By John Bekian
The advantages of exporting are clear. Increased exports greatlybenefit a country’s economy, because they create jobs, stimulateeconomic growth, bring in tax revenues, and enable domesticindustries to compete in international markets. Firms thatexport can grow faster, because they can utilize idle capacity,reduce dependence on domestic markets, increase productlifecycles, and simply make more money. Previously, the vastU.S. domestic market usually provided American companies ampleopportunities to grow and remain profitable. Now, domesticmarket saturation and increased international competition aretaking their toll, leaving U.S. companies with tighter marginsand little room for growth. This forces many businesses to lookto international markets for new opportunities. The U.S.government has recognized the significance of increased exportsfor the overall health of our economy and has created a sizableinfrastructure of export assistance programs to help U.S.companies to export successfully. One of the highlights of theseefforts is the Export Trading Company Act of 1982 (“ETC Act”). The ETC Act was modeled after the large and powerful Japanesetrading intermediaries called Shogo Shosha. These intermediarieshelped Japan become one of the top exporting countries in theworld, achieving a 58 billion dollar trade surplus with theUnited States. While using the Japanese trading companies as amodel, the ETC Act was designed to eliminate two majorimpediments that prevented small and mid-size businesses fromsuccessfully developing foreign markets. By creating exceptionsin U.S. antitrust and banking laws, the ETC Act createdsignificant opportunities for small and medium-sized businessesto cooperate in their efforts to exploit international markets.
Antitrust Immunity
Small and mid-size exporters do not have the resources to createseparate export departments and often needed to cooperate withcompetitors by pooling resources or creating joint ventures.Before the passage of the ETC Act, these cooperative activitiescreated serious antitrust risks, since the U.S. antitrust lawsprohibit competitors from sharing information and discussingprices. The threat of antitrust litigation, being one of thecostliest, often prevented U.S. companies from developing jointexport programs backed by adequate resources.
The ETC Act eliminated this uncertainty by introducing acertificate of review program. The program, administered by theCommerce and Justice departments, offers exporters immunity fromfederal and state government antitrust prosecution for exportactivities specified in the Certificate. Although, theCertificate does not prevent private parties from bringingantitrust suits against a certificate holder, it providessignificant procedural advantages, including a shorter statuteof limitations. The certificate holder enjoys a presumption oflegality and can collect attorneys’ fees from an unsuccessfulantitrust plaintiff. If the private antitrust plaintiff prevailsin its suit against the certificate holder, it may obtain onlyactual damages, and not the treble damages (three times actualdamages) available in most antitrust cases. The CommerceDepartment calls the certificate of review an “insurance policy”against dubious and frivolous suits.
Bank Holding Company Participation The U.S. banking system,one of the most sophisticated in the world, has developedconsiderable expertise and a wealth of resources oninternational trade. To enable U.S. exporters to benefit fromthis knowledge base and expertise, Title II of the ETC Actauthorizes bank holding companies (“BHCs”) to make equityinvestments in Export Trading Companies (“ETCompanies”). Toensure adequate separation between BHCs’ export trade anddeposit-taking functions, the ETC Act allows BHCs to invest inETCompanies that meet the statutory definition and comply withadditional regulations issued by the Federal Reserve Board.Equity ownership by BHCs not only provides seed capital orinfusion of cash to enable ETCompanies to get off the ground,but offers other significant advantages. As mentioned earlier,BHCs can act as an invaluable source of international tradeexpertise. Additionally, many BHCs have branches in variouscountries and can assist ETCompanies in locating foreigndistributors and purchasers. The Role of Trade Associations
Trade associations can play a significant role in the formationof ETCompanies. The broad membership of associations provides aneffective mechanism for creation of large trading houses. Eachof these members—export service companies, bank holdingcompanies, law firms, accounting, and consulting firms—cancontribute their specialized knowledge and expertise to form anETCompany that will resist cutthroat international competitionand succeed in foreign markets.
A number of trade associations have already taken advantage ofthe ETC Act to secure antitrust immunity for their members. In2003, Virginia Apple Growers Association obtained certificatesof review for its members, who formed VAGA joint venture forexporting U.S. grown apples to foreign markets. During the firstyear of operation, VAGA generated export sales of over $600,000.Other organizations are beginning to notice the advantages ofthe ETC Act and form consortia to actively explore how theirmembers could benefit from the Act.
Because American businesses have largely remained unaware of theadvantages of the ETC Act, they have not fully utilized itspotential. However, favorable exchange rates, growing interestin exporting, and the increasing awareness of the benefits ofthe ETC Act are likely to foster formation of many more exporttrading companies that successfully export U.S. goods andservices to foreign markets.
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