Rationales Regarding Eximbank Programs

I would first like to discuss the various rationales that have been advanced for and against government involvement in export finance and GAO’s position on this matter. The arguments for and against the programs focus on three issues: (1) trade policy leverage, (2) industry effects, and (3) employment and trade effects. Supporters of the Eximbank export finance programs say that this assistance provides leverage in trade policy negotiations, helps to “level the international playing field” for U.S. business, corrects “market failures,” and helps to increase exports and employment. Trade Policy Leverage

Supporters believe that the Eximbank’s programs (1) help assist U.S. companies to compete against foreign companies that receive similar types of government support and (2) provide leverage in trade policy negotiations. As already noted, the Eximbank is required to seek international agreements to reduce government-subsidized export financing. Others have supported export promotion programs as a way to substantially reduce the U.S. trade deficit. Distribution of Eximbank Financing

During fiscal years 1994 to 1996, the Eximbank provided an annual average of $12.8 billion in export financing commitments (loans, guarantees, and insurance) at an annual average program cost of $877 million. Relative to total U.S. goods exported to these markets, the Eximbank supported about 11 percent of U.S. exports to China, about 22 percent of U.S. exports to Indonesia, about 1 percent of U.S. exports to Mexico, about 93 percent of U.S. exports to Trinidad and Tobago, and about 4 percent of U.S. exports to Brazil. During fiscal years 1994 through 1996, the 15 largest users (lead U.S. exporters or contractors) of Eximbank financing accounted for about $14.4 billion, or about 38 percent, of the Eximbank’s total export-financing commitments made during that period. About 20 percent ($7.5 billion) of the Eximbank’s financing commitments—about 79 percent of its total transactions—went to small business, primarily through its insurance programs. The Eximbank has participated in international (OECD) negotiations to limit the use of tied aid and has used its tied aid capital projects fund to counter foreign countries’ use of tied aid. In sum, the Congress may wish to assess Eximbank’s reauthorization within the context of the international competition. The costs of these programs need to be weighed against their benefits to exporters and the leverage they provide in international negotiations to reduce government support for these types of programs. Total costs are defined as the Eximbank’s program costs and administrative costs. —Aims to be financially self-sustaining. —Hermes and C&L exercise a dual role by operating the government’s export finance programs and offering export finance assistance privately. EDC conducts a significant (42 percent) level of business with Organization for Economic Cooperation and Development (OECD) nations, which influences its profitability. Export Finance: The Role of the U.S. Export-Import Bank (GAO/GGD-93-39, Dec. 23, 1992).
Why GAO Did This Study

GAO discussed issues concerning the reauthorization of the U.S. Export-Import Bank (Eximbank), focusing on: (1) the rationale for and against the Eximbank's programs; (2) the ways in which its assistance is distributed; and (3) foreign competitors' export finance programs.

What GAO Found

GAO noted that: (1) in reviewing the Eximbank's export finance programs, the Congress needs to weigh the benefits to the U.S. economy of the Eximbank's programs against their costs; (2) while there are numerous arguments for and against government export financing programs, the most compelling case for these programs appears to be in helping to "level the international playing field" for U.S. exporters and providing leverage in trade policy negotiations to induce foreign governments to reduce and ultimately eliminate such subsidies; (3) during fiscal years (FY) 1994 to 1996, the top 15 users (lead U.S. exporters or contractors) of Eximbank financing accounted for about 38 percent of the value of Eximbank's financing commitments; (4) during the same period, the Eximbank also reported that 20 percent of its assistance went to support small business; (5) the Eximbank believes that these small business transactions would not otherwise have been financed by private lenders; (6) in geographical terms, China, Indonesia, Mexico, Trinidad and Tobago, and Brazil were Eximbank's top markets in FY 1996; (7) the six major industrialized countries GAO reviewed all maintain various types of export finance assistance programs; (8) although considerable differences exist among these programs, they all help exporters in competing for market share in developing markets by providing varying types of financial assistance (loans, guarantees, and insurance); (9) the Eximbank provides similar types of assistance and also administers a tied aid capital projects fund (also known as the "war chest") as part of its programs; (10) tied aid is concessionary (low interest rate) financing that is linked to the procurement of goods and services from the donor country: (11) the war chest is designed to counter other countries' trade-distorting tied aid practices; (11) Eximbank's assistance programs have cost the U.S. taxpayers about $4 billion over the last 5 years; (12) the Eximbank's programs require substantial levels of taxpayer support and the U.S. government's ultimate objectives continue to be aimed at reducing and eliminating such export financing subsidies and allowing exporters to compete on the basis of price, quality, and service, not subsidized financing; (13) the U.S. government needs to make renewed efforts to use international forums such as the Organization for Economic Cooperation and Development to reduce and eventually eliminate such subsidized export finance programs; and (14) given the growing importance of exports to national economic performance, achieving the objective of eliminating all financial subsidies may prove difficult.