Jun 24, 2015

The Ex-Im Bank’s Charter Will Officially Expire On June 30

Post by Freedom Partners

Get Ready For The Forecast: Doom And Gloom

Arlington, VA — It’s official: the Export-Import Bank’s charter will expire on June 30—but that doesn’t mean it’s going away.

The orderly wind-down beginning the next day will allow the bank to continue administering its assets and collecting any obligations it holds. As Chairman Hochberg has admitted, “None of us actually expire on June 30. The bank’s authority to make a new loan expires on June 30.”

Unfortunately, we all know what to expect: exaggerated doom-and-gloom scenarios orchestrated by the Ex-Im Bank’s biggest beneficiaries with the hope of scaring lawmakers in the Senate to bring the bank back from the dead. In reality, Ex-Im’s expiration will be a boost for the economy and a respite for hard-working taxpayers.

Here are the facts about what actually happens on June 30.

The Ex-Im Bank Won’t Suddenly Disappear On June 30

Ex-Im Chairman Fred Hochberg: “None of us actually expire on June 30. The bank’s authority to make a new loan expires on June 30.” (“The Debrief With Export-Import Bank’s Fred Hochberg,” Politico, 06/01/15)

Congressional Research Service: Letting The Ex-Im Bank Expire Will Allow For An Orderly Wind-Down With No Immediate Impact On Current Financing. “Other provisions of Section 635f expressly authorize the Bank to continue to perform certain functions after its termination. . . . Ex-Im Bank also may ‘[continue] as a corporate agency of the United States’ and exercise any of its functions ‘for purposes of an orderly liquidation,’ including (but apparently not limited to) administering its assets and collecting any obligations it holds.” (David H. Carpenter, Mindy R. Levit, And Julia Taylor, “Export-Import Bank Reauthorization: Frequently Asked Questions,” Congressional Research Service, 11/26/14)

The Ex-Im Bank’s Biggest Beneficiaries Don’t Need The Bank

Private Financing Is Already Stepping In For The Bank

Boeing Announced That It Will Provide Aircraft Financing When The Ex-Im Bank Expires On June 30. “Boeing Co. said it may temporarily provide financing for some aircraft purchases by airlines caught up in the uncertain future of the Export-Import Bank of the U.S. if Congress fails to extend the bank’s mandate before it expires at the end of June. . . . Still, Boeing says that if it needs to, its finance arm could temporarily fill in the gap if Ex-Im Bank funding is halted.” (Doug Cameron, “Boeing To Offer Aircraft Financing If Trade Bank Shuts Down,” Wall Street Journal, 06/05/15)

Boeing Has Enough Capital To Finance Export Deals . . . It Just Prefers To Use The Money For Building Planes. “Boeing’s willingness to use its own balance sheet to help airlines could provide ammunition to critics of Ex-Im Bank, who say the bank is unnecessary. The Chicago-based company said it wants to reassure customers but doesn’t want to tie up capital permanently that it said would be better used to develop new planes.” (Doug Cameron, “Boeing To Offer Aircraft Financing If Trade Bank Shuts Down,” Wall Street Journal, 06/05/15)

Ex-Im’s Beneficiaries Admit They’ll Be Perfectly Fine Without The Bank

Boeing: We Can Find Alternative Financing Without The Ex-Im Bank. “Kostya Zolotusky, a managing director at Boeing’s finance arm . . . said he was confident the company could find alternative funding sources for customers that wouldn’t require it to boost its support of aircraft sales, but said Boeing remains ‘mindful’ of the debate over Ex-Im’s future.” (Doug Cameron, “Boeing Cites Jitters Over Airplane Financing From Ex-Im Bank,” Wall Street Journal, 08/07/13)

One Of Boeing’s Largest Customers: We’ll Keep Buying Boeing Aircraft If The Ex-Im Bank Expires. “Emirates, Dubai’s flagship airline, would not have trouble buying planes from Boeing even if the U.S. Congress fails to renew the U.S. Export-Import Bank’s charter later this month, a senior company executive said on Friday. . . . Emirates is one of the biggest buyers of Boeing airplanes and in November placed a record order for Boeing’s next-generation 777X.” (Jeffrey Dastin, “Emirates Airline Says Ex-Im Bank Not Critical For Its Plane Financing,” Reuters, 09/05/14)

Analysts At Standard & Poor’s: “We don’t believe that the expiration of Ex-Im’s authorization in September would hurt Boeing’s credit quality or ability to make planned deliveries.” (Editorial Board, “Boeing Will Survive An Ex-Im Defeat,” Wall Street Journal, 07/14/14)

Ex-Im’s Beneficiaries Are Experiencing Record Sales and Backlog

Boeing Was Weighed Down By “Record” Backlog In 2013. Other Ex-Im Beneficiaries Are Facing The Same Problem. “The aviation giant [Boeing] is the biggest beneficiary [of Export-Import Bank financing] by far: the bank has provided $66.7 billion in subsidized financing to foreign purchasers of Boeing planes. General Electric also ranks among the biggest beneficiaries, with $8.3 billion in export assistance, and Bechtel Corp. benefitted from $5.2 billion in support. . . . The data also show the companies’ backlogs, as reported in their latest annual reports. Boeing Co. posted a ‘record’ backlog of $441 billion (in 2013); General Electric Co. recorded a backlog of $261 billion (in 2014); Caterpillar Inc.’s backlog is $16.5 million (in the first quarter of 2015); and Bechtel Corp. posted a ‘strong’ backlog of $70.5 billion (in 2014).” (Veronique de Rugy and Diane Katz, “Export Jobs Won’t Disappear Absent Ex-Im Bank,” Mercatus Center, 05/21/15)

Boeing Predicts “Strong . . . Plane Sales This Year.” “Boeing Co said it expects airline passenger traffic to rise more than 6 percent in 2015, possibly close to 6.5 percent, above its long-range forecast of about 5 percent. The world’s largest plane maker said it still expects to book firm orders for at least 750 new airplanes this year, though it has booked only 136 net orders so far in 2015.” (Alwyn Scott, “Boeing Predicts Both Strong Air Traffic And Plane Sales This Year,” Reuters, 06/05/15)

Claims Of Economic Armageddon Are Overblown

The Rhetoric: The Apocalypse Is Upon Us

General Electric: Without Ex-Im, We Would Send Your Jobs Overseas. “‘To opt out of AIIB and not reauthorise [the Ex-Im Bank] would send a strong signal to the rest of the world that we are not going to participate entirely,’ Mr Rice [who oversees GE’s international operations as the industrial giant’s vice-chairman] told the FT. . . . Mr Rice said the issue was crucial for GE and that if the Ex-Im Bank were to be shut down it was likely to have to shift production of gas turbines and jet engines overseas where it could take advantage of other countries’ export credit agencies.” (Shawn Donnan, “GE Executive Seeks Renewal of Funding for Export-Import Bank,” Financial Times, 04/19/15)

General Electric CEO: The Demise Of Ex-Im Would Be An “Economic Catastrophe.” “General Electric chief executive Jeff Immelt on Wednesday predicted economic catastrophe if the United States fails to extend the Export-Import Bank and give President Barack Obama trade promotion authority to finish a sweeping trade deal with Asia-Pacific nations.” (Ben White, “GE Chief: Demise Of Ex-Im Bank Would Mean ‘Economic Catastrophe,” Politico, 06/17/15)

Boeing: Without Ex-Im, America Would Become The “Wild West.” “Most of my engineering and manufacturing jobs are in the United States and I’d like to keep it that way. But without Ex-Im financing, you’d have to start asking the question’ about where they should be, [Boeing chief executive Jim] McNerney said at a conference sponsored by the U.S. export credit agency. . . . ‘If Ex-Im goes away, you’d have the Wild West.’ . . . Some of an estimated 1.5 million jobs in the company’s U.S. supply chain could also be in jeopardy if U.S. credit support ceased, McNerney noted.” (David Morgan, “Boeing CEO Warns of Job Relocations if U.S. Ex-Im Bank Disappears,” Reuters, 04/23/15)

Senator Lindsey Graham: Without Ex-Im, We Would Be Surrendering To The Chinese And French. “There’s no way in hell I’m going back to South Carolina and say, ‘Hey we shut down a bank because people ideologically objected to the bank . . . Shutting this bank down in light of what other countries like China and France do is unilaterally surrendering to foreign opposition.” (Kevin Cirilli, “Graham: ‘No Way In Hell’ He Will Let Ex-Im Shut Down,” The Hill, 02/25/15)

London-Based Financial Times: Without Ex-Im, America Would Be Disarmed And Surrounded By Economic Nuclear Weapons. “Closing Exim would be the economic equivalent of unilateral disarmament in a world bristling with nuclear weapons. . . . Yet its critics seem impervious to the facts. Much like the scaremongering about the impact of vaccines on infants, Exim has become a victim of talk radio mythology.” (Editorial Board, “America’s Wobbly Economic Leadership,” Financial Times, 04/23/15)

The Reality: The Ex-Im Bank Has A Negligible Effect On U.S. Exports

The Ex-Im Bank Supports Less Than Two Percent Of U.S. Exports. “An astounding 42 states received less than two percent of Ex-Im Bank disbursements, with 35 of these receiving less than one percent. . . . While businesses in most states barely benefit from the Ex-Im Bank at all, their taxpayers are just as exposed to Ex-Im Bank liabilities as taxpayers in states that receive the most Ex-Im Bank backing. . . . [The] Ex-Im Bank supported less than two percent of the exports of 41 states for the same time period.” (Veronique de Rugy, “Ex-Im Funds Flow To Few States, But All Bear The Risks,” Mercatus Center, 7/30/14)

In 2007 (The Most Recent Year For Which Data Is Available) The Ex-Im Bank Supported Just 0.04 Percent Of All Small Business Establishments In The United States. “The Census Bureau reports that there were 6,723,226 establishments that employed fewer than 1,500 workers in FY 2007. The Ex-Im Bank reports that it facilitated 2,390 transactions for small businesses that year. Assuming that each transaction went to a different small business, this means that the Bank only supported 0.04 percent of all small business establishments in 2007.” (Veronique de Rugy, “The Export-Import Bank Assists A Tiny Portion Of All US Small Business Jobs And Firms,” Mercatus Center, 07/21/14)

In Fiscal Year 2013, Less Than One-Third Of The Ex-Im Bank’s Financing Claimed To Counteract Foreign Competition. “The bank justifies $12.2 billion in estimated export value for loans and guarantees is to meet ‘foreign competition.’ . . . The estimated export value of the bank’s entire portfolio for FY 2013 was roughly $37 billion. Thus, less than one-third of the bank’s financing is claimed to counteract competitive disadvantages wrought by foreign export credit agencies.” (Veronique de Rugy, “Key Argument For Export-Import Bank Invalid,” Mercatus Center, 6/11/14)

In Other Words: Only One-Half Of One Percent Of U.S. Exports Received Ex-Im Bank Assistance To Protect From Foreign Subsidies. “As the chart demonstrates, the Ex-Im Bank’s primary focus isn’t to protect a significant portion of US exports from foreign subsidies. In fact, only roughly one-half of one percent of the value of US exports last year even fell into this category. More Ex-Im Bank activity was dedicated to no justification at all than to this purportedly critical role the Bank plays fending off foreign ECAs.” (Veronique de Rugy, “There Are Better Ways To Help US Exporters Compete Abroad Than The Ex-Im Bank,” Mercatus Center, 7/2/14)

The Congressional Budget Office Estimates That Ex-Im Bank’s Direct Loans, Guarantees, And Insurance Policies Will Cost Taxpayers $2 Billion Over The Next Decade. “If Ex-Im Bank’s activity in 2015 matches the President’s budget request for that fiscal year, CBO estimates that $37.6 billion in new loans would be made or guaranteed in the bank’s six largest credit programs, with savings totaling $1.4 billion on a FCRA basis and costs totaling $0.2 billion using the fair-value approach. Thus, the 10-year effects would be savings of $14 billion using FCRA methodology and costs of $2 billion using the fair-value approach, a difference of $16 billion.” (“Fair-Value Estimates Of The Cost Of Selected Federal Credit Programs For 2015 To 2024,” Congressional Budget Office, 5/3/14)

From The Report: “Ex-Im Bank’s Six Largest Programs Would Generate Budgetary Savings Of $14 Billion Under FCRA Accounting But Cost $2 Billion On A Fair-Value Basis.” (“Fair-Value Estimates Of The Cost Of Selected Federal Credit Programs For 2015 To 2024,” Congressional Budget Office, 5/3/14)

Closing Remarks

Chairman Hochberg: “None of us actually expire on June 30. The bank’s authority to make a new loan expires on June 30.” (“The Debrief With Export-Import Bank’s Fred Hochberg,” Politico, 06/01/15)

Chairman Hochberg: “Nothing immediate happens in terms of anybody on staff. We are fully funded through Sept. 30.” (Kevin Cirilli, “Ex-Im Bank Braces For End Of Charter,” The Hill, 06/24/15)