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Document 32016R0155

Commission Delegated Regulation (EU) 2016/155 of 29 September 2015 amending Annex II to Regulation (EU) No 1233/2011 of the European Parliament and of the Council on the application of certain guidelines in the field of officially supported export credits

OJ L 36, 11.2.2016, p. 1–121 (BG, ES, CS, DA, DE, ET, EL, EN, FR, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)

In force

ELI: http://data.europa.eu/eli/reg_del/2016/155/oj

11.2.2016   

EN

Official Journal of the European Union

L 36/1


COMMISSION DELEGATED REGULATION (EU) 2016/155

of 29 September 2015

amending Annex II to Regulation (EU) No 1233/2011 of the European Parliament and of the Council on the application of certain guidelines in the field of officially supported export credits

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1233/2011 of the European Parliament and of the Council of 16 November 2011 on the application of certain guidelines in the field of officially supported export credits and repealing Council Decisions 2001/76/EC and 2001/77/EC (1) and in particular Article 2 thereof,

Whereas:

(1)

Regulation (EU) No 1233/2011 lays down that the guidelines contained in the Arrangement on Officially Supported Export Credits of the Organisation for Economic Cooperation and Development (‘OECD’) (‘the Arrangement’) are to apply in the Union. The text of the Arrangement is contained in Annex II to that Regulation.

(2)

Regulation (EU) No 1233/2011 requires the Commission to adopt delegated acts to amend Annex II to that Regulation where amendments to the guidelines are agreed upon by the Participants to the Arrangement.

(3)

The Participants to the Arrangement have agreed on a number of amendments to it.

(4)

It is appropriate and necessary to incorporate the said amendments into Union legislation.

(5)

Regulation (EU) No 1233/2011 should therefore be amended accordingly,

HAS ADOPTED THIS REGULATION:

Article 1

Annex II to Regulation (EU) No 1233/2011 is replaced by the text set out in the Annex to this Regulation.

Article 2

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 29 September 2015.

For the Commission

The President

Jean-Claude JUNCKER


(1)  OJ L 326, 8.12.2011, p. 45.


ANNEX

ANNEX II

TABLE OF CONTENTS

CHAPTER I:

GENERAL PROVISIONS 12

1.

PURPOSE 12

2.

STATUS 12

3.

PARTICIPATION 12

4.

INFORMATION AVAILABLE TO NON-PARTICIPANTS 12

5.

SCOPE OF APPLICATION 12

6.

SECTOR UNDERSTANDINGS 13

7.

PROJECT FINANCE 13

8.

WITHDRAWAL 13

9.

MONITORING 13

CHAPTER II:

FINANCIAL TERMS AND CONDITIONS FOR EXPORT CREDITS 13

10.

DOWN PAYMENT, MAXIMUM OFFICIAL SUPPORT AND LOCAL COSTS 14

11.

CLASSIFICATION OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS 14

12.

MAXIMUM REPAYMENT TERMS 14

13.

REPAYMENT TERMS FOR NON-NUCLEAR POWER PLANTS 15

14.

REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST 15

15.

INTEREST RATES, PREMIUM RATES AND OTHER FEES 16

16.

VALIDITY PERIOD FOR EXPORT CREDITS 16

17.

ACTION TO AVOID OR MINIMISE LOSSES 16

18.

MATCHING 16

19.

MINIMUM FIXED INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT 16

20.

CONSTRUCTION OF CIRRs 17

21.

VALIDITY OF CIRRs 17

22.

APPLICATION OF CIRRs 17

23.

PREMIUM FOR CREDIT RISK 17

24.

MINIMUM PREMIUM RATES FOR CREDIT RISK 18

25.

COUNTRY RISK CLASSIFICATION 19

26.

SOVEREIGN RISK ASSESSMENT 20

27.

BUYER RISK CLASSIFICATION 20

28.

CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS 21

29.

PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER 21

30.

COUNTRY RISK MITIGATION TECHNIQUES 22

31.

BUYER RISK CREDIT ENHANCEMENTS 22

32.

REVIEW OF THE VALIDITY OF THE MINIMUM PREMIUM RATES FOR CREDIT RISK 22

CHAPTER III:

PROVISIONS FOR TIED AID 23

33.

GENERAL PRINCIPLES 23

34.

FORMS OF TIED AID 23

35.

ASSOCIATED FINANCING 23

36.

COUNTRY ELIGIBILITY FOR TIED AID 24

37.

PROJECT ELIGIBILITY 25

38.

MINIMUM CONCESSIONALITY LEVEL 25

39.

EXEMPTIONS FROM COUNTRY OR PROJECT ELIGIBILITY FOR TIED AID 25

40.

CALCULATION OF CONCESSIONALITY LEVEL OF TIED AID 26

41.

VALIDITY PERIOD FOR TIED AID 27

42.

MATCHING 27

CHAPTER IV:

PROCEDURES 28

SECTION 1:

COMMON PROCEDURES FOR EXPORT CREDITS AND TRADE-RELATED AID 28

43.

NOTIFICATIONS 28

44.

INFORMATION ON OFFICIAL SUPPORT 28

45.

PROCEDURES FOR MATCHING 28

46.

SPECIAL CONSULTATIONS 28

SECTION 2:

PROCEDURES FOR EXPORT CREDITS 29

47.

PRIOR NOTIFICATION WITH DISCUSSION 29

48.

PRIOR NOTIFICATION 29

SECTION 3:

PROCEDURES FOR TRADE-RELATED AID 30

49.

PRIOR NOTIFICATION 30

50.

PROMPT NOTIFICATION 30

SECTION 4:

CONSULTATION PROCEDURES FOR TIED AID 31

51.

PURPOSE OF CONSULTATIONS 31

52.

SCOPE AND TIMING OF CONSULTATIONS 31

53.

OUTCOME OF CONSULTATIONS 31

SECTION 5:

INFORMATION EXCHANGE FOR EXPORT CREDITS AND TRADE-RELATED AID 32

54.

CONTACT POINTS 32

55.

SCOPE OF ENQUIRIES 32

56.

SCOPE OF RESPONSES 32

57.

FACE-TO-FACE CONSULTATIONS 32

58.

PROCEDURES AND FORMAT OF COMMON LINES 32

59.

RESPONSES TO COMMON LINE PROPOSALS 33

60.

ACCEPTANCE OF COMMON LINES 33

61.

DISAGREEMENT ON COMMON LINES 34

62.

EFFECTIVE DATE OF COMMON LINE 34

63.

VALIDITY OF COMMON LINES 34

SECTION 6:

OPERATIONAL PROVISIONS FOR THE COMMUNICATION OF MINIMUM INTEREST RATES (CIRRs) 34

64.

COMMUNICATION OF MINIMUM INTEREST RATES 34

65.

EFFECTIVE DATE FOR APPLICATION OF INTEREST RATES 34

66.

IMMEDIATE CHANGES IN INTEREST RATES 34

SECTION 7:

REVIEWS 35

67.

REGULAR REVIEW OF THE ARRANGEMENT 35

68.

REVIEW OF MINIMUM INTEREST RATES 35

69.

REVIEW OF MINIMUM PREMIUM RATES AND RELATED ISSUES 35

ANNEX I:

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR SHIPS 36

CHAPTER I:

SCOPE OF THE SECTOR UNDERSTANDING 36

1.

PARTICIPATION 36

2.

SCOPE OF APPLICATION 36

CHAPTER II:

PROVISIONS FOR EXPORT CREDITS AND TIED AID 36

3.

MAXIMUM REPAYMENT TERM 36

4.

CASH PAYMENT 36

5.

REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST 37

6.

MINIMUM PREMIUM 37

7.

PROJECT FINANCE 37

8.

AID 37

CHAPTER III:

PROCEDURES 37

9.

NOTIFICATION 37

10.

REVIEW 37

ANNEX II:

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR NUCLEAR POWER PLANTS 40

CHAPTER I:

SCOPE OF THE SECTOR UNDERSTANDING 40

1.

SCOPE OF APPLICATION 40

CHAPTER II:

PROVISIONS FOR EXPORT CREDITS AND TRADE-RELATED AID 40

2.

MAXIMUM REPAYMENT TERMS 40

3.

REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST 41

4.

CONSTRUCTION OF CIRRs 41

5.

ELIGIBLE CURRENCIES 42

6.

OFFICIAL SUPPORT FOR NUCLEAR FUEL AND FOR NUCLEAR FUEL RELATED SERVICES 42

7.

AID 42

CHAPTER III:

PROCEDURES 42

8.

PRIOR NOTIFICATION 42

CHAPTER IV:

REVIEW 42

9.

FUTURE WORK 42

10.

REVIEW AND MONITORING 42

ANNEX III:

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR CIVIL AIRCRAFT 43

PART 1:

GENERAL PROVISIONS 43

1.

PURPOSE 43

2.

STATUS 43

3.

PARTICIPATION 43

4.

SCOPE OF APPLICATION 43

5.

INFORMATION AVAILABLE TO NON-PARTICIPANTS 44

6.

AID SUPPORT 44

7.

ACTIONS TO AVOID OR MINIMISE LOSSES 44

PART 2:

NEW AIRCRAFT 45

CHAPTER I:

COVERAGE 45

8.

NEW AIRCRAFT 45

CHAPTER II:

FINANCIAL TERMS AND CONDITIONS 45

9.

ELIGIBLE CURRENCIES 45

10.

DOWN PAYMENT AND MAXIMUM OFFICIAL SUPPORT 45

11.

MINIMUM PREMIUM RATES 46

12.

MAXIMUM REPAYMENT TERM 46

13.

REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST 46

14.

MINIMUM INTEREST RATES 47

15.

INTEREST RATE SUPPORT 47

16.

FEES 47

17.

CO-FINANCING 48

PART 3:

USED AIRCRAFT, SPARE ENGINES, SPARE PARTS, MAINTENANCE AND SERVICE CONTRACTS 48

CHAPTER I:

COVERAGE 48

18.

USED AIRCRAFT AND OTHER GOODS AND SERVICES 48

CHAPTER II:

FINANCIAL TERMS AND CONDITIONS 48

19.

SALE OF USED AIRCRAFT 48

20.

SPARE ENGINES AND SPARE PARTS 49

21.

CONTRACTS FOR CONVERSION/MAJOR MODIFICATION/REFURBISHING 49

22.

MAINTENANCE AND SERVICE CONTRACTS 50

23.

ENGINE KITS 50

PART 4:

TRANSPARENCY PROCEDURES 50

SECTION 1:

INFORMATION REQUIREMENTS 50

24.

INFORMATION ON OFFICIAL SUPPORT 50

SECTION 2:

EXCHANGE OF INFORMATION 50

25.

REQUESTS FOR INFORMATION 50

26.

FACE-TO-FACE CONSULTATIONS 51

27.

SPECIAL CONSULTATIONS 51

SECTION 3:

COMMON LINES 51

28.

PROCEDURES AND FORMAT OF COMMON LINES 51

29.

RESPONSES TO COMMON LINE PROPOSALS 52

30.

ACCEPTANCE OF COMMON LINES 52

31.

DISAGREEMENT ON COMMON LINES 52

32.

EFFECTIVE DATE OF COMMON LINE 52

33.

VALIDITY OF COMMON LINES 52

SECTION 4:

MATCHING 53

34.

MATCHING 53

PART 5:

MONITORING AND REVIEW 53

35.

MONITORING 53

36.

REVIEW 53

37.

FUTURE WORK 54

PART 6:

FINAL PROVISIONS 54

38.

ENTRY INTO FORCE 54

39.

TRANSITIONAL ARRANGEMENTS 54

40.

WITHDRAWAL 55

SECTION 1:

PROCEDURES FOR RISK CLASSIFICATION 57

I.

ESTABLISHMENT OF THE LIST OF RISK CLASSIFICATIONS 57

II.

UPDATE OF THE LIST OF RISK CLASSIFICATIONS 57

III.

RESOLUTION OF DISAGREEMENTS 58

IV.

VALIDITY PERIOD OF CLASSIFICATIONS 58

V.

BUYER/BORROWER RISK CLASSIFICATION REQUEST 58

SECTION 2:

MINIMUM PREMIUM RATES FOR NEW AND USED AIRCRAFT 59

I.

ESTABLISHMENT OF THE MINIMUM PREMIUM RATES 59

II.

REDUCTIONS OF THE MINIMUM PREMIUM 64

III.

NON ASSET-BACKED TRANSACTIONS 67

SECTION 3:

MINIMUM PREMIUM RATES FOR GOODS AND SERVICES OTHER THAN USED AIRCRAFT COVERED BY PART 3 OF THIS SECTOR UNDERSTANDING 68

I.

PRELIMINARY INFORMATION 71

II.

QUESTIONS 71

1.

MINIMUM FLOATING INTEREST RATE 73

2.

MINIMUM FIXED INTEREST RATE 73

3.

CONSTRUCTION OF CIRR 74

4.

VALIDITY PERIOD OF CIRR 74

5.

APPLICATION OF MINIMUM INTEREST RATES 74

6.

EARLY REPAYMENT OF FIXED INTEREST RATE LOANS 74

7.

IMMEDIATE CHANGES IN INTEREST RATES 74

8.

MARGIN BENCHMARK 74

ANNEX IV:

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR RENEWABLE ENERGY, CLIMATE CHANGE MITIGATION AND ADAPTATION, AND WATER PROJECTS 80

CHAPTER I:

SCOPE OF THE SECTOR UNDERSTANDING 80

1.

SCOPE OF APPLICATION FOR PROJECTS IN RENEWABLE ENERGY SECTORS ELIGIBLE TO APPENDIX I 80

2.

SCOPE OF APPLICATION FOR PROJECTS IN CLIMATE CHANGE MITIGATION SECTORS ELIGIBLE TO APPENDIX II 80

3.

SCOPE OF APPLICATION FOR ADAPTATION PROJECTS ELIGIBLE TO APPENDIX III 81

4.

SCOPE OF APPLICATION FOR WATER PROJECTS 81

CHAPTER II:

PROVISIONS FOR EXPORT CREDITS 81

5.

MAXIMUM REPAYMENT TERMS 81

6.

REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST 82

7.

MINIMUM INTEREST RATES 82

8.

ELIGIBLE CURRENCIES 83

9.

LOCAL COSTS 83

CHAPTER III:

PROCEDURES 83

10.

PRIOR NOTIFICATION 83

CHAPTER IV:

MONITORING AND REVIEW 83

11.

FUTURE WORK 84

12.

MONITORING AND REVIEW 84

ANNEX V:

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR RAIL INFRASTRUCTURE 91

CHAPTER I:

SCOPE OF THE SECTOR UNDERSTANDING 91

1.

SCOPE OF APPLICATION 91

CHAPTER II:

PROVISIONS FOR EXPORT CREDITS 91

2.

MAXIMUM REPAYMENT TERMS 91

3.

REPAYMENT OF PRINCIPAL AND INTEREST 92

4.

MINIMUM FIXED INTEREST RATES 92

CHAPTER III:

PROCEDURES 92

5.

PRIOR NOTIFICATION 92

6.

VALIDITY OF COMMON LINES 92

CHAPTER IV:

MONITORING AND REVIEW 92

7.

MONITORING AND REVIEW 92

ANNEX VI:

TERMS AND CONDITIONS APPLICABLE TO PROJECT FINANCE TRANSACTIONS 94

CHAPTER I:

GENERAL PROVISIONS 94

1.

SCOPE OF APPLICATION 94

CHAPTER II:

FINANCIAL TERMS AND CONDITIONS 94

2.

MAXIMUM REPAYMENT TERMS 94

3.

REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST 94

4.

MINIMUM FIXED INTEREST RATES 95

CHAPTER III:

PROCEDURES 95

5.

PRIOR NOTIFICATION FOR PROJECT FINANCE TRANSACTIONS 95

I.

BASIC CRITERIA 96

II.

ADDITIONAL CRITERIA FOR PROJECT FINANCE TRANSACTIONS IN HIGH INCOME OECD COUNTRIES 96

ANNEX VII:

INFORMATION TO BE PROVIDED FOR NOTIFICATION 97

I.

INFORMATION TO BE PROVIDED FOR ALL NOTIFICATIONS 97

II.

ADDITIONAL INFORMATION TO BE PROVIDED, AS APPROPRIATE, FOR NOTIFICATIONS MADE IN RELATION TO SPECIFIC PROVISIONS 99

ANNEX VIII:

CALCULATION OF THE MINIMUM PREMIUM RATES 104

ANNEX IX:

MARKET BENCHMARKS FOR TRANSACTIONS IN CATEGORY ZERO COUNTRIES 107

ANNEX X:

CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF A THIRD PARTY REPAYMENT GUARANTEE AND THE CLASSIFICATION OF MULTILATERAL OR REGIONAL INSTITUTIONS 108

ANNEX XI:

BUYER RISK CATEGORIES QUALITATIVE DESCRIPTIONS 110

ANNEX XII:

CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF COUNTRY RISK MITIGATION TECHNIQUES AND BUYER RISK CREDIT ENHANCEMENTS 114

ANNEX XIII:

CHECKLIST OF DEVELOPMENTAL QUALITY 118

ANNEX XIV:

LIST OF DEFINITIONS 120

CHAPTER I

GENERAL PROVISIONS

1.   PURPOSE

(a)

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

(b)

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

2.   STATUS

The Arrangement, developed within the OECD framework, initially came into effect in April 1978 and is of indefinite duration. The Arrangement is a Gentlemen's Agreement among the Participants; it is not an OECD Act (1), although it receives the administrative support of the OECD Secretariat (hereafter: “the Secretariat”).

3.   PARTICIPATION

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

4.   INFORMATION AVAILABLE TO NON-PARTICIPANTS

(a)

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

(b)

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

5.   SCOPE OF APPLICATION

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

(a)

Official support may be provided in different forms:

(1)

Export credit guarantee or insurance (pure cover).

(2)

Official financing support:

 

direct credit/financing and refinancing, or

 

interest rate support.

(3)

Any combination of the above.

(b)

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

(c)

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

(d)

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

6.   SECTOR UNDERSTANDINGS

(a)

The following Sector Understandings are part of the Arrangement:

Ships (Annex I)

Nuclear Power Plants (Annex II)

Civil Aircraft (Annex III)

Renewable Energy, Climate Change Mitigation and Adaptation, and Water Projects (Annex IV)

Rail Infrastructure (Annex V)

(b)

A Participant to a Sector Understanding may apply its provisions for official support for export of goods and/or services covered by that Sector Understanding. Where a Sector Understanding does not include a corresponding provision to that of the Arrangement, a Participant to the Sector Understanding shall apply the provision of the Arrangement.

7.   PROJECT FINANCE

(a)

The Participants may apply the terms and conditions set out in Annex VI to the export of goods and/or services for transactions that meet the criteria set out in Appendix 1 of Annex VI.

(b)

Paragraph (a) above applies to the export of goods and services covered by the Sector Understanding on Export Credits for Nuclear Power Plants, the Sector Understanding on Export Credits for Renewable Energy, Climate Change Mitigation and Adaptation, and Water Projects, and the Sector Understanding on Export Credits for Railway Infrastructure.

(c)

Paragraph (a) above does not apply to the export of goods and services covered by the Sector Understanding on Export Credits for Civil Aircraft or the Sector Understanding on Export Credits for Ships.

8.   WITHDRAWAL

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

9.   MONITORING

The Secretariat shall monitor the implementation of the Arrangement.

CHAPTER II

FINANCIAL TERMS AND CONDITIONS FOR EXPORT CREDITS

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

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

10.   DOWN PAYMENT, MAXIMUM OFFICIAL SUPPORT AND LOCAL COSTS

(a)

The Participants shall require purchasers of goods and services which are the subject of official support to make down payments of a minimum of 15 % of the export contract value at or before the starting point of credit as defined in Annex XIV. For the assessment of down payments, the export contract value may be reduced proportionally if the transaction includes goods and services from a third country which are not officially supported. Financing/insurance of 100 % of the premium is permissible. Premium may or may not be included in the export contract value. Retention payments made after the starting point of credit are not regarded as down payment in this context.

(b)

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

(c)

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

(d)

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

(1)

Official support provided for local costs shall not exceed 30 % of the export contract value.

(2)

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

(3)

Where official support for local cost exceeds 15 % of the export contract value, such official support shall be subject to prior notification, pursuant to Article 48, specifying the nature of the local costs being supported.

11.   CLASSIFICATION OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS

(a)

Category I countries are High Income (2) OECD countries. All other countries are in Category II.

(b)

The following operational criteria and procedures apply when classifying countries:

(1)

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

(2)

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

(3)

If a country is reclassified in accordance with Article 11(a), the reclassification will take effect two weeks after the conclusions drawn from the above-mentioned data from the World Bank have been communicated to all Participants by the Secretariat.

(4)

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

(c)

A country will change category only after its World Bank category has remained unchanged for two consecutive years.

12.   MAXIMUM REPAYMENT TERMS

Without prejudice to Article 13, the maximum repayment term varies according to the classification of the country of destination determined by the criteria in Article 11.

(a)

For Category I countries, the maximum repayment term is five years, with the possibility of agreeing up to eight-and-a-half years when the procedures for prior notification set out in Article 48 are followed.

(b)

For Category II countries, the maximum repayment term is ten years.

(c)

In the event of a contract involving more than one country of destination the Participants should seek to establish a Common Line in accordance with the procedures in Articles 58 to 63 to reach agreement on appropriate terms.

13.   REPAYMENT TERMS FOR NON-NUCLEAR POWER PLANTS

(a)

For non-nuclear power plants, the maximum repayment term shall be 12 years. If a Participant intends to support a repayment term longer than that provided for in Article 12, the Participant shall give prior notification in accordance with the procedure in Article 48.

(b)

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

(1)

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

(2)

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

14.   REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST

(a)

The principal sum of an export credit shall be repaid in equal instalments.

(b)

Principal shall be repaid and interest shall be paid no less frequently than every six months and the first instalment of principal and interest shall be made no later than six months after the starting point of credit.

(c)

For export credits provided in support of lease transactions, equal repayments of principal and interest combined may be applied in lieu of equal repayments of principal as set out in paragraph (a).

(d)

On an exceptional and duly justified basis, export credits may be provided on terms other than those set out in paragraphs (a) through (c) above. The provision of such support shall be explained by an imbalance in the timing of the funds available to the obligor and the debt service profile available under an equal, semi-annual repayment schedule, and shall comply with the following criteria:

(1)

No single repayment of principal or series of principal payments within a six-month period shall exceed 25 % of the principal sum of the credit.

(2)

Principal shall be repaid no less frequently than every 12 months. The first repayment of principal shall be made no later than 12 months after the starting point of credit and no less than 2 % of the principal sum of the credit shall have been repaid 12 months after the starting point of credit.

(3)

Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.

(4)

The maximum weighted average life of the repayment period shall not exceed:

For transactions with sovereign buyers (or with a sovereign repayment guarantee), four-and-a-half years for transactions in Category I Countries and five-and-a-quarter years for Category II Countries.

For transactions with non-sovereign buyers (and with no sovereign repayment guarantee), five years for Category I Countries and six years for Category II Countries.

Notwithstanding the provisions set out in the two previous tirets, for transactions involving support for non-nuclear power plants according to Article 13, six-and-a-quarter years.

(5)

The Participant shall give prior notification in accordance with Article 48 that explains the reason for not providing support according to paragraphs (a) through (c) above.

(e)

Interest due after the starting point of credit shall not be capitalised.

15.   INTEREST RATES, PREMIUM RATES AND OTHER FEES

(a)

Interest excludes:

(1)

any payment by way of premium or other charge for insuring or guaranteeing supplier credits or financial credits;

(2)

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

(3)

withholding taxes imposed by the importing country.

(b)

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.

16.   VALIDITY PERIOD FOR EXPORT CREDITS

Financial terms and conditions for an individual export credit or line of credit, other than the validity period for the Commercial Interest Reference Rates (CIRRs) set out in Article 21, shall not be fixed for a period exceeding six months prior to final commitment.

17.   ACTION TO AVOID OR MINIMISE LOSSES

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

18.   MATCHING

Taking into account a Participant's international obligations and consistent with the purpose of the Arrangement, a Participant may match, according to the procedures set out in Article 45, financial terms and conditions offered by a Participant or a non-Participant. Financial terms and conditions provided in accordance with this Article are considered to be in conformity with the provisions of Chapters I, II and, when applicable, Annexes I, II, III, IV, V and VI.

19.   MINIMUM FIXED INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT

(a)

The Participants providing official financing support for fixed rate loans shall apply the relevant CIRRs as minimum interest rates. CIRRs are interest rates established according to the following principles:

(1)

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

(2)

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

(3)

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

(4)

CIRRs should not distort domestic competitive conditions; and

(5)

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

(b)

The provision of official financing support shall not offset or compensate, in part or in full, for the appropriate credit risk premium to be charged for the risk of non-repayment pursuant to the provisions of Article 23.

20.   CONSTRUCTION OF CIRRs

(a)

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

(1)

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

(2)

five-year government bond yields for all maturities.

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

(b)

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

(c)

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

(d)

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

(e)

A Participant or a non-Participant may request that a CIRR be established for the currency of a non-Participant. In consultation with the interested non-Participant, a Participant or the Secretariat on behalf of that non-Participant may make a proposal for the construction of the CIRR in that currency using Common Line procedures in accordance with Articles 58 to 63.

21.   VALIDITY OF CIRRs

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

22.   APPLICATION OF CIRRs

(a)

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

(b)

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

23.   PREMIUM FOR CREDIT RISK

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

24.   MINIMUM PREMIUM RATES FOR CREDIT RISK

The Participants shall charge no less than the applicable Minimum Premium Rate (MPR) for Credit Risk.

(a)

The applicable MPR is determined according to the following factors:

the applicable country risk classification;

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

the selected buyer risk category of the obligor;

the percentage of political and commercial risk cover and quality of official export credit product provided;

any country risk mitigation technique applied; and

any buyer risk credit enhancements that have been applied.

(b)

MPRs are expressed in percentages of the principal value of the credit as if premium were collected in full at the date of the first drawdown of the credit. An explanation of how to calculate the MPRs, including the mathematical formula, is provided in Annex VIII.

(c)

There are no MPRs for transactions involving obligors in Category 0 countries, High Income OECD Countries and High Income Euro Area Countries (3). The premium rates charged by Participants for transactions in such countries shall be determined on a case-by-case basis. In order to ensure that the premium rates charged for transactions involving obligors in such countries do not undercut private market pricing, the Participants shall adhere to the following procedure:

Taking into consideration the availability of market information and the characteristics of the underlying transaction, Participants shall determine the premium rate to be applied by benchmarking against one or more of the market benchmarks set forth in Annex IX, choosing the benchmark(s) deemed most appropriate for the specific transaction.

Notwithstanding the preceding paragraph, if the relevance of the market information is limited for liquidity or other reasons, or if the transaction is small (credit value below Special Drawing Rights (SDR) 10 million), the Participants shall charge no less than the MPR corresponding to the appropriate buyer risk category in Country Risk Category 1.

On a temporary basis (4), the Participants shall give prior notification according to Article 48 for any transaction with obligor/guarantor in a Category 0 country, High Income OECD Country or High Income Euro Area Country having a credit value of greater than SDR 10 million.

(d)

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

(e)

In calculating the MPR for a transaction, the applicable country risk classification shall be the classification of the obligor's country and the applicable buyer risk classification shall be the classification of the obligor (5), unless:

security in the form of an irrevocable, unconditional, on-demand, legally valid and enforceable guarantee of the total debt repayment obligation for the entire duration of the credit is provided by a third party that is creditworthy in relation to the size of the guaranteed debt. In the case of a third party guarantee, a Participant may choose to apply the country risk classification of the country in which the guarantor is located and the buyer risk category of the guarantor (6); or

a Multilateral or Regional Institution as set out in Article 28 is acting either as borrower or guarantor for the transaction, in which case the applicable Country Risk Classification and buyer risk category may be that of the specific Multilateral or Regional Institution involved.

(f)

The criteria and conditions relating to the application of a third party guarantee according to the situations described in the first and second tirets of paragraph (e) above are set out in Annex X.

(g)

The HOR convention used in the calculation of an MPR is one-half of the disbursement period plus the entire repayment period and assumes a regular export credit repayment profile, i.e. repayment in equal semi-annual instalments of principal plus accrued interest beginning six months after the starting point of credit. For export credits with non-standard repayment profiles, the equivalent repayment period (expressed in terms of equal, semi-annual instalments) is calculated using the following formula: equivalent repayment period = (average weighted life of the repayment period – 0,25)/0,5.

(h)

The Participant choosing to apply an MPR associated with a third party guarantor located in a country other than that of the obligor shall give prior notification according to Article 47. The Participant choosing to apply a MPR associated with a Multilateral or Regional Institution acting as a guarantor shall give prior notification in accordance with Article 48.

25.   COUNTRY RISK CLASSIFICATION

With the exception of High Income OECD countries and High Income Euro Area countries, countries shall be classified according to the likelihood of whether they will service their external debts (i.e. country credit risk).

(a)

The five elements of country credit risk are:

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

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

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

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

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

(b)

Countries are classified into one of eight Country Risk Categories (0-7). MPRs have been established for Categories 1 through 7, but not for Category 0, as the level of country risk is considered to be negligible for countries in this Category. The credit risk associated with transactions in Category 0 countries is predominantly related to the risk of the obligor/guarantor.

(c)

The classification of countries (7) is achieved through the Country Risk Classification Methodology, which is comprised of:

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

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

(d)

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

(e)

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

26.   SOVEREIGN RISK ASSESSMENT

(a)

For all countries classified through the Country Risk Classification Methodology according to Article 25(d), the risk of the sovereign shall be assessed in order to identify, on an exceptional basis, those sovereigns:

that are not the lowest-risk obligor in the country and;

whose credit risk is significantly higher than country risk.

(b)

The identification of sovereigns meeting the criteria listed in paragraph (a) above shall be undertaken according to the Sovereign Risk Assessment Methodology that has been developed and agreed by the Participants.

(c)

The list of sovereigns identified as meeting the criteria listed in paragraph (a) above shall be monitored on an on-going basis and reviewed at least annually and changes resulting from the Sovereign Risk Assessment Methodology shall be immediately communicated by the Secretariat.

(d)

The list of sovereigns identified under paragraph (b) above shall be made public by the Secretariat.

27.   BUYER RISK CLASSIFICATION

Obligors and, as appropriate, guarantors in countries classified in Country Risk Categories 1-7 shall be classified into one of the buyer risk categories that have been established in relation to the country of the obligor/guarantor (8). The matrix of buyer risk categories into which obligors and guarantors shall be classified is provided in Annex VIII. Qualitative descriptions of the buyer risk categories are provided in Annex XI.

(a)

Buyer-risk classifications shall be based on the senior unsecured credit rating of the obligor/guarantor as determined by the Participant.

(b)

Notwithstanding paragraph (a) above, transactions supported according to the terms and conditions of Annex VI and transactions having a credit value of SDR 5 million or less may be classified on a transaction basis, i.e. after the application of any buyer risk credit enhancements; however, such transactions, regardless of how they are classified, are not eligible for any discounts for the application of buyer risk credit enhancements.

(c)

Sovereign obligors and guarantors are classified in buyer risk category SOV/CC0.

(d)

On an exceptional basis, non-sovereign obligors and guarantors may be classified in the “Better than Sovereign” (SOV+) buyer risk category (9) if:

the obligor/guarantor has a foreign currency rating from an accredited credit rating agency (CRA) (10) that is better than the foreign currency rating (from the same CRA) of their respective sovereign, or

the obligor/guarantor's is located in a country in which sovereign risk has been identified as being significantly higher than country risk.

(e)

The Participants shall give prior notification according to Article 48 for transactions:

with a non-sovereign obligor/guarantor where the premium charged is below that set by Buyer Risk Category CC1, i.e. CC0 or SOV+;

with a non-sovereign obligor/guarantor having a credit value of greater than SDR 5 million where a Participant assesses a buyer risk rating for a non-sovereign obligor/guarantor that is rated by an Accredited CRA, and the buyer risk rating assessed is better than the Accredited CRA rating (11).

(f)

In the event of competition for a specific transaction, whereby the obligor/guarantor has been classified by competing Participants in different buyer risk categories, the competing Participants shall seek to arrive at a common buyer risk classification. If agreement on a common classification is not reached, the Participant(s) having classified the obligor/guarantor in a higher buyer risk classification are not prohibited from applying the lower buyer risk classification.

28.   CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS

Multilateral and Regional Institutions shall be classified into one of eight Country Risk Categories (0-7) (12) and reviewed as appropriate; such applicable classifications shall be made public by the Secretariat.

29.   PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER

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

(a)

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

(b)

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

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

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

Above standard product, i.e. guarantees.

30.   COUNTRY RISK MITIGATION TECHNIQUES

(a)

The Participants may apply the following country risk mitigation techniques, the specific application of which is set out in Annex XII:

Offshore Future Flow Structure Combined with Offshore Escrow Account

Local Currency Financing

(b)

The Participant applying an MPR reflecting the use of country risk mitigation shall give prior notification according to Article 47.

31.   BUYER RISK CREDIT ENHANCEMENTS

(a)

The Participants may apply the following buyer risk credit enhancements (BRCE) which allow for the application of a Credit Enhancement Factor (CEF) greater than 0:

Assignment of Contract Proceeds or Receivables

Asset Base Security

Fixed Asset Security

Escrow Account

(b)

Definitions of the BRCE and maximum CEF values are set out in Annex XII.

(c)

BRCEs may be used alone or in combination with the following restrictions:

The maximum CEF that can be achieved through the use of the BRCEs is 0,35.

“Asset Based Security” and “Fixed Asset Security” cannot be used together in one transaction.

In the event that applicable country risk classification has been improved through the use of “Offshore Future Flow Structure Combined with Offshore Escrow Account”, no BRCEs may be applied.

(d)

The Participants shall give prior notification according to Article 48 for transactions with a non-sovereign obligor/guarantor having a credit of greater than SDR 5 million where BRCEs result in the application of a CEF of greater than 0.

32.   REVIEW OF THE VALIDITY OF THE MINIMUM PREMIUM RATES FOR CREDIT RISK

(a)

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

(b)

The PFTs shall assess the adequacy of the MPRs in terms of both the actual experience of institutions providing official export credits as well as private market information on the pricing of credit risk.

(c)

A comprehensive review of all aspects of the premium rules of the Arrangement shall take place no later than 31 December 2015.

CHAPTER III

PROVISIONS FOR TIED AID

33.   GENERAL PRINCIPLES

(a)

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

(b)

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

(c)

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

(d)

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

34.   FORMS OF TIED AID

Tied aid can take the form of:

(a)

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

(b)

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

(c)

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

(d)

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

(1)

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

(2)

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

35.   ASSOCIATED FINANCING

(a)

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

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

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

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

(b)

Association or linkage “in fact” is determined by such factors as:

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

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

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

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

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

(c)

The following practices shall not prevent the determination of an association or linkage “in fact”:

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

splitting of contracts financed in several stages;

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

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

36.   COUNTRY ELIGIBILITY FOR TIED AID

(a)

There shall be no tied aid to countries whose per capita GNI, according to the World Bank data, is above the upper limit for lower middle income countries. The World Bank recalculates this threshold on an annual basis (13). 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 GNI as calculated by the World Bank for the purposes of the World Bank classification of borrowing countries; this classification shall be made public by the Secretariat.

(2)

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

(3)

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

(4)

In cases where the World Bank revises figures such revisions shall be disregarded in relation to the Arrangement. Nevertheless, the classification of a country may be changed by way of a Common Line, in accordance with the appropriate procedures in Articles 58 to 63, and the Participants would favourably consider a change due to errors and omissions in the figures subsequently recognised in the same calendar year as the figures that were first distributed by the Secretariat.

37.   PROJECT ELIGIBILITY

(a)

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

(b)

The key tests for such aid eligibility are:

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

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

(c)

The key tests under paragraph (b) above are intended to describe how a project should be evaluated to determine whether it should be financed with such aid or with export credits on market or Arrangement terms. Through the consultation process described in Articles 51 to 53, 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.

38.   MINIMUM CONCESSIONALITY LEVEL

The Participants shall not provide tied aid that has a concessionality level of less than 35 %, or 50 % if the beneficiary country is a Least Developed Country (LDC), except for the cases set out below, which are also exempt from the notification procedures set out in Articles 49(a) and 50(a):

(a)

Technical assistance: tied aid where the official development aid component consists solely of technical co-operation that is less than either 3 % of the total value of the transaction or SDR 1 million, whichever is lower; and

(b)

Small projects: capital projects of less than SDR 1 million that are funded entirely by development assistance grants.

39.   EXEMPTIONS FROM COUNTRY OR PROJECT ELIGIBILITY FOR TIED AID

(a)

The provisions of Articles 36 and 37 do not apply to tied aid where the concessionality level is 80 % or more except for tied aid that forms part of an associated financing package, described in Article 35.

(b)

The provisions of Article 37 do not apply to tied aid with a value of less than SDR 2 million except for tied aid that forms part of an associated financing package, described in Article 35.

(c)

Tied aid for LDCs as defined by the United Nations is not subject to the provisions of Articles 36 and 37.

(d)

The Participants shall give favourable consideration to an acceleration of tied aid procedures in line with the specific circumstances:

a nuclear or major industrial accident that causes serious trans-frontier pollution, where any affected Participant wishes to provide tied aid to eliminate or mitigate its effects, or

the existence of a significant risk that such an accident may occur, where any potentially affected Participant wishes to provide tied aid to prevent its occurrence.

(e)

Notwithstanding Articles 36 and 37, a Participant may, exceptionally, provide support by one of the following means:

the Common Line procedure as defined in Annex XIV and described in Articles 58 to 63; or

the justification on aid grounds through support by a substantial body of the Participants as described in Articles 51 and 52; or

a letter to the OECD Secretary-General, in accordance with the procedures in Article 53, which the Participants expect will be unusual and infrequent.

40.   CALCULATION OF CONCESSIONALITY LEVEL OF TIED AID

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

(a)

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

The average of the CIRR + Margin

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

R

M

less than 15 years

0,75

from 15 years up to, but not including 20 years

1,00

from 20 years

1,15

from 30 years and above

1,25

For all currencies the average of the CIRR is calculated taking an average of the monthly CIRRs valid during the six-month period between 15 August of the previous year and 14 February of the current year. The calculated rate, including the Margin, is rounded to the nearest ten basis points. If there is more than one CIRR for the currency, the CIRR for the longest maturity as set out in Article 20(a), shall be used for this calculation.

(b)

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

(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 38 except in cases of matching; and

down payment from the purchaser.

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

(d)

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

(e)

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

(f)

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

(g)

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

(h)

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

(i)

Notwithstanding paragraph (g) above, 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.

41.   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 50; 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 49 or 50, as appropriate.

(b)

When a country has become ineligible for 17-year World Bank Loans for the first time, the validity period of existing and new tied aid protocols and credit lines notified shall be restricted to one year after the date of the potential reclassification in accordance with procedures in Article 36(b).

(c)

Renewal of such protocols and credit lines is possible only on terms which are in accordance with the provisions of Articles 36 and 37 of the Arrangement following:

the 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 40.

42.   MATCHING

Taking into account a Participant's international obligations and consistent with the purpose of the Arrangement, a Participant may match, according to the procedures set out in Article 45, financial terms and conditions offered by a Participant or a non-Participant.

CHAPTER IV

PROCEDURES

SECTION 1

Common procedures for export credits and trade-related aid

43.   NOTIFICATIONS

The notifications set out by the procedures in the Arrangement shall be made in accordance with, and include the information contained in Annex VII, and shall be copied to the Secretariat.

44.   INFORMATION ON OFFICIAL SUPPORT

(a)

As soon as a Participant commits the official support which it has notified in accordance with the procedures in Articles 47 to 50, it shall inform all other Participants accordingly by including the notification reference number on the relevant reporting form.

(b)

In an exchange of information in accordance with Articles 55 to 57, 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.

45.   PROCEDURES FOR MATCHING

(a)

Before matching financial terms and conditions assumed to be offered by a Participant or a non-Participant pursuant to Articles 18 and 42, a Participant shall make every reasonable effort, including as appropriate by use of the face-to-face consultations described in Article 57, to verify that these terms and conditions are officially supported and shall comply with the following:

(1)

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

(2)

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

(3)

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

(b)

A Participant intending to offer identical financial terms and conditions to those notified according to Articles 47 and 48 may do so once the waiting period stipulated therein has expired. This Participant shall give notification of its intention as early as possible.

46.   SPECIAL CONSULTATIONS

(a)

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

(b)

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

(c)

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

(d)

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

SECTION 2

Procedures for export credits

47.   PRIOR NOTIFICATION WITH DISCUSSION

(a)

A Participant shall notify all other Participants at least ten calendar days before issuing any commitment in accordance with Annex VII if:

the applicable country risk classification and buyer risk category used to calculate the MPR is that of a third party guarantor located outside of the obligor's country (i.e. determined according to the first tiret of Article 24(e));

the applicable MPR has been decreased through the application of a country risk mitigation technique listed in Article 30; or

it intends to provide support in accordance with Article 10(a)(2) or (d) of Annex IV.

it intends to provide support in accordance with Article 5(a) of Annex V.

(b)

If any other Participant requests a discussion during this period, the initiating Participant shall wait an additional ten calendar days.

(c)

A Participant shall inform all other Participants of its final decision following a discussion to facilitate the review of the body of experience in accordance with Article 69. The Participants shall maintain records of their experience with regard to premium rates notified in accordance with paragraph (a) above.

48.   PRIOR NOTIFICATION

(a)

A Participant shall, in accordance with Annex VII, notify all other Participants at least ten calendar days before issuing any commitment if it intends to:

(1)

Provide support in accordance with Article 10(d)(3).

(2)

Support a repayment term of more than five years to a Category I country.

(3)

Provide support in accordance with Article 13(a).

(4)

Provide support in accordance with Article 14(d).

(5)

Provide support in accordance with Article 24(c) when the credit value is greater than SDR 10 million (14).

(6)

Apply a premium rate in accordance with the second tiret of Article 24(e), whereby the applicable country risk classification and buyer risk category used to calculate the MPR have been determined by the involvement as obligor or guarantor of a classified multilateral or regional institution.

(7)

Apply a premium rate in accordance with Article 27(e) whereby the selected buyer risk category used to calculate the MPR for a transaction:

with a non-sovereign obligor/guarantor is lower than CC1 (i.e. CC0 or SOV+);

with a non-sovereign obligor/guarantor having a credit of greater than SDR 5 million is better than the Accredited CRA rating.

(8)

Apply a premium rate in accordance with Article 31(a) whereby the use of buyer risk credit enhancements results in the application of a CEF of greater than 0.

(9)

Provide support in accordance with Article 8(a) of Annex II.

(10)

Provide support in accordance with Article 10(a)(1) of Annex IV

(11)

Provide support in accordance with Article 5(b) of Annex V.

(b)

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

SECTION 3

Procedures for trade-related aid

49.   PRIOR NOTIFICATION

(a)

A Participant shall give prior notification in accordance with Annex VII if it intends to provide official support for:

Trade-related untied aid with a value of SDR 2 million or more, and a concessionality level of less than 80 %;

Trade-related untied aid with a value of less than SDR 2 million and a grant element (as defined by the DAC) of less than 50 %;

Trade-related tied aid with a value of SDR 2 million or more and a concessionality level of less than 80 %; or

Trade-related tied aid with a value of less than SDR 2 million and a concessionality level of less than 50 %, except for the cases set out in Articles 38(a) and (b).

Tied aid in accordance with Article 39(d).

(b)

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

(c)

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

(d)

The provision of this Article shall apply to tied aid that forms part of an associated financing package, as described in Article 35.

50.   PROMPT NOTIFICATION

(a)

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

SDR 2 million or more and a concessionality level of 80 % or more; or

less than SDR 2 million and a concessionality level of 50 % or more except for the cases set out in Articles 38(a) and (b).

(b)

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

(c)

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

SECTION 4

Consultation procedures for tied aid

51.   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 XIII) be supplied.

(b)

Furthermore, a Participant may request consultations with other Participants, in accordance with Article 52. These include face-to-face consultations as outlined in Article 57 in order to discuss:

first, whether an aid offer meets the requirements of Articles 36 and 37; and

if necessary, whether an aid offer is justified even if the requirements of Articles 36 and 37 are not met.

52.   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 organisations such as the World Bank;

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

the environmental implications;

any private sector participation; and

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

(b)

The consultation shall be completed and the findings on both questions in Article 51 notified by the Secretariat to all Participants at least ten working days before the bid closing date or commitment date, whichever comes first. If there is disagreement among the consulting parties, the Secretariat shall invite other Participants to express their views within five working days. It shall report these views to the notifying Participant, which should reconsider going forward if there appears to be no substantial support for an aid offer.

53.   OUTCOME OF CONSULTATIONS

(a)

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

(b)

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

(c)

The Secretariat shall monitor the progress and results of consultations.

SECTION 5

Information exchange for export credits and trade-related aid

54.   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.

55.   SCOPE OF ENQUIRIES

(a)

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

(b)

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

(c)

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

(d)

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

56.   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.

57.   FACE-TO-FACE CONSULTATIONS

(a)

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

(b)

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

(c)

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

58.   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.

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 36(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 36(b).

(d)

The Secretariat shall make publicly available the agreed Common Lines.

59.   RESPONSES TO COMMON LINE PROPOSALS

(a)

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

(b)

A response may be a request for additional information, acceptance, and rejection, a proposal for modification of the Common Line or an alternative Common Line proposal.

(c)

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

60.   ACCEPTANCE OF COMMON LINES

(a)

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

(b)

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

(c)

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

(d)

A Common Line which has not been accepted may be reconsidered using the procedures in Articles 58 and 59. In these circumstances, the Participants are not bound by their original decision.

61.   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.

62.   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.

63.   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 36(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.

Issue, on a quarterly basis, a list of Common Lines due to expire in the following quarter.

SECTION 6

Operational provisions for the communication of minimum interest rates (CIRRs)

64.   COMMUNICATION OF MINIMUM INTEREST RATES

(a)

CIRRs for currencies that are determined according to the provisions of Article 20 shall be sent by means of instant communication at least monthly to the Secretariat for circulation to all Participants.

(b)

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

65.   EFFECTIVE DATE FOR APPLICATION OF INTEREST RATES

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

66.   IMMEDIATE CHANGES IN INTEREST RATES

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

SECTION 7

Reviews

67.   REGULAR REVIEW OF THE ARRANGEMENT

(a)

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

(b)

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

68.   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.

69.   REVIEW OF MINIMUM PREMIUM RATES AND RELATED ISSUES

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

(a)

The Country Risk Classification and Sovereign Risk Assessment Methodologies to review their validity in the light of experience;

(b)

The level of the MPRs to ensure that they remain an accurate measure of credit risk, taking into account both the actual experience of institutions providing official export credits as well as private market information on the pricing of credit risk;

(c)

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

(d)

The body of experience related to the use of country risk mitigation and buyer risk credit enhancements and the continued validity and appropriateness of their specific impact on the MPRs.

ANNEX I

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR SHIPS

CHAPTER I

Scope of the sector understanding

1.   PARTICIPATION

The Participants to the Sector Understanding are: Australia, the European Union, Japan, Korea, New Zealand and Norway.

2.   SCOPE OF APPLICATION

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

(a)

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

(b)

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

(c)

(1)

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

(2)

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

(3)

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

CHAPTER II

Provisions for export credits and tied aid

3.   MAXIMUM REPAYMENT TERM

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

4.   CASH PAYMENT

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

5.   REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST

(a)

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

(b)

Interest shall be paid no less frequently than every six months and the first payment of interest shall be made no later than six months after the starting point of credit.

(c)

For export credits provided in support of lease transactions, equal repayments of principal and interest combined may be applied in lieu of equal repayments of principal as set out in paragraph (a).

(d)

Interest due after the starting point of credit shall not be capitalised.

(e)

A Participant to this Sector Understanding intending to support a payment of interest on different terms than those set out in paragraph (b) shall give prior notification at least ten calendar days before issuing any commitment, in accordance with Annex VII of the Arrangement.

6.   MINIMUM PREMIUM

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

7.   PROJECT FINANCE

The provisions of Article 7 and of Annex VI to the Arrangement shall not be applied until such provisions have been further reviewed by the Participants to this Sector Understanding.

8.   AID

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

CHAPTER III

Procedures

9.   NOTIFICATION

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

10.   REVIEW

(a)

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

(b)

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

(c)

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

Attachment

Commitments for future work

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

(a)

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

(b)

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

(c)

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

(d)

To review the applicability to this Sector Understanding of provisions of the Arrangement in relation to Project Finance.

(e)

To discuss whether:

the date of the first instalment of principal;

the Weighted Average Life concept

may be used in relation to the repayment profile contained in Article 5 of this Sector Understanding.

ANNEX II

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR NUCLEAR POWER PLANTS

CHAPTER I

Scope of the sector understanding

1.   SCOPE OF APPLICATION

(a)

This Sector Understanding sets out the provisions which apply to officially supported export credits relating to contracts for:

(1)

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.

(2)

The modernisation of existing nuclear power plants in cases where both the overall value of the modernisation is at or above SDR 80 million and the economic life of the plant is likely to be extended by at least the repayment period to be awarded. If either of these criteria is not met, the terms of the Arrangement apply.

(3)

The supply of nuclear fuel and enrichment.

(4)

The provision of spent fuel management.

(b)

This Sector Understanding does not apply to:

(1)

Items located outside the nuclear power plant site boundary for which the buyer is usually responsible, in particular costs associated with land development, roads, construction village, power lines, switchyard (15 18 22 29 30 32 37 38 39) 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).

(2)

Sub-stations, transformers and transmission lines located outside the nuclear power plant site boundary.

(3)

Official support provided for the decommissioning of a nuclear power plant.

CHAPTER II

Provisions for export credits and trade-related aid

2.   MAXIMUM REPAYMENT TERMS

(a)

The maximum repayment term for goods and services included in the provisions of Articles 1(a)(1) and (2) of this Sector Understanding is 18 years.

(b)

The maximum repayment term for the initial fuel load is four years from delivery. The maximum repayment term for subsequent reloads of nuclear fuel is two years from delivery.

(c)

The maximum repayment term for spent fuel disposal is two years.

(d)

The maximum repayment term for enrichment and spent fuel management is five years.

3.   REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST

(a)

The Participants shall apply a profile of repayment of principal and payment of interest as specified in sub-paragraph (1) or (2) below:

(1)

Repayment of principal shall be made in equal instalments.

(2)

Repayment of principal and payment of interest combined shall be made in equal instalments.

(b)

Principal shall be repaid and interest shall be paid no less frequently than every six months and the first instalment of principal and interest shall be made no later than six months after the starting point of credit.

(c)

On an exceptional and duly justified basis, official support for goods and services mentioned in Articles(1)(a)(1) and (2) of this Understanding may be provided on terms other than those set out in paragraphs (a) and (b) above. The provision of such support shall be explained by an imbalance in the timing of the funds available to the obligor and the debt service profile available under an equal, semi-annual repayment schedule, and shall comply with the following criteria:

(1)

The maximum repayment term shall be 15 years.

(2)

No single repayment of principal or series of principal payments within a six-month period shall exceed 25 % of the principal sum of the credit.

(3)

Principal shall be repaid no less frequently than every 12 months. The first repayment of principal shall be made no later than 12 months after the starting point of credit and no less than 2 % of the principal sum of the credit shall have been repaid 12 months after the starting point of credit.

(4)

Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.

(5)

The maximum weighted average life of the repayment period shall not exceed nine years.

(d)

Interest due after the starting point of credit shall not be capitalised.

4.   CONSTRUCTION OF CIRRs

The applicable CIRRs for official financing support provided in accordance with the provisions of this Sector Understanding are constructed using to the following base rates and margins:

Repayment Term

(years)

New nuclear power stations (16 19 23 31 33)

All other contracts (17 20 24 34)

Base Rate

(Government bonds)

Margin

(bps)

Base Rate

(Government bonds)

Margin

(bps)

< 11

Relevant CIRR in accordance with Article 20 of the Arrangement

11 to 12

7 years

100

7 years

100

13

8 years

120

7 years

120

14

9 years

120

8 years

120

15

9 years

120

8 years

120

16

10 years

125

9 years

120

17

10 years

130

9 years

120

18

10 years

130

10 years

120

5.   ELIGIBLE CURRENCIES

The currencies that are eligible for official financing support are those which are fully convertible and for which data are available to construct the minimum interest rates mentioned in Article 4 of this Sector Understanding, and Article 20 of the Arrangement for repayment terms less than 11 years.

6.   OFFICIAL SUPPORT FOR NUCLEAR FUEL AND FOR NUCLEAR FUEL RELATED SERVICES

Without prejudice to the provisions of Article 7 of this Sector Understanding, the Participants shall not provide free nuclear fuel or services.

7.   AID

The Participants shall not provide aid support.

CHAPTER III

Procedures

8.   PRIOR NOTIFICATION

(a)

A Participant shall give prior notification in accordance with Article 48 of the Arrangement at least ten calendar days before issuing any commitment if it intends to provide support in accordance with the provisions of this Sector Understanding.

(b)

If the notifying Participant intends to provide support with a repayment term in excess of 15 years and/or in accordance with Article 3(c) of this Sector Understanding, it shall wait an additional ten calendar days if any other Participant requests a discussion during the initial ten calendar days.

(c)

A Participant shall inform all other Participants of its final decision following a discussion, to facilitate the review of the body of experience.

CHAPTER IV

Review

9.   FUTURE WORK

The Participants agree to examine the following issues:

(a)

A minimum floating interest rate regime.

(b)

The maximum amount of official support for local costs.

10.   REVIEW AND MONITORING

The Participants shall review regularly the provisions of the Sector Understanding and at the latest by the end of 2017.

ANNEX III

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR CIVIL AIRCRAFT

PART 1

General provisions

1.   PURPOSE

(a)

The purpose of this Sector Understanding is to provide a framework for the predictable, consistent and transparent use of officially supported export credits for the sale or lease of aircraft and other goods and services specified in Article 4(a) below. This Sector Understanding seeks to foster a level playing field for such export credits, in order to encourage competition among exporters based on quality and price of goods and services exported rather than on the most favourable officially supported financial terms and conditions.

(b)

This Sector Understanding sets out the most favourable terms and conditions on which officially supported export credits may be provided.

(c)

To this aim, this Sector Understanding seeks to establish a balanced equilibrium that, on all markets:

(1)

Equalises competitive financial conditions between the Participants,

(2)

Neutralises official support among the Participants as a factor in the choice among competing goods and services specified in Article 4(a) below, and

(3)

Avoids distortion of competition among the Participants to this Sector Understanding and any other sources of financing.

(d)

The Participants to this Sector Understanding (the Participants) acknowledge that the provisions included in this Sector Understanding have been developed for the sole purpose of this Sector Understanding and such provisions do not prejudice the other parts of the Arrangement on Officially Supported Export Credits (the Arrangement) and their evolution.

2.   STATUS

This Sector Understanding is a Gentlemen's Agreement among its Participants and is Annex III to the Arrangement; it forms an integral part of the Arrangement and it succeeds the Sector Understanding which came into effect in July 2007.

3.   PARTICIPATION

The Participants currently are: Australia, Brazil, Canada, the European Union, Japan, Korea, New Zealand, Norway, Switzerland and the United States. Any non-Participant may become a Participant in accordance with the procedures set out in Appendix I.

4.   SCOPE OF APPLICATION

(a)

This Sector Understanding shall apply to all official support provided by or on behalf of a government, and which has a repayment term of two years or more, for the export of:

(1)

New civil aircraft and engines installed thereon, including buyer furnished equipment.

(2)

Used, converted, and refurbished civil aircraft and engines installed thereon, including, in each case, buyer furnished equipment.

(3)

Spare engines.

(4)

Spare parts for civil aircraft and engines.

(5)

Maintenance and service contracts for civil aircraft and engines.

(6)

Conversion, major modifications and refurbishment of civil aircraft.

(7)

Engine kits.

(b)

Official support may be provided in different forms:

(1)

Export credit guarantee or insurance (pure cover).

(2)

Official financing support:

direct credit/financing and refinancing or

interest rate support.

(3)

Any combination of the above.

(c)

This Sector Understanding shall not apply to official support for:

(1)

The exports of new or used military aircraft and related goods and services listed in paragraph (a) above, including when used for military purposes.

(2)

New or used flight simulators.

5.   INFORMATION AVAILABLE TO NON-PARTICIPANTS

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

6.   AID SUPPORT

The Participants shall not provide aid support, except for humanitarian purposes, through a Common Line procedure.

7.   ACTIONS TO AVOID OR MINIMISE LOSSES

This Sector Understanding does not prevent its Participants from agreeing to less restrictive financial terms and conditions than those provided for by this Sector Understanding, if such action is taken after the export credit agreement and ancillary documents have already become effective and is intended solely to avoid or minimise losses from events which could give rise to non-payment or claims. A Participant shall notify all other Participants and the OECD Secretariat (the Secretariat), within 20 working days following the Participant's agreement with the buyer/borrower, of the modified financial terms and conditions. The notification shall contain information, including the motivation, on the new financial terms and conditions, using the reporting form set out in Appendix IV.

PART 2

New aircraft

CHAPTER I

Coverage

8.   NEW AIRCRAFT

(a)

For the purpose of this Sector Understanding, a new aircraft is:

(1)

An aircraft, including buyer furnished equipment, and the engines installed on such aircraft owned by the manufacturer and not delivered nor previously used for its intended purpose of carrying passengers and/or freight and

(2)

Spare engines and spare parts when contemplated as part of the original aircraft order in accordance with the provisions of Article 20(a) below.

(b)

Notwithstanding the provisions of paragraph (a) above, a Participant may support terms appropriate to new aircraft for transactions where, with the prior knowledge of that Participant, interim financing arrangements had been put in place because the provision of official support had been delayed; such delay shall not be longer than 18 months. In such cases, the repayment term and the final repayment date shall be the same as if the sale or lease of the aircraft would have been officially supported from the date the aircraft was originally delivered.

CHAPTER II

Financial terms and conditions

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

9.   ELIGIBLE CURRENCIES

The currencies which are eligible for official financing support are euro, Japanese yen, UK pound sterling, US dollar, and other fully convertible currencies for which data are available to construct the minimum interest rates mentioned in Appendix III.

10.   DOWN PAYMENT AND MAXIMUM OFFICIAL SUPPORT

(a)

For transactions with buyers/borrowers classified in Risk Category 1 (as per Table 1 of Appendix II), the Participants shall:

(1)

Require a minimum down payment of 20 % of the net price of the aircraft at or before the starting point of credit;

(2)

Not provide official support in excess of 80 % of the net price of the aircraft.

(b)

For transactions with buyers/borrowers classified in Risk Categories 2 to 8 (as per Table 1 of Appendix II), the Participants shall:

(1)

Require a minimum down payment of 15 % of the net price of the aircraft at or before the starting point of credit;

(2)

Not provide official support in excess of 85 % of the net price of the aircraft.

(c)

A Participant which applies Article 8(b) above shall reduce the maximum amount of official support by the amount of principal of the instalments deemed due from the starting point of the credit so as to ensure that, at the time of disbursement, the amount outstanding is the same as if such an officially supported export credit was provided at the time of delivery. In such circumstances, prior to delivery the Participant shall have received an application for official support.

11.   MINIMUM PREMIUM RATES

(a)

The Participants providing official support shall charge, for the credit amount officially supported, no less than the minimum premium rate set out in accordance with Appendix II.

(b)

The Participants shall use, whenever necessary, the agreed premium rate conversion model to convert between per annum spreads calculated on the outstanding amount of the official support and single up-front premium rates calculated on the original amount of the official support.

12.   MAXIMUM REPAYMENT TERM

(a)

The maximum repayment term shall be 12 years for all new aircraft.

(b)

On an exceptional basis, and with a prior notification, a maximum repayment term of up to 15 years shall be allowed. In this case, a surcharge of 35 % to the minimum premium rates calculated in accordance with Appendix II shall apply.

(c)

There shall be no extension of the repayment term by way of sharing of rights in the security on a pari passu basis with commercial lenders for the officially supported export credit.

13.   REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST

(a)

The Participants shall apply a profile of repayment of principal and payment of interest as specified in sub-paragraph (1) or (2) below.

(1)

Repayment of principal and payment of interest combined shall be made in equal instalments:

Instalments shall be made no less frequently than every three months and the first instalment shall be made no later than three months after the starting point of credit.

Alternatively, and subject to a prior notification, instalments shall be made every six months and the first instalment shall be made no later than six months after the starting point of credit. In this case, a surcharge of 15 % to the minimum premium rates calculated in accordance with Appendix II shall apply.

In the case of a floating rate transaction, the principal amortising profile shall be set for the entire term, no more than five business days prior to the disbursement date, based on the floating or swap rate at that time.

(2)

Repayment of principal shall be made in equal instalments with interest payable on declining balances:

Instalments shall be made no less frequently than every three months and the first instalment shall be made no later than three months after the starting point of credit.

Alternatively, and subject to a prior notification, instalments shall be made every six months and the first instalment shall be made no later than six months after the starting point of credit. In this case, a surcharge of 15 % to the minimum premium rates calculated in accordance with Appendix II shall apply.

(b)

Notwithstanding paragraph (a) above, and subject to a prior notification, the repayment of principal may be structured to include a final payment of all outstanding amounts on a specified date. In such case, repayments of principal prior to the final payment will be structured as set out in paragraph (a) above, based on an amortization period not greater than the maximum repayment term allowed for the goods and services being supported.

(c)

Notwithstanding paragraph (a) above, repayment of principal may be structured on terms less favourable to the obligor.

(d)

Interest due after the starting point of credit shall not be capitalised.

14.   MINIMUM INTEREST RATES

(a)

The Participants providing official financing support shall apply either a minimum floating interest rate or a minimum fixed interest rate, in accordance with the provisions of Appendix III.

(b)

For jet aircraft of a net price of at least USD 35 million, official financing support on CIRR basis shall only be provided in exceptional circumstances. A Participant intending to provide such support shall notify all other Participants at least 20 calendar days before final commitment, identifying the borrower.

(c)

Interest rate excludes any payment by way of premium referred to in Article 11 above, and fees referred to in Article 16 below.

15.   INTEREST RATE SUPPORT

The Participants providing interest rate support shall comply with the financial terms and conditions of this Sector Understanding and shall require any bank or any other financial institution which is a party to the interest supported transaction to participate in that transaction only on terms that are consistent in all respects with the financial terms and conditions of this Sector Understanding.

16.   FEES

(a)

Subject to the limits of the premium holding period, the Participants providing official support in the form of pure cover shall charge a premium holding fee on the un-drawn portion of the official support during the premium holding period, as follows:

(1)

For the first six months of the holding period: zero basis points per annum.

(2)

For the second six months of the holding period: 12,5 basis points per annum.

(3)

For the third and final six months of the holding period: 25 basis points per annum.

(b)

The Participants providing official support in the form of direct credit / financing shall charge the following fees:

(1)

Arrangement / Structuring fee: 25 basis points on the disbursed amount payable at the time of each disbursement.

(2)

Commitment and premium holding fee: 20 basis points per annum on the un-drawn portion of the officially supported export credit to be disbursed, during the premium holding period, payable in arrears.

(3)

Administration fee: five basis points per annum on the amount of official support outstanding payable in arrears. Alternatively, the Participants may elect to have this fee payable as an up-front fee, on the amount disbursed, at the time of each disbursement pursuant to the provisions of Article 11(b) above.

17.   CO-FINANCING

Notwithstanding Articles 14 and 16 above, in a co-financing where official support is provided by way of direct credit and pure cover, and where pure cover represents at least 35 % of the officially supported amount, the Participant providing direct credit shall apply the same financial terms and conditions, including fees, as those provided by the financial institution under pure cover, to generate an all-in cost equivalence between the pure cover provider and the direct lender. In such circumstances, the Participant providing such support shall report the financial terms and conditions supported, including fees, in accordance with the reporting form set out in Appendix IV.

PART 3

Used aircraft, spare engines, spare parts, maintenance and service contracts

CHAPTER I

Coverage

18.   USED AIRCRAFT AND OTHER GOODS AND SERVICES

This Part of the Sector Understanding shall apply to used aircraft and to spare engines, spare parts, conversion, major modification, refurbishing, maintenance and service contracts in conjunction with both new and used aircraft and engine kits.

CHAPTER II

Financial terms and conditions

The financial terms and conditions to be applied, other than the maximum repayment term, shall be in accordance with the provisions set out in Part 2 of this Sector Understanding.

19.   SALE OF USED AIRCRAFT

(a)

Subject to paragraph (b) below, the maximum repayment term for used aircraft shall be established in accordance with the age of the aircraft, as set out in the following table:

Age of Aircraft (years since the date of original manufacture)

Maximum Repayment Terms for Asset-Backed or Sovereign Transactions (years)

Maximum Repayment Terms for Transactions neither Asset-Backed nor Sovereign (years)

1

10

8,5

2

9

7,5

3

8

6,5

4

7

6

5-8

6

5,5

Over 8

5

5

(b)

The maximum repayment term for aircraft that have undergone conversion, provided the transaction meets all the requirements of Article 19 of Appendix II and provided further that official support, if any, provided in respect of such conversion was not provided in accordance with Article 21(a) below, shall be established in accordance with the period of time since the date of conversion and the age of the aircraft, as set out in the following table:

Maximum Repayment Terms for Asset-Backed Converted Aircraft (years)

Period of Time Since the Date of Conversion (years)

Age of Aircraft

(years since the date of original manufacture)

1

2

3

4

5-8

Over 8

0 (Newly converted)

10

9

8

8

8

8

1

10

9

8

7

7

7

2

9

8

7

6

6

3 or more

8

7

6

5

20.   SPARE ENGINES AND SPARE PARTS

(a)

When purchased, or ordered in connection with the engines to be installed on a new aircraft, the official support for spare engines may be provided on the same terms and conditions as for the aircraft.

(b)

When purchased with new aircraft, the official support for spare parts may be provided on the same terms and conditions as for the aircraft up to a maximum 5 % of the net price of the new aircraft and installed engines; paragraph (d) below shall apply to official support for spare parts in excess of the 5 % limit.

(c)

When spare engines are not purchased with a new aircraft, the maximum repayment term shall be eight years. For spare engines with a unit value of USD 10 million or more, provided the transaction meets all the requirements of Article 19 of Appendix II, the repayment term shall be 10 years.

(d)

When other spare parts are not purchased with a new aircraft, the maximum repayment term shall be:

(1)

Five years with a contract value of USD 5 million or more.

(2)

Two years with a contract value of less than USD 5 million.

21.   CONTRACTS FOR CONVERSION/MAJOR MODIFICATION/REFURBISHING

(a)

If a transaction for conversion:

(1)

Is valued at USD 5 million or more, and

Meets all the requirements of Article 19 of Appendix II, a Participant may offer official support with a repayment term of up to eight years.

Does not meet all the requirements of Article 19 of Appendix II, a Participant may offer official support with a repayment term of up to five years.

(2)

Is valued at less than USD 5 million, a Participant may offer official support with a repayment term of up to two years.

(b)

If a transaction is for a major modification, or refurbishment, a Participant may offer official support with a repayment term of up to:

(1)

Five years if the contract value is USD 5 million or more;

(2)

Two years, if the contract value is less than USD 5 million.

22.   MAINTENANCE AND SERVICE CONTRACTS

The Participants may offer official support with a repayment term of up to three years.

23.   ENGINE KITS

The Participants may offer official support with a repayment term of up to five years.

PART 4

Transparency procedures

All communications shall be made between the designated contact points in each Participant country by means of instant communication, e.g. the OECD On-Line Information System (OLIS). Unless otherwise agreed, all information exchanged under this Part of the Sector Understanding shall be treated by all Participants as confidential.

SECTION 1

Information requirements

24.   INFORMATION ON OFFICIAL SUPPORT

(a)

Within one month after the date of a final commitment, a Participant shall submit the information required in Appendix IV to all other Participants, with a copy to the Secretariat.

(b)

In order to establish the margin benchmark in accordance with Appendix III Article 8(b), information on pure cover margins, as outlined in Appendix III Articles 8(c) and (d), shall be submitted to the Secretariat no later than five days after the end of each month.

SECTION 2

Exchange of information

25.   REQUESTS FOR INFORMATION

(a)

A Participant may ask another Participant for information about the use of its officially supported export credits for the sale or lease of aircraft covered by this Sector Understanding.

(b)

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

(c)

The Participant to which such an enquiry is addressed shall respond within seven calendar days and provide reciprocal information to the fullest extent 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.

(d)

Copies of all enquiries and responses shall be sent to the Secretariat.

26.   FACE-TO-FACE CONSULTATIONS

(a)

In a competitive situation, a Participant may request face-to-face consultations with one or more Participants.

(b)

Any Participant shall agree within ten working days to such requests.

(c)

The consultations shall take place as soon as possible after the expiry of the ten working-day period.

(d)

The Chairman of the Participants shall co-ordinate with the Secretariat on any necessary follow-up action. The Secretariat shall promptly make available to all Participants the outcome of the consultation.

27.   SPECIAL CONSULTATIONS

(a)

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

(b)

The responding Participant shall clarify the financial terms and conditions of the official support being considered within five working days following the issue of the information from the Secretariat.

(c)

Following clarification by the responding Participant, the initiating Participant may request that a special consultation with the responding Participant be organised by the Secretariat within five working days to discuss the issue.

(d)

The responding Participant shall wait for the outcome of the consultation which shall be determined on the day of such consultation before proceeding any further with the transaction.

SECTION 3

Common lines

28.   PROCEDURES AND FORMAT OF COMMON LINES

(a)

Common Line proposals shall be addressed to the Secretariat only. The identity of the initiator is not revealed on the Common Line register on the OLIS. However, the Secretariat may orally reveal the identity of the initiator to a Participant 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:

(1)

Reference number, followed by Common Line.

(2)

Name of the importing country and buyer/borrower.

(3)

Name or description of the transaction as precise as possible to clearly identify the transaction.

(4)

Common Line proposal for the most generous terms and conditions to be supported.

(5)

Nationality and names of known competing bidders.

(6)

Bid closing date and tender number to the extent it is known.

(7)

Other relevant information, including reasons for proposing the Common Line and as appropriate, special circumstances.

29.   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 acceptance, rejection, a request for additional information, a proposal for modification of the Common Line or an alternative Common Line proposal.

(c)

A Participant which remains silent or advises that it has no position shall be deemed to have accepted the Common Line proposal.

30.   ACCEPTANCE OF COMMON LINES

(a)

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

(b)

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

(c)

If a Participant does not accept one or more elements of a Common Line it implicitly accepts all other elements of the Common Line.

31.   DISAGREEMENT ON COMMON LINES

(a)

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 mentioned in Article 30 above, this period can be extended by their mutual consent. The Secretariat shall inform all Participants of any such extension.

(b)

A Common Line which has not been accepted may be reconsidered using the procedures in Articles 28 to 30 above. In these circumstances, the Participants are not bound by their original decision.

32.   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 agreed Common Line will take effect three calendar days after this announcement.

33.   VALIDITY OF COMMON LINES

(a)

Unless agreed otherwise, 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 such situation is accepted by all Participants.

(b)

If a Participant seeks an extension within 14 calendar days of the original date of expiry and in the absence of disagreement, a Common Line shall remain valid for a further two-year period; subsequent extensions may be agreed through the same procedure.

(c)

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 issue, on a quarterly basis, a list of Common Lines due to expire in the following quarter.

(d)

Upon the request of a non-Participant which produces competing aircraft, the Secretariat shall make available valid Common Lines to that non-Participant.

SECTION 4

Matching

34.   MATCHING

(a)

Taking into account a Participant's international obligations, a Participant may match financial terms and conditions of official support offered by a non-Participant.

(b)

In the event of matching non-conforming terms and conditions offered by a non-Participant:

(1)

The matching Participant shall make every effort to verify such terms and conditions.

(2)

The matching Participant shall inform the Secretariat and all other Participants of the nature and outcome of such efforts, as well as of the terms and conditions it intends to support, at least ten calendar days before issuing any commitment.

(3)

If a competing Participant requests a discussion during this ten calendar-day period, the matching Participant shall wait an additional ten calendar days before issuing any commitment on such terms.

(c)

If a matching Participant modifies or withdraws its intention to support the notified terms and conditions, it shall immediately inform all other Participants accordingly.

PART 5

Monitoring and review

35.   MONITORING

(a)

The Secretariat shall monitor the implementation of this Sector Understanding and report to the Participants on an annual basis.

(b)

Each transaction deemed eligible under Article 39(a) shall be reported in accordance with the provisions of Article 24(a) and Appendix IV.

(c)

Each transaction deemed eligible under Article 39(b) shall be reported in accordance with the provisions of Article 24(a) and Appendix IV, in addition to which:

(1)

The reporting Participant shall indicate the link between that transaction and the transition list.

(2)

The transition lists shall be monitored on a semi-annual basis; to that end, the Secretariat shall meet with each Participant, with a view to:

Monitoring the number of firm orders registered on the transition lists which have been delivered.

Updating for the following year the delivery schedule for transactions registered on the transition lists.

Identifying orders registered on transition lists which have not been or shall not, for any reason, be delivered to the buyer listed on such transition lists. Any such order shall be deleted from the transition list and shall not be reallocated in any way to any other buyer.

36.   REVIEW

The Participants shall review the procedures and provisions of this Sector Understanding, against the criteria, and at the times, set out in paragraphs (a) and (b) below.

(a)

The Participants shall undertake the review of this Sector Understanding as follows:

(1)

In the fourth calendar year following the effective date of this Sector Understanding and, regularly thereafter, in each case with three months prior notice given by the Secretariat.

(2)

At the request of a Participant after due consultation, provided that three months prior notice has been given by the Secretariat and the requesting Participant provides a written explanation of the reason for, and objectives of, the review as well as a summary of the consultations preceding its request.

(3)

Modalities of update of minimum premium rates and minimum interest rates are set out in Appendixes II and III respectively.

(4)

Fees set out in Article 16 shall be part of reviews.

(b)

The review set out in sub-paragraph (a)(1) above shall consider:

(1)

The extent to which the purposes of this Sector Understanding, as set out in Article 1 above, have been achieved and any other issue a Participant may wish to bring forward for discussion.

(2)

In view of the elements in sub-paragraph (b)(1) above, whether amendments to any aspect of this Sector Understanding are justified.

(c)

In recognition of the importance of the review process, to ensure that the terms and conditions of this Sector Understanding continue to meet the needs of the Participants, each Participant reserves the right to withdraw from this Sector Understanding in accordance with Article 40 below.

37.   FUTURE WORK

Consideration will be given to:

(a)

Examining Participants' practices in providing official support before the starting point of credit.

(b)

The provisions applicable to indirect loans.

(c)

An extension of maximum repayments terms under Article 19 for used aircraft that have undergone significant refurbishment prior to sale.

(d)

An extension of maximum repayment terms under Article 21 for larger contract values.

(e)

The provisions applicable to “refurbishing” (Article 2(1) and “services” (Article 22).

(f)

The Cape Town eligibility process.

(g)

The definition of “Interested Participant”.

PART 6

Final provisions

38.   ENTRY INTO FORCE

The effective date of this Sector Understanding is 1 February 2011.

39.   TRANSITIONAL ARRANGEMENTS

Notwithstanding Article 38 above, the Participants may provide official support on the terms and conditions set out as follows:

(a)

The Participants may provide official support on the terms and conditions set out in the Aircraft Sector Understanding in force as of 1 July 2007 (“the 2007 ASU”) if the following conditions are fulfilled:

(1)

The goods and services shall be subject to a firm contract concluded not later than 31 December 2010.

(2)

The goods and services shall be physically delivered not later than 31 December 2012 for 2007 ASU Category 1 aircraft and 31 December 2013 for 2007 ASU Category 2 and 3 aircraft.

(3)

For each final commitment notified, a 20 basis points per annum commitment fee shall be charged from the earlier of the date of the final commitment or 31 January 2011 (2007 ASU Category 1 aircraft)/30 June 2011 (2007 ASU Category 2 and 3 aircraft), until the aircraft is delivered. This commitment fee shall be in lieu of the fees set out in Articles 17(a) and (b)(2) of the 2007 ASU. This commitment fee shall be charged in addition to the minimum premium charged.

(b)

The Participants may provide official support on terms and conditions applicable prior to the effective date of this Sector Understanding if the following conditions are fulfilled:

(1)

The goods and services shall be subject to a firm contract concluded not later than 31 December 2010.

(2)

Such official support is limited to deliveries of 69 2007 ASU Category 1 aircraft per Participant and 92 2007 ASU Category 2 aircraft per Participant.

(3)

In order to benefit from the terms and conditions set out in this paragraph, aircraft mentioned in sub-paragraph (b)(2) above shall be registered on lists (hereafter “transition lists”) which shall be notified by the Participants to the Secretariat prior to the entry into force of this Sector Understanding. Such transition lists shall include:

The aircraft models and numbers.

Tentative delivery dates.

Identity of buyers.

The applicable regime (either the Aircraft Sector Understanding prevailing prior to the 2007 ASU, or the 2007 ASU).

(4)

Information under the first, second and fourth tirets above shall be shared with all Participants; information under the third tiret above shall be managed exclusively by the Secretariat and the Chairman.

(5)

For each aircraft on transition lists:

If official support is committed under the Aircraft Sector Understanding prevailing prior to the 2007 ASU, a commitment fee of 35 basis points per annum shall be charged from the earlier of the date of the final commitment or 31 March 2011, until the aircraft is delivered. In addition, the minimum premium charged shall be no less than 3 % on an up-front basis.

If official support is committed under the 2007 ASU, a commitment fee of 20 basis points per annum shall be charged from the earlier of the date of the final commitment or 30 June 2011, until the aircraft is delivered.

The commitment fee set out in both tirets above shall be in lieu of the fees set out in Articles 17(a) and (b)(2) of the 2007 ASU. This commitment fee shall be charged in addition to the minimum premium charged.

(6)

The Participants may provide officially supported export credits on the terms and conditions set out in the Aircraft Sector Understanding prevailing prior to the 2007 ASU only for deliveries of aircraft scheduled to occur on or prior to 31 December 2010, in accordance with firm contracts concluded not later than 30 April 2007 and notified to the Secretariat not later than 30 June 2007.

(c)

The implementation of this Article shall be monitored in accordance with Articles 35(b) and (c).

40.   WITHDRAWAL

A Participant may withdraw from this Sector Understanding by notifying the Secretariat in writing by means of instant communication, e.g. the OLIS. The withdrawal takes effect six months after receipt of the notification by the Secretariat. Withdrawal will not affect agreements reached on individual transactions entered into prior to the effective date of the withdrawal.

Appendix I

Participation in the aircraft sector understanding

1.

The Participants encourage non-Participants that are developing a manufacturing capacity for civil aircraft to apply the disciplines of this Sector Understanding. In this context the Participants invite non-Participants to enter into a dialogue with them regarding the conditions of joining the ASU.

2.

The Secretariat should ensure that a non-Participant interested in participating in this Sector Understanding is provided with full information on the terms and conditions associated with becoming a Participant to this Sector Understanding.

3.

The non-Participant would then be invited by the Participants to take part in the activities in pursuance of this Sector Understanding and to attend, as an observer, the relevant meetings. Such an invitation would be for a maximum of two years and could be renewed once for a further two years. During this period the non-Participant shall be invited to provide a review of its export credit system, especially for the export of civil aircraft.

4.

At the end of that period, the non-Participant shall indicate whether it wishes to become a Participant in this Sector Understanding and to follow its disciplines; in the case of such confirmation, the non-Participant shall contribute, on an annual basis, to the costs associated with the implementation of this Sector Understanding.

5.

The interested non-Participant shall be considered a Participant 30 working days after the confirmation referred to in Article 4 of this Appendix.

Appendix II

Minimum premium rates

This Appendix sets out the procedures to be used when determining the pricing of official support for a transaction subject to this Sector Understanding. Section 1 sets out the risk classification procedures; Section 2 sets out the minimum premium rates to be charged for new and used aircraft, and Section 3 sets out the minimum premium rates to be charged for spare engines, spare parts, conversion/major modification/refurbishing, maintenance and service contracts, and engine kits.

SECTION 1

Procedures for risk classification

1.

The Participants have agreed on a list of risk classifications (the List) for buyers/borrowers; such risk classifications reflect the senior unsecured credit rating of buyers/borrowers using a common rating scale such as that of one of the credit rating agencies (CRA).

2.

The risk classifications will be made by experts nominated by the Participants against the risk categories set out in Table 1 of this Appendix.

3.

The List shall be binding at any stage of the transaction (e.g. campaign and delivery), subject to the provisions of Article 15 of this Appendix.

I.   ESTABLISHMENT OF THE LIST OF RISK CLASSIFICATIONS

4.

The List shall be developed and agreed among the Participants prior to the entry into force of this Sector Understanding; it shall be maintained by the Secretariat and made available to all the Participants on a confidential basis.

5.

Upon request, the Secretariat may, on a confidential basis, inform an aircraft-producing non-Participant of the risk classification of a buyer/borrower; in this case, the Secretariat shall inform all Participants of the request. A non-Participant may, at any time, propose additions to the List to the Secretariat. A non-Participant proposing an addition to the List may participate in the risk-classification procedure as if it were an interested Participant.

II.   UPDATE OF THE LIST OF RISK CLASSIFICATIONS

6.

Subject to the provisions of Article 15 of this Appendix, the List may be updated on an ad hoc basis in the event that either a Participant signals, in any form, its intention to apply another risk classification than that on the List, or a Participant needs a risk classification for a buyer/borrower that is not yet on the List (15 18 22 29 30 32 37 38 39)  (16 19 23 31 33).

7.

Any Participant shall, before any use of an alternative or new risk classification, send a request to the Secretariat for updating the List on the basis of an alternative or new risk classification. The Secretariat will circulate this request to all Participants within two working days, without mentioning the identity of the Participant who submitted the request.

8.

A period of ten (17 20 24 34) working days is allowed for interested Participants either to agree to or to challenge any proposed change to the List; a failure to respond within this period is considered as an agreement to the proposal. If at the end of the ten-day period, no challenge has been made to the proposal, the proposed change in the List is deemed to have been agreed. The Secretariat will modify the List accordingly and send an OLIS message within five working days; the revised List shall be binding from the date of that message.

III.   RESOLUTION OF DISAGREEMENTS

9.

In the event of a challenge to a proposed risk classification, interested Participants shall, at an expert level, make their best efforts to come to an agreement on the risk classification within a further period of ten working days after notification of a disagreement. All means necessary to resolve the disagreement should be explored, with the assistance of the Secretariat if necessary (e.g. conference calls or face-to-face consultations). If interested Participants agree to a risk classification within this ten working-day period, they shall inform the Secretariat of the outcome upon which the Secretariat will update the List accordingly and send an OLIS message in the following five working days. The adjusted List shall be binding from the date of that message.

10.

In case the disagreement is not resolved among the experts within ten working days, the issue will be referred to the Participants for decision on an appropriate risk classification, in a period that shall not exceed five working days.

11.

In the absence of a final agreement, a Participant may have recourse to a CRA to determine the risk classification of the buyer/borrower. In such cases, the Chairman of the Participants shall address a communication on behalf of the Participants to the buyer/borrower, within ten working days. The communication shall include the terms of reference for the risk assessment consultation as agreed among the Participants. The resulting risk classification will be registered in the List and become binding immediately following the Secretariat's OLIS message to finalise the update procedure within five working days.

12.

Unless otherwise agreed, the cost of such recourse to a CRA shall be borne by the interested buyer/borrower.

13.

During the procedures set out in Articles 9 to 11 of this Appendix, the prevailing risk classification (when available on the List) shall remain applicable.

IV.   VALIDITY PERIOD OF CLASSIFICATIONS

14.

The valid risk classifications are the prevailing risk classifications as recorded in the List maintained by the Secretariat; indications and commitments of premium rates shall only be made in accordance with those risk classifications.

15.

Risk classifications have a 12-month maximum validity period from the date recorded in the List by the Secretariat for the purpose of the Participants providing indication and final commitments of premium rates; the validity period for a specific transaction may be extended by an additional 18 months once a commitment or a final commitment has occurred and premium holding fees are charged. Risk classifications may be subject to revision during the 12-month validity period in case of material changes to the risk profile of the buyer/borrower, such as a modification of a rating delivered by a CRA.

16.

Unless any Participant requests its update, at least 20 working days before the end of the relevant risk classification validity period, the Secretariat shall remove that risk classification from the next succeeding updated List. The Secretariat will circulate this update request to all Participants within two working days, without mentioning the identity of the Participant who submitted the request, and the procedures set out in Articles 9 to 11 of this Appendix shall apply.

V.   BUYER/BORROWER RISK CLASSIFICATION REQUEST

17.

If, at the campaign stage, a buyer/borrower requests an indication of its risk classification and if it is not yet on the List, that buyer/borrower may ask for an indicative risk classification from a CRA at its own expense. This risk classification shall not be included in the List; it may be used by the Participants as a basis for their own risk assessment.

SECTION 2

Minimum premium rates for new and used aircraft

I.   ESTABLISHMENT OF THE MINIMUM PREMIUM RATES

18.

Articles 19 to 58 of this Appendix set out the minimum premium rates corresponding to the risk classification of a buyer/borrower (or, if a different entity, the primary source of repayment of the transaction).

19.

The Participants may provide official support at or above the minimum premium rate provided that all the conditions below are fulfilled:

(a)

The transaction is asset-backed, meeting all of the following criteria:

(1)

A first priority security interest on or in connection with the aircraft and engines.

(2)

In the case of a lease structure, assignment and/or a first priority security interest in connection with the lease payments.

(3)

Cross default and cross collateralization of all aircraft and engines owned legally and beneficially by the same parties under the proposed financing, whenever possible under the applicable legal regime.

(b)

The transaction is structured to include, as a minimum, risk mitigants as set out in Table 1 below:

Table 1

Risk Mitigants

ASU Risk Category

Risk Ratings

Risk Mitigants

TOTAL

Of which at least “A”

1

AAA to BBB-

0

0

2

BB+ and BB

0

0

3

BB-

1

1

4

B+

2

1

5

B

2

1

6

B-

3

2

7

CCC

4

3

8

CC to C

4

3

20.

For purposes of Article 19 of this Appendix:

(a)

The Participants may select from the following risk mitigants:

 

“A” risk mitigants:

(1)

Reduced advance rate: each reduction of five percentage points from the advance rates referred to in Articles 10(a) and (b) of this Sector Understanding is equivalent to one “A” risk mitigant. In this case, the Participant shall not provide official support in any form in excess of the reduced advance rate.

(2)

Straight line amortisation: repayment of principal in equal instalments is equivalent to one risk mitigant.

(3)

Reduced repayment term: a repayment term which does not exceed ten years is equivalent to one risk mitigant.

 

“B” risk mitigants:

(1)

Security deposit: each security deposit in an amount equal to one quarterly instalment of principal and interest is equivalent to one risk mitigant. The security deposit can be in the form of cash or a standby letter of credit.

(2)

Lease payments in advance: lease payments in an amount equal to one quarterly instalment of principal and interest shall be paid one quarter in advance of each repayment date.

(3)

Maintenance reserves in a form and amount reflective of market best practices.

(b)

Subject to a prior notification, up to one of the “A” risk-mitigants may be replaced by a 15 % surcharge on the applicable minimum premium rate.

21.

Pursuant to Article 11 of this Sector Understanding, the minimum premium rates to be applied are composed of minimum risk-based rates (RBR) to which a market reflective surcharge (MRS) shall be added, in accordance with Articles 22 to 34 below.

22.

As of the entry into force of this Sector Understanding, the RBRs are:

Table 2

Risk-Based Rates

ASU Risk Category

Spreads (bps)

Upfront (%)

1

89

4,98

2

98

5,49

3

116

6,52

4

133

7,49

5

151

8,53

6

168

9,51

7

185

10,50

8

194

11,03

23.

The RBRs rates shall be reset on an annual basis, based on 4-year moving average of the annual Moody's Loss Given Default (LGD). The appropriate LGD for this reset is based on the 1st Lien Senior Secured Bank Loans, and shall be calculated as follows:

Table 3

LGD Mapping

4-year Moving Average

LGD Considered

≥ 45 %

25 %

≥ 35 % < 45 %

23 %

≥ 30 % < 35 %

21 %

< 30 %

19 %

24.

A RBR adjustment factor shall be determined as follows:

Formula