GSM-102: "THE GOLDEN DOOR" for agricultural products import and export from the United States

Nowadays, it is difficult to import goods from abroad, especially agricultural goods from the US. To solve the problem, INDOCO company cooperated with Emission Resource Group, Inc. (ERG) in the US, currently owns the GSM-102 program for agricultural products.

About the GSM-102:

- The U.S. Department of Agriculture’s (USDA) Export Credit Guarantee Program (GSM-102) provides credit guarantees to encourage financing of commercial exports of U.S. agricultural commodities. By reducing financial risk to lenders, credit guarantees encourage exports to importers in countries - mainly developing countries - that have sufficient financial strength to have foreign exchange available for scheduled payments.

Function Method:

• Function:

GSM-102 provides payment security through foreign banks (typically banks in Vietnam), creating favorable conditions for trade finance activities between an exporter’s bank and a foreign bank to sell US agricultural products through the financial mechanism by letter of credit L/C. Support 70% deferred payment from 6 to 12 months with a rate of 3,0 - 3,2% per year.

• Transaction:

Exporters must first be eligible to participate, accompanied by an Incoterm FAS condition that is issued a program notice by country or region and finally the exporter applies for a guarantee and pays guarantee fee. According to known information, currently FAS has approved 8 banks in Vietnam, namely Ho Chi Minh City Development Commercial Joint Stock Bank (HD Bank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV). Military Bank (MB Bank), Saigon-Hanoi Bank (SH Bank), Vietnam Bank for Agriculture and Rural Development (AgriBank), Joint Stock Commercial Bank for Industry and Trade of Vietnam (VietinBank), Bank Vietnam Prosperity Joint Stock Commercial Bank (VP Bank), Vietnam Technological and Commercial Joint Stock Bank (TechcomBank).

Image 1.1 Banks are currently guaranteeing the GSM-102 program

Vietnamese banks are currently eligible for a maximum term of up to 1 year. Approved banks in Southeast Asia can issue L/Cs for sales to Vietnam and other locations in the region. The maximum allowed term is based on the guaranteeing bank of that country.

Image 1.2 GSM-102 transaction diagram

From the picture above, we can easily imagine the operation method in a specific and certain sequence. The working principle is respectively:

• (1) The export-import parties sign the contract.
• From there, (2) the exporter pays the application fee and guarantees to the CCC (Commodity Credit Company) to (3) issue the guarantee to the exporter (business in the US).
• Next (4) the importer submits the L/C to the importer’s bank to issue the L/C in favor of the exporter. All foreign banks approved by CCC with verified terms.
• (5) The exporter (typically) appoints a U.S. bank guarantee.
• (6) The exporter ships the goods to the importer and (7) presents the documents to the bank in the United States.
• (8) Banks of the United States make payments to exporters and make loans to foreign banks through inspection and probing on the exporter side.
• (9) Import bank issues L/C and arranges loans to enterprises.

Note: If the foreign bank defaults, the owner of the guarantor (usually a US bank) submits a claim to the CCC.

Indoco actively negotiated and successfully signed a cooperation contract with Emission Resource Group, Inc. (ERG) – an enterprise authorized by the US Department of Agriculture to find and recommend this program. At present, Indoco company is exclusively linking the GSM-102 program to support businesses as well as farmers in the import and export of agricultural products. Thanks to the GSM-102 program, buyers can make a deferred L/C at a low fee for greater financial peace of mind.

Image 1.2 The contract between Indoco company and ERG company in the US for the GSM-102 Registration

Benefits of  Export Credit Guarantee Program (GSM-102):

• Preferential products: agricultural products such as corn (maize), soybeans (GMO and non-GMO), wheat, wine, fertilizer, agricultural machinery,...
• Payment of 70% deferred payment from 6-12 months with a rate of 3,0 - 3,2% per year.
• Subjects entitled to offer: all enterprises importing agricultural products from the United States.

 Overall, Vietnamese importers from March 27, 2020 will have more opportunities to access reputable US exporters to import agricultural products with a variety of products and competitive costs under the Guarantee Program. GSM-102 export credit. Thereby contributing to promoting the sale of American agricultural products to become easier and more developed.

*Note: The program only applies this form in Vietnam.

Cao Duy