Export-Import Bank: Financing Requirements and Restrictions

Export-Import Bank: Financing Requirements and Restrictions

Order Code RL32007
CRS Report for Congress
Received through the CRS Web
Export-Import Bank:
Financing Requirements
and Restrictions
July 21, 2003
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

Export-Import Bank:
Financing Requirements and Restrictions
Summary
The Export-Import Bank is an independent U.S. government agency that is
charged with financing and promoting exports of U.S. goods and services. The Bank
operates under a renewable charter, the Export-Import Bank Act of 1945, as
amended, and has been authorized through September 30, 2006. Congress has
amended the Bank’s charter at times to meet various objectives, primarily U.S.
foreign policy and international economic goals. These amendments restrict the
Bank’s activities relative to particular types of economic activities or have acted to
advance other U.S. goals and objectives, such as improving workers’ rights,
protecting the environment, or protecting U.S. jobs.
Eximbank’s legislative restrictions mark a clear distinction between the Export-
Import Bank and any commercial financial institution and complicate the
Eximbank’s role as a quasi-banking institution involved in lending and insuring U.S.
export transactions. Some restrictions likely serve primarily to advance very specific
U.S. international economic or foreign policy goals and likely have a limited impact
on the Bank’s activities. Other restrictions, however, may well reduce somewhat the
pool of firms that seek Eximbank’s assistance in promoting U.S. exports. As a result,
this assortment of restrictions and policy objectives often makes it difficult to
determine what standard to apply to assess how well the Bank is performing. This
report details the major restrictions Congress has placed on Eximbank’s activities.
This report will be updated as warranted by events.

Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Congressional Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Production and Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Countries in Armed Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defense Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Marxist-Leninist Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Nuclear Non-Proliferation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Countervailing and Antidumping Duty Orders . . . . . . . . . . . . . . . . . . . . . . . 7
Other Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Implications for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Export-Import Bank: Financing
Requirements and Restrictions
Overview
The Export-Import Bank 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. 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 operates under a renewable charter, the Export-
Import Bank Act of 1945, as amended, and has been authorized through September
30, 2006. Since Congress established Eximbank it has amended the bank’s statutes
at various times to restrict Eximbank’s ability to approve transactions with firms
involved in certain specified activities.
Eximbank has three main programs it uses to finance U.S. exports: direct loans,
export credit guarantees, and export credit insurance. 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. 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.
Congressional Restrictions
When Congress established the Bank in 1947, it directed the Bank to “aid in
financing and to facilitate exports and imports and the exchange of commodities and
services,” and to assist small businesses. Over the years, Congress has added various
requirements that restrict the Bank’s actions. Congress has directed the Bank to offer
terms and conditions that are “fully competitive with the Government-supported rates

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and terms and other conditions”1 from U.S. exporters’ principal competitors, while
pursuing “international agreements to reduce government subsidized export
financing.”2 In addition, Congress has directed the Bank to extend its services to
projects that “offer reasonable assurance of repayment.”3 Congress also restrains the
Bank by directing it to “supplement and encourage, and not compete with, private
capital”4 and instructing it to “involve private capital in support of United States
exports.”5
Congress has also directed the Bank to consider as a requirement for approval
“any serious adverse effect” of the Bank’s programs “on the competitive position of
United States industry, the availability of materials which are in short supply in the
United States, and employment in the United States.” In particular, Congress has
directed the Bank to emphasize “strengthening the competitive position of United
States exporters and thereby of expanding total United States exports.”6 Congress
also restricts the Bank’s ability to deny applications for credit for nonfinancial or
noncommercial factors. These conditions are determined by the President of the
United States after consulting with the House Banking and Financial Services
Committee (now Committee on Financial Services) and the Senate Committee on
Banking, Housing, and Urban Affairs and must be determined to be in the national
interest of the United States in such areas as “international terrorism, nuclear
proliferation, environmental protection and human rights (including child labor).”7
U.S. Production and Employment
Congress has expressed its concerns that Eximbank’s activities not have a
negative effect on U.S. producers and U.S. jobs. In 1968, Congress directed the Bank
through P.L. 90-2678 to require the Bank’s Board of Directors to consider “any
serious adverse effect of such loan or guarantee on the competitive position of United
States industry, the availability of materials which are in short supply in the United
States, and employment in the United States,” as a precondition for receiving
Eximbank’s support. In 1971, Congress expanded on this role by specifying that the
policy objective of the Bank is to enhance U.S. jobs and incomes. Through P.L. 92-
1269 Congress directed:
It is the policy of the United States to foster expansion of exports of
manufactured goods, agricultural products, and other goods and services, thereby
1 12 USC Sec. 635(b)(1)(A)
2 Ibid.
3 12 USC Sec. 635(b)(1)(B)
4 Ibid
5 Ibid.
6 Ibid.
7 Ibid.
8 Ibid.
9 12 USC Sec. 635(b)(1)(A)

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contributing to the promotion and maintenance of high levels of employment and
real income, a commitment to reinvestment and job creation, and the increased
development of the productive resources of the United States.
In 1978, Congress stated this role again in P.L. 95-630, which amended 12 USC
Sec. 635(b)(1)(B) to include the requirement that the Bank emphasize “the objective
of strengthening the competitive position of United States exporters and thereby of
expanding total United States exports.” At the same time, Congress also added
section 12 USC Sec. 635a-2, which directed the Bank to implement regulations and
procedures to assess the impact of the Bank’s programs on U.S. industries and
employment by reducing demand for U.S.-made goods, or by increasing imports and
to request the International Trade Commission to assess the impact of the Bank’s
programs:
The Bank shall implement such regulations and procedures as may be
appropriate to insure that full consideration is given to the extent to which any
loan or financial guarantee is likely to have an adverse effect on industries,
including agriculture, and employment in the United States, either by reducing
demand for goods produced in the United States or by increasing imports to the
United States. To carry out the purposes of this subsection, the Bank shall
request, and the United States International Trade Commission shall furnish, a
report assessing the impact of the Bank’s activities on industries and employment
in the United States.
In addition, in 1986, Congress required the Bank not to extend any credit or
guarantee if
(i) the commodity is likely to be in surplus on world markets at the time the
resulting commodity will first be sold; or
(ii) the resulting production capacity is expected to compete with United States
production of the same, similar, or competing commodity; and
(B) the Bank determines that the extension of such credit or guarantee will cause
substantial injury to United States producers of the same, similar, or competing
commodity.10
In 2002, Congress emphasized again the importance of U.S. employment in the
Bank’s hierarchy of purposes. Through P.L. 107-189, which amended 12 USC Sec.
635(a)(1), Congress indicated that the “objects and purposes” of the Bank’s programs
is to “contribute to the employment of United States workers.” In stating this
objective even more explicitly, Congress directed that,
The Bank’s objective in authorizing loans, guarantees, insurance, and credits
shall be to contribute to maintaining or increasing employment of United States
workers.
Congress also requires the Bank to make an assessment of both the short- and
long-term economic costs and benefits of the effects of its programs. It
acknowledged that at times, the short-run displacement of firms and workers might
be justified by the long-run benefits to the economy as a whole. As a result,
10 P.L. 99-472 [12 USC 635(b)(12)(e)]

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Congress indicated that the restrictions specified in the preceding section need not
apply when:
in the judgment of the Board of Directors of the Bank, the short- and long-term
benefits to industry and employment in the United States are likely to outweigh
the short- and long-term injury to United States producers and employment of the
same, similar, or competing commodity.11
Countries in Armed Conflict
In 1971, through P.L. 92-126, Congress amended 12 USC Sec. 635(b)(5) to
restrict the Bank from providing its services to any country that engages in armed
conflict with the United States or for goods that might be used in armed conflict with
the United States:
The Bank shall not guarantee, insure, or extend credit, or participate in the
extension of credit in connection with (A) the purchase of any product, technical
data, or other information by a national or agency of any nation which engages
in armed conflict, declared or otherwise, with the Armed Forces of the United
States, (B) the purchase by any nation (or national or agency thereof) of any
product, technical data, or other information which is to be used principally by
or in any such nation described in clause (A), or (C) the purchase of any liquid
metal fast breeder nuclear reactor or any nuclear fuel reprocessing facility.
Defense Articles
In 1968 through P.L. 90-26712 and P.L. 90-390,13 Congress prohibited the Bank
from using its services to export defense and defense-related articles and services.
In 1988, Congress amended this section through P.L. 100-690, which provided a
number of conditions in subparagraphs (B) through (H) under which the blanket
restriction could be waived. These conditions include anti-narcotics purposes;14 the
sale is in the “national interest;”15 the country purchasing the goods has not engaged
“in a consistent pattern of gross violations of internationally recognized human
rights;”16 and the articles are used only for purposes designated under the Arms
Export Control Act.17
11 Ibid.
12 12 USC Sec 635(b)(6), as amended by P.L. 100-690.
13 12 USC Sec 635n
14 12 USC Sec. 635(b)(6)(B)(ii)
15 12 USC Sec. 635(b)(6)(B)(iv)
16 12 USC Sec. 635(b)(6)(D)(II)
17 12 USC Sec. 635(b)(6)(F)

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Marxist-Leninist Countries
In 1968, through P.L. 90-267, Congress established Subsection 2 of 12 USC
Sec. 635(b), which expressly restricted the Bank from providing its services to any
Communist country and designated 30 countries as Communist countries. Congress
amended this restriction in 1986 through P.L. 99-472 to specify that the Bank could
not provide insurance, guarantees, or credit to purchase or lease any product by a
Communist country, including any agency, or national of the country, unless the
President determined that such a transaction was in the U.S. national interest. In
1992, Congress amended this section through P.L. 102-429, which removed the
designation “Communist country” by replacing it with “Marxist-Leninist” country
and reduced to nine18 the number of countries that are Marxist-Leninist.19 The
President can waive this prohibition if he determines that a country is no longer a
Marxist-Leninist country, or that doing so is in the national interest. The President
is required to make such a determination for each transaction over $50 million and
he is required to notify Congress.
Human Rights
The Export-Import Bank’s role in human rights issues arises from Title 12 USC
Sec. 635 Subsection (b)(1)(B). In general, the Bank is prohibited from denying any
application for nonfinancial or noncommercial considerations unless the President,
meaning the President of the United States, in coordination with the House and the
Senate Committees on Banking (in the House, now the Committee on Financial
Services), believes that denying such an application would advance the interests of
the United States in the areas of “international terrorism, nuclear proliferation,
environmental protection and human rights (such as are provided in the Universal
Declaration of Human Rights adopted by the United Nations General Assembly on
December 10, 1948)20 (including child labor).” The Statute further states that:
Each such determination shall be delivered in writing to the President of the
Bank, shall state that the determination is made pursuant to this section, and shall
specify the applications or categories of applications for credit which should be
denied by the Bank in furtherance of the national interest.
These conditions, known as the Chafee Amendment, after its sponsor Senator
John Chafee, were added through P.L. 95-630 in 1978, with the wording on child
labor added through P.L. 105-121 in 1997. Through Executive Order No. 12166,
October 19, 1979, President Carter delegated the responsibility to the Secretary of
State for determining that a denial of credit under the conditions stated above would
be in the interest of the United States. As a result, the main responsibility for dealing
with human rights concerns rests with the Secretary of State, after consultation with
18 The nine countries are: Cambodian People’s Republic; Democratic People’s Republic of
Korea; Democratic Republic of Afghanistan; Lao People’s Democratic Republic; People’s
Republic of China; Republic of Cuba; Socialist Federal Republic of Yugoslavia; Socialist
Republic of Vietnam; Tibet.
19 12 USC Sec. 635(b)(2)(B)(ii)
20 Language in parenthesis was added through P.L. 107-189.

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the House and Senate Banking Committees (in the House, now the Committee on
Financial Services). In addition, through an amendment offered by Senator Patrick
Leahy (P.L. 105-118, Nov. 26, 1997, 12 USC Sec. 635i-8), the Bank is prohibited
from supporting transactions that involve the sale of goods or services to units of a
country’s military or security forces if the Department of State has clear evidence that
such units have engaged in “a consistent pattern of gross violations of internationally
recognized human rights.”
Nuclear Non-Proliferation
Congress has directed that the Bank will not use its services in order to export
“technology, fuel, equipment, materials, or goods or services to be used in the
construction, alteration, operation, or maintenance of nuclear power, enrichment,
reprocessing, research, or heavy water production facilities,” 21 unless it notifies
Congress in writing describing and explaining each such transaction. The Bank is
also prohibited from extending its services to any country that is determined by the
Secretary of State to have: 1) materially violated, abrogated, or terminated nuclear
safeguard agreements under the International Atomic Energy Agency; 2) was not a
nuclear-weapon state prior to October 26, 1977, but detonated a nuclear explosive
device after that date; 3) any country that has willingly aided or abetted after June 29,
1994 any non-nuclear-weapon state to acquire any nuclear explosive device or to
acquire unsafeguarded special nuclear material; or 4) any person who has knowingly
aided or abetted after September 23, 1996, any non-nuclear-weapon state to acquire
any such nuclear explosive device or to acquire unsafeguarded special nuclear
material.22 This prohibition can be waived if the President determines that such a
transaction is in the “national interest,”23 the Secretary of State determines that
countries have taken the necessary corrective measures, that individuals involved in
aiding or abetting non-nuclear-weapon states in acquiring a nuclear explosive device
or unsafeguarded special nuclear material have ceased to do so, or that steps are
being taken to ensure that such activities will not occur.24
Environment
The Export-Import Bank is also subject to Executive Order No. 12144 (44FR
1957) entitled “Environmental Effects Abroad of Major Federal Actions.” The
Executive Order requires federal agencies that take actions that are subject to the
Order to implement procedures that are consistent with the Order. In 1979, through
Executive Order No. 12166 (Oct. 19, 1979, 44 F.R. 60971) and P.L. 95-630 Congress
granted the Bank the authority to deny an application for credit, where, “such action
could clearly and importantly advance United States policy in such areas as
21 12 USC Sec. 635(b)(3)
22 12 USC Sec. 635(b)(3) and (4)(A)
23 12 USC Sec 635(b)(4)(D)
24 12 USC Sec 635(b)(4)(E)

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international terrorism, nuclear proliferation, environmental protection and human
rights.”25
In 1992, through P.L. 102-429 (12 USC Sec 635i-5) Congress required the Bank
to establish procedures to, “take into account the potential beneficial and adverse
environmental effects of goods and services for which support is requested under its
direct lending and guarantee programs.”26 These procedures apply to any transaction
considered by the Bank for a long-term support of $10 million or more, or for which
the Bank’s support is critical, and which may have “significant environmental effects
upon the global commons or any country not participating in the project.”27 In
addition, Congress directed that Bank’s environmental procedures could be used as
a basis for withholding “financing from a project for environmental reasons or to
approve financing after considering the potential environmental effects of a
project.”28
Countervailing and Antidumping Duty Orders
On June 14, 2002, President Bush signed P.L. 107-189 (S. 1372), the Export-
Import Bank Reauthorization Act of 2002. This Act made a number of changes to
the Bank’s charter, including changes in the way the Bank conducts its economic
impact analysis.29 These changes prohibit the Bank from providing loans or
guarantees for exports of goods, primarily capital equipment, that foreign firms can
use to increase their production of goods that are “substantially the same” as products
that are subject to a countervailing or antidumping duty order under title VII of the
Tariff Act of 1930, or a determination under title II (“escape clause relief”) of the
Trade Act of 1974. The Bank is also required to develop a set of policies regarding
exports of equipment that foreign firms can use in the production of items that are
subject to a preliminary, rather than a final, injury determination. As a result of these
changes, the Bank issued a draft of its revised economic impact procedures on
September 6, 2002.
P.L. 107-189 made a number of changes to the statutes authorizing the Bank,
including the conditions under which it must deny its services to U.S. firms for
exporting items to foreign producers that could be used to manufacture items that are
subject to an antidumping or countervailing duty order or a Section 201 investigation.
Under section 18 of P.L. 107-189 (12 USC Sec. 635(e)(2), titled “Outstanding Orders
and Preliminary Injury Determinations,” the Bank is prohibited from extending loans
or guarantees
to an entity for the resulting production of substantially the same product that is
the subject of — (i) a countervailing duty or antidumping order under title VII
25 12 USC Sec 635(b)(1)(B)
26 12 USC Sec 635i-5(a)(1)
27 12 USC Sec 635i-5(a)(1)(A)-(C)
28 12 USC Sec 635i-5(a)(2)
29 For additional information, see: CRS Report RL31646, Export-Import Bank’s Economic
Impact Procedures: An Overview.

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of the Tariff Act of 1930; or (ii) a determination under title II of the Trade Act
of 1974.30
In addition, Congress directed the Bank to
establish procedures regarding loans or guarantees provided to any entity that is
subject to a preliminary determination of a reasonable indication of material
injury to an industry under title VII of the Tariff Act of 1930. The procedures
shall help to ensure that these loans and guarantees are likely to not result in a
significant increase in imports of substantially the same product covered by the
preliminary determination and are likely to not have a significant adverse impact
on the domestic economy.31
Other Restrictions
The Bank is also prohibited from:
Extending a loan, guarantee, insurance, or combination of services valued at over
$100 million unless it notifies Congress in writing describing and explaining
each such transaction.32 (Added in 1983 through P.L. 98-181)
Using its services to help countries finance their balance of payments.33 (Added
in 1983 through P.L. 98-181)
Using its services to help countries finance or manage their international
indebtedness.34 (Added in 1983 through P.L. 98-181)
Guaranteeing, insuring, or extending credit or participating in extending credit
for any export to Angola except for food or agricultural commodities.35 This
prohibition can be waived by the President if he certifies to Congress that Angola
has “free and fair elections” in which all participants were “afforded free and fair
access,” and that the Government of Angola is willing and is actively seeking,
to achieve an equitable political settlement of the conflict in Angola, including
free and fair elections, through a mutual cease fire and a dialogue;36 has
demonstrated progress in protecting internationally recognized human rights;37
and has demonstrated progress in respect for freedom of the press, freedom of
speech, freedom of assembly, freedom of association, internationally recognized
30 P.L. 107-189, Sec. 18, 12 USC Sec. 635(e)(2).
31 Ibid.
32 12 USC Sec. 635(b)(3)(A)
33 12 USC Sec. 635(b)(10)(A)(i)
34 12 USC Sec. 635(b)(10)(A)(ii)
35 12 USC Sec. 635(b)(11)
36 12 USC Sec. 635(b)(11)(A)
37 12 USC Sec. 635(b)(11)(B)

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worker rights, and other attributes of political pluralism and democracy.38 This
restriction was added in 1989 through P.L. 101-240 and amended in 1992
through P.L. 102-429.
Extending guarantees, insurance, or credit for the purchase of any good or
service by the military or Government of the Russian Federation if the President
determines that the military or Government of the Russian Federation has
transferred or delivered to the People’s Republic of China an SS-N-22 missile
system and that the transfer or delivery represents a significant and imminent
threat to the security of the United States.39 This section was added in 1997
through P.L. 105-121.
Implications for Congress
Since establishing the Export-Import Bank in 1947, Congress has amended the
Bank’s statutes at times to restrict its lending activities. Often these amendments
have affected the Bank’s activities relative to a particular type of economic activity
or have acted to advance other U.S. goals and objectives. In some cases, these
restrictions likely have had a limited impact on the Bank’s activities, but served as
indicators of Congressional intent and furthered U.S. foreign political and economic
goals. Eximbank, however, responds to, rather than generates, requests for its
services from U.S. firms that are exporting abroad. Ostensibly, such firms likely are
aware of Congressional actions regarding Eximbank and, therefore, would not likely
apply for Eximbank’s services with projects that clearly violate a Congressionally-
mandated restriction. In some cases, though, the legislative restrictions clearly
distinguish Eximbank from a commercial bank or any private financial institution
and impinge on its ability to respond on a purely commercial basis. Nevertheless, on
an annual basis, demand for Eximbank’s services usually outstrips its ability to
respond due to Congressional limitations on the overall level of financing at which
the Bank is allowed to obligate.
38 12 USC Sec. 635(b)(11)(C)(i-vi)
39 12 USC Sec. 635(b)(12)