Toward a New Foreign Policy.

Eximbank should be privatized. If U.S. taxpayers support continued Eximbank operations, Eximbank and its beneficiaries should be subject to certain restrictions.

Privatize Eximbank

Organizations from the political left to the right, from the Corporate Welfare Project to the Competitive Enterprise Institute, agree that Eximbank's activities should be privatized--albeit for different reasons. The left believes that Eximbank's appropriations should be used instead for truly needy people. The right wants to downsize government. Business leaders, too, should logically support privatization of Eximbank. The high cost of Eximbank's credit programs creates a tax burden for all businesses in order to cover subsidies that benefit only a few. Entrepreneurs considering offering export services similar to those provided by the government may be deterred by fears of competing against a behemoth federal agency. Alternatively, a dual system of private and public entities offering similar services creates the potential for cherry picking by the private sector, leaving the most risky and costly projects for the government.

Eximbank Chair and President James A. Harmon testified before the House of Representatives Subcommittee on International Economic Policy and Trade in October 1998 that only 1% of U.S. exports are supported by Eximbank programs; in other words, 99% of U.S. exports compete without this assistance. Now, during a relatively robust U.S. economic environment, is the time to cut the 1% off the federal dole. If the U.S. eliminates its Eximbank program, other countries won't be able to claim they need similar subsidies to level the playing field with the United States. Currently, countries with Eximbank-type programs waste their taxpayers' money on subsidies to bring their companies in line with those from other nations. If no countries provided this assistance, everyone would be in the same relative position regarding subsidies, without the drain on their treasuries.

Private alternatives to Eximbank already exist. For example, Norwest Bank in Minneapolis and Wells Fargo HSBC Bank in San Francisco are leading trade lenders for companies exporting to Latin America. The size of private export credit deals is getting larger, and the private insurance market is increasingly providing medium-term (five-year) coverage. As more private lenders, guarantors, and insurers enter the market, importers become more savvy too and shop around the world to lower their financing costs.

To privatize its operations, Eximbank should sell its portfolio of loans, guarantees, and insurance on the open market. The taxpayer money saved by eliminating this agency should be redirected toward providing nutrition, housing, health care, education, and job training programs for poor people in the United States and developing countries.

Place Restrictions on Eximbank Operations

Corporate beneficiaries of Eximbank programs should face the same requirements as individual recipients of social payments (e.g., means testing and time limits on receipt of benefits). Currently, wealthy corporations like Boeing take advantage of Eximbank's taxpayer-subsidized and -backed programs indefinitely. Companies that benefit from Eximbank assistance should be required to show directly resulting net U.S. job creation. Often, agencies report jobs created but ignore jobs lost.

Beneficiary companies should be good corporate citizens. They should adopt and adhere to recognized codes of conduct such as the Principles for Global Corporate Responsibility established by a coalition of organizations in the United States, Canada, and Great Britain. These principles require companies to set standards for corporate governance and advertising and to protect the environment, workers, and children. Companies should not be allowed to export dual-use products to military organizations. A "three strikes and you're out" rule should apply to corporate beneficiaries of Eximbank operations who have committed crimes and misdeeds.

Recipient countries should enact and enforce labor, consumer and environmental protection laws, and Washington should ban Eximbank assistance to countries that fail to enact and enforce these laws. Potential economic gains should not supersede the preservation of human rights. China, with its dismal human rights record, is one of the major recipients of Eximbank assistance; paradoxically, the U.S. government's Overseas Private Investment Corporation (OPIC) excludes China from its financing and insurance programs.

Eximbank should provide an annual public accounting-showing the financial and nonfinancial benefits and costs to U.S. taxpayers of each Eximbank program outstanding during that fiscal year, organized by beneficiary company. The government should hold public hearings at least every two years to determine whether Eximbank should continue to exist as a federal agency.

In recent years, the U.S. government has shifted its foreign aid budget to programs that assist domestic and foreign entrepreneurs. This puts decisions and money into private hands that may be more interested in personal gains. Eximbank and other foreign business programs should not be funded from the foreign aid budget and should not substitute for foreign aid that directly attempts to improve the circumstances of needy people.

The U.S. should negotiate with other countries to multilaterally eliminate Eximbank-type subsidies and agencies. Rather than limiting sovereignty, these agreements would end forced subsidies established to retaliate against those of another country. Resulting savings could be targeted to more appropriate uses.

Key Recommendations

* Organizations from the left to the right believe that Eximbank's operations should be privatized.

* If Eximbank continues as a federal agency, beneficiary companies must follow codes of good conduct, and an annual public accounting of the U.S. taxpayers' costs and benefits must be disseminated.

* Beneficiary countries should enact and enforce labor, consumer, and environmental protection laws; countries should attempt to agree multilaterally to eliminate Eximbank-type subsidies and agencies.

Janice Shields is coordinator of the Corporate Welfare and Tax Watch projects of the Institute for Business Research.