Mr. Chairman and members of the Committee, thank you for the opportunity to testify today on the 2002 National Export Strategy. I am Bill Reinsch, President of the National Foreign Trade Council. The National Foreign Trade Council’s approximately 400 members are comprised of leading U.S. exporters and financial institutions actively engaged in the global marketplace, where the competition for market share and export sales is fierce.
The NFTC strongly supports the recommendations in the 2002 Export Strategy Report and urges their full implementation. We applaud the Bush Administration for its recognition of the vital tools and role of the U.S. government in providing export promotion support, including advocacy and last resort government financing and insurance for U.S. exports and investment in emerging markets. The strategic approach outlined in the report is vital to American businesses, large and small, and we strongly commend Secretary Evans and the Trade Promotion Coordinating Committee (TPCC) for its leadership in this area.
THE 2002 NATIONAL EXPORT STRATEGY SHOULD BE SUPPORTED AND IMPLEMENTED
The National Foreign Trade Council has an active Export and Project Finance Committee. Its goals include identifying the policies and practices at U.S. export-related agencies that make U.S. companies less competitive overseas and working toward the implementation of changes that would effectively increase U.S. exports of goods and services. While working to improve the policies of agencies like Ex-Im Bank and OPIC, we are at the same time staunch supporters of these and other trade-related agencies and functions, because they are an essential element of U.S. success in global markets. In that regard, we urge Congress to quickly complete the conference on the pending legislation to reauthorize Ex-Im Bank.
I would like to cite an example of one of our member companies to illustrate the importance of U.S. support for its exporters and the need to fully implement the National Export Strategy’s strategic vision and recommendations. Until the late 1990’s, Foster Wheeler — a company that manufactures power-related equipment and provides engineering and construction services — sold U.S.-manufactured boilers to China with Ex-Im financing. One contract alone utilized over three hundred million dollars worth of U.S.-made goods. These goods were purchased from small, medium and larger companies in over 20 states. After a couple of years of highly successful sales to China, it became necessary to obtain project financing as the Chinese could no longer offer a sovereign guarantee. Ex-Im was not willing to provide this type of financing at the time, and Foster Wheeler was forced to manufacture the boilers in Spain or lose the sale to foreign competition. Spain’s export credit agency was delighted to finance this project and all of the contracts that came after in the next several years. Well over a billion dollars worth of power generation equipment was ultimately manufactured in Spain instead of the U.S. because of the lack of U.S. export financing. In the end, the Chinese buyers became comfortable with the Spanish financing entity and its practices. The market for those goods was lost to Spain, even after Ex-Im began to offer project financing in China. Even today, Chinese buyers will cite concern over Ex-Im financing reliability in comparing potential suppliers, not just in the power sector, but in many different industries. NFTC members fight on a daily basis to convince buyers that we can be as cost-effective, efficient and reliable as exporters from other countries.
The changes called for in the National Export Strategy will help the U.S. regain lost ground to foreign-made goods. It will lead to more efficient and competitive U.S. government export promotion policies and tools and will proactively counter foreign competition that is strongly backed by foreign government financing and advocacy. Foreign competitors’ government officials make it their priority to identify opportunities and promote their exports. Our competitors do not hesitate to say to foreign clients that their countries will be more supportive, more reliable, and more cost-effective in providing services to their exporters. Until we make the kinds of changes identified in the 2002 National Export Strategy, our foreign competition will not be entirely wrong.
U.S. GOVERNMENT SUPPORT FOR EXPORTING ESSENTIAL
The NFTC is gratified that the Administration recognizes the important role of the U.S. government in countering the aggressive export promotion practices of foreign governments on behalf of their exporters and the need to ensure agencies like the Ex-Im Bank, OPIC and TDA, as well as the Commercial Service, function in a manner that helps U.S. companies be more competitive abroad.
The 2002 National Export Strategy outlines the way forward in a number of key areas. It emphasizes the importance of opening up new markets for our exporters and ensuring that they have access to high quality programs and services. It focuses on developing a true partnership between the U.S. government and companies that manufacture or sell their goods and services. Most importantly, it states clearly and unequivocally that the U.S. government will not make excuses for supporting global trade, but will embrace it as the key to a stronger U.S. economy and the survival of its small, medium and larger companies. This is a message that our companies need to hear, but it is even more urgent that potential foreign buyers of U.S. goods and services hear it. When the message getting through to these potential buyers is that our country prefers to use trade as a weapon; that boycotts and sanctions are more our focus than promoting the sales of our goods and services; it is difficult to convince them that our signature on a contract is an assurance that they will have goods in their harbors by the time construction begins. If we are to provide our smaller businesses with opportunity for growth and create new markets for our companies, we have to demonstrate our unwavering commitment to global trade.
IMPACT OF GOVERNMENT SUPPORT IN PROJECT IDENTIFICATION
Identifying project opportunities early is of the utmost importance. Foreign competitors have extensive formal and informal support systems within their governments that allow their small, medium and larger enterprises to get in well ahead of U.S. firms on project opportunities. Often our foreign competitors have not only been made aware of the opportunity before us, but their government officials have already had informal discussions with local officials about designing the project to fit their exporters’ skills and technologies. The National Export Strategy is providing, for the first time, a real plan for giving U.S. companies the knowledge they need to sell U.S. goods and services overseas. It recognizes the importance of information and is designed to make U.S. companies more competitive.
The proposals for a single web site for trade opportunity information and joint training on promotion and trade finance for the various agencies will allow the identification of projects early and will put us in a much stronger position. U.S. companies will finally come close to having the “one stop shop” we have been talking about for years.
FINANCING IS INCREASINGLY KEY
Companies of any size today find that financing is essential to winning bids or selling their goods overseas. Recent economic and political issues have affected the availability of private finance and private political risk coverage. Because most projects today are not going to receive sovereign guarantees, the availability of private financing cannot be determined by a quick glance at a country’s credit rating. Although a commercial loan may be available for one type of project in a country, other types of projects in the same country may never be able to obtain private financing. Today, NFTC member companies cannot even bid without providing detailed information on the financing they plan to use. U.S. companies must have greater confidence in the availability and reliability of government-provided financing in order to compete globally. It is important to note that agencies like Ex-Im and OPIC are agencies of last resort. They fill gaps that the private sector has left open.
The National Export Strategy’s call for early indications of financing from government entities such as Ex-Im Bank is essential to the ability of U.S. exporters to compete. Foreign competitors are almost always able to present their financing packages with greater confidence because their export credit agencies are willing to commit to financing at much earlier stages. In addition, our competitors can point to too many cases in the past where our financing entities took so long to decide on a particular loan that the opportunity was long gone by the time they made up their minds. It is detrimental to the U.S. economy to limit the ability of our companies to sell their goods and services overseas. In those cases where U.S. companies are willing to deal with the extensive requirements of agency financing and pay the millions of dollars in fees and interest that are required to obtain the loans, you can be assured that there is no private financing that would have sufficed. The U.S. government agencies that provide financing and political risk coverage exist because there is a real need, and companies are willing to pay for those services when they are needed.
A large project that one of our member companies is currently working on will eventually involve financing from several export credit agencies. One of the first steps taken for this project was to determine where financing would be available. Once that could be determined, procurement plans were made. Over a billion dollars worth of goods and services will ultimately be procured for this project, and if Ex-Im Bank had not been available, the U.S. would have gotten almost none of the business. More importantly, as this is the first of several very large projects, the absence of U.S. procurement in this project would have shut out U.S. exporters of future projects worth several billion dollars. Hundreds of small and medium companies in the United States will eventually owe much of their revenues to the fact that Ex-Im Bank was committed to participating in this project and able to commit to it early on.
The National Export Strategy deals with tied aid and untied aid, two topics of constant discussion in the exporter community. Our competition often wins deals by offering packages of financing that exceed U.S. capabilities. The United States has taken a dramatically conservative approach to financing its own exports. Other countries see this as a top priority and have very proactive agencies that offer tied aid or market window financing as a tool for obtaining business.
The U.S. has historically offered tied aid or aggressive finance terms once U.S. exporters show someone else has already offered it. Often it is difficult to get the data our agencies need to match the financing since our foreign competitors do not generally share with U.S. exporters the full details of their financing plans. By the time U.S. exporters can prove it, they have lost the advantage. The foreign company has won the buyer over with what it is willing to do to win the deal. The importance of the objective in the export strategy to be proactive in offering tied aid financing, market window financing, and other competitive terms in a timely manner cannot be overstated. These are weapons that win business for U.S. exporters and help the U.S. economy.
SMALL BUSINESSES BENEFIT THE MOST
It often takes a long time and a lot of resources to win business overseas, particularly in newly opened markets. Large companies often have the resources to learn about new projects through agencies and relationships they have built in a country. They have the money to place a team in-country if needed to work on the bid and consult with the foreign officials or local buyers on their requirements. More importantly, they have the resources behind them that allow them to stay in a region after they lose the project to a foreign competitor and fight to win future deals. For every one of these larger companies that has the resources to work a market over the long haul, the biggest beneficiaries will probably be small and medium sized U.S. businesses. The NFTC found in a study of suppliers for major projects that thousands of small and medium-sized companies supply goods for projects overseas and millions in revenues are brought into the U.S. economy as a result. More specifically, we found that over 35,000 small and medium-sized companies are “invisible” exporters and major indirect beneficiaries of Ex-Im Bank and OPIC as primary suppliers of goods and services to 13 major U.S. exporters. Very few of these companies have the resources to go overseas themselves and sell goods or build projects. They do not have time, staff or money to dedicate to opening a new market or winning a competitive bid. They sell goods, employ workers and earn money when larger U.S. companies win bids or build projects. There are important multiplier effects throughout the U.S. economy when a large scale overseas project is won by larger U.S. firms.
Many of the services noted in the National Export Strategy will open up new possibilities for smaller firms willing to look overseas. Those who see strong market potential in a particular country will be able to take advantage of “Export.gov” to find the opportunities where they are most likely to be successful. By utilizing the “Early Project Development Teams”, they will be better able to succeed in selling goods and services in new markets. Finally, expanded financing options will make it possible for them to compete with foreign companies and larger entities that may have greater access to funding.
FEED IS ESSENTIAL
Of the many programs and services identified in the National Export Strategy, one of the most beneficial may be the Front-End Engineering and Design or FEED program at TDA. This program would give grants to U.S. companies so that they can do the front-end engineering and design work. It is this work that often determines the type of equipment that will be used and from where it will be procured. By helping U.S. companies develop these designs to get this work, we will be vastly improving the odds that U.S. goods and services will be used in the project. Other countries discovered long ago that he who writes the “specs” has the advantage. It is time for the U.S. to support development of the designs that determine if our goods will sell overseas.
While the National Export Strategy has many positive elements, there are just a few areas that raise questions. First, as was pointed out earlier, other countries support their exporters extensively and with enthusiasm. It seems obvious that we ought to do the same. The NFTC strongly recommends that the use of the term “additionality” not be construed to mean that exporters will have to go through additional contortions to demonstrate that the support of our government agencies is needed. NFTC members do not willingly go through more bureaucracy and live with the many restrictions and costs associated with our government programs unless they have no alternative. U.S. companies turn to U.S. agencies when their support is needed to find a project, win a bid, finance the goods or mitigate the risk. The TPCC report’s strategic vision to support our exporters fully will go a long way to improving U.S. competitiveness. I hope we will not take it away by applying the term “additionality” unfairly.
It is not difficult to imagine a circumstance in which agencies, with the encouragement of interested parties, make the criteria for proving additionality so onerous that U.S. exporters are left unable to get the type of support available to our foreign competitors. Above all, we must remember that the goal of this export strategy is to increase the sale of U.S. goods and services, open markets to U.S. companies and ensure that our companies are prepared to seize opportunities. Hindering our companies from competing effectively would be counter-productive to the U.S. economy.
This Administration has gone a long way toward making us more competitive through the National Export Strategy. Rapid implementation of the policies and practices outlined in this strategy is essential to ensuring that we do not lose further ground. If we are to compete against Japan, Germany, Korea and the many others who see exporting and strengthening their companies as their top priority, then we must admit that this is a key goal of ours as well. No half measures will obtain the results needed, no excuses will make our companies stronger or improve our economy. This is a time for full, unconditional support for U.S. exporters and a commitment to the future of a world of global trade.
Thank you for the opportunity to testify.