American manufacturers applauded President Barack Obama’s plan to compensate them with credit to offset the unfair financing given to competitors by their governments while one critic labeled it “corporate welfare.”
Obama today unveiled a plan for the Export-Import Bank to help combat foreign competitors’ sources of official funding, as well as a program to ease access to credit for small-business exporters. The announcement was made at a Boeing Co. (BA) factory in Everett, Washington, where eight out of every 10 planes go to foreign airlines.
“I will not stand by when our competitors don’t play by the rules,” Obama said.
The administration will use existing authority within the bank’s charter to provide financing options for the first time for U.S. firms competing for domestic sales with foreign rivals whose countries have offered financial backing, Fred Hochberg, the bank’s chairman, said in an interview in Seattle. Previously, the institution had only offered financing for sales outside the U.S.
‘Level Playing Field’
“The principle is we need a level playing field,” Hochberg said.
The duopoly in jetliner production shared by Boeing and its larger European rival, Airbus SAS, is being challenged by new competitors. Canada’s Bombardier Inc. and China’s Comac are developing new single-aisle planes set to enter service this decade that will compete with Boeing 737 and the Airbus A320, the workhorses of the airline industry.
U.S. exporters, including Boeing and Caterpillar Inc. (CAT), have been pushing for reauthorization and expansion of the lending ceiling of the bank, which is nearing its limit. The companies last week lobbied more than 100 lawmakers to push for raising the lending limit 40 percent to $140 billion. They say failure to act will cost jobs.
“This obviously broadens the number of transactions we will consider, so yes, it certainly might require us having greater capacity” than what’s already been requested, Hochberg said.
Jay Timmons, the chief executive officer of the National Association of Manufacturers, said Obama’s plan could help companies reach the president’s goal of doubling exports.
The Club for Growth disagreed, saying it will “distort trade” and provide handouts to big business. Obama should instead lower tariffs and reform corporate taxes to make U.S. producers more competitive, the group said in statement. The Export-Import Bank has too much power selecting winners and losers in the private sector, the group said.
“It is nothing more than a corporate welfare slush fund for companies with the best lobbyists, and Boeing has led the pack,” Chris Chocola, president of the group, said in the statement.
Hochberg countered that the bank’s Transport Finance unit, which includes Boeing planes as well as business jets and helicopters built by other companies, makes up just 40 percent of the annual authorization amount.
In his State of the Union speech, Obama called for a program to provide credit to companies competing against foreign counterparts that benefit from preferential credit from their governments.
“We’re always encouraged about efforts to support U.S. competitiveness, but we need to understand more about how it would apply in our circumstances,” John Kvasnosky, a spokesman for Boeing Capital Corp., said in an interview at the Boeing factory before Obama spoke.
Boeing currently can offer guarantees for bank debt or commercial debt by the U.S. Export-Import Bank for airlines struggling to find financing.
Regulations restrict where governments can offer guarantees. For two decades, the U.S. and Europe have maintained an informal agreement that bars countries where Boeing and Airbus planes are built from providing guarantees to local carriers. To prevent unfair competition, guarantees also cannot be offered in the market of the rival manufacturer.
The bank, which is self-sustaining, provides financing to U.S. exporters through loans, loan guarantees and payment insurance. It has committed about $90 billion and will probably reach its $100 billion limit by the end of next month, according to the White House.
The Export-Import Bank authorized $32.7 billion in guarantees in the year that ended in September. The lending serves as a part of Obama’s effort to double U.S. exports to $3.14 trillion.
The Senate Banking Committee in September backed the 40 percent increase in Ex-Im bank lending limit. A House Financial Services Committee panel in June approved a measure to increase the cap over three years to $160 billion. The full House and Senate haven’t taken up the legislation.
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