[Federal Register Volume 60, Number 122 (Monday, June 26, 1995)]
[Proposed Rules]
[Pages 32923-32925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15590]


Commodity Credit Corporation

7 CFR Part 1494 and 1570

Export Bonus Programs

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Advance Notice of Proposed Rule Making.


SUMMARY: This document requests comments on three options to reform the 
USDA/Commodity Credit Corporation's Export Bonus Programs: The Export 
Enhancement Program (EEP), the Dairy Export Incentive Program (DEIP), 
the Sunflower Oil Assistance Program (SOAP), and the Cottonseed Oil 
Assistance Program (COAP). Options for reform of these export bonus 
programs are being considered as an effort to respond to the General 
Agreement on Tariff and Trade (GATT) Uruguay Round Agreement that 
established new mandates for USDA/CCC's export subsidy programs. 
Additionally, the reform options considered could make these programs 
more flexible in responding to changing world market conditions and 
serve to fulfill policy goals for increased administrative efficiency 
and lower program costs.

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

ADDRESSES: Comments should be sent to L.T. McElvain, Director, CCC 
Operations Division, Export Credits, Foreign Agricultural Service, U.S. 
Department of Agriculture, AG Box 1035, Washington, D.C., 20250-1035; 
FAX (202) 720-2949 or 720-0938. All comments received will be available 
for public inspection at the above address during regular business 

FOR FURTHER INFORMATION CONTACT: Christopher E. Goldthwait, General 
Sales Manager, at the address stated above. Telephone (202) 720-5173. 
The U.S. Department of Agriculture (USDA) prohibits discrimination in 
its programs on the basis of race, color, national origin, sex, 
religion, age, disability, political beliefs and marital or familial 
status. Persons with disabilities who require alternative means for 
communication of program information (braille, large print, audiotape, 
etc.) should contact the USDA Office of Communications at (202) 720-
5881 (voice) or (202) 720-7808 (TAD).



    Since 1985, USDA/CCC has operated export subsidy programs for a 
variety of commodities, including wheat and wheat flour, barley and 
barley malt, rice, poultry, table eggs, vegetable oils, pork and dairy 
products. Wheat and wheat flour have received the largest share of 
subsidy dollars, accounting for 75 percent of the total export 
subsidies in 1994. [[Page 32924]] 
    The Uruguay Round Agreements Act (Public Law 103-465; 108 Stat. 
4809) directs that U.S. export subsidies be used to encourage the 
commercial sale of U.S. agricultural commodities in world markets at 
competitive prices and not be limited to responding to unfair trade 
practices. Export subsidies will be progressively reduced to conform to 
the United States' GATT commitments. Meeting these mandates will 
require the development of a program that uses less subsidy but leaves 
U.S. commodities in a more competitive position at the end of the GATT 
phase-in period.
    The Administration's 1995 Farm Bill Proposal announced program 
objectives that would guide its efforts to make USDA's export subsidy 
programs more responsive to world market conditions in the post-Uruguay 
Round period and to further fulfill certain policy goals. The following 
policy objectives were defined by the proposal:
    1. Increase the cost-effectiveness of export subsidy programs by 
encouraging the lowest possible subsidies to achieve the maximum level 
of subsidized volume;
    2. Increase the flexibility of exporters to respond to changing 
market conditions;
    3. Reduce administrative complexity and cost;
    4. Provide safeguards against fraud and exports of foreign-origin 
products; and
    5. Be consistent with U.S. trade policy goals.
    The Administration's Farm Bill Proposal announced that the Trade 
Policy Review Group (TPRG)(an interagency working group comprised of 
representatives from the Departments of Agriculture, State and 
Treasury; the Office of the U.S. Trade Representative; the Office of 
Management and Budget; the Council of Economic Advisors and the 
National Economic Council), would develop proposals for comment, 
including the auction concept described in the Farm Bill Proposal as an 
example of a concept that could fulfill those reform objectives.
    The concepts developed by the TPRG for public consideration 
include: 1. The quarterly auction; 2. a pre-announced bonus mechanism; 
and 3. a market-oriented modification of the current program. 
Interested parties are invited to comment on these proposals, but need 
not limit their comments exclusively to the proposals outlined here. 
The Administration is seeking comment on a wide spectrum of concepts as 
it devises a program that embodies the reform principles stated above.
Quarterly Auction

    The auction reform is designed to increase the cost-effectiveness 
of export subsidies by increasing competition in the subsidy allocation 
process. Such reform would permit the achievement of a given level of 
export promotion (and, hence, subsidy-related export sales) at minimum 
budgetary cost. It would also increase the cost-effectiveness of the 
subsidies by increasing industry flexibility in allocating subsidies 
across markets, while protecting U.S. foreign policy and trade 
interests. These gains will be achieved in a way that meets the 
Administration's commitment to subsidize agricultural exports up to the 
Uruguay Round ceilings. Specifically, for each subsidized commodity, an 
auction system would allocate subsidies as follows:
    The interagency process would determine maximum annual subsidized 
export volumes for a set of different markets. The markets would be 
defined as broadly as possible subject to the promotion of foreign 
policy and trade objectives. Markets could be specific countries if 
deemed appropriate. The interagency process could also define select 
destinations that would be ineligible for any subsidy for reasons that 
could include the dominent presence of non-subsidized competition, 
important U.S. foreign policy considerations, and/or a determination 
that subsidies are not needed for U.S. export growth. The sum of the 
regional maxima, across all regions, would be no lower than the annual 
GATT ceiling on U.S. subsidized export volume.
    For each of the markets distinguished in the interagency process, 
USDA/CCC would conduct quarterly auctions in which exporters make bids 
that specify a dollar amount of export subsidy and the quantity of 
commodity to be exported.
    Quarterly Volumes. Prior to each auction, USDA/CCC would announce 
the proportion of the overall annual subsidized export volume that is 
to be auctioned. The quarterly allocations would be designed to avoid 
distortions in inter-seasonal trade. USDA/CCC would retain flexibility 
to award subsidies for less volume than it has announced if it faces 
bonus bids that are too high. Announced quarterly auction volumes would 
add up, over the GATT year and across all geographical regions, to the 
overall (worldwide) GATT maximum volume of subsidized exports. Regional 
volumes would add up to a total that is consistent with the interagency 
    Successful Bids. USDA/CCC would allocate subsidy rights to the 
lowest bidders. Stated differently, USDA/CCC would choose winning bids 
in order to achieve the quarterly subsidized volume allocation at 
minimum cost in dollar subsidies.
    Maximum Bonuses. Taking into account the same factors that are 
currently considered in accepting or rejecting bids--as well as GATT 
limits--USDA/CCC would set maximum bonus levels to be allowed in 
awarded bids for each auction. These maximum levels would be secret. 
Bids with bonus levels higher than the USDA/CCC-determined maximum 
levels would be rejected. If, because of these limits, a region's 
allocation of subsidized export volume is not met in a given quarter--
and the next quarter is in the same GATT year--the balance of the 
allocation would be shifted to future quarters in the same GATT year.
    Export Flexibility. Winning bidders would be required to export the 
agreed-upon quantity some time during the 12 months (or less) that 
follow the award. The exporters would be free to allocate the subsidies 
to individual sales as they choose. Under the Uruguay Round Agreement, 
subsidized sales should not be conditioned or linked to other (non-
subsidized) sales. The export subsidy rights obtained by a winning 
bidder would be transferable/tradeable in whole or in part. In other 
words, a winning bidder could sell his or her right to the agreed-upon 
per-unit subsidy for either all of the agreed-upon subsidized export 
volume or part of this volume. USDA/CCC must be notified of any such 
    Subsidy Payments. Subsidy payments would be made, on a pro rata 
basis, at the time that verification of eligible exports is presented 
    Commodity Definitions. For purposes of defining the commodity that 
is eligible for export subsidy in a given auction, USDA/CCC would seek 
to be as unrestrictive as possible subject to practicality, maintaining 
a minimal standard of product quality, and advancing trade and foreign 
policy objectives.
    Penalties for Non-compliance. If an exporter has subsidy rights, 
but does not ``exercise'' these rights by exporting the requisite 
commodity volume, USDA/CCC will take authorized actions to encourage 
performance, such as debarment proceedings when an exporter exhibits a 
pattern of non-performance. Such a measure would be taken in order to 
discourage frivolous bids.
    Interagency review and evaluation. If bonus levels are 
significantly different across markets (suggesting that regional 
restrictions may be too tight) or [[Page 32925]] particularly high for 
certain commodities, interagency review would be called for, with 
opportunity for corrective action as deemed necessary.

Pre-Announced Bonus

    Under the pre-announced bonus mechanism, for each commodity, USDA/
CCC would publish a TPRG-cleared list of (regional) destinations. 
Particularly sensitive countries could have limits on the quantity of 
subsidized export sales or be excluded. On a periodic basis (weekly or 
biweekly) USDA/CCC would announce the eligibility of a quantity of 
commodity and the bonus level to be paid per metric ton (or other 
unit). A single bonus would apply to all qualities of a particular 
    Bonus Awards. Exporters would register for the bonus on a first-
come, first-served, basis and awards would be made up to the announced 
quantity. The announced quantity would be available for a minimum of 
several business days, but at USDA/CCC's discretion, any unused bonus 
could remain available for offers until the next scheduled 
announcement. Differential adjustments would be available for regions 
where there is a significant freight disadvantage. Exporters would 
request differential adjustments when making an offer for the pre-
announced bonus, and would be constrained to use the bonus within the 
specified region.
    Export Reporting. After export, exporters would report to USDA/CCC 
the destinations, quantity and limited transaction information for the 
sales for which a bonus award was used. For sensitive destinations, 
exporters would need to report immediately on sales so that USDA/CCC 
could ensure compliance with limits on export volumes.
    Export Flexibility. Comments are especially invited on whether pre-
announced bonuses should be awarded with the requirement that exporters 
may only bid if they have firm export sales contracts, or whether there 
should be no such requirement. In the later case, a secondary market 
for the transfer of export bonus awards might be permitted among 
eligible exporters. Transactions in this secondary market would be 
required to be reported to USDA/CCC.

Market-Oriented Modifications

    This reform option is designed to modify current USDA/CCC export 
subsidy programs to make them more efficient and more responsive to 
changing world market conditions. It incorporates several market-
oriented changes into the existing program operation structure.
    Current System. Currently, export subsidy program operations are 
conducted on a transaction-by-transaction basis. After TPRG clearance, 
USDA/CCC announces program allocations for each commodity at the 
beginning of that commodity's marketing year. Allocations specify the 
maximum quantity of exports that USDA/CCC is willing to subsidize to 
each country or region. Exporters then submit to USDA/CCC an offer for 
each export transaction, including proposed selling price and requested 
bonus per metric ton or other unit. First, USDA/CCC reviews the export 
sales price to ensure that it is not below world market levels. Second, 
USDA/CCC reviews the bonus to ensure that it does not exceed the 
difference between the higher U.S. domestic price and the approved 
sales price. If USDA/CCC approves both the price and bonus, the 
exporter is so notified by USDA/CCC. The exporter confirms the sale 
with the foreign buyer.
    USDA/CCC encourages bids by competing exporters. Following each 
day's bonus awards, USDA/CCC publishes the quantity and the subsidy 
amount for each sale awarded.
    Reform Option. The following market-oriented modifications in this 
system can better reach the objectives specified in the 
Administration's Farm Bill guidance. These modifications are designed 
to restore to the exporter the incentive to achieve higher selling 
prices and to reduce the current export subsidy program's market 
intrusiveness. The modifications might include the following:
    Regional Allocations. Making all allocations regional or grouping 
countries by other, non-geographic, criteria, with few countries 
excluded from the program. Within regions, quantitative limits would be 
applied to specific sensitive destinations;
    Programming. Full GATT authorized quantities would be announced at 
the beginning of the marketing year, but adjustments to allocations 
among regions could be made on short notice throughout the year;
    Bonus Focus. The emphasis in USDA/CCC's price/bonus review would be 
more on bonus, with exporters better able to anticipate likely levels 
of bonus awards. This would be accomplished by: (a) Limiting 
differences in bonus awards within a particular region and shipping 
period; (b) announcing the average bonus approved on a regional basis 
rather than for each transaction; and (c) responding to trade inquiries 
with specific reference to USDA/CCC's view of changes in market 
conditions since the latest announced bonus award for a particular 
    Export Flexibility. Exporters would be permitted to shift a bonus 
award between different transactions within the same region and similar 
shipping period, with notification to USDA/CCC;
    Program Graduation. Countries or regions would be ``graduated'' 
from their eligibility for subsidy if the U.S. becomes fully price 
competitive in some regions later in the GATT phase-in period.

Consideration of Comments

    Additional comments on other program modifications that are 
responsive to the Uruguay Round Agreements Act and the policy 
principles outlined herein are encouraged. All comments submitted by 
interested parties will be carefully considered. After consideration of 
the comments received, USDA/CCC will consider what changes should be 
made to its export subsidy programs. Some of the above-described 
changes would require additional notice and consideration of comments 
from interested parties via the rulemaking process. Others, such as 
restructuring the programs by geographical regions, could be adopted by 
changing internal policies and procedures.

    Signed at Washington, DC, on June 21, 1995.
Christopher E. Goldthwait,
General Sales Manager and Vice President, Commodity Credit Corporation.
[FR Doc. 95-15590 Filed 6-23-95; 8:45 am]