–Freedom Partners Chamber of Commerce, radio ad, April 1, 2015
Opponents of the Export-Import Bank have begun rolling out mailers, phone calls and ads against the federal agency that is now facing its fate. This particular claim is a common one among critics.
The charter for the bank, which underwrites loans for overseas companies that buy American products, expires June 30 after Congress temporarily extended it. The debate over whether Congress should kill the agency is now heating up, and we are looking into claims made on both sides. We dug into a claim made by supporters of the bank, and are now examining a claim from opponents. We will be following this debate, and we welcome reader suggestions.
This ad was funded by Freedom Partners Chamber of Commerce, the main financial arm of the Koch Brothers-backed political network Americans for Prosperity. Both Freedom Partners and Americans for Prosperity have launched campaigns against reauthorizing the Export-Import Bank.
Is it correct that the Export-Import Bank provides unfair competition to foreign corporations?
There are 178 countries where the Export-Import Bank authorized a transaction in fiscal 2014. China, Russia and Saudi Arabia, indeed, received billions of dollars in authorizations (loans, guarantees and insurance) to buy American goods. Russia received nearly $1.5 billion, China received $4.5 billion and Saudi Arabia received nearly $6.9 billion. But many other countries that are democracies, or that do not have notable records of violating human rights, also have received billions. This includes Australia, the Netherlands, India and South Korea.
The bank’s supporters point out that in other countries, there already are export credit agencies that provide the same export financing. The Export-Import Bank fills that gap in the United States.
Freedom Partners pointed us to concerns raised by the airline industry, which has some of the most outspoken critics. Boeing is the biggest beneficiary of the bank, and some U.S. airlines and the Air Line Pilots Association International have said foreign customers of Boeing aircraft are gaining an unfair advantage. The bank’s financing support for Boeing jet exports has increased since 2004, and Boeing represented about 28 percent of the agency’s total financial exposure as of March 31, 2014, according to the Government Accountability Office.
That means the bank is subsidizing foreign companies to buy newer aircraft more cheaply than U.S. competitors, according to the airlines. Delta has estimated that the bank has cost the U.S. airline industry up to 7,500 jobs and $684 million each year.
Freedom Partners also pointed to a news release by Minnesota and Michigan lawmakers over a $694 million loan to an Australian iron ore mine. It would threaten U.S. iron ore production, they said. But it’s important to note that one of the two American companies that profited from the deal was Caterpillar, one of the major beneficiaries of the Export-Import Bank.
They also provided research by the libertarian Cato Institute, which found that for nearly every financial authorization that helps a single U.S. company, there is at least one U.S. industry that is harmed from diverted supplies, shifting market power and decreased cost of capital for their foreign competitors. The report did not specify countries that received specific loans, but did note the adverse impact on the United States due to export restrictions in China. But this is not a direct result of Export-Import Bank loans.
The bank is required to screen every transaction for negative economic impacts to the United States, under its charter. Congress has required the bank to use an internal “economic impact procedure,” and to work with other export credit agencies to minimize competition.
A coalition of U.S. airlines, led by Delta, filed lawsuits dating to 2011 against the bank, saying it violated its charter and that foreign airlines were getting an unfair advantage.
On March 30, 2015, a federal judge in Washington dismissed the lawsuit. The details are very technical, but the main takeaway is this: The judge rejected the airlines’ arguments. He concluded that a single loan or minimal savings would not create such disadvantage, especially regarding the specific loan guarantee to Air India for the purchase of Boeing aircraft (the deal over which Delta filed suit). The judge found the bank did not violate its charter, and that it did not act arbitrarily or capriciously.
The judge criticized Congress for giving “sparse guidelines” to the bank when requiring it to “take into account” the factors of a potential transaction that would harm the United States. The current method the bank uses has been a framework for determining this since 1979.
The judge said: “During this period, [since 1979] the Bank accumulated decades of expertise regarding the airline sector and other industries, and critically, the Bank has long used that expertise to develop various procedural filters, including the exportable goods screen, that block from further in-depth analysis categories of transactions that the Bank, in its considered judgment, deems to be unlikely to produce a substantial adverse impact on domestic industry and employment.”
Plus, the agency is required to designate “sensitive” commercial sectors and products, and report it to Congress. This means there are certain industries where providing an export loan would significantly harm the U.S. economy. There is only one sector (steel industry) and one product (DRAM semi-conductors) on this list.
The bank’s opponents have said these measures are unreliable because they are done internally, and there is a conflict of interest. But we should note that this is a requirement set by Congress.
Critics like Freedom Partners still have an issue with any taxpayer-funded agency giving any subsidy to a foreign company.
Andy Koenig, Freedom Partners senior policy adviser, said: “When Ex-Im sends billions of dollars to foreign corporations to subsidize some of the world’s largest companies, that gives them an unfair competitive advantage on everyone else. We oppose any kind of taxpayer subsidy that gives one business or industry an upper-hand over another.”
The Pinocchio Test
If one were to listen to this radio ad, it would be jaw-dropping that the United States is giving billions of dollars to countries like Russia, China and Saudi Arabia at the expense of American workers. But once you dig into the facts, this claim is questionable. First, the examples that Freedom Partners sent us to show unfair advantage were not all in those countries. The Delta suit was over loan guarantees to Air India, and the mining equipment loan went to an Australian company. But we found insufficient evidence that Russia, China and Saudi Arabia are gaining any more advantage than other, democratic countries.
There are inherent risks with providing a loan to a foreign company — but the point is to weigh those risks with the long-term gain. The federal judge’s dismissal of the long-standing lawsuit by Delta and other parties is quite telling. It makes us question how much of the impact reported by airlines, and other industries, carry weight, especially given that the airlines have been the most outspoken critics of the disadvantage.
There are systems in place for the bank to try to minimize economic harm. In the specific – and only case – that a federal judge weighed in on, the systems were working. They’re not perfect, as the judge noted, and Congress must bear the blame for any ambiguities or any conflicts of interest that may arise as a result of the laws that lawmakers wrote.
We wavered between Two and Three Pinocchios. But we hold attack ads to a higher standard, especially if aired on the radio, where the listener is more susceptible to spin and the wording chosen for the ad. That tipped us to Three Pinocchios.
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