Export-Import Bank: Background and Legislative Issues

Export-Import Bank: Background and Legislative Issues

Order Code 98-568 E
Updated March 10, 2003
CRS Report for Congress
Received through the CRS Web
Export-Import Bank:
Background and Legislative Issues
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
The Export-Import Bank is the chief U.S. government agency that helps finance
American exports.1 With a budget of around $600 million, the Bank finances about 1%
of U.S. exports a year. Eximbank provides guarantees and insurance to commercial
banks to make trade credits available to U.S. exporters. The Bank also offers direct
financing to U.S. exporters on a limited basis, primarily to counter subsidized trade
credits offered to foreign exporters by their governments. On February 20, 2003,
President Bush signed P.L. 108-007 (H.J.Res. 2), which appropriated $541 million for
the Bank’s subsidy costs, or 25% below the $727 million appropriated in FY2002, and
$68 million in administrative expenses. For FY2004, the President’s budget
recommends appropriating no additional funds for the Bank’s subsidy costs, relying
instead on using the Bank’s unexpended balances from previous years, and $75,394,668
for administrative expenses. The Bank’s authority was renewed through September
2006 when President Bush signed P.L. 107-189 on June 14, 2002. This report will be
updated as events warrant. Additional information on this and other trade-related issues
is available from the CRS Electronic Briefing Book on Trade at:
[http://www.congress.gov/brbk/html/ebtra1.html].
Background
The Export-Import Bank (Eximbank) is an independent U.S. government agency that
is charged with financing and promoting exports of U.S. goods and services. To
accomplish these goals, Eximbank uses its authority and resources to: assume commercial
and political risks that exporters or private financial institutions are unwilling, or unable,
to undertake alone; overcome maturity and other limitations in private sector export
financing; assist U.S. exporters to meet foreign, officially sponsored, export credit
competition; and provide guidance and advice to U.S. exporters and commercial banks
and foreign borrowers. The Bank operates under a renewable charter, the Export-Import
Bank Act of 1945, as amended, and has been authorized through September 30, 2006.
1 For additional information, see the Bank’s Internet address: [http://www.exim.gov]
Congressional Research Service ˜ The Library of Congress

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When it was initially established, the Bank was capitalized by an appropriation of
$1 billion from the U.S. Treasury. The Bank also is authorized to borrow up to $6 billion
directly from the Treasury, and it may draw upon a substantial line of credit with the
Federal Financing Bank (FFB). (The Federal Financing Bank is a part of the Department
of the Treasury and obtains its funds from regular Treasury issues.) Eximbank uses its
Treasury borrowings to finance its short-term needs, and repays the Treasury quarterly
from loan repayments and by borrowing from the FFB on a medium- and long-term basis.
The Bank’s authority to lend, guarantee, and insure is limited to a total of $80 billion in
2002, but will increase by $5 billion a year to reach $100 billion in 2006. Eximbank’s
direct loans are charged at their full value against the $75 billion limitation, while only
25% of guarantees and insurance are charged against the limit.
Before the Budget Enforcement Act of 1990, Congress set annual authorization
limits on the maximum amount of new loans, insurance, and guarantees the Bank could
extend, and appropriated funds only for Eximbank direct credits. Under the terms of the
new budget rules imposed by the 1990 Act, Congress appropriates the estimated amount
of subsidy the Bank expects to expend throughout all of its credit programs, including
direct loans, guarantees, and insurance, as indicated in Table 1. Congress no longer sets
separate limits on the amount of loans, guarantees, and insurance the Bank can authorize,
but the Bank continues to provide estimates of the amounts of activity it expects to
undertake.
Programs
Eximbank has three main programs it uses to finance U.S. exports: direct loans,
export credit guarantees, and export credit insurance. Prior to 1980, the Bank’s direct
lending program was its chief financing vehicle, which it used to finance such capital-
intensive exports as commercial aircraft and nuclear power plants. Both the budget
authority requested by the Administration and the limitation approved by the Congress
for the Bank’s direct lending were sharply curtailed during the 1980s.
Eximbank’s direct lending program is used primarily to aid U.S. exporters in
instances where they face a foreign competitor that is receiving officially subsidized
financing by a foreign government. These loans carry fixed interest rates and generally
are made at terms that are the most attractive allowed under the provisions of international
agreements. They are made primarily to counter attempts by foreign governments to sway
purchases in favor of their exporters solely on the basis of subsidized financing, rather
than on market conditions (price, quality, etc.), and to enforce internationally agreed upon
terms and conditions for export financing. The Bank also has an Intermediary Credit
Program it uses to offer medium- and long-term fixed-rate financing to buyers of U.S.
exports, but U.S. exporters also must face officially subsidized foreign competition to
qualify for this program.

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Table 1. Budget of the Export-Import Bank
(in millions of dollars)
FY98
FY99
FY00
FY01
FY02
FY03
FY04
Total Subsidy Requested
632
808
839
963
633
541
0
Total Subsidy Appropriated
683
765
865
865
727
541
NA
–
–
–
–
–
Operating Expenses
775
727
2,656
1,815
1,256
364
534

Direct Loan Subsidy
16
53
12
95
48
25
18
Guarantee Loan Subsidy
701
603
890
732
678
188
422
Loan Modifications
12
21
35
5
26
19
19
Administrative Expenses
46
50
55
62
63
68
75
Re-estimates of Subsidy Costs
–
–
1,663
668
441
64
--
Budget Authority (gross)
732
825
2,474
1,848
1,182
654
76
Appropriated
683
765
865
928
740
609
75
Other
49
60
1,609
919
442
45
1
Budget Resources
1,155
1,207
2,999
2,331
1,838
1,007
Budget Authority (gross)
732
825
2,474
1,848
1,182
654
76
Recoveries from previous years
124
48
45
118
118
90
90

Expired resources
-46
–
–
–
–
–
--
Unobligated resources start of year
299
334
480
358
514
557
955
Unobligated resources end of year
334
480
358
514
557
955
586
Budget Authority (net)
732
825
2,474
1,847
1,181
653
75
Outlays (net)
686
746
2,539
1,655
1,245
906
640
* Indicates requested, or estimated amount
Source: Office of Management and Budget. Budget of the United States Government, various issues.
Washington, U.S. Govt. Print. Off.
As part of its direct lending program, the Bank has a tied aid “war chest” it uses to
counter specific projects that are receiving foreign officially subsidized export financing.
Tied aid credits and mixed credits are two of the primary methods whereby governments
provide their exporters with official assistance to promote exports. Tied aid credits
include loans and grants which reduce financing costs below market rates for exporters
and which are tied to the procurement of goods and services from the donor country.
Mixed credits combine concessional government financing (funds at below market rates
or terms) with commercial or near-commercial funds to produce an overall rate that is
lower than market-based interest rates and carries more lenient loan terms. The United
States does tie substantial amounts of its agricultural and military aid to U.S. goods, but
it generally has avoided using such financing to promote American capital goods exports.
Funds for the tied aid war chest are available to the Bank from the Treasury
Department and are subtracted from the Bank’s direct credit resources. As part of its

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“Reinventing Ex-Im Bank” process, the Bank has become more aggressive in matching
foreign tied aid credits in foreign markets and in offering greater choices of financing for
exporters to counter foreign offers of tied aid. Under this initiative, the Bank intends to
intervene at an earlier stage in the negotiating process to counter financing offers made
by foreign competitors. The Bank has also extended its tied aid support to help small
businesses that face foreign tied aid competition.
Guarantees and insurance are the main programs the Bank uses to assist American
exporters. Both programs reduce some of the risks involved in exporting by insuring
against commercial or political uncertainty. There is an important distinction, however,
between the two programs. Insurance coverage carries with it various conditions that
must be met by the insured before the Bank will pay off a claim. A guarantee is an
ironclad commitment made to a commercial bank by the Export-Import Bank that
promises full repayment with few, if any, conditions attached. In addition, Eximbank has
a Working Capital Guarantee Program that it uses to aid small- and medium-sized
businesses. Businesses that qualify have exporting potential but need working capital
funds to produce or market their goods or services for export. Guarantees are offered to
qualified lenders (primarily commercial banks) in order to facilitate loans to small
businesses.
Recent Developments
In September, 2002, Eximbank Vice Chairman, Eduardo Aguirre, announced that
the Bank had adopted major changes in its internal organizational structure to improve its
customer service. The Bank created three new divisions: a Export Finance group; a
Credit and Risk Management group; and a Communications group. The Export Finance
group will have complete responsibility for all of the Bank’s programs from development
to disbursement, providing the Bank’s customers with a “streamlined process regardless
of which product is being sought.” The Credit and Risk Management group is expected
to provide consistent standards for risk management, including credit standards and
underwriting, credit review and compliance, country risk and economic analysis, and
engineering and environmental analysis. The Communications group is expected to tailor
information to the specific needs of various segments of the Bank’s users.
International Agreements
The United States generally opposes subsidies for exports of commercial products.
(Nevertheless, like most countries, the United States has in place procurement policies
that seek to assure that most foreign assistance funds are spent on U.S. goods and
services.) Since the 1970s, the United States has led efforts within the Organization for
Economic Cooperation and Development (OECD) to adopt international protocols which
reduce the subsidy level in export credits by raising the interest rates on government-
provided export credits to market levels.
Countries that signed the OECD Arrangement (all OECD countries except Turkey
and Iceland) on export finance, concluded in November 1991, agreed to tighten further
restrictions on the use of tied-aid. The participants agreed that projects that would be
financially viable with commercial credits will be prohibited from using tied or partially
untied aid credits, except for credits to the least developed countries where per capita

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income is below $2,465. Moreover, the agreement sets up tests and consultation
procedures to distinguish between projects that should be financed on market or official
export credit terms, and those that legitimately require such aid funds.
U.S. exporters and others have expressed doubts about the effectiveness of
international efforts to stem officially subsidized trade financing. While the OECD
agreement appears to be reducing most direct government subsidies to trade financing,
a number of countries have found a way around the agreement through market windows,
or subsidized trade financing through ostensibly private financial institutions that are not
subject to the agreement. The agreement also has a number of limitations, including: the
difficulty of defining commercially viable projects; and the presence of an “escape clause”
that allows countries to proceed with a tied aid offer, despite objections by other
participants, if that country claims that the project is in its national interest. Moreover,
the Agreement contains no explicit enforcement mechanism. The effectiveness of the
Agreement also depends on the accuracy and openness of tied aid offers reported to the
OECD, but the OECD does not confirm or verify the accuracy of the data provided by its
members.2
Legislative Issues
On June 14, 2002, President Bush signed P.L. 107-189 , the Export-Import Bank
Reauthorization Act of 2002. In contrast to attempts during previous Congresses to
eliminate the Bank, the 2002 Act likely will strengthen the Bank in a number of ways and
increase its role, both domestically and internationally, in promoting U.S. exports. Two
of the most important provisions of the Act include a sense of Congress that requires the
Bank to prepare a human rights impact assessment for any project over $10 million, and
a prohibition on supporting any project that is subject to import relief measures or
countervailing duty orders. On September 6, 2002, the Bank published a draft proposal
of the procedures that it expects to follow in order to abide by the provisions of the Act.
Other provisions of the Reauthorization Act include: designating assisting U.S. job
growth as the purpose of the Bank’s programs; extending Eximbank’s authority through
2006; authorizing the appropriation of $80 million in administrative expense to upgrade
the Bank’s technological infrastructure; increasing the Bank’s overall credit limitation;
extending the Office on Africa through September 30, 2006; requiring the Bank to
coordinate with the Secretary of the Treasury to adopt a set of principals for approving
uses of its tied aid fund, with transactions subject to review by the President; expanding
the Bank’s authority to use its tied aid fund to counter untied aid and market windows
activities; directing the Secretary of the Treasury to explore international negotiations on
untied aid and requiring an assessment of the impact of market windows and prospects
for negotiations within the OECD; increasing from 10% to 20% the share of Bank
financing for “socially and economically disadvantaged” small businesses; clarifying the
Bank’s definition of human rights to include the Universal Declaration of Human Rights
adopted by the United Nations General assembly; in considering an application for
Eximbank programs the Bank can consider the extent to which a nation has been helpful
2 Competitor’s Tied Aid Practices Affect U.S. Exports. General Accounting Office. Report No.
GGD-94-81. May 1994. p. 19-21.

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in eradicating terrorism; appointing an Inspector General; and expanding the Bank’s
authority to promote goods and services related to renewable energy sources.
Eximbank Debate
One rationale for the Export-Import Bank is the acknowledged competition among
nations’ official export financing agencies, but most economists doubt that a nation can
improve its welfare or level of employment over the long run by subsidizing exports.
Economic policies within individual countries are the prime factors which determine
interest rates, capital flows, and exchange rates, and the overall level of a nation’s exports.
This means that, at the national level, subsidized export financing merely shifts
production among sectors within the economy, rather than adding to the overall level of
economic activity, and subsidizes foreign consumption at the expense of the domestic
economy. This also means that promoting exports through subsidized financing or
through government-backed insurance and guarantees will not permanently raise the level
of employment in the economy, but it will alter the composition of employment among
the various sectors of the economy. Some opponents further argue that, by providing
financing or insurance for exporters that the market seems unwilling, or unable, to
provide, Eximbank’s activities draw from the financial resources within the economy that
would be available for other uses. Such “opportunity costs,” while impossible to
estimate, could be potentially significant. Another consideration is that subsidized export
financing raises financing costs for all borrowers by drawing on financial resources that
otherwise would be available for other uses, thereby possibly crowding out some
borrowers from the financial markets. This crowding-out effect might nullify any positive
impact subsidized export financing may have on the economy.
Some Eximbank supporters maintain that the Bank’s programs are necessary for U.S.
exporters to compete with foreign subsidized export financing and also to pressure foreign
governments to eliminate concessionary financing. As a result, Eximbank is required in
the Bank’s Act to provide U.S. exporters with financing terms that are “competitive” with
those offered by other official trade financing institutions. These, and other supporters
of the Bank, also stress that deficiencies in financial markets bias those markets against
exports of high value, long-term assets.