FUNCTIONS OF THE GROUPS

SERVING AS EXPORT SALES AGENT FOR THE MEMBERS

This was the primary function contemplated when the law was passed. The Commission reported to Congress in 1916 that

The principal form of cooperation in the mind of those proposing any form of cooperative organization was the joint selling agency. (Federal Trade Commission Report on Cooperation in American Export Trade, 1916, vol. 1, p. 244.)

The House Committee on the Judiciary in favorably reporting the bill to Congress stated that

The object of this bill is to aid and encourage our manufacturers and producers to extend our foreign trade.

The bill seeks to do this by permitting the organization of cooperative selling agencies or associations among American exporters in order that they may meet foreign competition on equal terms in international commerce. 64th Cong., 1st sess., August 15, 1916, to accompany H. R. 17350.)

(Rept. No. 118,

During the first few years of Webb law operation all of the groups were formed on this basis. After the Silver letter in 1924 other types of organizations were developed. The effect of the Commission's recommendations in the Pacific Forest Industries case in January 1940 (hereinbefore set forth) will be to limit the exclusive selling agency plan of operation to sales in foreign markets and to prohibit combinatien for the purpose of selling to domestic competitors of the associations.

The association that actually negotiates export sales has a more extensive office, usually at seaport, and employs agents abroad to take orders and introduce the products in new markets. It must be in constant touch with the members by telephone and through committee meetings. It may also maintain foreign offices and traveling agents to cover a number of countries and direct the sales of regional agents. This is the most economical method of operation. By centralizing the sales offices and activities of the members, the association may effect substantial savings in cost. For the smaller company or the producer who has not developed an export business, this method is invaluable; in many cases it spells the difference between exporting and not exporting, because the member company cannot afford to establish foreign contacts and sell individually.

PURCHASING THE MEMBERS' PRODUCTS FOR RESALE IN FOREIGN MARKETS

Some associations are export companies that buy the members' products and resell them abroad at whatever profit can be made. In such a case the members may sell at an agreed price, f. a. s. United States ports, and the association then negotiates sales to foreign purchasers at a delivered price fixed by the management, varying with foreign market conditions, ocean freights, insurance, handling, and warehouse costs.

The corporation may guarantee to take from each member a certain amount available for export within a given period. One such corporation sells to distributors, delivered at foreign ports, the distributors having their own agents in the various foreign markets. Stocks abroad are held by the distributors or their agents. The shipments are consolidated and the association effects economy in arranging for freight, cargo space, and insurance.

EMPLOYING AGENTS AND DIRECTING AGENTS OF THE MEMBERS-PROMOTING CONFERENCES AND AGREEMENTS IN EXPORT TRADE

If the members have well-established export departments or corporations, they may not wish to relinquish them and sell entirely through a central sales office or corporation. In that case the members agree upon export policies, and the association may direct the activities of the members' sales offices. The extent of this direction depends upon agreement; in some cases the members' foreign agents are under contract with the association.

This sort of an organization is also available for the development of new markets; and in the depression period, when it was necessary to release individual agents in markets where the trade had lessened, a joint agent for the members under association direction was utilized to advantage.

There are many export functions, hereinafter covered, that may be adopted by an association of this sort, but the principle of such a group is a cooperative relationship and exchange of export information. Prices on foreign sales may or may not be fixed. There is usually an adoption of uniform contract forms. There may be a division of business or each member may sell what it can abroad. If the association is at seaport, it may act as a forwarder, negotiating for freight and insurance. An important function of such a group is an exchange of information as to special sales or unusual conditions. If, for instance, the goods are such as will deteriorate with age, it may be necessary at times to unload certain quantities at special prices. Upon notice of such sales the other members of the group may stay out of the market, instead of trying to meet the cut prices and thereby sustaining loss. Trade practices may be agreed upon and abuses eliminated, and foreign-market information exchanged for the benefit of all of the members.

EXPLOITATION OF MEMBERS' PRODUCTS ABROAD

The export association is in a position to effect a substantial saving in exploitation expense. For instance, a group formed by 10, 20, or 50 mills may divide the expense of an agent among them and can therefore afford to send representatives all over the world to introduce their products and to study the needs of each market.

A system of joint advertising may be devised, an association mark may be used (such as "Wesco" for the Walnut Export Sales Co., or "Apec" for the American Provisions Export Co.) or the members' brands and patented articles may be promoted by the association agents.

AGREEMENT UPON TERMS AND SALES POLICIES IN EXPORT TRADE

Most associations have adopted a uniform sales contract, which eliminates as far as possible trade abuses and terms that have been proven impracticable. In some cases this has been the greatest advantage derived under the act.

Price agreements vary considerably. Some associations do not fix export prices, but the members agree to exchange price information; this, as stated before, is especially useful in case of special sales for limited periods. The common practice of foreign buyers to play one exporter out against another in an attempt to beat the price down, may be eliminated if each knows exactly the quotations made by the others for export sales.

In some cases a minimum export price is agreed upon, below which the members will not sell. If the association negotiates the sales, more often the price is fixed by the agent abroad, varying in different markets to meet the local conditions. On some commodities the final price is a matter of dicker over the telephone by the association office with the foreign purchasing agents.

Price, credit, and operation under foreign-exchange regulations have presented serious problems to the Webb law groups. In this connection we may quote from a report received from an association which has been in active operation for a number of years and has successfully weathered the storm of the depression.

The establishment of prices is a distinct function of the association. It has to be under our form of operation. Prices are established and maintained by responsible foreign agents over whom supervision is exercised by an association official who travels abroad. Prices must depend upon economic conditions in each market versus maximum consuming power of that market under normal conditions. In other words, purchasing power is an important factor to be considered with respect to maximum sales. Another factor is competition; still another is quality and a study of the needs of important consumers in accordance with their processes of manufacturing. Prices necessarily fluctuate in different parts of the world, being controlled by innumerable conditions, both political and economic. In some instances the return exceeds domestic levels here; in others it is about the same; and in others it will occasionally dip lower. Consequently we work on a final average annual price for export, which in turn is distributed equitably in proportion to each factory's shipments.

Credits range according to market practices and the standing of customers. Exchange is a chapter in itself. There is the problem of covering future exchange, spot exchange, and operating with no exchange whatsoever. We have a free movement of exchange, semi-embargoes, and complete embargoes. This involves much in the way of difficult financing.

In one country we have operated at a maximum of 1 year without securing one dollar of exchange, allowing our funds to accumulate and eventually liquidating them through an easement in exchange regulations over a period of a year thereafter. These adversities cause much in the loss of interest, and at times much more in depreciated exchange, when available, as compared to the rate when sales were made. Where possible we cover exchange futures as far in advance as 6 months; in other cases local trends indicate spot coverage over different periods; again customers have been permitted to hedge exchange and provide necessary guaranties against loss in our acceptance of local currency. Sales are made in sterling to markets with a different standard of currency.

Constant changes in foreign tariffs come to us telegraphically and in ample time for us to adopt necessary safeguards by advance shipments in order to save large sums of money.

At the very least, a maintained price level can return from 20 to 30 percent less than circumstances seem to warrant, and even reach a point where exports are blocked completely over certain periods. This involves heavy stocking of ware

houses abroad in advance, increased expenses and uncertainty regarding even an approximated price return.

This fact alone illustrates the tremendous advantage of associated activity in contrast to individual effort.

Some associations report that export prices are fixed by the council or board of directors, or by a special committee for that purpose, "all factors considered."

In some cases sales are made cash against documents, and in some countries quotations are in American dollars, the buyer paying the tariffs. The usual practices obtain in quoting c. i. f., f. a. s., or f. o. b. vessel at loading point for the convenience of the foreign purchaser.

ALLOCATION OF THE EXPORT BUSINESS

The association's business may be divided among the member companies in predetermined proportions or quotas. Various bases are adopted; in some cases the stock holding of a member decides his proportion; in others the tonnage is divided on the basis of past exports over a period agreed upon, or upon reports covering amounts available for export within a future period. Some quota plans are more complicated, including consideration of quality as well as quantity, loading and shipping facilities, and other export factors. Provision is usually made for readjustment of quotas to meet changing conditions.

In order to maintain a quota system, the association must have detailed records of the members' sales, with copies of invoices and other documents.

Some associations have no quota plan, each member taking whatever orders it can obtain. In that case the association need not keep such detailed records.

STANDARDIZATION OF PRODUCTS EXPORTED-INSPECTION AND CLAIMS

SERVICE

Much has been accomplished by the Webb law groups toward standardization of the goods exported, and improvement of their quality. If an association mark is adopted, all goods bearing that mark must meet a certain quality test. For this purpose the smaller members may have the benefit of the technical research of the larger companies. Reduction in the number of sizes and shapes of the products sold in export has tended to lessen manufacturing cost, and the associations' efforts to learn the needs of foreign buyers as to specification or grade have made for increased export sales. If cheaper goods are sold, to meet the lower purchasing power of foreign buyers, these grades are established without deception in order to protect the reputation of the association products.

Inspection service before shipment has reduced the claims of foreign buyers. Provision has also been made for the handling and settlement of disputes through association agents.

Rules are adopted for packing and shipment. These must conform to the requirements of the markets in which the goods are sold. The association is in a position to obtain information as to these requirements and to advise the members with a minimum of expense.

ARRANGING FOR INSURANCE, FREIGHT RATES, CARGO SPACE, SHIPPING DATES, AND STORAGE

The association that negotiates sales usually has forwarding functions, and in some cases where the sales are conducted by the members, the association offices are used for the purpose of obtaining advantageous freight rates, cargo space and shipping dates. Consolidation of shipments and arrangement for space over a longer period make for better rates on freight and insurance. Some of the associations have handled negotiations with conferences which no one member was in a position to do.

Storage in this country or abroad is at times to the advantage of the producers. This is especially true of a seasonal product which would otherwise come upon the market at one time of the year. If the goods can be disposed of with regularity, depression of price may be avoided.

It has also been found that transportation lines are more crowded at some seasons. The association may therefore arrange to have its goods transported at dull seasons and stored at port for future shipment; this is especially true of heavy cargo.

COLLECTING AND DISSEMINATING TRADE INFORMATION AS TO MARKET CONDITIONS ABROAD, CREDITS, EXCHANGE, SHIPPING REGULATIONS, AND FOREIGN LAWS

The association is in a position to obtain information concerning trade conditions in foreign markets that is not available to individual members without considerable expense. Changes in regulations are reported by the association agents by cable or telegraph, and relayed to the members in time for the adoption of necessary safeguards and the saving of large sums of money. This has been of especial value during the past few years when war conditions have upset the members' markets. One association reported in 1938 that:

With war clouds on the horizon, we were enabled to keep careful track of shipments en route, divert them to different ports, or hold them in warehouses at European ports until the situation cleared and we could complete delivery. Thus no credit losses were sustained from territories which were taken over by Germany.

Foreign-exchange regulations abroad have been numerous, and other import restrictions such as tariffs, import quotas, and blocked accounts, have complicated the export procedure, and made cooperative effort of value to individual exporters.