On Thursday, the Export-Import Bank of the United States (EXIM) Board of Directors voted unanimously to adopt a “narrowly-tailored content policy” specific to the agency’s new Program on China and Transformational Exports (a.k.a, the “China Program”), creating a path for U.S. exporters to access EXIM support in 10 transformational export sectors (“Transformational Exports”) deemed economically critical by the U.S. Congress.
EXIM’s previous content policy held that for all medium- and long-term transactions, support for the net contract price would be the lesser of 85 percent of the value of all eligible exports in the U.S. Export Contract, or 100 percent of the U.S. content in all eligible exports in the U.S. Export Contract. This was based on a fundamental view that the amount of U.S.-produced content in an exported good was a proxy for support for U.S. jobs: a view that some say is outdated in today’s (and tomorrow’s) rapidly evolving, technology-driven economy.
Under the new content policy, projects or procurements involving the congressionally-mandated 10 Transformational Export sectors—including 5G, renewable energy, artificial intelligence (AI), quantum computing, biotech and other emerging technologies—will qualify for EXIM financing if the proposed transaction meets a 51 percent U.S. content threshold, at which point EXIM may support up to 85 percent of the value of all eligible goods and services in the U.S. export contract.
“As we work with companies like Ericsson and Nokia and others in the content of U.S. parts that go into those components of 5G networks, now we’re able to finance that,” EXIM Chairman Kimberly Reed told the Council on Foreign Relations on Friday. “We’re not going to ‘out-China’ China. We’re going to be smart and do what we do best. We will not do a race to the bottom, but we want to be able to compete as Congress has charged us with doing.”
Speaking at Friday’s event, moderator Joyce Chang, Managing Director and Chair of Global Research at JPMorgan’s Corporate and Investment, cited JPMorgan’s own research which has found that in the context of a global value chain, U.S.-made product content (or arbitrary threshold rules for such content) isn’t the best proxy for supporting U.S. jobs. Instead, strategically targeting specific sectors with the aim of improving overall U.S. competitiveness is a better strategy, she said.
This is about 5G
At a meeting of the EXIM Advisory Committee earlier this month, EXIM’s Senior Vice President for Policy and International Relations noted that the U.S. content policy was the most restrictive of the world’s major export credit agencies. By comparison, Korea’s export credit agency KSURE has a 30 percent domestic content minimum, Germany’s Euler Hermes has a 51 percent domestic content minimum (30 percent for environmentally beneficial transactions), while Canada’s EDC can go as low as 0 percent content, based on the national benefit of the transaction.
Speaking at EXIM’s Annual Conference back in September, U.S. Representative Andy Barr said, “We know that it’s well intentioned to have a domestic content requirement, but when we’re competing in the telecommunications space, in particular 5G, we need to change that domestic content requirement because right now we cannot compete with China in 5G without partnerships. And that’s the most important thing to work in a multilateral way with our allies to displace Huawei and displace China’s malign efforts to dominate 5G that is critically important from an economic competitiveness standpoint, but also in terms of national security.”
This claim was reiterated at December’s meeting by EXIM’s Chief Banking Officer Stephen Renna, who affirmed that the greatest hurdle to U.S. manufacturers wishing to access EXIM financing for Transformational Exports was EXIM’s domestic content requirement.
Major U.S. tech sector players have been vocal in their assent. Microsoft issued a statement on EXIM’s prior content rule, stating, “EXIM’s current content policies do not offer U.S. exporters of 5G technology the necessary flexibility to compete globally on a level playing field. …EXIM’s current content policy is unsuited to supporting 5G technology exports.”
The move to downscale content requirements for Transformational Exports was roundly welcomed by companies active in the 5G space.
“An updated content policy will allow EXIM to play an important role in a whole-of-government approach to protecting not only the value created by technology companies in the United States but also in securing 5G networks, an essential platform to the next economy,” read an official statement from telecom equipment maker Nokia.
An exception to the (51 percent) rule
Additionally, under the new content rules, EXIM may approve financing for an export in one of the 10 Transformational Export sectors, even if the transaction does not meet the 51 percent threshold, if certain requirements are met.
First, the proposed export transaction must advance the comparative leadership of the United States with respect to the People’s Republic of China (PRC) in the relevant sector. Second, the U.S. exporter must provide to EXIM an actionable written plan that describes a pathway to expand meaningfully its U.S.-based jobs in the supported sector in the subsequent three-to-five years. Third, EXIM will assess if a lower percentage threshold may be justified, by applying one or more seven unique factors to the proposed transaction.
In order to support greater U.S. employment, EXIM will seek to provide more favorable terms and conditions for transactions with higher percentages of U.S. content than those with lower percentages of U.S. content. These may include adjustments to term, premia, shipping costs, commitment fees, etc. In addition, content in a proposed offering that is of Chinese origin will be presumptively ineligible for EXIM financing support.
“The unanimous action taken by EXIM’s Board of Directors is an overwhelming win for American workers, further empowering them to succeed in the face of fierce competition from entities backed by the People’s Republic of China,” Chairman Reed said in an official statement on Friday. “Congress provided EXIM with a bold and needed authority, and EXIM took an important step that will set U.S. exporters up for success and further U.S. economic and national security.”
Support for the content requirement amendment was voiced at State Department level.
“The continued expansion of companies like Huawei and ZTE, backed by the financial power of the People’s Republic of China, threatens the security and integrity of telecom networks around the world,” said Keith Krach, Undersecretary at the U.S. State Department. “EXIM…performed a great service to America’s economic and national security by modernizing its U.S. content policy. This expansion of the scope of U.S. financing available for 5G deals will help secure people’s data, companies’ intellectual property, and countries’ national security.
