US embassy cable - 04ROME2845

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