US senators have proposed a bill to reauthorise the US Export-Import Bank (US Exim) for 10 years over the traditional four, as the bank’s expiry date of September 30 inches closer.
Arizona democrat Kyrsten Sinema and North Dakota republican Kevin Cramer have put forward a bill that would see US Exim renewed for a decade, allowing US exporters longer-term assurance of access to government-backed financing.
Cramer and Sinema’s plan, which is gaining widespread support and attention across the US and comes after legislation negotiated by House Financial Services chairwoman Maxine Waters flopped, also increases US Exim’s exposure cap over seven years to US$175bn from US$135bn.
“Reauthorising the bank, with these reasonable reforms, gives it a chance to implement necessary changes while also offering more American manufacturing firms and small businesses the opportunity to compete on the world stage,” says Cramer. To which, Sinema adds: “This bipartisan renewal provides certainty to employers across our country, and represents a step away from Congress’s usual short-term crisis management.”
The plan has largely been backed by industry figures. “We support a 10-year reauthorisation as it offers certainty for US manufacturers who are trying to plan long-term,” Kelvin Stroud, director of international affairs and policy at Aerospace Industries Association, tells GTR. “It also makes sure that our aerospace and defence sector can maintain its high level of technology and innovation.”
Export excellence or “corporate welfare”
After regaining its full lending powers in May to the delight of exporters across the US and the dismay of republicans in Congress, the expiry date for US Exim is now creeping up as its charter must be renewed, or indeed axed, next month.
“With 95% of our customers located overseas, competitive export financing is critical to maintaining a level playing field with our competitors. Boeing supports reauthorising the Export-Import Bank, which helps US manufacturers create jobs and compete in a global market,” a spokesperson for Boeing tells GTR in response to the approaching expiry date.
The vote in May confirmed Kimberly Reed as US Exim president and chair, along with Spencer Bachus and Judith Delzoppo Pryor as board members to US Exim, allowing the agency to resume financing and loan guarantees for projects over US$10mn for the first time since July 2015.
The impact of the lower transaction cap had hit new loans, loan guarantees and working capital approvals hard. In 2014, when US Exim was last fully operational for the whole year, it authorised US$20.5bn for 3,746 transactions, to support US exports worth around US$27.5bn. Last year, the bank authorised just US$3.3bn of financing for 2,389 transactions, to support an estimated US$6.8bn in US exports (figure 1).
Figure 1: US exports supported by US Exim (US$bn)
“When we didn’t have a fully functioning US Exim, US companies lost many important sales, for example the satellite industry was hit hard. Another thing to remember is that Exim is a last resort, something that is used when private financing is not available,” says Stroud.
This plunge in financing has resulted in US Exim now working through a US$40bn backlog of pending deals. Such funding could allow exporters to be competitive in markets and industries where US trade nemesis China, among others, have “aggressively” supported their exporters where the US government could not.
However, not all are in favour of export credit agencies. Conservatives argue that ECAs provide “corporate welfare” and only benefit large businesses looking to score overseas sales. Alongside this, ECAs often garner criticism because of the lack of standardisation across different geographies, which means that sometimes buying decisions can be based on the best ECA deal on the table, and not necessarily the quality of the goods on offer.
Manufacturing in the middle
Naturally, US manufacturing giants like Boeing rejoiced at the reauthorisation decision as they can now offer overseas customers government-backed export financing for large equipment orders, such as aircraft, should they need. But this tussle is by no means over: unless Congress takes action, US Exim will cease its operations.
“We need long-term certainty that the Ex-Im Bank will be able to continue helping manufacturers of all types and sizes secure new sales overseas,” the National Association of Manufacturers says in a statement.
Without the bank, the Aerospace Industries Association adds, American exporters are competing with “one hand tied behind their backs”.
To which, Stroud adds: “Exim is part of the toolbox that our industry needs to compete around the world. If we don’t have reauthorisation next month, American exporters will be at a disadvantage. We know there are many export credit agencies around the world supporting their exporters, so without a fully functioning ECA our companies are not going to be competing on a level playing field with foreign competitors.
“Without Exim, I wouldn’t say the aerospace and defence industry in the US won’t win important contracts. But I believe it is certainly going to be more difficult. When a transaction happens, it also impacts the whole supply chain which comprises many SMEs, and sales often trigger long-term trading relationships, benefitting firms of all sizes. We are going to continue to push now and every day until September 30 to make sure Exim gets reauthorised, ideally for a decade,” he concludes.
This year proves fundamental to the future of US Exim, with several options laid out, varying from the bank being axed altogether to gaining its longest-ever renewal of a decade. For exporters, larger and small, who rely on the bank for financial assistance to keep competitive with other nations around the world, it is a waiting game.