Executive Summary

Congress is faced with the decision to reauthorize the Export-Import Bank (Ex-Im).  Ex-Im is the official U.S. export credit agency (ECA) and levels the international playing field for U.S. exporters. Critics, however, contend that Ex-Im represents “crony capitalism,” citing a high proportion of its credit activity devoted to the largest U.S. exporters. A closer examination of Ex-Im activity reveals, however: 

  • Ex-Im’s activities reflect the structure of U.S. trade itself, supporting a large number of small and medium sized exporters, but with the largest dollar volumes concentrated among large firms;
  • Ex-Im provided disproportionate support for small and mid-sized firms during the aftermath of the financial crisis; and
  • Large firms rely on small and middle-market firms in their supply chains, making the volume of support for large firms a misleading indicator of the impact of Ex-Im.

In short, the data do not support the notion that Ex-Im’s pattern of activity is more politically-driven than market oriented.

Introduction

The charter of the Export-Import Bank (Ex-Im) is set to expire at the end of September 2014 unless reauthorized by Congress.[1] Acting as the official U.S. export credit agency (ECA), Ex-Im works to level the international playing field for U.S. exporters. Critics, however, contend that Ex-Im represents crony capitalism, citing a high proportion of its credit activity devoted to the largest U.S. exporters. 

As policymakers consider the merits of reauthorizing the Ex-Im Bank for 2015 and beyond, continued Ex-Im financing will affect small and medium-sized enterprises (SMEs) as much as large exporters, perhaps more given the distinct challenges and risks they face when looking to export. In addition, networks of smaller businesses comprise supply chains of larger firms.  While the latter may produce the vast majority of U.S. exports and seek Ex-Im financing when facing fierce competition from foreign ECAs, the benefits accrue to the supply chain as a whole.

Background

In its capacity as the official export credit agency of the United States, the Export-Import Bank’s objective is to boost U.S. exports using a range of financial products, including insurance, direct loans, and loan guarantees. Ex-Im financing is available when commercial institutions are unable or unwilling to provide it and serves companies of all sizes.

While there are many more SME exporters, large firms dominate U.S. exports.  In merchandise, manufacturing, and services exports, data has shown that large companies lead. One study, for example, shows that SMEs account for only 15 percent of manufacturing exports.[2] While it would seem that shows how small business exports have room to grow, larger companies can often expand production more easily and with possibly larger growth impacts. Small business suppliers also feed products into larger companies and benefit when the exports of the final product are expanded. For example, Boeing claims over 21,000 various suppliers and partners in the production of its products.[3]

If the primary goal of the Export-Import Bank is to boost exports and jobs, it must necessarily serve companies with as few limitations as possible on the allocation of credit across regions, industries, and firm sizes. Bank critics frequently ignore how Ex-Im financing is reflective of the composition of U.S. exports in regard to small businesses, and the support that is given through larger company supply chains.

The Export-Import Bank operates under a renewable charter that was most recently reauthorized in 2012 to operate through September 30, 2014.[4] Small business impacts are but one concern being weighed as policymakers discuss the merits of reauthorizing the Ex-Im Bank for 2015 and beyond. Ex-Im offers directs loans, loan guarantees, and export credit insurance for various term lengths. All obligations carry the full faith and credit of the United States. Authorizations supporting small businesses, however, are typically concentrated in the bank’s credit insurance program and working capital financing (See Figure 1).

Short-term and medium-term export credit insurance, which made up 20 percent of total authorizations but 55 percent of small business authorizations in FY 2013, protect an exporter against the risk of nonpayment by a foreign buyer whether for commercial reasons (e.g. default, insolvency, or bankruptcy) or political reasons (e.g. war or nationalization). It reduces an exporter’s payment risk associated with shipping products internationally.

Small businesses also frequently take advantage of working capital loan guarantees (including supply chain finance guarantees) and, less frequently, working capital loans. Either through a direct loan or guarantee on loans made by qualified commercial banks, the Ex-Im’s working capital program is designed to help American businesses finance the daily operations needed to expand production for export. A guarantee, usually available for one year, can apply to either a single loan or a revolving line of credit and covers 90 percent of the outstanding balance when the borrower defaults, thereby decreasing the risk assumed by the lender. Working capital loans and guarantees made up 9.6 percent of all FY 2013 authorizations, but comprised 35 percent of small business authorizations.

Export-Import Bank’s Track Record on Small Business

Authorization Numbers and Volumes

The overarching function of the Export-Import Bank is to boost exports, and in doing so increase employment, through its financial products. But also by law, 20 percent of Ex-Im financing authorizations (by dollar amount) should support small business exports.[5] In practice, Ex-Im often comes close but does not consistently meet that target in any particular fiscal year (See Table 1). However, from FY 2004 to FY 2013, the percentage of small business authorizations averages 19.9 percent.

TABLE 1. AUTHORIZATION SUMMARY BY FISCAL YEAR

 

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

NUMBER OF AUTHORIZATIONS

3,107

3,128

2,677

2,793

2,704

2,891

3,532

3,751

3,796

3,842

AMOUNT AUTHORIZED*

$13,321

$13,936

$12,151

$12,569

$14,399

$21,021

$24,468

$32,727

$35,784

$27,348

SMALL BUSINESS NUMBER

2,572

2,617

2,253

2,390

2,328

2,540

3,091

3,247

3,313

3,413

SMALL BUSINESS AMOUNT*

$2,257

$2,660

$3,185

$3,352

$3,190

$4,360

$5,053

$6,037

$6,123

$5,223

SB % OF NUMBER

83%

84%

84%

86%

86%

88%

88%

87%

87%

89%

SB % OF AMOUNT

17%

19%

26%

27%

22%

21%

21%

18%

17%

19%

* MILLIONS OF DOLLARS
SOURCE: U.S. EXPORT-IMPORT BANK ANNUAL REPORTS, FY 2004-2013

 

Opponents of the Export-Import Bank frequently cite the level of support given to large companies such as Boeing, General Electric, and Caterpillar as prime examples of “cronyism” and evidence that Ex-Im confers competitive advantages on “favored firms.”[6] Yet shown in Figure 2, small business authorizations dominate bank financing when looking at the total number of authorizations. The number of small business authorizations has grown every year since FY 2009, hitting an all-time high of 3,413 authorizations last year at 89 percent of total authorizations.

Source: U.S. Export-Import Bank Annual Reports, FY 2000-2013

 

Ex-Im Lending During and After the Financial Crisis

During and following the financial crisis of 2007 and 2008, commercial banks tightened lending and faced new regulatory burdens (e.g. Basel III treatment of trade finance). Large and small firms alike turned to Ex-Im trade financing, resulting in a jump in total authorizations from a pre-crisis average of 2,717 authorizations to a post-crisis average of 3,562, a 31 percent increase. For small businesses, the number of authorizations jumped 35 percent, while authorization volume increased 135 percent from a pre-crisis average of $2.3 billion to $5.4 billion. Recognizing these new demands, Congress raised Ex-Im’s total level of allowable exposure to $140 billion, while making that increase dependent on new reporting requirements and a default rate less than two percent.

The commercial trade finance market however appears to be recovering and adjusting to new regulatory efforts;Shown in Figure 2, despite the falling amount of authorizations, the overall number increased by 1 percent; authorizations jumped 3 percent for small businesses. As the economy continues to recover and banks strengthen their balance sheets, commercial trade finance is expected to rebound (depending on new regulations), as it has been traditionally low-risk.[8]  With more robust commercial lending, Ex-Im volumes should fall, as the bank is mandated not to compete with private institutions but merely fill financing gaps.

Overall Support for Small Businesses

Table 2 shows the top primary exporters associated with the highest number of small business authorizations in FY 2013. With individual authorizations ranging from six to 53, these exporters have geographically dispersed headquarters, produce goods and services in varying industries, and utilize different Ex-Im financing programs. Authorization amounts additionally range from $630,000 to $37.2 million. While overall authorizations have received criticism for concentrating on aircraft-related exports and other capital goods, small business authorizations support a variety of industries as shown in Table 2. Furthermore, if the primary objective of Ex-Im is to increase exports and jobs, allocation of credit across regions, industries, and firm sizes should have few limitations in contrast to current quotas and mandates (i.e. those for small businesses, minority- and women-owned businesses, sub-Saharan Africa, etc.).  

TABLE 2. TOP EXPORTERS BY NUMBER OF SMALL BUSINESS AUTHORIZATIONS, FY 2013

COMPANY

STATE

# OF DEALS

TOTAL AMOUNT

PROGRAMS

PRIMARY INDUSTRY

CONCANNON CORP

OR

53

$4,691,700

INSURANCE

LUMBER, PLYWOOD, MILLWORK, & WOOD PANEL MERCHANT WHOLESALER

EAGLE PAPER INTERNATIONAL INC

VA

42

$7,380,000

INSURANCE

PRINTING & WRITING PAPER MERCHANT WHOLESALER

AIR TRACTOR INC

TX

41

$37,210,084

INSURANCE; WC*

AIRCRAFT MANUFACTURING

ADM LATIN AMERICA INC

IL

10

$3,902,438

INSURANCE

WET CORN MILLING

OLD FASHIONED FOODS INC

WI

10

$630,000

INSURANCE

ALL OTHER MISCELLANEOUS FOOD MANUFACTURING

KAHN INDUSTRIES INC

CT

9

$5,486,498

INSURANCE; WC

ANALYTICAL LABORATORY INSTRUMENT MANUFACTURING

NEW SOURCE TECHNOLOGY LLC

CA

9

$1,057,500

INSURANCE

CUSTOM COMPUTER PROGRAMMING SERVICES

AERODIRECT INC

IL

8

$2,205,000

INSURANCE

TRANSPORTATION EQUIPMENT & SUPPLIES (EXCEPT MOTOR VEHICLE) MERCHANT WHOLESALER

NC GAMES & ARCADE OF AMERICA INC

FL

7

$7,452,000

INSURANCE; WC

TOY & HOBBY GOODS & SUPPLIES MERCHANT WHOLESALER

DAVEX LABS LLC

CA

6

$1,021,500

INSURANCE

SERVICE ESTABLISHMENT EQUIPMENT & SUPPLIES MERCHANT WHOLESALERS

* WORKING CAPITAL PROGRAM
SOURCE: U.S. EXPORT-IMPORT BANK FOIA APPLICATION DEAL & PARTICIPANT INFORMATION;[9][10] BASED ON AUTHOR CALCULATIONS

Table 3 shows the top ten exporters in FY 2013 according to the total amount of small business authorizations with which they are associated. Notably, four of the 10 companies are not even small businesses. Instead, they are the primary exporters in deals that include small business exporters and often suppliers. Take General Electric Energy Management, a subsidiary of GE, for example. Its authorizations (shown in Table 3), comprised of direct loans and guarantees, supported the largest number of small business authorizations in FY 2013. While General Electric Energy Management certainly does not qualify as a small business, it was the lead exporter in six authorizations with seven other exporting companies that qualify as small businesses. Financing for those companies, totaling $127.8 million for their exports, represents part of a larger deal to export American petrochemical goods and services to India that was estimated to support 12,300 U.S. jobs.[11]

Examples like this show how nuanced authorizations for large companies like General Electric truly are. In policy analyses of Ex-Im impacts, focusing solely on the primary exporter of a particular authorization erroneously fails to recognize the support that accrues to small businesses. Many small businesses, not all of which are reported by Ex-Im because they are not necessarily party to financing deals, are often involved in the production of high-value goods like airplanes and construction equipment by supplying parts or services necessary for the production of the finished good. With Ex-Im’s content policy requirements (generally acknowledged to be more stringent than foreign ECA competitors[12]), the exports receiving the most financing are also assuredly made with a majority of American supplies.

TABLE 3. TOP EXPORTERS BY SMALL BUSINESS AUTHORIZATION AMOUNT, FY 2013

COMPANY

STATE

# OF DEALS

TOTAL AMOUNT

PROGRAMS

PRIMARY INDUSTRY

GENERAL ELECTRIC ENERGY MANAGEMENT**

PA

6

$127,776,188

LOAN; GUARANTEE

ELECTRONIC CAPACITOR MANUFACTURING

XCOAL ENERGY & RESOURCES LLC

PA

1

$90,000,000

WC*

COAL & OTHER MINERAL & ORE MERCHANT WHOLESALER

CNH AMERICA LLC INCORPORATED**

IL

1

$83,997,000

INSURANCE

FARM MACHINERY & EQUIPMENT MANUFACTURING

STEEL EQUIPMENT SPECIALISTS INC

OH

1

$61,117,178

GUARANTEE

STEEL PRODUCT MANUFACTURING FROM PURCHASED STEEL

PACIFIC LTD CORP

FL

3

$52,500,000

INSURANCE; WC

PLASTICS MATERIALS & BASIC FORMS & SHAPES MERCHANT WHOLESALER

AQUATECH INTERNATIONAL CORPORATION

PA

2

$51,128,750

INSURANCE; WC

PETROCHEMICAL MANUFACTURING

KOMATSU AMERICA CORP**

IL

3

$49,456,513

LOAN

MINING MACHINERY & EQUIPMENT MANUFACTURING

CASE NEW HOLLAND**

WI

4

$48,174,545

INSURANCE; WC

FARM & CONSTRUCTION MACHINERY MANUFACTURING

AIR TRACTOR INC

TX

41

$37,210,084

INSURANC; WC

AIRCRAFT MANUFACTURING

ZEECO INC

OK

1

$36,000,000

WC

FABRICATED PLATE WORK (BOILER SHOPS)

* WORKING CAPITAL
** THESE COMPANIES DO NOT QUALIFY AS A SMALL BUSINESS. INSTEAD, THEY ARE LIKELY LEAD EXPORTERS IN DEALS INVOLVING MULTIFPLE SMALL BUSINESS EXPORTERS. THE TOTAL AMOUNT STEMS FROM THE PORTION OF THE DEAL THAT SUPPORTS SMALL BUSINESSES.
SOURCE: U.S. EXPORT-IMPORT BANK FOIA APPLICATION DEAL & PARTICIPANT INFORMATION;[13][14] BASED ON AUTHOR CALCULATIONS

Conclusion

Previous AAF research documented the fierce competition from foreign ECAs and the market realities that make reauthorization of the Export-Import Bank a pragmatic trade policy. As policymakers consider the merits of reauthorizing the Ex-Im Bank for 2015 and beyond, the role that Ex-Im financing plays for SMEs is important due to the distinct challenges and risks they face when looking to export abroad and in the aftermath of the financial crisis. Yet perhaps more importantly, networks of small businesses comprise supply chains of larger firms, which not only produce the vast majority of U.S. exports but also seek Ex-Im financing when facing fierce competition from foreign ECAs. Reauthorizing the bank with reforms provides a chance for policymakers to streamline the bank’s functions, limit distortions, continue to add safeguards to protect taxpayers, and add transparency to bank operations. 

 



[1] For a more detailed discussion of policy options for the 2014 reauthorization of Ex-Im, see: http://americanactionforum.org/research/reauthorizing-the-export-import-bank-a-policy-evaluation

[2] Freund, Caroline, “Rethinking the National Export Initiative,” Peterson Institute for International Economics, (February 2014); http://www.iie.com/publications/interstitial.cfm?ResearchID=2576

[4] Export-Import Bank Reauthorization Act of 2012, Pub L. No. 112-122 (2012);

http://www.gpo.gov/fdsys/pkg/PLAW-112publ122/content-detail.html

[5] U.S. Export-Import Bank, “Charter As Amended Through P.L. 112-122,” (May 2012); http://www.exim.gov/about/whoweare/charterbylaws/upload/Updated_2012_EXIM_Charter_August_2012_Final.pdf

[6] Katz, Diane, “Export-Import Bank: Cronyism Threatens American Jobs,” (June 2014); http://www.heritage.org/research/reports/2014/06/exportimport-bank-cronyism-threatens-american-jobs

[7] Committee on the Global Financial System, “Trade Finance: Developments and Issues,” (January 2014); http://www.bis.org/publ/cgfs50.htm

[8] Ibid.

[9] U.S. Export-Import Bank, “FOIA Application Deal Information;” https://explore.data.gov/Banking-Finance-and-Insurance/Export-Import-Applications/a84i-8kb5

[10] U.S. Export-Import Bank, “FOIA Application Participant Information;” https://explore.data.gov/Banking-Finance-and-Insurance/Export-Import-Application-Participants/em83-2ywi

[11] Export-Import Bank, “Ex-Im Approves $2.1 Billion to Finance Export of U.S. Petrochemical Goods and Services to India,” (December 2012); http://www.exim.gov/newsandevents/releases/2012/ExIm-Approves-2-Billion-to-Finance-Export-of-US-Petrochemical-Goods-and-Services-to-India.cfm

[12] Export-Import Bank, “2012 Competitiveness Report,” (June 2013); http://www.exim.gov/about/library/reports/competitivenessreports/

[13] See Footnote #9

[14] See Footnote #10