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Export Credit Guarantee Programs |
FAQs: Risk-Based Fees
1. Why is USDA/CCC making these changes?
USDA/CCC is implementing these changes to the GSM-102, GSM-103 and Supplier Credit Guarantee Programs in response to a key finding in the recent WTO dispute with Brazil related to these programs. The new fees to be charged are “risk-based” and are intended to ensure that such fees cover long-term operating costs and losses.
2. How much more revenue does CCC expect to earn from the new risk-based fees?
CCC intends that the premia generated under the new risk-based structure will be sufficient to ensure that they cover long-term operating costs and losses.
3. Are there other measures that CCC is implementing that can address the goal of the sufficiency of premia to cover long-term operating costs and losses?
Yes, we have improved our claims recovery process to be more aggressive in pursuit of defaulted obligations. We expect this, and other operational changes we are taking, to achieve the objective.
4. Do you expect that CCC will again raise its risk-based fees?
Currently, with respect to GSM-102 and the Supplier Credit Guarantee Program, federal law precludes CCC from charging a fee higher than one percent of the amount of credit guaranteed in a transaction. CCC intends to regularly review the adequacy of its fee structure.
5. Are more changes expected in the future?
The Administration continues to evaluate the full array of steps that could be taken to respond the WTO decision. CCC will continue to monitor market conditions and its fee structure on a regular basis.
6. Do you expect that fees will have to be changed annually?
The Administration continues to evaluate the full array of steps that could be taken to respond the WTO decision. CCC will continue to monitor market conditions and its fee structure on a regular basis. This is not necessarily limited to an annual review.
7. How do you think the increased fees will impact program use?
We will be monitoring program activity to assess how the risk-based premia affects program activity. At this time it is hard to predict the changes in usage of the programs as we do not know the elasticity of demand for USDA’s export credit guarantees.
8. What is the relation between this action and the WTO cotton case?
This action is in response to a key finding in the recent WTO dispute with Brazil related to these programs. The new fees to be charged are “risk-based” and are intended to ensure that such fees cover long-term operating costs and losses.
9. What commodities are likely to be affected by these changes?
While market forces will determine the commodity composition of the programs, it is likely larger bulk shipments may be somewhat affected.
10. What countries are likely to be affected by these changes?
These announcements establishes risk-based fees so naturally the higher the risk in a country, the higher the fee.. Countries representing significantly greater risk to CCC may no longer participate in the programs. Country risk, of course, can vary over time, therefore CCC periodically reviews country risk.
11: Why have you eliminated the GSM-103 program?
Stopping acceptance of registrations for the GSM-103 program is another appropriate response to certain aspects of the WTO decision. The GSM-103 program, for export credit guarantees in connection with credits extending from 3 to 10 years in length, authorized CCC risk exposure for much longer periods of time than the GSM-102 and SCGP programs. The reduction in potential risk exposure will have a salutary effect on the ability of CCC to demonstrate that its premia are sufficient to cover long-term operating costs and losses. In addition, usage of the GSM-103 program had waned considerably in recent years.
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