Export-Import Bank creates political divisions in NC

McClatchy Washington BureauJuly 16, 2014 

  • About the Ex-Im Bank

    The bank provides working capital guarantees, export credit insurance for commercial risks such as buyer defaults and political risks such as wars, loan guarantees, and direct loans.

    Its charter prohibits it from competing with private financing. It fills the gap when private sector lenders cannot or will not provide financing because of country risk or lending limits, or because a business is too small or a transaction is too large.

    It usually partners with commercial banks and insurance brokers.

— Few people use the Export-Import Bank or even know what it is, but the government agency that helps promote American businesses selling products overseas has landed in the center of a political tussle.

Renewing the bank’s charter by its Sept. 30 deadline has divided Republican lawmakers nationwide and it’s become an issue in North Carolina’s U.S. Senate race. Republican Thom Tillis opposes it. Incumbent Democratic Sen. Kay Hagan supports it.

Businesses that use the bank, from the massive Boeing to the small Miss Jenny’s Pickles, say it’s an important tool for expanding sales of U.S. goods and services abroad.

Reauthorization of the bank, an independent government agency, is supported by some Republicans, including North Carolina’s other senator, Richard Burr, and South Carolina Sens. Lindsey Graham and Tim Scott.

Two traditional Republican allies, the U.S. Chamber of Commerce and the National Association of Manufacturers, also support the Ex-Im Bank.

But opposition to it has become a litmus test for staunch conservatives.

For decades, the bank has provided loans, credit insurance and loan guarantees to U.S. exporters and foreign buyers to finance the export of U.S. products. It charges fees and interest, which cover the cost of its operations and loan loss reserves. Last year, after covering those expenses, it generated more than $1 billion to the Treasury.

“If the Export-Import Bank was reformed to provide a level playing field so that small businesses could access its capital competitively, then it would be worth reauthorizing,” Tillis said. “The bank needs to stop playing favorites by giving huge handouts to big, billion-dollar corporations.”

In North Carolina, the Ex-Im bank has supported 190 companies over the past seven years, more than half of them smaller businesses, including textiles and other manufacturers.

Raleigh-based AFEX, a family-owned business with fewer than 50 employees that produces fire suppression systems for off-road equipment, uses the Ex-Im Bank to insure the credit it gives companies outside the United States.

“In lieu of making somebody do a prepayment for goods, it gives us a competitive advantage in terms of being able to offer our products on a credit basis,” said Mark Cavallaro, a corporate officer with the company.

AFEX does a lot of business with the mining industry, particularly in Latin America. About 65 percent of its work is international.

“I’m not going to go out of business if it disappears,” Cavallaro said, “but it certainly has relieved the anxiety of giving credit to emerging markets.”

Brought N.C. $3B in sales

Hagan has brought bank Chairman Fred Hochberg to North Carolina for two export fairs, one in Charlotte and another in Greensboro. She also helped establish a new position for a textile representative on the bank’s advisory board that was filled by John Bakane, CEO of Frontier Spinning Mills in Sanford.

“The Export-Import Bank is an important tool to help boost North Carolina’s economy, as it has supported 137 North Carolina small businesses and $3 billion in sales for our state all without adding a dime to our deficit,” Hagan said.

Hagan said she supported reforms when the bank was reauthorized in 2012 and believes they should be continued. These included making an expansion of the bank’s portfolio contingent on its keeping default rates below 2 percent.

“Unlike my opponent Thom Tillis, who sides with the fringe, special interests that oppose this reauthorization, I will always prioritize bipartisan, common sense solutions to help North Carolina’s middle-class families thrive,” Hagan said.

Aircraft manufacturer Boeing, the nation’s biggest exporter, has a big stake in the debate. Its financing arm, Boeing Capital Corp., depends on Ex-Im financing to sell its planes abroad. Last year, the financing helped the company sell 123 aircraft overseas and fill orders for its new 767 Dreamliner.

“This is a vitally important issue to the future success of our company, our suppliers,” said Tim Keating, senior vice president of government operations for Boeing, in the June issue of Frontiers, Boeing’s in-house publication.

If funding for the Ex-Im bank is allowed to expire, foreign companies would continue buying aircraft, but not those from the United States, he insisted. Europe’s Airbus receives the kind of financing support that Boeing has counted on from the bank.

Credit insurance offered

Many small exporters, meanwhile, are too small to get insurance on their export shipments from private banks, but they can buy this insurance from the Export-Import Bank to cover the risk of nonpayment, said agency spokesman Matt Bevens.

In addition, private banks are more likely to lend working capital to these small businesses if they know their shipments are insured, he said.

Jenny Fulton, co-owner of Miss Jenny’s Pickles in Kernersville, said she tried to get the same insurance from local and national banks, but “nobody has a program to do this for us.”

“It is critical that the reauthorization of the bank goes through because we use them for credit insurance for our foreign purchase orders,” she added. “We pay a fee. We do not get a handout.”

Fulton attended one of the export fairs Hagan hosted. Miss Jenny’s pickles now are sold in China, Canada and the United Kingdom.

“Why we’re having difficulty in Washington with the concept of helping small businesses export I don’t know, but it’s very frustrating,” said Fulton, a Republican who supported Hagan in one of the Democrat’s early online campaign videos.

Powerful opponents

The Obama administration strongly supports reauthorization, noting that over the past five years the bank has supported 1.2 million jobs in the United States.

But the bank’s opponents include incoming House Majority Leader Kevin McCarthy, R-Calif., and Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee. Rep. Patrick McHenry, a Republican from Denver in western North Carolina and a member of the committee, hasn’t taken a position, but will look at reforms that may be included in reauthorization legislation, said his spokesman, Jeff Butler.

At a hearing in June, Hensarling said the bank was a “sweetheart deal” for “a politically connected bank or company.”

“Taxpayers shoulder the risk and you get the reward,” he said. “But if you work at a small business or other American company competing in the global marketplace it’s unfair. Ex-Im effectively taxes you while subsidizing your foreign competitors.”

Hensarling also complained that the Ex-Im Bank uses “crony-based lending practices.” For example, he said it permits no assistance for coal projects.

Other opponents include the Club for Growth, an advocacy group whose political arm backs conservatives, and Koch Industries, the Kansas-based multinational corporation owned by libertarian brothers Charles and David Koch.

“We are philosophically opposed, but have not lobbied on the Export-Import Bank issue,” said Philip Ellender, president and chief operating officer of Koch Cos. Public Sector.

The company pointed to two commentaries in The Wall Street Journal by Charles Koch for the philosophical explanation. Koch wrote that too many businesses want various kinds of help from the government – what he called “cronyism.”

Email: rschoof@mcclatchydc.com; Twitter: @reneeschoof

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