FantasticSearch

1. PURPOSE The purpose of this Sector Understanding is to provide a framework for the orderly use of officially supported export credits for the items specified in Article 4 below. The Sector Understanding 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. 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 The Sector Understanding is a Gentlemen’s Agreement among its Participants and is Annex IV to the Arrangement; it forms an integral part of the Arrangement and it succeeds the Sector Understanding, which came into effect on 1 September 2011.

3. PARTICIPATION

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

4. SCOPE OF APPLICATION This Sector Understanding sets out specific guidelines for officially supported export credits, which have a repayment term of two years or more, 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.

5. OFFICIAL SUPPORT 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) 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. WITHDRAWAL

A Participant to this Sector Understanding may withdraw from it by notifying the Secretariat in writing by means of instant communication, e.g. using the electronic mail system that is maintained by the Secretariat to facilitate communications amongst Participants and the Secretariat. The withdrawal takes effect 180 calendar days after receipt of the notification by the Secretariat.

7. MONITORING The Secretariat shall monitor the implementation of the Sector Understanding. CHAPTER II FINANCIAL TERMS AND CONDITIONS FOR EXPORTS CREDITS

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

8. MAXIMUM REPAYMENT TERM The maximum repayment term is 12 years after delivery.

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

10. 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 normally at delivery. 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 normally at delivery 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 Appendix I of this Sector Understanding.

11. INTEREST RATES AND OTHER FEES Interest excludes: a) any payment by way of premium or other charge for insuring or guaranteeing supplier credits or financial credits; b) 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 c) withholding taxes imposed by the importing country.

12. 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 17, shall not be fixed for a period exceeding six months prior to final commitment.

13. ACTION TO AVOID OR MINIMISE LOSSES This Sector Understanding does not prevent export credit authorities or financing institutions from agreeing to less restrictive financial terms and conditions than those provided for by the Understanding, 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.

14. MATCHING

Taking into account a Participant’s international obligations and consistent with the purpose of the this Understanding, a Participant may match, according to the procedures set out in Article 24, 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 this Understanding.

15. MINIMUM FIXED INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT 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: a) CIRRs should represent final commercial lending interest rates in the domestic market of the currency concerned; b) CIRRs should closely correspond to the rate for first class domestic borrowers; c) CIRRs should be based on the funding cost of fixed interest rate finance; d) CIRRs should not distort domestic competitive conditions; and e) CIRRs should closely correspond to a rate available to first class foreign borrowers.

16. CONSTRUCTION OF CIRRs

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.