Economically insane policy to subsidize competition with American producers

Federal subsidy for Brazilian granite hurts U.S. rivals

Granite manufacturers are one of many U.S. industries struggling to compete with foreign competition -- which makes it odd that the federal government is subsidizing a Brazilian granite project.

The Overseas Private Investment Corporation (OPIC) is a federal agency that subsidizes U.S. businesses that set up operations in foreign countries. In 2012, OPIC approved a $6 million taxpayer-backed loan to support a U.S. company expanding its Brazilian operation that extracts granite and cuts it into slabs for countertops to ship to the U.S. and other countries.

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'The more you help these guys produce stuff, the more they ship here.'

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The OPIC subsidy obviously helps the recipient — Wisenbaker Building Supply — but it hurts American companies that excavate granite or shape granite blocks into countertops in the U.S.

U.S. rock quarries have pared back operations over recent decades. In Barre, Vt., jobs in the industry amount to one-third of the1960s peak, Barre Granite Association's Executive Director Ed Larson told a local newspaper last summer. “Mainly because of foreign competition," the paper said.

“Imports chip away at Vermont Granite Industry,” a Boston Globe headline declared in 2008. “The competition remains fierce overseas,” the article reported, “where quarry workers earn as little as a few dollars a week. The cost of extracting and cutting the granite is so low that even after the cost of shipping it to the United States it is cheaper than Vermont's.”

“All the pressure is foreign,” Joe Timilty of Massachusetts-based USA-Granite told me over the phone.

American companies will always complain about foreign competition, but this isn’t a matter of free trade. This is the federal government subsidizing foreign competition.

Wisenbaker is a U.S. construction company with many operations around the globe, including the granite quarry in a rural region of Brazil. The $6 million taxpayer loan was to help Wisenbaker “make investments related to granite quarries in Brazil for export of granite slabs to China and the U.S. for homebuilding industry,” as one OPIC public summary puts it.

The OPIC summary explains that the loan will subsidize excavating and finishing the slabs. As OPIC put it, “The investments will involve purchase of machinery to set up finishing line for granite slabs, completing infrastructure for block yards, purchase or lease of excavation machinery, hiring of personnel and for working capital.”

Many American companies import granite blocks and form them into countertops, and so expanding Wisenbakers’ granite-cutting operation in Brazil hurts U.S. counter-top makers.

Also, hundreds of granite quarries still operate in the U.S. This Brazilian operation is their competition, and the U.S. government is subsidizing it.

OPIC, however, conducted an economic analysis that denies this: “As the current scale of granite production in the United States is not sufficient to meet domestic demand,” the OPIC public summary document reads, “this project does not appear to have the potential for a negative impact on the United States.”

Think about the logic here: OPIC implies that increasing the supply of granite in the U.S. won’t affect the price of granite in the U.S. Give OPIC an "F" in Economics 101.

OPIC spokesman Charlie Stadtlander added that “countertop granite is not the same product as the stone quarried for building stones or headstones.” And most U.S.-quarried granite is used for monuments and buildings.

Timilty points out the flaw in this defense: The reason U.S. quarries don't bother with countertop granite is because the Brazilians are already doing it at much lower cost — with their cheaper labor and regulatory costs. Subsidizing a Brazilian quarry just exacerbates that problem. If Brazil didn’t have such a cost advantage, American quarries would be turning out countertops.

Timility put it plainly: "The more you help these guys produce stuff, the more they ship here, the less the price is, the less guys here cut stone."

So why is the federal government subsidizing the project? If you question this subsidy, you're questioning the purpose for OPIC's existence.

OPIC’s charter expires at the end of this fiscal year — Sept. 30. Some conservatives on and off Capitol Hill have called for the end of OPIC, blasting it as corporate welfare.

The House passed a foreign aid bill May 8 that would reauthorize the agency. The Senate has yet to act on the measure.

Don't you wonder how much this company donated to the Democrats?