Ex-Im Differs from the Other G-7 ECAs in Several Important Ways, Including Its Explicit Mission to Promote Domestic Employment

Ex-Im is different from other G-7 ECAs in several significant ways,  including its mission, which is explicitly focused on creating domestic jobs  through exports. As an independent government agency, Ex-Im’s governance and  organization type differ from those of other ECAs, which range from  government departments to private companies contracted by  governments. Ex-Im Has Specific Mandates on Small Business and Environmentally Beneficial Exports where Other G-7 ECAs Have Broad Directives

Ex-Im receives mandates from Congress that include specific targets in  the areas of small business and environmentally beneficial exports,  whereas some other G-7 ECAs have been given broad directives to focus  on these areas by their governments or ministries. Ex-Im Has Additional Mandates and Legal Requirements that Other ECAs Generally Do Not Have

Ex-Im has additional mandates and legal requirements that other ECAs  generally do not. Requirement to ship certain exports on U.S.-flagged carriers. Other G-7 ECAs generally require between  zero to 51 percent domestic content. Several ECAs have modified their  policies in recent years, often citing the increasingly global content of  industrial production as a primary reason for the change. While Ex-Im has modified its method for calculating the amount of  domestic content in a transaction, its minimum threshold for receiving full  financing for medium- and long-term transactions has not changed since  1987. However, Ex-Im has not conducted a systematic review of its policy in  recent years to assess to what extent the overall impact of the policy is  consistent with Ex-Im’s mission of supporting U.S. jobs. The OECD Arrangement Has Decreased Export Credit Subsidies, but the Increasing Importance of Nonmembers Threatens Its Future Effectiveness

While the scope of the OECD Arrangement has expanded to cover  additional aspects of officially supported export credit terms among  member ECAs, the increasing activities of nonmembers, particularly  China, threaten the future ability of the agreement to provide a level  playing field for exporters. However, these  agreements apply only to officially supported activities of participant  ECAs. Several countries, including Brazil, China, and India, have growing  ECA financing activity but are not part of the Arrangement. Engagement with China and Other Emerging Economies Presents Challenges for the OECD Arrangement

According to officials from the OECD and several G-7 ECAs, engagement  with emerging economies, especially China, on practices related to export  credit financing is increasingly important and presents challenges for the  OECD Arrangement and its participants. Treasury provided a statement concerning  its full support of engaging market economy countries on export credit  issues, but did not state whether it agreed or disagreed with our  recommendation. Ex-Im’s competitiveness reports have  consistently identified its content policy as a major competitive barrier,  with Ex-Im stating in its latest report, published in June 2011, that “Ex-Im  Bank’s content requirements and implementation of those requirements  are significantly more restrictive than those of its G-7 counterparts” and  that “in cases where foreign content exceeds 15 percent Ex-Im Bank’s  policy and practice can have a negative impact on U.S. competitiveness  because it may deter exporters from using Ex-Im’s products.” Ex-Im  reported that its exporters and lenders identified foreign content as their  “most significant impediment to competitiveness.” In terms of changes  made to Ex-Im’s policy over time, our report states that Ex-Im last  changed its level of minimum domestic content required for receiving full  financing for medium- and long-term transactions (85 percent) in 1987  and in 2001 changed its method for calculating the percentage of  domestic content in a transaction. Treasury provided the following response: “Treasury fully supports and  encourages emerging market economy countries with major  medium/long-term export credit programs to join in discussions and  agreements on export credit support, and is actively engaged in that  endeavor.” We describe in the report that member countries, including the  United States, have taken some steps within the OECD and beyond it to  engage emerging market economy countries on export credit issues, and  that the issue of export credits was raised at the U.S.-China Strategic and  Economic Dialogue, a high-level forum between U.S. and Chinese  government officials, including the Treasury Secretary. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to examine (1) Ex-Im’s mission,  organization, market orientation, and product offerings compared with  those of other Group of Seven (G-7) export credit agencies (ECAs), (2)  Ex-Im’s policy requirements compared with those of other G-7 ECAs, (3)  Ex-Im’s domestic content policy compared with those of the other G-7  ECAs, and (4) the role of the Organisation for Economic Cooperation and  Development (OECD) Arrangement in governing ECA activities.
Why GAO Did This Study

The U.S. Export-Import Bank (Ex-Im), the United States official export credit agency (ECA), helps U.S. firms export goods and services by providing a range of financial products. Ex-Im, whose primary mission is to support jobs through exports, has a range of policy requirements, including support of small business. The Organisation for Economic Cooperation and Development (OECD) Arrangement governs aspects of U.S. and some foreign countries ECAs. GAO examined (1) Ex-Ims mission and organization compared with ECAs from other Group of Seven (G-7) countries (major industrialized countries that consult on economic issues), (2) Ex-Ims policy requirements compared with other G-7 ECAs, (3) Ex-Ims domestic content policy compared with other G-7 ECAs, and (4) the OECD Arrangements role in governing ECA activities.

What GAO Found

The United States and other G-7 countries have ECAs that support domestic exports, but Ex-Im differs from other ECAs in several important ways, including its explicit mission to promote domestic employment. The G-7 ECAs range from government agencies to private companies contracted by governments. Most of these ECAs, including Ex-Im, are expected to supplement, not compete with, the private market. Ex-Im offers direct loans, which were increasingly utilized during the recent financial crisis, while European ECAs do not.
Ex-Im has specific mandates in areas where other G-7 ECAs have broad directives. Ex-Im has specific mandates to support small business and environmentally beneficial exports, while other ECAs are broadly directed to support such exports. In addition, Ex-Im has other mandates and legal requirements, such as shipping certain exports on U.S.-flagged carriers and conducting economic impact assessments for large transactions, which other G-7 ECAs do not.
Ex-Ims requirements for the level of domestic content in the exports it fully finances are higher and generally less flexible than those of other G-7 ECAs. Ex-Im requires 85 percent domestic content for medium- and long-term transactions to receive full financing, while other ECAs domestic content requirements generally range between zero and 51 percent. Ex-Ims policy on supporting local costs can result in more foreign content support in some transactions. While Ex-Im has modified its method for calculating domestic content, its threshold for receiving full financing for medium- and long-term transactions has not changed since 1987, and the policy and its overall impact on jobs has not been studied systematically. Other ECAs have modified their policies in recent years, citing increasing global content of industrial production. In its charter, Ex-Im is directed to provide financing competitive with that of other ECAs, as well as to support U.S. jobs.
The OECD Arrangement has expanded to regulate additional aspects of officially supported export credits, but increasing activity of nonmembers threatens its ability to provide a level playing field for exporters. Several agreements have been made that decrease subsidies and increase transparency among ECAs. However, these agreements apply only to participant ECAs, and important emerging countries, including China, are not part of the Arrangement. Officials from several G-7 ECAs and other institutions identified effective engagement with these countries on export credit issues as being increasingly important and presenting challenges for the OECD Arrangement and its participants.

What GAO Recommends

GAO recommends (1) that Ex-Im conduct a systematic review to assess how well its domestic content policy continues to support Ex-Ims mission, and (2) that the Department of the Treasury, with Ex-Im and international counterparts, develop strategies for further engagement on export credit issues with emerging economy countries. Ex-Im stated it considers content policy in its annual competitiveness assessments, but did not comment directly on the recommendation. Treasury stated it supports encouraging emerging market economies participation concerning export credit issues and is engaged in that activity, but did not state whether it agreed with the recommendation.