Everyone has heard about Fannie Mae and Freddie Mac. And now many are familiar with their cousin – the Export-Import Bank, which, as currently structured, is hurting American companies, costing jobs, and making open and fair competition impossible.
Ex-Im Bank was established in 1934 “to assist in financing U.S. trade with the Soviet Union” by executive order, with a stated mission to support export financing of U.S. goods and services. But over the years the Bank has evolved, now subsidizing export financing with loan guarantees, credit insurance and below-market-rate direct loans to foreign buyers.
Ex-Im’s enigmatic responsibilities allow it to finance transactions the private markets deemed too risky, but only lend to companies where there is a reasonable chance of repayment.
Over the course of the last several years, this little-known government agency has been creating an aircraft manufacturing bubble similar to the one that brought down the U.S. housing market, exposing American taxpayers, who would involuntarily bear the burden of default.
U.S. airlines have been forced to compete against foreign carriers whose financing costs are reduced by as much as $5 million per wide body aircraft due to subsidies from the Ex-Im Bank. Because of the Home Market Rule, American companies have not had access to the same below-market rate financing opportunities when buying aircraft and of course, have not received U.S. financial assistance for Boeing purchases. In short, American carriers have been unable to play on a level playing field with their foreign competitors.
As a result, foreign airlines have been able to add excess capacity to routes, forcing out of the market the domestic carriers that are unable to compete, costing American jobs in the air and on the ground.
But all this appears to be changing. The re-authorization of the Ex-Im Bank now appears that it will include serious reforms. This will be accomplished by increasing transparency and oversight, forcing Congress to hold the Bank accountable, guaranteeing higher standards of business conduct and tying default rates to exposure limits.
Under H.R. 2072, the Treasury Secretary will have the ability to negotiate and end subsidies with global exporters, which will protect American businesses and workers. The U.S. airline industry employs almost 400,000 people. And sensible modifications in the way the Bank functions will ensure that thousands of American jobs will not be lost to foreign competitors.
Next, the legislation will augment public transparency allowing the public to comment on Bank’s transactions assessed at more than $100 million, including non-confidential summaries of transactions to those who request them.
Better yet, Ex-Im will now have to create and make public the procedures it employs when conducting an economic impact analyses. In addition, they will be required to review the affect their actions have on American employers. Lastly, H.R. 2072 will authorize the Government Accountability Office (GAO) to perform routine audits of the Bank’s transactions.
It certainly appears the changes made to the bill by Majority Leader Eric Cantor and Minority Whip Steny Hoyer have added teeth to the legislation and should aid in discontinuing the market distortions that have put U.S. companies at a disadvantage.
Work should continue on eliminating fully government subsidies of the variety Export-Import represents, but H.R. 2072 puts in place real reforms, improves accountability and transparency, and takes aim, in the short term, at the adverse effects the Bank has had on American employers. With responsible reforms, the Export-Import Bank can be utilized to bolster our struggling economy and get the American machine working again. It appears that H.R. 2072 goes a long way toward achieving that goal.