Let The Ex-Im Bank Do Its Job Supporting U.S. Exporters

A lawsuit by the Air Transport Association of America (ATA) against the U.S. Export-Import Bank (Ex-Im Bank) has raised broader questions about U.S. policies to help U.S. companies remain competitive, specifically the critical role of the Ex-Im Bank.

Last fall, the ATA filed a lawsuit in the U.S. District Court of the District of Columbia to block the Ex-Im Bank from providing $3.4 billion in loan guarantees for aircraft financing to Air India. Air India has placed orders for a total of 68 Boeing jet aircraft, 38 of which have already been delivered, and this financing assistance would enable Air India to complete its purchase of the final 30 aircraft. The ATA claimed that without injunctive relief their member airlines and pilots would suffer irreparable harm. ATA argued that “if Air India places just one new Bank-backed aircraft into service pending resolution of this suit, U.S. airlines will be forced to cut routes, cut capacity on other routes, and layoff employees.” The ATA argued that the Bank’s guarantees could give Air India a competitive advantage in the aircraft financing markets that could enable it to expand its international routes, thereby harming U.S airlines’ market share and further claimed that this injury happened to one ATA member, Delta, in 2008 when it was forced to cut its New York to Mumbai service after Air India used Ex-Im Bank financing to increase its passenger capacity on that route.

However, on Friday, January 15, the District Court denied ATA’s motion for a preliminary injunction in the case, finding that the plaintiffs had failed to prove “that the harm has occurred in the past and is likely to occur again in the immediate future.” The Court noted that not only had Air India not even announced which routes the Ex-Im Bank-financed planes would fly, but also that none of the participating ATA members in the case even offers non-stop U.S.-India service (italics mine), meaning that even if Air India’s planes were deployed on a US-India route, this “would clearly not create direct competition.” Thus, the Court found that the plaintiffs failed to demonstrate that competition from Bank-financed planes to Air India would cause them to lose revenues or lay off employees.

The District Court’s decision is a welcome one for those seriously concerned with bolstering U.S. employment both on net and in high value-added, high-paying export-based jobs. For if ATA were successful in constraining the Ex-Im Bank financing assistance that enables foreign airlines to purchase hundreds of U.S.-manufactured jet aircraft, thousands of aerospace jobs at not just Boeing, but also at the more than 22,000 suppliers in Boeing’s value chain (the vast majority of them small-medium sized enterprises), would be jeopardized.

Moreover, the U.S. aerospace sector and aerospace employment will be harmed but U.S. airlines would be no better off. For the simple reality is that even if ATA were to prevail in its lawsuit against the Ex-Im Bank and successfully enjoin it from providing the $3.4 billion in loan guarantee assistance to Air India, this will do absolutely nothing to relieve the competition that domestic U.S. airlines will face from Air India on international routes. For Air India—just like any other foreign airline that wishes to buy U.S. jet aircraft but that was unable to secure loan guarantee assistance from the U.S. Export-Import Bank—would simply turn to an alternative foreign supplier, in this case Airbus, knowing that they would be able to secure European export credit agency financing backed by the governments of France, Germany, Spain, and the United Kingdom. If ATA’s action were to succeed, American aerospace workers would certainly lose jobs while U.S. airline employees would still face the exact same level of competition from foreign carriers on international routes. This would only serve to damage prospects of bolstering U.S. employment, not to mention U.S. exports.

While some have called for the United States to unilaterally disarm in providing export credit financing, the reality is that Ex-Im Bank financing of U.S. exports—from aircraft to locomotive engines to clean energy products and beyond—is indispensable to the ability of U.S. exporters to compete on a level playing field in commercial markets where foreign competitors enjoy robust support from their countries’ export credit agencies. As ITIF documented in its report, Understanding the Importance of Export Credit Financing to U.S. Competitiveness, foreign competitors significantly out-invest the United States in export-credit financing. In 2010, Brazil and China provided ten times more export credit financing to their exporters as a share of GDP than the U.S. Ex-Im Bank provided to American exporters. Germany, France, and India all provided at least seven times more export assistance as a share of GDP than the United States did in 2010. And it shows, given that the United States has amassed the largest trade deficit on the planet.

Thus, policymakers must recognize that competition from foreign export credit agencies is not abating—in fact it is increasing. As such, the U.S. Export-Import Bank plays a vital role in ensuring that American exporters are not disadvantaged by foreign competitors that are able to win deals because they can provide superior government-supported financing terms to their customers. Indeed, Ex-Im financing plays an indispensable role in boosting U.S. exports, with Ex-Im financing of U.S. exports in 2011 exceeding $32 billion, supporting more than $40 billion in exports from more than 3,600 U.S. companies, which in turn support approximately 290,000 export-related American jobs. Moreover, the Ex-Im Bank has returned $3.4 billion to the U.S. Treasury above and beyond the cost of its operations over the past five years, all the while achieving a loan default rate of less than 1.5 percent.

With these facts in mind, Congress should expeditiously reauthorize the Export-Import Bank and increase its funding authority to at least $160 billion annually over the next reauthorization period. When the Bank’s previous authorization expired at the end of the last fiscal year on September 30, 2011, Congress temporarily extended the Banks’ authorization while capping its lending authority at $100 billion, an amount barely in excess of the $80 billion in credits the Bank had outstanding at the time. As a consequence, at current rates, the Bank is likely to reach its authorization cap by the end of the first quarter of 2012 and so would be unable to issue new financing assistance. This would be a disastrous outcome for not just U.S. exporters, but also for U.S. employment, and the health of the overall U.S. economy. However, even at this moment, foreign competitors are using the mere possibility that Ex-Im Bank financing may be difficult to secure in future months (not to mention lawsuits like ATA’s again the Ex-Im Bank) as a cudgel to strike fear into customers of U.S. exporters in an effort to turn their business to foreign suppliers.

Thus, it is critical for the Obama Administration to champion the rapid, long-term reauthorization of the Ex-Im Bank and for Congress to pass such legislation with alacrity. This is not and should not be a partisan issue; thousands of U.S. jobs depend on it.

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About the author

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Mr. Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Mr. Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide.
  • Greg Dole

    Stephen: Outstanding piece….we thank you for your support in this vitally important matter facing all US exporters. Regards,