November 2011...Financial Executive magazine
The U.S. Export-Import Bank is on fire. No, not its headquarters in downtown Washington, located on a north side corner of Lafayette Park, catty corner from the White House. It is the Bank's financing of U.S. exports that has helped turn up the flame under U.S. exports during the first half of 2011. In its latest triumph, Ex-Im guaranteed bank loans in September for Canadian firms building solar-energy plants in Ontario. The guarantees of the $226.1 million and $219 million loans will allow the Canadian developers to purchase engineering services and thin-film cadmium telluride solar-PV modules from First Solar of Perrysburg, OH and power inverters from Xantrex Technology USA. in Elhart, Indiana.
That financing and the exports it will support help maintain an estimated 550 jobs at First Solar's manufacturing facility in Perrysburg, Ohio. With job creation the number one U.S. political and economic imperative, the Ex-Im bank has been doing what it can to keep U.S. employment numbers from cooling further. But as the Obama Administration and the Federal Reserve exhaust their stimulative bag of tricks, more aggressive trade policies--including expanding Ex-Im authority--are needed to save the drama around saving American jobs from becoming a tragedy.
"We need an activist trade policy to create good American jobs," says Myron Brilliant, Senior Vice President, International, U.S. Chamber of Commerce. He explains President Obama has done some good things such as enforcing trade agreements and moving toward modernizing and updating an outdated export control regime. "But in some ways he has fallen way short," he adds. "The administration must be actively involved in advocating for American business including in promoting trade agreements and engaging in commercial diplomacy that will open up markets for our companies and create jobs in the US. Look at what the French President does; he gets into deals involving his companies."
Brilliant alludes to the Indian Air Force's winnowing down of contenders to sell it 126 fighter jets to the Eurofighter Typhoon--essentially a NATO product produced by a consortium of three European companies-- and the French Dassault Rafale. The buy is worth $12 billion. Obama had made a visit to India in late 2010 and former Secretary of Commerce Gary Locke followed up with a trade mission in February 2011, a week after the U.S. lifted a 12-year-old export control ban on nine Indian space and defense-related companies. Boeing and Lockheed-Martin, eager bidders for the Indian jet contract--were on that trip with Locke. "That was a good opportunity for the administration to promote exports, but we lost the sale," Brilliant says.
Anyone looking for a list of testosterone injections that could be administered to export policy need reach no further than the syringes lined up by the President's Export Council, a group of business leaders chaired by W. James McNerney, Jr., Chairman, President and Chief Executive Officer, The Boeing Company. Top executives from Xerox, UPS, Walt Disney, Met Life, Dow and other large and small companies sit on the council. The PEC has issued three separate sets of recommendations since it was appointed by Obama in July 2010. That big bundle includes an arm-load of items in the areas of export control, intellectual property protection, getting more small businesses involved in exporting, bringing the Ex-Im Bank up to the level of similar banks in other countries, establishing a single window for exporters at the U.S. Customs and Border Protection and developing export transportation infrastructure. The prime focus of the last March 2011 meeting was getting President Obama to submit Free Trade Agreements with South Korea, Colombia and Panama to Congress, and for Congress to approve them. The FTA with South Korea, for example, would spur $11 billion in U.S. exports, and support some 70,000 jobs in the process, former Commerce Secretary Gary Locke (now ambassador to China) said that day.
But the three FTAs have still not arrived at the Capital for a vote, nor have Ex-Im Bank enhancements passed Congress. And many of the other PEC recommendations are still on the Obama administration's and Congress's "to do" list...maybe.
President Obama did announced an National Export Initiative in January 2010. Its goal is to double U.S. exports over five years. Increases had been more than enough to put that goal within reach, at least they were until May and June of 2011, when exports declined in both months. Francisco J. Sánchez, Under Secretary for International Trade at the U.S. Department of Commerce, says exports were up 17 percent in 2010 and 16 percent year-to-date as of September. "We need to grow at 14.8 percent a year in order to double exports by the end of 2014," he says in an interview. "We are ahead of the curve and I feel good about where we are and where we are heading."
Eric Farnsworth, Vice President, Council of the Americas, is less sanguine. Asked about Sánchez's analysis that the U.S. is ahead of the curve in terms of meeting Obama's goal, Farnsworth replies, "A lot of the growth in U.S. exports is related to the sinking value of the dollar. There are bigger macro things going on." Sánchez acknowledges that the U.S. does need to do more to back exports. "We need to get the FTAs passed, and get the TransPacific Partnership in place, which, after the FTAs, is the single most important trade policy we have going on." The U.S. is meeting with the eight other TPP nations--some of whom we already have individual FTAs with--in November. A multilateral TPP would further stimulate trade with those countries.
While the TPP negotiations are of recent vintage, the FTAs with South Korea, Colombia and Panama have been aging since they were corked by President George W. Bush. Passage of the three FTAs has been held up by partisan differences over the Trade Adjustment Assistance (TAA) program, which provides payments to U.S. workers who lose their jobs because of imports. The program was expanded as part of the 2009 stimulus bill, and now costs approximately $1 billion a year. The Obama administration and congressional Democrats had wanted to include extension of the TAA in the U.S.-South Korea FTA. Republicans balked, questioning the value of the program, especially at a time when the federal deficit had become a marquee issue.
While there has been substantial bi-partisan bickering over the FTAs, Democrats and Republicans seem to be of one mind about changes to the statutes governing the Ex-Im Bank, which despite its successes still lacks the punching power of other countries' export financing agencies. "Notwithstanding the efforts of its leadership team and staff – Ex‐Im unfortunately remains among the world’s least competitive export credit agencies (ECAs)," Karan Bhatia, Vice President & Senior Counsel, International Law & Policy, General Electric, told the House Subcommittee on International Monetary Policy and Trade last March. "Ex‐Im dramatically trails other countries’ ECAs in total funds authorized. For example, Canada – a country less than a tenth the size of the United States – has more than triple the amount of export financing as the U.S.; Japan more than five times; and China an estimated eleven times. Moreover, Ex‐Im is forced to labor under restrictions and processes that lessen its attractiveness and discourage many U.S. companies from accessing it." In an interview, Fred Hochberg, Chairman and President of the Export-Import Bank, says Ex-Im only finances foreign exports which create jobs in the U.S. "The Canadian export credit agency furthers Canadian business interests, whether in Canada or overseas, and it doesn't matter where the jobs are created," he explains. "We are limited by a more rigorous domestic content policy."
The House and Senate are currently considering very similar Ex-Im Bank reauthorization bills which, most notably, increase the bank's current $100 billion exposure limit to $140 billion in the House bill and $160 billion in the Senate bill. The PEC recommended $200 billion. The exposure limit is the total level of financing currently allotted by the bank. It has about $87 billion worth of active projects on its books. Neither bill appears to make major changes in current domestic content restrictions.
The Ex-Im Bank focuses on exports to nine emerging markets: Brazil, Colombia, India, Indonesia, Mexico, Nigeria, South Africa, Turkey and Vietnam. The U.S. number one and two export markets, Canada and Mexico, aren't on that list. They are already fully open for business due to the North American Free Trade Agreement. Neither is the number three country, China. The U.S. doesn't have a FTA with China. Numerous companies in numerous industries complain they can't get their foot in the door there, and if they do, the door gets slammed on their toes because of insufficient intellectual property protection and other discriminatory policies.
"We should be exporting more in China and Asia," acknowledges Sánchez. "But there are challenges in that market." The U.S. China Joint Commission on Commerce and Trade, established in 1993, met in December 2010 and agreed to a number of policies that both countries would implement. "We have made progress, and we expect to make more progress by the time of the next meeting at the end of this year," states Sánchez, who co-chairs the commission on the U.S. side.
Sánchez also highlights the importance of the Trans-Pacific Partnership, a trade grouping which includes the U.S. and Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. Negotiations are now ongoing to create a Free Trade Agreement among the TPP partners. The next step on the TPP is a ministerial meeting in Honolulu in November.
The Chamber's Brilliant says the U.S. has made some progress negotiating acceptable language for the treaty but has also had some setbacks. "We are not there yet where we feel comfortable that the text is to the satisfaction of American business," he explains. "It is important that the intellectual property chapter be right, that regulatory coherence chapter be right and that state-owned enterprises are dealt with in these negotiations in appropriate ways since this agreement will set the bar for future agreements and must be of the highest international standards possible."
Of course Congress' record on passing pro-export legislation leaves something to be desired, too. The Senate Banking Committee approved its version of a pallid Ex-Im Bank reauthorization bill on September 8, taking about 10 minutes during a 40-minute committee session devoted to a number of other issues. The only discussion over the Ex-Im bill had to do with an amendment denying Ex-Im guarantees to any foreign company doing business with Iran, a reference to a 2008 Ex-Im loan to an Indian refinery which supplied refined gasoline to Iran. The bank's role as a job creator came up for not a moment's discussion.
