[Federal Register Volume 59, Number 201 (Wednesday, October 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25849]


[[Page Unknown]]

[Federal Register: October 19, 1994]


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Part II





Department of Agriculture





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Commodity Credit Corporation



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7 CFR Part 1493



Export Credit Guarantee Program and the Intermediate Export Credit 
Guarantee Program; Final Rule
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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1493

[RIN 0551-AA30]

 

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

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Commodity Credit Corporation (CCC) is issuing this final 
rule which revises the regulations for the Export Credit Guarantee 
Program (GSM-102) and the Intermediate Export Credit Guarantee Program 
(GSM-103). In addition to making changes intended to improve and update 
the current regulations, this final rule also incorporates material 
required by the Agricultural Trade Act of 1978, as amended by Section 
1531 of the Food, Agriculture, Conservation, and Trade Act of 1990 (the 
1990 Act).

EFFECTIVE DATE: The provisions of this final rule are effective 
November 18, 1994.

FOR FURTHER INFORMATION CONTACT: L.T. McElvain, Director, CCC 
Operations Division, USDA, FAS, Ag Box 1035, Washington, DC., 20250-
1035, telephone (202) 720-6211.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule is issued in conformance with Executive Order 12866 
and has been determined to be ``not significant'' as a regulatory 
action. For this action, the Office of Management and Budget has waived 
its review process in accordance with Executive Order 12866.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this final rule since CCC is not required by 5 U.S.C. 553 
or any other provision of law to publish a notice of rulemaking with 
respect to the subject matter of this rule.

Paperwork Reduction Act

    The paperwork requirements which would be imposed by this final 
rule were described in the interim final rule and approved by the 
Office of Management and Budget under the Paperwork Reduction Act of 
1980. The Office of Management and Budget assigned number for those 
requirements is OMB No. 0551-0004. The public reporting burden for 
these collections is estimated to average 10.3 minutes per response, 
including time for reviewing instructions, searching existing sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. Send comments regarding this burden 
estimate or any other aspects of this collection, including any 
suggestions for reducing burden, to Department of Agriculture, 
Clearance Officer, OIRM, AG Box 7630, Washington DC. 20250-7600; and to 
the Office of Management and Budget, Paperwork Reduction Project (OMB 
No. 0551-0004), Washington, DC. 20503.

Executive Order 12372

    These programs are not subject to the provisions of Executive Order 
12372, which requires intergovernmental consultation with state and 
local officials. See the Notice related to 7 CFR Part 3015, Subpart V, 
published at 48 FR 29115 (June 24, 1983).

Background

    In the Federal Register of June 6, 1991 (56 FR 25993), the 
Commodity Credit Corporation (CCC) issued an interim rule to revise the 
regulations for the CCC Export Credit Guarantee Program (GSM-102) and 
the CCC Intermediate Export Credit Guarantee Program (GSM-103) 
administered by FAS, USDA on behalf of CCC, pursuant to program 
regulations codified at 7 CFR Part 1493 and through the issuance of 
``Program Announcements'' and ``Notices to Participants'' that are 
consistent with, and in addition to, these program regulations. The 
interim rule incorporated or withdrew all previously outstanding 
operational requirements announced by FAS/USDA through Notices to 
Participants. The interim rule also incorporated requirements 
established by the 1990 Act. Finally, the interim rule clarified 
several provisions previously contained in 7 CFR Part 1493 to promote 
more efficient administration of the GSM-102 and GSM-103 programs. The 
deadline for comments on the interim rule was August 5, 1991. Comments 
were received from five U.S. exporters (one exporter submitted two 
separate responses), three producer associations, two U.S. financial 
institutions, one U.S. export trade association, and one U.S. 
Government agency. These thirteen parties made approximately 66 
separate and significant comments regarding either the interim rule or 
the policy issues and the impact of policies involved in administering 
the GSM-102 and GSM-103 programs.

General Comments

    One commenter disagreed with CCC's statement that it has been 
determined that this rule will not result in ``significant adverse 
effects on competition, employment, investment, productivity, 
innovation or the ability of United States-based enterprises to compete 
with foreign-based enterprises in domestic or export markets.'' This 
respondent shared that while the interim rule contained some 
improvements, some of the changes would restrict the competitiveness 
of, and be detrimental to, the sale of U.S. goods. The commenter argued 
that the interim rule was an overreaction resulting from the Iraqi 
default on GSM-102/103 guaranteed obligations. The commenter 
acknowledged that the U.S. Government must monitor the programs to 
prevent abuse but contended that, in general, free market conditions 
should prevail. While CCC agrees that the GSM-102/103 programs should 
avoid unduly restricting normal commercial practices, the Department 
has been mandated by Congress to implement measures to guard against 
program abuse. It is the Department's intention to adopt necessary 
program safeguards while still enhancing the ability of U.S. exporters 
to compete in foreign markets.
    Four commenters supported and commended the USDA's efforts to 
catalogue and codify many of the operational features of the programs, 
to assure that the regulations are being met, and to create more 
accountability within the programs.
    Four other commenters felt that the intention of the interim rule 
to ``* * * simplify material, enhance clarity, eliminate duplication 
and facilitate their use * * *'' has not been met. These commenters 
stated that the interim rule is complicated, unclear at some points, 
and unnecessarily duplicative. The commenter argued and that, more than 
ever, the regulations contain burdensome regulatory features which 
could constrain the programs' effectiveness.
    One commenter felt that the interests of program simplification 
have been abandoned and that undue burdens are being placed on 
participants to protect the programs from a few perceived 
manipulations. This commenter suggested that the program is not ``user 
friendly'' when administrators focus only on protecting the programs 
from all risk, or on shifting all risk to the exporter or buyer. 
Another respondent felt that the lack of USDA guidance on pertinent 
issues is not only frustrating, but may have also compromised the 
strengths of the U.S. agricultural system. CCC agrees that the interim 
rule contains regulatory features that place additional burdens on 
program participants, such as added certification statements, 
requirements to maintain arrival documentation, and longer retention 
time on transaction records. Although such requirements may compare 
unfavorably with the simplicity of the prior regulations, these 
requirements are mandated by the 1990 Act. On the other hand, CCC has 
also made changes that consolidate program requirements. For example, 
policy and additional program requirements previously contained in a 
number of Notices to Participants were incorporated into the interim 
rule.
    Five commenters felt that the revised regulations are a response to 
criticism of the GSM-102/103 programs and pressure on program 
administration brought on by prior audits and investigations by the 
General Accounting Office and USDA's Office of the Inspector General. 
Another commenter stated that since auditors do not create exports for 
the U.S. economy and have no responsibility for market development 
there is a need to re-establish teamwork between FAS and the export 
community to resolve key issues. One commenter felt the intent of the 
1990 Farm Bill was to streamline program procedures, but, in actuality, 
the programs are more bureaucratic than ever. This same commenter felt 
that the USDA has forgotten that the GSM-102/103 programs are 
commercial programs, that the programs must reflect commercial 
realities, and that recent studies and audits have not focused on the 
commercial and competitive viability of the GSM-102/103.
    CCC acknowledges these concerns. In addressing audit and 
investigation reports on its commercial export programs, CCC has 
attempted to put in perspective the relatively low incidence of program 
violations in the programs. However, given that many of the 
requirements of the interim rule aimed at preventing program abuses 
were mandated by the 1990 Act, CCC cannot concur that the primary 
legislative intent was to ``streamline procedures.''
    Three respondents recommended that the interim rule be revised to 
allow financial institutions to use the commercial banking practice of 
securitization as a financing technique for CCC-guaranteed credits. 
Securitization would involve the packaging of such credits by a U.S. 
financial institution for sale to third parties as U.S.-government 
guaranteed securities. It is asserted that securitization would expand 
sources, and perhaps reduce the cost, of financing for CCC-guaranteed 
credits. However, respondents point out that certain program 
regulations and CCC policies now make securitization infeasible. For 
example, regulations require that the guarantee holder who has 
experienced a default and filed a claim with CCC must turn all 
recoveries ``from any source whatsoever'' over to CCC for pro rata 
sharing (Sec. 1493.130(b)(1)). This provision is intended to ensure 
that the U.S. party financing the transaction always remains at risk 
for the portion of the credit and interest not guaranteed by CCC. 
Generally, this policy is seen as incompatible with the issuance of 
100% U.S. Government-guaranteed securities since any collateral put up 
by the foreign borrower to cover the portion not guaranteed by CCC 
could be subject to pro-rata sharing with CCC.
    Similarly, U.S. banks point out that the unwillingness of CCC to 
pre-approve export and other documents that must be submitted to 
support a claim on CCC in the event of default makes it impossible to 
issue high grade securities based on CCC-guaranteed credits. Without 
pre-approval, such securities could not be marketed with absolute 
assurance that claims on CCC for defaults on the underlying credits 
would be found in good order and honored.
    CCC has considered these and other proposals for securitization of 
CCC-guaranteed credits. However, CCC remains of the view that, although 
the degree of risk-sharing may be adapted to meet program objectives, 
requiring risk-sharing with the holder of the guarantee (normally a 
U.S. bank) is an essential feature of the GSM-102/103 programs. It 
forces the private sector to engage in risk assessment relating to 
individual transactions, and thereby supplements the risk assessment 
done by CCC prior to announcing export credit guarantee programs for 
specific countries. Removing this requirement would also reduce the 
incentive banks now have to press for recovery of late payments from 
foreign banks rather than claiming immediately on CCC. CCC does not 
have the resources that would be required to pre-approve documents and 
to effectively manage the increase in claims and follow-up recovery 
efforts that would go hand-in-hand with changing the specified 
provisions of the GSM-102/103 regulations to facilitate securitization. 
For these reasons, CCC is not prepared at this time to propose program 
changes to facilitate securitization of its credit guarantees.
    Two comments were received regarding republishing the rule. One 
respondent suggested that the USDA republish the regulations on a 
routine basis, requesting public comments, to insure that improvements 
in the programs may be continually advocated and effected. Another 
commenter suggested a redraft of areas of greatest controversy and 
republication with request for comments. CCC agrees that the GSM-102/
103 program regulations are important and should be reviewed 
periodically. It is CCC's policy to do this. However, publication of an 
additional interim rule at this time would further delay implementation 
of a final rule which is needed to establish a basic permanent 
framework for the programs.
    One commenter felt that the delays in the administrative process 
increase exporter risks and costs and inhibit the programs' 
effectiveness. This respondent recommended that the regulations include 
absolute deadlines governing the USDA's performance of administrative 
functions. CCC recognizes that administrative delays in processing 
applications and issuing guarantees may result in additional costs and 
risks to exporters, and CCC is, therefore, committed to expediting 
existing administrative procedures. However, it is not feasible to 
establish absolute time-frames for actions because many administrative 
delays may be due to the failure of participants to provide all 
required information, or are the unavoidable consequence of increased 
program activity during specific time periods.
    One respondent recommended that a special trade advisory committee 
be established to address controversial provisions of program 
regulations. The commenter called on the Agricultural Policy Advisory 
Committee (APAC) and the Agricultural Technical Advisory Committee 
(ATAC) to devote attention to these programs. CCC disagrees that a 
special trade advisory committee is warranted. Considerable debate was 
aired when Congress developed the 1990 Act which mandated changes to 
the GSM-102/103 programs. The Department also has considerable 
experience in administering credit and credit guarantee programs, and 
has a continuing dialogue with private sector program participants on 
administrative and other program policies. CCC believes that the 
rulemaking process should remain the primary vehicle for obtaining 
views of interested parties. This process gives an equal opportunity to 
all parties, is part of the public record, and is required by law. The 
APAC and ATAC could consider GSM-102/103 issues if their members so 
choose.
    A commenter suggested that solutions to some of the problems are 
simply to modify the regulations, but other problems require a 
comprehensive policy review by USDA policy officials. Another commenter 
supported a special credit facility separate from the regular GSM-102/
103 programs for the former Republics of the Soviet Union. These 
comments, by their own admission, address concerns outside the content 
of the program regulations and therefore, are not considered in this 
final rule.

Section by Section Analysis of Subpart A and B

    The numbering system of the final rule differs somewhat from that 
of the interim rule. Some sections were added, some were deleted. For 
the purposes of this discussion, the numbering system of the final rule 
will be used, except where otherwise indicated. In addition to changes 
resulting from comments from interested parties, some additional 
changes in language have been incorporated into the final rule for the 
purpose of clarification of specific provisions. These changes are 
minor and not of a substantive nature.

Subpart A: Restrictions and Criteria for Export Credit Guarantee 
Programs

Section 1493.1 General Statement
    No public comment received on this section. No changes have been 
made in this section of the final rule.
Section 1493.2 Purposes of Program
    One commenter felt that the purposes of the program are accurately 
conceived, well-prioritized and complete, and should serve as the key 
criteria to guide CCC in both the drafting of the final rule and the 
operation of the GSM-102/103 programs. No changes have been made in 
this section of the final rule.
Section 1493.3 Restrictions on Programs and Cargo Preference Statement
    One commenter praised the USDA for its stand on this issue. No 
changes have been made in this section of the final rule.
Section 1493.4 Criteria for Country Allocations
    One commenter felt that, because of problems which previously 
impeded the timely provision of the credits to the republics of the 
former Soviet Union, USDA needs to elaborate its ``creditworthiness'' 
criteria and should consider revising current restrictions and limits 
on credit that make it difficult for many debt-burdened countries to 
participate in the program. CCC notes that the 1990 Act prohibits 
export credit guarantees from being used ``for foreign aid, foreign 
policy, or debt rescheduling purposes'' and instructs that CCC ``shall 
not make credit guarantees available in connection with sales of 
agricultural commodities to any country that the Secretary determines 
cannot adequately service the debt associated with such sale.'' Under 
this legislative mandate, CCC believes that the criteria of Sec. 1493.4 
cannot be changed in ways to meet the objective suggested by the 
commenter.
Section 1493.5 Criteria for Agricultural Commodity Allocations
    No public comment received on this section. No changes have been 
made in this section of the final rule.
Section 1493.6 Additional Required Determinations for GSM-103
    No public comment received on this section. No changes have been 
made in this section of the final rule.

Subpart B: CCC Export Credit Guarantee Program (GSM-102) and CCC 
Intermediate Export Credit Guarantee Program (GSM-103) Operations

Section 1493.10 General Statement
    No public comment received on this section. No substantive changes 
have been made in this section of the final rule.
Section 1493.20 Definition of Terms
    Eight respondents commented on Sec. 1493.20(f), Discounts and 
Allowances. All comments, in one way or another, recommended changes to 
this section to permit discounts and allowances that are consistent 
with customary commercial trade practices. The commenters suggested 
specifically excluding from the definition of discounts and allowances:
    (1) Cash payments, under the terms of the export sales contract, 
made by the exporter to the financing institution which reduce the 
amount financed and are notified to CCC as amendments to port value or 
export value as appropriate;
    (2) Credits against the sales price, under the terms of the export 
sales contract, which reduce the amount of CCC coverage and are 
notified to CCC as amendments to the port value and exported value, as 
appropriate;
    (3) Cash payments by the exporter to third parties for demurrage, 
detention and overage insurance premiums; and
    (4) Adjustments for destination weights in cotton sales.
    The payments or credits described in comments (1) and (2) above, 
are discounts or allowances to the importer; however, if properly 
reported to CCC and the amount of CCC's coverage consequently reduced, 
no program violation is involved. CCC has, therefore, determined not to 
include these suggested exemptions in 1493.20(f). Items (3) and (4) are 
addressed below.
    One commenter recommended that the definition of discounts and 
allowances should be revised to delete reference to demurrage and 
detention settlements. The commenter stated that demurrage and 
detention settlements are normal costs which may be incurred in an 
export sales transaction. When settlement funds are paid to an 
importer, the importer is only acting as an intermediary in making 
these payments to a third party, i.e., the shipping line. Thus the 
financial transaction between exporter and importer is unaffected. 
Similarly, payments of over-age insurance premiums to underwriters 
because of an exporter's inability to otherwise charter a vessel of 
required specifications should not be considered a discount or 
allowance to the importer. CCC concurs with these comments and has 
therefore, deleted reference to demurrage and detention in the 
definition of discounts and allowances in this final rule.
    Two respondents felt that there is a contradiction in the USDA's 
interpretation of Sec. 1493.20(f). When a weight increase occurs at 
destination, CCC makes no provision for amending the exported value to 
increase coverage. However, when destination weights decrease, any 
adjustment by the exporter in favor of the importer is considered by 
CCC as a discount or allowance and CCC requires that the value of the 
guarantee be correspondingly reduced. The respondents argue that there 
should be consistent treatment in both cases, and that as long as there 
is coverage available from the country line, adjustments to exported 
value should be made for both weight increases or decreases. CCC 
disagrees. To guard against potential program abuse, CCC has instituted 
a system to price review all transactions for which GSM-102/103 
guarantees are sought. The purpose of the price review is to insure 
that the sales price of the transaction being guaranteed falls within a 
reasonable and acceptable price range given market conditions in 
existence at the time of the sale. CCC's price review compares the 
particular price with representative prices at a U.S. export position, 
and is, therefore, based upon U.S. export weight and grade 
determinations.
    Thus, determining the port value and guaranteed value of the 
transaction, and CCC's contingent liablility under the guarantee, on 
the basis of destination weights and grades would undermine the 
effectiveness of and could potentially invalidate, the price review 
process. CCC recognizes that, in certain markets, the use of 
destination weights and grades is a normal commercial term of contract 
and, therefore, will issue guarantees in connection with such 
transactions to facilitate the export trade. However, since CCC is not 
able to conduct price reviews on the basis of destination weights and 
grades (because the determination of destination weights and grades 
necessarily occurs only after the commodities have arrived at the port 
of destination and, therefore, long after the application for GSM-102/
103 coverage has been approved), exporters will have to bear the varied 
risks involved with contracting on that basis. Those risks include the 
possibility that a decrease in weight or grade between export and 
destination will result in an adjustment or settlement in favor of the 
importer; or that an increase will result in an adjustment or 
settlement in favor of the exporter. In the former case, the adjustment 
in favor of the importer would qualify as a ``discount or allowance'' 
within the meaning of Sec. 1493.20, requiring the exporter to report 
the occurence so that the guarantee can be amended to reflect a 
downward adjustment in CCC's liability made because to do so could 
invalidate the price review determination upon which the approval of 
the guarantee was initially made.
    Two respondents felt that, in the case of cotton, a special 
exception should be made because of (1) the sensitivity of cotton to 
fluctuations in atmospheric conditions resulting in gains or losses in 
weight; and (2) the long standing practice of marketing cotton on the 
basis of landed weights and quality. Changing this practice, to comply 
with regulations, will deny the cotton exporters the flexibility to 
market cotton efficiently.
    CCC has determined not to make an exception for destination weights 
for cotton. At this time there is insufficient evidence available to 
CCC that the interim rule has caused any significant problems. As 
previously noted, when reported properly to CCC, payment of allowances 
for destination weights is not a program violation.
    Two commenters requested further clarification of what CCC 
considers discounts and allowances. Specifically, they ask whether the 
definition encompasses carrying charges and normal customer service 
such as visits to the customer (to inspect the product, observe its use 
in the market, etc.), technical assistance, and replacement of faulty 
or defective products? The regulation's definition of discounts and 
allowances includes ``a promise to provide additional goods, services 
or benefits in the future.'' Thus, CCC considers an exporter's 
contractual obligation to provide technical assistance, or trade 
servicing, to be, by definition, a discount or allowance to the 
commodity price on which CCC price review is based (unless, at the time 
of price review, the exporter justifies to CCC how such service or 
assistance is incorporated into the price, and the price is thus 
approved by CCC). However, if an exporter does routine servicing of 
accounts and customer visits, without any contractual obligation to do 
so, no discount or allowance is provided under the definition. CCC has 
determined not to further modify the definition of discounts and 
allowances because there is an infinite variety of circumstances under 
which exporters could provide a wide range of services to importers. 
Exporters are obliged to report instances that may be discounts and 
allowances, and CCC will make a determination on a case-by-case basis.
    One respondent suggested that: (1) the definition be changed to 
allow for normal customer services, and (2) the last phrase be changed 
to establish a minimum threshold of 2.5 percent of sales value for 
defining quality, weight and certain other settlements as discounts or 
allowances. CCC has determined it is inappropriate to set such a 
minimum threshold because it could permit circumvention of the price 
review process.
    A comment was received regarding the definition of Eligible 
Interest in Sec. 1493.20(g). The commenter felt that the phrase ``the 
maximum interest rate stated in the payment guarantee, when determined 
or adjusted by CCC will not exceed the average investment rate of the 
most recent Treasury 52-week bill auction in effect at that time'' 
seems to imply that CCC is able to adjust the guaranteed interest rate 
after the payment guarantee is issued. The respondent requested 
clarification.
    CCC's maximum liability for interest coverage is indicated in the 
payment guarantee or any amendments thereof. CCC can issue payment 
guarantees at either a fixed rate of interest or at an adjustable rate 
of interest. In the case of a fixed interest rate, the rate of CCC's 
interest coverage is determined as of the date of application for that 
payment guarantee and is indicated on the face of the payment 
guarantee. This maximum eligible interest rate coverage will not 
change.
    On adjustable rate coverage payment guarantees, the method or 
formula for determining the eligible interest rate coverage is 
established for specific time periods. The operative phrase in the 
definition is ``when determined or adjusted by CCC.'' For example, 
currently on GSM-103 payment guarantees which allow for an adjustment 
in CCC's eligible interest coverage, the determination of maximum 
interest coverage is made on the date of export and adjusted only on 
the due dates for principal.
    One commenter suggested that CCC adopt, at the option of the 
lender, a variable rate of interest coverage. CCC allows the assignee 
U.S. financial institution to provide credit to the foreign bank on the 
basis of a variable rate of interest. However, under the interim rule 
and prior regulations, CCC states in the Program Announcement for the 
applicable country whether its guarantee coverage will be offered with 
a fixed or adjustable rate of interest coverage. CCC has determined 
that if interest rate coverage were determined at the option of the 
lender, CCC would not be able to adequately control its risk exposure. 
Therefore, it has been determined not to make the suggested change.
    Five respondents commented on the definition of 
Sec. 1493.20(h)(1)(ii), Exported Value, where CCC's payment guarantee 
coverage is on the basis of FAS or FOB value on transactions sold on a 
CFR or CIF basis. All commenters expressed concern that under this 
requirement the FAS or FOB coverage will be reduced should the actual 
freight and/or insurance increase from what was anticipated at the time 
of the exporter's application for a payment guarantee. The commenters 
noted that the exporter may thus find a portion of the sale amount is 
uncollectable under the letter of credit because the financing 
institution will only pay the exporter the amount recoverable under the 
payment guarantee, plus the bank's proportion of shared risk. Other 
concerns raised were that this requirement is impractical and will 
cause problems for all parties because: (1) the actual amount of 
coverage may not be established until long after the sale has been 
made; (2) the values stated in the letter of credit and the import 
licenses will not reflect the value in final payment guarantee; and (3) 
the values in the final payment schedule will not reflect the values in 
the payment guarantee nor will they reflect the agreement between the 
buyers and sellers at the time the contract was made. Commenters stated 
that the requirement will reduce use of the programs because exporters 
may stop selling CFR and instead offer only on a FOB basis. U.S. 
exporters could also be hurt if buyers, who previously purchased on a 
CFR basis, choose to charter ships for themselves.
    The arguments made by the commenters are compelling. CCC's intent 
in framing the provision of the interim rule was not to expose 
exporters, importers or assignees to unmanageable risks. CCC has 
determined to revise Sec. 1493.20(h)(1)(ii) and Sec. 1493.80(a)(7) to 
return to the practice of using the exporter's valuation of freight and 
insurance costs at time of application for a payment guarantee as the 
basis for determining exported commodity value under the payment 
guarantee. CCC recognizes that this change may be viewed as exposing 
CCC to an added measure of liability in cases where actual freight 
costs turn out to be lower than estimated in the exporter's 
application. However, CCC notes that its price review procedure 
confirms that both the overall CFR or CIF price and the implied FOB or 
FAS commodity price are within acceptable ranges at the time of 
application. This ensures against exporters deliberately under-
estimating freight cost at the time of application in order to finance 
indirectly a significant portion of freight costs in the commodity 
financing.
    One commenter suggested that in Sec. 1493.20(k), Foreign Bank 
Letter of Credit, the reference to International Chamber of Commerce 
(ICC), Uniform Customs and Practice for Documentary Credits, 
Publication No. 400 be replaced with ``latest revision'' to avoid the 
need for an amendment of the rule when the ICC updates this 
publication. CCC agrees to this technical change and has revised 
Sec. 1493.20(k) to reflect the suggestion and the fact that ICC 
Publication No. 400 has been revised and issued as ICC Publication No. 
500. We have also included the use of the copyright symbol, 
>, to reflect the proprietary interest of the ICC in this 
publication.
    Although no public comment was received regarding the definition of 
``Incoterms'' found at Sec. 1493.20(q), CCC has updated the final rule 
to reflect the current International Chamber of Commerce's abbreviation 
for the term ``Cost and Freight''. Accordingly, CCC uses the 
abbreviation ``CFR,'' makes such correction to Sec. 1493.20(q), and 
further acknowledges the alternative abbreviations, ``C&F'' and 
``CNF'', because of their continued common commercial use. Additional 
language is also added to this definition to indicate CCC's position 
that contractual obligations are incurred by the use of these terms by 
program participants. Additionally, we have again included the use of 
the copyright symbol, >, to reflect the ICC's proprietary 
interest.
    One commenter suggested that the phrase in Sec. 1493.20(s), Late 
Interest, `` * * * beginning on the first day after which the claim for 
loss is found in good order by CCC * * * '' be changed to `` * * * 
beginning on the first day after receipt of a claim which CCC has 
determined to be in good order * * * '' in order to be consistent with 
Sec. 1493.120(c), Late Interest Payment. CCC has determined that the 
definition of ``Late interest'' contained in Sec. 1493.20(s) be revised 
as suggested to avoid inconsistency.
    Concerning Sec. 1493.20(v)(3), Port Value, one commenter felt that 
when CCC announces CFR or CIF coverage, the cost of bulk destination 
bagging should be covered by the credit guarantee, provided that the 
total cost of ocean freight for bulk shipment plus all costs of bagging 
at the destination does not exceed the comparable cost of ocean freight 
for bagged cargo. CCC does consider that packaging materials for bulk 
commodities may be an integral part of the commodity sale. Hence, on a 
bulk commodity sale which includes destination bagging, CCC would 
permit the costs of bags, needles and twine exported from the U.S. with 
the commodity to be included in the payment guarantee. Further, CCC 
will issue payment guarantees on CFR or CIF sales with destination 
bagging, if all costs of the bagging at destination are deducted as 
provided in Sec. 1493.20(h)(3) and Sec. 1493.20(v)(3). However, CCC 
disagrees that CCC should cover the costs of foreign labor involved in 
destination bagging in its payment guarantee.
    A comment regarding Sec. 1493.20(x), Related Obligation, suggested 
that since draft(s) are not always used, the wording of the last 
sentence should be amended to read: ``The U.S. financial institution is 
entitled to such payments because it has financed the obligation 
arising under the letter of credit.'' CCC agrees and has revised the 
language of Sec. 1493.20(x) accordingly.
Section 1493.30 Information Required for Program Participation
    One comment was received regarding the applicant's financial 
responsibility. The commenter was concerned that small European 
companies opening offices in the U.S. in order to take advantage of 
USDA agricultural programs can and will make corrupt payments or grant 
after sales services because their maximum exposure is limited to a 
small office and minimal assets. In its experience with participants 
under the GSM-102/103 programs, CCC finds no grounds for this concern. 
Of those few instances of corrupt payments or after sales services that 
have been identified in CCC guaranteed transactions (principally in 
connection with past sales to Iraq), such program violations have been 
no more prevalent in transactions entered into by the U.S. offices of 
small European-based companies.
    This same commenter suggested that the determination of financial 
responsibility should be predicated on an applicant having a minimum 
net worth of $5 million, or of an amount relative to GSM business done, 
such as 10% of estimated annual business. It is CCC's view that setting 
minimum net worth requirements would unreasonably and unfairly exclude 
virtually all small export companies currently participating in the 
programs. Small exporters play a significant role, especially in 
relation to certain countries and certain commodities, and often where 
frequent small deliveries are desired by foreign buyers.
    In general, CCC's experience with the financial responsibility 
requirement introduced in the interim rule has been unsatisfactory. The 
requirement appears to have little or no value in protecting CCC from 
financial exposure due to program violations by an exporter. Nor has 
this requirement enhanced CCC's ability to recapture financial losses 
by pursuing exporters for monetary judgments in the event of a program 
violation. CCC's potential financial liability in issuing a payment 
guarantee is the risk of default from the foreign bank issuing the 
letter of credit. The rates of transaction nonperformance and of 
program violations have been very low. CCC takes any program violation 
seriously and pursues administrative actions against exporters shown to 
have violated the program or other applicable U.S. laws. However, 
demonstrating a minimum level of financial assets, or meeting other 
financial tests, does not materially enhance CCC's ability to recover 
losses. Such tests are unreliable and quickly outdated. Therefore, CCC 
has decided to delete all references to financial responsibility from 
Sec. 1493.30 and from Sec. 1493.30(d)(1).
    CCC has revised the scope of the certification statement required 
by Sec. 1493.30(a)(6). This section has required applicants to certify 
that ``the applicant; any owner, in whole or in part; or any employee 
is not currently debarred or suspended from contracting with or 
participating in programs administered by any U.S. Government Agency.'' 
CCC has determined that this certification requirement should be eased 
in recognition that large companies, especially publicly-traded ones 
with many shareholders, cannot make the certification with absolute 
knowledge of its truth. Section 1493.30(a)(6) now requires the 
following certification: ``I certify, to the best of my knowledge and 
belief, that neither [name of applicant] nor any of its principals has 
been debarred, suspended, or proposed for debarment from contracting 
with or participating in programs administered by any U.S. Government 
agency. (``Principals,'' for the purpose of this certification, means 
officers; directors; owners of five percent of or more stock; partners; 
and persons having primary management or supervisory responsibility 
within a business entity (e.g., general manager, plant manager, head of 
a subsidiary division, or business segment, and similar positions)). I 
further agree that, should any such debarment, suspension, or notice of 
proposed debarment occur in the future, [name of applicant] will 
immediately notify CCC.''
    In keeping with the above change in certification, Sec. 1493.30(d), 
Ineligibility for Program Participation, has been revised to delete 
subparagraph (4) which made ineligible any applicant employing any 
individual who is debarred or suspended. This change recognizes that 
some applicants will not be in a position to determine whether or not a 
single employee is debarred or suspended.
Section 1493.40 Application for Payment Guarantee
    Three respondents commented on the description and value of 
discounts and allowances, Sec. 1493.40(a)(10). The commenters suggested 
that this requirement is impractical because most discounts and 
allowances are not known until the date of export and many times are 
not quantifiable until the goods have been discharged. One commenter 
felt that if the intention of this requirement is to uncover any 
attempt to obtain coverage, through prior agreement, for an amount 
greater than the value of the commodity transaction, a better approach 
would be to prohibit any discounts or allowances which are not due to 
contingencies or acts which are not known at the time of sale. One 
commenter suggested that this requirement be deleted.
    CCC has determined that to protect the integrity of the program and 
to limit CCC's contingent liability in the event of a default, the 
definition of discounts and allowances contained in Sec. 1493.20(f) and 
the required reporting thereof under Sec. 1493.40(a)(10) and 
Sec. 1493.80(a)(8) is necessary and appropriate. Discounts or 
allowances that are unknown by the exporter at the time of application 
for a payment guarantee, of course, cannot be reported to CCC at the 
time of application. However, some discounts and allowances may be 
provided for in the sales contract. These discounts and allowances 
should be reported by the exporter at time of application. If known 
discounts or allowances are not reported to CCC at the time of 
application, CCC cannot adequately price review the transaction.
    When a conditional or contingent discount or allowance is provided 
for under the terms of the export sales contract, it should be noted in 
the application, but not deducted from the port value unless agreed by 
CCC. This is because the exporter may not know, at the time, whether 
the condition(s) will arise and the discount or allowance will be paid. 
The exporter should report the value of the discount or allowance, if 
it has been paid, at the time of filing the evidence of export report. 
If a payment of a discount or allowance occurs after the submission of 
an evidence of export report, the exporter must report the value of the 
discount or allowance in an amended evidence of export report, and 
should notify the U.S. assignee, if any (see previous discussion of 
this point concerning the definition of ``discounts and allowance,'' 
Sec. 1493.20(f)). In the event of a claim under the payment guarantee, 
CCC may hold an exporter liable for value of the unreported discounts 
and allowances.
    Section 1493.40(a)(14) has been revised in this final rule for the 
purpose of clarity. Applicants often were unable to report the address 
of the foreign bank issuing the letter of credit. The language of this 
subsection has been changed to now state ``the address or location'' of 
the foreign bank. CCC has determined this change will still provide 
sufficient information to identify the foreign bank issuing the letter 
of credit.
    Section 1493.40(a)(15) has been revised in this final rule to 
delete the requirement to include the estimated principal payment due 
dates and amounts due. CCC is able to make this calculation using other 
information reported under this subsection.
    Section 1493.40(a)(16) has been revised in this final rule to add 
the number of the Export Enhancement Program, Dairy Export Incentive 
Program, Sunflowerseed Oil Assistance Program or Cottonseed Oil 
Assistance Program Agreement assigned by USDA, as applicable. This 
added information is not a burdensome requirement for the exporter and 
assists CCC in tracking concurrent use of credit and subsidy programs.
    One comment was received regarding USDA's price review process 
established under Sec. 1493.40(b). The commenter questioned how USDA 
can properly determine a fair market price. The respondent felt that 
U.S. companies will lose the incentive to be innovative and aggressive 
in creating markets for their products if the USDA controls prices. 
This commenter felt that while high prices may indicate kickbacks or 
other improprieties and warrant a complete investigation, the practice 
of price review should be used as a tool to monitor the program, and 
should not constitute ``price approval.'' The commenter recommended 
that the practice of price review should be eliminated from the 
regulations. CCC disagrees. The price review procedure under the GSM-
102/103 programs is not a ``price approval'' mechanism. Although CCC 
does have the right to reject applications for a payment guarantee 
that, in CCC's opinion, do not reflect market parameters, in practice, 
when a sales price raises questions, the exporter is given the 
opportunity to explain the factors relating to the price. Often, after 
receiving such information, CCC has been able to approve the 
application. CCC's intention is not to control the price that an 
exporter may negotiate with an importer. However, CCC does have an 
obligation to review those sales prices which appear excessively high 
or low because they may be linked to possible program violations, such 
as kickbacks, extra sales services or the inclusion of lower value 
foreign content in the shipment. Therefore, the current practice of 
price review for GSM-102/103 program applications will continue.
Section 1493.50 Certification Requirements for Obtaining Payment 
Guarantees
    One commenter questioned whether CCC considered normal customer 
service, e.g., visits to the customer to inspect the product, to 
observe its use in the market, to provide technical assistance, or to 
replace faulty or defective products to be extra sales services under 
Sec. 1493.50(b). The respondent requested that CCC clarify and give 
examples or guidelines of what is considered to be extra sales 
services. CCC cautions exporters that any extension of extra sales 
services provided to an importer that can be directly linked to a GSM-
102 or GSM-103 payment guarantee may be construed as a discount or 
allowance which, although permissible, must be reported and deducted 
from the value of the guarantee. On the other hand, an extra sales 
service not linked to the basic commercial intent of the transaction 
(i.e., that is extraneous to the transaction) is prohibited. The 
instance, type, nature, and the extent of linkage to the sales 
transaction must be examined on a case-by-case basis. As previously 
discussed in relation to comments received concerning the definition of 
``Discounts and Allowances,'' Sec. 1493.20(f), CCC will review the 
specific circumstances when they are reported. Therefore, CCC has 
determined not to provide specific examples of extra sales services--
extraneous and otherwise--in the regulations.
    Two respondents made comments regarding Sec. 1493.50(a), which 
requires the exporter to certify that the agricultural commodity or 
product exported under the payment guarantee is a U.S. agricultural 
commodity or product as defined by Sec. 1493.20(z). While both 
commenters fundamentally agree with the U.S. origin requirement, they 
felt that because of the changes in the U.S. market environment, 
particularly the U.S.-Canada Free Trade Agreement, a rigid 
interpretation of the U.S. origin requirement will interfere with the 
normal operation of the U.S. grain marketing system. The commenters 
suggested that an alternative to the U.S. origin requirement might be a 
``transit billing'' system similar to the Agricultural Stabilization 
and Conservation Service's current policy for all commodity purchases, 
except dairy products. Under transit billing, in the commenter's 
opinion, domestic origin requirements should be satisfied if a grain 
handling facility containing commingled domestic and foreign origin 
commodities, has quantities of domestic origin commodities equal to or 
greater than the quantity called for in the contract.
    CCC has reviewed the ``transit billing'' system and has determined 
that such a system will not meet the statutory requirements of the 1990 
Act because the definition of a U.S. agricultural commodity contained 
in Section 102(7) of the Act requires that an agricultural commodity 
exported under the GSM-102/103 programs be ``entirely produced in the 
United States.'' Transit billing would permit unlimited commingling of 
U.S. and imported grains with rules that would maximize the likelihood 
that a warehouseman would always have a sufficient theoretical U.S.-
origin stock position to be able to fill export orders for U.S. grain. 
It would be a formula accounting system which would be unrelated to the 
actual identity of the grain being handled. Therefore, it has been 
determined that transit billing would not meet the statutory 
requirement.
    Another alternative proposed by one of the commenters is for CCC to 
allow foreign agricultural components to be exported but to provide no 
guarantee coverage on the value of any such components. The commenter 
proposed this option in reference to bulk grains, an agricultural 
commodity, not a product of an agricultural commodity. As previously 
noted, Section 102(7) of the Agricultural Trade Act of 1978, as amended 
by the 1990 Act does not, in CCC's view, permit any foreign content to 
be included in the U.S. agricultural commodity exported under the GSM-
102/103 programs.
Section 1493.60 Payment Guarantee
    One respondent asked if under Sec. 1493.60(b), Period of Guarantee 
Coverage, the language ``the payment guarantee will apply to the period 
beginning either on the date(s) of export(s) or on the date when 
interest begins to accrue, whichever is earlier,'' implies that CCC 
will guarantee credits on which interest accrues prior to disbursement 
of funds to the U.S. exporter. The answer is yes. CCC will provide a 
payment guarantee that includes interest coverage which begins before 
the date of export from the U.S. in circumstances where the exporter 
has sold the commodity at an U.S. interior point of loading of the 
export carrier (e.g., railcar or truck for export to Mexico). However, 
interest coverage begins no earlier than the date interest begins to 
accrue under the guaranteed credit. This date could be earlier than the 
date of disbursement of funds to the U.S. exporter if this was provided 
for in the foreign bank's letter of credit or related obligation.
    Comments were received suggesting changes in Sec. 1493.60(e), 
Reserve Coverage for Loading Tolerances. Three respondents believed the 
purpose of this provision is to allow the exporter to pay the guarantee 
fee only on the actual amount of the coverage required, and recommended 
that the section be changed to allow the exporter to apply for a 
payment guarantee (and pay the guarantee fee) based on any quantity, 
within the sales contract specifications, reserving coverage up to the 
maximum contract tolerance. One of the commentors also felt that, as a 
result of the requirement in the interim rule, exporters would pay 
excessive fees for coverage not used and credit availability would be 
encumbered without product exported. CCC agrees with these comments and 
has revised the language of Sec. 1493.60(e) to permit exporters to 
apply for guarantee coverage, and pay the guarantee fee, on the basis 
of any quantity within the upper and lower tolerance and to reserve 
coverage up to the upper tolerance. After export, when coverage has 
been reserved, the exporter will be permitted to amend the payment 
guarantee and pay an additional fee based upon the difference between 
the original payment guarantee quantity and the actual quantity 
exported.
    Two comments were received regarding Sec. 1493.60(i), Amendments. 
One commenter, a financial institution, felt that a request for an 
amendment of the payment guarantee should not be restricted to the 
exporter, and that the assignee should also be able to submit a request 
for an amendment. CCC disagrees. To do so would place CCC in the 
position of unilaterally agreeing to amend, and possibly breach, a 
contractual agreement with exporters at the request of a third party.
    The second comment received on Sec. 1493.60(i) concerned 
interpretation of the phrase `` * * * any amendment to the payment 
guarantee may result in an increase of the guarantee fee.'' The 
commenter felt if it is the intention of CCC to assess fees for 
amendments, which are not always within the exporter's control, then 
this language should be deleted. It is not CCC's intention to assess 
additional fees for all amendments. In response to the comment, the 
language of Sec. 1493.60(i) has been clarified to provide the 
possibility that CCC may charge a fee for a requested amendment when, 
as a consequence of the request, CCC may incur additional liability.
Section 1493.70 Guarantee Rates and Fees
    No public comment was received on this section. No changes have 
been made in this section of the final rule.
Section 1493.80 Evidence of Export
    Several comments were received on this section. A general comment 
was made regarding the proprietary nature of the information submitted 
by the exporter. The commenter felt that any information submitted 
should be deemed confidential and access restricted; neither foreign 
buyers nor competitors should have access. CCC has not included in the 
Interim Rule or Final Rule provisions on the protection of participant 
information because this matter is governed by the Freedom of 
Information Act (FOIA) and the Privacy Act. Moreover, section 402(a)(3) 
of the Agricultural Trade Act of 1978, as amended by the 1990 Act (7 
U.S.C. 5662(a)(3)) provides that ``the personally identifiable 
information contained in reports under subsection (a) [records of the 
exporter] may be withheld in accordance with section 552(b)(4) of title 
5, United States Code.'' This section further provides that ``any 
officer or employee of the Department of Agriculture who knowingly 
discloses confidential information as defined by section 1905 of Title 
18, United States Code, shall be subject to section 1905 of Title 18, 
United States Code. Nothing in this subsection shall be construed to 
authorize the withholding of information from Congress.''
    Three respondents requested that Sec. 1493.80(a), Report of Export, 
be amended to allow 60 days for submitting evidence of export reports 
for truck or rail export shipments because it is difficult to obtain 
the required entry certificate into Mexico within the 30-day filing 
period. CCC recognizes that experience validates this comment. In the 
past it has often been necessary for the exporter to obtain an 
amendment to the payment guarantee allowing an extension of the time 
period for filing the evidence of export report. In a study of this 
problem, CCC determined that an extension of the filing time limit from 
30 days to 60 days for truck and rail exports would decrease the number 
of this type of amendment request by approximately one-half. 
Accordingly, in this final rule Sec. 1493.80(a) has been simplified and 
Sec. 1493.80(b) revised to provide a time limit of 60-days for filing 
evidence of export reports for truck and rail exports. With this 
revision, Sec. 1493.80(b) continues to provide for the filing of 
evidence of export reports for shipments by other types of carriers 
within a 30 day time limit.
    Further, for the sake of simplicity and expediency, CCC has deleted 
the requirement previously contained in Sec. 1493.80(a)(9) of the 
interim rule requiring the exporter or its assignee to report a final 
payment schedule showing the payment dates and the amounts separately 
for both principal and interest. CCC now has computer capability to 
calculate this information from the other information submitted in the 
evidence of export report and the terms of the payment guarantee. The 
requirement for the payment schedule information has often been a 
hindrance to the timely filing of complete evidence of export reports 
because exporters routinely must have their assignee submit this 
information. It is expected that this change will expedite filings of 
evidence of export reports.
    Two commenters requested clarification regarding Sec. 1493.80(b), 
Time Limit for Submission of Evidence of Export. This sub-part allows 
for an extension of the time limit if it is determined to be in the 
best interests of CCC (but not if payments by the foreign bank are past 
due under the payment guarantee). The commenters would like to see 
clarification of CCC's policies once a defaulting foreign bank is again 
current with its account. It was suggested that a sentence be added 
stating that CCC will reconsider the payment guarantee status once the 
foreign bank resumes payments and becomes current in its obligations.
    CCC has determined to address this comment by revising the language 
of Sec. 1493.80(b) to indicate that if the report required by paragraph 
(a) of Sec. 1493.80 is not received by the time limit specified, the 
payment guarantee will become null and void, but only if failure to 
make timely filing resulted, or would be likely to result, in: (1) 
significant financial harm to CCC; (2) the undermining of an essential 
regulatory purpose of the program; (3) obstruction of the fair 
administration of the program; or (4) a threat to the integrity of the 
program. Section 1493.80(b) will still permit CCC to extend the time 
limit for filing of evidence of export reports if such extension is 
determined by the General Sales Manager to be in the best interests of 
CCC.
Section 1493.90 Certification Requirements for the Evidence of Export
    Two respondents commented on Sec. 1493.90(c), which requires the 
exporter to certify that the exporter or exporter's assignee has, and 
will retain, documents evidencing the obligation of the foreign bank 
for five years after the final installment due date. Both commenters 
said that the exporter can make the certification for themselves, but 
that they have no legal recourse at their disposal, to require the 
third parties to comply with this provision. The commenters recommended 
that the certification be deleted. CCC has considered the comments made 
and agrees that the certification can be deleted because the exporter 
or the exporter's assignee is already bound by Sec. 1493.140(e)(1) to 
retain documentation evidencing the obligation of the foreign bank for 
a period of five years after the final installment date. This document 
retention requirement is further strengthened because evidence of the 
foreign bank related obligation is necessary to submit a claim to CCC 
under the payment guarantee. Therefore, a certification that such 
records are being maintained has little practical value. CCC has 
determined to delete the certification previously found at 
Sec. 1493.90(c) of the interim rule from this final rule.
Section 1493.100 Proof of Entry
    A comment received on Sec. 1493.100(a), Diversion, pointed out that 
while the exporter may contractually preclude diversion of an FOB 
shipment, the exporter has no control over the importer's vessel; 
unless the exporter knowingly abetted the diversion, there should be no 
implication of potential exporter liability to CCC under such 
circumstances. Under Sec. 1493.130(d) of the interim rule, ``the 
exporter may be liable to CCC for any amount paid under a payment 
guarantee when it is determined by CCC that the exporter has engaged in 
fraud, or has been or is in breach of any contractual obligation, 
certification or warranty made by the exporter * * *'' Further, the 
exporter's assignee may be held liable to CCC under the same standard. 
However, Sec. 1493.130(e), Good Faith, provides that a violation by an 
exporter of the certifications, particularly Sec. 1493.100 (Proof of 
Entry), will not affect the validity of any payment guarantee with 
respect to an assignee who had no knowledge of such violation or 
failure to comply at the time the exporter applied for the payment 
guarantee or at the time of assignment of the payment guarantee.
    CCC recognizes the burden placed on exporters with FOB sales in 
ensuring compliance with program requirements concerning diversion. 
However, in view of the legislative mandate imposed on CCC to ensure 
arrival of program shipments in destination countries (Title IV, 
Subtitle A, Section 401 of the Agricultural Trade Act of 1978, as 
amended by the 1990 Act), and in view of the fact that CCC has a 
contractual relationship only with the exporter, not with the importer, 
CCC sees no feasible alternative to the present policy of holding 
exporters responsible for maintaining proof of entry documentation as a 
means of preventing diversion. This policy makes it in the interest of 
exporters to make every effort to obtain binding commitments from 
foreign buyers to provide such documentation on FOB/FAS sales and not 
to divert shipments. The strength of evidence of such efforts by 
exporters would undoubtedly be of material interest in any situation 
where CCC suffered a financial loss on a payment guarantee and found 
that diversion had taken place.
    Two respondents commented on Sec. 1493.100(b), Proof of Entry. One 
commenter was unsure what is intended by this section. Both commenters 
felt that the only reliable means of obtaining proof of entry is for 
the exporter to retain a private surveyor at each location. They felt 
that this was an unnecessary cost and burden to the exporter and that 
there is little justification for this requirement. Clarification of 
the section was requested. In adding the requirement for proof of entry 
in the interim rule, CCC employed the basic requirements for proof of 
entry documents that are used for the Export Enhancement Program (EEP). 
Although a surveyor's report would be an acceptable means of meeting 
this requirement, CCC disagrees that it is the only reliable means of 
obtaining proof of entry. Many countries have provided such 
documentation with respect to the EEP program. Further, in the event 
that traditional forms of entry documentation are unobtainable, 
Sec. 1493.100(b) permits CCC to consider other types of documents, 
which can be deemed acceptable by the GSM. Finally, as stated in the 
interim rule, the requirement for proof of entry documentation on GSM-
102/103 transactions is mandated by the 1990 Act. Therefore, CCC has 
determined that no further clarification or change is necessary to 
Sec. 1493.100.
Section 1493.110 Notice of Default and Claims for Loss
    One commenter suggested that CCC adopt a ``Payment Certificate'' 
concept (currently incorporated in programs of the Export-Import Bank 
of the United States (Eximbank)) under which one claim is submitted 
covering the payment of the balance of the guarantee. In follow-up 
discussions with CCC, the commenter explained the ``Payment 
Certificate'' concept as being a mechanism where CCC would pre-approve 
documents that are normally submitted in the claim procedure and issue 
a payment certificate which, when submitted at the time of claim, would 
be evidence that CCC would pay the claim at a certain time interval 
after receipt of the payment certificate, notice of default, and 
subrogation agreement. CCC has determined that, at this time, it cannot 
adopt such a measure because it has insufficient resources to review 
and pre-approve all documents required for submission when filing a 
claim. One major difference between Eximbank and CCC export credit 
guarantee programs is the sheer number of payment guarantees that CCC 
issues during a program year, over 3,000 payment guarantees annually. 
Eximbank's guarantees are generally much larger in value and fewer in 
number. It would not be administratively feasible for CCC to review 
documentation in advance of issuance of all of its guarantees. CCC will 
continue to explore the possibility of adapting the ``payment 
certificate'' concept to permit, for certain countries or particular 
foreign banks, a mechanism that would address the ``time certain for 
payment of claims'' element necessary to facilitate securitization of 
CCC payment guarantees.
     It should be recognized, however, that under existing CCC policy, 
only one claim need be filed (in the sense of providing full 
documentation relating to the transaction). Thereafter, only certified 
notices of failure to receive scheduled installments, reference to the 
original claim, and corresponding subrogation agreement need be 
submitted to CCC. Accordingly, CCC agrees that Sec. 1493.110 should be 
clarified to reflect this fact and has added a new paragraph 
Sec. 1493.110(c) to make this policy clearer.
    A commenter suggested that the reference to ``drafts drawn'' in 
Sec. 1493.110(b)(4)(i)(B)(1), be revised to read ``obligations 
financed,'' since drafts are not always used as financial obligations. 
CCC agrees and has adopted this clearer language in the subsection.
    One commenter questioned why, under Filing a Claim for Loss, 
Sec. 1493.110(b)(4)(v), CCC requires a copy of the previously submitted 
report of export to accompany the claim for loss. CCC requires this in 
order to accelerate the claims payment process. CCC considers this a 
reasonable requirement and therefore, has determined that the 
requirement of Sec. 1493.110(b)(4)(v) remain unchanged.
Section 1493.120 Payment of Loss
    One commenter, a financial institution, made a comment pertaining 
to Sec. 1493.120(a), Determination of CCC's Liability, which states 
that CCC, upon receipt in ``good order'' of the information and 
documents under Sec. 1493.110(b), Filing a Claim for Loss, will 
determine whether or not a loss has occurred for which CCC is liable. 
The commenter states that in order for securities to be viewed as 
``government credit,'' there can be no risk that the payment under the 
guarantee would not be made. The commenter also argued that, due to the 
extensive list of documents and information required and the subjective 
judgement that such documents and information be in ``good order,'' a 
risk of non-payment by CCC exists. The recommendation is to require 
that most documents and information be approved (or alternatively, that 
the proper forms be pre-agreed by CCC) prior to issuance of the 
guarantee. This recommendation would eliminate the subjective nature of 
``good order'' and would eliminate the non-payment risk. This issue has 
already been addressed under General Comments (securitization) and in 
relation to Sec. 1493.110. Again, although CCC is not now making 
changes to specifically address this concern, CCC will continue to look 
at possibilities to adapt mechanisms suitable to CCC programs to 
facilitate securitization.
    Two comments were received on Sec. 1493.120(c), Late Interest 
Payment. One respondent (a Federal agency) said that the late interest 
is short-term interest and that the rate factor should be based on the 
``91-day Treasury bill rate, not to exceed the 52-week bill rate.'' CCC 
agrees with the comment that it is more suitable to use a short-term 
interest instrument for late interest. Accordingly, CCC has changed 
Sec. 1493.120(c) to provide that late interest is based on the 91-day 
Treasury bill. Similarly, changes have been made to Sec. 1493.130(b)(1) 
and (2) to also reflect the use of a short-term interest instrument as 
the benchmark for ``late interest'' to be paid both on monies owed to 
CCC in a recovery, and on monies recovered by CCC and owed to an 
exporter or an exporter's assignee under pro rata sharing.
    The other comment pertained to the securitization of payment 
guarantees. The commenter suggested that Sec. 1493.120(c) establish 
CCC's obligation to pay a claim within a specified time period. The 
commentor stated that this was necessary because a risk of nonpayment 
or late payment by CCC would be unacceptable to rating agencies 
reviewing securitization proposals which include CCC payment 
guarantees. CCC has determined not to adopt this suggested change for 
reasons previously stated in relation to general comments on the 
interim rule and specifically on Sec. 1493.20(s) and Sec. 1493.110.
    One commenter suggested that Sec. 1493.120(d), Accelerated 
Payments, be changed to allow payments to be made on an accelerated 
basis at the option of the lender. CCC's policy is to not pay claims 
for losses in advance of a default unless it can be determined to be in 
CCC's best interest to do so. If CCC were to revise Sec. 1493.120(d) to 
allow an accelerated payment mechanism at the option of the lender, CCC 
could be required to disburse funds to banks for installment defaults 
which have not yet occurred. CCC has determined that this obligation 
would not be in its best interest, and that Sec. 1493.120(d) will not 
be changed.
    One respondent expressed concern that under Sec. 1493.120(e)(1), 
Action Against the Assignee, failure of the exporter to comply with the 
requirement to file an amended report of export to reflect post-export 
adjustments might jeopardize the assignee's claim. CCC acknowledges the 
legitimacy of the commenter's concerns. Section 1493.120(e) does not 
specify as to what actions CCC may take against the assignee for the 
failure of the exporter to file amended evidence of export reports if, 
for example, later discounts or allowances are granted to the importer 
by the exporter. Section 1493.120(e) states that `` * * * CCC will not 
hold the assignee responsible or take any action or raise any defense 
against the assignee for any action, omission or statement by the 
exporter over which the assignee has no knowledge, provided that: (1) 
the exporter complies with the reporting requirements under 
Sec. 1493.80 and Sec. 1493.90; and (2) the exporter or the exporter's 
assignee furnishes the statements and documents specified in 
Sec. 1493.110.'' In a post-export adjustment (i.e., a previously 
unreported discount or allowance) the assignee would, most probably, 
have no knowledge of the exporter's action (consideration given to the 
importer) and omission (not filing a corrected evidence of export 
report). CCC has clarified Sec. 1493.120(e) to indicate that assignees 
will not be held liable for failure of the exporter to submit to CCC 
any corrections or amendments to evidence of export reports.
Section 1493.130 Recovery of Losses
    As previously discussed in relation to a comment made regarding 
Sec. 1493.120(c), CCC has made revisions in this final rule to 
Sec. 1493.130(b)(1) and (2) to provide that late interest is based on 
the 91-day Treasury bill rate.
    One comment was received on Sec. 1493.130(b)(1), Receipt of Monies. 
The commenter suggested eliminating CCC's requirement that all monies 
received by the lender from any source whatsoever after the payment by 
CCC of a claim be paid to CCC. CCC has addressed this issue under 
General Comment regarding securitization proposals. CCC has determined 
not to make this change.
    Two respondents requested changes in the wording of 
Sec. 1493.130(d), Liabilities to CCC, to take into account that a 
technical breach by the exporter may be inconsequential, and that the 
breach may not have been the cause for any payment made by CCC under 
the payment guarantee. The suggested rewording of this phrase is `` * * 
* or has been or is in material breach of any contractual obligation, 
certification or warranty made by the exporter for the purpose of 
obtaining the payment guarantee or in fulfilling an obligation under 
GSM-102 or GSM-103 and such amounts paid by CCC under the payment 
guarantee resulted from such fraud or material breach by the 
exporter.'' CCC agrees with the comment and this final rule 
incorporates language in Sec. 1493.130(d) similar to that suggested.
Section 1493.140 Miscellaneous Provisions
    Two comments were received regarding the restrictions of 
Sec. 1493.140(a), Assignment. The commenters felt that financial 
institutions should be able to place assets they originate into the 
world capitol markets and that CCC should facilitate this goal by 
permitting more than one assignment of the payment guarantee. One 
commenter, a financial institution, suggested that CCC allow the 
financial institution to extend the credit and assign such credit to a 
grantor trust or special purpose corporation, such as a Funding 
Vehicle, established by the financial institution, or let the Funding 
Vehicle itself take assignment and extend the credit. The same 
commenter also recommended that the language in Sec. 1493.11(a) of the 
previous regulations be included in this section. The previous 
regulation stated that ``The assignment shall cover all amounts payable 
under the payment guarantee not already paid and shall not be made to 
more than one party, and shall not be subject to further assignment, 
unless approved in advance by CCC. Any such assignment may be made to 
one party as agent or trustee for two or more parties participating in 
the financing.'' In Sec. 1493.140(a) of the interim rule, CCC deletes 
the final sentence of the previous Sec. 1493.11(a). However, by 
deleting this language from the interim rule, CCC did not intend to 
preclude its consideration of assignments of guarantees to various 
types of financial institutions. CCC will consider acknowledging 
assignments that facilitate securitization of guarantees and that are 
consistent with other program requirments. Therefore, although CCC has 
not restored the particular sentence in this final rule, 
Sec. 1493.140(a) has been modified to clarify CCC's policy.
    Two respondents requested that Sec. 1493.140(a)(3) be modified so 
that when CCC determines a financial institution to be ineligible to 
receive an assignment of a payment guarantee, CCC will notify both the 
exporter and the financial institution. CCC concurs with this 
suggestion and has adopted such provision in Sec. 1493.140(a)(3) of 
this final rule.
    A third respondent felt that Sec. 1493.140(a)(3) could create 
difficulties for financial institutions because the notice of 
ineligibility would reach them after they had extended credit. The 
commenter suggested that CCC notify a financial institution of its 
ineligibility before the institution extends credit under an 
anticipated CCC guarantee. CCC disagrees. CCC does not have the 
resources to continually monitor the thousands of U.S. financial 
institutions which are potentially eligible to receive assignments and 
to notify those that would be ineligible if they were to be assigned a 
CCC payment guarantee. Further, Sec. 1493.140(b), Ineligibility of 
Financial Institutions to Receive an Assignment, explains the 
conditions under which an assignment to a financial institution would 
not be acknowledged by CCC. If a U.S. financial institution has reason 
to believe that it might not be eligible under this section of the 
regulations, it may contact the Treasurer, CCC to review its situation.
    Several commenters suggested that the provisions in 
Sec. 1493.140(e)(1), Maintenance of Records and Access to Premises, 
place unreasonable burdens on the parties involved in the transaction. 
One commenter, a financial institution, was concerned that the blanket 
requirement of access to records pertaining to transactions conducted 
outside the program may interfere with bank confidentiality. Although 
CCC understands this concern, section 402(a)(3) of the Agricultural 
Trade Act of 1978, as amended by the 1990 Act, provides that officers 
or employees of the U.S. Department of Agriculture are subject to 
criminal penalties for knowingly disclosing confidential information.
    Another commenter felt that the records pertaining to transactions 
outside the program should be subject to review only if they are 
directly related to transactions made under the program, and that the 
General Sales Manager's opinion should not determine whether the 
outside transaction(s) pertain to program transactions. This commenter 
recommended that the regulation apply to outside transactions which 
``relate directly'' rather than that ``pertain'' to the program 
transaction. CCC disagrees and has determined that the language of 
Sec. 1493.140(e)(1) should remain unchanged. On a case-by-case basis, 
and as determined by the GSM, CCC may need to examine records not 
directly related to the GSM-102/103 transaction in order to determine 
whether a program violation has occurred (e.g., inventory records may 
be examined to determine whether foreign content exists in export 
shipment under the program).
    Two commenters said that they can request agents, intervening 
purchasers, and related companies to make available documents or 
information requested by CCC, but cannot guarantee access to third 
party records, particularly those held by companies or persons located 
outside the U.S. This is particularly the case with documents which may 
be generated by agents of the exporter, or by companies with special 
arrangements with the exporter which are foreign entities. Because 
access to such records may be critical to CCC's efforts to monitor 
programs and to ensure their integrity, CCC expects that the exporter 
will use its contractual and other means of influence to obtain those 
pertinent records of the outside parties involved. CCC recognizes that 
exporters may only be able to obtain from such third parties copies of 
those records that pertain to the GSM-102/103 export transaction in 
question. The final rule does not require that the exporter retain all 
records of such third parties, nor those records pertaining to 
transactions conducted outside the program. Further, the final rule 
does not require that an agent of the exporter, an intervening 
purchaser, or parties with a special arrangement with the exporter must 
make available such records and grant access to their premises. CCC 
would expect the exporter to be able to provide copies of any and all 
records relating to the transaction held by these entities if so 
requested by government officials authorized to conduct program 
reviews.
    Two comments recommended that Sec. 1493.140(g), Submission of 
Documents by Principal Officers, be expanded to permit an authorized 
full time employee of the exporter to sign all required submissions. 
CCC agrees with the comment. On August 7, 1991, CCC issued a Notice to 
Program Participants which clarified the signatory requirements for 
submissions to CCC. The policy reflected in this Notice to Participants 
has been included in Sec. 1493.140(g) of this final rule to permit 
principal officers or their designees to sign required submissions to 
CCC. However, the August 7, 1991 Notice is not being superseded because 
it also applies to other export programs and contains examples of how 
such authorizations by principals to their designees might be worded.

List of Subjects in 7 CFR Part 1493

    Administrative practice and procedures, Agricultural commodities, 
Credit, Exports, Financing, Guarantees, Reporting and recordkeeping 
requirements.
    Accordingly, 7 CFR Part 1493 is revised to read as follows:

PART 1493--CCC EXPORT CREDIT GUARANTEE PROGRAMS

Subpart A--Restrictions and Criteria for Export Credit Guarantee 
Programs

Sec.
1493.1  General statement.
1493.2  Purposes of programs.
1493.3  Restrictions on programs and cargo preference statement.
1493.4  Criteria for country allocations.
1493.5  Criteria for agricultural commodity allocations.
1493.6  Additional required determinations for GSM-103.

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

Sec.
1493.10  General statement.
1493.20  Definition of terms.
1493.30  Information required for program participation.
1493.40  Application for a payment guarantee.
1493.50  Certification requirements for obtaining payment guarantee.
1493.60  Payment guarantee.
1493.70  Guarantee rates and fees.
1493.80  Evidence of export.
1493.90  Certification requirements for the evidence of export.
1493.100  Proof of entry.
1493.110  Notice of default and claims for loss.
1493.120  Payment for loss.
1493.130  Recovery of losses.
1493.140 Miscellaneous provisions.

    Authority: 7 U.S.C. 5602, 5622, 5661, 5662, 5663, 5664, 5676; 15 
U.S.C. 714b(d), 714c(f).

Subpart A--Restrictions and Criteria for Export Credit Guarantee 
Programs


Sec. 1493.1  General statement.

    This subpart sets forth the restrictions which apply to the use of 
credit guarantees under the Commodity Credit Corporation (CCC) Export 
Credit Guarantee Program (GSM-102) and the Intermediate Credit 
Guarantee Program (GSM-103) and the criteria considered by CCC in 
determining the annual allocations of credit guarantees to be made 
available with respect to each participating country. This subpart also 
sets forth the criteria considered by CCC in the review and approval of 
proposed allocation levels for GSM-102 and/or GSM-103 credit guarantees 
which may be made available in connection with export sales of specific 
U.S. agricultural commodities to these countries. These restrictions 
and criteria are interrelated and will be applied and considered 
together in the process of determining which sales opportunities under 
GSM-102 or GSM-103 will best meet the purposes of the programs.


Sec. 1493.2  Purposes of programs.

    CCC may use export credit guarantees:
    (a) To increase exports of U.S. agricultural commodities;
    (b) To compete against foreign agricultural exports;
    (c) To assist countries, particularly developing countries, in 
meeting their food and fiber needs; and
    (d) For such other purposes as the Secretary of Agriculture 
determines appropriate, consistent with the provisions of Sec. 1493.6.


Sec. 1493.3  Restrictions on programs and cargo preference statement.

    (a) Restrictions on use of credit guarantees. (1) Export credit 
guarantees authorized under these regulations shall not be used for 
foreign aid, foreign policy, or debt rescheduling purposes.
    (2) CCC shall not make credit guarantees available in connection 
with sales of agricultural commodities to any country that the 
Secretary determines cannot adequately service the debt associated with 
such sales.
    (b) Cargo preference laws. The provisions of the cargo preference 
laws shall not apply to export sales with respect to which credit is 
guaranteed under these programs.


Sec. 1493.4  Criteria for country allocations.

    The criteria considered by CCC in reviewing proposals for country 
allocations under the GSM-102 or GSM-103 programs, will include, but 
not be limited to, the following:
    (a) Potential benefits that the extension of export credit 
guarantees would provide for the development, expansion or maintenance 
of the market for particular U.S. agricultural commodities in the 
importing country;
    (b) Financial and economic ability of the importing country to 
adequately service CCC guaranteed debt;
    (c) Financial status of participating banks in the importing 
country as it would affect their ability to adequately service CCC 
guaranteed debt;
    (d) Political stability of the importing country as it would affect 
its ability to adequately service CCC guaranteed debt; and
    (e) Current status of debt either owed by the importing country to 
CCC or to lenders protected by CCC's guarantees.


Sec. 1493.5  Criteria for agricultural commodity allocations.

    The criteria considered by CCC in reviewing proposals for specific 
U.S. commodity allocations within a specific country allocation will 
include, but not be limited to, the following:
    (a) Potential benefits that the extension of export credit 
guarantees would provide for the development, expansion or maintenance 
of the market in the importing country for the particular U.S. 
agricultural commodity under consideration;
    (b) The best use to be made of the export credit guarantees in 
assisting the importing country in meeting its particular needs for 
food and fiber, as may be determined through consultations with private 
buyers and/or representatives of the government of the importing 
country;
    (c) Evaluation, in terms of program purposes, of the relative 
benefits of providing payment guarantee coverage for sales of the U.S. 
agricultural commodity under consideration compared to providing 
coverage for sales of other U.S. agricultural commodities; and
    (d) Evaluation of the near and long term potential for sales on a 
cash basis of the U.S. commodity under consideration.


Sec. 1493.6  Additional required determinations for GSM-103.

    Notwithstanding any other provision under this part, CCC shall not 
guarantee under the GSM-103 program the repayment of credit made 
available to finance an export sale unless the Secretary of Agriculture 
determines that such sale will:
    (a) Develop, expand or maintain the importing country as a foreign 
market, on a long-term basis, for the commercial sale and export of 
U.S. agricultural commodities, without displacing normal commercial 
sales;
    (b) Improve the capability of the importing country to purchase or 
use, on a long-term basis, U.S. agricultural commodities; or
    (c) Otherwise promote the export of U.S. agricultural commodities.

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


Sec. 1493.10  General statement.

    (a) Overview. (1) This subpart contains the regulations governing 
the operations of the Export Credit Guarantee Program (GSM-102) and the 
Intermediate Credit Guarantee Program (GSM-103). The GSM-102 and GSM-
103 programs of the Commodity Credit Corporation (CCC) were developed 
to expand U.S. agricultural exports by making available export credit 
guarantees to encourage U.S. private sector financing of foreign 
purchases of U.S. agricultural commodities on credit terms. Under GSM-
102, credit guarantees are issued for terms of up to three years. Under 
GSM-103, credit guarantees are issued for terms of from three to ten 
years.
    (2) The programs operate in cases where credit is necessary to 
increase or maintain U.S. exports to a foreign market and where private 
U.S. financial institutions would be unwilling to provide financing 
without CCC's guarantee. The programs are operated in a manner intended 
not to interfere with markets for cash sales. The programs are targeted 
toward those countries where the guarantees are necessary to secure 
financing of the exports but which have sufficient financial strength 
so that foreign exchange will be available for scheduled payments. In 
providing this credit guarantee facility, CCC seeks to expand market 
opportunities for U.S. agricultural exporters and assist long-term 
market development for U.S. agricultural commodities.
    (3) The credit facility created by these programs is the CCC 
payment guarantee. The payment guarantee is an agreement by CCC to pay 
the exporter, or the U.S. financial institution that may take 
assignment of the exporter's right to proceeds, specified amounts of 
principal and interest due from, but not paid by, the foreign bank 
issuing an irrevocable letter of credit in connection with the export 
sale to which CCC's guarantee coverage pertains. By approving an 
exporter's application for a payment guarantee, CCC encourages private 
sector, rather than governmental, financing and incurs a substantial 
portion of the risk of default by the foreign bank. CCC assumes this 
risk, in order to be able to operate the programs for the purposes 
specified in Sec. 1493.2.
    (b) Credit facility mechanism. Typically, in export sales of U.S. 
agricultural commodities, payment by the importer is made under an 
irrevocable letter of credit. For the purpose of the GSM-102 and GSM-
103 programs, CCC will consider applications for payment guarantees 
only in connection with export sales of U.S. agricultural commodities 
where the payment for the agricultural commodities will be made in one 
of the two following ways:
    (1) An irrevocable foreign bank letter of credit, issued in favor 
of the exporter, specifically stating the deferred payment terms under 
which the foreign bank is obligated to make payments in U.S. dollars as 
such payments become due; or
    (2) An irrevocable foreign bank letter of credit, issued in favor 
of the exporter, that is supported by a related obligation specifically 
stating the deferred payment terms under which the foreign bank is 
obligated to make payment to the exporter, or the exporter's assignee, 
in U.S. dollars as such payments become due. The exporter may assign 
the right to proceeds under the letter of credit or related obligation 
to a U.S. bank or other financial institution so that the exporter may 
realize the proceeds of the sale prior to the deferred payment date(s) 
as set forth in the irrevocable foreign bank letter of credit or its 
related obligation. The GSM-102 and GSM-103 programs are designed to 
protect the exporter or the exporter's assignee against those losses 
specified in the payment guarantee resulting from defaults, whether for 
commercial or noncommercial reasons, by the foreign bank obligated 
under the letter of credit or related obligation.
    (c) Program administration. The GSM-102 and GSM-103 programs will 
be administered pursuant to this part and any Program Announcements and 
Notices to Participants issued by CCC pursuant to, and not inconsistent 
with, this part. These programs are under the general administrative 
responsibility of the General Sales Manager (GSM), Foreign Agricultural 
Service (FAS/USDA). The review and payment of claims for loss will be 
administered by the Office of the Controller, CCC. Information 
regarding specific points of contact for the public, including names, 
addresses, and telephone and facsimile numbers of particular USDA or 
CCC offices, will be announced by a public press release (see 
Sec. 1493.20(c), ``Contacts P/R'').
    (d) Country allocations and program announcements. From time to 
time, CCC will issue a Program Announcement to announce a GSM-102 and/
or GSM-103 program allocation for a specific country. The Program 
Announcement for a country allocation will designate specific 
allocations for U.S. agricultural commodities or products thereof. 
Exporters may negotiate export sales to buyers in that country for one 
of the commodities specified in the Program Announcement and seek 
payment guarantee coverage within the dollar amounts of specified 
coverage for that commodity. The Program Announcement will contain a 
requirement that the exporter's sales contract contain a shipping 
deadline within the applicable program year. The final date for a 
contractual shipping deadline will be stated in the Program 
Announcement. Program Announcements may also contain a specified 
``undesignated'' or ``unallocated'' dollar amount for the purpose that 
if dollar amounts specified for a specific commodity for a country 
become fully used, an additional allocation from the ``unallocated'' or 
``undesignated'' portion of the total country allocation may then be 
designated for a specific commodity. Program Announcements that include 
an ``allocated'' or ``undesignated'' dollar amount will contain further 
information on the ``unallocated'' or ``undesignated'' portion of the 
country allocation.


Sec. 1493.20  Definition of terms.

    Terms set forth in this part, in CCC Program Announcements and 
Notices to Participants, and in any CCC-originated documents pertaining 
to the GSM-102 and GSM-103 programs will have the following meanings:
    (a) Assignee. A financial institution in the United States which, 
for adequate consideration given, has obtained the legal rights to 
receive the payment of proceeds under the payment guarantee.
    (b) CCC. The Commodity Credit Corporation, an agency and 
instrumentality of the United States within the Department of 
Agriculture, authorized pursuant to the Commodity Credit Corporation 
Charter Act of 1948 (15 U.S.C. 714 et seq.), and subject to the general 
supervision and direction of the Secretary of Agriculture.
    (c) Contacts P/R. A notice issued by FAS/USDA by public press 
release which contains specific names, addresses, and telephone and 
facsimile numbers of contacts within FAS/USDA and CCC for use by 
persons interested in obtaining information concerning the operations 
of the GSM-102 or GSM-103 program. The Contacts P/R also contains 
details about where to submit information required to qualify for 
program participation, to apply for payment guarantees, to request 
amendments of payment guarantees, to submit evidence of export reports, 
and to give notices of default and file claims for loss.
    (d) Date of export. One of the following dates, depending upon the 
method of shipment: the on-board date of an ocean bill of lading or the 
on-board ocean carrier date of an intermodal bill of lading; the on-
board date of an airway bill; or, if exported by rail or truck, the 
date of entry shown on an entry certificate or similar document issued 
and signed by an official of the Government of the importing country.
    (e) Date of sale. The earliest date on which a contractual 
obligation exists between the exporter, or an intervening purchaser, if 
applicable, and the importer under which a firm dollar-and-cent price 
for the sale of agricultural commodities to the importer has been 
established or a mechanism to establish such price has been agreed 
upon.
    (f) Discounts and allowances. Any consideration provided directly 
or indirectly, by or on behalf of the exporter or an intervening 
purchaser, to the importer in connection with a sale of an agricultural 
commodity, above and beyond the commodity's value, stated on the 
appropriate FOB, FAS, CFR or CIF basis. Discounts and allowances 
include, but are not limited to, the provision of additional goods, 
services or benefits; the promise to provide additional goods, services 
or benefits in the future; financial rebates; the assumption of any 
financial or contractual obligations; the whole or partial release of 
the importer from any financial or contractual obligations; or 
settlements made in favor of the importer for quality or weight.
    (g) Eligible interest. The maximum amount of interest, based on the 
interest rate indicated in CCC's payment guarantee or any amendments to 
such payment guarantee, which CCC agrees to pay the exporter or the 
exporter's assignee in the event that CCC pays a claim for loss. The 
maximum interest rate stated in the payment guarantee, when determined 
or adjusted by CCC, will not exceed the average investment rate of the 
most recent Treasury 52-week bill auction in effect at that time.
    (h) Exported value. (1) Where CCC announces coverage on a FAS or 
FOB basis and:
    (i) Where the commodity is sold on a FAS or FOB basis, the value, 
FAS or FOB basis, U.S. point of export, of the export sale, reduced by 
the value of any discounts or allowances granted to the importer in 
connection with such sale; or
    (ii) Where the commodity was sold on a CFR or CIF basis, point of 
entry, the value of the export sale, FAS or FOB, point of export, is 
measured by the CFR or CIF value of the agricultural commodity less the 
cost of ocean freight, as determined at the time of application and, in 
the case of CIF sales, less the cost of marine and war risk insurance, 
as determined at the time of application, reduced by the value of any 
discounts or allowances granted to the importer in connection with the 
sale of the commodity; or
    (2) Where CCC announces coverage on a CFR or CIF basis, and where 
the commodity is sold on a CFR or CIF basis, point of entry, the total 
value of the export sale, CFR or CIF basis, point of entry, reduced by 
the value of any discounts or allowances granted to the importer in 
connection with the sale of the commodity.
    (3) When a CFR or CIF commodity export sale involves the 
performance of non-freight services to be performed outside the United 
States (e.g., services such as bagging bulk cargo) which are not 
normally included in ocean freight contracts, the value of such 
services and any related materials not exported from the U.S. with the 
commodity must also be deducted from the CFR or CIF sales price in 
determining the exported value.
    (i) Exporter. A seller of U.S. agricultural commodities or products 
thereof that has qualified in accordance with the provisions of 
Sec. 1493.30.
    (j) FAS/USDA. The Foreign Agricultural Service, U.S. Department of 
Agriculture.
    (k) Foreign bank letter of credit. An irrevocable commercial letter 
of credit, subject to the current revision of the Uniform Customs and 
Practices for Documentary Credits (International Chamber of Commerce 
Publication No. 500, or latest revision), providing for payment in U.S. 
dollars against stipulated documents and issued in favor of the 
exporter by a CCC-approved foreign banking institution.
    (l) GSM. The General Sales Manager, FAS/USDA, acting in his 
capacity as Vice President, CCC, or his designee.
    (m) GSM-102. A CCC program, also referred to as the ``Export Credit 
Guarantee Program,'' under which payment guarantees are approved for a 
credit period not exceeding 3 years from the date(s) of export or from 
the date interest begins to accrue, whichever is earlier.
    (n) GSM-103. A CCC program, also referred to as the ``Intermediate 
Export Credit Guarantee Program,'' under which payment guarantees are 
approved for a credit period no less than 3 years but not exceeding 10 
years from the date(s) of export or from the date interest begins to 
accrue, whichever is earlier.
    (o) Guaranteed value. The maximum amount, exclusive of interest, 
that CCC agrees to pay the exporter or assignee under CCC's payment 
guarantee, as indicated on the face of the payment guarantee.
    (p) Importer. A foreign buyer that enters into a contract with an 
exporter, or with an intervening purchaser, for an export sale of 
agricultural commodities to be shipped from the U.S. to the foreign 
buyer.
    (q) Incoterms. The following customary terms, as defined by the 
International Chamber of Commerce, Incoterms (current revision):
    (1) Free Alongside Ship (FAS),
    (2) Free on Board (FOB),
    (3) Cost and Freight (CFR, or alternatively, C&F, C and F, or CNF), 
and
    (4) Cost Insurance and Freight (CIF).
    (r) Intervening purchaser. A party that agrees to purchase U.S. 
agricultural commodities from an exporter and sell the same 
agricultural commodities to an importer.
    (s) Late interest. Interest, in addition to the interest due under 
the payment guarantee, which CCC agrees to pay in connection with a 
claim for loss, accruing during the period beginning on the first day 
after receipt of a claim which CCC has determined to be in good order 
and ending on the day on which payment is made on such claim for loss.
    (t) Payment guarantee. An agreement under which CCC, in 
consideration of a fee paid, and in reliance upon the statements and 
declarations of the exporter, subject to the terms set forth in the 
written guarantee, this subpart, and any applicable Program 
Announcements or Notices to Participants, agrees to pay the exporter or 
the exporter's assignee in the event of a default by a foreign bank on 
its payment obligation under the foreign bank letter of credit issued 
in connection with a guaranteed sale or under the foreign bank's 
related obligation.
    (u) Notice to participants. A notice issued by CCC by public press 
release which serves one or more of the following functions: to remind 
participants of the requirements of the program; to clarify the program 
requirements contained in these regulations in a manner which is not 
inconsistent with the regulations; to instruct exporters to provide 
additional information in applications for payment guarantees under 
specific country and/or commodity allocations; and to supplement the 
provisions of a payment guarantee, in a manner not inconsistent with 
these regulations, before the exporter's application for such payment 
guarantee is approved.
    (v) Port value. (1) Where CCC announces coverage on a FAS or FOB 
basis and:
    (i) Where the commodity is sold on a FAS or FOB basis, U.S. point 
of export, the value, FAS or FOB basis, U.S. point of export, of the 
export sale, including the upward tolerance, if any, as provided by the 
export sales contract, reduced by the value of any discounts or 
allowances granted to the importer in connection with such sale; or
    (ii) Where the commodity was sold on a CFR or CIF basis, point of 
entry, the value of the export sale, FAS or FOB, point of export, 
including the upward tolerance, if any, as provided by the export sales 
contract, is measured by the CFR or CIF value of the agricultural 
commodity less the value of ocean freight and, in the case of CIF 
sales, less the value of marine and war risk insurance, reduced by the 
value of any discounts or allowances granted to the importer in 
connection with the sale of the commodity; or
    (2) Where CCC announces coverage on a CFR or CIF basis and where 
the commodity was sold on CFR or CIF basis, point of entry, the total 
value of the export sale, CFR or CIF basis, point of entry, including 
the upward tolerance, if any, as provided by the export sales contract, 
reduced by the value of any discounts or allowances granted to the 
importer in connection with the sale of the commodity.
    (3) When a CFR or CIF commodity export sale involves the 
performance of non-freight services to be performed outside the United 
States (e.g., services such as bagging bulk cargo), which are not 
normally included in ocean freight contracts, the value of such 
services and any related materials not exported from the U.S. with the 
commodity must also be deducted from the CFR or CIF sales price in 
determining the port value.
    (w) Program announcement. An announcement issued by CCC which 
provides information on specific country and commodity allocations and 
may identify eligible agricultural commodities and countries, length of 
credit periods which may be covered, specify dollar limitations for CCC 
exposure in particular countries, and include other information and 
requirements.
    (x) Related obligation. A contractual commitment by the foreign 
bank issuing the letter of credit in connection with an export sale to 
make payment(s) on principal amount(s), plus any contractual interest, 
in U.S. dollars, to a financial institution in the United States on 
deferred payment terms consistent with those permitted under CCC's 
credit guarantee programs. The U.S. financial institution is entitled 
to such payments because it has financed the obligation arising under 
such letter of credit.
    (y) United States or U.S. All of the 50 states, the District of 
Columbia, and the territories and possessions of the United States.
    (z) U.S. agricultural commodity. (1) With respect to any 
agricultural commodity other than a product of an agricultural 
commodity, an agricultural commodity entirely produced in the United 
States; and
    (2) With respect to a product of an agricultural commodity:
    (i) A product all of the agricultural components of which are 
entirely produced in the United States; or
    (ii) Any other product the Secretary may designate that contains 
any agricultural component that is not entirely produced in the United 
States if:
    (A) Such component is an added, de minimis component;
    (B) Such component is not commercially produced in the United 
States; and
    (C) There is no acceptable substitute for such component that is 
commercially produced in the United States (For purposes of this 
paragraph, fish entirely produced in the United States include fish 
harvested by a documented fishing vessel as defined in title 46, United 
States Code, in waters that are not waters [including the territorial 
sea] of a foreign country).
    (aa) USDA. United States Department of Agriculture.


Sec. 1493.30  Information required for program participation.

    Before CCC will accept an application for a payment guarantee under 
either the GSM-102 program or the GSM-103 program, the applicant must 
qualify for participation in these programs. Based upon the information 
submitted by the applicant and other publicly available sources, CCC 
will determine whether the applicant is eligible for participation in 
the programs.
    (a) Submission of documentation. In order to qualify for 
participation in the GSM-102 and GSM-103 programs, an applicant must 
submit to CCC, at the address specified in the Contacts P/R, the 
following information:
    (1) The address of the applicant's headquarters office and the name 
and address of an agent in the U.S. for the service of process;
    (2) The legal form of doing business of the applicant, e.g., sole 
proprietorship, partnership, corporation, etc.
    (3) The place of incorporation of the applicant, if the applicant 
is a corporation;
    (4) The name and U.S. address of the office(s) of the applicant, 
and statement indicating whether the applicant is a U.S. domestic 
corporation, a foreign corporation or another foreign entity. If the 
applicant has multiple offices, the address included in the information 
should be that which is pertinent to the particular GSM-102 or GSM-103 
export sale contemplated by the applicant;
    (5) A certified statement describing the applicant's participation, 
if any, during the past three years in U.S. Government programs, 
contracts or agreements; and
    (6) A certification that: ``I certify, to the best of my knowledge 
and belief, that neither [name of applicant] nor any of its principals 
has been debarred, suspended, or proposed for debarment from 
contracting with or participating in programs administered by any U.S. 
Government agency. [``Principals,'' for the purpose of this 
certification, means officers; directors; owners of five percent or 
more of stock; partners; and persons having primary management or 
supervisory responsibility within a business entity (e.g., general 
manager, plant manager, head of a subsidiary division, or business 
segment, and similar positions).] I further agree that, should any such 
debarment, suspension, or notice of proposed debarment occur in the 
future, [name of applicant] will immediately notify CCC.''
    (b) Previous qualification. Any exporter that has previously 
qualified under this section may submit applications for GSM-102 or 
GSM-103 payment guarantees. Each application must include the statement 
required by Sec. 1493.40(a)(18) incorporating the certifications of 
Sec. 1493.50, including the certification in Sec. 1493.50(e) that the 
information previously provided pursuant to paragraph (a) of this 
section has not changed. If the exporter is unable to provide such 
certification, such exporter must update the information required by 
paragraph (a) of this section which has changed and certify that the 
remainder of the information previously provided has not changed.
    (c) Additional submissions. CCC will promptly notify applicants 
that have submitted information required by this section whether they 
have qualified to participate in the program. Any applicant failing to 
qualify will be given an opportunity to provide additional information 
for consideration by CCC.
    (d) Ineligibility for program participation. An applicant may be 
ineligible to participate in the GSM-102 or GSM-103 programs if:
    (1) Such applicant is currently debarred, suspended, or proposed 
for debarment from contracting with or participating in any program 
administered by a U.S. Government agency; or
    (2) Such applicant is controlled or can be controlled, in whole or 
in part, by any individuals or entities currently debarred, suspended 
or proposed for debarment from contracting with or participating in 
programs administered by any U.S. Government agency.


Sec. 1493.40  Application for payment guarantee.

    (a) A firm export sale must exist before an exporter may submit an 
application for a payment guarantee. An application for a payment 
guarantee may be submitted in writing or may be made by telephone, but, 
if made by telephone, it must be confirmed in writing to the office 
specified in the Contacts P/R. An application must identify the name 
and address of the exporter and include the following information:
    (1) Name of the destination country.
    (2) Name and address of the importer.
    (3) Name and address of the intervening purchaser, if any, and a 
statement that the commodity will be shipped directly to the importer 
in the destination country.
    (4) Date of sale.
    (5) Exporter's sale number.
    (6) Delivery period as agreed between the exporter and the 
importer.
    (7) A full description of the commodity (including packaging, if 
any).
    (8) Mean quantity, contract loading tolerance and, if necessary, a 
request for CCC to reserve coverage up to the maximum quantity 
permitted by the contract loading tolerance.
    (9) Unit sales price of the commodity, or a mechanism to establish 
the price, as agreed between the exporter and the importer. If the 
commodity was sold on the basis of CFR or CIF, the actual (if known at 
the time of application) or estimated value of freight and, in the case 
of sales made on a CIF basis, the actual (if known at the time of 
application) or estimated value of marine and war risk insurance, must 
be specified.
    (10) Description and value of discounts and allowances, if any.
    (11) Port value (includes upward loading tolerance, if any).
    (12) Guaranteed value.
    (13) Guarantee fee.
    (14) Name and location of the foreign bank issuing the letter of 
credit.
    (15) The term length for the credit being extended and the 
intervals between principal payments for each shipment to be made under 
the export sale.
    (16) A statement indicating whether any portion of the export sale 
for which the exporter is applying for a payment guarantee is also 
being used as the basis for an application for participation in any of 
the following CCC or USDA export programs: Export Enhancement Program, 
Dairy Export Incentive Program, Sunflowerseed Oil Assistance Program, 
or Cottonseed Oil Assistance Program. The number of the Agreement 
assigned by USDA under one of these programs should be included, as 
applicable.
    (17) Other information as specified in Notices to Participants, as 
applicable.
    (18) The exporter's statement, ``All Section 1493.50 Certifications 
Are Being Made In This Application'' which, when included in the 
application by the exporter, will constitute a certification that it is 
in compliance with all the requirements set forth in Sec. 1493.50.
    (b) An application for a payment guarantee may be approved as 
submitted, approved with modifications agreed to by the exporter, or 
rejected by the GSM. In the event that the application is approved, the 
GSM will cause a payment guarantee to be issued in favor of the 
exporter. Such payment guarantee will become effective at the time 
specified in Sec. 1493.60(b). If, based upon a price review, the unit 
sales price of the commodity does not fall within the prevailing 
commercial market level ranges, as determined by CCC, the application 
will not be approved.


Sec. 1493.50  Certification requirements for obtaining payment 
guarantee.

    By providing the statement in Sec. 1493.40(a)(18), the exporter is 
certifying that the information provided in the application is true and 
correct and, further, that all requirements set forth in this section 
have been or will be met. The exporter will be required to provide 
further explanation or documentation with regard to applications that 
do not include this statement. The exporter, in submitting an 
application for a payment guarantee and providing the statement set 
forth in Sec. 1493.40(a)(18), certifies that:
    (a) The agricultural commodity or product to be exported under the 
payment guarantee is a United States agricultural commodity or a 
product thereof, as defined in Sec. 1493.20(z);
    (b) There have not been and will not be any corrupt payments or 
extra sales services or other items extraneous to the transaction 
provided, financed, or guaranteed in connection with the transaction, 
and that the transaction complies with applicable United States law;
    (c) If the agricultural commodity is vegetable oil or a vegetable 
oil product, that none of the agricultural commodity or product has 
been or will be used as a basis for a claim of a refund, as drawback, 
pursuant to section 313 of the Tariff Act of 1930, 19 U.S.C. 1313, of 
any duty, tax or fee imposed under Federal law on an imported commodity 
or product;
    (d) No person or selling agency has been employed or retained to 
solicit or secure the payment guarantee, and that there is no agreement 
or understanding for a commission, percentage, brokerage, or contingent 
fee, except in the case of bona fide employees or bona fide established 
commercial or selling agencies maintained by the exporter for the 
purpose of securing business; and
    (e) The information provided pursuant to Sec. 1493.30 has not 
changed, the exporter still meets all of the qualification requirements 
of Sec. 1493.30, and the exporter will immediately notify CCC if there 
is a change of circumstances which would cause it to fail to meet such 
requirements. If the exporter breaches or violates these certifications 
with respect to a GSM-102 or GSM-103 payment guarantee, CCC will have 
the right, notwithstanding any other rights provided under this 
subpart, to annul guarantee coverage for any commodities not yet 
exported and/or to proceed against the exporter.


Sec. 1493.60  Payment guarantee.

    (a) CCC's obligation. The payment guarantee will provide that CCC 
agrees to pay the exporter or the exporter's assignee an amount not to 
exceed the guaranteed value, plus eligible interest, in the event that 
the foreign bank fails to pay under the foreign bank letter of credit 
or the related obligation. Payment by CCC will be in U.S. dollars.
    (b) Period of guarantee coverage. The payment guarantee will apply 
to the period beginning either on the date(s) of export(s) or on the 
date when interest begins to accrue, whichever is earlier, and will 
continue during the credit term specified in the payment guarantee or 
amendments thereto. However, the payment guarantee becomes effective on 
the date(s) of export(s) of the agricultural commodities or products 
thereof specified in the exporter's application for a payment 
guarantee.
    (c) Terms of the CCC payment guarantee. The terms of CCC's coverage 
will be set forth in the payment guarantee, as approved by CCC, and 
will include the provisions of this subpart, which may be supplemented 
by any Program Announcements and/or Notices to Participants in effect 
at the time the payment guarantee is approved by CCC.
    (d) Final date to export. The final date to export shown on the 
payment guarantee will be one month, as determined by CCC, after the 
contractual deadline for shipping.
    (e) Reserve coverage for loading tolerances. The exporter may apply 
for a payment guarantee and, if coverage is available, pay the 
guarantee fee, based at least on, the amount of the lower loading 
tolerance of the export sales contract; however, the exporter may also 
request that CCC reserve additional guarantee coverage to accommodate 
up to the amount of the upward loading tolerance specified in the 
export sales contract. If such additional guarantee coverage is 
available at the time of application and CCC determines to make such 
reservation, it will so indicate to the exporter. In the event that the 
exporter ships a quantity greater than the amount on which the 
guarantee fee was paid (i.e., lower loading tolerance), it may obtain 
the additional coverage from CCC, up to the amount of the upward 
loading tolerance, by filing for an amendment to the payment guarantee, 
and by paying the additional amount of fee applicable. If such 
amendment to the payment guarantee is not filed with CCC by the 
exporter within 30 days after the date of the last export against the 
sales contract, CCC may determine not to reserve the coverage 
originally set aside for the exporter.
    (f) Ineligible exports. Commodities with a date of export prior to 
the date of receipt by CCC of the exporter's telephonic or written 
application for a payment guarantee, or with a date of export made 
after the final date for export shown on the payment guarantee or any 
amendments thereof, are ineligible for GSM-102 or GSM-103 guarantee 
coverage, except where it is determined by the GSM to be in the best 
interests of CCC to provide guarantee coverage on such commodities.
    (g) Foreign agricultural component. CCC may approve payment 
guarantees under this subpart only in connection with sales of United 
States agricultural commodities as defined in Sec. 1493.20(z). CCC may 
not provide guarantee coverage under this subpart on credit extended 
for the value of any foreign agricultural component.
    (h) Additional requirements. The payment guarantee may contain such 
additional terms, conditions, and limitations as deemed necessary or 
desirable by the GSM. Such additional terms, conditions or 
qualifications, as stated in the payment guarantee are binding on the 
exporter or the exporter's assignee.
    (i) Amendments. A request for an amendment of a payment guarantee 
may be submitted only by the exporter (with the concurrence of the 
assignee, if any). CCC will consider such a request only if the 
amendment sought is consistent with this subpart and any applicable 
Program Announcements and Notices to Participants. Amendments may 
include, but will not be limited to, a change in the credit period and 
an extension of time to export. Any amendment to the payment guarantee, 
particularly those that result in an increase in CCC's liability under 
the payment guarantee, may result in an increase in the guarantee fee. 
(Technical corrections or corrections of a clerical error which may be 
submitted by the exporter or the exporter's assignee are not viewed as 
amendments.)


Sec. 1493.70  Guarantee rates and fees.

    (a) Guarantee fee rates. The payment guarantee fee rates will be 
based upon the length of the payment terms provided for in the export 
sale contract, the degree of risk that CCC assumes, as determined by 
CCC, and any other factors which CCC determines appropriate for 
consideration. A current schedule of the guarantee fee rates charged by 
CCC under GSM-102 and GSM-103 will be available upon request from the 
FAS/USDA office specified in the Contacts P/R.
    (b) Calculation of fee. The guarantee fee will be computed by 
multiplying the guaranteed value by the guarantee fee rate.
    (c) Payment of fee. The exporter shall remit, with his written 
application, the full amount of the guarantee fee. Applications will 
not be approved until the guarantee fee has been received by CCC. The 
exporter's check for the guarantee fee shall be made payable to CCC and 
mailed or delivered by courier to the office specified in the Contacts 
P/R.
    (d) Refunds of fee. Guarantee fees paid in connection with approved 
applications will ordinarily not be refundable. CCC's approval of the 
application will be final and refund of the guarantee fee will not be 
made after approval unless the GSM determines that such refund will be 
in the best interest of CCC. If the application for a payment guarantee 
is not approved or is approved only for a part of the guarantee 
coverage requested, a full or pro rata refund of the fee remittance 
will be made.


Sec. 1493.80  Evidence of export.

    (a) Report of export. The exporter is required to provide CCC an 
evidence of export report for each shipment made under the payment 
guarantee. This report must include the following:
    (1) Payment guarantee number
    (2) Date of export
    (3) Exporter's sale number
    (4) Exported value
    (5) Quantity
    (6) A full description of the commodity exported
    (7) Unit sales price received for the commodity exported and the 
basis (e.g., FOB, CFR, CIF). Where the unit sales price at export 
differs from the unit sales price indicated in the exporter's 
application for a payment guarantee, the exporter is also required to 
submit a statement explaining the reason for the difference.
    (8) Description and value of discounts and allowances, if any.
    (9) Number of the Agreement assigned by USDA under another program 
if any portion of the export sale was also approved for participation 
in the following CCC or USDA export programs: Export Enhancement 
Program, Dairy Export Incentive Program, Sunflowerseed Oil Assistance 
Program, or Cottonseed Oil Assistance Program.
    (10) The exporter's statement, ``All Sec. 1493.90 Certifications 
Are Being Made In This Evidence Of Export'' which, when included in the 
evidence of export by the exporter, will constitute a certification 
that it is in compliance with all the requirements set forth in 
Sec. 1493.90.
    (b) Time limit for submission of evidence of export. The exporter 
must provide a written report to the office specified in the Contacts 
P/R within 60 calendar days if the export was by rail or truck; or 30 
calendar days if the export was by any other carrier. The time period 
for filing a report of export will commence upon each date of export of 
the commodity covered under a payment guarantee. If the evidence of 
export report is not received by CCC within the time period for filing, 
the payment guarantee will become null and void only if and only to the 
extent that failure to make timely filing resulted, or would be likely 
to result, in:
    (1) Significant financial harm to CCC;
    (2) The undermining of an essential regulatory purpose of the 
program;
    (3) Obstruction of the fair administration of the program; or
    (4) A threat to the integrity of the program. The time limit for 
submission of an evidence of export report may be extended if such 
extension is determined by the GSM to be in the best interests of CCC.
    (c) Export sales reporting. Exporters may have a mandatory 
reporting responsibility under Section 602 of the Agricultural Trade 
Act of 1978 (7 U.S.C. 5712), as amended by Section 1531 of the Food, 
Agriculture, Conservation, and Trade Act of 1990 for exports of wheat 
and wheat flour, feed grains, oilseeds, cotton, and other agricultural 
commodities and products thereof.


Sec. 1493.90  Certification requirements for the evidence of export.

    By providing the statement contained in Sec. 1493.80(a)(10), the 
exporter is certifying that the information provided in the evidence of 
export report is true and correct and, further, that all requirements 
set forth in this section have been or will be met. The exporter will 
be required to provide further explanation or documentation with regard 
to reports that do not include this statement. If the exporter breaches 
or violates these certifications with respect to a GSM-102 or GSM-103 
payment guarantee, CCC will have the right, notwithstanding any other 
rights provided under this subpart, to annul guarantee coverage for any 
commodities not yet exported and/or to proceed against the exporter. 
The exporter, in submitting the evidence of export and providing the 
statement set forth in Sec. 1493.80(a)(10), certifies that:
    (a) The agricultural commodity or product exported under a payment 
guarantee is a United States agricultural commodity or a product 
thereof, as defined in Sec. 1493.20(z);
    (b) Agricultural commodities of the grade, quality and quantity 
called for in the exporter's sales contract with the importer have been 
exported to the country specified in the payment guarantee;
    (c) A letter of credit has been opened in favor of the exporter by 
the foreign bank shown in the payment guarantee to cover the port value 
of the commodity exported;
    (d) There have not been and will not be any corrupt payments or 
extra sales services or other items extraneous to the transaction 
provided, financed, or guaranteed in connection with the transaction, 
and that the transaction complies with applicable United States law; 
and
    (e) The information provided pursuant to Sec. 1493.30 has not 
changed, the exporter still meets all of the qualification requirements 
of Sec. 1493.30 and the exporter will immediately notify CCC if there 
is a change of circumstances which would cause it to fail to meet such 
requirements.


Sec. 1493.100  Proof of entry.

    (a) Diversion. The diversion of commodities covered by a GSM-102 or 
GSM-103 payment guarantee to a country other than that shown on the 
payment guarantee is prohibited, unless expressly authorized by the 
GSM.
    (b) Records of proof of entry. Exporters must obtain and maintain 
records of an official or customary commercial nature and grant 
authorized USDA officials access to such documents or records as may be 
necessary to demonstrate the arrival of the agricultural commodities 
exported in connection with the GSM-102 or GSM-103 programs in the 
country that was the intended country of destination of such 
commodities. Records demonstrating proof of entry must be in English or 
be accompanied by a certified or other translation acceptable to CCC. 
Records acceptable to meet this requirement include an original 
certification of entry signed by a duly authorized customs or port 
official of the importing country, by the importer, by an agent or 
representative of the vessel or shipline which delivered the 
agricultural commodity to the importing country, or by a private 
surveyor in the importing country, or other documentation deemed 
acceptable by the GSM showing:
    (1) That the agricultural commodity entered the importing country;
    (2) The identification of the export carrier;
    (3) The quantity of the agricultural commodity;
    (4) The kind, type, grade and/or class of the agricultural 
commodity; and
    (5) The date(s) and place(s) of unloading of the agricultural 
commodity in the importing country. [Records of proof of entry need not 
be submitted with a claim for loss, except as may be provided in 
Sec. 1493.110(b)(4)(ii).]


Sec. 1493.110  Notice of default and claims for loss.

    (a) Notice of default. If the foreign bank issuing the letter of 
credit fails to make payment pursuant to the terms of the foreign bank 
letter of credit or related obligation, the exporter or the exporter's 
assignee must submit a notice of default to CCC as soon as possible, 
but not later than 10 calendar days after the date that payment was due 
from the foreign bank (the due date). A notice of default must be 
submitted in writing to the Treasurer, CCC, at the address specified in 
the Contacts P/R. If the exporter or the exporter's assignee fails to 
promptly notify CCC of defaults in accordance with this paragraph, CCC 
may make the payment guarantee null and void with respect to any 
payment(s) applicable to such default. This time limit may be extended 
only under extraordinary circumstances and if such extension is 
determined by the Controller, CCC, to be in the best interests of CCC. 
The notice of default must include:
    (1) Payment guarantee number;
    (2) Name of the country;
    (3) Name of the defaulting bank;
    (4) Due date;
    (5) Total amount of the defaulted payment due, indicating 
separately the amounts for principal and interest;
    (6) Date of foreign bank's refusal to pay, if applicable; and
    (7) Reason for foreign bank's refusal to pay, if known.
    (b) Filing a claim for loss. A claim for a loss by the exporter or 
the exporter's assignee will not be paid if it is made later than six 
months from the due date of the defaulted payment. A claim for loss 
must be submitted in writing to the Treasurer, CCC, at the address 
specified in the Contacts P/R. The claim for loss must include the 
following information and documents:
    (1) Payment guarantee number;
    (2) A certification that the scheduled payment has not been 
received;
    (3) A certification of the amount of accrued interest in default, 
the date interest began to accrue, and the interest rate on the foreign 
bank obligation applicable to the claim;
    (4) A copy of each of the following documents, with a cover 
document containing a signed certification by the exporter or the 
exporter's assignee that each page of each document is a true and 
correct copy:
    (i) (A) The foreign bank letter of credit securing the export sale; 
and
    (B) If applicable, the document(s) evidencing the related 
obligation owed by the foreign bank to the assignee financial 
institution which is related to the foreign bank's letter of credit 
issued in favor of the exporter. Such related obligation must be 
demonstrated in one of the following ways:
    (1) The related obligation, including a specific promise to pay on 
deferred payment terms, may be contained in the letter of credit as a 
special instruction from the issuing bank directly to the U.S. 
financial institution to refinance the amounts paid by the U.S. 
financial institution for obligations financed according to the tenor 
of the letter of credit; or
    (2) The related obligation may be memorialized in a separate 
document(s) specifically identified and referred to in the letter of 
credit as the agreement under which the foreign bank is obliged to 
repay the U.S. financial institution on deferred payment terms; or
    (3) The letter of credit payment obligations may be specifically 
identified in a separate document(s) setting forth the related 
obligation, or in a duly executed amendment thereto, as having been 
financed by the U.S. financial institution pursuant to, and subject to 
repayment in accordance with the terms of, such related obligation; or
    (4) The related obligation may be memorialized in the form of a 
promissory note executed by the foreign bank issuing the letter of 
credit in favor of the U.S. financial institution submitting the claim;
    (ii) Depending upon the method of shipment, the negotiable ocean 
carrier or intermodal bill(s) of lading signed by the shipping company 
with the onboard ocean carrier date for each shipment, the airway bill, 
or, if shipped by rail or truck, the entry certificate or similar 
document signed by an official of the importing country;
    (iii) (A) The exporter's invoice showing, as applicable, the FAS, 
FOB, CFR or CIF values; or
    (B) If there was an intervening purchaser, both the exporter's 
invoice to the intervening purchaser and the intervening purchaser's 
invoice to the importer;
    (iv) An instrument, in form and substance satisfactory to CCC, 
subrogating to CCC the respective rights of the exporter and the 
exporter's assignee, if applicable, to the amount of payment in default 
under the applicable export sale. The instrument must reference the 
applicable foreign bank letter of credit and the related obligation, if 
applicable; and
    (v) A copy of the report(s) of export previously submitted by the 
exporter to CCC pursuant to Sec. 1493.80(a).
    (c) Subsequent claims for defaults on installments. If the initial 
claim is found in good order, the exporter or an exporter's assignee 
need only provide all of the required claims documents with the initial 
claim relating to a covered transaction. For subsequent claims relating 
to failure of the foreign bank to make scheduled installments on the 
same export shipment, the exporter or the exporter's assignee need only 
submit to CCC a notice of such failure containing the information 
stated in paragraph (b)(1), (2), and (3) of this section; an instrument 
of subrogation as per paragraph (b)(4)(iv) of this section, and 
including the date the original claim was filed with CCC.


Sec. 1493.120  Payment for loss.

    (a) Determination of CCC's liability. Upon receipt in good order of 
the information and documents required under Sec. 1493.110, CCC will 
determine whether or not a loss has occurred for which CCC is liable 
under the applicable payment guarantee, this subpart and any applicable 
supplemental Program Announcements and Notices to Participants. If CCC 
determines that it is liable to the exporter and/or the exporter's 
assignee, CCC will pay the exporter or the exporter's assignee in 
accordance with paragraphs (b) and (c) of this section.
    (b) Amount of CCC's liability. CCC's maximum liability for any 
claims for loss submitted with respect to any payment guarantee, not 
including any late interest payments due in accordance with paragraph 
(c) of this section, will be limited to the lesser of:
    (1) The guaranteed value as stated in the payment guarantee, plus 
eligible interest; or
    (2) The guaranteed percentage (as indicated in the payment 
guarantee) of the exported value indicated in the evidence of export, 
plus eligible interest.
    (c) Late interest payment. If a claim is not paid within one day of 
receipt of a claim which CCC has determined to be in good order, late 
interest will accrue in favor of the exporter or the exporter's 
assignee beginning with the first day after the day of reciept of a 
claim found by CCC to be in good order and continuing until and 
including the date that payment is made by CCC. Late interest will be 
paid on the guaranteed amount, as determined by paragraphs (b)(1) and 
(2) of this section, and will be calculated based on the average 
investment rate of the most recent Treasury 91-day bill auction as 
announced by the Department of Treasury as of the due date.
    (d) Accelerated payments. CCC will pay claims only for losses on 
amounts not paid as scheduled. CCC will not pay claims for amounts due 
under an accelerated payment clause in the export sales contract, the 
foreign bank's letter of credit, or any obligation owed by the foreign 
bank to the assignee U.S. financial institution which is related to the 
foreign bank's letter of credit issued in favor of the exporter, unless 
it is determined to be in the best interests of CCC by the Controller, 
CCC. Notwithstanding the foregoing, CCC at its option may declare the 
entire amount of the unpaid balance, plus accrued interest, in default 
and make payment to the exporter or the exporter's assignee in addition 
to such other claimed amount as may be due from CCC.
    (e) Action against the assignee. Notwithstanding any other 
provision in this subpart to the contrary, with regard to commodities 
covered by a payment guarantee, CCC will not hold the assignee 
responsible or take any action or raise any defense against the 
assignee for any action, omission, or statement by the exporter of 
which the assignee has no knowledge, provided that:
    (1) The exporter complies with the reporting requirements under 
Sec. 1493.80 and Sec. 1493.90, excluding post-export adjustments (i.e., 
corrections to evidence of export reports); and
    (2) The exporter or the exporter's assignee furnishes the 
statements and documents specified in Sec. 1493.110.


Sec. 1493.130  Recovery of losses.

    (a) Notification. Upon payment of loss to the exporter or the 
exporter's assignee, CCC will notify the foreign bank of CCC's rights 
under the subrogation agreement to recover all moneys in default.
    (b) Receipt of monies. (1) In the event that monies for a defaulted 
payment are recovered by the exporter or the exporter's assignee from 
the importer, the foreign bank, or any other source whatsoever, such 
monies shall be immediately paid to the Treasurer, CCC. If such monies 
are not received by CCC within 15 business days from the date of 
recovery by the exporter or the exporter's assignee, the exporter or 
the exporter's assignee will owe to CCC interest from the date of 
recovery to the date of receipt by CCC. This interest will be 
calculated based on the latest average investment rate of the most 
recent Treasury 91-day bill auction, as announced by the Department of 
Treasury, in effect on the date of recovery and will accrue from such 
date to the date of payment by the exporter or the exporter's assignee 
to CCC. Such interest will be charged only on CCC's share of the 
recovery.
    (2) If CCC recovers monies that should be applied to a payment 
guarantee for which a claim has been paid by CCC, CCC will pay the 
holder of the payment guarantee its pro rata share immediately, 
provided that the required information necessary for determining pro 
rata distribution has been furnished. If payment is not made by CCC 
within 15 business days from the date of recovery or 15 business days 
from receiving the required information for determining pro rata 
distribution, whichever is later, CCC will pay interest calculated on 
the latest average investment rate of the most recent Treasury 91-day 
bill auction, as announced by the Department of Treasury, in effect on 
the date of recovery and such interest will accrue from such date to 
the date of payment by CCC. The interest will apply only to the portion 
of the recovery payable to the holder of the payment guarantee.
    (c) Allocation of recoveries. Recoveries made by CCC from the 
importer or the foreign bank, and recoveries received by CCC from the 
exporter, the exporter's assignee, or any other source whatsoever, will 
be allocated by CCC to the exporter or the exporter's assignee and to 
CCC on a pro rata basis determined by their respective interests in 
such recoveries. The respective interest of each party will be 
determined on a pro rata basis, based on the combined amount of 
principal and interest in default. Once CCC has paid out a particular 
claim under a GSM-102 or GSM-103 payment guarantee, CCC prorates any 
collections it receives and shares these collections proportionately 
with the holder of the guarantee until both CCC and the holder of the 
guarantee have been reimbursed in full. Appendix A to Sec. 1493.130--
Illustration of Pro Rata Allocation of Recoveries--provides an example 
of the methodology used by CCC in applying this paragraph (c).
    (d) Liabilities to CCC. Notwithstanding any other terms of the 
payment guarantee, the exporter may be liable to CCC for any amounts 
paid by CCC under the payment guarantee when and if it is determined by 
CCC that the exporter has engaged in fraud, or has been or is in 
material breach of any contractual obligation, certification or 
warranty made by the exporter for the purpose of obtaining the payment 
guarantee or for fulfilling obligations under GSM-102 or GSM-103. 
Further, the exporter's assignee may be liable to CCC for any amounts 
paid by CCC under the payment guarantee when and if it is determined by 
CCC that the exporter's assignee has engaged in fraud or otherwise 
violated program requirements.
    (e) Good faith. The violation by an exporter of the certifications 
in Sec. 1493.50(b) and Sec. 1493.90(d) or the failure of an exporter to 
comply with the provisions of Sec. 1493.100 or Sec. 1493.140(e) will 
not affect the validity of any payment guarantee with respect to an 
assignee which had no knowledge of such violation or failure to comply 
at the time such exporter applied for the payment guarantee or at the 
time of assignment of the payment guarantee.
    (f) Cooperation in recoveries. Upon payment by CCC of a claim to 
the exporter or the exporter's assignee, the exporter or the exporter's 
assignee will cooperate with CCC to effect recoveries from the foreign 
bank and/or the importer.

Appendix A to Sec. 1493.130--Illustration of Pro Rata Allocation of 
Recoveries

    The following example illustrates CCC's policy, as set forth in 
Sec. 1493.130(c), regarding pro rata sharing of recoveries made for 
claims filed under the GSM-102 and GSM-103 programs. A typical case 
might be as follows:
    1. The U.S. bank enters into a $300,000 three-year credit 
arrangement with the foreign bank calling for equal annual payments 
of principal and annual payments of interest at a rate of 10 percent 
per annum and a penalty interest rate of 12 percent per annum on 
overdue amounts until the overdue amount is paid.
    2. The foreign bank fails to make the final principal payment of 
$100,000 and an interest payment of $10,000, both due on January 31.
    3. On February 10, the U.S. bank files a claim in good order 
with CCC.
    4. CCC's guarantee states that CCC's maximum liability is 
limited to 98 percent of the principal amount due ($98,000) and 
interest at a rate of 8 percent per annum (basis 365 days) on 98 
percent of the principal ($7,840).
    5. CCC pays the claim on February 22.
    6. The latest bond equivalent rate of the 52-week Treasury bill 
auction average which has been published by the Department of 
Treasury in effect on the date of nonpayment (January 31) is 9 
percent. The latest investment rate of the 91-day Treasury Bill 
auction average which has been published by the Department of 
Treasury in effect on the date of nonpayment by CCC (February 11) is 
7 percent.

Computation of Obligations

    Using the above case, CCC's payment to the holder of the payment 
guarantee would be computed as follows:
    1. CCC's Obligation under the Payment Guarantee:


                                                                        
                                                                        
                                                                        
(a)  Principal coverage--(98%  x  $100,000).............  $98,000.00    
(b)  Interest coverage--(8%  x  $98,000)................  $7,840.00     
                                                         ---------------
                                                          $105,840.00   
(c)  Late interest due from CCC (7% per annum for 11      $223.28       
      days  x  $105,840).                                               
                                                         ---------------
(d)  Amount paid by CCC on February 22..................  $106,063.28   
                                                                        


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


                                                                        
                                                                        
                                                                        
                                                                        
(a)  Principal due January 31...........................  $100,000.00   
     Interest due January 31 (10%  x  $100,000).........  $10,000.00    
                                                         ---------------
                                                                        
     Amount owed by foreign bank as of January 31.......  $110,000.00   
(b)  Penalty interest due (12% per annum for 22 days  x   $795.62       
      $100,000).                                                        
                                                         ---------------
(c)  Amount owed by foreign bank as of February 22......  $110,795.62   
                                                                        

    3. Amount of Foreign Bank's Obligation Not Covered by CCC's 
Payment Guarantee: $4,668.55

Computation of Pro Rata Sharing in Recovery of Losses

    In establishing each party's respective interest in any recovery 
of losses, the total amount due under the foreign bank obligation 
would be determined as of the date the claim is paid by CCC 
(February 22). Using the above example in which the amount owed by 
the foreign bank is $110,000, CCC would be entitled to 95.75 percent 
($106,063.07 divided by $110,765.62) and the holder of the payment 
guarantee would be entitled to 4.21 percent ($4,668.55 divided by 
$110,795.62) of any recoveries of losses after settlement of the 
claim. Since in this example, the losses were recovered after the 
claim has been paid by CCC, Sec. 1493.130(b) would apply.


Sec. 1493.140  Miscellaneous provisions.

    (a) Assignment. (1) The exporter may assign the proceeds which are, 
or may become, payable by CCC under a payment guarantee or the right to 
such proceeds only to a financial institution in the U.S. The 
assignment must cover all amounts payable under the payment guarantee 
not already paid, may not be made to more than one party, and may not, 
unless approved in advance by CCC, be:
    (i) Made to one party acting for two or more parties or
    (ii) Subject to further assignment.
    (2) An original and two copies of the written notice of assignment 
signed by the parties thereto must be filed by the assignee with the 
Treasurer, CCC, at the address specified in the Contacts P/R.
    (3) Receipt of the notice of assignment will ordinarily be 
acknowledged to the exporter and its assignee in writing by an officer 
of CCC. In cases where a financial institution is determined to be 
ineligible to receive an assignment, in accordance with paragraph (b) 
of this section, CCC will provide notice thereof, to the financial 
institution and to the exporter issued the payment guarantee, in lieu 
of an acknowledgment of assignment.
    (4) The name and address of the assignee must be included on the 
written notice of assignment.
    (b) Ineligibility of financial institutions to receive an 
assignment. A financial institution will be ineligible to receive an 
assignment of proceeds which may become payable under a payment 
guarantee if, at the time of assignment, such financial institution:
    (1) Is not in sound financial condition, as determined by the 
Treasurer of CCC; or
    (2) Is the financial institution issuing the letter of credit or 
branch, agency, or subsidiary of such institution; or
    (3) Is owned or controlled by an entity that owns or controls the 
financial institution issuing the letter of credit; or
    (4) Is the U.S. parent of the foreign bank issuing the letter of 
credit.
    (c) Ineligibility of financial institutions to receive proceeds. A 
financial institution will be ineligible to receive proceeds payable 
under a payment guarantee approved by CCC if such financial 
institution:
    (1) At the time of assignment of a payment guarantee, is not in 
sound financial condition, as determined by the Treasurer of CCC;
    (2) Is the financial institution issuing the letter of credit or a 
branch, agency, or subsidiary of such institution; or
    (3) Is owned or controlled by an entity that owns or controls the 
financial institution issuing the letter of credit; or
    (4) Is the U.S. parent of the foreign bank issuing the letter of 
credit.
    (d) Alternative satisfaction of payment guarantees. CCC may, with 
the agreement of the exporter (or if the right to proceeds payable 
under the payment guarantee has been assigned, with the agreement of 
the exporter's assignee), establish procedures, terms and/or conditions 
for the satisfaction of CCC's obligations under a payment guarantee 
other than those provided for in this subpart if CCC determines that 
those alternative procedures, terms, and/or conditions are appropriate 
in rescheduling the debts arising out of any transaction covered by the 
payment guarantee and would not result in CCC paying more than the 
amount of CCC's obligation.
    (e) Maintenance of records and access to premises. (1) For a period 
of five years after the date of expiration of the coverage of a payment 
guarantee, the exporter or the exporter's assignee, as applicable, must 
maintain and make available all records pertaining to sales and 
deliveries of and extension of credit for agricultural commodities 
exported in connection with a GSM-102 or GSM-103 payment guarantee, 
including those records generated and maintained by agents, intervening 
purchasers, and related companies involved in special arrangements with 
the exporter. The Secretary of Agriculture and the Comptroller General 
of the United States, through their authorized representatives, must be 
given full and complete access to the premises of the exporter or the 
exporter's assignee, as applicable, during regular business hours from 
the effective date of the payment guarantee until the expiration of 
such five-year period to inspect, examine, audit, and make copies of 
the exporter's, exporter's assignee's, agent's, intervening purchaser's 
or related company's books, records and accounts concerning 
transactions relating to the payment guarantee, including, but not 
limited to, financial records and accounts pertaining to sales, 
inventory, processing, and administrative and incidental costs, both 
normal and unforeseen. During such period, the exporter or the 
exporter's assignee may be required to make available to the Secretary 
of Agriculture or the Comptroller General of the United States, through 
their authorized representatives, records that pertain to transactions 
conducted outside the program, if, in the opinion of the GSM, such 
records would pertain directly to the review of transactions undertaken 
by the exporter in connection with the payment guarantee.
    (2) The exporter must maintain the proof of entry required by 
Sec. 1493.100(b), and must provide access to such documentation if 
requested by the Secretary of Agriculture or his authorized 
representative for the five-year period specified in paragraph (e)(1) 
of this section.
    (f) Responsibility of program participants. It is the 
responsibility of all program participants to review, and fully 
acquaint themselves with, all regulations, Program Announcements, and 
Notices to Participants relating to the GSM-102 or GSM-103 program, as 
applicable. Applicants for payment guarantees under these programs are 
hereby on notice that they will be bound by any terms contained in 
applicable Program Announcements or Notices to Participants issued 
prior to the date of approval of a payment guarantee.
    (g) Submission of documents by principal officers. All required 
submissions, including certifications, applications, reports, or 
requests (i.e., requests for amendments), by exporters or exporters' 
assignees under this subpart must be signed by a principal or officer 
of the exporter or exporter's assignee or their authorized designee(s). 
In cases where the designee is acting on behalf of the principal or the 
officer, the signature must be accompanied by: wording indicating the 
delegation of authority or, in the alternative, by a certified copy of 
the delegation of authority; and the name and title of the authorized 
person or officer. Further, the exporter or exporter's assignee must 
ensure that all information/reports required under these regulations 
are submitted within the required time limits. If requested in writing, 
CCC will acknowledge receipt of a submission by the exporter or the 
exporter's assignee. If acknowledgment of receipt is requested, the 
exporter or exporter's assignee must submit an extra copy of each 
document and a stamped self-addressed envelope for return by U.S. mail. 
If courier services are desired for the return receipt, the exporter or 
exporter's assignee must also submit a self-addressed courier service 
order which includes the recipient's billing code for such service.
    (h) Officials not to benefit. No member of or delegate to Congress, 
or Resident Commissioner, shall be admitted to any share or part of the 
payment guarantee or to any benefit that may arise therefrom, but this 
provision shall not be construed to extend to the payment guarantee if 
made with a corporation for its general benefit.
    (i) OMB control number assigned pursuant to the Paperwork Reduction 
Act. The information collection requirements contained in this part (7 
CFR Part 1493) have been approved by the Office of Management and 
Budget (OMB) in accordance with the provisions of 44 U.S.C. Chapter 35 
and have been assigned OMB Control Number 0551-0004.

    Signed this 7th day of October, 1994 at Washington, DC.

Christopher E. Goldthwait,
General Sales Manager Commodity Credit Corporation.
[FR Doc. 94-25849 Filed 10-18-94; 8:45 am]
BILLING CODE 3410-10-F