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

11.2.2016	EN	Official Journal of the European Union	L 36/1

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 [^ntr1-L_2016036EN.01000101-E0001] 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

[^ntr1-L_2016036EN.01000101-E0001]: 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 [^ntr1-L_2016036EN.01000302-E0001], 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 [^ntr2-L_2016036EN.01000302-E0002] 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 [^ntr3-L_2016036EN.01000302-E0003]. 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 [^ntr4-L_2016036EN.01000302-E0004], 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 [^ntr5-L_2016036EN.01000302-E0005], 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 [^ntr6-L_2016036EN.01000302-E0006]; 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 [^ntr7-L_2016036EN.01000302-E0007] 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 [^ntr8-L_2016036EN.01000302-E0008]. 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 [^ntr9-L_2016036EN.01000302-E0009] if:

• — the obligor/guarantor has a foreign currency rating from an accredited credit rating agency (CRA) [^ntr10-L_2016036EN.01000302-E0010] 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 [^ntr11-L_2016036EN.01000302-E0011].

• (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) [^ntr12-L_2016036EN.01000302-E0012] 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 [^ntr13-L_2016036EN.01000302-E0013]. 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