who otherwise would not have been able to get their products adequately financed for export. 8. Insofar as our own operations are concerned, the between one and two million dollars in the aggregate which we have borrowed and paid back to the National City Bank (guaranteed by the Export-Import Bank) have gone directly toward raising the standard of living in relatively backward native communities and to numerous small-town industries in Mexico and Latin America, thereby enabling these suppliers to buy more food, clothing, and manufactured articles. Many of the potters, for example, who supply us with piggy banks have been able to install American radios in their homes; the sandal makers to buy American automobiles, and the basketweavers and silversmiths to build better homes and purchase more manufactured goods including imports from the United States. 9. I believe that the type of import-credit which has been made available to us could, with great benefit to small producers abroad, and to individual importers here, be expanded as a policy tool to help increase the international exchange of the products of the small manual and semimanual industries which help to stabilize the social structure of relatively underdeveloped countries; and thereby could aid in the betterment of our foreign relations with other countries. 10. The Export-Import Bank, as I understand its export activities, has been of great assistance to American manufacturers and exporters, providing them with prompt and sure payment for their merchandise; this has enabled many foreign countries to modernize their economies and has provided for an orderly manner of repayment over a longer time and under more certain conditions than private American industry could have arranged. The above remarks deal with exports of which I have had no personal experience in connection with the bank. On the import side of the picture the bank has not functioned, to my knowledge, to any great extent so far, our firm, we understand, being one of its relatively few import clients. Yet there is a continuing need for the United States to find more ways to "close the dollar gap” between exports and imports without injuring American industry. One way to do this is to encourage the small industries of underdeveloped countries, especially the handicraft and semihandicraft industries. The producers of the goods, especially in Latin America, Africa and the Far East have no funds to hold stocks or to promote export sales; their governments are in general more concerned with financing new roads, dams and other basic industries. This merchandise is relatively uncompetitive in the American market, due partly to its national and native characteristics; but there is greater risk involved than in importing standard products. Therefore, we believe that Export-Import Bank financing, or guaranteeing, the imports of marginal consumers' goods from underdeveloped areas is a logical and important future development of the functions of the bank. A carefully planned expansion program in this field would result not only in more "earned" dollars available abroad but in an increase of native goodwill toward the United States quite out of proportion to the relatively insignificant dollar risks involved. Supplementing my answers to the last four questions, and following your suggestion, I wish to make the following points: Foreign producers of handicraft and semihandicraft consumers goods do not in general, have the financial standing to enable them to secure local credit or financing of an adequate character. They are obliged, therefore, to ask for cash advances from people who give them export orders; and to be paid in full at time of local delivery. They are not in a position to accumulate stocks from which a buyer can draw, and in many cases this is desirable because local taste could not be depended upon to accumulate items that would appeal in the United States market. The type of financing which we have received through the Export-Import Bank has, in effect, enabled us to put stocks of handicrafts into a New York warehouse, where they are immediately available to buyers, enabling the foreign craftsman, through us, to meet the American buyer on his own ground. Though this financing technically has been of Fred Leighton, Inc., actually it has been of the small foreign producer who, through us, has been able to present his wares to the American shop owner and individual buyer. Our credit arrangement, which was originally worked out under the direction of Mr. Warren Lee Pierson, as President of the Export-Import Bank, provides for a total credit of a certain amount to be made available, per our directions and orders, to specified foreign producers through National City Bank letters of credit, upon the presentation of suitable shipping documents. Shipping charges and United States duties were similarly financed for each shipment, the merchandise being released to us on trust receipts after arrival in New York. As the merchandise is sold the trust receipts are released upon payment by us of the corresponding notes and the amount released becomes available for new credits abroad up to the limit of our credit. This being a continuous process does not require or permit of a complete liquidation of indebtedness once a year and is therefore, we understand, an arrangement which the National City Bank could not make on its own account without the guaranty of the Export-Import Bank. During the period that we have been clients of the Export-Import Bank the total of loans made and repaid under this revolving-credit arrangement has been between 1 and 2 million dollars. The Export-Import Bank has shared the interest charges with the National City Bank so that both the Government and the National City Bank have received a steady income on all our loans. I believe that this system of revolving import credits, as it has operated for us, is worthy of study and expansion as a means of encouraging useful and relatively noncompetitive imports into the United States; and that the Export-Import Bank appears to be the logical vehicle for this type of foreign-trade expansion. Should you wish me to appear in person before your committee I will be glad to do so, unless unavoidably out of the country at that time. Sincerely yours, Reference: Senate Resolution 25. Senator HOMER E. CAPEHART, FRED LEIGHTON, President. MAGOR CAR EXPORT CORP., New York, N. Y., October 26, 1953. Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR CAPEHART: Further in reply to your letter of September 3. we have now completed a review of our files relating to railroad freight cars which we have built since World War II for foreign countries under Export-Import Bank financing. During this period we have received orders for railroad freight cars from state-operated railroads in Chile, Bolivia, Brazil, Yugoslavia, and Mozambique under Export-Import Bank financing. However, as our dealings in all these instances were with state-operated railways, credit negotiations were conducted directly between the Export-Import Bank and the concerned foreign-government officials (with one exception) rather than between ourselves (as the manufacturer. and the Export-Import Bank. This 1 exception was an order for 960 cars in the amount of approximately $2,730,000 for the Chilean State Railways in 1946. In this single instance we carried 20 percent of the paper and the Export-Import Bank carried the remainder. All other orders were financed 100 percent by the Export-Import Bank and cars shipped against irrevocable letter of credit established in New York banks. The export freight-car market is of vital interest to our company-more vita! to us than to any other American car builder. For example, between World Wars I and II our company manufactured approximately 40 percent of all freight cars exported from the United States (as determined from our production records and sales statistics of our competitors as reported in the trade magazine Railway Age). At the present time over 20 percent of our manufacturing backlog is Export-Import Bank financed and for the past year and a half we have also bee negotiating with the state-operated Santos Jundiai Railroad, in Brazil, to supply cars under a $6 million Export-Import Bank loan granted over 16 months ago. The placing of the Santos Jundiai order has been delayed for a number of reasons among which is the possibility that the World Bank will take over this loan Should this occur, it is unlikely, under present conditions, that the required cars will be bought from an American car builder, but instead will probably be purchased in Europe. As a result of our large volume of sales through the years to foreign railroads, our production and engineering staffs have accumulated valuable know-how and experience necessary for the design and manufacture of all types of special cars required by foreign railroads. Our engineering and manufacturing knowledge in this field has been of considerable assistance to our Armed Forces during World War II and in the present hot and cold wars. During World War II practically our entire production facilities were allocated for the production of special cars for use by the United States Army in many foreign countries, and we are now completing order for 1,765 cars required by the United States Army Transportation Corps, some of which we understand are destined for use in Korea. For these reasons it is our feeling that any factors which will in the future directly or indirectly affect the United States export freight-car market— such as United States Government loan policy-will also directly affect our export freight-car sales to state-owned foreign railroads, and, therefore, indirectly to a degree affect our Nation's war potential because of the engineering and production know-how required for the design and manufacture of foreign-type equipment needed by our Army and our allies in wartime. The Export-Import Bank has become increasingly important in our field during the past few years for the following reasons: (1) A typical freight-car inquiry from state-operated foreign railroads amounts to $1 million to $3 million covering approximately 200 to 600 cars. (2) Due to shortage of dollars practically all foreign state-owned railroads cannot at the present time purchase United States manufactured equipment unless export-import credit is made available to them for the reason that regular credit channels in the United States will not undertake the credit risk primarily because of (a) Unsettled foreign political conditions, thereby resulting in too many unknown long-term factors. (b) Large dollar volume tied up in a single risk. Due to the above reasons, our company, over 6 years ago, adopted a policy regarding inquiries received from foreign state-owned railroads whereby we do not undertake any sales or engineering expense on a given inquiry until we have determined that the state-owned railroad in question has either received an Export-Import Bank loan for the cars needed or intends shortly to apply for an Export-Import Bank loan to cover the cars purchased; or, in a very few instances, has sufficient dollars to finance the purchase themselves. We found it necessary to adopt this policy as our sales and engineering development prior to the placing of an order sometimes extends over a period of years-working out operating and design details with the railroad's operating and engineering departments. This, of course, involves considerable expense on our part, and we cannot assume this heavy expense unless we are certain that dollars have been made available for the ultimate car purchase by the Export-Import Bank or will shortly be applied for through the Export-Import Bank. With the above as background information, we are pleased to advise as follows with regard to the 10 questions outlined in your letter of September 3: (1) Covered above. (2) Yes. (3) Covered above. (5) Yes. (6) None. (7) Our knowledge is limited to our own field; and we feel very strongly that the Export-Import Bank has greatly aided our business since World War II. (8) Yes. (9) Covered below. (10) Covered below. It is difficult to answer questions 9 and 10 without taking into account press dispatches which have appeared in the newspapers in the past few months pointing out the possibility that certain functions of the Export-Import Bank might in the future be taken over by the World Bank. Of course, we can only express an opinion on this matter based upon experience limited to our own field. However, we feel that should lending power in the future be centralized in a world bank, this centralization of power will tend to result in increasing inefficiency of operation due primarily to the possibility of decisions being reached on the basis of worldwide political expediency. We would prefer to rely upon a decentralized program responsible to the law of supply and demand and moral law with a minimum of United States or United Nations government regulation. A decentralized program somewhat along the lines as proposed by Senator Murrayapplicable to short- and long-term credits-wherein foreign loans would be insured by the Export-Import Bank has considerable merit because it will help to decentralize rather than centralize loan policy and operation: With regard to purchase of equipment in the United States under World Bank loans, we would suggest that you consider means whereby the recipients of World Bank loans would be required to place orders on an industry basis in the United States in proportion to the funds supplied the World Bank by the United States. For example, assuming that the United States is responsible for 50 percent of the 42493-54-pt. 221 funds made available to the World Bank, then we feel it equitable that the United States freight-car-manufacturing industry receive 50 percent of the yearly dollar volume of freight cars purchased under World Bank loans-locomotive industry 50 percent, truck industry 50 percent, etc. Summing up, we are of the opinion that: (1) The Export-Import Bank is to be commended for its constructive efforts through the years toward promoting world trade. (2) The Murray bill or other bill with similar provisions for insuring short- and long-term exchange risks will aid in the decentralization of loan policy and promote world trade. (3) Means should be found whereby recipients of World Bank loans will be required to place orders with each American industry in proportion to the funds supplied the World Bank by the United States. May we extend our sincere congratulations to you and your committee for the constructive approach you are following in this vital matter. Yours very truly, F. J. SCHROEDER, Assistant Vice President. P. S. For your information, we are pleased to enclose copy of our current Railroad Car Catalog illustrating various types of railroad cars which we have supplied the foreign market. F. J. S. Hon. HOMER CAPEHART, MARION POWER SHOVEL Co., Chairman, Committee on Banking and Currency, DEAR SIR: I have your letter of October 8. We welcome the opportunity on behalf of our company to advise you of our experience with the Export-Import Bank of Washington and the International Bank for Reconstruction and Development. Our company has been very active in international trade to the extent that we have, for many years, exported a large volume of our production, and in recent years, in excess of 20 percent of the dollar value of our output. We have, undoubtedly, gained material benefit from the activities of the Export-Import Bank and also from the World Bank. It should be noted, however, that conditions for international trading are changing rapidly and we, as manufacturers, are faced with most severe competition from European and Japanese manufacturers, as a result of their lower subsidized costs and government supported term payment conditions. Therefore, we feel it is imperative that certain changes be made in the operation of the Export-Import Bank to enable American manufacturers to compete on an equal and fair basis with those foreign competitors whom we have indirectly created or helped to gain a better foothold in the markets of the world. Our ideas on this subject in connection with the Export-Import Bank are reflected as follows in answer to your specific questions: 1. Because the Export-Import Bank has not actually engaged to any great extent in the granting of loans to manufacturers, but has more or less confined its transactions to making loans to foreign governments, our contact with the bank has been mainly to find out in advance when loans would be made and what equipment would be purchased so that we might make the proper sales approach at the proper time. 2. In most cases, our contact with the bank has been by personal call, although we have received fairly prompt replies to our correspondence with the bank. In many cases, however, the replies which we have received have not always been entirely satisfactory as there has been an apparent reluctance on the part of many officials of the bank to disseminate information directly to manufacturers who hope to benefit from business resulting from their export-import financing. 3. We have never applied for a loan from the Export-Import Bank because prior investigations of our cases have always revealed that applications are handled so slowly and with so little chance of success that we never deemed the effort worth while. The need of a manufacturer to obtain a loan from the Export-Import Bank is to finance an order in the immediate future. If unnecessary delays are encountered in the processing of the loan, the customer always becomes discouraged and buys his equipment from a foreign source where credit facilities are more immediately available, making it possible for him to obtain his equipment and get into operation in a much shorter time. 4. See paragraph 3. 5. Although no credit has ever been authorized by the bank to this company, it is known, as a result of our contact with foreign governments and with foreign customers, that credit applications are granted only after the most lengthy administrative procedure involving months of delay. In many cases this delay has caused foreign governments or customers to seek other means of credit even though they might have to buy equipment in other countries as a result. 6. Our complaint as to the Export-Import Bank's activities is that manufacturers in this country desperately need a source of term financing and guarantee of foreign credits to successfully maintain the export business which American industry has successfully built up in the last few years. In a few words, it amounts to this-American industries in the years following World War II successfully supplied a major portion of the capital equipment needs of the entire world. Such equipment was purchased by foreign governments and customers in foreign lands by means of dollars loaned and granted by the United States Government through one agency or another. The result has been a very great demand for the most modern and efficient equipment available in the world today in these foreign countries. However, this same foreign aid which our Government has sponsored has now created, or helped create, in many European countries and in Asia, manufacturers who are producing equipment of the type which we manufacture. They are seeking to capture some of the markets which American industry has enjoyed. To do so, they are taking advantage of the growing dollar shortage by selling their machines in soft currencies and on long-term credits, ranging from 3 to 5 years, these credits being guaranteed by their governments in most instances. The American manufacturer cannot compete because he has no agency to help him absorb the risk of such business or to guarantee him or his customer convertibility of exchange. No individual manufacturer in the United States, Germany, England, Japan, or any other country can export large percentages of his production on 3- to 5-year credit terms without the assistance of his government. The United States seems to be the only major manufacturing country whose government does nothing to assist its manufacturers in this way. In the case of our industry, the result is that many countries who have industries which require our type of equipment but cannot buy it because of a shortage of dollars, are creating inefficient industries who are now building very inferior equipment which could not compete on the world market except by the protection of nonconvertibility of their local currencies. It is, therefore, sincerely believed that our Export-Import Bank should expand its activities to granting prompt and adequate loans to manufacturers and credit insurance facilities to enable our industry to maintain its export markets and its present level of production. This is considered important when it is realized that American industry has so expanded its facilities and production to meet wartime demands and postwar international demands that its export business has grown to such an extent that serious profit losses and growth of unemployment would result from a loss of export sales volume. 7. As outlined in previous paragraphs, the Export-Import Bank has, in the past, aided in properly financing and facilitating the export-import trade of the United States, but now that the conditions have changed and have become more competitive, its facilities are woefully lacking to meet present requirements of exporting industries. 8. The bank has undoubtedly assisted very greatly in the development and expansion of the economy of foreign countries and has increased their capacities to purchase United States exports. However, direct loans to manufacturers or to their specific customers, backed up by guarantees from the Export-Import Bank that the manufacturers will be paid in full in dollars in a reasonably short time, are now absolutely necessary in lieu of loans directly to foreign governments and large foreign enterprise. 9. We believe that the Export-Import Bank's operating funds should be expanded as required to enable it to properly satisfy an increasing number of valid applications from United States exporters and importers. This could possibly be handled, not by the United States Treasury, but by the sale of securities to the public and to presently established commercial banking institutions. It should be noted here that, although the International Bank for Reconstruction and Development renders material assistance to American manufacturers in an indirect manner, it must also be international in its character and serve |