Reauthorize the Export-Import Bank: Part II
Reauthorization of the Export-Import Bank is stalled in Congress because of opposition from odd bedfellows. The issue has been addressed previously in this forum, but in this posting a solution to the impasse is offered that could clear the way for funding a vital federal program.
Before we get to that drama, it’s worth considering the cost of delay. The Ex-Im Bank is currently operating under the Omnibus Continuing Resolution, passed late in 2011, which caps Ex-Im’s commitments at $100 billion—a very modest part of annual US goods and services exports estimated at $2.1 trillion in 2011. The reauthorization bill would raise this limit to $135 billion.1 Since each extra billion dollars of exports creates 6000 new jobs,2 simple arithmetic suggests that, on an annual basis, the difference between an Ex-Im Bank with $100 billion of lending authority and an Ex-Im Bank with $135 billion of lending authority could amount to more than 200,000 jobs. When America is hungry for exports and jobs, why the delay? Two unrelated groups have combined to create the impasse.
In the last days of December 2011, Ex-Im Bank was sideswiped by an ill-advised lawsuit promoted by Delta Airlines.3 Delta claims that Ex-Im Bank’s financial support for the sale of Boeing aircraft to Air India hurts competing US carriers, notably on the Mumbai-New York route. This argument, carried to the halls of Congress, has worked to delay Ex-Im reauthorization.
Delta Airlines may have a legitimate grievance about lower cost Ex-Im financing for Air India, but Delta is seeking the wrong remedy. The right answer is not to block Ex-Im support for Boeing sales to Air India and throw the global market for big civil aircraft entirely to Airbus. That won’t help Delta and it will certainly harm Boeing. Delta’s “solution” flies in the face of intense worldwide competition for large civil aircraft sales. Take away Ex-Im support for Boeing and the playing field will be decidedly unbalanced—in favor of Airbus. Thousands of Boeing jobs will be lost.
The right answer for Delta is to seek renewal of the aircraft pact between the United States and the European Union so that, in the future, official export credit support to competing foreign airlines is extended on terms comparable to what US and EU airlines pay when they borrow in New York, London, and Frankfurt. Under prior editions of the pact, neither US nor EU airlines were eligible for official export credit support; accordingly they customarily financed their aircraft purchases on commercial terms.4 The time has come to apply these same commercial terms to established foreign carriers with a global reach, such as Singapore Airlines, Air India, and ANA.
Tea Party Congressmen are the other bedfellow, and they have different reasons for opposing Ex-Im reauthorization. Their argument is that major US corporations, such as Boeing, can rely on their own AA or AAA credit ratings to finance exports. But those credit ratings will drop a notch or two if America’s largest exporters are forced to an extra $70 billion of export sales on their own balance sheets. In addition, plenty of small US exporters can’t even go to the capital markets for export finance. Whether or not Ex-Im is reauthorized, competing firms based in Europe, Japan, and China will continue to draw on export credit support, at low interest rates, from their own governments. Unilateral disarmament—putting Ex-Im out of business—is not a formula for boosting US exports.
Congress should ignore the odd bedfellows and reauthorize the Export-Import Bank immediately —before it runs out of lending authority in April 2012. Quick action will enable the Bank to support US exports during the rest of the year, not only airplanes sold to carriers in Asia, Latin America, and Africa, but also a wide range of industrial products exported around worldwide, by large and small firms alike. That’s a practical and costless way to create American jobs.
1. For more background, see Hufbauer, Gary Clyde, Meera Fickling, and Woan Foong Wong. 2011. Revitalizing the Export-Import Bank. PIIE Policy Brief 11-6. Washington: Peterson Institute for International Economics. See also RealTime posting from January 11, 2012.
3. The suit was brought by the Air Transport Association of America (ATA) which changed its name to Airlines for America on December 1, 2011. See US District Court for the District of Columbia, Case No. 1:11-cv-02024-JEB, Air Transport Association of America, Inc., et al, Plaintiff, vs. Export-Import Bank of the United States, et al, Defendant.
This post originally appeared at the Peterson Institute.
20 Responses to “Reauthorize the Export-Import Bank: Part II”
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