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Mixed Messages at Ex-Im Bank

Information gap at US Export-Import Bank reveals potential mission creep, market intrusion

March 27, 2013

A discrepancy exists between the public data published by a U.S. export support agency and the agency’s actual work, raising questions for the bank’s critics.

The U.S. Export-Import Bank (Ex-Im) approved financing to support the export of solar panels manufactured by SolarWorld in three separate deals between 2009 and 2012, according to the bank’s data. The bank even issued a press release touting a 2011 deal in support of SolarWorld’s exports.

However, Ex-Im never actually issued the financing to support the SolarWorld exports in the three deals in South Korea, India, and Canada, contrary to a previous report by the Washington Free Beacon. Internal Ex-Im researchers confirmed that the bank never issued the financing despite its being approved.

An Ex-Im spokesman said the bank does not keep track of the approved applications that are not ultimately fulfilled, and does not issue revised data, either.

"There is no business justification for expending bank resources to track what, anecdotally, is a relatively small number," said Phil Cogan, press secretary for Ex-Im.

Ex-Im has come under fire in the past for being a source of "corporate welfare" and supporting politically well-connected businesses, and Congress fiercely debated whether to re-charter the bank last year.

Critics contend the information gap in the bank’s published data prevents the public from seeing whether it is fulfilling its congressional mandate.

"When taxpayer money is at risk, lawmakers should have access to the full array of information, especially if they reauthorize and expand the bank’s lending capacity," said Heritage Action communications director Dan Holler, a critic of the bank throughout the reauthorization debate.

While Ex-Im did not end up financing the three deals listed in its data, it has supported SolarWorld by financing a 2011 deal.

SolarWorld was not the primary supplier or exporter in this deal, making it invisible in the bank’s public data. But the bank did issue a press release in 2012 touting the deal.

Even without Ex-Im support, the three SolarWorld deals in South Korea, India, and Canada went through, raising the question of whether the bank should have approved financing at all for them.

The bank’s charter lays out several constraints on the bank, one of which is the bank may not displace financing by the private sector.

The fact that the deals involving SolarWorld went through without Ex-Im help—even though the bank had approved financing for them—suggests it is approving financing for deals that could be privately financed, said Cato Institute Trade Policy analyst Sallie James.

"This suggests to me that other deals [that could have received private financing] could have gone through the cracks," James said.

An applicant for Ex-Im financing might withdraw as a result of "the buyer getting a better price from a third country, or securing more attractive financing elsewhere, to the product economics changing," Cogan said.

While it is possible that economic conditions could change enough to make an Ex-Im offer noncompetitive, the nature of the bank’s financing means its terms are generally below the market rate, said Claude Barfield, a former consultant to the office of the U.S. Trade Representative.

Barfield also noted that it is hard to generalize from SolarWorld’s experience, as it does not have the data necessary for a comparison.

Cogan said the bank supplements the private sector by assuming the risk associated with foreign markets, which are often less developed than the American market, lowering the barriers American companies face in exporting their products and leading to more American jobs.

Cogan also said the bank takes several steps to involve the private sector in its loans: It typically sells loan guarantees, which are insurance for the private lender assuring they will be repaid, and its charter only allows it to finance up to 85 percent of the deal, mandating that private entities step in to finance the rest.

Critics of the bank remain opposed to its work.

"American taxpayers should not be serving as a backstop for loans to multi-million or multi-billion dollar companies seeking high risk loans to do business in unstable markets," said Holler.

Cato’s James conceded that foreign subsides put America in a bind. If America does not help its businesses, it puts its businesses at a competitive disadvantage, but entering the subsidization competition leads to an "arms race" of sorts.

Holler set his sights on the bank’s next reauthorization battle.

"When the bank comes up for reauthorization in 2014, it should not be extended or expanded," he wrote in an email. "Instead, Republicans in Congress would be wise to characterize the bank for what it is, a fund for corporate welfare. If the Democrats want to jeopardize taxpayer money to assist their corporate backers, so be it, but those who ran for office under the banner of conservatism should know better."