Export Guarantee Programs

GSM-102 Guarantee Program

The USDA’s export credit guarantee programs help ensure that credit is available to finance commercial exports of U.S. agricultural products, while providing competitive credit terms to buyers. By reducing the 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.

Export Credit Guarantee Program (GSM-102)

The Export Credit Guarantee Program (GSM- 102) underwrites credit extended by the private banking sector in the U.S. (or, less commonly, by the U.S. exporter) to approved foreign banks using dollar-denominated, irrevocable L/Cs for purchases of U.S. food and agricultural products by foreign buyers. USDA’s Foreign Agricultural Service (FAS) administers the programs on behalf of the Commodity Credit Corporation (CCC), which issues the credit guarantees. The GSM-102 program covers credit terms of up to two-and-a-half years.

Under the GSM-102 program, the CCC guarantees payments due from approved foreign banks to exporters or financial institutions in the U.S. The CCC provides the guarantee, but the financing must be obtained through normal commercial sources. Typically, 98 percent of principal and a portion of interest at an adjustable rate are covered by a guarantee.

Because payment is guaranteed, financial institutions in the U.S. 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 for current banks changed (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 U.S. and must not be debarred or suspended from participating in any U.S. government program. Financial institutions also must meet established criteria and be approved by the CCC. The CCC sets limits and advises each approved foreign bank on the maximum outstanding amount that the CCC can guarantee for that bank.

The exporter negotiates the terms of the export credit sale with the importer. If the exporter anticipates being paid at the time of shipment, the exporter and importer must work closely during negotiations with the eligible U.S. financial institution and the eligible foreign bank. This will help 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 date of export. The exporter pays a fee calculated on the dollar amount guaranteed, based on a schedule of country ratings and rates applicable to different credit periods.

Fee rates are based on a country risk assessment that the CCC has undertaken, as well as the repayment term (tenor) and repayment frequency (annual or semiannual) 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 L/C in favor of the U.S. exporter, ordinarily advised or confirmed by the financial institution in the U.S. 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, 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

If you wish to participate in the GSM-102, call the Credit Programs Division, Registration and Operation Branch at 202-720-6211, or send a fax to 202-720-2949 to request program regulations and applicable notices and announcements.  To view GSM-102 allocations for cotton and cotton products, as well as a list of eligible banks, click here.

Export credit guarantee program information and details of recent program changes are available on the FAS Web site:
http://www.fas.usda.gov/excredits/ecgp.asp

FAS program announcements of GSM-102 allocations by country or region are posted at:
http://www.fas.usda.gov/excredits/exp-cred-guar.asp

For further information, contact: Credit Programs Division, Office of Trade Programs, FAS/USDA, Stop 1025, 1400 Independence Ave. SW, Washington, DC 20250-1025. General information about FAS programs, resources and services can be found at:
http://www.fas.usda.gov