A recent U.S. Senate hearing on the “Oversight and Reauthorization of the Export-Import Bank of the United States” has renewed scrutiny against the Ex-Im Bank. In the past, the Bank has received criticism from both sides of the aisle with many Republicans refusing to renew the Bank’s charter in 2012 and President Obama once even saying the Bank is “little more than a fund for corporate welfare.” However, the Senate hearing has seemed to spark a new set of allegations, primarily concerning the Bank’s recent actions which directly contradict a Congressional mandate.
For background purposes, the Export-Import Bank is a federal agency that is backed by the full faith and credit of the American taxpayer. The Bank’s supposed purpose is to advance national interests by promoting free trade and American made products. In order to do so, the Bank offers financial packages, often in the form of loan guarantees, to foreign companies interested in purchasing American goods. The downside is that U.S.-based employers wishing to purchase American goods are typically excluded from these favorable loans and terms.
And since the Bank’s loans are granted at a below market rate, a subsidy is essentially given to those receiving Ex-Im’s financing. Thus, whenever Ex-Im gives out a guarantee, the playing field becomes tilted, and the free market becomes less free. This has been especially true for the American airline industry, which saw almost 40 percent of the Bank’s authorizations given to its competitors in 2011. The loans and financial assistance allows foreign carriers to purchase Boeing aircraft at a discounted rate.
The impact has been both consequential and caustic. According to the Air Line Pilots Association International, “U.S. carries have been forced to withdraw or not enter routes that might otherwise be economically viable because the foreign carriers are able to operate at a lower cost with the subsidized aircraft.” Translation: Americans are losing jobs and economic revenue because of Ex-Im’s financing. All of Ex-Im’s deals add up, and the net loss has been a staggering 7,500 jobs and $684 million of revenue, according to a Wall Street Journal report.
These complaints are well documented and have been litigated on numerous occasions. In fact, a July 2012 ruling by a U.S. District Court judge said the Bank’s financing of wide-body aircraft would “almost surely” cause American airlines to “lose business or to cut prices to preserve business.” While Boeing – an American company – is benefitting due to the loan guarantees, U.S. airlines are collateral damage.
These concerns have not fallen on deaf ears, which is why Congress, while reauthorizing the Bank’s charter, mandated it conduct economic impact assessments with the goal of preventing any further damage from being imposed onto American companies. Over a year since the reauthorization was passed, the Bank has done almost nothing to reform its injurious practices. In fact, in the short time since the Bank’s reauthorization, it has already approved financing totaling more than $150 billion to three foreign airlines, further hurting U.S. based carriers.
Creating even more controversy was a loan recently given to Australian mining company, Roy Hill, which will aid in the purchasing of manufacturing equipment so that it can mine iron ore. Senator Klobuchar, Franken, Levin and Stabenow sent a scathing letter to Fred Hochberg, president of Ex-Im Bank, stating that the deal would “displace nearly $600 million of U.S. iron ore exports and would cause a reduction of approximately $1.2 billion in U.S. domestic sales, for a total loss to the U.S. iron ore industry of $1.8 billion.”
What is clear is that the Bank is subverting Congressional orders and failing to abide by its charter. It’s time Congress gets serious and demand the Ex-Im Bank rectify its negligent practices or face a complete Congressional overhaul.