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Note: The criteria used for inclusion of countries in this table are: (1) All members and associate members of OPEC; (2) All LDC (less developed countries) for which approximately 50 percent or more of the total annual value of imports from that country to the U.S. is comprised of petroleum and products; and (3) LDC countries for which the total value of U.S. imports of petroleum and products amounts to $50,000,000 annually and simultaneously comprises no less than 25 percent of total imports from that country.

Scurce: Report FT 990, Highlights of U.S. Export and Import Trade, August 1975, Bureau of the Census,

IMPACT OF COOPERATIVE FINANCING EFFORTS ON TRADE BALANCE

Senator CASE. Is there any substantial impact on the trade situation due to our various cooperative efforts in the financing field, the oil agreement, the safety net, our Export-Import Bank contributions and things of that nature, which are still to be put in place as far as operations go?

Secretary MORTON. The financing of exports has a very definite impact on export trade, as I think the DISC [Domestic International Sales Corporations] does too. These are good instances. They have a direct bearing on our ability to finance and sell overseas.

Another kind of institutional arrangement that has a very good effect on export trade are the cooperative technical agreements which really accelerate the exchange of technology and, of course, you know much of our export really can be considered the export of technology, where a whole factory or whole plant is sold as a unit or several factories or plants are sold as a turnkey operation. For example, in the People's Republic of China ammonia plants have been sold.

EXIMBANK FINANCING OF EXPORTS

Senator CASE. I would like to have for the record a short statement of the extent to which financing provided by the Export-Import Bank has resulted in current exports of goods and services. Also, I would like foreign assistance, in all its phases, to get a picture of how much of this we are

Secretary MORTON. Financing through AID?
Senator CASE. Yes.

Secretary MORTON. This may be a little tougher to get at because I don't think it is as clearcut. You can pretty well evaluate and analyze the effect that, say, $2, $3, $500 million worth of loans from the Eximbank may have but it is very difficult to exactly, except in the Buy American requirements, and those sorts of things, pinpoint all of the trade that comes from other assistance programs. Let me take a shot at it and give you the best I can.

FOREIGN ASSISTANCE FOR PURCHASE OF U.S. GOODS ABROAD

Senator CASE. Would you say as a generalization all of our foreign assistance goes for the purchase of American goods abroad generally over a period?

Secretary MORTON. I don't think you can say that.

Senator CASE. They used to sell foreign aid to us on that claim. Secretary MORTON. I don't think it is all by any manner of means. Senator CASE. The dollar is only worth something in this country, in other words, except as it builds up a floating supply of dollars in the Euromarket, and other things?

Secretary MORTON. Certainly where foreign aid has direct economic impact in terms of making more viable the economy of the recipient then that recipient is certainly in a better position to engage in foreign trade both as a seller and a buyer. I think that you have to look at it in its overall sense rather than saying we are going to put out a billion dollars of foreign aid and get a dollars back in orders for various commodities. I don't think that it works quite that clearcut.

[The following information was subsequently supplied:]

Financing facilities available to promote exports comprise the loan, guarantee, and insurance programs of the Export-Import Bank (Eximbank); the Export Credit Sales and PL-480 programs of the Department of Agriculture (USDA); and the foreign economic assistance programs of the Agency for International Development (AID). In addition, the lending programs of various international agencies, comprising the World Bank group and the Asian and Inter-American Development Banks, finance a significant volume of U.S. exports. Excluded from this discussion are the military assistance programs of the Department of Defense, which also support sizable U.S. exports but which are not subject to U.S. commercial policy considerations.

It is useful to distinguish between the above programs because they differ considerably in the objectives they serve, in the needs they address, and, consequently, in the impact they provide in promoting U.S. exports.

EXIMBANK PROGRAMS

Eximbank is the only Federal agency whose central mission is to promote U.S. exports by providing financing support. FY-75 data indicate that the Bank's programs directly or indirectly supported about $10 billion of current exports. $10 billion of current exports. Eximbank programs should not be considered as concessional assistance, since the overall cost of credit supported by Eximbank is close to market rates.

Eximbank programs provide direct loan funds and/or assume the risks of possible default. For products warranting repayment within a period (“maturity") of five years or less (such as consumer goods, industrial raw materials, or light capital equipment or spare parts), Eximbank generally does not provide loan funds, but only insures (through its privately-organized affiliate, the Foreign Credit Insurance Association) or guarantees repayment of private sector financing. This is on the principle that the supply of private capital is relatively plentiful for such maturities. Eximbank charges fees and premiums for its protection (which historically have been in fairly close balance to claims paid out) and makes no attempt to mitigate the cost of the private capital utilized. An estimated $3.4 billion of U.S. exports were shipped in FY-75 under Eximbank's guarantee and insurance coverage.

For repayment maturities from five years to an infrequently-reached maximum of fifteen years (for whole or turn-key manufacturing plants abroad, power generating facilities, steel mills, etc.), the supply of private capital is deficient. With rare exceptions, commercial banks are not prepared to extend such terms, and domestic long-term institutional lenders have not engaged in overseas business as a general rule. Eximbank lending in this maturity range provides a supply of capital at reasonable cost that is not adequately available elsewhere. Since the sale of this type of product is usually contingent on the availability of financing, Eximbank's loan participation appears likely to result directly in exports being made from the United States that otherwise would be deflected to foreign suppliers. The United States has a special interest in the products supported by such loans, which for the most part incorporate advanced technology, a high degree of complexity, or high unit value; and which thus represent the leading edge of our future export and domestic growth.

Exports supported by Eximbank lending amounted to an estimated $6.5 billion in FY-75, calculated by multiplying Eximbank loan disbursements of $2.8 billion by a factor of 2.3 to take account of private bank participation and downpayments. The standard interest rate on Eximbank's loan funds presently varies between 8.25 to 9.5 percent, depending on maturity, but may be reduced to meet financing competition from foreign credit agencies supporting their own national exports.

Note also should be taken of Eximbank's discount loan program, which refinances export lending orginated by commercial banks on maturities of up to five years. This program is intended to provide an incentive for banks to make export loans by assuring them of the liquidity of such loans in case of need. Approximately $1.1 billion of advance commitments on discount loans were authorized in FY-75, but the same transaction also may be insured or guaranteed by Eximbank, thus resulting in some overlap. The interest rate on discount loans is related to the individual bank's prime rate, subject to a floor rate below which Eximbank will not discount.

DEVELOPMENT ASSISTANCE

AID expenditures generate exports of U.S. goods and services as well as reflows of principal and interest. In addition to these more direct effects, the AID programs influence U.S. trade in indirect ways such as creating familiarity with U.S. products, generating a replacement market, and hopefully creating a climate receptive to U.S. products.

AID expenditures in FY 1974 totalled $1,889 million, of which an estimated $1,353 million, or 72%, was expended for U.S. goods and services, including AID administrative expenses. The remaining $536 million, which was expended offshore, represented expenditures for commodities in less-developed countries, local hires, overseas technician expenditures. local currency activities, training programs, supporting assistance cash grants, and disaster relief. Of direct commodity procurement of $647 million in FY 1974, $597 million was expended in the United States.

The United States is a member of international financial institutions (IFI's) participating in the development assistance effort. Procurement under the programs of the IFI's helps in the export of a variety of U.S. goods and services as well as in the creation of future markets for U.S. goods and services. U.S. business during FY 1975 under projects financed by the IFI's totalled $517 million.

DEPARTMENT OF AGRICULTURE PROGRAMS

U.S. commodity exports generated under the PL-480 program were $849 million in FY 1974 and $1,076 in FY 1975. Under the Commodity Credit Corporation (CCC) Export Credit Sales Program, $298 million in commodity exports were generated in FY 1974 and $249 million in FY 1975. In addition to the commodity exports, these programs also generate additional business for U.S. shipping, insurance, and related service activities.

Senator CASE. On a rather specific matter, Mr. Chairman, and then I will be through.

BALANCE OF TRADE WITH MANAGED-ECONOMY COUNTRIES

Secretary MORTON. One other thing I might add, Senator Case. Just handed to me is that the balance of trade that we have with the Communist countries, or the managed-economy countries, was 2 to 1 in our favor for 1974 and we had a surplus of approximately $1 billion in that particular-

Senator CASE. How do they finance that deficit?

Secretary MORTON. How do they finance it?

Senator CASE. Yes.

Secretary MORTON. They finance it with dollars that they have gotten. This is a hard currency figure so they finance it through dollars that they have gotten in their other trade.

Senator CASE. You mean trade with other countries?
Secretary MORTON. Yes.

Senator CASE. They must have gotten it in some fashion.

Secretary MORTON. One very interesting thing occurred while I was overseas and that was this $500 million arrangement that was made between Poland and Germany for access back to Germany of the Germans that were living in Poland. It sort of reminded me of our Alaskan Native Claims Act.

TRADE: ARAB DISCRIMINATION REGARDING U.S. NATIONALS/COMMERCIAL

BRIBERY

Senator CASE. I wish you would make a comment on two other matters, for the record or now. Then I must go.

One is the extent to which we are really shutting our eyes to the

discrimination practiced by the Arab countries in regard to American nationals in matters of trade, and the other, any comment you want to make beyond what you already have in your statement about the question of commercial bribery, as we call it, in the matter dealing with foreign trade.

Secretary MORTON. First, on the first.

Senator CASE. You have been very close to the first one.

Secretary MORTON. You are addressing the problem of the Arab boycott, and I hope we are not closing our eyes at all.

I feel that we are trying to make every one that engages in foreign trade aware of what the trading nations are trying to do. We are calling it to their attention. In fact, we are in the position now of revising the policy to actually try and make it much more clear cut and tell the potential sellers what they can be getting into and advise them and warn them against the potential boycott aspects of the tenders that are offered, and also, of course, to reemphasize at every possible opportunity that it is the policy of the United States not to engage in a secondary boycott based on ethnic grounds.

Beyond that I don't think we have any legislative authority.

It is a complicated legal problem. As you know, we are right in the middle of it. I am in hopes that on the question of disclosure perhaps a court decision could clear this whole matter up. I think everybody has a good faith position. There is just a difference of opinion.

On the question of these kickbacks, so-called individual commissions, or whatever you want to call them, it is perfectly obvious as you look across the spectrum that business is not done in exactly the same ethical mode across the world, and this is a fact of life.

I don't think that we should be so sensitive in our criticisms of what has gone on in this field because this is the way business has been done in parts of the world since time began. I think the fact that it is now out in the open is going to have a very good effect and is going to tend to establish a higher code of conduct as far as the buyerseller relationship is concerned in those parts of the world where individual commissions have been a matter of course.

We are taking, I think, too much of an attitude that this has been something criminal. Where it is against the law, where it happens domestically, that is an entirely different kettle of fish. I am in hopes that the exposure and what Congress has done in bringing this out in the open will be a strong factor in getting other nations to put their house in order, but I am a little loathe to be too critical because this has been a competitive proposition and it has been a pervasive system that is not good. I don't condone it in any way but that is the way it has worked and I think we have to change it, but let's be constructive about it. I think that exposing it, as the Congress has done and as the press has done, has been a very good thing and I think this will tend to correct these things. We ought to make sure that the world knows that this is not the way we want to do business.

Senator CASE. Thank you, Mr. Chairman.

Senator SYMINGTON. Senator Javits.

Senator JAVITS. Thank you, Mr. Chairman.

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