CCC Facility Guarantee Program (FGP)

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1493

RIN 0551-AA35

CCC Facility Guarantee Program (FGP)

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Interim rule with request for comment.

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SUMMARY: This interim rule provides for facility payment guarantees to

be issued by the Commodity Credit Corporation (CCC). The guarantees are

to be issued in connection with sales of goods or services to establish

or improve agricultural-related facilities in emerging markets to

expand exports of U.S. agricultural commodities or products.

DATES: Effective date: August 8, 1997. Comment date: Comments due on or

before October 7, 1997.

ADDRESSES: Comments must be submitted in writing to L.T. McElvain,

[[Page 42652]]

Director, CCC Operations Division, Foreign Agricultural Service, U.S.

Department of Agriculture (USDA), Stop 1035, Washington, DC 20250-1035;

FAX (202) 720-2949. All comments received will be available for public

inspection at the U.S. Department of Agriculture, Room 4523-S, 1400

Independence Avenue, SW, Washington, DC 20250 during regular business

hours.

FOR FURTHER INFORMATION CONTACT: William S. Hawkins, Branch Chief, or

Mark A. Rasmussen, Agricultural Marketing Specialist, Export Programs

Survey & Review Branch, CCC Operations Division, Foreign Agricultural

Service, U.S. Department of Agriculture (USDA), Stop 1035, Washington,

DC 20250-1035; telephone (202) 720-3241 or 720-1537; FAX (202) 720-

0938.

SUPPLEMENTARY INFORMATION:

Executive Order 12291

This rule has been determined to be 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 since CCC is not required by 5 U.S.C.

553 or any other provision of law to publish a notice of rulemaking

with respect to the subject matter of this rule.

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).

Environmental Evaluation

The Foreign Agricultural Service (FAS) is excluded from the

requirements of preparing procedures to implement the National

Environmental Policy Act and is categorically excluded from the

preparation of an Environmental Assessment or Environmental Impact

Statement unless the Administrator of FAS determines that an action may

have a significant environmental effect. 7 CFR 1b.4(b)(7). The

Administrator has made no such determination with respect to this

action.

Paperwork Reduction Act

In accordance with provisions of the Paperwork Reduction Act of

1995, CCC will submit an emergency information collection request (ICR)

for the reinstatement of the Facility Guarantee Program (FGP)

submission.

Title: The Facility Guarantee Program.

OMB Control Number: 0551-0032.

Type of Request: Reinstatement, with change, of previously-approved

collection for which approval has expired.

Abstract: The information to be collected under the Office of

Management and Budget (OMB) Number 0551-0032 is needed to enable the

CCC to effectively administer the FGP. The information collection will

be used by the CCC to determine the eligibility of applications. CCC

considers this information to be essential to prudent eligibility

determinations. Failure to make sound decisions in providing payment

guarantees for the sale of goods and services may negatively impact

exports of U.S. agricultural commodities and products.

The FGP information collection is similar to those for the Export

Credit Guarantee (GSM-102) Program and the Intermediate Export Credit

Guarantee (GSM-103) Program (OMB control number 0551-004). The

information collection for the FGP differs primarily as follows:

(1) The applicant, in order to receive a payment guarantee,

provides information evidencing that the exported goods and services

used to develop improved infrastructure will primarily benefit exports

of U.S. agricultural commodities and products; (2) The applicant is

required to certify that the value of non-U.S. components of goods and

services is less than 50 percent of the contract value covered under

the payment guarantee.

Estimate of Burden: The public reporting burden for this

information collection is estimated to average 0.6 hours per response.

Respondents: Agricultural equipment manufacturers and exporters.

Estimated Number of Respondents: 25.

Estimated Number of Responses per Respondent: 11.

Estimated Total Annual Burden on Respondents: 159.

Topics for comments include: (a) Whether the collection of

information is necessary for the proper performance of the functions of

the CCC, including whether the information will have practical utility;

(b) the accuracy of the CCC's estimate of burden including the validity

of the methodology and assumptions used; (c) ways to enhance the

quality, utility and clarity of the information to be collected; and

(d) ways to minimize the burden of the collection of information on

those who are to respond, including the use of appropriate automated,

electronic, mechanical, or other technological collection techniques or

other forms of information technology.

Comments should be submitted in accordance with the Dates section

above and sent to the Desk Officer for Agriculture, Office of

Information and Regulatory Affairs, Office of Management and Budget,

Washington, D.C. 20503; and to L.T. McElvain, Director, CCC Operations

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

(USDA), Stop 1035, Washington, DC 20250-1035. Copies of this

information collection can be obtained from Valerie Countiss, Agency

Information Collection Coordinator, at telephone (202) 720-6713.

OMB is required to make a decision concerning the collection(s) of

information contained in these interim regulations between 30 and 60

days after the publication of this document in the Federal Register.

Therefore, a comment to OMB is best assured of having its full effect

if OMB receives it within 30 days of publication. This does not affect

the deadline for the public to comment to the Department of Agriculture

on the FGP regulations.

All responses will be summarized and included in the request for

OMB approval. All comments will also become a matter of public record.

Executive Order 12778

This interim rule has been reviewed under Executive Order 12778.

Civil Justice Reform. The interim rule has preemptive effect with

respect to any state or local laws, regulations, or policies which

conflict with the provisions of this rule. The rule does not have a

retroactive effect. The interim rule requires that certain

administrative remedies be exhausted before suit may be filed.

Summary of Benefit-Cost Analysis

The benefit-cost analysis identifies and estimates potential

benefits and costs attributed to provisions of this interim rule, which

has been designated as ``Significant.'' These provisions include

application requirements and program procedures. The changes in the

program made by this rule are expected to have only limited economic

effect and are not expected to increase administrative workload of the

Federal Government. Provisions of the Federal Agriculture Improvement

and Reform Act of 1996 (the 1996 Act) which target emerging markets

lower estimated subsidy costs by $2.5 million in FY 1997. Proposed

foreign content

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provisions will provide participants with fewer restrictions when

negotiating terms and conditions of a sales transaction.

Request for Public Comment

The need for immediate action by CCC is predicated by two of the

1996 Act's amendments to the Food, Agriculture, Conservation, and Trade

Act of 1990, as amended (1990 Act). The 1996 Act (1) expanded the field

of eligible countries to include emerging markets and (2) provided the

Secretary of Agriculture the authority to determine and select the

emerging markets. These changes reflect the importance of CCC being

able to quickly respond to fleeting opportunities for increasing U.S.

agricultural exports to emerging market countries, often in volatile

and unpredictable circumstances, while at the same time enhancing and

helping stabilize the rural business systems of those countries whose

economies are in transition.

In addition, in order to implement a program to make available such

credit in a timely manner and in a manner that will provide a more

uniform distribution of funds in each fiscal year, it has been

determined that this rule shall become effective upon publication in

the Federal Register. However, comments are requested with respect to

the provisions of this rule and will be taken into consideration in the

development of the final rule. Comments should be submitted to the

person indicated in the section titled ADDRESSES.

Background

A. Statutory Authority

CCC provides export credit guarantees for export sales of U.S.

agricultural commodities under the Export Credit Guarantee (GSM-102)

program and the Intermediate Export Credit Guarantee (GSM-103) program.

The programs are authorized by section 202 of the Agricultural Trade

Act of 1978 as amended (1978 Act). Section 1542(a) of the 1990 Act

provides that CCC make available, for fiscal years 1996 through 2002,

not less than $1 billion in direct credits or export credit guarantees

for agricultural exports to emerging markets available under the 1978

Act. A portion of such credit guarantees must, in accordance with

section 1542(b) of the 1990 Act, be made available for the export of

goods and services for agricultural facilities. Guarantees are to be

made available if the Secretary of Agriculture determines that such

guarantees will primarily promote the export of United States

agricultural commodities and products thereof. Specifically, eligible

projects must provide for (1) the establishment or improvement of

agricultural facilities in emerging markets, or (2) for the provision

of goods or services in emerging markets, by U.S. persons to improve

handling, marketing, processing, storage, or distribution of imported

agricultural commodities or products in such markets. The phrase

``establishment or improvement of facilities'' allows for varied types

of projects ranging from the sale of equipment (e.g., refrigeration,

processing, transportation) and other goods needed to alleviate

impediments to increasing export sales of U.S. agricultural

commodities, to providing services, such as equipment installation,

testing, and training to facilitate achievement of the same purposes.

Section 1542(b) further requires CCC to give priority to projects

that (1) encourage the privatization of the agricultural sector in

emerging markets, (2) benefit private farms or cooperatives in emerging

markets, and (3) are supported by nongovernmental persons who agree to

assume a relatively larger share of the costs.

Section 1542(f) of the 1990 Act defines ``emerging market'' as any

country that the Secretary of Agriculture determines (1) is taking

steps towards a market-oriented economy through food, agriculture, or

rural business sectors of the economy of the country and (2) has the

potential to provide a viable and significant market for United States

agricultural commodities or their products.

B. Legislative History

CCC published an FGP interim rule on March 1, 1993, (58 FR 11786)

in response to the 1990 Act. The 1990 Act required CCC to develop an

export credit guarantee program for facilities in countries that were

determined by the President to be emerging democracies. However, the

FGP was not made operational before the authority expired on September

31, 1995. Congress changed the targeting of the FGP in the 1996 Act to

countries determined by the Secretary of Agriculture to be emerging

markets. The interim rule was deleted effective November 18, 1994 when

CCC revised 7 CFR part 1493 and issued a final rule on the GSM-102 and

GSM-103 programs.

C. Summary of Comments--1993 Interim Rule

The Commodity Credit Corporation (CCC) received eleven comments

from eight different sources in response to the Facility Guarantee

Program (FGP) Interim Rule published March 1, 1993 in the Federal

Register. The commenters included three equipment manufacturers, three

animal health product manufacturers, the Office of the Inspector

General, and a market research firm which submitted three separate

responses.

Three comments were project proposals that did not comment on the

regulatory aspects of the rule.

Three comments addressed the definition of ``acceptable

substitute.'' This definition was required by law in the 1990 Farm Act

to be included in the FGP rule. The commenters' believed that CCC

misinterpreted the intent of the law and requested that CCC change the

definition of acceptable substitute. This recommendation now is

unnecessary. The term acceptable substitute was deleted from the 1996

Farm Act. Accordingly, CCC has dropped the definition from the rule

under consideration.

One commenter suggested that CCC explain in the preamble of the

regulation how CCC arrived at defining ``close geographical location of

countries'' to be 1,000 miles from the target country. The law states

that CCC may not provide credit guarantees to projects that may

primarily benefit countries in close geographical location to the

target country. CCC believes this definition does not improve the

program and has dropped this definition from the interim rule. The

objective of the FGP is to primarily benefit U.S. agricultural exports.

In meeting this objective, no country, except the U.S., without regard

to geographic proximity to the targeted emerging market, may primarily

benefit from a FGP project.

One commenter requested that CCC provide 100 percent guarantee

coverage on principal and interest for letters of credit extended by a

foreign bank. CCC disagrees. If CCC provides 100 percent coverage on

principal and interest it loses the risk sharing mechanism inherent in

CCC's export credit programs. Risk sharing is necessary because CCC

does not have the resources required to perform project specific

financial and risk analysis. Therefore, to keep CCC's default rate at

acceptable levels, risk sharing is essential. CCC believes that risk

sharing in the FGP results in more efficient use of its limited

resources.

One commenter requested CCC provide a statement in the regulations

to include grain/food processing equipment as eligible projects under

the FGP. The commenter indicated that the interim rule was unclear on

this point. CCC disagrees. The regulations provide

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that the FGP may guarantee credit extended for sales of equipment and

services that improve handling, processing, storage or distribution of

imported agricultural commodities. This program purpose clearly

addresses sales of grain/food processing equipment.

One commenter also suggested that CCC qualify Russian banks other

than those qualified to participate under the U.S. Export Import Bank

(Eximbank) programs. CCC reviews foreign banks against an established

set of eligibility criteria. These criteria may include financial and

economic factors similar to those reviewed by Eximbank. CCC qualifies

all foreign banks expressing a desire to participate in our programs if

they meet these criteria.

One commenter recommended that CCC reach out to the food processing

industries and agribusiness sector in target countries to promote the

use of the program. The commenter pointed out that linking agricultural

equipment sales to commodity sales may benefit the U.S. equipment

manufacturers and agricultural export industries. CCC agrees and will

endeavor to promote the FGP to these sectors in targeted emerging

markets.

One commenter suggested that CCC adopt a competitive bidding

process for projects to ensure the most cost effective bidder on a

project receives the guarantee. CCC disagrees. This suggestion

indicates a fundamental misunderstanding of the program. CCC does not

plan to solicit FGP applications for specific types of projects. FGP

applicants will propose projects and CCC will determine if such

projects meet the criteria of the program.

One commenter suggested that project requirements (the information

requested by CCC to determine if a FGP guarantee will be approved) be

published in the regulation and not the program announcement. CCC

agrees and has included such requirements in the regulation (7 CFR

1493.240 and 1493.250).

One commenter suggested that CCC explain why the application fee is

$200 in the preamble of the interim rule. CCC agrees. Simply, the $200

application fee serves as a disincentive to the submission of

speculative applications, and a means to defray a portion of CCC's

administrative costs.

One commenter requested the FGP application include detailed

financial information on the buyer. The commenter also specifically

recommended the application require plans for servicing the guaranteed

loan through field inspections, obtaining periodic financial

statements, a description of any liens against the buyer, information

concerning litigation against and defaults by the buyer, and the use of

consultants in preparing the application. The commenter suggested

further that the application require a description of planned insurance

coverage (i.e. life, hazard, flood) and the names of foreign regulatory

agencies that would require permits, licenses, or other clearances that

would impact the facility. CCC disagrees. The commenter's concern

appears to be in regard to assessing buyer or project risk. Assessing

the ability of the buyer to successfully manage a facility or whether

the facility will succeed financially is the role of the foreign bank.

CCC's guarantee covers the risk of default of the foreign bank on the

repayment obligation to the exporter or their U.S. bank assignee.

Two commenters referred to the application requirements concerning

evidence of primary benefits to U.S. agricultural exports. One

commenter recommended that the application requirements concerning

primary benefit not overburden the applicant. The commenter recommended

that CCC streamline paperwork requirements and reduce project approval

lead time. The second commenter recommended that the interim rule

require applicants to provide evidence of how a project proposal will

benefit U.S. agricultural exports. CCC believes that the overall goal

of the FGP is to promote U.S. agricultural exports. Sufficient

information must be required from applicants in order for CCC to fully

evaluate project proposals and the effects projects will have on U.S.

agricultural exports. CCC has made many improvements in the interim

rule to streamline the application process in comparison to the process

outlined by the 1993 interim rule. However, CCC remains open to

recommendations that specifically address how CCC may streamline the

application review procedures and reduce project proposal lead time.

One commenter suggested that CCC request information from the

applicant regarding the procurement funding or guarantees from sources

outside of CCC. CCC agrees and has included this recommendation in the

regulation (Sec. 1493.240(a)(22)).

One commenter recommended that the application include the names of

attorneys, accountants and other parties engaged in preparing the

application. CCC disagrees. Applications submitted under all CCC export

programs are required to be signed by a principal of the company

applying for a guarantee. CCC believes this is sufficient in addressing

any concerns regarding the veracity of the information contained in the

application.

One commenter suggested CCC expand the definition of a ``U.S.

person'' so that CCC may determine if the applicant fulfills this

criteria without seeking additional information. CCC believes that

program qualifications respond to the commenter's concern. CCC

qualifies applicants following a review of documents such as the

articles of incorporation, partnership or registration of

proprietorship that may permit CCC to determine if an applicant is a

legally registered U.S. business entity.

D. The FGP Addresses a Market Failure

The FGP is designed to address a specific market failure. Many

emerging markets lack sufficient infrastructure to support expansion of

agricultural commodity imports. The demand for capital financing in

emerging markets is significant. Agri-business projects must compete

with other infrastructure development for the limited capital

available. The market failure that arises is that private sector

financial institutions may be unwilling to provide credit to agri-

business projects, at a reasonable cost. This market failure may be

more pervasive for small and medium size enterprises than for larger

companies. The availability of CCC's guarantee under the FGP provides

an opportunity for U.S. private sector financial institutions to

provide credit to a foreign bank that will, in-turn, finance

infrastructure projects at a reasonable cost. Such credit extension is

unlikely to occur without the benefit of CCC's credit guarantee.

The market failure that FGP addresses, particularly for small and

medium size enterprises, is viewed as normally being below the

threshold level for multi-lateral and the regional development banks to

consider extending financing or guarantees.

E. Exporter and Project Eligibility

CCC will make export credit guarantees available in the form of

facility payment guarantees. Section 1542(b) of the 1990 Act provides

that an exporter must be a ``U.S. person'' to be eligible for a

facility payment guarantee. Under this interim rule, exporters must

also furnish certain information and certifications to CCC in order to

be eligible to receive payment guarantees.

Eligible projects must establish or improve agriculture-related

facilities in an emerging market. For CCC to approve a facility payment

guarantee such projects must primarily promote the export of U.S.

agricultural commodities or products. For CCC to make such a

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determination, the exporter must convince CCC that the issuance of a

facility payment guarantee will cause exports of U.S. agricultural

commodities or products to the emerging market to increase:

(1) To a greater degree than similar exports from other countries;

(2) To levels significantly above those expected in the absence of

providing the facility payment guarantee; and

(3) For five years or until the facility payment guarantee expires,

whichever comes first.

F. Program Implementation

The FGP will be administered by the Office of the General Sales

Manager (GSM), Foreign Agricultural Service, U.S. Department of

Agriculture, on behalf of CCC. Initially, CCC will consider projects of

limited size in a limited number of emerging markets. The effectiveness

of the program will be assessed in view of the comments received on the

interim rule and after a number of facility payment guarantees have

been issued. The GSM will periodically issue program announcements

inviting submissions by exporters of applications for facility payment

guarantees. These program announcements will identify emerging markets,

indicate maximum guarantee coverage, and provide other pertinent

information.

CCC will review applications and provide to the exporter a

preliminary commitment letter if an application meets the standards of

the regulations and appears to represent the best use of CCC's

resources. CCC may also request additional information to clarify or

supplement an application. CCC may reject applications that do not

appear to meet program objectives or for other sufficient reasons.

Upon receiving a letter of preliminary commitment from CCC, the

exporter has six months to submit a final application. Such final

application must contain information confirming, updating, and

supplementing information previously provided. If CCC approves the

final application, it will issue a letter of final commitment requiring

the exporter to pay an exposure fee before a facility payment guarantee

is issued. CCC will issue a facility payment guarantee when the amount

of the exposure fee has been paid in full.

G. Credit Terms and Risk Coverage

The terms of CCC's coverage will be set forth in each facility

payment guarantee. These will conform to pertinent rules of the

Organization for Economic Cooperation and Development (OECD)

Arrangement on Guidelines for Officially Supported Export Credits

(Arrangement). Copies of the OECD Arrangement and classification of

country categories are available from: The Director, Office of Trade

Finance, Department of Treasury, Room 4448, 1500 Pennsylvania Avenue,

NW, Washington DC 20220. The OECD Arrangement sets out the most

favorable terms allowable for government credits and guarantees. For

example, pursuant to the Arrangement, the exporter must oblige the

importer to comply with CCC's initial payment requirement

(Sec. 1493.230(c)). This requires the importer to pay the exporter at

least 15 percent of the net contract value. The net contract value is

equal to the contract value minus (a) the value of goods that are not

U.S. goods; and (b) the cost of services that are not U.S. services

(except those services the exporter requests CCC to determine are vital

to the success of the project and approved to be included in the net

contract value (Sec. 1493.260(b)(1))).

CCC will initially offer facility payment guarantee coverage of 95

percent of the facility base value. This value is the amount of the net

contract value that remains after deducting the amount paid in

accordance with the initial payment requirement, and the value of any

discounts or allowances (Sec. 1493.260(b)(2)). CCC will also cover

interest on a variable rate basis. The method of determining the

variable interest rate coverage will be indicated in program

announcements and in each payment guarantee. The interim rule also

provides that the maximum interest rate, when determined by CCC, will

not exceed the average investment rate of the most recent Treasury 52-

week bill auction in effect at that time.

H. Guidelines for U.S. Content

CCC used certain guidelines relating to the inclusion and valuation

of goods that are not U.S. goods, services that are not U.S. services,

and imported components of U.S. goods in sales transactions covered

under this program. The most important of these guidelines are

summarized below:

1. FGP payment guarantees are derived only from that portion of an

exporter's sales contract that represents (a) U.S. goods, (b) U.S.

services, and (c) any services that are not U.S. services that CCC

determines are vital to the success of the project and are approved by

CCC for coverage. This derived value is called net contract value

(Sec. 1493.260(b)(1)). Any other goods or services included in the

exporter's contract (e.g., foreign goods that are not components of

U.S. goods, goods not exported from the U.S., and foreign services not

approved by CCC) cannot be included in net contract value.

2. U.S. goods may include imported components that are assembled,

processed or manufactured into goods within, and exported from, the

U.S. Services that are not U.S. services (e.g., foreign flag freight

(e.g., ocean, air), and related insurance, ship discharge operations,

inland transportation) provided by persons who are not citizens or

legal residents of the U.S. may receive guarantee coverage only if

approved by CCC. Most likely CCC will approve such services if they are

determined to be vital to the success of the project.

3. In addition to the above requirements, CCC will issue a facility

payment guarantee only if the value of covered imported components,

combined with the cost of covered services that are not U.S. services,

meet the 50 percent minimum U.S. content test (Sec. 1493.260(d)). This

means that those components and services must represent less than 50

percent of the net contract value. The 50 percent determination is made

on an aggregate or cumulative basis as exports of goods and services

occur, not item by item. For example, more than 50 percent of the value

of a single piece of equipment may be comprised of imported components

so long as the total value of covered imported components and cost of

services that are not U.S. services remain less than 50 percent of net

contract value for all goods and services.

To make the above 50 percent determination, imported components are

valued at their declared customs value or, in the absence of specific

information regarding declared customs value, the fair wholesale market

value of the components in the U.S. at the time they are acquired by

the exporter. The costs of services that are not U.S. services are the

actual amounts paid by the exporter for the services in an arms-length

transaction, or, in the absence of such a transaction, the fair market

value of the services at the time the services were provided.

4. Imported raw materials (such as iron, steel, nuts, and bolts)

which are processed, assembled or manufactured in the U.S. are

automatically included in CCC's coverage and are not counted as

imported components for the purpose of the 50 percent minimum U.S.

content test (Sec. 1493.260(d)). CCC will rely on commercial practice

and communication with participants to resolve issues that may arise

regarding raw materials.

[[Page 42656]]

I. CCC's Payment Guarantee Mechanism and Claims Procedure

CCC guarantees the exporter, or the exporter's assignee, against

defaults by a foreign bank under its irrevocable letter of credit or

related obligation. In the event of such a default, the exporter or the

exporter's assignee must notify CCC within a ten day period, and may

file a claim with CCC within six months. CCC will pay the guaranteed

amount of the claim plus eligible interest if all required claims

documentation has been received, including an instrument subrogating to

CCC the rights of the exporter and, if applicable, the exporter's

assignee, to the amount of payment in default. Recoveries made by CCC

pursuant to the subrogated rights, or from any source whatsoever, are

shared between CCC and the exporter or exporter's assignee on a pro

rata basis determined by their respective interests in such recoveries.

In the event that monies are recovered by the exporter or the

exporter's assignee from any source whatsoever, these must be paid to

CCC which will include them in pro rata sharing. The Appendix to

Sec. 1493.320 contains an example of pro rata sharing of recoveries.

J. Example: Typical Transaction

A typical transaction eligible for coverage under a facility

payment guarantee could be as follows: CCC issues a program

announcement inviting U.S. persons to apply for facility payment

guarantees in connection with eligible projects in a specified emerging

market. The program announcement states that the terms of coverage will

be 95 percent of the facility base value (Sec. 1493.260(b)(2)). An

exporter responds by submitting an application for the export sale of

goods and services to an importer in the emerging market. The goods and

services have a contract value of $2.2 million, of which $200,000

represents goods that are not U.S. goods which are not further

processed, assembled, or manufactured into U.S. goods and services that

are not U.S. services for which no CCC coverage is sought. Those goods

and services are subtracted from the contract value to provide the net

contract value of $2.0 million (Sec. 1493.260(b)(1)). The exporter does

not expect any discounts and allowances to be provided.

The combined value or cost of covered imported components contained

in U.S. goods and services that are not U.S. services for which CCC

coverage is requested is $650,000. This represents 32.5 percent of the

net contract value. Because this is less than 50 percent, the sale

meets the U.S. content test (Sec. 1493.260(d)). The exporter indicates

that the importer, in order to comply with the initial payment

requirement (15 percent of the net contract value), will pay the

exporter $300,000.

The net contract value ($2 million) minus the initial payment

requirement ($300,000), minus discounts and allowances (zero), equals

the facility base value ($1,700,000) to which CCC's rate of coverage

applies. The payment guarantee would thus show a guaranteed value of 95

percent of $1,700,000, or $1,615,000 as shown below. The facility

payment guarantee would also indicate how eligible interest would be

covered on a variable rate basis, consistent with relevant program

announcements.

Example

(1) Contract Value......................................... $2,200,000

(a) minus: Goods and services that are not U.S. goods

and services and are not approved for coverage by CCC. 200,000

(2) Equals: Net Contract Value............................. 2,000,000

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

(a) minus: Initial Payment (15% of net contract value). 300,000

(b) minus: Discounts and Allowances.................... 0

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

(3) equals: Facility Base Value............................ 1,700,000

(4) Guaranteed Value (95 percent of $1,700,000)............ 1,615,000

Exporters should recognize that the maximum liability for a claim

(Sec. 1493.310(b)), under certain circumstances, may turn out to be

less than $1,615,000. Under Sec. 1493.310(b), CCC's liability is

limited to the lesser of: (1) The guaranteed value as provided in the

facility payment guarantee, plus eligible interest, or (2) the

guaranteed percentage of a value called the exported value indicated in

the evidence of export report(s), plus eligible interest. The exported

value is the net contract value of the goods or services exported minus

(a) the initial payment and (b) the dollar amount of any discounts and

allowances (Sec. 1493.280(a)(7)). Thus, if for any reason, the exported

value decreases, the dollar amount of coverage would decrease. For

example, the exported value would be less if fewer goods and services

are exported; if the value of goods and services exported decreases

from the value originally reported to CCC; if discounts or allowances,

not foreseen at the time of application, are provided; or if payments

by the importer exceed the initial payment requirement.

List of Subjects in 7 CFR Part 1493

Administrative practice and procedures, Agricultural commodities,

Agriculture, Banks, Banking, Business and industry, Credit, Exports,

Finance, Foreign banks, Guaranteed loans, Reporting and recordkeeping

requirements.

Accordingly, Part 1493 of Title 7 is amended as follows:

PART 1493--[AMENDED]

1. The authority citation for Part 1493 continues to read as

follows:

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

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

2. By adding a new subpart C to read as follows:

Subpart C--CCC Facility Guarantee Program (FGP) Operations

Sec.

1493.200 General statement.

1493.210 Definition of terms.

1493.220 Exporter eligibility.

1493.230 Eligible transactions.

1493.240 Initial application and letter of preliminary commitment.

1493.250 Final application and issuance of a facility payment

guarantee

1493.260 Facility payment guarantee.

1493.270 Certifications.

1493.280 Evidence of export report.

1493.290 Proof of entry.

1493.300 Notice of default and claims for loss.

1493.310 Payment for loss.

1493.320 Recovery of losses.

1493.330 Miscellaneous provisions.

Subpart C--CCC Facility Guarantee Program (FGP) Operations

Sec. 1493.200 General statement.

This subpart governs the Commodity Credit Corporation's (CCC)

Facility Guarantee Program (FGP). CCC will issue facility payment

guarantees for project applications meeting the terms and conditions of

the Facility Guarantee Program (FGP) and where private sector financing

is otherwise not available. This subpart describes the criteria and

procedures for applying for a facility payment guarantee, and contains

the general terms and conditions of such a guarantee. These general

terms and conditions may be supplemented by special terms and

conditions specified in program announcements or notices to

participants published prior to the issuance of a facility payment

guarantee and, if so, will be incorporated by reference on the face of

the facility payment guarantee issued by CCC.

Sec. 1493.210 Definition of terms.

Terms set forth in this subpart will have the following meaning:

[[Page 42657]]

Assignee. A financial institution in the United States which, for

adequate consideration given, has obtained the legal rights to receive

payment under the facility payment guarantee.

CCC. The Commodity Credit Corporation, an agency and

instrumentality of the United States within the U.S. Department of

Agriculture, authorized pursuant to the Commodity Credit Corporation

Charter Act of 1948, as amended, 15 U.S.C. 714 et seq., and subject to

the general supervision and direction of the Secretary of Agriculture.

Contacts P/R. A notice issued by Foreign Agricultural Service, U.S.

Department of Agriculture (FAS/USDA) by public press release which

contains specific names, addresses, and telephone and facsimile numbers

of contacts within FAS/USDA and CCC. 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 facility payment guarantees, to submit evidence of export

reports, and to give notices of default and file claims for loss.

Contract value. The total negotiated dollar amount for the export

sale of goods and services to emerging markets.

Date of export for goods. The on-board date of an ocean bill of

lading or an airway bill, the on-board ocean carrier date of an

intermodal bill of lading; 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.

Date of export for services. The date interest begins to accrue on

credit extended to cover payment for services, except for freight and

marine insurance where the date of export is the same date as for the

goods exported.

Discounts and allowances. Any consideration provided directly or

indirectly, by or on behalf of an exporter, to an importer in

connection with a sale of goods or services, in excess of the value of

such goods or services. Discounts or 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 obligation; or the whole or partial release of the importer

from any financial or contractual obligation.

Facility. An opportunity or project that improves the handling,

marketing, processing, storage, or distribution of imported

agricultural commodities or products.

GSM. The General Sales Manager, Foreign Agricultural Service, U.S.

Department of Agriculture, acting in his capacity as Vice President,

CCC; or his designee.

U.S. goods. Goods that are assembled, processed or manufactured in,

and exported from, the United States including goods which contain

imported raw materials or imported components.

U.S. services. Services performed by citizens or legal residents of

the United States, including those temporarily residing outside the

United States.

Sec. 1493.220 Exporter eligibility.

An exporter may apply for a facility payment guarantee if such

exporter:

(a) Is a citizen or legal resident of the United States or is a

business organized under the laws of any state of the United States or

the District of Columbia;

(b) Has an established place of business in the United States;

(c) Has a registered agent for service of process in the United

States; and

(d) Is not suspended or debarred, or owned or controlled by a

person who is suspended or debarred, from contracting with, or

participating in programs administered by, a U.S. Government agency.

Sec. 1493.230 Eligible transactions.

(a) Program announcements. From time to time CCC will issue program

announcements indicating the availability of facility payment

guarantees in connection with sales of goods or services to emerging

markets. The announcements will specify the emerging markets, the

maximum amount, in U.S. dollars, of guarantee exposure that CCC will

undertake, and may specify special terms or conditions that will be

applicable.

(b) Sale requirements. CCC will issue facility payment guarantees

only in connection with projects that CCC determines will benefit

primarily exports of U.S. agricultural commodities and products, and

only where there is a firm contract for the sale of goods or services

for the establishment or improvement of an agriculture-related

facility. The contract may be contingent, however, on the issuance of a

CCC facility payment guarantee.

(c) Initial payment requirement. The contract for sale of goods or

services between the exporter and the importer shall oblige the

importer to make an initial payment(s) to the exporter of at least 15

percent of the net contract value in Sec. 1493.260(b)(1). Such initial

payment(s) shall be in U.S. dollars or instruments having a definite

value in U.S. dollars, and shall be made prior to the export of the

goods or services.

(d) Required method of payment. CCC will issue a facility payment

guarantee only in connection with a sale in which payment will be made

under either:

(1) An irrevocable foreign bank letter of credit specifically

stating the deferred payment terms under which the foreign bank is

obligated to make payments in U.S. dollars as payments become due; or

(2) An irrevocable foreign bank letter of credit supported by a

related obligation specifically stating the deferred payment terms

under which the foreign bank is obligated to make payment in U.S.

dollars as such payments become due.

(e) Form of letter of credit. The foreign bank letter of credit

referred to in paragraph (d) of this section shall be an irrevocable

commercial letter of credit, subject to the revision of the

International Chamber of Commerce Uniform Customs and Practices for

Documentary Credits in effect when the letter of credit is

issued, providing for payment in U.S. dollars against stipulated

documents and issued in favor of the exporter by a CCC-approved foreign

banking institution.

(f) Form of related obligation. The related obligation referred to

in paragraph (d) of this section shall be in one of the following

forms:

(1) A letter of credit including a specific promise to pay on

deferred payment terms as a special instruction from the issuing bank

directly to the U.S. financial institution to refinance the amounts

paid by the U.S. financial institution for obligations financed

according to the tenor of the letter of credit;

(2) A separate document specifically identified and referred to in

the letter of credit as the agreement under which the foreign bank is

obligated to repay the U.S. financial institution on deferred payment

terms;

(3) A separate document setting forth the related obligation, or in

a duly executed amendment thereto, as having been financed by a U.S.

financial institution pursuant to, and subject to, repayment in

accordance with the terms of such related obligation; or

(4) A promissory note executed by a foreign bank issuing the letter

of credit in favor of the financial institution.

Sec. 1493.240 Initial application and letter of preliminary

commitment.

(a) Initial Application. An exporter may apply for a facility

payment guarantee by submitting the following information:

[[Page 42658]]

(1) A cover sheet with the title: ``Application for a Facility

Payment Guarantee--Preliminary Commitment'';

(2) The program announcement number;

(3) The emerging market;

(4) The name, contact person, address, and telephone number and, if

applicable, facsimile number and E-mail address of:

(i) The exporter;

(ii) The exporter's registered agent for service of process in the

United States;

(iii) The exporter's assignee, if applicable;

(iv) The importer;

(v) The end-user of the goods or services if other than the

importer;

(vi) The foreign bank expected to issue the letter of credit or

related obligation; and

(vii) The financial institution in the United States expected to

provide financing;

(5) A statement on letterhead from a:

(i) Foreign bank indicating an interest in guaranteeing payment, in

U.S. dollars, for goods or services to be exported under the facility

payment guarantee at least equal to the net contract value listed in

paragraph (a)(14) of this section, less the initial payment requirement

listed in paragraph (a)(15) of this section; and

(ii) Financial institution in the U.S. indicating an interest in

financing the export sales of goods or services under the facility

payment guarantee for an amount at least equal to the net contract

value listed in paragraph (a)(14) of this section less the initial

payment requirement listed in paragraph (a)(15) of this section. The

financial institution must state that such financing would not

otherwise be available without an FGP payment guarantee;

(6) The period for which credit is being extended to finance the

sale of goods or services covered by the facility payment guarantee;

(7) The exporter's sales number pertinent to this application and a

description of the status of the intended sale;

(8) A description (e.g., a process flow diagram) of the

agriculture-related facility that will use the goods or services to be

covered by the facility payment guarantee and an explanation of how

these goods and services will be used to improve handling, marketing,

processing, storage, or distribution of agricultural commodities or

products;

(9) A brief description of each good or service to be covered by

the facility payment guarantee including, where applicable, brand name,

model number, Standard Industrial Classification (SIC) or the North

American Industry Classification System (NAICS) code, and contract

specifications;

(10) The final date for export of goods or services. If applicable,

include construction start date, milestones (e.g., installation), and

contractual deadline for completion of project;

(11) The contract value for the sale of goods or services and the

basis of sale for goods to be exported (e.g., FOB, CFR, CIF);

(12) The description and value of the goods or cost of services

listed in paragraph (a)(11) of this section that are not U.S. goods or

services;

(13) Identification and cost of, and justification for, those

services listed in paragraph (a)(12) of this section for which the

exporter requests CCC to provide coverage;

(14) The net contract value in Sec. 1493.260(b)(1) obtained by

subtracting paragraph (a)(12) of this section from paragraph (a)(11) of

this section, and adding paragraph (a)(13) of this section;

(15) The amount to be paid in accordance with the initial payment

requirement (Sec. 1493.230(c));

(16) The description and dollar amount of discounts and allowances

provided in connection with the sale of goods or services covered by

the facility payment guarantee;

(17) The facility base value in Sec. 1493.260(b)(2) obtained by

subtracting paragraphs (a)(15) and (a)(16) of this section from

paragraph (a)(14) of this section;

(18) The maximum guaranteed value under the facility payment

guarantee determined by multiplying the facility base value listed in

paragraph (a)(17) of this section by the guarantee rate of coverage

announced by CCC in Sec. 1493.260(b)(3);

(19) A map or other description of the facility's location and

distance from major population centers of neighboring countries;

(20) For all principal agricultural commodities or products

(inputs) to be handled, marketed, processed, stored, or distributed, by

the proposed project after completion, provide:

(i) A list or table identifying such principal inputs;

(ii) The likely countries of origin for each input;

(iii) Estimated annual quantities, in metric tons, of each input

listed in paragraph (a)(20)(i) of this section to be used by the

project for five years from the final date of export or until the

expiration of the facility payment guarantee, whichever comes first;

and

(iv) An analysis, including price, cost, and other assumptions (the

reasons why U.S. agricultural commodities or products will be more

competitive inputs than commodities or products from other sources, and

whether the projected use of U.S. agricultural commodities or products

depends on the availability of U.S. export bonus or credit guarantee

programs), of which inputs listed in paragraph (a)(20)(i) of this

section will represent increased imports of U.S. agricultural

commodities or products:

(A) To a greater degree than imports of agricultural commodities or

products from other countries;

(B) To or at levels significantly above those expected in the

absence of the project; and

(C) For a period of five years from the final date of export or

until expiration of the facility payment guarantee, whichever comes

first.

(21) If applicable, a list of agricultural outputs or final

products of the proposed project and:

(i) Projected annual quantities (for five years or until the

expiration of the facility payment guarantee, whichever comes first),

in metric tons, of each output to be marketed;

(A) Within the emerging market; and

(B) In any other country;

(ii) Quantities, by country of origin, of products imported into

the emerging market during the past year which would compete with such

outputs; and

(iii) An analysis of whether products of the project will

significantly displace U.S. exports of similar agricultural commodities

or products in any market;

(22) If applicable, a description of any arrangements or

understandings with other U.S. or foreign government agencies, or with

financial institutions or entities, private or public, providing

financing to the exporter in connection with this export sale, and

copies of any documents relating to such arrangements;

(23) A description of the exporter's experience selling goods or

providing services similar to those for which the exporter seeks to

obtain facility payment guarantee coverage;

(24) A statement of how this project may encourage privatization of

the agricultural sector, or benefit private farms or cooperatives, in

the emerging market. Include in the statement the share of private

sector ownership of the project;

(25) The exporter's signature.

(b) Application fee. The exporter shall pay the application fee

specified in the program announcement at the time the application is

submitted. An application will not be considered without payment of the

specified fee. The application fee is nonrefundable.

(c) Letter of preliminary commitment. CCC will determine whether,

in its

[[Page 42659]]

judgment, the project in connection with which the exporter seeks a

facility payment guarantee is likely to increase exports of U.S.

agricultural commodities or products to an emerging market; and whether

the project is likely to benefit primarily U.S. agricultural

commodities or products as opposed to commodities or products

originating in other countries. If necessary, CCC may seek additional

information from an applicant prior to making its determination. If CCC

determines that an application meets these standards and appears to

represent, in CCC's judgment, the best use of available resources, CCC

will respond to the applicant with a letter of preliminary commitment

indicating CCC's interest in issuing a facility payment guarantee

conditioned on its approval of the exporter's final application.

Sec. 1493.250 Final application and issuance of facility payment

guarantee.

(a) Final application. An exporter who has received a letter of

preliminary commitment may, within six months of the date of such

letter, submit a final application to CCC for a facility payment

guarantee which shall include the following information:

(1) A cover sheet with the title: ``Application for a Facility

Payment Guarantee--Final Commitment.''

(2) A letterhead statement from the importer's bank or other

documentation confirming the importer has the financial ability to

comply with the initial payment requirement in Sec. 1493.230(c);

(3) Written evidence of a firm sale signed by the exporter and the

importer, specifying at minimum, the following information: Goods or

services to be exported, quantities of such items, delivery terms

(e.g., FOB, CFR, CIF), delivery period(s), contract value, payment

terms, and date of sale. A sales contract may be contingent upon

obtaining a facility payment guarantee;

(4) A description of any changes in the information submitted in

the preliminary application; and

(5) The exporter's signature;

(b) Additional information. CCC shall have the right to request the

exporter to furnish any other information and documentation it deems

pertinent to the evaluation of the exporter's final application for a

final commitment. CCC may request from the exporter an independent

engineering study or economic feasibility study relating to the

project.

(c) Final commitment letter. After making a favorable determination

on the exporter's submissions, CCC will issue a final commitment letter

indicating the applicable exposure fee rate and stating that CCC is

prepared to issue a facility payment guarantee upon receiving full

payment of the exposure fee within an allotted time. The letter will

also indicate the key terms and coverage of the guarantee to be issued.

CCC will also inform exporters in writing when it denies their request

for a facility payment guarantee.

(d) Exposure fee. The exposure fee is calculated by multiplying the

requested guaranteed value (up to the maximum established by CCC's

final commitment letter) by the exposure fee rate. Once the facility

payment guarantee is issued to the exporter, CCC will ordinarily not

refund the exposure fee. If CCC does not issue a facility payment

guarantee, or issues a guarantee for only part of the coverage

requested, CCC will make a full or pro rata refund of the exposure fee,

as appropriate.

(e) Issuance of the facility payment guarantee. Upon receipt of the

exposure fee, CCC will issue a facility payment guarantee.

Sec. 1493.260 Facility payment guarantee.

(a) CCC's maximum obligation. CCC will agree to pay the exporter or

the exporter's assignee an amount not to exceed the guaranteed value

stipulated on the face of the facility payment guarantee, plus eligible

interest, in the event that the foreign bank fails to pay under the

foreign bank letter of credit or related obligation. The exact amount

of CCC's liability in the event of default will be determined in

accordance with Sec. 1493.310(b).

(b) Calculation of maximum guarantee coverage. CCC will determine

the maximum amount of its obligation under a facility payment guarantee

by calculating a:

(1) Net contract value equal to the contract value minus:

(i) The value of goods that are not U.S. goods; and

(ii) The cost of services that are not U.S. services (except those

services the exporter requests CCC to determine are vital to the

success of the project and approved to be included in the net contract

value);

(2) Facility base value equal to net contract value minus:

(i) The amount to be paid in accordance with the initial payment

requirement in Sec. 1493.230(c); and

(ii) The amount of discounts and allowances; and

(3) Maximum guaranteed value equal to:

(i) A principal amount determined by multiplying the facility base

value (as determined in Sec. 1493.260(b)(2)) by the guaranteed

percentage specified in the program announcement; and

(ii) Interest on such principal amount at the rate specified in the

applicable program announcement, not to exceed the investment rate of

the most recent Treasury 52-week bill auction in effect at that time.

(c) Value and cost. For the purposes of this section:

(1) Value means declared customs value of the goods; or, in the

absence of specific information regarding declared customs value, the

fair market wholesale value of the imported goods in the United States

at the time they were acquired by the participant; and

(2) Cost means actual amount paid by the exporter for the services

in an arms-length transaction; or in the absence of an arms-length

transaction, the fair market value of the services at the time the

services were provided.

(d) U.S. content test. (1) CCC will issue a guarantee only if the

following items collectively represent less than 50 percent of the net

contract value in Sec. 1493.260(b)(1):

(i) The value of imported components (except for raw materials)

that are assembled, processed, or manufactured into U.S. goods included

in the net contract value;

(ii) The cost of services that are not U.S. services (including

freight on foreign flag carriers and transportation insurance

registered with foreign agents) that, at the request of the exporter,

CCC determines are vital to the success of the project and approves

their inclusion in the net contract value;

(2) For purpose of this subsection, minor or cosmetic procedures

(e.g., affixing labels, cleaning, painting, polishing) do not qualify

as assembling, processing or manufacturing;

(3) For purpose of this subsection, local services which involve

costs for hotels, meals, transportation, and other similar services

incurred in the emerging market are not U.S. services.

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

to the period beginning on the date(s) of export(s) and will continue

during the credit term specified in the facility payment guarantee. For

goods, the period of coverage will also apply from the date on which

interest begins to accrue, if earlier than the date of export. The

final payments of principal and interest by the foreign bank must come

due within the period of guarantee coverage.

(f) Terms of the CCC facility payment guarantee. The terms of CCC's

coverage will be set forth in the facility payment guarantee and will

include the provisions of this subpart, which may

[[Page 42660]]

be supplemented by any program announcement(s) or notice(s) to

participants in effect at the time the facility payment guarantee is

approved by CCC.

(g) Final date to export. The final date to export will be stated

in the facility payment guarantee.

(h) Ineligible exports. Goods or services with a date of export

prior to the date CCC issues the facility payment guarantee are

ineligible for coverage unless approved by the GSM.

(i) Additional requirements. The facility payment guarantee may

contain such additional terms, conditions, and limitations as are

deemed necessary or desirable by the GSM. Such additional terms,

conditions or qualifications, as stated in the facility payment

guarantee, are binding on the exporter or the exporter's assignee.

(j) Amendments. Exporters must notify CCC of any amendments

concerning contracts covered by a facility payment guarantee. CCC will

determine if the contract amendments will require amendments to the

facility payment guarantee. Amending the facility payment guarantee may

result in an increase to the exposure fee. Requests made by the

exporter to amend the facility payment guarantee so as to change the

guaranteed value must have the concurrence of the assignee when an

assignment has been made.

(k) Effective date. The facility payment guarantee shall become

effective on the date of export of the goods or services.

Appendix to Section 1493.260--Illustration of FGP Coverage of

Imported Raw Materials, Components, and Services That Are Not U.S.

Services

The following example illustrates CCC's regulations and policy

options with regard to issuing a payment guarantee for a project

which includes imported raw materials, imported components, and

services that are not U.S. services:

1. Ten grain trucks and one truck scale are to be exported from

the U.S. to an emerging market. The trucks will provide the ability

to purchase larger quantities of grain from the U.S. The contract

value totals $2,025,000, cost, insurance and freight (CIF) basis.

2. The fenders, hoods and doors of the trucks have been

manufactured and assembled in the U.S. and contain some imported raw

materials (sheet metal).

3. Imported components consist of starters and alternators, with

a U.S. customs valuation of $149,000. These items are installed into

the trucks in the U.S.

4. The truck scale was imported from Canada into the U.S. with a

U.S. customs valuation of $20,000.

5. A U.S. citizen, will travel on a foreign airline carrier to

the emerging market (airfare is $1,000) to instruct mechanics in

repair and maintenance of the trucks. He will be paid a salary for

this service and, in addition, will be reimbursed separately for

local costs in the emerging market (e.g., hotel, meals,

transportation) which are estimated to be $5,000.

6. The trucks are to be shipped on foreign flag vessels, and the

marine insurance is to be placed with a foreign agent. The combined

cost of these services that are not U.S. services for which the

exporter seeks coverage is estimated to be $500,000.

CCC's Approval of Services that are Not U.S. Services

CCC agrees to include in the net contract value the foreign flag

freight and marine insurance ($500,000) and the airfare ($1,000) of

the U.S. instructor (Sec. 1493.260(b)(1)).

Calculation of Net Contract Value

CCC will calculate the net contract value by subtracting from

the contract value ($2,025,000) the U.S. customs value of the truck

scale ($20,000) in accordance with Sec. 1493.260(b)(1)(I) and the

local costs to be incurred by the U.S. instructor ($5,000) in

accordance with Sec. 1493.260(b)(1)(ii) to equal $2,000,000.

CCC's Determination of U.S. Content Eligibility

The imported components and services that are not U.S. services

approved for coverage total $650,000 (i.e., $149,000 for starters

and alternators, $1,000 for airfare, $500,000 for freight and

insurance; or 32.5 percent of the net contract value of $2,000,000

(Sec. 1493.260(b)(1)). Since this is less than 50 percent of the net

contract value the transaction meets the U.S. content test

(Sec. 1493.260(d)).

Sec. 1493.270 Certifications.

(a) Exporter's signature. The exporter's signature on documentation

submitted to CCC under this subpart, is the exporter's certification

that:

(1) There have not been and are no arrangements for any payments in

violation of the Foreign Corrupt Practices Act of 1977, as amended, or

other U.S. Laws;

(2) All information submitted to CCC is true and correct; and

(3) The exporter is in compliance with this subpart.

(b) False certification. False certifications under this subpart

may result in the termination of the facility payment guarantee,

suspension or debarment, or civil or criminal action.

Sec. 1493.280 Evidence of export report.

(a) Report of export. The exporter is required to provide CCC an

evidence of export report for each shipment of goods or provision of

services covered under the facility payment guarantee. Each report must

be numbered in chronological order and contain the following

information in the order prescribed below:

(1) The facility payment guarantee number;

(2) The date goods or services were exported or provided;

(3) The exporter's sale number, bill of lading numbers, or

identification of other documents that may be submitted to establish

the contract value of the goods or services exported or provided;

(4) The net contract value of the exported goods or services as

determined in accordance with Sec. 1493.260(b)(1);

(5) The amount paid in accordance with the initial payment

requirement (Sec. 1493.230 (c));

(6) A description and dollar value of discounts and allowances, if

any;

(7) The exported value of the shipment which is the net contract

value of the goods or services exported in paragraph (a)(4) of this

section minus:

(i) The initial payment requirement listed in paragraph (a)(5) of

this section; and

(ii) The dollar amount of any discounts and allowances listed in

paragraph (a)(6) of this section;

(8) The name of the carrier and, if applicable, the name of the

vessel;

(9) The final payment schedule showing the payment due dates and

amounts of principal, and payment due dates for interest accrual. If

the payment schedule is unknown, the exporter must indicate in writing

that: ``The payment schedule will be provided in an amendment to the

evidence of export report when the payment schedule has been

determined;''

(10) Written statements that:

(i) The goods exported or services provided were included in the

final application for a final commitment as approved by CCC for

coverage under the facility payment guarantee and this subpart;

(ii) The specifications and quantity of goods or services exported

conform to the information contained in the exporter's application

documents for a facility payment guarantee, or if different, that CCC

has approved of such changes;

(iii) A letter of credit has been opened in favor of the exporter

by the foreign bank shown on the facility payment guarantee to cover

the dollar amount of the sale of goods or services exported less the

amount paid in accordance with the initial payment requirement and less

discounts and allowances; and

(11) The exporter's signature.

(b) Final report of export. The final evidence of export report

submitted under a facility payment guarantee must contain:

(1) A written statement that exports under the facility payment

guarantee have been completed;

[[Page 42661]]

(2) The information requested in Sec. 1493.280(a) for the

shipment(s) included in the final report; and

(3) The combined total of all dollar amounts reported under

Sec. 1493.280 (a) and (b) for all reports.

(c) Time limit for submission of evidence of export report. Unless

extended by CCC for good cause, the exporter must submit to CCC an

evidence of export report:

(1) Within 60 days of the date goods are exported by rail or truck;

(2) Within 30 days of the date goods are exported by any other

carrier; or

(3) Within 30 days of the date of export of services.

(d) Late reports. If the evidence of export report is not received

by CCC within the time period for filing, the facility payment

guarantee will become null and void only if and only to the extent that

failure to make timely filing resulted, or would likely result, in:

(1) Significant financial harm to CCC;

(2) The undermining of an essential regulatory purpose of the FGP;

(3) The obstruction of the fair administration of the FGP; or

(4) A threat to the integrity of the FGP.

Sec. 1493.290 Proof of entry.

(a) Diversion. The diversion of goods covered by a facility payment

guarantee to a country other than that shown on the facility 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 goods authorized by the

facility payment guarantee. 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:

(1) For goods: An original certificate, signed by a duly authorized

customs or port official of the emerging market, by the importer, by an

agent or representative of the vessel or ship line which delivered the

goods to the emerging market, or by a private surveyor in the emerging

market, or other documentation deemed acceptable by CCC:

(i) Showing that the goods entered the emerging market;

(ii) Identifying the export carrier;

(iii) Describing the goods; and

(iv) Indicating date and place the goods were unloaded in the

emerging market.

Sec. 1493.300 Notice of default and claims for loss.

(a) Notice of default. If the foreign bank issuing the letter of

credit fails to make payment pursuant to the terms of the foreign bank

letter of credit or related obligation, the exporter or the exporter's

assignee must submit a notice of default to CCC as soon as possible,

but not later than ten days after the date that payment was due from

the foreign bank (the due date). A notice of default must be submitted

in writing to the Treasurer, CCC, at the address specified in the

Contacts P/R. If the exporter or the exporter's assignee fails to

promptly notify CCC of defaults in accordance with this paragraph, CCC

may make the facility 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 approved by the

Controller, CCC. The notice of default must include:

(1) Facility payment guarantee number;

(2) Name of the emerging market;

(3) Name of the defaulting bank;

(4) Payment due date;

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

separately the amounts for principal and interest;

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

(7) Reason for the foreign bank's refusal to pay, if known.

(b) Filing a claim for loss. A claim for a loss by the exporter or

the exporter's assignee will not be paid if it is made later than six

months from the due date of the defaulted payment. A claim for loss

must be submitted in writing to the Treasurer, CCC, at the address

specified in the Contacts P/R. The claim for loss must include the

following information and documents:

(1) Facility payment guarantee number;

(2) A certification that the scheduled payment has not been

received;

(3) A certification of the amount of accrued interest in default,

the date interest began to accrue and the interest rate on the foreign

bank obligation applicable to the claim; and

(4) A copy of each of the following documents, with a cover

document containing a signed certification by the exporter or the

exporter's assignee that each page of each document is a true and

correct copy:

(i)(A) The foreign bank's letter of credit securing the export

sale, and;

(B) If applicable, the document(s) evidencing the related

obligation owed by the foreign bank to the assignee financial

institution which is related to the foreign bank's letter of credit

issued in favor of the exporter.

(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 emerging market;

(iii) The exporter's sales invoice(s) showing the value and basis

of sale (e.g., FOB, CFR, or CIF) or, if services are billed separately,

documents that the exporter or its assignee relied upon in extending

the credit to the issuing foreign bank;

(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. The instrument must reference the applicable foreign bank

letter of credit and the related obligation, if applicable; and

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

by the exporter to CCC pursuant to Sec. 1493.280.

(c) Subsequent claims for defaults on installments. The exporter or

an exporter's assignee need only provide one claim which meets full

documentation requirements relating to a covered transaction. For

subsequent claims relating to such failures of the foreign bank to make

scheduled installments on the same export, the exporter or the

exporter's assignee need only submit to CCC a notice of such failure

containing the information stated in paragraphs (b) (1), (2), and (3)

of this section; an instrument of subrogation as per paragraph

(b)(4)(iv) of this section, and the date the original claim was filed

with CCC.

Sec. 1493.310 Payment for loss.

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

the information and documents required under Sec. 1493.300, CCC will

determine whether or not a loss has occurred for which CCC is liable

under the facility payment guarantee, this subpart, program

announcement(s) and notice(s) to participants. If CCC determines that

it is liable to the exporter or the exporter's assignee, CCC will pay

the exporter or the exporter's assignee in accordance with paragraphs

(b) and (c) of this section.

(b) Amount of CCC's liability. CCC's maximum liability for any

claims for loss submitted with respect to any facility payment

guarantee, not including any late interest payments due in accordance

with paragraph (c) of

[[Page 42662]]

this section, will be limited to the lesser of:

(1) The guaranteed value as stated in the facility payment

guarantee, plus eligible interest; or

(2) The guaranteed percentage (as indicated in the facility payment

guarantee) of the exported value indicated in the evidence of export

report (Sec. 1493.280(a)(7)), 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 claim was 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 latest average investment rate of the

most recent Treasury 91-day bill auction as announced by the Department

of Treasury as of the due date.

(d) Accelerated payments. CCC will pay claims only for losses on

amounts not paid as scheduled. CCC will not pay claims for amounts due

under an accelerated payment clause in the export sales contract, the

foreign bank's letter of credit, or any obligation owed by the foreign

bank to the assignee U.S. financial institution which is related to the

foreign bank's letter of credit issued in favor of the exporter, unless

it is determined to be in the best interest 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 the value of

goods or services covered by a facility payment guarantee, CCC will not

hold the assignee responsible or take any action or raise any defense

against the assignee for any action, omission or statement by the

exporter of which the assignee has no knowledge, provided that:

(1) The exporter complies with the reporting requirements under

Sec. 1493.270 and Sec. 1493.280 excluding post-export adjustments

(i.e., corrections of evidence of export reports); and

(2) The exporter or the exporter's assignee furnishes the

statements and documents specified in Sec. 1493.300.

Sec. 1493.320 Recovery of losses.

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

exporter's assignee, CCC will notify the foreign bank of CCC's rights

under the subrogation agreement to recover all monies in default.

(b) Receipt of monies. (1) In the event that monies for a defaulted

payment are recovered by the exporter or the exporter's assignee from

the importer, the foreign bank or any other source whatsoever, such

monies shall be immediately paid to the Treasurer, CCC. If such monies

are not received by CCC within 15 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 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 facility

payment guarantee for which a claim has been paid by CCC, CCC will pay

the holder of the facility 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 days from the date of recovery or 15 days from

receiving the required information for determining pro rata

distribution, whichever is later, CCC will pay interest calculated on

the latest average investment rate of the most recent Treasury 91-day

bill auction, as announced by the Department of Treasury, in effect on

the date of recovery and 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 facility payment guarantee.

(c) Allocation of recoveries. Recoveries made by CCC from the

importer or the foreign bank, and recoveries received by CCC from the

exporter, the exporter's assignee or any other source whatsoever, will

be allocated by CCC to the exporter or the exporter's assignee and to

CCC on a pro rata basis determined by their respective interests in

such recoveries. The respective interest of each party will be

determined on a pro rata basis, based on the combined amount of

principal and interest in default. Once CCC has paid out a particular

claim under a facility payment guarantee, CCC prorates any collections

it receives and shares these collections proportionately with the

holder of the guarantee until both CCC and the holder of the guarantee

have been reimbursed in full. Appendix to Sec. 1493.320 provides an

example of the methodology used by CCC in applying this paragraph (c).

(d) Liabilities to CCC. Notwithstanding any other terms of the

facility payment guarantee, the exporter may be liable to CCC for any

amounts paid by CCC under the facility payment guarantee when and if it

is determined by CCC that the exporter engaged in fraud, or has been or

is in breach of any contractual obligation, certification or warranty

made by the exporter for the purpose of obtaining the facility payment

guarantee or for fulfilling obligations under the FGP. Further, the

exporter's assignee may be liable to CCC for any amounts paid by CCC

under the facility payment guarantee when and if it is determined by

CCC that the exporter's assignee engaged in fraud or otherwise violated

program requirements.

(e) Good faith. The violation by an exporter of the certifications

in Sec. 1493.270 or the failure of an exporter to comply with the

provisions of Sec. 1493.290 or Sec. 1493.330(e) will not affect the

validity of any facility 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 facility payment guarantee or at the

time of assignment of the facility payment guarantee.

(f) Cooperation in recoveries. Upon payment by CCC of a claim to

the exporter or the exporter's assignee, the exporter or the exporter's

assignee will cooperate with CCC to effect recoveries from the foreign

bank or the importer.

Appendix to Sec. 1493.320--Illustration of Pro Rata Allocation of

Recoveries

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

Sec. 1493.320, regarding pro rata sharing of recoveries made for

claims filed under the FGP. For the purpose of this example only,

even though CCC interest coverage is on a floating rate basis, a

constant rate of interest is assumed. A typical case might be as

follows:

1. The U.S. bank enters into a $300,000 three-year credit

arrangement for the export sale of goods and services with the

foreign bank calling for equal semi-annual payments of principal and

semi-annual payment of interest at a rate of 10 percent per annum

and a penalty interest rate of 12 percent per annum on overdue

amounts until the overdue amount is paid.

2. Exported value reported to CCC equals $300,000.

[[Page 42663]]

3. The foreign bank fails to make the final principal payment of

$50,000 and an interest payment of $2,493.15, both due on January

31.

4. On February 10, the U.S. bank files a notice of default and

claim in good order with CCC.

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

limited to 95 percent of the principal amount due ($47,500) and

interest at a rate of 8 percent per annum (basis 365 days) on 95

percent of the principal ($1,894.80).

6. CCC pays the claim on February 22.

7. The latest investment rate of the 91-day Treasury Bill

auction average which has been published by the Department of

Treasury in effect on the date of nonpayment by CCC (February 11) is

7 percent.

Computation of Obligations

Using the above case, CCC's payment to the holder of the

facility payment guarantee would be computed as follows:

1. CCC's Obligation under the Facility Payment Guarantee:

(a) Principal coverage--(95% x $50,000).............. $47,500.00

(b) Interest coverage--(8% x $47,500 x 182/365).... 1,894.80

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

Total.............................................. 49,394.80

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

days x $49,394.80).................................. 104.20

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

(d) Amount paid by CCC on February 22.................. 49,499.00

============

2. Foreign Bank's Obligation under the Letter of Credit or

the Related Obligation:

(a) Principal due January 31........................... 50,000.00

Interest due January 31 (10% x $ 50,000 x 182/

365).............................................. 2,493.15

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

Amount owed by foreign bank as of January 31....... 52,493.15

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

$ 50,000)............................................. 361.64

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

(c) Amount owed by foreign bank as of February 22...... 52,854.79

3. Amount of Foreign Bank's Obligation Not Covered by CCC's

Payment Guarantee:........................................ 3,355.79.

Computation of Pro Rata Sharing in Recovery of Losses

In establishing each party's respective interest in any recovery

of losses, the total amount due under the foreign bank obligation

would be determined as of the date the claim is paid by CCC

(February 22). Using the above example in which the amount owed by

the foreign bank is $52,854.79, CCC would be entitled to 93.65

percent ($49,499.00 divided by $52,854.79) and the holder of the

facility payment guarantee would be entitled to 6.35 percent

($3,355.79 divided by $52,854.79) of any recoveries of losses after

settlement of the claim. Since in this example, the losses were

recovered after the claim had been paid by CCC, Sec. 1493.320(b)

would apply.

Sec. 1493.330 Miscellaneous provisions.

(a) Assignment. (1) The exporter may assign the proceeds which are,

or may become, payable by CCC under a facility 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 facility payment

guarantee not already paid, may not be made to more than one party, and

may not, unless approved in advance by CCC, be subject to further

assignment. Any assignment may be made to one party as agent or trustee

for two or more parties participating in the assignment.

(2) An original and two copies of the written notice of assignment

signed by the parties thereto must be filed by the assignee with the

Treasurer, CCC, at the address specified in the Contacts P/R.

(3) Receipt of the notice of assignment will ordinarily be

acknowledged to the exporter and its assignee in writing by an officer

of CCC. In cases where a financial institution is determined to be

ineligible to receive an assignment, in accordance with paragraph (b)

of this section, CCC will provide notice thereof to such financial

institution and to the exporter issued the facility 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 facility

payment guarantee if, at the time of assignment, such financial

institution:

(1) Is not in sound financial condition, as determined by the

Treasurer of CCC; or

(2) Is the financial institution issuing the letter of credit or a

branch, agency or subsidiary of such institution; or

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

financial institution issuing the letter of credit; or

(4) Is the U.S. parent of the foreign bank issuing the letter of

credit.

(c) Ineligibility of financial institutions to receive proceeds. A

financial institution will be ineligible to receive proceeds payable

under a facility payment guarantee approved by CCC if such financial

institution:

(1) At the time of assignment of a facility payment guarantee, is

not in sound financial condition, as determined by the Treasurer of

CCC;

(2) Is the financial institution issuing the letter of credit or a

branch, agency, or subsidiary of such institution; or

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

financial institution issuing the letter of credit; or

(4) Is the U.S. parent of the foreign bank issuing the letter of

credit.

(d) Alternative satisfaction of facility payment guarantees. CCC

may, with the agreement of the exporter (or if the right to proceeds

payable under the facility payment guarantee has been assigned, with

the agreement of the exporter's assignee), establish procedures, terms

or conditions for the satisfaction of CCC's obligations under a

facility payment guarantee other than those provided for in this

subpart if CCC determines that those alternative procedures, terms or

conditions are appropriate in rescheduling the debts arising out of any

transaction covered by the facility 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

facility 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 goods or services

exported in connection with a facility payment guarantee, including

those records generated and maintained by agents, 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 facility 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, or a related company's books, records, and

accounts concerning transactions relating to the facility payment

guarantee, including, but not limited to, financial records and

accounts pertaining to sales, inventory, manufacturing, processing, and

administrative and incidental costs, both normal and unforeseen.

(2) The exporter must maintain the proof of entry required by

Sec. 1493.290(b),

[[Page 42664]]

and must provide access to such document 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, this subpart, program announcement(s), and

notice(s) to participants relating to the FGP, as applicable.

Applicants for facility payment guarantees under this program are

hereby on notice that they will be bound by any terms contained in

applicable program announcement(s) or notice(s) to participants issued

prior to the date of approval of a facility 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:

(1) Wording indicating the delegation of authority or, in the

alternative, by a certified copy of the delegation of authority; and

(2) 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 this subpart 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

facility payment guarantee or to any benefit that may arise therefrom,

but this provision shall not be construed to extend to the facility

payment guarantee if made with a corporation for its general benefit.

(i) Deadlines. (1) Where a deadline is fixed in terms of days, it

means business days and excludes Saturdays, Sundays and federal

holidays.

(2) Where a deadline is fixed in terms of months, the deadline

falls on the same day of the month as the day triggering the deadline

period, or if there is no same day, the last day of the month; and

(3) Where a deadline would otherwise fall on a Saturday, Sunday or

federal holiday, the deadline shall be the next business day.

Signed this 1st day of August, 1997 at Washington, DC.

Christopher E. Goldthwait,

General Sales Manager, Commodity Credit Corporation.

[FR Doc. 97-20761 Filed 8-7-97; 8:45 am]

BILLING CODE 3410-10-P