Federal Register Notices
[Federal Register: January 24, 2006 (Volume 71, Number 15)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
7 CFR Part 1493
Supplier Credit Guarantee Program
AGENCY: Commodity Credit Corporation (CCC), USDA.
ACTION: Advance Notice of Proposed Rulemaking (ANPR).
SUMMARY: This ANPR solicits comments on options to reform the USDA,
CCC, Supplier Credit Guarantee Program (SCGP). The purpose of this ANPR is to
invite suggestions on changes to reform the program to reduce the risk of
default, improve the ability to effect a collection on
defaulted obligations, and consider alternative program mechanisms and forms of
payment obligations that are consistent with commercial export practices. The
intent of this request is to seek comments on program reforms that would improve
the SCGP's effectiveness and efficiency and lower costs.
DATES: Comments must be submitted on or before February 23, 2006.
ADDRESSES: You may submit comments, by any of the following methods:
Fax: (202) 690-1595 Attention: ``SCGP/ANPR Comments.''
Mail: William S. Hawkins, Director, Program Administration
Division, Export Credits, Foreign Agricultural Service, U.S. Department of
Agriculture, 1400 Independence Ave., SW., Stop 1031,
Washington, DC 20250-1031.
Hand Delivery/Courier: 1400 Independence Ave., SW., Room
4083, Washington, DC 20250-1031.
All comments received will be available for public inspection
at the above address during regular business hours.
FOR FURTHER INFORMATION CONTACT: William S. Hawkins, Director,
Administration Division, at the address stated above. Telephone: (202) 720-3241.
The regulations for the SCGP became effective on August 30,
1996. The program became operational with an
announcement for Mexico on that same day,
providing coverage for high-value agricultural
products such as fruits, vegetables, tree nuts,
potatoes, wine, brandy, dairy products, and ice
cream. The products made eligible were those
that typically traded in smaller transactions
and not commonly financed under the existing CCC
Export Credit Guarantee Program (GSM-102). CCC
viewed the SCGP as a means of supplementing the
GSM-102 program and providing more flexibility
and options in leveraging private sector credit.
Since 1981, the GSM-102 program has served as a means of
guaranteeing the payment by foreign banks of
credit extended by U.S. exporters or banks for
agricultural commodity sales. The SCGP provides
a similar guarantee for payment by importers
when U.S. exporters' extend short-term credit,
up to 180-days, in export sales. CCC developed
the SCGP as an export credit alternative that
did not require a letter of credit as a payment
mechanism, would better accommodate smaller
transaction sizes associated with containerized
shipping, and would react to importers' general
desire to obtain open-account terms of payment
from U.S. exporters.
At inception, the SCGP offered a 50 percent guarantee in the
event that an importer of U.S. agricultural
commodities or products defaulted on an
obligation to pay the exporter for the value of
the goods sold. On December 3, 1997, CCC amended
the commodity eligibility for the SCGP
to include bulk commodities such as cotton, feed
grains, oilseeds, protein meals, and wheat. On
October 1, 1999, guaranteed coverage under the
SCGP increased from 50 to 65 percent.
The SCGP relies upon the principle of risk-sharing between
exporter and CCC to work. Exporters are often in
a unique position to assess the ability of an
importer to pay for an export transaction
because of past contractual experience, access
to importer's credit references, or
specialized knowledge of the agricultural
business sector in the importing country. Since
inception, the instrument establishing the
importer's obligation to pay the export value
has been a promissory note form, prescribed by
CCC and issued by the importer to the exporter.
The U.S. exporter can hold the SCGP payment
guarantee or assign the guarantee to a U.S.
financial institution. In many cases, where the
exporter has assigned SCGP payment guarantees to
financial institution, the exporter is paid the
percentage guaranteed by CCC by that financial
institution and retains the risk of payment by
the importer. In other cases, the U.S. financial
institution, in taking an assignment of the SCGP
payment guarantee, may be willing to pay the
exporter for the entire export value if that
financial institution is able to make a credit
assessment of the importer and is willing to
accept the risk of default for the uncovered
portion of the sale.
Overall, since 1997, CCC issued approximately $2.78 billion
in credit guarantees under the SCGP supporting
more than $4.3 billion in U.S. export sales of
agricultural commodities and products. Mexico
has dominated the SCGP as an import destination
with more than 60 percent
of the volume of activity, but other regions
such as Central America, South East Asia, and
the Caribbean have benefited and further growth
in these regions is expected. The SCGP has
supported the U.S. export of a variety of
agricultural commodities and products ranging
commodities such as feed grains, oilseeds,
protein meals, rice, and cotton, but also
including significant volumes of red meat,
poultry, fruits, grocery store items, and other
high value agricultural products.
From 1997 to 2004, the defaults experienced in the SCGP were
manageable given the limited size of the SCGP at
that time and the sporadic nature of the
defaults incurred. However, in 2004 and 2005 CCC
experienced significant defaults under the SCGP.
In reaction to these increased defaults, CCC
made improvements to its claims recovery
process, but CCC continues to seek other means
to reduce defaults and better recoveries.
CCC's interest in SCGP improvements also arises from the
outcome of the recent World Trade Organization (WTO)
dispute brought by Brazil against the United
States with respect to the CCC export credit
guarantee programs, including SCGP. The WTO
dispute panel's ruling requires CCC to charge
premia that are adequate to cover the long-term
operating costs and losses of the programs as a
whole. In response, on July 1, 2005, CCC revised
the premia for the export credit guarantee
programs to reflect program default risk and
operating costs. CCC is interested in
exploring potential revisions to the structure,
design, or operation of SCGP that can contribute
to meeting this ``break-even'' goal,
particularly by incurring fewer program losses.
We request interested parties to comment on the following
specific questions under consideration for the
SCGP. Interested parties may choose to address
any or all of the questions listed or provide
other comment. CCC's aim is to improve upon the
SCGP's integrity, effectiveness, flexibility,
and continued viability.
1. Transaction Size Considerations: What limit, if any,
should be imposed on the value of transactions
or the amount of exposure that CCC should take
on the importer that would be consistent with
2. Level of Guarantee Coverage:
Is the current level of guarantee coverage at 65 percent
If a higher level of guarantee coverage is desired, what
measures should CCC adopt to better ensure that
importers are capable of meeting their credit
If CCC offered a lower level of guarantee coverage, at what
point would one the SCGP no longer be a viable
program for U.S. exporters?
3. Assignments of Payment Guarantees:
Should CCC require assignment of the SCGP payment guarantee
Should CCC permit, but not require the exporter to assign the
SCGP payment guarantee risk?
Should CCC not permit the exporter to assign the SCGP payment
guarantee and risk?
4. Alternative Payment Obligations:
Should CCC permit alternative forms of payment obligations
that would change the obligor risk from the
importer to a foreign bank? (Examples of such
alternative payment obligation are: A banker's
acceptance from an eligible foreign bank, a
guarantee of an eligible foreign bank of the
importer's obligation to pay, or a bank aval
(obligation to pay) added to the importer's
What are the estimated costs of requiring a foreign bank
guarantee mechanism on the importer's obligation
as stated in the question above?
5. Collection Experiences on Foreign Bank Obligations:
What are U.S. exporters' or U.S. financial
institutions' collection experiences in using
banker's acceptances or avalized promissory
6. Risk Mitigation Techniques:
Should CCC permit the U.S. exporter or financial institution
to mitigate their risk on the portion of the
transaction value not covered by the SCGP
If CCC permits risk mitigation, what should CCC do to ensure
that the risk-sharing principal is maintained
and that all monies are shared, on a pro-rata
basis, between CCC and the exporter/
7. Standby Letters of Credit:
Should CCC require that the importer open a standby letter of
credit to the exporter for a portion of the
export value that could be drawn upon by the
exporter and shared with CCC on a pro-rate basis
in the event of the default?
What costs might be expected if the importer were required to
maintain a standby letter of credit associated
with the SCGP transaction?
8. Creditworthiness Assessment of Importers:
What are exporters' and U.S. financial institutions'
experiences in their attempts to assess the
creditworthiness of the importer using
commercial credit reference services?
Are there countries and regions where credit assessments on
agricultural importers cannot be performed
readily and reliably?
9. Collections and Recoveries:
How can CCC best partner with the exporter and/or the
financial institution that has accepted
assignment of a SCGP payment guarantee in order
to effect a collection?
What other means should CCC employ in its recovery efforts on
10. Other Concerns: What other concerns, comments, or
interests relating to the program regulations,
mechanisms, and operations of the SCGP are
Consideration of Comments
Additional comments on other program modifications to the
SCGP 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, if any, should be made to the SCGP.
Some of the above-described changes would
require additional notice and consideration of
comments from interested parties via the
rulemaking process. Other changes might be
adopted by changing internal policies and
procedures. Comments received will help the
Department determine that extent and scope of
any future rulemaking.
Authority: 7 U.S.C. 5602, 5622, 5661, 5662, 5663, 5664, 5676;
15 U.S.C. 714b(d), 714c(f).
Signed at Washington, DC, on
December 16, 2005.
W. Kirk Miller,
General Sales Manager and Vice President,
Commodity Credit Corporation