Keys to Successful Trade

	U.S. Bank:	Because of the GSM program, we are able to help our exporters make sales and, as a result, we too are able to increase our loan volumes.
	U.S. Exporter:	The GSM program has been good for our company. It has helped us sell more cotton in the world and it also has helped the cotton industry.
	Importer:	The GSM 102 program helps us as importers, in this specific case of cotton, because we can get facilities and advantages from financing, payment terms, and sometimes price advantages.
	Import Bank:	I think it is important that all parties cooperate.
	Narrator:	Throughout history, people have benefited by trading with one another and today it's no different. Recognizing this, the United States Department of Agriculture (USDA) encourages the commercial sale of U.S. agricultural products to foreign markets through various programs.
		The GSM 102 Export Credit Guarantee Program The Supplier Credit Guarantee Program The Facility Guarantee Program
		This videotape will concentrate on the GSM 102 and GSM 103 Export Credit Guarantee programs. Both help finance U.S. agricultural export sales and can benefit all participants. How? You'll find out by taking a look at the criteria used to approve them, by hearing about the responsibilities, and by discovering the keys to successfully participating in the GSM 102 or GSM 103 programs. You'll also learn about the benefits each can gain as well as information about GSM program allocations.

Participants in GSM 102 or 103
	Narrator:	There are four main participants in any GSM 102 or 103 program: An importer's bank, A U.S. financial institution, typically a commercial bank, A U.S. exporter, and The importer from an eligible GSM country. All of these participants except for the importer must be approved by the Commodity Credit Corporation, also known as CCC.
	(off-screen dialog)	... Mary Chambliss' office may I help you? ...
	Mary Chambliss: Deputy Administrator Foreign Agricultural Service USDA	The Commodity Credit Corporation is part of the U.S. Department of Agriculture. It administers the GSM Export Credit Guarantee programs and it's actually staffed by people in the Department of Agriculture.

Approval Criteria for Participants
	Narrator:	The staff uses specific criteria to determine a participant's eligibility for the GSM programs.
	Ted MacLaughlin: USDA Manager Bank Risk Analysis	To make the credit guarantee's available, CCC reviews the credit risk of the importer's banks.
	(off-screen dialog)	... We have an importer's bank that wishes to be considered for the GSM program ...
	MacLaughlin:	We assess the creditworthiness of the bank in order to determine that the bank has the ability to repay the obligations at the time in which they come due. When we analyze an importer's bank, we look at the bank regulatory system, the accounting standards in the banking industry structure, and then we also look at the capital adequacy, the asset quality, the management, the earnings, and the liquidity of the bank.
	Narrator:	The U.S. financial institution or bank must also be approved by CCC.
	MacLaughlin:	When we review U.S. institutions, we look at the charter to ensure that its chartered in the United States or licensed to do business in the United States.
	(off-screen dialog)	... Where is this bank chartered?...
	MacLaughlin:	We look at the condition of the bank to ensure that it's in sound financial condition and also we look at the ownership of the bank to ensure that there is no conflict of interest.
	Narrator:	Besides evaluating the banks, the Commodity Credit Corporation looks at the exporter's eligibility to participate in the GSM transaction.
	William Hawkins: Manager Export Credits USDA	In order for an exporter to be eligible to participate in CCC programs they must supply CCC with some basic information. Of course we need to know the exporter's name, address, telephone, fax numbers, and who are the exporter's principals. In addition to that, we often ask that the exporters supply us with a copy of their registration with the state or county. How are they doing business? The only criteria that the importer must meet, as far as CCC is concerned, is that they're a company doing business or having an office in an eligible GSM country.
	Narrator:	As a growing number of participants discover the benefits of the export credit guarantee programs, trade is significantly increasing in many countries. If you'd like to become a part of this growing number, you'll need to know about your responsibilities as well as some keys to successfully participating in the GSM 102 and GSM 103 programs.

Responsibilities and Keys to Success
	Fernando A. Martinez: Financial Manager Empresas Longoria, S.A. de C.V. (importer)	One would know that the corporations are viable under the GSM program, we make a contact with the exporter in the United States.
	(off-screen dialog)	...GSM funding down Mexico...
	Armando Carmona: Commercial Empresas Longoria, S.A. de C.V. (importer)	It is very important for the exporter in the United States to know if we are going to use the GSM 102 program.
	(off-screen dialog)	... I understand you want to apply for GSM financing...
	Carmona:	Because depending on that, we could get some advantages in terms of prices, payment terms.
	Narrator:	Another responsibility of the importer is to check an exporter's references and business reputation. An importer should not select an exporter just because the exporter has met CCC's eligibility requirements.
	Alfredo Longoria: President Empresas Longoria, S.A. de C.V. (importer)	We rely on the knowledge that we have of the merchants we deal with--reliability, responsibility and that they will deliver the cotton on time and the quality. Quality is very important.
	Carmona: (importer)	When you are the first time or beginning business in all kinds of agricultural products, not only cotton, the recommendation is to check who are you dealing with. You have different sources to investigate or to check -- references like banks, like United States embassy counselors - economical counselors--if it's in the case of the cotton, you can check this through the American Shipper Cotton Association.
	Narrator:	At the same time, the importer must establish with a CCC-approved local bank, also known as the opening bank, the requirements of the letter of credit for the GSM credit transaction.
	Chambliss: (USDA/FAS)	To assure the credit worthiness of the transactions that we are guaranteeing, the most common means to do that is an irrevocable dollar-denominated letter of credit. The importer's bank actually opens the irrevocable letter of credit. Therefore, in our common terminology, we usually just refer to it as the opening bank.
	Carmona: (importer)	You have to check with the bank (to know) if they are very well informed about all the kind of requirements that the Commodity Credit Corporation demands for this kind of credit.
	Narrator:	Because financial arrangements are critical, importers should make sure they obtain their local bank's commitment to open a letter of credit under GSM.
	Martinez: (importer)	The importance of complying with the letter of credit is critical in international trade because you have to comply with all the requisites in order to get the merchandise to be sent to you.
	Gerardo Santos: Director of International Trade Banco Nacional de Mexico (Bahamex)	There are three major advantages of GSM 102 and GSM 103 programs for Mexican banks and for importers. There is certainty for both banks and importers that there will be funds to finance the transactions of acquisitions of commodities and livestock from the United States. Mexico went through severe problems. There were droughts in the northern states of the country which affected cattle growers. Now there is a need to repopulate cattle herds. We have been able to support the imports of livestock from the United States under the GSM 103 program for our clients in the northern states and I think that's been very important. There is an important advantage as well in terms of attractive interest rates.
	Narrator:	Typically interest rates between U.S. banks and the importer's banks are negotiated at Libor, the London Interbank Offered Rate, plus a fraction of a percent.
	Santos: (overseas bank)	Payment terms of the GSM-102 and GSM-103 programs, particularly under the GSM-103 program, are normally longer than what you would get under strict commercial terms. Longer terms benefit importers and banks because importers are better able to manage their cash flows when you have flexibility in the repayment terms that are offered by the Mexican banks. The philosophy of a bank is certainly to pass on the benefits of the program to their customers. We have been successful at doing that for the past 10 years. As in every international financial obligation, I think it is important for the banks to make timely payments to their corresponding banks to maintain their credibility and to maintain their access to international markets.
	MacLaughlin: (USDA)	Major problems result when the importer's bank defaults on the payment that is due under the GSM program. We suspend the GSM program in that country and therefore no registrations can be processed until the suspension is lifted. When I say the term registration, I mean application for the payment guarantee. We go in and analyze all of the importing banks to ensure that they're all credit worthy. If there is one importing bank that is defaulting, and the reason for the default is localized to that importing bank, then we may lift the suspension on all the other importing banks. When participants begin to use the GSM program, they sometimes think that they will get an extension of credit directly from CCC, but in fact it's the U.S. financial institution that is extending the credit to the importing bank.
	Narrator:	And it's the Commodity Credit Corporation that will pay the U.S. bank should the importer's bank default.
	Julia P. Searle: Vice President CoBank	The payment guarantees are forms of protection against non-payment and typically the protection is extended to the holder of the guarantee who is usually either a U.S. financial institution or a bank such as CoBank. The payment guarantee is issued in the name of the exporter who typically assigns it to a U.S. financial institution or a U.S. bank. Because the payment guarantee usually covers 98% of the principal and some of the interest, we are able to extend loans at more competitive interest rates and for longer payment terms to foreign banks that issued the letters of credit.
	(off-screen dialog)	... A U.S. exporter bank has just sent us a notice of default ...
	Searle: (U.S. bank)	In the event that the foreign bank does not make payment on the scheduled due date, we must file a notice of default with the CCC as soon as possible, but not later than 10 calendar dates from the payment due date. After the notice of default has been filed, we would file a claim with the CCC and that has to be completed within six months of the missed payment due date. The CCC pays the bank filing the claim and then seeks to collect the funds from the foreign bank.
	MacLaughlin: (USDA)	The regulations specify that the U.S. financial institution cannot be owned or controlled by the foreign government because we don't want to have any conflicts of interest in the program.
	Narrator:	Nor can the U.S. financial institution or bank be owned or controlled by the importer's bank opening the letter of credit.
	Searle: (U.S. bank)	The GSM programs certainly have the potential of opening new markets and increasing business to existing markets. We're very excited for instance about a recent allocation for Korea covering meat. This presents great potential for us and we're looking forward to doing a great deal of business in that market. Without the GSM programs the sale of meat to Korea may not even have taken place.
	Narrator:	Each GSM program provides specific coverage for financing.
	MacLaughlin: (USDA)	The GSM 102 program allows financing from 90 days up to 3 years. The GSM 103 intermediate credit guarantee program allows financing from greater than 3 years up to 10 years, but it's usually limited to 7 years.
	James Echols: President Hohenberg Brothers Co.	GSM has helped not just Hohenberg Brothers Company, but the entire U.S. cotton industry. I can remember when Korea was a developing market for textiles. GSM was very important to the Korean market to get the market started. We have new markets for U.S. cotton, or relatively new, into Mexico, Brazil, Turkey, where GSM has been very important in getting us a foot in the door and to expand those markets. We're also seeing it somewhat into some of the former Soviet Union countries. However GSM programs are not only for cotton. GSM credits have had an important role in increasing exports of other U.S. agricultural commodities throughout the world whether it be wheat, corn, soybeans, meat, whatever it might be.
	Narrator:	Now how does this process of purchasing U.S. agricultural products through GSM programs usually begin?
	Wendell Kruse: Senior Vice President Hohenberg Brothers Co.	Usually the buyer will call or fax us that he wants to buy. That's an inquiry.
	(off-screen dialog)	... GSM 102 ...
	Kruse: (U.S. exporter)	We'll include the GSM assurance fee in the costing of the offer and we negotiate the offer. [GSM fee may be included in price or paid directly by the exporter before or after the sale].
	Narrator:	Now remember the negotiated sales agreement between the importer and exporter must be consistent with CCC program announcements for that country.
	Kruse: (U.S. exporter)	Before we apply for CCC registration, we make sure we have a firm transaction or firm contract with the importer.
	(off-screen dialog)	... This is Lillie at USDA. I have a payment guarantee number for you ...
	Kruse: (U.S. exporter)	If we apply for the CCC registration and pay the fee. Of course, if the sale is not firm, we could be in a position of losing the registration fee.
	Narrator:	Timeliness is also important when registering for the GSM payment guarantee.
	Kruse: (U.S. exporter)	It's important we do the registration as quickly as possible after the closing of the business.
	MacLaughlin: (USDA)	It's very important for the exporter, the importer, the importing bank and the U.S. bank to ensure that all of the financing arrangements are established before the exporter registers the sale.
	Narrator:	To establish a line of credit, the importer obtains a commitment from its bank concerning the GSM sale.
	(off-screen dialog)	... a letter of credit opened according to GSM 102 terms ...
	Narrator:	The importer's bank establishes a line of credit with the U.S. bank and opens a letter of credit.
	(off-screen dialog)	... check availability on their current line of credit ...
	Narrator:	and the U.S. bank advises or confirms the letter of credit to the exporter.
	(off-screen dialog)	... we will be confirming this credit later today ...
	Narrator:	So make sure you have a firm sales contract, that you apply for registration as quickly as possible, and that the required bank credit arrangements are agreed upon before applying for a GSM payment guarantee.
	Hawkins: USDA / FAS	An exporter can initiate an application to CCC for a credit guarantee through a telephone call.
	(off-screen dialog)	... we're going to be sending you an application for GSM financing ...
	Hawkins: USDA / FAS	We need written confirmation to follow up on that telephone call and that's usually in the form of a fax. There is no form to fill out presently. The exporter just repeats the information that's normally contained in their sales contract. It's laid out in our regulations and they repeat this on their own company letterhead. CCC processes applications from exporters on a first-come, first-serve basis. We have to have a fee paid at the time of application before we can issue a payment guarantee and that fee is generally not refundable. CCC requires that the fee be paid at the time of application in order to ensure that the exporter does have a firm sale.
	(off-screen dialog)	... So this will give the delivery period on the application is showing January of '98 ...
	Narrator:	Also, before forwarding the application to CCC, the exporter should check it for accuracy. Checking for accuracy can speed the approval of the application and issuance by CCC of the payment guarantee registration number ...
	Kruse: U.S. exporter	which in turn is passed to the importer who will open their letter of credit with this information in the letter of credit.
	Narrator:	The exporter may apply for a payment guarantee prior to the issuance of a letter of credit, but a word of caution.
	Echols: U.S. exporter	One final thing is (you want to) never release your cargo without an operable confirmed letter of credit. Once you've gotten your GSM guarantees in line, then you typically, as an exporter, assign that payment guarantee to a U.S. bank. If your documents are in order, you're paid immediately. You've made a sale to a country, to a market, to a customer that you probably could not have made without GSM financing. This has turned into a win/win situation for both the importing customer and the exporting U.S. entity.

Benefits to Participants
	Narrator:	Under the GSM credit guarantee programs all participants can benefit. The importer benefits by obtaining quality U.S. agricultural products, most likely with deferred payment. The importer's bank benefits from the competitive cost of capital on its dollar borrowing, by being able to provide a service to its customers, and from earning fees on letters of credit and other services. The U.S. bank's risk of loss is reduced, and the banks profit from letter of credit and loan servicing fees. Also, the U.S. bank provides a valuable service to its customers.
	(off-screen dialog)	... We have commercial documents under letter of credit from Mexico ...
	Narrator:	The U.S. exporter receives immediate payment from a U.S. financial institution or bank and the exporter makes a sale that otherwise might not have taken place. The GSM export credit guarantee programs are designed for everyone to benefit, but for the programs to work well, everyone has to do their part by contacting the appropriate people, taking care of critical paperwork, and working together.
	Santos: (overseas bank)	I think it is important that all parties cooperate. Banks and importer countries have to work together in order for them to offer a competitive product to their clients.
	Narrator:	Many Mexican banks extend longer repayment terms to importers.
	Martinez: (importer)	And that helps a lot because we can finance our inventories and also finance our accounts receivable.
	Carmona: (importer)	It's very important to work together like a team because we are in a global market and it's very important, the cooperation, because if this translates into benefits, financial benefits, economic benefits, commercial benefits, banking benefits. That's why it's very important.
	Narrator:	GSM 102 and GSM 103 export credit guarantee programs are widely accepted and successful, not just because of the cooperation between the participants, but also because the programs use well-tested commercial practice. These include firm sales contracts, letters of credit, and risk sharing.

Program Allocations
	Echols: (exporter)	GSM 102 credits have had an increase in the Philippines.
	Narrator:	Every year the Commodity Credit Corporation allocates credit guarantees for the various GSM programs.
	Chambliss: (USDA / FAS )	Each October, the Commodity Credit Corporation can make available several billion dollars for the GSM 102 program and at the same time we will make available several million dollars for the GSM 103 program. The next October 1, the beginning of the U.S. government fiscal year, those levels are made available again. The Commodity Credit Corporation will consider making the program available to any country except the very richest ones in the world. What we look at primarily are two factors: a country where we think we have long-term market development potential for U.S. agricultural commodities and, on the other hand, we also have to look at the credit-worthiness of the country.
	Hawkins: (USDA / FAS)	Certainly we also do a risk assessment both political and commercial of the country or region. When all of the program considerations have been determined by CCC, we would issue a program announcement announcing the available allocation of credit guarantees for that country or region and also terms and conditions that may be particular to that country or region, such as the length of term available and, of course, the commodities that are eligible.

How To Be Considered for GSM Program Coverage
	Narrator:	Any U.S. agricultural commodity may be considered for program coverage and any interested party may request that a program be established. The publication, "What Every Importer Show Know," contains the information that should be included in the program request.
		[This publication is also available from FAS Online in Spanish, Portuguese and French.]
	Chambliss: (USDA / FAS)	The Commodity Credit Corporation keeps this program very flexible. We want to respond to your needs, what our customers want to get from American farmers. For that reason, we can add commodities throughout the year. We can certainly look at additional countries throughout the year. We can look at different levels of the program for a country that we may already be active in. It really is a program where we want to bring our commodities to meet your needs with this financing mechanism.
	Narrator:	Yes, throughout history people have benefited by trading with one another. And, today many people in countries continue to benefit even more because they've discovered the keys to successful trade -- the Export Credit Guarantee programs. For additional information about GSM credit guarantee programs, including program announcements, you may access the Internet at the following address: http://www.fas.usda.gov or contact the U.S. agricultural counselor or attaché or the commercial or economic counselor at the U.S. embassy in the importing country.
	(off-screen dialog)	... I told them I would send them our brochure, "What Every Importer Should Know About GSM 102 and 103 programs ...
	Narrator:	Request a copy of the brochure, "What Every Importer Should Know." It lists USDA contacts and phone numbers. You may also get information from us exporters and participating US and foreign banks. Remember, GSM 102 and GSM 103 can help you unlock the benefits of successful trade.