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ADMINISTRATION OF THE LAW

1918-27-THE EXPORT TRADE DIVISION-FOREIGN TRADE SERIES NO. 1 IN 1919-PROPOSED AMENDMENT TO THE LAW IN 1921-THE SILVER LETTER IN 1924-PROPOSED AMENDMENT TO PERMIT IMPORT COMBINES, INTRODUCED IN 1924 (REJECTED IN 1928)

The Export Trade Division was created within the Commission in 1918 to handle the foreign-trade work.

In 1919 the Commission published a 13-page pamphlet entitled "Foreign Trade Series No. 1-Discussion of Practice and Procedure under the Export Trade Act (Webb-Pomerene law" 1) which included text of the law, a brief discussion of practice, and a list of associations at that time filing papers (some of these companies were soon thereafter stricken from the list because it was found that they were not solely engaged in exporting). Some excerpts from this pamphlet may be of interest:

The very numerous requests for copies of the Export Trade Act (WebbPomerene law) and the large number of inquiries about it call for the publication of a separate pamphlet by this Commission for the information of those desiring to cooperate in the development of our foreign trade through associations formed under that act.

In several instances suggestions have been made as to modifications of proposed articles of incorporation, already filed, in order that these associations may clearly come within the provisions of the act. The Commission is authorized by this law to make recommendations as to how export associations may conform their business to the law, and, within its powers, it proposes to advance step by step in aid of the export needs of the country. It desires to constantly work in cooperation with those who form export associations and also with those who may consider themselves or the public in any way injuriously affected by the methods and practices of such associations.

Where doubt exists as to whether a given method or practice is proper or not, it would seem advisable that the matter be voluntarily presented to the Commission in the early stages, without awaiting its later discovery and possible correction. The second paragraph of section 5 of the Webb Act describes the few formalities as to such procedure.

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Numerous requests have been received by the Commission for rulings upon the construction of the Export Trade Act. It has been deemed inadvisable to attempt at this time to officially construe any of the provisions of the law upon informal applications. This is especially true, as the penalty for the violation of section 5 of the act is enforcible by the district attorneys of the United States under the direction of the Attorney General, and not by the Federal Trade Commission, and the enforcement of the Sherman law is a duty of the Federal courts upon proceedings instituted by the Department of Justice.

It is exceedingly important that export associations in process of formation should give careful consideration to the wording of sections 2 and 3 of the Export Trade Act. As to the statements which have been filed with the Export Trade Division under section 5 of this act, it has been noted that practically every corporation formed has been organized for the transaction of some business other than that of solely engaging in exporting from the United States to foreign nations as defined in the act.

1 This pamphlet is out of print, but one copy is herewith transmitted as exhibit 6.

Most of the articles of association filed have also contemplated the transaction of business other than that of exporting to foreign nations. It is apparent under the law that the provisions of the Sherman law and section 7 of the Clayton law remain applicable as to all combinations which are not organized solely for the business of exporting to foreign nations. The business of exporting to the Philippine Islands, to Puerto Rico, or to Hawaii seems clearly to be domestic and not foreign trade, and the provisions of the Sherman law and section 7 of the Clayton law seem to continue in force as to any association or export corporation which engages in such business.

One of the difficulties which exporting houses seem to find with the law is that export companies usually both export and import, while the law provides that its protection is given to associations entered into for the sole purpose of engaging in export trade and actually engaged solely in such export trade.

Due to the facts that the business of the country is devoting its thought to war production, and that there is a lack of shipping facilities, general plans for cooperation in export trade are probably now in suspense or only in a formative state. This is indicated by the very small number of association papers which have been filed with the Commission since the passage of the act on April 10, 1918.

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The Commission is keeping informed as to the export needs of the country in order to be of assistance so that American producers may cooperate to the fullest extent in export fields, without injuriously affecting domestic commerce, or the foreign commerce of those exporters who are associated with export-trade associations.

Progress has been made in the preparation of an additional report on foreigntrade conditions under section 6, clause H, of the Federal Trade Commission act, reading as follows:

SEC. 6. That the Commission shall also have power—

(h) To investigate, from time to time, trade conditions in and with foreign countries where associations, combinations, or practices of manufacturers, merchants, or traders, or other conditions, may affect the foreign trade of the United States, and to report to Congress thereon, with such recommendations as it deems advisable.

The world-wide dislocation of trade and industry incident to the war is creating new conditions which may vitally affect American business in the future. The Commission is closely following new developments in international trade, as they arise, with a view to ascertaining the bearing they may have on the foreign trade of the United States.

In 1921 a bill was offered in Congress which would have amended the law.2 The text was as follows:

To amend an Act entitled "An Act to promote export trade, and for other purposes," approved April 10, 1918.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Act entitled "An Act to promote export trade, and for other purposes," approved April 10, 1918, be, and the same is hereby, amended by adding at the end of section 5 of said Act the following: "An association shall be deemed to be engaged in export trade for the purpose of this Act if it shall promote agreements among its members as to the prices and terms which shall govern the sale of their products to foreign customers, engage in trade promotion abroad, transmit to its members inquiries or orders received from foreign customers for the purchase of their products, agree as to terms of credit and as to the allowance or refusal of credit or of sales to foreign customers, and generally promote such agreements and understandings among its members as are necessary to protect them from hurtful combinations and practices of foreign competitors or customers."

This bill was referred to the Senate Committee on Interstate Commerce, but was never acted upon by the Senate.

A history of Webb-Pomerene law operation would be incomplete without mention of the Silver letter because this announced a change in the operation of some of the export groups. During the first years of operation, the associations formed were selling agencies, actually

2 S. 2683, 67th Cong., 1st sess., introduced by Senator Fletcher, November 4, 1921.

taking orders and negotiating export sales for their members. After issuance of the Silver letter, some associations were formed under which the member companies retained their own sales offices and agents under association direction. This new type of organization was attractive to a group in which the members had already established export departments or companies and did not wish to abolish them and substitute a central sales bureau.

On November 22, 1923, the silver producers addressed an inquiry to the Secretary of Commerce presenting a number of hypothetical questions. This was referred to the Federal Trade Commission and on July 31, 1924, the Commission replied to the silver producers in a letter which was published in a news release dated August 6, 1924:

FEDERAL TRADE COMMISSION

WASHINGTON

For release in morning newspapers of Wednesday, August 6, 1924.

The Federal Trade Commission today published the following letter to a committee of silver producers of the United States in which the Commission interprets the Webb-Pomerene Export Trade Act in response to certain queries propounded by the silver producers. The questions of the silver producers were prompted by the contemplated formation by them of an export association. Commissioners Thompson and Nugent are not in accord with the Commission's action.

JULY 31, 1924.

MY DEAR MR. KELLEY: In the Federal Trade Commission's letter of April 18, 1924, a committee of silver producers of the United States was informed that the Commission by reason of a then existing vacancy in its membership was unable to act by a majority upon certain questions propounded by the silver producers' committee in their communication of November 22, 1923, to the Secretary of Commerce in regard to the proposed formation of an association under the Export Trade Act (Webb-Pomerene Act) and the rights and powers of such an association. As the administration of this act is lodged with the Federal Trade Commission, the committee's communication was referred here by the Secretary of Commerce on December 13, 1923.

The vacancy on the Commission having been filled, and representations having recently been made to the Commission from which it appears that an emergency situation exists in the industry by reason of the meeting of the American Silver Producers Association to be held in Salt Lake City on August 6 next, and the desire of that association and of Senators who are members of the Senate Gold and Silver Commission, who will attend this meeting, that the decision of the Federal Trade Commission upon the queries submitted by the silver producers be available prior to the meeting, it is the view of the members of the Commission now sitting, which members constitute a majority, that it is not only proper but highly desirable that the Commission act in this matter.

Therefore, in view of an emergency situation a majority of the Commission, consisting of Commissioners Van Fleet, Gaskill, and Hunt, have acted and have agreed upon a reply to the communication of November 22, 1923, from the Committee of Silver Producers of the United States. Commissioners Thompson and Nugent, who are absent from the city at this time, have heretofore considered the matter and do not agree with the majority. The reply of the majority follows:

It seems to be open under the terms of the act, for those who desire to form an association under its provisions, to file with the Federal Trade Commission the declarations referred to in section 5 of the Webb-Pomerene Act. The preliminary assent of the Commission to export association existence and activity under the act is not required. Effort was made at the time the act was passed to include in it the following amendment :

"Before any association shall engage in business under this act it shall secure from the Federal Trade Commission a permit to engage in such business, and said Commission is authorized to issue such permits and may, in its discretion, refuse a permit to any association, and may, after hearing, cancel any permit issued."

The omission of this amendment, together with the clear import of the act as passed, indicates that the action of the Commission toward export associations is corrective of action taken rather than a limitation upon the entry into action.

The Federal Trade Commission is, however, given control over the action of export trade associations, as will appear by section 5 of the act.

"SEC. 5. Whenever the Federal Trade Commission shall have reason to believe that an association or any agreement made or act done by such association is in restraint of trade within the United States, or in restraint of the export trade of any domestic competitor of such association, or that an association either in the United States or elsewhere has entered into any agreement, understanding, or conspiracy, or done any act which artificially or intentionally enhances or depresses prices within the United States of commodities of the class exported by such association, or which substantially lessens competition within the United States or otherwise restrains trade therein, it shall summon such association, its officers, and agents to appear before it, and thereafter conduct an investigation into the alleged violations of law. Upon investigation, if it shall conclude that the law has been violated, it may make to such association recommendations for the readjustment of its business, in order that it may thereafter maintain its organization and management and conduct its business in accordance with law. If such association fails to comply with the recommendations of the Federal Trade Commission, said Commission shall refer its findings and recommendations to the Attorney General of the United States for such action thereon as he may deem proper."

It is entirely proper, therefore, that the Commission should, when called upon in advance of the formation of an export trade association, indicate that preposed lines of conduct would in its opinion, when carried into actual operation, invite the corrective attention of the Commission. But the Commission cannot assume the results of an indicated course of conduct. As appears from the statute itself, the test of legality lies in result in most instances rather than in the form or method pursued. The Commission cannot always make a precise statement under these circumstances.

You will understand, therefore, that any preliminary expression is advisory only and that the committee which you represent is thereby in no way precluded from asserting any method of coordinate action which you believe to be within the intent and spirit of the act. If your views should differ from those of the Commission and the results accomplished should in its judgment fall within the scope of the prohibitions of the act, it would become the duty of the Commission to proceed to a determination of the issues involved in the manner provided by the act itself.

You ask:

"1. Do provisions of the Webb-Pomerene Act limit persons (natural or corporate) who may enter into such an association, to citizens of the United States or corporations formed under the laws of the United States or some State thereof?"

It seems that this question should be answered in the affirmative, with possibly certain explanations. The Congress of the United States legislates with reference to the citizens of the United States and its sovereignty. Within the sovereignty of the United States are many who are not its citizens, but who are governed by its laws. The laws of the United States, therefore, are applicable to citizens of the United States, to those who are not citizens of the United States but are residents thereof, and to corporations formed under the laws of the United States or of some State within the United States.

It might be added that there is nothing in the act which prevents an association formed under it from entering into any cooperative relationship with a foreign corporation for the sole purpose of operation in a foreign market. The only test of legality in such an arrangement would be the effect upon domestic conditions within the United States.

You ask:

"2. Is the export product that may be disposed of by such an association limited to productions originating in and exported directly from ports of the United States, or does it also include products originating outside the United States, but thereafter imported into the United States and from thence exported to foreign markets directly from ports of the United States?"

The act is silent on this subject. In the absence of an indication to the contrary expressed in the act, the word "export" is assumed to include only domestic products and not the objects of import which form the basis of a subsequent export movement.

"2-a. Is the export product that may be disposed of by such an association limited to a product which is shipped from the United States, or may it also embrace a product of a member of the association produced outside of the United States, and shipped direct to a foreign port, without first entering the United States?"

It is difficult to see how shipment from a foreign port to a foreign port could be regarded as export from the United States. The first impression would be that such conduct would not come within the scope of the act.

You ask:

"3. Can a valid trade agreement be entered into between such export association (a) between nationals engaged in the production and exporting of commodities of commerce outside the United States, but whose product would reach the same foreign market as the product of the export association exporting such product direct from the United States; and (b) nonnationals engaged in the production and exporting of commodities outside the United States, but whose product would reach the same foreign market as the product of the export association exporting such product direct from the United States?"

The purpose of the act seems to have been to provide a method for eliminating competition in foreign markets among domestic producers. As stated above, there seems to be no reason why a Webb-Pomerene association composed of nationals or residents of the United States and actually exporting from the United States, might not adopt a trade arrangement with nonnationals reaching the same market, providing this market was not the domestic market of the United States and the action of this organization did not reflect unlawfully upon domestic conditions. It does not seem, however, that nationals and nonnationals who are also nonresidents, might unite within the Webb-Pomerene association itself.

You ask:

"4. Must an export association under the act perform all the operations of selling its members' product to the foreign buyer, or does the word 'commerce' in the act mean that an export association complies with the act if it is solely engaged in allotting export orders among its members, or in fixing the prices at which its individual members shall sell any export trade, or in performing any one or more of the other operations comprised in the complete chain of operations that constitute selling and export trade under the general trade agreement that deals solely with export trade and as filed with the Federal Trade Commission, in accordance with the terms of the act?"

The act does not require that the association shall perform all the operations of selling its members' product to a foreign buyer. The limitation upon the methods of operation is to be found in the words: "in the course of export." The Commission has recently passed upon the conduct of an association which does not itself export, but which performs a price-fixing function and an allocation of business, and sells at the wharf to others than the association, who conduct the export movement from that point. The position which the Commission takes is that the consummation of a sale within the United States if the product sold is intended for and actually is marked for and enters into export trade, is in the course of export within the meaning of the act. It would seem, therefore, that an association may without necessarily involving conflict with the act, engage in allotting export orders among its members and in fixing prices at which the individual members shall sell in export trade. The law provides two tests: One, that the conduct shall be in export or in the course of export. The second, that the conduct shall not be in restraint of trade within the United States, shall not restrain the export trade of any domestic competitor, and shall not artificially enhance prices or lessen competition within the United States, or otherwise restrain trade therein. The application of the second group of tests, of course, is dependent upon the results of conduct which cannot be forecast, at least by the Commission.

It may be noted that the papers filed by several associations show that the actual export and sale in foreign markets is conducted by the individual members.

You ask:

"5. Does the prohibition of the above act against affecting domestic commerce, extend to and include a consequential rise in price in the domestic market through the better organized control of the foreign markets and the broadening of export trade; or is such prohibition limited to acts which intentionally or directly are committed to advance the domestic price or restrain trade through an operation conducted merely in the guise of an export association?"

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