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ADVANTAGES DERIVED BY COOPERATIVE EFFORT
Advantages obtained from the various functions discussed above are obvious. The more functions the association adopts the greater economy may be effected by cooperative action.
A centralized agency may save large sums in sales cost. The association can obtain better freight rates and insurance policies by consolidating shipments, or by negotiating with conferences and steamship lines. It is also in a position to represent the members before governmental boards and trade officials--that is, in connection with reciprocal tariff hearings in this country, or exchange-commission officials abroad.
Pooling the members' products or storing them in warehouses makes it possible to feed them into foreign markets throughout the year at advantageous prices. In some cases the association may fill an order by drawing upon the supplies of a number of members, whereas one could not furnish the entire cargo. There is also an advantage to the foreign buyer if he can make his selection from a varied assortment of products not available in one mill, but representing the production of all of the members of such a group.
Agreements upon price and terms of sale, and adoption of uniform contracts, are of advantage to the American seller and also to the foreign buyer who prefers a price and terms that do not fluctuate daily. Trade abuses have been eliminated and service improved by agreement on terms. The association that acts as a clearing house for the members' export sales serves a useful purpose with a minimum expense.
Standardization and improvement of quality have raised the standard of American exports; the association inspection service reduces claims of buyers and offers an efficient method of handling disputes.
The association may not only effect an orderly merchandising of the goods, but it may provide by united action financial support for trade development. The expense of such service divided among a number of members can well be afforded by each.
To meet centralized buying by centralized selling, and to stand against the competition of well-established foreign combines or cartels, are very important advantages. One association has reported that:
Only by combination under the Webb law and acting as a unit, can the American producers in this industry successfully meet the competition of foreign producers. There is little doubt, we think, that if the American producers had not been able or had neglected to take full advantage of the provisions of the Webb-Pomerene law, to combine and make joint effort, this American product would have been driven out of foreign markets many years ago. In combining under the Webb law, however, these producers have not had undue advantage in foreign markets. They have merely been placed on an equal footing with foreigners in countries where combination in trade is permitted and encouraged.
Some associations have reported that they were "formed to meet chaos in prices, terms, and conditions of sale in all foreign markets" at the time of their organization. Asked to what they attribute their success, one group
said: Success of this company, as a Webb-Pomerene organization, is due chiefly to the fact that we have gone into the business of foreign trade in what we feel is an intelligent manner and have followed a consistent policy year in and year out, in good times and in poor times, of maintaining a foreign field organization. Through such organization we have been enabled to build up and maintain a recognition of the quality of our brand. This quality reputation, together with the goodwill created by the maintenance of a continued foreign sales force, has enabled us to continue to secure business even in the face of foreign price competition of a very serious type.
The associations' reports to the Commission state these advantages as applied to each year's operation. A typical report may be quoted:
In connection with advantages normally accruing to operation as an association, we experienced all the usual ones due to cooperative effort and might mention three general and two specific instances.
Specifically.--(1) Due to fairly large individual shipments enabling purchase of considerable cargo space at a time, little inconvenience was suffered during the maritime strike because of the tie-up of some lines. Unaffected lines were glad of the opportunity to obtain a portion of our business.
(2) Advantage of sales and price control were particularly valuable this year in view of impending and actual devaluation of certain European currencies. The association was enabled to act for the industry as a unit in determining proper action in these matters.
Generally.-(1) The establishment of recognition of our house mark, especially created for the export field on the formation of the association, so that within 5 years it has become known as the standard quality brand wherever our products are sold.
(2) Adoption of a standard export packing method used by all members and governed by the association, the effect of which has been to practically eliminate all complaints of damage in transit. Corollary to this, any improvement in and savings in packing costs originated by any one member, when approved by the association is incorporated into the method and made available to all members.
(3) Reduction of product complaints has been consistent as files have been built into case histories so that the association has a broad picture enabling it to determine quickly whether complaints are justified, and if so, to make quick corrections and adjustments. The moral effect has been toward fewer and fewer unfair claims from the trade, as the latter have come to realize the advantage the association has in determining such.
Obstacles encountered are similar to those obtaining during the past couple of years, the main ones being limited to quotas for import of American merchandise under a permit system, one of the varieties of which requires the deposit of the importer's currency at the time of application for his permit. He is then required to get the merchandise in within a limited period of time, i, e., before expiration of his permit. The exporter then receives dollar exchange when released by the Exchange Control Board and this may be fairly prompt or several months, depending upon the amount of exchange available at the time. I might also mention that the revaluation of certain gold-block currencies at lower levels gave foreign competitors an immediate advantage, but this situation tended to right itself with rises in prices in the foreign markets where the local manufacturers are dependent upon imported raw material supplies.
Other reasons for the success of the Webb law groups are covered in exhibit 3 herewith, which gives information concerning each association individually.
OBSTACLES MET BY EXPORT ASSOCIATIONS_REASONS
FOR DISSOLUTION OF SOME OF THE GROUPS
The Commission is sometimes asked why some of the Webb-law groups have become dissolved.
The chief reasons, of course, have been connected with depression conditions during the past 10 years: Difficulty in meeting exchange requirements, in financing shipments, and in operating under uncertain credit conditions. Prices abroad have been consistently lower than in this country, on most products; some companies were unwilling or unable to sell at such low prices, and went out of the export business for that reason. Some groups had customers abroad who were willing to pay the price but the goods could not pass under import quota regulations, or it was impossible to get American dollars abroad, to pay for the exports. Blocked accounts have caused serious inconvenience and loss.
In some cases associations organized to meet special conditions went out of business when their objectives were accomplished. This was true of groups formed to sell to the Allies during the World War; and some that served the purpose of disposing of war stocks after the war closed. It has also been true of a few associations, such as the Nogales Garbanzo Association which disposed of a certain accumulation of chick peas and then discontinued its operation. Some of the lumber groups went out of business because the source of supply was exhausted.
Some associations dissolved in order to effect new organization with another alinement or a different method of operation. In a number of instances after an association became dissolved some of its members were loath to lose the benefits of cooperation and therefore joined or formed another group.
In some cases the association was not successful in developing a foreign market, due to lack of demand or the competition of cheaper foreign goods. This was true of the button associations which found they could not compete with the Japanese product.
If sales were made to foreign governments, after the World War, there was at times difficulty in obtaining cash in payment. Some associations were unwilling to accept bonds or other Government securities in lieu of cash, and therefore did not make sales. Others accepted securities and suffered loss upon default in payment.
In the case of some foodstuffs, the post-war policy of foreign governments to develop production to the point of self-sufficiency resulted in tariffs and other import restrictions, with a consequent lessening of purchases from this country. In some instances this led to the building of American plants abroad, which compensated for loss on exports.
Reasons for dissolution are mentioned in exhibit No. 3 in connection with the operation of the individual associations therein listed.
FUTURE OF THE WEBB-POMERENE LAW
The operation of the Webb-law groups has been vitally affected by war conditions. The act came into effect during the closing chapter of the World War. It was used to some advantage in furnishing products for the use of the Allies, and also for the disposition of surplus war stocks after the armistice.
During the reconstruction period, there was great demand for American products abroad, and large orders were placed to complete rebuilding plans. The slight recession felt in 1921 and 1922 was followed by the boom period, leading up to the peak years of 1928 and 1929. In the latter year the Webb-law groups shipped to foreign countries goods valued at $724,100,000.
The necessity for self-sufficiency in case of future wars led to important changes in European production and trade. Certain industries have been built up during the past 20 years through subsidies and regulation, tariffs have been imposed, and imports of these products from the United States were lessened. The Webb-law groups felt these changes and readjusted their markets to meet them.
The depression period, as an aftermath of war, appeared first in foreign countries and was met by the governments with regulations looking toward a lowering of prices and a decrease in imports, in order to prevent violent fluctuations in exchange. Exchange control, import quota plans, barter systems, and other measures abroad had serious effects upon American exports. In some cases Webb-law members were unwilling to sell at the lower prices prevailing abroad, and in others they found it impossible to await payment under the restrictive measures. It was difficult to meet the competition of lowerpriced goods manufactured in foreign countries, at times subsidized by foreign governments for the purpose of encouraging trade.
Under these conditions it is surprising that so many Webb-law groups continued in operation, and that each year found new associations forming for the development of exportation. It appeared, how ever, that the difficulties encountered emphasized the necessity for cooperation and brought the exporters more closely together in their effort to continue on at least a small scale, an export movement that was necessary to balance the productive system and keep the local mills and mines in operation. It is significant that although the value of exports dropped to $137,685,000 in 1935, the number of associations has at no time been less than 43. Some of the groups continued their organization year after year, with small shipments, in the hope that the depression would lift and foreign trade would again be profitable. It was in these years that the real measure of success was achieved for Webb-law operation; in many instances associations reported that they would have been unable to export without cooperative effort.
Internal disturbances in the South and Central American countries, and the Sino-Japanese conflict in the Orient, necessitated fur
ther shifts in American exports. This was especially true of export associations on the west coast that had built up a profitable business in China and now find that market closed. On the other hand, war clouds gathering in Europe increased the demand for some classes of American goods, and again there were shifts in exports across the Atlantic.
The present conflict in Europe, begun in September 1939, has presented further problems. It is too early to predict just what the effect will be, and reports on the sales of the associations for 1939 are not yet in. Doubtless there are some products which are now in demand by belligerent countries which may be shipped under the terms of the Neutrality Act, but many adjustments will be necessary. Some products that have been exported to the countries at war are not included in the lists of essentials that may now be purchased. Transportation facilities are in a state of reorganization; new financing and credit plans must be devised. In the meantime there is an opportunity for development of trade with our "good neighbors" on the south to replace products that they have heretofore purchased from Europe and cannot now obtain from that source.
There is, therefore, a renewed interest in the Export Trade Act today. The association type of organization is uppermost in the minds of exporters because no one company, however well equipped, can solve the problems that now confront our industries and exporters. The establishment of joint purchasing offices representing foreign countries suggests some form of joint selling to supply their needs. A number of new export associations are, therefore, under consideration.
In reviewing the past 22 years of operation, we may perhaps foresee the future, since export trade today is in much the same position as when this law was passed in 1918: Before it lies a period of European conflict and a further period of reconstruction. Again the problems of shifting markets, uncertain credit, and foreign-trade restrictions must be met in the years to come. Transportation facilities will again be changed when the Neutrality Act and other war conditions are at an end. Not only in Europe, but in the Orient there will be important changes and tremendous opportunities for the development of trade. It is to be hoped that the experience of the past will be of advantage to the export associations in meeting the problems of today and tomorrow through cooperative effort.
1 This report prepared in February 1940.