US export financing tool in jeopardy

Mark Szakonyi, June 25, 2014, Journal of Commerce

U.S. manufacturers could lose a powerful resource that helps some of their foreign customers get loan guarantees they couldn’t secure in the private sector, which backers say allows many American exporters to stay globally competitive.

 

The future of the Export-Import Bank is in doubt, as many House Republicans are signaling they won’t renew the independent federal agency’s charter when it expires at the end of September. The bank approved more than $27 billion in loans in fiscal year 2013, supporting about $37.4 billion in exported goods and services. It’s not clear just how much freight movement the bank supports but it’s sizable, considering Caterpillar is one of its largest beneficiaries. Foreign buyers of Caterpillar’s earth-moving equipment received $1.98 billion in financing from the bank over the last five years, according to Crain’s Chicago Business.  To further support the Obama administration’s export goals, the president wants to give the bank a five-year renewal and scale up its lending cap from $140 billion to $160 billion.

 

But many House Republicans want to let the bank sunset entirely. They point to the bank as an example of “crony capitalism,” in that some American exporters, such as Boeing and GE, gain advantages at the expense of other domestic companies. Delta Air Lines, for example, has said the bank allows foreign rivals to buy Boeing airplanes more cheaply than they would if American taxpayers didn’t prop up the bank.

 

Ex-Im Bank’s proponents counter that nearly 90 percent of the 3,400 companies that depend on the institution are small and midsize, and they would see their global competitive edge slip if financing dries up. Aside from supporting some 205,000 jobs, the bank is also said to be a good deal for taxpayers, having returned $1 billion to the Treasury last year. Detractors, however, doubt the accounting for that figure and retort the 80-year-old bank still provides subsidies to American businesses. The reported suspension or firing of four bank officials amid investigations into gifts and kickbacks underscores the bank’s too-cozy relationship with big business, opponents say.

 

The warning signs for the bank have been building for months, but it wasn’t until new House Majority Leader Kevin McCarthy dismissed giving the bank an extension last weekend that the alarm bells began to ring. The bank isn’t something the federal government needs to be involved with, and it soaks up taxpayers’ dollars when financing could be left to the private sector, McCarthy, R-Calif., said in a June 22 interview on Fox News.

 

“One of the biggest problems with government is they go and take hard-earned money so others do things that the private sector can do. That’s what the Ex-Im Bank does,” said McCarthy, who voted for the bank’s reauthorization in 2012.

 

The fight over the future of the bank reflects how the traditional battle lines in Washington D.C. have been redrawn, pitting the U.S. Chamber of Commerce and the National Association of Manufacturers against some of the same Republicans that have supported the groups’ goals in the past.

 

“To simply close the bank would be an incredible gift from Congress to our competitors,” NAM President and CEO Jay Timmons said during a media conference call this week.

 

The oddity is further enhanced by having the American Federation of Labor and Congress of Industrial Organization (AFL-CIO), the nation’s largest trade union, agreeing with the Chamber that the bank must survive.

 

While it’s nice to think that the global business world would operate on a level-playing field without government-backed financing, the reality is that European and Asian competitors aren’t going to give up their own lending institutions in the pursuit of free market ideals, Chamber President and CEO Tom Donohue said. Besides, many of the small and medium-sized U.S. exporters wouldn’t be able to find financing, much less at the rates offered by the Ex-Im Bank, from private institutions, Timmons said.

 

Donohue said he’s confident that the House would pass a reauthorization bill if the legislation got to the floor. But with the chamber controlled by the Republicans, that’s not an easy feat. House Speaker Rep. John Boehner hasn’t publicly said where he stands on reauthorizing the bank.

 

While the Ohio Republican mulls his stance, the pressure is on proponents and exporters dependent on the bank to make their case to legislators in the coming months, particularly in August when they return home for the congressional recess. Some of those same Republican House members will also be weighing whether they want to risk the ire of Tea Party support, especially ahead of the midterm elections in November.

 

Unfortunately, for legislators loth to make a hard decision, giving the bank a short-term extension until a new Congress returns isn’t much of an option. Concerns that the U.S. won’t reauthorize the bank have already cost exporters business, and an extension wouldn’t give buyers the needed certainty, either, Timmons said. FirmGreen CEO Steve Wilburn told Congress in April that uncertainty over the bank’s fate resulted in the alternative energy company losing a $57 million contract to a South Korean competitor.

 

 

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