[Federal Register Volume 73, Number 243 (Wednesday, December 17, 2008)]
[Proposed Rules]
[Pages 76568-76569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-29831]


 ========================================================================
 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. 73, No. 243 / Wednesday, December 17, 2008 / 
Proposed Rules  

[[Page 76568]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1493

RIN 0551-AA79


Export Credit Guarantee Program

AGENCY: Foreign Agricultural Service and Commodity Credit Corporation, 
USDA.

ACTION: Advanced notice of proposed rulemaking.

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SUMMARY: This advanced notice of proposed rulemaking (ANPR) solicits 
comments on options to reform the USDA, Commodity Credit Corporation 
(CCC), Export Credit Guarantee Program (GSM-102). The purpose of the 
ANPR is to invite suggestions on improvements and changes to be made in 
the implementation and operation of the GSM-102 program, with the 
intent of improving the GSM-102 program's effectiveness, efficiency, 
and lower costs.

DATES: Comments on this notice must be received by February 2, 2009 to 
be assured consideration.

ADDRESSES: You may submit comments by any of the following methods:
     E-Mail: [email protected].
     Fax: (202) 720-2495, Attention: ``GSM102/ANPR Comments''.
     Mail to: P. Mark Rowse, Director, Office of Trade 
Programs, Credit Programs Division, Foreign Agricultural Service, U.S. 
Department of Agriculture, Stop 1025, Washington, DC 20250-1025.
     Hand Delivery or Courier: 1250 Maryland Avenue, SW., 
Washington, DC 20024.
    All comments received will be available for public inspection at 
the above address during regular business hours.

FOR FURTHER INFORMATION CONTACT: P. Mark Rowse, Director, Credit 
Programs Division, at the address stated above or telephone: (202) 720-
0624.

SUPPLEMENTARY INFORMATION: 

Background

    The GSM-102 program is currently authorized under the Agricultural 
Trade Act of 1978, as amended. The GSM-102 program helps to ensure that 
credit is available to finance commercial exports of U.S. agricultural 
products on competitive credit terms. The CCC currently has authorized 
availability of guarantees for transactions in at least 176 countries 
and regions, with 2,900 exporters eligible to participate. Since 1981, 
CCC has issued approximately $86.5 billion in credit guarantees under 
the GSM-102 program.
    By allowing assignment of the guarantee by the U.S exporter to an 
approved U.S. financial institution, the program guarantees credit 
extended by the approved U.S. financial institution (or, less commonly, 
by the U.S. exporter if not assigned) to approved foreign banks. The 
credit facility mechanism is a dollar-denominated, irrevocable letter 
of credit.
    Under the terms of the guarantee, typically, 98 percent of 
principal and a portion of interest are covered on credit terms of up 
to three years. By financing less than 100 percent of the exported 
value, CCC encourages risk-sharing by the exporter or the exporter's 
assignee.
    By law, the program may not be used for foreign aid, foreign policy 
or debt rescheduling purposes, or in countries that the Secretary of 
Agriculture (the Secretary) has determined cannot service the debt.

Defaults/Claims

    If the foreign bank fails to make any payment as agreed under the 
GSM-102 program guaranteed transaction, the exporter or assignee must 
submit a notice of default to the CCC. A claim for loss also may be 
filed, and the CCC will promptly pay claims found to be in good order. 
For CCC audit purposes, the U.S. exporter must obtain documentation to 
show that the commodity arrived in the eligible country, and must 
maintain all transaction documents for five years from the date of 
completion of all payments.

Participation Criteria

    The CCC must qualify exporters for participation before accepting 
guarantee applications. An exporter must have a business office in the 
United States and must not be debarred or suspended from any U.S. 
government program. Financial institutions must meet established 
criteria and be approved by the CCC.
    The CCC evaluates the ability of each country and each approved 
foreign bank to service CCC-guaranteed debt. For programming purposes, 
a credit limit is established for each obligor country. Banks within 
that approved obligor country are reviewed and individual bank credit 
lines are established. New banks may be added or existing approved bank 
levels may be increased or decreased as appropriate, based on available 
information.

Eligible Commodities

    The CCC selects agricultural commodities and products according to 
market potential and eligibility based on applicable legislative and 
regulatory requirements. These include bulk, intermediate and consumer 
ready agricultural products encompassing food, feed, fiber, aquaculture 
and forest products. The agricultural commodities must be 100 percent 
U.S. origin unless they have been determined by the Secretary to be 
high-value agricultural products. If a high-value product determination 
is made, 90 percent or more of the agricultural components by weight, 
excluding packaging and added water, must be entirely produced in the 
United States.

Fees

    The issuance of the guarantee is subject to a fee paid by the 
applicant. In July 2005, USDA initiated a risk-based fee structure. A 
fee is charged based on the terms of the guarantee in tenure (length of 
credit period) and terms for principal payment installments, whether 6 
months or annually, and the risk grade of the obligor country. The CCC 
assigns a numeric risk category (0-6, lowest to highest risk). The risk 
category, along with the other factors cited, determines the fee 
charged.

Statutory Revisions and Budgetary Limits

    Prior to the June 18, 2008, enactment into law of the Food, 
Conservation, and Energy Act of 2008, provisions of the Agricultural 
Trade Act of 1978, as amended, required the Export Credit Guarantee 
programs operated by CCC to make available not less that $5.5 billion 
in credit guarantees under its combined authority to issue short-term 
credit

[[Page 76569]]

guarantees (GSM-102 and Supplier Credit Guarantee (SCGP) programs) up 
to three years, and medium-term credit guarantees (GSM-103 program) 
from three to 10 years. Origination fees for the short-term credit 
guarantees were also previously capped at 1 percent. Section 1542 of 
the Food, Agriculture, Conservation and Trade Act of 1990 required that 
CCC make available not less than $1 billion in direct credit or credit 
guarantees to emerging markets, of which a portion should be made 
available for facilities and services.
    The authority for the SCGP, the GSM-103 program, and the 1 percent 
origination fee cap were all repealed by the Food, Conservation, and 
Energy Act of 2008. The Food, Conservation, and Energy Act of 2008 also 
amended the statutory funding levels for short-term credit guarantees 
by requiring that CCC make credit guarantees available for each fiscal 
year (FY) through FY 2012 in an amount equal to, but not more than, (a) 
the lesser of $5.5 billion in credit guarantees, (b) or the sum of the 
amount of credit guarantees that could be made available using budget 
authority of $40 million, plus any unobligated budget authority for 
credit guarantees from prior fiscal years and required that, to the 
maximum extent practicable, ensure that the risk-based fees associated 
with the guarantees cover, but do not exceed, the operating costs and 
losses for the program over the long term.

Recent History

    Beginning in FY 2005, increased global liquidity and the advent of 
risk-based fees resulted in a decline in program usage from an average 
annual value of sales registered of approximately $3 billion for the 
preceding 10-year period, to $1.36 billion in FY 2006. However, from 
July through September of FY 2007, CCC experienced a significant 
increase in participation and dollar value levels under the GSM-102 
program. Part of this increase was the result of increased commodity 
prices. However, tightening of global credit markets also is believed 
to have contributed significantly to the increase in participation and 
program demand. These driving factors propelled GSM-102 transactions 
from $1.4 billion in FY 2007, to over $3 billon in FY 2008. Demand and 
usage is expected to further increase in FY 2009.

Comments

    As a result of anticipated increase in demand, we are soliciting 
the responses of interested parties to the following specific questions 
concerning options under consideration for the GSM-102 program. 
Interested parties may choose to address any or all of the questions 
listed or provide other comments. CCC's aim is to improve upon the GSM-
102's effectiveness and efficiency, and lower costs.
    Additional program information inclusive of our fee structure is 
available on our Web site at http://www.fas.usda.gov/excredits/ecgp.asp.

1. Fees

--Does the current risk-based fee schedule correctly distinguish levels 
of risk specific to loan tenor, country of obligor and amount of 
coverage?
--Does the current risk-based fee structure capture sufficient 
variables that are responsive to the changing credit markets?
--Should CCC consider charging fees for amendments to guarantees or 
applications?
--How should the fee structure take into account levels of risk 
particular to individual obligors?

2. Alternative Registration Processes

--Should CCC consider moving from the current first-come, first-serve 
and pro-rata methodologies for issuance of guarantees?
--Should the GSM-102 program be run on an awards basis? CCC would award 
GSM-102 guarantees on a competitive basis based upon exporter bids 
which would propose varying levels of coverage and different fee 
structures.
--Should CCC consider permitting exporters to submit letters of intent 
in which they propose how much they would like to export under a 
specified announcement? CCC would review all letters of intent and 
award shares of the announcement based on the letters of intent.
--Should CCC require copies of sales contracts and proof of financing 
to be submitted with the application for guarantee?
--Should CCC require that a ``firm sale'' include approved financing?

3. Additional Questions

--Should CCC consider permitting global banking whereby any CCC 
approved bank could finance sales of U.S. agricultural products for 
shipment to any CCC approved country?
--Should CCC consider no longer permitting sales in which the exporter, 
intervening purchaser, or importers are affiliated organizations?
--Should CCC consider no longer permitting sales in which there is an 
intervening purchaser?
--Should CCC consider no longer permitting foreign bank amendments to 
the application/guarantee except under extraordinary circumstances 
which would require documentation from the original foreign bank?
--Should CCC consider more rigid qualification criteria for exporters?
--Should CCC bring the time frame for claims payment into conformity 
with that contemplated under the Prompt Payment Act?
    Consideration of Comments: Additional comments on other program 
modifications to the GSM-102 program that are responsive to the 
principles outlined herein are encouraged. CCC will carefully consider 
all comments submitted by interested parties. After consideration of 
the comments received, CCC will consider what changes should be made to 
the GSM-102 program. Some of the changes described above would require 
solicitation and consideration of comments received from interested 
parties via the rulemaking process. Other changes might be adopted by 
changing internal policies and procedures. Comments received will help 
CCC to determine the extent and scope of any future rulemaking.

    Signed at Washington, DC, on November 26, 2008.
W. Kirk Miller,
Executive Vice President, Commodity Credit Corporation, and 
Administrator, Foreign Agricultural Service.
 [FR Doc. E8-29831 Filed 12-16-08; 8:45 am]
BILLING CODE 3410-10-P