Ex-Im Proposal Will Hurt Small Exporters

May 21, 2014

pic-ex-im-exportsOn April 23, the administration released its Export-Import Bank of the U.S. (Ex-Im) reauthorization proposal. Ex-Im is an independent federal agency that helps create and maintain U.S. jobs by filling gaps in private export financing at no cost to American taxpayers. The Bank provides a variety of financing mechanisms, including working capital financing, export-credit insurance and financial guarantees to help foreign buyers purchase U.S. goods and services. In 2012, the Bank was reauthorized for three years with a gradual increase to its borrowing limit up to $140 billion. Unless extended, its authorization will expire on Sept. 30.

NSBA and its international trade arm—the Small Business Exporters Association (SBEA)—have been long-time supporters of Ex-Im Bank, and believe it should remain a catalyst for the expansion of small-business exports while continuing to support businesses confronting aggressive foreign competition. However, SBEA and NSBA recently sent a letter to lawmakers on the Hill citing our opposition to the small-business provision located in Section 1 of the administration’s Ex-Im reauthorization proposal.

In 2002, Congress increased the proportion of financing Ex-Im must make available for small business to 20 percent. Ex-Im currently interprets the small-business financing mandate as requiring Ex-Im to ensure that 20 percent of the value of its transactions is provided directly to small business. However, the administration’s new reauthorization proposal suggests allowing the Bank to change how it reports its support for small business by including the U.S. goods and services supplied by small businesses that are included in Bank-supported exports.

More specifically, it recommends including indirect support in addition to direct support. This re-definition of Ex-Im “financing” that are indirect (i.e. via suppliers) represents a major shift in policy and was not the original intention of the mandate. Typically, these indirect small businesses serve as suppliers for U.S. exporters in larger transactions and derive business indirectly from Ex-Im’s long-term loans and guarantees.

According to our 2013 Small Business Exporting Survey, the majority of respondents (64 percent)—both exporters and non-exporters–said they sell their goods and products directly to a customer outside the U.S. Similarly, 55 percent responded they do not sell their goods and/or services to another U.S. company that then uses those products to sell/export to foreign customers. Additionally, when asked about the exporting supplier relationship, just one-third (35 percent) said they consider the exporting supplier relationship to be part of exporting.

According to the SBEA/NSBA letter, this major shift in policy will provide inflated numbers falsely indicating Ex-Im has met and/or exceeded its 20 percent goal of funding to SMEs, when in reality they have not. Not only would this reporting be intellectually dishonest, it will have the unintended consequence of Ex-Im no longer having incentive to seek new small-business customers. This will hinder SMEs ability to grow through exporting’s increased number of consumers, access to additional markets, and improved competiveness and recognition in a global market.

Although SBEA/NSBA support reauthorizing the Bank, we do not endorse Section 1 of the administration’s proposal and have encouraged lawmakers to omit it from any Congressional language going forward, as indirect suppliers should not be counted toward Ex-Im’s small-business goal.

Please click here to view the letter.

 

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