Federal Export Promotions Programs

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I want to thank the committee for the opportunity to testifytoday on federal export promotion programs. After more than adecade of hundred billion dollar deficits, it's refreshing to seethe close scrutiny this Congress is giving to these and many othergovernment programs.

Recently, my colleague Stephen Moore and I released a CatoInstitute report entitled "Ending Corporate Welfare as We Know It."In that report, we compiled a list of over 125 spendingprograms--with over $85 billion in fiscal year 1995 outlays--thatin one way or another provide unique advantages to specificindustries or companies. It is our recommendation that all of thoseprograms be terminated and the money be returned to its rightfulowners, the American taxpayers.

Of course, not all of those 125 programs were in the form ofexport promotion programs. Nevertheless, in fiscal year 1995, thetotal outlays for just six of the major government export promotionprograms came to nearly $2 billion. It is those six programs uponwhich I will focus my remarks.

Perhaps the most egregious of those six export promotionprograms is the Agriculture Department's $110 million MarketPromotion Program (MPP), which provides private companies withtaxpayer dollars to help offset their foreign advertising costs. In1993 the MPP budget included nearly $1.5 million to promote minkfurs, over $125,000 to promote frozen bovine semen, and nearly$120,000 to promote alligator hides. Much of this money goes toAmerica's largest corporations. For instance, in 1993 Sunkistreceived $6.6 million, Ernest & Julio Gallo received $4.9million, the Dole Company received $1.6 million, M & M Marsreceived $1 million, Tyson Foods received $800,000, and CampbellSoup received more than $500,000.

The rest of the $2 billion in fiscal year 1995 outlays wasspread over five other export promotion programs as follows:

1) More than $900 million for the Agriculture Department'sExport Enhancement Program;

2) $70 million for the Trade Development Program in the CommerceDepartment's International Trade Administration;

3) $160 million for the International Trade Administration'sU.S. and Foreign Commercial Service; 4) Over $610 million for theExport-Import Bank; and

5) $110 million for the Agriculture Department's ForeignAgricultural Service.

If the goal is to promote economic growth, I suggest that thesesix programs be terminated. Private individuals know far better howto make their businesses profitable than do government bureaucrats.Thus, the health of America's businesses would be better served bythe $2 billion currently spent on these six programs being returnedto the hands of private individuals, rather than leaving it in thehands of government bureaucrats. What follows is a briefdescription of the six export promotion programs mentioned aboveand a critique of the arguments made by those who support suchprograms.

1) The Agriculture Department's Market Promotion Program (MPP)provides taxpayer dollars to private companies and tradeassociations to offset the costs of advertising U.S. agriculturalcommodities and products in foreign markets. The program wasstarted in 1985 as Targeted Export Assistance (TEA). The use of TEAfunds was restricted to only those commodities said to be adverselyaffected by unfair foreign trade practices. When MPP replaced TEAin 1990, that restriction was lifted.

2) The Agriculture Department's Export Enhancement Programallows foreign purchasers of U.S. agricultural commodities to buythose goods at lower prices than U.S. exporters would otherwiseaccept. The EEP compensates U.S. exporters for the differencebetween those two prices. In essence, American taxpayer dollars areused to enable citizens of other nations to purchase U.S.agricultural commodities at lower prices than U.S. consumersthemselves can purchase those goods.

3) The Trade Development Program in the Commerce Department'sInternational Trade Administration (ITA) uses taxpayer dollars toassess the competitiveness of various U.S. industries, performtrade and investment analyses in support of industry programs andtrade policies, and conduct export promotion programs directedtoward specific industry sectors.

4) The ITA's U.S. and Foreign Commercial Service seeks toincrease the number of U.S. firms that export and the number offoreign markets to which they export. It uses taxpayer dollars toprovide counseling to U.S. businesses on exporting (through 47district offices in the U.S. and overseas offices in 62 countries),to provide export market information, and to promote and facilitateparticipation of U.S. firms in trade shows.

5) The Export-Import Bank (Eximbank) uses taxpayer dollars toprovide subsidized financing to foreign purchasers of U.S. goods.Eximbank makes direct loans to those buyers at below- marketinterest rates, it guarantees the loans of private institutions tothose buyers, and it provides export credit insurance to exportersand private lenders. According to the Congressional Budget Office,in the 60 years of its existence, Eximbank has lost $8 billion onits operations--most of that in the last 15 years. In addition, thenew subsidy costs for Eximbank are estimated to be about $800million a year.

6) The Agriculture Department's Foreign Agricultural Service(FAS) uses taxpayer dollars in an effort to increase the exports ofU.S. agricultural commodities through a variety of activities. FASmaintains more than 60 overseas offices with agriculturalcounselors who seek to promote U.S. agricultural commoditiesabroad. FAS develops and maintains a voluminous database includingforeign agricultural production estimates, trade data, exportforecasts, economic indicators, price data, and export salesreporting. These data are made available to the U.S. farmingindustry directly and are used to produce over 5,000 reports a yearon foreign agricultural production, supply and demand in foreignmarkets, and trade policy developments. According to GAO, "Much ofthe reporting, however, is put to little use either by USDA or theU.S. agricultural industry." [emphasis added]

The proponents of government export promotion programs assertthat these programs are good for the economy and that exportpromotion is a legitimate role of government. A critique of some ofthose arguments follows.

1) It is alleged that U.S. firms (especially small andmedium-sized firms) would export more if they had betterinformation on export markets and export opportunities, and thusthat the government should collect and disseminate thatinformation.

This argument ignores that "information" is an economic good.Like any other economic good, information can be, and is, traded inprivate markets. Recent technological advancements have made suchtransactions much less costly.

Furthermore, most trade information is beneficial only tospecific companies or industries. There is no justification forusing the tax dollars of the general public to serve the narrowinterests of such specific groups. Government should not be in thebusiness of collecting and disseminating trade information. Theindividual businesses that would benefit from such informationshould be willing to purchase it with their own funds. The taxpayershould not be forced to provide it for them.

2) It is alleged that the government--because of the huge amountof resources available to it--is the most efficient organizationfor collecting and disseminating trade information, and thatprivate firms (especially small and medium-sized ones) may not havethe resources to obtain such information on their own. Given recenttechnological advancements that have made obtaining informationthrough on-line computer services, for instance, less difficult andless costly, this argument holds less and less weight. Further, ifyou were a businessman, and you wanted some reliable information onoverseas trade opportunities, who would you go to, the federalgovernment or a private company? If both were selling suchinformation at the market rate, you would most likely choose aprivate company.

3) It is alleged that government needs to provide tradeinformation and services because private firms are not doing so.Since government export promotion programs are funded by taxpayerdollars--rather than by private investors putting their own fundsat risk--their services are often available free of charge, or atleast at below-market rates. Thus, the very existence of theseprograms makes it more difficult for private firms--which must meeta bottom line--to compete in providing the same services. Inessence, the taxpayers' own dollars are used to help governmentagencies compete against private companies that seek to provide thesame services. Then the reduced ability of those private companiesto compete is used to justify spending even more taxpayerdollars.

4) It is alleged that if foreign buyers were made more aware ofU.S. products, overseas demands for those goods would increase, andthat the government should therefore seek to promote thatawareness. The same could be said, however, for domestic buyers. Inneither case does that justify the expenditure of taxpayer dollars.Developing product awareness is an essential element for businesssuccess in all industries. Those who directly benefit from thatsuccess, the owners and shareholders of private businesses, shouldbe the ones responsible for achieving it. Taxpayers should not beheld responsible for assuring that individual private businessesremain profitable.

5) It is alleged that, due to lack of accurate information,banks often overestimate the level of risk involved in exporting,and that as a result small and medium-sized exporting firms oftenhave difficulty obtaining export financing, or must pay "highcosts" for such financing. If the government provided "better"information about the "actual" risks, the argument goes, morefinancing would be available at lower costs.

This reasoning ignores the fact that banks already have a directfinancial incentive to learn the actual risks involved withpotential loans. If a bank were to consistently operate on trulyfaulty perceptions of those risks, it would lose out in themarketplace to banks which were operating on more accurateperceptions of risk.

6) It is said that small and medium-sized companies inparticular need the assistance of government export promotionprograms in order to succeed.

Even if that were true, most government export promotionprograms currently shower their benefits disproportionately on"big"--not small--businesses. More importantly, the Americanworkforce is the best in the world. America's businesses, whetherlarge or small, do not need the assistance of government programsin order to survive. What they need is for government to get out ofthe way.

In addition, the same principle applies to programs that wouldbenefit small businesses as to those which benefit big businesses:taxpayer dollars should not be used to prop up the bottom line ofprivate businesses, regardless of their size. In conclusion,government should not be in the business of using taxpayer dollarsto promote exports for three simple reasons:

1) It's unconstitutional.

Nowhere in the Constitution is the federal government grantedthe power to spend general taxpayer dollars to promote the welfareof specific groups, whether through export promotion programs orthrough any other means.

2) It's too expensive.

The six programs I have discussed alone consume $2 billion oftaxpayer money. If the goal is to promote economic growth, thatmoney would be put to much better use by simply leaving it in thehands of its rightful owners, the American taxpayers.

3) It doesn't work.

It's difficult to believe that government employees somehow havea greater ability to promote the exports of private businesses thando the owners of those businesses themselves. After all, thoseprivate business owners are putting their own money at risk. Allthat those who run export promotion programs are putting at risk isthe hard-earned tax dollars of America's overburdenedtaxpayers.

Dean Stansel

Subcommittee on Procurement, Exports, and Business Opportunities
Committee on Small Business
United States House of Representatives