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The U.S. Department of Agriculture’s Export Credit Guarantee Program
(GSM-102) helps ensure that credit is available to finance commercial exports of
U.S. agricultural products, while providing competitive credit terms to buyers.
By reducing financial risk to lenders, credit guarantees encourage exports to
buyers in countries—mainly developing countries—where credit is necessary to
maintain or increase U.S. sales, but where financing may not be available
without such guarantees.
The GSM-102 program underwrites credit extended by the private banking
sector in the United States (or, less commonly, by the U.S. exporter) to
approved foreign banks using dollar-denominated, irrevocable letters of credit
for purchases of U.S. food and agricultural products by foreign buyers. USDA’s
Foreign Agricultural Service (FAS) administers the program on behalf of the
Commodity Credit Corporation (CCC), which issues the credit guarantees. GSM-102
covers credit terms of up to three years.
The CCC guarantees payments due from approved foreign banks to exporters or
financial institutions in the United States. However, the financing must be
obtained through normal commercial sources. Typically, 98 percent of principal
and a portion of interest are covered by a guarantee. Because payment is
guaranteed, financial institutions in the United States can offer competitive
credit terms to the foreign banks, usually with interest rates based on the
London Inter-Bank Offered Rate, or LIBOR. Any follow-on credit arrangements
between the foreign bank and the importer are negotiated separately and are not
covered by the CCC guarantee. Program announcements issued by FAS provide
information on specific country and commodity allocations, length of credit
periods, and other program information and requirements.
Eligible Countries or Regions
Interested parties, including U.S.
exporters, foreign buyers, and banks, may request that the CCC establish a
GSM-102 program for a country or region. Prior to announcing the availability of
guarantees, the CCC evaluates the ability of each country and foreign bank to
service CCC-guaranteed debt. New banks may be added or levels of approval for
others increased or decreased as information becomes available.
Eligible Commodities
The CCC selects agricultural commodities and
products according to market potential and eligibility based on applicable
legislative and regulatory requirements.
Participation
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 any U.S. government
program. Financial institutions must meet established criteria and be approved
by the CCC. The CCC sets limits and advises each approved foreign bank on the
maximum amount the CCC can guarantee for that bank.
The exporter negotiates terms of the export credit sale with the importer.
The exporter usually wishes to be paid at the time of shipment, so the exporter
must work closely during negotiations with the eligible U.S. financial
institution to ensure that arrangements are firmly in place for the U.S.
financial institution to pay the exporter and to extend credit to the foreign
bank.
Once a firm sale exists, the qualified U.S. exporter must apply for a payment
guarantee before the export date. The exporter pays a fee calculated on the
dollar amount guaranteed, based on a rate schedule.
Fee rates are based on the country risk that the CCC is undertaking, as well
as the repayment term (tenor) and repayment frequency (annual or semi-annual)
under the guarantee. The new structure is in response to rulings by the World
Trade Organization (WTO) that export credit programs must be risk based and that
fees must cover long-term program operating costs and losses.
Financing
The CCC-approved foreign bank issues a
dollar-denominated, irrevocable letter of credit in favor of the U.S. exporter,
ordinarily advised or confirmed by the financial institution in the United
States agreeing to extend credit to the foreign bank. The U.S. exporter may
negotiate an arrangement to be paid as exports occur by assigning to the U.S.
financial institution the right to proceeds that may become payable under the
CCC’s guarantee. Under this arrangement, the exporter would also provide
transaction-related documents required by the financial institution, including a
copy of the export report, which must also be submitted to the CCC.
Defaults/Claims
If the foreign bank fails to make any payment as
agreed under the GSM-102 guarantee, 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.
Additional Information
For more information, contact: Director,
Credit Programs Division, Office of Trade Programs, FAS/USDA, Stop 1025, 1400 Independence
Ave. SW, Washington, DC 20250-1034; tel.: (202) 720-6211; fax: (202) 720-2495.
For program participation, contact: Operations Division, Export Credits; tel.:
(202) 720-6211; fax: (202) 720-2949.
Export credit guarantee program information, such as risk-based fee schedules
and country ratings, and commodities eligible for coverage, is available on the
FAS Web site: http://www.fas.usda.gov/excredits/ecgp.asp
FAS announcements of GSM-102 allocations are posted at:
http://www.fas.usda.gov/excredits/exp-cred-guar.asp
General information about FAS programs, resources, and services can be found
at: http://www.fas.usda.gov
