in connection with some of our natural resources that are sometimes being sold cheaper abroad than at home, if it were necessary to build up export prices, I can conceive it might be good business and good law to permit that to be done temporarily, provided always there was full opportunity for an independent competitor to get into that export trade any time he wanted to, and provided always there was no prejudice resulting to our own American consumers and American domestic conditions generally. Senator BRANDEGEE. But unless those words we have been discussing, in lines 19 and 20, are stricken out, it leaves you after this bill is passed just where you are now, does it not? Mr. MONTAGUE. Yes, sir. Senator BRANDEGEE. Subject to the inhibitions of the Sherman law in foreign trade? Mr. MONTAGUE. Yes, sir. Senator BRANDEGEE. Did you speak of some brief you had prepared analyzing those cases? Mr. MONTAGUE. It is annexed to the statement of the American Manufacturers' Export Association, which will be in the record. The CHAIRMAN. At this point there will be inserted in the record a letter from Eugene H. Outerbridge, of 11 Broadway, New York. (The letter referred to is here printed in full as follows:) Hon. FRANCIS NEWLANDS, NEW YORK, N. Y., January 8, 1917. Chairman Senate Committee on Commerce, Washington, D. C. DEAR SIR: The Journal of Commerce of this city reports in its issue on Saturday, the 6th instant, the hearing by your committee on the Webb bill. According to this report, all of those who appeared before you favored the passage of this bill with the exception of Dr. J. F. Crowell, executive officer of the Chamber of Commerce of the State of New York. The chamber of commerce did not indorse or approve the Webb bill. Its committee on foreign commerce was not prepared to report favorably on the bill as it stood to the chamber of commerce, and merely reported in general terms recommending a suitable legislation to permit cooperation between exporters and solely for export markets which would permit of their cooperating and competing in those foreign markets with exporting concerns in foreign countries. The Webb bill, however, in paragraph 3, contains, in my judgment, provisions which are quite unnecessary for the purpose of fitting American manufacturers and exporters to compete in these foreign markets and is susceptible of an interpretation, and probably will result in operation, to authorize the absorption of competing concerns in export business in a way which, in my judgment, is likely to duplicate in a few years the same disadvantages in the export business as were formerly found to prevail in domestic business when trusts or great aggregations of capital in corporate form could dominate or control a specific industry. Some of those who have argued in favor of the bill as it stands have claimed that the last sentence of section 2, "and does not restrain the export trade of the United States," is sufficient protection. The This arguement does not seem to me based on any substantial reason. volume of export business might not be in the least restrained if it were all done by one or two great aggregations of capital in corporate form, but it would be monopolized, and the power of restraint and virtual monopoly would in effect exist as against the greater number of firms and corporations of moderate size. Others arguing in favor of the bill as it stands have claimed that the last part of section 3 itself, reading "or substantially lessen competition within the United States," is sufficient protection against the danger that I referred to. It seems to me at this last sentence in paragraph 3 means that the permission granted under it must not be so used as to lessen competition within the United States. It does not at all mean that it must not be so used as to lessen the number of competitors for foreign trade operating within the United States. It will not redound any more to the advantage of this country to make legal provision by which the great volume of its export trade may be gradually absorbed into three or four huge corporations, the beginning of which we already can see, some having been launched, and which have already in, some cases proceeded to buy up and control other corporations, both manufacturing and distributing, than it was to have a few great organizations in certain wellknown industries dominating or controlling the domestic business in the United States. There are many firms who have been engaged in and gradually building up export business under the hardest kind of conditions for the past 30 years, and acting as foreign distributors for manufacturers of many lines of product. Some of these have established branches of their own concerns in many of the important foreign markets and others have established close working connections. It would be hurtful to the best business interests of this country, as it would be a great injustice to such concerns to put them and their clientele at the mercy of great organizations with the power that would be given them by paragraph 3. What is needed is the right for manufacturers to combine with each other in establishing agreed-upon prices for foreign markets, even for the same description and classes of articles; the right to establish cooperative selling agencies in foreign markets sharing in the expense of their maintenance; the right to establish cooperative distributing agencies for their foreign trade in American seaboard cities. If full powers of cooperation of this description are given, there is no necessity, in my judgment, for paragraph 3. Normal consolidations between concerns could go on under the Sherman Act; abnormal ones should not be permitted under the Webb or any other act. I am aware that the Federal Trade Commission, the Chamber of Commerce of the United States, and other organizations have approved this measure. I believe they have approved it because it was generally recognized that some measure was necessary and that this was the only one pending in Congress. and I believe they have not realized the danger that lurks in this paragraph as now phrased. I very respectfully, but earnestly, ask your thoughtful consideration and that of your committee to this phase of the measure, in the hope that it may be suitably amended and then passed. Yours, very respectfully, EUGENE H. OUTERBRIDGE. (Subsequent to the close of the hearing the chairman directed that certain letters and briefs should be inserted in the record, which are here printed in full, as follows:) TREASURY DEPARTMENT, MY DEAR SENATOR NEWLANDS: As you know, Congress authorized the first Pan American financial conference in an act approved March 4, 1915, for the purpose of examining the commercial and financial relations between Latin America and the United States. This conference was held in May, 1915, and in accordance with the act authorizing it I had the honor of presiding over it? As a result of the deliberations of the conference, there was created the International High Commission for the purpose of studying legislative and administrative problems principally in commercial law and in public finance. The United States section of this commission received its legislative authorization in the act of Congress approved February 7, 1916. The Secretary of the Treasury is ex-officio chairman of the United States section of the commission, and, by the choice of the members of the commission assembled at Buenos Aires in April of last year, he is the president of the executive council of the entire commission. Thus you will see that I have had considerable opportunity for examining the present condition of our foreign trade, particularly in Latin America. At the sessions of the financial conference and again at the meeting of the commission in Buenos Aires it was clearly demonstrated to me that the building up of our commerce will require the fullest degree of coordination of all our available national agencies of production and distribution, and will also require the elimination of wasteful methods and needless friction. Consequently, I have heartily approved of the principle underlying the socalled Webb bill (House bill 17350), and I believe that it is most desirable that our Government should not delay its approval of the fundamental principle involved in this measure. I venture, therefore, to express my sincere hope that such approval will be given and that the measure in appropriate, form be enacted before the close of this session of Congress. Through its executive committee, the Fifth Avenue Association of the city of New York, with a membership of 725 individuals, firms, and corporations residing, doing business, and owning properties on Fifth Avenue and the side streets adjacent thereto between Washington Square and the Harlem River at One hundred and fortieth Street, which includes the greatest retail, residential, and light manufacturing districts in this country, has directed that you be informed that they indorse the Webb bill with the three amendments as proposed by the Merchants' Association of the City of New York. Yours, very truly, WM. W. HOPPIN, Secretary. FEDERAL TRADE COMMISSION, Hon. FRANCIS G. NEWLANDS, United States Senate, Washington, D. C. MY DEAR SENATOR: I have asked Mr. William S. Culbertson, our chief examiner and member of the board of review, to submit his views on the legal points involved in the Webb bill, and herewith I am sending you copy of his letter to me. Although you are undoubtedly familiar with the general situation, there may be some point covered in Mr. Culbertson's letter which might prove helpful. Very truly, yours, EDWARD N. HURLEY, Chairman. FEDERAL TRADE COMMISSION, Hon. EDWARD N. HURLEY, Two Chairman Federal Trade Commission, Washington, D. C. DEAR MR. CHAIRMAN: In compliance with your request I beg to submit below a brief statement on the legal status of the Webb bill (H. R. 17350). amendments made on the floor of the House, I assume, will be eliminated. The one in section 1, “trading in or marketing" (Cong. Rec., Sept. 2, 1916, pp. 15999, 16005, 16006) unnecessarily limits the activities of export associations, and the other, at the end of section 2, “and does not restrain the export trade of the United States (Cong. Rec., Sept. 2, 1916, p. 16007), takes away with one hand what is given by the other. (See p. 2 of this letter.) In considering the Webb bill it is important to understand that, if passed, it will not limit, but rather extend, the scope of our antitrust laws; that it will not remove from their prohibitions associations now under them; but it will clarify and declare the meaning of these laws in their application to a particular line of commerce which in recent years has become relatively of great importance. It was the unanimous judgment of the members of the Federal Trade Conmission (report, Vol. I, p. 379) that Congress did not intend by the antitrust laws to prevent Americans from cooperating in export trade for the purpose of competing effectively with foreigners where this cooperation does not restrain trade within the United States and where no effort is made to hinder American competitors from freely engaging in export trade. "It is not reasonable to suppose," the report continues, "that Congress meant to obstruct the develop ment of foreign commerce by forbidding the use in export trade of methods of organization which do not operate to the prejudice of the American public. which are lawful in the countries where the trade is to be carried on, and which are necessary if greater equality of opportunity is to be afforded Americans in meeting foreign competitors. The commission therefore respectfully recommends that Congress enact declaratory and permissive legislation to remove the present doubt as to the law and to establish clearly the legality of such cooperation." The Sherman law forbids both voluntary restraints of trade, as where persons engaged in commerce combine together for the purpose of mutually and voluntarily suppressing competition among themselves, and involuntary restraints of trade, as where persons conspire together to compel action by others, to impede or burden by unfair competitive practices the common liberty to engage in commerce, or to compel persons not in the combination involuntarily not to engage in the course of trade except on conditions that the combination imposes. (U. S. v. Patten, 226 U. S., 525, 541; Loewe r. Lawlor. 208 U. S., 274, 293-294; Standard Oil Co. v. U. S.. 221 U. S., 1, 59.) Familiar examples of voluntary restraints of trade are the Addyston Pipe & Steel Co. r. United States (175 U. S., 211) and the railroad cases, especially the Northern Securities Co. v. United States (193 U. S., 197). In the Standard Oil Co. case (221 U. S., 1) both voluntary and involuntary restraints of trade were condemned. Some of the latter which were mentioned are (pp. 42-43) fair methods of competition, such as local price cutting at the points where necessary to suppress competition, espionage of the business of competitors, the operation of bogus independent companies, and payment of rebates on oil, with the like intent," etc. un Unless the distinction between voluntary and involuntary restraints of trade is kept in mind the effect of the passage of the Webb bill will not be appreciated. The House amendment providing that export trade shall not be restrained apparently was directed against involuntary restraints of trade by one competitor against another (Cong. Rec., Sept. 2, 1916, p. 16007), but it erroneously, by its general language, also prohibited voluntary restraints of trade among Americans in marketing their goods abroad, the very thing which the bill proposes to declare to be reasonable and legal. The author of the amendment probably intended to say “and does not restrain the export trade of an American competitor." The phrase "unfair methods of competition," in section 5 of the Federal Trade Commission act, at least includes all involuntary restraints of trade by one competitor against another. I can not conceive of an unfair act of one competitor against another, condemned by the Sherman law, which at the same time would not be prohibited by section 5 of the Trade Commission act. But the Supreme Court has held, in the case of the American Banana Co. v. The United Fruit Co. (213 U. S., 347), that the prohibitions of the Sherman law do not extend to acts done in foreign countries, even though done by citizens of the United States and injuriously affecting other citizens of the United States. At the present time, then, unfair, oppressive acts of com petition may be committed with impunity beyond the territorial jurisdiction of the United States by one American exporter against another, provided, of course, these acts do not restrain the import trade of the United States nor restrain trade within the United States. (U. S. v. Nord Deutscher Lloyd, 223 U. S., 512.) In extending the jurisdiction of the Federal Trade Commission to "unfair methods of competition used in export trade against competitors engaged in export trade, even though the acts constituting such unfair methods are done without the territorial jurisdiction of the United States." (sec. 4), the Webb bill expressly extends our laws to a situation which the Supreme Court has held the Sherman law does not reach. One positive advantage of the Webb bill, therefore. is that it gives section 5 of the Federal Trade Commission act an extraterritorial effect which will prevent one American exporter or a group of American exporters from injuring or destroying, by unfair competitive methods, the business of another American in foreign countries. The United States Supreme Court has held that voluntary restraints of trade are reasonable, i. e., lawful, when no public, i. e., American, interest is prejudiced by unduly restricting competition or unduly obstructing the course of trade. Some doubt perhaps still exists as to just what "prejudices" the public interest. (U. S. v. Union Pacific R. Co., 226 U. S., 61, 85-88; U. S. v. American Can Co., 230 Fed., 859, 901; Tobacco Case, 221 U. S., 106, 179, 182; Nash v. U. S., 229 U. S., 373; Harvester Case, 214 Fed., 987, 999, 1011; Corn Products Case, 234 Fed., 964.) A final decision in the Harvester case may clear this up. In any case, however, the "public" referred to is the American public; under no construction is the Sherman law intended to protect the peoples of foreign countries from effective cooperation among American business men. The argument that any voluntary restraint of trade among American competitors in marketing their goods abroad is a reasonable restraint of trade within the meaning of the Sherman law may be stated in the form of a syllogism: 1. A voluntary restraint of trade, in order to be unreasonable within the meaning of the antitrust acts, must prejudice the public, i. e., American, interest. 2. No American interest is prejudiced when American corporations, who are competing in the domestic market in the purchase of raw materials, employment of labor, and the sale of products, eliminate competition voluntarily among themselves in the marketing of their goods in foreign countries. 3. Therefore, associations engaged solely in export trade, regardless of the proportion of a given industry involved, are not illegal under the Sherman law. A number of cases under the Sherman law have involved foreign commerce. The most numerous group relates to combinations to restrain competition among transportation lines. (Thomsen v. Union Castle S. S. Co., 149 Fed., 933; 166 Fed., 251; U. S. v. Pacific Arctic Railway & Navigation Co., 228 U. S., 87; U. S. v. Hamburg-Amerikanische Packet-Fahrt-Aktiengesellschaft, 200 Fed., 806; 216 Fed., 971; 239 U. S., 466; and U. S. v. Prince Line, 220 Fed., 230.) In these cases involuntary restraints, e. g., fighting ships, which affected American interests within the United States, were condemned. In the lower courts the voluntary restraints of trade revealed by these cases were held reasonable; but the European War having made the question moot, the Supreme Court did not decide this point. In the Hamburg-American case the Supreme Court dismissed the Government bill without prejudice. The point at issue in this case is the same as in the Harvester case-does a voluntary combination which dominates the market, but which has no evil effects or is guilty of no unfair competitive methods, prejudice the public? But even here the question is, What is prejudicial to the American public? The court might hold that a transportation combination is illegal because it prejudices the American public by dominating the American ocean transportation market, but it would not follow that an American corporation which dominates the export trade in a given article is for that reason illegal. In the former case the combination affects American interests directly (cf. U. S. v. Hamburg-American Co., 200 Fed., 806-807); in the latter case, where the association confines its activities solely to marketing goods abroad, the only interests directly affected are foreign. When a domestic interest is adversely affected by an export association extending its activities beyond export trade " as defined in section 1 of the bill, the provisos of sections 2 and 3 apply, and the American public has all the protection against export associations which the antitrust laws give. With the Webb bill on the statute books, it would still be unlawful for an export association to " corner " raw materials or finished products in this country; to extend its agreements to the production or distribution of products in the United States, or to the employment of labor; to enter into an agreement or commit an act abroad which had for its direct result the fixing or substantial enhancement of prices in this country; or to enter into an international agreement to control the market and regulate prices. In other words, the Sherman law, with all its flexibility in protecting the American public, would remain as effective after the passage of the Webb bill as before. The Webb bill simply clarifies the Sherman law by classifying as reasonable export associations which, under the tests laid down by the courts, are now reasonable. 66 A combination in restraint of export trade was involved in the Tobacco case (164 Fed., 700; 221 U. S., 106; see also decree in 4 Fed. Antitrust Dec., 246– 249). It was not condemned as such, however, but because the contract gave the American company exclusive control of the American market; because it 76164-17-9 |