Economic Development, Government, and Manufacturing

Export economic development tool is down to the wire

The deadline for reauthorization of the federal Export-Import Bank is Tuesday.

June 26, 2015
| By Pete Daly |
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Mill Steel Gary Peters
Mill Steel CEO David Samrick, left, and U.S. Sen. Gary Peters support extension of the federal Export-Import Bank’s charter. Photo by Pete Daly

Tomorrow’s expiration of the federal Export-Import Bank’s charter — if Congress does actually let it happen — will have “an impact right here in the Grand Rapids area,” according to U.S. Sen. Gary Peters, D-Michigan.

He made that statement in mid-June at Mill Steel Co. in Kentwood, which has been using Ex-Im since 2007. Mill Steel is an industrial “slitter” that cuts flat-rolled steel and supplies it to the automotive industry, particularly smaller companies supplying parts to General Motors plants in Canada and to Volkswagen plants in Mexico.

According to its website, Ex-Im is the official export credit agency of the U.S. federal government. It was established in 1934 by an executive order and made an independent agency in the Executive Branch by Congress in 1945 for the purposes of financing and insuring foreign purchases of U.S. goods for customers unable or unwilling to accept credit risk.

Summing up what it does, Mill Steel CEO David Samrick said it “protects us from losses if a foreign buyer fails to make payment.”

Ex-Im says its mission is to create and sustain U.S. jobs by financing sales of U.S. exports to international buyers. The bank is chartered as a government corporation by Congress. It was last chartered for a three-year term in 2012 and extended in September 2014 through June 30, 2015.

Its charter spells out the bank’s authorities and limitations. Among them is the principle that Ex-Im Bank does not compete with private sector lenders, but rather provides financing for transactions that would otherwise not take place because commercial lenders are either unable or unwilling to accept the political or commercial risks inherent in the deal.

At a news conference at Mill Steel, Peters said Ex-Im Bank “does what private banks don’t do,” adding many of the exports it helps facilitate go to Canada.

Ex-Im “also does it without cost to taxpayers,” said Peters, and “helps small businesses, primarily.” He said Ex-Im had a $675 million surplus in 2014, adding about one-fifth of 1 percent of Ex-Im loans default.

According to the Ex-Im website, from 2007 to 2015, the bank did deals with 228 exporters in Michigan, on total exports worth $11 billion. The top three destinations for those exports were Saudi Arabia, Mexico and Canada, and the top industries were motor vehicle and parts manufacturing.

Sonja Johnson, executive director of the Van Andel Global Trade Center at GVSU, was also at the news conference with Peters, along with David DeAvila from the Michigan Economic Development Corp.

Johnson said the VAGTC has worked as a partner with the Ex-Im Bank since 2005, and it offers “affordable” interest rates on loans to U.S. companies that can then offer better credit terms to their overseas customers.

DeAvila acknowledged the “negative political side” of the ongoing debate over renewal of the Ex-Im Bank charter. Critics often bring up the controversial relationship between Boeing and the bank, but “it is the smaller entities” that supply Boeing that benefit the most from Ex-Im loans, he said.

Two U.S. Representatives from West Michigan, Republicans Justin Amash and Bill Huizenga, are among members of Congress opposed to renewal of the Ex-Im Bank. Amash said the Ex-Im Bank is equivalent to “corporate welfare.”

Jordan Bush, a spokesman for Amash, released the following statement: “The Export-Import Bank uses bogus accounting to stay afloat on paper. Any ordinary business or individual using such accounting would go to prison.”

Brian Patrick, a spokesman for Huizenga, said Ex-Im is not self-supporting because it does not use fair value accounting standards, and he said the Congressional Budget Office has said that accounting method underestimates Ex-Im’s costs.

Patrick said “because of this accounting gimmick,” Ex-Im’s numbers will show it returns $14 billion to the Treasury over the next 10 years, but using a fair value accounting standard “that everyone else has to use, it would actually be a net cost to the taxpayer of $2 billion over the next 10 years. That’s from the Congressional Budget Office. Those aren’t our numbers.”

Patrick also stated Ex-Im loans to the export-import banks run by foreign countries, with $18 billion loaned to China’s export-import bank in 2014.

He also cited “corruption” and other problems with the Ex-Im that Congress previously tried to correct.

“We feel the Bank has ignored this,” said Patrick.

Almost 30 percent of Ex-Im financing of exports is in the aircraft and avionics industries, and Boeing is Ex-Im’s largest customer. According to The Wall Street Journal, critics call it “Boeing’s Bank” because it provides billions of dollars worth of financial backing to Boeing.

Delta Air Lines Inc. has accused Boeing of using Ex-Im to help foreign airlines afford Boeing’s wide-body jets, used in direct competition with Delta.

Peters noted Boeing’s main competitor, Europe’s Airbus, is subsidized by the governments there.

“Other countries use these (export financing) tools” to support their industries in competition with U.S. companies, said Peters.

“The customer knows it’s an Ex-Im deal, and it changes the environment significantly,” said Mill Steel’s Samrick.

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