Export trading companies: an update

Business America, Jan 20, 1986 by Don Stow

The Export Trading Company Act of 1982 (ETC Act) was signed into law by President Reagan just over three years ago. The Commerce Department issued its first certificate of review pursuant to the ETC Act just two years ago. In view of several years of practical experience with the ETC Act, this seems an appropriate time to review just how successful the Act has been in promoting U.S. exports.

The goal of the Export Trading Company Act is to increase U.S. exports by encouraging more efficient provision of export trade services to producers and suppliers; improving the availability of trade finance; and, removing antitrust disincentives to export activities. The Department of Commerce is the lead Federal agency responsible for implementing the Act.

By providing the American business community with an opportunity to obtain a binding antitrust preclearance for specified export activities, the ETC Act creates a more favorable environment for the formation of joint export ventures. Through such joint ventures, U.S. firms can take advantage of economies of scale, spread risk, and pool their expertise. In addition, through joint selling arrangements, domestic competitors can avoid interfirm rivarly in foreign markets.

Within the Commerce Department, the Office of Export Trading Company Affairs promotes the formation of ETCs and processes applications for the antitrust certificates of review which provide antitrust immunity for export activities.

In just two years since issuing the first certificate of review, Commerce has issued 61 certificates providing antitrust protection to 23 firms and individuals. Small-and medium-sized firms constitute a majority of the holders of certificates issued to date. This is in keeping with one purpose of the legislation which was aimed at encouraging small- and medium-sized firms to enter exporting. Goods and services being exported under certificates of review include: switches and hand calibration pumps from Kansas; construction and mining equipment from Wisconsin; liquor and tobacco products from Texas and Arizona; phonograph records and prerecorded tapes from Chicago; health care products and turnkey hospitals from St. Louis; woodchips from the southeastern part of the United States; school bus bodies from Indiana; farm-raised catfish from Mississippi; electric resistance welding machines from Illinois; engineering services from Connecticut; frozen bull semen from California.

Some trends are becoming evident in our work with firms expressing interest in the ETC legislation. Increasingly, the agribusiness community is taking advantage of the antitrust certification program and the economic benefits associated with joint ventures. For instance, a group of sweet cherry growers in the Pacific Northwest formed a joint venture to minimize the cost of inspections prior to shipment to Japan. Instead of each grower incurring the cost of individual inspections, the growers now use a common stockpile to reduce the number of inspections. Also, five rice grower cooperatives in California received a certificate which allows them to combine their export capacities so that they are now able to bid directly for large volume orders without incurring the cost of going through a middleman. Recently the Department received applications from firms in the California dried fruit industry and from growers of pecans in the southeast.

Many of the firms applying for antitrust certificates of review are or were members of Webb-Pomerene associations which have elected to obtain the more comprehensive antitrust protection available under the ETC Act.

Since passage of the Shipping Act of 1984, there has been increasing interest in the antitrust certification program on the part of firms that are considering the formation of a shippers' association. These associations are a way for a group of smaller firms to obtain lower freight rates which otherwise would only be available to the larger shippers. Although these associations were not given antitrust immunity for the concerted action of their members under the Shipping Act, Congress did point to the ETC Act as a means of obtaining a significant reduction in their antitrust exposure. Recently we received the first Title III application from a newly formed shippers' association.

In addition to eliminating antitrust disincentives to exporting, the ETC Act also seeks to increase the availability of trade finance by allowing bank holding companies to own ETCs and by establishing at the Export-Import Bank a new working capital loan guarantee program for U.S. producers.

As of the end of October 1985, a total of 38 bank ETCs had been formed with the approval of the Federal Reserve Board. These include such money center banks as Chase Manhattan, Citicorp, and Security Pacific, and also small financial institutions such as North Valley Bancorp in Redding, Calif. and First National Bancshares, Inc., in Houma, La.

As part of its continuing outreach program, the Office of Export Trading Company Affairs (OETCA), working through the U.S. Foreign and Commercial Service, has scheduled a series of conferences to be held in 1986. The conferences, generally lasting one day, will emphasize the competitive edge that American firms can gain through the provisions of the ETC Act. Successful exporters will relate their experience through panel discussions and will invite audience participation. Other topics that may be covered at the conferences include export financing, tax benefits available through foreign sales corporations, countertrade, marketing and government programs supporting exports. Exporters should take special note of the potential benefits available through the use of shared FSCs. For a detailed explanation of this new concept, see the following article on this topic.