US Exim has been crippled for almost four years and in that time has racked up more than US$40bn of unapproved financing deals, but there may finally be light at the end of the tunnel, writes Drew Nicol.
This year, the US Export-Import Bank (US Exim) has its best opportunity yet to regain its full ability to finance the country’s exporters, but powerful political and commercial opponents also sense an opportunity to kill off the controversial export credit agency (ECA) once and for all.
Hamstrung by a lack of quorum since 2015 – a result of all bar one board positions being vacant – US Exim has been prevented from financing transactions worth more than US$10mn or with tenors longer than seven years.
But, industry observers, including a spokesperson for one of the bank’s biggest beneficiaries, Boeing, tell GTR that the need to renew US Exim’s four-year mandate, which expires in September, could act as a stimulus to get the ECA back to full strength. The aerospace manufacturer’s representative argues that the mandate renewal presents an opportunity to reauthorise the bank and approve a full slate of new board members in a single motion, a full two years after the latest nominees were first put forward.
At the same time, other key stakeholders, from senators to large manufacturers and legal experts, are also pointing to the removal of major political obstacles at home and a shift in the geopolitical landscape abroad as reasons to be more optimistic than ever that the bank will soon be able to address the backlog of several billions of dollars worth of financing deals currently awaiting attention.
US Exim: Vital tool or corporate welfare?
Many US exporters claim they are suffering from a significant competitive disadvantage by being unable to include ECA backing as part of their offering when bidding for international deals.
Boeing blames the lack of ECA funding for the loss of at least three major satellite deals so far. The spokesperson tells GTR that Boeing will continue to lose out to foreign competitors for as long as the bank remains out of action.
“If you’re not confident that US Exim will be there to support you then that may affect your decision on whether to buy Boeing,” he says.
US Exim is still able to finance on a relatively small scale. In February, it signed a US$5mn deal with Honda Jets to deliver small aircraft to Mexico. But a representative for a large US bank that works closely with the ECA says that for all intents and purposes US Exim is closed for capital goods, which is a big problem for major manufacturers.
Mike Gold, aerospace executive and attorney for satellite manufacturer Maxar, explains that in his industry, deals don’t start generating revenue until after the product is deployed, and that makes finance solutions a vital tool for project viability.
“It’s [ECA backing] something that many, many customers look for and need and that they are getting from other places throughout the world,” he says.
However, US Exim faces fierce resistance both inside the Senate and from US businesses who argue that the bank offers ‘corporate welfare’ that allows foreign companies to undercut domestic businesses.
One of the most outspoken opponents of US Exim in the corporate world is Delta Airlines, which has claimed that the bank’s activities effectively represent a subsidy to foreign competitors that fly similar routes and can buy Boeing planes cheaper than it can.
In 2013, Delta sued the bank for guaranteeing loans for the purchase of Boeing planes by Air India. In the lawsuit, Delta alleged that US Exim “failed to consider the economic impact of its loan guarantees”. The case was dismissed by a Federal judge in 2015, but the bank’s troubles are far from over.
Today, the main threat to the bank comes from inside the political sphere. In March Republican congressman Justin Amash laid a bill to ‘eliminate’ US Exim, which he describes as a “crony bank, which subsidises loans for a few politically connected corporations, such as aircraft giant Boeing, at the expense of American businesses and taxpayers”. The bill is backed by five Republican co-sponsors and, as this publication goes to press, has been referred to the house committee on financial services.
Speaking at the introduction of the bill, Amash said: “Instead of allowing businesses to compete in a free market, politicians pick winners and losers. Meanwhile, taxpayers assume the financial risk for the bank’s federally-backed loans while a few corporations pocket the profits.”
This is the fourth time Amash has introduced a bill to kill off US Exim since 2012. Although each version of the bill garnered support from other Republican co-sponsors, peaking in its third iteration in 2015 with nine, it has thus far failed to go through.
Opposition to US Exim within the Republican party has increased in recent years ever since the emergence of an internal faction known as the Tea Party, which is in favour of small government and traditionally conservative economic and social values.
Nevertheless, supporters of the ECA are eager to counter this anti-Exim narrative and point to the bank’s strong track record of driving returns on investments, along with its role in promoting US goods and services abroad and bringing business to the US that might otherwise go to cheaper markets.
Ambassador Jeffrey Gerrish, US Exim acting chairman and president and sole board member, tells GTR: “The lack of a board quorum has unilaterally disarmed US Exim at a time when our full range of financing is greatly needed to enhance US global competitiveness, support American exports, and help create US jobs.”
According to US Exim, it has provided US$14.8bn to the treasury since 2000, after paying for all its administrative and programme expenses. Additionally, the bank’s neglected multi-billion-dollar pipeline, 80% of which relates to energy and mining industries, would support an estimated 230,000 jobs across the country.
“US Exim brings returns to the treasury. It’s not a situation where it is typically offering financing to ventures that go belly-up. It may have its own criteria that a borrower needs to meet and because it has been successful in its loan programme it is able to provide a return to the US treasury,” Tom Stroup, president of the Satellite Industry Association (SIA), tells GTR.
SIA is a member of several coalitions of exporters and other affected parties that are actively working with the likes of the US chambers of commerce to restore US Exim on behalf of its members, who are some of the worst affected by the bank’s inability to back their large-scale projects.
However, despite industry optimism, the existence of major political opponents to US Exim complicates the use of the mandate renewal as a means of regaining a quorum. Matthew Oresman, international trade and global policy attorney at Pillsbury Winthrop Shaw Pittman in Washington, explains: “Boeing is right in that the mandate could be the impetus [for US Exim’s quorum restoration] but at the same time it also becomes a target. If it moves forward, there’s a chance for the bank’s opponents to tinker with the mandate and impose some restrictions that achieve their goals. For example, restrictions could be put on certain types of financing where it allegedly hurts domestic US companies, such as Delta Airlines.”
Playing politics – what’s changed?
With a new fight for US Exim looming, its supporters are hailing the Democrats’ regaining of the House of Representatives – which must pass the US Exim’s new mandate – in 2018 as a power-swing in their favour. Democrats can now apply greater pressure on Senate majority leader Mitch McConnell, who controls the business of the Senate and has been accused of dragging his feet when it comes to US Exim. Sherrod Brown, US senator and ranking member of the banking committee, which oversees the ECA’s activities, tells GTR: “We need to get the bank back up and running. I urge majority leader McConnell to reject further obstruction by a few Republican senators. I hope he moves to quickly confirm all of US Exim bank board nominees.”
In March, several speakers at US Exim’s 2019 annual conference, including members of the House of Representatives, emphasised the importance of the apparent sea-change on Capitol Hill. House financial services committee chairwoman Maxine Waters cryptically told delegates not to worry and suggested that “a lot can happen when you have the gavel”.
In 2015 the bank was forced to close completely for several months after its mandate expired due to a battle in Congress over budgets. But it was eventually resurrected by Democrats who pushed through its revival – with the limitations in terms of facility amount and tenor – in November of that year.
That reauthorisation is in effect until September this year. Despite the looming deadline, the Senate has not yet fixed a date for a vote on reviewing the mandate and it is expected to be pushed to the end of the year. If the mandate is allowed to expire again, the bank may only be allowed to fulfil its existing financing obligations and will be barred from signing new deals, although the rules are unclear as it will be in a form of legal limbo.
As well as the removal of problematic Republicans from the House, Trump’s latest choice for US Exim chair, Kimberly Reed, formerly of the US department of the treasury during the Obama administration, is also widely expected to be received more favourably by the Senate than the president’s first nominee for the role.
Trump originally tapped Scott Garrett, a former Republican congressman, to head the bank, despite him being a vocal critic of the ECA and fighting to keep it closed in 2015. In 2017, the US Senate banking committee rejected Garrett on the grounds that his overt dislike of the bank made him unfit to be responsible for it.
In January, the four nominees, including Reed, were returned to the White House when the 116th Congress began and had to be re-nominated by Trump – which they were two weeks later – for the whole approvals process to begin again. In February, the banking committee voted in favour of the nominees and sent them up to the Senate for approval for a second time. However, it was here that the nominees first found themselves stuck back in August 2018, with McConnell unwilling to designate them the time on the Senate floor needed for the final vote to take place.
Coalitions of exporters and other affected lobbying groups are loudly venting their frustration at finding themselves exactly in the same place they were four years ago, but also acknowledge that this time the circumstances are different. Several tell GTR they are taking Trump’s swift response to renominate Reed and the other nominees as a sign that the White House’s perceptions on the bank are shifting for the better.
Although US-China relations first began to fray well before 2016, they soured significantly after Trump took office, following his repeated promises to stop China undercutting US businesses as part of his core campaign message. What began as political tension based on ideological differences before the turn of the century has now expanded into fully-fledged rivalry as the emerging Asian superpower increasingly challenges the West. Today, all aspects of US foreign policy, including trade-related activities, must be viewed through a lens of competition with China.
Trump had initially intended to scrap US Exim, along with over 60 other government agencies, as part of the administration’s 2018 annual budget. The president was later convinced that entities such as US Exim and the Overseas Private Investment Corporation (Opic) could be used to counter China’s influence abroad. Far from shutting down US investment overseas, Trump has instead set aside US$60bn to form the International Development Finance Corporation, a development finance agency which acts as the successor to Opic.
Speaking at the opening keynote at US Exim’s event in March, director of the national economic council Larry Kudlow said: “Exim Bank can be working with us and helping American interests around the world because the geopolitics have gotten much tougher, and the competition has gotten much tougher. And, yes, a lot of this, too, revolves around China.”
Kudlow also used his address to describe the bank as “a financial tool and a national security weapon”.
Gold at Maxar reinforces this view, stating: “This issue of US Exim really goes beyond commerce and impacts upon national security. Our inability to finance projects will have a knock-on effect on our technological prowess as a nation. This is a competition and the Chinese are out to win and eliminate the US’ capacity.”
Additionally, while the US dithers over its commitment to its exporters, the country’s trade competitors are actively carving out their piece of growing global markets including green energy, agriculture, technology and aerospace; and their own ECAs are developing innovative financing solutions to support their respective businesses in these ventures.
Gold states: “While we’re having this debate [on the need for ECA financing], other countries have made up their minds and are moving forward and are gaining the jobs, innovation and industrial base growth that we might otherwise be taking advantage of.”
For US Exim, 2019 will likely be a pivotal year. With the mandate renewal deadline only five months away, and a strengthened sense of purpose bolstered by political and economic forces, both foreign and domestic, the bank’s standard bearers are ramping up their campaign to keep US Exim operational. But, with malicious forces also advancing their own agenda for the bank, only time will tell if this is the year when US Exim regains prominence, or finally closes its doors for good.
Meet the nominees
Kimberly Reed – nominated for US Exim president and chair
Formerly of the US department of the treasury
Spencer Bachus – nominated for board of directors
Former US representative for the state of Alabama
Judith DelZoppo Pryor – nominated for board of directors
Previously vice-president at the office of external affairs
Claudia Slacik – nominated for board of directors
Former chief banking officer and senior vice-president for export finance at US Exim
No nominees have been selected for the positions of vice-president and vice-chairman.