Commodity Credit Corporation Supplier Credit Guarantee Program

SUMMARY: The Commodity Credit Corporation (CCC) is issuing this interim

rule which amends the regulations for the Commodity Credit

Corporation's (CCC) Export Credit Guarantee Program (GSM-102) and the

Intermediate Export Credit Guarantee Program (GSM-103) by adding a new

subpart D, Supplier Credit Guarantee Program (SCGP). The SCGP is

designed to assist exporters of U.S. agricultural commodities who wish

to provide relatively short term (up to 180 days) credits to their

foreign buyers. Under SCGP, CCC will guarantee payment of such credits

by the foreign buyer, and the exporter may assign such guarantees to an

eligible U.S. financial institution.

This program will be administered by the Office of the General

Sales Manager (GSM), U.S. Department of Agriculture, on behalf of CCC.

DATES: The provisions of this interim rule are effective August 30,

1996; comments must be submitted on or before December 30, 1996.

FOR FURTHER INFORMATION CONTACT: L.T. McElvain, Director, CCC

Operations Division, Foreign Agricultural Service, U.S. Department of

Agriculture (USDA), Ag. Box 1035, Washington, DC 20250-1035; telephone

(202) 720-6211; FAX (202) 720-2949. The 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) 820-

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

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be economically significant and

was reviewed by the Office of Management and Budget (OMB) under

Executive Order 12866.

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not

applicable to this interim rule because 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.

Executive Order 12372

This program is 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).

Paperwork Reduction Act

The paperwork requirements that would be imposed by this interim

rule were described in the proposed rule and approved by the Office of

Management and Budget (OMB) under the Paperwork Reduction Act of 1980.

The OMB-assigned number for those requirements is OMB No. 0551-0037.

The public reporting burden for these collections is estimated to

average 0.18 hours 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 suggestions for reducing this

burden, to Department of Agriculture, Clearance Officer, OIRA, Room

404-W, Washington DC 20250; and to the OMB, Paperwork Reduction Project

# 0551-0037, Washington, DC 20503.

Executive Order 12778

This interim rule has been reviewed under the Executive Order

12778, Civil Justice Reform. The interim rule would have preemptive

effect with respect to any state or local laws, regulations, or

policies which conflict with such provisions or which otherwise impede

their full implementation. The rule would not have retroactive effect.

The interim rule requires that certain administrative remedies be

exhausted before suit may be filed.

The USDA is committed to carrying out its statutory and regulatory

mandates in a manner that best serves the public interest. Therefore,

where legal discretion permits, the Department actively seeks to

promulgate regulations that promote economic growth, create jobs, are

minimally burdensome and are easy for the public to understand, use or

comply with. In short, the Department is committed to issuing

regulations that maximize net benefits to society and minimize costs

imposed by those regulations.

Background

In the Federal Register of July 19, 1995 (60 FR 37025), CCC issued

a proposed rule to amend the regulations for the CCC Export Credit

Guarantee Programs (GSM-102/103), codified at 7 CFR part 1493, by

adding a new subpart D. Subpart D establishes the terms and conditions

for the Supplier Credit Guarantee Program (SCGP). The deadline for

comments on the proposed rule was September 18, 1995. Comments were

received from six U.S. exporters, one importer, three producer

associations, seven agribusiness associations, one U.S. financial

institution, and one U.S. Government agency (USDA Office of Inspector

General). These nineteen parties made approximately 88 separate and

significant comments regarding either the proposed rule, the

Preliminary Economic Impact Analysis, or the policy issues involved in

administering the SCGP.

Reason for Issuing an Interim Rather Than Final Rule

CCC is issuing this rule on an interim rather than a final basis

because, based on comments received on the proposed rule, it has made

several significant changes and is providing the public with an

additional opportunity for

[[Page 33826]]

comment. Specifically, CCC is establishing a condition on its payment

of a claim that results from a default under a guaranteed promissory

note. CCC will pay claims unless it determines that the guaranteed

portion of port value exceeds the prevailing U.S. market value of the

agricultural commodity or product exported. The reasons for this change

are discussed below under the General Comments section, Other general

comments, and under the Section-by-Section Analysis of Subpart D,

Sec. 1493.450, Payment guarantee. Also, CCC has modified Sec. 1493.510,

Payment for loss, to remove the immunity of assignees from the effects

of determinations by CCC not to pay claims based on the new exception.

CCC is publishing this interim rule, but will establish a comment

period of 120 days from the rule's effective date to permit program

participants an opportunity to provide views based, if possible, on

actual program experience.

Interim Economic Impact Analysis

Two of the commenters addressed, in part, the Preliminary Economic

Impact Analysis (PEIA). One commenter felt that each program option,

considered by CCC and briefly discussed in the PEIA, ``should be

implemented as each addresses a different need.'' The same commenter

also questioned why the SCGP was selected as the preferred option, in

that the PEIA did not discuss why the other options were ruled out. CCC

concurs that the other program options considered have merit, although

the reasons for selecting the SCGP option were given. CCC may, in the

future, incorporate features of the other options into, the SCGP

(subpart D), the GSM-102/103 programs (subpart B), or additional

programs that could be developed.

Another commenter stated that CCC may want to ``reassess the

estimated $3.1 million subsidy level'' determined for the SCGP. The

commenter felt that this estimate may be too low and enclosed a news

article discussing difficulties by some U.S. exporters in collecting

payments from importers. CCC by itself does not determine the

methodology used in estimating the subsidy level for its export credit

guarantee programs. The model for estimating the subsidy amount was

developed by the Office of Management and Budget (OMB). Country risk

ratings which are an important component in determining the subsidy

estimate are developed by a U. S. Government interagency group which is

chaired by OMB. After assessing the results of the initial phase of

operating the SCGP, CCC may propose changes in the subsidy model, or in

the model inputs, to more accurately determine appropriate subsidy

levels for the program.

The interim Economic Impact Analysis of the SCGP is available upon

request from Mary T. Chambliss, Deputy Administrator, Export Credits,

FAS/USDA, Ag. Box 1030, Washington DC 20250-1030; telephone (202) 720-

6301; FAX (202) 690-0727.

General Comments

Eighteen commenters commended CCC on its efforts to design a new

program to promote the sale of U.S. agricultural products. They

generally agreed that the program had potential for reducing export

financing costs, allowing importers to enjoy the benefits of CCC credit

guarantees more directly than is possible under the GSM-102/103

programs, and increasing the competitiveness of U.S. agricultural

products overseas. One commenter neither supported nor opposed the

program.

Guarantee Coverage

Eighteen respondents commented on CCC's proposal to inaugurate the

program with maximum coverage of 50 percent of principal (defined as

port value), with no coverage of interest. One commenter agreed that

the structure of the SCGP entails certain financial risks for CCC that

justify lower levels of coverage. Another commenter thought the

proposed coverage may be a starting point, but adjustments would have

to be made if the program is to gain wide acceptance, particularly from

the banking sector. Sixteen of the commenters contended that the

proposed coverage was too low to provide an incentive to exporters to

use the program. One commenter asserted that the proposed coverage

would be unattractive to exporters and the assignee bank, and that the

added risk would increase the cost of the transaction to the importer.

Two commenters suggested that CCC vary its level of coverage based on

the past performance of the importer. They also suggested that the

exporter be required to furnish information on the importer which,

under criteria to be established, could permit a higher level of

coverage. Suggestions for the level of coverage of principal ranged

from 70 percent to 98 percent, depending on whether or not interest

and/or freight would be included in the coverage.

After considering these comments, CCC has determined that during

the initial phase of the program, CCC's coverage will normally be

limited to 50 percent of principal. This level of coverage will provide

an incentive to U.S. exporters and their assignees to evaluate

carefully the credit risks posed by importers while still permitting an

expansion of export sales of targeted commodities and products. The

suggestion that CCC vary its level of coverage based on the past

performance of the importer or other information furnished by the

exporter on the importer may have merit. However, CCC will be in a

better position to assess this approach after gaining experience

operating the program. The amount of guaranteed coverage is not

specified in the regulation because CCC wishes to retain the ability to

adjust coverage, as necessary, to make the program workable, efficient,

and responsive to market conditions.

Freight Coverage

Six comments were received regarding the inclusion of freight costs

in the value on which guarantee coverage is based. Five commenters

argued that, with freight excluded, coverage would be too low. Two

commenters felt that, with freight coverage, exporters would be more

likely to use the SCGP. One commenter suggested that when freight costs

are more than 20 percent of export value, the level of coverage should

be increased.

CCC recognizes the validity of the concerns expressed. In cost and

freight (CFR) and cost, insurance and freight (CIF) transactions where

freight costs are a high percentage of total export value, CCC coverage

of 50% of commodity value would result in overall coverage of

substantially less than 50 percent of transaction value. CCC therefore

will retain the flexibility through Program Announcements to determine

whether, and to what extent, to provide coverage on a free on board

(FOB), free alongside ship (FAS), CFR, or CIF basis.

Guarantee Fees

Thirteen respondents commented on CCC's intention to set the

guarantee fee ``in the midpoint of the range of insurance premiums for

good risk countries charged by Eximbank'' (recently about 95 cents per

$100.00 of guaranteed coverage). One commenter agreed that the benefits

offered by the SCGP entail corresponding financial risks for CCC and,

therefore, justify higher fees. Another thought that the proposed fee

may be a starting point, but that adjustments would have to be made if

the program is to gain wide acceptance. Ten commenters felt the

proposed fee was too high given the proposed level of guaranteed

coverage. In general, their additional comments

[[Page 33827]]

can be summarized as follows: (1) Fees should be at or close to the

GSM-102 (subpart B) fee levels; (2) fees should be reasonable because

fees add to the overall financial exposure of the exporter; and (3)

high fees could be a disincentive for program participation. Two

commenters suggested that CCC vary its fees based on the past

performance record of the importer. They also suggested that the

exporter be required to furnish information on the importer which,

under criteria to be established, could permit lower fees.

One commenter stated that the Foreign Credit Insurance Association

varies its fees according to where exports are shipped, how shipments

occur, the payment history of customer, and the payment collection

history experienced by the exporter with the importer.

CCC appreciates these comments. To avoid a possible misconception

concerning the proposed fee structure for the SCGP, CCC provides the

following clarification: the fee would be assessed only on the value of

actual CCC coverage, (e.g., 50 percent of the port value), not on the

total port value registered. CCC recognizes that the 95 cents per

$100.00 fee on covered value is high in comparison to the fees charged

for credits of up to 180 days duration under the GSM-102 (subpart B)

program. However, under subpart B, CCC is insuring risks of eligible

foreign banks; under SCGP (subpart D), foreign buyer risk is likely to

be higher. Exporters will have a greater incentive to investigate the

creditworthiness of an importer if they have a larger degree of

financial risk in the export sales transaction. Also, a higher fee may

dissuade exporters from entering into speculative transactions because

the fee will not normally be refundable if the transaction is not

completed. Thus, CCC intends to initiate the SCGP with the fee policy

it described in the proposed rule. Adjustments in fee schedules can be

made in light of experience in operating the program.

Regarding the comment that CCC reduce its fee on transactions with

importers who have a proven performance record, CCC has determined

initially to have a single fee for all countries and commodities.

However, a sliding fee scale based on the importer's past performance

and other factors may have merit and remains an option as CCC gains

experience operating the program. The level of the registration fee is

not specified in the regulation, giving CCC flexibility in this matter.

Clarification

One respondent questioned what CCC meant by the statement in the

background of the proposed rule that CCC does not intend to routinely

conduct independent evaluations of the creditworthiness of individual

importers.

Although CCC does not at this time intend to make such evaluations

routinely, the proposed rule provides that CCC may request that the

exporter submit information/documentation on the importer as a

condition to CCC's approval of the exporter's application of a payment

guarantee. Such instances will, at the outset, be determined on a case-

by-case basis and will be related to the degree of experience CCC has

with the parties to the transaction, or to other pertinent credit risk-

related factors.

Country and Commodity Selection

Four respondents commented on the selection of countries and

commodities under the SCGP. One commenter felt that it would be a

mistake to direct SCGP primarily towards high value products and that

the program should be available for all U.S. agricultural commodities.

One commenter felt that the best way to determine where, and for what

commodities, the program should be used would be to begin operation of

the SCGP. The response of the financial and commodity markets would act

as the ``best barometer'' for the size and scope of the program.

Another respondent, an importer, urged CCC to include poultry to the

Commonwealth of Independent States under the SCGP. The importer stated

that the cost of obtaining a letter of credit in Russia was high and

further required payment in full to the bank in 30 days. By using SCGP,

the importer could have the certainty of financing and could proceed

with plans for building a facility in Russia to process U.S. poultry.

One commenter urged that country allocations for GSM-102/103 (subpart

B) and the SCGP be made separately.

CCC has given careful consideration to the issues of programming

countries and commodities under the SCGP. CCC intends initially to

program countries and commodities and/or products which it considers

may benefit from the SCGP and may not have benefitted from GSM-102.

Commodity and country selections will be made separately from the GSM-

102/103 (subpart B) program, but will follow the same criteria

specified in 7 CFR 1493.5. CCC will retain the flexibility, through

Program Announcements, to revise the SCGP country and commodity

allocations, as necessary, to ensure the most effective use of the

program.

Other General Comments

One commenter, a government agency, recommended that the provisions

of the Office of Management and Budget (OMB) Circular A-129, ``Policies

for Federal Credit Programs and Non-Tax Receivables,'' be applied to

the SCGP. The commenter recommended that: (1) Fees should be high

enough to cover the cost of making the loan guarantee, including

administrative costs, default and other subsidy costs; (2) in view of

budget constraints, the maximum fee permitted by law (7 U.S.C.

5641(b)(1)(B)), $1.00 per $100, should be charged; (3) lower fees may

be justified in instances where borrowers (importers) prepay part of

the shipment because the risk of default would be reduced; (4) riskier

buyers should be charged more in fees than those who pose less risk;

and (5) fees should be set on a sliding scale reflecting country and

commercial risk factors. According to this commenter, such factors

should include the strength of the country's central bank and whether

or not the country subscribes to uniform commercial code agreements

that govern international commerce. The commenter further suggested

that CCC require exporters to certify and document that they cannot

obtain credit from private sources, and that CCC determine whether the

applicant is delinquent on any Federal debt, including tax debt, before

approving the guarantee. This commenter also suggested that CCC should

require exporters to follow due diligence in collecting past due

accounts and in using litigation to enforce payment on guaranteed

credits. The commenter recommended that CCC require that the export

sales contract state that CCC will, in the event of nonpayment, assess

interest, penalties, and administrative charges against the importer.

The commenter further recommended that all accounts due CCC that are

six months or more past due be turned over to a collection contractor

unless CCC is involved in litigation.

Although applicable statutes do not require the CCC to apply the

provisions of OMB Circular No. A-12, CCC agrees that program rules

should operate not only to lower CCC's risk, but also to assure that

CCC and exporters are sharing the risk of loan defaults. The proposed

rule includes certain provisions, i.e. lower level of coverage and

higher fees, that are intended to encourage exporters to evaluate

carefully importer creditworthiness. However, the provisions of the

proposed

[[Page 33828]]

rule may not adequately ensure that (1) the risk sharing objectives

outlined in the Background section of the proposed rule (part C, How

certain SCGP provision differ from GSM-102) will be achieved, or (2)

CCC would be protected from paying excessive claims stemming from

export transactions with prices inflated far above prevailing market

levels. Therefore, CCC is establishing a condition on its payment of a

claim to address these two concerns. This new provision and required

related modifications are discussed below under Section-by-Section

Analysis of Subpart D, Section 1493.450, Payment guarantee.

The other suggestions of the commenter have also been considered

carefully and evaluated in terms of cost-effectiveness and relevance to

protecting the financial interests of CCC. Many of the suggestions of

the commenter could be implemented as a matter of policy under the rule

as proposed. CCC has therefore determined not to incorporate the

suggestions into this interim rule, but will continue to review them in

light of experience gained in operating the SCGP.

Other commenters addressed issues other than the proposed

regulations. CCC has determined not to discuss these unrelated

comments. CCC will, however, take these additional views into

consideration as they relate to CCC's other commercial export programs.

Section-by-Section Analysis of Subpart D

The numbering system of the interim rule differs somewhat from that

of the proposed rule. One section was deleted. For the purposes of this

discussion, the numbering system of the interim rule will be used,

except where otherwise indicated.

Section 1493.400 General Statement

Two respondents commented on Sec. 1493.400(a), Overview. One

commenter felt that the proposed 180 day maximum terms are adequate for

single transactions. However, this commenter suggested that to better

coincide with existing trade practices, CCC should guarantee lines of

credit, rather than single transactions. This commenter also thought

that annual (or shorter) revolving credit guarantees would reduce

administrative costs for the exporter, importer, and CCC without

reducing the ability of CCC to manage its risk. The commenter stated

that established buyers would have better procurement planning and

control under a line of credit. The second commenter felt that because

of small profit margins on cotton, exporters would not find open

accounts for up to 180 days a viable business practice. The commenter

added that some countries under GSM-102/103 operate with strict central

bank guidelines regarding foreign exchange that require letters of

credit to make the import purchases. The commenter wondered how the

SCGP could be successful in such countries.

CCC recognizes that the SCGP may not work effectively for all

commodities in all countries. Exporters who have successfully used the

GSM-102 program may continue to rely on that program.

Regarding revolving lines of credit, CCC finds this an interesting

concept and will continue to assess its merits. However, at this time

the budget allocation and subsidy funding for SCGP are not based on

revolving lines of credit. A revolving line of credit would require

fundamental changes in CCC accounting and computer database systems.

CCC will not be in a position to consider implementing revolving lines

of credit guarantees until these and other issues are resolved.

Section 1493.410 Definition of Terms

Although no public comment was received specifically regarding the

definition of Importer obligation, found at Sec. 1493.410(n), comments

were received on Sec. 1493.470, Importer obligation of the proposed

rule (see Section-by-Section Analysis of Subpart D, Sec. 1493.470

Importer Obligation). Based on those comments, CCC revised the

definition to read: ``A promissory note or notes that conform(s) with

the requirements for such note(s) specified in the applicable country

or regional Program Announcement(s).'' By specifying the provisions of

the promissory note(s) in the Program Announcement, CCC will retain

flexibility to specify provisions for a particular country or region

and, if necessary, to make changes in such provisions in light of

changing circumstances. In addition to specifying the form of the

promissory note in Program Announcement, CCC will refer to the

particular form of promissory note in the special terms and conditions

described on the face of the guarantee and attach the required form of

the promissory note to the guarantee. This change requires deletion of

Sec. 1493.470 Importer Obligation, from the interim rule.

Three respondents made comments regarding Sec. 1493.410(x), the

definition of a U.S. agricultural commodity. Two commenters stated that

for the SCGP to be effective and increase sales of high value or value

added products, changes would be needed regarding permissible levels of

foreign-origin agricultural components in such products. One commenter

stated that Congress should better define the term ``U.S. origin'' or

provide a tolerance for foreign components.

The Department of Agriculture agrees with these comments and

supports legislation to change the definition of ``product of an

agricultural commodity'' now contained in section 102(7)(B) of the

Agricultural Trade Act of 1978, as amended, (7 U.S.C. 5602)(7)(B)).

Until such legislative action, the definition contained in the proposed

rule must be retained.

Section 1493.420 Information Required for Program Participation

No public comments were received on this section. No changes have

been made in this section of the interim rule.

Section 1493.430 Application for Payment Guarantee

Two respondents made comments regarding Sec. 1493.430(a), which

requires that a firm export sale exist before an exporter may submit an

application for a payment guarantee. Both commenters suggested that

this requirement be changed to allow the export sale to be contingent

upon approval of the payment guarantee. The commenters advocated that

an exporter and importer should agree on the terms of the sale but, if

the payment guarantee is not obtained, cancellation of the sale should

be allowed. One commenter recommended that CCC require a copy of the

sales contract be submitted at the time the payment guarantee is

requested. The commenter believed that the list of the 17 requested

items could be reduced if the sales contract was provided.

The ``firm'' sale requirement of Sec. 1493.430(a) does not preclude

a sales contract from being contingent on approval by CCC of a payment

guarantee. At a minimum, this rule requires that the exporter and

importer be in agreement regarding the terms and conditions required to

be reported in an application for a payment guarantee.

Regarding the comment that CCC require exporters to submit sales

contracts, CCC disagrees that the suggestion would save time. Sales

contracts often contain terms and conditions that CCC does not need to

review. CCC does not want the burden of reviewing and safeguarding a

large quantity of business confidential and sensitive private documents

where that is unnecessary. CCC reserves the right to request an

exporter's sales contract in reviewing applications from newly

[[Page 33829]]

eligible applicants, where questions of program compliance or control

arise.

Three comments were received regarding Sec. 1493.430(16). These

concerned the statement that CCC would reserve the right to require

exporters to submit additional information about the importer. One

respondent was concerned about the nature of the information. If CCC

requested proprietary information, would CCC protect the information

from public disclosure? The respondent felt that exporters may be

reluctant to provide importer information unless there are clear

protections against its release. Another commenter felt that providing

information regarding the importer could be a potential paperwork

burden. The third respondent suggested that information be requested

for all first-time applicants of the program. This commenter suggested

that the information requested should, at a minimum, include credit

rating, trade references, and bank references and should be submitted

before CCC approves the payment guarantee.

As stated in the background section of the proposed rule (part

C(5), Application), CCC will not routinely conduct independent

evaluations of the creditworthiness of individual importers, but will

reserve the right to require exporters, in the application process, to

provide additional information concerning the importer. Such

information may include the importer's credit and payment history with

the applicant, and any credit analysis the exporter has done regarding

the importer. CCC will protect any proprietary information submitted by

exporters to the extent permitted by law.

Three comments were received regarding CCC's price review process

established under Sec. 1493.430(b). Two commenters asked whether the

SCGP would be subject to price review. One commenter stated that

elimination of price review would save time and reduce paperwork. The

commenter also felt that if price review were included in the SCGP, it

would make the program unattractive. Another commenter wondered how

prices would be reviewed because for short term credit transactions it

is a common commercial practice to build interest into the sales price.

One commenter noted that the rule does not contain a detailed

discussion of price review and urged CCC to be as flexible as possible

in the administration of this function. The respondent noted that for

fresh produce, price review must be sensitive to prices which can vary

from hour to hour.

To the extent that SCGP transactions may be subject to price

review, CCC may choose to price review different commodities

differently or exempt some commodities from price review. Although CCC

does not intend to provide guarantee coverage for interest risk

separately, CCC realizes that, under SCGP, exporters may build interest

into their sales prices. If CCC were to subject the SCGP to price

review, CCC could take this into account.

Four respondents commented on Sec. 1493.430(c), Ineligible

Exporter. One commenter felt strongly that no financial or ownership

connection should exist between exporter and importer. The commenter

indicated that if such a connection existed, defaults would be

encouraged and make the program unworkable. Another commenter felt that

restrictions on relationships between importers and exporters would

dissuade many potential participants. In particular it would restrict

many smaller import/export companies because the U.S.-based exporter

may be related to the importer. One commenter felt that CCC may be

increasing its export risk, in some cases, with its prohibition against

within-company and joint venture transactions. This commenter agreed

that taxpayers should not finance intra-company sales. However, in some

instances, particularly common-owner or joint-venture sales, such

restrictions would force export sales to competing foreign suppliers.

The commenter requested greater flexibility to allow CCC to choose

export transactions benefiting U.S. agriculture.

The ``ineligible exporter'' provision is intended to avoid the

situation in which CCC would receive a claim for loss from an exporter

that directly or indirectly owns or controls, or is owned or controlled

by, the importer responsible for the default. CCC has determined not to

change this provision.

One commenter felt that any exporter who has three defaults under

the program in five years should be considered ineligible for further

participation. With respect to this comment, CCC does not wish to

qualify exporters based upon the performance of importers. However, CCC

will continue to evaluate whether program modifications may be needed

to provide incentives/disincentives to exporters based on program

participation experience.

Section 1493.440 Certification Requirements for a Payment Guarantee

No public comments were received on this section. No changes have

been made in this section of the interim rule.

Section 1493.450 Payment Guarantee

To address the risk issues raised by comments from a government

agency (see General Comments, Other general comments), CCC has revised

the first sentence of Sec. 1493.450(a) to read: ``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 importer fails to pay under the

importer obligation unless CCC determines, with respect to the

particular transaction and claim, that the guaranteed portion of the

port value exceeded the prevailing U. S. market value for the same, or

same type of, agricultural commodity or product. In making this

determination, CCC will adjust the prevailing U.S. market value for

estimated freight and/or insurance costs if the export sale was made on

a CFR or CIF basis.''

CCC recognizes that determining a prevailing U.S. market value may

be difficult for some products, particularly for some high value and

value added products. CCC will, therefore, utilize information from all

available sources including, when appropriate, information furnished by

participants to the transaction to support the validity of the claim.

Exporters using normal pricing practices, i.e., pricing at or near the

market without excessive markups intended to shift to CCC all risk of

loss, need not be concerned that the new claim review provision will

result in a denial of a claim should a default occur.

In instances where CCC has reviewed the unit price of the commodity

in the process of approving an exporter's application for a payment

guarantee pursuant to Sec. 1493.430(b), and the price of the commodity

reported by the exporter in the evidence of export report has not

changed (Sec. 1493.470(a)(7)), CCC will not conduct another review of

the price of the transaction as a condition for paying a claim.

Although CCC may conduct some price reviews pursuant to

Sec. 1493.430(b) as it deems desirable, it does not intend to do so

with respect to all exporter applications. Such price reviews will be

done entirely at CCC's discretion, and nothing in the SCGP regulations

provides exporters the right to demand or expect that such price

reviews take place prior to issuing a payment guarantee.

This new provision is intended to ensure that there will be

substantial risk sharing on the part of the exporter, and that CCC will

not pay claims inflated by transaction prices far above prevailing

market levels. CCC has no intention of avoiding payment of normal

claims, nor does it intend to regulate or control

[[Page 33830]]

exporters' profit margins. CCC's sole intention is to enhance the

integrity of the SCGP. CCC encourages and welcomes any comments

regarding this provision.

Section 1493.460 Guarantee Rates and Fees

No public comments were received on this section. No changes have

been made in this section of the interim rule.

Section 1493.470 Importer Obligation (as in the Proposed Rule)

As stated in Sec. 1493.410, Definition of Terms, of the Section-by-

Section Analysis of Subpart D, CCC has determined to delete

Sec. 1493.470. Three comments were received regarding this section. One

commenter thought that the terms of the promissory note were too

onerous. Another commenter felt that use of a promissory note as

evidence of indebtedness was a step in the right direction. However,

the commenter was concerned that not enough is known about the legal

enforceability of the promissory note in countries whose commercial

code is different from ours. Having a foreign bank aval or guarantee

would mitigate the risk of possibly having a legally unenforceable

document. The commenter also recommended that the optional provision

regarding late interest under Sec. 1493.470(d)(1), be made a

requirement since it is customary business practice to charge late

interest when payments are not made on the due date. The commenter felt

that this would also provide CCC with a mechanism to be paid interest

on outstanding claims. Another commenter felt the promissory note may

need to include a ``sound product provision.'' This commenter suggested

that if there were quality problems upon arrival, it may be appropriate

to be flexible in adjusting the value of the promissory note.

CCC's decision to retain flexibility in adapting the provisions of

the promissory note should partially address the concerns expressed

that the note contained in the proposed rule would be too onerous and

may not be legally enforceable in some countries. Although CCC

continues to believe that the previously proposed promissory note, or

one substantially similar to it, will be the basic instrument required

by most Program Announcements in the initial implementation of the

SCGP, CCC will make adaptations, including adaptations specific to a

particular country or region, if they appear necessary to enhance the

likelihood of enforceability. Similarly, if experience demonstrates

that the terms of the proposed note are too onerous, modifications will

be considered that are consistent with overall program goals and

criteria.

CCC's intention to make adaptations, as necessary, in the form of

the required promissory note would be compatible with the objectives

stated by other commenters. For example, CCC could adopt a note

permitting a foreign bank aval or a guarantee. For now, however, CCC

has determined not to make this a program requirement because one of

the primary intentions of the SCGP is to remove the foreign bank's

mandatory involvement in the transaction. Additionally, CCC could

choose to incorporate a provision regarding late interest into the

importer's promissory note. Regarding a ``sound product provision,''

value adjustments could be agreed to by exporters and importers. In the

event the promissory note had already been executed prior to

establishing the actual export value, a substitute promissory note

might need to be executed. If the exporter had submitted an Evidence of

Export (EOE) before the value adjustment is made, the exporter would

have to file an amended EOE with CCC. In any event, CCC's principal

coverage would be limited to the lower of the value of the export

transaction established by the EOE or the principal amount of the

promissory note.

Section 1493.470 Evidence of Export

One comment was received regarding Sec. 1493.470(b), Time limit for

submission of the EOE (of the interim rule). The respondent suggested

that CCC allow a standard 60 days to submit the EOE. The respondent

thought exporters would be seeking extensions of the proposed 30-day

period in order to obtain a fully executed promissory note from the

importer.

Under the proposed rule, EOEs must be filed in 30 days if export is

by vessel, and 60 days if export is by truck or rail. Experience under

the GSM-102/103 programs has not shown a need to increase the 30 day

filing requirement for EOEs on vessels. However, under the proposed

rule, an exporter needing additional time to file an EOE may request

that the General Sales Manager extend the time limit for filing. CCC

has determined not to change the time limit for filing the EOE, but to

assess the need for such a change after the SCGP has been in operation.

Timely submission of the EOEs will be important to permit CCC to keep

accurate program data for release to the public as well as for internal

program monitoring and controls.

Section 1493.480 Certification Requirements for Evidence of Export

No public comments were received on this section. No changes have

been made in this section of the interim rule.

Section 1493.490 Proof of Entry

One comment was received regarding Sec. 1493.490(b), Records of

proof of entry (of the interim rule). From the viewpoint of the

commenter, the requirement that exporters obtain written proof that the

exported goods entered the country would be particularly problematic

for fresh produce exporters. Traditionally, once the product leaves the

dock the exporter ceases to have any control or liability for the

goods. It is not currently a practice in the produce industry to

provide proof the goods actually left the U.S. The commenter requested

that CCC seek an alternate approach which will satisfy the requirements

of the program, but be practical for fresh produce exporters.

CCC has determined to make no changes in this section. The

requirement that exporters maintain records of an official or customary

commercial nature, or other documents to verify the arrival in the

foreign country of the agricultural commodity exported, is mandated by

section 401(a)(1) of the Agricultural Trade Act of 1978, as amended (7

U.S.C. 5661(a)(1)). Furthermore, if a default occurred under a

guaranteed transaction in which the commodity was exported by truck or

rail, the entry certificate or similar document would be included when

filing a claim for loss (see Sec. 1494.500(b)). If traditional forms of

entry documentation are unobtainable, Sec. 1494.490(b) permits CCC to

consider other types of documents which can be deemed acceptable by the

General Sales Manager. CCC believes that these provisions are flexible

enough to meet the concerns raised by the commenter.

Section 1493.500 Notice of Default and Claims for Loss

One comment was received regarding Sec. 1493.500, Notice of default

and claims for loss (of the interim rule). This commenter suggested

that CCC pre-approve documents that are normally submitted in the claim

procedure. The respondent stated that there is a need for greater

certainty in the approval of documentation in case of a default, and

that exporters would be willing to pay a fee to cover the cost of pre-

approval.

Partly because of the added administrative burden that pre-approval

of documents would place on CCC, this suggestion will not be adopted at

this time. However, CCC will continue to consider this issue which is

also

[[Page 33831]]

relevant to the GSM-102/103 (subpart B) programs.

This same commenter suggested that CCC provide an example of

subrogation language in an addendum to its regulations. Since exporters

are not banks, they require specific language to fulfill their

responsibility in the event of a default. CCC agrees with the comment

and will make available an example of language for an Instrument of

Subrogation and Assignment.

Section 1493.510 Payment for Loss

Although no comments were received regarding Secs. 1493.510 (b) and

(e), CCC has revised these provisions to be consistent with the changes

made in Sec. 1493.450(a), CCC's obligation.

Section 1493.510(b), Amount of CCC's liability, is revised to read

in part: ``Subject to a determination by CCC with respect to prevailing

U.S. market value pursuant to Sec. 1493.450(a), of this part, CCC's

maximum liability for any claims for loss * * * .''

Section 1493.510(e), Action against the assignee, is revised to

read: ``Notwithstanding * * *. CCC will not, except pursuant to a

determination under Sec. 1493.450(a) of this part, 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:''

Section 1493.520 Recovery of Losses

No public comments were received on this section. No changes have

been made in this section of the interim rule.

Section 1493.530 Miscellaneous Provisions

One comment was received regarding Sec. 1493.530(a), Assignment (of

the interim rule). The commenter suggested that greater flexibility is

needed in the assignment of proceeds, including the sub-assignment to

more than one party. The commenter felt this would bring the

transaction in line with standard practice for similar financial

instruments.

CCC has traditionally not allowed assignment of a payment guarantee

to more than one party. However the proposed rule permits further

assignment if `` * * * approved in advance by CCC.'' Therefore, CCC has

determined it is not necessary at this time to change Sec. 1494.530(a).

List of Subjects in 7 CFR Part 1493

Administrative practice and procedures, Agriculture, Agricultural

commodities, Credits, Exports, Guarantees, Reporting and recordkeeping

requirements.

PART 1493--[AMENDED]

Accordingly, part 1493 of title 7 is amended by adding and

reserving subpart C and adding subpart D reading as follows:

Subpart C--[Reserved]

Subpart D--CCC Supplier Credit Guarantee Program Operations

Sec.

1493.400 General statement.

1493.410 Definition of terms.

1493.420 Information required for program participation.

1493.430 Application for a payment guarantee.

1493.440 Certification requirements for a payment guarantee.

1493.450 Payment guarantee.

1493.460 Guarantee rates and fees.

1493.470 Evidence of export.

1493.480 Certification requirements for the evidence of export.

1493.490 Proof of entry.

1493.500 Notice of default and claims for loss.

1493.510 Payment for loss.

1493.520 Recovery of losses.

1493.530 Miscellaneous provisions.

Authority: 7 U.S.C. 5602, 5622, 5661, 5662, 5663, 5664, 5676; 15

U.S.C. 714b(d), 714c(f).

Subpart C--[Reserved]

Subpart D--CCC Supplier Credit Guarantee Program Operations

Sec. 1493.400 General statement.

(a) Overview. (1) This subpart contains the regulations governing

the operations of the Supplier Credit Guarantee Program (SCGP). The

restrictions and criteria set forth at subpart A for the Commodity

Credit Corporation (CCC) Export Credit Guarantee Program (GSM-102) and

the Intermediate Credit Guarantee Program (GSM-103) will apply to this

subpart. The SCGP was developed to expand U.S. agricultural exports by

making available payment guarantees to encourage U.S. exporters to

extend financing on credit terms of not more than 180 days to importers

of U.S. agricultural commodities.

(2) The SCGP operates in cases where credit is necessary to

increase or maintain U.S. exports to a foreign market and where private

U.S. exporters would be unwilling to provide financing without CCC's

guarantee. The program is operated in a manner intended not to

interfere with markets for cash sales. The program is 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 this program is the SCGP payment

guarantee (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, where applicable, interest due from, but not paid by,

the importer incurring the obligation 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 government, financing and incurs a substantial

portion of the risk of default by the importer. CCC assumes this risk,

in order to be able to operate the program for the purposes specified

in Sec. 1493.2.

(b) Credit facility mechanism. (1) For the purpose of the SCGP, 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 under an unconditional

and irrevocable importer obligation to a U.S. exporter payable in U.S.

dollars, as defined in Sec. 1493.410(n).

(2) The exporter may assign the right to proceeds under the

importer 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 importer obligation.

(3) The SCGP payment guarantee is 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 importer under the importer's obligation.

(c) Program administration. The SCGP will be administered pursuant

to subpart A and this subpart and any Program Announcements and Notices

to Participants issued by CCC pursuant to, and not inconsistent with,

this subpart. This program is 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

[[Page 33832]]

telephone and facsimile numbers of particular USDA or CCC offices, will

be announced by a public press release (see Sec. 1493.410(c),

``Contacts P/R'').

(d) Country allocations and program announcements. From time to

time, CCC will issue a Program Announcement to announce a SCGP

allocation for a specific country. The Program Announcement for a

country allocation will designate specific allocations for U.S.

agricultural commodities or products thereof, will indicate the form of

promissory note required by CCC, and will provide other pertinent

information. Exporters may negotiate export sales to importers 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 ``unallocated'' or ``undesignated''

dollar amount will contain further information on the ``unallocated''

or ``undesignated'' portion of the country allocation.

Sec. 1493.410 Definition of terms.

Terms set forth in this subpart and in CCC Program Announcements,

Notices to Participants, and any other CCC-originated documents

pertaining to the SCGP 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 SCGP. 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. 1493.420.

(j) FAS/USDA. The Foreign Agricultural Service, U.S. Department of

Agriculture.

(k) GSM. The General Sales Manager, FAS/USDA, acting in his

capacity as Vice President, CCC, or his designee.

(l) 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.

(m) 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.

(n) Importer obligation. A promissory note or notes that conform(s)

with the requirements for such note(s) specified in the applicable

country or regional Program Announcement(s).

[[Page 33833]]

(o) 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).

(p) Intervening purchaser. A party that agrees to purchase U.S.

agricultural commodities from an exporter and sell the same

agricultural commodities to an importer.

(q) 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.

(r) 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.

(s) 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 (including the required form of promissory note),

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 an importer under the importer obligation.

(t) 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.

(u) 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, the form of promissory note required

for a particular country or region, and include other information and

requirements.

(v) SCGP. The Supplier Credit Guarantee Program described by this

subpart.

(w) United States or U.S. All of the 50 states, the District of

Columbia, and the territories and possessions of the United States.

(x) 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 not 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).

(y) USDA. United States Department of Agriculture.

Sec. 1493.420 Information required for program participation.

Before CCC will accept an application for a payment guarantee under

the SCGP, the applicant must qualify for participation in this program.

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 program.

(a) Submission of documentation. In order to qualify for

participation in the SCGP, 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 export sale

contemplated by the applicant under this subpart;

(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

[[Page 33834]]

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 is qualified under

subpart B, Sec. 1493.30 is qualified under this section to submit

applications for a SCGP payment guarantee, and the information provided

by the exporter pursuant to Sec. 1493.30 will be deemed to also have

been provided under this section. Each application must include the

statement required by Sec. 1493.430(a)(17) incorporating the

certifications of Sec. 1493.440, including the certification in

Sec. 1493.440(e) that the information previously provided pursuant to

Sec. 1493.420 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 SCGP 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. 1493.430 Application for a 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 the exporter

chooses, 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) The term length for the credit being extended and the

intervals between principal payments for each shipment to be made under

the export sale;

(15) 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;

(16) Other information as requested by CCC or specified in Program

Announcements and Notices to Participants, as applicable; and

(17) The exporter's statement, ``ALL SECTION 1493.440

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. 1493.440.

(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. 1493.450(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.

(c) Ineligible exporter. An exporter will be ineligible to obtain a

payment guarantee if such exporter:

(1) Directly or indirectly owns or controls the importer;

(2) Is directly or indirectly owned or controlled by the importer;

or

(3) Is directly or indirectly owned or controlled by a person(s) or

entity(ies) which also owns or controls the importer.

Sec. 1493.440 Certification requirements for payment guarantee.

By providing the statement in Sec. 1493.430(a)(17), 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. 1493.430(a)(17), 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. 1493.410(x);

(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

[[Page 33835]]

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. 1493.420 has not

changed, the exporter still meets all of the qualification requirements

of Sec. 1493.420, 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 SCGP 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. 1493.450 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 importer fails to pay under the importer obligation. unless CCC

determines with respect to the particular transaction and claim that

the guaranteed portion of the port value exceeded the prevailing U.S.

market value for the same, or same type of agricultural commodity or

product. In making this determination, CCC will adjust the prevailing

U.S. market value for estimated freight and/or insurance costs if the

export sale was made on a CFR or CIF basis. Payment by CCC will be in

U.S. dollars.

(b) Period of guarantee coverage. The payment guarantee will apply

to a credit period not exceeding 180 days beginning either on the

date(s) of export(s) or from 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 guarantee coverage under this

subpart, 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. 1493.410(x). 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. 1493.460 Guarantee rates and fees.

(a) Guarantee fee rates. The current payment guarantee fee rate(s)

will be available by Program Announcement.

(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. 1493.470 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;

[[Page 33836]]

(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 any other

program if any portion of the export sale was also approved for

participation in any of the following CCC or USDA export program:

Export Enhancement Program, Dairy Export Incentive Program,

Sunflowerseed Oil Assistance Program, or Cottonseed Oil Assistance

Program; and

(10) The exporter's statement, ``ALL SECTION 1493.480

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. 1493.480.

(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, as amended (7 U.S.C. 5712) for exports of wheat and wheat

flour, feed grains, oilseeds, cotton, and other agricultural

commodities and products thereof.

Sec. 1493.480 Certification requirements for the evidence of export.

By providing the statement contained in Sec. 1493.470(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 SCGP 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. 1493.470(a)(10), certifies that:

(a) The agricultural commodity or product exported under a payment

guarantee is a United States agricultural commodity or product thereof,

as defined in Sec. 1493.410(x);

(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) There is an importer obligation as defined in Sec. 1493.410(n)

to cover the exported 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. 1493.420 has not

changed, the exporter still meets all of the qualification requirements

of Sec. 1493.420 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. 1493.490 Proof of entry.

(a) Diversion. The diversion of commodities covered by a SCGP

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 SCGP 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. 1493.500(b)(4)(ii).)

Sec. 1493.500 Notice of default and claims for loss.

(a) Notice of default. If the importer fails to make payment

pursuant to the terms of the importer 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 importer (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 importer;

(4) Due date;

(5) Total amount of the defaulted payment due, indicating

separately the amounts for principal and interest;

(6) Date of importer's refusal to pay, if applicable; and

(7) Reason for importer's refusal to pay, if known.

[[Page 33837]]

(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

importer 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) The importer obligation;

(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 importer obligation; and

(v) A copy of the report(s) of export previously submitted by the

exporter to CCC pursuant to Sec. 1493.470(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 importer 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. 1493.510 Payment for loss.

(a) Determination of CCC's liability. Upon receipt in good order of

the information and documents required under Sec. 1493.500, 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. Subject to a determination by CCC

with respect to prevailing U.S. market value pursuant to

Sec. 1493.450(a) of this part, 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 receipt 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 or the

importer obligation 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, except pursuant to a

determination under Sec. 1493.450(a) of this part, 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

Secs. 1493.470 and 1493.480, 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. 1493.500.

Sec. 1493.520 Recovery of losses.

(a) Notification. Upon payment of loss to the exporter or the

exporter's assignee, CCC will notify the importer 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 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

[[Page 33838]]

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, 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 payment

guarantee, CCC pro rates 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. 1493.520--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 SCGP. 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 Secs. 1493.440(b) and 1493.480(d) or the failure of an exporter to

comply with the provisions of Secs. 1493.490 or 1493.530(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

importer.

Appendix A to Sec. 1493.520--Illustration of Pro Rata Allocation of

Recoveries

The following example illustrates CCC's policy, as set forth in

Sec. 1493.520(c), regarding pro rata sharing of recoveries made for

claims filed under the SCGP. A typical case might be as follows:

1. The U.S. exporter enters into a $200,000, 180 day credit

arrangement with the importer calling for two equal payments of

principal and two equal payments of interest at a rate of 10 percent

per annum and a penalty interest rate of 12 percent per annum (basis

360 days) on overdue amounts until the overdue amount is paid.

(Basis for interest calculation may be 360 or 365 days.)

2. The importer fails to make the final principal payment of

$100,000 and an interest payment of $2,500.00 (10% per annum for 90

days on $100,000), both due on January 31.

3. On February 10, the U.S. exporter files a claim in good order

with CCC.

4. CCC's guarantee states that CCC's maximum liability is

limited to 60 percent of the principal amount due ($60,000) and

interest at a rate of 8 percent per annum (basis 365 days) on 60

percent of the principal outstanding ($1,183.56) (8% per annum for

90 days on $60,000). (CCC's basis for interest calculation is 365

days.)

5. CCC pays the claim on February 22.

6. The average investment rate of the most recent 91-day

Treasury Bill auction average which has been published by the

Department of Treasury in effect on the date of nonpayment by CCC

(January 31) is 7 percent. (CCC's late interest rate.)

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--(60% $100,000).............. $60,000.00

(b) Interest coverage--(8% per annum for 90 days on

$60,000, basis 365 days)........................... 1,183.56

---------------

$61,183.56

(c) Late interest due from CCC (7% per annum for 11

days on $61,183.56, basis 365 days)................ 129.07

---------------

(d) Amount paid by CCC on February 22............... $61,312.63

2. Importer's obligation under the importer obligation:

(a) Principal due January 31........................ $100,000.00

Interest due January 31.........................

(10% per annum for 90 days on $100,000, basis

360 days)...................................... 2,500.00

---------------

Amount owed by importer as of January 31........ $102,500.00

(b) Penalty interest due (12% per annum for 22 days

on $102,500.00, basis 360 days).................... 751.67

(c) Amount owed by importer as of February 22....... $103,251.67

3. Amount of importer's obligation not covered by CCC's

payment guarantee: $41,939.04 ($103,251.67-$61,312.63).

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 importer 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 importer is

$103,251.67, CCC would be entitled to 59.38 percent ($61,312.63

divided by $103,251.67) and the holder of the payment guarantee

would be entitled to 40.62 percent ($41,939.04 divided by

$103,251.67) 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. 1493.520(b) would apply.

Sec. 1493.530 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

[[Page 33839]]

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;

(2) Owns or controls the entity issuing the importer obligation; or

(3) Is owned or controlled by an entity that owns or controls the

entity issuing the importer obligation.

(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) Owns or controls the entity issuing the importer obligation; or

(3) Is owned or controlled by an entity that owns or controls the

entity issuing the importer obligation.

(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 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. 1493.490(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 issued pursuant to this subpart. Applicants for

payment guarantees 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 requirements contained in this part (7 CFR part

1493, subpart D) 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 0551-0037.

Signed this 25th day of June 1996 at Washington, DC.

Mary T. Chambliss,

Acting General Sales Manager, Foreign Agricultural Service and Acting

Vice President, Commodity Credit Corporation.

[FR Doc. 96-16674 Filed 6-28-96; 8:45 am]

BILLING CODE 3410-10-P