The sharp cut in funding threatening the Export-Import Bank demonstrates a misunderstanding of the bank's purpose, could cripple its operation and jeopardizes achievement of the goals of President Reagan's own economic policy.
The Office of Management and Budget argues the Exim provides a costly subsidy to a few major companies for export sales that would be made without its assistance. This is untrue. While as a practicing attorney I have an interest in Exim, I believe maintining a high level of funding is essential to maintain the competitiveness of American firms in world markets.
Exim was incorporated by Congress in 1945 as an independent government institution to encourage foreign buyers to purchase American goods. It operates as a self-sustaining institution, having more than doubled its capitalization since its organization. It has assisted more than $100 billion in U.S. exports -- $18 billion last year alone.
Exim receives no appropriated funds and does not compete for scarce budget dollars. It is annually given authority to borrow the resources needed to fulfill its commitments, normally through the Federal Financing Bank, at the price of money to the Tresury plus a fee. The bank's users pay its costs -- not the government or the taxpayers. Exim's figures in the federal budget are simply a cash-flow estimate.
It has never lost money and has returned $1 billion in dividends to the Treasury. The cost of its loans, loan guarantees and insurance programs are more than matched by loan repayments, interest on loans, insurance premiums and guarantee fees it receives from its users. This year it will generate income of about $125 million, of which $35 million is budgeted for payment to the Treasury. A Congress dedicated to reducing the deficit should not cut a program that has consistently made money, while supporting private enterprise.
A reduction in Exim financing will lead to a reduced level of export growth. Exim finances sales that almost surely would be lost without its support.
Most goods manufctured for export by American companies are competitive in world markets in terms of price and quality. But America's technology is no longer unequaled.
In the intense competition with foreign companies, the factor determining whether purchasers abroad buy American goods or those of other industrial nations is often the terms of export credit financing. Foreign governments grant extremely favorable financing terms for their exports. Without the help of Exim, a foreign buyer must choose between a purchase financed from another country at below-market interest rates or one from an American company as far higher rates -- hardly a favorable choice from America's perspective.
Organization for Economic Cooperation and Development (OECD) countries recognize the central importance of exports and the crucial nature favorable financing plays in export sales. The Government Accounting Office recently found that Exim's equivalents in countries like Japan, France and Germany cover a far greater percentage of their exports with concessionary terms and at more favorable rates than Exim even before the proposed cutbacks and concluded that Exim "will need increased flexibility and resources if it is to consistently offer competitive financing." Our trade competitors must be viewing the drastic Exim reductions with a mixture of astonishment, bemusement and glee. American companies can successfully compete in a free world market with manufacturers from other countries, but not with foreign governments providing unmatched incentives to foreign buyers for comparable products.
Exim-financed export sales in large part would not have been successfully concluded in the absence of assistance. The secretary of the Treasury reported in 1980 that more than 70 percent of the direct credit export sales financed by Exim would not have been made without such financing. The comptroller general said that where Exim participates "the assistance it provides may well be crucial in maintaining important export markets."
In most cases, the absence of Exim financing completely excludes American companies from competing with subsidized foreign manufacturers for major sales. c
Exports are essential to our economic security, and Exim is essential to many exports. Exports offset the burden of heavy foreign oil bills, help the balance of trade, strengthen the dollar and reduce inflationary pressures. Yet, Exim has been forced to stop taking new business -- an economic tragedy. y
Exim can help the administration create new jobs without rekindling inflation. One in six U.S. workers is involved in the production of goods sold abroad. Every $1 billion in exports creates up to 40,000 new jobs. In the last three years Exim has created an estimated 1 1/2 million man-years of new employment.
The cuts in Exim funding now before Congress will mean a reduction in more than $12 billion in export sales and more than 600,000 man-years of U.S. employment in the next five years.
Exim is not a subsidy to a few big U.S. companies, but assists foreign purchasers to buy U.S. goods from American businesses of all sizes at competitive terms. Exim has made commitments to more than 5,700 firms in all 50 states. While OMB may wish to demonstrate that its budget cuts require a sacrifice even from business, America's workers will actually bear the sacrifice of Exim reductions.
Even though large U.S. exporters are major Exim recipients, their export sales support literally hundreds of subcontractors and suppliers -- "invisible exporters" -- whose workers are benefited. Ultimately, export credit assistance should be ended on a multilateral basis.
Last year, negotiations between the United States and OECD nations to reduce export subsidies failed to produce an agreement. These discussions recently resumed. To reduce unilaterally our export assistance while OECD countries continue their keep subsidies leaves our negotiators with little leverage and amounts to unilateral disarmament. Until an export subsidy agreement is achieved, increased levels of Exim financing are essential to remain competitive and to support negotiatins for an unrestricted international trade market.
Exim merits bipartisan congressional support through increased funding.