Hon. WARREN G. MAGNUSON, EXPORT-IMPORT BANK OF WASHINGTON, DEAR SENATOR MAGNUSON: As you will see from the attached press release, the Bank and the FCIA are liberalizing the use and expanding the "cover" for exporters provided under our commercial bank guarantee and export credit insurance programs. Principal changes are: (1) Individual transaction limits no longer will be imposed, even in the more difficult markets, although the Bank of course will retain the right in special circumstances to limit its liability or to deny assistance when necessary. (2) Normal cover under guarantees and insurance will be increased from the former 85 percent of loss to 90 percent to match similar increases recently adopted by Britain and Canada. (3) Cover now will be provided also for a part of losses from nonacceptance of the goods by overseas buyers. This will be done in a manner analogous to that available to British and a few other exporters. (4) Other modifications, not sufficiently far-reaching to warrant inclusion in the press release, include deletion of specific prohibition of revolving credits, and of smaller sales to public buyers, in the most difficult markets. These improvements will be available to exporters without increase in guarantee fees or insurance premiums. I am sure you will share with me our pleasure at announcement of these modifications. They should make the guarantee and insurance programs even more helpful in expanding our export trade on a sound basis. Sincerely yours, HAROLD F. LINDER. [Export-Import Bank of Washington-Press release, June 1, 1965] EXPORT CREDIT PROTECTION BROADENED Exporters now have greater protection against risk of nonpayment and greater flexibility in overseas selling on credit. The Export-Import Bank of Washington and the Foreign Credit Insurance Asociation (FCIA) have liberalized their guarantee and insurance programs, effective immediately. Specific limits on the size of short- and medium-term transactions in certain difficult markets are eliminated in both export credit insurance and guarantees. The unprotected portion of supplier credits normally carried by exporters at their own risk has been reduced by one-third-from 15 to 10 percent-subject to some exceptions. FCIA export credit insurance policies, for the first time, may now provide substantial insurance cover for loses due to nonacceptance of goods by overseas purchasers. These modifications have been made at no increase in guarantee fees or insurance premium rates. "TRANSACTION LIMITS" ABOLISHED Eximbank no longer suggests limits on the size of transactions to be insured or guaranteed in specific markets. However, in a relatively limited number of difficult markets, the share of the financed portion to be retained by the exporter will range up to 30 percent. Moreover, when a transaction involves an unusually large amount for a given market. Eximbank reserves the right to fix special conditions, including a higher percentage of exporter participation in the risks, or to decline to assist the transaction. EXPORTER LIABILITY REDUCED Under Eximbank's program of medium-term guarantees to commercial banks, the normal share of the financed portion retained by the exporter has been reduced from 15 percent to 10 percent. Nonrecourse financing by commercial banks covered by Eximbank's guarantees has been increased accordingly. For exports of agricultural commodities, sold on Eximbank-guaranteed credits or with FCIA assistance, exporter retention remains at 5 percent of the financed portion of the sales contract. Under direct Eximbank guarantees, protection has been correspondingly increased from 85 percent to 90 percent. Such transactions include cover for preshipment, leases, engineering, and other services, consignments, and other transactions not included in the insurance (FCIA) or bank guarantee programs. Effective today, shipments by holders of current FCIA short-term comprehensive policies will benefit from 90-percent coverage, rather than 85 percent, on losses due to commercial risks. Political risk coverage under these policies remains at 95 percent. New FCIA policies covering medium-term transactions will provide for the increased coverage of 90 percent of the financed portion on both commercial and political risks. It should be understood, however, that while this is the general rule, it may be necessary that this coverage be reduced under either short- or medium-term policies to compensate for unusually high risks in some kinds of transactions and in certain markets abroad. In addition, FCIA has augmented its guarantee of payment of interest to banks extending medium-term nonrecourse financing to exporters under the "hold harmless" assignment announced March 9. Under these assignments, FCIA now pays interest at the rate of 42 percent on defaulted installments from the due date up to a maximum of 6 months. This guarantee of interest after due date is intended to assist exporters in receiving nonrecourse export financing from commercial banks which obtain "hold harmless" assignments from FCIA. FCIA has set approved credit limits on many overseas buyers for holders of short-term comprehensive policies. Occasionally, some exporters may find it necessary to ship in excess of these limits. Eximbank is now prepared to cover political risks on such shipments in most markets. NONACCEPTANCE COVERAGE BY FCIA FCIA coverage has been broadened in most cases to include most of the loss from nonacceptance of goods by foreign purchasers. For medium-term comprehensive policies, after assumption by the exporter of a first-loss equivalent to 25 percent of the financed portion, the remainder of the loss, up to a maximum of 60 percent of the invoice value, will be paid by FCIA. In the case of shortterm comprehensive policies, after the assumption of a first-loss equivalent to 40 percent of the invoice value, FCIA will insure the remainder of the loss, up to the maximum of its liability under the policy. These improvements in export credit insurance and guarantee facilities, at no increase in cost to exporters, constitute further assistance enabling American exporters to continue to compete in world markets on the basis of price, quality. and service. Increased exports due to these changes will contribute to improvement of our country's balance of payments. The CHAIRMAN. Our first witness this morning is the Honorable Brock Adams, Congressman from the State of Washington. Mr. Adams has introduced similar legislation in the House of Representatives. They are appropriately willing, after these hearings, to pick up and explore the matter further on the House side, so that we might get some action on this proposal. We will be glad to hear from you, Mr. Adams. STATEMENT OF HON. BROCK ADAMS, REPRESENTATIVE IN CONGRESS FROM THE SEVENTH DISTRICT, STATE OF WASHINGTON Mr. ADAMS. Mr. Chairman, Senator Bartlett, Senator Bass. I appreciate very much the opportunity to be here this morning. I thought that I might start as a witness in this proceeding by generally outlining the problem as we see it and, as the chairman mentioned, leave the specifics on particular sales lost and particular problems that have arisen in individual countries to the witnesses that will follow me, and particularly the industry witnesses. I would like to emphasize first that what we are trying to do is to produce a situation in the world where our individual salesmen from private industry in the United States can compete effectively abroad. A change in the complexion of world affairs has occurred in the last 10 years. As we are all aware, in the early stages after World War II we faced a situation of rebuilding certain of the developed nations of the world to a point where they could maintain their own economies. This has been accomplished and they are now in a position where they compete directly with us in many fields. We are now moving to a new concept in our foreign relations, which basically consists of dealing with the underdeveloped nations of the world, the nations that are only now beginning to arrive at a point in their economic growth where they can develop their economies if they receive some help and some assistance. Primarily our problem has been one of trying to analyze this new concept, and in particular, to make our salespeople capable of dealing in this area. One of the biggest problems is the question of financing exports to these countries. The underdeveloped nation, as it starts, does not have sufficient capital to purchase heavy goods directly from our manufacturers. I am talking, for example, about the country that desires to purchase our jet aircraft, heavy farm equipment, or other types of industrial equipment. It will soon find that it does not have funds sufficient to meet even its most basic needs. Then what occurs? If another nation, offering the same type of product-maybe not competitive with ours, maybe not quite as good a product should go to this nation and offer its leaders better terms, that underdeveloped nation has no choice-it must buy where it can finance. It is almost like selling into the market in the United States to those who are not wealthy-some arrangements must be made so that these people can buy on time. This is one of the key purposes of title II of this bill, to provide a vehicle to facilitate our manufacturers' selling efforts. We suggest a vehicle that will place the Eximbank in a position where it will be able, willing, and determined to follow through on making competitive financing available to our exporters as they sell. As a very simple example, let's take, so we won't go to a particular industry, an item called a widget. We have a widget and it costs so much money. We will say it costs $1 million. It is an essential item. We approach an underdeveloped country and say, "We would like to have you buy our widget." They say, "We would like to buy it, but we do not have the cash." Our widget manufacturer then is in a position to say, "All right, we will offer this for sale to you on credit. You pay so much down, and so much a month for it, or so much a year." In such a transaction our average American businessman cannot take the political risks, and he cannot assume the complete soft credit risk of selling into a country where he knows little of the people or their credit background, and therefore he must rely on some type of governmental assistance. The type of governmental assistance we think that can be and would be developed from this bill would be to have Eximbank, guarantee, as it does now, but on a much broader and more flexible basis, the financing provided for our exporters by private banking institutions. It is a simple concept, but an important one. As our manufacturer sells his widget for so much down, he would be financed in that sale as though he were selling to some customer in the United States, except that the guarantee would be provided by the Export-Import Bank, which says, "We will protect this sale." A key portion of this bill is the provision that seeks to change the concept of financing by Export-Import Bank so that our exporters are fully and effectively competitive in financing arrangements with other countries in the development and maintenance of world markets. I trust that during these hearings you will hear a number of specific examples of the problems our people face as they try to sell abroad. I hope that during the course of the testimony the precise figures can be established for you. However, I can give you some general estimates. For example, it is estimated that in the aerospace industry alone there is a potential for $2 billion worth of sales in countries that presently cannot purchase our products because of inadequate financing. In terms of the jobs that are produced in the United States, the significance of selling abroad is obvious. A second important aspect of such financing is its effect on our balance of payments. This is the only type of long-term solution that we can produce for our balance-of-payments problem. We can make short-term, stopgap programs such as our present attempt to return our balance of payments to a favorable balance. But over the long pull the only way to produce credits with the foreign nations is to trade with them, to have them owe us, as you might say, for our products, and in owing us for our products they then owe us dollar balances and the balance of payments becomes favorable for us. We must have an increased favorable balance of trade in order to meet our present commitments abroad. Currently we export more than we import. But we do not export enough more than we import to cover our commitments in the areas of military assistance and our other assistance programs and our capital outflow for private foreign investment. Therefore we must increase our foreign trade. The final general point that I make is that in title I of the bill we are attempting to supplement the type of help that is provided in title II, by moving our commercial people abroad in significant numbers, so they can live and work in the foreign countries and make the contacts essential to promote the necessary foreign sales. There are in the world approximately 135 cities that are either world capitals or contain populations in excess of a million people. In only 93 of these do we have a commercial attaché which means that in the remainder of these countries it is a hit-or-miss proposition. We want to aid our private businessmen in going abroad and developing these markets, and, after they have developed the markets, to produce the financing necessary so they can sell in them. Gentlemen, this is what we hope will be accomplished in the bills that Senator Magnuson and I have introduced. I wish to emphasize most of all that we must increase the financing available for our private businessmen. If we do not do so, then we are going to fail in the competitive race for world trade. And if we fail in the competitive race for world trade, we not only will injure political and diplomatic relationships with these countries, but also our economy will begin to falter because we need the percentage that we sell abroad to keep us in a position of being vital and moving ahead. This margin; the amount that is sold overseas, is in many industries the exact amount by which a given company is able to prosper. This means jobs, this means development for our country, and finally it means the things that I think all of us are very interested in having happen, and that is that we maintain relationships with these emerging and developing countries that are friendly, that are person-to-person type relationships, and that are capable of showing people that we are interested in them, that we want to trade with them, that we want to be involved in their countries. Gentlemen, I believe this is one of the key ways that we produce world peace and that we produce nations that are not hostile to usnot just by giving them money, but by trading with them and by respecting their economies and by saying, "We know you need help now to finance these sales, and we will help you now, and the day may come when you don't need our financing any more. If so, then Godspeed and we are pleased that you arrived at that stage. Until you arrive at that stage we are willing to sell to you on credit because we respect you." I appreciate being able to make this statement. I would be most happy to answer any questions that the committee may have. The CHAIRMAN. Thank you, Brock. I think that was an excellent statement. It probably sums up the whole purpose of the bill. I don't know of anything that could better sum up briefly and clearly the purpose of the bill. I am glad you stressed the fact that in this balance of trade deficit there are certain temporary answers, certain urgencies that we might invoke that might help the situation temporarily. But the only final solution to this is more exports. We are never going to balance our international account books without increasing our exports, no matter how hard we try. One of the big items, as you know, is travel. Americans traveling abroad spend far more than foreigners traveling here. This committee established the so-called U.S. travel service. We have done very well with it. Since 1961 the number of overseas travelers in the United States has increased 86 percent. But when we discuss a gap between about $1 billion spent here by foreigners traveling in the United States and, this year, a staggering total that will approximate $2.1 billion-this is the best estimate of the amount spent by Americans traveling abroad-we are not going to bring those figures together in a long time, although we are hopeful of making progress. That is a major deficit item. The difference must be recovered elsewhere. Increasing our exports is our major hope. Our military expenditures abroad have been cut as far as possible. I just don't know all the answers to it. But the President told me not more than 2 weeks ago that he thought they might be able to decrease that gap, maybe by requiring payments in the currency of the foreign country and things of that kind. I don't think, personally, we will ever make any dent in this by saying that Americans can't buy goods abroad. They are going to buy them anyway, whether we reduce the tax-free allowance to $50 or $5. We tried cutting it from $500 to $100. It made virtually no difference. The answer is in more exports. And I must say, the Department of Commerce has taken the leadership-not being immodest, this committee has pushed them a little, over the years to propagandize more, to help more in world trade development. They have done a pretty good job. But there are many other things to do. |