Sun, Sep 01, 2002 page12

• Export-Import Bank: A guardian of jobs or a `reverse Robin Hood'

  The bank faces a growing chorus of critics who say the institution has become a tool for an elite group of politically well-connected corporations to get sweetheart deals

  • By Leslie Wayne / NY TIMES NEWS SERVICE
  • • 
    • 
    • 

  It is hard to imagine why Thaksin Shinawatra, a billionaire who is Thailand's prime minister, would need a helping hand from the US government for his family business, an Asian telecommunications giant called the Shin Corp.

  The Shin business empire, which Shinawatra founded and is still majority owned by his family, spreads from India to Indochina. It is Thailand's largest telecommunications company. But last May, to the consternation of competitors, Shin Satellite, a subsidiary, won a US$160 million loan guarantee from the Export-Import Bank of the US to buy a new telecommunications satellite and strengthen its grip in Southeast Asia.

  For the bank, a Depression-era agency founded to promote exports, the rationale was simple. Loral Space and Communications, an American manufacturer run by Bernard Schwartz, a longtime Democratic Party donor, was Shin's supplier, and commercial banks, according to the bank, would not finance the deal without the loan guarantee.

  

  The Export-Import bank, for decades attacked as an example of corporate welfare, but with a razor-sharp lobbying campaign, was criticized for backing an US$18 million loan to the Benxi Iron and Steel Group in China, a mill of which is shown above.

  PHOTO: NY TIMES

  Crying foul, Shin Satellite's competitors tried to block the deal in Congress. "How is it that billionaires like Shinawatra and Bernie Schwartz can get the US taxpayers to subsidize their deals?" asked Franklin Polk, a lobbyist for New Skies Satellites, a rival based in the Netherlands that, like other companies, was able to get private financing, but not at rates as low as Shin's government-backed loans.

  How indeed?

  At a time when the George W. Bush administration says it wants to cut back on corporate welfare, the Export-Import bank, often called a "reverse Robin Hood" for taking money from American taxpayers and giving it to wealthy corporations, is growing. In June, while the public was focused on corporate scandals, President Bush quietly signed legislation to double the scope of the bank's operations and allow it to provide up to US$100 billion in international trade assistance at any one time.

  Even before this increase, Export-Import was already by far the largest federal agency providing international credit aid, outpacing international food and disaster aid programs. The bank has long expanded beyond its initial mission of aiding American exporters when times were tough. And a growing chorus of critics -- from free traders on the right to trade unionists on the left -- say the bank has become a tool for an elite group of politically well-connected corporations to get sweetheart deals and cheap financing courtesy of American taxpayers.

  Poster boy

  "We already regard Ex-Im as the poster boy for the anti-corporate-welfare movement," said Stephen Moore, an analyst at the Cato Institute, a Washington research group that promotes free trade. "It's a huge amount of money that goes to the wealthiest corporations. There is no rationale for the government to be involved in this."

  In fact, Export-Import policies in recent years have had the perverse effect of sending American jobs, rather than goods and services, overseas. There was, for example, the case of a Chinese steel mill, the Benxi Iron and Steel Group, that received an US$18 million Export-Import backed loan in December 2000 to buy American-made equipment only to be found a year later to be dumping steel into American markets and slapped with a 90 percent antidumping tariff. In that year, steel companies in the US laid off 30,000 workers and more than 20 of the companies filed for bankruptcy.

  More fundamentally, there are questions about why the bank exists at all. Fewer than 1 percent of all American exports receive Export-Import financing, which comes in the form of direct loans, loan guarantees or export credit insurance. The bulk of Export-Import's benefits go to a small number of large companies that are sophisticated enough to get financing on their own: Boeing, Halliburton, General Electric, Northrop Grumman, Lucent Technologies, ChevronTexaco, Caterpillar and Dell Computer, among others.

  "This is naked corporate welfare," said Representative Ron Paul of Texas, one of a handful of congressional critics. "It never ceases to amaze me how members of Congress who criticize welfare for the poor on moral and constitutional grounds see no problem with the even more objectionable programs that provide welfare for the rich."

  But there is a clear reason the bank thrives, no matter who occupies the White House or the top jobs in Congress. While the bank cannot lobby for itself, its beneficiaries can.

  "You have an incredibly well-funded lobbying operation led by companies that are not only campaign contributors but also talk about creating jobs," said Thomas Schatz, president of Citizens Against Government Waste, a public interest group. "That's a big rallying cry for members of Congress. They think that jobs will help them get re-elected, and once you say that jobs are at risk in their district, they go running for cover."

  Enron a benefactor

  Money has always flowed from the bank to the politically savvy. In its heyday, Enron was one of the bank's biggest beneficiaries, receiving a total of US$675 million in aid since 1994. Enron's former chairman, Kenneth Lay, was one of the bank's most active supporters, buttonholing politicians on all levels of government on its behalf, including Bush when he was governor of Texas, according to memos and letters in the Texas State Library and Archives Commission. (The Justice Department is investigating Enron's dealings with all federal agencies, including the Export-Import bank.)

  These days, blue-chip companies have even formed a trade association, the Coalition for Employment Through Exports, whose sole job is to protect the bank from budget cutters. Members include Washington lobbying powerhouses like the US Chamber of Commerce, the National Association of Manufacturers and companies like United Parcel Service, Verizon Communications, United Technologies, Bechtel, Oracle, Citigroup and Bank of America.

  "We have a highly organized set of trade associations and, through them, a large number of companies that depend on Ex-Im," said Edmund Rice, president of the coalition. "We use the resources of our members to help make our case and apply that clout to the administration and members of Congress."

  Not only are these companies major campaign contributors to members of Congress, they often are leading employers in many congressional districts, not shy about dispatching top executives or plant managers to plead the bank's case on Capitol Hill. Export-Import works hand-in-glove with these lobbyists, giving them the ammunition they need.

  The bank keeps an extensive data bank that breaks down all the deals it has done, congressional district by congressional district, subcontractor by subcontractor, and contains the names of 300,000 executives with whom it has met. From it, a lobbyist can get tailor-made information on Export-Import activities going back five years to make the bank's case.

  "In administration after administration, Export-Import was always on the top of the list to get cut," said Moore at the Cato Institute. But he added that such efforts "have never succeeded because of the full-court lobbying blitz by Fortune 500 companies."

  "We've never succeeded in pulling the plug on it," he said.

  Rather, the bank is so flush that it has begun to spend some of its vast resources on industries that may not appear to need help.

  For instance, the bank recently started a program to support one of the nation's strongest exporters, the film industry. Among the first four independent films to receive Export-Import loan guarantees is a story of troubled youth called The United States of Leland, produced by and starring Kevin Spacey, the Oscar-winning actor. Other films with Export-Import backing are about a lethal virus, a military project gone awry and a reality show.

  A bank news release says the film project is to "promote more US-based film production and preserve entertainment jobs in the United States." That said, only 51 percent of the film's budget needs to be spent on American goods and services, which can include the salaries of American stars. Nor is there a requirement that the films be shot in the US, although these four will be.

  "I've never met a government agency so willing to be helpful," said Lewis Horwitz, a financial backer of independent films who is getting Export-Import aid for four films.

  The bank's own experience, surviving so many attempts on its life, could make a movie script.

  When Bush took office, his administration called for a 25 percent cut in the bank's budget as part of an effort "to reduce subsidies that primarily benefit corporations rather than individuals," according to a White House statement on the 2002 budget. But Bush has now endorsed a five-year expansion plan that will increase the total value of the loans the bank can guarantee to US$100 billion from the US$56 billion currently outstanding.

  Congressional support

  The increase breezed through Congress. When the Bush administration first tried to cut the program, 31 senators, including top Republicans, sent a letter to the president opposing his action. The legislation to expand Export-Import's reach passed the House, on a vote of 344-78, and was approved by unanimous consent in the Senate.

  "We said to Congress, `This is what we need,'" said Eduardo Aguirre, a former Bank of America executive in Texas and the bank's vice chairman. "And they said `okay.'"

  Facing political reality, Bush has joined the chorus singing the bank's praises. An administration spokesman said a new policy, allowing the bank to guarantee more loans against fewer reserves, and thus requiring less government money while increasing risk, had earned it points in the White House.

  During a meeting in May with President Vladimir Putin of Russia, Bush actually promoted the bank as the way to finance a US$2.9 billion Caspian Sea pipeline that the two leaders favor. While nothing official has been announced, the companies involved in this project are BP, ExxonMobil and ChevronTexaco.

  Commercial banks, meanwhile, love Export-Import loan guarantees because they turn corporate loans for business in risky places into risk-free loans. If a corporate borrower halts payments on an Export-Import backed loan, the federal government must step in and pay it off. The bank claims a default rate of less than 2 percent.

  American exporters love it even more. With an Export-Import loan guarantee, they can borrow money from banks at lower rates and more favorable terms than usual. And if they get into a jam overseas, the Export-Import bank can be a powerful ally. "You've got the full weight of our US embassy, our ambassador, the Treasury Department here and overseas, the State Department, all coming in," said Rice at the export coalition. On the other hand, small businesses, which often need the help more than large companies, get short shrift from the bank, despite congressional pressure to change that practice. Only 18 percent of the bank's financing last year went to small business, down from 21 percent in 1998.

  Moreover, in its eagerness, the Export-Import bank rarely if ever analyzes the larger economic impact of its programs, and its executives acknowledge that they cannot determine exactly how many jobs -- if any -- have been created or saved by its financing. Last week, environmental groups sued the bank, seeking to force it to consider potential global-warming effects of projects it backs.

  Yet Export-Import officials, having heard it all before, bat it away.

  "People who say it's corporate welfare do not understand Ex-Im," Aguirre said. "Our mission is jobs. Jobs to support exports. Well-paying jobs. What they say is corporate welfare I say is sustaining jobs. We are here to finance exports that would not take place without Ex-Im financing. Tell that to the people who would not have jobs without us."

  By far the biggest user of the bank's financing is Boeing, which last year received US$2.5 billion in loan guarantees, more than one-quarter of the bank's US$9.2 billion in transaction volume. This aid helped win aircraft sales for Boeing to China, Austria, Ireland, South Korea, Turkey and Chile that otherwise might have gone to rival Airbus. Some even call the bank "the Bank of Boeing."

  Cheryl Russell, director for federal affairs at Boeing, said: "These deals might not have gone forward without Ex-Im. We are the largest exporter of manufactured goods in the US, so it is logical that we are the No. 1 user of the bank. Our overseas sales are growing at a much faster rate than our US sales. That makes Ex-Im even more important to us in the future."

  Some Boeing workers have a different view.

  Workers at the company's plant in Wichita, Kansas, fume about the seepage of their jobs, particularly work involving tail sections, to manufacturers in China under deals backed by the Export-Import Bank. In the last two years, the bank has provided US$791.5 million in aid to help Boeing sell planes to Chinese airlines in deals that often require some parts of the planes to be built in China.

  "Why in the world would you permit the use of taxpayer money to finance deals that drain our national industrial and skill base?" said Matt Bates, a spokesman for the International Association of Machinists and Aerospace Workers, which represents Boeing workers.

  "There were huge scandals in this country 25 years ago when aircraft executives were found to be sealing deals by handing over briefcases of money," he added. "That's been outlawed. Yet it is perfectly legal for companies to seal aircraft deals by agreeing to transfer tens of thousands of highly skilled jobs to other countries with taxpayer money."

  Boeing says such offshore manufacturing arrangements are an inevitable cost of doing business.

  "As with most large international companies with extensive overseas sales, foreign buyers expect to have a certain amount of manufacturing work that accompanies the sale," Russell said.

  Perhaps no recent single transaction causes as much furor as the US$18 million China steel deal. The bank provided the loan guarantees over vigorous protests from the steel industry and unions.

  "Why are they pouring money into other countries to build additional steel capacity?" asked George Becker, a former president of the United Steelworkers of America, who has testified about the bank before Congress. "This isn't trade. It's dismantling our manufacturing base and robbing our workers of their right to earn a living."

  Terrence Straub, a lobbyist for US Steel and a member of the Export-Import bank advisory board, said: "The China steel deal really reflected an arrogance by the lending officials at Ex-Im. All the red flags were there, and they were waved vigorously. The deal did not make sense."

  Legislation prompted

  That aid package prompted insertion of a provision in the Export-Import bill signed by Bush to prevent similar deals from happening again and led to legislation that cut US$18 million from Export-Import budget.

  But the same issue has come up again. In August, after protests from the Ohio and Pennsylvania congressional delegations and the steel industry, the bank announced that it was dropping plans to provide US$19 million in loan guarantees for a Turkish steel company to buy US-made equipment.

  "We pounded on this one like hell," said Gary Hubbard, a spokesman for the United Steelworkers of America.

  Still, the bank is considering a US$35 million financing to a Mexican company for the purchase of US-made equipment that would increase its automotive crankshaft production by 700,000 units a year; the crankshafts would then be exported to the US, where American auto workers do the same job, but for higher wages.

  The bank is also deciding on a US$14 million loan guarantee to a US company, which it would not identify, so that a Mexican company, which it also would not identify, can increase output of aluminum engine blocks by 550,000 units a year -- with the output to be shipped to the US. Bank officials declined to say whether these projects would cause a loss in American automaking jobs.

  "Is this the best way to create US jobs?" asked Representative Bernard Sanders, the Vermont independent and one of the few congressional critics. "Absolutely not. Export-Import is generous with taxpayer dollars and we get nothing in return. It's vulgar. At a time when we are having a real crisis in this country and are losing jobs, Ex-Im is sending them overseas. Yet these are the most important corporations in the US, and they get what they want in Washington."

  In the debate over the recent Export-Import legislation, an attempt by Sanders and Paul to deny aid to American companies shifting jobs overseas failed on a vote of 283-135.

  It's no accident that the votes are so lopsided.

  "As a staff member for a congressman, you can call up Ex-Im and say, `My congressman represents District 13 in the state of whatever,'" said a Treasury official. "They will spit out a report saying, `Here are the businesses by name in your district that receive Ex-Im help.' The bank is politically savvy. It's active in promoting its products in each congressional district."

  The bank also knows how to make individual legislators look good before voters. One of its biggest outreach efforts is seminars throughout the country, about one a week, that bring together local executives and Export-Import officials to promote its programs. Whom does it also invite, to show voters the benefits that Washington brings to Main Street? Each district's local congressional delegation, which can take credit for what Export-Import has done.
• Most Popular

  • 1

    Chinese carrier group entered Japanese waters

  • 2

    Magnitude 6.4 earthquake hits Hualien County

  • 3

    Taiwan in Time: Snapshots of early Japanese-era Taipei

  • 4

    Think tank hosts war games in Taipei

  • 5

    Students rescued from Cambodia