CCC Export Credit Guarantee Program (GSM-102) and CCC Intermediate Export Credit Guarantee Program (GSM-103)

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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