U.S. Export-Import Bank: Actions Needed to Promote Competitiveness and International Cooperation
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.
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.
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.
Recommendations for Executive Action
|Export-Import Bank of the United States||To maintain Ex-Im's competitiveness and enhance its ability to support U.S. exports, the Ex-Im Bank should conduct a systematic review of its domestic content policy in the context of changing production patterns to ensure this policy effectively serves the objective of creating U.S. jobs while also providing financing that is competitive with that of other ECAs.||
Ex-Im Bank has taken steps consistent with the GAO recommendation. In May 2013, Ex-Im Bank produced a report summarizing its review of its domestic content policy.
|Department of the Treasury||To preserve and enhance the competitiveness of U.S. exports and to promote transparency, the Secretary of the Treasury, in conjunction with Ex-Im and working with international counterparts, should develop strategies to further encourage and increase engagement of emerging economy countries in discussions and agreements on export credit support.||
The Treasury Department has taken steps consistent with the GAO recommendation. Since our report was issued, the U.S. and China agreed to establish a working group of major providers of export financing to work towards a set of international guidelines, with the goal of concluding an agreement by 2014. Officials from Treasury, as well as Ex-Im Bank, travelled to China to hold discussions on how to approach a potential agreement on export credits.