UPDATE ON USG/WFP CARGO PREFERENCE EXEMPTION FOR

UNCLAS ROME 002845

SIPDIS


FROM U.S. MISSION IN ROME

USAID FOR AA/DCHA WINTER, DCHA/FFP LANDIS, DRUMMOND


STATE FOR PRM/BROTHERS-JACKSON, IO/EDA KOTOK
USDA/FAS FOR CHAMBLISS
GENEVA FOR USAID/KYLOH
BRUSSELS FOR LERNER
NSC FOR JMELINE

E.O. 12958: N/A
TAGS: EAID EAGR AORC EWWT WFP ACABQ MARITIME
SUBJECT: UPDATE ON USG/WFP CARGO PREFERENCE EXEMPTION FOR
CALCULATION OF INDIRECT SUPPORT COSTS (ISC) ON OCEAN
TRANSPORT

REF: ROME 00839


1. Summary. WFP, USAID and USDA are close to reaching an
agreement on a mechanism to implement separate tracking
of US cargo preference premium payments to conform to WFP
auditor recommendations and ensure that WFP does not
apply its indirect support cost (ISC) rate against the
cargo preference premiums paid by the United States. End
summary.


2. Background. Reftel described pertinent history and
discussions through March 2004 regarding the exemption of
the WFP indirect support cost (ISC) rate to US cargo
preference premiums. Among other things, it mentioned
the Board's decision to exclude ISC on US cargo
preference premiums for ocean transportation through
December 31, 2003. WFP management, in continuing to
exclude cargo preference premiums from ISC into 2004,
risks the wrath of its Executive Board. Furthermore, the
absence of agreement on the treatment of cargo preference
premiums raises the specter of unfunded liabilities.


3. Nevertheless, WFP represents that the parties to a
proposed 3-party agreement, WFP, USAID, and USDA, have
nearly reached an understanding, and WFP's external
auditor, having been provided a copy of the draft
agreement, has endorsed the approach taken.


4. All parties agree that cargo preference premiums will
be recognized as separate and distinct from ocean
transport contributions. WFP's auditors are expected to
recognize cargo preference premiums as an immaterial cost
administered at no charge by WFP on behalf of the US.
ISC will be applied to ocean transport contributions, but
not to cargo preference premiums.


5. The parties also agree that it is neither practical
nor desirable to record actual and imputed foreign
freight rates for each shipment for purpose of
calculating ISC. Rather, the parties seek agreement on
foreign flag threshold (FFT) rates representing the
weighted average global ocean freight rates for US-
donated commodities from US ports and excluding cargo
preference premiums for US flag carriers. Tentatively,
the FFT rates are $68/ton for bulk commodities and
$112/ton for packaged commodities, and they shall apply
to the current US fiscal year through September 2004.
Revised rates will be negotiated and applied in
subsequent years.


6. Under the proposed agreement, USAID for Title II
agreements agrees to set up one additional (separate)
account to effect total reimbursement to WFP. For ocean
freight excluding cargo preference, USAID will provide
reimbursement as follows:

-- For foreign flag shipments, the full ocean freight;

-- For US flag shipments, the lowest acceptable foreign
flag offer provided by WFP or the full US flag cost where
the accepted US flag offer is below the FFT; and

-- Where there is no foreign flag offer, the FFT rate
will apply.


7. As part of the draft accord, USAID will provide
reimbursement for cargo preference premiums as follows:

-- The difference between the lowest acceptable foreign
flag offer and the accepted US flag offer when the latter
is greater; and
-- Where no foreign flag offer is available, and the
accepted US flag offer exceeds the FFT, the difference
between the US flag rate and the FFT rate.


8. In addition to the above, proposed language changes to
the standard provisions and transfer authorization
documents for the next pledge period are also being
considered. WFP will be reminded that it and/or its

freight forwarding agent will solely be responsible for
tracking the cargo preference premium costs and
attributing costs to the appropriate freight
reimbursement award.


9. USDA for its contributions to WFP will annotate its
current agreements appropriately to reflect the FFT
versus the cargo preference premium portion of its
contributions.


10. Comment from Ambassador Hall: WFP has made a good-
faith effort to devise a mechanism that its auditors will
accept related to the separate tracking of cargo
preference premiums. Considering that we are well along
into WFP's 2004-2005 biennium, I encourage the parties to
finalize the agreement quickly. Hall


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2004ROME02845 - Classification: UNCLASSIFIED