Proposal for a COUNCIL DECISION on the application of certain guidelines in the field of officially supported export credits

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. The Community is a Participant [1] in the Arrangement on Guidelines for Officially Supported Export Credits ("the Arrangement") concluded in the framework of the OECD. The Arrangement has always been incorporated into Community law by way of Council Decision. The current version of the Arrangement applicable in the Community is the Decision (2001/76/EC) of 22 December 2000, which was amended by Council Decision of 22 July 2002 with respect of export credits for ships (2002/634/EC). Decision 2001/76/EC is supplemented by the Decision (2001/77/EC) of 22 December 2000 setting forth specific rules on export credits for project finance.

[1] The Participants in the Arrangement are: Australia, Canada, the Czech Republic, the European Community, Japan, New Zealand, Norway, South Korea, Switzerland and the United States.

2. The proposed draft Decision is the redrafted and consolidated Arrangement text. The revision was undertaken in order to amend and streamline the text following the three broad objectives, namely to enhance user-friendliness, to improve consistency with regard to relevant WTO obligations and to insert more transparency vis-à-vis non-Participants.

3. The most important changes which have been made are as follows: first, a new article was inserted stating that the Participants undertake to share information with non-Participants, in particular in a competitive situation. Second, the scope of the application of the Arrangement has been ring-fenced by giving a clearer definition of official support. Third, a clause was introduced preventing the offset or compensation of credit risk premiums by other means of financial support. Fourth, all articles on the minimum premium rate for credit risk have been revamped with the clarification that the premium for credit risk shall be charged in addition to interest. Fifth, on matching a minimum formal procedure was introduced to avoid pure unilateral action. And last but not least, a new annex lists definitions of key concepts and technical terms.

4. Moreover, the specific rules on export credits for project finance and export credits for ships have been integrated in the revised Arrangement text.

5. The main objective of the Arrangement on guidelines for officially supported export credits is to regulate governments' role in export credits, so that exports reflect quality and prices rather than the most favourable officially supported terms, and hence to establish equal conditions of competition among exporters.

6. The Arrangement is the international reference framework which governs official support for export credits with a repayment term of two years or more, relating to exports of goods and/or services or to financial leases. It also addresses the circumstances in which official support in the form of tied aid may be given and/or mixed with officially supported export credits.

7. The Arrangement places limitations on the terms and conditions of export credits that benefit from official support. Such limitations include minimum premium rates, the minimum cash payment to be made at or before the starting point of credit, maximum repayment terms and minimum interest rates which benefit from official financing support. There are also restrictions on the provisions of tied aid and transparency obligations for trade-related untied aid. Finally, the Arrangement includes procedures for prompt and prior notification, consultation, and exchange of information and review.

8. The Commission considers that the Arrangement introduced an effective international discipline which obviously exerts downward pressure on subsidies. The Arrangement has helped to prevent distortions of competition linked with officially supported export credits.

9. The Commission therefore requests the Council to adopt the draft decision approving the revised Arrangement text and ensuring its application in Community law.

2004/0101 (ACC)

Proposal for a COUNCIL DECISION on the application of certain guidelines in the field of officially supported export credits

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 133 thereof,

Having regard to the proposal from the Commission,

Whereas:

(1) The Community is party to the Arrangement on guidelines for officially supported export credits concluded within the OECD, hereinafter referred to as "the Arrangement".

(2) By virtue of Council Decision 2001/76/EC of 22 December 2000 replacing the Decision of 4 April 1978 on the application of certain guidelines in the field of officially supported export credits [2] and of Council Decision 2001/77/EC of 22 December 2000 on the application of principles of a framework agreement on project finance in the field of officially supported export credits, [3] the guidelines to the Arrangement and the specific rules for project finance apply to the Community.

[2] OJ L 32, 2.2.2001, p. 1. Decision as last amended by the Act of Accession of 2003

[3] OJ L 32, 2.2.2001, p. 55

(3) The Participants in the Arrangement decided to amend and rationalise the Arrangement. Changes approved by them cover the enhancement of user-friendliness, the improvement of consistency in the relevant international obligations and the achievement of greater transparency, in particular with regard to non-Participants. Moreover, the Participants in the Arrangement also decided to incorporate in the text of the Arrangement the rules on project finance which were introduced by Decision 2001/77/EC, and the rules for export credits for ships, which were introduced by Council Decision 2002/634/EC [4].

[4] OJ L 206, 3.8.2002, p.16

(4) Decision 2001/76/EC should therefore be replaced by this Decision with the consolidated and revised text of the Arrangement in its Annex, and Decision 2001/77/EC should be repealed.

HAS ADOPTED THIS DECISION:

Article 1

The guidelines contained in the Arrangement annexed to this Decision shall apply in the Community.

Article 2

Decision 2001/76/EC and the Annex thereto are replaced by this Decision and its Annex.

Decision 2001/77/EC is repealed.

Article 3

This Decision is addressed to the Member States.

Done at Brussels, [...]

For the Council

The President

ANNEX

ARRANGEMENT FOR OFFICIALLY SUPPORTED EXPORT CREDITS

TABLE OF CONTENTS

CHAPTER I: GENERAL PROVISIONS

1. PURPOSE

2. STATUS

3. PARTICIPATION

4. INFORMATION AVAILABLE TO NON-PARTICIPANTS

5. SCOPE OF APPLICATION

6. SPECIFIC SECTORAL PROVISIONS

7. WITHDRAWAL

8. MONITORING

CHAPTER II: FINANCIAL TERMS AND CONDITIONS FOR EXPORT CREDITS

9. DOWN PAYMENT, MAXIMUM OFFICIAL SUPPORT AND LOCAL COSTS

10. CLASSIFICATION OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS

11. MAXIMUM REPAYMENT TERMS

12. REPAYMENT TERMS FOR NON-NUCLEAR POWER PLANT

13. REPAYMENT OF PRINCIPAL

14. PAYMENT OF INTEREST

15. VALIDITY PERIOD FOR EXPORT CREDITS

16. ACTION TO AVOID OR MINIMISE LOSSES

17. MATCHING

18. MINIMUM FIXED INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT

19. CONSTRUCTION OF CIRRs

20. VALIDITY OF CIRRs

21. APPLICATION OF CIRRs

22. PREMIUM FOR CREDIT RISK

23. MINIMUM PREMIUM RATES FOR COUNTRY AND SOVEREIGN CREDIT RISK

24. COUNTRY RISK CLASSIFICATION

25. CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS

26. PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER

27. EXCLUSION OF SELECTED COUNTRY RISK ELEMENTS AND COUNTRY RISK MITIGATION TECHNIQUES

28. REVIEW OF THE VALIDITY OF THE MINIMUM PREMIUM RATES FOR COUNTRY AND SOVEREIGN CREDIT RISK

CHAPTER III: PROVISIONS FOR TIED AID

29. GENERAL PRINCIPLES

30. FORMS OF TIED AID

31. ASSOCIATED FINANCING

32. COUNTRY ELIGIBILITY FOR TIED AID

33. PROJECT ELIGIBILITY

34. MINIMUM CONCESSIONALITY LEVEL

35. EXEMPTIONS FROM COUNTRY OR PROJECT ELIGIBILITY FOR TIED AID

36. CALCULATION OF CONCESSIONALITY LEVEL OF TIED AID

37. VALIDITY PERIOD FOR TIED AID

38. MATCHING

CHAPTER IV: PROCEDURES

SECTION 1: COMMON PROCEDURES FOR EXPORT CREDITS AND TRADE-RELATED AID

39. STANDARD FORM FOR ALL NOTIFICATIONS

40. INFORMATION ON OFFICIAL SUPPORT

41. PROCEDURES FOR MATCHING

42. SPECIAL CONSULTATIONS

SECTION 2: PROCEDURES FOR EXPORT CREDITS

43. PRIOR NOTIFICATION WITH DISCUSSION

44. PRIOR NOTIFICATION WITHOUT DISCUSSION

SECTION 3: PROCEDURES FOR TRADE-RELATED AID

45. PRIOR NOTIFICATION

46. PROMPT NOTIFICATION

SECTION 4: CONSULTATION PROCEDURES FOR TIED AID

47. PURPOSE OF CONSULTATIONS

48. SCOPE AND TIMING OF CONSULTATIONS

49. OUTCOME OF CONSULTATIONS

SECTION 5: INFORMATION EXCHANGE FOR EXPORT CREDITS AND TRADE-RELATED AID

50. CONTACT POINTS

51. SCOPE OF ENQUIRIES

52. SCOPE OF RESPONSES

53. FACE-TO-FACE CONSULTATIONS

54. PROCEDURES AND FORMAT OF COMMON LINES

55. RESPONSES TO COMMON LINE PROPOSALS

56. ACCEPTANCE OF COMMON LINES

57. DISAGREEMENT ON COMMON LINES

58. EFFECTIVE DATE OF COMMON LINE

59. VALIDITY OF COMMON LINES

SECTION 6: OPERATIONAL PROVISIONS FOR THE COMMUNICATION OF MINIMUM INTEREST RATES (CIRRs)

60. COMMUNICATION OF MINIMUM INTEREST RATES

61. EFFECTIVE DATE FOR APPLICATION OF INTEREST RATES

62. IMMEDIATE CHANGES IN INTEREST RATES

63. REGULAR REVIEW OF THE ARRANGEMENT

64. REVIEW OF MINIMUM INTEREST RATES

65. REVIEW OF MINIMUM PREMIUM RATES AND RELATED ISSUES

ANNEX I: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR SHIPS

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING

1. PARTICIPATION

2. SCOPE OF APPLICATION

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID

3. MAXIMUM REPAYMENT TERM

4. CASH PAYMENT

5. REPAYMENT OF PRINCIPAL

6. MINIMUM PREMIUM

7. AID

CHAPTER III: PROCEDURES

8. NOTIFICATION

9. REVIEW

ATTACHMENT: COMMITMENTS FOR FUTURE WORK

ANNEX II: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR NUCLEAR POWER PLANT

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING

1. SCOPE OF APPLICATION

2. REVIEW

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID

3. MAXIMUM REPAYMENT TERM

4. MINIMUM INTEREST RATES

5. CONSTRUCTION OF SCIRRS

6. LOCAL COSTS AND CAPITALISATION OF INTEREST

7. OFFICIAL SUPPORT FOR NUCLEAR FUEL

8. AID

CHAPTER III: PROCEDURES

9. PRIOR CONSULTATION

10. PRIOR NOTIFICATION

ANNEX III: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR CIVIL AIRCRAFT

PART 1. NEW LARGE AIRCRAFT AND ENGINES FOR SUCH AIRCRAFT

CHAPTER I: SCOPE

1. FORM AND SCOPE OF APPLICATION

2. OBJECTIVE

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND AID

3. DOWN PAYMENT

4. MAXIMUM REPAYMENT TERM

5. ELIGIBLE CURRENCIES

6. MINIMUM INTEREST RATES

7. INTEREST RATE ADJUSTMENTS

8. VALIDITY PERIOD FOR EXPORT CREDITS/INTEREST RATE OFFERS

9. DETERMINATION OF INTEREST RATE OFFERS AND SELECTION OF INTEREST RATES

10. PURE COVER SUPPORT

11. COMPETITION REFERENCE POINT

12. SECURITY FOR THE REPAYMENT RISK

13. MODEL CHANGES

14. LEASES

15. AID

CHAPTER III: PROCEDURES

16. PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE

17. REVIEW

CHAPTER IV: SCOPE

18. FORM AND SCOPE OF APPLICATION

19. BEST ENDEAVOURS

20. CATEGORIES OF AIRCRAFT

CHAPTER V: PROVISIONS FOR EXPORT CREDITS AND AID

21. MAXIMUM REPAYMENT TERM

22. MINIMUM INTEREST RATES

23. INSURANCE PREMIUM AND GUARANTEE FEES

24. AID

CHAPTER VI: PROCEDURES

25. PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE

26. REVIEW

PART 3: USED AIRCRAFT, SPARE ENGINES, SPARE PARTS, MAINTENANCE AND SERVICE CONTRACTS

CHAPTER VII: SCOPE

27. FORM AND SCOPE OF APPLICATION

28. USED AIRCRAFT

29. SPARE ENGINES AND SPARE PARTS

30. MAINTENANCE AND SERVICE CONTRACTS

CHAPTER VIII: PROCEDURES

31. PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE

32. REVIEW

APPENDIX I: Illustrative List

LARGE CIVIL AIRCRAFT

CATEGORY A AIRCRAFT

CATEGORY B AIRCRAFT

ANNEX IV: STANDARD FORM FOR NOTIFICATIONS

ANNEX V: CALCULATION OF THE MINIMUM PREMIUM RATES

ANNEX VI: CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF COUNTRY RISK CLASSIFICATION REFLECTING A THIRD COUNTRY GUARANTOR OR A MULTILATERAL OR REGIONAL INSTITUTION

PURPOSE

APPLICATION

ANNEX VII: CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF COUNTRY RISK MITIGATION/EXCLUSION IN CALCULATING THE MINIMUM PREMIUM RATES

PURPOSE

GENERAL APPLICATION

SPECIFIC APPLICATION

ANNEX VIII: INFORMATION TO BE PROVIDED FOR PREMIUM-RELATED NOTIFICATIONS

BASIC INFORMATION

ADDITIONAL INFORMATION FOR ALL NOTIFICATIONS MADE UNDER ARTICLE 27

ADDITIONAL INFORMATION FOR ALL NOTIFICATIONS MADE UNDER THE FIRST TIRET OF ARTICLE 23 e)

ADDITIONAL INFORMATION FOR ALL NOTIFICATIONS MADE UNDER THE SECOND TIRET OF ARTICLE 23 e)

ANNEX IX : CHECKLIST OF DEVELOPMENTAL QUALITY

CHECKLIST OF DEVELOPMENTAL QUALITY OF AID-FINANCED PROJECTS

CONSISTENCY OF THE PROJECT WITH THE RECIPIENT COUNTRY'S OVERALL INVESTMENT PRIORITIES (PROJECT SELECTION)

PROJECT PREPARATION AND APPRAISAL

PROCUREMENT PROCEDURES

ANNEX X: UNDERSTANDING ON THE APPLICATION OF FLEXIBILITY TO THE TERMS AND CONDITIONS OF THE ARRANGEMENT ON GUIDELINES FOR OFFICIALLY SUPPORTED EXPORT CREDITS IN RESPECT OF PROJECT FINANCE TRANSACTIONS FOR A TRIAL PERIOD (UNTIL 31 DECEMBER 2004)

CHAPTER I: SCOPE

1. FORM AND SCOPE OF APPLICATION

CHAPTER II: PROVISIONS FOR EXPORT CREDITS

2. REPAYMENT OF PRINCIPAL AND MAXIMUM REPAYMENT TERMS

3. PAYMENT OF INTEREST

4. MINIMUM INTEREST RATES

CHAPTER III: PROCEDURES

5. PERMITTED EXCEPTIONS: PRIOR NOTIFICATION WITH EXPLANATION

CHAPTER IV: REVIEW

6. TRIAL PERIOD AND MONITORING

APPENDIX 1: DESCRIPTION AND CRITERIA

GENERAL DESCRIPTION

ESSENTIAL CRITERIA

ILLUSTRATIVE CRITERION

APPENDIX 2: ADDITIONAL INFORMATION FOR NOTIFICATIONS

ANNEX XI: LIST OF DEFINITIONS

CHAPTER I: GENERAL PROVISIONS

1. PURPOSE

a) The main purpose of the Arrangement on Officially Supported Export Credits, referred to throughout this document as the Arrangement, is to provide a framework for the orderly use of officially supported export credits.

b) The Arrangement seeks to foster a level playing field for official support, as defined in Article 5 a), in order to encourage competition among exporters based on quality and price of goods and services exported rather than on the most favourable officially supported financial terms and conditions.

2. STATUS

The Arrangement, developed within the OECD framework, initially came into effect in April 1978 and is of indefinite duration. The Arrangement is a Gentlemen's Agreement among the Participants; it is not an OECD Act [5], although it receives the administrative support of the OECD Secretariat (hereafter: "the Secretariat").

[5] AS DEFINED IN ARTICLE 5 OF THE OECD CONVENTION

3. PARTICIPATION

The Participants to the Arrangement currently are: Australia, Canada, the Czech Republic, the European Community, Japan, Korea, New Zealand, Norway, Switzerland and the United States. Other OECD Members and non-Members may be invited to become Participants by the current Participants.

4. INFORMATION AVAILABLE TO NON-PARTICIPANTS

a) The Participants undertake to share information with non-Participants on notifications related to official support as set out in Article 5 a).

b) A Participant shall, on the basis of reciprocity, reply to a request from a non-Participant in a competitive situation on the financial terms and conditions offered for its official support, as it would reply to a request from a Participant.

5. SCOPE OF APPLICATION

The Arrangement shall apply to all official support provided by or on behalf of a government for export of goods and/or services, including financial leases, which have a repayment term of two years or more.

a) Official support may be provided in different forms:

1) Export credit guarantee or insurance (pure cover)

2) Official financing support:

- direct credit/financing and refinancing or

- interest rate support.

3) Any combination of the above;

b) The Arrangement shall apply to tied aid; the procedures set out in Chapter IV shall also apply to trade-related untied aid.

c) The Arrangement does not apply to exports of Military Equipment and Agricultural Commodities.

d) Official support shall not be provided if there is clear evidence that the contract has been structured with a purchaser in a country which is not the final destination of the goods primarily with the aim of obtaining more favourable repayment term.

6. SPECIFIC SECTORAL PROVISIONS

The Participants shall apply specific provisions to the following sectors:

a) Ships

The Arrangement shall apply to ships not covered by the Sector Understanding on Export Credits for Ships, which has been adopted by all Participants to the Arrangement as an annex to the Arrangement (Annex I). For the Participants to the Sector Understanding, the Arrangement shall apply to ships covered by that Understanding, except that where a corresponding provision exists in the Sector Understanding, which complements the Arrangement, the Sector Understanding shall prevail.

b) Nuclear Power Plant

The Arrangement shall apply except that where a corresponding provision exists in the Sector Understanding on Export Credits for Nuclear Power Plant (Annex II), which complements the Arrangement, the Sector Understanding shall prevail. The Arrangement shall apply to official support provided for the decommissioning of nuclear power plant, i.e. the closing down or dismantling of a nuclear power plant.

c) Civil Aircraft

The Arrangement shall apply except that where a corresponding provision exists in the Sector Understanding on Export Credits for Civil Aircraft (Annex III), which complements the Arrangement, the Sector Understanding shall prevail.

7. WITHDRAWAL

A Participant may withdraw by notifying the Secretariat in writing by means of instant communication, e.g. the OECD On-line Information System (OLIS). The withdrawal takes effect 180 calendar days after receipt of the notification by the Secretariat.

8. MONITORING

The Secretariat shall monitor the implementation of the Arrangement.

CHAPTER II: FINANCIAL TERMS AND CONDITIONS FOR EXPORT CREDITS

Financial terms and conditions for export credits encompass all the provisions set out in this Chapter which shall be read in conjunction one with the other.

The Arrangement sets out limitations on terms and conditions that may be officially supported. The Participants recognise that more restrictive financial terms and conditions than those provided for by the Arrangement traditionally apply to certain trade or industrial sectors. The Participants shall continue to respect such customary financial terms and conditions, in particular the principle by which repayment terms do not exceed the useful life of the goods.

9. DOWN PAYMENT, MAXIMUM OFFICIAL SUPPORT AND LOCAL COSTS

a) The Participants shall require purchasers of goods and services which are the subject of official support to make down payments of a minimum of 15 per cent of the export contract value at or before the starting point of credit as defined in Annex XI. For the assessment of down payments, the export contract value may be reduced proportionally if the transaction includes goods and services from a third country which are not officially supported. Retention payments made after the starting point of credit are not regarded as down payment in this context.

b) Official support for such down payments shall only take the form of insurance or guarantee against the usual pre-credit risks.

c) Except as provided for in paragraphs (b) and (d), the Participants shall not provide official support in excess of 85 per cent of the export contract value, including third country supply but excluding local costs.

d) The Participants may provide official support for local costs, provided that:

1) The total combined official support provided pursuant to paragraphs (c) and (d) shall not exceed 100 per cent of the export contract value. In consequence, the amount of local costs supported shall not exceed the amount of the down payment.

2) It shall not be provided on terms more favourable/less restrictive than those agreed for the related exports.

3) For Category I countries as defined in Article 10 a), it shall be limited to pure cover.

10. CLASSIFICATION OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS

a) Category I countries are those which are on the World Bank's graduation list [6]. All other countries are in Category II. The World Bank graduation level is recalculated on an annual basis. A country will change category only after its World Bank category has remained unchanged for two consecutive years.

[6] Based on the annual review by the World Bank of its country classification, a per capita Gross National Income (GNI) threshold will be used for the purpose of classification of country category; such threshold is available on the OECD website (www.oecd.org/ech/xcred)

b) The following operational criteria and procedures apply when classifying countries:

1) Classification for Arrangement purposes is determined by per capita GNI as calculated by the World Bank for the purposes of the World Bank classification of borrowing countries.

2) In cases where the World Bank does not have enough information to publish per capita GNI data, the World Bank shall be asked to estimate whether the country in question has per capita GNI above or below the current threshold. The country shall be classified according to the estimate unless the Participants decide to act otherwise.

3) If a country is reclassified in accordance with Article 10 a), the reclassification will take effect two weeks after the conclusions drawn from the above-mentioned data from the World Bank have been communicated to all Participants by the Secretariat.

4) In cases where the World Bank revises figures, such revisions shall be disregarded in relation to the Arrangement. Nevertheless, the classification of a country may be changed by way of a common line and Participants would favourably consider a change due to errors and omissions in the figures subsequently recognised in the same calendar year in which the figures were first distributed by the Secretariat.

11. MAXIMUM REPAYMENT TERMS

Without prejudice to Article 12, the maximum repayment term varies according to the classification of the country of destination determined by the criteria in Article 10.

a) For Category I countries, the maximum repayment term is five years, with the possibility of agreeing up to eight-and-a-half years when the procedures for prior notification set out in Article 44 are followed.

b) For Category II countries, the maximum repayment term is 10 years.

c) In the event of a contract involving more than one country of destination the Participants should seek to establish a common line in accordance with the procedures in Articles 54 to 59 to reach agreement on appropriate terms.

12. REPAYMENT TERMS FOR NON-NUCLEAR POWER PLANT

a) For non-nuclear power plant, the maximum repayment term shall be 12 years. If a Participant intends to support a repayment term longer than that provided for in Article 11, the Participant shall give prior notification in accordance with the procedure in Article 44.

b) Non-nuclear power plant are complete power stations, or parts thereof, not fuelled by nuclear power; they include all components, equipment, materials, and services (including the training of personnel) directly required for the construction and commissioning of such non-nuclear power stations. This does not include items for which the buyer is usually responsible, e.g. costs associated with land development, roads, construction villages, power lines, and switchyard and water supply; as well as costs arising from official approval procedures (e.g. site permits, fuel loading permits) in the buyer's country, except:

1) in cases where the buyer of the switchyard is the same as the buyer of the power plant, the maximum repayment term for the original switchyard shall be the same as that for the non-nuclear power plant (i.e. 12 years); and

2) the maximum repayment term for sub-stations, transformers and transmission lines with a minimum voltage threshold of 100 kv shall be the same as that for the non-nuclear power plant.

13. REPAYMENT OF PRINCIPAL

a) The principal sum of an export credit shall normally be repaid in equal and regular instalments not less frequently than every six months and with the first instalment to be made no later than six months after the starting point of credit. In the case of leases, such profile of repayment may be applied either for the amount of principal only or for the principal and interest combined.

b) A Participant intending to support a repayment of principal on different terms than those set in paragraph a) shall comply with the following:

1) No single repayment or series of repayments within a six month period shall exceed 25 per cent of the principal sum repayable during the repayment term.

2) The Participant shall give prior notification in accordance with Article 44.

14. PAYMENT OF INTEREST

a) Interest shall not normally be capitalised during the repayment period.

b) Interest shall be payable not less frequently than every six months and with the first payment to be made no later than six months after the starting point of credit.

c) A Participant intending to support a payment of interest on different terms than those set in paragraph a) and b) shall give prior notification in accordance with Article 44.

d) Interest excludes:

1) Any payment by way of premium or other charge for insuring or guaranteeing supplier credits or financial credits. Where official support is provided by means of direct credits/financing or refinancing, the premium either may be added to the face value of the interest rate or may be a separate charge; both components are to be specified separately to the Participants;

2) Any other payment by way of banking fees or commissions relating to the export credit other than annual or semi-annual bank charges that are payable throughout the repayment period; and

3) Withholding taxes imposed by the importing country.

15. VALIDITY PERIOD FOR EXPORT CREDITS

FINANCIAL TERMS AND CONDITIONS FOR AN INDIVIDUAL EXPORT CREDIT OR LINE OF CREDIT, OTHER THAN THE VALIDITY PERIOD FOR COMMERCIAL INTEREST REFERENCE RATES (CIRRS) SET OUT IN ARTICLE 20, SHALL NOT BE FIXED FOR A PERIOD EXCEEDING SIX MONTHS PRIOR TO FINAL COMMITMENT.16. ACTION TO AVOID OR MINIMISE LOSSES

The Arrangement does not prevent export credit authorities or financing institutions from agreeing to less restrictive financial terms and conditions than those provided for by the Arrangement, if such action is taken after the contract award (when the export credit agreement and ancillary documents have already become effective) and is intended solely to avoid or minimise losses from events which could give rise to non-payment or claims.

17. MATCHING

Taking into account a Participant's international obligations and consistent with the purpose of the Arrangement, a Participant may match, according to the procedures set out in Article 41, financial terms and conditions offered by a Participant or a non-Participant. Financial terms and conditions provided in accordance with this Article are considered to be in conformity with the provisions of Chapter I, II and, when applicable, Annexes I, II and III.

18. MINIMUM FIXED INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT

a) The Participants providing official financing support for fixed rate loans shall apply the relevant Commercial Interest Reference Rates (CIRRs) as minimum interest rates. CIRRs are interest rates established according to the following principles:

1) CIRRs should represent final commercial lending interest rates in the domestic market of the currency concerned;

2) CIRRs should closely correspond to the rate for first-class domestic borrowers;

3) CIRRs should be based on the funding cost of fixed interest-rate finance;

4) CIRRs should not distort domestic competitive conditions; and

5) CIRRs should closely correspond to a rate available to first-class foreign borrowers.

b) The provision of official financing support shall not offset or compensate, in part or in full, for the appropriate credit risk premium to be charged for the risk of non-repayment pursuant to the provisions of Article 22.

19. CONSTRUCTION OF CIRRS

a) Each Participant wishing to establish a CIRR shall initially select one of the following two base rate systems for its national currency:

1) three-year government bond yields for a repayment term of up to and including five-years; five-year government bond yields for over five and up to and including eight-and-a half years; and seven-year government bond yields for over eight-and-a-half years; or

2) five-year government bond yields for all maturities.

Exceptions to the base rate system shall be agreed by the Participants.

b) CIRRs shall be set at a fixed margin of 100 basis points above each Participant's base rate unless Participants have agreed otherwise.

c) Other Participants shall use the CIRR set for a particular currency should they decide to finance in that currency.

d) A Participant may change its base rate system after giving six months' advance notice and with the counsel of the Participants.

e) A Participant or a non-Participant may request that a CIRR be established for the currency of a non-Participant. In consultation with the interested non-Participant, a Participant or the Secretariat on behalf of that non-Participant may make a proposal for the construction of the CIRR in that currency using common line procedures in accordance with Articles 54 to 59.

20. VALIDITY OF CIRRS

The interest rate applying to a transaction shall not be fixed for a period longer than 120 days. A margin of 20 basis points shall be added to the CIRR if the terms and conditions of the official financing support are fixed before the contract date.

21. APPLICATION OF CIRRS

a) Where official financing support is provided for floating rate loans, banks and other financing institutions shall not be allowed to offer the option of the lower of either the CIRR (at time of the original contract) or the short-term market rate throughout the life of the loan.

b) In the event of a voluntary, early repayment of a loan of or any portion thereof, the borrower shall compensate the government institution providing official financing support for all costs and losses incurred as a result of such early repayment, including the cost to the government institution of replacing the part of the fixed rate cash inflow interrupted by the early repayment.

22. PREMIUM FOR CREDIT RISK

The Participants shall charge premium, in addition to interest charges, to cover the risk of non-repayment of export credits. The premium rates charged by the Participants shall be risk based, shall converge and shall not be inadequate to cover long-term operating costs and losses.

23. MINIMUM PREMIUM RATES FOR COUNTRY AND SOVEREIGN CREDIT RISK

The Participants shall charge no less than the applicable Minimum Premium Rate (MPR) for Country and Sovereign Credit Risk, irrespective of whether the buyer/borrower is a private or public entity.

a) The applicable MPR is determined according to the following factors:

- the applicable country risk classification as set out in Article 24;

- whether official export credit cover is strictly limited to country risk as defined in Article 24 a);

- the time at risk (i.e. the Horizon of Risk or HOR);

- the percentage of cover and quality of official export credit product provided as set out in Article 26, and

- any country risk mitigation/exclusion technique applied as set out in Article 27.

b) MPRs are expressed in percentages of the principal value of the credit as if premium were collected in full at the date of the first drawdown of the credit. An explanation of the mathematical formula used to calculate the MPRs is provided in Annex V.

c) For countries classified in Category 0 as set out in Article 24, no MPRs have been established but the Participants shall not charge premium rates which undercut available private market pricing.

d) The "highest risk" countries in Category 7 shall, in principle, be subject to premium rates in excess of the MPRs established for that Category; these premium rates shall be determined by the Participant providing official support.

e) In calculating the MPR for a transaction, the applicable country risk classification to be applied shall be the classification of the buyer's country, unless:

- Security in the form of an irrevocable, unconditional, on-demand, legally valid and enforceable guarantee of the total debt repayment obligation for the entire duration of the credit is provided by an entity, creditworthy in relation to the size of the guaranteed debt, in a third country, in which case the applicable Country Risk Classification may be that of the country in which the guarantor is located; or

- A Multilateral or Regional Institution as set out in Article 25 is acting either as borrower or guarantor for the transaction, in which case the applicable Country Risk Classification may be that of the specific Multilateral or Regional Institution involved.

f) The criteria and conditions relating to the application of a country risk classification according to the situations described in the first and second tirets of Article 23 e) are set out in Annex VI.

g) If official support is strictly limited to country risk as defined in Article 24 a), i.e. cover of buyer/borrower risk is completely excluded, the MPR is reduced by 10 per cent; this is captured by the mathematical formula used to calculate the MPRs in Annex V.

h) The HOR convention used in the calculation of an MPR is one half of the disbursement period plus the entire repayment period and assumes a regular export credit repayment profile, i.e. repayment in equal semi-annual instalments of principal plus accrued interest beginning six months after the starting point of credit. For export credits with non-standard repayment profiles, the equivalent repayment period (expressed in terms of equal, semi-annual instalments) is calculated using the following formula: equivalent repayment period = (average weighted life of the repayment period -0.25) / 0.5.

i) The Participant applying the MPR in the case referred to in the first tiret of paragraph e) above that leads to a premium rate below the MPR applicable to the buyer's country shall give prior notification according to Article 43 a). The Participant applying the MPR in the case referred to in the second tiret of Article 23 e) or in Article 23 g) shall give prior notification in accordance with Article 44 a).

24. COUNTRY RISK CLASSIFICATION

Countries shall be classified according to the likelihood of whether they will service their external debts (i.e. country credit risk).

a) The five elements of country credit risk are:

- general moratorium on repayments decreed by the buyer's/borrower's/guarantor's government or by that agency of a country through which repayment is effected;

- political events and/or economic difficulties arising outside the country of the notifying Participant or legislative/administrative measures taken outside the country of the notifying Participant which prevent or delay the transfer of funds paid in respect of the credit;

- legal provisions adopted in the buyer's/borrower's country declaring repayments made in local currency to be a valid discharge of the debt, notwithstanding that, as a result of fluctuations in exchange rates, such repayments, when converted into the currency of the credit, no longer cover the amount of the debt at the date of the transfer of funds;

- any other measure or decision of the government of a foreign country which prevents repayment under a credit; and

- cases of force majeure occurring outside the country of the notifying Participant, i.e. war (including civil war), expropriation, revolution, riot, civil disturbances, cyclones, floods, earthquakes, eruptions, tidal waves and nuclear accidents.

b) Countries are classified into one of eight Country Risk Categories (0-7). MPRs have been established for Categories 1 through 7, but not for Category 0, as the level of country risk is considered to be negligible for countries in this Category.

c) High Income OECD Countries, as defined by the World Bank on an annual basis according to per capita GNI, are classified in Category 0.

- For the purposes of the MPRs, any OECD country classified in Category 0 by virtue of its High Income status shall remain classified in Category 0 until it falls below the High Income GNI threshold for two consecutive years, at which time the country's classification should be reviewed according to Article 24 d) to f).

- Any OECD country above the High Income threshold for two consecutive years shall be classified, by definition, in Category 0. Such classification shall take effect immediately after the Secretariat has communicated a country's status as determined by the World Bank.

- Other countries deemed to be of a similar risk level may also be classified in Category 0.

d) All countries other than High Income OECD Countries [7] are classified through the Country Risk Classification Methodology, which is comprised of:

[7] For administrative purposes, some countries that do not generally receive officially supported export credits may not be classified

- The Country Risk Assessment Model (the Model), which produces a quantitative assessment of country credit risk which is based, for each country, on three groups of risk indicators: the payment experience of the Participants, the financial situation and the economic situation. The methodology of the Model consists of different steps including the assessment of the three groups of risk indicators, and the combination and flexible weighting of the risk indicator groups.

- The qualitative assessment of the Model results, considered country-by-country to integrate the political risk and/or other risk factors not taken into account in full or in part by the Model. If appropriate, this may lead to an adjustment to the quantitative Model assessment to reflect the final assessment of the country credit risk.

e) Country Risk Classifications shall be monitored on an ongoing basis and reviewed at least annually and changes resulting from the Country Risk Classification Methodology shall be immediately communicated by the Secretariat. When a country is re-classified in a lower or higher Country Risk Category, the Participants shall, no later than five working days after the re-classification has been communicated by the Secretariat, charge premium rates at or above the MPRs associated with the new Country Risk Category.

f) The applicable country risk classifications shall be made public by the Secretariat.

25. CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS

Multilateral and Regional Institutions shall be classified and reviewed as appropriate; such applicable classifications shall be made public by the Secretariat.

26. PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER

The MPRs are differentiated to take account of the differing quality of export credit products and percentage of cover provided by the Participants as set out in Annex V. The differentiation is based on the exporter's perspective (i.e. to neutralise the competitive effect arising from the differing qualities of product provided to the exporter/financial institution).

a) The quality of an export credit product is a function of whether the product is insurance, guarantee or direct credit/financing, and for insurance products whether cover of interest during the claims waiting period (i.e. the period between the due date of payment by the buyer/borrower and the date that the insurer is liable to reimburse the exporter/financial institution) is provided without a surcharge.

b) All existing export credit products offered by the Participants shall be classified into one of the three product categories which are:

- below standard product, i.e. insurance without cover of interest during the claims waiting period and insurance with cover of interest during the claims waiting period with an appropriate premium surcharge;

- standard product, i.e. insurance with cover of interest during the claims waiting period without an appropriate premium surcharge and direct credit/financing; and

- above standard product, i.e. guarantees.

27. EXCLUSION OF SELECTED COUNTRY RISK ELEMENTS AND COUNTRY RISK MITIGATION TECHNIQUES

The Participants may, in accordance with the specific criteria and conditions set out in Annex VII, exclude certain elements of country risk or use defined country risk mitigation techniques listed in Article 27 b) resulting in lower applicable MPRs through the application of a Country Risk Mitigation/Exclusion Factor (MEF) in the MPR formula. The MEF is determined as follows:

a) With respect to the exclusion of selected country credit risk elements from official export credit cover:

- In situations where only the first three country credit risk elements, as set forth in Article 24 a), are excluded in their totality from cover, a MEF of 0.5 may be applied.

- In situations where only the fourth and fifth country credit risk elements, as set forth in Article 24 a), are excluded in their totality from cover, a MEF of 0.2 may be applied.

b) With respect to the following country risk mitigation techniques, the applicable MPR as well as the criteria and conditions under which the MEF may be applied are set out in Annex VII:

- Offshore Future Flow Structure Combined with Offshore Escrow Account

- Offshore Hard Security

- Offshore Asset-Based Security

- Offshore Asset-Secured and Asset-Based Financing

- Co-financing with International Financial Institutions (IFIs)

- Local Currency Financing

- Third Country Insurance or Conditional Guarantee

- Debtor Representing a Better Risk Than the Sovereign

c) The application of more than one of the country risk mitigation techniques described in Article 27 b) shall not have a direct cumulative impact on the applicable MEF. The selection of an appropriate MEF to reflect the combination of country risk mitigation techniques shall take into account the possible overlapping impact of two or more techniques on identical country credit risks. In the case of overlapping, only the best quality security shall normally be considered in determining the appropriate, applicable MEF.

d) The Participant applying the MPR in the cases referred to in Article 27 a) to c) shall give prior notification according to Article 43 a).

e) The list of country risk mitigation techniques in Article 27 b) is not intended to be a closed list; in accordance with Article 65, the Participants shall monitor and review the body of experience with the use of these techniques including the applicable criteria, conditions, circumstances and MEFs set forth in Annex VII.

28. REVIEW OF THE VALIDITY OF THE MINIMUM PREMIUM RATES FOR COUNTRY AND SOVEREIGN CREDIT RISK

a) To assess the adequacy of MPRs and to allow, if necessary, for adjustments, either upwards or downwards, three Premium Feedback Tools (PFTs), shall be used in parallel to monitor and adjust the MPRs.

b) The Cash Flow PFT and the Accruals PFT are accounting approaches that assess the validity of the MPRs on an aggregate, Country Risk Category and Horizon of Risk basis according to the Participants' actual results in relation to the country and sovereign credit risk of export credits subject to the MPRs.

c) The third PFT is comprised of four sets of Private Market Indicators [8] which provide information on market's pricing of country and sovereign credit risk.

[8] The Private Market Indicators are: sovereign bonds, read-across method, forfeit market and syndicated loan.

CHAPTER III: PROVISIONS FOR TIED AID

29. GENERAL PRINCIPLES

a) The Participants have agreed to have complementary policies for export credits and tied aid. Export credit policies should be based on open competition and the free play of market forces. Tied aid policies should provide needed external resources to countries, sectors or projects with little or no access to market financing. Tied aid policies should ensure best value for money, minimise trade distortion, and contribute to developmentally effective use of these resources.

b) The tied aid provisions of the Arrangement do not apply to the aid programmes of multilateral or regional institutions.

c) These principles do not prejudge the views of the Development Assistance Committee (DAC) on the quality of tied and untied aid.

d) A Participant may request additional information relevant to the tying status of any form of aid. If there is uncertainty as to whether a certain financing practice falls within the scope of the definition of tied aid set out in Annex XI, the donor country shall furnish evidence in support of any claim to the effect that the aid is in fact "untied" in accordance with the definition in Annex XI.

30. FORMS OF TIED AID

Tied aid can take the form of:

a) Official Development Assistance (ODA) loans as defined in the "DAC Guiding Principles for Associated Financing and Tied and Partially Untied Official Development Assistance (1987)";

b) ODA grants as defined in the "DAC Guiding Principles for Associated Financing and Tied and Partially Untied Official Development Assistance (1987)"; and

c) Other Official Flows (OOF), which includes grants and loans but excludes officially supported export credits that are in conformity with the Arrangement; or

d) Any association, e.g. mixture, in law or in fact, within the control of the donor, the lender or the borrower involving two or more of the preceding, and/or the following financing components:

1) an export credit that is officially supported by way of direct credit/financing, refinancing, interest rate support, guarantee or insurance to which the Arrangement applies; and

2) other funds at or near market terms, or down payment from the purchaser.

31. ASSOCIATED FINANCING

a) Associated financing may take various forms including mixed credits, mixed financing, joint financing, parallel financing or single integrated transactions. The main characteristics are that they all feature :

- a concessional component that is linked in law or in fact to the non-concessional component;

- either a single part or all of the financing package that is, in effect, tied aid; and

- concessional funds those are available only if the linked non-concessional component is accepted by the recipient.

b) Association or linkage "in fact" is determined by such factors as:

- the existence of informal understandings between the recipient and the donor authorities;

- the intention by the donor to facilitate the acceptability of a financing package through the use of ODA;

- the effective tying of the whole financing package to procurement in the donor country;

- the tying status of ODA and the means of tendering for or contracting of each financing transaction; or

- any other practice, identified by the DAC or the Participants in which a de facto liaison exists between two or more financing components.

c) The following practices shall not prevent the determination of an association or linkage "in fact":

- contract splitting through the separate notification of the component parts of one contract;

- splitting of contracts financed in several stages;

- non-notification of interdependent parts of a contract; and/or

- non-notification because part of the financing package is untied.

32. COUNTRY ELIGIBILITY FOR TIED AID

a) There shall be no tied aid to countries which, according to their per capita GNI, are ineligible for 17-year loans from the World Bank. The World Bank recalculates the threshold for this category on an annual basis [9]. A country will be reclassified only after its World Bank category has been unchanged for two consecutive years.

[9] Based on the annual review by the World Bank of its country classification, a per capita Gross National Income (GNI) threshold will be used for the purpose of tied aid eligibility; such threshold is available on the OECD website (www.oecd.org/ech/xcred).

b) The following operational criteria and procedures apply when classifying countries.

1) Classification for Arrangement purposes is determined by per capita GNI as calculated by the World Bank for the purposes of the World Bank classification of borrowing countries; this classification shall be made public by the Secretariat.

2) In cases where the World Bank does not have enough information to publish per capita GNI data, the World Bank shall be asked to estimate whether the country in question has per capita GNI above or below the current threshold. The country shall be classified according to the estimate unless the Participants decide to act otherwise.

3) If a country's eligibility for tied aid does change in accordance with Article 32 a), the reclassification shall take effect two weeks after the conclusions drawn from the above mentioned World Bank data have been communicated to all Participants by the Secretariat. Before the effective date of reclassification no tied aid financing for a newly eligible country may be notified; after that date, no tied aid financing for a newly promoted country may be notified, except that individual transactions covered under a prior committed credit line may be notified until the expiry of the credit line (which shall be no more than one year from the effective date).

4) In cases where the World Bank revises figures such revisions shall be disregarded in relation to the Arrangement. Nevertheless, the classification of a country may be changed by way of a common line, in accordance with the appropriate procedures in Articles 54 to 59, and the Participants would favourably consider a change due to errors and omissions in the figures subsequently recognised in the same calendar year as the figures were first distributed by the Secretariat.

5) Notwithstanding the classifications of countries ineligible or eligible to receive tied aid, the Participants should avoid providing any tied aid credit, other than outright grants, food and humanitarian aid as well as aid designed to mitigate the effects of nuclear or major industrial accidents or to prevent their occurrence, for Belarus, Bulgaria, Latvia, Lithuania, Romania, the Russian Federation and Ukraine. Should the per capita GNI of any of these countries exceed, for three consecutive years, the World Bank's threshold for ineligibility for 17-year loans, country eligibility for such credits would be subject to Articles 32 a) and b) 1) to 4) above, as well as all other tied aid provisions of the Arrangement [10].

[10] FOR THE PURPOSE OF ARTICLE 32 B) 5), THE DE-COMMISSIONING OF NUCLEAR POWER PLANT CAN BE REGARDED AS HUMANITARIAN AID.

33. PROJECT ELIGIBILITY

a) Tied aid shall not be extended to public or private projects that normally should be commercially viable if financed on market or Arrangement terms.

b) The key tests for such aid eligibility are:

- whether the project is financially non-viable, i.e. does the project lack capacity with appropriate pricing determined on market principles, to generate cash flow sufficient to cover the project's operating costs and to service the capital employed, i.e. the first key test, or

- whether it is reasonable to conclude, based on communication with other Participants, which it is unlikely that the project can be financed on market or Arrangement terms, i.e. the second key test. In respect of projects larger than 50 million SDRs special weight shall be given to the expected availability of financing at market or Arrangement terms when considering the appropriateness of such aid.

c) The key tests under sub-paragraph b) above are intended to describe how a project should be evaluated to determine whether it should be financed with such aid or with export credits on market or Arrangement terms. Through the consultation process described in Articles 47 to 49, a body of experience is expected to develop over time that will more precisely define, for both export credit and aid agencies, ex ante guidance as to the line between the two categories of projects.

34. MINIMUM CONCESSIONALITY LEVEL

The Participants shall not provide tied aid that has a concessionality level of less than 35 per cent, or 50 per cent if the beneficiary country is a Least Developed Country (LDC), except for the cases set out below, which are also exempt from the notification procedures set out in Article 46 a):

a) technical assistance: tied aid where the official development aid component consists solely of technical co-operation that is less than either three per cent of the total value of the transaction or one million Special Drawing Rights (SDRs), whichever is lower; and

b) small projects: capital projects of less than one million SDRs that are funded entirely by development assistance grants.

35. EXEMPTIONS FROM COUNTRY OR PROJECT ELIGIBILITY FOR TIED AID

a) The provisions of Articles 32 and 33 do not apply to tied aid where the concessionality level is 80 per cent or more except for tied aid that forms part of an associated financing package, described in Article 31.

b) The provisions of Article 33 do not apply to tied aid with a value of less than two million SDRs except for tied aid that forms part of an associated financing package, described in Article 31.

c) Tied aid for LDCs as defined by the United Nations is not subject to the provisions of Articles 32 and 33.

d) Notwithstanding Articles 32 and 33, a Participant may, exceptionally, provide support by one of the following means:

- the common line procedure as defined in Annex XI and described in Articles 54 to 59; or

- justification on aid grounds through support by a substantial body of the Participants as described in Articles 47 and 48; or

- a letter to the OECD Secretary-General, in accordance with the procedures in Article 49, which the Participants expect will be unusual and infrequent.

36. CALCULATION OF CONCESSIONALITY LEVEL OF TIED AID

The concessionality level of tied aid is calculated using the same method as for the grant element used by the DAC, except that:

a) the discount rate used to calculate the concessionality level of a loan in a given currency, i.e. the Differentiated Discount Rate (DDR), is subject to annual change on 15 January and is calculated as follows:

- The average of the CIRR + Margin

Margin (M) depends on the repayment term (R) as follows:

R // M

less than 15 years // 0.75

from 15 years up to, but not including 20 years // 1.00

from 20 years up to but not including 30 years // 1.15

from 30 years and above // 1.25

- For all currencies the average of the CIRR is calculated taking an average of the monthly CIRRs valid during the six-month period between 15 August of the previous year and 14 February of the current year. The calculated rate, including the Margin, is rounded to the nearest ten basis points. If there is more than one CIRR for the currency, the CIRR for the longest maturity as set out in Article 19 a), shall be used for this calculation.

b) The base date for the calculation of the concessionality level is the starting point of credit as set out in Annex XI.

c) For the purpose of calculating the overall concessionality level of an associated financing package, the concessionality levels of the following credits, funds and payments are considered to be zero:

- export credits that are in conformity with the Arrangement;

- other funds at or near market rates;

- other official funds with a concessionality level of less than the minimum permitted under Article 34 except in cases of matching; and

- down payment from the purchaser.

Payments on or before the starting point of credit that are not considered down payment shall be included in the calculation of the concessionality level.

d) The discount rate in matching: in matching aid, identical matching means matching with an identical concessionality level that is recalculated with the discount rate in force at the time of matching.

e) Local costs and third country procurement shall be included in the calculation of concessionality level only if they are financed by the donor country.

f) The overall concessionality level of a package is determined by multiplying the nominal value of each component of the package by the respective concessionality level of each component, adding the results, and dividing this total by the aggregate nominal value of the components.

g) The discount rate for a given aid loan is the rate in effect at the time of notification. However, in cases of prompt notification, the discount rate is the one in effect at the time when the terms and conditions of the aid loan were fixed. A change in the discount rate during the life of a loan does not change its concessionality level.

h) If a change of currency is made before the contract is concluded, the notification shall be revised. The discount rate used to calculate the concessionality level will be the one applicable at the date of revision. A revision is not necessary if the alternative currency and all the necessary information for calculation of the concessionality level are indicated in the original notification.

i) Notwithstanding sub-paragraph g), the discount rate used to calculate the concessionality level of individual transactions initiated under an aid credit line shall be the rate that was originally notified for the credit line.

37. VALIDITY PERIOD FOR TIED AID

a) The Participants shall not fix terms and conditions for tied aid, whether this relates to the financing of individual transactions or to an aid protocol, an aid credit line or to a similar agreement, for more than two years. In the case of an aid protocol, an aid credit line or similar agreement, the validity period shall commence at the date of its signature, to be notified in accordance with Article 46; the extension of a credit line shall be notified as if it were a new transaction with a note explaining that it is an extension and that it is renewed at terms allowed at the time of the notification of the extension. In the case of individual transactions, including those notified under an aid protocol, an aid credit line or similar agreement, the validity period shall commence at the date of notification of the commitment in accordance with Article 45 or 46, as appropriate.

b) When a country has become ineligible for 17-year World Bank Loans for the first time, the validity period of existing and new tied aid protocols and credit lines notified shall be restricted to one year after the date of the potential reclassification in accordance with procedures in Article 32 b).

c) Renewal of such protocols and credit lines is possible only on terms which are in accordance with the provisions of Articles 32 and 33 of the Arrangement following:

- reclassification of countries; and

- a change in the provisions of the Arrangement.

In these circumstances, the existing terms and conditions can be maintained notwithstanding a change in the discount rate set out in Article 36.

38. MATCHING

Taking into account a Participant's international obligations and consistent with the purpose of the Arrangement, a Participant may match, according to the procedures set out in Article 41, financial terms and conditions offered by a Participant or a non-Participant.

CHAPTER IV: PROCEDURES

SECTION 1: COMMON PROCEDURES FOR EXPORT CREDITS AND TRADE-RELATED AID

39. STANDARD FORM FOR ALL NOTIFICATIONS

The notifications set out by the procedures in the Arrangement shall be made in accordance with, and include the information contained in the Standard Form in Annexes IV and VIII as appropriate, and shall be copied to the Secretariat.

40. INFORMATION ON OFFICIAL SUPPORT

a) As soon as a Participant commits the official support which it has notified in accordance with the procedures in Articles 43 to 46, it shall inform all other Participants accordingly by including the notification reference number on the relevant Creditor Reporting System (CRS) Form 1C.

b) In an exchange of information in accordance with Articles 51 to 53, a Participant shall inform the other Participants of the credit terms and conditions that it envisages supporting for a particular transaction and may request similar information from the other Participants.

41. PROCEDURES FOR MATCHING

a) Before matching financial terms and conditions assumed to be offered by a Participant or a non-Participant pursuant to Articles 17 and 38, a Participant shall make every reasonable effort, including as appropriate by use of the face-to-face consultations described in Article 53 to verify that these terms and conditions are officially supported and shall comply with the following:

1) The Participant shall notify all other Participants of the terms and conditions it intends to support following the same notification procedures required for the matched terms and conditions. In the case of matching a non-Participant, the matching Participant shall follow the same notification procedures that would have been required had the matched terms been offered by a Participant.

2) Notwithstanding 1) above, if the applicable notification procedure would require the matching Participant to withhold its commitment beyond the final bid closing date, then the matching Participant shall give notice of its intention to match as early as possible.

3) If the initiating Participant moderates or withdraws its intention to support the notified terms and conditions, it shall immediately inform all other Participants accordingly.

b) A Participant intending to offer identical financial terms and conditions to those notified according to Articlesp 43 and 44 may do so once the waiting period stipulated therein has expired. This Participant shall give notification of its intention as early as possible

42. SPECIAL CONSULTATIONS

a) A Participant that has reasonable grounds to believe that financial terms and conditions offered by another Participant (the initiating Participant) are more generous than those provided for in the Arrangement shall inform the Secretariat; the Secretariat shall immediately make available such information.

b) The initiating Participant shall clarify the financial terms and conditions of its offer within two working days following the issue of the information from the Secretariat

c) Following clarification by the initiating Participant, any Participant may request that a special consultation meeting of the Participants be organised by the Secretariat within five working days to discuss the issue.

d) Pending the outcome of the special consultation meeting of the Participants, financial terms and conditions benefiting from official support shall not become effective.

SECTION 2: PROCEDURES FOR EXPORT CREDITS

43. PRIOR NOTIFICATION WITH DISCUSSION

a) A Participant shall notify all other Participants at least ten calendar days before issuing any commitment if the Minimum Premium Rate applied has been determined according to the first tiret of Article 23 e) or Article 27. The notification shall be provided in accordance with Annex VIII. If any other Participant requests a discussion during this period, the initiating Participant shall wait an additional ten calendar days. If the applicable MPR after risk mitigation/exclusion is less than or equal to 75 per cent of the MPR which would result from the application of the buyer country's country risk classification without any risk mitigation or exclusion, the notifying Participant shall notify all other Participants at least 20 calendar days before issuing any commitment.

b) A Participant shall inform all other Participants of its final decision following a discussion to facilitate the review of the body of experience in Accordance with Article 65. The Participants shall maintain records of their experience with regard to premium rates notified in accordance with paragraph a) above.

44. PRIOR NOTIFICATION WITHOUT DISCUSSION

a) A Participant shall notify all other Participants at least 10 calendar days before issuing any commitment if it intends:

1) to support a repayment term of more than five but not exceeding eight-and-a-half years to a Category I country;

2) to follow payment practices with respect to the principal or interest other than those referred to in Articles 13 and 14;

3) to provide support for a non-nuclear power plant with a repayment term longer than the relevant maximum in Article 11, but not exceeding 12 years as stipulated in Article 12 a);

4) to apply a premium rate in accordance with the second tiret of Article 23 e). Such notification shall be provided in accordance with Annex VIII.

5) to apply a premium rate in accordance with Article 23 g). Such notification shall be provided in accordance with Annex VIII.

b) If the initiating Participant moderates or withdraws its intention to provide support for such transaction, it shall immediately inform all other Participants.

SECTION 3: PROCEDURES FOR TRADE-RELATED AID

45. PRIOR NOTIFICATION

a) A Participant shall give prior notification if it intends to provide official support for:

- trade-related untied aid with a value of two million SDRs or more, and a concessionality level of less than 80 per cent;

- trade-related untied aid with a value of less than two million SDRs and a grant element (as defined by the DAC) of less than 50 per cent;

- trade-related tied aid with a value of two million SDRs or more and a concessionality level of less than 80 per cent; or

- trade-related tied aid with a value of less than two million SDRs and a concessionality level of less than 50 per cent, except for the cases set out in Article 34 a) and b).

b) Prior notification shall be made at the latest 30 working days before the bid closing or commitment date, whichever is the earlier.

c) If the initiating Participant moderates or withdraws its intention to support the notified terms and conditions, it shall immediately inform all other Participants accordingly.

d) The provision of this Article shall apply to tied aid that forms part of an associated financing package, as described in Article 31.

46. PROMPT NOTIFICATION

a) A Participant shall promptly notify all other Participants, i.e. within two working days of the commitment, if it provides official support for tied aid with a value of either:

- two million SDRs or more and a concessionality level of 80 per cent or more; or

- less than two million SDRs and a concessionality level of 50 per cent or more except for the cases set out in Article 34 a) and b).

b) A Participant shall also promptly notify all other Participants when an aid protocol, credit line or similar agreement is signed.

c) Prior notification need not be given if a Participant intends to match financial terms and conditions that were subject to a prompt notification.

SECTION 4: CONSULTATION PROCEDURES FOR TIED AID

47. PURPOSE OF CONSULTATIONS

a) A Participant seeking clarification about possible trade motivation for tied aid may request that a full Aid Quality Assessment (detailed in Annex IX) be supplied.

b) Furthermore, a Participant may request consultations with other Participants, in accordance with Article 48. These include face-to-face consultations as outlined in Article 53 in order to discuss:

- first, whether an aid offer meets the requirements of Articles 32 and 33 and

- if necessary, whether an aid offer is justified even if the requirements of Articles 32 and 33 are not met.

48. SCOPE AND TIMING OF CONSULTATIONS

a) During consultations, a Participant may request, among other items, the following information:

- whether there is a competing offer with non-concessional or aid financing;

- the expectation of the project generating or saving foreign currency;

- whether there is co-operation with multilateral organisations such as the World Bank;

- the presence of International Competitive Bidding (ICB), in particular if the donor country's supplier is the lowest evaluated bid;

- the environmental implications;

- any private sector participation; and

- the timing of the notifications (e.g. six months prior to bid closing or commitment date) of concessional or aid credits.

b) The consultation shall be completed and the findings on both questions in Article 47 notified by the Secretariat to all Participants at least ten working days before the bid closing date or commitment date, whichever comes first. If there is disagreement among the consulting parties, the Secretariat shall invite other Participants to express their views within five working days. It shall report these views to the notifying Participant, which should reconsider going forward if there appears to be no substantial support for an aid offer.

49. OUTCOME OF CONSULTATIONS

a) A donor which wishes to proceed with a project despite the lack of substantial support shall provide prior notification of its intentions to other Participants, no later than 60 calendar days after the completion of the Consultation, i.e. acceptance of the Chairman's conclusion. The donor shall also write a letter to the Secretary-General of the OECD outlining the results of the consultations and explaining the overriding non-trade related national interest that forces this action. The Participants expect that such an occurrence will be unusual and infrequent.

b) The donor shall immediately notify the Participants that it has sent a letter to the Secretary-General of the OECD, a copy of which shall be included with the notification. Neither the donor nor any other Participant shall make a tied aid commitment until ten working days after this notification to Participants has been issued. For projects for which competing commercial offers were identified during the consultation process, the aforementioned ten working day period shall be extended to 15 days.

c) The Secretariat shall monitor the progress and results of consultations.

SECTION 5: INFORMATION EXCHANGE FOR EXPORT CREDITS AND TRADE-RELATED AID

50. CONTACT POINTS

All communications shall be made between the designated contact points in each country by means of instant communication, e.g. OLIS, and shall be treated in confidence.

51. SCOPE OF ENQUIRIES

a) A Participant may ask another Participant about the attitude it takes with respect to a third country, an institution in a third country or a particular method of doing business.

b) A Participant which has received an application for official support may address an enquiry to another Participant, giving the most favourable credit terms and conditions that the enquiring Participant would be willing to support.

c) If an enquiry is made to more than one Participant, it shall contain a list of addressees.

d) A copy of all enquiries shall be sent to the Secretariat.

52. SCOPE OF RESPONSES

a) The Participant to which an enquiry is addressed shall respond within seven calendar days and provide as much information as possible. The reply shall include the best indication that the Participant can give of the decision it is likely to take. If necessary, the full reply shall follow as soon as possible. Copies shall be sent to the other addressees of the enquiry and to the Secretariat.

b) If an answer to an enquiry subsequently becomes invalid for any reason, because for example:

- an application has been made, changed or withdrawn, or

- other terms are being considered,

a reply shall be made without delay and copied to all other addressees of the enquiry and to the Secretariat.

53. FACE-TO-FACE CONSULTATIONS

a) A Participant shall agree within ten working days to requests for face-to-face consultations.

b) A request for face-to-face consultations shall be made available to Participants and non- Participants. The consultations shall take place as soon as possible after the expiry of the ten working day period.

c) The Chairman of the Participants shall co-ordinate with the Secretariat on any necessary follow-up action, e.g. a common line. The Secretariat shall promptly make available the outcome of the consultation.

54. PROCEDURES AND FORMAT OF COMMON LINES

a) Common line proposals are addressed only to the Secretariat. A proposal for a common line shall be sent to all Participants and, where tied aid is involved, all DAC contact points by the Secretariat. The identity of the initiator is not revealed on the Common Line Register on the Bulletin Board of the OLIS. However, the Secretariat may orally reveal the identity of the initiator to a Participant or DAC member on demand. The Secretariat shall keep a record of such requests.

b) The common line proposal shall be dated and shall be in the following format:

- reference number, followed by "Common Line";

- name of the importing country and buyer;

- name or description of the project as precise as possible to clearly identify the project;

- terms and conditions foreseen by the initiating country;

- common line proposal;

- nationality and names of known competing bidders;

- commercial and financial bid closing date and tender number to the extent it is known; and

- other relevant information, including reasons for proposing the common line, availability of studies of the project and/or special circumstances.

c) A common line proposal put forward in accordance with Article 32 b) 4 shall be addressed to the Secretariat and copied to other Participants. The Participant making the common line proposal shall provide a full explanation of the reasons why it considers that the classification of a country should differ from the procedure set out in Article 32 b).

d) The Secretariat shall make publicly available the agreed common lines.

55. RESPONSES TO COMMON LINE PROPOSALS

a) Responses shall be made within 20 calendar days, although the Participants are encouraged to respond to a common line proposal as quickly as possible.

b) A response may be a request for additional information, acceptance, and rejection, a proposal for modification of the common line or an alternative common line proposal.

c) A Participant which advises that it has no position because it has not been approached by an exporter, or by the authorities in the recipient country in case of aid for the project, shall be deemed to have accepted the common line proposal.

56. ACCEPTANCE OF COMMON LINES

a) After a period of 20 calendar days, the Secretariat shall inform all Participants of the status of the common line proposal. If not all Participants have accepted the common line, but no Participant has rejected it, the proposal shall be left open for a further period of eight calendar days.

b) After this further period, a Participant which has not explicitly rejected the common line proposal shall be deemed to have accepted the common line. Nevertheless, a Participant, including the initiating Participant, may make its acceptance of the common line conditional on the explicit acceptance by one or more Participants.

c) If a Participant does not accept one or more elements of a common line it implicitly accepts all other elements of the common line. It is understood that such a partial acceptance may lead other Participants to change their attitude towards a proposed common line. All Participants are free to offer or match terms and conditions not covered by a common line.

d) A common line which has not been accepted may be reconsidered using the procedures in Articles 54 and 55. In these circumstances, the Participants are not bound by their original decision.

57. DISAGREEMENT ON COMMON LINES

If the initiating Participant and a Participant which has proposed a modification or alternative cannot agree on a common line within the additional eight-calendar day period, this period can be extended by their mutual consent. The Secretariat shall inform all Participants of any such extension.

58. EFFECTIVE DATE OF COMMON LINE

The Secretariat shall inform all Participants either that the common line will go into effect or that it has been rejected; the common line will take effect three calendar days after this announcement. The Secretariat shall make available on OLIS a permanently updated record of all common lines which have been agreed or are undecided.

59. VALIDITY OF COMMON LINES

a) A common line, once agreed, shall be valid for a period of two years from its effective date, unless the Secretariat is informed that it is no longer of interest, and that this is accepted by all Participants. A common line shall remain valid for a further two-year period if a Participant seeks an extension within 14 calendar days of the original date of expiry. Subsequent extensions may be agreed through the same procedure. A common line agreed in accordance with Article 32 b) 4) shall be valid until World Bank data for the following year is available.

b) The Secretariat shall monitor the status of common lines and shall keep the Participants informed accordingly, through the maintenance of the listing "The Status of Valid Common Lines" on OLIS. Accordingly, the Secretariat, inter alia, shall:

- add new common lines when these have been accepted by the Participants;

- update the expiry date when a Participant requests an extension;

- delete common lines which have expired; and

- issue, on a quarterly basis, a list of common lines due to expire in the following quarter.

SECTION 6: OPERATIONAL PROVISIONS FOR THE COMMUNICATION OF MINIMUM INTEREST RATES (CIRRs)

60. COMMUNICATION OF MINIMUM INTEREST RATES

a) CIRRs for currencies that are determined according to the provisions of Article 19 shall be sent by means of instant communication at least monthly to the Secretariat for circulation to all Participants.

b) Such notification shall reach the Secretariat no later than five days after the end of each month covered by this information. The Secretariat shall then inform immediately all Participants of the applicable rates and make them publicly available.

61. EFFECTIVE DATE FOR APPLICATION OF INTEREST RATES

Any changes in the CIRRs shall enter into effect on the fifteenth day after the end of each month.

62. IMMEDIATE CHANGES IN INTEREST RATES

When market developments require the notification of an amendment to a CIRR during the course of a month, the amended rate shall be implemented ten days after notification of this amendment has been received by the Secretariat.

SECTION 7: REVIEWS

63. REGULAR REVIEW OF THE ARRANGEMENT

a) The Participants shall review regularly the functioning of the Arrangement. In the review, the Participants shall examine, inter alia, notification procedures, implementation and operation of the DDR system, rules and procedures on tied aid, questions of matching, prior commitments and possibilities of wider participation in the Arrangement.

b) This review shall be based on information of the Participants' experience and on their suggestions for improving the operation and efficacy of the Arrangement. The Participants shall take into account the objectives of the Arrangement and the prevailing economic and monetary situation. The information and suggestions that Participants wish to put forward for this review shall reach the Secretariat no later than 45 calendar days before the date of review.

64. REVIEW OF MINIMUM INTEREST RATES

a) The Participants shall periodically review the system for setting CIRRs in order to ensure that the notified rates reflect current market conditions and meet the aims underlying the establishment of the rates in operation. Such reviews shall also cover the margin to be added when these rates are applied.

b) A Participant may submit to the Chairman of the Participants a substantiated request for an extraordinary review in case this Participant considers that the CIRR for one or more than one currency no longer reflect current market conditions.

65. REVIEW OF MINIMUM PREMIUM RATES AND RELATED ISSUES

The Participants shall regularly monitor and review all aspects of the premium rules and procedures. This shall include:

a) the methodology for the Country Risk Assessment Model to review its validity in the light of experience;

b) the Minimum Premium Rates for country and sovereign credit risk to adjust them over time to ensure that they remain an accurate measure of risk, taking into account the three PFTs: the cash flow and accruals approaches and, where appropriate, private market indicators;

c) the differentiations in the MPRs which take account of the differing quality of export credit products and percentage of cover provided; and

d) the body of experience related to the use of risk mitigation and/or exclusion as set out in Article 27 and the continued validity and appropriateness of the specific allowable Risk Mitigation/Exclusion Factors. To assist the review the Secretariat shall provide reports of all notifications.

ANNEX I: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR SHIPS

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING

1. PARTICIPATION

The Participants to the Sector Understanding are: Australia, the European Community (which includes the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom), Japan, Korea, Norway, Poland and the Slovak Republic.

2. SCOPE OF APPLICATION

This Sector Understanding, which complements the Arrangement, sets out specific guidelines for officially supported export credits relating to export contracts of:

a) Any new sea-going vessel of 100 gt and above used for the transportation of goods or persons, or for the performance of a specialised service (for example, fishing vessels, fish factory ships, ice breakers and as dredgers, that present in a permanent way by their means of propulsion and direction (steering) all the characteristics of self-navigability in the high sea), tugs of 365 kw and over and to unfinished shells of ships that are afloat and mobile. The Sector Understanding does not cover military vessels. Floating docks and mobile offshore units are not covered by the Sector Understanding, but should problems arise in connection with export credits for such structures, the Participants to the Sector Understanding (hereinafter the "Participants"), after consideration of substantiated requests by any Participant, may decide that they shall be covered.

b) Any conversion of a ship. Ship conversion means any conversion of sea-going vessels of more than 1 000 gt on condition that conversion operations entail radical alterations to the cargo plan, the hull or the propulsion system.

c) 1) Although hovercraft-type vessels are not included in the Sector Understanding, Participants are allowed to grant export credits for hovercraft vessels on equivalent conditions to those prevailing in the Sector Understanding. They commit themselves to apply this possibility moderately and not to grant such credit conditions to hovercraft vessels in cases where it is established that no competition is offered under the conditions of the Sector Understanding.

2) In the Sector Understanding, the term "hovercraft" is defined as follows: an amphibious vehicle of at least 100 tons designed to be supported wholly by air expelled from the vehicle forming a plenum contained within a flexible skirt around the periphery of the vehicle and the ground or water surface beneath the vehicle, and capable of being propelled and controlled by aircrews or ducted air from fans or similar devices.

3) It is understood that the granting of export credits at conditions equivalent to those prevailing in this Sector Understanding should be limited to those hovercraft vessels used on maritime routes and non land routes, except for reaching terminal facilities standing at a maximum distance of 1 kilometre from the water.

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID

3. MAXIMUM REPAYMENT TERM

The maximum repayment term, irrespective of country classification, is 12 years after delivery.

4. CASH PAYMENT

The Participants shall require a minimum cash payment of 20 per cent of the contract price by delivery.

5. REPAYMENT OF PRINCIPAL

The principal sum of an export credit shall be repaid in equal installments at regular intervals of normally six months and a maximum of 12 months.

6. MINIMUM PREMIUM

The provisions of the Arrangement in relation to minimum premium benchmarks shall not be applied until such provisions have been further reviewed by the Participants to this Sector Understanding.

7. AID

Any Participant desiring to provide aid must, in addition to the provisions of the Arrangement, confirm that the ship is not operated under an open registry during the repayment term and that appropriate assurance has been obtained that the ultimate owner resides in the receiving country, is not a non-operational subsidiary of a foreign interest and has undertaken not to sell the ship without his government's approval.

CHAPTER III: PROCEDURES

8. NOTIFICATION

For the purpose of transparency each Participant shall, in addition to the provisions of the Arrangement and the IBRD/Berne Union/OECD Creditor Reporting System, provide annually information on its system for the provision of official support and of the means of implementation of this Sector Understanding, including the schemes in force.

9. REVIEW

a) The Sector Understanding shall be reviewed annually or upon request by any Participant within the context of the OECD Working Party on Shipbuilding, and a report made to the Participants to the Arrangement.

b) To facilitate coherence and consistency between the Arrangement and this Sector Understanding and taking into account the nature of the shipbuilding industry, the Participants to this Sector Understanding and to the Arrangement will consult and co-ordinate as appropriate.

c) Upon a decision by the Participants to the Arrangement to change the Arrangement, the Participants to this Sector Understanding (the Participants) will examine such a decision and consider its relevance to this Sector Understanding. ending such consideration the amendments to the Arrangement will not apply to this Sector Understanding. In case the Participants can accept the amendments to the Arrangement they shall report this in writing to the Participants to the Arrangement. In case the Participants cannot accept the amendments to the Arrangement as far as their application to shipbuilding is concerned they shall inform the Participants to the Arrangement of their objections and enter into consultations with them with a view to seeking a resolution of the issues. In case no agreement can be reached between the two groups, the views of the Participants as regards the application of the amendments to shipbuilding shall prevail.

d) Upon entry into force of the "Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and Repair Industry" this Sector Understanding shall cease to apply for those Participants who are legally required to apply the 1994 Understanding on Export Credits for Ships [C/WP6(94)6]. Such Participants shall work for an immediate review to bring the 1994 Understanding in accordance with this Sector Understanding.

ATTACHMENT: COMMITMENTS FOR FUTURE WORK

In addition to the Future Work of the Arrangement, the Participants to this Sector Understanding agree:

a) To develop an illustrative list of types of ships which are generally considered non-commercially viable, taking into account the disciplines on tied aid set out in the Arrangement.

b) To review the provisions of the Arrangement in relation to minimum premium benchmarks with a view to incorporating them into this Sector Understanding.

c) To discuss, subject to the developments in relevant international negotiations, the inclusion of other disciplines on minimum interest rates including a special CIRR and floating rates.

d) To discuss the applicability of yearly installments of repayment of principal.

ANNEX II: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR NUCLEAR POWER PLANT

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING

1. SCOPE OF APPLICATION

a) This Sector Understanding, which complements the Arrangement:

- sets out the special guidelines which apply to officially supported export credits relating to contracts for the export of complete nuclear power stations or parts thereof, comprising all components, equipment, materials and services, including the training of personnel, directly required for the construction and commissioning of such nuclear power stations. It also sets out the terms which apply to support for nuclear fuel;

- does not apply to items for which the buyer is usually responsible, in particular, costs associated with land development, roads, construction village, power lines, switchyard and water supply, as well as costs arising in the buyer's country from official approval procedures (e.g. site permit, construction permit, fuel loading permit), except

- in cases where the buyer of the switchyard is the same as the buyer of the power plant and the contract is concluded in relation to the original switchyard for that power plant, the maximum repayment term and the minimum interest rates for the original switchyard shall be the same as those for the nuclear power plant (i.e. 15 years and the SCIRRs);

- does not apply to sub-stations, transformers and transmission lines.

b) This Sector Understanding also applies to the modernisation of existing nuclear power plant in cases where both the overall value of the modernisation is at or above 80 million SDRs (Category X) and the economic life of the plant is likely to be extended by at least 15 years. If either of these criteria is not met, the terms of the Arrangement apply.

c) The terms of the Arrangement rather than the Sector Understanding shall apply to official support provided for the decommissioning of nuclear power plant. Decommissioning is defined as the closing down or dismantling of a nuclear power plant. The common line procedures set out in Articles 54 to 59 of the Arrangement provide the possibility to restrict or extend repayment terms.

2. REVIEW

The Participants shall review the provisions of the Sector Understanding regularly.

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID

3. MAXIMUM REPAYMENT TERM

The maximum repayment term, irrespective of the country classification, is 15 years.

4. MINIMUM INTEREST RATES

a) A Participant providing official financing support through direct financing, refinancing or interest rate support shall apply minimum interest rates; the Participant shall apply the relevant Special Commercial Interest Reference Rate (SCIRR). Where the fixed SCIRR commitment is limited initially to a maximum period which does not exceed 15 years starting from the date of contract award, any official support for the remaining period of the loan shall also be limited to guarantees or interest rate support at the relevant SCIRR prevailing at the time of roll-over.

b) Where official financing support is provided for equipment for the partial supply of nuclear power plant for which the supplier has no responsibility for commissioning, the minimum interest rate shall be the SCIRR in accordance with Article 5 of this Sector Understanding. Alternatively, a Participant may offer the relevant CIRR in accordance with Article 19 of the Arrangement, provided that the maximum period from the date of contract award to the date of final repayment does not exceed ten years.

5. CONSTRUCTION OF SCIRRS

SCIRRs shall be set at a fixed margin of 75 basis points above the CIRR for the currency in question, except that for the Japanese Yen, the margin shall be 40 basis points. For those currencies which have more than one CIRR rate, in accordance with the first tiret of Article 19 a) of the Arrangement, the CIRR for the longest term shall be used for constructing the SCIRR.

6. LOCAL COSTS AND CAPITALISATION OF INTEREST

The provisions of Article 9 d) of the Arrangement do not apply where official financing support is provided on the basis of the SCIRR. Official financing support at rates other than SCIRRs for both local costs and capitalisation of interest accruing before the starting point taken together shall not cover an amount exceeding 15 per cent of the export value.

7. OFFICIAL SUPPORT FOR NUCLEAR FUEL

a) The maximum repayment term for the initial fuel load shall not exceed four years from delivery. A Participant providing official financing support for the initial fuel load shall apply minimum interest rates; the Participant shall apply the relevant CIRR. The initial fuel load shall consist of no more than the initially installed nuclear core, plus two subsequent reloads, together consisting of up to two-thirds of a nuclear core.

b) The maximum repayment term for subsequent reloads of nuclear fuel is six months. If in exceptional circumstances longer terms, but in any case not exceeding two years, are considered appropriate the procedures set out in Article 43 of the Arrangement shall apply. A Participant providing official financing support for the subsequent reload of nuclear fuel shall apply minimum interest rates; the Participant shall apply the relevant CIRR.

c) Official support for the separate provision of Uranium Enrichment Services shall not be provided on terms more favourable than those which apply to nuclear fuel.

d) Reprocessing and spent fuel management (including waste disposal) shall be paid for on a cash basis.

e) The Participants shall not provide free nuclear fuel or services.

8. AID

The Participants shall not provide aid support, unless this is in the form of an untied grant.

CHAPTER III: PROCEDURES

9. PRIOR CONSULTATION

Recognising the advantages which can accrue if a common attitude towards terms can be achieved for nuclear power plant, the Participants agree to engage in prior consultation in all cases where there is an intention to provide official support.

10. PRIOR NOTIFICATION

a) The Participant initiating a prior consultation shall notify all other Participants at least ten working days before taking a final decision of the terms it intends to support specifying, inter alia, the following details:

- down payment;

- repayment term (including the starting point of credit, frequency of instalments for repaying principal, and whether these instalments will be equal in amount);

- currency and value rating of the contract, in accordance with paragraph 7 of Annex IV;

- interest rate;

- support for local costs, including the total amount of local costs expressed as a percentage of the export contract value, the terms of payment, the nature of the support to be given;

- the portion of the project to be financed, with separate information for initial fuel load, where appropriate; and

- any other relevant information including references to related cases.

b) Other Participants shall not take a final decision on the terms it will support during the ten working day period specified in sub-paragraph a) above but shall within five days exchange information with all other Participants in the consultation on the appropriate credit terms for the transaction with the objective of achieving a common attitude on such terms.

c) If a common attitude is not achieved through these means within the ten-day period after receipt of the initial notification the final decision of each Participant in the consultation shall be delayed for an additional ten working days during which period further efforts to achieve a common attitude shall be made at face-to-face consultations.

ANNEX III: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR CIVIL AIRCRAFT

PART 1. NEW LARGE AIRCRAFT AND ENGINES FOR SUCH AIRCRAFT

CHAPTER I: SCOPE

1. FORM AND SCOPE OF APPLICATION

a) Part 1 of the Sector Understanding, which complements the Arrangement, sets out the special guidelines which apply to officially supported export credits relating to the sale or lease of new large civil aircraft, listed in Appendix I, and the engines installed in such aircraft. A new aircraft is an aircraft owned by the manufacturer, i.e. an aircraft which has not been delivered nor previously used for its intended purpose of carrying fare-paying passengers and/or freight. This would not preclude support by a Participant for terms appropriate to new aircraft for transactions where, with the prior knowledge of that Participant, interim commercial financing arrangements had been put in place because the provision of official support had been delayed. In such cases, the repayment term, including the "starting point of the credit" and the "final repayment date", would be the same as they would have been had the sale or lease of the aircraft received official support from the date the aircraft was originally delivered.

b) The terms of Chapter I also apply to engines and spare parts when contemplated as part as part of the original aircraft order, subject to the provisions of Article 29 of Part 3 of this Sector Understanding. It does not apply to flight simulators, which are subject to the terms of the Arrangement.

2. OBJECTIVE

The objective of this Part of the Sector Understanding is to establish a balanced equilibrium that on all markets:

- equalises competitive financial conditions between the Participants;

- neutralises finance among the Participants as a factor in the choice among competing aircraft; and

- avoids distortions of competition.

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND AID

3. DOWN PAYMENT

a) The Participants shall require a minimum down payment of 15 per cent of the total price of the aircraft, which includes the price of the airframe, any installed engines plus the spare engines and spare parts to the extent referred to in Article 29 of Part 3 of this Sector Understanding.

b) Official support for such down payment can only take the form of insurance and guarantees, i.e. pure cover, against the usual pre-credit risks.

4. MAXIMUM REPAYMENT TERM

The maximum repayment term is 12 years.

5. ELIGIBLE CURRENCIES

The currencies which are eligible for official financing support are US Dollars, Euros and UK Pounds.

6. MINIMUM INTEREST RATES

a) The Participants providing official financing support, which shall not exceed 85 per cent of the total price of the aircraft referred to in sub-paragraph a) of Article 3 of this Sector Understanding, shall apply minimum interest rates up to a maximum of 62.5 per cent of the total price of the aircraft as follows:

- on repayment terms up to and including ten years - TB10 + 120 basis points,

- on repayment terms of over ten to 12 years - TB10 + 175 basis points,

- where TB10 means the ten-year government bond yield for the relevant currency (except the Euro) at the constant maturity averaged over the previous two calendar weeks. In the case of the Euro, TB10 means the yield at the ten-year maturity of the Euro yield curve, calculated by Eurostat for the purpose of establishing the Euro CIRR, averaged over the previous two calendar weeks. For all currencies a margin as specified above shall be applied.

b) The maximum percentage of the aircraft total price that may be financed at the fixed minimum interest rates specified in sub-paragraph a) above shall be limited to 62.5 per cent when repayment of the loan is spread over the entire life of the financing and 42.5 per cent when repayment of the loan is spread over the later maturities. The Participants are free to use either repayment approach, subject to the ceiling applicable to that pattern. A Participant offering such a tranche shall notify the other Participants of the amount, the interest rate, the date on which the interest rate is set, the validity period for the interest rate and the pattern o