Tapped out?

American shippers question whether Trump will be an ally or foe to the U.S. Export-Import Bank.

By: Chris Gillis
Photo: Iurovskaia Ekaterina/Shutterstock
   Will the incoming Trump administration press to restore full operations of the U.S. Export-Import Bank, or side with a cadre of Republican lawmakers bent on seeing its demise?
   That’s the question many large and small American shippers, especially those with export customers in developing markets, hope to have answered by Trump and his incoming White House team.
   “We are hopeful that the new Congress and administration will work together to support the Caterpillar employees in the U.S. who build the products we export around the world,” said Matt Lavoie, the equipment maker’s senior Washington spokesman. “One important way they can do that is to get the Ex-Im Bank fully operational.”
   Ex-Im Bank provides financing in the form of loan guarantees, credit insurance and direct loans to buyers of U.S. exports, as well as working capital guarantees and credit insurance to mostly small and midsized U.S. exporters. In both cases, those bank products are attached to negotiated sales.
   Where guarantees are concerned, the Ex-Im Bank works with a customer’s lender to backstop the terms of the loan. Ex-Im Bank acts solely as a guarantor, and no money is exchanged between the financial institution and the bank unless there’s a default. In other words, Ex-Im Bank’s guarantees allow a financial institution to extend competitive terms to a customer who might otherwise be unable to obtain them.
   “Boeing does not receive financing from the [Ex-Im] Bank, our customers do,” said a spokesperson for the aircraft manufacturer’s Government Operations office in Washington, D.C. “Customers look to Ex-Im for loan guarantees when competitive financing options do not exist. And they pay fees for the guarantees that are set by the OECD (Organization for Economic Co-operation and Development) to align this type of financing with the cost of private sector financing.”
   ProGauge Techologies of Bakersfield, Calif., a manufacturer of steam generators and well testers for the oil and gas industry, has used Ex-Im Bank’s working capital guarantee the most, but is currently negotiating overseas export deals that will require it to utilize the bank’s medium- and long-term loan product.
   “ProGauge can’t get bank guarantees from our bank (Wells Fargo) without a backup from the Ex-Im Bank,” said Don Nelson, the company’s president. “We’ve tried numerous banks and none will get involved with international export banking without Ex-Im guarantees.”
   U.S.-flag vessel operators, such as Intermarine and American Roll-on Roll-off Carrier (ARC), also benefit from Ex-Im Bank business, especially those transactions supported by direct loans regardless of terms or amount, as well as guarantees in excess of $20 million, or have a repayment period of greater than seven years. Those exports are subject to U.S. cargo preference rules and must be transported on U.S.-flag ships.
   “U.S.-flag shipping is a very small percentage of the overall cost of Ex-Im projects, which are often valued in the tens of billions of dollars, but it has important national security ramifications,” said Eric Ebeling, president of ARC. “This is especially true because such project cargoes often move on roll-on/roll-off vessels or heavy-lift multipurpose vessels, which are considered the most militarily useful vessel types by the Department of Defense.”
   For the past two years, however, the bank has been the target of a handful of powerful lawmakers who view its operations as no more than “crony capitalism” or “corporate welfare” for large corporations that can just as easily obtain trade financing with their customers from private sector banks.
   Despite the fact that Ex-Im Bank has long enjoyed bipartisan support on Capitol Hill since its inception in 1934, lawmakers such as House Speaker Paul Ryan, R-Wis.; Rep. Jim Jordan, R-Ohio, who heads the conservative House Freedom Caucus; and Senate Banking Committee Chairman Richard Shelby, R-Ala., in the past couple years have repeatedly thrown obstacles in the way of the bank’s operation.
   In mid-2015, these lawmakers successfully blocked the bank’s re-charter, shuttering its operations to American shippers seeking trade financing and insurance to broker export deals.

The bank’s five-person board currently has two seats filled, but requires a minimum of three to have the necessary quorum to approve financing valued at more than $10 million

   Diane Katz, senior research fellow in regulatory policy at the Heritage Foundation, a Washington-based conservative think tank, argued during an Oct. 23, 2015 hearing before the House Foreign Affairs terrorism, non-proliferation and trade subcommittee that “there is no shortage of private export financing” and “the primary beneficiaries of Ex-Im financing continue to secure billions of dollars of new orders without it.”
   “It is likewise important to recognize that Ex-Im finances a meager 2 percent of U.S. exports,” she said.
   Under pressure from major shippers, such as Boeing, General Electric and Caterpillar, as well as the Ex-Im Coalition (whose members include the likes of the National Association of Manufacturers, Aerospace Industries Association, Satellite Industry Association, Small Business Exporters Association, Tech America, and Bankers Association for Finance and Trade, among many others), congressional lawmakers were able to bypass this impediment in early December 2015 by securing a long-term re-charter for the bank through a transportation bill attachment.
   The provision, which extends the bank’s charter through Sept. 30, 2019, passed with overwhelming majorities in both the Senate and House over repeated heckling from the House Freedom Caucus members.
   While the Ex-Im Bank’s operations were technically restored, opposition lawmakers found another way to impede its capabilities, namely by resisting Senate confirmations of vacant bank board seats. The bank’s five-person board currently has two seats filled, but requires a minimum of three to have the necessary quorum to approve financing valued at more than $10 million.
   The Aerospace Industries Association in mid-November 2016 lobbied House and Senate lawmakers to break the impasse by urging them to pass Ex-Im Bank quorum provisions found in both House and Senate versions of the fiscal 2017 State and Foreign Operations appropriation measures. The industry group said this would allow the Ex-Im Bank to clear a backlog of more than 30 export sales, valued at more than $20 billion. However, the measure failed to pass either chamber before their winter adjournment.
   “Many of our customers are worried about whether Ex-Im will be there for them in the years ahead when it comes time to finance airplanes they might purchase from Boeing in the coming year,” the company’s spokesperson said. “In fact, last year two prominent customers, Comair and Ethiopian, wrote to Boeing advising they would be forced to reevaluate their fleet decisions and their ability to purchase Boeing aircraft without Ex-Im support.
   “What’s more, within our commercial satellite business, at least three satellite sales have been lost or significantly delayed since the bank was shuttered in July 2015,” the spokesperson added.
   “Given the charter and board quorum travails Ex-Im Bank has faced in recent years, the cargo pipeline that U.S. carriers compete for has run dangerously low, thereby contributing to the flagging-out of many U.S.-flag ships in recent years,” Ebeling warned.
   Interestingly, however, many countries throughout the world have their own export credit agencies (ECAs) with similar operations and scope as the Ex-Im Bank—namely to assist their nation’s exporters. These institutions are even permissible within the World Trade Organization.
   Proponents of Ex-Im Bank note that other countries’ ECAs and exporters will continue to gain the upper-hand in negotiating export deals, particularly against small and midsized U.S. exporters seeking the same business in developing countries, if the bank’s operations remain curtailed.
   “Companies such as Boeing, Caterpillar and GE will not miss out on any large global infrastructure and manufacturing projects if they do not have Ex-Im Bank financing,” Ebeling said. “They will adjust to the more favorable economic conditions on offer by other countries’ ECAs, and seek financing and build equipment where the terms and conditions are best.”
   Small and midsized U.S. exporters, like ProGauge, see their export prospects nearly shut down altogether if the Ex-Im Bank is forced to shutter by Capitol Hill lawmakers.
   “We wouldn’t be able to participate in the international export business,” Nelson said. “The types of projects we do require working capital guarantees and/or medium- and long-term loan guarantees. Without the Ex-Im Bank, we would be unable to export. We’d just scale back and lay off more folks.”
   Nelson is hopeful the Trump administration will be an advocate for Ex-Im Bank.
   “If Trump truly wants to grow job opportunities and create good paying manufacturing jobs in America, then he’ll support the Ex-Im Bank,” he said.