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Foreign Aid Becomes a Troublesome Force in the Battle Over Exports

March 10, 1985|PAUL RICHTER | Times Staff Writer

WASHINGTON — Last year might have been a banner year for one small Ohio manufacturer but for a bare-knuckle tactic used more and more in the international competition to increase exports.

French Oil Mill Machinery Co., of tiny Piqua, Ohio, had lined up a $20-million contract to sell Egypt a gleaming, advanced-design machine that grinds oil-bearing seeds into food oils. The deal had financing from the U.S. Export-Import Bank, the blessing of the State Department and, company officials thought, a commitment from the Egyptian government.

But the deal went bust when the West German government made a German firm's offer more attractive by matching the U.S. company loan package and throwing in $10 million from its foreign-aid fund to make the purchase cheaper. "There was just no way we could match that," says company Vice President Evan Werling, whose job-needy community is located 35 miles north of Dayton. "We were just shut out."

The Germans were using "mixed-credit" export financing, in which liberal financing terms are combined with foreign-aid funds to help government-backed exporters prevail in competition with foreign firms. The practice has brought ever-louder denunciation from an unlikely alliance of export-minded Republicans and liberal Democrats, who believe such credits are unfair competition and--worse--divert for commercial purposes foreign aid that would otherwise give poor countries food, education and other humanitarian help.

In the past year, the Reagan Administration has begun trying to counter such mixed-credit offers through the Ex-Im Bank, the federally funded corporation that provides loans to U.S. companies to subsidize sales of their products abroad. But the effort has made little headway, most agree. And now, in its budget plan, the Administration has proposed to change the Ex-Im Bank's export-finance operations in a way critics say would undermine even those halting efforts.

The Administration proposal is "the worst move we could make," said Sen. John Heinz, the Pennsylvania Republican who is chairman of a Senate subcommittee overseeing international finance programs. "We'd be unilaterally disarming in the midst of a trade war."

Others, including Budget Director David A. Stockman, question whether the federal government should tinker at all in international markets on behalf of U.S. exporters. Those on both sides of the issue agree, however, that the trade war waged with mixed credits has taken a toll on U.S. businesses and probably cost Americans thousands of jobs.

In relative terms, the value of exports financed through such programs is still small. Only about 10% of world exports are sold with government financing, and only 10% of that share is sold with a foreign-aid sweetener, officials say.

More Offer Package

But the amount of such aid grew to about $3 billion last year from about $2 billion in 1982, according to Ex-Im Bank estimates. And at least 18 countries offer mixed credits today, up from six in 1980, said the Coalition for Employment Through Exports, a lobbying group.

Significantly, countries usually earmark such funds to gain market share in key industries, such as high technology, and to finance big-ticket projects, such as airports, power plants and giant industrial facilities. Winning such contracts not only boosts employment immediately but can cement a continuing relationship in which the domestic industries sell a stream of products and services to the client country.

"It's not that the sums involved are so large, it's that winning these markets is crucial in a world where trade is more and more important," said Michael W. Liikala, a U.S. Commerce Department official charged with following the issue. Besides, he added, "we consider what they're doing to be cheating."

Officials of French Mill Oil Machinery Co. say the Egyptian contract would have enabled them to add another 350 persons to their staff of 175. Other failed bids from U.S. companies have involved far higher stakes.

Kellogg Rust Inc., an industrial construction firm in Houston, last year lost a bid to build a $300-million fertilizer plant in Thailand in a competition with companies backed by the governments of five countries. The Ex-Im Bank offered to finance the deal with a loan on competitive terms, but the Italians and Japanese offered foreign-aid sweeteners of more than $100 million each, said Donald McGraw, Kellogg Rust's senior vice president for finance.

Cost Many Jobs

The Japanese-backed firm ultimately won the job, which McGraw estimates might have generated 3,400 American jobs.

In 1983, a mixed-credit offer helped a European consortium prevail in competition with Bechtel Corp., an industrial construction firm in San Francisco, for a $150-million Egyptian power station. Bechtel had a good chance to win the job, says Bechtel Vice President John Cooper, since the company had already built an identical plant for the Egyptians.

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