[Federal Register Volume 59, Number 201 (Wednesday, October 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25849]
[[Page Unknown]]
[Federal Register: October 19, 1994]
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Part II
Department of Agriculture
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Commodity Credit Corporation
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7 CFR Part 1493
Export Credit Guarantee Program and the Intermediate Export Credit
Guarantee Program; Final Rule
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DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
7 CFR Part 1493
[RIN 0551-AA30]
CCC Export Credit Guarantee Program (GSM-102) and CCC
Intermediate Export Credit Guarantee Program (GSM-103)
AGENCY: Commodity Credit Corporation, USDA.
ACTION: Final rule.
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SUMMARY: The Commodity Credit Corporation (CCC) is issuing this final
rule which revises the regulations for the Export Credit Guarantee
Program (GSM-102) and the Intermediate Export Credit Guarantee Program
(GSM-103). In addition to making changes intended to improve and update
the current regulations, this final rule also incorporates material
required by the Agricultural Trade Act of 1978, as amended by Section
1531 of the Food, Agriculture, Conservation, and Trade Act of 1990 (the
1990 Act).
EFFECTIVE DATE: The provisions of this final rule are effective
November 18, 1994.
FOR FURTHER INFORMATION CONTACT: L.T. McElvain, Director, CCC
Operations Division, USDA, FAS, Ag Box 1035, Washington, DC., 20250-
1035, telephone (202) 720-6211.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule is issued in conformance with Executive Order 12866
and has been determined to be ``not significant'' as a regulatory
action. For this action, the Office of Management and Budget has waived
its review process in accordance with Executive Order 12866.
Regulatory Flexibility Act
It has been determined that the Regulatory Flexibility Act is not
applicable to this final rule since CCC is not required by 5 U.S.C. 553
or any other provision of law to publish a notice of rulemaking with
respect to the subject matter of this rule.
Paperwork Reduction Act
The paperwork requirements which would be imposed by this final
rule were described in the interim final rule and approved by the
Office of Management and Budget under the Paperwork Reduction Act of
1980. The Office of Management and Budget assigned number for those
requirements is OMB No. 0551-0004. The public reporting burden for
these collections is estimated to average 10.3 minutes per response,
including time for reviewing instructions, searching existing sources,
gathering and maintaining the data needed, and completing and reviewing
the collection of information. Send comments regarding this burden
estimate or any other aspects of this collection, including any
suggestions for reducing burden, to Department of Agriculture,
Clearance Officer, OIRM, AG Box 7630, Washington DC. 20250-7600; and to
the Office of Management and Budget, Paperwork Reduction Project (OMB
No. 0551-0004), Washington, DC. 20503.
Executive Order 12372
These programs are not subject to the provisions of Executive Order
12372, which requires intergovernmental consultation with state and
local officials. See the Notice related to 7 CFR Part 3015, Subpart V,
published at 48 FR 29115 (June 24, 1983).
Background
In the Federal Register of June 6, 1991 (56 FR 25993), the
Commodity Credit Corporation (CCC) issued an interim rule to revise the
regulations for the CCC Export Credit Guarantee Program (GSM-102) and
the CCC Intermediate Export Credit Guarantee Program (GSM-103)
administered by FAS, USDA on behalf of CCC, pursuant to program
regulations codified at 7 CFR Part 1493 and through the issuance of
``Program Announcements'' and ``Notices to Participants'' that are
consistent with, and in addition to, these program regulations. The
interim rule incorporated or withdrew all previously outstanding
operational requirements announced by FAS/USDA through Notices to
Participants. The interim rule also incorporated requirements
established by the 1990 Act. Finally, the interim rule clarified
several provisions previously contained in 7 CFR Part 1493 to promote
more efficient administration of the GSM-102 and GSM-103 programs. The
deadline for comments on the interim rule was August 5, 1991. Comments
were received from five U.S. exporters (one exporter submitted two
separate responses), three producer associations, two U.S. financial
institutions, one U.S. export trade association, and one U.S.
Government agency. These thirteen parties made approximately 66
separate and significant comments regarding either the interim rule or
the policy issues and the impact of policies involved in administering
the GSM-102 and GSM-103 programs.
General Comments
One commenter disagreed with CCC's statement that it has been
determined that this rule will not result in ``significant adverse
effects on competition, employment, investment, productivity,
innovation or the ability of United States-based enterprises to compete
with foreign-based enterprises in domestic or export markets.'' This
respondent shared that while the interim rule contained some
improvements, some of the changes would restrict the competitiveness
of, and be detrimental to, the sale of U.S. goods. The commenter argued
that the interim rule was an overreaction resulting from the Iraqi
default on GSM-102/103 guaranteed obligations. The commenter
acknowledged that the U.S. Government must monitor the programs to
prevent abuse but contended that, in general, free market conditions
should prevail. While CCC agrees that the GSM-102/103 programs should
avoid unduly restricting normal commercial practices, the Department
has been mandated by Congress to implement measures to guard against
program abuse. It is the Department's intention to adopt necessary
program safeguards while still enhancing the ability of U.S. exporters
to compete in foreign markets.
Four commenters supported and commended the USDA's efforts to
catalogue and codify many of the operational features of the programs,
to assure that the regulations are being met, and to create more
accountability within the programs.
Four other commenters felt that the intention of the interim rule
to ``* * * simplify material, enhance clarity, eliminate duplication
and facilitate their use * * *'' has not been met. These commenters
stated that the interim rule is complicated, unclear at some points,
and unnecessarily duplicative. The commenter argued and that, more than
ever, the regulations contain burdensome regulatory features which
could constrain the programs' effectiveness.
One commenter felt that the interests of program simplification
have been abandoned and that undue burdens are being placed on
participants to protect the programs from a few perceived
manipulations. This commenter suggested that the program is not ``user
friendly'' when administrators focus only on protecting the programs
from all risk, or on shifting all risk to the exporter or buyer.
Another respondent felt that the lack of USDA guidance on pertinent
issues is not only frustrating, but may have also compromised the
strengths of the U.S. agricultural system. CCC agrees that the interim
rule contains regulatory features that place additional burdens on
program participants, such as added certification statements,
requirements to maintain arrival documentation, and longer retention
time on transaction records. Although such requirements may compare
unfavorably with the simplicity of the prior regulations, these
requirements are mandated by the 1990 Act. On the other hand, CCC has
also made changes that consolidate program requirements. For example,
policy and additional program requirements previously contained in a
number of Notices to Participants were incorporated into the interim
rule.
Five commenters felt that the revised regulations are a response to
criticism of the GSM-102/103 programs and pressure on program
administration brought on by prior audits and investigations by the
General Accounting Office and USDA's Office of the Inspector General.
Another commenter stated that since auditors do not create exports for
the U.S. economy and have no responsibility for market development
there is a need to re-establish teamwork between FAS and the export
community to resolve key issues. One commenter felt the intent of the
1990 Farm Bill was to streamline program procedures, but, in actuality,
the programs are more bureaucratic than ever. This same commenter felt
that the USDA has forgotten that the GSM-102/103 programs are
commercial programs, that the programs must reflect commercial
realities, and that recent studies and audits have not focused on the
commercial and competitive viability of the GSM-102/103.
CCC acknowledges these concerns. In addressing audit and
investigation reports on its commercial export programs, CCC has
attempted to put in perspective the relatively low incidence of program
violations in the programs. However, given that many of the
requirements of the interim rule aimed at preventing program abuses
were mandated by the 1990 Act, CCC cannot concur that the primary
legislative intent was to ``streamline procedures.''
Three respondents recommended that the interim rule be revised to
allow financial institutions to use the commercial banking practice of
securitization as a financing technique for CCC-guaranteed credits.
Securitization would involve the packaging of such credits by a U.S.
financial institution for sale to third parties as U.S.-government
guaranteed securities. It is asserted that securitization would expand
sources, and perhaps reduce the cost, of financing for CCC-guaranteed
credits. However, respondents point out that certain program
regulations and CCC policies now make securitization infeasible. For
example, regulations require that the guarantee holder who has
experienced a default and filed a claim with CCC must turn all
recoveries ``from any source whatsoever'' over to CCC for pro rata
sharing (Sec. 1493.130(b)(1)). This provision is intended to ensure
that the U.S. party financing the transaction always remains at risk
for the portion of the credit and interest not guaranteed by CCC.
Generally, this policy is seen as incompatible with the issuance of
100% U.S. Government-guaranteed securities since any collateral put up
by the foreign borrower to cover the portion not guaranteed by CCC
could be subject to pro-rata sharing with CCC.
Similarly, U.S. banks point out that the unwillingness of CCC to
pre-approve export and other documents that must be submitted to
support a claim on CCC in the event of default makes it impossible to
issue high grade securities based on CCC-guaranteed credits. Without
pre-approval, such securities could not be marketed with absolute
assurance that claims on CCC for defaults on the underlying credits
would be found in good order and honored.
CCC has considered these and other proposals for securitization of
CCC-guaranteed credits. However, CCC remains of the view that, although
the degree of risk-sharing may be adapted to meet program objectives,
requiring risk-sharing with the holder of the guarantee (normally a
U.S. bank) is an essential feature of the GSM-102/103 programs. It
forces the private sector to engage in risk assessment relating to
individual transactions, and thereby supplements the risk assessment
done by CCC prior to announcing export credit guarantee programs for
specific countries. Removing this requirement would also reduce the
incentive banks now have to press for recovery of late payments from
foreign banks rather than claiming immediately on CCC. CCC does not
have the resources that would be required to pre-approve documents and
to effectively manage the increase in claims and follow-up recovery
efforts that would go hand-in-hand with changing the specified
provisions of the GSM-102/103 regulations to facilitate securitization.
For these reasons, CCC is not prepared at this time to propose program
changes to facilitate securitization of its credit guarantees.
Two comments were received regarding republishing the rule. One
respondent suggested that the USDA republish the regulations on a
routine basis, requesting public comments, to insure that improvements
in the programs may be continually advocated and effected. Another
commenter suggested a redraft of areas of greatest controversy and
republication with request for comments. CCC agrees that the GSM-102/
103 program regulations are important and should be reviewed
periodically. It is CCC's policy to do this. However, publication of an
additional interim rule at this time would further delay implementation
of a final rule which is needed to establish a basic permanent
framework for the programs.
One commenter felt that the delays in the administrative process
increase exporter risks and costs and inhibit the programs'
effectiveness. This respondent recommended that the regulations include
absolute deadlines governing the USDA's performance of administrative
functions. CCC recognizes that administrative delays in processing
applications and issuing guarantees may result in additional costs and
risks to exporters, and CCC is, therefore, committed to expediting
existing administrative procedures. However, it is not feasible to
establish absolute time-frames for actions because many administrative
delays may be due to the failure of participants to provide all
required information, or are the unavoidable consequence of increased
program activity during specific time periods.
One respondent recommended that a special trade advisory committee
be established to address controversial provisions of program
regulations. The commenter called on the Agricultural Policy Advisory
Committee (APAC) and the Agricultural Technical Advisory Committee
(ATAC) to devote attention to these programs. CCC disagrees that a
special trade advisory committee is warranted. Considerable debate was
aired when Congress developed the 1990 Act which mandated changes to
the GSM-102/103 programs. The Department also has considerable
experience in administering credit and credit guarantee programs, and
has a continuing dialogue with private sector program participants on
administrative and other program policies. CCC believes that the
rulemaking process should remain the primary vehicle for obtaining
views of interested parties. This process gives an equal opportunity to
all parties, is part of the public record, and is required by law. The
APAC and ATAC could consider GSM-102/103 issues if their members so
choose.
A commenter suggested that solutions to some of the problems are
simply to modify the regulations, but other problems require a
comprehensive policy review by USDA policy officials. Another commenter
supported a special credit facility separate from the regular GSM-102/
103 programs for the former Republics of the Soviet Union. These
comments, by their own admission, address concerns outside the content
of the program regulations and therefore, are not considered in this
final rule.
Section by Section Analysis of Subpart A and B
The numbering system of the final rule differs somewhat from that
of the interim rule. Some sections were added, some were deleted. For
the purposes of this discussion, the numbering system of the final rule
will be used, except where otherwise indicated. In addition to changes
resulting from comments from interested parties, some additional
changes in language have been incorporated into the final rule for the
purpose of clarification of specific provisions. These changes are
minor and not of a substantive nature.
Subpart A: Restrictions and Criteria for Export Credit Guarantee
Programs
Section 1493.1 General Statement
No public comment received on this section. No changes have been
made in this section of the final rule.
Section 1493.2 Purposes of Program
One commenter felt that the purposes of the program are accurately
conceived, well-prioritized and complete, and should serve as the key
criteria to guide CCC in both the drafting of the final rule and the
operation of the GSM-102/103 programs. No changes have been made in
this section of the final rule.
Section 1493.3 Restrictions on Programs and Cargo Preference Statement
One commenter praised the USDA for its stand on this issue. No
changes have been made in this section of the final rule.
Section 1493.4 Criteria for Country Allocations
One commenter felt that, because of problems which previously
impeded the timely provision of the credits to the republics of the
former Soviet Union, USDA needs to elaborate its ``creditworthiness''
criteria and should consider revising current restrictions and limits
on credit that make it difficult for many debt-burdened countries to
participate in the program. CCC notes that the 1990 Act prohibits
export credit guarantees from being used ``for foreign aid, foreign
policy, or debt rescheduling purposes'' and instructs that CCC ``shall
not make credit guarantees available in connection with sales of
agricultural commodities to any country that the Secretary determines
cannot adequately service the debt associated with such sale.'' Under
this legislative mandate, CCC believes that the criteria of Sec. 1493.4
cannot be changed in ways to meet the objective suggested by the
commenter.
Section 1493.5 Criteria for Agricultural Commodity Allocations
No public comment received on this section. No changes have been
made in this section of the final rule.
Section 1493.6 Additional Required Determinations for GSM-103
No public comment received on this section. No changes have been
made in this section of the final rule.
Subpart B: CCC Export Credit Guarantee Program (GSM-102) and CCC
Intermediate Export Credit Guarantee Program (GSM-103) Operations
Section 1493.10 General Statement
No public comment received on this section. No substantive changes
have been made in this section of the final rule.
Section 1493.20 Definition of Terms
Eight respondents commented on Sec. 1493.20(f), Discounts and
Allowances. All comments, in one way or another, recommended changes to
this section to permit discounts and allowances that are consistent
with customary commercial trade practices. The commenters suggested
specifically excluding from the definition of discounts and allowances:
(1) Cash payments, under the terms of the export sales contract,
made by the exporter to the financing institution which reduce the
amount financed and are notified to CCC as amendments to port value or
export value as appropriate;
(2) Credits against the sales price, under the terms of the export
sales contract, which reduce the amount of CCC coverage and are
notified to CCC as amendments to the port value and exported value, as
appropriate;
(3) Cash payments by the exporter to third parties for demurrage,
detention and overage insurance premiums; and
(4) Adjustments for destination weights in cotton sales.
The payments or credits described in comments (1) and (2) above,
are discounts or allowances to the importer; however, if properly
reported to CCC and the amount of CCC's coverage consequently reduced,
no program violation is involved. CCC has, therefore, determined not to
include these suggested exemptions in 1493.20(f). Items (3) and (4) are
addressed below.
One commenter recommended that the definition of discounts and
allowances should be revised to delete reference to demurrage and
detention settlements. The commenter stated that demurrage and
detention settlements are normal costs which may be incurred in an
export sales transaction. When settlement funds are paid to an
importer, the importer is only acting as an intermediary in making
these payments to a third party, i.e., the shipping line. Thus the
financial transaction between exporter and importer is unaffected.
Similarly, payments of over-age insurance premiums to underwriters
because of an exporter's inability to otherwise charter a vessel of
required specifications should not be considered a discount or
allowance to the importer. CCC concurs with these comments and has
therefore, deleted reference to demurrage and detention in the
definition of discounts and allowances in this final rule.
Two respondents felt that there is a contradiction in the USDA's
interpretation of Sec. 1493.20(f). When a weight increase occurs at
destination, CCC makes no provision for amending the exported value to
increase coverage. However, when destination weights decrease, any
adjustment by the exporter in favor of the importer is considered by
CCC as a discount or allowance and CCC requires that the value of the
guarantee be correspondingly reduced. The respondents argue that there
should be consistent treatment in both cases, and that as long as there
is coverage available from the country line, adjustments to exported
value should be made for both weight increases or decreases. CCC
disagrees. To guard against potential program abuse, CCC has instituted
a system to price review all transactions for which GSM-102/103
guarantees are sought. The purpose of the price review is to insure
that the sales price of the transaction being guaranteed falls within a
reasonable and acceptable price range given market conditions in
existence at the time of the sale. CCC's price review compares the
particular price with representative prices at a U.S. export position,
and is, therefore, based upon U.S. export weight and grade
determinations.
Thus, determining the port value and guaranteed value of the
transaction, and CCC's contingent liablility under the guarantee, on
the basis of destination weights and grades would undermine the
effectiveness of and could potentially invalidate, the price review
process. CCC recognizes that, in certain markets, the use of
destination weights and grades is a normal commercial term of contract
and, therefore, will issue guarantees in connection with such
transactions to facilitate the export trade. However, since CCC is not
able to conduct price reviews on the basis of destination weights and
grades (because the determination of destination weights and grades
necessarily occurs only after the commodities have arrived at the port
of destination and, therefore, long after the application for GSM-102/
103 coverage has been approved), exporters will have to bear the varied
risks involved with contracting on that basis. Those risks include the
possibility that a decrease in weight or grade between export and
destination will result in an adjustment or settlement in favor of the
importer; or that an increase will result in an adjustment or
settlement in favor of the exporter. In the former case, the adjustment
in favor of the importer would qualify as a ``discount or allowance''
within the meaning of Sec. 1493.20, requiring the exporter to report
the occurence so that the guarantee can be amended to reflect a
downward adjustment in CCC's liability made because to do so could
invalidate the price review determination upon which the approval of
the guarantee was initially made.
Two respondents felt that, in the case of cotton, a special
exception should be made because of (1) the sensitivity of cotton to
fluctuations in atmospheric conditions resulting in gains or losses in
weight; and (2) the long standing practice of marketing cotton on the
basis of landed weights and quality. Changing this practice, to comply
with regulations, will deny the cotton exporters the flexibility to
market cotton efficiently.
CCC has determined not to make an exception for destination weights
for cotton. At this time there is insufficient evidence available to
CCC that the interim rule has caused any significant problems. As
previously noted, when reported properly to CCC, payment of allowances
for destination weights is not a program violation.
Two commenters requested further clarification of what CCC
considers discounts and allowances. Specifically, they ask whether the
definition encompasses carrying charges and normal customer service
such as visits to the customer (to inspect the product, observe its use
in the market, etc.), technical assistance, and replacement of faulty
or defective products? The regulation's definition of discounts and
allowances includes ``a promise to provide additional goods, services
or benefits in the future.'' Thus, CCC considers an exporter's
contractual obligation to provide technical assistance, or trade
servicing, to be, by definition, a discount or allowance to the
commodity price on which CCC price review is based (unless, at the time
of price review, the exporter justifies to CCC how such service or
assistance is incorporated into the price, and the price is thus
approved by CCC). However, if an exporter does routine servicing of
accounts and customer visits, without any contractual obligation to do
so, no discount or allowance is provided under the definition. CCC has
determined not to further modify the definition of discounts and
allowances because there is an infinite variety of circumstances under
which exporters could provide a wide range of services to importers.
Exporters are obliged to report instances that may be discounts and
allowances, and CCC will make a determination on a case-by-case basis.
One respondent suggested that: (1) the definition be changed to
allow for normal customer services, and (2) the last phrase be changed
to establish a minimum threshold of 2.5 percent of sales value for
defining quality, weight and certain other settlements as discounts or
allowances. CCC has determined it is inappropriate to set such a
minimum threshold because it could permit circumvention of the price
review process.
A comment was received regarding the definition of Eligible
Interest in Sec. 1493.20(g). The commenter felt that the phrase ``the
maximum interest rate stated in the payment guarantee, when determined
or adjusted by CCC will not exceed the average investment rate of the
most recent Treasury 52-week bill auction in effect at that time''
seems to imply that CCC is able to adjust the guaranteed interest rate
after the payment guarantee is issued. The respondent requested
clarification.
CCC's maximum liability for interest coverage is indicated in the
payment guarantee or any amendments thereof. CCC can issue payment
guarantees at either a fixed rate of interest or at an adjustable rate
of interest. In the case of a fixed interest rate, the rate of CCC's
interest coverage is determined as of the date of application for that
payment guarantee and is indicated on the face of the payment
guarantee. This maximum eligible interest rate coverage will not
change.
On adjustable rate coverage payment guarantees, the method or
formula for determining the eligible interest rate coverage is
established for specific time periods. The operative phrase in the
definition is ``when determined or adjusted by CCC.'' For example,
currently on GSM-103 payment guarantees which allow for an adjustment
in CCC's eligible interest coverage, the determination of maximum
interest coverage is made on the date of export and adjusted only on
the due dates for principal.
One commenter suggested that CCC adopt, at the option of the
lender, a variable rate of interest coverage. CCC allows the assignee
U.S. financial institution to provide credit to the foreign bank on the
basis of a variable rate of interest. However, under the interim rule
and prior regulations, CCC states in the Program Announcement for the
applicable country whether its guarantee coverage will be offered with
a fixed or adjustable rate of interest coverage. CCC has determined
that if interest rate coverage were determined at the option of the
lender, CCC would not be able to adequately control its risk exposure.
Therefore, it has been determined not to make the suggested change.
Five respondents commented on the definition of
Sec. 1493.20(h)(1)(ii), Exported Value, where CCC's payment guarantee
coverage is on the basis of FAS or FOB value on transactions sold on a
CFR or CIF basis. All commenters expressed concern that under this
requirement the FAS or FOB coverage will be reduced should the actual
freight and/or insurance increase from what was anticipated at the time
of the exporter's application for a payment guarantee. The commenters
noted that the exporter may thus find a portion of the sale amount is
uncollectable under the letter of credit because the financing
institution will only pay the exporter the amount recoverable under the
payment guarantee, plus the bank's proportion of shared risk. Other
concerns raised were that this requirement is impractical and will
cause problems for all parties because: (1) the actual amount of
coverage may not be established until long after the sale has been
made; (2) the values stated in the letter of credit and the import
licenses will not reflect the value in final payment guarantee; and (3)
the values in the final payment schedule will not reflect the values in
the payment guarantee nor will they reflect the agreement between the
buyers and sellers at the time the contract was made. Commenters stated
that the requirement will reduce use of the programs because exporters
may stop selling CFR and instead offer only on a FOB basis. U.S.
exporters could also be hurt if buyers, who previously purchased on a
CFR basis, choose to charter ships for themselves.
The arguments made by the commenters are compelling. CCC's intent
in framing the provision of the interim rule was not to expose
exporters, importers or assignees to unmanageable risks. CCC has
determined to revise Sec. 1493.20(h)(1)(ii) and Sec. 1493.80(a)(7) to
return to the practice of using the exporter's valuation of freight and
insurance costs at time of application for a payment guarantee as the
basis for determining exported commodity value under the payment
guarantee. CCC recognizes that this change may be viewed as exposing
CCC to an added measure of liability in cases where actual freight
costs turn out to be lower than estimated in the exporter's
application. However, CCC notes that its price review procedure
confirms that both the overall CFR or CIF price and the implied FOB or
FAS commodity price are within acceptable ranges at the time of
application. This ensures against exporters deliberately under-
estimating freight cost at the time of application in order to finance
indirectly a significant portion of freight costs in the commodity
financing.
One commenter suggested that in Sec. 1493.20(k), Foreign Bank
Letter of Credit, the reference to International Chamber of Commerce
(ICC), Uniform Customs and Practice for Documentary Credits,
Publication No. 400 be replaced with ``latest revision'' to avoid the
need for an amendment of the rule when the ICC updates this
publication. CCC agrees to this technical change and has revised
Sec. 1493.20(k) to reflect the suggestion and the fact that ICC
Publication No. 400 has been revised and issued as ICC Publication No.
500. We have also included the use of the copyright symbol,
>, to reflect the proprietary interest of the ICC in this
publication.
Although no public comment was received regarding the definition of
``Incoterms'' found at Sec. 1493.20(q), CCC has updated the final rule
to reflect the current International Chamber of Commerce's abbreviation
for the term ``Cost and Freight''. Accordingly, CCC uses the
abbreviation ``CFR,'' makes such correction to Sec. 1493.20(q), and
further acknowledges the alternative abbreviations, ``C&F'' and
``CNF'', because of their continued common commercial use. Additional
language is also added to this definition to indicate CCC's position
that contractual obligations are incurred by the use of these terms by
program participants. Additionally, we have again included the use of
the copyright symbol, >, to reflect the ICC's proprietary
interest.
One commenter suggested that the phrase in Sec. 1493.20(s), Late
Interest, `` * * * beginning on the first day after which the claim for
loss is found in good order by CCC * * * '' be changed to `` * * *
beginning on the first day after receipt of a claim which CCC has
determined to be in good order * * * '' in order to be consistent with
Sec. 1493.120(c), Late Interest Payment. CCC has determined that the
definition of ``Late interest'' contained in Sec. 1493.20(s) be revised
as suggested to avoid inconsistency.
Concerning Sec. 1493.20(v)(3), Port Value, one commenter felt that
when CCC announces CFR or CIF coverage, the cost of bulk destination
bagging should be covered by the credit guarantee, provided that the
total cost of ocean freight for bulk shipment plus all costs of bagging
at the destination does not exceed the comparable cost of ocean freight
for bagged cargo. CCC does consider that packaging materials for bulk
commodities may be an integral part of the commodity sale. Hence, on a
bulk commodity sale which includes destination bagging, CCC would
permit the costs of bags, needles and twine exported from the U.S. with
the commodity to be included in the payment guarantee. Further, CCC
will issue payment guarantees on CFR or CIF sales with destination
bagging, if all costs of the bagging at destination are deducted as
provided in Sec. 1493.20(h)(3) and Sec. 1493.20(v)(3). However, CCC
disagrees that CCC should cover the costs of foreign labor involved in
destination bagging in its payment guarantee.
A comment regarding Sec. 1493.20(x), Related Obligation, suggested
that since draft(s) are not always used, the wording of the last
sentence should be amended to read: ``The U.S. financial institution is
entitled to such payments because it has financed the obligation
arising under the letter of credit.'' CCC agrees and has revised the
language of Sec. 1493.20(x) accordingly.
Section 1493.30 Information Required for Program Participation
One comment was received regarding the applicant's financial
responsibility. The commenter was concerned that small European
companies opening offices in the U.S. in order to take advantage of
USDA agricultural programs can and will make corrupt payments or grant
after sales services because their maximum exposure is limited to a
small office and minimal assets. In its experience with participants
under the GSM-102/103 programs, CCC finds no grounds for this concern.
Of those few instances of corrupt payments or after sales services that
have been identified in CCC guaranteed transactions (principally in
connection with past sales to Iraq), such program violations have been
no more prevalent in transactions entered into by the U.S. offices of
small European-based companies.
This same commenter suggested that the determination of financial
responsibility should be predicated on an applicant having a minimum
net worth of $5 million, or of an amount relative to GSM business done,
such as 10% of estimated annual business. It is CCC's view that setting
minimum net worth requirements would unreasonably and unfairly exclude
virtually all small export companies currently participating in the
programs. Small exporters play a significant role, especially in
relation to certain countries and certain commodities, and often where
frequent small deliveries are desired by foreign buyers.
In general, CCC's experience with the financial responsibility
requirement introduced in the interim rule has been unsatisfactory. The
requirement appears to have little or no value in protecting CCC from
financial exposure due to program violations by an exporter. Nor has
this requirement enhanced CCC's ability to recapture financial losses
by pursuing exporters for monetary judgments in the event of a program
violation. CCC's potential financial liability in issuing a payment
guarantee is the risk of default from the foreign bank issuing the
letter of credit. The rates of transaction nonperformance and of
program violations have been very low. CCC takes any program violation
seriously and pursues administrative actions against exporters shown to
have violated the program or other applicable U.S. laws. However,
demonstrating a minimum level of financial assets, or meeting other
financial tests, does not materially enhance CCC's ability to recover
losses. Such tests are unreliable and quickly outdated. Therefore, CCC
has decided to delete all references to financial responsibility from
Sec. 1493.30 and from Sec. 1493.30(d)(1).
CCC has revised the scope of the certification statement required
by Sec. 1493.30(a)(6). This section has required applicants to certify
that ``the applicant; any owner, in whole or in part; or any employee
is not currently debarred or suspended from contracting with or
participating in programs administered by any U.S. Government Agency.''
CCC has determined that this certification requirement should be eased
in recognition that large companies, especially publicly-traded ones
with many shareholders, cannot make the certification with absolute
knowledge of its truth. Section 1493.30(a)(6) now requires the
following certification: ``I certify, to the best of my knowledge and
belief, that neither [name of applicant] nor any of its principals has
been debarred, suspended, or proposed for debarment from contracting
with or participating in programs administered by any U.S. Government
agency. (``Principals,'' for the purpose of this certification, means
officers; directors; owners of five percent of or more stock; partners;
and persons having primary management or supervisory responsibility
within a business entity (e.g., general manager, plant manager, head of
a subsidiary division, or business segment, and similar positions)). I
further agree that, should any such debarment, suspension, or notice of
proposed debarment occur in the future, [name of applicant] will
immediately notify CCC.''
In keeping with the above change in certification, Sec. 1493.30(d),
Ineligibility for Program Participation, has been revised to delete
subparagraph (4) which made ineligible any applicant employing any
individual who is debarred or suspended. This change recognizes that
some applicants will not be in a position to determine whether or not a
single employee is debarred or suspended.
Section 1493.40 Application for Payment Guarantee
Three respondents commented on the description and value of
discounts and allowances, Sec. 1493.40(a)(10). The commenters suggested
that this requirement is impractical because most discounts and
allowances are not known until the date of export and many times are
not quantifiable until the goods have been discharged. One commenter
felt that if the intention of this requirement is to uncover any
attempt to obtain coverage, through prior agreement, for an amount
greater than the value of the commodity transaction, a better approach
would be to prohibit any discounts or allowances which are not due to
contingencies or acts which are not known at the time of sale. One
commenter suggested that this requirement be deleted.
CCC has determined that to protect the integrity of the program and
to limit CCC's contingent liability in the event of a default, the
definition of discounts and allowances contained in Sec. 1493.20(f) and
the required reporting thereof under Sec. 1493.40(a)(10) and
Sec. 1493.80(a)(8) is necessary and appropriate. Discounts or
allowances that are unknown by the exporter at the time of application
for a payment guarantee, of course, cannot be reported to CCC at the
time of application. However, some discounts and allowances may be
provided for in the sales contract. These discounts and allowances
should be reported by the exporter at time of application. If known
discounts or allowances are not reported to CCC at the time of
application, CCC cannot adequately price review the transaction.
When a conditional or contingent discount or allowance is provided
for under the terms of the export sales contract, it should be noted in
the application, but not deducted from the port value unless agreed by
CCC. This is because the exporter may not know, at the time, whether
the condition(s) will arise and the discount or allowance will be paid.
The exporter should report the value of the discount or allowance, if
it has been paid, at the time of filing the evidence of export report.
If a payment of a discount or allowance occurs after the submission of
an evidence of export report, the exporter must report the value of the
discount or allowance in an amended evidence of export report, and
should notify the U.S. assignee, if any (see previous discussion of
this point concerning the definition of ``discounts and allowance,''
Sec. 1493.20(f)). In the event of a claim under the payment guarantee,
CCC may hold an exporter liable for value of the unreported discounts
and allowances.
Section 1493.40(a)(14) has been revised in this final rule for the
purpose of clarity. Applicants often were unable to report the address
of the foreign bank issuing the letter of credit. The language of this
subsection has been changed to now state ``the address or location'' of
the foreign bank. CCC has determined this change will still provide
sufficient information to identify the foreign bank issuing the letter
of credit.
Section 1493.40(a)(15) has been revised in this final rule to
delete the requirement to include the estimated principal payment due
dates and amounts due. CCC is able to make this calculation using other
information reported under this subsection.
Section 1493.40(a)(16) has been revised in this final rule to add
the number of the Export Enhancement Program, Dairy Export Incentive
Program, Sunflowerseed Oil Assistance Program or Cottonseed Oil
Assistance Program Agreement assigned by USDA, as applicable. This
added information is not a burdensome requirement for the exporter and
assists CCC in tracking concurrent use of credit and subsidy programs.
One comment was received regarding USDA's price review process
established under Sec. 1493.40(b). The commenter questioned how USDA
can properly determine a fair market price. The respondent felt that
U.S. companies will lose the incentive to be innovative and aggressive
in creating markets for their products if the USDA controls prices.
This commenter felt that while high prices may indicate kickbacks or
other improprieties and warrant a complete investigation, the practice
of price review should be used as a tool to monitor the program, and
should not constitute ``price approval.'' The commenter recommended
that the practice of price review should be eliminated from the
regulations. CCC disagrees. The price review procedure under the GSM-
102/103 programs is not a ``price approval'' mechanism. Although CCC
does have the right to reject applications for a payment guarantee
that, in CCC's opinion, do not reflect market parameters, in practice,
when a sales price raises questions, the exporter is given the
opportunity to explain the factors relating to the price. Often, after
receiving such information, CCC has been able to approve the
application. CCC's intention is not to control the price that an
exporter may negotiate with an importer. However, CCC does have an
obligation to review those sales prices which appear excessively high
or low because they may be linked to possible program violations, such
as kickbacks, extra sales services or the inclusion of lower value
foreign content in the shipment. Therefore, the current practice of
price review for GSM-102/103 program applications will continue.
Section 1493.50 Certification Requirements for Obtaining Payment
Guarantees
One commenter questioned whether CCC considered normal customer
service, e.g., visits to the customer to inspect the product, to
observe its use in the market, to provide technical assistance, or to
replace faulty or defective products to be extra sales services under
Sec. 1493.50(b). The respondent requested that CCC clarify and give
examples or guidelines of what is considered to be extra sales
services. CCC cautions exporters that any extension of extra sales
services provided to an importer that can be directly linked to a GSM-
102 or GSM-103 payment guarantee may be construed as a discount or
allowance which, although permissible, must be reported and deducted
from the value of the guarantee. On the other hand, an extra sales
service not linked to the basic commercial intent of the transaction
(i.e., that is extraneous to the transaction) is prohibited. The
instance, type, nature, and the extent of linkage to the sales
transaction must be examined on a case-by-case basis. As previously
discussed in relation to comments received concerning the definition of
``Discounts and Allowances,'' Sec. 1493.20(f), CCC will review the
specific circumstances when they are reported. Therefore, CCC has
determined not to provide specific examples of extra sales services--
extraneous and otherwise--in the regulations.
Two respondents made comments regarding Sec. 1493.50(a), which
requires the exporter to certify that the agricultural commodity or
product exported under the payment guarantee is a U.S. agricultural
commodity or product as defined by Sec. 1493.20(z). While both
commenters fundamentally agree with the U.S. origin requirement, they
felt that because of the changes in the U.S. market environment,
particularly the U.S.-Canada Free Trade Agreement, a rigid
interpretation of the U.S. origin requirement will interfere with the
normal operation of the U.S. grain marketing system. The commenters
suggested that an alternative to the U.S. origin requirement might be a
``transit billing'' system similar to the Agricultural Stabilization
and Conservation Service's current policy for all commodity purchases,
except dairy products. Under transit billing, in the commenter's
opinion, domestic origin requirements should be satisfied if a grain
handling facility containing commingled domestic and foreign origin
commodities, has quantities of domestic origin commodities equal to or
greater than the quantity called for in the contract.
CCC has reviewed the ``transit billing'' system and has determined
that such a system will not meet the statutory requirements of the 1990
Act because the definition of a U.S. agricultural commodity contained
in Section 102(7) of the Act requires that an agricultural commodity
exported under the GSM-102/103 programs be ``entirely produced in the
United States.'' Transit billing would permit unlimited commingling of
U.S. and imported grains with rules that would maximize the likelihood
that a warehouseman would always have a sufficient theoretical U.S.-
origin stock position to be able to fill export orders for U.S. grain.
It would be a formula accounting system which would be unrelated to the
actual identity of the grain being handled. Therefore, it has been
determined that transit billing would not meet the statutory
requirement.
Another alternative proposed by one of the commenters is for CCC to
allow foreign agricultural components to be exported but to provide no
guarantee coverage on the value of any such components. The commenter
proposed this option in reference to bulk grains, an agricultural
commodity, not a product of an agricultural commodity. As previously
noted, Section 102(7) of the Agricultural Trade Act of 1978, as amended
by the 1990 Act does not, in CCC's view, permit any foreign content to
be included in the U.S. agricultural commodity exported under the GSM-
102/103 programs.
Section 1493.60 Payment Guarantee
One respondent asked if under Sec. 1493.60(b), Period of Guarantee
Coverage, the language ``the payment guarantee will apply to the period
beginning either on the date(s) of export(s) or on the date when
interest begins to accrue, whichever is earlier,'' implies that CCC
will guarantee credits on which interest accrues prior to disbursement
of funds to the U.S. exporter. The answer is yes. CCC will provide a
payment guarantee that includes interest coverage which begins before
the date of export from the U.S. in circumstances where the exporter
has sold the commodity at an U.S. interior point of loading of the
export carrier (e.g., railcar or truck for export to Mexico). However,
interest coverage begins no earlier than the date interest begins to
accrue under the guaranteed credit. This date could be earlier than the
date of disbursement of funds to the U.S. exporter if this was provided
for in the foreign bank's letter of credit or related obligation.
Comments were received suggesting changes in Sec. 1493.60(e),
Reserve Coverage for Loading Tolerances. Three respondents believed the
purpose of this provision is to allow the exporter to pay the guarantee
fee only on the actual amount of the coverage required, and recommended
that the section be changed to allow the exporter to apply for a
payment guarantee (and pay the guarantee fee) based on any quantity,
within the sales contract specifications, reserving coverage up to the
maximum contract tolerance. One of the commentors also felt that, as a
result of the requirement in the interim rule, exporters would pay
excessive fees for coverage not used and credit availability would be
encumbered without product exported. CCC agrees with these comments and
has revised the language of Sec. 1493.60(e) to permit exporters to
apply for guarantee coverage, and pay the guarantee fee, on the basis
of any quantity within the upper and lower tolerance and to reserve
coverage up to the upper tolerance. After export, when coverage has
been reserved, the exporter will be permitted to amend the payment
guarantee and pay an additional fee based upon the difference between
the original payment guarantee quantity and the actual quantity
exported.
Two comments were received regarding Sec. 1493.60(i), Amendments.
One commenter, a financial institution, felt that a request for an
amendment of the payment guarantee should not be restricted to the
exporter, and that the assignee should also be able to submit a request
for an amendment. CCC disagrees. To do so would place CCC in the
position of unilaterally agreeing to amend, and possibly breach, a
contractual agreement with exporters at the request of a third party.
The second comment received on Sec. 1493.60(i) concerned
interpretation of the phrase `` * * * any amendment to the payment
guarantee may result in an increase of the guarantee fee.'' The
commenter felt if it is the intention of CCC to assess fees for
amendments, which are not always within the exporter's control, then
this language should be deleted. It is not CCC's intention to assess
additional fees for all amendments. In response to the comment, the
language of Sec. 1493.60(i) has been clarified to provide the
possibility that CCC may charge a fee for a requested amendment when,
as a consequence of the request, CCC may incur additional liability.
Section 1493.70 Guarantee Rates and Fees
No public comment was received on this section. No changes have
been made in this section of the final rule.
Section 1493.80 Evidence of Export
Several comments were received on this section. A general comment
was made regarding the proprietary nature of the information submitted
by the exporter. The commenter felt that any information submitted
should be deemed confidential and access restricted; neither foreign
buyers nor competitors should have access. CCC has not included in the
Interim Rule or Final Rule provisions on the protection of participant
information because this matter is governed by the Freedom of
Information Act (FOIA) and the Privacy Act. Moreover, section 402(a)(3)
of the Agricultural Trade Act of 1978, as amended by the 1990 Act (7
U.S.C. 5662(a)(3)) provides that ``the personally identifiable
information contained in reports under subsection (a) [records of the
exporter] may be withheld in accordance with section 552(b)(4) of title
5, United States Code.'' This section further provides that ``any
officer or employee of the Department of Agriculture who knowingly
discloses confidential information as defined by section 1905 of Title
18, United States Code, shall be subject to section 1905 of Title 18,
United States Code. Nothing in this subsection shall be construed to
authorize the withholding of information from Congress.''
Three respondents requested that Sec. 1493.80(a), Report of Export,
be amended to allow 60 days for submitting evidence of export reports
for truck or rail export shipments because it is difficult to obtain
the required entry certificate into Mexico within the 30-day filing
period. CCC recognizes that experience validates this comment. In the
past it has often been necessary for the exporter to obtain an
amendment to the payment guarantee allowing an extension of the time
period for filing the evidence of export report. In a study of this
problem, CCC determined that an extension of the filing time limit from
30 days to 60 days for truck and rail exports would decrease the number
of this type of amendment request by approximately one-half.
Accordingly, in this final rule Sec. 1493.80(a) has been simplified and
Sec. 1493.80(b) revised to provide a time limit of 60-days for filing
evidence of export reports for truck and rail exports. With this
revision, Sec. 1493.80(b) continues to provide for the filing of
evidence of export reports for shipments by other types of carriers
within a 30 day time limit.
Further, for the sake of simplicity and expediency, CCC has deleted
the requirement previously contained in Sec. 1493.80(a)(9) of the
interim rule requiring the exporter or its assignee to report a final
payment schedule showing the payment dates and the amounts separately
for both principal and interest. CCC now has computer capability to
calculate this information from the other information submitted in the
evidence of export report and the terms of the payment guarantee. The
requirement for the payment schedule information has often been a
hindrance to the timely filing of complete evidence of export reports
because exporters routinely must have their assignee submit this
information. It is expected that this change will expedite filings of
evidence of export reports.
Two commenters requested clarification regarding Sec. 1493.80(b),
Time Limit for Submission of Evidence of Export. This sub-part allows
for an extension of the time limit if it is determined to be in the
best interests of CCC (but not if payments by the foreign bank are past
due under the payment guarantee). The commenters would like to see
clarification of CCC's policies once a defaulting foreign bank is again
current with its account. It was suggested that a sentence be added
stating that CCC will reconsider the payment guarantee status once the
foreign bank resumes payments and becomes current in its obligations.
CCC has determined to address this comment by revising the language
of Sec. 1493.80(b) to indicate that if the report required by paragraph
(a) of Sec. 1493.80 is not received by the time limit specified, the
payment guarantee will become null and void, but only if failure to
make timely filing resulted, or would be likely to result, in: (1)
significant financial harm to CCC; (2) the undermining of an essential
regulatory purpose of the program; (3) obstruction of the fair
administration of the program; or (4) a threat to the integrity of the
program. Section 1493.80(b) will still permit CCC to extend the time
limit for filing of evidence of export reports if such extension is
determined by the General Sales Manager to be in the best interests of
CCC.
Section 1493.90 Certification Requirements for the Evidence of Export
Two respondents commented on Sec. 1493.90(c), which requires the
exporter to certify that the exporter or exporter's assignee has, and
will retain, documents evidencing the obligation of the foreign bank
for five years after the final installment due date. Both commenters
said that the exporter can make the certification for themselves, but
that they have no legal recourse at their disposal, to require the
third parties to comply with this provision. The commenters recommended
that the certification be deleted. CCC has considered the comments made
and agrees that the certification can be deleted because the exporter
or the exporter's assignee is already bound by Sec. 1493.140(e)(1) to
retain documentation evidencing the obligation of the foreign bank for
a period of five years after the final installment date. This document
retention requirement is further strengthened because evidence of the
foreign bank related obligation is necessary to submit a claim to CCC
under the payment guarantee. Therefore, a certification that such
records are being maintained has little practical value. CCC has
determined to delete the certification previously found at
Sec. 1493.90(c) of the interim rule from this final rule.
Section 1493.100 Proof of Entry
A comment received on Sec. 1493.100(a), Diversion, pointed out that
while the exporter may contractually preclude diversion of an FOB
shipment, the exporter has no control over the importer's vessel;
unless the exporter knowingly abetted the diversion, there should be no
implication of potential exporter liability to CCC under such
circumstances. Under Sec. 1493.130(d) of the interim rule, ``the
exporter may be liable to CCC for any amount paid under a payment
guarantee when it is determined by CCC that the exporter has engaged in
fraud, or has been or is in breach of any contractual obligation,
certification or warranty made by the exporter * * *'' Further, the
exporter's assignee may be held liable to CCC under the same standard.
However, Sec. 1493.130(e), Good Faith, provides that a violation by an
exporter of the certifications, particularly Sec. 1493.100 (Proof of
Entry), will not affect the validity of any payment guarantee with
respect to an assignee who had no knowledge of such violation or
failure to comply at the time the exporter applied for the payment
guarantee or at the time of assignment of the payment guarantee.
CCC recognizes the burden placed on exporters with FOB sales in
ensuring compliance with program requirements concerning diversion.
However, in view of the legislative mandate imposed on CCC to ensure
arrival of program shipments in destination countries (Title IV,
Subtitle A, Section 401 of the Agricultural Trade Act of 1978, as
amended by the 1990 Act), and in view of the fact that CCC has a
contractual relationship only with the exporter, not with the importer,
CCC sees no feasible alternative to the present policy of holding
exporters responsible for maintaining proof of entry documentation as a
means of preventing diversion. This policy makes it in the interest of
exporters to make every effort to obtain binding commitments from
foreign buyers to provide such documentation on FOB/FAS sales and not
to divert shipments. The strength of evidence of such efforts by
exporters would undoubtedly be of material interest in any situation
where CCC suffered a financial loss on a payment guarantee and found
that diversion had taken place.
Two respondents commented on Sec. 1493.100(b), Proof of Entry. One
commenter was unsure what is intended by this section. Both commenters
felt that the only reliable means of obtaining proof of entry is for
the exporter to retain a private surveyor at each location. They felt
that this was an unnecessary cost and burden to the exporter and that
there is little justification for this requirement. Clarification of
the section was requested. In adding the requirement for proof of entry
in the interim rule, CCC employed the basic requirements for proof of
entry documents that are used for the Export Enhancement Program (EEP).
Although a surveyor's report would be an acceptable means of meeting
this requirement, CCC disagrees that it is the only reliable means of
obtaining proof of entry. Many countries have provided such
documentation with respect to the EEP program. Further, in the event
that traditional forms of entry documentation are unobtainable,
Sec. 1493.100(b) permits CCC to consider other types of documents,
which can be deemed acceptable by the GSM. Finally, as stated in the
interim rule, the requirement for proof of entry documentation on GSM-
102/103 transactions is mandated by the 1990 Act. Therefore, CCC has
determined that no further clarification or change is necessary to
Sec. 1493.100.
Section 1493.110 Notice of Default and Claims for Loss
One commenter suggested that CCC adopt a ``Payment Certificate''
concept (currently incorporated in programs of the Export-Import Bank
of the United States (Eximbank)) under which one claim is submitted
covering the payment of the balance of the guarantee. In follow-up
discussions with CCC, the commenter explained the ``Payment
Certificate'' concept as being a mechanism where CCC would pre-approve
documents that are normally submitted in the claim procedure and issue
a payment certificate which, when submitted at the time of claim, would
be evidence that CCC would pay the claim at a certain time interval
after receipt of the payment certificate, notice of default, and
subrogation agreement. CCC has determined that, at this time, it cannot
adopt such a measure because it has insufficient resources to review
and pre-approve all documents required for submission when filing a
claim. One major difference between Eximbank and CCC export credit
guarantee programs is the sheer number of payment guarantees that CCC
issues during a program year, over 3,000 payment guarantees annually.
Eximbank's guarantees are generally much larger in value and fewer in
number. It would not be administratively feasible for CCC to review
documentation in advance of issuance of all of its guarantees. CCC will
continue to explore the possibility of adapting the ``payment
certificate'' concept to permit, for certain countries or particular
foreign banks, a mechanism that would address the ``time certain for
payment of claims'' element necessary to facilitate securitization of
CCC payment guarantees.
It should be recognized, however, that under existing CCC policy,
only one claim need be filed (in the sense of providing full
documentation relating to the transaction). Thereafter, only certified
notices of failure to receive scheduled installments, reference to the
original claim, and corresponding subrogation agreement need be
submitted to CCC. Accordingly, CCC agrees that Sec. 1493.110 should be
clarified to reflect this fact and has added a new paragraph
Sec. 1493.110(c) to make this policy clearer.
A commenter suggested that the reference to ``drafts drawn'' in
Sec. 1493.110(b)(4)(i)(B)(1), be revised to read ``obligations
financed,'' since drafts are not always used as financial obligations.
CCC agrees and has adopted this clearer language in the subsection.
One commenter questioned why, under Filing a Claim for Loss,
Sec. 1493.110(b)(4)(v), CCC requires a copy of the previously submitted
report of export to accompany the claim for loss. CCC requires this in
order to accelerate the claims payment process. CCC considers this a
reasonable requirement and therefore, has determined that the
requirement of Sec. 1493.110(b)(4)(v) remain unchanged.
Section 1493.120 Payment of Loss
One commenter, a financial institution, made a comment pertaining
to Sec. 1493.120(a), Determination of CCC's Liability, which states
that CCC, upon receipt in ``good order'' of the information and
documents under Sec. 1493.110(b), Filing a Claim for Loss, will
determine whether or not a loss has occurred for which CCC is liable.
The commenter states that in order for securities to be viewed as
``government credit,'' there can be no risk that the payment under the
guarantee would not be made. The commenter also argued that, due to the
extensive list of documents and information required and the subjective
judgement that such documents and information be in ``good order,'' a
risk of non-payment by CCC exists. The recommendation is to require
that most documents and information be approved (or alternatively, that
the proper forms be pre-agreed by CCC) prior to issuance of the
guarantee. This recommendation would eliminate the subjective nature of
``good order'' and would eliminate the non-payment risk. This issue has
already been addressed under General Comments (securitization) and in
relation to Sec. 1493.110. Again, although CCC is not now making
changes to specifically address this concern, CCC will continue to look
at possibilities to adapt mechanisms suitable to CCC programs to
facilitate securitization.
Two comments were received on Sec. 1493.120(c), Late Interest
Payment. One respondent (a Federal agency) said that the late interest
is short-term interest and that the rate factor should be based on the
``91-day Treasury bill rate, not to exceed the 52-week bill rate.'' CCC
agrees with the comment that it is more suitable to use a short-term
interest instrument for late interest. Accordingly, CCC has changed
Sec. 1493.120(c) to provide that late interest is based on the 91-day
Treasury bill. Similarly, changes have been made to Sec. 1493.130(b)(1)
and (2) to also reflect the use of a short-term interest instrument as
the benchmark for ``late interest'' to be paid both on monies owed to
CCC in a recovery, and on monies recovered by CCC and owed to an
exporter or an exporter's assignee under pro rata sharing.
The other comment pertained to the securitization of payment
guarantees. The commenter suggested that Sec. 1493.120(c) establish
CCC's obligation to pay a claim within a specified time period. The
commentor stated that this was necessary because a risk of nonpayment
or late payment by CCC would be unacceptable to rating agencies
reviewing securitization proposals which include CCC payment
guarantees. CCC has determined not to adopt this suggested change for
reasons previously stated in relation to general comments on the
interim rule and specifically on Sec. 1493.20(s) and Sec. 1493.110.
One commenter suggested that Sec. 1493.120(d), Accelerated
Payments, be changed to allow payments to be made on an accelerated
basis at the option of the lender. CCC's policy is to not pay claims
for losses in advance of a default unless it can be determined to be in
CCC's best interest to do so. If CCC were to revise Sec. 1493.120(d) to
allow an accelerated payment mechanism at the option of the lender, CCC
could be required to disburse funds to banks for installment defaults
which have not yet occurred. CCC has determined that this obligation
would not be in its best interest, and that Sec. 1493.120(d) will not
be changed.
One respondent expressed concern that under Sec. 1493.120(e)(1),
Action Against the Assignee, failure of the exporter to comply with the
requirement to file an amended report of export to reflect post-export
adjustments might jeopardize the assignee's claim. CCC acknowledges the
legitimacy of the commenter's concerns. Section 1493.120(e) does not
specify as to what actions CCC may take against the assignee for the
failure of the exporter to file amended evidence of export reports if,
for example, later discounts or allowances are granted to the importer
by the exporter. Section 1493.120(e) states that `` * * * CCC will not
hold the assignee responsible or take any action or raise any defense
against the assignee for any action, omission or statement by the
exporter over which the assignee has no knowledge, provided that: (1)
the exporter complies with the reporting requirements under
Sec. 1493.80 and Sec. 1493.90; and (2) the exporter or the exporter's
assignee furnishes the statements and documents specified in
Sec. 1493.110.'' In a post-export adjustment (i.e., a previously
unreported discount or allowance) the assignee would, most probably,
have no knowledge of the exporter's action (consideration given to the
importer) and omission (not filing a corrected evidence of export
report). CCC has clarified Sec. 1493.120(e) to indicate that assignees
will not be held liable for failure of the exporter to submit to CCC
any corrections or amendments to evidence of export reports.
Section 1493.130 Recovery of Losses
As previously discussed in relation to a comment made regarding
Sec. 1493.120(c), CCC has made revisions in this final rule to
Sec. 1493.130(b)(1) and (2) to provide that late interest is based on
the 91-day Treasury bill rate.
One comment was received on Sec. 1493.130(b)(1), Receipt of Monies.
The commenter suggested eliminating CCC's requirement that all monies
received by the lender from any source whatsoever after the payment by
CCC of a claim be paid to CCC. CCC has addressed this issue under
General Comment regarding securitization proposals. CCC has determined
not to make this change.
Two respondents requested changes in the wording of
Sec. 1493.130(d), Liabilities to CCC, to take into account that a
technical breach by the exporter may be inconsequential, and that the
breach may not have been the cause for any payment made by CCC under
the payment guarantee. The suggested rewording of this phrase is `` * *
* or has been or is in material breach of any contractual obligation,
certification or warranty made by the exporter for the purpose of
obtaining the payment guarantee or in fulfilling an obligation under
GSM-102 or GSM-103 and such amounts paid by CCC under the payment
guarantee resulted from such fraud or material breach by the
exporter.'' CCC agrees with the comment and this final rule
incorporates language in Sec. 1493.130(d) similar to that suggested.
Section 1493.140 Miscellaneous Provisions
Two comments were received regarding the restrictions of
Sec. 1493.140(a), Assignment. The commenters felt that financial
institutions should be able to place assets they originate into the
world capitol markets and that CCC should facilitate this goal by
permitting more than one assignment of the payment guarantee. One
commenter, a financial institution, suggested that CCC allow the
financial institution to extend the credit and assign such credit to a
grantor trust or special purpose corporation, such as a Funding
Vehicle, established by the financial institution, or let the Funding
Vehicle itself take assignment and extend the credit. The same
commenter also recommended that the language in Sec. 1493.11(a) of the
previous regulations be included in this section. The previous
regulation stated that ``The assignment shall cover all amounts payable
under the payment guarantee not already paid and shall not be made to
more than one party, and shall not be subject to further assignment,
unless approved in advance by CCC. Any such assignment may be made to
one party as agent or trustee for two or more parties participating in
the financing.'' In Sec. 1493.140(a) of the interim rule, CCC deletes
the final sentence of the previous Sec. 1493.11(a). However, by
deleting this language from the interim rule, CCC did not intend to
preclude its consideration of assignments of guarantees to various
types of financial institutions. CCC will consider acknowledging
assignments that facilitate securitization of guarantees and that are
consistent with other program requirments. Therefore, although CCC has
not restored the particular sentence in this final rule,
Sec. 1493.140(a) has been modified to clarify CCC's policy.
Two respondents requested that Sec. 1493.140(a)(3) be modified so
that when CCC determines a financial institution to be ineligible to
receive an assignment of a payment guarantee, CCC will notify both the
exporter and the financial institution. CCC concurs with this
suggestion and has adopted such provision in Sec. 1493.140(a)(3) of
this final rule.
A third respondent felt that Sec. 1493.140(a)(3) could create
difficulties for financial institutions because the notice of
ineligibility would reach them after they had extended credit. The
commenter suggested that CCC notify a financial institution of its
ineligibility before the institution extends credit under an
anticipated CCC guarantee. CCC disagrees. CCC does not have the
resources to continually monitor the thousands of U.S. financial
institutions which are potentially eligible to receive assignments and
to notify those that would be ineligible if they were to be assigned a
CCC payment guarantee. Further, Sec. 1493.140(b), Ineligibility of
Financial Institutions to Receive an Assignment, explains the
conditions under which an assignment to a financial institution would
not be acknowledged by CCC. If a U.S. financial institution has reason
to believe that it might not be eligible under this section of the
regulations, it may contact the Treasurer, CCC to review its situation.
Several commenters suggested that the provisions in
Sec. 1493.140(e)(1), Maintenance of Records and Access to Premises,
place unreasonable burdens on the parties involved in the transaction.
One commenter, a financial institution, was concerned that the blanket
requirement of access to records pertaining to transactions conducted
outside the program may interfere with bank confidentiality. Although
CCC understands this concern, section 402(a)(3) of the Agricultural
Trade Act of 1978, as amended by the 1990 Act, provides that officers
or employees of the U.S. Department of Agriculture are subject to
criminal penalties for knowingly disclosing confidential information.
Another commenter felt that the records pertaining to transactions
outside the program should be subject to review only if they are
directly related to transactions made under the program, and that the
General Sales Manager's opinion should not determine whether the
outside transaction(s) pertain to program transactions. This commenter
recommended that the regulation apply to outside transactions which
``relate directly'' rather than that ``pertain'' to the program
transaction. CCC disagrees and has determined that the language of
Sec. 1493.140(e)(1) should remain unchanged. On a case-by-case basis,
and as determined by the GSM, CCC may need to examine records not
directly related to the GSM-102/103 transaction in order to determine
whether a program violation has occurred (e.g., inventory records may
be examined to determine whether foreign content exists in export
shipment under the program).
Two commenters said that they can request agents, intervening
purchasers, and related companies to make available documents or
information requested by CCC, but cannot guarantee access to third
party records, particularly those held by companies or persons located
outside the U.S. This is particularly the case with documents which may
be generated by agents of the exporter, or by companies with special
arrangements with the exporter which are foreign entities. Because
access to such records may be critical to CCC's efforts to monitor
programs and to ensure their integrity, CCC expects that the exporter
will use its contractual and other means of influence to obtain those
pertinent records of the outside parties involved. CCC recognizes that
exporters may only be able to obtain from such third parties copies of
those records that pertain to the GSM-102/103 export transaction in
question. The final rule does not require that the exporter retain all
records of such third parties, nor those records pertaining to
transactions conducted outside the program. Further, the final rule
does not require that an agent of the exporter, an intervening
purchaser, or parties with a special arrangement with the exporter must
make available such records and grant access to their premises. CCC
would expect the exporter to be able to provide copies of any and all
records relating to the transaction held by these entities if so
requested by government officials authorized to conduct program
reviews.
Two comments recommended that Sec. 1493.140(g), Submission of
Documents by Principal Officers, be expanded to permit an authorized
full time employee of the exporter to sign all required submissions.
CCC agrees with the comment. On August 7, 1991, CCC issued a Notice to
Program Participants which clarified the signatory requirements for
submissions to CCC. The policy reflected in this Notice to Participants
has been included in Sec. 1493.140(g) of this final rule to permit
principal officers or their designees to sign required submissions to
CCC. However, the August 7, 1991 Notice is not being superseded because
it also applies to other export programs and contains examples of how
such authorizations by principals to their designees might be worded.
List of Subjects in 7 CFR Part 1493
Administrative practice and procedures, Agricultural commodities,
Credit, Exports, Financing, Guarantees, Reporting and recordkeeping
requirements.
Accordingly, 7 CFR Part 1493 is revised to read as follows:
PART 1493--CCC EXPORT CREDIT GUARANTEE PROGRAMS
Subpart A--Restrictions and Criteria for Export Credit Guarantee
Programs
Sec.
1493.1 General statement.
1493.2 Purposes of programs.
1493.3 Restrictions on programs and cargo preference statement.
1493.4 Criteria for country allocations.
1493.5 Criteria for agricultural commodity allocations.
1493.6 Additional required determinations for GSM-103.
Subpart B--CCC Export Credit Guarantee Program (GSM-102) and CCC
Intermediate Export Credit Guarantee Program (GSM-103) Operations
Sec.
1493.10 General statement.
1493.20 Definition of terms.
1493.30 Information required for program participation.
1493.40 Application for a payment guarantee.
1493.50 Certification requirements for obtaining payment guarantee.
1493.60 Payment guarantee.
1493.70 Guarantee rates and fees.
1493.80 Evidence of export.
1493.90 Certification requirements for the evidence of export.
1493.100 Proof of entry.
1493.110 Notice of default and claims for loss.
1493.120 Payment for loss.
1493.130 Recovery of losses.
1493.140 Miscellaneous provisions.
Authority: 7 U.S.C. 5602, 5622, 5661, 5662, 5663, 5664, 5676; 15
U.S.C. 714b(d), 714c(f).
Subpart A--Restrictions and Criteria for Export Credit Guarantee
Programs
Sec. 1493.1 General statement.
This subpart sets forth the restrictions which apply to the use of
credit guarantees under the Commodity Credit Corporation (CCC) Export
Credit Guarantee Program (GSM-102) and the Intermediate Credit
Guarantee Program (GSM-103) and the criteria considered by CCC in
determining the annual allocations of credit guarantees to be made
available with respect to each participating country. This subpart also
sets forth the criteria considered by CCC in the review and approval of
proposed allocation levels for GSM-102 and/or GSM-103 credit guarantees
which may be made available in connection with export sales of specific
U.S. agricultural commodities to these countries. These restrictions
and criteria are interrelated and will be applied and considered
together in the process of determining which sales opportunities under
GSM-102 or GSM-103 will best meet the purposes of the programs.
Sec. 1493.2 Purposes of programs.
CCC may use export credit guarantees:
(a) To increase exports of U.S. agricultural commodities;
(b) To compete against foreign agricultural exports;
(c) To assist countries, particularly developing countries, in
meeting their food and fiber needs; and
(d) For such other purposes as the Secretary of Agriculture
determines appropriate, consistent with the provisions of Sec. 1493.6.
Sec. 1493.3 Restrictions on programs and cargo preference statement.
(a) Restrictions on use of credit guarantees. (1) Export credit
guarantees authorized under these regulations shall not be used for
foreign aid, foreign policy, or debt rescheduling purposes.
(2) CCC shall not make credit guarantees available in connection
with sales of agricultural commodities to any country that the
Secretary determines cannot adequately service the debt associated with
such sales.
(b) Cargo preference laws. The provisions of the cargo preference
laws shall not apply to export sales with respect to which credit is
guaranteed under these programs.
Sec. 1493.4 Criteria for country allocations.
The criteria considered by CCC in reviewing proposals for country
allocations under the GSM-102 or GSM-103 programs, will include, but
not be limited to, the following:
(a) Potential benefits that the extension of export credit
guarantees would provide for the development, expansion or maintenance
of the market for particular U.S. agricultural commodities in the
importing country;
(b) Financial and economic ability of the importing country to
adequately service CCC guaranteed debt;
(c) Financial status of participating banks in the importing
country as it would affect their ability to adequately service CCC
guaranteed debt;
(d) Political stability of the importing country as it would affect
its ability to adequately service CCC guaranteed debt; and
(e) Current status of debt either owed by the importing country to
CCC or to lenders protected by CCC's guarantees.
Sec. 1493.5 Criteria for agricultural commodity allocations.
The criteria considered by CCC in reviewing proposals for specific
U.S. commodity allocations within a specific country allocation will
include, but not be limited to, the following:
(a) Potential benefits that the extension of export credit
guarantees would provide for the development, expansion or maintenance
of the market in the importing country for the particular U.S.
agricultural commodity under consideration;
(b) The best use to be made of the export credit guarantees in
assisting the importing country in meeting its particular needs for
food and fiber, as may be determined through consultations with private
buyers and/or representatives of the government of the importing
country;
(c) Evaluation, in terms of program purposes, of the relative
benefits of providing payment guarantee coverage for sales of the U.S.
agricultural commodity under consideration compared to providing
coverage for sales of other U.S. agricultural commodities; and
(d) Evaluation of the near and long term potential for sales on a
cash basis of the U.S. commodity under consideration.
Sec. 1493.6 Additional required determinations for GSM-103.
Notwithstanding any other provision under this part, CCC shall not
guarantee under the GSM-103 program the repayment of credit made
available to finance an export sale unless the Secretary of Agriculture
determines that such sale will:
(a) Develop, expand or maintain the importing country as a foreign
market, on a long-term basis, for the commercial sale and export of
U.S. agricultural commodities, without displacing normal commercial
sales;
(b) Improve the capability of the importing country to purchase or
use, on a long-term basis, U.S. agricultural commodities; or
(c) Otherwise promote the export of U.S. agricultural commodities.
Subpart B--CCC Export Credit Guarantee Program (GSM-102) and CCC
Intermediate Export Credit Guarantee Program (GSM-103) Operations
Sec. 1493.10 General statement.
(a) Overview. (1) This subpart contains the regulations governing
the operations of the Export Credit Guarantee Program (GSM-102) and the
Intermediate Credit Guarantee Program (GSM-103). The GSM-102 and GSM-
103 programs of the Commodity Credit Corporation (CCC) were developed
to expand U.S. agricultural exports by making available export credit
guarantees to encourage U.S. private sector financing of foreign
purchases of U.S. agricultural commodities on credit terms. Under GSM-
102, credit guarantees are issued for terms of up to three years. Under
GSM-103, credit guarantees are issued for terms of from three to ten
years.
(2) The programs operate in cases where credit is necessary to
increase or maintain U.S. exports to a foreign market and where private
U.S. financial institutions would be unwilling to provide financing
without CCC's guarantee. The programs are operated in a manner intended
not to interfere with markets for cash sales. The programs are targeted
toward those countries where the guarantees are necessary to secure
financing of the exports but which have sufficient financial strength
so that foreign exchange will be available for scheduled payments. In
providing this credit guarantee facility, CCC seeks to expand market
opportunities for U.S. agricultural exporters and assist long-term
market development for U.S. agricultural commodities.
(3) The credit facility created by these programs is the CCC
payment guarantee. The payment guarantee is an agreement by CCC to pay
the exporter, or the U.S. financial institution that may take
assignment of the exporter's right to proceeds, specified amounts of
principal and interest due from, but not paid by, the foreign bank
issuing an irrevocable letter of credit in connection with the export
sale to which CCC's guarantee coverage pertains. By approving an
exporter's application for a payment guarantee, CCC encourages private
sector, rather than governmental, financing and incurs a substantial
portion of the risk of default by the foreign bank. CCC assumes this
risk, in order to be able to operate the programs for the purposes
specified in Sec. 1493.2.
(b) Credit facility mechanism. Typically, in export sales of U.S.
agricultural commodities, payment by the importer is made under an
irrevocable letter of credit. For the purpose of the GSM-102 and GSM-
103 programs, CCC will consider applications for payment guarantees
only in connection with export sales of U.S. agricultural commodities
where the payment for the agricultural commodities will be made in one
of the two following ways:
(1) An irrevocable foreign bank letter of credit, issued in favor
of the exporter, specifically stating the deferred payment terms under
which the foreign bank is obligated to make payments in U.S. dollars as
such payments become due; or
(2) An irrevocable foreign bank letter of credit, issued in favor
of the exporter, that is supported by a related obligation specifically
stating the deferred payment terms under which the foreign bank is
obligated to make payment to the exporter, or the exporter's assignee,
in U.S. dollars as such payments become due. The exporter may assign
the right to proceeds under the letter of credit or related obligation
to a U.S. bank or other financial institution so that the exporter may
realize the proceeds of the sale prior to the deferred payment date(s)
as set forth in the irrevocable foreign bank letter of credit or its
related obligation. The GSM-102 and GSM-103 programs are designed to
protect the exporter or the exporter's assignee against those losses
specified in the payment guarantee resulting from defaults, whether for
commercial or noncommercial reasons, by the foreign bank obligated
under the letter of credit or related obligation.
(c) Program administration. The GSM-102 and GSM-103 programs will
be administered pursuant to this part and any Program Announcements and
Notices to Participants issued by CCC pursuant to, and not inconsistent
with, this part. These programs are under the general administrative
responsibility of the General Sales Manager (GSM), Foreign Agricultural
Service (FAS/USDA). The review and payment of claims for loss will be
administered by the Office of the Controller, CCC. Information
regarding specific points of contact for the public, including names,
addresses, and telephone and facsimile numbers of particular USDA or
CCC offices, will be announced by a public press release (see
Sec. 1493.20(c), ``Contacts P/R'').
(d) Country allocations and program announcements. From time to
time, CCC will issue a Program Announcement to announce a GSM-102 and/
or GSM-103 program allocation for a specific country. The Program
Announcement for a country allocation will designate specific
allocations for U.S. agricultural commodities or products thereof.
Exporters may negotiate export sales to buyers in that country for one
of the commodities specified in the Program Announcement and seek
payment guarantee coverage within the dollar amounts of specified
coverage for that commodity. The Program Announcement will contain a
requirement that the exporter's sales contract contain a shipping
deadline within the applicable program year. The final date for a
contractual shipping deadline will be stated in the Program
Announcement. Program Announcements may also contain a specified
``undesignated'' or ``unallocated'' dollar amount for the purpose that
if dollar amounts specified for a specific commodity for a country
become fully used, an additional allocation from the ``unallocated'' or
``undesignated'' portion of the total country allocation may then be
designated for a specific commodity. Program Announcements that include
an ``allocated'' or ``undesignated'' dollar amount will contain further
information on the ``unallocated'' or ``undesignated'' portion of the
country allocation.
Sec. 1493.20 Definition of terms.
Terms set forth in this part, in CCC Program Announcements and
Notices to Participants, and in any CCC-originated documents pertaining
to the GSM-102 and GSM-103 programs will have the following meanings:
(a) Assignee. A financial institution in the United States which,
for adequate consideration given, has obtained the legal rights to
receive the payment of proceeds under the payment guarantee.
(b) CCC. The Commodity Credit Corporation, an agency and
instrumentality of the United States within the Department of
Agriculture, authorized pursuant to the Commodity Credit Corporation
Charter Act of 1948 (15 U.S.C. 714 et seq.), and subject to the general
supervision and direction of the Secretary of Agriculture.
(c) Contacts P/R. A notice issued by FAS/USDA by public press
release which contains specific names, addresses, and telephone and
facsimile numbers of contacts within FAS/USDA and CCC for use by
persons interested in obtaining information concerning the operations
of the GSM-102 or GSM-103 program. The Contacts P/R also contains
details about where to submit information required to qualify for
program participation, to apply for payment guarantees, to request
amendments of payment guarantees, to submit evidence of export reports,
and to give notices of default and file claims for loss.
(d) Date of export. One of the following dates, depending upon the
method of shipment: the on-board date of an ocean bill of lading or the
on-board ocean carrier date of an intermodal bill of lading; the on-
board date of an airway bill; or, if exported by rail or truck, the
date of entry shown on an entry certificate or similar document issued
and signed by an official of the Government of the importing country.
(e) Date of sale. The earliest date on which a contractual
obligation exists between the exporter, or an intervening purchaser, if
applicable, and the importer under which a firm dollar-and-cent price
for the sale of agricultural commodities to the importer has been
established or a mechanism to establish such price has been agreed
upon.
(f) Discounts and allowances. Any consideration provided directly
or indirectly, by or on behalf of the exporter or an intervening
purchaser, to the importer in connection with a sale of an agricultural
commodity, above and beyond the commodity's value, stated on the
appropriate FOB, FAS, CFR or CIF basis. Discounts and allowances
include, but are not limited to, the provision of additional goods,
services or benefits; the promise to provide additional goods, services
or benefits in the future; financial rebates; the assumption of any
financial or contractual obligations; the whole or partial release of
the importer from any financial or contractual obligations; or
settlements made in favor of the importer for quality or weight.
(g) Eligible interest. The maximum amount of interest, based on the
interest rate indicated in CCC's payment guarantee or any amendments to
such payment guarantee, which CCC agrees to pay the exporter or the
exporter's assignee in the event that CCC pays a claim for loss. The
maximum interest rate stated in the payment guarantee, when determined
or adjusted by CCC, will not exceed the average investment rate of the
most recent Treasury 52-week bill auction in effect at that time.
(h) Exported value. (1) Where CCC announces coverage on a FAS or
FOB basis and:
(i) Where the commodity is sold on a FAS or FOB basis, the value,
FAS or FOB basis, U.S. point of export, of the export sale, reduced by
the value of any discounts or allowances granted to the importer in
connection with such sale; or
(ii) Where the commodity was sold on a CFR or CIF basis, point of
entry, the value of the export sale, FAS or FOB, point of export, is
measured by the CFR or CIF value of the agricultural commodity less the
cost of ocean freight, as determined at the time of application and, in
the case of CIF sales, less the cost of marine and war risk insurance,
as determined at the time of application, reduced by the value of any
discounts or allowances granted to the importer in connection with the
sale of the commodity; or
(2) Where CCC announces coverage on a CFR or CIF basis, and where
the commodity is sold on a CFR or CIF basis, point of entry, the total
value of the export sale, CFR or CIF basis, point of entry, reduced by
the value of any discounts or allowances granted to the importer in
connection with the sale of the commodity.
(3) When a CFR or CIF commodity export sale involves the
performance of non-freight services to be performed outside the United
States (e.g., services such as bagging bulk cargo) which are not
normally included in ocean freight contracts, the value of such
services and any related materials not exported from the U.S. with the
commodity must also be deducted from the CFR or CIF sales price in
determining the exported value.
(i) Exporter. A seller of U.S. agricultural commodities or products
thereof that has qualified in accordance with the provisions of
Sec. 1493.30.
(j) FAS/USDA. The Foreign Agricultural Service, U.S. Department of
Agriculture.
(k) Foreign bank letter of credit. An irrevocable commercial letter
of credit, subject to the current revision of the Uniform Customs and
Practices for Documentary Credits (International Chamber of Commerce
Publication No. 500, or latest revision), providing for payment in U.S.
dollars against stipulated documents and issued in favor of the
exporter by a CCC-approved foreign banking institution.
(l) GSM. The General Sales Manager, FAS/USDA, acting in his
capacity as Vice President, CCC, or his designee.
(m) GSM-102. A CCC program, also referred to as the ``Export Credit
Guarantee Program,'' under which payment guarantees are approved for a
credit period not exceeding 3 years from the date(s) of export or from
the date interest begins to accrue, whichever is earlier.
(n) GSM-103. A CCC program, also referred to as the ``Intermediate
Export Credit Guarantee Program,'' under which payment guarantees are
approved for a credit period no less than 3 years but not exceeding 10
years from the date(s) of export or from the date interest begins to
accrue, whichever is earlier.
(o) Guaranteed value. The maximum amount, exclusive of interest,
that CCC agrees to pay the exporter or assignee under CCC's payment
guarantee, as indicated on the face of the payment guarantee.
(p) Importer. A foreign buyer that enters into a contract with an
exporter, or with an intervening purchaser, for an export sale of
agricultural commodities to be shipped from the U.S. to the foreign
buyer.
(q) Incoterms. The following customary terms, as defined by the
International Chamber of Commerce, Incoterms (current revision):
(1) Free Alongside Ship (FAS),
(2) Free on Board (FOB),
(3) Cost and Freight (CFR, or alternatively, C&F, C and F, or CNF),
and
(4) Cost Insurance and Freight (CIF).
(r) Intervening purchaser. A party that agrees to purchase U.S.
agricultural commodities from an exporter and sell the same
agricultural commodities to an importer.
(s) Late interest. Interest, in addition to the interest due under
the payment guarantee, which CCC agrees to pay in connection with a
claim for loss, accruing during the period beginning on the first day
after receipt of a claim which CCC has determined to be in good order
and ending on the day on which payment is made on such claim for loss.
(t) Payment guarantee. An agreement under which CCC, in
consideration of a fee paid, and in reliance upon the statements and
declarations of the exporter, subject to the terms set forth in the
written guarantee, this subpart, and any applicable Program
Announcements or Notices to Participants, agrees to pay the exporter or
the exporter's assignee in the event of a default by a foreign bank on
its payment obligation under the foreign bank letter of credit issued
in connection with a guaranteed sale or under the foreign bank's
related obligation.
(u) Notice to participants. A notice issued by CCC by public press
release which serves one or more of the following functions: to remind
participants of the requirements of the program; to clarify the program
requirements contained in these regulations in a manner which is not
inconsistent with the regulations; to instruct exporters to provide
additional information in applications for payment guarantees under
specific country and/or commodity allocations; and to supplement the
provisions of a payment guarantee, in a manner not inconsistent with
these regulations, before the exporter's application for such payment
guarantee is approved.
(v) Port value. (1) Where CCC announces coverage on a FAS or FOB
basis and:
(i) Where the commodity is sold on a FAS or FOB basis, U.S. point
of export, the value, FAS or FOB basis, U.S. point of export, of the
export sale, including the upward tolerance, if any, as provided by the
export sales contract, reduced by the value of any discounts or
allowances granted to the importer in connection with such sale; or
(ii) Where the commodity was sold on a CFR or CIF basis, point of
entry, the value of the export sale, FAS or FOB, point of export,
including the upward tolerance, if any, as provided by the export sales
contract, is measured by the CFR or CIF value of the agricultural
commodity less the value of ocean freight and, in the case of CIF
sales, less the value of marine and war risk insurance, reduced by the
value of any discounts or allowances granted to the importer in
connection with the sale of the commodity; or
(2) Where CCC announces coverage on a CFR or CIF basis and where
the commodity was sold on CFR or CIF basis, point of entry, the total
value of the export sale, CFR or CIF basis, point of entry, including
the upward tolerance, if any, as provided by the export sales contract,
reduced by the value of any discounts or allowances granted to the
importer in connection with the sale of the commodity.
(3) When a CFR or CIF commodity export sale involves the
performance of non-freight services to be performed outside the United
States (e.g., services such as bagging bulk cargo), which are not
normally included in ocean freight contracts, the value of such
services and any related materials not exported from the U.S. with the
commodity must also be deducted from the CFR or CIF sales price in
determining the port value.
(w) Program announcement. An announcement issued by CCC which
provides information on specific country and commodity allocations and
may identify eligible agricultural commodities and countries, length of
credit periods which may be covered, specify dollar limitations for CCC
exposure in particular countries, and include other information and
requirements.
(x) Related obligation. A contractual commitment by the foreign
bank issuing the letter of credit in connection with an export sale to
make payment(s) on principal amount(s), plus any contractual interest,
in U.S. dollars, to a financial institution in the United States on
deferred payment terms consistent with those permitted under CCC's
credit guarantee programs. The U.S. financial institution is entitled
to such payments because it has financed the obligation arising under
such letter of credit.
(y) United States or U.S. All of the 50 states, the District of
Columbia, and the territories and possessions of the United States.
(z) U.S. agricultural commodity. (1) With respect to any
agricultural commodity other than a product of an agricultural
commodity, an agricultural commodity entirely produced in the United
States; and
(2) With respect to a product of an agricultural commodity:
(i) A product all of the agricultural components of which are
entirely produced in the United States; or
(ii) Any other product the Secretary may designate that contains
any agricultural component that is not entirely produced in the United
States if:
(A) Such component is an added, de minimis component;
(B) Such component is not commercially produced in the United
States; and
(C) There is no acceptable substitute for such component that is
commercially produced in the United States (For purposes of this
paragraph, fish entirely produced in the United States include fish
harvested by a documented fishing vessel as defined in title 46, United
States Code, in waters that are not waters [including the territorial
sea] of a foreign country).
(aa) USDA. United States Department of Agriculture.
Sec. 1493.30 Information required for program participation.
Before CCC will accept an application for a payment guarantee under
either the GSM-102 program or the GSM-103 program, the applicant must
qualify for participation in these programs. Based upon the information
submitted by the applicant and other publicly available sources, CCC
will determine whether the applicant is eligible for participation in
the programs.
(a) Submission of documentation. In order to qualify for
participation in the GSM-102 and GSM-103 programs, an applicant must
submit to CCC, at the address specified in the Contacts P/R, the
following information:
(1) The address of the applicant's headquarters office and the name
and address of an agent in the U.S. for the service of process;
(2) The legal form of doing business of the applicant, e.g., sole
proprietorship, partnership, corporation, etc.
(3) The place of incorporation of the applicant, if the applicant
is a corporation;
(4) The name and U.S. address of the office(s) of the applicant,
and statement indicating whether the applicant is a U.S. domestic
corporation, a foreign corporation or another foreign entity. If the
applicant has multiple offices, the address included in the information
should be that which is pertinent to the particular GSM-102 or GSM-103
export sale contemplated by the applicant;
(5) A certified statement describing the applicant's participation,
if any, during the past three years in U.S. Government programs,
contracts or agreements; and
(6) A certification that: ``I certify, to the best of my knowledge
and belief, that neither [name of applicant] nor any of its principals
has been debarred, suspended, or proposed for debarment from
contracting with or participating in programs administered by any U.S.
Government agency. [``Principals,'' for the purpose of this
certification, means officers; directors; owners of five percent or
more of stock; partners; and persons having primary management or
supervisory responsibility within a business entity (e.g., general
manager, plant manager, head of a subsidiary division, or business
segment, and similar positions).] I further agree that, should any such
debarment, suspension, or notice of proposed debarment occur in the
future, [name of applicant] will immediately notify CCC.''
(b) Previous qualification. Any exporter that has previously
qualified under this section may submit applications for GSM-102 or
GSM-103 payment guarantees. Each application must include the statement
required by Sec. 1493.40(a)(18) incorporating the certifications of
Sec. 1493.50, including the certification in Sec. 1493.50(e) that the
information previously provided pursuant to paragraph (a) of this
section has not changed. If the exporter is unable to provide such
certification, such exporter must update the information required by
paragraph (a) of this section which has changed and certify that the
remainder of the information previously provided has not changed.
(c) Additional submissions. CCC will promptly notify applicants
that have submitted information required by this section whether they
have qualified to participate in the program. Any applicant failing to
qualify will be given an opportunity to provide additional information
for consideration by CCC.
(d) Ineligibility for program participation. An applicant may be
ineligible to participate in the GSM-102 or GSM-103 programs if:
(1) Such applicant is currently debarred, suspended, or proposed
for debarment from contracting with or participating in any program
administered by a U.S. Government agency; or
(2) Such applicant is controlled or can be controlled, in whole or
in part, by any individuals or entities currently debarred, suspended
or proposed for debarment from contracting with or participating in
programs administered by any U.S. Government agency.
Sec. 1493.40 Application for payment guarantee.
(a) A firm export sale must exist before an exporter may submit an
application for a payment guarantee. An application for a payment
guarantee may be submitted in writing or may be made by telephone, but,
if made by telephone, it must be confirmed in writing to the office
specified in the Contacts P/R. An application must identify the name
and address of the exporter and include the following information:
(1) Name of the destination country.
(2) Name and address of the importer.
(3) Name and address of the intervening purchaser, if any, and a
statement that the commodity will be shipped directly to the importer
in the destination country.
(4) Date of sale.
(5) Exporter's sale number.
(6) Delivery period as agreed between the exporter and the
importer.
(7) A full description of the commodity (including packaging, if
any).
(8) Mean quantity, contract loading tolerance and, if necessary, a
request for CCC to reserve coverage up to the maximum quantity
permitted by the contract loading tolerance.
(9) Unit sales price of the commodity, or a mechanism to establish
the price, as agreed between the exporter and the importer. If the
commodity was sold on the basis of CFR or CIF, the actual (if known at
the time of application) or estimated value of freight and, in the case
of sales made on a CIF basis, the actual (if known at the time of
application) or estimated value of marine and war risk insurance, must
be specified.
(10) Description and value of discounts and allowances, if any.
(11) Port value (includes upward loading tolerance, if any).
(12) Guaranteed value.
(13) Guarantee fee.
(14) Name and location of the foreign bank issuing the letter of
credit.
(15) The term length for the credit being extended and the
intervals between principal payments for each shipment to be made under
the export sale.
(16) A statement indicating whether any portion of the export sale
for which the exporter is applying for a payment guarantee is also
being used as the basis for an application for participation in any of
the following CCC or USDA export programs: Export Enhancement Program,
Dairy Export Incentive Program, Sunflowerseed Oil Assistance Program,
or Cottonseed Oil Assistance Program. The number of the Agreement
assigned by USDA under one of these programs should be included, as
applicable.
(17) Other information as specified in Notices to Participants, as
applicable.
(18) The exporter's statement, ``All Section 1493.50 Certifications
Are Being Made In This Application'' which, when included in the
application by the exporter, will constitute a certification that it is
in compliance with all the requirements set forth in Sec. 1493.50.
(b) An application for a payment guarantee may be approved as
submitted, approved with modifications agreed to by the exporter, or
rejected by the GSM. In the event that the application is approved, the
GSM will cause a payment guarantee to be issued in favor of the
exporter. Such payment guarantee will become effective at the time
specified in Sec. 1493.60(b). If, based upon a price review, the unit
sales price of the commodity does not fall within the prevailing
commercial market level ranges, as determined by CCC, the application
will not be approved.
Sec. 1493.50 Certification requirements for obtaining payment
guarantee.
By providing the statement in Sec. 1493.40(a)(18), the exporter is
certifying that the information provided in the application is true and
correct and, further, that all requirements set forth in this section
have been or will be met. The exporter will be required to provide
further explanation or documentation with regard to applications that
do not include this statement. The exporter, in submitting an
application for a payment guarantee and providing the statement set
forth in Sec. 1493.40(a)(18), certifies that:
(a) The agricultural commodity or product to be exported under the
payment guarantee is a United States agricultural commodity or a
product thereof, as defined in Sec. 1493.20(z);
(b) There have not been and will not be any corrupt payments or
extra sales services or other items extraneous to the transaction
provided, financed, or guaranteed in connection with the transaction,
and that the transaction complies with applicable United States law;
(c) If the agricultural commodity is vegetable oil or a vegetable
oil product, that none of the agricultural commodity or product has
been or will be used as a basis for a claim of a refund, as drawback,
pursuant to section 313 of the Tariff Act of 1930, 19 U.S.C. 1313, of
any duty, tax or fee imposed under Federal law on an imported commodity
or product;
(d) No person or selling agency has been employed or retained to
solicit or secure the payment guarantee, and that there is no agreement
or understanding for a commission, percentage, brokerage, or contingent
fee, except in the case of bona fide employees or bona fide established
commercial or selling agencies maintained by the exporter for the
purpose of securing business; and
(e) The information provided pursuant to Sec. 1493.30 has not
changed, the exporter still meets all of the qualification requirements
of Sec. 1493.30, and the exporter will immediately notify CCC if there
is a change of circumstances which would cause it to fail to meet such
requirements. If the exporter breaches or violates these certifications
with respect to a GSM-102 or GSM-103 payment guarantee, CCC will have
the right, notwithstanding any other rights provided under this
subpart, to annul guarantee coverage for any commodities not yet
exported and/or to proceed against the exporter.
Sec. 1493.60 Payment guarantee.
(a) CCC's obligation. The payment guarantee will provide that CCC
agrees to pay the exporter or the exporter's assignee an amount not to
exceed the guaranteed value, plus eligible interest, in the event that
the foreign bank fails to pay under the foreign bank letter of credit
or the related obligation. Payment by CCC will be in U.S. dollars.
(b) Period of guarantee coverage. The payment guarantee will apply
to the period beginning either on the date(s) of export(s) or on the
date when interest begins to accrue, whichever is earlier, and will
continue during the credit term specified in the payment guarantee or
amendments thereto. However, the payment guarantee becomes effective on
the date(s) of export(s) of the agricultural commodities or products
thereof specified in the exporter's application for a payment
guarantee.
(c) Terms of the CCC payment guarantee. The terms of CCC's coverage
will be set forth in the payment guarantee, as approved by CCC, and
will include the provisions of this subpart, which may be supplemented
by any Program Announcements and/or Notices to Participants in effect
at the time the payment guarantee is approved by CCC.
(d) Final date to export. The final date to export shown on the
payment guarantee will be one month, as determined by CCC, after the
contractual deadline for shipping.
(e) Reserve coverage for loading tolerances. The exporter may apply
for a payment guarantee and, if coverage is available, pay the
guarantee fee, based at least on, the amount of the lower loading
tolerance of the export sales contract; however, the exporter may also
request that CCC reserve additional guarantee coverage to accommodate
up to the amount of the upward loading tolerance specified in the
export sales contract. If such additional guarantee coverage is
available at the time of application and CCC determines to make such
reservation, it will so indicate to the exporter. In the event that the
exporter ships a quantity greater than the amount on which the
guarantee fee was paid (i.e., lower loading tolerance), it may obtain
the additional coverage from CCC, up to the amount of the upward
loading tolerance, by filing for an amendment to the payment guarantee,
and by paying the additional amount of fee applicable. If such
amendment to the payment guarantee is not filed with CCC by the
exporter within 30 days after the date of the last export against the
sales contract, CCC may determine not to reserve the coverage
originally set aside for the exporter.
(f) Ineligible exports. Commodities with a date of export prior to
the date of receipt by CCC of the exporter's telephonic or written
application for a payment guarantee, or with a date of export made
after the final date for export shown on the payment guarantee or any
amendments thereof, are ineligible for GSM-102 or GSM-103 guarantee
coverage, except where it is determined by the GSM to be in the best
interests of CCC to provide guarantee coverage on such commodities.
(g) Foreign agricultural component. CCC may approve payment
guarantees under this subpart only in connection with sales of United
States agricultural commodities as defined in Sec. 1493.20(z). CCC may
not provide guarantee coverage under this subpart on credit extended
for the value of any foreign agricultural component.
(h) Additional requirements. The payment guarantee may contain such
additional terms, conditions, and limitations as deemed necessary or
desirable by the GSM. Such additional terms, conditions or
qualifications, as stated in the payment guarantee are binding on the
exporter or the exporter's assignee.
(i) Amendments. A request for an amendment of a payment guarantee
may be submitted only by the exporter (with the concurrence of the
assignee, if any). CCC will consider such a request only if the
amendment sought is consistent with this subpart and any applicable
Program Announcements and Notices to Participants. Amendments may
include, but will not be limited to, a change in the credit period and
an extension of time to export. Any amendment to the payment guarantee,
particularly those that result in an increase in CCC's liability under
the payment guarantee, may result in an increase in the guarantee fee.
(Technical corrections or corrections of a clerical error which may be
submitted by the exporter or the exporter's assignee are not viewed as
amendments.)
Sec. 1493.70 Guarantee rates and fees.
(a) Guarantee fee rates. The payment guarantee fee rates will be
based upon the length of the payment terms provided for in the export
sale contract, the degree of risk that CCC assumes, as determined by
CCC, and any other factors which CCC determines appropriate for
consideration. A current schedule of the guarantee fee rates charged by
CCC under GSM-102 and GSM-103 will be available upon request from the
FAS/USDA office specified in the Contacts P/R.
(b) Calculation of fee. The guarantee fee will be computed by
multiplying the guaranteed value by the guarantee fee rate.
(c) Payment of fee. The exporter shall remit, with his written
application, the full amount of the guarantee fee. Applications will
not be approved until the guarantee fee has been received by CCC. The
exporter's check for the guarantee fee shall be made payable to CCC and
mailed or delivered by courier to the office specified in the Contacts
P/R.
(d) Refunds of fee. Guarantee fees paid in connection with approved
applications will ordinarily not be refundable. CCC's approval of the
application will be final and refund of the guarantee fee will not be
made after approval unless the GSM determines that such refund will be
in the best interest of CCC. If the application for a payment guarantee
is not approved or is approved only for a part of the guarantee
coverage requested, a full or pro rata refund of the fee remittance
will be made.
Sec. 1493.80 Evidence of export.
(a) Report of export. The exporter is required to provide CCC an
evidence of export report for each shipment made under the payment
guarantee. This report must include the following:
(1) Payment guarantee number
(2) Date of export
(3) Exporter's sale number
(4) Exported value
(5) Quantity
(6) A full description of the commodity exported
(7) Unit sales price received for the commodity exported and the
basis (e.g., FOB, CFR, CIF). Where the unit sales price at export
differs from the unit sales price indicated in the exporter's
application for a payment guarantee, the exporter is also required to
submit a statement explaining the reason for the difference.
(8) Description and value of discounts and allowances, if any.
(9) Number of the Agreement assigned by USDA under another program
if any portion of the export sale was also approved for participation
in the following CCC or USDA export programs: Export Enhancement
Program, Dairy Export Incentive Program, Sunflowerseed Oil Assistance
Program, or Cottonseed Oil Assistance Program.
(10) The exporter's statement, ``All Sec. 1493.90 Certifications
Are Being Made In This Evidence Of Export'' which, when included in the
evidence of export by the exporter, will constitute a certification
that it is in compliance with all the requirements set forth in
Sec. 1493.90.
(b) Time limit for submission of evidence of export. The exporter
must provide a written report to the office specified in the Contacts
P/R within 60 calendar days if the export was by rail or truck; or 30
calendar days if the export was by any other carrier. The time period
for filing a report of export will commence upon each date of export of
the commodity covered under a payment guarantee. If the evidence of
export report is not received by CCC within the time period for filing,
the payment guarantee will become null and void only if and only to the
extent that failure to make timely filing resulted, or would be likely
to result, in:
(1) Significant financial harm to CCC;
(2) The undermining of an essential regulatory purpose of the
program;
(3) Obstruction of the fair administration of the program; or
(4) A threat to the integrity of the program. The time limit for
submission of an evidence of export report may be extended if such
extension is determined by the GSM to be in the best interests of CCC.
(c) Export sales reporting. Exporters may have a mandatory
reporting responsibility under Section 602 of the Agricultural Trade
Act of 1978 (7 U.S.C. 5712), as amended by Section 1531 of the Food,
Agriculture, Conservation, and Trade Act of 1990 for exports of wheat
and wheat flour, feed grains, oilseeds, cotton, and other agricultural
commodities and products thereof.
Sec. 1493.90 Certification requirements for the evidence of export.
By providing the statement contained in Sec. 1493.80(a)(10), the
exporter is certifying that the information provided in the evidence of
export report is true and correct and, further, that all requirements
set forth in this section have been or will be met. The exporter will
be required to provide further explanation or documentation with regard
to reports that do not include this statement. If the exporter breaches
or violates these certifications with respect to a GSM-102 or GSM-103
payment guarantee, CCC will have the right, notwithstanding any other
rights provided under this subpart, to annul guarantee coverage for any
commodities not yet exported and/or to proceed against the exporter.
The exporter, in submitting the evidence of export and providing the
statement set forth in Sec. 1493.80(a)(10), certifies that:
(a) The agricultural commodity or product exported under a payment
guarantee is a United States agricultural commodity or a product
thereof, as defined in Sec. 1493.20(z);
(b) Agricultural commodities of the grade, quality and quantity
called for in the exporter's sales contract with the importer have been
exported to the country specified in the payment guarantee;
(c) A letter of credit has been opened in favor of the exporter by
the foreign bank shown in the payment guarantee to cover the port value
of the commodity exported;
(d) There have not been and will not be any corrupt payments or
extra sales services or other items extraneous to the transaction
provided, financed, or guaranteed in connection with the transaction,
and that the transaction complies with applicable United States law;
and
(e) The information provided pursuant to Sec. 1493.30 has not
changed, the exporter still meets all of the qualification requirements
of Sec. 1493.30 and the exporter will immediately notify CCC if there
is a change of circumstances which would cause it to fail to meet such
requirements.
Sec. 1493.100 Proof of entry.
(a) Diversion. The diversion of commodities covered by a GSM-102 or
GSM-103 payment guarantee to a country other than that shown on the
payment guarantee is prohibited, unless expressly authorized by the
GSM.
(b) Records of proof of entry. Exporters must obtain and maintain
records of an official or customary commercial nature and grant
authorized USDA officials access to such documents or records as may be
necessary to demonstrate the arrival of the agricultural commodities
exported in connection with the GSM-102 or GSM-103 programs in the
country that was the intended country of destination of such
commodities. Records demonstrating proof of entry must be in English or
be accompanied by a certified or other translation acceptable to CCC.
Records acceptable to meet this requirement include an original
certification of entry signed by a duly authorized customs or port
official of the importing country, by the importer, by an agent or
representative of the vessel or shipline which delivered the
agricultural commodity to the importing country, or by a private
surveyor in the importing country, or other documentation deemed
acceptable by the GSM showing:
(1) That the agricultural commodity entered the importing country;
(2) The identification of the export carrier;
(3) The quantity of the agricultural commodity;
(4) The kind, type, grade and/or class of the agricultural
commodity; and
(5) The date(s) and place(s) of unloading of the agricultural
commodity in the importing country. [Records of proof of entry need not
be submitted with a claim for loss, except as may be provided in
Sec. 1493.110(b)(4)(ii).]
Sec. 1493.110 Notice of default and claims for loss.
(a) Notice of default. If the foreign bank issuing the letter of
credit fails to make payment pursuant to the terms of the foreign bank
letter of credit or related obligation, the exporter or the exporter's
assignee must submit a notice of default to CCC as soon as possible,
but not later than 10 calendar days after the date that payment was due
from the foreign bank (the due date). A notice of default must be
submitted in writing to the Treasurer, CCC, at the address specified in
the Contacts P/R. If the exporter or the exporter's assignee fails to
promptly notify CCC of defaults in accordance with this paragraph, CCC
may make the payment guarantee null and void with respect to any
payment(s) applicable to such default. This time limit may be extended
only under extraordinary circumstances and if such extension is
determined by the Controller, CCC, to be in the best interests of CCC.
The notice of default must include:
(1) Payment guarantee number;
(2) Name of the country;
(3) Name of the defaulting bank;
(4) Due date;
(5) Total amount of the defaulted payment due, indicating
separately the amounts for principal and interest;
(6) Date of foreign bank's refusal to pay, if applicable; and
(7) Reason for foreign bank's refusal to pay, if known.
(b) Filing a claim for loss. A claim for a loss by the exporter or
the exporter's assignee will not be paid if it is made later than six
months from the due date of the defaulted payment. A claim for loss
must be submitted in writing to the Treasurer, CCC, at the address
specified in the Contacts P/R. The claim for loss must include the
following information and documents:
(1) Payment guarantee number;
(2) A certification that the scheduled payment has not been
received;
(3) A certification of the amount of accrued interest in default,
the date interest began to accrue, and the interest rate on the foreign
bank obligation applicable to the claim;
(4) A copy of each of the following documents, with a cover
document containing a signed certification by the exporter or the
exporter's assignee that each page of each document is a true and
correct copy:
(i) (A) The foreign bank letter of credit securing the export sale;
and
(B) If applicable, the document(s) evidencing the related
obligation owed by the foreign bank to the assignee financial
institution which is related to the foreign bank's letter of credit
issued in favor of the exporter. Such related obligation must be
demonstrated in one of the following ways:
(1) The related obligation, including a specific promise to pay on
deferred payment terms, may be contained in the letter of credit as a
special instruction from the issuing bank directly to the U.S.
financial institution to refinance the amounts paid by the U.S.
financial institution for obligations financed according to the tenor
of the letter of credit; or
(2) The related obligation may be memorialized in a separate
document(s) specifically identified and referred to in the letter of
credit as the agreement under which the foreign bank is obliged to
repay the U.S. financial institution on deferred payment terms; or
(3) The letter of credit payment obligations may be specifically
identified in a separate document(s) setting forth the related
obligation, or in a duly executed amendment thereto, as having been
financed by the U.S. financial institution pursuant to, and subject to
repayment in accordance with the terms of, such related obligation; or
(4) The related obligation may be memorialized in the form of a
promissory note executed by the foreign bank issuing the letter of
credit in favor of the U.S. financial institution submitting the claim;
(ii) Depending upon the method of shipment, the negotiable ocean
carrier or intermodal bill(s) of lading signed by the shipping company
with the onboard ocean carrier date for each shipment, the airway bill,
or, if shipped by rail or truck, the entry certificate or similar
document signed by an official of the importing country;
(iii) (A) The exporter's invoice showing, as applicable, the FAS,
FOB, CFR or CIF values; or
(B) If there was an intervening purchaser, both the exporter's
invoice to the intervening purchaser and the intervening purchaser's
invoice to the importer;
(iv) An instrument, in form and substance satisfactory to CCC,
subrogating to CCC the respective rights of the exporter and the
exporter's assignee, if applicable, to the amount of payment in default
under the applicable export sale. The instrument must reference the
applicable foreign bank letter of credit and the related obligation, if
applicable; and
(v) A copy of the report(s) of export previously submitted by the
exporter to CCC pursuant to Sec. 1493.80(a).
(c) Subsequent claims for defaults on installments. If the initial
claim is found in good order, the exporter or an exporter's assignee
need only provide all of the required claims documents with the initial
claim relating to a covered transaction. For subsequent claims relating
to failure of the foreign bank to make scheduled installments on the
same export shipment, the exporter or the exporter's assignee need only
submit to CCC a notice of such failure containing the information
stated in paragraph (b)(1), (2), and (3) of this section; an instrument
of subrogation as per paragraph (b)(4)(iv) of this section, and
including the date the original claim was filed with CCC.
Sec. 1493.120 Payment for loss.
(a) Determination of CCC's liability. Upon receipt in good order of
the information and documents required under Sec. 1493.110, CCC will
determine whether or not a loss has occurred for which CCC is liable
under the applicable payment guarantee, this subpart and any applicable
supplemental Program Announcements and Notices to Participants. If CCC
determines that it is liable to the exporter and/or the exporter's
assignee, CCC will pay the exporter or the exporter's assignee in
accordance with paragraphs (b) and (c) of this section.
(b) Amount of CCC's liability. CCC's maximum liability for any
claims for loss submitted with respect to any payment guarantee, not
including any late interest payments due in accordance with paragraph
(c) of this section, will be limited to the lesser of:
(1) The guaranteed value as stated in the payment guarantee, plus
eligible interest; or
(2) The guaranteed percentage (as indicated in the payment
guarantee) of the exported value indicated in the evidence of export,
plus eligible interest.
(c) Late interest payment. If a claim is not paid within one day of
receipt of a claim which CCC has determined to be in good order, late
interest will accrue in favor of the exporter or the exporter's
assignee beginning with the first day after the day of reciept of a
claim found by CCC to be in good order and continuing until and
including the date that payment is made by CCC. Late interest will be
paid on the guaranteed amount, as determined by paragraphs (b)(1) and
(2) of this section, and will be calculated based on the average
investment rate of the most recent Treasury 91-day bill auction as
announced by the Department of Treasury as of the due date.
(d) Accelerated payments. CCC will pay claims only for losses on
amounts not paid as scheduled. CCC will not pay claims for amounts due
under an accelerated payment clause in the export sales contract, the
foreign bank's letter of credit, or any obligation owed by the foreign
bank to the assignee U.S. financial institution which is related to the
foreign bank's letter of credit issued in favor of the exporter, unless
it is determined to be in the best interests of CCC by the Controller,
CCC. Notwithstanding the foregoing, CCC at its option may declare the
entire amount of the unpaid balance, plus accrued interest, in default
and make payment to the exporter or the exporter's assignee in addition
to such other claimed amount as may be due from CCC.
(e) Action against the assignee. Notwithstanding any other
provision in this subpart to the contrary, with regard to commodities
covered by a payment guarantee, CCC will not hold the assignee
responsible or take any action or raise any defense against the
assignee for any action, omission, or statement by the exporter of
which the assignee has no knowledge, provided that:
(1) The exporter complies with the reporting requirements under
Sec. 1493.80 and Sec. 1493.90, excluding post-export adjustments (i.e.,
corrections to evidence of export reports); and
(2) The exporter or the exporter's assignee furnishes the
statements and documents specified in Sec. 1493.110.
Sec. 1493.130 Recovery of losses.
(a) Notification. Upon payment of loss to the exporter or the
exporter's assignee, CCC will notify the foreign bank of CCC's rights
under the subrogation agreement to recover all moneys in default.
(b) Receipt of monies. (1) In the event that monies for a defaulted
payment are recovered by the exporter or the exporter's assignee from
the importer, the foreign bank, or any other source whatsoever, such
monies shall be immediately paid to the Treasurer, CCC. If such monies
are not received by CCC within 15 business days from the date of
recovery by the exporter or the exporter's assignee, the exporter or
the exporter's assignee will owe to CCC interest from the date of
recovery to the date of receipt by CCC. This interest will be
calculated based on the latest average investment rate of the most
recent Treasury 91-day bill auction, as announced by the Department of
Treasury, in effect on the date of recovery and will accrue from such
date to the date of payment by the exporter or the exporter's assignee
to CCC. Such interest will be charged only on CCC's share of the
recovery.
(2) If CCC recovers monies that should be applied to a payment
guarantee for which a claim has been paid by CCC, CCC will pay the
holder of the payment guarantee its pro rata share immediately,
provided that the required information necessary for determining pro
rata distribution has been furnished. If payment is not made by CCC
within 15 business days from the date of recovery or 15 business days
from receiving the required information for determining pro rata
distribution, whichever is later, CCC will pay interest calculated on
the latest average investment rate of the most recent Treasury 91-day
bill auction, as announced by the Department of Treasury, in effect on
the date of recovery and such interest will accrue from such date to
the date of payment by CCC. The interest will apply only to the portion
of the recovery payable to the holder of the payment guarantee.
(c) Allocation of recoveries. Recoveries made by CCC from the
importer or the foreign bank, and recoveries received by CCC from the
exporter, the exporter's assignee, or any other source whatsoever, will
be allocated by CCC to the exporter or the exporter's assignee and to
CCC on a pro rata basis determined by their respective interests in
such recoveries. The respective interest of each party will be
determined on a pro rata basis, based on the combined amount of
principal and interest in default. Once CCC has paid out a particular
claim under a GSM-102 or GSM-103 payment guarantee, CCC prorates any
collections it receives and shares these collections proportionately
with the holder of the guarantee until both CCC and the holder of the
guarantee have been reimbursed in full. Appendix A to Sec. 1493.130--
Illustration of Pro Rata Allocation of Recoveries--provides an example
of the methodology used by CCC in applying this paragraph (c).
(d) Liabilities to CCC. Notwithstanding any other terms of the
payment guarantee, the exporter may be liable to CCC for any amounts
paid by CCC under the payment guarantee when and if it is determined by
CCC that the exporter has engaged in fraud, or has been or is in
material breach of any contractual obligation, certification or
warranty made by the exporter for the purpose of obtaining the payment
guarantee or for fulfilling obligations under GSM-102 or GSM-103.
Further, the exporter's assignee may be liable to CCC for any amounts
paid by CCC under the payment guarantee when and if it is determined by
CCC that the exporter's assignee has engaged in fraud or otherwise
violated program requirements.
(e) Good faith. The violation by an exporter of the certifications
in Sec. 1493.50(b) and Sec. 1493.90(d) or the failure of an exporter to
comply with the provisions of Sec. 1493.100 or Sec. 1493.140(e) will
not affect the validity of any payment guarantee with respect to an
assignee which had no knowledge of such violation or failure to comply
at the time such exporter applied for the payment guarantee or at the
time of assignment of the payment guarantee.
(f) Cooperation in recoveries. Upon payment by CCC of a claim to
the exporter or the exporter's assignee, the exporter or the exporter's
assignee will cooperate with CCC to effect recoveries from the foreign
bank and/or the importer.
Appendix A to Sec. 1493.130--Illustration of Pro Rata Allocation of
Recoveries
The following example illustrates CCC's policy, as set forth in
Sec. 1493.130(c), regarding pro rata sharing of recoveries made for
claims filed under the GSM-102 and GSM-103 programs. A typical case
might be as follows:
1. The U.S. bank enters into a $300,000 three-year credit
arrangement with the foreign bank calling for equal annual payments
of principal and annual payments of interest at a rate of 10 percent
per annum and a penalty interest rate of 12 percent per annum on
overdue amounts until the overdue amount is paid.
2. The foreign bank fails to make the final principal payment of
$100,000 and an interest payment of $10,000, both due on January 31.
3. On February 10, the U.S. bank files a claim in good order
with CCC.
4. CCC's guarantee states that CCC's maximum liability is
limited to 98 percent of the principal amount due ($98,000) and
interest at a rate of 8 percent per annum (basis 365 days) on 98
percent of the principal ($7,840).
5. CCC pays the claim on February 22.
6. The latest bond equivalent rate of the 52-week Treasury bill
auction average which has been published by the Department of
Treasury in effect on the date of nonpayment (January 31) is 9
percent. The latest investment rate of the 91-day Treasury Bill
auction average which has been published by the Department of
Treasury in effect on the date of nonpayment by CCC (February 11) is
7 percent.
Computation of Obligations
Using the above case, CCC's payment to the holder of the payment
guarantee would be computed as follows:
1. CCC's Obligation under the Payment Guarantee:
(a) Principal coverage--(98% x $100,000)............. $98,000.00
(b) Interest coverage--(8% x $98,000)................ $7,840.00
---------------
$105,840.00
(c) Late interest due from CCC (7% per annum for 11 $223.28
days x $105,840).
---------------
(d) Amount paid by CCC on February 22.................. $106,063.28
2. Foreign Bank's Obligation under the Letter of Credit or the
Related Obligation:
(a) Principal due January 31........................... $100,000.00
Interest due January 31 (10% x $100,000)......... $10,000.00
---------------
Amount owed by foreign bank as of January 31....... $110,000.00
(b) Penalty interest due (12% per annum for 22 days x $795.62
$100,000).
---------------
(c) Amount owed by foreign bank as of February 22...... $110,795.62
3. Amount of Foreign Bank's Obligation Not Covered by CCC's
Payment Guarantee: $4,668.55
Computation of Pro Rata Sharing in Recovery of Losses
In establishing each party's respective interest in any recovery
of losses, the total amount due under the foreign bank obligation
would be determined as of the date the claim is paid by CCC
(February 22). Using the above example in which the amount owed by
the foreign bank is $110,000, CCC would be entitled to 95.75 percent
($106,063.07 divided by $110,765.62) and the holder of the payment
guarantee would be entitled to 4.21 percent ($4,668.55 divided by
$110,795.62) of any recoveries of losses after settlement of the
claim. Since in this example, the losses were recovered after the
claim has been paid by CCC, Sec. 1493.130(b) would apply.
Sec. 1493.140 Miscellaneous provisions.
(a) Assignment. (1) The exporter may assign the proceeds which are,
or may become, payable by CCC under a payment guarantee or the right to
such proceeds only to a financial institution in the U.S. The
assignment must cover all amounts payable under the payment guarantee
not already paid, may not be made to more than one party, and may not,
unless approved in advance by CCC, be:
(i) Made to one party acting for two or more parties or
(ii) Subject to further assignment.
(2) An original and two copies of the written notice of assignment
signed by the parties thereto must be filed by the assignee with the
Treasurer, CCC, at the address specified in the Contacts P/R.
(3) Receipt of the notice of assignment will ordinarily be
acknowledged to the exporter and its assignee in writing by an officer
of CCC. In cases where a financial institution is determined to be
ineligible to receive an assignment, in accordance with paragraph (b)
of this section, CCC will provide notice thereof, to the financial
institution and to the exporter issued the payment guarantee, in lieu
of an acknowledgment of assignment.
(4) The name and address of the assignee must be included on the
written notice of assignment.
(b) Ineligibility of financial institutions to receive an
assignment. A financial institution will be ineligible to receive an
assignment of proceeds which may become payable under a payment
guarantee if, at the time of assignment, such financial institution:
(1) Is not in sound financial condition, as determined by the
Treasurer of CCC; or
(2) Is the financial institution issuing the letter of credit or
branch, agency, or subsidiary of such institution; or
(3) Is owned or controlled by an entity that owns or controls the
financial institution issuing the letter of credit; or
(4) Is the U.S. parent of the foreign bank issuing the letter of
credit.
(c) Ineligibility of financial institutions to receive proceeds. A
financial institution will be ineligible to receive proceeds payable
under a payment guarantee approved by CCC if such financial
institution:
(1) At the time of assignment of a payment guarantee, is not in
sound financial condition, as determined by the Treasurer of CCC;
(2) Is the financial institution issuing the letter of credit or a
branch, agency, or subsidiary of such institution; or
(3) Is owned or controlled by an entity that owns or controls the
financial institution issuing the letter of credit; or
(4) Is the U.S. parent of the foreign bank issuing the letter of
credit.
(d) Alternative satisfaction of payment guarantees. CCC may, with
the agreement of the exporter (or if the right to proceeds payable
under the payment guarantee has been assigned, with the agreement of
the exporter's assignee), establish procedures, terms and/or conditions
for the satisfaction of CCC's obligations under a payment guarantee
other than those provided for in this subpart if CCC determines that
those alternative procedures, terms, and/or conditions are appropriate
in rescheduling the debts arising out of any transaction covered by the
payment guarantee and would not result in CCC paying more than the
amount of CCC's obligation.
(e) Maintenance of records and access to premises. (1) For a period
of five years after the date of expiration of the coverage of a payment
guarantee, the exporter or the exporter's assignee, as applicable, must
maintain and make available all records pertaining to sales and
deliveries of and extension of credit for agricultural commodities
exported in connection with a GSM-102 or GSM-103 payment guarantee,
including those records generated and maintained by agents, intervening
purchasers, and related companies involved in special arrangements with
the exporter. The Secretary of Agriculture and the Comptroller General
of the United States, through their authorized representatives, must be
given full and complete access to the premises of the exporter or the
exporter's assignee, as applicable, during regular business hours from
the effective date of the payment guarantee until the expiration of
such five-year period to inspect, examine, audit, and make copies of
the exporter's, exporter's assignee's, agent's, intervening purchaser's
or related company's books, records and accounts concerning
transactions relating to the payment guarantee, including, but not
limited to, financial records and accounts pertaining to sales,
inventory, processing, and administrative and incidental costs, both
normal and unforeseen. During such period, the exporter or the
exporter's assignee may be required to make available to the Secretary
of Agriculture or the Comptroller General of the United States, through
their authorized representatives, records that pertain to transactions
conducted outside the program, if, in the opinion of the GSM, such
records would pertain directly to the review of transactions undertaken
by the exporter in connection with the payment guarantee.
(2) The exporter must maintain the proof of entry required by
Sec. 1493.100(b), and must provide access to such documentation if
requested by the Secretary of Agriculture or his authorized
representative for the five-year period specified in paragraph (e)(1)
of this section.
(f) Responsibility of program participants. It is the
responsibility of all program participants to review, and fully
acquaint themselves with, all regulations, Program Announcements, and
Notices to Participants relating to the GSM-102 or GSM-103 program, as
applicable. Applicants for payment guarantees under these programs are
hereby on notice that they will be bound by any terms contained in
applicable Program Announcements or Notices to Participants issued
prior to the date of approval of a payment guarantee.
(g) Submission of documents by principal officers. All required
submissions, including certifications, applications, reports, or
requests (i.e., requests for amendments), by exporters or exporters'
assignees under this subpart must be signed by a principal or officer
of the exporter or exporter's assignee or their authorized designee(s).
In cases where the designee is acting on behalf of the principal or the
officer, the signature must be accompanied by: wording indicating the
delegation of authority or, in the alternative, by a certified copy of
the delegation of authority; and the name and title of the authorized
person or officer. Further, the exporter or exporter's assignee must
ensure that all information/reports required under these regulations
are submitted within the required time limits. If requested in writing,
CCC will acknowledge receipt of a submission by the exporter or the
exporter's assignee. If acknowledgment of receipt is requested, the
exporter or exporter's assignee must submit an extra copy of each
document and a stamped self-addressed envelope for return by U.S. mail.
If courier services are desired for the return receipt, the exporter or
exporter's assignee must also submit a self-addressed courier service
order which includes the recipient's billing code for such service.
(h) Officials not to benefit. No member of or delegate to Congress,
or Resident Commissioner, shall be admitted to any share or part of the
payment guarantee or to any benefit that may arise therefrom, but this
provision shall not be construed to extend to the payment guarantee if
made with a corporation for its general benefit.
(i) OMB control number assigned pursuant to the Paperwork Reduction
Act. The information collection requirements contained in this part (7
CFR Part 1493) have been approved by the Office of Management and
Budget (OMB) in accordance with the provisions of 44 U.S.C. Chapter 35
and have been assigned OMB Control Number 0551-0004.
Signed this 7th day of October, 1994 at Washington, DC.
Christopher E. Goldthwait,
General Sales Manager Commodity Credit Corporation.
[FR Doc. 94-25849 Filed 10-18-94; 8:45 am]
BILLING CODE 3410-10-F
