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Mr. SOLARZ. Finally, let me just say to you, I don't want to make your personal lives difficult. We know you are all professionals who go about your jobs conscientiously, you work very hard. I am sure nobody here works an 8-hour day. But we have been engaged here in an effort to try to steer a course between two extremes, between those who would say that we should totally sever our diplomatic and commercial relations with China on the one hand and those who would say we should continue to conduct business as usual without any change whatsoever simply because of the geopolitical significance of China.
Our capacity to steer that course, which is in essence what the Administration is trying to do, although we differ somewhat at the margins will ultimately depend on your capacity to prevent the convincing rationale for your policy. It is not enough to simply talk about flexibility or the President spent a lot of time in China so he knows better than anybody else how to deal with it or we have things under review.
Those are dogs that don't hunt on the Hill. We want to know why you have taken certain actions, why you haven't taken others, how it relates our policy to other Communist countries. We haven't, for example, even asked you why the administration continues to support total economic embargoes against Vietnam, Cambodia, and North Korea, which are other Communist countries in Asia but not China.
You need to be prepared to deal with questions like this, and it may be the comparisons are totally invalid, in which case you have to be prepared to explain why. But I would say that on the basis of what we have heard today you would have extreme difficulty in preventing the passage of legislation which may go substantially beyond what you think it would be in the national interest. And I gather from some of our colleagues on the committee that there are intentions to move legislation along those lines. So we are trying to give you an opportunity to make your case and I think you better go back to the drawing boards and see if you can come up with some more convincing rationale.
Let me thank you all very much for coming.
Mr. SOLARZ. We will now proceed to hear from our second panel which consists of representatives of the Export-Import Bank and the Trade and Development program.
In the interest of time, let me say to our next witnesses, you all have statements I presume. They will be included in the record. I hope you will feel free to very briefly summarize your testimony. The key questions are: are these programs continuing and if so why and if not, why not. Representing the Export-Import Bank of the United States is Mr. William Ryan, President and Chairman and then we will hear from Fred Zeder, President and Chief Executive Officer of the Overseas Private Investment Corporation.
Then Ms. Frame, Director of the U.S. Trade and Development Program
Mr. SOLARZ. Mr. Ryan, do you want to begin? If you can summarize your testimony for us, I think that would be helpful.
STATEMENTS OF HON. WILLIAM F. RYAN, ACTING PRESIDENT AND CHAIRMAN, EXPORT-IMPORT BANK OF THE UNITED STATES; HON. FRED M. ZEDER, PRESIDENT AND CEO, OVERSEAS PRIVATE INVESTMENT CORP., ACCOMPANIED BY HOWARD HILLS, GENERAL COUNSEL OF OPIC AND VICE PRESI. DENT FOR INSURANCE AND FELTON JOHNSON; AND NANCY FRAME, DEPUTY DIRECTOR, U.S. TRADE AND DEVELOPMENT PROGRAM; ACCOMPANIED BY BETSY HORSMAN, CHINA DIRECTOR FOR U.S. TRADE AND DEVELOPMENT PROGRAM
STATEMENT OF WILLIAM F. RYAN Mr. RYAN. Thank you, Mr. Chairman. It is a pleasure to appear before these subcommittees. Our written testimony is submitted. Your questions submitted with your letter asked us basically how we are operating in China, how much business we do there, how we stand relative to other competitive agencies who support the exports of their countries, and finally how curtailing or even stopping our activity might effect China, our competitors, and finally U.S. exporters, and most important, how are we handling our business today.
First, the why and how of operating in China: During the Carter Administration it was determined that it was in the national interest for us to do business with China. Every Administration has seconded that policy. President Bush has stressed our enormous commonality of interest with China as one reason for us to keep active in that country.
We look at transactions in terms of being competitive with what other credit_agencies are doing. We do not make foreign policy judgments. That is for others to make. The Chafee Amendment tells us to keep our nose out of foreign policy matters. We are to make export credit decisions strictly in terms of economic and commercial considerations when competitive financing is being offered by others.
Eximbank has been open in China since 1981. We have authorized about $500 million worth of loans to support U.S. export sales. Last year, in 1988, China was our number one market in terms of export loans. We authorized $190 million which supported $200 million of U.S. exports that in turn supported approximately 5,000 man years of work or 5,000 jobs.
Presently, we have outstanding $125 million offers with our exporters who must spend months and months and even years lining up and nailing down an export order in China. We have pending requests of about $275 million. We also have an export credit insurance program to insure receivables for short-term export sales. That is the FCIA which is based in New York. FCIA currently has a modest support program limited to about $20 million which last year supported approximately $30 million of U.S. exports.
I think you can see from the information I have provided that Eximbank is not a major factor in China in overall trade. In general, U.S. exports are about $5 billion. Our support represents about 4 percent of that. However, our support is very crucial in the sector where we are engaged, namely the capital goods sector.
The capital goods sector is where our support is requested and needed because that is where long-term financing is involved. Some of that long-term financing has been forthcoming from commercial banks who were very keen on China. In some cases, however, it has been necessary to have export credit assistance because our European and Japanese competitors have been providing it. In other words, China has been a very engaging and competitive market.
Why? It is a huge market. It has been a growing economy until recent events anyway. It is a country that has run its external financial affairs pretty well. It has roughly $20 billion in foreign exchange reserves and hence it is a good market for capital goods exports and the competition has been very keen. So we have been doing our best to be involved.
What would be the consequences of our curtailing severely or even stopping our assistance in China? In our judgment, first of all, it would be very little if we the United States stopped unilaterally and others did not stop their export credit assistance to China. China in recent years has been retrenching its economy. It has been growing too fast with a lot of inflation so they have been trying to dampen down imports.
If Eximbank were to stop and others were to continue, the only effect of our doing that would be that U.S. exporters would lose out and German and British exporters or some others would get the export sales. Our primary focus obviously is on the well-being and the success of the U.S. exporter. Therefore, I think a stopping on our part, which has not been agreed to or coordinated with all the other agencies from the major countries, would not be desirable. Incidentally, I certainly hope that even if we are discussing a possible curtailment of credit assistance that we would be talking about new offers rather than offers that are outstanding or the $50 million in offers that we have done in the last ten years of this $500 million, about $300 million plus still has not been disbursed. These are long-term projects for power plants and things of that sort where the disbursal process can take three, four or five years.
We would certainly not want to see those things interrupted because you would have severe and immediate damage to U.S. interests in that case. More importantly, however, you would establish the reputation of the United States as being a commercially and financially unreliable supplier which would damage the possibility of better and bigger orders in later years when things might have changed in China,
How are we handling our business today, right now? Our insurance business goes on as normal. We have seen a little slackening in activity for insurance coverage in some areas but a pick up in other areas. People that were shipping and relying on good collection against China, which has been excellent, are beginning to take advantage of our policies.
More importantly, in loan applications, we have extended loans for exports to China and our sole obligor at the moment is the Bank of China. We are continuing to process loan applications but we do not go all the way to a final decision on the loan applications, unless it is perfectly clear to us that the U.S. exporter has to make their offer by a certain date or else not be considered in the bidding process.
I will tell you in that regard we do check very carefully with the State Department because we must indeed get their clearance from a human rights point of view on all China transactions going to Board. Furthermore, the Chafee Amendment which is Sec. 2(b)(1)(B) of our Act, tells us not to consider political factors in our credit worthiness decision. Specifically it says that if the President were to say through the Secretary of State that it is in the national interest for overriding foreign policy considerations, preventing nuclear proliferation, preventing terrorism or enforcing our commitment to human rights we would be stopped from going forward on the transaction.
Presently, we have to get a specific human rights clearance on every transaction. We are processing normally but things are slower in China these days in getting the various approvals needed, and they are approving cases only where it is necessary in order not to severely disadvantage the U.S. supplier. I might add the British have also adopted the same approach in their export credit cover at the moment.
In response to your earlier questions, Mr. Chairman, our impression is that the French and the Dutch have gone off over as far as loan credit extensions are concerned. Germany, Japan, Italy, the other major countries, are still taking more or less our approach, a go-slow approach but perhaps continue to make the credit offer if it is necessary for competitive reasons.
WILLIAM F. RYAN
JULY 13, 1989
activity in China, the types of transactions and amounts of
potential Eximbank business there, and some background about how
Eximbank operates in China.
First, some background about how we are operating in China.
In April 1980 the President made a determination, in accordance
with the Eximbank charter legislation, that it was in the
national interest for. Eximbank to operate in China.
determination remains in full force and effect today.
President also extended the waiver under Jackson-Vanik to China.
Eximbank opened in China in 1981 when we negotiated a cooperation
agreement with the Bank of China.
Since then the Bank of China
has served as the borrower or guarantor for all our direct loans
In the case of intermediary loans, the commercial
banks have taken the China risk and Eximbank has funded the banks
in order to provide competitive financing at OECD interest rates,
but we look to the U.S. commercial bank for repayment.