AGREEMENT in the form of an exchange of letters between the European Economic Community and the Union of Soviet Socialist Republics on a credit guarantee for exports of agricultural products and foodstuffs from the Community to the Soviet Union

A. Letter No 1

Sir,

With a view to introducing a credit guarantee for exports of agricultural products and foodstuffs from the European Economic Community to the Union of Soviet Socialist Republics (USSR), I hereby confirm, on behalf of the Community, the understanding on the following Agreement between the USSR and the European Economic Community:

I. 1. The European Economic Community shall provide a credit guarantee which shall cover repayment of capital and interest on loans granted by a pool of financial institutions established in the Community (the 'banking pool`) to the Bank for Foreign Economic Affairs ('Vnesheconomobank`) acting on behalf of the Government of the USSR (the 'borrower`) for the purchase and importation to the USSR of agricultural products and foodstuffs under contracts to be concluded between Soviet foreign economic organizations ('Soviet organizations`) and firms established in the Community.

2. The guarantee shall cover 98 % of the total capital and interest on loans granted by the banking pool up to a maximum of ECU 500 million.

3. The maximum capital amount is estimated at ECU 415 million, depending on the rate of interest and other financial conditions.

4. The borrower shall pay the fee required for the operation of the guarantee, which shall be equal to 0,67 % of the amount of that guarantee. Half of the fee shall be payable within 30 days of the signature of this Agreement and the remainder within 30 days of the end of the drawing period.

II. 1. The Commission of the European Communities shall use its best endeavours to ensure that the banking pool approved by it grants the most favourable credit terms and conditions.

The Commission of the European Communities shall notify the borrower of the agreement which it will conclude with the banking pool (the 'guarantee agreement`).

The terms and conditions of the agreement between Vnesheconomobank and the banking pool (the 'loan agreement`) shall comply with this Agreement.

The guarantee agreement and the loan agreement shall be concluded on the same day as this Agreement.

2. Loans may be drawn on within a period of six months from the signature of this Agreement; in order to make payments directly to the firms of the Community, commercial contracts entered into between those firms and the Soviet organizations, which shall include all the clauses governing the conditions of supply and which shall respect the principles set out in Chapter III below, shall be submitted by those firms to the Commission of the European Communities.

3. The borrower shall repay the loans to the banking pool by means of three equal payments, 20, 31 and 42 months respectively after the date of signature of this Agreement. Interest shall be paid every six months. The first interest payment shall be made six months after the end of the drawing period.

III. 1. The loans granted by the banking pool under the European Economic Community guarantee shall be used exclusively for the purchase of the agricultural products and foodstuffs originating within the Community listed in the Annex to this Agreement.

2. A maximum of 15 % of the maximum capital amount referred to in Chapter I paragraph 2 may be used to cover costs of delivery of the products to the USSR.

IV. 1. With a view to achieving better commercial results on the basis of free competition, Soviet organizations shall, when selecting supplier firms, seek at least three offers from firms independent from each other and established within the Community.

2. The allocation of supplies shall be subject to conditions, particularly as regards prices, which do not disturb the market and traditional patterns of trade within the Community and shall have regard to the Community's current export mechanisms, in compliance with the provisions of the Agreement between the European Economic Community and the European Atomic Energy Community and the Union of Soviet Socialist Republics on trade and commercial and economic cooperation dated 18 December 1989, and with international commercial practices.

3. The quality of the goods shall be in accordance with the requirements laid down in the contracts.

4. The supplies of the goods under this Agreement and contracts concluded pursuant thereto shall be subject to sanitary, epidemiological and quarantine requirements existing in the USSR and the Community, as well as to agreements or arrangements entered into by the Soviet Union and one or more Member States of the Community or the Soviet Union and the Community as a whole. This shall also apply to the methods of verifying compliance with the abovementioned requirements.

V. The Government of the USSR shall take all appropriate steps to authorize and facilitate execution of financial transactions provided for by this Agreement, including the transfer of foreign currency.

VI. 1. The products imported into the USSR under the terms and conditions of this Agreement shall be distributed directly or after processing to the population of the Soviet Union through the normal distribution channels.

2. The Government of the USSR undertakes to ensure that the products imported under the terms and conditions of this Agreement are not re-exported.

3. As far as it is considered necessary, the Community at its own expense may instruct independent organizations agreed by the Parties to verify compliance with the above provisions.

VII. Having regard to general conditions of trade, and in so far as is possible, both Parties shall ensure that the purchase and sale of goods, imported under the terms and conditions of this Agreement, will not affect traditional commercial operations of the undertakings of the two Parties with their partners from other countries in respect of similar goods.

VIII. The Commission of the European Communities and the Government of the USSR shall exchange all information required for the successful operation of this Agreement and, if necessary, shall hold consultations in order to solve such problems as may arise.

I propose that this Agreement will enter into force on the date of your reply.

I should be obliged if you would confirm that your Government is in agreement with the above.

Please accept, Sir, the assurance of my highest consideration.

On behalf of the Council of the European Communities

ANNEX

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In order to respect the total amount of ECU 415 million, quantities may be adapted to take into consideration changes in prices and in conditions of delivery.

B. Letter No 2

Sir,

I have the honour to acknowledge receipt of your letter of today's date, which reads as follows:

'With a view to introducing a credit guarantee for exports of agricultural products and foodstuffs from the European Economic Community to the Union of Soviet Socialist Republics (USSR), I hereby confirm, on behalf of the Community, the understanding on the following Agreement between the USSR and the European Economic Community:

I. 1. The European Economic Community shall provide a credit guarantee which shall cover repayment of capital and interest on loans granted by a pool of financial institutions established in the Community (the "banking pool") to the Bank for Foreign Economic Affairs ("Vnesheconomobank") acting on behalf of the Government of the USSR (the "borrower") for the purchase and importation to the USSR of agricultural products and foodstuffs under contracts to be concluded between Soviet foreign economic organizations ("Soviet organizations") and firms established in the Community.

2. The guarantee shall cover 98 % of the total capital and interest on loans granted by the banking pool up to a maximum of ECU 500 million.

3. The maximum capital amount is estimated at ECU 415 million, depending on the rate of interest and other financial conditions.

4. The borrower shall pay the fee required for the operation of the guarantee, which shall be equal to 0,67 % of the amount of that guarantee. Half of the fee shall be payable within 30 days of the signature of this Agreement and the remainder within 30 days of the end of the drawing period.

II. 1. The Commission of the European Communities shall use its best endeavours to ensure that the banking pool approved by it grants the most favourable credit terms and conditions.

The Commission of the European Communities shall notify the borrower of the agreement which it will conclude with the banking pool (the "guarantee agreement").

The terms and conditions of the agreement between Vnesheconomobank and the banking pool (the "loan agreement") shall comply with this Agreement.

The guarantee agreement and the loan agreement shall be concluded on the same day as this Agreement.

2. Loans may be drawn on within a period of six months from the signature of this Agreement; in order to make payments directly to the firms of the Community, commercial contracts entered into between those firms and the Soviet organizations, which shall include all the clauses governing the conditions of supply and which shall respect the principles set out in Chapter III below, shall be submitted by those firms to the Commission of the European Communities.

3. The borrower shall repay the loans to the banking pool by means of three equal payments, 20, 31 and 42 months respectively after the date of signature of this Agreement. Interest shall be paid every six months. The first interest payment shall be made six months after the end of the drawing period.

III. 1. The loans granted by the banking pool under the European Economic Community guarantee shall be used exclusively for the purchase of the agricultural products and foodstuffs originating within the Community listed in the Annex to this Agreement.

2. A maximum of 15 % of the maximum capital amount referred to in Chapter I paragraph 2 may be used to cover costs of delivery of the products to the USSR.

IV. 1. With a view to achieving better commercial results on the basis of free competition, Soviet organizations shall, when selecting supplier firms, seek at least three offers from firms independent from each other and established within the Community.

2. The allocation of supplies shall be subject to conditions, particularly as regards prices, which do not disturb the market and traditional patterns of trade within the Community and shall have regard to the Community's current export mechanisms, in compliance with the provisions of the Agreement between the European Economic Community and the European Atomic Energy Community and the Union of Soviet Socialist Republics on trade and commercial and economic cooperation dated 18 December 1989, and with international commercial practices.

3. The quality of the goods shall be in accordance with the requirements laid down in the contracts.

4. The supplies of the goods under this Agreement and contracts concluded pursuant thereto shall be subject to sanitary, epidemiological and quarantine requirements existing in the USSR and the Community, as well as to agreements or arrangements entered into by the Soviet Union and one or more Member States of the Community or the Soviet Union and the Community as a whole. This shall also apply to the methods of verifying compliance with the abovementioned requirements.

V. The Government of the USSR shall take all appropriate steps to authorize and facilitate execution of financial transactions provided for by this Agreement, including the transfer of foreign currency.

VI. 1. The products imported into the USSR under the terms and conditions of this Agreement shall be distributed directly or after processing to the population of the Soviet Union through the normal distribution channels.

2. The Government of the USSR undertakes to ensure that the products imported under the terms and conditions of this Agreement are not re-exported.

3. As far as it is considered necessary, the Community at its own expense may instruct independent organizations agreed by the Parties to verify compliance with the above provisions.

VII. Having regard to general conditions of trade, and in so far as is possible, both Parties shall ensure that the purchase and sale of goods, imported under the terms and conditions of this Agreement, will not affect traditional commercial operations of the undertakings of the two Parties with their partners from other countries in respect of similar goods.

VIII. The Commission of the European Communities and the Government of the USSR shall exchange all information required for the successful operation of this Agreement and, if necessary, shall hold consultations in order to solve such problems as may arise.

I propose that this Agreement will enter into force on the date of your reply.

I should be obliged if you would confirm that your Government is in agreement with the above.` I have the honour to confirm that my Government is in agreement with the contents of your letter.

Please accept, Sir, the assurance of my highest consideration.

For the Government of the Union of Soviet Socialist Republics

ANNEX

>TABLE>

In order to respect the total amount of ECU 415 million, quantities may be adapted to take into consideration changes in prices and in conditions of delivery.