it will not be. I am saying--
--
Ms. Tubbs Jones. So you are saying for the record that
there will be no cut in the dollars available to small business
in this upcoming year.
Ms. Weaver. That is correct. And----
Ms. Tubbs Jones. And I can take that to the bank, right?
Ms. Weaver. Yes. We argued internally that if there was
going to be a cut to the bank as a whole that small business
not suffer.
Ms. Tubbs Jones. Well, that is good to know.
My colleagues want to follow up. I will yield for a moment.
Yes, ma'am?
Ms. Velazquez. No, I just would like to hear their
interpretation of her statement regarding that.
Mr. Petrilla. May I respond to that?
Ms. Tubbs Jones. Yes, you may.
Mr. Petrilla. From our point of view as a bank that is
doing this kind of business, we would aggressively fight any
cut in the existing budget of Ex-Im Bank. How we see it at the
ground level is not that there is going to be a cut in this
program or that program, but what happens is we have
transactions that come in and we cannot get an authorization
from Ex-Im Bank because they have no authorization left at the
end of the fiscal year. That transaction is going to go away or
more practically speaking on the administrative side
transactions do not gethandled in an efficient and timely
manner, so they go away. They are lost to competition or the exporter
gets frustrated and pretty soon he is not selling overseas or she is
not selling overseas and that business goes away.
So without pinpointing program by program, we as a bank
that funds international exports and uses Ex-Im Bank
extensively, we would be extremely disappointed to see any
budget cut. Overall, it is going to slow down the process and
the business.
Ms. Tubbs Jones. My next question----
Go right ahead, Mr. Watters.
Mr. Watters. I will just echo my fellow panelist's
comments. As I said before, I think it is a very bad signal to
exporters of this country that you are reducing the Ex-Im
Bank's budget by 25 percent. That is not a good signal or a
good sign for us. If these funds could be used in a different
way, increasing the staff to expedite the processing of export
transactions through the bank would help enormously. I have a
saying within my own company, time kills deals. And when you
make applications in to the Ex-Im Bank, and they are working at
full capacity now, but it takes a month or six weeks to get
approvals, to get things done, that can kill a deal,
particularly for a small business.
Ms. Tubbs Jones. Well, if I gave you $100 one week and the
next week I gave you $75 to go to the grocery store, you would
be in trouble, would you not?
Mr. Petrilla. Yes, ma'am.
Ms. Tubbs Jones. Okay. Thanks.
Let me go ask another question of you, Ms. Weaver. What
types of technical assistance does Ex-Im offer now will you
continue to do this in the face of the budget cuts for
technical assistance, working their way through the process,
businesses working their way through the process?
Ms. Weaver. We have actually asked for an increase in our
administrative budget to ensure that any of the kinds of
outreach programs and marketing programs are not affected in a
serious detrimental way.
Ms. Tubbs Jones. You have asked for an increase in your
administrative budget to compensate for the decrease in the
dollars available otherwise?
Ms. Weaver. Well, no. What we did is we asked for an
increase in the administrative budget so that our staff could
continue to reach out to businesses and let them know about Ex-
Im Bank and to process their applications when they came in. We
think we will have enough--we know we will have enough on the
program budget side to support small businesses when they ask
us for financing.
Ms. Tubbs Jones. I am going to give you my $75 to work with
since you can work magic like that.
I yield the balance of my time, Mr. Chairman.
Mr. Shuster. Thank you, Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Petrilla, some opponents of the Ex-Im Bank have argued
that the proposed cuts in the budget will provide an
opportunity for private insurers to play a larger role in the
export market and they also argue that because private insurers
do not have U.S. content requirements their policies are more
flexible.
In your opinion, are there private insurers out there who
are champing at the bit to make these deals for small
businesses?
Mr. Petrilla. In other words, that private insurers would
like to see the 25 percent budget cut?
Ms. Velazquez. Sure.
Mr. Petrilla. No, I do not believe that at all. I think
that private insurers are aggressively underwriting cross-
border risk and they see a significant role for themselves, but
they also see a significant and important role for Ex-Im Bank.
When private underwriters will not mitigate the risk because of
the country, term or other considerations, this is the role of
Ex-Im Bank. I do not think that they would be licking their
lips saying, wow, this is going to give us more business. They
are--there is a lot of capacity in the underwriting market,
they are writing a lot of business. I think that the overall
U.S. Exporters need to be supported by a vibrant consistent
export credit agency and that is to their benefit as well.
Ms. Velazquez. So who in your opinion will fill the gap
left by the 25 percent cut and provide the export credit
insurance that will allow small businesses to compete in the
international market?
Mr. Petrilla. I do not know if the gap will be completely
filled, if that happens, at all. Transactions will go
unfinished. They will not get done. And more and more
manufacturers may consider manufacturing overseas where they
can get other export credit insurance support or they will
simply lose to competition. I do not think the gap will be
filled.
Ms. Velazquez. Mr. Watters, would you like to comment on
that?
Mr. Watters. With respect to--I do not have that much
experience with private insurance, although I have some, they
generally follow the lead of the Ex-Im Bank. I mean, really,
they are not participating in some of these, for example, these
sub-Sahara areas. We would not be able to do the deals that we
are doing in some of the countries that I mentioned based on
private insurance companies. So I would have to agree with my
fellow witness here that the gap would probably not be filled
and we would not be able to do the deal. The deal would be
lost.
Ms. Velazquez. Ms. DeDoncker.
Ms. Dedoncker. I really cannot comment on the private
insurers but it seems like we are talking about keeping
everything even and this is a time when we should be adding new
programs, becoming more aggressive rather than keeping the
status quo of what it has been in the past when maybe export
has not been as important as it is now and will be in the
future.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Shuster. Thank you.
Mr. Davis, do you have any further questions?
Mr. Davis. For the Export-Import Bank, what is the cap for
small businesses?
Ms. Weaver. There is no cap.
Mr. Davis. So when you say small business, I mean, what is
a small business? When do you stop being a small business?
Ms. Weaver. We use the SBA definition.
Mr. Davis. All right.
Ms. Weaver. With respect to the insurance programs, we
expect no decrease or a gap in insurance because our insurance
programs do not come out of the program budget, so the program
budget can be cut or increased dramatically and it would not
affect the insurance program, so we will continue to do the
full scale insurance programs and provide policies to small
businesses who request it.
Mr. Shuster. Thank you.
Further questions?
Ms. Velazquez. Seems like there is two different
interpretations here, one from the small business bank and the
Export-Import Bank.
Thank you, Mr. Chairman.
Mr. Shuster. Thank you.
I think it is pretty clear from the questioning today that
many of the members of this committee will fight to see
increased funding for this program.
Ms. Velazquez. I am not going to do anything. She is saying
that it is fine.
Mr. Shuster. Well, again, we have the ability to weigh in
on this.
Again, I want to thank all the witnesses for coming out
today. We certainly appreciate you taking the time and sitting
before us and giving us the information you have. Thank you
very much.
The committee meeting is adjourned.
[Whereupon, at 12:00 noon, the committee was adjourned.]
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