[Federal Register Volume 62, Number 158 (Friday, August 15, 1997)]
[Proposed Rules]
[Pages 43675-43676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21670]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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 

  Federal Register / Vol. 62, No. 158 / Friday, August 15, 1997 / 
Proposed Rules  

[[Page 43675]]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1493


Expanding Export Transactions for CCC Payment Guarantees

AGENCY: Commodity Credit Corporation (CCC), USDA.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: CCC requests comments on two options to modify the regulations 
found at 7 CFR part 1493, subpart B, governing CCC's Export Credit 
Guarantee Program (GSM-102) and Intermediate Export Credit Guarantee 
Program (GSM-103). One option would permit CCC to guarantee payments 
pursuant to sight letters of credit issued by eligible foreign banks, 
which letters of credit would not include deferred payment terms. The 
other option would permit CCC to guarantee payment of obligations of 
eligible foreign banks arising out of transactions not involving an 
export letter of credit. For example, such obligations could be created 
by foreign banks providing guarantees of obligations of foreign buyers, 
including, for example, drafts drawn on and accepted by such buyers.
    CCC also welcomes and will consider comments or recommendations 
regarding other approaches to increasing the flexibility of these 
programs.

DATES: Comments are due on or before September 15, 1997.

ADDRESSES: All comments should be addressed to L.T. McElvain, Director, 
CCC Operations Division, Foreign Agricultural Service, U.S. Department 
of Agriculture, AG Stop 1035, Washington, DC 20250-1035; FAX (202) 720-
2949. All comments received will be available for public inspection at 
the above address during regular business hours.

FOR FURTHER INFORMATION CONTACT: L.T. McElvain, Director, CCC 
Operations Division, Foreign Agricultural Service, U.S. Department of 
Agriculture, Stop 1035, Washington D.C., 20250-1035; Fax (202) 720-
2949; Telephone (202) 720-6211. 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 (TDD).

SUPPLEMENTARY INFORMATION:

Background

    The GSM-102 and GSM-103 programs are intended to increase exports 
of U.S. agricultural commodities and to serve other purposes stated in 
subpart A of 7 CFR part 1493. Criteria for allocating the availability 
of credit guarantees under these programs among countries and 
commodities are also found in subpart. In addition, the subpart 
contains certain program restrictions, including a prohibition on 
making credit guarantees available in connection with sales to any 
country that the Secretary of Agriculture determines cannot adequately 
service the debt associated with such sales.
    Since late 1980, CCC has issued payment guarantees totaling $56.7 
billion (guarantee value) under the GSM-102 program. This program 
covers U.S. agricultural export transactions where payments are 
governed by irrevocable letters of credit issued by eligible foreign 
banks, and credits are extended by U.S. exporters or financial 
institutions to such foreign banks for a maximum of three years. Since 
FY 1986, CCC has issued payment guarantees totaling $2.2 billion under 
the GSM-103 program. In this program, which is similar to the GSM-102 
program, the credit periods are for not less than three, but no more 
than 10, years.
    The regulations for the GSM-102 and 103 programs at 7 CFR part 1493 
were specifically designed to assist export transactions having at 
least two characteristics: (1) they are financed through foreign bank 
letters of credit, and (2) the foreign bank makes payment on deferred 
terms (credit terms being provided for either in the letter of credit 
or a related obligation). Under the regulations as currently written, 
export transactions that lack either one of these characteristics are 
not eligible for GSM-102 or 103 payment guarantees. For example, 
transactions involving payment by sight letters of credit with no 
related credit obligation (i.e., no credit extended to the issuing 
foreign bank) are not eligible. Neither are other forms of collections 
involving acceptances or other forms of financial documents handled by 
U.S. banks that are also guaranteed by a foreign bank. Such collections 
may be subject to the Uniform Rules for Collections (International 
Chamber of Commerce (ICC) Publication 522), in contrast to 
existing GSM-102/103 transactions which must involve letters of credit 
subject to the Uniform Customs and Practice for Documentary Credits 
(ICC Publication 500).
    To enable CCC to better evaluate whether to modify 7 CFR part 1493 
to permit the GSM-102 and 103 programs to include a greater range of 
transactions for which CCC would assume foreign bank risk, it was 
decided to seek the views of program participants and others through 
this advance notice of proposed rulemaking.

Options

    Option 1. Amend regulations to permit CCC to issue payment 
guarantees covering sight letter of credit transactions (with no credit 
extended to the foreign bank issuing the letter of credit).
    This option would require a revision of 7 CFR 1493.10. 
Specifically, 7 CFR 1493.10(b) provides that CCC will consider 
applications for payment guarantees only in connection with export 
sales where the payment will be made in one of two 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; 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 pay.
    To implement this option, it would be necessary to delete the 
requirement under (1) above that the letter of credit state deferred 
payment terms. Other conforming changes would have to be made to 
various parts of the regulations.

[[Page 43676]]

Possible Benefits of This Option
    1. Might facilitate additional export transactions without 
increasing CCC's multi-year credit exposure to a country at a time when 
such exposure is approaching the maximum exposure established by CCC. 
Since payment would be due at sight, CCC's exposure would be reduced 
more quickly than in a transaction calling for deferred payment. As a 
result, more transactions could be done with a country which was 
nearing its CCC-established credit limitations.
    2. Might increase the number of export transactions where U.S. 
financial institutions could reduce their letter of credit confirmation 
fees because of the availability of CCC's guarantee.
 Possible Disadvantages of This Option
    1. Might be of interest to foreign buyers and U.S. banks and 
exporters only when the risk of default by the issuing foreign bank is 
considered high and U.S. banks are unwilling to confirm letters of 
credit or are willing to do so only at very high fees. The rate of 
defaults and, therefore, CCC's costs, might be high.
    2. Might duplicate insurance or guarantee coverage available from 
private sector firms or other U.S. Government agencies.
    3. Might displace cash export sales of U.S. agricultural 
commodities since no credit is necessary to make the transactions 
workable.
    Option 2. Amend regulations to permit CCC to guarantee payment of 
eligible foreign bank obligations in transactions calling for deferred 
payment but not involving an irrevocable letter of credit.
    One type of transaction under this option could involve foreign 
bank guarantees of financial instruments, including, for example, 
drafts drawn on, and accepted by, foreign buyers. However, the range of 
possible types of transactions and foreign bank guarantees could be 
broader than this, and commenters are urged to be as specific and 
detailed as possible in proposing or opposing alternatives that might 
be covered by this option. CCC is aware of a bank guarantee known as an 
aval. CCC is concerned, however, that avals, although commonly used in 
civil law jurisdictions, are virtually unknown in American 
jurisprudence and may not be readily enforceable in the United States.
    CCC is also especially interested in comments on whether it should 
require, as a condition of eligibility for a guarantee, that 
collections of financial and commercial documents be subject to the 
Uniform Rules for Collections set forth in the International Chamber of 
Commerce Publication 522'', or to other requirements. In 
this connection, commenters may wish to state clearly their 
understanding of the extent of the non-documentary risk that exporters 
would bear in a transaction where the importer refused to accept 
documents despite conformity of the documents with the collection 
instruction. In such a case the CCC guarantee would not appear to apply 
because the drawee would not have incurred a payment obligation to 
which the foreign bank guarantee would apply. Similarly, CCC seeks 
comments regarding whether it should require any specific wording or 
content in the obligation that would be guaranteed by the foreign bank 
or in the foreign bank's guarantee itself.
Possible Benefits of This Option
    1. Might increase U.S. agricultural exports by leveraging credits 
made available by the private sector.
    2. New or more cost-effective export opportunities might arise by 
increasing the flexibility with which export transactions could be 
structured, with payment of credits still guaranteed by eligible 
foreign banks.
    3. Might enable or encourage participation in GSM-102 and 103 
programs by additional financial institutions, resulting in a more 
competitive credit environment.
Possible Disadvantage of this Option
    1. Exporters might face greater problems or risks in negotiating 
documents should they choose to participate in these types of 
transactions.

Considerations Regarding Comments

    CCC will consider a number of factors in reviewing comments and 
determining whether to implement one or both of the options, or 
modifications thereof.
    1. GSM-102/103 Criteria. As discussed above, 7 CFR part 1493, 
subpart A, contains objectives and criteria for these programs. Some of 
these, such as the requirement that countries to which credits are to 
be extended must be ``creditworthy'', are mandated by statute. 
Commenters should familiarize themselves with subpart A and include a 
discussion of relevant regulatory provisions in their comments. They 
should particularly address the issue of whether transactions pursuant 
to the proposed options would more likely be in addition to, or would 
more likely displace, unassisted private sector transactions. 
Commenters should bear in mind that, in considering options for 
additional program flexibility, CCC does not intend to relax current 
criteria that serve to manage program risk or protect the assets of 
CCC.
    2. Government Performance and Results Act (GPRA). In September 1997 
the government-wide provisions of the GPRA will take effect. The GPRA 
is a performance-based management system that is directly tied to the 
budget process. Under the GPRA each federal agency must present to 
Congress its goals, how it spends money and organizes its personnel to 
achieve these goals, and the extent to which it achieves its goals. 
Each agency must prepare a 5-year strategic plan as part of its budget 
submission. To incorporate new programs or an expansion of existing 
programs into this planning process, agencies must address such issues 
as how benefits will be measured, why the functions or services are not 
being adequately performed by the private sector, and whether the new 
activities will be cost-effective. Commenters are invited to address 
specifically these issues.

    Signed at Washington, DC, on August 11, 1997.
Mary T. Chambliss,
Acting General Sales Manager,
Commodity Credit Corporation.
[FR Doc. 97-21670 Filed 8-14-97; 8:45 am]
BILLING CODE 3410-10-P