12 March 1998
GCC10 TEXT: FRAMEWORK AGREEMENT FOR U.S. EXPORTS TO RUSSIA
(Text: White House release) (2980)
(The following Framework Agreement was released March 11, 1998, by the
White House Office of the Vice President following the tenth meeting
of the U.S.-Russian Joint Commission on Economic and Technical
Cooperation, also known as the Gore-Chernomyrdin Commission.)
FRAMEWORK AGREEMENT REGARDING SUPPORT FOR U.S. EXPORTS TO SMALL
BUSINESSES IN THE RUSSIAN FEDERATION BETWEEN THE STATE COMMITTEE OF
THE RUSSIAN FEDERATION FOR THE SUPPORT AND DEVELOPMENT OF SMALL
BUSINESS, THE FEDERAL FUND FOR SMALL BUSINESS SUPPORT AND THE
EXPORT-IMPORT BANK OF THE UNITED STATES
This FRAMEWORK AGREEMENT REGARDING SUPPORT FOR U.S. EXPORTS TO SMALL
BUSINESSES IN THE RUSSIAN FEDERATION (the "Agreement"), is made and
entered into the eleventh day of March, 1998, by and between the STATE
COMMITTEE OF THE RUSSIAN FEDERATION FOR THE SUPPORT AND DEVELOPMENT OF
SMALL BUSINESS ("SCSME"), an agency of the Russian Federation, the
FEDERAL FUND FOR SMALL BUSINESS SUPPORT (the "Fund"), an agency of the
Russian Federation, and the EXPORT-IMPORT BANK OF THE UNITED STATES
("Eximbank"), an agency of the United States of America.
WITNESSETH:
WHEREAS, in the Memorandum of Cooperation made and entered into on
November 4, 1997 by and between the SCSME and Eximbank, the parties
agreed to work with the Fund to complete negotiation of a framework
agreement for a small business program (the "Small Business Program")
that will enable Eximbank to finance the purchase of U.S. goods and
services ("Items") by Russian small businesses ("Purchasers");
WHEREAS, in order to support the purchase of Items by the Purchasers
(referred to herein as "Transactions");
-- Eximbank is prepared to consider guaranteeing medium-term loans
("Loan(s)") made by U.S. or other commercial lending institutions
("Guaranteed Lenders");
-- The Guaranteed Lenders will offer such Loans to Russian commercial
banks, determined by Eximbank, the SCSME and the Fund to be eligible
to participate in the Small Business Program ("Russian Bank(s)");
-- The SCSME and the Fund will establish a joint committee ("Joint
Committee") with each participating Russian Bank, and prior to
submitting applications to Eximbank for financing under the Small
Business program, such participating Russian Bank will bring before
the appropriate Joint Committee for its consideration a Transaction
for which such Russian Bank is prepared to on-lend a Loan to a
Purchaser; and
-- The Fund and the Russian Bank will agree on the form of security to
be provided by the Fund in connection with repayment of the Loan for
each Transaction;
WHEREAS, the Small Business Program is designed to supplement (and not
compete with) Eximbank's regular commercial bank program;
WHEREAS, the Small Business Program is intended to assist and support
the purchase of Items by those small business Purchasers whose credit
risk a Russian Bank would not accept under Eximbank's regular
commercial bank program; and
WHEREAS, the Small Business Program will take into account actual
condition and unique nature of small business in Russia;
NOW THEREFORE, the parties agree that the elements of the Small
Business Program will be as follows:
1. Eligibility of Purchasers. In order to participate in the Small
Business Program, each Purchaser must conform with the definition of
small business as contained in Article 3 of Russian Federal Law Number
88-F3 of June 14, 1995 "Concerning Government Support of Small
Business in the Russian Federation," which requires that any direct or
indirect ownership interest by any public sector bodies, businesses or
charities, or any other governmental entities, does not exceed 25% in
the aggregate. In addition, the average number of employees of such
entity must not exceed the following limits:
for manufacturing and construction companies: 100
for agricultural firms: 60
for scientific and technical firms: 60
for wholesale traders: 50
for retail sellers and domestic services: 30
for all other sectors: 50
No Purchaser may be majority-owned, controlled, or operated on behalf
of or for the benefit of any governmental entity, including the
federal, regional, local or municipal authority and may not be engaged
in actual production on behalf of any governmental entities.
Furthermore, not more than ten percent (10%) of the share capital of a
Purchaser may be owned directly or indirectly by the Russian Bank
making the loan.
2. Eligibility of Russian Banks.
(a) The SCSME and the Fund will approve each Russian Bank for
participation in the Small Business Program.
(b) Following approval by the SCSME and the Fund, each Russian Bank
will be approved by Eximbank for participation in the Small Business
Program based on Eximbank's standard due diligence process. Each
Russian Bank must submit to Eximbank (i) a copy of its banking
license; (ii) three years of audited financial statements prepared in
accordance with International Accounting Standards, indicating minimum
capital equivalent to $15 million and minimum total assets equivalent
to $100 million; (iii) three years of annual reports; (iv) a list of
correspondent banks, if not already contained in the reports or
statements submitted to Eximbank; (v) a list of branches, if not
already contained in the reports or statements submitted to Eximbank;
(vi) a list of potential projects to be supported under the Small
Business Program; and (vii) any other information reasonably requested
by Eximbank in order to determine the acceptability of a Russian Bank
for participation in the Small Business Program. These requirements
may be waived at the discretion of Eximbank and will be resolved from
time to time with the SCSME and the Fund.
(c) Once approved, a Russian Bank will be eligible to participate in
the Small Business Program for one year, subject to renewal following
Eximbank's, the SCSME's and the Fund's review of such Russian Bank's
financial condition and performance under the Small Business Program.
(d) In accordance with standard Eximbank practice, the Guaranteed
Lenders should prepare a list of potential projects to be financed
under the Small Business Program.
3. Loan Requirements.
(a) Under the Small Business Program, Eximbank may make available
guarantees of Loans in support of Transactions approved by Eximbank
involving the purchase of U.S. goods and services. Each Loan will be
for a principal amount not to exceed the lesser of (i) 100% of the
U.S. content of the Items purchased in the Transaction, or (ii) 85% of
the total contract price of the Items being so purchased. Each Loan
will bear interest at a rate agreed by the Russian Bank and the
applicable Guaranteed Lender.
(b) The repayment term for a Loan may be for up to five (5) years
(repayment to be made in approximately equal, semi-annual installments
of principal and interest). Loan maturities may vary depending on the
nature of the Items purchased. All Loans must be made and repaid in
U.S. dollars with a minimum loan size of $50,000 and a maximum of
$500,000.
(c) In connection with each Loan, a cash payment (the "Cash Payment")
equivalent to 15% of the value of the underlying purchase contract for
Items must be made to the U.S. exporter of the Items. The Cash Payment
is not eligible for Eximbank financing under the Small Business
Program, and the Russian Bank will be responsible for making separate
arrangements for it. If agreed by the Guaranteed Lender and the
Russian Bank, financing for the Cash Payment may be provided by the
Guaranteed Lender under a loan separate from the Loan. Financing for
the Cash Payment must be in place prior to any disbursements under the
Loan.
4. Transaction and Purchase Loan Requirements. Each Transaction or
each group of Transactions with the same Russian Bank (not to exceed
$500,000) under the Small Business Program must be approved by
Eximbank following submission to Eximbank of an application pursuant
to section 6 below. In order to be eligible for Eximbank support, each
Transaction must also meet the following requirements:
(a) Russian Banks must provide financing to Purchasers in accordance
with sound commercial practices. Russian Banks will be expected to
evaluate the creditworthiness of prospective Purchasers, adequately
document the Transactions in accordance with generally accepted
international practices when feasible and acquire security interests
in the assets of the Purchasers or other security sufficient to cover
default risks.
(b) The repayment term of any loan made by a Russian Bank to a
Purchaser (a "Purchase Loan") may not be more than 30 days shorter
than the repayment term offered by the Guaranteed Lender to such
Russian Bank under the corresponding Loan.
(c) The interest rate on any Purchase Loan agreed to by the Fund and
the Russian Bank may be greater than the rate on the Loan by the
Guaranteed Lender to the Russian Bank (i) to compensate the Russian
Bank for its costs of participating in the Small Business Program and
its acceptance of the credit risk of the Purchaser and (ii) to provide
a reasonable profit.
(d) The Russian Bank must require the Purchaser to make installment
payments on the Purchase Loan thirty (30) days prior to the
installment payment dates on the corresponding Loan.
5. Purchaser Credit Enhancements. The SCSME and the Fund will
establish a Joint Committee with each Russian Bank participating in
the Small Business Program for consideration of Transactions involving
Purchase Loans. Transaction risks to Russian Banks will be offset
under the Small Business Program as agreed to by the parties on the
Russian side using appropriate mechanisms for covering such potential
risks, provided that each Russian bank must retain some of the risk of
each Purchase Loan. Regardless of the percentage of risk of a Purchase
Loan covered by the Fund, such Russian Bank will remain liable to
Eximbank for 100% of the amount of the Purchase Loan.
6. Application Procedures. As stated above, each Transaction or group
of Transactions for which support is requested under this Small
Business Program must be approved by Eximbank on a case-by-case basis.
For each Transaction, the Russian Bank or Guaranteed Lender will
complete and submit Eximbank's standard application form --
"Preliminary Commitment and Final Commitment Application" EIB Form
95-10 in accordance with Eximbank's standard application procedures.
Information required for applications under the Small Business Program
is set forth in Annex A to this Framework Agreement. As part of the
application, Eximbank must also receive the following:
(a) Written evidence that the Purchaser already has entered into a
commercial contract to purchase U.S. goods and services, or has the
intention of doing so, by the time the Purchaser applies for financing
from the Russian Bank; and
(b) Notice (in the form of Annex B hereto) that the appropriate Joint
Committee consisting of the SCSME, the Fund and the participating
Russian Bank have approved the Transaction subject to Eximbank
approval and that the Russian Bank is prepared to provide a Purchase
Loan for such Transaction.
7. Standard Documentation. Each Guaranteed Lender will be required to
document a Transaction under the Small Business Program as it would
any other standard Eximbank-guaranteed medium-term transaction,
provided that the credit agreement between each Guaranteed Lender and
Russian Bank will be required to include, without limitation,
customary representations and warranties, covenants, conditions
precedent and events of default, including a requirement that the
Russian Bank exercise its rights under any guarantees, collateral or
other security arrangements supporting the relevant Purchase Loan.
8. Small Business Program Monitoring.
(a) Overall Level of Eximbank Support and Annual Review of Activity.
The maximum aggregate value of Transactions that may be approved by
Eximbank and financed under the Small Business Program during its
first year of operation is expected to be $50 million. On an annual
basis thereafter, the SCSME, the Fund and Eximbank will determine the
appropriate maximum level of activity under the Small Business
Program, taking into account the needs of Purchasers and U.S.
exporters, Eximbank's budgetary resources, Russian budgetary resources
available for the Small Business Program, the requirement imposed upon
Eximbank by U.S. law that all credits offer reasonable assurance of
repayment, and the terms and conditions of this Framework Agreement.
As part of their regular consultation under section 10 hereof, the
parties may reconsider the maximum level of activity under the Small
Business Program anytime such level is met.
(b) Reporting Obligations and Monitoring of Russian Banks. Eximbank
will monitor on a post-audit basis the activities of the Russian Banks
under the Small Business Program, including without limitation, the
number and size of individual loans, the types and business activities
of Purchasers, and the security arrangements with the Purchasers. The
Russian Banks will be required to provide Eximbank, the SCSME and the
Fund with annual reports regarding Small Business Program use and the
security and structure of Purchase Loans. Additional details regarding
reporting requirements of Russian Banks under the Small Business
Program are set forth in Annex C hereto.
9. Licenses and Approvals. In connection with this Framework Agreement
and each Loan and Transaction approved by Eximbank, the SCSME and the
Fund undertake to provide, or assist in the obtaining of, all
authorizations, licenses, registrations, quotas, exemptions,
agreements and other approvals as may be necessary or appropriate for
the operation of the Small Business Program, including those necessary
in connection with this Framework Agreement, each Loan and
Transaction, and all documentation relating thereto.
10. Future Small Business Program Developments, Consultation and
Dispute Resolution.
(a) Future Small Business Program Developments.
(i) The parties hereto may decide by mutual agreement at a future date
to amend this Framework Agreement. It is also understood that at such
time as a Russian Bank is able to assume the risk of a Purchaser
completely, it will request financing from Eximbank under Eximbank's
regular commercial bank program.
(ii) After gaining satisfactory experience with particular Russian
Banks, Eximbank is prepared to consider the possibility of
determining, at its sole discretion, that Transactions involving a
particular Russian Bank need no longer be approved on a case-by-case
basis, but rather such Russian Bank may be pre-approved for a specific
line of credit for financing multiple Transactions under the Small
Business Program. Any such line of credit would be subject to periodic
review and renewal by Eximbank.
(b) Consultation with Other Bodies. From time to time, the parties
hereto will consult, as necessary, with the Russian regional
authorities and other multilateral and governmental organizations in
order to carry out the intention of this Framework Agreement to the
extent reasonably possible.
(c) Dispute Resolution.
(i) In the event (x) of any dispute between the parties to this
Framework Agreement over the implementation of the Framework Agreement
with respect to a Transaction or any Loan or Purchase Loan related
thereto, or (y) any action is taken with respect to a Transaction or
any Loan or Purchase Loan related thereto by any governmental
authority within the Russian Federation that may be inconsistent with
any provisions of the Framework Agreement, the parties will negotiate
in good faith to resolve such dispute (or the dispute will be resolved
through such other mechanism to which the parties may agree), so as to
maintain the original (or equivalent) conditions under which Eximbank
agreed to provide support for such Transaction.
(ii) the rights and remedies set forth herein are in addition to (and
not in lieu of) any other rights and remedies to which Eximbank may be
entitled under the laws of the Russian Federation or any other
jurisdiction.
11. Termination. This Framework Agreement may be terminated by the
SCSME, the Fund or Eximbank at any time upon written notice thereof
being given to the other parties; provided that the termination of
this Framework Agreement will not affect (a) any rights or obligations
of any party arising from this Framework Agreement and relating to any
Loan approved by Eximbank prior to such termination date, or (b) the
validity of any agreement entered into in connection with a
Transaction prior to such termination date, and the provisions of this
Framework Agreement will remain in force with respect to any Loan
entered into in or approved by Eximbank until such Loan is fully
repaid.
12. Notices. Notices to be issued pursuant to this Framework Agreement
will be sent by telex or facsimile to the addresses set forth below:
State Committee of the Russian Federation
for the Support and Development of Small Business
35 Myasnitskaya Street
Moscow 101959
Russia
Tel:(7-095) 207-3425
Fax:(7-095) 928-1827, 207-9292
Federal Fund for Small Business Support
21 Noviy Arbat Street
Moscow 121860
Russia
Tel:(7-095) 291-35-45
Fax:(7-095) 291-35-50
Export-Import Bank of the United States
811 Vermont Avenue, N.W.
Washington, D.C. 20571
U.S.A.
Tel: (1) 202-565-3801
Fax: (1) 202-565-3816
All notices given pursuant to this section will be deemed effective
upon receipt.
13. Amendment. Upon agreement by all of the parties hereto, this
Framework Agreement may be modified or amended in writing at any time.
14. Language. This Framework Agreement will be executed in the English
and Russian languages. In the event of any disagreement on the text of
this Framework Agreement, the English language version will be
controlling.
IN WITNESS WHEREOF, the parties hereto have caused this Framework
Agreement to be duly executed as of this eleventh day of March 1998.
STATE COMMITTEE OF THE RUSSIAN FEDERATION
FOR THE SUPPORT AND DEVELOPMENT OF SMALL BUSINESS
By:_____________________________
Irina Khakamada
Chairman
THE FEDERAL FUND FOR SMALL BUSINESS SUPPORT
By:____________________________
Vasiliy V. Vysokov
General Director
THE EXPORT-IMPORT BANK OF THE UNITED STATES
By:__________________________
James A. Harmon
President and Chairman
ANNEXES
Annex A Standard Eximbank Application Form -- "Preliminary Commitment
and Final Commitment Application" EIB Form 95-10
Annex B Form of Notice of Approval from the Federal Fund for Small
Business Support, the State Committee of the Russian Federation for
the Support and Development of Small Business and the participating
Russian Bank
Annex C Reporting Requirements
(EDITOR'S NOTE: Annexes not available with Framework Agreement on
March 11, 1998.)
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