The saga of US Ex-Im
CC Solutions' Valerie Colville discusses how the US export credit agency’s charter came to expire on 30 June, what is likely to come next, and what can be done to bring the bank back from the dead.
Would you close a company that supports 160,000 jobs and makes $675 million in profit? That is exactly what the US Congress did by failing to renew the Export-Import Bank of the United States (US Ex-Im). US Ex-Im is, or rather was, the second largest export credit agency within the OECD consensus, and the third largest globally behind China and Japan. Why this happened to US Ex-Im, and what could happen next, is multifaceted, political and murky. The answer lies somewhere at the intersection of politics, ideologies, voting procedures, and wealthy conservative Republicans like the Koch brothers.
The bank was created over 80 years ago to boost US jobs by helping to finance the export of American goods and services. In just the last six years, US Ex-Im has supported 1.3 million private sectors jobs and over $27 billion in US exports. While this accounts for only 2% of total exports, the bank works with companies large and small to help them compete globally. With all of these positive attributes that benefit the US economy and its workers, the fact that Congress chose to let the charter expire on 30 June 2015 is symptomatic of a house divided – specifically the House of Representatives.
Crashing the party
Reauthorisation of US Ex-Im has historically been a smooth, bipartisan process. In fact, historically its strongest proponents were pro-business Republicans. That all changed a few years ago when a small group of conservative Republicans decided that the bank was the prime example of government intervention in private-sector business. Calling themselves the Tea Party, they are a fractious, powerful subset of the Republican Party.
The Tea Party is well funded and its congressional members are vocal, active and resolute in their ideology. It is widely reported (and equally denied) that the Koch brothers – owners of the second largest private company in the US – have allocated over $100 million to help fund conservative policy advocacy organisations such as Heritage Action for America, Americans for Prosperity and the Cato Institute. Through these lobbying groups, along with several others funded by other wealthy Americans, the Tea Party has grown in strength and influence.
The perfect storm against US Ex-Im started in earnest last year. Congressman Eric Cantor (Virginia), then House Majority Leader, lost his House seat to a Tea-Party conservative. Cantor had been a strong US Ex-Im supporter. When he lost, the Tea Party quickly rose in rank in the House. And with that came the refrain to disband US Ex-Im, the supposed poster child of corporate welfare.
A significant portion of US Ex-Im’s transactions support major US exporters like Boeing and GE, but the Tea Party hold that these financially strong US-based companies should not need government financing to facilitate overseas sales. But while these large companies indeed benefit from US Ex-Im financing, so do the thousands of other US companies who act as their sub-suppliers. Over 90% of US Ex-Im’s transactions are actually made to small, independent businesses throughout the US. These conservatives are putting thousands of US businesses at a competitive disadvantage because of their own misguided ideology.
Lagging behind international rivals
Here is the conundrum facing US businesses: without US Ex-Im, there is no export credit agency (ECA) to help them compete against their global competitors who, themselves, have active ECAs. In fact, over 60 countries have export finance agencies supporting their countries’ exports. In 2014, China’s ECAs (yes, they have more than one) approved over $40 billion in long-term export finance. Adding in short-term trade finance, China’s export support approached $400 billion. Japan’s two agencies, JBIC and NEXI, provided approximately $29 billion in long-term financing. Korea’s agencies approved long-term export financing exceeding $14 billion. US Ex-Im’s long-term approvals were less than $10 billion, and its total approvals just under $30 billion.
China’s $400 billion versus US Ex-Im’s $30 billion. So why is there even a debate, hasn’t the US already fallen behind?
Ideologically, it would be great if private-sector banks could finance US exports. Unfortunately, reality flies in the face of ideology. Boeing no longer has US Ex-Im. But its primary competitor, Airbus, has not one, but three agencies supporting it. The UK, German and French ECAs work together to offer Airbus buyers the best possible ECA finance package to incentivise a purchase. How is Boeing going to compete without US Ex-Im? This applies to US companies across the business spectrum. Overseas exporters have active agencies to tempt buyers; the US does not.
A political quagmire
The likelihood of US Ex-Im eventually being reauthorised in 2015 is mired in Congressional trading chips. Taking a step back, let’s consider what happened to US Ex-Im just days prior to 30 June (the day its charter expired and Congress recessed for the summer). US Ex-Im supporters in both the Senate and House fought tooth and nail to get the ECA renewed. Senator Mitch McConnell, the Majority Leader of the Senate (and a Republican), allowed a vote to reauthorise to proceed as part of a must-pass US federal highway bill. The highway bill, also expiring on 30 June, needed to be authorised in order to keep highways and related infrastructure across the US funded and operational. When the vote came to the Senate on 26 June, a bipartisan majority of Senators voted in favour of the highway bill and, along with it, US Ex-Im’s long term reauthorisation (64 yes, 29 no).
The next day, the Senate bill arrived in the House of Representatives for a vote. The House rejected the Senate highway bill and simultaneously stripped out US Ex-Im. Within a day, the House crafted a new version of the highway bill, without US Ex-Im in it, voted in favour and then promptly adjourned for summer recess (two days early). This left the Senate with no time to counter, negotiate or otherwise react.
An unauthorised US Ex-Im: the ins and outs
So US Ex-Im’s authority has now lapsed. What does this really mean in practical terms? US Ex-Im is prohibited from processing new applications. Applications that were in-house prior to 30 June are sitting idle. Federal law prohibits US Ex-Im’s employees from engaging in anything pertaining to new deals. Internally it is referred to as “pencils down”. The bank is also barred from discussing, negotiating or executing amendments or waivers to existing transactions. And when export credit insurance policies mature, they cannot be renewed.
On the positive side, US Ex-Im transactions that have achieved financial close will be funded and processed through final disbursement. And, they will continue to carry the full faith and credit of the US government. Transactions that are approved, and are in the active process of financial closing, will similarly be honoured. This pertains to all products offered by US Ex-Im (loan guarantees, direct loans and all insurance programmes). The bank remains fully-staffed and personnel are reporting to work: business (almost) as usual.
US Ex-Im chairman, Fred Hochberg, recently stated that approximately $9 billion of applications are in-house and unable to be processed. These deals are ‘stuck’ in mid-stream approval. Companies impacted range from small businesses exporting everything from cosmetics to compressors and pumps, to major manufacturers of power equipment, petrochemical and refinery equipment, satellite systems, locomotive and train sets, medical devices and manufacturing equipment. Nearly every congressional district in the US has a company that has used US Ex-Im financing. The lapse is already negatively affecting US export volumes, financial performance and jobs for American workers.
Congress comes back from summer recess on 6 September. US Ex-Im is just one of a myriad of complex issues and actions that will have to be voted on by both the Senate and the House. The most pressing piece of business facing Congress is the funding of the entire US government, which expires on 30 September 2015. US Ex-Im, as a federal agency, is funded (appropriated) only until that date, along with the every other part of the government.
Is there a risk of Congress not agreeing on the country’s annual budget? Maybe. This is exactly what happened in October 2013, when the federal government shut down and routine operations ceased. This event occurred because Congress neither appropriated funds for fiscal year 2014, nor issued a continuing resolution (CR) for the interim authorisation of appropriations for fiscal 2014 (the US government fiscal year ends on 30 September). On 17 October 2013, federal government operations restarted once Congress signed an interim appropriations bill into law. During the shutdown, approximately 800,000 federal employees were furloughed, and 1.3 million were required to report to work without current pay (all were made whole when the government resumed operations). Throughout the shutdown, US Ex-Im continued to disburse funds, process claims under insurance policies and manage its portfolio.
There is a lot of confusion about what happens to US Ex-Im after 30 September. For example, Vice News recently reported that US Ex-Im will cease operations on 30 September. This is incorrect. The US Ex-Im memo that Vice referenced explicitly pertains to the cessation of certain operations if Congress fails to appropriate the entire US government like it did in 2013. To repeat, the Vice memo refers to appropriation, not authorisation. The distinction is important. Appropriation effects all US government operations, authorisation effects US Ex-Im and its ability to enter into new transactions. US Ex-Im’s battle is being waged over its authorisation to exist and conduct new business.
When Congress passes a continuing resolution or appropriation to fund the federal government, US Ex-Im will be part of that budget, along with every other US federal agency. Although a slight risk exists of a temporary federal shutdown come 1 October, it would not last long. And even if that happens, US Ex-Im would continue to fulfill obligations for existing transactions.
The path to US Ex-Im’s reauthorisation is unclear. There is still strong support for the ECA in the Senate. Pundits believe that reauthorisation will become part of, and approved under, a Senate bill sometime before 18 December 2015. Which Senate bill, and when exactly, is unknown.
The maelstrom arises in the House – reauthorisation needs approval in both chambers of Congress, Senate and House. Opponents are expected to remain rigid in their resolve to abolish the ECA. Jeb Hanserling (Texas), chairman of the House Finance Committee, will not support a vote for US Ex-Im before his committee. Speaker Boehner (Ohio) will then need to bring US Ex-Im to a vote through alternate means, which will be challenging. House majority leader Kevin McCarthy (California) is also against the bank, and he is responsible for scheduling votes on the House floor. House minority whip, Steve Scalise (Louisiana), is similarly anti-US Ex-Im. All of these men are Conservatives and Tea-Party ideologues. They blocked a vote for the ECA in June, they will likely try to do so again this Fall.
House Democrats favour US Ex-Im. So do many Republicans who understand the practical value. It is rumored that Speaker Boehner supports the ECA, but he must calculate the cost to his own career. Will he bring US Ex-Im to a vote and let the House of Representatives do their bidding and truly represent their constituents? Or, will he bow to the pressure (and considerable funding) of conservative lobbyists and their anti-government rhetoric, and block a vote to reauthorise? At this point, it’s anyone’s guess. And while we all wait, American businesses continue to lose revenues as transactions sit idle. Some buyers have already decided to buy from non-US exporters in countries that have active export credit agencies.
Rally for reauthorisation
While the conservatives thump their chests and pat themselves on the back for their success in stopping US Ex-Im, others are suffering the consequences of these actions. For those who want to help bring back the ECA, contact members of Congress and let them know that US Ex-Im matters to your business. Pick up the phone and call them in Washington or at their home offices. The Coalition of Exporters for EXIM provides the phone numbers and emails for every Senator, House of Representative Member, and all of their staffers and schedulers (go to exportersforexim.org/resources and open “Contact Information for Congressional Schedulers”). Or, contact the US Chamber of Commerce’s international division, or the National Association of Manufacturers (both organisations are actively working toward reauthorising the bank).
Now is the time to bombard Congress with the consequences of US Ex-Im’s lapse: stories of lost business, loss of earnings, stalled transactions, lack of competitiveness, and negative influence on US jobs. The more local the impact, the more likely it will be heard. Regardless of where you are in the world, if US Ex-Im matters to your business, take a minute or two and contact the Congressional representatives. Ask them to bring a vote on behalf of US Ex-Im to the floor and to then vote “yay” in favour of the ECA’s immediate reauthorisation. Without your action, US Ex-Im may become extinct.