Export Bonus Programs

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1494 and 1570

Export Bonus Programs

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Advance Notice of Proposed Rule Making.

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SUMMARY: This document requests comments on three options to reform the

USDA/Commodity Credit Corporation's Export Bonus Programs: The Export

Enhancement Program (EEP), the Dairy Export Incentive Program (DEIP),

the Sunflower Oil Assistance Program (SOAP), and the Cottonseed Oil

Assistance Program (COAP). Options for reform of these export bonus

programs are being considered as an effort to respond to the General

Agreement on Tariff and Trade (GATT) Uruguay Round Agreement that

established new mandates for USDA/CCC's export subsidy programs.

Additionally, the reform options considered could make these programs

more flexible in responding to changing world market conditions and

serve to fulfill policy goals for increased administrative efficiency

and lower program costs.

DATES: Comments must be submitted on or before July 26, 1995.

ADDRESSES: Comments should be sent to L.T. McElvain, Director, CCC

Operations Division, Export Credits, Foreign Agricultural Service, U.S.

Department of Agriculture, AG Box 1035, Washington, D.C., 20250-1035;

FAX (202) 720-2949 or 720-0938. All comments received will be available

for public inspection at the above address during regular business

hours.

FOR FURTHER INFORMATION CONTACT: Christopher E. Goldthwait, General

Sales Manager, at the address stated above. Telephone (202) 720-5173.

The U.S. Department of Agriculture (USDA) prohibits discrimination in

its programs on the basis of race, color, national origin, sex,

religion, age, disability, political beliefs and marital or familial

status. Persons with disabilities who require alternative means for

communication of program information (braille, large print, audiotape,

etc.) should contact the USDA Office of Communications at (202) 720-

5881 (voice) or (202) 720-7808 (TAD).

SUPPLEMENTARY INFORMATION:

Background

Since 1985, USDA/CCC has operated export subsidy programs for a

variety of commodities, including wheat and wheat flour, barley and

barley malt, rice, poultry, table eggs, vegetable oils, pork and dairy

products. Wheat and wheat flour have received the largest share of

subsidy dollars, accounting for 75 percent of the total export

subsidies in 1994. [[Page 32924]]

The Uruguay Round Agreements Act (Public Law 103-465; 108 Stat.

4809) directs that U.S. export subsidies be used to encourage the

commercial sale of U.S. agricultural commodities in world markets at

competitive prices and not be limited to responding to unfair trade

practices. Export subsidies will be progressively reduced to conform to

the United States' GATT commitments. Meeting these mandates will

require the development of a program that uses less subsidy but leaves

U.S. commodities in a more competitive position at the end of the GATT

phase-in period.

The Administration's 1995 Farm Bill Proposal announced program

objectives that would guide its efforts to make USDA's export subsidy

programs more responsive to world market conditions in the post-Uruguay

Round period and to further fulfill certain policy goals. The following

policy objectives were defined by the proposal:

1. Increase the cost-effectiveness of export subsidy programs by

encouraging the lowest possible subsidies to achieve the maximum level

of subsidized volume;

2. Increase the flexibility of exporters to respond to changing

market conditions;

3. Reduce administrative complexity and cost;

4. Provide safeguards against fraud and exports of foreign-origin

products; and

5. Be consistent with U.S. trade policy goals.

The Administration's Farm Bill Proposal announced that the Trade

Policy Review Group (TPRG)(an interagency working group comprised of

representatives from the Departments of Agriculture, State and

Treasury; the Office of the U.S. Trade Representative; the Office of

Management and Budget; the Council of Economic Advisors and the

National Economic Council), would develop proposals for comment,

including the auction concept described in the Farm Bill Proposal as an

example of a concept that could fulfill those reform objectives.

The concepts developed by the TPRG for public consideration

include: 1. The quarterly auction; 2. a pre-announced bonus mechanism;

and 3. a market-oriented modification of the current program.

Interested parties are invited to comment on these proposals, but need

not limit their comments exclusively to the proposals outlined here.

The Administration is seeking comment on a wide spectrum of concepts as

it devises a program that embodies the reform principles stated above.

Quarterly Auction

The auction reform is designed to increase the cost-effectiveness

of export subsidies by increasing competition in the subsidy allocation

process. Such reform would permit the achievement of a given level of

export promotion (and, hence, subsidy-related export sales) at minimum

budgetary cost. It would also increase the cost-effectiveness of the

subsidies by increasing industry flexibility in allocating subsidies

across markets, while protecting U.S. foreign policy and trade

interests. These gains will be achieved in a way that meets the

Administration's commitment to subsidize agricultural exports up to the

Uruguay Round ceilings. Specifically, for each subsidized commodity, an

auction system would allocate subsidies as follows:

The interagency process would determine maximum annual subsidized

export volumes for a set of different markets. The markets would be

defined as broadly as possible subject to the promotion of foreign

policy and trade objectives. Markets could be specific countries if

deemed appropriate. The interagency process could also define select

destinations that would be ineligible for any subsidy for reasons that

could include the dominent presence of non-subsidized competition,

important U.S. foreign policy considerations, and/or a determination

that subsidies are not needed for U.S. export growth. The sum of the

regional maxima, across all regions, would be no lower than the annual

GATT ceiling on U.S. subsidized export volume.

For each of the markets distinguished in the interagency process,

USDA/CCC would conduct quarterly auctions in which exporters make bids

that specify a dollar amount of export subsidy and the quantity of

commodity to be exported.

Quarterly Volumes. Prior to each auction, USDA/CCC would announce

the proportion of the overall annual subsidized export volume that is

to be auctioned. The quarterly allocations would be designed to avoid

distortions in inter-seasonal trade. USDA/CCC would retain flexibility

to award subsidies for less volume than it has announced if it faces

bonus bids that are too high. Announced quarterly auction volumes would

add up, over the GATT year and across all geographical regions, to the

overall (worldwide) GATT maximum volume of subsidized exports. Regional

volumes would add up to a total that is consistent with the interagency

guidelines.

Successful Bids. USDA/CCC would allocate subsidy rights to the

lowest bidders. Stated differently, USDA/CCC would choose winning bids

in order to achieve the quarterly subsidized volume allocation at

minimum cost in dollar subsidies.

Maximum Bonuses. Taking into account the same factors that are

currently considered in accepting or rejecting bids--as well as GATT

limits--USDA/CCC would set maximum bonus levels to be allowed in

awarded bids for each auction. These maximum levels would be secret.

Bids with bonus levels higher than the USDA/CCC-determined maximum

levels would be rejected. If, because of these limits, a region's

allocation of subsidized export volume is not met in a given quarter--

and the next quarter is in the same GATT year--the balance of the

allocation would be shifted to future quarters in the same GATT year.

Export Flexibility. Winning bidders would be required to export the

agreed-upon quantity some time during the 12 months (or less) that

follow the award. The exporters would be free to allocate the subsidies

to individual sales as they choose. Under the Uruguay Round Agreement,

subsidized sales should not be conditioned or linked to other (non-

subsidized) sales. The export subsidy rights obtained by a winning

bidder would be transferable/tradeable in whole or in part. In other

words, a winning bidder could sell his or her right to the agreed-upon

per-unit subsidy for either all of the agreed-upon subsidized export

volume or part of this volume. USDA/CCC must be notified of any such

transactions.

Subsidy Payments. Subsidy payments would be made, on a pro rata

basis, at the time that verification of eligible exports is presented

to USDA/CCC.

Commodity Definitions. For purposes of defining the commodity that

is eligible for export subsidy in a given auction, USDA/CCC would seek

to be as unrestrictive as possible subject to practicality, maintaining

a minimal standard of product quality, and advancing trade and foreign

policy objectives.

Penalties for Non-compliance. If an exporter has subsidy rights,

but does not ``exercise'' these rights by exporting the requisite

commodity volume, USDA/CCC will take authorized actions to encourage

performance, such as debarment proceedings when an exporter exhibits a

pattern of non-performance. Such a measure would be taken in order to

discourage frivolous bids.

Interagency review and evaluation. If bonus levels are

significantly different across markets (suggesting that regional

restrictions may be too tight) or [[Page 32925]] particularly high for

certain commodities, interagency review would be called for, with

opportunity for corrective action as deemed necessary.

Pre-Announced Bonus

Under the pre-announced bonus mechanism, for each commodity, USDA/

CCC would publish a TPRG-cleared list of (regional) destinations.

Particularly sensitive countries could have limits on the quantity of

subsidized export sales or be excluded. On a periodic basis (weekly or

biweekly) USDA/CCC would announce the eligibility of a quantity of

commodity and the bonus level to be paid per metric ton (or other

unit). A single bonus would apply to all qualities of a particular

commodity.

Bonus Awards. Exporters would register for the bonus on a first-

come, first-served, basis and awards would be made up to the announced

quantity. The announced quantity would be available for a minimum of

several business days, but at USDA/CCC's discretion, any unused bonus

could remain available for offers until the next scheduled

announcement. Differential adjustments would be available for regions

where there is a significant freight disadvantage. Exporters would

request differential adjustments when making an offer for the pre-

announced bonus, and would be constrained to use the bonus within the

specified region.

Export Reporting. After export, exporters would report to USDA/CCC

the destinations, quantity and limited transaction information for the

sales for which a bonus award was used. For sensitive destinations,

exporters would need to report immediately on sales so that USDA/CCC

could ensure compliance with limits on export volumes.

Export Flexibility. Comments are especially invited on whether pre-

announced bonuses should be awarded with the requirement that exporters

may only bid if they have firm export sales contracts, or whether there

should be no such requirement. In the later case, a secondary market

for the transfer of export bonus awards might be permitted among

eligible exporters. Transactions in this secondary market would be

required to be reported to USDA/CCC.

Market-Oriented Modifications

This reform option is designed to modify current USDA/CCC export

subsidy programs to make them more efficient and more responsive to

changing world market conditions. It incorporates several market-

oriented changes into the existing program operation structure.

Current System. Currently, export subsidy program operations are

conducted on a transaction-by-transaction basis. After TPRG clearance,

USDA/CCC announces program allocations for each commodity at the

beginning of that commodity's marketing year. Allocations specify the

maximum quantity of exports that USDA/CCC is willing to subsidize to

each country or region. Exporters then submit to USDA/CCC an offer for

each export transaction, including proposed selling price and requested

bonus per metric ton or other unit. First, USDA/CCC reviews the export

sales price to ensure that it is not below world market levels. Second,

USDA/CCC reviews the bonus to ensure that it does not exceed the

difference between the higher U.S. domestic price and the approved

sales price. If USDA/CCC approves both the price and bonus, the

exporter is so notified by USDA/CCC. The exporter confirms the sale

with the foreign buyer.

USDA/CCC encourages bids by competing exporters. Following each

day's bonus awards, USDA/CCC publishes the quantity and the subsidy

amount for each sale awarded.

Reform Option. The following market-oriented modifications in this

system can better reach the objectives specified in the

Administration's Farm Bill guidance. These modifications are designed

to restore to the exporter the incentive to achieve higher selling

prices and to reduce the current export subsidy program's market

intrusiveness. The modifications might include the following:

Regional Allocations. Making all allocations regional or grouping

countries by other, non-geographic, criteria, with few countries

excluded from the program. Within regions, quantitative limits would be

applied to specific sensitive destinations;

Programming. Full GATT authorized quantities would be announced at

the beginning of the marketing year, but adjustments to allocations

among regions could be made on short notice throughout the year;

Bonus Focus. The emphasis in USDA/CCC's price/bonus review would be

more on bonus, with exporters better able to anticipate likely levels

of bonus awards. This would be accomplished by: (a) Limiting

differences in bonus awards within a particular region and shipping

period; (b) announcing the average bonus approved on a regional basis

rather than for each transaction; and (c) responding to trade inquiries

with specific reference to USDA/CCC's view of changes in market

conditions since the latest announced bonus award for a particular

region;

Export Flexibility. Exporters would be permitted to shift a bonus

award between different transactions within the same region and similar

shipping period, with notification to USDA/CCC;

Program Graduation. Countries or regions would be ``graduated''

from their eligibility for subsidy if the U.S. becomes fully price

competitive in some regions later in the GATT phase-in period.

Consideration of Comments

Additional comments on other program modifications that are

responsive to the Uruguay Round Agreements Act and the policy

principles outlined herein are encouraged. All comments submitted by

interested parties will be carefully considered. After consideration of

the comments received, USDA/CCC will consider what changes should be

made to its export subsidy programs. Some of the above-described

changes would require additional notice and consideration of comments

from interested parties via the rulemaking process. Others, such as

restructuring the programs by geographical regions, could be adopted by

changing internal policies and procedures.

Signed at Washington, DC, on June 21, 1995.

Christopher E. Goldthwait,

General Sales Manager and Vice President, Commodity Credit Corporation.

[FR Doc. 95-15590 Filed 6-23-95; 8:45 am]

BILLING CODE 3410-10-P