Export Credit Office
Export Credit Office
This is the office for administration of the financial export support programs of the Commodity Credit Corporation (CCC) and its administration of Public Law 480 (PL 480).
The international financial programs of CCC, for trade finance support, tend to be buyer credit programs. The programs all have a government-to-government tilt involving determinations of country need and financial condition, as well as U.S. marketing objectives. In some aspects it is very concessionary, including humanitarian aid in the case of PL 480 and the long repayment terms of GSM-103. In these two programs it is more related to AID than Eximbank. As with all government programs, there is a tendency for them to evolve because of competition, budgetary restrictions, and reasons of state. While often buyer-originated, the programs can be utilized with exporter initiative, but this generally requires knowledge of the players and good advance planning. The Export Credit Office administers the following CCC originated programs.
GSM-102 (Export Credit Guarantee Programs) The GSM -102 program is currently the largest and principal program of the CCC. It provides the exporter, through a bank with a full faith and credit guarantee of the Commodity Credit Corporation on the foreign letter of credit, 98 percent of the FAS or FOB value of the commodity. The terms of the letter of credit might call for deferred payment of from 6 months to 3 years. The GSM -102 program is structured entirely for letters of credit that it anticipates the exporter will then assign or sell to a bank to permit immediate exporter payment. To facilitate this, the form of assignment of the guarantee provides the bank a virtual "hold harmless" agreement against the faults or omissions of the exporter. This makes the program much more attractive to the bank and allows the program to accomplish its goal of providing financing to meet competition and maintain agricultural exports.
The question naturally occurs as to why a guarantee is necessary since the seller receives a letter of credit, and often a sovereign letter at that. Apart from the possibilities of foreign bank failure, foreign exchange controls, and other political risks, the guarantee permits the exporter to sell the negotiated draft because it allows the bank to exceed its own country risk limitations or to be involved with countries to which they might not normally extend credit. In fact, if the CCC is not wholly satisfied with the strength of the opening bank, it can insist that the central bank of the buyer's country insures the obligation of the opening bank. In addition, a bank would not normally consider such long-terms for agricultural commodities depending on the anticipated storage life of the product and how consumable it is. The sum of these reasons, combined with the strength of the guarantee assignment and the guarantor, is a lower, more internationally competitive interest rate.
In order to further ensure U.S. agriculture's competitiveness, CCC also keeps the guarantee fee as modest as possible—less than 1 percent for as much as a 3-year term. The quoted shipping terms are generally FAS or FOB because the CCC will not guarantee ocean freight costs, except under extremely limited circumstances. In the event the exporter plans to be the initiator, advance application and approval of the transaction as to commodity, country, and buyer is necessary. Since the fee is payable with the application and is not refundable, it is incumbent on the exporter to first ascertain the financial ability of the buyer to open the necessary letter of credit.
Actually, in most cases, the importer (often the foreign government itself) will indicate in the bid invitation that it reserves the right to use GSM -102 and is fully aware of the amount of the commodity credit lines approved for the importer's country. The bidder will need to find out the cost factors, such as guarantee fees, letter of credit costs, which bank the bidder will be working with (the importer most likely will already have arranged financing with a U.S. bank), and what other rules and regulations apply. Importers are usually very familiar with the rules of GSM -102, so the exporter is advised to seek information from the bank or the USDA concerning the operation. In these situations, the exporter will have very little control over the operation and financing.
The program is supposed to be flexible, with no minimum transaction size, and accessible to any exporter. CCC maintains that if everything is in place, the exporter's application may be processed in as little as one week. This might be true, but typically it is only a pro forma exercise if the commodity is already on the list of those that the CCC commonly works with, mostly basic crops, and in a country for which allocations are already established. A given country may make application to the CCC to request that the country and the commodities it requires be announced or listed. New country and new commodity requests will cause delays of several months.
GSM-103 (Intermediate Credit Guarantee Program) GSM-103, a new loan guarantee program, was established in 1986 and is meant to replace former direct loan programs. It is now essentially a twin to GSM —102 except that it provides for terms of 3 to 10 years. It anticipates only about 10 percent of the activity of GSM-102, and overlaps the recipient eligibility parameters of the PL 480, Title I program. It is intended for friendly countries with major economic problems.
Public Law 480 (Agricultural Trade Development and Assistance Act of 1954—Food for Peace Public Law 480 (PL 480) is food aid on concessional terms or even a gift basis as the name implies. It is a government-to-government program over which the exporter has no control, but can participate in the sales and export function. The law has three titles: - Under titles I and III, food aid is sold on concessional financing terms (20 to 40 years at 3 percent to 4 percent interest) to countries with food deficits. Sales are made by private business on a bid basis in response to public tenders in the United States. The exporter must apply to the PL 480 Operations office to be named an eligible supplier and willthen be advised in a timely fashion of such tender offers. Seven commodities were shipped to 33 countries in 1986. Title II involves donated food that may be shipped from CCC surplus commodity inventories or procured by the U.S. government on a competitive bid basis from the private sector. In 1986 such donations were approved for 72 countries. Under the Omnibus Trade Bill, wood and wood products were added to the commodity list for this program.
This is the office for administration of the financial export support programs of the Commodity Credit Corporation (CCC) and its administration of Public Law 480 (PL 480).
The international financial programs of CCC, for trade finance support, tend to be buyer credit programs. The programs all have a government-to-government tilt involving determinations of country need and financial condition, as well as U.S. marketing objectives. In some aspects it is very concessionary, including humanitarian aid in the case of PL 480 and the long repayment terms of GSM-103. In these two programs it is more related to AID than Eximbank. As with all government programs, there is a tendency for them to evolve because of competition, budgetary restrictions, and reasons of state. While often buyer-originated, the programs can be utilized with exporter initiative, but this generally requires knowledge of the players and good advance planning. The Export Credit Office administers the following CCC originated programs.
GSM-102 (Export Credit Guarantee Programs) The GSM -102 program is currently the largest and principal program of the CCC. It provides the exporter, through a bank with a full faith and credit guarantee of the Commodity Credit Corporation on the foreign letter of credit, 98 percent of the FAS or FOB value of the commodity. The terms of the letter of credit might call for deferred payment of from 6 months to 3 years. The GSM -102 program is structured entirely for letters of credit that it anticipates the exporter will then assign or sell to a bank to permit immediate exporter payment. To facilitate this, the form of assignment of the guarantee provides the bank a virtual "hold harmless" agreement against the faults or omissions of the exporter. This makes the program much more attractive to the bank and allows the program to accomplish its goal of providing financing to meet competition and maintain agricultural exports.
The question naturally occurs as to why a guarantee is necessary since the seller receives a letter of credit, and often a sovereign letter at that. Apart from the possibilities of foreign bank failure, foreign exchange controls, and other political risks, the guarantee permits the exporter to sell the negotiated draft because it allows the bank to exceed its own country risk limitations or to be involved with countries to which they might not normally extend credit. In fact, if the CCC is not wholly satisfied with the strength of the opening bank, it can insist that the central bank of the buyer's country insures the obligation of the opening bank. In addition, a bank would not normally consider such long-terms for agricultural commodities depending on the anticipated storage life of the product and how consumable it is. The sum of these reasons, combined with the strength of the guarantee assignment and the guarantor, is a lower, more internationally competitive interest rate.
In order to further ensure U.S. agriculture's competitiveness, CCC also keeps the guarantee fee as modest as possible—less than 1 percent for as much as a 3-year term. The quoted shipping terms are generally FAS or FOB because the CCC will not guarantee ocean freight costs, except under extremely limited circumstances. In the event the exporter plans to be the initiator, advance application and approval of the transaction as to commodity, country, and buyer is necessary. Since the fee is payable with the application and is not refundable, it is incumbent on the exporter to first ascertain the financial ability of the buyer to open the necessary letter of credit.
Actually, in most cases, the importer (often the foreign government itself) will indicate in the bid invitation that it reserves the right to use GSM -102 and is fully aware of the amount of the commodity credit lines approved for the importer's country. The bidder will need to find out the cost factors, such as guarantee fees, letter of credit costs, which bank the bidder will be working with (the importer most likely will already have arranged financing with a U.S. bank), and what other rules and regulations apply. Importers are usually very familiar with the rules of GSM -102, so the exporter is advised to seek information from the bank or the USDA concerning the operation. In these situations, the exporter will have very little control over the operation and financing.
The program is supposed to be flexible, with no minimum transaction size, and accessible to any exporter. CCC maintains that if everything is in place, the exporter's application may be processed in as little as one week. This might be true, but typically it is only a pro forma exercise if the commodity is already on the list of those that the CCC commonly works with, mostly basic crops, and in a country for which allocations are already established. A given country may make application to the CCC to request that the country and the commodities it requires be announced or listed. New country and new commodity requests will cause delays of several months.
GSM-103 (Intermediate Credit Guarantee Program) GSM-103, a new loan guarantee program, was established in 1986 and is meant to replace former direct loan programs. It is now essentially a twin to GSM —102 except that it provides for terms of 3 to 10 years. It anticipates only about 10 percent of the activity of GSM-102, and overlaps the recipient eligibility parameters of the PL 480, Title I program. It is intended for friendly countries with major economic problems.
Public Law 480 (Agricultural Trade Development and Assistance Act of 1954—Food for Peace Public Law 480 (PL 480) is food aid on concessional terms or even a gift basis as the name implies. It is a government-to-government program over which the exporter has no control, but can participate in the sales and export function. The law has three titles: - Under titles I and III, food aid is sold on concessional financing terms (20 to 40 years at 3 percent to 4 percent interest) to countries with food deficits. Sales are made by private business on a bid basis in response to public tenders in the United States. The exporter must apply to the PL 480 Operations office to be named an eligible supplier and willthen be advised in a timely fashion of such tender offers. Seven commodities were shipped to 33 countries in 1986. Title II involves donated food that may be shipped from CCC surplus commodity inventories or procured by the U.S. government on a competitive bid basis from the private sector. In 1986 such donations were approved for 72 countries. Under the Omnibus Trade Bill, wood and wood products were added to the commodity list for this program.
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