Export-Import Bank Near Showdown in Congress

By JONATHAN WEISMAN, NYT.com

Senator Maria Cantwell, Democrat of Washington, tied a vote on trade to a vote on extending  the Export-Import Bank.CreditAndrew Harnik/Associated Press

WASHINGTON — In 2013, the impoverished African nation Cameroon teamed with General Electric and the Environmental Chemical Corporation, which is based in Burlingame, Calif., to begin work on a $668 million drinking water project for its thirsty capital, financed with loan guarantees from the Export-Import Bank of the United States.

But as the project moves toward its larger second phase, the threatened demise of the Export-Import Bank, a 70-year-old federal export credit agency, is rippling across Cameroon. The water project is a potential victim of an effort by conservative Republicans to kill the bank.

The Ex-Im Bank reaches a critical moment on Friday: Congress must be notified 35 days in advance of all projects of more than $100 million, and with powerful Republicans bent on letting the bank die when its authorization expires on June 30, all the projects frozen over that review period would die with the bank.

“Without Ex-Im authorized, we cannot compete,” said Rick Eber, vice president for international development at the Environmental Chemical Corporation, who said a study of the water project — which is in competition with a rival from China — had been delayed by the uncertainty over the credit agency’s fate.

While the bulk of the Ex-Im Bank’s financing is used to support the sale of things like Boeing jetliners to companies abroad, projects like Cameroon’s are also animating a dispute in Congress that is reaching a critical juncture this week.

Senators Maria Cantwell, Democrat of Washington; Heidi Heitkamp, Democrat of North Dakota; and Lindsey Graham, Republican of South Carolina, halted Senate consideration of a major trade bill Wednesday, saying they would try to block a final vote on granting President Obama expanded trade negotiation power until they secured a vote on extending authorization for the Ex-Im Bank beyond June.

Their stand threatens the trade bill. Ms. Cantwell and Ms. Heitkamp are among fewer than a dozen Democrats supporting trade promotion authority. Mr. Obama needs their votes to break a filibuster supported by most Senate Democrats.

Ms. Cantwell and the other senators in her group accuse conservatives of sacrificing American jobs on the altar of what they portray as an ideological crusade.

“I don’t plan to start moving ahead until we stop catering to this minority group that doesn’t support the basic tools that the American people want,” Ms. Cantwell pledged.

She faces an uphill fight. Senator Mitch McConnell, Republican of Kentucky and the majority leader, said he personally opposed Ex-Im’s reauthorization, but he has promised a vote on the matter, which  would pass if it comes to a vote in the Senate.

In the House, though, conservatives say a majority of Republicans now oppose reauthorizing the bank. On Thursday, the 170-member Republican Study Committee — a conservative House group — will come out formally in favor of its extinction.

“All we have to do is nothing,” said Representative Raúl Labrador, Republican of Idaho. “I feel pretty good about our prospects.”

Conservative groups such as the Koch brothers’ Freedom Partners, the Heritage Foundation and Club for Growth have demanded an end to the Ex-Im Bank, deploring it as crony capitalism that mostly serves the interest in big exporters like Boeing, General Electric and Caterpillar. They point to studies that contend that the bank does not create jobs, but merely moves them from unfavored companies to favored ones.

Virtually every Republican presidential candidate has been pulled into the campaign to kill the bank.

Representative Justin Amash, Republican of Michigan, said House Speaker John A. Boehner of Ohio could join Democrats to save the bank, but, Mr. Amash warned, “he does so at his own peril.”

Supporters of the Ex-Im Bank say the toll of that campaign is beginning to come into focus. G.E. said this week that a $350 million deal to build locomotives for Angola in Erie, Pa., is about to be lost, with 1,800 jobs.

Boeing says that it will be forced to cede deals in Asia to its only competitor in the wide-body passenger jet business, Airbus, which is based in France.

The looming cutoff of money could compel Cameroon to turn to China, which has already made a competing $850 million bid complete with financing from Beijing’s export credit agency. Executives at G.E. are scrambling for a Plan B, moving the work from its water technology facility in Minnesota to Canada or Hungary, where the company has other plants supported by those countries’ credit agencies.

“You’re talking about a country in sub-Saharan Africa,” said Heiner Markhoff, president and chief executive of G.E.’s water and process technology unit. Commercial banks “aren’t willing to take the risk without an export credit agency. It’s almost contingent on getting to the table.”

The Cameroon project shows the complexity of the issue. Ex-Im opponents say companies as large and powerful as G.E. and Boeing do not need a federal backstop to persuade private banks to finance export projects.

Mr. Markhoff said to some degree that was true — but that conservatives were missing the consequences for American companies that lack G.E.’s deep pockets and connections around the world.

The Environmental Chemical Corporation, with G.E.’s help and Ex-Im loan guarantees, struck the $668 million, three-phase deal with Cameroon’s government, which wanted an American government entity involved as well in what is a public water project.

The first phase — 10 mobile water treatment plants installed in Yaoundé, the capital, as an emergency measure — is done.

Phase 2 — a $532 million effort to move the mobile facilities to where they are needed in southwestern Cameroon while building permanent water plants in the capital — was scheduled to begin soon.

The competing Chinese proposal is part of an effort by Beijing to gain strategic influence in Africa. Its $850 million bid was substantially higher than the cost of the American project, but its financing is not in doubt.

Cameroon’s prime minister, Philémon Yang, has asked the Chinese and American teams to present side-by-side studies of the remaining work, Mr. Eber said. Environmental Chemical Corporation officials have tried to play down the Ex-Im developments in Washington, but he noted that the American study was now delayed pending the showdown.

G.E. officials said that without the support of the Ex-Im Bank, the company could still leverage its global operations to attract government financial backing elsewhere, probably in Hungary or Canada. But that would lead to moving work to the countries where that financing is available.

That could mean leaving a midsize company like the Environmental Chemical Corporation and much smaller suppliers behind. “We have 43 different suppliers in different states for this project,” Mr. Markhoff of G.E. said. “This is not about ‘big corporate welfare.’ ”

Politics of Exports

Yesterday’s WSJ article titled“Exporters Fear Credit Crunch” (reprinted here in a previous post) once again highlighted the debate on Ex-Im’s reauthorization and listed the pro and con issues from both sides of the political isle. As half of my immediate family is involved in financing international trade, the topic of the Bank’s reauthorization is ever present around our dinner table. Yesterday, we once again raised the question of why would a respected member of the US Congress so blatantly oppose  a proven export finance tool, which contributes real money to the US Treasury and supports countless jobs?

The answer is – because he can and because Ex-Im is an easy target for partisan politics. Export Import Bank of The United States (US Ex-Im, Ex-im) is one of the smallest agencies of the US Government, but one which has disproportionately high visibility. Certainly restructuring half a floor at the Department of Commerce (which probably employes about the same number of folks as the entire Ex-Im Bank)  would not garner the Good Congressman from Texas the same publicity and power. By blocking the reauthorization, Congressman Hensarling and his allies are able to deliver effective blows to the Presidential Administration and to the Bank’s leadership. Yet the hardest blow their efforts deliver are to the US economy.

I generally believe in government minimizing its involvement in business regulation and personally try to stay out of politics.  Yet it is not always possible, as politics and business are often intertwined and business is negatively impacted by actions such as those of the Good Senator and his supporters.  My sympathies certainly do not lie with the current Administration, whose list of missteps, fumbles and incompetencies is quite long. I did applaud the President’s National Export Initiative until it sort of sputtered, along with subsequent reset attempts. Yet given the phenomenal importance of exports to our (or for that matter to any) economy, it is gross malpractice for any politician(elected, or otherwise) to undermine exports, reduce their economic effect and interfere with the lives of real people who make those exports happen.

Let’s put some things in perspective. USA exports roughly $2.3 Trillion of goods and services annually. Of that amount, US Ex-Im Bank finances about $25 Billion annually, only slightly more than one percent of the total. Seemingly doing away with the Bank will not be a huge loss to the American economy.  Since some of the exporters dropped by Ex-Im would find financing in the private sector, net-net US will probably lose less than one percent of its exports. Not a big deal? Consider that just slightly under $5 billion of the exports financed by the US Ex-Im are financing small businesses just like companies mentioned in the WSJ article. Those companies represent tens of thousands of jobs, which would be lost, or not gained if Ex-Im were to close.

They call Ex-Im “the Bank of Boeing”.  TRUE.  That company is the biggest recipient of Ex-Im financing, but how many small businesses in its supply chain benefit from the aircrafts sold on the world markets, how many jobs are created in post sales service and support – hundreds of thousands. Politically, US image benefits when Boeing Airplanes and other American brands are seen around the world. Ex-Im is a large contributor to that global image building process.  If we close Ex-Im, European credit agencies financing Airbus planes will get an advantage and more Airbus planes will be sold in the world giving a financial and political edge to our European allies. “Better than going to China or Russia” some may say, but “better” is not enough to put food on the dinner table for a family of four in South Carolina, whose breadwinner has been laid off due to loss of international orders.

My experience working with Ex-Im Bank goes back over a decade, I have seen a lot of things at this Agency, which could use improvement and even structural change. Yet in the realm of Federal Government Agencies, Ex-Im is pound for pound among the most effective. Its 400 employees returned over $600 million into the US treasury, That is over $ 1.5 million PER employee, and is equivalent to productivity of many solidly performing companies of the private sector, and that is in the world where deficit, consumption and spending rule. Yet, Congressman Hensarling wants to close this small and profitable Agency down, WHY?  As part of reauthorization compromise, some in Congress want to saddle Ex-Im with new reserve requirements to cushion possible future defaults. Yet, high default rates have not been a problem at Ex-Im, whose rate of default is comparable with that of large commercial lenders taking similar risk. If anything, the bank has been too conservative in its underwriting. Problem with personnel turnover, yes, problem with defaults, not at all. I could and will make a case that because of the uncertainty in reauthorization Ex-Im has lost some of its best people over the last year. More senior people with decades of experience left in the last 12 months than in the previous five years combined.

It is ironic that the labor unions – one of the groups that benefited greatly from Ex-Im’s financing have also been behind the effort to dismantle Ex-Im. When Delta Airlines, bloated with uncompetitive and overpriced labor force, tried to block foreign sales of US made airplanes financed by Ex-Im, the Airline resorted to using political pressure to try and wreck export financing and destroy jobs of people at companies that could compete and deliver economic gain to the US. The absurdity of the situation cannot be understated. It is another example of politics undermining exports.

Of course, there are certainly positive effects of politics on exports. Chief among them are various trade partnerships and free trade agreements. When they work, these agreements are magical and provide fantastic economic benefits to US producers and exporters. Yet those agreements take years to negotiate and ratify, causing lost revenue and loss of competitive position in many markets where other countries outmaneuver US and pass their own agreements quicker. Thus rather than destroying a good and solidly performing Export Credit Agency, which benefits many thousands of people throughout the US, Congressman Hensarling and his colleagues should focus on making sure PTTs are negotiated and ratified faster, so US can produce and export more.