TRADE TROU­BLE

Repub­li­cans are seek­ing to kill the Ex­port- Im­port Bank, but busi­ness ex­ec­u­tives warn that it would lead to lost op­por­tu­ni­ties and job cuts

Los Angeles Times - - BUSINESS - By Ji m Puz­zanghera

WASHINGTON — To kill the Ex­port- Im­port Bank, all that House Repub­li­can lead­ers op­pos­ing it have to do is let the bank’s char­ter ex­pire Tues­day — and they are leav­ing Fri­day for the Fourth of July re­cess with­out even hold­ing a vote to reau­tho­rize it.

The 81- year- old fed­eral agency that helps com­pa­nies sell their prod­ucts abroad has been a prime tar­get of con­ser­va­tives, who want to re­duce the size of gov­ern­ment and elim­i­nate what they call crony cap­i­tal­ism.

Shut­ting the bank’s tap, though, also would elim­i­nate tens of thou­sands of jobs, say busi­ness ex­ec­u­tives, trade groups and the Obama ad­min­is­tra­tion.

“It’s go­ing to be dev­as­tat­ing for us,” said Don Nel­son, chief ex­ec­u­tive of ProGauge Tech­nolo­gies Inc., a Bak­ers­field man­u­fac­turer of oil in­dus­try equip­ment. “Ba­si­cally, we just won’t be able to ex­port any­more.”

Op­ti­mism should be f low­ing through the ProGauge fac­tory.

It’s pre­par­ing a bid for a mul­ti­year pro­ject in the Mid­dle East worth up to $ 30 mil­lion. Land­ing the job would help off­set a slow­down at the 70- em­ployee com­pany, which al­ready has laid off about a third of its work­ers be­cause of fall­ing oil prices, Nel­son said. But there’s a catch. If ProGauge has the win­ning bid next month, it would be re­quired to pro­vide a guar­an­tee that it would de­liver the equip­ment when due or re­fund the down pay­ment it would get. And the com­pany can get a guar­an­tee for such a pro­ject, Nel­son said, only with the help of the Ex­port- Im­port Bank.

“If the Ex- Im Bank isn’t here, we can’t f ill the or­der,” he said.

Ex­ports make up about 70% of ProGauge’s busi­ness. And if the com­pany can’t ex­port, it would have to lay off 30 more em­ploy­ees, Nel­son said.

Con­ser­va­tives have crit­i­cized the Ex­portIm­port Bank as Boe­ing’s Bank be­cause the aerospace gi­ant and other big f irms are the largest re­cip­i­ents of its as­sis­tance, which in­cludes loans to for­eign buy­ers of U. S. goods and var­i­ous guar­an­tee pro­grams for U. S. ex­porters.

The bank is funded through in­ter­est and fees on its aid. Last year, it pro­vided $ 20.5 bil­lion in as­sis­tance that fi­nanced $ 27.5 bil­lion in ex­ports. The bank said

those sales sup­ported 164,000 U. S. jobs.

But op­po­nents said the job fig­ures are inf lated. And they noted that the $ 27.5 bil­lion in ex­ports is a mi­nus­cule por­tion of the na­tion’s $ 2.3 tril­lion in to­tal ex­ports, de­mon­strat­ing that the bank can dis­ap­pear with­out ma­jor dam­age.

“The over­whelm­ing ma­jor­ity of busi­nesses, es­pe­cially small busi­nesses, ex­port with­out the Ex­port- Im­port Bank,” said Dan Holler, a spokesman for Her­itage Ac­tion for Amer­ica, a con­ser­va­tive group that op­poses the bank. “All these com­pa­nies some­how are find­ing a way for­ward, so the idea we won’t be able to ex­port af­ter July 1 is just not true.”

Taxpayers are ul­ti­mately on the hook for any losses the bank can’t cover on its $ 112 bil­lion in out­stand­ing as­sis­tance — a num­ber that the law al­lows to grow to $ 140 bil­lion. That’s an un­nec­es­sary risk that is bet­ter borne by pri­vate lenders or the com­pa­nies them­selves, op­po­nents said.

But the bank said it had a de­fault rate of less than 0.2% as of Sept. 30 and has not had to seek a tax­payer bailout since the 1980s.

Bank sup­port­ers note that Boe­ing Co. fun­nels busi­ness to some 15,600 U. S. sup­pli­ers, a third of them in Cal­i­for­nia. And although ma­jor cor­po­ra­tions could sur­vive with­out the bank’s as­sis­tance, many small ex­porters like ProGauge might not.

And there’s a broader is­sue of U. S. com­pet­i­tive­ness.

At least 59 other na­tions — in­clud­ing China, Ger­many and France — have sim­i­lar agen­cies as­sist­ing their ex­porters. Ex­port- Im­port Bank Pres­i­dent Fred Hochberg has said the U. S would be putting its ex­porters at a ma­jor disad­van­tage, al­low­ing com­peti­tors such as Air­bus in France to grab more busi­ness.

If the bank’s char­ter is not reau­tho­rized, it would con­tinue to pro­vide as­sis­tance for deals it al­ready has com­mit­ted to fund. But it would no longer be able to pro­vide new aid, mean­ing its port­fo­lio would shrink over time un­til the bank f in­ally shuts down. Loans have terms as long as 18 years, but the vast ma­jor­ity of in­sur­ance and guar­an­tee as­sis­tance last only about a year.

Many com­pa­nies — from Boe­ing to small man­u­fac­tur­ers such as ProGauge — are scram­bling to try to save the bank even as they search for al­ter­na­tive sources of fund­ing in case they can’t.

“If you had told me a decade ago that this would ever be some­thing our coun­try would elim­i­nate, I would have said you’re crazy,” Jeffrey R. Im­melt, chief ex­ec­u­tive of Gen­eral Elec­tric Co., said in a Washington speech this month.

The Na­tional Assn. of Man­u­fac­tur­ers, the U. S. Cham­ber of Com­merce and other busi­ness groups are lob­by­ing ag­gres­sively for the bank’s char­ter to be reau­tho­rized. The Obama ad­min­is­tra­tion is push­ing for a f ive- year reau­tho­riza­tion, and most Democrats and many Repub­li­cans sup­port the bank.

Even if there’s hope of reau­tho­riz­ing the bank some­time af­ter Wed­nes­day, there’s likely to be at least a short pe­riod dur­ing which the bank can­not pro­vide any new loan guar­an­tees or other as­sis­tance. And that de­lay al­ready has en­dan­gered for­eign sales, ex­ec­u­tives said.

“It will def­i­nitely slow my growth to near zero. I’ll have to cut do­mes­tic jobs for sure,” said Robert Pat­ton, chief ex­ec­u­tive of Pat­ton Elec­tron­ics Co., a com­mu­ni­ca­tions equip­ment man­u­fac­turer in Gaithers­burg, Md. “There [ are] def­i­nitely deals that we’ve al­ready lost.”

Pat­ton said he de­pends on the Ex­port- Im­port Bank to help pro­vide fi­nanc­ing un­til pay­ments are re­ceived from for­eign sales, which make up about 70% of the com­pany’s rev­enue.

U. S. banks won’t lend Pat­ton money on pend­ing pay­ments from abroad, which are viewed as riskier than those from do­mes­tic cus­tomers. The Ex­port- Im­port Bank guar­an­tees those for­eign pay­ments, en­abling Pat­ton to ob­tain loans that keep the com­pany run­ning un­til the cus­tomers’ checks ar­rive, he said. Loans to for­eign buy­ers of U. S. prod­ucts are the most well- known ex­port as­sis­tance.

But other Ex­port- Im­port Bank ini­tia­tives, such as the work­ing cap­i­tal loan guar­an­tee pro­gram used by Pat­ton and other small U. S. firms, also are cru­cial to selling prod­ucts abroad, ex­ec­u­tives said.

“I don’t know of a do­mes­tic bank that will loan on in­ter­na­tional re­ceiv­ables with­out some sort of in­sur­ance,” Pat­ton said.

With­out the Ex­port- Im­port Bank pro­gram, he’d have to pay about 10% on work­ing cap­i­tal loans for ex­ports — about dou­ble what he pays on such loans for do­mes­tic sales. Such a rate would be un­af­ford­able be­cause his for­eign com­peti­tors have ex­port aid in their coun­tries, he said.

“We’re com­pet­ing in­ter­na­tion­ally against other com­pa­nies that have the kind of fa­cil­i­ties the Ex- Im Bank pro­vides to our com­pa­nies,” he said. “It’s a ridicu­lous thing to take away.”

Im­melt said that many coun­tries will not even al­low a com­pany to bid on a ma­jor in­fra­struc­ture pro­ject un­less it has the back­ing of a gov­ern­ment ex­port- as­sis­tance agency.

“In coun­try af­ter coun­try, you f ind the same thing: Deals are struc­tured around ex­port credit fi­nanc­ing. And with­out it, in many cases, you can say good­bye to those deals and the jobs that go with them,” he told the Eco­nomic Club of Washington.

GE won’t give up those deals, Im­melt said, echo­ing warn­ings from other ex­ec­u­tives that a bank shut­down will cost the U. S. jobs. “We will build these prod­ucts in places where ex­port credit f inanc­ing is avail­able be­cause we have to,” he said.

“What hap­pens then? Good jobs in the U. S. will be­come good jobs in Canada and Europe,” Im­melt said. “That’s a mighty high price to pay for ide­o­log­i­cal pu­rity, and it doesn’t fit my idea of a na­tional strat­egy for growth and jobs.”

Holler said big com­pa­nies such as GE don’t want to give up gov­ern­ment­backed as­sis­tance from the Ex­port- Im­port Bank. And he pre­dicted that the warn­ings will prove false in the weeks and months af­ter the bank’s char­ter ex­pires.

“CEOs talk­ing about mov­ing man­u­fac­tur­ing over­seas, that is just pure fear­mon­ger­ing,” he said. “The case that the bank is a ne­ces­sity for the U. S. econ­omy dwin­dles by the day af­ter you get past July 1.”

Some busi­ness own­ers have said the un­cer­tainty over the bank’s fu­ture al­ready has cost them sales. And the Na­tional Assn. of Man­u­fac­tur­ers said those will add up if Congress doesn’t act soon to keep the bank run­ning.

“If Ex- Im is not reau­tho­rized a year from now,” said Linda Dempsey, the group’s vice pres­i­dent for in­ter­na­tional eco­nomic af­fairs, “we be­lieve that there are tens of mil­lions of dol­lars in ex­ports and tens of thou­sands of jobs in the man­u­fac­tur­ing sec­tor that are go­ing to be put at risk.”

Al Seib Los An­ge­les Times

DON NEL­SON, right, chief ex­ec­u­tive of ProGauge Tech­nolo­gies Inc., an oil in­dus­try equip­ment maker in Bak­ers­field, says Congress’ fail­ure to reau­tho­rize the Ex­port- Im­port Bank would be “dev­as­tat­ing for us. Ba­si­cally, we just won’t be able to ex­port any­more.”

Al Seib Los An­ge­les Times

PROGAUGE Tech­nolo­gies is seek­ing a $ 30- mil­lion pro­ject in the Mid­dle East, but “if the Ex- Im Bank isn’t here, we can’t f ill the or­der,” CEO Don Nel­son says.

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