Later this week, more than 600 business owners and employees from companies large and small will descend on Washington to complain to lawmakers about the uncertainty surrounding the reauthorization of the Export-Import Bank of the United States. For many, the issue they stress won’t be the possible loss of future business, but the very real loss of current business that congressional wrangling over the bank has already caused.
Ex-Im, as it is commonly called, provides financing and insurance to support U.S. exporters selling into foreign markets. For a price, the bank will sell insurance guaranteeing that a company will get paid for what it sells, or provide the credit insurance a foreign buyer needs to obtain financing.
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The bank’s charter has to be authorized by Congress, something that has traditionally happened every five years. Recently, however, its reauthorization has been challenged by congressional Republicans who, among other things, are concerned that Ex-Im is performing a service that the private sector would offer if not pushed out by government competition. Another objection is that while many small firms rely on Ex-Im, the vast majority of its business by dollar value goes to large corporations, such as airplane manufacturer Boeing.
The bank’s chief challenger in Congress is Rep. Jeb Hensarling (R-TX), who chairs the House Financial Services Committee, which has jurisdiction over Ex-Im authorization.
After a drawn out battle last year, the bank is temporarily authorized until June, and between now and then lawmakers will debate whether and how the bank will be allowed to continue providing its services to U.S. exporters.
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To many, a six-month extension might seem like a reasonable compromise — the bank continues to operate while lawmakers hammer out their differences. But in the world of international trade finance, where most major exporting companies have a government backed export-finance agency, doubt about the future of Ex-Im has caused real problems.
Steve Wilburn, president of Newport Beach, California-based renewable energy company FirmGreen said his company had to lay off 10 of its 17 employees, in part because it lost $60 million worth of contracts last year during an earlier round of uncertainty about the availability of Ex-Im funding.
“We lost two projects in the Philippines to a Korean firm — after we had already gained approval — due to uncertainty about whether Ex-Im would be reauthorized,” he said. “For a small company, relatively speaking, $60 million is a huge hit. We spent over two years developing those, and our development costs are absorbed by us. Basically we lost a considerable amount of money when the client decided to go with financing from the Korean export credit authority.”
Wilburn said that recently, the possibility of Ex-Im being shut down comes up “every time we get to a competitive [bidding] process.”
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He said that his company is already competing against firms located in countries with lower labor costs and other advantages. “We have to sell ourselves as a complete, competent, turn-key contractor that has technology built to very high standards and…couple that with the ability to provide financing on a competitive basis. Then, we can level the playing field against some of our foreign competitors.”
Take away the certainty of the financing, he said, and the deal no longer looks as appealing.
“To expand their operations, hire new workers and cultivate new overseas sales, American businesses need the certainty that comes with a long-term reauthorization of the Ex-Im Bank,” said Matthew Bevens, a spokesman for the bank. “Businesses don’t operate or plan on a month-to-month basis, and our foreign competitors — who may be taking advantage of the current uncertainty to lure deals away from U.S. companies — don’t face expiration.”
Others say the argument that the Ex-Im Bank is pushing private lenders out of the market doesn’t stand up to scrutiny. Gary Mendell, president of Meridian Finance Group, in Santa Monica, California, brokers trade finance and credit insurance policies for exporters. He said that it is clear that there are markets that the private sector is simply unwilling to serve.
“Exporters buy [insurance] to protect against receivables not being paid,” he said. “That coverage is available from the private sector…and we do much more brokering of export insurance in the private sector than we do with Ex-Im. Why do we go to Ex-Im? We go to Ex-Im when the private sector won’t step up.”
Mainly, he said, that happens in the realm of small deals in emerging markets, where credit risk and the risk of political instability are difficult to assess.
Some have argued that without the Ex-Im bank standing in the way, the private sector would step in even for these deals. Not so, says Mendell.
There are some small business trade deals that the Ex-Im bank is legally barred from financing. The bank can only back the sale of U.S-manufactured goods to overseas buyers. Mendell says that he often has American firms come to him looking to insure deals in which goods made in one foreign country are being sold to a buyer in another non-U.S. country.
On its face, such a deal isn’t substantially different from the kinds of deals Ex-Im supports, but because the bank cannot finance those deals, it offers no competition to private sector firms. Those firms though, says Mendell, are uniformly uninterested. The combination of a complex underwriting process and the relatively small size of the deals involved makes small exporters’ business unprofitable for private sector firms.
“It’s very frustrating,” he said. “We have to send them away and say, ‘Come back when you get bigger.’”
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Daryl Bouwkamp, the senior director of international business development for Pella, Iowa-based Vermeer Corporation, said that constant battles over Ex-Im reauthorization in recent years have also resulted in business owners and executives spending a whole lot of time advocating their cause with lawmakers rather than tending to their businesses.
“Many of us who believe both in principle and practicality in the bank, we’re spending our time trying to educate about Ex-Im Bank when we should be out selling our stuff,” said Bouwkamp, whose company builds agricultural and industrial equipment. He will, reluctantly, be among the hundreds in Washington this week. “We would all much, much, rather not be in D.C.,” he said. “We’d rather be out there selling.”
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