[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
WHAT HAS OPIC DONE FOR SMALL BUSINESS LATELY?
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HEARING
before the
SUBCOMMITTEE ON
TAX, FINANCE, AND EXPORTS
of the
COMMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, MAY 18, 1999
__________
Serial No. 106-13
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
59-744 WASHINGTON : 1999
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA M. CHRISTIAN-CHRISTENSEN,
DAVID M. McINTOSH, Indiana Virgin Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
MICHAEL P. FORBES, New York DENNIS MOORE, Kansas
JOHN E. SWEENEY, New York STEPHANIE TUBBS JONES, Ohio
PATRICK J. TOOMEY, Pennsylvania CHARLES A. GONZALEZ, Texas
JIM DeMINT, South Carolina DAVID D. PHELPS, Illinois
EDWARD PEASE, Indiana GRACE F. NAPOLITANO, California
JOHN THUNE, South Dakota BRIAN BAIRD, Washington
MARY BONO, California JANICE SCHAKOWSKY, Illinois
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
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Subcommittee on Tax, Finance, and Exports
DONALD A. MANZULLO, Illinois, Chairman
STEVEN J. CHABOT, Ohio CAROLYN McCARTHY, New York
PHIL ENGLISH, Pennsylvania RUBEN HINOJOSA, Texas
PATRICK J. TOOMEY, Pennsylvania CHARLES A. GONZALEZ, Texas
GRACE F. NAPOLITANO, California
Philip Eskeland, Senior Professional Staff Member
C O N T E N T S
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Page
Hearing held on May 18, 1999..................................... 1
WITNESSES
Munoz, George, Overseas Private Investment Corporation (OPIC).... 2
Dauffenbach, Jane, Aquarius Systems.............................. 5
Rajadhyaksha, Vikram V., DLZ Corporation......................... 8
Silverman, William, The First Republic Corporation of America.... 10
Herbert, William J., Johnson March Systems, Inc.................. 12
Bowe, Peter A., Ellicott International........................... 13
APPENDIX
Opening statements:
Manzullo, Hon. Donald A...................................... 27
McCarthy, Hon. Carolyn....................................... 28
Prepared statements:
Munoz, George................................................ 29
Dauffenbach, Jane............................................ 42
Rajadhyaksha, Vikram V....................................... 51
Silverman, William........................................... 54
Herbert, William J........................................... 56
Bowe, Peter A................................................ 58
Additional material:
Overseas Private Investment Corporation 1998 Annual Report... 63
Post-hearing questions submitted to The Honorable George
Munoz, President and CEO, OPIC, by Subcommittee Chairman
Donald A. Manzullo......................................... 104
Answers of The Honorable George Munoz, President and CEO,
OPIC, to post-hearing questions submitted by Subcommittee
Chairman Donald A. Manzullo................................ 106
Letter to Subcommittee Chairman Donald A. Manzullo from J.H.
Wertheim, President, Tea Importers, Inc.................... 127
Legislative Text of H.R. 1993, The Export Enhancement Act of
1999....................................................... 129
WHAT HAS OPIC DONE FOR SMALL BUSINESS LATELY?
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TUESDAY, MAY 18, 1999
House of Representatives,
Subcommittee on Tax, Finance, and Exports,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 3:03 p.m., in
room 311, Cannon House Office Building, Hon. Donald A. Manzullo
(Chairman of the Subcommittee) presiding.
Chairman Manzullo. The Subcommittee will come to order.
Today, the Subcommittee will open its trade agenda by examining
the Overseas Private Investment Corporation or OPIC. OPIC is
not an oil cartel, but it is a small specialized agency with a
narrow focused mission helping to protect U.S. foreign
investment abroad that contributes to job growth in this
country. Over the years, OPIC has been unfairly attacked as an
agency that helps only large Fortune 500 companies. We are here
today to specifically examine that charge and to learn more of
the efforts of OPIC to reach out to more small businesses.
Just a few years ago, only 10 percent of small businesses
exported. Now, about 25 percent of small businesses have
entered the export arena. The next step in their growth is
developing more of an overseas presence. OPIC can play a
crucial role in protecting foreign investments of small
business exporters from political risk.
Unlike larger companies, small business exporters cannot
pack up their bags and relocate operations overseas to take
advantage of foreign equivalents to OPIC. There are 36 nations
that have programs similar to OPIC. Just like OPIC, most of
these nations have local content requirements. If forced to,
large U.S. multinational corporations can pick and choose from
various foreign government export credit insurance programs.
But the work and the jobs, then, are transferred overseas.
Small business exporters do not have this luxury. OPIC is
needed to maintain the competitive edge of these small business
exporters in the United States. OPIC does all this at no cost
to the taxpayer. That is good news in light of the vote that is
coming up in about 2 hours today.
Last year, OPIC brought in a net of $139 million for the
U.S. Treasury from insurance premiums and fees charged to
exporting companies for their services. Next year, OPIC
projects to bring in $204 million. I wish more U.S. Government
agencies could copy OPIC's example. This Thursday, I plan to
introduce the Export Enhancement Act of 1999 along with my good
friends, Mr. Menendez of New Jersey, and the Chairman and
Ranking Minority Member of the International Relations
Committee, Mr. Gilman, and Mr. Gejdenson. This legislation
would reauthorize OPIC for 4 years.
After listening to the witnesses here today, I invite all
of my colleagues on the Subcommittee to consider cosponsoring
this bipartisan legislation.
The votes don't start in the House until 6:00 this evening
so we are hoping that we may be joined by other Members as they
find their way back to Washington.
Our first witness is George Munoz who served as president
and CEO of OPIC since the summer of 1997. Prior to taking that
position, he was chief financial officer of the U.S. Treasury
Department from 1993 to 1997. Most of his career has been in
international law and business as a partner in the law firm of
Mayer, Brown and Platt in Chicago, and was a principal with
former senator Adlai Stevenson in an investment banking firm
focused on international transactions. He also headed his own
law firm concentrating in corporate and international business.
He holds several college degrees, including a J.D. and a
master's in public policy, a master of law and taxation, and a
business degree from the University of Texas in Austin. In
addition, he is a CPA.
We are not only pleased, George, but we are blessed that
you have taken a leave of absence from the private sector to
lend your expertise to Overseas Private Investment Corporation.
It is with pleasure that we ask you to be our first witness
today.
[Mr. Manzullo's statement may be found in the appendix.]
STATEMENT OF THE HONORABLE GEORGE MUNOZ, PRESIDENT AND CEO,
OVERSEAS PRIVATE INVESTMENT CORPORATION, WASHINGTON, DC
Mr. Munoz. Thank you, Mr. Chairman.
Thank you very much for allowing me to come and testify
today. I would like to applaud your leadership and the work of
this whole Subcommittee, especially as it focuses on small
business. I am especially pleased to see a stellar group of
small businesses represented here, Mr. Chairman, that are
cutting the path into the international arena that all
businesses are leading into.
OPIC, as you know, Mr. Chairman, was established 28 years
ago by President Richard Nixon and Congress to mobilize
American private capital and to support the growth of
developing countries and economies that are in transition to
democracies and free markets. In today's global economy, OPIC's
mission is more important than ever. OPIC is an investment in
helping America compete, supporting development and stability
in strategic regions around the world, and encouraging
government that operates at no net cost to the American
taxpayer.
To continue OPIC's work, Mr. Chairman, we are very pleased
that you as well as other leaders of this Congress are
introducing the Export Enhancement Act of 1999, which we
certainly hope will receive broad bipartisan support.
A key to the growth of our economy is because of small
business. The commitment of this Subcommittee to small business
is one I strongly share. When I became president of the
Overseas Private Investment Corporation, I said that helping
small business would be one of my top priorities. I made this
pledge for one simple reason: the growth of the U.S. economy
and the growth of individual businesses are increasingly linked
to their ability to expand overseas in emerging markets. Our
competitive strength is directly connected to our ability to
compete in the global marketplace.
I also made this commitment because I share your concern
that America's small businesses must not be left behind in this
globalization process. Although small businesses are the
backbone of the American economy, the overseas investment
potential for this small business sector remains relatively
untapped.
According to the 1998 National Export Strategy Report, for
example, less than 13 percent of small- and medium-sized
manufacturers are active exporters, and even fewer make
profitable investments overseas. The report cited the lack of
access to financing and the lack of information as the two
principal reasons for this gap.
I am pleased to report to you today that OPIC is not just
talking about small businesses, but we are acting to ensure
that small businesses have the information and the resources
they need to compete. We are building on OPIC's excellent track
record in promoting U.S. interests, creating American jobs, and
operating on a self-sustaining basis at no net cost to the
taxpayer.
How can we help small businesses? First, our political risk
insurance offers three types of coverages for overseas
investment:
Inconvertibility insurance, for example, covers the
inability to convert local currency into U.S. dollars and
assures the transfer of currency out of a host country.
Our expropriation insurance covers the uncompensated taking
of insured investments by a foreign government.
And our political violence insurance covers damages to
physical assets as well as lost income due to interruption of
operations.
For a small business looking to invest overseas, political
risk insurance helps to ease the uncertainty of this challenge;
or it may be a critical step in the process of securing project
financing. OPIC also offers financing through direct loans for
small businesses.
I am pleased to let you know that we have declared 1999 the
``Year Of Small Business'' at OPIC. This designation will help
us focus OPIC's attention on building on our solid record of
helping small businesses. This determination to help small
businesses is reflected throughout OPIC.
Let me highlight some of the ways OPIC has changed to meet
the needs of small business. We have reduced our loan size from
$2 million to $250,000 to better address the needs of small
businesses and created a new loan structure that is more user
friendly. OPIC's Contractors' and Exporters' Insurance Program
is available for small businesses acting as contractors in
international construction, sales, or service contracts.
Our Contractor's Finance Program provides an OPIC guarantee
for bid bonds, performance bonds and other guarantees issued by
U.S. financial institutions on behalf of U.S. contractors.
We streamline the application process for small businesses
and reduce red tape. For example, our insurance application
went from 20 pages down to 5 pages for small businesses.
We are increasing the number of our small business
insurance customers by launching a small business incentive
program to encourage insurance brokers to bring small
businesses to OPIC.
We have refocused our educational efforts to increase
OPIC's outreach activities. Last year, approximately 30 percent
of OPIC-assisted projects were with small businesses, and we
are working hard to increase this percentage.
We have created a small business advocacy team which is
composed of knowledgeable OPIC staff--some of whom are here
with me today, Mr. Chairman. This team will help small
businesses to take advantage of OPIC products and services.
We have also established a hotline that offers a direct
telephone number for small- and medium-sized enterprises
interested in obtaining more information about OPIC's special
services.
Furthermore, OPIC's award-winning Internet web site
contains a user-friendly small business page that is accessible
to small businesses throughout the country.
We have also created new educational materials targeted to
small businesses. Some of this material has been provided to
you, Mr. Chairman, and to the rest of the Committee.
In addition, we are working with State and local officials,
because they provide a key link to small businesses interested
in overseas investment. We have held small business meetings
and seminars in 11 states.
OPIC is also working with other trade agencies, small
business organizations, and State and local trade commerce
officials to ensure that small businesses are aware of the
products and services that are available at OPIC. I would like
to add Mr. Chairman, that this week I will be visiting the
district of one of your Subcommittee colleagues, Mrs.
Napolitano, to promote our activities in the small business
area.
Finding the financial and personnel resources to make an
overseas investment on their own is a challenge for many small
businesses, but many can benefit from investment by larger U.S.
firms supported by OPIC. For example, larger companies often
turn to U.S. small businesses for products and services to
support an overseas project.
We are very impressed, Mr. Chairman, that you have found it
important to invite to this panel one such supplier to one of
our projects. An important component of OPIC's small businesses
outreach program is to identify the small business suppliers
which are contributing to OPIC-assisted projects throughout the
world. This outreach provides suppliers with an opportunity to
learn more about their contribution to OPIC projects and to
utilize this opportunity to provide information about OPIC
products.
Doing business in today's global economy can be challenging
for small businesses. But done right, taking advantage of
promising opportunities in international trade and investment
offers tremendous opportunities for growth.
OPIC is ready, willing, and able to help America's small
businesses.
Thank you, Mr. Chairman, for helping us get that word out
through this hearing. I would be happy to answer any questions
after the conclusion of the panel.
[Mr. Munoz' statement may be found in the appendix.]
Chairman Manzullo. Thank you, Mr. Munoz.
We are joined by Congresswoman Napolitano and Congressman
Toomey.
Do you have an opening statement or any opening remarks you
wanted to make?
Ms. Napolitano. Thank you.
Just that I am very happy that OPIC is joining us in the
trade conference. This is our fifth trade conference, and
certainly, we want California to have the benefit of OPIC's
financial assistance in the risk insurance. I intend to do my
best to help put the information to small business that OPIC
exists.
Chairman Manzullo. Mr. Toomey.
Mr. Toomey. Thank you, Mr. Chairman.
I just had a question on just reading through some of the
narrative introduction.
Chairman Manzullo. Just for opening statements.
Mr. Toomey. Oh, okay. I have no opening statement.
Chairman Manzullo. That is okay.
Our next witness is Jane Marie Dauffenbach. She is
president of Aquarius Systems in North Prairie, Wisconsin. This
company has been involved in designing and manufacturing of
surface water management equipment including aquatic plant
harvesters, vegetation cutters, floating excavators, et cetera.
You have to excuse me.
I have glasses with four different types of lenses and I
still can't read. Just forgive me. Once I get the right
alignment here, I will be fine. She is responsible for
directing operations, planning, and general management of
corporation and, particularly, the aquarius division with the
completion of a new plant last year that provided a top quality
facility to manufacture some new special equipment.
And we welcome you here to Washington. Please proceed.
STATEMENT OF JANE DAUFFENBACH, PRESIDENT, AQUARIUS SYSTEMS,
NORTH PRAIRIE, WI
Ms. Dauffenbach. Mr. Chairman and Members of the Committee,
thank you for inviting me to appear before you today.
I understand that there are larger issues to be considered,
but I am going to speak to you from a personal perspective on
OPIC's success with a small exporting company.
As you said, for 35 years our company has designed,
manufactured, and sold aquatic plant management equipment used
for weed control in lakes, rivers, ports, harbors and even
oceans where kelp is harvested as a commercial crop. Weed
control is necessary to make an infested water body usable for
transportation and recreation. Excessive weed growth also
negatively impacts fisheries and the natural balance of the
waterway.
The water management equipment line includes, as you
mentioned, aquatic plant harvesters and shredding boats that
chop up dense overgrown areas. We also have machines that pick
up floating trash and garbage, and a floating excavator.
Although our primary business is to manufacture and sell
equipment, we have occasionally taken on contract service
projects.
Last July we were awarded a World Bank contract which is a
turnkey project in Kenyan Lake Victoria. We are to supply the
equipment, personnel, and management to chop 3,700 acres of the
exotic weed called water hyacinth. The weed floats around in
giant masses and closes off entire harbors for weeks, months,
or years at a time. Its presence has severely impacted the
fishing that the locals depend on for food and employment.
Because it is an exotic weed, it is also impacting the natural
environment of the lake.
There is no question that exporting is important to our
business. Between 15 and 45 percent of our annual sales in any
given year might be for exports. And this could be in Europe,
Asia, Latin America, the Middle East, or Africa. We go wherever
our equipment is needed.
We have dealt with some difficult issues that have impeded
our ability to export. This includes financial assistance that
was provided to our foreign competitors by their own
governments. This assistance wasn't equal to programs like
export financing or OPIC political risk insurance but far
exceeded these trading tools.
For example, when competing for business a few years ago in
the Middle East, the Dutch government ruined one deal by
providing free equipment to the customer that was copied from
us and built by a Dutch company. More recently, in the Far
East, we were out-competed on a large equipment sale when the
Canadian government supplied a free harvesting machine as a
gift to the king, which was built by a Canadian competitor.
Our company is in no position to give away free equipment
in the hopes of getting an order. Yet not only are our foreign
competitors well supported in their export efforts, they are
being fully subsidized by their governments.
Another example occurred within the last 12 months on our
Kenya project. Negotiations had been moving slowly and with a
lot of frustrations on both sides. In the meantime, an Asian
government came and viewed the lake and offered equipment and
financing for the whole program. And there have been overtures
from other foreign governments. Situations like this are not
uncommon, and occur almost annually. Simply put, Aquarius
Systems is not competing with foreign companies; we are
competing with foreign governments.
It is difficult out there, and especially before we found
out about the commercial services offered by the Department of
Commerce, the International Trade Administration and the
products and services from OPIC and the Ex-Im Bank. It was only
about 2 years ago that we became aware of the activities of
these agencies and started using them in our efforts to promote
our export sales.
Up until then, the way we used to do things was
reactionary. A representative from another country would come
to us with a potential job. Now with the tools provided by OPIC
and the Ex-Im Bank, the International Trade Administration, et
cetera, we are in a better position to go out and initiate
business than ever before. And we are always trying to think of
new ways to use these programs.
We learned about OPIC during a visit to the Department of
Commerce in Washington. We were already aware of the Export-
Import Bank, but we did not know that OPIC had insurance and
financing products available until then. We came to discuss an
Asian project that did not come to fruition. But a year later
when the Kenyan tender came out, we immediately contacted OPIC
to inquire about their political risk insurance so that we
could budget the premium into our quotation.
We would never have considered trying for this business in
Africa without the participation of OPIC. American banks in
general are conservative but even more so in the Midwest. When
we told our bankers we won the Kenyan bid, they were very
pleased; but they were also very uncomfortable about the idea
of our sending equipment over to an African country for 12
months or longer. It was certainly not a typical transaction
for us or our bank. Although they were unfamiliar with OPIC at
first, once they understood the political risk coverages we
intended to purchase, they proceeded to finance our needs.
Another factor with using OPIC on this transaction is that
we had the security that our government is behind us. This is
going to be very helpful should a dispute arise. It also will
help us to maintain proper transparency and give us some muscle
to push through the bureaucratic impediments that might arise.
We are sure if an issue comes up in the next 12 months, our
position is going to be taken more seriously now that it is
known that our government is watching and ready to assist.
OPIC is an excellent example of a government initiative
that works well. It provides real value to clients and is a
fiscally responsible entity that returns income to the
Treasury. It also is a bit of a secret to many exporters. I
would suggest more promotional efforts going forward, not only
to small- and medium-size businesses, but to the small- and
medium-size banks who service these exporters.
Every day we are down there working in the trenches trying
to make good business around the world. We don't ask for much,
but we need a level playing field. If companies like ours are
given half a chance, we will continue to successfully
manufacture and export our American-built equipment.
It is imperative that the financing and insurance programs
from OPIC exist so that we have the necessary tools available
to accomplish this. I am sure I speak for most exporters when I
say we will gladly continue to pay the premiums and interest
for these financial products and services.
In conclusion, some of the benefits to Aquarius Systems
from working with OPIC include:
One, the political-risk protection so we can get the
financing for our contract.
Two, the perception from our client that the U.S.
Government is behind us.
Three, a more level playing field to compete.
Fourth, while we aren't supplying free equipment and money
like some other countries have offered, we have secured the
chance to perform and prove to the customer the best decision
was made.
And if all goes well, we expect to increase our export
sales in all tropical countries from the positive exposure that
the single contract will bring to us.
Thank you.
Chairman Manzullo. Thank you. I am going to, unless there
is any objection from members of the panel, make all of the
statements a part of the record, including these photographs.
Ms. Dauffenbach. Okay.
Chairman Manzullo. When you are talking about weeds, you
are talking about weeds. That is on top of a body of water;
isn't it?
Ms. Dauffenbach. It is amazing. That is the Florida
Everglades. We were testing that machine there last week, and I
do have some Kenyan pictures I can give you that will really
stun you.
Chairman Manzullo. We can get to that in the question and
answer period shortly. Thank you.
[Ms. Dauffenbach's statement may be found in the appendix.]
Chairman Manzullo. Our next witness is V.V. Raj--I am going
to call you Raj, if that is okay.
Mr. Rajadhyaksha. That is good enough.
Chairman Manzullo. That is going to have to be good enough.
Chairman and CEO of Dodson-Lindblom International out of
Columbus, Ohio. Raj received his bachelor's degree in civil
engineering from the Indian Institute of Technology in Bombay
in 1967. He came to the United States on a scholarship from the
University of Cincinnati where he received his master's degree
in civil engineering.
He is a registered professional engineer in several states.
He began his career with G.K. Jewell and Associates, the
geotechnical engineering consulting firm, and has been involved
in all types of projects in various areas of the world.
Under his direction Dodson-Lindblom grew with the
acquisition of Mason-de Verteuil Geotechnical Services in
January of 1984, and now is chairman and CEO. He is currently
involved in buying small hydroelectric power projects in India
with the governments of various provinces within India itself.
It is with pleasure that we welcome you here to Washington.
When the red light goes on, that is the point where we would
like you to wind up your testimony.
Raj, thank you for coming here.
STATEMENT OF VIKRAM V. RAJADHYAKSHA, CHAIRMAN, DLZ, COLUMBUS,
OH
Mr. Rajadhyaksha. Mr. Chairman, thank you for giving me the
opportunity and Members of the Subcommittee.
My name is Vikram V. Rajadhyaksha better known as Raj, and
I am the chairman of the DLZ based in Columbus, which is the
parent of Dodson-Lindblom.
I am an immigrant from India. I arrived in this country
with a scholarship while getting a master's degree in civil
engineering at the University of Cincinnati in 1967. I have
lived--I became a U.S. citizen in 1972. I have lived in this
country for the past 32 years and have been chairman and chief
executive officer of DLZ or its subsidiary company, Dodson-
Lindblom Associates for the past 20 years.
I bought Dodson-Lindblom Associates in 1979 when it had
five employees. I currently employ 670 in the States of Ohio,
Michigan, and Indiana. My businesses are a product of one of
your congressional programs, the Small Business
Administration's Section 8(a) Program. I was admitted to the
Small Business Administration's Section 8(a) Program in 1980
and graduated from the program in 1984. But that small stint
laid the groundwork for what is now the DLZ corporation. So
thank you very much.
Five years ago, I started looking into international
ventures and very quickly concluded that simply providing the
type of consulting engineering and architectural services that
we provide in the United States would get us nowhere in the
international market. Thereafter, I decided to enter into the
Indian market as a developer of hydroelectric energy projects.
At this point in time, the Indian government had opened the
market for private firms to develop hydroprojects.
Since entering the field, it was obvious to me that the
hydroelectric business was a very capital-intensive business,
and I would have to raise a substantial amount of funds both in
the form of equity in the project and in the form of debt.
After much research, it quickly became apparent that the
Overseas Private Investment Corporation was the only agency
that was active in the financing of energy projects, and more
importantly, they seemed to have at least a small portion of
the debt in every energy project that was done by a U.S.
developer everywhere in the world.
It did not take much analysis to understand the reason for
this simple fact, energy projects are obviously long-term
investments in areas of the world that are politically
unstable, and OPIC being present in these projects provides the
good faith and the facilities of the U.S. Government on every
project. This not only provides a great deal of comfort to
other leaders on the project but also to the equity providers.
Having done this homework, we approached OPIC concerning
our work in India. Ms. Ruth Harkin was president of OPIC at the
time, and low and behold, she advised me that there was some
grant money available for businesses such as ours as seed money
for our India venture. Subsequently, we were granted a $100,000
grant by OPIC through their EPA grants program to get started
on our India venture.
Just recently, on May 6, after completing all the
formalities required, we closed on our OPIC loan of $5 million
for our first hydroelectric project in India. The project,
known as the Bhandardara hydroelectric Power Project, is
located about 150 kilometers north and east of Bombay at the
toe of an irrigation dam that produces power when water is
released for irrigation purposes.
The total project is $13.3 million, out of which OPIC is
lending $5 million. The Indian Renewable Energy Development
Agency is lending another $5 million and the City of Detroit
Policemen and Firemen Retirement System is providing $3.3
million in equity funding.
The project will generate 47 million units of power
annually. This will serve about--this will be adequate to serve
a city of about 10,000 in India.
OPIC will also provide risk insurance that will protect the
equity funding and this is provided by Detroit Policemen and
Firemen Retirement System. I can assure the Subcommittee that
this venture would not have occurred without OPIC's
participation in the project.
We have been awarded 22 small hydroelectric projects that
we expect to be working concurrently. While it has been obvious
to us that this project would not have happened without OPIC
being a participant in it, this does not mean that working with
OPIC has been easy. My experience with OPIC has taught me that
OPIC's mindset is focused on large energy developers, such as
Enron, and working with large international contractors such as
Bechtel.
I have found their tolerance level is low for working with
small businesses such as ours. Oneof the biggest problems I
have had in working with OPIC has been the amount of legal
documentation that is required for our project financing. To give you
some idea, a $10 million debt financing has cost us over $1 million in
legal fees, not counting our internal corporate counsel's time and
effort.
Here are a few suggestions I would like to make to this
Subcommittee so that OPIC and small businesses can work
together:
One, OPIC should advise the small business of what
documents are required for them to be able to make the loan and
also be aware ahead of time how long it will take to put these
documents together and most importantly the cost involved.
OPIC should have more grant money that can be made
available to small businessmen to investigate international
projects.
In conclusion, I can assure you, as a small businessman who
has come through the Small Business Administration's 8(a)
Program, that OPIC is a very needed agency that it is not
corporate welfare. And it is one that provides the good faith
and the credit of the U.S. Government in international projects
done by Americans.
Without such backing of the U.S. Government, no projects
would be occurring; and certainly not the project in which I am
involved. I would suggest that OPIC and the SBA, two great
organizations in my mind, work together so that the small
businessman is given every opportunity to succeed and project
financing is made readily available.
Thank you.
Chairman Manzullo. Thank you very much.
[Mr. Rajadhyaksha's statement may be found in the
appendix.]
Chairman Manzullo. Our next witness is William Silverman
who is director of the First Republic Corporation and a member
of the law firm of Otterbourg, Steindler, Houston & Rosen P.C.
in New York City.
Mr. Silverman comes from New York and was admitted to the
bar in 1966. He went to Brown University and New York
University Law School. He is a member of the U.S. Office of
Personnel Management Panel for Interviewing Candidates for
Federal Administrative Law Judges; a member of the Panel of the
American Arbitration Association; and a member of the
Association of the Bar of the City Of New York, Committee on
Bankruptcy and Corporate Reorganization.
It is with pleasure that we welcome you to Washington this
afternoon, Mr. Silverman. Please.
STATEMENT OF WILLIAM M. SILVERMAN, FIRST REPUBLIC CORPORATION
OF AMERICA, NEW YORK, NY
Mr. Silverman. Thank you, Mr. Chairman. It is a pleasure to
be before this Subcommittee on such a beautiful day.
I hope the sun isn't glinting too much off the top of my
head and affecting the vision of the Members of the Committee.
Chairman Manzullo. We can close the curtains if----
Mr. Silverman. It is affecting you then.
Chairman Manzullo. But you really are quite splendid with
that sunshine. That is very encouraging for us.
Mr. Silverman. Many are called, but few are chosen, Mr.
Chairman.
I wanted to thank you and the Members of the Committee for
the opportunity to evaluate the very significant benefits of
OPIC for small business. I think, frankly, OPIC is a success
story. And it is a story that is part of the really greatness
of our system, the free enterprise system. And the fact that a
small business or series of small businesses can come in and
speak to this Subcommittee says a great deal about our process,
and I know that we are all thankful for that.
The First Republic Corporation of America has a 5.6 million
loan from the Overseas Private Investment Corporation. We knew
of OPIC's overseas work on behalf of U.S. business, and we
contacted OPIC because First Republic is a public company with
real estate, textile and seafood interests.
Our seafood interest, which we have spoken to OPIC about,
involve clamming in the Great South Bay in Long Island where we
have 13,000 acres of land under cultivation, and we ship clams
all over the United States. If you have clams on Fisherman's
Wharf, they probably come at, least some of them, from our
clamming grounds in the Great South Bay.
We also have a very large scallop farming and production
business in the State of Florida, in southern Florida. And we
have a business that grows and distributes shrimp. And that
business is primarily based in Ecuador where we have
approximately 1,250 acres of land under cultivation.
Ecuador basically has three cash crops. They have
petroleum, bananas, and seafood and the runoff of pesticides
and herbicides from the banana growers impacted the shrimp
growers. It impacted our shrimp farm, and the shrimp became ill
and developed something called Taura Syndrome which is now all
over Latin America. It is in Texas and it really is a worldwide
problem and, in part, it is caused by pollution.
What our system did was find a response to the pollution by
enclosing our shrimp farm in a way that is environmentally
friendly. And, actually to the extent that we put anything back
into the environment, it is cleaner and purer than when it went
into the system.
OPIC has been our partner in developing and perfecting the
system. They have given us the benefits of access to government
and nongovernmental aquaculture agencies in Ecuador, in
Thailand, and in other Third World nations. We found our
reception at OPI--although we are a small company, they treated
us, frankly, as if we were a Fortune 500 company.
We had a tremendous success in helping our colleagues in
Ecuador understand our system. OPIC opened the doors for us. It
helped us--OPIC helped us make the system work more efficiently
and introduced us to expertise that, frankly, was of tremendous
benefit to us. We found the people that we worked with at OPIC
courteous, professional, and a treat to deal with.
Jim Polan and Elena Gonzalez were particularly good to work
with. We found them to be extremely efficient, and I think
without OPIC, we would not have the success that we do. We are
in the process now of exporting this technology which is
environmental technology to the Third World, to Thailand, to
Ecuador, and we hope to be able to do that with our colleagues
from OPIC.
And again, thank you for the opportunity of speaking with
you.
Chairman Manzullo. Thank you.
[Mr. Silverman's statement may be found in the appendix.]
Chairman Manzullo. Our next witness is Bill Herbert, who is
a sales manager with Johnson March Systems, Inc., out of
Warminster, Pennsylvania, and we want to thank you for coming
this afternoon and welcome you to Washington, Bill.
STATEMENT OF BILL HERBERT, SALES MANAGER, JOHNSON MARCH
SYSTEMS, INC., WARMINSTER, PA
Mr. Herbert. Mr. Chairman, Committee Members, thank you
very much for the opportunity to appear before you.
My role today is a little bit different than some of the
other attendees in the sense that whereas Johnson March does
not have a direct contract or direct assistance from OPIC, we
are a contractor and a supplier to many companies that do enjoy
the benefits of your programs and that are able to secure
contracts as a result of your efforts.
Just very briefly, our company is approximately 50
employees. Our annual sales are approximately $12 million. All
of our facilities, manufacturing plant and office, are located
in Bucks County, Pennsylvania. It is a suburb of Philadelphia.
Our company designs and manufactures custom engineered
products for electric power plants and petrochemical plants.
The products are utilized for water treatment and chemical
process dosing and for air pollution control. In the late
1970s, Johnson March concentrated its selling efforts in the
domestic market, building a customer base and reputation with
clients and the engineering firms that design their plants.
In the early 1990s, the domestic market for Johnson March
products began to change very significantly as a result of
lower increase in demand for electrical power and the fact that
we have not built a new refinery in the United States in 20
years. So prospects for growth in our particular products in
the domestic market were not very bright. But the opportunity
for our products overseas was growing very rapidly due to the
large demand for electric power and for the consequential
demand for petroleum products.
Within a matter of 6 to 7 years, the percentage of our
sales to the international market went from 20 percent up to
about 75 to 80 percent last year. And during this time period,
Johnson March has shipped millions of dollars worth of products
overseas every year.
A major factor in the transition from the domestic market
to the international market was the success of U.S. plant
developers, U.S. engineering firms, and U.S. contractors in
securing international projects.
The success of the U.S. firms is directly related to the
support provided by OPIC and Ex-Im Bank agencies. Contracts won
by U.S. companies provide a direct benefit for small companies
like Johnson March.
As a systems manufacturer, we in turn purchase millions of
dollars worth of U.S. manufactured products that are the
subcomponents of our systems. These include computers,
electronic analyzers, structural steel, valves, piping, pumps,
et cetera. When U.S. companies secure large international
contracts through the support of OPIC, the benefits are
realized by many small companies that otherwise would not be
able to survive and grow.
Johnson March has had experiences with foreign companies
where they wanted to buy our products and our design and
technology. But they could not do so because that project was
financed by the governments of their country, and they were
contractually obligated to buy from suppliers in their country.
U.S. companies benefit when the U.S. Government supports U.S.
company efforts.
There is no doubt that without the success of OPIC
supporting U.S. developers, engineering firms, and contractors,
Johnson March would have fewer employees; and this would also
be true for our suppliers. All indications are that the
electric power generation and the refinery petrochemical
markets outside of the U.S. will grow at substantially higher
rates than the U.S. markets for many years to come.
Developing countries require increased electrical
generation capacity and, as they develop, these countries
increase their demand for oil, gas, coal, and hydrocarbon-based
products. U.S. manufacturers are respected worldwide for their
superior technology, their high efficiency, and their
competitive pricing.
The international market is there ready for participation
by small business, but most small companies rely upon U.S.
developers as a key to the market. OPIC and Ex-Im Bank support
is vital to the success of U.S. companies and the huge number
of small firms that are dependent upon them.
Johnson March completely supports the efforts of OPIC and
hopes that those involved in OPIC's reauthorization realize how
very important it is for the strength of the economy, the U.S.
balance of payments and American jobs.
Thank you again for your time and continued support. I will
be pleased to answer questions if you have some. Thank you.
Chairman Manzullo. We appreciate your statement.
[Mr. Herbert's statement may be found in the appendix.]
Chairman Manzullo. At the same time, we are joined by
Congressman Phil English from the State of Pennsylvania.
Our next witness is Peter Bowe, president of Ellicott
International out of Baltimore, speaking on behalf of Small
Business Exporters Association. Peter.
STATEMENT OF PETER A. BOWE, PRESIDENT, ELLICOTT INTERNATIONAL,
BALTIMORE, MD, ON BEHALF OF THE SMALL BUSINESS EXPORTERS
ASSOCIATION
Mr. Bowe. Thank you, Mr. Chairman.
I have submitted some written remarks which are slightly
different from my oral comments in terms of what I am going to
emphasize. I am also speaking on behalf of my company, Ellicott
Machine directly.
Ellicott International has exported dredging equipment for
over a hundred years to dozens of countries worldwide for
ports, harbors, mining and everywhere that marine construction
is involved. Over half of our business every year is exported.
The Small Business Exporters Association represents a wide
segment of American exporters. We believe that exports are
essential to our economy, essential to the jobs of millions of
American workers, and a prerequisite to a healthy economic
growth rate.
We stand together in support of OPIC. At least one quarter
of our net job growth over the last 6 years can be directly
attributed to exports. At Ellicott, our employment was up over
25 percent during that period, all attributable to exports.
All industrialized nations, especially the OECD member
countries, are looking to exports for their economic growth.
Our principal competitors all provide substantial assistance to
their exporters--far more than the U.S., according to almost
any measurement.
The Small Business Exporters Association has compiled
several analyses showing how much more our competitors support
exports than we do. I am speaking for companies and workers who
compete in the real world of global competition, not as we
might like it to be, not according to economic models, but as
it really is. In the real world, we need programs like OPIC,
Ex-Im Bank, the Trade Development Agency, and the Advocacy
Center of the Commerce Department to compete and win.
Before I turn to the story of how Ellicott has used OPIC,
let me make three general points about OPIC. First, it is
essential to developing countries and especially the big
emerging markets designated by the Commerce Department. Prudent
investment is facilitated by guarantees and insurance to
provide some protection to overseas assets, especially when
private insurance is often not available or available only with
unacceptable conditions.
Second, when American companies invest overseas, they rely
substantially on American exporters for their equipment needs.
As much as one-fourth of all U.S. exports go to foreign
subsidiaries of U.S. companies, so it is in our interest to
increase foreign investment. Americans used to complain the
Japanese auto assembly plants in the U.S. relied on parts
exports from Japanese suppliers to the detriment of local
American suppliers. The same phenomenon is true in reverse to
our benefit with U.S. companies' foreign subsidiaries.
Third, OPIC is financially self-sufficient and does not
rely on taxes. It is investors like--it is exporters like
Ellicott and investors, not the taxpayers, who pay for OPIC.
Now let me take a moment to describe several specific ways
that OPIC has helped Ellicott sell dredges worldwide in
competition with some of Europe's biggest industrial
conglomerates. One of our competitors is a German company
called Krupp which is still known for having built battleships
and munitions in World War I and World War II. This helps to
remind me that the global marketplace commercially is still a
lot like warfare. Krupp today, despite its $15 billion size,
gets all kinds of financing, support, and subsidies from the
German Government, not to mention trade advocacy directly by
their Chancellor.
OPIC has a special program which is of great interest to
small exporters and the members of the SBEA. Sales to foreign
governments usually require bank guarantees as performance
bonds. These bank guarantees are subject to arbitrary treatment
by the buying country.
As Mr. Munoz has mentioned, OPIC has a program to insure
such bank guarantees against wrongful taking. The comfort which
comes from this insurance induces many American exporters,
small or large, to bid on projects they would otherwise avoid.
OPIC's prestige goes a long way towards assuring that
foreign governments treat American exporters fairly. Thus the
status of OPIC as a U.S. government agency, in many cases,
prevents any loss at all to OPIC from inappropriate foreign
government actions where a private insurance company would have
no such political standing. We have used this program in
several countries.
Recently OPIC intervened to help solve a problem in Egypt.
We had been unsuccessful through 3 years of negotiation in
getting a performance bond returned. When OPIC decided to
attend a TDA investor conference in Cairo last fall, we asked
OPIC to get involved. And they jumped in with both feet.
OPIC's Sr. Vice President, Kirk Robertson, took a personal
interest to see that a fair and proper resolution was achieved.
OPIC contacted the Egyptian entity and let them know the
importance of returning the bank guarantee and that failure to
do so could affect U.S. investment in Egypt. The Egyptian
government and our customer responded immediately.
The bottom line is that Ellicott reached an acceptable
agreement because of OPIC and that OPIC earned tens of
thousands of dollars of premiums insuring our guarantees during
the life of the project. The results were achieved with just a
couple of letters delivered by the U.S. Embassy to indicate
their official status. It was a textbook example of how
wrongful call insurance was supposed to work.
I strongly doubt that a private sector insurer could have
had the clout with the Egyptian government to achieve the same
result. In the interest of time, I will mention that we also
have been successful in selling to American investors overseas.
Here is a picture of a dredge that went to Venezuela for
Guardian Industries of Michigan which is building a sand mining
plant.
I think I will just conclude there, and I would be happy to
answer any further questions you might have.
Chairman Manzullo. Thank you very much.
[Mr. Bowe's statement may be found in the appendix.]
Chairman Manzullo. What an interesting group of witnesses
and real life stories of what is going on in international
business geared toward small business.
Mr. Toomey, I want to start the questions with you. If we
could watch the five minute clock here.
Mr. Toomey. Mr. Munoz, thank you.
I was wondering could you just explain to me briefly the
difference between the mission of OPIC versus Ex-Im Bank?
Mr. Munoz. Yes, sir. I would be more than happy to.
We are both sister agencies and we work hand-in-hand. Where
Ex-Im leaves off, OPIC takes over. Most U.S. companies can be
quick to export as long as there is a demand for those exports.
History has shown that once you have been good at
international business by exporting, the next logical step may
very well be to make an investment in the country. Once a
company goes from exporting to investing in a country, the
rules of the game change. Assessments of risk and of the
political situation change completely. Even the financing
structures for that investment take on a whole different
aspect.
This is when OPIC takes over for a company which is
investing in a foreign country. OPIC and Ex-Im Bank
relationships continue, however. Once they have made an
investment overseas, many of the companies will continue to
export repeatedly to that same foreign investment.
So we work together, but we really deal in entirely
different kinds of risk assessment, financing structures, and
collateral. I would like to give you an example. I come from
Chicago, and there are many, many companies there that are very
good at exporting. And they have very good, strong
relationships with their banks. But once they decide to cross
the border and go overseas, their banks may draw the line,
saying, since we cannot take over the plant as collateral--the
power plant in India is one example--we are not interested in
financing such a transaction. This creates a difficult
financing situation.
Not all those banks they deal with domestically, for
example, may be available for an investment in a foreign
country. Therefore that same small business would need a
different line of players from the financing-side and from the
political assessment-side.
Mr. Toomey. As I understand it, the primary services you
provide are long-term financing and political-risk insurance.
Mr. Munoz. That is correct.
Mr. Toomey. I was just wondering if you could comment
briefly perhaps on the criteria you used before getting
involved in either of those activities.
For instance and specifically, maybe you could answer
whether a corporation needs to be turned down by a private
sector institution first before you will approach, or whether
that is not necessarily part of the criterion. And if--whether
or not it is, how do you price risks that the private sector
refuses to take?
Mr. Munoz. Yes, sir.
Let me just add to my previous response that Ex-Im in any
one year can do over a thousand, ifnot thousands of
transactions, and OPIC, in any one year, may do something in the
vicinity of 50 to 60 projects because OPIC and Ex-Im have entirely
different missions.
When a request for insurance comes to OPIC, for example, we
distribute information to let the client know who the private
insurers are in a particular industry so that if there is
private insurance available, the company can tap the private
sector first. Because our products are very different from
private sector services, many investments require long-term
insurance--sometimes 15 years, sometimes as long as 20 years of
coverage.
When OPIC issues an insurance contract, that contract is
issued with full assurances that it will not be terminated at
any time during the insurance period. The same cannot be said
of the private sector; but we do point to the private sector
first. While they are not required to submit exact letters of
refusal, our standard procedure requests that clients tap the
private sector first.
With respect to our criteria that we use, we apply criteria
mandated by Congress covering four areas.
Number one, we want to make sure the project does not do
substantial harm to the environment. This is mandated by
statute and we make sure that the project will not do that.
Number two, we want to make sure the project does not
violate international worker rights according to our statute.
Number three, we want to make sure the project will not
harm the U.S. economy. We have an internal working guideline at
OPIC that if a project were to take jobs away from the United
States, such as a plant which closes down in the U.S. and opens
up elsewhere, we would not support that.
And then lastly, an OPIC-supported project must be a
project that is only done by the private sector and is
commercially viable. That is, it is not a government project
but a private-sector-driven project that has commercial
viability behind it.
Mr. Toomey. I noticed that there is a summary of an income
statement provided in the package.
[OPIC's 1998 Annual Report may be found in the appendix.]
Mr. Toomey. I didn't--I didn't notice a balance sheet. I
noticed somewhere there was a reference to about $18 billion in
financing and political risk insurance. I am just wondering
approximately what's the size of the reserve fund?
Mr. Munoz. OPIC maintains approximately $3.3 billion of
reserves.
Mr. Toomey. Thank you very much.
Chairman Manzullo. Congresswoman Napolitano.
Ms. Napolitano. Thank you, Mr. Chairman.
Mr. Munoz, there is a slew of questions that I would love
to ask. It would take all afternoon to ask. But I will start
off with one of the statements that was made here by one of the
panel members was, that it takes a long time and it is very
intricate for small business and it is very expensive to be
able to go through the whole process.
Could you tell me what can be done to assist small business
through that myriad. Can you cut the time down? Are you
tailoring more to small business rather than to the large
business? I say that tongue in cheek because big business can
take care of themselves. They can afford the lawyers. They can
have all kinds of things at their disposal where small business
has to pay for them with funds that they don't have and makes
it a little harder.
And the legal documentation, of course, is a necessity, and
I am certain that part of it has to do with the fact that you
have to have an agreement with the country that you are doing
business in.
Mr. Munoz. Madam Congresswoman, I think you stated exactly
the right reasons as to why things can take a longer time.
Let me first say that we are making progress. Every new
small business transaction that we do we learn from. We try to
streamline the process the next time around, and I have to say
that all of the employees at OPIC are very energized and very
desirous of working closely with small businesses. But having
said that, many countries do not have a clear rule of law, do
not have processes and procedures that are always easy to work
with, and we must work within these restrictions.
At the end of the day while we may be financing or insuring
a project, we have to make sure that if something goes wrong
with the project and OPIC is required to step in to help
salvage the project, we must have all the rights under local
country laws that are consistent with our treaty with that
country, as well as their laws. This, unfortunately, is more
complicated than any domestic business transaction.
Ms. Napolitano. Is that the main reason?
Mr. Munoz. That is one of the primary reasons,
Congresswoman.
I would say, however, that we do learn in every project
that we process and I think that we are getting better at it. I
would have to say that there are many banks in this country who
just throw up their hands and they just refuse to get involved
because of the complications, but we will be there standing
beside small business.
Ms. Napolitano. Which brings me to that second question and
that is to the marketing of your services to small business and
to education of the bank's services for assistance in doing
their work, how is that coming? Are you having success? What
outreach are you doing?
Mr. Munoz. We are doing some outreach. I would like to
remind this Subcommittee that we have only about 215 employees
at OPIC, of whom I am very proud, because the performance level
is beyond belief----
Ms. Napolitano. With a budget of?
Mr. Munoz [continuing]. That 215 employees can do as good a
job as they do monitoring all the programs and doing all the
projects that we have. And given the limited number of people
we employ, we still do outreach programs. We do try to go to
different seminars and conferences that take place in the
international business arena.
I think that the advent of the Internet has helped us
tremendously. We have a web site which has been recognized as
one of the best web sites on the Internet, whether private or
public. And we have a specific page there for small businesses.
We are getting a lot of good responses from that.
We also have teamed up with Ex-Im and the Department of
Commerce and other agencies that are working with small
business. And we have reached out to the SBA. I think those are
the best ways to do our outreach.
Ms. Napolitano. I may suggest you might try doing some
video work for cable as informational, so you may be able to
get that out. We used that effectively in California.
The fact that everybody indicates a job growth potential
because of the assistance in reaching other international
markets, I have been involved with that for several years. So I
know the real value in that. What would you say would be the
job growth wage range for these new job potentials?
Anybody?
Because we hear a lot from labor we are losing jobs because
of NAFTA and all the other agreements, yet we hear from
business that there are jobs potential that are reaching.
Mr. Bowe. Madam Congresswoman, my company is unionized with
a steelworkers. It issomewhat unusual. Our steelworkers
endorsed NAFTA because they know that virtually all of our products are
exported. I don't know how much NAFTA has affected us in particular,
but certainly exports are generating middle-class jobs, jobs----
Ms. Napolitano. Wage range?
Mr. Bowe. Our guys make up in the mid-50s in the thousands
of dollars a year with overtime. Right now, we have got
vacancies, and people are working 6 and 7 days a week. And I
don't think there is anybody that feels threatened by our
export activities in terms of job loss.
Ms. Napolitano. Anybody else?
Mr. Rajadhyaksha. Congresswoman, we are in the engineering
business and we--all these projects that we have in India, we
are designing them in Columbus, Ohio. And that has created
about 20 jobs in my company in Columbus, all in the range of
$50,000 to $100,000 a year, specifically geared up to this
international effort that we are going.
Ms. Napolitano. Thank you, gentlemen. You have made my
point.
And I wish that you would talk to Labor and talk to them
about how important it is for them to understand the reality of
some of those jobs. Thank you.
Chairman Manzullo. Thank you. Mr. English?
Mr. English. Mr. Chairman, thank you for the opportunity.
I simply wanted to follow up on something Mr. Bowe had said
and would like to have the president comment on it. I find that
any of the people who criticize OPIC as corporate welfare, know
comparatively little about what American companies are up
against in terms of the incentives provided to their
competitors to encourage purchase, incentives provided in the
form of lines of credit provided by competing governments to
potential customers.
I wonder if the panel would comment on that in a little
more detail than Mr. Bowe provided. How many of our competitors
provide similar or more expansive programs and incentives to
encourage the purchase of their domestic goods?
Mr. Bowe. Let me give you sort of a brief survey of some
things I am aware of. Dredges can be considered, in some cases,
vessels, in smaller cases not.
Our two primary competitors are Dutch and German. The
Germans have spent a lot of money to support what they consider
to be shipbuilding. There are special financing programs which
include a subsidized low interest rate loan. By low, I mean,
zero, 3 percent, stuff like that, to developing market
countries like India and China, Indonesia, and then so they are
giving the money cheaply to the buyer to buy. And then on the
seller's side, there are special subsidies. There is a general
shipbuilding subsidy up to 9 percent of vessel cost throughout
Europe. The Germans have a 30 percent subsidy for yards in the
former eastern Europe.
In the case of Holland, they have special financing, sort
of an AID type program, they call it ORET. To give you an
example, our Dutch competitor on a trade mission in China last
month led by a Dutch minister signed $100 million worth of
deals all of which involve special financing from the Dutch
government. So it is pretty heavy duty support.
And within that, the trickle stuff like, you know, special
grants for training, technological orientation, it is very
extensive, and it is both for heavy industry and for things
that would be considered to have a technological component.
Mr. Munoz. I would like to add we have made our own survey,
and all of our counterparts from the G-7 have programs that go
beyond what the United States provides to its private sector.
And this makes it very difficult for the business community
from what we know.
What OPIC does is to try to promote transparent rules of
fair play. The fact of the matter is that there are not always
transparent rules of fair play. In our private sector
community, I am sure that once the rules come even close to
being level, we will win in any competition.
OPIC's support for many of these overseas investments tries
to at least advocate from the American side that these rules of
fair play be put in place. It is not an easy job. Many of our
private sector companies are not involved in international
business precisely because of the disadvantages which still
exist.
Mr. English. Would you be willing to make your survey
available to the Subcommittee.
Mr. Munoz. Yes, sir.
Mr. English. So that it can be included in our report.
And, Mr. Chairman, I would like it to be included in the
testimony today if possible when we receive it.
[The information may be found in the appendix.]
Chairman Manzullo. Without objection, of course.
Mr. English. Thank you. And I yield back the balance of my
time.
Chairman Manzullo. Thank you.
I am intrigued with this dredging going on here. Now, we
have Miss Dauffenbach who is big into eliminating weeds.
Ms. Dauffenbach. Right. That is different from dredging,
yes.
Chairman Manzullo. And Mr. Bowe, you actually make the
vessels that are used for dredging. But as I went through your
CV, Miss Dauffenbach, you are a member of the Bass Angler
Sportsman Society. Now there is somebody who really likes
water.
Ms. Dauffenbach. Oh, yes. Yes. They suddenly are getting
political. A lot of people use our equipment instead of using
aquatic herbicides. They find that herbicides are not
environmentally friendly. So the Bass Angler's Sportsmen's
Society is suddenly putting their weight behind the mechanical
approach to weed control.
Chairman Manzullo. That really leads into my question
because as I listen to your testimony, a couple of things came
out. Number one is that you created a market that did not exist
before.
Ms. Dauffenbach.That is right.
Chairman Manzullo. And the second thing is that the brutal
competition from the Dutch and other of our allies----
Ms. Dauffenbach. Canadians, yeah.
Chairman Manzullo. Could you explain the mechanics of the
insurance that you got with OPIC. Walk us through it.
Ms. Dauffenbach. As Peter mentioned before, we had to put
up guarantees, unconditional bank guarantees, one to cover the
down payment that the Kenyans are paying us and one as a
performance bond. And we were concerned about wrongful calling.
Depending on what the political situation in the country
you are working in may be, you don't know if something doesn't
go right if they are going to make a wrongful call on that
unconditional bank guaranty. Because it is unconditional, there
are no questions asked. They call on it, and they get paid.
Our bank was quite concerned about that; as were we. So we
knew from the start that we needed to have some sort of
insurance or something to protect us in case there was a
wrongful calling made.
As I understand, OPIC will go in and argue and demand lots
of----
Chairman Manzullo. Assurances.
Ms. Dauffenbach. Support, yes, as to why that calling was
made. And that gave us agreat amount of security knowing that
someone is going to advocate for us.
Chairman Manzullo. How did you find out about OPIC?
Ms. Dauffenbach. Two years ago, I was working on a project
in Asia. We were trying to develop something before the economy
there went to pieces. And we were looking to offer some
financing through Ex-Im Bank to our customer. It was a large
project, so the Department of Commerce also sent us to OPIC to
see what financing products were available.
As a result, we originally were working with OPIC on an
Asian project that never developed. A year later when the
opportunity to quote in Kenya came up, I remembered our
discussions with the OPIC people. We called them up right away
to see what sort of insurance they had.
Another insurance product that we are getting is dispute
insurance. If we have a dispute with our client in Kenya, and
if we can prove that we are right and they are wrong, then the
insurance will kick in.
Chairman Manzullo. So OPIC doesn't just sit around and wait
for a loss to occur.
Ms. Dauffenbach. No, they fight hard.
Chairman Manzullo. They fight the battles with you right on
the scene with the foreign government.
Ms. Dauffenbach. It probably is why they have such a great
record in losses.
I imagine they don't give up much.
Mr. Munoz. Mr. Chairman, if I could just add to that: our
recovery rate for expropriation, for example, is approximately
100 percent. Over time, we will recover the losses, even if we
had to pay claims to an American investor. This is because we
have the staying power and we have the ability to call on
foreign governments.
Mr. Chairman, you may remember one of your Committee
hearings about a year and a half to 2 years ago where you had
Monique Maddy present, and she gave a stellar presentation of
how a small business went to Tanzania and brought
telecommunications to that country.
OPIC not only sells insurance and financing, but equally
important, OPIC stands by these investments. That is why,
unlike the thousands of purely export transactions that Ex-Im
does, we are partners in many ways with our projects and
investments.
For the record, I would like to submit an update on Ms.
Maddy's presentation, which I know, Mr. Chairman, you were very
interested in. Monique Maddy continues to be a small business
investor in Tanzania, and is looking at other opportunities.
The project that she had in Tanzania has run into some
governmental difficulties. Although our insurance doesn't
require that we step in and try to help them resolve their
disputes, it is OPIC's practice, as has been stated here, to
come in and advocate on our client's behalf. As we are
currently working through those difficulties, Ms. Maddy stays
very much optimistic about opportunities overseas.
Ms. Maddy's investment offers an example of something that
can look good on one day and cloudy the next, but in the long
term, it is in America's best interest to be involved in the
international business arena. And our agency is determined to
make this a positive experience for American investors.
Chairman Manzullo. I don't mean to pick on you, but one
other person mentioned about the foreign competition. Who else
did that on the panel?
You did. Peter, did you want to comment on that? And also
Miss Dauffenbach.
Well, tell us what the foreign companies did when they
found out you were interested in this project.
Ms. Dauffenbach. Each situation is different. We really
have troubles with the Canadians. That has been a pain for----
Chairman Manzullo. I am going to Canada on Thursday as part
of the U.S.-Canadian parliamentary exchange.
Ms. Dauffenbach. They do a lot to help their companies.
And, like I said, they actually gave free equipment away. They
bought it from our competitor and gave it away as a gift. I
know it has happened more than one time.
Another thing the Canadian government does is make
allowances for prototype and development or something along
those lines, where they actually subsidize their manufacturers
for making engineering changes. So if we are fortunate enough
to find ourselves specified in a tender, and the Canadians have
to meet our specs, they can come in cheaper than us because
they get a kickback from their government to make up the
difference of what they call research and development. And that
is very frustrating.
Chairman Manzullo. Peter, did you want to follow up on
that?
Mr. Bowe. I think the biggest challenge we have is special
financing that is initiated by our foreign competition. This is
more along the lines of Ex-Im Bank-type competitors rather than
OPIC activity. As I mentioned, the case of the Germans and the
Dutch, the Japanese do the same thing where they come in with
long-term, 30-, 40-year type financing with very low interest
rate.
I was just in China a month ago with Secretary Daley on his
trade mission. And we had the opportunity to hear a number of
ministers, and their first comments to Secretary Daley were
always that if Ex-Im was more aggressive, American companies
would sell more in China.
And, of course, with respect to OPIC, there is, you know,
the sanctions question. But, I mean, we see that around the
world that our competition initiates special financing, and Ex-
Im Bank is playing a game of matching with the end objective of
trying to eliminate this policy all together.
Whereas, our competition considers it to be acceptable that
in the normal course of business,that you are supposed to buy
business with cheap financing, and then you gain market share and that
enables you, essentially, to subsidize the competition in the free-
market areas like in the United States, for example.
Chairman Manzullo. Peter, I was intrigued with your
statement that approximately one-third of U.S. exports go to
U.S. companies that have an overseas presence. Could you
elaborate on that?
Mr. Bowe. I don't know, off hand, the source of where I
read this. I could find it for you. But the theory is that you
have American multinationals, whether it is Ford, Chrysler,
IBM, people like that, FMC Corporation, have operations around
the world. I can tell you about our example, this company
Guardian is a glass-making company.
They have a glass manufacturing plant in Venezuela. And
glass uses sand; sand is mined with a dredge. Kerr-McGee
Corporation, Oklahoma, makes paint pigment in Australia. They
bought our equipment for a plant in Australia. They go where
the natural resource is located. And they bought from us. That
is a type of examples as it relates to us.
Chairman Manzullo. And that is really what, Bill, you were
talking about. You don't directly deal with OPIC, but a lot of
larger companies to which you supply your product deal with
OPIC.
Mr. Herbert. Yes, it is----
Chairman Manzullo. Small and large companies.
Mr. Herbert. It is really hard to imagine how extensive the
ramifications are. But, for example, a large developer, I heard
Enron's name mentioned today, they have been a customer of ours
for a long time, but as a general rule if they are developing a
power plant, we don't deal directly with Enron. The first thing
they have to do is hire an architectural engineering company in
the United States. That is several hundreds of people whose
salaries are being paid by the project. And those engineering
companies provide services such as issuing the request for
quotes and evaluating the bids, issuing the purchase orders.
And we are only one subsupplier on the project. But they
are buying equipment. Now, it is true that they source--the
larger these companies get, the more they have the ability to
source from an international standpoint. But we have found that
we have no trouble with that in the sense that we are price
competitive. Our technology is good. And we can provide the
after-market service for them and everything because I have
agents in many foreign countries. But the fact that an American
developer can win the contract starts a whole series of events,
all of which generate jobs and income and balance of trade
benefits to the United States.
So when you hear about a company getting an award, it is
not even the tip of the iceberg if you are trying to figure out
or you are trying to see, at that moment, how important that
contract award is to an American company. It is very, very
important. And the ramifications go in a lot of different
directions, not just equipment people, but bank people and
computer people and a lot of areas, multitiered.
Chairman Manzullo. Go ahead. I am sorry.
Your company is only 50 employees. Is that correct?
Mr. Herbert. Yes.
Chairman Manzullo. And how many of those employees are
directly related to exports now?
Mr. Herbert. Well, virtually all of us. Because what
happens is, I mean, we have our own manufacturing shop. And so
our people that are in that area are working on projects. They
may be domestic or they may be international projects. It
depends on what their particular skill is, whether it is
welding or wiring or calibration or that sort of thing.
Every one of our projects is assigned a project engineering
manager. So that means we have mechanical, chemical,
electrical, civil engineers on our staff. They run their
contracts. Then we have designer drafting people because we
have to do all the detail engineering and submit all the
documentation.
We happen to have an ISO 9001 Q A program, which means we
have a lot of forms and documents that we have to follow to
meet the requirements of the international community as far as
quality assurance is concerned.
So when you are a company of 50 people, we all interrelate,
we are all in the same building. And we work on various
projects. And a particular person may not know, for example,
out in our shop whether he is welding something for a project
in Turkey or whether he is welding it for somebody in another
part of our state.
So it is really not possible. All of us work on
international, whether you are in sales or you are in
fabrication or engineering.
Chairman Manzullo. Well, we appreciate all of you
testifying this afternoon. OPIC is, as you know, it is a very
unique government agency. There are over 10,000 government
programs.
Peter is shaking his head over there. He probably knows
every single one. But one of those that we have found that has
a very close working relationship with its customers is OPIC
based upon, I believe, the integrity of Mr. Munoz who has been
in charge of the program for the last couple of years. But also
based upon the fact that this government program really doesn't
just write a check for or on behalf of companies but actually
goes to battle with them, first to secure the agreements, then,
second, to protect them.
And, one of the unknown stories, that would be appropriate
for another hearing, is how Mr. Munoz eventually gets all of
his money back, especially from countries that broke off
relations with the United States, such as Vietnam, but then
when they come back into wanting our good graces again,
somebody shows up with a bill and the country has to pay the
bill. That is why OPIC gets paid back nearly 100 percent.
And that is why really there is not an opportunity to
answer Mr. Toomey's question for the private sector to get
involved to the extent, not only in the amount of money that is
being capitalized but also in the power and the strength of the
U.S. Government standing behind our exporters.
So, again, we thank you for spending this afternoon with us
in Washington. This meeting is adjourned.
[Whereupon, at 4:24 p.m., the subcommittee was adjourned.]
APPENDIX
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