At WITA Event, Experts And Foreign ECA Officials Underlined Need For Ex-Im

Yesterday, the Washington International Trade Association (WITA) held an event entitled ‘Examining the Government Role in Trade Finance’ in partnership with the National Economists Club. The panel members included Gary Hufbauer of the Peterson Institute for International Economics, Matthew Ekberg of Bankers Association for Finance and Trade, Yasushi Sunouchi of Japan Bank for International Cooperation (JBIC), and Gilles Gauthier, Minister for Economic Affairs at the Embassy of Canada, who appeared on behalf of Export Development Canada, highlighted why Ex-Im must be reauthorized. According to these experts:

1. There is a funding gap in export financing that ECAs like Ex-Im must step in to fill;
2. Foreign ECA competition is steep and that ECAs help to promote global growth;
3. Foreign ECAs don’t necessarily act as a lender of last resort for countries; if Ex-Im goes away, American companies will face an uneven playing field; and
4. ECA support often means the difference between exporting and not exporting for small businesses.

ECAs Fill A $2 Trillion Gap In The Export Credit Market.

In his remarks, Matthew Ekberg, whose organization represents private banks and financial firms, explained that nearly 29 percent of export financing deals fall through, often due to new capital and liquidity ratios imposed on banks in Basel III. This creates a gap of about $1.9 trillion in financing for ECAs to pick up. Ekberg said that in many cases, small businesses are the ones benefiting from ECA financing.

Ekberg added that private banks will not be able to finance all of the deals that Ex-Im finances should the bank expire, saying that Ex-Im financing is a “necessity” for many deals and one half of an “essential partnership” with the private sector in financing exports.

Many Countries Rely On Their ECAs For Growth Far More Than The U.S.

Gary Hufbauer, an economist at the Peterson Institute for International Economics, explained that during periods of slow global economic growth, like the last eight years, ECAs are critical for countries to promote growth, both at home and abroad. Hufbauer said that because the fixed costs of international businesses are “extremely high,” the gaps that ECAs fill in trade finance markets facilitate small business exporters that otherwise would not be able to export.

Hufbauer also warned that foreign ECAs are far more aggressive than Ex-Im in their financing, characterizing China’s export credit activity as “just in a different league” compared to America’s.

Unlike Many Foreign ECAs, Ex-Im Can Only Step In When The Private Sector Cannot Finance A Deal.

While Ex-Im’s charter dictates that it can only fills gaps in private sector export financing, many other ECAs do not have such prohibitions. Yasushi Sunouchi, JBIC’s chief representative in the U.S., highlighted the guiding principles of JBIC, two of which are explicitly policy-based. JBIC’s guiding principles stand in contrast to Ex-Im’s mandated purpose of serving as a lender of last resort and leveling the playing for American exporters. JBIC’s first objective is “promoting the overseas development and securement of resources which are important for Japan” and its third is “promoting the overseas business having the purpose of preserving the global environment, such as preventing global warming.” In both of these cases, JBIC is actively engaging markets, whereas Ex-Im is only stepping in where the private sector cannot.

ECA Support Is The Difference-Maker for Small Businesses Trying To Export.

Gilles Gauthier, representing EDC, Canada’s ECA, highlighted that EDC financed about $100 billion in total exports and $14 billion in exports just from SMEs in 2014, compared to Ex-Im’s total support of only $27 billion last year. Gauthier also said that Canada is actively expanding EDC’s activities and offerings, authorizing EDC to make direct equity investments in small businesses after its decennial review in 2008.

As Congress debates whether or not to even reauthorize Ex-Im, it’s worth noting that other countries, many of them smaller in terms of both GDP and population, are actively increasing their export credit support – increasing opportunities for their small businesses to reach new markets and create jobs in their countries.