Proposal for a Council Decision amending the Decision of 4 April 1978 on the application of certain guidelines in the field of officially supported export credits
Date: 1998-07-15
Institutions: European Commission
Subjects: aid recipient, economic support, export aid, export credit, trade policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.07.1998 

COM(1998) 406 final 

98/0223 (ACQ 

Proposal for a 
COUNCIL DECISION 
amending the Decision of 4 April 1978 on the application of certain guidelines in the field of 
officially  supported export credits 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

The  Community  is a participant1  in the Arrangement  on  Guidelines  for  Officially  Supported 
Export  Credits  (the  OECD  Consensus).  The Arrangement  was  incorporated  into  Community 
law  by  a  Council  Decision  of  4  April  1978,  amended  by  a  Decision  of  14 December  1992 
which  applied  the  April  1978 Decision  indefinitely.  Initial  amendments  to  the  Arrangement 
were incorporated  into Community  law by the Decision of  14 December  1992, and  Decisions 
of 3 March and 24 July  1997 made further  amendments and additions. 

1. 

2. 

Finding  the text  to be  badly  structured  and  difficult  to use, the participants  set  up  an 
OECD  expert  group  to  redraft  the  Arrangement  and  make  it  more  user-friendly 
without  making  changes  to  its  substance.  The  new  text  covers  all  the  amendments 
made to the Arrangement  since it was last revised  in December  1992, including  those 
dealt with in the Council Decisions of 3 March and 24 July  1997. 

The  main  purpose  of  the  Arrangement  is  to  regulate  government  intervention  in  the 
field  of  export  credits, to  ensure  that  credits  are  awarded  on  the  basis  of  quality  and 
price,  rather  than  the  most  generous  level  of  official  support  available.  This  would 
enable  exporters  to  compete  on  equal  terms.  The  Arrangement  is  the  international 
reference  framework  for  officially-supported  export  credits,  and  as  such  deals  only 
with  the  credits  themselves,  not  with  the  associated  insurance  or  guarantees  (or  the 
premiums for that cover), which can play a major  role in distorting  competition. 

In  1994, when the  measures  amending  and  extending  the  Arrangement  (incorporated 
into Community  law by Decision 97/530/EC) were discussed, the participants  adopted 
a  statement  of  principle  acknowledging  that  the  guarantee  premiums  and  conditions 
attached  to export  credits were an important  issue to be  given priority. In the  absence 
of any discipline  governing these matters, they decided  to examine  guiding  principles 
for  a  convergence  of  premiums.  In  line  with  their  international  obligations,  they 
determined that premium  levels should not be inadequate to cover long-term  operating 
costs and losses, and endorsed the idea of premiums calculated according to risk. 

An  OECD  group  of  experts  began  discussing  the  technical  issues  in  1994.  Official 
negotiations  followed  in the  spring  of  1997. The  Commission  based  its  contributions 
to  those  negotiations  on  the  negotiating  directives  for  which  it  had  received 
authorization  from  the  Council  (on  17  March  1997)  and  the  opinion  of  an  ad-hoc 
Article  113 Committee. 

On  20  June  1997,  the  participants  in  the  Arrangement  reached  agreement  on 
Guiding Principles  for  setting  minimum  premium  benchmarks  for  sovereign  and 
country risk.  They will be applied  to export  credits receiving official  support  whether 
in the  form  of  direct  credits/financing,  refinancing,  export  credit  insurance  or  export 
credit  guarantees. The Guiding Principles  will enter into force  on  1 April  1999 for  all 
in  the  Arrangement  except  Korea,  which  has  an  additional 
the  participants 

in 

the  Arrangement  are  Australia,  Canada, 

The  participants 
the  European  Community 
(Austria, Belgium,  Denmark,  Finland,  France,  Germany,  Greece,  Ireland,  Italy,  Luxembourg,  the 
Netherlands,  Portugal,  Spain,  Sweden  and  the  United  Kingdom),  Korea,  Japan,  New  Zealand, 
Norway, Switzerland and the United States. 

transition  period  running  until  1  April  2002  in  which  to  phase  in  the  minimum 
premium  benchmarks. 

The Guiding  Principles  specify:  a Quantitative  Country Risk  Model  which puts buyer 
countries  into  one  of  seven  categories;  the  establishment  of  minimum  premium 
benchmarks  which 
the 
Participants  (related  conditions);  details  of  the  derogations  allowed,  plus  premium 
feedback  tools to  ensure that  premium  levels  are matched  to their  intended  purposes 
where  the  main  principle  is  that  the  level  of  premium  is  not  inadequate  to  cover 
long-term operating costs and losses. 

take  account  of  product-quality  differences  between 

The  Guiding  Principles  have been  incorporated  into  the new  consolidated  text  of the 
Arrangement,  which  was  approved  by  the  Participants  in  1997,  keeping  their  terms 
and form  compatible with that Arrangement. 

The  Commission  has  found  that  the  Arrangement  provides  an  effective 
international 
discipline,  clearly  exerting  downward  pressure  on  the  level  of  subsidies  and  helping  to 
prevent  distortions  of  competition  connected  with  officially  supported  export  credits  and 
guarantees. The Commission  therefore  backs the adoption  of the new consolidated  and  more 
user-friendly  version  of  the  Arrangement,  with  its  new  rules  constituting  a new  stage  in  the 
elimination of distortions of competition in world trade. 

The  Commission  therefore  proposes  that  the  Council  adopt  the  draft  decision  approving  the 
new  consolidated  version  of  the  Arrangement  (which  includes  the  new  additional  rules 
adopted by the participants) and incorporating it into Community law. 

Proposal for a 
COUNCIL  DECISION 
amending the Decision of 4 April  1978 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  113 thereof, 

Having regard to the proposal from  the Commission2, 

Whereas  the  Community  is  party  to  the  OECD  Arrangement  on  guidelines  for  officially 
supported export credits, hereinafter  referred  to as "the  Arrangement"; 

Whereas  the  Arrangement  is  the  subject  of  the  Council  Decision  of  4  April  1978,  as  last 
amended by Decision 97/530/EC3; 

Whereas  the  participants  in  the  Arrangement  have  drawn  up  a  new  consolidated  text  which 
comprises  all  the  amendments  approved  by  the  participants  since  the  revision  of  the 
Arrangement, which was made applicable by Decision 93/112/EEC4; 

Whereas  in  accepting  the  amendments  and  additions  to  the  Arrangement  made  by 
Decision 97/530/EC, the Community had  inter alia  subscribed  to a statement  of principle by 
the  participants  in  the  Arrangement  in  which  they  expressed  their  intention  to  examine 
guiding principles to bring about a convergence of export credit premiums; 

Whereas the participants in the Arrangement drew up a series of additional  guiding principles 
covering  the  establishment  of  minimum  benchmarks  for  sovereign  risk  and  country  risk  in 
connection  with  the premiums  attached  to  officially  supported  export  credits;  whereas  those 
guiding  principles  were  incorporated  into the  new  consolidated  text  of the Arrangement  in a 
manner and form  compatible with the Arrangement; 

Whereas the text  contained  in the Annex to the Decision  of 4 April  1978 should  therefore  be 
replaced by the consolidated text of the Arrangement, 

HAS ADOPTED THIS DECISION: 

Article 1 

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

2 
3 
4 

OJC 
OJL  216, 8.8.1997, p. 77 
OJL  44, 22.2.1993, p. 1. 

The Annex to the Decision of 4 April  1978 is hereby replaced by the Annex to this Decision. 

Article 2 

This Decision is addressed to the Member States. 

Article 3 

Done at Brussels, 

For the Council 
The President 

ANNEX 

ARRANGEMENT ON GUIDELINES FOR OFFICIALLY SUPPORTED 
EXPORT CREDITS 

TABLE  OF  CONTENTS 

INTRODUCTION 

CHAPTER I:  SCOPE OF THE ARRANGEMENT 

1.  PARTICIPATION 
2.  SCOPE OF APPLICATION 
3.  SPECIAL SECTORAL APPLICATIONS AND EXCLUSIONS 
4.  REVIEW 
5.  WITHDRAWAL 
6.  MONITORING 

CHAPTER II:  PROVISIONS FOR EXPORT CREDITS 

, 

7.  CASH PAYMENTS 
8.  REPAYMENT TERMS 
9.  STARTING  POINT OF CREDIT 
10.  MAXIMUM REPAYMENT TERM 
11.  SPECIAL TERMS FOR POWER PLANT OTHER THAN NUCLEAR POWER PLANT 
12.  CLASSIFICATION  OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS 
13.  REPAYMENT OF PRINCIPAL 
14.  PAYMENT OF INTEREST 
15.  MINIMUM INTEREST RATES 
16.  CONSTRUCTION  OF CIRRs 
17.  APPLICATION OF CIRRs 
18.  COSMETIC INTEREST RATES 
19.  OFFICIAL  SUPPORT FOR COSMETIC INTEREST RATES 
20.  MINIMUM PREMIUM 
21.  COUNTRY RISK CLASSIFICATION  METHODOLOGY 
22.  MINIMUM PREMIUM BENCHMARKS 
23.  RELATED CONDITIONS 
24.  PREMIUM FEEDBACK TOOLS 
25.  LOCAL COSTS 
26.  VALIDITY PERIOD FOR EXPORT CREDITS 
27.  NO DEROGATION  ENGAGEMENT FOR EXPORT CREDITS 
28.  ACTION TO AVOID OR MINIMIZE LOSSES 
29.  MATCHING 

CHAPTER III:  PROVISIONS FOR TRADE-RELATED AID 

30.  GENERAL PRINCIPLES FOR TIED AID 
31.  DEFINITION  OF TIED AID 
32. 
FORMS OF TIED AID 
33.  ASSOCIATED FINANCING 
34.  COUNTRY ELIGIBILITY FOR TIED AID 
35. 
36. 
37.  DEFINITION OF CONCESSIONALITY  LEVEL OF TIED AID 
38.  CALCULATION  OF CONCESSIONALITY  LEVEL OF TIED AID 
39.  VALIDITY PERIOD FOR TIED AID 
40.  NO DEROGATION ENGAGEMENT FOR TIED AID 
41.  MATCHING 

PROJECT ELIGIBILITY FOR TIED AID 
EXEMPTIONS FROM ELIGIBILITY RULES 

10 

11 

11 
11 
11 
12 
12 
12 

12 

12 
13 
13 
13 
14 
14 
14 
15 
15 
15 
16 
16 
16 
17 
18 
18 
19 
20 
20 
20 
21 
21 
21 

22 

22 
22 
22 
23 
24 
24 
25 
25 
25 
27 
27 
28 

CHAPTER IV:  PROCEDURES 

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

42.  COMMITMENT 
43. 
44. 
45. 
46. 

FIRM UNDERTAKING 
PERIOD FOR REPLIES 
STANDARD FORM FOR ALL NOTIFICATIONS 
INFORMATION  ON OFFICIAL  SUPPORT 

SECTION  2:  NOTIFICATION  PROCEDURES FOR EXPORT CREDITS 

PERMITTED EXCEPTIONS  :  PRIOR NOTIFICATION  WITH DISCUSSION 
PERMITTED EXCEPTIONS:  PRIOR NOTIFICATION  WITHOUT DISCUSSION 

47.  DEROGATIONS:  PRIOR NOTIFICATION  WITH DISCUSSION 
48. 
49. 
50.  MATCHING  OF DEROGATIONS 
51.  MATCHING  OF PERMITTED EXCEPTIONS 
52.  MATCHING  OF NON-CONFORMING  TERMS AND CONDITIONS NOT NOTIFIED 
53.  MATCHING  OF TERMS AND CONDITIONS OFFERED BY A NON-PARTICIPANT 

SECTION  3:  NOTIFICATION  PROCEDURES FOR TRADE-RELATED AID 

PRIOR NOTIFICATION 
PROMPT NOTIFICATION 
EXEMPTIONS FOR UNTIED AID 
EXEMPTIONS FOR TECHNICAL ASSISTANCE AND SMALL PROJECTS 
TYING  STATUS OF AID 

54.  DEROGATIONS: PRIOR NOTIFICATION  WITH DISCUSSION 
55. 
56. 
57. 
58. 
59. 
60.  MATCHING  OF PRIOR NOTIFICATIONS 
61.  MATCHING OF PROMPT NOTIFICATIONS 

SECTION  4:  CONSULTATION PROCEDURES FOR TRADE-RELATED AID 

PURPOSE  OF CONSULTATIONS 
SCOPE AND TIMING OF CONSULTATIONS 

62. 
63. 
64.  CONSULTATION  PROCEDURES FOR LARGE PROJECTS 
65.  OUTCOME OF CONSULTATIONS 

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

PROCEDURES  AND FORMAT OF COMMON LINES 

SCOPE OF ENQUIRIES 
SCOPE OF RESPONSES 
FACE-TO-FACE  CONSULTATIONS 

66.  CONTACT POINTS 
67. 
68. 
69. 
70.  COMMON  LINES 
71. 
72.  RESPONSES TO COMMON LINE PROPOSALS 
73.  ACCEPTANCE OF COMMON LINES 
74.  DISAGREEMENT  ON COMMON LINES 
EFFECTIVE DATE OF COMMON LINE 
75. 
76.  VALIDITY  OF COMMON LINES 
77.  DEVIATION  FROM A COMMON LINE 

28 

28 

28 
28 
29 
29 
29 

29 

29 
29 
30 
30 
31 
31 
32 

32 

32 
32 
33 
33 
33 
33 
33 
34 

34 

34 
34 
35 
35 

35 

35 
35 
36 
36 
37 
37 
37 
38 
38 
38 
38 
39 

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

39 

78.  COMMUNICATION  OF MINIMUM INTEREST RATES 
79. 
80. 

EFFECTIVE  DATE FOR APPLICATION OF INTEREST RATES 
IMMEDIATE CHANGES IN INTEREST RATES 

39 
39 
40 

SECTION 7:  OPERATIONAL  PROVISIONS  FOR  THE  EXCHANGE  OF  INFORMATION  FOR 
40 
PREMIUM. 

81. 

ELECTRONIC EXCHANGE OF INFORMATION  FOR PREMIUM (EEI) 

SECTION 8:  REVIEWS 

82.  ANNUAL  REVIEW 
83.  REVIEW  OF MINIMUM  INTEREST RATES 
84.  REVIEW OF MINIMUM  PREMIUM BENCHMARKS AND RELATED ISSUES 

CHAPTER V:  FUTURE  WORK 

85.  GLOBAL UNTYING 
86.  MARKET WINDOWS 
87. 
88.  DIFFERENCES OF INTERPRETATION 

SECTORS 

ANNEX I:  SECTOR UNDERSTANDING  ON EXPORT CREDITS FOR SHIPS 

40 

40 

40 
40 
40 

41 

41 
41 
41 
42 

43 

ANNEX  II:  SECTOR UNDERSTANDING  ON EXPORT CREDITS FOR NUCLEAR  POWER  PLANT45 

ANNEX  III:  SECTOR UNDERSTANDING  ON EXPORT CREDITS FOR CIVIL AIRCRAFT 

APPENDIX  I ILLUSTRATIVE  LIST 

ANNEX  IV:  STANDARD FORM FOR NOTIFICATIONS 

48 

56 

60 

ANNEX  V: 
MINIMUM PREMIUM  BENCHMARKS 

STANDARD  FORM  FOR  NOTIFICATION  OF  PERMITTED  EXCEPTIONS  FROM 
62 

ANNEX VI:  CHECKLIST  OF DEVELOPMENTAL  QUALITY 

ANNEX VII:  ELECTRONIC  EXCHANGE OF INFORMATION  (EEI) 

64 

66 

Purpose and  Application 

INTRODUCTION 

The  main  purpose  of the Arrangement  on  Guidelines  for  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. 

The  Arrangement  seeks  to  encourage  competition  among  exporters  from  the  OECD-exporting  countries 
based  on  quality  and  price  of  goods  and  services  exported  rather  than  on  the  most  favourable  officially 
supported terms. 

The Arrangement  applies to officially  supported  export credits with repayment terms of two years or more, 
relating  to  exports  of  goods  and/or  services  or  to  financial  leases,  i.e.  a  lease  equivalent  in  effect  to  a 
contract  of sale.  The  Arrangement  also addresses  the circumstances  in which  official  support  in the  form 
of  trade-related  tied  and  partially  untied  aid  -  referred  to  throughout  as  tied  aid  -  may  be  given  and/or 
mixed  with officially  supported  export credits. 

"Official  support"5  can  take  the  form  of  direct  credits/financing,  refinancing,  interest  rate  support,  aid 
financing  (credits  and  grants),  export  credit  insurance  and  guarantees.  Direct  credits/financing, 
refinancing  and  interest rate support are referred  to as official  financing  support. 

The Arrangement  places limitations on the terms and conditions of export credits that benefit  from  official 
support.  Such  limitations  include  minimum  premium  benchmarks,  the  minimum  cash  payments  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  provision  of  tied  aid. 
Finally,  the  Arrangement  includes  procedures  for  derogations  from  and  possible  exceptions  to  these 
restrictions, as well as procedures  for  prompt and prior  notification,  consultation, exchange of  information 
and  review. 

Military  equipment  and  agricultural  commodities  are  excluded  from  the  application  of  the  Arrangement. 
Special guidelines apply to ships, nuclear power plant and  aircraft. 

Best  Endeavours 

The Arrangement  sets out the  most  generous  repayment  terms  and  conditions that  may be  supported.  All 
Participants  recognize the  risk that  over time, these  maximum  repayment  terms and  conditions  may  come 
to be regarded  as normal practice.  They therefore  undertake to take the necessary  steps to prevent this risk 
from  materializing. 

Traditionally,  certain trade or industrial  sectors may also have enjoyed  less generous repayment  terms  and 
conditions than  the maximum  allowed  under the Arrangement.  The Participants  shall  continue  to  respect 
such  customary  terms  and  conditions  and  shall  do  everything  in  their  power  to  maintain  the  customary 
credit terms and conditions. 

Status 

The  Arrangement,  developed  within  the  OECD  framework,  came  into  being  in  April  1978  following 
agreement  among  its  Participants.  The  Arrangement 
is  a  "Gentlemen's  Agreement"  among  the 
Participants.  The Arrangement  is not an OECD Act, although  it receives the administrative  support  of the 
OECD Secretariat (the Secretariat). 

See Article 88 (Future Work) 

10 

CHAPTER  I:  SCOPE OF THE  ARRANGEMENT 

1. 

PARTICIPATION 

a)  The  Participants  to  the  Arrangement  are:  Australia,  Canada,  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, New Zealand, Norway,  Switzerland  and the United States. 

b)  The  Participants  agree  to  respect  and  to  apply  the  terms  of  the  Arrangement.  Other  countries 
willing  to  apply  these  Guidelines  may  become  Participants  following  prior  invitation  of  the 
existing Participants. 

2. 

SCOPE OF  APPLICATION 

The  Arrangement  shall  apply  to  all  official  support  for  exports  of  goods  and/or  services,  or  to  financial 
leases, which  have  repayment  terms  (as  defined  in Article 8) of two years  or more.  This  is regardless  of 
whether  the  official  support  for  export  credits  is  given  by  means  of  direct  credits/financing,  refinancing, 
interest  rate  support,  guarantee  or  insurance.  The  Arrangement  shall  also  apply to official  support  in  the 
form  of tied  aid. 

3. 

SPECIAL SECTORAL APPLICATIONS AND  EXCLUSIONS 

The Participants  shall apply special guidelines to the following  sectors: 

a) 

Ships 

The  Arrangement  shall  apply  to  ships  not  covered  by  the  Understanding  on  Export  Credits  for  Ships 
(Annex I).  Where  a  Participant  intends  to  support  terms  for  a  ship  covered  by  the  Understanding—and 
therefore  not  by  this  Arrangement—that  would  be  more  favourable  than  those  terms  permitted  by  this 
Arrangement,  the Participant  shall  notify  all other Participants  of such  terms.  The appropriate  procedures 
for notification  are set out in Article 49. 

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  nuclear 
power plant. 

c) 

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. 

d) 

Exclusions 

The Arrangement  does not apply to official  support  relating to exports  of: 

-  Military Equipment;  or 

-  Agricultural  Commodities. 

4. 

REVIEW 

The Participants  shall  review, at least annually, the functioning  of the Arrangement.  Its provisions can be 
revised  by review as set out in Articles  82, 83 and 84. 

5. 

WITHDRAWAL 

The Arrangement  is of indefinite  duration,  nevertheless  a Participant  may withdraw  by notifying  the other 
Participants  in  writing  by  means  of  instant  communication,  e.g.  the  OECD  On-line  Information 
System (OLIS),  telex,  telefax.  The  withdrawal  takes  effect  60  calendar  days  after  receipt  of  the 
notification  by the Participants. 

6. 

MONITORING 

The Secretariat shall monitor the implementation of the  Arrangement. 

CHAPTER II:  PROVISIONS FOR EXPORT  CREDITS 

7. 

CASH  PAYMENTS 

a)  The  Participants  shall require  purchasers  of  goods  and  services  which  are the  subject  of  official 
support  to  make  cash  payments  of  a minimum  of  15 per  cent  of the  export  contract  value  at  or 
before  the starting point of credit as defined  in Article 9. 

b)  The  export  contract  value  is  the  total  amount  to  be  paid  by  or  on  behalf  of  the  purchaser  for 
goods  and/or  services  exported,  i.e.  excluding  local  costs  as  defined  in  Article  25  and  also 
interest.  In the case of a lease,  it excludes the  portion  of the  lease  payment  that  is equivalent  to 
interest. 

c)  Official  support  for  such  cash  payments  can  only  take  the  form  of  insurance  and  guarantees, 

i.e. pure cover, against the usual pre-credit risks. 

d)  For the assessment  of cash 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. 

e)  Retention  payments  made after  the  starting  point  of credit  are  not  regarded  as  cash  payments  in 

this context. 

12 

8. 

REPAYMENT  TERMS 

The  repayment  term  is  the  period  beginning  at  the  starting  point  of  credit,  as  defined  in  Article 9,  and 
ending on the contractual  date of the final  payment. 

9. 

STARTING  POINT OF CREDIT 

The  definition  in  the  Arrangement  is  based  on  the  Berne  Union  definition  of  the  term  "starting  point  of 
credit": 

a) 

b) 

c) 

d) 

e) 

In  the  case  of  a  contract  for  the  sale  of  capital  goods  consisting  of  individual  items  useable  in 
themselves  (e.g.  locomotives), the  starting  point  is the  mean  date  or actual  date  when  the  buyer 
takes physical possession  of the goods in his own country. 

In the  case  of  a contract  for  the  sale  of capital  equipment  for  complete  plant  or  factories  where 
the  supplier  has  no  responsibility  for  commissioning,  the  starting  point  is the  date  at  which  the 
buyer  is  to  take  physical  possession  of  the  entire  equipment  (excluding  spare  parts)  supplied 
under the  contract. 

In  the  case  of  construction  contracts  where  the  contractor  has  no  responsibility 
commissioning, the starting point  is the date when construction  has been  completed. 

for 

In  the  case  of  any  contract  where  the  supplier  or  contractor  has  a  contractual  responsibility  for 
commissioning  the  plant,  the  starting  point  is the  date  when,  after  installation  or  construction, 
preliminary  tests  to  ensure  that  it  is  ready  for  operation  have  been  completed.  This  applies 
whether  or  not  it  is  handed  over  to  the  buyer  at  that  time  in  accordance  with  the  terms  of  the 
contract  and  irrespective  of  any  continuing  commitment  which  the  supplier  or  contractor  may 
have (e.g. for guaranteeing  its effective  functioning  or training local personnel). 

In  the  cases  of  the  sub-paragraphs  b)  -  d)  above,  where  the  contract  involves  the  separate 
execution  of  individual  parts of a project,  the date of the  starting point  is the date  of the  starting 
point  for  each  separate  part, or the mean  date of those  starting  points, or, where the  supplier  has 
a  contract,  not  for  the whole  project  but for  an essential  part of  it, the  starting  point  may be  that 
appropriate to the project  as a whole. 

10. 

MAXIMUM  REPAYMENT  TERM 

The  maximum  repayment  term  varies  according  to  the  classification  of  the  country  of  destination 
determined  by the criteria  in Article  12. 

a)  For  Category  I  countries,  the  maximum  repayment  term  is  five  years,  with  the  possibility  of 
agreeing  eight-and-a-half  years  when  the  procedures  for  prior  notification  set  out  in  Article 49 
are  followed. 

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

c)  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 
exclusively  with the aim of obtaining more favourable  repayment terms. 

d) 

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 71 to  77 to  reach 
agreement on appropriate terms. 

11. 

SPECIAL TERMS FOR POWER PLANT OTHER THAN NUCLEAR POWER  PLANT 

a)  For  power  plant  other  than  nuclear  power  plant,  the  maximum  repayment  term  shall  be  twelve 
years.  If a Participant  intends to  support  a repayment  term  longer than  five  years  for  Category I 
countries or a repayment term longer than  10 years for Category II countries, the Participant  shall 
give prior notification  in accordance with the procedure  in Article 49. 

b)  Power  plant  other  than  nuclear  power  plant  are  complete  power  stations,  or  parts  thereof,  not 
they  include  all  components,  equipment,  materials,  and  services 
fuelled  by  nuclear  power; 
(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, construction  permits, fuel  loading permits) in the buyer's country. 

12. 

CLASSIFICATION  OF COUNTRIES FOR MAXIMUM REPAYMENT  TERMS 

a)  Category  I  countries  are  those  which  are  on  the  World  Bank's  graduation  list6.  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. 

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

1)  Classification  for  Arrangement  purposes  is determined  by  per  capita  GNP  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 GNP 
data,  the  World  Bank  shall  be  asked  to  estimate  whether  the  country  in  question  has  a  per 
capita  GNP 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  12  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  recognized  in  the  same  calendar  year  in  which 
the 
figures were first  distributed  by the  Secretariat. 

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, with  the  first  instalment  to  be  made  no  later  than  six 
months after  the starting point of credit. 

b) 

In the case of leases, this profile  of repayments  may be applied  either  for the amount  of nrincipal 
only, or for the amount of principal and  interest  combined. 

ample Ubing 1996 data, those countries with a GNP per capita above $5 435. 

14 

c)  Prior  notification  according  to  Article  49  is  required  if  a  Participant  does  not  intend  to  follow 

this practice. 

14. 

PAYMENT OF INTEREST 

a) 

Interest  shall  not  normally  be  capitalized  during  the  repayment  period,  but  shall  be  payable  not 
less frequently  than  every six months, with the first  payment to be made no later than  six  months 
after  the starting point of credit. 

b)  Prior  notification  in  accordance  with  Article  49  is  required  if  a  Participant  does  not  intend  to 

follow  this practice. 

c) 

Interest excludes: 

- 

- 

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; 

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 

-  withholding taxes imposed by the importing country. 

15. 

MINIMUM INTEREST RATES 

The  Participants  providing  official  financing  support  through  direct  credits/financing,  refinancing,  or 
interest  rate  support  shall  apply  minimum  interest  rates;  the  Participants  shall  apply  the  relevant 
Commercial  Interest  Reference  Rates  (CIRRs).  CIRRs  are  interest  rates  established  according  to  the 
following  principles: 

-  CIRRs should  represent  final  commercial  lending  interest rates in the domestic  market  of the 

currency  concerned; 

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

-  CIRRs should  be based, where  appropriate,  on the  funding  cost of fixed  interest-rate  finance 

over a period of no less than five years; 

-  CIRRs should not distort domestic competitive conditions;  and 

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

16. 

CONSTRUCTION  OF CIRRs 

a)  With  the  principles  in  Article  15  in  mind,  CIRRs  shall  be  set  at  a  fixed  margin  of  100  basis 

points above their respective base rates unless Participants have agreed otherwise. 

15 

b)  Each  Participant  shall  initially  select one of the  following  two  base  rate  systems  for  its  national 

currency: 

- 

three-year  government  bond  yields  for  repayment  terms  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 

-  five-year  government bond yields for all maturities. 

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

c)  The  exceptions  to  the  base  rate  system  are  the  Yen  CIRR,  which  is  based  on  the  LTPR  (Long-
term  prime  rate) minus 20 basis  points  for  all  maturities; and  the  ECU  CIRR,  which  is based  on 
the  secondary  market yield on medium term  ECU  bonds  in the  Luxembourg  stock exchange  plus 
50 basis points. 

d)  Other Participants shall use this selection should they decide to finance in that currency. 

e)  A  Participant  may  change  its base  rate  system  after  giving  six  months'  advance  notice  and  with 

the counsel of the Participants. 

f)  A Participant which wishes to provide official  support  in the currency of a country which  is not a 
Participant  may make a proposal  for the construction  of the CIRR  in that currency using common 
line procedures  in accordance with Articles 70 to 77. 

17. 

APPLICATION  OF CERRs 

a)  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 of the official  financing  support 
are fixed before the contract date. 

b)  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. 

18. 

COSMETIC INTEREST RATES 

Cosmetic  interest  rates  are  rates below the  relevant  CIRR  which  benefit  from  official  support,  and  which 
may  involve  a  compensatory  measure  including  a  corresponding  increase  in  the  contract  value  or  other 
contractual  adjustment. 

19. 

OFFICIAL SUPPORT FOR COSMETIC INTEREST RATES 

a)  Official  financing  support  by means of direct  financing  shall  not  be provided  at rates below  the 

relevant  CIRR. 

b)  Official  support may be provided  by the following  means: 

- 

official  financing  support, other than  specified  above, as  long as  such  support  is not  offered 
at cosmetic  interest rates;  and/or 

- 

official  support  in the form of insurance and guarantees, i.e. pure cover. 

16 

c) 

If there  is an  enquiry  from  another  Participant  about a transaction, the  Participant  which  intends 
to  support  the  transaction  should  use  its  best  endeavours  to  clarify  the  financial  terms  and 
mechanisms, including the compensatory measure. 

d)  A  Participant  with  information  which  suggests  that  non-conforming  terms  may  have  been 
offered  by  another  Participant  shall  make  reasonable  efforts  to  determine  whether  or  not  the 
transaction  benefits  from  official  financing  support, and whether or not the terms  of this  support 
conform  to the provisions  of Article  15 of the Arrangement.  This Participant  will  be  considered 
to have  made  such  reasonable efforts  if it has informed,  by means of instant  communication,  the 
other  Participant  assumed  to have offered  such non-conforming  terms, of  its  intention  to  match. 
Unless  the  Participant  allegedly  offering  the  non-conforming  terms  declares  within  three 
working  days  that  the  transaction  does  not  benefit  from  official  financing  support  or  that  the 
terms  of  the  official  financing  support  conform  to  the  provisions  of  Article  15  of  the 
Arrangement,  the  matching  Participant  has  the  right  to  match  these  terms  according  to  the 
procedure  in Article 50. 

20. 

MINIMUM  PREMIUM 

a)  The  Participants  providing  official  support  through  direct  credits/financing,  refinancing,  export 
credit  insurance and guarantees, shall charge no less than the minimum premium  benchmarks  for 
the  sovereign  credit  risk  and  the  country credit  risk,  irrespective  of whether  the  buyer/borrower 
is a private or public entity. 

b)  Sovereign  credit  risk  is the  full  faith  and  credit  of the  State, e.g.  the  Ministry  of  Finance  or the 

Central  Bank. 

c)  Country  credit  risk  is the  assessment  of  whether  a country  will  service  its  external  debts.  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  over  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. 

d)  The  minimum  premium  benchmarks  shall  be  established  in  accordance  with  the  principles  set 

out in Articles 21 to 23. 

e)  The Participants may charge at a level above the minimum premium  benchmarks. 

17 

21. 

COUNTRY  RISK  CLASSIFICATION  METHODOLOGY 

a) 

Premium  shall  be  risk  based. 

b)  To  assess  the  risk  and  to  establish  a  common  reference  classification  of  countries,  they  are 

scored  according  to the  Quantitative  Country  Risk  Model  (the  Model): 

- 

- 

the  Model  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;  and 

- 

such  scoring  results  in countries  being classified  into  seven  risk  categories. 

c) 

In  accordance  with  procedures  agreed  by  the  Participants,  the  quantitative  outcome  of  the  Model 
shall  be  considered  country-by-country  to  integrate,  in  a qualitative  way,  the  political  risk  and/or 
other  risk  factors  not  taken  into  account  by  the  Model;  if  appropriate,  this  may  lead  to  an 
adjustment  to  the  Model  classification  to  reflect  the  final  assessment  of the  country  credit  risk. 

22. 

MINIMUM  PREMIUM  BENCHMARKS7 

a)  Premium  shall  converge.  To  ensure  convergence,  minimum  premium  benchmarks,  consistent 
with  the  level  of  risk,  not  inadequate  to  cover  long  term  operating  costs  and  losses  and  taking 
into  account  a set of  standard  related  conditions,  shall  be determined  as  follows: 

-  minimum  premium  benchmarks  are  established  for  each  of the  seven  risk  categories; 

- 

the  standard  product  to  which  the  minimum  premium  benchmarks  relate  shall  be  insurance 
with  95  per  cent  cover,  proportionately  adjusted  for  the  amount  at risk,  with  cover  of  interest 
during the  claims waiting  period  of  six months  without  a separate  premium  surcharge;  and 

- 

direct  credits/financing  shall  be considered  as  standard  products  for  100 per  cent  cover. 

b) 

the  "High  Income  OECD  countries"  (as  defined  by  the  World  Bank)8  as  well  as  other  countries 
with  similar  risks  shall  not  be  subject  to  the  application  of  minimum  premium  benchmarks  with 
the  understanding  that  the  pricing  of the  private  market  shall  not  be  undercut. 

The application  of the minimum premium benchmarks  is subject  to the Transition  Period: 
-  The  Transition  Period  shall  end  on  31st March  1999  following  which the Guiding  Principles  shall  be 

- 

immediately  implemented. 
Premium  rates  which  have  been  fixed  during  the  Transition  Period  shall  not  be  valid  beyond  three 
months from 31st March  1999, i.e. 30th June  1999. 

-  During  the  Transition  Period,  there  shall  be  best  endeavours  not  to  reduce  premium  rates  below  the 

initial minimum premium benchmarks, except in the case of matching. 

-  Korea 

*  The Transition Period  for Korea shall end on 31 st March 2002. 

*  By  1st  April  1999,  Korea  shall  apply  at  least  40  per  cent  of  the  initial  minimum  premium 
benchmarks;  by  1st  April  2000,  Korea  shall  apply  60  per  cent  of  the  minimum  premium 
benchmarks;  by  1st  April  2001,  Korea  shall  apply  80  per  cent  of  the  minimum  premium 
benchmarks; and by  1st April 2002, Korea shall apply  100 per cent of the benchmarks. 

For example using  1996 data, those countries with a GNP per capita above $ 9 635. 

c)  The  "highest  risk"  countries  in  Category  seven  shall,  in  principle,  be  subject  to  appropriate 
premium  surcharges  to  the  minimum  premium  benchmarks  established  for  that  Category;  any 
such surcharges shall be set by the Participant providing official  support. 

d)  There  shall  be  differentiated  minimum  premium  benchmarks  for  sovereign  credit  risk  and 

country credit risk. 

e)  The  minimum  premium  benchmarks  for  sovereign  credit  risk  shall  be  the  minimum  rates  for 
public sector risk and private sector risk where both the country risk and the buyer/borrower  risk 
are covered. 

f) 

In  situations  where  the  buyer/borrower  risk  is  excluded,  the  minimum  country  credit  risk 
premium  benchmark  shall  be  set  at  90  per  cent  of the  minimum  sovereign  credit  risk  premium 
benchmark,  i.e.  a  discount  of  10  per  cent  from  the  minimum  sovereign  credit  risk  premium 
benchmark may be applied. 

g)  Minimum  premium  benchmarks are expressed  in percentages  of the principal  value of the  credit 
as if premium were collected  in full  at the date of the credit,  insurance or guarantee as  illustrated 
in the Electronic Exchange of Information  (EEI) referred  to in Annex VII. 

23. 

RELATED  CONDITIONS 

a)  To  accommodate  the  differing  quality  of  products  provided  by  the  Participants,  the  minimum 
premium  benchmarks  shall  be adjusted  to take account  of the related  conditions.  The  treatment 
of  related  conditions  shall  be  based  on  the  exporter's  perspective  (i.e.  to  neutralize  the 
competitive  effect  arising 
the 
exporter/financial  institution), and three related conditions: 

the  differing  qualities  of  product  provided 

from 

to 

- 

- 

the percentage of cover; 

the  claims  waiting  period,  i.e.  the  period  between  the  due  date  of  payment  by  the 
buyer/borrower  and  the  date  that  the 
the 
exporter/financial  institution; and 

is  liable  to  reimburse 

insurer/guarantor 

- 

the cover of interest during the claims waiting period without surcharge. 

b)  to  take  account  of  non-standard  related  conditions,  the  minimum  premium  benchmarks  are 
adjusted  upwards or downwards.  All existing products of 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 credits/financing;  and 

- 

above standard product,  i.e. unconditional  guarantees. 

c)  Pricing  differentials  shall  reflect  the  quality  differences  of  all  three  product  categories; 

these 
pricing  differentials  shall  attribute  surcharges  in  the  case  of  above  standard  products  and 
premium  discounts  in the case of below standard  products. 

d)  Minimum  premium  benchmarks  shall  be adjusted  for each  percentage of cover, above and  below 

the standard  percentage of cover,  i.e. 95 per cent. 

19 

24. 

PREMIUM FEEDBACK  TOOLS 

a)  Premium  shall  not  be  inadequate  to  cover  long  term  operating  costs  and  losses.  To  ensure  the 
adequacy  of premium  benchmarks  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 
minimum  premium benchmarks; and 

the  PFTs  are  the  accruals  and  cashflow  accounting  approaches  collated  on  an  aggregate 
Participants'  level and, where appropriate, private market  indicators. 

b) 

It is understood  that: 

- 

- 

- 

- 

- 

the  use  of  the  PFTs  shall  not  require  the  Participants  to  change  their  existing  accounting 
systems and practices; 

all  officially  supported  export  credits  which  take  the  form  of  direct  credits/financing, 
refinancing,  export credit  insurance or guarantees to which the Arrangement  applies  shall  be 
reported; 

only  sovereign  and  country  credit  risk  shall  be  reported,  irrespective  of  whether  the  buyer 
risk  is covered; 

the PFTs shall use a common start date; and 

the  concept  of  claims  shall  encompass  refinanced  debts  under  direct  credits/financing, 
it  shall  also  encompass  rolled-over, 
refinancing,  export  credit  insurance  or  guarantees; 
overdue and defaulted  loans. 

25. 

LOCAL COSTS 

a)  Local  Costs  consist  of  expenditure  for  goods  and  services  in  the  buyer's  country,  that  are 
necessary  either  for  executing the  exporter's  contract  or  for  completing  the  project  of which  the 
exporter's contract forms a part.  These exclude commission  payable to the exporter's agent in the 
buying country. 

b)  Official  Support  shall  not  be provided  for  more  than  100 per cent  of the value  of the goods and 
services  exported,  including  those  supplied  by  third  countries,  but  excluding  local  costs.  In 
consequence,  the amount of local costs supported  on credit terms shall not exceed the amount of 
the  cash  payment.  Official  support  for  local  costs  shall  not  be  provided  on  more  favourable 
terms than agreed for the related exports. 

c)  For  Category  I  countries  official  support  for  local  costs  shall  be  confined  to  insurance  and 

guarantees, i.e. pure cover, and shall not involve official  financing  support. 

26. 

VALIDITY PERIOD FOR EXPORT  CREDITS 

Credit terms and conditions for  an  individual  export  credit  or  line of credit  shall not be fixed for 
a  period  exceeding  six  months.  A  line  of  credit  is  a  framework,  in  whatever  form,  for  export 
credits that covers a series of transactions which may or may not be linked to a specific  project. 

20 

27. 

NO DEROGATION  ENGAGEMENT FOR EXPORT  CREDITS 

a)  The  Participants  shall  not  derogate  from  maximum  repayment  terms,  minimum  interest  rates, 
minimum  premium  benchmarks  (after  adjustment  for  related  conditions),  the  six-month 
limitation  on the validity  period  for  export  credit  terms  and  conditions, or extend  the  repayment 
term by extending the repayment date of the first instalment of principal  set out in Article  13a). 

b)  Notwithstanding  sub paragraph  a) above, a Participant  may,  subject  to the  procedures  set  out  in 
Article  48,  apply  a  premium  benchmark  below  the  minimum  benchmark  (after  adjustment  for 
related  conditions)  when  the  country  credit  risk  (as  detailed 
is  either 
externalized/removed  or  limited/excluded  for  the  entire  life  of  the  debt  repayment  obligation, 
as  follows: 

in  Article  20) 

- 

- 

if a Participant  is able to externalize/remove  the five elements  of country  credit  risk  (for  the 
entire  life  of the debt repayment  obligation) as detailed  in Article 20, the  minimum  premium 
benchmark  shall be determined  by the country credit risk of the jurisdiction  to which  the risk 
has been  transferred. 

if a Participant  is able to limit/exclude any of the five elements of country credit risk (for  the 
entire  life  of  the  debt  repayment  obligation),  the  Participant  may  apply  an  appropriate 
discount  to the  minimum  premium  benchmark.  The  expectation  is that  any  discount  where 
the transfer  risk, as set out in the first and second tiret of Article 20 c) is excluded,  should  not 
exceed  50 per cent of the minimum premium  benchmark. 

- 

each  Permitted  Exception  to the  minimum  premium  benchmarks  shall  be  on  a  case  by  case 
basis and shall not be taken as a precedent for any future  case by any Participant. 

28. 

ACTION TO AVOID OR MINIMIZE LOSSES 

The  Arrangement  does  not  prevent  export  credit  insurance  authorities  or  financing  institutions  from 
agreeing  more  favourable  terms  and  conditions  than  permitted  if  such  action  is  taken  after  the  contract 
award  (when  the  export  credit  agreement  and  ancillary  documents  have  already  become  effective)  and 
where the  intention  is solely to avoid  or minimize  loss from  events which  could  give  rise to  non-payment 
or claims. 

29. 

MATCHING 

a)  The  Participants  may  match  credit terms  and  conditions  notified  according  to the  procedures  in 
Articles  47, 48  and  49, as well  as credit terms and  conditions  not notified  or those  supported  by 
non-Participants.  The  matching  support  may not extend  beyond  the validity  period  of the  credit 
terms and conditions being matched. 

b)  The  Participants  shall  match  credit terms  and  conditions  by  supporting  terms  that  comply  with 
the Arrangement,  unless the  initiating offer  itself does not comply with the Arrangement.  Where 
matching  involves  minimum  premium  benchmarks,  the  Participants  shall  be  free  to  match  the 
rate  only  if it  is providing  support  on the  basis of a similar  quality  risk,  also taking  into  account 
product  quality.  A Participant  intending to match credit terms and conditions: 

- 

notified  by  another  Participant  shall  follow  the  procedures  in  Articles  50  or  51  as 
appropriate; 

- 

not notified  by a Participant  shall follow  the procedures  in Article 52;  or 

21 

supported  by a non-Participant  shall follow  the procedures in Article 53. 

CHAPTER III:  PROVISIONS FOR TRADE-RELATED  AID 

30. 

GENERAL PRINCIPLES FOR TIED AID 

a)  The  Participants  have  agreed  to  the  general  principle  that  they  should  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,  minimize  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  Aid  Committee  (DAC)  on  the 

quality of tied and untied  aid. 

31. 

DEFINITION OF TIED AID 

a)  Tied  aid,  which  includes  loans,  grants  or  associated  financing  packages  with  a  concessionality 
level greater than  zero per cent,  is defined  as aid which  is in effect  (in  law or  in fact)  tied to the 
procurement  of  goods  and/or  services  from  the  donor  country  and/or  a  restricted  number  of 
countries. 

b)  This  definition  applies  whether  the  "tying"  is by  formal  agreement  or  by  any  form  of  informal 
understanding  between  the  recipient  and  the  donor  country,  or  whether  a  package  includes 
components  from  the  list  in  Article  32  below  that  are  not  freely  and  fully  available  to  finance 
procurement from  the recipient country, substantially all other developing countries and from  the 
Participants, or  if  it  involves  practices  that  the DAC  or Participants  consider  equivalent  to  such 
tying. 

c) 

If  there  is  uncertainty  as  to  whether  a  certain  financing  practice  falls  within  the  scope  of  this 
definition,  the donor country  shall  furnish  evidence  in support  of any claim  to the effect  that the 
aid  is in fact  "untied",  i.e. aid which  includes  loans or grants whose proceeds are fully  and  freely 
available  to  finance  procurement  from  substantially  all  developing  countries  and  from  OECD 
countries. 

32. 

FORMS OF TIED AID 

Tied aid can take the form  of: 

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

-  ODA  grants  as  defined  in the  "DAC  Guiding  Principles  for  Associated  Financing  and  Tied 

and Partially Untied Official  Development Assistance (1987)"; 

22 

-  Other  Official  Flows  (OOF),  which  includes  grants  and  loans  but  excludes  officially 

supported  export credits that are in conformity  with the Arrangement;  or 

- 

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: 

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

•  other funds  at or near market terms, or cash payments from the  purchaser. 

33. 

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  that  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. 

23 

34. 

COUNTRY ELIGIBILITY FOR TIED AID 

a)  There  shall  be no tied  aid to countries whose  per  capita  GNP would  be sufficient  to make  them 
ineligible  for  17 year  loans from  the  World  Bank9.  The  World  Bank  recalculates  the  threshold 
for  this  category  on  an  annual  basis.  A  country  will  be  reclassified  only  after  its  World  Bank 
category has been unchanged for two consecutive years. 

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

1)  Classification  for  Arrangement  purposes  is determined  by per  capita  GNP  as calculated  by 

the World Bank for  the purposes of the World  Bank classification  of borrowing countries. 

2) 

3) 

4) 

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

If  a  country's  eligibility  for  tied  aid  does  change  in  accordance»  with  Article 34  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). 

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 71 c), 
72  a)  and  b),  73  a),  b)  and  d),  74,  75  and  76  a),  and  the  Participants  would  favourably 
consider  a change due to errors and  omissions  in the figures  subsequently  recognized  in the 
same calendar year as the figures  were first distributed  by the  Secretariat. 

5)  Notwithstanding  the  classification  of  countries  ineligible  or eligible to  receive  tied  aid,  the 
provision  of  tied  aid  to  Bulgaria,  Czech  Republic,  Hungary,  Poland,  Romania  and  the 
Slovak  Republic  is covered  by the Participants' agreement  to try to avoid  such credits  other 
than  outright  grants,  food  aid  and  humanitarian  aid,  as  long  as  such  agreement  is  in  force. 
The OECD Ministers endorsed this policy  in June  1991.10 

35. 

PROJECT ELIGIBILITY  FOR TIED AID 

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. 

For example using 1996 data, those countries with a GNP per capita above $3 115. 
Notwithstanding classification of countries ineligible or eligible to receive tied aid, tied aid policy for Belarus, 
Estonia,  Latvia,  Lithuania,  the  Russian  Federation,  Slovenia  and  Ukraine  is  covered  by  the  Participants' 
agreement  to  try  to  avoid  such  credits  other  than  outright  grants,  food  aid  and  humanitarian  aid.  The 
prolongation of this agreement is to be decided on an annual basis, normally in the fourth quarter of the year. 
For the purposes of the soft ban, the decommissioning of nuclear power plant for emergency or safety reasons 
can be regarded as '"humanitarian aid". 

24 

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, that it 
is unlikely  that the  project  can  be financed  on  market  or Arrangement  terms,  i.e. the  second 
key test. 

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 in Articles  62 and 65, 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. 

36. 

EXEMPTIONS FROM ELIGIBILITY  RULES 

a)  The  provisions  of Articles  34 and  35 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 33. 

b)  The provisions of Article 35 do not apply to tied aid with a value of less than two million  Special 
Drawing  Rights  (SDRs)  except  for  tied  aid  that  forms  part  of  an  associated  financing  package, 
described  in Article 33. 

c)  Derogation  from  the  rules  in this  Chapter  shall  be  possible  if the  Participants  so  agree  through 
the  common  line  procedures  set  out  in  Articles  71  to  77.  The  Participants  may  also  derogate 
from  the rules in Articles 34 and 35 in accordance with the procedures set out  in Article 40 c). 

d)  Tied  aid  for Least Developed  Countries (LLDCs) as defined  by the United Nations  is not  subject 

to the provisions of Articles 34 and 35. 

37. 

DEFINITION  OF CONCESSIONALITY  LEVEL OF TIED AID 

The  concessionality  level  of  tied  aid  is  similar  to the  "grant  element"  concept  used  by  the  DAC.  In  the 
case  of  grants  the  concessionality  level  is  100 per  cent.  In the  case  of  loans, the  concessionality  level  is 
the  difference  between  the  nominal  value  of the  loan and  the  discounted  present  value  of the  future  debt 
service payments to be made by the borrower.  This difference  is expressed  as a percentage  of the  nominal 
value of the loan. 

38. 

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: 

25 

-  The average of the CIRR + Margin 

Margin (M) depends on repayment terms (R) as follows: 

R 

less than  15 years 
from  15 years up to, but not including 20 years 
from  20 years up to but not including 30 years 
from 3 0 years and above 

M 

0.75 
1.00 
1.15 
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  10 basis  points.  If there  is more  than  one  CIRR  for  the  currency,  the  CIRR  for  the 
longest maturity as set out in Article  16 b), 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 Article 9. 

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 40 a), except  in cases of matching;  and 

- 

cash payments from  the purchaser. 

Payments on or before  the starting point of credit that are not considered  cash  payments  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. 

26 

39. 

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  56; 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  55  or 
56, as appropriate. 

b)  When  a  country  has  become  ineligible  for  17  year  World  Bank  Loans  for  the  first  time,  the 
validity  of existing and  new tied  aid protocols and credit  lines notified  shall  be restricted  to  one 
in 
year  after 
Article 34 b). 

the  date  of  the  potential  reclassification 

in  accordance  with  procedures 

c)  Renewal  of  such  protocols  and  credit  lines  is  possible  only  on  terms  which  are  in  accordance 

with the provisions  of Articles 34 and 35 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 38. 

40. 

NO DEROGATION ENGAGEMENT FOR TIED AID 

a)  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 an LLDC, or 

does  not  conform  with  the  provisions  on  eligibility  for  aid  in  Article  34  apart  from  the 
exemptions  set out in Article 36. 

b)  Notwithstanding  the  first  tiret  of  Article  40 a), the  restrictions  on the  minimum  concessionality 

level do not apply to technical assistance as set out in the first tiret of Article 58. 

c)  Notwithstanding  the  second  tiret  of  Article  40  a),  a  Participant  may  proceed  with  a 

non-conforming  offer  by one of the following  means : 

- 

- 

- 

the common  line procedure outlined  in Articles 71 to 77;  or 

justification  on  aid  grounds  through  support  by  a  substantial  body  of  the  Participants  as 
described  in Articles 62 and 63;  or 

a letter to the  Secretary-General,  in accordance  with  the  procedures  in Article  65, which  the 
Participants expect will be unusual and  infrequent. 

41. 

MATCHING 

a)  The Participants may match terms and  conditions  notified  according to procedures  in Articles 55 
or  56  as  appropriate.  The  matching  support  may  not  extend  beyond  the  validity  period  of  the 
terms and conditions being matched. 

b)  The  Participants  shall  match  by  supporting  terms  and  conditions  that  comply  with  the 
Arrangement  unless  the  initiating  offer  itself  does  not  comply  with  the  Arrangement.  A 
Participant  intending to match  terms  and  conditions  notified  by another  Participant  shall  follow 
the procedures  in Articles 60 or  61 as appropriate. 

c)  A  Participant  which  intends  to  match  non-conforming  terms  and  conditions  offered  by  a  non-

Participant  shall follow the procedures  in Article 53. 

CHAPTER IV:  PROCEDURES 

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

42. 

COMMITMENT 

Commitment  refers  to  any  statement,  in  whatever  form,  whereby  the  willingness  or  intention  to  provide 
official  support  is  communicated  to  the  recipient  country,  the  buyer,  the  borrower,  the  exporter  or  the 
financial  institution. 

43. 

FIRM  UNDERTAKING 

In  keeping  with  the  Best  Endeavours  undertaking  referred  to  in  the  Introduction  and  recognizing  the 
advantage  which  can  accrue  if a clearly  defined  common  attitude  towards the credit  terms  and  conditions 
for a particular transaction can be achieved, the Participants firmly  undertake: 

- 

- 

- 

- 

- 

- 

to respect  strictly the  procedures  for  notification  and,  in  particular,  to give prior  notification 
at the latest at the stipulated moment before  making a commitment; 

to supply all the information  in the form  in Annexes IV and V as appropriate; 

to respond promptly to enquiries made in accordance with Articles 67 to 68; 

to  exchange  information  at  the  earliest  stage  in  accordance  with  Articles  70 to  77  to  reach 
agreement on a common  line on credit terms and conditions for particular transactions; 

to give favourable  consideration  to requests for face-to-face  consultations;  and 

not  to  act  in  such  a  way  that  the  consultation  and  notification  procedures  would  rendered 
meaningless by leaving insufficient  time for the Participants to discuss the transaction. 

28 

44. 

PERIOD  FOR  REPLIES 

In  an  exchange  of  information  in  accordance  with  Articles  67 to  70,  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.  If the enquiring Participant has not received a 
reply within  seven  calendar  days, it may assume that the other Participants  will  support the transaction  on 
In  cases  of  particular 
the  most  favourable  credit  terms  and  conditions  permitted  by  the  Arrangement. 
urgency, the enquiring Participant may request a more rapid reply. 

45. 

STANDARD FORM FOR ALL NOTIFICATIONS 

The  notifications  called  for  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  V as appropriate, and  shall  be 
copied to the  Secretariat. 

46. 

INFORMATION  ON OFFICIAL  SUPPORT 

As  soon  as  a  Participant  commits  the  official  support  which  it  has  notified  in  accordance  with  the 
procedures  in Articles 47 to 56, 60 and 61, it shall  in all cases  inform  all other Participants  accordingly  by 
including the notification  reference  number on the relevant Creditor Reporting System (CRS)  lc  form. 

SECTION 2:  NOTIFICA TION PROCEDURES FOR EXPORT CREDITS 

47. 

DEROGATIONS:  PRIOR NOTIFICATION WITH  DISCUSSION 

a) 

It  is  expected  that  the  Participants  will  not  break  the  No-Derogations  Engagement  set  out  in 
Article 27  nor  otherwise  depart  from  the  rules  of  the  Arrangement.  However,  if  in  the  most 
extreme  circumstances  a Participant  intends to take the initiative to support terms and  conditions 
that  derogate  from  the  Arrangement,  the  Participant  shall  notify  all  other  Participants  of  the 
terms  and  conditions  it  intends  to  support  at  least  10  calendar  days  before  issuing  any 
If  any  other  Participant  requests  a  discussion  during  this  period,  the  initiating 
commitment. 
Participant  shall  wait  an  additional  10  calendar  days  before  issuing  any  commitment  on  such 
terms.  Normally, this discussion will be by means of instant communication,  e.g. OLIS. 

b) 

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

48. 

PERMITTED  EXCEPTIONS  :  PRIOR NOTIFICATION WITH  DISCUSSION 

A Participant  shall  notify  all other Participants  at least  10 calendar  days before  issuing  any commitment  if 
it  intends  to  apply  a  premium  rate  below the minimum  premium  benchmark  (after  adjustment  for  related 
conditions)  when  the  country  credit  risk  is either  externalized/removed  or  limited/excluded  for  the  entire 
life  of  the  debt  repayment  obligation  in  accordance  with  Article 27 b).  The  notification  shall  include 
explanation  and justification  in  accordance  with  point  9 of  Annex  V.  If any  other  Participant  requests  a 
If  the 
discussion  during this period, the initiating Participant  shall wait an  additional  10  calendar  days. 

29 

discount to the minimum  premium  benchmark  is 25 per cent or more, the notifying  Participant  shall  notify 
all other Participants at least 20 calendar days before  issuing any commitment.  " 

49. 

PERMITTED EXCEPTIONS:  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  repayment  terms  of  more  than  five  but  not  exceeding  eight-and-a-half  years  to  a 
Category  1 country; 

2)  not to follow  normal  payment  practices with respect to the principal  or  interest  referred  to  in 

Articles  13 a),  b) and  14 a); 

3) 

4) 

to  provide  support  for  a  power  plant,  other  than  a  nuclear  power  plant,  with  a  repayment 
longer than the relevant  maximum  in Article  10, but not exceeding twelve years as  stipulated 
in Article  11 a); 

to  support,  for  any  kind  of  ship  to  which  the  Understanding  on  Export  Credits  for  Ships 
applies, credit  terms  and  conditions  that would  be more favourable  than  the  credit  terms  and 
conditions permitted  by the Arrangement; or 

5) 

to apply a discount  to the  minimum  sovereign  credit  risk  premium  benchmark  in  accordance 
with Article 22 f). 

b) 

If  the  initiating  Participant  moderates  or  withdraws  its  intention  to  provide  support  for  the 
notified  exceptions, it shall  immediately  inform  all other Participants. 

50. 

MATCHING  OF  DEROGATIONS 

A Participant  intending to match notified  derogations shall follow the procedures set out below. 

Unless the initiating Participant  has sent notice that  it has withdrawn  its intention to derogate,  Participants 
can, once the appropriate waiting period  stipulated  in Article 47 has expired,  provide support as  follows: 

- 

for  "identical  matching",  i.e.  terms  and  conditions  that  include  the  identical  derogating 
element  but  that  otherwise  conform  to the Arrangement,  the  matching  Participant  shall  give 
notification  of its intention to match as early as possible;  or 

During the Transition Period for the application of the minimum premium benchmarks : 
- 

the Participants, on a voluntary basis and with best endeavours, shall notify  promptly cases where the 
country  credit  risks  are  externalized/removed  or  limited/excluded  for  the  entire  life  of  the  debt 
repayment obligations. 
a body of experience of these cases is expected to be established and be subject to review  at the end of 
the  Transition  Period  with  the  aim  of establishing  a list  which  shall  include  e.g. unconditional  third 
country guarantees, escrow accounts and asset-based financing.  This body of experience may also give 
guidance on the appropriate levels of discounts. 

- 

30 

- 

for  "non-identical  matching" prompted  by the  initial derogation,  i.e. any other element  of the 
terms  and  conditions  subject  to the  restrictions  of Article  29, the  matching  Participant  shall 
notify  a fresh  derogation,  initiate a five calendar  day prior notification  and five calendar  day 
discussion  procedure and await  its completion.  This period can run concurrently with that of 
the  prior  notification  and  discussion  procedure  initiated  by  the  originally  notifying 
Participant  but  cannot  elapse  before  the  end  of  the  applicable  10 or  20  calendar  day  period 
referred  to in Article 47 a). 

51. 

MATCHING  OF PERMITTED  EXCEPTIONS 

A Participant  intending to match a permitted  exception  shall follow the procedures set out below. 

Unless the  initiating  Participant  has sent notice that  it has withdrawn  its intention  of supporting terms and 
conditions  which  constitute  a permitted  exception  Participants  can,  once  the  waiting  period  stipulated  in 
Articles 48 or 49 as appropriate has expired, provide support as follows: 

- 

- 

for  "identical  matching",  i.e.  terms  and  conditions  that  include  the  identical  element  of  the 
permitted exception  but that otherwise conform  to the Arrangement, the matching  Participant 
shall give notification  of its intention to match as early as possible;  or 

for  "non-identical  matching"  prompted  by the  initial  notification,  i.e.  any  other  element  of 
the  terms  and  conditions  subject  to  the  restriction  in  Article  29,  the  matching  Participant 
shall  introduce a fresh  notification,  initiate a five calendar day prior notification  and  await  its 
completion.  This period  can  run  concurrently  with that of the prior notification  made  by the 
initiating  Participant  but  cannot  elapse  before  the  end  of  the  applicable  10  day  period 
referred  to in Articles 48 or 49 as appropriate. 

The  Secretariat  shall  retain  details  of  individual  matching  notifications  in  respect  of  minimum  premium 
benchmarks on the EEI. 

52. 

MATCHING  OF NON-CONFORMING  TERMS AND CONDITIONS NOT NOTIFIED 

a)  A  Participant  intending  to  match  alleged  non-conforming  terms  and  conditions  which  have  not 
been  notified  by  another  Participant,  involving  either  an  individual  transaction  or  a  credit  line, 
shall  make  reasonable  efforts  to  determine  whether  such  terms  and  conditions  will  be  offered. 
The  matching  Participant  will  be  considered  to  have  made  reasonable  efforts,  and  thus  be 
entitled to match, if it has informed  the other Participant by means of instant communication,  e.g. 
OLIS,  of  its  intention  to  match  but  received  no  confirmation  within  three  working  days 
(exclusive of the day of receipt) that the non-conforming  terms and conditions will not apply. 

b)  A credit  line  may be matched  by an  individual  transaction  or by a credit  line:  in both  cases, the 

matching offer  shall expire no later than the credit  line being matched. 

c)  A  Participant  intending  to  match  another  Participant's  non-conforming  terms  and  conditions 

shall: 

- 

- 

in a case of "identical  matching", follow  the procedures set out  in the first tiret of Articles 50 
or 51 as appropriate;  and 

in  a  case  of  "non-identical  matching",  follow  the  procedures  set  out  in  the  second  tiret  of 
Articles 50 or 51 as appropriate. 

31 

53. 

MATCHING  OF TERMS AND CONDITIONS  OFFERED BY A NON-PARTICIPÀNT 

a)  Before  matching  non-conforming 

to  be  offered  by  a 
non-Participant,  a Participant  shall  make  every  effort  to  verify  that  these  terms  and  conditions 
are  officially  supported.  The  Participant  shall  inform  all  other  Participants  of  the  nature  and 
outcome of these  efforts. 

terms  and  conditions  assumed 

b)  A  Participant  which  intends  to  match  non-conforming  terms  and  conditions  offered  by  a 
non-Participant  shall follow the prior notification  and discussion procedure in Article 47 a). 

SECTION  3:  NOTIFICATION PROCEDURES FOR  TRADE-RELATED AID 

54. 

DEROGATIONS: PRIOR NOTIFICATION  WITH  DISCUSSION 

a) 

It  is  expected  that  the  Participants  will  not  break  the  No  Derogations  Engagement  set  out  in 
Article 40  nor  otherwise  depart  from  the  rules  of  the  Arrangement.  However,  if  in  the  most 
extreme circumstances a Participant  intends to take the  initiative to support terms and  conditions 
that  derogate  from  the  Arrangement,  the  Participant  shall  notify  all  the  other Participants  of the 
terms  and  conditions  it  intends  to  support  using  the  procedures  set  out  in  Articles  55  and  56. 
This is without prejudice to the procedures and circumstances  set out in Article 40 b). 

b) 

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

55. 

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. 

b)  Prior  notification  shall  be  made  at  the  latest  30  working  days  before  the  bid  closing  or 

commitment date, whichever  is the earlier. 

c)  Prior notification  made in accordance with the third tiret of Article 55 a) above which  relates to a 
project  larger  than  SDR  50  million  shall  include  additional  project  information  explaining  why 
the  notifying  Participant  considers  the  project  eligible  for  tied  aid  under  the  key tests  set  out  in 
Article 35 b) above. 

d) 

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

32 

e)  The  provision  of  this  Article  shall  apply  to  tied  aid  that  forms  part  of  an  associated  financing 

package, as described  in Article 33. 

56. 

PROMPT  NOTIFICATION 

A Participant  shall  promptly notify  all other Participants,  i.e. within two working days of the  commitment, 
if it provides official  support for trade-related  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. 

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

57. 

EXEMPTIONS FOR UNTIED AID 

Notification  is not required for  untied aid financing  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  grant  element  (as  defined  by  the  DAC)  of  50  per  cent  or 
more. 

58. 

EXEMPTIONS FOR TECHNICAL ASSISTANCE AND SMALL PROJECTS 

The notification  procedures  in Articles 55 and 56 do not apply to the  following: 

-  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 US dollars, whichever  is lower; and 

-  Small projects:  capital projects of less than one million US dollars that are funded  entirely by 

development  assistance grants. 

59. 

TYING  STATUS OF AID 

A  Participant  may  request  additional  information  relevant  to  the  tying  status  of  any  form  of  aid  in 
accordance with Article 31 c). 

60. 

MATCHING  OF PRIOR  NOTIFICATIONS 

A Participant  intending to match prior notified  tied aid shall follow the procedures set out below. 

Unless  the  initiating  Participant  has  sent  notice  that  it  has  withdrawn  its  intention  to  provide  aid, 
Participants  can  support  the  tied  aid  as  follows  once  the  30  working  days  period  referred  to  in 
Article  55 b) has expired: 

-  for  "identical  matching",  i.e. terms  and conditions that  lead to the  same concessionality  level, 
the  matching  Participant  shall  give notification  of  its  intention  to  match  as early  as  possible; 
or 

33 

-  for  "non-identical  matching",  prompted  by 

i.e.  any  other 
non-conforming  element  of  the  terms  subject  to  the  restrictions  of  Article  41, the  matching 
Participant  shall  initiate a five calendar day prior notification  period  and await  its completion. 
This  period  can  run  concurrently  with  that  of the  prior  notification  and  discussion  procedure 
initiated  by  the  original  notifying  Participant  but  it  cannot  elapse  before  the  end  of  the 
applicable 30 working day period referred  to in Article 55 b). 

initial  notification, 

the 

61. 

MATCHING  OF PROMPT  NOTIFICATIONS 

Prior  notification  need  not  be  given  if  a  Participant  intends  to  match  terms  and  conditions  that  were 
subject to a prompt notification  in accordance with Article 56. 

SECTION 4:  CONSULTATION  PROCEDURES FOR  TRADE-RELATED AID 

62. 

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 VI) be supplied. 

b)  Furthermore, a Participant  may request  consultations  with  other  Participants,  in accordance  with 
Article 63.  These  include  face-to-face  consultations  as  outlined  in  Article  69  in  order  to 
discuss: 

-  first,  whether an aid offer  meets the requirements of Articles 34 and 35 above, and 

- 

if necessary, whether  an aid  offer  is justified  even  if the  requirements  of Articles  34 and 35 
are not met. 

63. 

SCOPE AND TIMING  OF  CONSULTATIONS 

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

- 

the assessment of a detailed feasibility  study/project  appraisal; 

-  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  organizations 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. 

34 

b)  The consultation  shall  be completed  and the findings on  both questions  in Article 62 notified  by 
the  Secretariat  to  all  Participants  at  least  10  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. 

64. 

CONSULTATION PROCEDURES FOR LARGE PROJECTS 

If  a  Participant  is  not  satisfied  with  the  additional  project  information  -  supplied  in  accordance  with 
Article 55  c),  it  may  request  additional  information.  A  Participant  may  subsequently  request  a 
consultation  in  accordance  with  Article  63.  In any such  consultation  special  weight  shall  be  given  to the 
expected  availability  of financing  at  market  or  Arrangement  terms  when  considering  the  appropriateness 
of such aid. 

65. 

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.  yNeither the donor 
nor  any  other  Participant  shall  make  a  tied  aid  commitment  until  10  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  10 working day period  shall 
be extended to  15 days. 

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

SECTION5:  INFORMATION EXCHANGE PROCEDURES FOR EXPORT CREDITS AND 
RELATED  AID 

TRADE-

66. 

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. 

67. 

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. 

35 

c)  A Participant  which  has received  allegations  that another  Participant  has offered  official  support 
that  derogates  from  the  Arrangement  may  address  an  enquiry  to  that  Participant,  stating  the 
details of any such allegation. 

d) 

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

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

68. 

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. 

69. 

FACE-TO-FACE  CONSULTATIONS 

a)  The  Participants  agree to respond  favourably  to requests  for  early  face-to-face  consultations,  i.e. 
within five working days, particularly when existing exchange of  information  procedures  may be 
perceived to be inadequate. 

b)  All Participants  shall be advised  of any request for  face-to-face  consultations.  The  consultations 

shall take place as soon as possible after  the expiry of the five working day period. 

c)  The  Participant  requesting  consultation  shall  chair  and  be  responsible  for  finding  a  mutually 
agreeable time and place for the meeting.  Other Participants shall be informed  accordingly. 

d) 

In  cases  where  the  transaction  consulted  upon  has  already  taken  place,  the  Chairman  will  be 
chosen  by the parties  involved.  If the consultation  does not take place at OECD headquarters  in 
Paris,  the  Participant  requesting  the  consultation  shall  provide  secretariat  services,  including 
interpretation  if necessary. 

e)  The Secretariat shall promptly circulate the outcome of the consultation  to all Participants.  If the 
Secretariat  is unable to attend a meeting held away from  OECD headquarters, the Chairman  shall 
ensure that it is informed  of the outcome. 

f)  The Chairman  shall co-ordinate with the Secretariat on any necessary  follow-up  action. 

g)  An  information  exchange or face-to-face  consultations may lead to a common  line. 

36 

70. 

COMMON  LINES 

A  common  line  is  an  understanding  between  the  Participants  to  agree  the  basis  for  official  support  in  a 
given  transaction  or  in  specific  circumstances.  It may  contain  terms  and  conditions  that  are  more  or  less 
favourable  than  terms  and  conditions  allowed  under  the  Arrangement.  The  rules  of  an  agreed  common 
line  supersede  the  rules  of the Arrangement  only  for  the transaction  or  in the  circumstances  specified  in 
the common  line. 

71. 

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 34 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 34 b). 

72. 

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,  rejection,  a  proposal  for 

modification  of the common  line or an alternative common  line proposal. 

37 

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. 
If  this  Participant  is  subsequently 
approached  after  the  common  line  has  gone  into  effect,  it  may  apply  the  procedures  in 
Article 77 a) to d)  if  it wishes  to  extend  softer  terms  and  conditions  than  those  stipulated  in the 
common  line. 

73. 

ACCEPTANCE  OF COMMON  LINES 

a)  After  a period  of  20  calendar  days, the  Secretariat  shall  inform  all  Participants  of  the  status  of 
If  not  all  Participants  have  accepted  the  common  line,  but  no 
the  common  line  proposal. 
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  71  and 72.  In  these  circumstances,  the  Participants  are  not  bound  by  their  original 
decision. 

74. 

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. 

75. 

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. 

76. 

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 
34 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. 

77. 

DEVIATION FROM A COMMON LINE 

a)  A Participant  which  intends to support terms  and  conditions  that  are more favourable  than  those 
agreed  in the  common  line  shall  notify  all  Participants  and  the  Secretariat  at  least  60  calendar 
days before  making any commitment. 

b)  This  notification  shall  include  an  explanation  of the  reason  why  it  intends  to  support  terms  and 
conditions  that are more favourable  than the  common  line, as well  as a justification  of how they 
will  not  result  in  a  purchasing  decision  (possibly  including  the  outcome  of  an  International 
Competitive Bid (ICB) procedure) which  is influenced  by the availability of aid. 

c) 

If a Participant  interested  in the specific  transaction  so requests, the  Secretariat  shall  organize a 
face-to-face  consultation. 

d)  Unless an alternative common  line is established  at the face-to-face  consultation, the  Participants 
shall  refrain  from  making  a  commitment  until  28  calendar  days  after  the  face-to-face 
consultation, or 60 calendar days after  notification,  whichever  is the  later. 

e)  A Participant can reserve the right to match an offer  which  is more favourable  than that agreed to 

in the common  line in accordance with Articles 50, 53, 60 and 61. 

SECTION 6:  OPERA TIONAL PROVISIONS FOR  THE COMMUNICA TION OF MINIMUM  INTEREST 

RATES(CIRRS) 

78. 

COMMUNICATION  OF MINIMUM INTEREST RATES 

a)  CIRRs for  currencies  that  are determined  according  to the  provisions  of Article  16 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. 

79. 

EFFECTIVE DATE FOR APPLICATION  OF INTEREST RATES 

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

39 

80. 

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  10  days  after  notification  of  this  amendment  has  been 
received  by the  Secretariat. 

SECTION  7:  OPERATIONAL  PROVISIONS  FOR  THE  EXCHANGE  OF  INFORMATION  FOR 
PREMIUM. 

81. 

ELECTRONIC EXCHANGE  OF INFORMATION FOR PREMIUM (EEI) 

The  Participants  shall  provide  the  information  outlined  in  Annex  VII  to  facilitate  the  implementation  of 
the provisions of the Arrangement  in relation to the minimum premium  benchmarks. 

SECTION  8:  REVIEWS 

82. 

ANNUAL REVIEW 

a)  The Participants  shall  review, at least annually, the functioning  of the Arrangement.  The review 
will  normally  take place  in the second  quarter of each year.  In the review, the Participants  shall 
examine,  inter  alia,  notification  procedures,  derogations,  implementation  and  operation  of  the 
DDR  system,  rules  and  procedures  on  tied  aid,  questions  of  matching,  prior  commitments, 
practices  on  credits  for  agricultural  commodities  and  possibilities  of  wider  participation  in  the 
Arrangement. 

b)  This  review  shall  be  based  on  information  of  the  Participants1'  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 days before the date of review. 

83. 

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. 

84. 

REVIEW  OF MINIMUM PREMIUM BENCHMARKS AND RELATED  ISSUES 

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

- 

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

40 

- 

- 

- 

the  premium  benchmarks  to  adjust  them  over  time  to  ensure  that  they  remain  an  accurate 
measure  of  risk,  taking  into  account  the three  PFT's: the  cash  flow  and  accruals  approaches 
and, where appropriate, private market indicators; 

the system of related conditions; and 

the body of experience  of the circumstances  under which discounts to the minimum  premium 
benchmarks  may  be  applicable  and  the  appropriate  level  of  such  discounts.  To  assist  the 
review the Secretariat shall provide reports of all  notifications. 

CHAPTER V:  FUTURE WORK 

85. 

GLOBAL UNTYING 

The  Participants  confirm  their  resolve  to  co-operate  with  the  Working  Party  on  Financial  Aspects  of 
Development  Assistance  (DAC/FA)  to  develop  targets  for  untying  aid  and  more  precisely  define  untied 
and  tied  aid.  They  will  follow  closely  the  DAC/FA's progress  in this  domain.  They  agree  to  invite  the 
DAC/FA to consider how to strengthen discipline and transparency, as follows: 

a)  discipline:  the  Participants  will  engage  urgently  in a discussion  with  the  DAC/FA  to  agree  on 

targets for untying aid; 

b) 

transparency:  the  modalities  of the  following  measures  for  improving  transparency  need  to  be 
worked out in conjunction  with  DAC/FA: 

notification  of  specified  untied  aid  at  the  latest  before  commencement  of  the  bidding 
procedure,  or  within,  e.g.  45  calendar  days,  of  the  date  of  signing  the  financial  contract, 
whichever  is  the  earlier,  giving  reasonable  time  and  project  information  for  bids  to  be 
prepared within tender deadlines;  and 

immediate  ex-post  notification  of  the  name  and  nationality  of  the  company  being  awarded 
the contract of specific  untied  aid. 

The  Secretariat  shall  create  and  update  a  register  of  such  notifications  on  OLIS.  The  above 
information  shall be  unclassified. 

86. 

MARKET  WINDOWS 

The  Participants  undertake  to  investigate  further  both  the  issue  of  transparency  and  the  definition  of 
market window operations  in order to prevent distortion of competition. 

87. 

SECTORS 

a)  The Participants  undertook to start negotiations  in  1994 on complementary  guidelines on  Export 
Credits on agricultural  products.  An Experts Group was established  and held  its first meeting in 
April  1995. 

b)  The  need  for  further  or  complementary  guidelines  in  the  Arrangement  for  Steel  Plant  and 
Equipment  will  be  considered  when  the  outcome  of  the  negotiations  in  the  Multilateral  Steel 
Agreement context  is known. 

41 

88. 

DIFFERENCES OF INTERPRETATION 

It  has  not  proved  possible  to  reach  total  agreement  on  the  definition  of  official  support  in  the  light  of 
differences  between  long-established  national  export  credit  systems.  It  is understood  that  efforts  will  be 
made  to  resolve  differences  of  interpretation  as  a  matter  of  urgency.  Until  agreement  is  reached,  the 
current wording  in the Arrangement does not prejudice  present  interpretations. 

42 

ANNEX I:  SECTOR UNDERSTANDING  ON EXPORT CREDITS FOR SHIPS 

For any contract relating to any new sea-going ship or any conversion  of a ship12 to be negotiated 
1. 
from  1  December  1979  onwards,  participants  in  this  Understanding  agree  to  abolish  existing  official 
facilities  and to  introduce no new official  facilities  for export credits on terms providing: 

i) 

a maximum  duration  exceeding  eight-and-a-half  years14  from  delivery  and  repayment  other  than 
by  equal  instalments  at  regular  intervals  of  normally  six  months  and  a  maximum  of  twelve 
months; 

ii)  payment by delivery of less than 20 per cent of the contract price; 

iii)  an interest rate of less than  8 per cent, net of all charges15. 

2. 
This  minimum  interest  rate of 8 per cent will  apply to the credit granted with official  support  by 
the  shipbuilder  to  the  buyer  (in  a  supplier-credit  transaction)  or  by  a  bank  or  any  other  party  in  the 
shipbuilder's  country  to the  buyer  or any  other  party  in the  buyer's  country  (in  a buyer-credit  transaction) 
whether the official  support  is given for the whole amount of the credit or only part of it. 

3. 
The  minimum  interest  rate  will  also  apply  to  the  credit  granted  with  support  by  governments 
participating  in the  Understanding,  in the shipbuilder's  country to the  shipbuilder  or to any other  party, to 
enable  credit  to be  given  to the  shipowner  or to  any  other  party  in  the  shipowner's  country,  whether  this 
official  support  is given for the whole amount of the credit or only part of it. 

4. 
Insofar  as  other  public  bodies  participate  in  measures  to  promote  exports,  participants  agree  to 
use  all  possible  influence  to  prevent  the  financing  of  exports  on  terms  which  contravene  the  above 
principles. 

5. 
Participants,  recognizing  that  it  is highly  desirable  to  set  a  limit  to  credit  terms  for  export,  also 
agree to make their  best endeavours to ensure that no more favourable  terms than those set out above  will 
be offered  to buyers by any other means. 

6. 
Any  participant  in  the  Understanding  which  wishes,  for  genuine  aid  reasons,  to  concede  more 
favourable  terms  in a particular case is not precluded  from  doing so, provided  that adequate notice of this 
decision  is given  to  all the parties to the  Understanding  in accordance  with  the  procedure  established  for 
this  purpose.  For these cases  "adequate  notice" shall  be  interpreted  as requiring that  notification  be  made 
to all  participants  if possible at  least  six weeks before  a promise  is given, at any stage of the  negotiations, 
to  commit  the  use  of  funds  for  that  purpose,  and  in  any  case  at  least  six  weeks  before  authorization  is 
given so to commit them. 

Ship  conversion  means  any  conversion  of  sea-going  vessels  of  more  than  1.000  grt.  on  condition  that 
conversion operations entail radical alterations to the cargo plan, the hull or the propulsion system. 
Official  facilities  are those which enable credits to be insured, guaranteed  or financed  by governments, by 
governmental institutions, or with any form of direct or indirect governmental participation. 
Given  the special  nature of the transactions  for  vessels transporting  liquefied  natural  gas, the duration of 
authorized credit for this type of ship only is increased to ten years. 
Interest rate, net of all charges, means that part of the credit costs (excluding any credit  insurance premia 
and/or  any banking  charges) which  is paid  at regular  intervals  throughout  the credit  period  and  which is 
directly related to the amount of credit. 

43 

Prior notice shall also be given in accordance with the procedure agreed  between the  participants 
7. 
of any decision  taken for exceptional reasons other than those specified  in Clause 6, to support terms more 
favourable  in  any  way than those  of the  Understanding.  Support  (including  the  provision  of  aid) will be 
refused  for  any  order  finally  placed16  on  more  favourable  terms  before  all  other  participants  in  the 
Understanding have been given prior notice in accordance with the procedure  agreed. 

8. 
Any  participant  in  the  Understanding  may,  provided  that  it  applies  the  procedures  agreed 
between  the  participants,  support  more favourable  terms  in a particular  substantiated  case to match  terms 
of  officially  supported  transactions,  or  contravention  of  the  above  terms  by  other  participants,  or 
competitive from  non-participating countries. 

II 

9. 
Any  participant  in  the  Understanding  may  obtain  information  from  any  other  participant  on 
terms of any official  support  for an export contract  in order to ascertain  whether the terms contravene this 
Understanding.  Participants  undertake  to  supply  all  possible  information  requested  with  all  possible 
speed.  According  to the rules and  practices of the OECD, any participant  may ask the  Secretary-General 
to  act  on  its  behalf  in  the  aforementioned  matter  and  to  circulate  the  information  obtained  to  all 
participants  in the  Understanding. 

10. 
official  support and of the means of implementation  of the Understanding. 

Each  participant  undertakes  to  notify  the  Secretary-General  of  its  system  for  the  provision  of 

Ill 

This  Understanding  becomes  effective  as  soon  as  all  Members  of  Working  Party  No.  6  have 
11. 
notified  the  Secretary-General  of  their  adherence  to  it  or  as  soon  as  participants  having  so  notified  the 
Secretary-General  decide that they constitute  a representative  majority  of Members  of Working Party No. 
6;  any participant  which disagrees as to what constitutes a representative  majority  would  not be bound by 
the others' decision.  The Understanding  is open to other Member countries of the OECD. 

12. 
This  Understanding  shall  be subject  to  review  as often  as  requested  by  participants,  and  in any 
case  at  intervals  not  exceeding  one  year.  Any  participant  may  withdraw  from  this  Understanding  upon 
giving  to  its  partners  three  calendar  months'  notice  of  its  intention  to  do  so.  Within  this  period,  at  the 
request  of  any  of  these  partners,  there  shall  be  a  meeting  of  Working  Party  No.  6  to  review  this 
Understanding,  and  any  other  participant,  on  notification  to  its  partners,  may  withdraw  from  this 
Understanding at the same effective  date as the participant which first gave notice. 

An  order  shall  be  deemed  to  have  been  finally  placed  as  soon  as  the  buyer  has  committed  himself 
irrevocably  under  a  written  and  signed  agreement  to  buy  from  the  exporter  and  to  pay  according  to 
specified  terms,  even  if  the  agreement  is  subject  to  reservations  which  can  be  withdrawn  only  by the 
exporter. 

44 

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). 

b)  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  70  to  77  of  the  Arrangement  provide  the  possibility  to  restrict  or  extend 
repayment terms. 

2. 

Review 

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

CHAPTER II:  PROVISIONS FOR EXPORT CREDITS AND TIED AH) 

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. 

45 

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  3  of  this  Sector  Understanding. 
Alternatively,  a  Participant  may  offer  the  relevant  CIRR  in  accordance  with  Article  16  of  the 
Arrangement,  provided  that  the  maximum  period  from  the  date  of contract  award  to the  date  of 
final repayment does not exceed  10 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  16 b) of the Arrangement,  the  CIRR 
for the longest term shall be used for constructing the  SCIRR. 

6. 

Local  Costs and Capitalization  of Interest 

The provisions of Article 25 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 
capitalization  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  47  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. 

46 

CHAPTER III:  PROCEDURES 

9. 

Prior  Consultation 

Recognizing  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  days 
before  taking  a  final  decision  of  the  terms  it  intends  to  support  specifying,  inter  alia,  the 
following  details: 

- 

- 

- 

- 

- 

- 

cash payments; 

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; 

- 

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  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  10  days  during  which  period  further  efforts  to  achieve  a  common 
attitude shall be made at face-to-face  consultations. 

47 

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 

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.  The  terms  of  Chapter  1 also  apply  to 
engines  and  spare parts when  contemplated  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: 

- 

- 

equalizes competitive financial  conditions between the Participants; 

neutralizes  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. 

Cash  Payments 

a)  The  Participants  shall  require  a minimum  cash  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  cash payments 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. 

48 

5. 

Eligible  Currencies 

The  currencies  which  are  eligible  for  official  financing  support,  as  defined  in  the  Introduction  to  the 
Arrangement, are US Dollars, German  Marks, French Francs, UK Pounds, ECUs and Dutch  Guilders. 

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 above, 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  10 years - TB10 +  120 basis points, 

on repayment terms of over  10 to  12 years - TB10 +  175 basis points, 

-  where  TB10  means the  10 year  government  bond yield  for  the relevant  currency  (except  the 
ECU) at the constant maturity averaged  over the previous two calendar weeks. In the case of 
the ECU, TB10 means the  long-term ECU bond yield as published  by the Luxembourg  Stock 
Exchange,  long-term  bond  series,  averaged  over the  previous  two  calendar  weeks  minus  20 
basis points.  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  of  repayment.  The 
Participants  shall  review  the two  ceilings  at the time  of  each  review  in accordance  with  Article 
17  to  examine  whether  one  ceiling  provides  more  advantages  than  the  other  with  a  view  to 
adjusting  the more advantageous so that a balance is more evenly  struck. 

c)  Subject to the  85 per cent threshold  specified  in sub paragraph a) above, 

1)  the  Participants  may  additionally  provide  official  financing  support  in  a  manner  comparable 
with  that  provided  by  the  Private  Export  Funding  Corporation  (PEFCO).  Fortnightly 
information  on  PEFCO's  borrowing  costs  and  applicable  lending  rates,  exclusive  of  official 
guarantee  fees,  on  fixed  rate  finance  for  immediate  disbursements  over  a  series  of  dates,  for 
contract offers  and for  bid offers,  shall be communicated to the other Participants  on a regular 
basis. 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  of  repayments.  Any  Participant  matching  such  financing  offered  by 
another  Participant  shall  match  it  in  all  of  its  terms  and  conditions  other  than  the  validity 
period of offers  of commitment as set out in Article 8 below. 

2)  these  rates  as  notified  shall  be  applied  by  all  Participants  as  long  as  the  24  month 
disbursement  interest rate does not exceed  225 basis points above TB10. In the event that the 
24  month  rate  exceeds  225  basis  points, the  Participants  are  free  to  apply  the  rate  of  225 
basis points for  the 24 months disbursement  and all the corresponding  rates  and  shall  consult 
immediately with a view to finding  a permanent solution. 

d)  The  minimum  interest  rates  are  inclusive  of  credit  insurance  premium  and  guarantee  fees. 

However, commitment and management fees are not included  in the interest rate. 

49 

7. 

Interest Rate Adjustments 

The minimum  interest rates set out in Article 6 above shall be reviewed every two weeks. If the average  of 
the  government  bond  yield  for  the  relevant  currency  at  constant  maturity,  or  the  long  term  ECU  bond 
yield, differs  by  10 basis points or more  at the end  of  any two week period,  such  minimum  interest  rates 
will  be adjusted  by the  same basis points difference  noted  above  and  the recalculated  rate  rounded  to  the 
nearest five basis points. 

8. 

Validity Period for Export Credits/Interest Rate  Offers 

The  duration  of  minimum  interest  rate  offers  set  in  accordance  with  Article  6  shall  not  exceed  three 
months. 

9. 

Determination  of Interest Rate Offers  and Selection of Interest Rates 

a)  The  Participants  may  provide  official  financing  support  in  accordance  with  Articles  6  and  7 
above  at  an  interest  rate  applying  on  the  date  an  interest  rate  offer  is  made  for  the  relevant 
aircraft,  provided  that  the  offer  is  accepted  within  its  validity  period  in  accordance  with 
Article  8.  If the interest rate offer  is not so accepted,  further  interest rate offers  may be made  up 
to, but no later than, the date of delivery of the relevant  aircraft. 

b)  An  interest rate offer  may be accepted  and the  interest rate selected  at any time between  contract 
signature and the date of delivery of the relevant aircraft.  The rate selected  by the borrower  shall 
be irrevocable. 

10. 

Pure Cover Support 

The  Participants  may  provide  official  support  by  way  of  guarantee  or  insurance  only,  i.  e.  pure  cover, 
subject  to  the  85  per  cent  threshold  specified  in  Article  6  a)  above.  Any  Participant  providing  such 
support shall notify  other Participants of the amount, term, currency and pattern of repayments and  interest 
rates. 

11. 

Competition Reference  Point 

In  the  event  of  officially  supported  competition,  aircraft  that  are  in  the  list  of  large  civil  aircraft  in 
Appendix  1 to this  Sector Understanding  and that  compete  with  other aircraft  may benefit  from  the  same 
credit terms and conditions. 

12. 

Security  for the Repayment Risk 

The  Participants  may  decide  upon  the  security  which  they  deem  acceptable  to  secure  the  repayment  risk 
without  reference  to  other  Participants.  However,  they  agree  to  provide  details  of  such  security  if 
requested by other Participants, or when deemed  appropriate. 

13. 

Model  Changes 

The  Participants  agree that  when  a  fixed  interest  rate offer  has  been  made or has been  concluded  on  one 
type of aircraft,  the terms contained therein cannot be transferred  to another type bearing a different  model 
designation. 

50 

14. 

Leases 

The Participants may, subject to the other terms of Part 1  of the Sector Understanding, provide support for 
a financial  lease on the same basis as a contract of sale. 

15. 

Aid 

The  Participants  shall  not  provide  aid  support,  unless this  is  in the  form  of  an  untied  grant.  However, 
Participants shall consider  sympathetically  any requests for  a common  line for tied  aid for  humanitarian 
purposes. 

CHAPTER III: PROCEDURES 

16. 

Prior Notification, Matching and Information Exchange 

- *• 

The procedures for prior notification, matching and information exchange set out in the Arrangement shall 
apply to this Part of the Sector Understanding. Furthermore, the Participants may request a consultation if 
there  is any reason to believe that  another Participant  is offering  an officially  supported  credit  on terms 
and  conditions  that  do not conform  to the  Sector  Understanding.  The consultation  shall  be held  within 
10 days, but otherwise follow the procedures set out in Article 69 of the Arrangement. 

17. 

Review 

The Participants shall review the procedures and provisions of this Sector Understanding annually to bring 
them closer to market conditions.  However, if market conditions or customary financing practices change 
considerably, a review may be requested at any time. 

51 

PART 2 :  ALL NEW AIRCRAFT EXCEPT LARGE AIRCRAFT 

CHAPTER IV:  SCOPE 

18. 

Form and Scope of Application 

Part  2  of the  Sector  Understanding,  which  complements  the  Arrangement,  sets  out the  special  guidelines 
which apply to officially  supported  export credits for the sale or lease of new aircraft  not covered by Part 1 
of this  Sector  Understanding.  It does not  apply to hovercraft  nor to  flight  simulators  which  are  subject  to 
the terms of the Arrangement. 

19. 

Best  Endeavours 

The  provisions  of  this  Chapter  represent  the  most  generous  terms  that  Participants  may  offer  when 
providing  official  support.  The  Participants  shall,  however,  continue  to  respect  customary  market  terms 
for  different  types  of  aircraft  and  shall  do  everything  in  their  power  to  prevent  these  terms  from 
being eroded. 

20. 

Categories of  Aircraft 

The Participants have agreed on the following  categorization of  aircraft: 

-  Category  A:  turbine  powered  aircraft,  including  helicopters,  (e.g.  turbo jet,  turbo  prop  and 

turbo fan aircraft) with generally between 30 to 70 seats. 

-  Category B: other turbine powered aircraft,  including helicopters. 

-  Category C: other aircraft,  including helicopters. 

An illustrative  list of aircraft  in categories A and B is set out in Appendix I. 

CHAPTER V:  PROVISIONS FOR EXPORT CREDITS AND AID 

21. 

Maximum  Repayment Term 

The maximum  repayment term varies according to the aircraft  categorization  which  shall be determined  by 
the criteria set out in Article 20 above. 

a)  For category A aircraft  the maximum repayment term  is ten years. 

b)  For category B aircraft  the maximum repayment term  is seven years. 

c)  For category C aircraft  the maximum repayment term  is five years. 

22. 

Minimum  Interest Rates 

The  Participants  providing  official  financing  support  shall  apply  minimum  interest  rates;  the  Participants 
shall apply the relevant CIRR set out in Article  15 of the  Arrangement. 

52 

23. 

Insurance Premium  and Guarantee  Fees 

The Participants  shall not waive  in part or in total, insurance premium or guarantee  fees. 

24. 

Aid 

The  Participants  shall  not  provide  aid  support,  unless  this  is  in  the  form  of  an  untied  grant.  However, 
Participants  shall  consider  sympathetically  any  requests  for  a  common  line  for  tied  aid  for  humanitarian 
purposes. 

CHAPTER  VI:  PROCEDURES 

25. 

Prior Notification, Matching and Information  Exchange 

In  the  event  of  officially  supported  competition  for  a  sale  or  lease,  aircraft  competing  with  those  from 
another  category  or with  those  covered  by other  Parts of the  Sector Understanding  shall,  for  that  specific 
sale or lease, be able to benefit  from  the same terms and conditions as those other aircraft.  The  procedures 
for  prior  notification,  matching  and  information  exchange  set  out  in the  Arrangement  shall  apply  to  this 
Part  of the  Sector  Understanding.  Furthermore, the  Participants  may request  a consultation  if there  is any 
reason  to  believe  that  another  Participant  is  offering  an  officially  supported  credit  on  terms  that  do  not 
conform  to the  Sector Understanding.  The consultation  shall  be held  within  10 days, but  otherwise  follow 
the procedures set out in Article 69 of the Arrangement. 

26. 

Review 

The Participants shall review the procedures and provisions of this Sector Understanding annually  in order 
to bring them closer to market conditions.  However,  if market conditions or customary  financing  practices 
change considerably, a review may be requested at any time. 

53 

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

SERVICE  CONTRACTS 

CHAPTER VII:  SCOPE 

27. 

Form and Scope of Application 

Part  3 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 used aircraft;  and of spare 
engines, spare parts, maintenance and  service contracts  in conjunction  with  both  new and  used  aircraft.  It 
does  not  apply  to  hovercraft  nor to  flight  simulators,  which  are  subject  to the  terms  of  the  Arrangement. 
The relevant provisions of Parts  1  and 2 of the Sector Understanding apply except as follows. 

28. 

Used  Aircraft 

The  Participants  shall  not  support  credit  terms  more  favourable  than  those  set  out  in  the  Sector 
Understanding  for new aircraft.  The following  rules apply specifically  to used  aircraft. 

a) 

Age of aircraft  (years) 

Normal Maximum Repayment Term 

Large Aircraft 

Category A 

Category B 

Category C 

1 

2 

3 

4 

5-  10 

Over  10 

10 

9 

8 

7 

6 

5 

8 

7 

6 

6 

6 

5 

6 

6 

5 

5 

5 

4 

5 

5 

4 

4 

4 

3 

These terms shall be reviewed  if the maximum  repayment terms for new aircraft  are changed. 

b)  The  Participants  providing  official  financing  support  shall  apply  minimum  interest  rates;  the 

Participants shall apply the relevant CIRR set out  in Article  15 of the Arrangement. 

29. 

Spare Engines and Spare Parts 

a)  The financing  of these  items when  contemplated  as part  of the  original  aircraft  order  may  be on 
the same terms as for the aircraft.  However,  in such cases the Participants shall  also take  account 
of the size of the fleet  of each aircraft  type, including aircraft  being acquired, aircraft  already  the 
subject  of a firm  order or already owned, on the following  basis: 

- 

for the first five aircraft  of the type  in the fleet:  15 per cent of the aircraft  price, i.e. the  price 
of the airframe  and  installed  engines. 

54 

- 

for  the sixth and  subsequent aircraft  of that type  in the fleet:  10 per cent of the aircraft  price, 
i.e. the price of the airframe  and  installed engines. 

b)  When  these  items are not ordered  with  the aircraft,  the maximum  repayment  terms  shall  be  five 

years  for new spare engines and two years for other spare parts. 

c)  Notwithstanding  sub paragraph  b) above for new spare engines for  large aircraft,  the  Participants 

may exceed the maximum repayment term of five years by up to three years 

-  where the transaction has a minimum contract value of more than US $20 million; 

- 

or includes a minimum of four new spare engines. 

The  contract  value  shall  be  reviewed  every  two  years  and  adjusted  for  price  escalation 
accordingly. 

d)  The  Participants  reserve the right to change their  practice  and  match  the  practices  of  competing 
Participants  in  relation  to  the  timing  of  the  first  repayment  of  principal  with  respect  to  spare 
engines and spare parts. 

30. 

Maintenance and Service  Contracts 

Participants may offer  official  financing  support with a repayment term of up to two years for  maintenance 
and service contracts. 

CHAPTER VIII:  PROCEDURES 

31. 

Prior Notification, Matching and Information  Exchange 

The procedures  for prior notification,  matching and  information  exchange set out in the Arrangement  shall 
apply to this Part of the Sector Understanding.  Furthermore, the Participants  may request  a consultation  if 
there  is  any  reason  to  believe  that  another  Participant  is offering  an  officially  supported  credit  on  terms 
that  do  not  conform  to  the  Sector  Understanding.  The  consultation  shall  be  held  within  10 days,  but 
otherwise follow the procedures set out in Article 69 of the Arrangement. 

32. 

Review 

The Participants shall review the procedures and provisions of this Sector Understanding annually  in order 
to bring them closer to market conditions.  However,  if market conditions or customary financing  practices 
change considerably, a review may be requested at any time. 

55 

APPENDIX I 
ILLUSTRATIVE  LIST 

All  other  similar  aircraft  that  may  be  introduced  in  the  future  shall  be  covered  by  this  Sector 
Understanding  and  shall  be added to the appropriate  list in due course.  These  lists are not exhaustive  and 
serve  only  to  indicate  the  type  of  aircraft  to  be  included  in  the  different  categories  where  doubts 
could arise. 

LARGE CIVIL AIRCRAFT 

Manufacturer 

Designation 

Airbus 
Airbus 
Airbus 
Airbus 
Airbus 
Airbus 
Airbus 
Boeing 
Boeing 
Boeing 
Boeing 
Boeing 
Boeing 
British Aerospace 
British  Aerospace 
British  Aerospace 
British  Aerospace 
British  Aerospace 
Fokker 
Fokker 
Lockheed 
McDonnell  Douglas 
McDonnell  Douglas 
McDonnell  Douglas 
McDonnell  Douglas 
McDonnell  Douglas 
Lockheed 
Ramaero 

A 300 
A310 
A319 
A 320 
A321 
A 330 
A 340 
B737 
B747 
B757 
B767 
B777 
707, 727 
RJ70 
RJ85 
RJ100 
RJ115 
Bael46 
F 70 
F  100 
L-100 
MD-80 series 
MD-90  series 
MD-11 
DC-10 
DC-9 
L-1011 
1.11-495 

56 

CATEGORY A AIRCRAFT 

Turbine-powered  aircraft  -  including  helicopters  - (e.g. turbo jet,  turbo-prop  and  turbo-fan  aircraft),  with 
generally  between  30  and  70  seats.  In  case  a  new  large  turbine-powered  aircraft  with  over  70 seats  is 
being  developed,  immediate  consultations  shall  be  held  upon  request  with  a  view  to  agree  on  the 
classification  of  such  an  aircraft  in  this  Category  or  in  Part  1  of  this  Understanding  in  view  of  the 
competitive  situation. 

Manufacturer 

Designation 

Aeritalia 
Aeritalia/Aerospatiale 
Aeritalia/Aerospatiale 
Aerospatiale/MBB 
De Havilland 
DeHavilland 
De Havilland 
De Havilland 
Boeing Vertol 
Broman(U.S.) 
British Aerospace 
British Aerospace 
British Aerospace 
British Aerospace 
Canadair 
Canadair 
Canadair 
Casa 
Dornier 
EH Industries 
Embraer 
Embraer 
Fokker 
Fokker 
Fokker 
Gulfstream  America 
LET 
Saab 
Saab 
Short 
Short 
Short 
etc. 

G 222 
ATR 42 
ATR 72 
C160 Transall 
Dash 8 
Dash  8-100 
Dash  8 - 200 
Dash  8-300 
234 Chinook 
BR 2000 
BAe ATP 
BAe 748 
BAe Jetstream 41 
BAe Jetstream 61 
CL215T 
CL415 
RJ 
CN235 
DO 328 
EH-101 
EMB  120 Brasilia 
EMB  145 
F 50 
F 27 
F 28 
Gulfstream 1-4 
610 
SF 340 
2000 
SD 3-30 
SD 3-60 
Sherpa 

57 

CATEGORY B AIRCRAFT 

Other turbine-powered  aircraft,  including helicopters. 

Aerospatiale 
Agusta 
Beech 
Beech 
Beech 
Bell  Helicopter 
Bell  Helicopter 
Bell  Helicopter 
Bell  Helicopter 
Bell  Helicopter 
Bell  Helicopter 
Bell  Helicopter 
Bombardier / Canadair 
British  Aerospace 
British  Aerospace 
British  Aerospace 
British  Aerospace 
Beech Aircraft  Corpn d/b/a Raytheon  Aircraft  Co. 
Beech Aircraft  Corpn  d/b/a Raytheon  Aircraft  Co. 
Beech Aircraft  Corpn d/b/a Raytheon Aircraft  Co. 
Beech Aircraft  Corpn d/b/a  Raytheon Aircraft  Co. 
Beech Aircraft  Corpn  d/b/a  Raytheon Aircraft  Co. 
Bell 
Canadair 
Canadair 
Canadair 
Casa 
Casa 
Cessna 
Cessna 
Claudius Dornier 
Dassault  Breguet 
Dornier 
Embraer 
Embraer/FAMA 
Eurocopter 
Eurocopter 
Fairchild 
Fairchild 
Fairchild 
Fairchild 
Fairchild 
Fairchild 
Gulfstream  America 
IAI 
IAI 

58 

AS 332 
A  109, A 119 
1900 
Super King Air 300 
Starship 1 
206B 
206L 
212 
230 
412 
430 
214 
Global  Express 
BAe Jetstream 31 
BAe 125 
BAe  1000 
BAe Jetstream  Super 31 
Hawker  1000 
Hawker 800 
King Air 350 
Beechjet  400 series 
Starship 2000A 
B407 
Challenger 601-3A 
Challenger 601-3R 
Challenger 604 
C 212-200 
C 212-300 
Citation 
441 Conquest III and Caravan 208 series 
CD2 
Falcon 
DO 228-200 
EMB  110P2 
CBA  123 
AS 350, AS 355, EC  120, AS 365, EC  135 
B0105LS 
Merlin/300 
Metro 25 
Metro HI V 
Metro III 
Metro HI A 
Merlin IVC-41 
Gulfstream  II, III, IV and V 
Astra SP and SPX 
Arava  101 B 

Learjet 
MBB 
MBB 
McDonnell  Helicopter  System 
Mitsubishi 
Piaggio 
Pilatus  Britten-Norman 
Piper 
Piper 
Piper 
Piper 
Piper 
Reims 
SIAI-Marchetti 
Short 
Westland 
etc. 

31 A, 3 5A, 45 and 60 series 
BK117C 
BO  105 CBS 
MD 902, MD 520, MD 600 
Mu2 Marquise 
P  180 
BN2T Islander 
400 LS 
T1040 
PA-42-100 (Cheyenne 400) 
PA-42-720 (Cheyenne III A) 
Cheyenne II 
Cessna-Caravan II 
SF 600 Canguro 
Tucano 
W30 

ANNEX IV:  STANDARD FORM FOR  NOTIFICATIONS 

Information  to be included  in each and every  notification: 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

Name of authority/agency responsible under the Arrangement  for making  notifications. 

Reference  number (country indication, serial number, year). 

The Arrangement Article under which the authority/agency  is  notifying: 

47 
49 a)  1) 
49 a) 2) 
49 a) 3) 
49 a) 4) 
50, first tiret 
50 second tiret 
51, first tiret 
51, second tiret 
53 
54 
55 and 56 

55 and 56 
60 
60, first tiret 
60, second tiret 
Annex II 
Annex III 

derogation from  Article 27 
"long term" credit to a Category I country 
"abnormal" payment practices 
"long term" credit for a conventional  power plant 
"longer " credit for ships 
identical matching of a derogation 
non-identical  matching of a derogation 
identical matching of a permitted  exception 
non-identical matching of a permitted  exception 
matching terms offered  by a non-Participant 
derogation from  Article 40 
aid financing, concessionality level/grant element less than 
50/80 per cent 
tied aid, concessionality  level 50/80 per cent or more 
matching of a transaction notified  under Article 55 
identical matching of a prior commitment of tied aid 
matching by other means of a prior commitment of tied aid 
under the Understanding on Export Credits for Nuclear Power Plant, or 
under the Sector Arrangement  for Civil  Aircraft 

Country of  buyer/borrower. 

Name, location and status (public/private) of  buyer/borrower. 

Nature  of  project/goods  to  be exported;  location  of  project;  closing  date  of tender  if  relevant; 
expiry date of credit line. 

Contract  value;  value of the credit  or credit  line;  value of exporter's  national  share;  minimum 
contract value of credit line. 

These values shall be stated as follows: 

- 

The exact amount in the denominated currency for a line of credit; 

fiO 

The value of an  individual  project  or contract  in terms of value ratings  in accordance  with the 
following  scale in Special Drawing Rights (SDRs): 

Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 

I 
II 
III 
IV 
V 
VI 
VII 
VIII 
IX 
X 
XI 
XII 
XIII 
XIV 
XV 

1 000 000 SDRs 
up to 
2 000 000 SDRs 
1 000 000 to 
from 
3 000 000 SDRs 
from 
2 000 000 to 
5 000 000 SDRs 
from 
3 000 000 to 
7 000 000 SDRs 
from 
5 000 000 to 
10 000 000 SDRs 
from 
7 000 000 to 
20 000 000 SDRs 
from 
10 000 000 to 
40 000 000 SDRs 
from  20 000 000 to 
80 000 000 SDRs 
from  40 000 000 to 
from  80 000 000 to  120 000 000 SDRs 
from  120 000 000 to  160 000 000 SDRs 
from  160 000 000 to 200 000 000 SDRs 
from  200 000 000 to 240 000 000 SDRs 
from  240 000 000 to 280 000 000 SDRs 
exceeding 280 000 000 SDRs* 

*  Indicate actual  level within multiples of 40 000 000 SDRs 

When  using this scale please indicate currency of the contract. 

Credit terms which reporting organization  intends to support (or has supported): 

cash payments; 

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

interest rate; 

support  for  local  costs (including the total  amount of local costs expressed  as a percentage  of 
the  total value  of  goods and  services  exported, the terms of repayment,  and  the  nature  of the 
support to be given). 

Any other relevant  information  including references to related cases and where  relevant: 

- 

- 

- 

- 

- 

justification  for  matching  (specify  reference  number  of  notification  matched  or  other 
references)  or  granting  long  term  credits  for  Category  I  countries  or  conventional  power 
plants, etc.; 

the  overall  concessionality  level  of the  tied  and  partially  untied  aid  financing  calculated  in 
accordance with Article 38 and the discount rate used to calculate that concessionality  level; 

treatment of cash payments in the calculation of the concessionality  level; 

development  aid or premixed credit or associated  finance; 

restrictions on use of credit lines. 

61 

ANNEX V: 
STANDARD FORM FOR NOTIFICATION  OF PERMITTED EXCEPTIONS  FROM 
MINIMUM PREMIUM  BENCHMARKS 

Points to be covered  in each and every  notification: 

1. 

2. 

3. 

4. 

5. 
6. 

7. 

Name of authority / agency responsible under the Arrangement for making  notifications. 

Reference  number (country  identification,  serial number, year). 

The Arrangement Article under which the authority/agency  is notifying  : 

48 

49 

Permitted  Exceptions:  Prior Notification  With  Discussion 

Permitted Exceptions:  Prior Notification  Without Discussion 

Country of  buyer/borrower. 

Name, location and status (public/private) of  buyer/borrower. 
Nature  of  project/goods  to  be  exported;  location  of  project;  closing  date  of  tender  if 
relevant. 

(a)  Contract value 

(b)  Value of credit 

These  values  shall  be  stated  by  category  according  to  the  following  scale  for  Special 
Drawing Rights (SDRs): 

Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 
Category 

I 
II 
III 
IV 
V 
VI 
VII 
VIII 
IX 
X 
XI 
XII 
XIII 
XIV 
XV 

1 000 000 SDRs 
up to 
1 000 000 to 
2 000 000 SDRs 
from 
3 000 000 SDRs 
2 000 000 to 
from 
5 000 000 SDRs 
3 000 000 to 
from 
7 000 000 SDRs 
5 000 000 to 
from 
10 000 000 SDRs 
7 000 000 to 
from 
20 000 000 SDRs 
from 
10 000 000 to 
40 000 000 SDRs 
from  20 000 000 to 
80 000 000 SDRs 
from  40 000 000 to 
from  80 000 000 to  120 000 000 SDRs 
from  120 000 000 to  160 000 000 SDRs 
from  160 000 000 to 200 000 000 SDRs 
from  200 000 000 to 240 000 000 SDRs 
from  240 000 000 to 280 000 000 SDRs 
exceeding 280 000 000 SDRs* 

* indicate actual  level within  multiples of 40 000 000 SDRs 

When using this scale please  indicate the currency of the contract, 

(c)  Credit terms (including the  length of the disbursement  period) 

(a) 

Proposed  premium rate (after  adjustment  for related  conditions) 

(b)  OECD premium  benchmark (after  adjustment  for related  conditions) 

(>^ 

(c)  Actual  discount  applied  to  OECD  premium  benchmark  (in  percentage  terms)  after 

adjustment for related conditions 

9. 

A  full  explanation  of  what  country  credit  risks  have  either  been  externalized/removed  or 
limited/excluded  in  the  individual  transaction,  as  well  as  an  explanation  of  how  such 
externalization/removal  or  limitation/exclusion  of  the  country  credit  risks  justify  the 
alternative benchmark or discount applied. 

10. 

In  cases  of  matching,  full  information  of  the  terms  supported  by  a  Participant  or  non-
Participant which are being matched. 

63 

ANNEX VI:  CHECKLIST OF DEVELOPMENTAL  QUALITY 

CHECKLIST OF DEVELOPMENTAL QUALITY  OF AID-FINANCED  PROJECTS 

A  number  of  criteria  have  been  developed  in  recent  years  by  the  DAC  to  ensure  that  projects  in 
developing  countries  that  are  financed  totally  or  in  part  by  official  development  assistance  (ODA), 
contribute to development.  They are essentially contained  in the: 

-  DAC Principles for Project Appraisal,  1988; 

-  DAC  Guiding  Principles  for  Associated  Financing  and  Tied  and  Partially  Untied 

Official  Development Assistance,  1987;  and 

-  Good Procurement Practices for Official  Development Assistance, 1986. 

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

Is the  project  part of  investment  and public  expenditure  programmes  already  approved  by the  central 
financial  and planning authorities of the recipient  country? 

(Specify  policy  document  mentioning  the  project,  e.g.  public  investment  programme  of  the 
recipient country). 

Is the project  being co-financed  with an international  development  finance  institution? 

Does  evidence  exist  that  the  project  has  been  considered  and  rejected  by  an  international 
development finance  institution or another DAC Member on grounds of low developmental  priority? 

In  the  case  of  a  private  sector  project,  has  it  been  approved  by  the  government  of  the 
recipient  country? 

Is  the  project  covered  by  an  intergovernmental  agreement  providing  for  a  broader  range  of  aid 
activities by the donor  in the recipient country? 

PROJECT PREPARATION AND APPRAISAL 

Has the  project  been  prepared,  designed  and  appraised  against  a set of standards and criteria  broadly 
consistent with the DAC Principles for Project  Appraisal  (PPA)?  Relevant  principles concern  project 
appraisal  under: 

a)  Economic aspects (paragraphs 30 to 38 PPA). 

b)  Technical  aspects (paragraph 22 PPA). 

c)  Financial  aspects (paragraphs 23 to 29 PPA). 

64 

In the case of a revenue producing project,  particularly  if it is producing for  a competitive market, has 
the  concessionary  element  of  the  aid  financing  been  passed  on  to  the  end-user  of  the  funds? 
(paragraph  25 PPA). 

a) 

Institutional  assessment (paragraphs 40 to 44 PPA). 

b)  Social and distributional  analysis (paragraphs 47 to 57 PPA). 

c)  Environmental assessment (paragraphs 55 to 57 PPA). 

PROCUREMENT  PROCEDURES 

What  procurement  mode will  be used  among the following?  (For definitions,  see Principles  listed  in 
Good Procurement  Practices for ODA). 

a) 

International  competitive  bidding  (Procurement  Principle  III  and  its  Annex  2:  Minimum 
conditions for effective  international  competitive bidding). 

b)  National  competitive bidding (Procurement Principle IV). 

c) 

Informal  competition or direct negotiations (Procurement  Principles V A or B). 

Is it envisaged to check price and quality of supplies (paragraph  63 PPA)? 

65 

ANNEX VII: 
ELECTRONIC EXCHANGE OF INFORMATION (EEI) 

1. 

The EEI shall  include the following  items: 

• 

for the Model 

-  Country Risk Reports (Payments  Experience) 

-  Adjustments  to the Quantitative Model  Classification 

-  List of Country  Classifications 

-  Procedure for Disagreement  Amongst Country Risk Experts 

• 

for Premium  Convergence 

-  Bulletin  Board 

-  Sample Premium  Calculations 

-  Table of Minimum Premium  Benchmarks 

• 

for Related  Conditions 

- 

Information  Fact Sheets (Basic Related  Conditions) 

-  Classification  of  Products 

• 

for Financial  Aspects 

-  Figures for the PFTs 

• 

for Permitted  Exceptions 

-  Prior  Notifications 

-  Matching  Notifications 

2. 
Guiding Principles. 

The  development  of  the  EEI  is  necessary  to  assist  the  monitoring  and  review  of  the 

66 

ISSN 0254-1475 

COM(98) 406 final 

DOCUMENTS 

EN 

02  10  09  11 

Catalogue  number  :  CB-C0-98-418-EN-C 

ISBN  92-78-37525-X 

Office  for  Official  Publications  of the European  Communities 

L-2985  Luxembourg 

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