The Export-Import Bank Reauthorization
July 31, 2019
On September 30, 2019, the Export-Import Bank’s (ExIm) charter will expire unless Congress renews it. If this situation sounds familiar, it might be because ExIm faced an uncertain future just four years ago when it was previously up for reauthorization. The reauthorization of ExIm has always been polarizing for lawmakers. There are many who argue that the bank is crucial to U.S. strategic trade interests and just as many who believe that it represents the worst of corporate welfare. Regardless, if ExIm expires in September, thousands of export-oriented U.S. businesses will be left without export credit and other ExIm financial instruments.
Q1: What is the ExIm Bank?
A1: ExIm is the official export credit agency of the United States, and as such, it is tasked with promoting exports and creating jobs in export-oriented industries and firms. The bank provides loans, insurance, and a variety of other financial instruments to assist export activities of U.S. businesses. As the lender of last resort, ExIm is uniquely able to provide financing in situations where private sector finance is unavailable or unwilling to take credit and country risks.
The bank borrows taxpayer funds from the Department of the Treasury and then lends it to firms at a premium. At the end of the year, the bank returns the principal and any profits made to the Treasury. Since 1992, when the Federal Credit Reform Act came into effect, ExIm has added $9.6 billion in profits to the Treasury even after providing for all expenses, loan-loss reserves, and administrative costs.
The existence of an export credit agency (ECA) is not unique to the United States. One hundred and thirteen foreign ECAs currently exist with many more countries striving toward creating ECAs in order to provide their domestic firms with an edge in the increasingly competitive global trade system.
Q2: What is the current status of ExIm’s operations?
A2: Since its inception, ExIm has been plagued by issues over renewal, board member quorum, and a general lack of personnel.
From July 2015 to this past May, ExIm lacked not only a chairman but also the minimum number of board members required to form quorum. The lack of quorum crippled the bank because they were unable to authorize loans over $10 million. As a result, the bank says they have missed out on value-creating projects worth $40 billion over the last 4 years. Two months ago, in May, Congress approved Kimberly Reed as the chairman of ExIm along with two new board members, thereby reinstating the board quorum. The bank now has the requisite number of board members to approve loans over $10 billion and is beginning to clear out years’ worth of backlog along with hiring more personnel to carry out the work of the understaffed agency. Chairman Reed has also appointed a chief ethics officer and a chief risk officer in order to ensure greater transparency and better protection of tax payer money.
Despite recently reaching quorum, the bank faces a greater reckoning—the expiration of its authorization in September of this year. If the bank is not renewed, all operations will cease in September, and U.S. businesses will immediately lose access to the instruments the bank provided. The bank needs to be renewed by Congress every few years and has faced this situation in the past. However, as market access and export competitiveness become increasingly complex and contested, the renewal process faces growing uncertainty. The debate surrounding renewal is twofold—whether to renew the bank at all, and if renewed, what reforms could be made. However, the divide over reauthorization is not partisan—there are Democrats and Republicans on both sides of the issue.
Q3: What potential reforms might be made to the bank? Who will these reforms impact?
A3: The consensus in Congress seems to be that if the bank is reauthorized, it would need a major overhaul. To this end, several representatives and senators have suggested reforms to the bank. Representative Maxine Waters (D-CA), chairwoman of the House Committee on Financial Services, proposed a bipartisan bill with Representative Patrick McHenry (R-NC), the ranking member, on the reform and reauthorization of the bank. More recently, Senators Kevin Cramer (R-ND) and Kyrsten Sinema (D-AZ) on the Senate Committee on Banking, Housing, and Urban Affairs released a much narrower reauthorization proposal. Although debate and discussion on the bipartisan proposals continues, a few key issues have emerged.
One of the main contentions in reforming the bank is dealing with Chinese state-owned enterprises (SOEs). There is increasing fear among lawmakers that U.S. taxpayer money is going toward supporting Chinese SOEs via ExIm financing. Although these Chinese SOEs are taking loans to purchase U.S. goods, lawmakers do not believe the United States should be assisting an aggressive economic competitor like China in this manner.
Many also want to use the ExIm Bank as a “weapon” against China in the current fight for economic dominance. During the June 27 Senate Committee on Banking, Housing, and Urban Affairs hearing on ExIm, some senators suggested that ExIm funds should be used to directly target and compete with China in Chinese domestic markets and other markets across the globe. However, the capability to prioritize exports that compete with Chinese products would require procedural changes to the bank’s loan approval process because the current system of approval is based solely on viability and repayment potential of the loan.
Both proposals also hope to give the bank greater stability and a wider reach. The Waters and Cramer-Sinema proposals suggest an extension of the bank’s renewal for 7 and 10 years, respectively, instead of the previous 4-year extension. Both proposals also advocate for an increase in the bank’s total cap to $175 billion by 2026. There is also a new contingency plan to prevent the state of limbo the bank was recently stuck in due to lack of a board quorum. The plan will allow the U.S. trade representative, secretary of treasury, and other government officials to temporarily form a quorum and approve loans over $25 million if there is no quorum on the ExIm board for 90 days.
Several reforms in the Waters bill would increase scrutiny and decrease assistance for some of ExIm’s biggest beneficiaries. The new proposal contains provisions that would restrict ExIm funding for aircraft models that have poor safety records. The proposal also prescribes enhanced disclosure for companies that have more than 20 percent of ExIm’s exposure for the fiscal year including details on employee diversity, linkages with small businesses, and job creation. These new provisions would force large businesses like Boeing and other manufacturing giants, who receive a majority of the bank’s funding, to disclose intimate details of their operations and open them up to scrutiny from equal opportunity employment advocates, unions, and lawmakers, among others. Not only would this put immense pressure on these businesses, but they would also be forced to consider other, more discrete avenues of export financing.
Waters’s reforms have managed to get significant bipartisan support and will increase transparency, accountability, and taxpayer protection. There will also be benefits accrued to small businesses and female-owned businesses who historically do not receive sufficient private sector funding.
Q4: Is there opposition to reauthorization?
A4: The opposition to reauthorization comes from critics on many fronts. There are some who think the bank ought not to exist and others who think that Waters’s bipartisan reauthorization proposal does not do enough to correct the path of the bank.
Many in Congress argue ExIm represents a system of crony capitalism that fills the pockets of large businesses. This is evidenced by the fact that the bank’s primary beneficiaries are Boeing, Caterpillar, and General Electric. Furthermore, the bank has the discretionary power to pick economic winners and losers rather than leaving the outcomes of trade up to the free market. The bank has also been accused of crowding out private financing for exports instead of operating solely as a lender of last resort.
Several lawmakers and lobbying groups believe that the bank should not be used to fund business in specific sectors. Liberal Democrats Representative Alexandra Ocasio-Cortez (D-NY) and Representative Rashida Tlaib (D-MI) on the House Committee on Financial Services have proposed amendments to prevent funding of fossil fuel driven energy production and regulate greenhouse emissions from potential projects, respectively. Environmentalists are also demanding provisions requiring ExIm to comply with the National Environmental Policy Act (NEPA). Under NEPA, government agencies must conduct environmental assessment impacts of potential projects. They also demand that ExIm comply with the Endangered Species Act, which mandates that government-funded projects should not jeopardize the existence of any endangered species or their habitats. Others believe the bank should not fund unethical projects or projects that could endanger U.S. national security such as providing sensitive technologies to authoritarian governments.
On the other hand, some lawmakers believe Waters’s proposal unfairly targets certain industries and companies. Representative Denny Heck (D-WA), a moderate from Washington, which is home to more than 70,000 Boeing employees, called the bill “clearly anti-Boeing,” while Representative Brad Sherman (D-CA), a long-time supporter of ExIm, argued that reauthorization should not preclude the sale of U.S. goods to Chinese government-owned businesses. In these lawmakers’ opinion, ExIm’s primary purpose is creating and protecting U.S. jobs, and so, targeting large manufacturing companies like Boeing who employ tens of thousands of U.S. citizens seems to do the exact opposite.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Beverly Lobo is an intern with the CSIS Scholl Chair.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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