The program reduces the financial risk for lenders. Plus, the guarantee of credit encourages the export of American agricultural goods to the importers in as many countries worldwide as possible, especially in developing countries.

However, the importing company in the developing country must have adequate financial strength and ability to make scheduled payments, with prompt availability of foreign exchange.

GSM 102: An Overview

If you want a quick understanding of what the GSM 102 program is, then you have come to the right place. Continue to read how GSM 102 works, who can participate and how.

How GSM 102 Works?

The credit guarantee provided by the GSM 102 program is typically utilized by the private financial sector within the United States. In some cases, it can be procured by US exporters as well. The program covers up to 18 months of credit term. However, these maximum credit terms may vary by country.

The private financial sector extends credit guarantee to an approved financial institution in a foreign country using an irrevocable, dollar-denominated letter of credit. The aim is to make it easy for a foreign importer to purchase US agricultural and food products.

USDA’s Commodity Credit Corporation (“CCC”) provides a guarantee of payments to exporters that will be due from an approved financial institution in a foreign country. It can also be a financial institution in the US. However, it is obligatory to obtain financing via standard commercial sources.

Typically, up to 98 percent of principal of interest are taken care of by a the guarantee. However, the importers must negotiate any follow on agreements for credit with the foreign financial institution separately, as the CCC guarantee will not cover this arrangement.

You can get information for each country on the FAS official website. You will also find information and requirements on other programs and commodity allocations.

What Determines the Eligibility of a Country or Region?

All interested parties, including foreign importers, US exporters, and financial institutions can request CCC to set up a GSM 102 program for a specific region or country. CCC will evaluate the ability of each region, country, and foreign financial institution before announcing the availability of credit guarantees.

CCC may add the new financial institution at its discretion. Plus, they may decrease or increase the levels of approval for other existing countries and financial institutions on the CCC’s approval list. This depends on the changing circumstances of the world’s economy and political activities.

Who are the Eligible Commodities?

CCC solely selects all agricultural products and commodities according to the demand and marketing potential. Additionally, the eligibility criterion also relies on regulatory requirements and applicable legislation.

Who Can Participate?

Once a financial institution or a country gets approval by CCC for participation, the exporter from the US can negotiate the export sale’s terms with the importer. Once a company’s export sale exists, the qualified exporter from the US must ensure that they apply for a guarantee of payment before the export date.

The US exporter pays a fee calculated on an amount guaranteed in US dollars. The rates of the fee are currently dependent on the country’s risk that CCC is willing to undertake.

Other factors in determining fee rates are macroeconomic variables for each country, risk of a foreign bank, the repayment term, and frequency of repayment under the guarantee.

Claims and Defaults

If a foreign institution such as a bank fails to make payments covered via a GSM 102 credit guarantee, the party who is a holder of the payment/credit guarantee must immediately send in a notice of default directly to CCC within a timeframe specified in the GSM 102 regulations.

The party must send the claim for a default on the payment guarantee within the specified timeframe. If the CCC finds the claim to be legitimate, they will pay the guaranteed credit.

The exporters within the United States must obtain the required documents to prove that the products arrived at the destination region or country. They must submit these documentations to the CCC for audit purposes.

It is obligatory for both assignee and exporter to maintain all transactional documentation for at least five years from the completion date of all payments.