I appreciated the opportunity to testify earlier this month before the House Financial Services Committee on the value of the U.S. Export-Import Bank (Ex-Im). While Chairman Jeb Hensarling (R-Texas) and some others on the committee made explicit their opposition to renewing Ex-Im’s charter, it was striking that no one was able to rebut my arguments about the indispensable role the bank plays in specific circumstances.
As the June 30 expiration of Ex-Im’s charter nears, the U.S. Chamber of Commerce would like to reiterate these concerns and urge Congress to give Ex-Im reauthorization the vote it deserves. Failure to do so would go against the will of a clear majority of members of Congress who have already indicated they support reauthorization.
First, Ex-Im is necessary because—in the case of many small businesses—commercial banks often refuse to accept foreign receivables as collateral for a loan without an Ex-Im guarantee.
For example, Bridge to Life Solutions of Columbia, South Carolina, provides state-of-the-art cold storage organ transplant solutions. As John Bruens, Chief Commercial and Business Development Officer for Bridge to Life, explains: “Without Ex-Im, I would have to tell my customers, ‘prepay everything up front, or we can’t do business.’”
Indeed, buyers overseas increasingly expect vendors to offer financing. Without Ex-Im, many U.S. small businesses would be unable to extend terms to foreign buyers and would have to ask for cash-in-advance. In these cases, sales would most likely go to a firm from another country that can count on the backing of an official export credit agency (ECA) like Ex-Im. These realities are among the chief reasons why small businesses account for nearly 90 percent of Ex-Im’s transactions.
In addition to these direct beneficiaries, tens of thousands of smaller companies that supply goods and services to large exporters also benefit from Ex-Im’s activities. This includes companies such as GE, which has more than 30,000 small and medium-size suppliers, or Boeing, with more than 14,000.
Second, Ex-Im is necessary because ECA support is often required even to bid on a wide variety of foreign business opportunities.
This includes requests for tender from both public and private sources, including opportunities as diverse as infrastructure projects, nuclear power plants, and contracts to provide medical equipment to hospitals. For example, the New York Times reported last month that a $668 million drinking water project in Cameroon will go not to U.S. vendors but to their Chinese competitors if Ex-Im is not reauthorized.
Similarly, Ex-Im is indispensable to the nuclear power sector. Just five nuclear power plants are under construction in the United States, but 61 are under construction overseas, and an additional 165 plants are in the licensing and advanced planning stages—nearly all abroad.
These figures make clear that the U.S. nuclear industry—which directly employs more than 100,000 Americans in high-skill, high-wage jobs—must export or die. However, ECA support is always a bidding requirement for international nuclear power plant tenders.
It’s worth pointing out that U.S. lawmakers and regulators can do nothing to alter these requirements—they are imposed by foreign governments and companies. In a world where competition in global markets is already fierce, it would be a rude awakening for American businesses to find themselves completely excluded from opportunities such as these.
Third, Ex-Im is necessary because it is par for the course for expensive capital goods to be sold worldwide with unashamed ECA backing—the support of which can make or break a deal.
Consider the March ruling of the D.C. District Court, in which it rejected every argument that Delta made in its suit against Ex-Im. The Court found that, without Ex-Im support, “airlines simply will purchase from Airbus instead of Boeing due to the presence of foreign [export credit agency] financing.” It’s that simple.
The Court further found U.S. airlines have access to financing alternatives that are superior to Ex-Im. As a matter of fact, Ex-Im financing is three times more expensive than Enhanced Equipment Trust Certificates (EETCs), which are asset-backed bonds used by domestic airlines to finance plane purchases.
Delta’s complaint is similar to that of Cliffs Natural Resources, a U.S. mining enterprise that has protested the sale of Caterpillar equipment to Australia’s new Roy Hill mine with Ex-Im support. Ironically, Cliffs has substantial mining operations in Australia as well, and 80% of its iron ore output is sent to China—just as it complains the Roy Hill mine will do.
Crucially, the owners of the Roy Hill mine made it abundantly clear to Caterpillar that they would buy their heavy equipment from manufacturers in Japan or Korea—with support from those countries’ ECAs—if Ex-Im support for Caterpillar were not made available. The Roy Hill mine was clearly going forward; the only choice was whether its owners would buy U.S.-made or foreign-made equipment.
Refusing to reauthorize Ex-Im would put U.S. companies selling expensive capital goods such as aircraft, locomotives, and turbines at a unique competitive disadvantage because their foreign competitors all enjoy ample financing from their home-country ECAs—enough to easily knock U.S. companies out of the competition. For some industries, executives will face the question of whether to shift production to locations where ECA support is available.
As Rep. Bill Huizenga (R-Mich.) said at the hearing, “Once again the shifting sands of political expediency have reared their ugly head.” At a time when other trading nations are dramatically expanding the export finance they make available through their national ECAs, Congress should consider carefully the companies and industries that have no alternative to Ex-Im.
As I told the committee, hope is not a strategy. These issues must be addressed, or those campaigning to close Ex-Im will “own” the job losses that will certainly follow in the weeks ahead.
Murphy is senior vice president of International Policy for the U.S. Chamber of Commerce.