The Export-Import Bank of the United States (Ex-Im) says that its mission is to enable "U.S. companies—large and small—to turn export opportunities into real sales that help to maintain and create U.S. jobs and contribute to a stronger national economy." By assuming risks that traditional creditors are unwilling to take, Ex-Im helps finance U.S. exports by filling gaps in trade financing, thereby leveling "the playing field for U.S. exporters by matching the financing that other governments provide to their exporters." Subsidyscope's analysis shows that a significant portion of the subsidies Ex-Im provides to U.S. companies benefits a single corporate entity: the Boeing Company—the world's largest manufacturer of commercial jetliners and military aircraft combined.
Through the provision of loans, loan guarantees and insurance, Ex-Im helps U.S. businesses secure foreign sales through short-term, medium-term and long-term transactions. In fiscal year 2008, Ex-Im authorized $356 million in direct loans, $10.2 billion in loan guarantees and $3.9 billion of insurance. Ex-Im reports that by dollar value, about 22 percent of its loans, guarantees and credit insurance went toward assisting small businesses in fiscal year 2008 and 27 percent in fiscal year 2007. By number of transactions, about 86 percent of its financing was directed toward support for small business exporters for the two fiscal years combined.
However, Ex-Im's largest financial commitments are in long-term loan guarantees, the category in which Boeing benefits most. In fiscal years 2007 and 2008 combined, Ex-Im issued $15.3 billion in long-term loan guarantees. Of that total, almost $10 billion, or 65 percent, went toward the purchase of commercial aircraft made by Boeing. In fiscal year 2008 alone, Ex-Im issued long-term guarantees on $8.1 billion in loans made by banks in 23 countries. Nearly $5.5 billion—67 percent—of that total supported the sale of Boeing airplanes in nations such as Brazil, Canada, Ireland and the United Arab Emirates. Those four countries accounted for the largest dollar values of Ex-Im supported Boeing sales.Total Guarantees: $15.3 billion Total Guarantees: $15.3 billion
In fiscal year 2007, loans for Boeing aircraft accounted for $4.5 billion, or 62 percent, of $7.2 billion in long-term guarantees. For the first 8 ½ months of fiscal year 2009, the bank issued just under $3.5 billion in long-term guarantees. Slightly more than a third of this amount—$1.3 billion—went to support the purchase of Boeing airplanes.
Other beneficiaries of Ex-Im's long-term guarantees in fiscal years 2007 and 2008 include the Bechtel Corporation, a large engineering firm, which accounted for about 6 percent of the value of such guarantees during the period, followed by Applied Materials Inc., a capital equipment producer for the semiconductor and solar industries, which accounted for 4 percent. Chevron Phillips Chemical Company LLP and other U.S. suppliers working on a petrochemical plant in Saudi Arabia also accounted for 4 percent. Products and services from companies such as AGI Industries, General Electric and Deere & Co. made up the remaining 21 percent.
Examining the products and services that were subsidized, Ex-Im data for the two fiscal years show that exports of aircraft (made by Boeing and other suppliers) accounted for 66 percent of the value of the guarantees; oil, gas and petrochemical equipment accounted for 21 percent, and silicon wafer fabrication machinery for a plant in Singapore, 4 percent. Items such as power plant equipment and services, fire trucks and construction equipment and services made up the remaining 9 percent.
Boeing maintains that the support it receives through U.S. government-backed loans and loan guarantees is essential to its ability to maintain a competitive edge. In a statement to Subsidyscope, Boeing said, "[t]he U.S. aerospace industry repeatedly demonstrates its ability to compete in the global marketplace. But as evidenced by the current global economic turmoil, financing markets are very volatile, and the commercial markets' support for export financing can be unpredictable and inconsistent. To be able to compete under such market conditions, aerospace exporting success hinges on the continuity of crucial export credit financing that Ex-Im and other national export credit agencies provide during market ebbs and flows." In Boeing's 2008 Form 10-K, submitted to the Securities and Exchange Commission, it notes that sales to foreign customers accounted for about 40 percent of the company's revenues in 2008.
The Ex-Im Bank is not the only entity that subsidizes exports; other U.S. federal agencies and state governments, as well as foreign export credit agencies (ECAs) and governments also offer export assistance. On September 4, 2009, a panel of the World Trade Organization—an international body governing trade between nations—issued a preliminary ruling in a dispute between the United States and the European Union (EU) involving Boeing's main rival, Airbus. Acting on a complaint brought by the U.S. trade representative in October 2004, the panel held that European nations had illegally subsidized Airbus, which is headquartered in France. Still unresolved is an EU complaint alleging that Chicago-based Boeing had received illegal subsidies from several U.S. agencies, including the Department of Defense and NASA, and the states of Washington, Kansas and Illinois. A ruling in that case is expected in 2010.
Despite these legal challenges, the U.S. and EU have remained in agreement on the use of export credits, like Ex-Im loan guarantees, for large commercial aircraft; as a result, the EU did not reference Ex-Im in its complaint against Boeing. In its statement to Subsidyscope, Boeing noted that Ex-Im is among "numerous [ECAs] operated by industrialized nations on behalf of their exporters" and said that Airbus benefits from ECAs in France, England and Germany.
While many industrialized nations use export subsidies to boost their domestic exports and remain competitive internationally, a recent report by the Congressional Research Service notes that some Ex-Im critics "doubt that a nation can improve its welfare or level of employment over the long run by subsidizing exports." These critics maintain that such activity "merely shifts production among sectors within the economy, but does not add to the overall level of economic activity, and subsidizes foreign consumption at the expense of the domestic economy," according to the report.
Ex-Im no longer receives direct appropriations from Congress. Its revenue comes from fees it charges when it makes loans or guarantees and from insurance premiums. (Insurance is provided mainly to small businesses for short-term transactions.) At the beginning of each fiscal year, the Treasury Department issues interest-free warrants allowing the bank to draw funds. Ex-Im repays Treasury as the fees and premiums come in; in 2009, repayment was completed by March, halfway through the fiscal year.
By guaranteeing a loan, Ex-Im agrees to pay a claim if there is a default. Since 1992, the default rate for all Ex-Im programs has been 1.03 percent. There have been four defaults on Ex-Im guaranteed loans for Boeing planes since March 1999. Bank officials say that Ex-Im paid $565.8 million in claims as a result of those defaults, but had recovered from the same transactions, as of September 30, 2009, $604 million as a result of interest paid by borrowers.
According to the Federal Credit Supplement, published by the Office of Management and Budget, subsidy rates for Ex-Im guarantees and insurance in fiscal year 2008 were either quite low (1.41 percent for the riskiest transactions) or negative (-2.46 percent for safer ones). Ex-Im assigns risk ratings to each of its transactions based on a number of factors, including but not limited to the financial condition of the borrower, the industry in which the borrower competes, the country in which the project is located and the financial structure of the transaction.
With an annual budget of $200 million, and making up less than 1 percent of U.S. exports annually, Ex-Im is not a significant international trade actor. Further, the costs of providing support to Ex-Im beneficiaries do not negatively affect the budget deficit like many other federal subsidies. However, the implicit backing of the U.S. government through Ex-Im loan guarantees and other financing illustrates one of the many ways government provides a subsidy by shaping market outcomes and by potentially helping decide which companies survive in a tough economy.