Local companies worry about consequences of authority lapse in national Export-Import Bank
To Kristin Hedger, the business climate has become more uncertain.
Hedger is the vice president of business development for Killdeer Mountain Manufacturing, a Tier 1 manufacturing company with four southwest North Dakota locations.
KMM puts together electronics for the military and aerospace industry and derives a substantial amount of business from contracting with aerospace corporation Boeing.
Boeing does a lot of trade throughout the world, including developing nations where trade is sometimes deemed risky due to political and commercial unpredictability, as well as financing obstacles.
Until recently, Boeing relied heavily on the Export-Import Bank of the United States, an entity that provides financing solutions to businesses exporting to such countries.
That ended on June 30, when Congress failed to reauthorize the Ex-Im Bank and rendered it unable to process new requests. As a force in Washington builds to try to get the Ex-Im Bank authorized again as soon as possible, Boeing is in the position to consider moving some of its operations to a country where there a similar bank still functions.
All of this comes back to affect subcontractors like KMM.
“It’s important that we are able to take advantage of that,” Hedger said of the Ex-Im Bank.
The Ex-Im Bank's lapse also has the potential to impact many other small businesses in North Dakota that use it directly to trade competitively in the international market.
One of the Ex-Im Bank's main services is insuring company exports against foreign nonpayment. This can also be used to extend credit terms for international buyers who are not able to pay in a timely manner.
The Ex-Im Bank also provides loan guarantees that offer competitive financing for international buyers, giving domestic exporters a leg up in expanding business abroad.
It operates at no cost to the taxpayer, generating income from each service it provides.
However, the bank’s authority was not renewed by Congress this summer due to what some say was an effort on the part of Tea Party Republicans, who don’t support entities such as Ex-Im Bank because of their perceived government meddling in the business world.
Sen. Heidi Heitkamp, D-N.D., is one of those who have campaigned for the Ex-Im Bank to remain open for business. She echoed many others in describing its importance, calling it an “essential and almost critical tool.”
Heitkamp said the Ex-Im Bank has broad support in both legislative chambers of Congress, but that an ultra-conservative minority had sway in knocking its reauthorization off of a previous bill.
She said she and fellow lawmakers were hoping it would make it through on a long-term highway bill that is currently in the House of Representatives, but added that the recent announcement of House Speaker John Boehner’s resignation at the end of October could endanger that if the next speaker chooses not to bring the bill up for a vote.
Heitkamp said she hoped Boehner would take the bill up before he left.
“We cannot go to the end of the year without the authority of the Ex-Im Bank,” Heitkamp said.
Dean Gorder of the North Dakota Trade Office said many in politics refer to the bank as the “Boeing Bank,” in reference to the company that makes the largest transactions with it.
However, what Gorder, Heitkamp and Hedger said many people don’t understand is that
many more smaller businesses use the bank for financing, especially those that big companies such as Boeing and General Electric subcontract for components.
Curt Hanson, a principal of the private Minnesota-based Trade Acceptance Group Ltd., said subcontractors often turn to the Ex-Im Bank to meet the demands of those they do business with.
As Hanson explained, larger companies task subcontractor businesses with producing a number of products that call for more capital than they have on hand.
Since exporting the final large-scale product to questionable territory can be risky credit-wise, he said private banks don’t normally lend the upfront capital needed to make the components out of fear that the money won’t trickle back to the smaller businesses in order to pay back the loans in a timely fashion, if at all.
However, if the Ex-Im Bank insures against the subcontractor businesses not getting paid, Hanson said conditions become much more favorable for private banks to lend the capital needed.
Gorder agreed with Hanson.
“When you look at the majority of transactions, then by far the majority of transactions are small and medium size,” Gorder said.
The lapse in authority of the Ex-Im Bank has already produced visible effects. GE announced recently that it would move a gas engine manufacturing operation from Wisconsin to Canada in order to access its export credit agency. Gorder said it also struck a financing deal in the United Kingdom for the same reason, potentially creating 1,000 jobs there.
A number of businesses in North Dakota use the Ex-Im Bank to facilitate international trade, not all of which are manufacturing-based.
Justin Flaten is the president of JM Grain in Garrison, one of a few agricultural businesses in the state that uses the Ex-Im Bank to help compete in the international commodity market. He said his company benefited a great deal from it.
“It’s definitely a key tool that allows us to do exports,” he said.
Flaten said the company uses the Ex-Im Bank credit insurance programs and receivables finance as a way of effectively trading with foreign buyers and being competitive among international agricultural companies.
“It really helps us get into Tier 1 buyers overseas,” he said.
Now that the Ex-Im Bank is unauthorized, Flaten said his company is “a little more conservative in going after business.”
He said they could look at selling their product at trading houses, but he added that it’s not the same as being able to go straight to the manufacturer with Ex-Im.
As long as the Ex-Im Bank is off the table, Gorder said those smaller businesses that have used it to compete in the international market will experience negative effects.
“The big companies have more resources at their disposal, but it’s the small companies that are baking the brunt of it,” he said.
Hanson, Hedger and Heitkamp explained that many other countries have similar institutions that support businesses that export products to territory deemed economically risky. Without the Ex-Im Bank, they said businesses in the U.S. are no longer on a level playing field with others that still have the ability to procure credit for international trades.
“If you can’t do that here, you’re at a competitive disadvantage,” Hanson said.
There are private financial institutions, such as Hanson’s, that do the same thing as the Ex-Im Bank in providing insurance for overseas trade. But Hanson said firms like his tend to work with many millions of dollars worth of transactions, for which he said they charge an upfront premium “from $10,000 to $100,000” that smaller businesses don’t have the ability to set down.
Contrarily, “the Ex-Im Bank policies have no minimum premium on them,” Hanson said. This makes it more accessible for smaller businesses to utilize.
“You’re really restricted to working with Ex-Im Bank,” Hanson said.
Flaten said he hoped efforts in Congress would get the Ex-Im Bank up and running soon.
“We’ve got a good tool that’s taken away,” he said.