Trade finance has played a key role in international commerce for centuries. While the vast majority of trade finance is provided by private sector banks, official export credit agencies (ECAs) have long played an important role in select circumstances.
The U.S. ECA is the Export-Import Bank of the United States (EXIM), which provides financing and guarantees for U.S. companies’ exports. EXIM is among the smallest and leanest of government agencies.
EXIM was a contentious issue in 2015, when it was last up for reauthorization. However, after a long debate, its charter was reauthorized with two-thirds majorities in both chambers of Congress voting in favor.
The Senate took an important step toward supporting the bank in May 2019 when it confirmed Kimberly Reed to serve as Chairman and President of EXIM and Judith Delzoppo Pryor and Spencer Bachus to serve as directors on its board. As in 2015, large majorities in the Senate voted to confirm the nominees.
Thanks to this action, a board quorum was restored for the first time since mid-2015. During this interim, the bank was unable to extend loans or guarantees in excess of $10 million.
EXIM’s June 2019 Report to the U.S. Congress on Global Export Credit Competition (the Bank’s annual, congressionally-mandated “competitiveness report”) provides a useful window into the implications of a lapse in EXIM’s authorization or a lapse in its board quorum.
It’s a stark picture. Without a board quorum, “EXIM was not a significant provider of medium- and long-term (MLT) official export credit in 2018,” according to the report. “EXIM authorized $301 million of MT transactions in calendar year 2018,” and no long-term financing or guarantees.
By contrast, China has “the world’s largest ECA system, with its official ECAs—Sinosure and China EXIM—providing almost $65 billion per year of MLT export and trade-related activity around the world in 2018,” the report finds.
In other words, China is providing 130 times as much MLT export credit support to its exporters as EXIM provides to U.S. exporters.
Nor is China alone: Many countries continue to be extremely active with fully empowered and well-funded export ECAs. “By today’s count, there are a total of 113 ECAs (including EXIM) or other official entities providing some form of export credit support globally,” the competitiveness report indicates.
As a result, U.S. exporters have been competing at a sharp disadvantage in key markets. The competitiveness report notes: “As of December 31, 2018, there was nearly $40 billion in transactions in EXIM’s pipeline that require a vote by EXIM’s Board of Directors.”
With a board quorum restored, the Bank is now working its way through this backlog. This is welcome news for many exporters, including thousands of small business suppliers that are helped when EXIM finances major purchases such as airplanes and construction equipment from larger companies. But if EXIM’s charter lapses on October 1, this work will again come to a halt.
Members of Congress should bear in mind that EXIM is indispensable in some circumstances. EXIM is necessary because ECA support is often required even to bid on a wide variety of foreign business opportunities. This includes requests for tender from both public and private sources, including opportunities as diverse as infrastructure projects, nuclear reactors, and contracts to provide medical equipment to hospitals.
In addition, EXIM is necessary because it is par for the course for expensive capital goods such as aircraft, turbines, and locomotives to be sold worldwide with unashamed ECA backing. ECA support can make or break a deal.
Far from being a burden on the taxpayer or a subsidy for corporations, EXIM charges fees for its services that generate billions in revenue for the U.S. Treasury above and beyond funds it received in appropriations. “The Bank sent more than $500 million per year, on average, to the Treasury during the last five years in which it was fully operational,” according to EXIM’s 2018 competitiveness report.
Some critics charge that EXIM picks winners and losers, skewing the marketplace. On the contrary, EXIM extends loans and guarantees to all applicants that meet its strict lending requirements but does so only when commercial credit is unavailable or when it is necessary to counteract below-market credit from foreign ECAs.
Arguments over EXIM have put billions of dollars in U.S. exports and tens of thousands of American jobs at risk. America needs a fully functioning EXIM, and the certainty that a long-term reauthorization would provide, so that U.S. exporters are no longer at a unique disadvantage in the global marketplace.