Ex-Im Bank Proposes Subsidizing Foreign Competition

Senators: financing deal would damage U.S. mining industry

• August 27, 2013 4:16 pm


A proposed U.S. government loan for an Australian mining company could damage American companies and cause a price shock that would hit U.S. consumers, according to a team of Democratic senators who oppose the loan.

A May notice from the Export-Import Bank (Ex-Im), the U.S. government’s export credit agency, described plans to subsidize the purchase of Caterpillar mining equipment by Australian company Roy Hill.

The notice proposed $650 million in long-term financing for the deal.

The equipment would go to the Roy Hill iron ore mining project in the Pilbara region of Australia. According to four Democratic senators, U.S. financing for Roy Hill amounts to a taxpayer subsidy for foreign mining competitors.

The result, the senators said in a letter last month to Ex-Im Bank chairman Fred Hochberg, could be higher prices for American consumers and reduced demand for U.S. iron ore, likely leading to American job losses.

"I'm strongly opposed to any action by the Export-Import bank to finance foreign operations that would hurt Minnesota's iron ore industry," said Sen. Al Franken (D., Minn.), one of the letter’s signatories, in a statement.

U.S. iron mining takes place primarily in Minnesota and Michigan. Those states’ four Senators—Franken, Amy Klobuchar (D., Minn.), Carl Levin (D., Mich.), and Debbie Stabenow (D., Mich.)—predicted dire consequences for their states’ economies if Ex-Im approves financing for Roy Hill.

"It is estimated that, over the life of the financing, Roy Hill's output would displace nearly $600 million of U.S. iron ore exports and would cause a reduction of approximately $1.2 billion in U.S. domestic sales, for a total loss to the U.S. iron ore industry of $1.8 billion," the letter stated.

Cliffs Natural Resources, an Ohio-based iron mining company, insists that the Roy Hill deal would run counter to the bank’s statutory mission.

"The Bank’s authorizing statute permits the Bank to override a finding of substantial injury if the benefits to the U.S. exporting industry outweigh the costs to the adversely affected U.S. industry," Cliffs said in a statement detailing the economic consequences of the deal. "That is not the case with this transaction."

Cliffs said that the U.S. iron ore industry would lose export sales worth nearly $590 million as a result of the deal, more than the $522 million in domestic value-added that the deal is likely to produce.

"An American company such as Cliffs should not be forced to compete with a foreign producer that has received a subsidy from the U.S. Government," the four Senators said in their letter.

Cliffs’ political action committee has donated a combined $26,000 to the campaigns of Levin, Klobuchar, and Stabenow since 2002, according to the Center for Responsive Politics. It also gave $6,000 to Franken’s 2008 opponent, former Sen. Norm Coleman (R., Minn.).

A spokesman for the Ex-Im Bank declined to comment on the potential deal, saying it is the bank’s policy not to speak publicly about financing proposals until they have been considered by its board.

The spokesman also would not say when the board is expected to take up the Roy Hill proposal. The Duluth News Tribune reported on Monday that the board is expected to consider the proposal "in the next few weeks."

The Tribune also reported for the first time that the deal would benefit Caterpillar. The company is a frequent beneficiary of Ex-Im financing.

The bank exists to finance foreign purchases of American exports. It has come under fire in recent years from critics who say its financing deals amount to "corporate welfare."

President Barack Obama held that position during his initial run for the presidency. The bank, Obama said in 2008, is "little more than a fund for corporate welfare."

Four years later, as he vied for reelection, Obama lauded Congress’ vote to reauthorize the bank so it could "continue upon its extraordinary mission."

Caterpillar, which is the 42nd largest company in the United States with revenues of $65.9 billion, has received significant financial support from the Ex-Im Bank and enjoys a loan program devoted explicitly to its suppliers.