The Export-Import Bank of the United States

Penn State International Law Review Volume 9 Number 2 Dickinson Journal of International Law Article 4 1991 The Export-Import Bank of the United States' Battle Against Subsidized Export Credits Dean C. Alexander Follow this and additional works at: http://elibrary.law.psu.edu/psilr Part of the International Law Commons, and the International Trade Law Commons Recommended Citation Alexander, Dean C. (1991) "The Export-Import Bank of the United States' Battle Against Subsidized Export Credits," Penn State International Law Review: Vol. 9: No. 2, Article 4. Available at: http://elibrary.law.psu.edu/psilr/vol9/iss2/4 This Article is brought to you for free and open access by Penn State Law eLibrary. It has been accepted for inclusion in Penn State International Law Review by an authorized administrator of Penn State Law eLibrary. For more information, please contact . The Export-Import Bank of the United States' Battle Against Subsidized Export Credits Dean C. Alexander* I. Introduction The purpose of this article is multi-faceted. Part I provides an overview of the Export-Import Bank of the United States (Eximbank). Part II defines'and analyzes export credits. Part III describes how export credits encourage the promotion of exports. Part IV furnishes an overview of mixed credits. Part V focuses on the use of tied aid credits. Part VI explains which nations promote exports through the use of tied aid credits and mixed credits. Part VII discusses what type of exports are generally assisted by tied aid credits and mixed credits. Part VIII examines the various mechanisms which the Organisation for Economic Cooperation and Development (OECD) and the European Community use to regulate tied aid credits and mixed credits. Part IX explains the United States' response to the growth of tied aid credits and mixed credits. Finally, Part X concludes that the use of subsidized export finance threatens United States export sales. as well as "free export credits," and consequently, "free trade." II. The Export-Import Bank of the United States The primary role of Eximbank is "to aid in financing and to facilitate exports and imports and the exchange of commodities between the United States or any of its Territories or insular possessions and any foreign country or the agencies or nationals thereof."' Furthermore, Eximbank's task includes providing assistance to exLL.M. (International & Comparative Law), Georgetown University Law Center (expected 1991); J.D., American University, Washington College of Law; Dipl6me, Graduate Institute of International Studies, Geneva, Switzerland (thesis in preparation); B.A., Georgetown University. Mr. Alexander is also author of The Legal and Economic Impact of the Federal Reserve Board's Ruling to Allow U.S. Depository Institutions to Accept Foreign Currency Deposits, 14 N.C. J. OF INT'L L. & CoM. REG. 459 (1989). This Article is dedicated to my parents. 1. Eximbank was originally organized under the name the Export-Import Bank of Washington, pursuant to Executive Order 6,581 of Feb. 2, 1934. The Export-Import Bank Act of 1945, ch. 341, § 4, 59 Stat. 528 (codified as amended at 12 U.S.C. § 635(a)(1) (1982)). DICKINSON JOURNAL OF INTERNATIONAL LAW [Vol. 9:2 pand exports since this activity is important "to the promotion and maintenance of high levels of employment and real income and to the increased development of the productive resources of the United States." 2 Additionally, Eximbank's charter requires that the credit institution provide competitive terms and interest rates on export credits relative to those of other nations.' Eximbank's role in export financing complements private financing sources in the U.S." Eximbank also plays an important role in expanding export sales by U.S. small and medium-sized companies." Eximbank engages in numerous activities and programs designed to achieve its tasks. For example, the Eximbank provides various guarantee programs. Among these are the "Eximbank Preliminary Commitment," which involves offers from the Eximbank on specific transactions, including the terms and conditions of guarantee/loan support.6 The Eximbank also offers the "Eximbank Working Capital Guarantee" which provides eligible exporters with the capacity to obtain various working capital loans from commercial lenders. 7 Finally, the "Eximbank Guarantee" guarantees the repayment of export credits from either foreign or U.S. lenders to foreign purchasers of U.S. exports." The Eximbank employs loans in its effort to facilitate U.S. exports. Among these are the "Eximbank Direct Loan," providing funding to foreign purchasers of U.S. exports that encounter credit subsidies from other nations. 9 The Eximbank also provides an "Eximbank Intermediary Loan," which includes fixed interest rate lending to actors that extend OECD minimum fixed rate credits to purchasers of U.S. exports that compete with government-sponsored competition.' 0 The Eximbank also has an agency and reinsurance program 2. 12 U.S.C. § 635(b)(l)(A) (1982). 3. 12 US.C. § 635(b)(l)(B) (1982 & Supp. i1 1985). 4. Id. See Orr, Hot Prospect: Trade Finance, A.B.A. BANK. J., Sept. 1988 at 76-80 (explaining export credit financing by private banks); J.HILLMAN, THE EXPORT-IMPORT BANK AT WORK: PROMOTIONAL FINANCING IN THE PUBLIC SECTOR 3-14 (1982) (providing an overview of Eximbank's role in export credit financing). 5. See Gage, Middle-Market Firms Find Exim Pilot Fills Trade Finance Gap, CASH FLOW, July 1988, at 6-10 (discussing Eximbank's role in guaranteeing export trade financing for small and middle-market businesses). See also Lawrence, Export-Import Bank Playing Lead Role in Bush Trade Policy, Chicago Tribune, Jan. 14, 1990, at 14F (explaining that U.S. will launch more aggressive subsidized export credit program). 6. EXPORT-IMPORT BANK OF THE UNITED STATES. PROGRAM SELECTION GUIDE I (Oct. 1989) [hereinafter EXiM GUIDE]. See 12 C.F.R. § 400-410 (1990) (discussing various rules and regulations regarding Eximbank). For an extensive overview of Eximbank's activities see CHASE MANHATTAN BANK, CHASE GUIDE TO GOVERNMENT EXPORT CREDIT AGENCIES 141-55 (1985) [hereinafter CHASE]. 7. EXIM GUIDE, supra note 6, at I. 8. Id. at 2. 9. Id. at 3. 10. Id. at 4. Spring. 1991 ] SUBSIDIZED EXPORT CREDITS with the Foreign Credit Insurance Association (FCIA), an association of U.S. marine, property and casualty insurance corporations, that offers export credit insurance policies. 1 The FCIA offers insurance policies designed to cover most types of export credit sales. The "FCIA New-to-Export Insurance Policy," is a one-year blanket policy insuring short-term export credit sales." The "FCIA Umbrella Insurance Policy" meets the needs-of those who have not used FCIA in the past two years and who have average annual export credit sales of less than $2 million for the previous two years, by providing a one-year blanket policy for short-term export credit sales. 3 The "FCIA Bank Letter of Credit Insu (...truncated)