[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] ----------------------------------------------------------------------- DEPARTMENT OF AGRICULTURE Commodity Credit Corporation 7 CFR Part 1494 and 1570 Export Bonus Programs AGENCY: Commodity Credit Corporation, USDA. ACTION: Advance Notice of Proposed Rule Making. ----------------------------------------------------------------------- SUMMARY: This document requests comments on three options to reform the USDA/Commodity Credit Corporation's Export Bonus Programs: The Export Enhancement Program (EEP), the Dairy Export Incentive Program (DEIP), the Sunflower Oil Assistance Program (SOAP), and the Cottonseed Oil Assistance Program (COAP). Options for reform of these export bonus programs are being considered as an effort to respond to the General Agreement on Tariff and Trade (GATT) Uruguay Round Agreement that established new mandates for USDA/CCC's export subsidy programs. Additionally, the reform options considered could make these programs more flexible in responding to changing world market conditions and serve to fulfill policy goals for increased administrative efficiency and lower program costs. DATES: Comments must be submitted on or before July 26, 1995. ADDRESSES: Comments should be sent to L.T. McElvain, Director, CCC Operations Division, Export Credits, Foreign Agricultural Service, U.S. Department of Agriculture, AG Box 1035, Washington, D.C., 20250-1035; FAX (202) 720-2949 or 720-0938. All comments received will be available for public inspection at the above address during regular business hours. FOR FURTHER INFORMATION CONTACT: Christopher E. Goldthwait, General Sales Manager, at the address stated above. Telephone (202) 720-5173. The U.S. Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of race, color, national origin, sex, religion, age, disability, political beliefs and marital or familial status. Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact the USDA Office of Communications at (202) 720- 5881 (voice) or (202) 720-7808 (TAD). SUPPLEMENTARY INFORMATION: Background Since 1985, USDA/CCC has operated export subsidy programs for a variety of commodities, including wheat and wheat flour, barley and barley malt, rice, poultry, table eggs, vegetable oils, pork and dairy products. Wheat and wheat flour have received the largest share of subsidy dollars, accounting for 75 percent of the total export subsidies in 1994. [[Page 32924]] The Uruguay Round Agreements Act (Public Law 103-465; 108 Stat. 4809) directs that U.S. export subsidies be used to encourage the commercial sale of U.S. agricultural commodities in world markets at competitive prices and not be limited to responding to unfair trade practices. Export subsidies will be progressively reduced to conform to the United States' GATT commitments. Meeting these mandates will require the development of a program that uses less subsidy but leaves U.S. commodities in a more competitive position at the end of the GATT phase-in period. The Administration's 1995 Farm Bill Proposal announced program objectives that would guide its efforts to make USDA's export subsidy programs more responsive to world market conditions in the post-Uruguay Round period and to further fulfill certain policy goals. The following policy objectives were defined by the proposal: 1. Increase the cost-effectiveness of export subsidy programs by encouraging the lowest possible subsidies to achieve the maximum level of subsidized volume; 2. Increase the flexibility of exporters to respond to changing market conditions; 3. Reduce administrative complexity and cost; 4. Provide safeguards against fraud and exports of foreign-origin products; and 5. Be consistent with U.S. trade policy goals. The Administration's Farm Bill Proposal announced that the Trade Policy Review Group (TPRG)(an interagency working group comprised of representatives from the Departments of Agriculture, State and Treasury; the Office of the U.S. Trade Representative; the Office of Management and Budget; the Council of Economic Advisors and the National Economic Council), would develop proposals for comment, including the auction concept described in the Farm Bill Proposal as an example of a concept that could fulfill those reform objectives. The concepts developed by the TPRG for public consideration include: 1. The quarterly auction; 2. a pre-announced bonus mechanism; and 3. a market-oriented modification of the current program. Interested parties are invited to comment on these proposals, but need not limit their comments exclusively to the proposals outlined here. The Administration is seeking comment on a wide spectrum of concepts as it devises a program that embodies the reform principles stated above. Quarterly Auction The auction reform is designed to increase the cost-effectiveness of export subsidies by increasing competition in the subsidy allocation process. Such reform would permit the achievement of a given level of export promotion (and, hence, subsidy-related export sales) at minimum budgetary cost. It would also increase the cost-effectiveness of the subsidies by increasing industry flexibility in allocating subsidies across markets, while protecting U.S. foreign policy and trade interests. These gains will be achieved in a way that meets the Administration's commitment to subsidize agricultural exports up to the Uruguay Round ceilings. Specifically, for each subsidized commodity, an auction system would allocate subsidies as follows: The interagency process would determine maximum annual subsidized export volumes for a set of different markets. The markets would be defined as broadly as possible subject to the promotion of foreign policy and trade objectives. Markets could be specific countries if deemed appropriate. The interagency process could also define select destinations that would be ineligible for any subsidy for reasons that could include the dominent presence of non-subsidized competition, important U.S. foreign policy considerations, and/or a determination that subsidies are not needed for U.S. export growth. The sum of the regional maxima, across all regions, would be no lower than the annual GATT ceiling on U.S. subsidized export volume. For each of the markets distinguished in the interagency process, USDA/CCC would conduct quarterly auctions in which exporters make bids that specify a dollar amount of export subsidy and the quantity of commodity to be exported. Quarterly Volumes. Prior to each auction, USDA/CCC would announce the proportion of the overall annual subsidized export volume that is to be auctioned. The quarterly allocations would be designed to avoid distortions in inter-seasonal trade. USDA/CCC would retain flexibility to award subsidies for less volume than it has announced if it faces bonus bids that are too high. Announced quarterly auction volumes would add up, over the GATT year and across all geographical regions, to the overall (worldwide) GATT maximum volume of subsidized exports. Regional volumes would add up to a total that is consistent with the interagency guidelines. Successful Bids. USDA/CCC would allocate subsidy rights to the lowest bidders. Stated differently, USDA/CCC would choose winning bids in order to achieve the quarterly subsidized volume allocation at minimum cost in dollar subsidies. Maximum Bonuses. Taking into account the same factors that are currently considered in accepting or rejecting bids--as well as GATT limits--USDA/CCC would set maximum bonus levels to be allowed in awarded bids for each auction. These maximum levels would be secret. Bids with bonus levels higher than the USDA/CCC-determined maximum levels would be rejected. If, because of these limits, a region's allocation of subsidized export volume is not met in a given quarter-- and the next quarter is in the same GATT year--the balance of the allocation would be shifted to future quarters in the same GATT year. Export Flexibility. Winning bidders would be required to export the agreed-upon quantity some time during the 12 months (or less) that follow the award. The exporters would be free to allocate the subsidies to individual sales as they choose. Under the Uruguay Round Agreement, subsidized sales should not be conditioned or linked to other (non- subsidized) sales. The export subsidy rights obtained by a winning bidder would be transferable/tradeable in whole or in part. In other words, a winning bidder could sell his or her right to the agreed-upon per-unit subsidy for either all of the agreed-upon subsidized export volume or part of this volume. USDA/CCC must be notified of any such transactions. Subsidy Payments. Subsidy payments would be made, on a pro rata basis, at the time that verification of eligible exports is presented to USDA/CCC. Commodity Definitions. For purposes of defining the commodity that is eligible for export subsidy in a given auction, USDA/CCC would seek to be as unrestrictive as possible subject to practicality, maintaining a minimal standard of product quality, and advancing trade and foreign policy objectives. Penalties for Non-compliance. If an exporter has subsidy rights, but does not ``exercise'' these rights by exporting the requisite commodity volume, USDA/CCC will take authorized actions to encourage performance, such as debarment proceedings when an exporter exhibits a pattern of non-performance. Such a measure would be taken in order to discourage frivolous bids. Interagency review and evaluation. If bonus levels are significantly different across markets (suggesting that regional restrictions may be too tight) or [[Page 32925]] particularly high for certain commodities, interagency review would be called for, with opportunity for corrective action as deemed necessary. Pre-Announced Bonus Under the pre-announced bonus mechanism, for each commodity, USDA/ CCC would publish a TPRG-cleared list of (regional) destinations. Particularly sensitive countries could have limits on the quantity of subsidized export sales or be excluded. On a periodic basis (weekly or biweekly) USDA/CCC would announce the eligibility of a quantity of commodity and the bonus level to be paid per metric ton (or other unit). A single bonus would apply to all qualities of a particular commodity. Bonus Awards. Exporters would register for the bonus on a first- come, first-served, basis and awards would be made up to the announced quantity. The announced quantity would be available for a minimum of several business days, but at USDA/CCC's discretion, any unused bonus could remain available for offers until the next scheduled announcement. Differential adjustments would be available for regions where there is a significant freight disadvantage. Exporters would request differential adjustments when making an offer for the pre- announced bonus, and would be constrained to use the bonus within the specified region. Export Reporting. After export, exporters would report to USDA/CCC the destinations, quantity and limited transaction information for the sales for which a bonus award was used. For sensitive destinations, exporters would need to report immediately on sales so that USDA/CCC could ensure compliance with limits on export volumes. Export Flexibility. Comments are especially invited on whether pre- announced bonuses should be awarded with the requirement that exporters may only bid if they have firm export sales contracts, or whether there should be no such requirement. In the later case, a secondary market for the transfer of export bonus awards might be permitted among eligible exporters. Transactions in this secondary market would be required to be reported to USDA/CCC. Market-Oriented Modifications This reform option is designed to modify current USDA/CCC export subsidy programs to make them more efficient and more responsive to changing world market conditions. It incorporates several market- oriented changes into the existing program operation structure. Current System. Currently, export subsidy program operations are conducted on a transaction-by-transaction basis. After TPRG clearance, USDA/CCC announces program allocations for each commodity at the beginning of that commodity's marketing year. Allocations specify the maximum quantity of exports that USDA/CCC is willing to subsidize to each country or region. Exporters then submit to USDA/CCC an offer for each export transaction, including proposed selling price and requested bonus per metric ton or other unit. First, USDA/CCC reviews the export sales price to ensure that it is not below world market levels. Second, USDA/CCC reviews the bonus to ensure that it does not exceed the difference between the higher U.S. domestic price and the approved sales price. If USDA/CCC approves both the price and bonus, the exporter is so notified by USDA/CCC. The exporter confirms the sale with the foreign buyer. USDA/CCC encourages bids by competing exporters. Following each day's bonus awards, USDA/CCC publishes the quantity and the subsidy amount for each sale awarded. Reform Option. The following market-oriented modifications in this system can better reach the objectives specified in the Administration's Farm Bill guidance. These modifications are designed to restore to the exporter the incentive to achieve higher selling prices and to reduce the current export subsidy program's market intrusiveness. The modifications might include the following: Regional Allocations. Making all allocations regional or grouping countries by other, non-geographic, criteria, with few countries excluded from the program. Within regions, quantitative limits would be applied to specific sensitive destinations; Programming. Full GATT authorized quantities would be announced at the beginning of the marketing year, but adjustments to allocations among regions could be made on short notice throughout the year; Bonus Focus. The emphasis in USDA/CCC's price/bonus review would be more on bonus, with exporters better able to anticipate likely levels of bonus awards. This would be accomplished by: (a) Limiting differences in bonus awards within a particular region and shipping period; (b) announcing the average bonus approved on a regional basis rather than for each transaction; and (c) responding to trade inquiries with specific reference to USDA/CCC's view of changes in market conditions since the latest announced bonus award for a particular region; Export Flexibility. Exporters would be permitted to shift a bonus award between different transactions within the same region and similar shipping period, with notification to USDA/CCC; Program Graduation. Countries or regions would be ``graduated'' from their eligibility for subsidy if the U.S. becomes fully price competitive in some regions later in the GATT phase-in period. Consideration of Comments Additional comments on other program modifications that are responsive to the Uruguay Round Agreements Act and the policy principles outlined herein are encouraged. All comments submitted by interested parties will be carefully considered. After consideration of the comments received, USDA/CCC will consider what changes should be made to its export subsidy programs. Some of the above-described changes would require additional notice and consideration of comments from interested parties via the rulemaking process. Others, such as restructuring the programs by geographical regions, could be adopted by changing internal policies and procedures. Signed at Washington, DC, on June 21, 1995. Christopher E. Goldthwait, General Sales Manager and Vice President, Commodity Credit Corporation. [FR Doc. 95-15590 Filed 6-23-95; 8:45 am] BILLING CODE 3410-10-P