production.) Economic Impact Analysis Screening Process Identifies Projects for Detailed Analysis

Ex-Im’s economic impact analysis screening process is designed to  identify projects with the most potential to adversely impact U.S. industry;  Ex-Im then conducts a detailed analysis of those projects. Ex-Im’s Charter Specifies Some Analytic Screens, Ex-Im Introduced Others

Ex-Im screens applications for economic impact on the basis of several  characteristics, some that Ex-Im’s charter explicitly requires, others that  Ex-Im established exercising its discretion under the charter. This screen removes  the bulk of applications from economic impact analysis. The remaining applications are subject to detailed analysis. Ex-Im compiles its  findings, along with its conclusion regarding whether the project will  negatively impact the U.S. economy, in a memorandum to the board of  directors. The  components of this analysis include (1) an assessment of whether the  foreign product potentially supported by Ex-Im financing will be in surplus  on world markets—which Ex-Im terms as being “in oversupply,” (2) an  estimate of U.S. production that could be displaced by competition with  the increased foreign production, and (3) the net impact on U.S. trade  flows. This net economic impact assessment  provides the type of analysis that, according to a senior Ex-Im official,  could be informative to a board of directors’ decision to exercise its  discretion in approving applications where, for example, foreign  production could compete with U.S. producers and represents 1 percent  or more of U.S. production. Ex-Im Approved Most Projects Applicable for Economic Impact Review between Fiscal Years 2003 and 2005

Between fiscal years 2003 and 2005, Ex-Im approved financing for about  two-thirds of the projects that involved foreign production of a exportable  good, and that, therefore, were applicable for economic impact review. In  addition, Ex-Im’s internal controls could be strengthened to better ensure  that the identification process and analysis is conducted consistently and  accurately. Ex-Im officials stated  that requests for financing $10 million or less would generally be too small  to increase foreign production by 1 percent or more of U.S. production. Second, we identified a $9.8 million export of mining equipment that  would allow a foreign company to produce an estimated 1.73 percent of  production in a U.S. industry. Detailed Analysis Has Challenges and Certain Limitations

Determining the economic impact of a project is an inherently challenging  process; however, we identified limitations in certain assumptions Ex-Im  makes to estimate potential costs to U.S. producers, and in how it  characterizes the net effect of its financing on the trade balance. In addition, Ex-Im  could increase the process’s transparency by referencing its list of  sensitive sectors in its procedures and publishing the detailed analyses’  outcomes. Second, Ex-Im does not currently publicize the  results of its detailed economic impact analyses. First, while Ex-Im has the discretion  to use screens to identify applications for further review and to allocate its  staff resources effectively, the effectiveness of Ex-Im’s $10 million screen  is uncertain because Ex-Im has not conducted an analysis to determine the  extent to which it identifies projects that could meet the statutory  definition of substantial injury. To improve the public transparency of the economic impact process for  interested and affected parties, we also recommend that the Chairman of  the Export-Import Bank of the United States take the following three  steps:    Clarify publicly available procedures by including more information  regarding Ex-Im’s methodology for analyzing applications, such as  defining how it incorporates “oversupply” determinations in its analysis  and what measures it uses and specifying under what conditions  “proportionality” would be used. In this report, we reviewed   (1) Ex-Im’s overall policies and procedures for determining economic  impact; (2) the extent to which Ex-Im’s procedures provide for the  identification and appropriate analysis of applications that could  potentially cause adverse economic impact; and (3) the extent to which its  policies, procedures, and decisions are transparent to interested and  affected parties.
Why GAO Did This Study

Congress established the Export-Import Bank of the United States (Ex-Im) to encourage U.S. exports. Congress has directed Ex-Im to consider the economic impact of its work and not to fund activities that will adversely affect U.S. industry. In this context, GAO reviewed (1) Ex-Im's policies and procedures for determining economic impact, (2) the extent to which Ex-Im appropriately identifies and analyzes projects that could cause adverse economic impact, and (3) the extent to which Ex-Im's process is transparent. To conduct this work, GAO reviewed Ex-Im's procedures, data on projects applicable for the economic impact process, and detailed economic impact analyses. GAO also interviewed Ex-Im and reviewing agency officials and industry representatives.

What GAO Found

Congress requires Ex-Im to assess whether a project requesting its financial support will negatively impact U.S. industry. Ex-Im uses a screening process to identify projects with the most potential to have an adverse economic impact, and then subjects the identified projects to detailed analysis. A negative finding could result in a denial of Ex-Im support. The screens--either explicitly required by Ex-Im's charter or introduced under the bank's statutory authority--include whether (1) the financed project will increase foreign production, (2) there are trade measures against the resulting product, (3) the resulting product is "undersupplied," (4) the requested financing is over $10 million, and (5) the financed project will increase foreign production by 1 percent or more of U.S. production. Between fiscal years 2003 and 2005, this screening process identified 20 projects (out of 771 applicable) that required a detailed economic impact analysis. In the detailed analysis, Ex-Im assesses whether the resulting product would be in surplus on world markets or in competition with U.S. production. Between fiscal years 2003 and 2005, Ex-Im approved most projects applicable for economic impact analysis, totaling approximately $6.1 billion in approved financing. GAO found challenges and areas for improvement in the screening and detailed analysis of projects for economic impact. The effectiveness of the $10 million screen, introduced under Ex-Im's statutory authority, is uncertain. Ex-Im has not determined whether it removes from review those projects that could meet the statutory definition of substantial injury (producing 1 percent or more of U.S. production in an industry). For example, a $9.9 million financing request that would allow a foreign company to produce an estimated 3.5 percent of U.S. production was screened out of the analysis. GAO also found that Ex-Im could improve some methods it uses in its detailed analyses, such as how it estimates displaced production. In addition, GAO found that Ex-Im could clarify how it characterizes the effect of its financing on the U.S. trade balance. Finally, GAO found that Ex-Im could strengthen the internal controls it uses to ensure that the screening process and detailed analysis are conducted consistently and accurately. GAO also found limitations in the transparency of Ex-Im's economic impact process. While Ex-Im publicly posts its procedures, they contain areas of ambiguity. For example, the procedures do not define the term "oversupply." Also, Ex-Im has not provided all public comments to the board of directors. GAO identified two practices--referencing in the procedures the list of sectors likely to require extra scrutiny and publicizing final economic impact conclusions--that would increase the predictability of the process.