United States Export Finance Agency Act - H.R.4863

BACKGROUND: 

    The Export-Import Bank is the official export credit agency of the United States. It was established in 1934 by an executive order and made an independent agency in the executive branch by the Export Import Bank Act of 1945.

    The bank's mission is to assist in financing the export of U.S. goods and services to international markets for the purpose of creating and sustaining U.S. jobs. The bank is not allowed to compete with private sector lenders, but provides export financing that fill gaps in trade financing by assuming credit and country risks that the private sector is unable or unwilling to accept — particularly for large purchases that would otherwise go to foreign competitors backed by concessionary foreign government financing.

    Specifically, the Ex-Im Bank provides working capital guarantees (pre-export financing), export credit insurance, and loan guarantees and direct loans (buyer financing). The bank charges fees or interest to its customers for the loans, credit insurance and loan guarantees that they receive. The fees and interest payments pay all of the bank's cost of operations and fund reserve accounts from which the bank pays claims and recoups bad loans.

     Ex-Im's loan loss rate has historically been low (it's active default rate was 0.5% as of June 30). According to the bank, since 2000 it has contributed a net total of $14.8 billion to the U.S. Treasury on a cash basis after covering its administrative and program costs. In FY 2014 (the last year the bank was fully operational) it transferred $675 million to the Treasury after covering its operating expenses. On average, the bank provides export-financing support for about 2% of total U.S. exports.

Ex-Im Statutory Mandates

    The Ex-Im Bank has certain statutory mandates, including the requirement that 25% of the bank's aggregate loan, guarantee and insurance authority support small-business exports. Small businesses constitute 90% of the bank's transactions — although larger companies have received most of the dollar amount.

    The bank is required to support renewable-energy exports, promote the expansion of financial commitments in sub-Saharan Africa, and increase amounts made available to finance exports by minority- and women-owned small businesses. It is generally prohibited from extending credit and insurance to any "Marxist-Leninist" country or a country engaged in armed conflict with the United States. With certain limited exceptions, it may not finance military weapons or equipment.

    The bank also must consider the potential beneficial or adverse environmental effects of proposed transactions, including restricting support for coal-based power projects. However, according to CRS, provisions in appropriations acts since FY 2014 have resulted in the bank allowing coal power projects in lower-income countries if doing so would help provide affordable electricity in those nations. Since 2015, the bank has been prohibited from denying financing for certain energy development projects "regardless of the energy source involved," according to CRS.

Foreign Export Credit Agencies

    Banks similar to the Export-Import Bank, or export credit agencies (ECAs), are operated by almost all major foreign competitors. Like Ex-Im, many ECAs are in nations that are members of the Organization for Economic Cooperation and Development (OECD) and follow a set of common rules and principles. In theory, those rules are supposed to permit exporters in various countries to compete on the basis of the quality of their goods and services, not on preferential financing terms. In practice, however, concessionary financing is often the key determinant in making large purchases, especially repayment terms of two years or more (medium-and long-term, or MLT, financing).

    The United States traditionally has provided far less export financing than its competitors in the OECD. In a 2014 study, the independent Economist Intelligence Unit (EIU) found that the nine largest foreign ECAs provided approximately $488 billion in total export financing support in 2013, more than 18 times the level of the Ex-Im Bank. The EIU found that total authorizations of the primary ECAs of five nations — China ($154 billion), Japan ($104 billion), Canada ($93 billion), South Korea ($64 billion) and Germany ($37 billion) — were greater than the Ex-Im Bank ($27 billion).

    Since then, the gap has widened. In 2018, China's direct MLT export financing alone was estimated to be $39 billion, larger than that of the next three ECAs combined (Italy, Germany and South Korea). By comparison, Ex-Im's MLT support in 2018 was only $300 million, according to CRS.

    The United States has long tried to rein in such concessionary financing, including through the 1978 OECD Arrangement on Officially Supported Export Credits — a nonbinding agreement that was intended to limit MLT financing, set minimum interest rates and maximum repayment terms, and establish other terms and conditions. But while most large providers of export credit are party to the Arrangement, an increasing amount of official export credit support is not regulated by the OECD.

    Much of this unregulated financing is offered by China, Brazil, India and Russia, which provide more generous terms than can be offered by Ex-Im and other members of the arrangement, according to CRS. Besides the sheer volume of such loans, the transparency and efficacy of Chinese ECA financing for endeavors such as its Belt and Road Initiative have raised additional concerns.

Recent Ex-Im Controversy

    For most of its existence there has been bipartisan and bicameral support for the Ex-Im bank, with Congress extending the bank's charter 17 times, often by unanimous consent. In recent years, however, opposition to the Export-Import Bank has grown, with conservative Republicans arguing that the bank represents "crony capitalism" and saying the U.S. government and taxpayers should not be choosing which businesses to finance — an activity that should be left to the market.

    Such opposition led to a lapse in the bank's charter on July 1, 2015, when House conservatives led by then Financial Services Committee Chairman Jeb Hensarling, R-Texas prevented the House from voting on reauthorization legislation. With the bank's charter expired its authority to issue new loans or other credit ceased, although the bank continued to operate with Ex-Im employees managing the loans already in its portfolio. Bank supporters claimed that with Ex-Im unable to issue new loans numerous sales began to fall through as potential foreign purchasers of U.S. goods decided to take their business elsewhere. The Peterson Institute for International Economics estimated that each day the bank remained closed cost the United States $110 million in exports.

    The Ex-Im Bank was eventually reauthorized for four years in December 2015 (PL 114-94) after House supporters of the bank engineered House consideration of reauthorization legislation through the use of a "discharge petition" (a rarely used mechanism to bypass House and committee leadership and bring legislation to the floor by garnering the signatures of 218 members on such a petition). That legislation extended Ex-Im's charter through Sept. 30, 2019 (the bank's authorization was further extended through Nov. 21 as part of the current FY 2020 stopgap funding resolution (PL 116-59)).

    Although the bank's charter was reauthorized in 2015, continued opposition in the Senate to the bank prevented Senate confirmation of new board members — resulting in an effective block on Ex-Im business. By law, a five-member board of directors (representing both political parties) leads the bank, and it needs a quorum of at least three members to conduct business, including approving financing over a certain threshold ($10 million at that time). Lacking such a quorum over the past few years, the bank reported it was unable to approve $40 billion worth of transactions that would have supported an estimated 250,000 jobs, according to CRS.

    Despite continued opposition by conservatives, the Trump administration signaled its general support for the Ex-Im Bank and the Senate on May 8, 2019 confirmed three new Ex-Im Board members — thereby restoring a quorum of the board and allowing the bank to resume full operational status. On May 30 the board increased to $25 million the loan threshold that requires board approval, which allows staff to approve transactions below that threshold.

Member Concerns

    Supporters of the bill include most Democrats and many Republicans, small businesses and some larger companies such as Boeing, GE and Caterpillar. They argue that eliminating the bank would amount to "unilateral disarmament" given that foreign nations have been increasing financial support to their firms. Competitors such as Japan, Germany and Canada in particular provide far more support despite having much smaller economies, while China now provides close to ten times as much as the U.S. Many small and medium-size U.S. businesses say they can't obtain necessary financing from private sources, particularly for exports deemed more risky. They note that when the bank was effectively shut down the past few years, GE announced plans to shift U.S. manufacturing jobs to Europe and China because it could no longer access Ex-Im financing, transferring 400 jobs and the production of gas turbines to Belfort, France, in exchange for a line of credit from France's export credit agency.

    Other supporters say it is natural Boeing receives the largest support from the bank simply because it is the nation's largest exporter, but note Boeing is still at a disadvantage since international competitors such as Airbus and Bombardier provide far more concessionary financing — a fact confirmed by the WTO in a series of rulings. Boeing notes that the company itself does not receive financing from the bank; rather, its customers obtain the financing in order to make purchases. Finally, bank supporters argue that many who say the government should not be in the business of supporting manufacturers are all too happy to accept support for agricultural products, noting that some bank opponents such as the Koch brothers are perfectly willing to accept similar subsidies from German export agencies.

    Opponents of the bill include conservative Republicans, who oppose the Export-Import Bank on ideological grounds, as well as some U.S. companies. They claim that the bank's support for U.S. exports amounts to "crony capitalism" and "corporate welfare" and that, at a time of exploding federal deficits wealthy multinational firms should be the last entities that receive unnecessary government aid. They note that on a total dollar basis, Boeing, GE and Caterpillar receive the vast majority of Ex-Im loan guarantees, while small businesses received just a fraction of Ex-Im aid. The vast majority of exporters do not receive assistance from the bank, they note, adding that export financing does not create new jobs but merely redistributes them across the American economy.

     Opponents say Ex-Im effectively picks winners and losers, rather than allowing companies to compete freely in an open market. They argue that the bank unfairly helps foreign airlines buy planes from Boeing and puts U.S. airlines such as Delta at a competitive disadvantage since they can't buy those aircraft on the same favorable terms. They point to reports that indicate a higher level of risk at the bank than the bank indicates in its quarterly reports, and say that if the bank's profitability were rated using commercial accounting standards rather than federal standards it would be shown to be losing taxpayer money. Finally, some argue that the bill doesn't go far enough in preventing Ex-Im Bank support for exports to Chinese state-owned enterprises, thereby having U.S. taxpayers effectively subsidize Chinese firms bent on destroying U.S. jobs, while others argue that the bank should not finance any projects that help develop fossil fuels and that too many bank-supported projects contribute to global warming.

SUMMARY: This bill reauthorizes the U.S. Export-Import Bank's charter for 10 years — through Sept. 30, 2029 — and increases the bank's cap on loans, guarantees and insurance that the bank may have outstanding at any given time from $135 billion to $175 billion over a seven-year period.

    The measure also changes the name of the Export-Import Bank of the United States to the "United States Export Finance Agency," creates an Office of Minority and Women Inclusion, establishes alternate procedures for the bank to operate in lieu of the bank's board maintaining a quorum, and places restrictions on the agency's ability to finance and insure exports to Chinese state-owned enterprises.

Quorum Lapse

    The bill establishes alternative procedures for the agency to operate in the event its board of directors is unable to maintain a quorum.

    Specifically, in the absence of a board quorum longer than 90 days, the measure allows for the establishment of a temporary board consisting of the agency's current board members (if any), the Treasury secretary, Commerce secretary, and the U.S. Trade Representative. The temporary board would have authority to approve large financing deals, but would not have authority to change or amend agency policies, procedures, bylaws, or guidelines.

     This alternative operating authority would sunset in 10 years.

Small-Business Lending

    The bill increases from 25% to 30% the amount of Export-Import Bank lending activity that must be directed to small businesses by 2029.

    It also requires the agency, within 120 days of enactment, to submit a comprehensive outreach plan to Congress that would ensure small business owners are aware of the financing options available to them through the agency, with specific emphasis on outreach to businesses owned by women, minorities, veterans and persons with disabilities.

Office of Minority & Women Inclusion

    The measure creates an Office of Minority and Women Inclusion within the agency and requires it to develop standards for equal employment opportunity and the promotion of racial, ethnic and gender diversity of the workforce and senior management.

    It requires the agency to develop standards for increased participation of minority-owned and women-owned businesses in agency programs and contracts, including enhancing outreach activities to increase the total amount of loans, guarantees and insurance provided by the agency to support exports by socially and economically disadvantaged small business concerns.

    The agency also must take affirmative steps to seek diversity in its workforce at all levels of the agency, including increased recruiting at historically Black colleges and universities, Hispanic-serving institutions, tribal colleges and universities, and women's colleges. In its annual report to Congress on actions taken by the agency to increase diversity, it must detail amounts paid by the agency to minority contractors, the successes achieved and challenges faced in operating minority and women outreach programs, and describe the progress made by the agency in supporting exports by minority owned small business concerns.

Renewable Energy Exports & Environmental and Social Standards

    The bill creates an "Office of Financing for Renewable Energy, Energy Efficiency, and Energy Storage Exports" to enhance the agency's environmental policies and procedures. Specifically, the office must promote the export of goods and services to be used in the development, production and distribution of renewable energy resources, and energy efficiency and energy storage technologies, and disseminate information concerning export opportunities and the availability of agency support for such activities.

    The agency would be required to enhance and expand consultations with communities potentially impacted by agency-supported projects. By the end of 2020 and every subsequent 3-year period, the board must to complete a review of the environmental and social due diligence procedures and guidelines for project consideration that are consistent with limiting greenhouse gas emissions and multilateral environmental agreements to which the U.S. is a party.

    The measure requires the agency to calculate the level of carbon dioxide emissions derived from its projects, and it establishes a goal that at least 5% of agency financing be for renewable energy, energy efficiency and energy storage technology exports.

    Finally, it expresses the sense of Congress that the agency board should create an accountability mechanism to review, investigate and offer independent dispute resolution to resolve allegations by affected parties of any failure by the agency to follow its own procedures and policies with regard to the environmental and social impacts of its projects.

Funding Restrictions

    The bill generally prohibits agency financing for purchases by the People's Liberation Army of China, Chinese intelligence services, and other bad actors known to the U.S. government.

    Those restrictions would apply to end users, obligors, or lenders included on U.S. export control lists, sanctions violators, any person who has criminally violated the Foreign Corrupt Practices Act within the preceding three years, and anyone listed in the Annual Intellectual Property Report to Congress.

Other Provisions

    The bill reduces the threshold for the agency and U.S. exporters to justify responding to China's predatory export credit practices through the Tied Aid Credit Fund. That fund can be used to offer special terms when a U.S. exporter is confronted by a subsidized offer by China when bidding for a capital project.

    The measure also does the following:

•     Reinsurance Pools — Requires the agency to pursue specific objectives to reduce risk and costs with regard to the creation of reinsurance pools, and requires the agency to submit to Congress every two years a written assessment of its reinsurance program.

•     Information Technology — Allows the bank to continue using administrative funding of up to 1.25% of the bank's surplus for technology systems infrastructure improvements, with the aggregate amount used not to exceed $40 million.

•     Pay Flexibility — Provides the agency with limited pay flexibility for up to 35 employees in order to attract and retain highly qualified staff to serve in key roles, particularly in financial and legal services. The authority would not apply to politically appointed employees.

•     Office of Territorial Exporting — Establishes a new office within the agency to increase bank support for, and promote the export of goods and services from, Guam, Puerto Rico and other U.S. territories.