UPDATE on Sept. 19, 2014 at 5:23 a.m. PST: Reauthorization of the Ex-Im Bank has been approved. However, rather than being a five year extension, the Ex-Im Bank has been reauthorized until June 2015.
Re-authorization of the Export-Import Bank (Ex-Im Bank) may extend past the September 30th deadline, per public reports. The length of that extension remains unclear. The Ex-Im Bank has been instrumental in helping businesses, including small businesses, minimize the risks associated with exporting overseas. Even with a slight extension, more work still needs to be done to ensure the Ex-Im Bank’s full re-authorization. Additionally, rather than eliminating this institution, it would be useful to discuss ways in to reform the Ex-Im Bank to address some of the challenges that it has faced.
History and Purpose
The Ex-Im Bank was created in 1934 as a part of Franklin D. Roosevelt’s New Deal program and to help carry out his foreign policy goals. Eight decades later, the Ex-Im Bank assists small businesses through its export credit insurance to cover lack of payment from the buyer in a foreign market, credit program for international buyers of U.S. goods and services, loans, and other financing programs for foreign buyers seeking to purchase U.S. capital goods and services. The Ex-Im Bank offers loans that other banks would not offer due to the high risks involved in exporting. With these lofty goals, the effectiveness of the Ex-Im Bank is under scrutiny.
The last effort to hinder reauthorization of the Ex-Im Bank was in 2012, which ultimately failed. The Ex-Im Bank’s contract ends on September 30th. If reauthorized, the contract will be renewed for another five year period.
Arguments Against Reauthorization
Opponents of reauthorization argue that the Ex-Im Bank is just another form of corporate welfare. For example, Forbes contributor Dan Ikenson writes:
The collective evidence demonstrates…that Ex-Im largesse serves the interests of some U.S. companies at the expense of other U.S. companies. Ex-Im facilitates exports and job creation for some U.S. companies, but inhibits exports, domestic sales, and jobs at other U.S. companies…It has possibly affected a reshuffling of jobs between industries and firms, but taking resources from one pocket of the economy and putting them into the other pocket does not create jobs or growth.
According to a CBS news report, Enron received over $650 million on overseas projects from the Ex-Im Bank. When the company went bankrupt, it reportedly owed the Bank $512 million.
Support for Reauthorization
Proponents of the Ex-Im Bank claim that this institution creates jobs without relying on U.S. tax payer dollars. Instead, according to proponents, the Ex-Im Bank actually generates revenue for U.S. tax payers.
President Obama said in 2012:
By reauthorizing support for the Export-Import Bank, we’re helping thousands of businesses sell more of their products and services overseas, and, in the process, we’re helping them create jobs here at home. And we’re doing that at no extra cost to the taxpayer.
According to Ex-Im Bank data, its services have generated $2 billion for US taxpayers.
Even Sallie James, a Cato Institute policy analyst who opposes Ex-Im Bank reauthorization, admits that the Bank does not waste tax payer money.
It is true that the Ex-Im Bank has not imposed a net burden on taxpayers in recent years. It has used revenues from fees and premiums to fund its
activities. Congress allows the Ex-Im Bank access to interest-free funds from the Treasury for program and administrative expenses, with the expectation that offsetting collections will repay the Treasury in full.
As a matter of fact, the Ex-Im Bank only assists two percent of annual U.S. exporters.
Another argument in favor is that foreign countries subsidize their exporters far more than the United States, which gives U.S. exporters a competitive disadvantage. While governments throughout Asia provide guarantees, loans and insurance to exporters ranging from $24 to $111 billion, the United States only provides $15 billion.
Is the Ex-Im Bank Government Waste?
No. As the figures show, the private sector still provides the majority (98%) of loans and other financial resources that U.S. exporters need. The Bank accounts for the remaining two percent. The Ex-Im Bank does not rely on U.S. tax dollars to function.
The examples of Enron as well as Boeing and Solyndra really just plays to people’s fears of big government and wasteful spending. However, pointing to these companies as examples merely ignores the number of successful exporting companies that have actually benefitted from the Ex-Im Bank. For this reason, there is a strong push back from business associations and their members.
Lastly, because so few people are aware of the Ex-Im Bank, it is just an easy target. During this mid-term election year, opponents can attack such a small portion of export financing and pretend that the end of the Ex-Im Bank will have huge implications. Failure to reauthorize the Ex-Im Bank will only result in a number of small business owners being locked out of the international market.
That is why U.S. business owners should pay attention to the political angle of international trade and get involved.
Do you think that U.S. Congress should reauthorize the Ex-Im Bank?
See GPS’ Fareed Zakaria’s take from Sunday, July 6, 2014 at http://globalpublicsquare.blogs.cnn.com/2014/07/07/why-the-export-import-bank-matters/
*This post is an update of the original version posted on July 10, 2014.