pennState UNIVERSITY LIBRARIES Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/exporttradingcomOOunit The Export Trading Company Guidebook Revised August 1987 U.S. DEPARTMENT OF COMMERCE ■nternational Trade Administration Companies The Export Trading Company Guidebook U.S. Department of Commerce International Trade Administration Revised 1987 by the Office of Export Trading Company Affairs International Trade Administration U.S. Department of Commerce Original edition (March 1984) was prepared for the U.S. Department of Commerce by Price Waterhouse and The Council for Export Trading Companies August 1987 le by the Superintendent of Documents, U.S. Government Printing Oftiee Washington, D.C. 20402 Preface — What You Should Know About Export Trading Companies Exporting can be very profitable and is perhaps the best strategy for your business. Forming an ETC — export trading company — may be an effective way to achieve your corporate goals. This ETC Guidebook will give you the information you need to make a sound judgment about ETCs. Historically, small- and medium-sized manufacturers have relied on the vastness of the domestic market to accommodate their business expansion. This approach to growth, coupled with some legal and market constraints, has limited participation in exporting by this group. Consequently, to stimulate U.S. exports and to address our trade imbalance, Congress enacted the Export Trading Company Act of 1982 (ETC Act). The ETC Act removes two major impediments to small- and medium-sized business exporting: • The uncertain application of U.S. antitrust laws to cooperative and other types of export activities • Restrictions against bank equity participation in ETCs Export trading companies can assume the risks associated with interna- tional trade by taking title to goods domestically and handling subsequent export operations for the small business owner. ETCs can also enjoy economies of scale because they export large volumes of products from many sources at lower per-unit costs through established networks of overseas offices, transporta- tion, insurance, and warehouses. These economies of scale are not usually available to a small- or medium-sized company operating individually. This Guidebook will provide essential information on the functions and advantages of establishing or using an ETC. It will enable you to prepare an organized review of the business considerations necessary to conduct success- ful export operations. It will help you formulate answers to questions such as these: • Who can be my partners in this venture? Should I consider going at it alone or with a bank? What procedure must I follow in each case? • Where in the government can I go for advice? • How does one ETC model differ from another? What are the major variables that define the activities of an ETC? • What financial considerations must I make in forming an ETC? The ETC Act creates unlimited possibilities for structuring and using an ETC. The ETC can be based on single or multiple products, can be regional or national in operational scope, can export to one country or trade worldwide, and can be formed by such diverse entities as banks, manufacturers, public authorities, service organizations, or trade associations. Each of these vari- ables' interactions with financial and cost considerations such as trading costs, capitalization, and growth plans are discussed in the Guidebook. Six hypothetical ETC models are presented to help you understand how many of the existing variables might come together to form an ETC. Our examples range from a small Trade Stream Model with estimated sales of $6.5 million after 4 years of operation to a Single Product Area Model with estimated sales of $250 million in the fourth year of operation. The Trade Stream Model includes an entrepreneur, manufacturer, freight forwarder, and bank holding company as partners dealing in a narrow product line from a single U.S. geographic region and exporting to a single country. The Single Product Area Model includes a group of manufacturers with compatible product lines and a venture capital institution as equity partners dealing in a single product area nationwide and exporting to a geographic region of the world. ETCs will not, by themselves, redirect American business towards exporting — but they can help. ETCs have been proven effective by the exporters of Japan, Korea, and Western Europe. However, before forming an ETC you should carefully review the trade potential of your products and your company's chances for exporting successfully. This Guidebook will help you make an informed decision. Before proceeding further it is important to point out that although the focus of this Guidebook is on the variables involved in forming and operating an ETC, the tools contained in the ETC Act are available for use by any exporter, not just an ETC. Any exporter can take advantage of the Working Capital Loan Guarantee Program of the Export-Import Bank and any person can apply for the antitrust protection made possible through a Title III export trade certificate of review. The Office of Export Trading Company Affairs is responsible for promoting and encouraging the formation of ETCs, providing advice and information to interested persons, and acting as a referral service to facilitate contact between producers of exportable goods and services and firms offering export trade services. Office of Export Trading Company Affairs International Trade Administration U.S. Department of Commerce Room 5618, Herbert Hoover Building 14th and Constitution Avenue, N.W. Washington, D.C. 20230 Telephone (202) 377-5131 Table of Contents Page PREFACE iii CHAPTER 1— EXPORT TRADING COMPANIES: A NEW MECHANISM FOR ENHANCING EXPORTS Why Is Exporting Important? 1 Why Should You Consider Exporting? 3 What Can ETCs Do for You? 3 How Can This Guidebook Help You? 4 CHAPTER 2— HOW DOES THE EXPORT TRADING COMPANY ACT HELP YOU? Objective of the Act (Title I) 5 Your Contact Office in Washington 5 Participants in an ETC 6 How the Banking Industry Can Get Involved (Title II) 6 How to Qualify Under the New Law 6 Federal Reserve Board Regulations 7 How to Get Federal Reserve Board Approval 7 Export-Import (Eximbank) ETC Loan Guarantee Program 8 Flexibility in Use of Bankers' Acceptances 8 The Antitrust Provision of the ETC Act 9 What is an Export Trade Certificate of Review 9 What Are the Benefits of Applying for a Certificate of Review? 9 Factors to Consider in Applying for a Certificate of Review 10 Who Can Apply for a Certificate of Review? 1 1 What Conduct is Eligible for Certification? 1 1 How to Apply for Certification 1 1 What Happens to Your Application? 12 How is Your Confidential Business and Financial Information Protected? 12 What Happens After Your Certificate is Issued 12 CHAPTER 3— HOW TO DECIDE YOUR ROLE IN EXPORT TRADE: ESTABLISHING AN ETC Step 1. Determine Business Strategy: Should I Export? Does Exporting Fit into My Business Strategy? 14 Step 2. Examine the Feasibility: What Should I Export? How Should I Do It? Do I Need Help? How Will I Finance It? 1 5 Step 3. Develop Detailed Business Analysis and Implementation: What Are My ETC Activities? Operational Plans? Countertrade Plans? Financial Plans? 19 CHAPTER 4— WHERE YOU CAN GO FOR HELP IN THE GOVERNMENT Evaluating Markets 22 Acquiring the Requisite Expertise 24 Financing the Venture 24 Handling Risk 25 CHAPTER 5— VARIABLES IN DESIGNING AN ETC Domestic Coverage 28 Product or Service Mix 28 International Scope 28 Institutional Participants in an ETC 28 Trading Volume and Capitalization 31 CHAPTER 6— FINANCIAL CONSIDERATIONS IN FORMING AN ETC Cost of Goods Sold 34 Gross Profit 36 Operating Expenses 37 Interest Income „ 39 Return on Equity 39 CHAPTER 7— OVERVIEW OF HYPOTHETICAL ETC EXAMPLES Hypothetical ETC Examples 40 Presentation of ETC Examples 40 General Assumptions Used in Formulating ETC Examples 41 # Depreciation and Amortization 42' Income Taxes 42 Pro Forma Income Statement and Balance Sheet 42 CHAPTER 8— TRADE STREAM MODEL Background 43 General Characteristics 43 Operational Approach 45 Financial Summary 46 CHAPTER 9— SINGLE PRODUCT MODEL Background 49 General Characteristics 49 Operational Approach 50 Financial Summary 52 CHAPTER 10— SERVICES MODEL Background 54 General Characteristics 54 Operational Approach 55 Financial Summary 57 CHAPTER 11— HUB MODEL Background 59 General Characteristics 59 Operational Approach 60 Financial Summary 62 CHAPTER 12— BANK HOLDING COMPANY MODEL Background 64 General Characteristics 64 Operational Approach 65 Financial Summary 66 CHAPTER 13— SINGLE PRODUCT AREA MODEL Background 68 General Characteristics 69 Operational Approach 70 Financial Summary 72 APPENDICES Appendix A. Questions and Answers on ETC Issues 75 Appendix B. Government Programs by Government Agency 77 Appendix C. District Offices of International Trade Administration 81 Appendix D. U.S. Foreign Commercial Service Posts 82 Appendix E. District Offices of the Small Business Administration 83 Appendix F. Public Law 97-290: Export Trading Company Act of 1982 84 Appendix G. Conference Report on S.734 96 Appendix H. International Banking Operations; Export Trading Companies 105 Appendix I. Export Trade Certificate of Review Final Rule 110 Appendix J. Guidelines for the Issuance of Export Trade Certificates of Review (Second Edition) 119 Appendix K. Application for an Export Trade Certificate of Review 135 Appendix L. Intex et al.; Export Trade Certificates of Review 139 GLOSSARY 143 BIBLIOGRAPHY 149 List of Tables Table 2-1 — Check List for Federal Reserve Approval 8 Table 3-1 — How to Decide Your Role in Export Trade: Establishing and ETC 14 Table 3-2 — Scope of Activity for an ETC as Identified in the U.S. Standard Industrial Classification (SIC) Code 18 Table 4-1 — Guide to Government Assistance to Exporters 23 Table 5-1 — Description of 27 Major Product and Market Alternatives 28 Table 6-1 — Check List of Financial and Cost Considerations in Forming an ETC 35 Table 7-1 — Summary of Hypothetical ETC Examples 41 Table 8-1— The Ten Largest U.S. Trading Partners, 1985 Merchandise Trade 43 Table 8-2 — Trade Stream Model General Characteristics 44 Table 8-3— Trade Stream Model Staffing 45 Table 8-4 — Trade Stream Model Elements of Cost 46 Table 8-5 — Trade Stream Model Pro Forma Income Statement 46 Table 8-6 — Trade Stream Model Pro Forma Balance Sheet 47 Table 9-1 — Single Product Model General Characteristics 50 Table 9-2— Single Product Model Staffing 51 Table 9-3— Single Product Model Elements of Cost 52 Table 9-4 — Single Product Pro Forma Income Statement 52 Table 9-5 — Single Product Pro Forma Balance Sheet 53 Table 10-1 — Services Model General Characteristics 55 Table 10-2— Services Model Staffing 56 Table 10-3 — Services Model Elements of Cost 57 Table 10-4 — Services Model Pro Forma Income Statement 57 Table 10-5 — Services Model Pro Forma Balance Sheet 58 Table 1 1-1 — Hub Model General Characteristics 60 Table 1 1-2— Hub Model Staffing 61 Table 1 1-3— Hub Model Elements of Cost 62 Table 1 1-4 — Hub Model Pro Forma Income Statement 62 Table 1 1-5 — Hub Model Pro Forma Balance Sheet 63 Table 12-1 — Bank Holding Company Model General Characteristics 64 Table 12-2— Bank Holding Company Model Staffing 65 Table 12-3 — Bank Holding Company Model Elements of Cost 66 Table 12-4 — Bank Holding Company Model Pro Forma Income Statement 67 Table 12-5 — Bank Holding Company Model Pro Forma Balance Sheet 67 Table 13-1 — Single Product Area Model General Characteristics 69 Table 13-2— Single Product Area Model Staffing 70 Table 13-3 — Single Product Area Model Elements of Cost 71 Table 13-4 — Single Product Area Model Pro Forma Income Statement 72 Table 13-5 — Single Product Area Model Pro Forma Balance Sheet 73 List of Figures Figure 1-1— Balance of Mechandise Trade, 1981-1985 2 Figure 1-2 — Participants in U.S. Trade 2 Figure 3-1 — Countertrade Trade Patterns 21 Figure 5-1 — 27Major Product and Market Alternatives 27 Figure 5-2 — Export Trading Company: Institutional Participants 29 Figure 6-1 — ETC Flow of Goods and Elements of Cost 36 Figure 8-1 — Trade Stream Model Organizational Chart 45 Figure 9-1 — Single Product Model Organizational Chart 51 Figure 10-1 — Services Model Organizational Chart 56 Figure 1 1-1 — Hub Model Organizational Chart 61 Figure 12-1 — Bank Holding Company Model Organizational Chart 66 Figure 13-1 — Regional Area Map 68 Figure 13-2 — Single Product Area Model Organizational Chart 71 Chapter 1 — Export Trading Companies: A New Mechanism for Enhancing Exports The Export Trading Company Act of 1982 (ETC Act) offers American business new opportunities to enhance its ability to compete in foreign mar- kets. The goal of this legislation is to encourage the development of American ETCs, particularly for the benefit of small- and medium-sized com- panies which have for many reasons not fulfilled their export potential. This Guidebook is intended to assist those who are considering starting or expanding exporting through the various forms of an ETC as encour- aged by the ETC Act. This Guidebook will also facilitate your review of the ETC Act and export trading options and serve as a planning tool for your business by showing you what it takes to export profitably and how to start doing it. By way of background, this chapter of the Guide- book answers the following questions: • Why is exporting important? • Why should you consider exporting? • What can ETCs do for you? • How can this Guidebook help you? Why Is Exporting Important? The U.S. market has changed from one domi- nated by domestic manufacturers to one in which U.S. demand is increasingly met by low-cost, low- wage foreign suppliers. However, some compa- nies, aware of the benefits of trade to both pro- ducers and consumers, have attempted to com- prehend the world marketplace in which they now must operate. They have faced the competition from abroad head-on, examined their firm's strengths and weaknesses, and attempted to estab- lish themselves in the world trade arena. Unfor- tunately, many U.S. firms, having historically relied on the vastness of the domestic market, have not looked to exporting as a growth area and have failed to pursue the opportunities of foreign markets. This inward-looking attitude has left many U.S. firms ill-prepared to pursue new opportunities abroad. Increased international trade in goods and ser- vices has been recognized as one of the most impor- tant ingredients to sustained and expanded eco- nomic growth for our economy. Although the United States continues to be the world's largest export- er, our merchandise trade deficits have steadily increased since the early 1970s. These realities are highlighted by large merchandise trade defi- cits of approximately $148.5 billion in 1985 with even larger imbalances predicted for 1986. (See Figure 1-1.) The relatively slow growth of American exports has been one important factor contributing to our trade deficit. Between 1981 and 1985 U.S. exports declined 9 percent from $233.6 billion to $213.1 billion. During the same period U.S. imports grew 32 percent from $273.4 billion to $361.6 billion. Solutions to these difficulties have been sought over the past decade by several administrations in the form of tax and other incentives to increase exports. These efforts have fallen short of correcting the problem. Most small- and medium-sized U.S. firms are essentially nonparticipants in export trade. In manufacturing alone, less than 10 percent of all businesses or approximately 25,000 companies export regularly and close to 85 percent of our total exports can be attributed to about 250 firms. This group is primarily composed of multination- al organizations, and most of these companies are on the Fortune 500 list of major corporations. In addition, only 50 companies account for more than 25 percent of the exports of U.S. goods. (See Figure 1-2.) The ETC Act was enacted to address several of our trade problems and to encourage exporting by small- and medium-sized businesses. The prob- lems that impede these firms — lack of expertise and financing, and an inability to cooperate with other U.S. firms due to antitrust restrictions — can now be overcome through the new possibilities created by the ETC Act. Figure 1-1 —U.S. Merchandise Trade with the World Billions $ 400 300 - U.S. Exports -100 - iS ■ U.S. Imports kilts;! ■ H u.s. Deficit Wmm -200 ' ' ■ ' ' 1981 1982 1983 1984 1985 Figure 1-2 — Participants in U.S. Trade TOTAL EXPORTS U.S. MANUFACTURERS: ESTIMATED AT ALMOST 300.000. Why Should You Consider Exporting? The U.S. Department of Commerce estimates that 20,000 small- and medium-sized companies produce goods and services that would be competi- tive in the world market but do not currently export. According to studies and surveys conducted over the last few years, small firms cite the following reasons for not attempting to export: • Lack of knowledge and expertise about sell- ing overseas • Belief that exporting is too difficult, risky, and unproductive to attempt • Difficulties of financing both the production and transactional costs involved in foreign sales • Uncertainty on the application of antitrust laws This perception of obstacles exists because few small- and medium-sized firms ever considered exports an important part of their development plans. These companies did not need the export market as a source of growth. For many the mar- ginal cost of developing their export opportunities proved prohibitive. The smaller companies that do take the plunge find that exporting can be profitable, that market growth abroad often exceeds that at home, and that export business often balances domestic fac- tory loads because demand in foreign markets is often countercyclical to American markets. Export- ing also often extends the life of a product which is nearing the end of its usefulness in the United States. This is not to say that current exporters never have any problems. However, they tend to view these foreign trade obstacles in much the same way as domestic competitive trade obstacles and merely incorporate them in their plans for doing business in the marketplace. Common problems that you would also be likely to face include: • Difficulty in understanding foreign business practices • Differences in product standards and con- sumer standards in foreign countries which make U.S. products unsuitable for export • Difficulty in receiving payment for goods and services • Difficulty in obtaining adequate represen- tation in foreign markets FIVE WAYS EXPORTS CAN BOOST PROFITS • Exports mean additional customers. This means greater annual sales which translates to greater total profit. • Exporting may offer growing market opportunities when U.S. sales have fallen off. A good example: the temporary U.S. recession in 1974 and 1975 was offset for many U.S. companies that export. In fact, export sales boomed during those two years. • Exporting often extends the life of a product which is nearing the end of its usefulness in the United States. • For seasonal businesses, exports may help keep a firm's plant in operation by lengthening production schedules. • Exporting aids in the identification of prospec- tive foreign investments, creates new financing opportunities, and provides better diversification of risk, financial leverage and credit. Thus, some form of intermediary structure may be needed to encourage you to participate in, and help you cope with, foreign markets. That's where ETCs come in. However, there are aspects of the ETC Act that you can take advantage of without being an ETC, such as antitrust certification. These advantages are discussed in Chapter 2. Other mech- anisms such as Webb-Pomerene associations, export management companies, export distribu- tors, and cooperative or "piggyback" exporters exist, but they are often not as suitable for small- and medium-sized companies as those ETCs that provide a full range of export trade services. ETCs, then, may be designed especially for companies like yours. They may be the most appro- priate alternative for penetrating foreign markets and generating growth opportunities for your com- pany, by making it easier for you to become an exporter. What Can ETCs Do for You? There are many different forms ETCs can assume, but generally the primary advantage of exporting through a well developed ETC is that for you the selling process can simply involve a domestic transaction. This is because many well developed ETCs will often assume the risk associated with international trade by taking title to the goods domestically and performing subsequent export operations. Econ- omies of scale, often unavailable to the small- or medium-sized firm individually, are generated by exporting large volumes of products from many sources at lower per-unit costs through an estab- lished network of overseas offices, transportation, insurance, warehousing, etc. These ETCs are also capable of monitoring mar- kets more efficiently and are better equipped to recognize potential opportunities. By virtue of their combined size, some ETCs can offer a wider range of goods and services, secure more favor- able prices or develop additional marketing opportunities denied manufacturers acting alone. For example, by combining orders, an ETC can bargain for lower freight, insurance and storage costs than individual small- or medium-sized producers. ETCs will not eliminate all the risks and expenses of exporting, but they can help. Economies of scale can lower costs and thereby increase our price competitiveness in the world marketplace. The risk associated with embarking on a new ven- ture is distributed among many participants and the financial losses in financing, distributing, and marketing products abroad can be reduced through the cooperative "one stop" service of an ETC. ETCs are not new to international trade. The track record forged by Japan, Korea, and West- ern Europe in penetrating the United States and other markets aptly demonstrates the potential effectiveness of this type of trading mechanism. Close to two-thirds of Japan's exports are han- dled by ETCs. As with any business structure, it is important to identify the appropriate components for suc- cess. The decision to form an ETC should only be made after careful review of trade potential and organizational options for engaging in exports. Once a decision to proceed has been made, or- ganizational goals and objectives have been decided, and institutional relations formulated, the choice of trade management will be critical for both further detailed business planning and implementa- tion of the trading venture. The quality of man- agement is the greatest single determinant of a firm's export success. How Can This Guidebook Help You? This Guidebook provides you with essential information on the functions and advantages of establishing or using an ETC as provided for by the Export Trading Company Act of 1982. It will enable you to prepare an organized review of the business considerations necessary to conduct suc- cessful export operations. The following major questions will be answered in sufficient detail for you to reach a decision on how to proceed with your export alternatives: • ETC: A New Mechanism for Enhancing Exports — Why is exporting important? What can an ETC do for me? (Chapter 1) • How Does the ETC Act Help You?— How does the ETC Act provide for bank par- ticipation in ETCs? What are the specific requirements or restrictions? How can I obtain antitrust protection under the provisions of the ETC Act? What process must I follow? What are the alternatives? (Chapter 2) • How to Decide Your Role in Export Trade: Establishing an ETC — How should I struc- ture my ETC for success? What are the busi- ness considerations I must review before com- mitting resources for an in-depth investiga- tion? (Chapter 3) • Where You Can Go for Help in the Govern- ment — Can the Federal Government offer me additional guidance and direction? Where can I go for financial guidance or to find leads for potential partners? (Chapter 4) • Variables in Designing an ETC — How will one ETC model differ from another? What are the major variables that define the operational scope of an ETC? Who can be my partners in this venture? (Chapter 5) • Financial and Cost Considerations — What financial considerations must I make in form- ing an ETC? What are examples of ETC costs that I should consider? (Chapter 6) • Hypothetical ETC Examples — What are some examples of ETCs under consideration? How might a model be structured for bank par- ticipation or public sector involvement? How might I structure a single product oriented ETC with a restricted marketing focus? (Chapters 7-13) Exporting can be quite profitable. Forming an ETC may be the appropriate vehicle for achieving your corporate goals. This Guidebook will help you explore this option further. Chapter 2 — How Does the Export Trading Company Act Help You? On October 8, 1982, President Reagan signed into law the Export Trading Company Act of 1982 (P.L. 97-290, 96 Stat. 1233). The ETC Act is intended to increase U.S. exports of goods and services, primarily by removing two impediments: (1) restrictions on trade financing and (2) uncer- tainty about the application of U.S. antitrust laws to export trade. The changes that the ETC Act makes in banking and antitrust laws are reflected in four titles, which for the most part are independent of each other. • Title I sets forth the overall purpose of the legislation, establishes the Office of Export Trading Company Affairs (OETCA) in the Department of Commerce (DOC) to promote the formation of ETCs, and creates a service to facilitate contact between producers of exportable goods and services and firms offering export trade services. • Title II, the Bank Export Services Act, amends the Bank Holding Company Act to permit bank holding companies and other specified banking entities to invest in ETCs, estab- lishes a program for working capital loan guarantees by the Export-Import Bank of the United States (Eximbank), and amends the Federal Reserve Act by increasing sig- nificantly the amount of bankers' acceptances a bank may have outstanding at any time. • Title III provides for the issuance of export trade certificates of review by the Secretary of Commerce (with the concurrence of the Department of Justice) under which the export conduct of any person may receive specific antitrust protection. • Title IV clarifies the jurisdictional reach of the Sherman Act and the Federal Trade Commission Act with respect to export- related commerce. Your review of the ETC Act will provide you with an understanding of the export trading com- pany concept envisioned by Congress, the require- ments for establishing a bank-affiliated ETC, and the ways in which you may reduce your uncer- tainty about the application of U.S. antitrust law to your export conduct. Objective of the Act (Title I) This title establishes the rationale for the ETC Act. Congress found that exports are crucial to our economic development, providing one out of every nine manufacturing jobs in the United States and generating one out of every $7 of total U.S. goods produced. Congress also recognized that: • Tens of thousands of small- and medium- sized U.S. businesses produce exportable goods and services, but they are not engaged in exporting. • Many farm products are not marketed as widely and effectively abroad as they could be through trading companies. • Those in the goods and services sector at- tempting to export lack the financial resources to do so effectively. • The United States needs well-developed trade intermediaries to export competitively. The primary intent of the ETC Act is to provide additional tools for American business to overcome these difficulties and to compete effectively in foreign markets. Your Contact Office in Washington In response to Title I, the Office of Export Trading Company Affairs (OETCA) was created in the Department of Commerce/ International Trade Administration (DOC/ITA) to promote and encourage the formation of ETCs. In performing these functions, OETCA: • Sponsors conferences, workshops, and pre- sentations throughout the nation • Counsels individuals and business organ- izations under Title III and the ETC Act generally • Maintains the Contact Facilitation Service (CFS), a program for registering suppliers, ETCs, and other export intermediaries to help registrants identify and contact each other with a view to developing mutually agreeable exporting arrangements. ITA has published a directory listing all registrants in the CFS database. This directory can be purchased from the U.S. Government Printing Office. • Processes applications for and issues export trade certificates of review Detailed descriptions of the Contact Facilita- tion Service and other support programs are in Chapter 4 of this Guidebook and in Appendix B. Participants in an ETC Title I sets forth the characteristics of the ETCs, which Congress sought to encourage. You should view this description as a guide, not as a legal requirement. The ETC in which you invest or whose services you utilize may or may not share these characteristics. The participants in an ETC as described in Title I can include: • A person • A partnership, association (including corpora- tions), or similar organization, whether op- erated for profit or as a nonprofit organization, which does business under the laws of the United States or any State • Foreign owners These ETCs are intended to be organized and operated principally for purposes of: • Exporting goods or services produced in the United States or • Facilitating the exportation of goods or ser- vices produced in the United States by unaffil- iated persons by providing one or more export trade services The export trade services to be provided by such an ETC include but are not limited to: • Consulting • International market research • Advertising • Marketing • Insurance • Product research and design • Legal assistance • Transportation, including trade documen- tation and freight forwarding • Communication and processing of foreign orders to and for exporters and foreign purchasers • Warehousing • Foreign exchange • Taking title to goods How the Banking Industry Can Get Involved (Title II) Congress recognized that if U.S. export trading companies were to be successful in promoting U.S. exports and in competing with foreign trading companies, they should be able to draw on the resources, expertise, and knowledge of the U.S. banking system, both in the United States and abroad. Under Title II, bank holding companies, their Edge Act and Agreement corporation subsidiar- ies, bankers' banks, and foreign banks (all referred to in this Guidebook as bank holding companies — BHCs) may make equity investments in ETCs. Unlike the definition of an ETC in Title I, the definition in Title II is a legal requirement. A BHC can invest only in an ETC which meets the statutory definition. This definition and the other limitations on BHC participation in an ETC are designed to ensure adequate separation between the BHCs involvement in export trade and its affiliated bank's deposit-taking functions. The other limitations on BHC investment in an ETC are: • The BHC may invest no more than 5 percent of its capital and surplus in an export trad- ing company. • Extensions of credit to an ETC by a BHC and its subsidiaries may not exceed 10 percent of the BHCs capital and surplus. • The BHC must notify the Federal Reserve Board (FRB) of the intended investment. If no objection is made within 60 days, the BHC may proceed with its investment. • The BHC is generally subject to the collat- eral requirements in the Federal Reserve Act for loans to the ETC unless the FRB grants a waiver. It may not extend credit to the ETC or the ETCs customers on terms more favorable than those afforded similar borrowers in similar circumstances. • If the ETC engages in certain transactions in commodities, securities, or foreign ex- change, the FRB could require the BHC investor to terminate its investment or com- ply with certain conditions. How to Qualify Under the New Law Title II of the ETC Act has its own definition of ETCs which limits bank investment in such enti- ties. Before you invest in or use the services of such an ETC, you should note the following points: • The BHC/ETC is intended to provide servic- es, not to be a manufacturer or agricultural producer. However, incidental product modi- fication (e.g., repackaging, reassembling or extracting by-products) is permitted if nec- essary to facilitate your sales in a foreign country. • The BHC/ETC can provide all the export trade services listed in Title II. However, the definition indicates that a BHC/ETC cannot act as principal, agent, or broker on risks "resident" or located, or activities performed, in the United States. The BHC/ ETC can, however, insure cargo from any point of origin in the United States to a point of final destination outside the United States. (See Appendix F.) • The BHC/ETC must be exclusively engaged in activities related to international trade and organized and operated principally for purposes of exporting goods or services pro- duced in the United States. Congress recog- nized that a bank-affiliated ETC may be- come involved in importing, countertrade, and third party trade. The conferees on the ETC Act, however, expressed their expecta- tion that the preponderance of bank-affiliated ETC activities will not involve nonexport trade. Federal Reserve Board Regulations In issuing regulations governing BHC invest- ment in ETCs, the Federal Reserve Board made clarifications and imposed additional require- ments: * • Services that may be provided by an export trading company are those services listed in the definition of "export trade services" in the statute, where the services are provided in connection with trade in goods and services produced by others. "Principally," for purposes of exporting, means that more than 50 percent of the BHC/ ETCs revenues must be derived from ex- porting. The test that more than 50 percent of the BHC/ETC's revenues should be export- related will be measured by consecutive 2-year periods. Revenues are defined to include net sales revenues from the trading of goods by the export trading company for its own account and gross revenues derived from all other activities of the export trading company. Countertrade activities should be conduct- ed only where necessary or useful in the con- duct of an export trading company's prima- ry business of exporting, so that the revenues generated by the nonexporting activities should not exceed the export trading com- pany's export revenues. How to Get Federal Reserve Board Approval The Federal Reserve Board's review of ETC applications under Title II of the ETC Act is based on Board Regulation K. The BHC's appli- cation will follow the checklist of information used for Regulation K applications under Inter- national Banking Operations. (See Appendix H.) The FRB requires the following information: • Name of applicant • A brief description of the proposed investment • Financial information • Country exposure • Any additional information for investment in joint ventures • Compliance with foreign requirements Table 2-1 includes an expanded description of the information required in each category. * See Appendix H for a complete discussion of Federal Reserve Board regulations regarding international banking operations and export trading companies. Table 2-1— Check List for Federal Reserve Approval Description of Investment • Name of business organization and location. • Reasons for the proposed investment, including whether there is any connection with existing personnel or local representations of applicant or its affiliates in the country in question. • Cost of shares to be acquired, and relevant exchange rates; indicate number, type and percentage of total voting shares outstanding, and, if different, percentage of total equity held. State total and basis for any premiums or other direct or indirect payments for the proposed investment. State whether shares will be fully paid-in, or only partially paid-in with balance due on call. List subordinated debt held or to be held by applicant. • If the investment is in the shares of a limited liability partnership, furnish details on the liabilities of such shares. • List significant activities of the company, including fiduciary activities and offices or subsidiaries through which business is or will be conducted. • Describe fully any activity that is of banking or financial nature, or any business conducted directly or indirectly in the United States. • Provide a list of directors and senior management, including their principal affiliations, and a list of all shareholders hold- ing 10 percent or more of any class of the shares of the company. • Dates of pertinent previous notifications or Board consents. Financial Information • Recent, audited comparative balance sheets and income state- ments in English (indicating relevant exchange rates) for estab- lished companies. For new companies, provide projected bal- ance sheets and income statements for at least 3 years (indicat- ing exchange rates used) or until the break-even point is reached, if longer. Explanation should be provided of any significant deviations from United States' Generally Accepted Account- ing Principles (GAAP). • Explain any credit arrangements, direct or indirect, granted or expected to be granted by the investor or its affiliates to the company, or vice versa. • Provide details of any capital or other financial requirements which the company must adhere to in accordance with local law. Country Exposure • If there has been more than 25 percent change in the Investor's (and its affiliates') consolidated exposure to the country of the proposed investment from that reported in the most recently filed F.R. 2036 Country Exposure Report (F.R. 2036 or CC7610-08), show the consolidated direct and indirect expo- sure to borrowers from this country. The exposure in question is both: (1) cross-border exposure (which may be calculated for this purpose adding the figures under columns 4, 10 and 12 of the form and subtracting the sum of columns 9 and 1 1) and (2) local currency exposure (column 18 of the form). • If projections indicate that at the end of the third year of operations of the proposed investment (or when the break even point is reached, if longer) the direct and indirect exposure, as calculated above, will increase by more than 25 percent from the present levels and this amount is greater than 10 percent of consolidated capital, show the projected consolidated country exposure. Additional Information for Investments in Joint Ventures • Description of any contracts to be entered into in connection with the proposed investment, including agreements of sup- port, management agreements, technical services agreements, and the like. Attach a copy or draft of the contracts. • State who will exercise effective control. Also describe any veto powers that the applicant or other shareholders will exercise. • Provide details concerning the financial resources of more than 10 percent shareholders including, for corporate persons, total assets, stockholders' equity, and net income for the latest com- plete year, and, for individual shareholders, a short biography, indicating net worth, if possible. • Details of major management committees, including responsi- bilities of such committees and stockholder representation. • Provide details of any special relationships between the appli- cant (and its affiliates) and other shareholders in the company, including any equity interests in or any credit granted to other shareholders for purchase of the proposed investment. • State the percentages of consolidated revenues attributable to activity permissible to a subsidiary in regard to Section 21 1.5(b)(l)(ii) of Regulation K. • Describe the extent to which the applicant's identified will be associated with the company. Compliance with foreign requirements • Providing information concerning the status of any foreign government approval required. • Providing a copy of the relevant laws or regulations in English or, if not available, providing a summary of the pertinent provisions, for additional investments due to changes in local government requirements. Export-Import Bank (Eximbank) ETC Loan Guarantee Program In order to improve exporters' access to work- ing capital financing, the ETC Act, under Title II, established the ETC Working Capital Loan Guarantee Program at Eximbank. These are the key features: • The loans may be secured by export accounts receivable, inventories of exportable goods, accounts receivable from leases, performance contracts, grant commitments, participa- tion fees, member dues, revenue from publi- cations, or other appropriate collateral. • Guarantees will be available when the pri- vate credit market is not providing adequate financing to enable otherwise credit worthy ETCs or exporters to complete export trans- actions. • The Board of Directors of the Eximbank must determine that the guarantee would facilitate expansion of exports which would not otherwise occur. For more information on this loan guarantee program and other government financial assistance, see Chapter 4 and Appendix B. Flexibility in Use of Bankers' Acceptances Title II expands the amount of bankers' accep- tances that a bank may have outstanding at any one time. Simply stated, an acceptance arises when a bank signifies its commitment to pay at maturity the face amount of a draft drawn on the bank. The bank may then purchase a customer's interest in the draft in order to provide the customer with immediate capital. Formerly, a bank could have banker's acceptances outstanding up to 50 percent of its capital and surplus. Title II raises this limit to 150 percent. Generally, acceptance financing can be used to obtain money directly, to finance the storage of goods, to refinance sight letters of credit and to finance export/import trade. For the specific changes made in the use of these financial instruments, see Section 207 of the ETC Act in Appendix F. The Antitrust Provision of the ETC Act Titles III and IV of the ETC Act address the problem of uncertainty about the application of U.S. antitrust laws to export trade. The concerns addressed by these titles, and the remedies they provide, are applicable to all exporters, not just ETCs. Title III provides for a certification proce- dure under which any person engaged in export trade can determine in advance whether proposed export conduct qualifies for specific antitrust pro- tection. Title IV clarifies the jurisdictional reach of the Sherman Act and the Federal Trade Com- mission Act to export trade. You should review both of these titles to see how they might apply to your export activity. If you are uncertain whether your export activity or participation in an ETC raises antitrust con- cerns, you should consult legal counsel. You may be advised that you have little or no exposure under the antitrust laws. You may be advised that your export-related conduct does not have a "direct, substantial, and reasonably foreseeable effect" on domestic or import commerce or on the export commerce of U.S. exporters, and, therefore, lies outside the jurisdiction of the Sherman and Fed- eral Trade Commission Acts. Finally, you may be advised to apply for an export trade certificate of review. What is an Export Trade Certificate of Review? A certificate of review is issued by the Secre- tary of Commerce with the concurrence of the Department of Justice (DOJ). It protects its holder and the members identified in the certificate from private treble damage actions and government criminal and civil suits under U.S. Federal and state antitrust laws for the export conduct speci- fied in the certificate. A certificate of review will be issued to an applicant that shows that its pro- posed export trade, export trade activities, and methods of operation will: • Result in neither a substantial lessening of competition or restraint of trade within the United States nor a substantial restraint of the export trade of any competitor of the applicant • Not unreasonably enhance, stabilize, or depress prices within the United States of the goods, wares, merchandise, or services of the class exported by the applicant • Not constitute unfair methods of competi- tion against competitors engaged in the export of goods, wares, merchandise, or services of the class exported by the applicant • Not include any act that may reasonably be expected to result in the sale for consump- tion or resale within the United States of the goods, wares, merchandise, or services export- ed by the applicant For a discussion of these standards and how they are applied, see the "Guidelines for the Issu- ance of Export Trade Certificates of Review (Sec- ond Edition)" in Appendix J. The protection provided by the certificate is not limited to ETCs. Anyone — an individual, a single firm, a group of competing firms — with an antitrust concern about export-related conduct may apply. However, no one is required to seek a certificate of review. Whether or not to apply is a decision you should make with legal counsel after weighing the costs and benefits of the certifica- tion process. What Are the Benefits of Applying for a Certificate of Review? A certificate holder is protected against pri- vate treble damage actions and U.S. or State gov- ernment criminal and civil actions arising out of the certified conduct. Any person who has been injured by the certified conduct, however, may bring a suit for actual damages. But such suits are subject to the following limitations which Con- gress believed would protect the certificate holder from frivolous suits: • The certificate holder must have violated the specific antitrust standards in Section 303(a) of the ETC Act • The statute of limitations is 2 years from the time the plaintiff knows of the violation and 4 years from the time the violation occurs • A certificate creates a presumption of law- fulness • A certificate holder who shows that his con- duct did not violate the four standards will collect costs and attorney's fees Antitrust protection is extended only to the export conduct specified in the certificate. A private party plaintiff can succeed in a suit for actual damages only if Commerce and Justice improperly issued the certificate or there are significant changes in the economic conditions affecting the certificate holder. The benefits of certification are too appealing to ignore for exporters with antitrust concerns. Basically, to the extent an appli- cant has antitrust uncertainty, he can get an advance determination from the Department of Commerce with DOJ's concurrence about his antitrust liability concerning proposed conduct. Therefore, the cer- tification removes uncertainty and removes risks. Furthermore, if an application is denied, neither that determination nor the reasons for it are admis- sible in evidence in any administrative or judicial antitrust proceeding. Most importantly, a certifi- cate reduces its holder's private action liability from treble to actual damages, and a certificate holder will recover the costs of litigation if the plaintiff is unsuccessful. These protections sig- nificantly reduce the incentive for a customer or a competitor to bring a suit, especially if it is of dubious merit. Finally, the certificate immunizes its holder from government criminal and civil suits. While the certificate does provide the above listed protection it is important to note that its issuance does not constitute any endorsement by the Government of the holder's business plans or products. Title III certification can be of particular ben- efit to small- and medium-sized manufacturers who desire to participate in joint export activity in order to achieve economies of scale and mini- mize individual risk. Where these manufacturers are direct U.S. competitors, serious antitrust con- cerns can be allayed by obtaining certification. Under the protection of a certificate, manufac- turers can vigorously pursue their export activi- ties, concentrate on profit objectives, and attain joint efficiencies and risk-sharing all without suffering the burden of antitrust fears. The Webb- Pomerene Act of 1918 was enacted to create an antitrust exemption for associations engaged solely in export trade. However, for the reasons set forth in the second edition of the Title III Guidelines, a certificate of review provides superior protection while affording the holder greater operational flexi- bility than available under the Webb Act. Factors to Consider in Applying for a Certifi- cate of Review The primary costs involved in Title III certifi- cation are time, money, and the limited disclosure of confidential business information. Time — The minimum time in which a certifi- cate can be obtained is 30 days from the date a summary of the application is published in the Federal Register. The more typical time period is 90 days from the date the application is deemed submitted. This is a statutory deadline that can be extended only in two circumstances: if the appli- cant consents to suspend the time limit in order to comply with a request for more information or if either DOC or DOJ requests and the applicant agrees, up to 30 additional days can be taken before granting or denying an application. Money — The cost of obtaining a certificate will vary with the number of persons seeking certifi- cation, the kinds of information the Government will require to analyze the proposed conduct, and the nature of the proposed conduct. The cost of any attorney to guide you through the certifica- tion process will probably not be substantial but is a factor to consider. The expense of obtaining a certificate is certainly less than the expense of the antitrust litigation it is likely to discourage and, most assuredly, less than a treble damage judge- ment that could otherwise result. Confidential pre-application counseling from OETCA can min- imize these costs. The Government charges no fees for counseling or processing applications. Disclosure of Information — The disclosure of confidential business information and plans is an issue that you must consider before, during, and after the certification process. The application form for a certificate of review requires disclo- sure to the Government of information about the applicant's business plans, sales, and markets. OETCA has taken a number of steps to minimize the businessperson's concern in this area. After an application is officially submitted, the statute exempts any information submitted in connection with the application from disclosure under the Freedom of Information Act (FOIA). Also, the statute generally prohibits the disclosure of con- fidential commercial or financial information whose disclosure would cause harm to the submitter. In addition, OETCA has adopted the following administrative measures to protect business con- fidential information to the fullest extent possible. The applicant submits its own draft summary to lessen its concerns that publication in the Federal Register of a summary of an application may alert competitors and foreign antitrust enforcement officials to the proposed conduct. OETCA must notify the applicant before publication if it plans to publish anything different from the applicant's draft. To lessen similar concerns about the public availability of the certificate in the Department of Commerce FOIA Reading Room, OETCA attempts to draft the certificate so that it will not contain confidential information that could harm the holder or its members, consistent with the need for specificity and certainity. Post-certifi- cation disclosure in a judicial or administrative proceeding will be subject to the issuance of an appropriate protective order. The Commerce or Justice Department will attempt to notify the submitter of any request or demand for informa- tion and, in appropriate cases, may seek or sup- port an appropriate protective order on behalf of the party who submitted the information. Who Can Apply for a Certificate of Review? Any "person" as defined in Title III (not just an ETC) can apply for a certificate of review. Person means: • An individual who is a resident of the United States • A partnership that is created under and exists pursuant to the laws of any state or of the United States • A state or local government entity • A corporation (profit or nonprofit) that is created under and exists pursuant to the laws of any state or of the United States • Any association or combination, by contract or other arrangement, between or among such persons Foreign persons can apply as members of a U.S. trading entity What Conduct is Eligible for Certification? Only export conduct ("export trade," "export trade activities," and "methods of operation") is eligible for certification. Conduct related to the provision of export trade facilitation services is also eligible (e.g., foreign market research). Export trade generally does not include overseas invest- ment but does include technology licensing. The certificates issued to date protect a broad range of proposed conduct raising antitrust concerns: exclusive sales or marketing agreements with passover clauses; exclusive foreign distributorship and marketing arrangements; agreements on fix- ing prices for export and maintaining resale pric- es; allocation of quotas for export; allocation of export markets, territories, or customers; refusals to deal; exchange of price and other business infor- mation; and restrictions on membership and on withdrawal from membership. Shippers' associa- tions have taken increasing advantage of the Title III certificate of review program. These associa- tions, composed of manufacturers and producers, can consolidate freight of their members and negotiate with carriers and conferences for favor- able time and volume transportation rates. A cer- tificate can provide antitrust protection for the exchange of certain essential information between the association and its members as well as possible concerted action of association members. Specif- ic examples of conduct which has been certified can be found in the Federal Register notices in Appendix L. How to Apply for Certification In deciding whether to apply for a certificate of review you should take advantage of the free preapplication counseling offered by OETCA. This will enable you to identify the areas needing the most explicit description in the application. To prepare for this counseling, you should examine Title III, the regulation issued by the Department of Commerce (Appendix I) and the second edition of the "Guidelines for the Issuance of Export Trade Certificates of Review" (Appendix J). You should also prepare a draft application. Specificity in describing your export conduct will greatly assist the Government in analyzing compliance with the certification standards of the ETC Act. Be careful, however, not to be so detailed that you unduly restrict your flexibility in the conduct of your export operations. Too much detail could result in a need to amend the certificate each time a new activity or method of operation is initiated. Your application must include the following: • Names and addresses of applicant, members, and their controlling entities • Basic legal documents, organizational in- formation and annual reports for applicant, members, and controlling entities • Description of goods, services, and conduct proposed to be certified (include SIC numbers where available) • Description of market for goods and services proposed to be certified, including principal U.S. geographic market(s) for sales by appli- cant and members; dollar value of domestic and foreign sales by applicant, members and their controlling entity (also total value of U.S. sales by all companies if known) • Statements on intention concerning exchange of confidential business information and intention concerning reentry of exported goods and services into the United States • The specific export trade, export trade activi- ties, and methods of operation for which you are seeking certification • Proposed nonconfidential summary of ap- plication for publication in the Federal Register • Draft proposed certificate A copy of the application form is available in Appendix K. What Happens to Your Application? Once you have submitted your application to OETCA, the following timetable operates: • The Department of Commerce has 5 days to review the application and determine whether it is complete and can be deemed submitted • The Department of Commerce has 7 days from the date the application is deemed sub- mitted to transmit the application to the Department of Justice • The Department of Commerce has 10 days from the date the application is deemed sub- mitted to transmit a nonconfidential sum- mary for publication in the Federal Register • The Department of Commerce has 90 days from the date the application is deemed sub- mitted to issue or decline to issue a certificate • The 90-day limit may be extended with the applicant's consent • Interested parties have 20 days after publi- cation in the Federal Register in which to comment on the application The following points are also important. First, the Government gives you the opportunity to write your own summary of the application (which is published in the Federal Register) and to identify those materials you consider confidential and which, if released, would harm your competitive position. Second, at any time during the process, if DOC or DOJ requests additional data or information, and the applicant consents, the 90-day clock stops until that information is provided. Third, within this 90-day period, the Govern- ment will discuss with the applicant the issuance of the certificate and reach agreement on the language of the certificate (including any limita- tions or conditions) and a summary of the certifi- cate for publication in the Federal Register. Fourth, if an application is denied in whole or in part an applicant has 30 days to request reconsid- eration of the determination. Fifth, any person aggrieved by a determination may bring suit within 30 days to show that the Secretary's determination was erroneous. A person aggrieved could be an unsuccessful applicant or a competitor of a successful applicant. Sixth, if your application is denied, the denial and the reasons for its denial are not admissible in evidence in any antitrust proceeding. How is Your Confidential Business and Financial Information Protected? Under the provisions of Title III of the ETC Act, commercial or financial information submitted by any person in connection with the issuance, amendment, or revocation of a certificate of review is exempt from disclosure under the Freedom of Information Act. Also, the Government is gener- ally prohibited from disclosing information which would cause harm to the submitter. If your appli- cation is denied, all copies of your application in the possession of the government will be returned to you. What Happens After Your Certificate Is Issued? After the Department of Commerce has issued a certificate, the following requirements exist or certain actions may be necessary: • The Department of Commerce will inform you of the requirements for your annual report. • The Department of Commerce or DOJ may request additional information from you if they have reason to believe that your con- duct no longer complies with the certifica- tion standards. • You must report to the Department of Com- merce any change relevant to matters speci- fied in the certificate. • The Department of Commerce or DOJ may initiate proceedings to modify or revoke your certificate if they determine that the certi- fied conduct no longer complies with the four standards in the ETC Act or if you fail to comply with a request for further infor- mation. • You may at any time submit an application to amend your certificate. An application for an amendment will be treated exactly as an original application for a certificate. References Atwood, J. and Brewster K. Antitrust and American Busi- ness Abroad, 2d ed. (1983 supp., forthcoming), 211 -'ill . Bruce, J., and Pierce, J. "Understanding the Export Trading Company Act and Using (or Avoiding) Its Antitrust Exemp- tions." 38 Bus. Law. 975 (1983). Fugate, W. "The Export Trade Exception to the Antitrust Laws: The Old Webb-Pomerene Act and the New Export Trading Company Act." 15 Vand. J. of Transnat'l Law 673 (1982). Fugate, W. Foreign Commerce and the Antitrust Laws, 3d ed. (1983 supp., forthcoming), 251-301, 377-427. Hawk, B. United States, Common Market, and Internation- al Antitrust: A Comparative Guide, (2nd Ed. 1986) 221-73. Golden, C, and Kolb, C. "The Export Trading Company Act of 1982: An American Response to Foreign Competition." 58 Notre Dame Law Rev. 743 (1983). Griffin, J., ed. The Export Trading Company Act of 1982. International Law Institute, Georgetown University Law Center (1982). LaMont, N., and Unkovic, D. "The Export Trading Com- pany Act of 1982: Invitation to Aggressive Export Expan- sion," 87 Dick L. Rev. 205 (1983). New Opportunities Under the Export Trading Company Act of 1982. Law & Business, Inc. (1983). The Export Trading Company Act. Practicing Law Institute (1983). Zarin, D. "The Export Trading Company Act: Reducing Antitrust Uncertainty in Export Trade." 17 Geo. Wash. J.lnt'lL. & Econ. 29 (1983). Chapter 3 — How to Decide Your Role in Export Trade: Establishing an ETC This chapter of the Guidebook explores the opportunities for forming, participating in, or using the services of an ETC. The decision to engage in exporting and/or an export trading company is essentially a business planning decision which should be decided based on the answers to five broad questions: • Do I produce or have access to a product that will sell successfully abroad? • Should I form an ETC, use some other ETC, or a different trading medium? • In forming an ETC, should I act alone or join with partners? • What do I need to know to export successfully? • What are my strengths and weaknesses in export trade in areas such as international shipping, marketing, and financing? Answers to these and other questions should provide sufficient information to decide upon estab- lishing an export development program. This chap- ter presents a three-step methodology for research- ing and addressing these issues. The major ques- tions answered at each step are: • Step 1 — How does exporting fit into my busi- ness plans? • Step 2— What is the feasibility of my form- ing an ETC? • Step 3 — How should I plan and start my ETC? These steps and questions are summarized in Table 3-1. The first step, considering exporting in terms of your firm's business plans, lies largely outside the scope of this book. This chapter will only consider briefly the issues involved in this first stage of your ETC evaluation. The second step, a feasibility study, can involve a significant expenditure of resources. Thus, it is frequently done in several smaller steps. The first step could be termed a prefeasibility study in which preliminary conclusions are drawn. Based Steps Table 3-1— How to Decide Your Role in Export Trade: Establishing an ETC Questions Step 1 Determine Business Strategy Should I Export? Does Exporting Fit into My Business Strategy? Step 2 Examine the Feasibility Evaluate The Markets Exporting Options Necessary Expertise Financing Step 3 Develop Detailed Business Analysis And Implementation Scope of Activity Operational Plan Financial Plan Countertrade Plan What Should I Export? How Should I Do It? Do I Need Help? How Will I Finance It? Is There a Market for My Products? How Should I Organize to Export? What Expertise Do I Need? Where Can I Find It? Where Should I Look for Financing? What Are My ETC Activities? Operational Plans? Financial Plans? Countertrade Plans? What Are My Products? Markets? Services? How Will The ETC Be Organized And Managed? What Is The Financial Picture For The ETC? Do I Anticipate Countertrade And Am I Prepared? upon these conclusions a more complete "full- feasibility study" could be initiated which involves a larger commitment of time and resources. In the third step, the development of a detailed business analysis and implementation plan, the decision to seek partners and financing has already been made, and the new venture is being initiated. Step 1. Determine Business Strategy: Should I Export? Does Exporting Fit into My Business Strategy? Exporting can be quite profitable although many small- and medium-sized firms in the United States continue to neglect exporting as an area for growth. As you will find through your investiga- tion of exporting and ETCs, firms with moderate resources and good products to sell abroad could often profit from exporting. Export trading com- panies provide a mechanism for still smaller compa- nies to exploit foreign markets by making financ- ing more accessible and the costs of exporting easier to share. For most firms, exporting means growth. This requires, among other changes, increased man- agement duties, need for more financing, more extensive operations, and if successful, greater profits. A firm must make a relatively long-term commitment to be successful in exporting. It takes time to learn enough about the field to manage an operation successfully, and this time commitment must be made by your top management. A business decision to move into exporting should focus on your expected corporate growth, long- and short-term business objectives, and how you might wish exporting to fit into your long-range business goals. Once you have decided that exporting fits into your growth plans you must begin to formulate and answer questions regarding exporting options. At the most general level these questions include: • What are the markets? • What are my organizational options? • What are my areas of expertise? • What financing do I need and where can I get it? While this first step in the export evaluation process contains the crucial questions that need to be answered on a new venture, it only provides a framework for approaching and making decisions as you examine further the feasibility in subse- quent phases of your investigation. Step 2. Examine the Feasibility: What Should I Export? How Should I Do It? Do I Need Help? How Will I Finance It? Evaluate the Markets— Is There a Market for My Products? The next step in exploring the possibilities of exporting is to identify what is to be sold and to whom. The two issues are products and markets. General market assessment will require initial research into potential markets by category. This work can be accomplished as an "in-house" effort or you can call upon the resources of experienced market research organizations both domestic and foreign. The focus can be either on "What does the world need?" or on "What do I have to sell?" The questions to be answered include: • Do I have a product that is easily saleable in overseas markets where the demand is docu- mented? • Should I visit the potential country that appears to offer the opportunity for a share of the market? • Can I adapt my product or service to either create a demand in the marketplace or fill a need through modification of domestic prod- ucts or services? Resources committed to your market research effort will depend upon the level and type of infor- mation required for further business planning. At one extreme, market research costs can be mini- mized by simply reviewing aggregate trade flows with various countries and evaluating how your product or product lines could fit into those trad- ing patterns. A much more costly endeavor would be to conduct a survey in the prospective foreign market (mail or interview) and engage in some form of on-site product testing. There are numerous government programs for providing market research to potential exporters. These services are described in the next chapter. The level of resources you commit at this stage of your investigation will depend upon your assessment of the riskiness of the prospective trading opportunity and the need for market information for further business planning decisions such as who might join you in the trad- ing venture. Exporting Options — How Should I Organize to Export? Three ways to organize an exporting venture are: • An in-house exporting department • An export management company (EMC) • An export trading company (ETC). Under this category, there are also two distinct possibilities: piggybacking on someone else's trade (or using an existing ETC) or forming your own ETC. In-House Exporting Department As a prospective exporter, you always have the option of establishing an export division within your own firm. Numerous firms do this, engage in trade on their own, and bypass the services of trade facilitators such as EMCs or ETCs. One of the major advantages of this option is that with an in-house operation the business owner can maintain closer control of the export operation. The company can firmly integrate the exporting function into the overall business plan and gain experience in the trading process. Some of the disadvantages include: the often high start-up costs to be borne solely by the com- pany; the difficulties of achieving economies of scale that, in turn, may preclude significant penetration of the marketplace; and an inability to match the competitive advantages offered by utilizing a full service ETC. Countertrade require- ments may prove more problematic for an in-house division than for an entity organized for trading. Export Management Companies There are over 2,000 EMCs in the United States. These EMCs act as the international trading department for a number of domestic manufac- turers. These organizations are primarily family owned, small in size, and operate on limited bud- gets. However, a handful of the larger entities will provide extensive overseas services for their clients. Most EMCs will use the letterheads of the manu- facturers they represent to facilitate sales. Only the larger organizations take title to the goods or finance exports in the same manner as would a full service ETC. Most of the smaller EMCs work on a sales commission basis with the manufactur- ers and share some of the promotional costs. EMCs may prove attractive to producers that do not require cash sales at their loading dock and to those who can finance their product as they await the sale abroad. Producers who have identified a potential foreign customer but are inexperienced in exporting will also find the EMC a useful partner for engaging in trade. The EMCs' major limita- tions from the point of view of some domestic producers are that many EMCs do not take full title to goods, in general are small, and as such offer only limited growth potential for expanding into world markets. Export Trading Companies The third major trading option is to become associated with a full service ETC. A full service ETC is defined as a trading company that takes title to goods in the United States, and has com- plete responsibility for the sale of these goods overseas. There are essentially two ways you can become involved. You can either piggyback on someone else's export trade (or use another ETC) or you can form your own ETC. In forming your own, you could either be the sole owner or share the ownership with one or more partners. Each of these ETC options are discussed below. You Can Piggyback or Use Another ETC— Piggybacking or using another ETC is simply exporting your product through an organization that has already established trade outlets abroad and is interested in expanding or diversifying its market. In the case of piggybacking, a prospec- tive exporter piggybacks onto a manufacturer's existing trade organization. Using someone else's ETC, however, may involve single or multiple product lines that are complimentary or competi- tive with your product. Some of these organizations offer the services of their international marketing and distribution system to small- and medium-sized businesses. Specialized knowledge of selected markets and overseas marketing and distribution networks can thus be made available to manufacturers with compatible products. The types of services made available by these multinationals include: • Market research • Sales and distribution of products overseas • Countertrade • Credit and financial assistance • Aftersales service Some of these services, such as market research and overseas advertising, can be made available for a fee, and, on occasions, by sharing the operating expenses and profits from international transactions. An existing export manufacturer or a free stand- ing ETC might be interested in your product for two reasons. First, exports to existing markets can be increased at little additional expense and rela- tionships with foreign customers can be enhanced by satisfying their requests for additional prod- ucts. Second, in new foreign markets, potential customers may be easier to attract with an expanded line of goods and the expanded product line may facilitate countertrading opportunities (discus- sed later). There may be, however, some disadvantages. Your products may be subordinated to the piggy- backer's own product line or to the existing prod- ucts of the ETC. Thus, your products may not be promoted as aggressively, especially if they are in any way competitive with the primary line of goods. Moreover, in a declining market, emphasis would be placed on a limited range of goods that may exclude your products. In some cases, a manufacturer or ETC may try to convince you to use their export medium. In other instances, you may want to contact the export- er or the ETC to explore a business relationship. In the latter case, you will need to know whether the proposed transaction is a one-time trade or if the exporter will handle your product over the long term. Other questions for the exporter will include such subjects as financing, taking title to goods, advertising the product, and the ser- vice arrangements (warranties, guarantees) that will be made with the buyer. To facilitate your search for an ETC or a piggybacking opportunity, you should: • Call any ITA District Office, or the Office of Export Trading Company Affairs, in Wash- ington, D.C. and ask about the Contact Facili- tation Service. (This program is described in Chapter 4.) • Limit your search to your own industry, and remember the prime requirement of piggyback- ing or using another ETC: the exporting manufacturer must have a well-established foreign sales network in which your product fits. • Contact your industry's trade associations. Their executives will know firms active in export and can suggest potential piggybackers. • Contact trade magazine publishers in your industry. Their editors are knowledgeable and may help you select the best firms to approach. • Become active in your local District Export Council. (Also discussed in Chapter 4.) • Contact OETCA. Forming Your Own ETC — You may decide to proceed by forming your own trading company either as a sole owner or jointly with other in- vestors. The primary advantages to forming your own ETC are that: • Profits can be realized from both the pro- duction and exporting of goods • The ETC will be controlled by you • Partners can be chosen whose advantages (e.g., expertise in trading) complement your own (e.g., an exportable product) • Once established, your ETC can gain addi- tional profits at relatively limited expense by exporting products of other producers However, some risk will be associated with the operations of a trading company, especially in the first year or two of operation. On the other hand, use of someone else's ETC (or piggybacking) that purchases goods at your loading dock, eliminates both your trading risk and the profits that go with full or partial ownership of an ETC. Your ability to provide funds to capitalize an ETC will be the most important factor in deciding between form- ing an ETC or using one. Necessary Expertise — What Expertise Do I Need? Where Can I Find It? An ETC should perform or arrange certain activi- ties. A certain amount of expertise is necessary to provide and manage these activities. At this stage of your investigation you should evaluate first what activities your ETC should perform and second what skills are necessary in performing these activi- ties. What Will My ETC Do? The scope of activity for your ETC is virtually unlimited. The U.S. Standard Industrial Classi- fication (SIC) four-digit codes provide a conve- nient method for defining ETC services. The appro- priate codes are listed in Table 3-2 under four major areas: • Transportation and Communication — which includes warehousing, cargo handling, freight forwarding, arrangements for transportation, and domestic and international telecommuni- cations • Purchase and Sale of Goods — which includes over 25 broad categories from motor vehicle parts to beer and wine products • Finance and Insurance — which includes such activities as foreign exchange, short- and long-term financing, and various types of insurance • Services — which include advertising, consult- ing, processing international transactions, and legal assistance Rather than provide all of these services, your ETC may decide to purchase some services from existing organizations. For example, freight for- warding, warehousing, and cargo handling may be obtained through cooperative arrangements with specialized firms that do not take equity positions in the ETC. Does My Organization Have the Skills to Run an ETC? To perform all of the activities of a full service ETC, you will require specialized experience in each of the following areas: • Knowledge of foreign markets • Foreign distribution network and product servicing • Foreign exchange • Access to suppliers • Transportation and shipping • Trade services • Export financing Knowledge Of Foreign Markets— Successful in- ternational trade transactions are based on an understanding of foreign markets and how U.S. products can satisfy foreign demand. Your ETC must be able to maintain continuing market re- search and respond to product demand changes as they occur. Foreign Distribution Network and Product Servicing — Successful penetration of foreign mar- kets requires the ability to distribute products to local markets and the resources to service those products. Your ETC might have local offices in various countries or utilize local businesses to perform these functions. This function is essential for maintaining contact with the end-users in the marketplace and guaranteeing reliable servicing of products. Foreign Exchange— Your ETC must have expe- rience in foreign exchange and product pricing abroad. The ETC must be prepared to transact in a variety of currencies and profit from such transac- tions. In conducting countertrade transactions, foreign exchange market knowledge can mean the difference between profits and losses. Access to Suppliers— If your ETC is market- driven, you will require access to domestic prod- ucts either through customer production or gen- eral market availability. However, you must be prepared to go outside your own inventory to find other domestic suppliers as market demand dic- tates. Understanding domestic markets and product availability is critical to the success of your ETC. Transportation and Shipping — Transportation costs are frequently a significant component of the final price of a product. The efficient man- agement of these costs can have a direct bearing on the profitability of your exports. In that respect, your ETC must have a thorough understanding of truck, rail, barge and steamship capabilities and rates. One of the advantages you have with the ETC is that if you deal in limited product lines, but in volume, you may be able to consolidate shipments and take advantage of cheaper volume transportation rates. Trade Services— If your ETC will essentially purchase products from U.S. companies as a domes- tic transaction it must provide or arrange for a variety of trade services. These services may include Table 3-2— Scope of Activity for an ETC as Identified in the U.S. Standard Industrial Classification (SIC) Code Transportation and Communications 4225 General Warehousing and Storage: warehousing and storage of a general line of goods. 4226 Special Warehousing and Storage: warehousing and storage of special products, such as automobiles, furs, textiles, whisky, and goods at foreign trade zones. 4463 Marine Cargo Handling: loading and unloading of cargo at shipside, dock, pier, terminal, staging area, or in transit area. 4583 Airport Terminal Service: coordinated handling services for air freight at airports. 4712 Freight Forwarding: customs clearance of freight, foreign freight forwarding, freight consolidation, and shipping docu- ments preparation. 4723 Arrangements for Transportation: transport clearinghouse, brokerage, freight rate information, and customhouse brokers. 4783 Packing and Crating: packing, crating and otherwise preparing goods for shipping. 4899 Communication: domestic and international telecommuni- cations. Purchase and Sale of Goods SIC major groups 50 and 51 and the four digit codes associated with these major groups. Finance and Insurance 6052 Foreign Exchange: purchasing and selling foreign currency exchange and transmitting funds abroad for international trade transactions. 6153 Financing: furnishing short-term financing to business enterprises. 6159 Financing: furnishing long-term financing to business enterprises. 6411 Insurance Agents. Brokers and Service: placement of marine, casualty, and war risk insurance contracts with carriers for international trade transactions. Services 7311 Advertising: preparing advertising and placing such adver- tising in periodicals, newspapers, radio and television or other advertising media for international trade. 7392 Consulting: market analysis and research for international trade transactions. 7339 Processing International Trade Transactions: stenographic services. 7399 Processing International Trade Transactions: business ser- vices not elsewhere classified. 8111 Legal Assistance: legal services for international trade related matters. freight forwarding, goods-in-transit insurance, customs clearance documentation, and licensing. It is important that your capabilities in these areas not be overlooked. In many cases, especially for small firms, the paperwork involved in this process can discourage export participation. Your ETC can perform these functions, thus encourag- ing greater use of your services. Export Financing — The financial strength of your ETC will in large part determine its success in arranging foreign trade and guaranteeing deliv- ery. The best way to assure delivery is for the ETC to take title to the product. This can require sub- stantial investment and working capital. By tak- ing title, your ETC assumes all the risk in financ- ing the transactions and stands to benefit from a higher profit on sales than could be earned by simply receiving a fee for services. By offering a full range of services, your ETC should be prepared to participate in buyer/supplier financing. This requires a high level of expertise in credit management, export documentation, and foreign exchange. At a minimum, your ETC should possess a thorough understanding of export finance and have continuing relationships with public or private financial institutions which are qualified to provide services in this area. You should consider your own organizational strengths and weaknesses in the areas discussed above as you evaluate alternative partners who might enhance the operation of your ETC. The most common institutions that may be considered in a partnership are: • Manufacturing and service organizations • Financial institutions including bank hold- ing companies and venture capital entrepreneurs • Insurance, accounting, management con- sulting, and law firms • Service organizations such as freight forward- ers, shipping companies, distributors, and warehousers • Public entities such as State and local gov- ernment development organizations and port authorities Financing — Where Should I Look for Financing? Similar to most business initiatives, starting an ETC creates a need for startup and ongoing capi- tal. At this point, the costs should be calculated and potential sources of financing investigated. Most of the initial and long-term capitaliza- tion for an ETC should come from equity. In fact, one purpose of the ETC Act was to make equity more available to ETCs particularly through the Act's banking provisions. However, additional financing may be necessary. You can start looking for financing in the same place that your firm was initially financed. Most likely, this will involve a trip to your local bank. However, unlike most cases, remember that your banker can now be approached in two ways: you can ask him for credit (and finance with debt capital) or you can ask him to join you in the venture (and perhaps finance with equity capital). Equity financing can also come from individual investors or other organizations who may become partners in your ETC. In addition to the conventional sources of financ- ing, you should investigate Federal Government assistance. The Government has a number of pro- grams to encourage exporting through financing assistance (e.g., Eximbank, Small Business Admin- istration). These are described in Chapter 4. Step 3. Develop Detailed Business Analysis and Implementation: What Are My ETC Activities? Operational Plans? Countertrade Plans? Financial Plans? A detailed business plan represents a signifi- cant commitment to the project. This step in your ETC consideration should result in a detailed plan which can be used to attract additional capi- tal and serve as the operating manual for your new entity. It should include the following com- ponents: • Scope of Activity • Operational Plan • Countertrade Plan • Financial Plan Scope of Activity— What Are My Products? Markets? Services? This section of your plan will provide details of the proposed exportable items, the origins of such products, the range of export services to be performed by the ETC, and the markets to be served. Your final business plan will include: • A description of the products to be exported including: specifications, packaging require- ments for various markets, factory prices, shipping and transportation requirements, maintenance or warranty characteristics, and storage and warehousing • A description of the services that will be performed by the ETC and an analysis of the revenues and expenses associated with perform- ing each service. (A business option that typically needs to be considered is that of subcontracting out the performance of some specialized export services versus performing all of the offered export services in-house) • An evaluation of the producers to be served by the ETC including such factors as: pro- ductivity, reliability, financial capability, and alternative sources • A foreign destination plan including: refined market research and competition assessments, distributors and distribution systems, overseas warehousing, shipping and freight require- ments, licensing, promotional needs, prod- uct maintenance and servicing, marketing in recipient countries, and assessments of counter- trade implications Operational Plan— How Will the ETC Be Organized and Managed? The operation plan of your ETC will be driven in large part by the scope of operations and financing to be committed. The functions and skills needed, however, could include: • Management functions such as: governing board; president or CEO; vice presidents for operations, finance, administration and marketing; product specialists, management information, and communications personnel; and a foreign sales research staff. • Skills functions such as: trade negotiations; countertrade; market research; marketing and packaging; political-economic risk anal- ysis; pricing and financing; freight forward- ing, licensing, warehousing, and custom clearance; distribution and servicing of pro- ducts; and management information and com- munications systems. Countertrade Requirements — Do I Anticipate Countertrade and Am I Prepared? The term countertrade is used to describe a general process that requires the ETC seller to accept goods or other instruments of trade, in partial or whole payment for its products or ser- vices. The primary reason for this phenomenon is that there is shortage of hard currency in many countries and domestic products must be sold to finance imports. It is estimated by an OECD study that a significant portion of world trade takes place under some form of countertrade arrange- ment. Countertrade is illustrated in Figure 3-1. A number of variations occur in the practice of countertrade, including: • Barter. This is a practice that results in the direct exchange of goods for goods at agreed- upon values. • Partial Compensation. In this scenario the ETC receives partial payment in cash and must take a portion of the payment in goods. In some instances, especially if an ETC is dealing directly with a foreign government, options may be available on the type of goods to be received. • Offset. This is a variation of partial compensa- tion. However, there is a formal agreement between the trader and the recipient pur- chaser to engage in an offset arrangement to reduce cash transfers. For example, a seller of manufacturing machinery would take back some fraction of the goods produced by the machinery. In another instance, two devel- oped nations may enter into a co-production arrangement with various components, machi- nery, or plant equipment being traded in both directions. • Counterpurchase. One of the most common variations of countertrade is the situation where the ETC sells its products to a devel- oping nation and receives cash, but contrac- tually agrees to purchase local products as a percentage of cash received. • Switch Arrangements. This is one of the most complicated arrangements that an ETC can enter into and is only recommended for those trading companies that have gained consid- erable knowledge of complex financial trans- actions. This arrangement involves three enti- ties: the ETC, the recipient country for the goods, and a debtor nation to the recipient country. In this arrangement, the debtor nation pays for the goods to the ETC either in cash or partially with countertrade items. Expert knowledge of these types of arrangements is essential, and a major bank may be needed as an intermediary. • Swap Arrangements. Swap arrangements are those made by two trading companies or other intermediaries who take title to goods in Figure 3-1 — Countertrade Trading Patterns U.S. MANUFACTURERS ^ FREE-STANDING FULL-SERVICE ETC. ^ TARGET NATIONS FOR EXPORTS w ^ ♦ i I U.S. CONSUMER & BUSINESS MARKETS CONVENTIONAL SIMPLE COUNTERTRADE MULTIPLE COUNTERTRADE COMPLEX COUNTERTRADE t I I COUNTERTRADE NATIONS various locations and make exchanges to save transportation costs. Carefully structured countertrade arrangements can be beneficial to your ETC and add profits when the transactional time is minimized or con- trolled by the trader. Frequently, a country will impose a countertrade arrangement. In this case, while opportunities for profit might still exist, each arrangement should be carefully studied. Open-ended agreements can be a sure prescrip- tion for disaster and should be avoided in most instances. The "export first and deal later" trades should only be engaged in by the most experi- enced ETCs with significant financial strength ind knowledge of the purchaser. Currency fluc- uations are a normal hazard associated with trad- ing. However, these can be minimized by careful forward planning and the addition of a risk mar- gin to the price of goods sold. An overseas office in the recipient country is highly desirable to help ensure that all countertrade arrangements are monitored prior to and throughout the transaction. Financial Plan — What Is the Financial Picture for the ETC? The financial plan will be developed from pre- viously established objectives and the three other planning components discussed in the business plan. Major elements of the financial plan include: • Assessment of existing business and finan- cial models for ETC development to provide guidance to planners • Projected sales volume: from startup through the fully operational phase • Gross margins including projected costs of sales for export products and other services • Capitalization requirements including equity to debt ratios, cash flow analyses, sources of financing (e.g., stock offerings, other in- vestments), capital to sales ratios • Profitability including income projections (startup, break-even, full-scale operations), return on investment, profit to sales ratios • Pro forma income statements and balance sheets including cost projections of salaries, fringe benefits, marketing and travel, informa- tion and communications systems, insurance, overseas offices, shipping and warehousing, inventory and debt-interest schedule This plan should be in great enough detail so that it can be used in applications for credit. Chapter 4 — Where You Can Go for Help in the Government The Federal Government provides a range of services to assist those interested in exporting or in trading companies. These services constitute a valuable resource in each stage as you evaluate your role in export trade. There are programs targeted directly at export trading companies as well as programs oriented towards exporters, small businesses, or any type of U.S. business operating overseas. The Office of Export Trading Company Affairs (OETCA), Department of Commerce, in Washington, D.C., is the key contact point for those especially interested in the ETC Act. This chapter presents an overview of Federal Government programs that will assist those forming ETCs. It organizes the programs into four cat- egories: • Evaluating markets • Acquiring the requisite expertise • Financing the venture • Handling risk A summary of government ETC assistance to exporters is presented in Table 4-1. A listing by government agency of the various programs including how they should be contacted is contained in Appendix B to this book. The most comprehensive U.S. Government guide to inter- national business is Washington's Best Kept Secrets, edited by the Overseas Private Invest- ment Corporation. Evaluating Markets Counseling As suggested in Chapter 3, you should evaluate markets at an early stage of your investigation as you consider exporting opportunities and ETCs. You should start by contacting your local Depart- ment of Commerce, International Trade Admin- istration (ITA) District Office. (The addresses are provided in Appendix C.) ITA provides a coun- seling service for firms interested in exploring exporting opportunities. As trade specialists in the Field, ITA counselors are an invaluable sounding board for ideas and various approaches and they can help guide you through the various govern- ment programs. If you are considering the use of any private consulting services, ITA can help you choose and use them. For more specialized information, ITA maintains an Export Counseling Unit in Washington, D.C. This program is organized both by region and product. You can telephone them or, if you are planning to visit Washington, D.C, you can make an appointment to meet with the appropriate expert. Dissemination and Publication In 1980, ITA created the U.S. and Foreign Commercial Service (US&FCS) to support and represent American trade and investment inter- ests abroad. Previously, this function had been provided by State Department economic and com- mercial officers, as is still the case in smaller posts. FCS's primary interest is in export expan- sion. FCS agents are assigned to 120 offices in 66 countries that are considered to be the principal U.S. trading partners. (See Appendix D.) They seek out trade and investment opportunities which they disseminate through a variety of ITA publi- cations and data bases. ITA publications and data bases assist U.S. exporters in all the diverse tasks of identifying and reviewing export market opportunities. The Trade Opportunities Program (TOP) is an ITA program for publicizing market and direct sales opportunities to subscribing U.S. exporters. More general marketing and background information is provided by Country Market Surveys (CMS), Foreign Economic Trends And Their Implications For The U.S. (FET), and Overseas Business Reports (OBR). There are also the Agent/Distributor Serv- ice (A/DS), World Traders Data Reports (WTDR) and Export Mailing Lists (EML) which provide information to U.S. exporters on potential foreign representatives, distributors, and other contacts including credit information. The Commercial News USA (CN) is a publication distributed overseas to disseminate information on new U.S. products to foreign purchasers. Table 4-1 — Guide to Government Assistance to Exporters Export Potential Direct Regula- Market Sales Agents/ tions and Research Leads Distributors Licences Export Unfair Credit and ETC Foreign Feasibility Assistance Counseling Competition Insurance Studies U.S. Department of Commerce, International Trade Administration Programs Office of Export Trading Company Affairs ITA Business Counseling Service .... X Export Information Reference Room X Exporters Licensing Service Trade Opportunities Programs Agent/Distribution Service World Traders Data Reports Commercial News USA Foreign Traders Index X Country Market Surveys X Export Mailing Lists Overseas Business Reports X Foreign Economic Trends X National Oceanic and Atomospheric Administration ... X U.S. Department of Agriculture Product Advertising Abroad Commodity Credit Corporation .... Export-Import Bank of the U.S. Briefing Programs Small Business Advisory Service... "New to Export" Short-Term Insurance Policy Small Business Credit Program Working Capital Loan Guarantee Program Medium-term Credit Program Overseas Private Investment Corporation Feasibility Studies/Counseling Insurance Small Business Administration Export Revolving Line of Credit ... Counseling through SCORE or ACE Small Business Investment Corporations Office of the U.S. Trade Representative U.S. Trade and Development Program USAID, Bureau for Private Enterprise (PAE) Agricultural Products If your product is primarily agricultural, then the Foreign Agricultural Service (FAS) in the U.S. Department of Agriculture (USDA) has sever- al services dedicated to assisting exporters. FAS maintains a network of agricultural counselors, attaches, and trade officers overseas, as well as a back up team of commodity analysts, marketing specialists and other support staff in Washington, D.C. They publish a monthly newsletter (compa- rable to ITA's Commercial News USA) entitled Contacts For U.S. Farm Products, which adver- tises U.S. farm products to potential overseas buyers. Developing Countries The Agency for International Development (AID) is a U.S. agency charged with administer- ing America's program for economic assistance to developing countries. Its operations overseas generate several types of export opportunities. AID provides loan or grant assistance to develop- ing countries under the Commodity Import Pro- grams (CIP) to finance the procurement of basic commodities, such as machinery, industrial chemi- cals, tallow, farm equipment, or medical supplies. Another type of AID export program involves project procurements. Commodities purchased as a part of this program are related to projects financing specific facilities and undertakings such as construction of irrigation facilities, rural health networks, malaria control programs, and equip- ping small farmers with appropriate tools and machinery. Both of these types of commodity pro- curements are made from the U.S. private sector by competitive bid. The availability of tenders for AID financed commodity procurements is announced in the AID Finance Export Opportunity and the Aid procurement Information Bulletin. These announcements are available free of charge. AID loans and grants are also used to finance project requirements for technical and expert ser- vices that are contracted competitively among U.S. firms either by AID or by host countries. The amount of funding available for AID direct con- tracting is limited since the larger part is appro- priated to host country governments. Host coun- tries then purchase U.S. goods and services directly from the private sector, usually through competi- tive bid procedures. The availability of tenders, or request for proposals for AID direction and host country requirements for technical services, are synopsised in the Commerce Business Daily. Acquiring the Requisite Expertise To successfully form and manage an ETC, there is a need to build up a great deal of expertise. The actual areas of expertise are examined in Chapter 3. This expertise can be acquired either through learning or joining with partners who have already attained the necessary knowledge. information is put into the data base and anyone conducting a search will receive your name. (In 1984, ITA has published a directory identifying CFS registrants that can be purchased for a nominal fee.) At the initial phase of your investigation, it might make more sense to just register with the service and only subsequently search for partners after you have thoroughly explored the feasibility of exporting and using an ETC. Learning About Exporting Your local Small Business Administration (SBA) office can be helpful in educating you with their export seminars and counseling service. (See Appendix E for locations.) SBA local offices fre- quently cosponsor seminars on various aspects of exporting, such as basic export procedures, export financing, and export licensing. SBA offers sev- eral free counseling services to small entrepre- neurs. These services are provided by the Active Corps of Executives (ACE), the Service Corps of Retired Executives (SCORE), various college and university programs, and in cooperation with the Federal Bar Association. District Export Councils (DECs) are local organi- zations which combine Federal, state, and local groups into cohesive units dedicated to encourag- ing exports from their region. They have two pro- grams which could prove useful to you in learning about exporting. First, they provide a forum to make the direct contacts with others interested in exporting. This can include a formalized counsel- ing service. Second, they conduct seminars, work- shops, and conferences on various aspects of exporting. Finding Partners To help locate potential partners, the Contact Facilitation Service (CFS) was established in the Office of Export Trading Company Affairs in ITA. This program is aimed at identifying and introducing partners who have complementary interests in the formation or use of an ETC. It operates much like a computer dating service. Participants fill out forms identifying the type of ETC that they would like to form or use in terms of geography and SIC code. This information is matched with that of others who have registered with the service. There are two ways of using this service: you can conduct a search for anyone with a situation complementary to your own; or, you can simply register (which is free) so that your Financing the Venture A third area in which the Government can help is financing. The need for financing to be compet- itive in foreign markets is a fact of business life. The availability of credit is important in penetrating an overseas market, particularly in many of the less developed countries. Fortunately, the reluc- tance of smaller U.S. banks to extend credit for exporting to distant markets can be largely over- come both through detailed planning and by government-assisted financing. This is available from the Export-Import Bank of the United States (Eximbank), Small Business Administration (SBA), and the USDA's Commodity Credit Corporation (CCC). Export-Import Bank of the United States (Eximbank) The Eximbank is an independent U.S. Govern- ment agency created to encourage and facilitate U.S. trade relations. There are three types of pro- grams which are most likely to be of assistance to newly forming ETCs and other reliable compa- nies. The Eximbank has created the Working Capi- tal Guarantee Program to assist the U.S. exporter obtain short-term working capital loans to help finance the purchase of materials, products, ser- vices and/or labor to be used in producing goods or services for a future or existing export sale or for foreign business development such as market- ing, trade fair participation or other promotional activities. The Eximbank will guarantee specific loans or revolving lines of credit for ETCs or other exporters when the eligible lender would not otherwise have granted the loan. Although usual collateral for most loans would be inventory and accounts receivable, Eximbank will accept requests for its guarantee under this program with any other suitable type of collateral. Additionally, an exporter should consider Eximbank's Small Busi- ness Credit Program and its Medium-Term Credit Program. For example, if your normal commercial bank is reluctant to extend credit to your foreign buyer, Eximbank might assist by guaranteeing your bank's loan. The Eximbank maintains a Small Business Hotline which exporters who need guid- ance on export financing or logistics can call (800-424-5201). Small Business Administration (SBA) The SBA has three finance and investment pro- grams which a new ETC might find of assistance. Under the Export Revolving Line of Credit Pro- gram, the SBA is authorized to provide revolving lines of credit for export purposes to eligible small businesses or ETCs for pre-export financing and to help them develop foreign markets for a period of up to 18 months. The SBA can guarantee up to 85 percent of a bank line of credit to finance the acquisition of raw materials, inventory, or labor needed for producing or marketing exports. Under the SBA Regular Business Loan Program, eligi- ble small exporters may obtain longer term fund- ing needed to acquire fixed assets, inventory or working capital. Exporters which have bank equity participation are not eligible for either type of financing. Small Business Investment Companies (SBIC) licensed by SBA can provide equity capi- tal and long-term financing to small ETCs or exporters if it is consistent with the SBICs corpo- rate strategy. Commodity Credit Corporation (CCC) The CCC of the Department of Agriculture has several programs to assist in the financing of U.S. agricultural exports. The Agricultural Export Credit Guarantee Program operates in cases when private financial institutions are unwilling to pro- vide financing without a guarantee. The program guarantees letters of credit from foreign financial institutions against default. The Foreign Agricul- tural Service (FAS) of USDA administers this program. Handling Risk A fourth area of concern to firms considering exporting relates to risk. Can the Government help you reduce the particular risks of overseas business? Yes, the Government can help in two major ways. It can help in the early stages by sharing the costs of the feasibility analysis. In the later phases of your undertaking, it can help through insurance programs. Feasibility Studies Trade and Development Program The Trade and Development Program (TDP) is a small government organization whose primary goal is to promote U.S. exports while contributing to development. The TDP provides grants to devel- oping countries for planning services conducted by American organizations. This improves the prospects for U.S. firms of winning design and construction contracts. Also, TDP cofinances, on a reimbursable grant basis, planning services for U.S. investors overseas but like all TDP programs, these planning services are oriented towards the larger projects. Architecture, engineering, or con- struction ETCs should, if they have targeted a specific foreign project as a potential market, investigate TDP feasibility study financing as a potential door-opener. Bureau for Private Enterprise U.S. AID's Bureau for Private Enterprise will also participate in the financing of feasibility studies of potential projects that significantly con- tribute to the development of the market mecha- nism in a third-world country. Applications must be submitted by private host country sponsors who will eventually be investors in the project. Insurance Eximbank and FCIA Overseas business involves some particular com- mercial and political risks such as inconvertibil- ity of local currency, expropriation, and non- payment for commercial reasons by foreign firms that are not liable in U.S. courts. There are sev- eral government programs to help insure against such risks. The Eximbank, in cooperation with the Foreign Credit Insurance Association (FCIA), will insure foreign receivables against nonpayment. FCIA is an agent of Eximbank which sells and services export credit insurance policies. The Eximbank insures or reinsures the political and commercial risks. With FCIA insurance, the exporter obtains comprehensive protection against non-payment on its foreign receivables. The Eximbank and FCIA have established a program of particular interest to newer and smaller exporters entitled "New-to-Export Policy." It is tailored to new and small exporters selling U.S. products on a short-term basis. Overseas Private Investment Corporation If your business plan calls for significant overseas investment, then a government corporation called the Overseas Private Investment Corporation (OPIC) can be particularly helpful. Primarily inter- ested in assisting U.S. investors overseas, it also has insurance, counseling, and credit programs which are of assistance to U.S. traders. If the project involves significant overseas investment, then OPIC can provide financing assistance through either direct or guaranteed loans. Also, OPIC offers insurance on investments or currency held overseas against expropriation, currency incon- vertibility, physical damage from war, revolution, insurrection or civil strife, and other political risks. Chapter 5 — Variables in Designing an ETC The ETC Act creates unlimited possibilities for ETC formation options. The Act allows ETCs to be based on single or multiple products from vari- ous regions of the United States, exported to a single foreign country or globally. Moreover, the Act does not restrict which U.S. industries or organizations can form an ETC. Such diverse entities as manufacturers, bank holding compa- nies, service organizations, trade associations, pub- lic authorities, and foreign entities are eligible participants in ETCs. Figure 5-1 and Table 5-1 illustrate that for domestic coverage, types of product, and international scope alone, there are 27 different combinations for you to consider. Although the possibilities are endless, an under- standing of basic elements that define a trading entity will guide you in establishing your own ETC. A key variable in designing an ETC is the range of services to be provided. An ETC can provide comprehensive services as envisioned by the ETC Act or it may offer only several links in the export service chain. Later chapters of the Guidebook present models that provide comprehensive ser- vices. Your ETC may decide to specialize in cer- tain service areas rather than be a one-stop shop. The major variables that define the operational scope of a trading company are: • U.S. domestic coverage • Products or services handled • The foreign countries and specific consum- ers targeted for export attention • The institutional participants in ETCs • Trade volume and capitalization considera- tions This chapter of the Guidebook discusses these variables and suggests the types of trading enti- ties that are possible. Chapter 6 discusses finan- cial considerations and elements of costs, while Chapters 7-13 provide hypothetical examples of six ETC formation options. Figure 5-1 — 27 Major Product and Market Alternatives SINGLE PRODUCT LINE SINGLE PRODUCT LINE COMPREHENSIVE PRODUCT AREA LINE MULTIPLE PRODUCT LINES STATE OR LOCAL WORLD WIDE GEOGRAPHIC REGION SINGLE COUNTRY Table 5-1 — Description of 27 Major Product and Market Alternatives Domestic Coverage Product or Mix Service International Scope ETC Organizational Examples U.S. National Trading Company . U.S. National Trading Company . U.S. National Trading Company . U.S. National Trading Company . U.S. National Trading Company . U.S. National Trading Company . U.S. National Trading Company . U.S. National Trading Company . U.S. National Trading Company . Regional Trading Company Regional Trading Company Regional Trading Company Regional Trading Company Regional Trading Company Regional Trading Company Regional Trading Company Regional Trading Company Regional Trading Company State or Local ETC State or Local ETC State or Local ETC State or Local ETC State or Local ETC State or Local ETC State or Local ETC State or Local ETC State or Local ETC Multiple Comprehensive . Single Multiple Comprehensive . Single Multiple Comprehensive . Single Multiple Comprehensive . Single Multiple Comprehensive . Single Multiple Comprehensive . Single Multiple Comprehensive . Single Multiple Comprehensive . Single Multiple Comprehensive. Single World Wide Trade Major multinational or large World Wide Trade money center bank holding World Wide Trade company ETCs. Some Geographic Region Webb-Pomerene Associations. Geographic Region Geographic Region Single Country Single Country Single Country World Wide Trade Large-scale "free-standing" World Wide Trade ETCs; public-private sector World Wide Trade ETC developments in major Geographic Region industrial states: Geographic Region Webb-Pomerene Associations, and Geographic Region moderately sized multinationals. Single Country Single Country Single Country World Wide Trade Small public/private sector World Wide Trade ETCs or local producers World Wide Trade combining to service small Geographic Region specialized markets. Geographic Region Geographic Region Single Country Single Country Single Country Domestic Coverage ETCs may be organized to provide trading ser- vices on a national, regional, or local basis. National coverage would entail the establishment of an organizational entity exporting goods from many or most of the 50 States. Regional coverage (e.g., Middle Atlantic States, Southwestern States, and New England States) would limit ETC activity to a geographic area. Finally, ETCs could be formed to export the products of a single state or a local entity within a state. Product or Service Mix In reviewing the types and mixes of products that are receiving export attention in the United States, three major groupings have emerged: • Single products that are supplied by multi- ple manufacturers. The Webb-Pomerene Associations are examples of organizations that have traditionally concerned themselves with the export of a single product (e.g., cotton, phosphates, grains, poultry). • A line of products that relate to each other and form a comprehensive line of goods. An example of this category is business equip- ment which could include business comput- ers, reproduction equipment, typewriters, and office furniture. • Multiple product lines which might include, for example, business equipment, agricultural products, and electronic equipment. ETCs focusing on developing exports from a cer- tain region or state might engage in such a diverse product mix. International Scope The international focus of an ETC provides a further example of the potential for the develop- ment of diverse organizational entities. Special- ized export attention may be accorded a single country, a geographic region (e.g., Latin Ameri- ca, Pacific Basin), or on a worldwide basis. Institutional Participants in an ETC The types of institutions that may participate in an ETC represent another grouping of options to consider. These participants are summarized in Figure 5-2 which shows the spectrum of insti- tutions that might form trading companies. Any one of the groups shown in the illustration or an element within a group can form an ETC. It is more probable, however, that two or more of the Figure 5-2 — Export Trading Company: Institutional Participants BANK HOLDING COMPANY LAW. ACCOUNTING INSURANCE & CONSULTING FIRMS. ASSOCIATIONS $ j£ DOT EXPORT MANAGEMENT COMPANY(S) EXPORT SERVICE SUPPORT COMPANIES entities will participate together either formally or informally in an ETC. The following six insti- tutional groups are discussed below in terms of their potential role in ETC development: • Bank holding companies • Manufacturers • Export management companies • Export service support organizations • State, city, and county governments • Miscellaneous groups including private in- vestors and other service organizations Bank Holding Companies A primary objective of the ETC Act is to encour- age banking groups to actively participate in the formation of ETCs. Their principal contributions to an ETC would be financing, their international network of business contacts, and their interna- tional financial expertise. The Department of Commerce/International Trade Administration MANUFACTURERS OR SERVICE ORGANIZATIONS INDIVIDUAL INVESTORS, PENSION FUNDS. OTHER EQUITY CAPITAL (DOC/ITA) surveyed 140 banks and an over- whelming majority favored the proposed new law. In addition, the American Bankers Association (ABA) and the Bankers Association for Foreign Trade (BAFT) voiced strong support during the Congressional hearings on the legislation. The role of a bank holding company in ETC formation can be as the single owner or as an equity partner. In the former case, the holding company could establish the ETC as a wholly- owned subsidiary and build the operation around a cadre of banking personnel who are experienced in international finance. The many other skills needed to staff such an organization could be drawn from the international trading community. The second option, which is partial ownership of an ETC, is another course of potential action for bankers. In this scenario, one or more partners (e.g., manufacturer, freight forwarder, trading company, port authority) would join with the bank to organize the ETC. A variation of this option is for several bank holding companies to combine and 29 jointly sponsor the development of an ETC. This course of action might be followed as a means of spreading risk through two or more financial institutions. The approach may be particularly attractive to smaller, domestic banks wishing to expand their business activity into the interna- tional field. Manufacturers The role of manufacturers with exportable prod- ucts may change dramatically with the advent of the ETC Act. In the past, high financial risk associated with the development of international markets has discouraged small- and medium-sized producers from attempting to export. Many of these companies could ill-afford the time and effort needed to develop international markets and to solve the complex financial problems of barter transactions and third-country trade. Despite major efforts and support incentives by the Federal Government to increase exports, the uncertainties were considered too great to offset risks. One solution to this problem is for a group of manufacturers to form an ETC, either alone or jointly with financial or service organizations. The risk is thus shifted to the ETC. The small- and medium-sized manufacturers' responsibilities in the ETC are to produce goods at an internation- ally competitive price, meet delivery schedules, and package the products in accordance with ETC specifications. The manufacturers' goods would be purchased by the ETC, and this entity would assume full responsibility for shipping and mar- keting the products overseas. The two major manufacturer models considered in this Guidebook are as follows: • A vertically organized ETC in which man- ufacturers, with diverse and non-competitive products, combine their resources with other financial or service organizations to estab- lish the trading entity. • A horizontally organized manufacturers' ETC in which similar products are sold overseas by the trading company. The Webb-Pomerene Associations are examples of this type of ETC. In addition, agricultural co-ops, products manufactured from a single state or region, and even counties can form their own ETCs to export a single or related line of products. Export Management Companies Many export management companies (EMCs) are appropriate candidates for evolution into full service ETCs. There are over 2,000 organizational entities which are categorized as export manage- ment companies or "jobbers." The majority of these organizations export less than $5 million a year and are usually privately owned. Some of the smaller EMCs lack financial resources and may be unable to attract investors because of potential illiquidity of ownership shares. However, several smaller EMCs, operating in diverse markets and willing to sacrifice indepen- dence for wider opportunities in the international arena, could provide the basis to attract bank investment. The larger EMCs, those with exports of $5 million or more, are excellent candidates for financ- ing ETCs. They have already demonstrated exper- tise in overseas marketing, management, overseas connections, international shipping, and product knowledge. Thus, financing, the other essential ingredient for ETC success, should be readily available by selling equity to banks, trade service organizations, the public, or any of the other mul- titude of potential ETC investors. Public Sector ETCs A possible major thrust in the ETC develop- ment program is the direct participation in the establishment of trading companies by local gov- ernments, states, or regional authorities. There is a growing recognition in state capitals of the value of ETCs in promoting export trade as a tool for economic development in their regions. The ETC Act encourages the formation of pub- lic sector ETCs. For example, the infrastructure of a port provides a logical hub upon which to center the formation of an ETC. In fact, many port authorities throughout the country are already considering the formation of ETCs. As an exam- ple of this approach, the Port Authority of New York and New Jersey, and the Virginia Port Authority have active trading entities. Landlocked states can use other organizational hubs such as rail connections and warehousing as the focal point for their ETC. Small- and medium-sized manufacturers may find the development of public sector supported ETCs an attractive avenue for participation in the exporting process. However, in regions where private sector ETC initiatives are already under- way, public entities might choose to act as a moti- vational force in the ETC development process and not as a direct participant. Export Service Organizations There are a number of export service organiza- tions that provide essential support to the flow of goods overseas. These include sea and air trans- portation organizations, freight forwarders, product distributors, warehousers, and export marketing companies. Any one of these service groups could provide the focal point in the development of an ETC. At present, a number of major export ser- vice firms are showing interest and some are explor- ing the possibility of forming subsidiary organiza- tions or combining with other institutions to develop ETCs. These export support organizations may, similarly to the EMCs, find it convenient to join forces with banks or manufacturers. Other ETC Organizers A number of other service entities are demon- strating interest in ETC formation. Included in this group are law, accounting, and management consulting firms. Each of these organizations can contribute their specialized knowledge of the legis- lative, financial, and organizational attributes of ETCs. Trade associations can provide a forum for informing small- and medium-sized manufacturers of the advantages of forming or participating in an ETC or, can form an ETC around the products of their members. Such an organization group could result in international marketing of a single product or product line, with agreements for market and product allocation among members, fixing an export price, and exclusive exporting through the entity. All of these could receive antitrust protec- tion under an export trade certificate of review under Title III of the ETC Act. The trend in U.S. economic development has emphasized the service industries over the past decade. As many as 7 out of 10 jobs are now associated with these activities. A growing sur- plus of "invisibles" in the U.S. balance of payments, part of which can be related to the service indus- tries, suggests a further opportunity for ETC evo- lution. Accordingly, small- and medium-sized members of the international service industries are excellent candidates for ETC formation. These service industries can be categorized as: account- ing; advertising; banking; business and technical services; construction, engineering, and design; educational services; employment services; fran- chising; health services; hotels and motels; insur- ance; leasing; motion picture; shipping; and tour- ism and air transport. Service ETCs can also be developed to support the construction and engineering industry in its efforts to obtain foreign contracts. ETCs can be developed for both the long- and short-term depending upon the objectives of the entities involved. For example, an ETC made up of con- struction firms can be organized with a bank holding company to compete for a single overseas turnkey project. Another possibility is for foreign entities such as banks or various foreign manufacturers to join a U.S. ETC. Such foreign partners may enhance the ETCs ability to penetrate markets abroad and facilitate foreign transactions. This might spring up as a logical extension of other business, educational, and cultural exchanges that exist between American and foreign cities and organiza- tions both domestically and abroad. Finally, a new opportunity is provided for all types of equity capital investors to become involved in the international trade arena. For example, investing organizations such as venture capital- ists can also invest in an ETC. Trading Volume and Capitalization A major purpose of the ETC Act was to make both equity and debt capital more readily avail- able to export-oriented enterprises by allowing financial institutions to participate as ETC organi- zers. This option is intended to solve two signifi- cant and interrelated factors that have impeded the progress of small- and medium-sized compa- nies in generating or expanding exports: difficul- ties in obtaining equity capital to finance both trade opportunities and expansion, and the inabil- ity to appropriately leverage equity capital and obtain the necessary financing for export ship- ments. The Act attempts to alleviate both prob- lems by providing opportunities to finance exporting through the medium of bank holding companies. This section illustrates three different trade volume options that may help as you plan the size of your ETC. Three trade volume possibilities are: • A large exporting institution that exports in excess of $650 million per year representing large multinational exporters and Webb- Pomerene Associations • A moderately/sized trading company with average exports of $65 million representing some EMCs/ETCs exporting in the $50-$80 million range • A small trading entity whose trade activities result in export sales of $6.5 million per year representing a large number of EMCs and/or other export service organizations whose sales range from a few hundred thousand dollars to several million This discussion of trade volume will focus on six variables: • Export sales • Gross profit from operations • Capital to sales ratios • Capital requirements for growth over a 4-year period • Number of employees • Employee to sales ratios Major Trading Entities This trade volume range illustrates the large ETCs that will most likely develop from the interna- tional divisions of the Fortune 1000 group or from major bank holding company initiatives. Many of these entities will provide piggyback services to the small- and medium-sized producer and be a fully-owned subsidiary of the parent organization. The time required for a trading entity to reach a sales goal exceeding $650 million will be heavily dependent upon the initial condi- tions associated with ETC development. For example, the international division of a major U.S. corporation with existing sales of $200 to $300 million could facilitate the expansion in a few years. This expansion could be accom- plished by an aggressive campaign to create markets through a world trading network devel- oped by a subsidiary ETC. On the other hand, a free standing ETC, developed from the ground up, could take many years to reach maturity and a sales level of $650 million. This example relies on incremental capitalization over a 4-year period and a gross profit or margin of 8 percent of net sales. An example of the various financial relation- ships and ratios for a major ETC model are: Millions of dollars Export Sales $650 Gross Profit $52 Capital to Sales Ratio 1:10 Equity Capital Growth (1-4 years) $10-565 when it was determined that foreign trading com- panies had been able to compete more effectively than their U.S. counterparts. Japanese institutions were able to borrow funds for financing exports at up to 20 times their net worth. European compa- nies were advantaged by being able to leverage capital on a 1:10 basis. U.S. companies, however, were working on a much lower leveraging basis and, in many instances, were only able to obtain capital to sales leverage of 1:6. The capital-to- sales ratio noted above is believed reasonable in terms of designing an ETC and is used to illus- trate equity capital requirements over a 4-year development period. The number of employees associated with such an organization will vary significantly depending upon such considerations as whether or not the ETC is a subsidiary or "free standing," according to the product and/or service mix, and the extent of overseas markets. Moderately Sized "Free Standing" Trading Entity As noted previously, there are a small number of free standing U.S. trading companies that export in the $50 to $80 million a year range. Free stand- ing ETCs are those that are not subsidiaries of other organizations and whose sole purpose is to act as an intermediary between U.S. producers and foreign buyers. This group of trading compa- nies is believed to best illustrate the opportunity for future ETC development in terms of attract- ing the progessive small- and medium-sized pro- ducers. This condition primarily exists because of the extent of services offered by this entity and also the financial resources available to such an organization. The ETC is able to "fine tune" product marketing, screen manufacturing for competitive- ness, and develop the trading networks needed to be an effective force in world trade. A profile of the overall sales and capital- ization of this size entity is discussed below. This hypothetical example assumes a growth period of 2 to 4 years to attain the sales level noted, and requires equity levels of particip- ation that should provide a modest profit in the second year of operation. The results are: Item Millions of dollars The capital-to-sales ratio noted above is derived from a review of various data pertaining to the leverage requirements of an ETC. This informa- tion was discussed during Congressional hearings Export Sales 565 Gross Profit 510 Capital to Sales Ratio 1:10 Equity Capital Growth (1-4 years) $1-56.5 The capital-to-sales ratio used to illustrate this example is discussed in the previous volume model and a gross profit margin of 15 percent is included in the hypothetical design. The number of employees would range from 75-125 depending upon the ETC operational scope and each employee would generate from $500,000 to $850,000 in sales per year. Small Export Trading Company This example is based upon a large body of free standing U.S. trading companies that presently operate in the international arena. It has been esti- mated that there are over 2,000 of these organi- zations. Usually called EMCs, sometimes ETCs, and often "jobbers," these small organizations have export sales that average about $3 million a year. However, this figure falls below minimum thresholds for full service ETC entities. At the design level of $6.5 million of export sales per year, ETC institutional viability occurs in terms of manpower and potential trading flexibility. An ETC with this trade volume is the most likely target for many small- and medium-sized firms because the capitalization requirements for the small entity tend to fall within the purview of businesses with limited funds. The design char- acteristics for this tightly organized entity are: Millions of Dollars Export Sales S6.5 Gross Profit S0.8 Capital to Sales Ratio 1:10 Equity Capital Growth (1-4 years) $.2 to $.65 The entity discussed above realizes a 12-percent gross profit after purchasing and shipping and reaches maturity after 4 years. The number of employees required to operate an ETC with diversi- fied products and widely scattered markets would naturally differ from a single product/single market ETC. However, in considering average costs, a staff of 10 to 15 employees appears reasonable, and each employee would generate from $400,000 to $650,000 in sales per year. The five variables described above — domestic coverage, products, markets, participants and size — can be combined in any number of ways to form an ETC. In Chapters 7-13, six hypothetical ETCs are described in which these variables are combined to take advantage of the resources avail- able and to pursue the goals of the organizing entities. Chapter 6 — Financial Considerations in Forming an ETC You must consider a number of financial issues and relationships in developing your ETC. These considerations were mentioned briefly in the pre- vious chapter and interact with such factors as your scope of operations, capitalization, and nature of your overseas markets. In planning your ETC and considering ETC formation options a number of variables will significantly influence the actual values that will appear in the pro forma income statements and balance sheets of your ETC busi- ness plan. A full-service, free standing ETC which pur- chases goods at a manufacturer's loading dock and delivers these same goods to an overseas buyer's warehouse will incur costs significantly greater than those associated with a partial service ETC. In the latter instance, an ETC may require the manufacturer to provide the goods F.A.S. (Free Alongside) and the buyer may take responsibility for the goods at the foreign port of entry. Some EMCs share responsibility for the goods in pro- cess with both seller and buyer. This section of the Guidebook discusses detailed financial and cost considerations for exporters contemplating the establishment of full service trading entities. These entities would assume full responsibility for all intermediary tasks between seller and buyer. However, the seller's price is assumed to include any special packaging or design modifications needed to market the product abroad. Similarly, negotiations between the ETC and pro- ducer (seller) would be necessary to resolve the important question of merchandise servicing abroad. The key financial and cost considerations dis- cussed below are as follows: • Cost of goods sold • Gross profit • Operating expenses • Interest income • Return on equity A checklist has been prepared to assist you in reviewing the various elements of cost that must be considered in designing an ETC. This checklist is contained in Table 6-1 and should be used as a reference in reviewing the ETC hypothetical exam- ples in the subsequent chapters. Cost of Goods Sold There are three major financial elements that you must consider in calculating the cost of goods sold. These elements are: • The price paid for the merchandise at the manufacturer's loading dock • The costs associated with the transportation of goods to overseas destinations • A general allowance to offset any bad debts that may occur Price Paid for Goods The price paid by the ETC for goods will be based on the manufacturer's costs and profits and include any special packaging expenditures that are associated with overseas promotions. The manufacturer's final price will normally be dis- counted when compared to domestic sales since the ETC will assume all the risks and selling expenses related to the export sales. The manu- facturer and trading company will establish the precise costs associated with any merchandise servicing requirements such as warranties or guar- antees and develop equitable arrangements for covering any costs of this nature. The ETC may act as a broker in this regard between buyer and seller or take responsibility for arranging for ser- vice support in the purchaser's country. Transit Costs Calculations of the costs associated with the transportation of goods to overseas destinations will be based on an assessment of the following elements: • Domestic transportation • Overseas freight forwarding • Insurance Table 6-1— Checklist of Financial and Cost Considerations in Forming an ETC Financial L'lcmeni INCOME FROM OPERATIONS NET SALES Cost of Goods Transit of Goods Domestic Transportation Overseas Freight Forwarding Insurance Warehousing Customs Duties Consular Fees Loading/Unloading Vessels Import Duties Import Brokers Fees Other Overseas Costs Cost of Goods Sold Bad Debt Allowances GROSS PROFIT OPERATING EXPENSES Salaries and Wages Chief Executive Officer Vice President Operations Vice President Marketing Vice President Finance Other Officers (No ) Export Service Personnel (No ) Product Specialists (No. ) Regional Office Directors (No. ) MIS/Communications Specialists (No ) Salesmen (No. ) Market Research Personnel (No ) Accounting and Bookkeeping (No. ) Secretarial and Clerical (No ) Other Personnel (No ) Total Salaries and Wages General Expenses Facilities Fringe Benefits (No Rate ) Travel and Related Costs Communications Advertising and Promotion Equipment Maintenance Overseas Office(s) Miscellaneous Total General Expenses Depreciation and Amortization Computer and Communications Furnishings and Office Equipment Other Set-up Costs Interest TOTAL OPERATING EXPENSES INTEREST INCOME INCOME BEFORE TAXES INCOME TAXES NET INCOME RETURN ON AVERAGE EQUITY (ROE) Warehousing Customs duties Consular fees Loading/unloading vessels Import duties Import broker fees • Inland transportation • Other overseas transit costs including docu- mentation Not all of the above costs may be applicable to all overseas shipments (e.g., warehousing, consular fees), however, you must carefully evaluate each factor to ensure that all costs are covered. Figure 6-1 illustrates the flow of goods overseas and associated elements of cost. The costs associated with freight forwarding, both domestically and overseas, will differ mark- edly depending upon distances, volumes, and weights. Similarly, "lump sum" rates are avail- able for shippers of containerized goods whereas minimum quantities will be transported at maxi- mum rate. Marine and other insurance costs will also vary somewhat based on value, destination, and shipping arrangements. Accordingly, freight and insurance costs on heavy bulk commodities as against high value/densely packaged/light weight products may vary overall costs significantly. In the hypothetical ETC examples discussed in Chapters 7-13, gross profit is calculated to ensure coverage of all expenses associated with the busi- ness plus a sufficient margin to build capital through the accrual of net profits. Figure 6-1 — ETC Flow of Goods and Elements of Cost COST OF GOODS ■ CONSULAR FEES DOMESTIC FREIGHT LOADING VESSEL ETC BROKERAGE MERCHANDIZE SERVICE GUARANTEES WARRANTEES OVERSEAS FREIGHT _OADING VESSEL INLAND FREIGHT NHiivFB<;inaniNr, I Nok ' insurance and -1 FACILITY I DOCUMENTaTIONcosl! Bad Debt Allowances In the financial evaluation of your ETC you should assume that some bad debts may ensue from the many separate transactions that will be engaged in during the course of operations. Accord- ingly, a small percentage of annual sales should be added to overall costs as an offset to delayed payments or non-payments on any of the various business transactions that will be engaged in by the ETC. Trading Transactions ETCs can be expected to accomplish many trans- actions during the course of any one year. The precise number of such transactions will depend significantly on the types of goods being sold and any seasonality associated with such goods. For example, a sunbelt agricultural producer may have only four or five transactions a year whereas an electrical machinery ETC may have 10 or more separate trades during the same period. If the ETC expects to leverage its capital to finance the cost of goods sold, then the periodicity of transactions becomes important. For example, if the agricultural and electrical machinery ETCs mentioned above both have sales of $50 million, all sales are financed by the trading company through borrowings, and the transactions do not overlap, then the following situations would apply: Number of Average Transactions Sales Agricultural ETC $50 Million Electrical Machinery ETC $50 Million 5 $10 Million 10 $ 5 Million If a minimum capital to sales ratio of 1:10 is required to finance shipments then the capital requirment of the agricultural ETC would be $1 million per transaction and the electrical machinery ETC only $0.5 million. Gross Profit The gross profit made by a trading company is that percentage of sales that is realized from trans- actions. This value will vary but must cover operating expenses and provide for an overall profit for the ETC. Clearly, this variable will also change in accordance with market conditions and the costs of operating an ETC. In highly competitive situations, a trading company must be prepared to minimize the margin to make a sale. Converse- ly, a higher gross profit may be realized when consumer demand is strong and local or other imported goods in the same product category have higher manufacturing and/or transit costs. Simi- larly, a high volume of sales will influence the gross profit parameter since large entities are usually able to compete effectively by keeping the margin low. Given the above variables, the hypothetical examples discussed in Chapters 7-13 are designed around a gross profit margin from as low as 6 percent to a high of 15 percent. It must be empha- sized that many transactions may occur during the course of a year and that the percentages used in the hypothetical examples are the average gross profit over a 1-year period. Operating Expenses The operating expenses of an ETC can be divided into four major categories: • Salaries and wages • General expenses • Depreciation and amortization (capital ex- penditures) • Interest expense Salaries and Wages A large cost element for your ETC will be the payroll associated with a trading operation. A full/service, free standing ETC with sales in the tens of millions that markets diverse goods on a worldwide basis will require numerous specialists to handle the operation. Alternatively, a single product ETC focusing its sales on one foreign country will require fewer personnel to complete the transactions. The following list of positions or functions should be considered in evaluating payroll Chief executive officer Vice president operations Vice president marketing Vice president finance Other officers (e.g., treasurer, secretary) Export service personnel Product specialists Regional office directors (overseas, domestic) Management information system (MIS)/com- munications specialists Salesperson Market research personnel Accounting and bookkeeping Secretarial and clerical If your ETC will deal in a single commodity, as opposed to one that handles a multiplicity of high technology products, your needs for product related in-house specialists will differ. In addition, the level of skills required to market the product overseas will also determine, in part, the salary structure of an ETC and its operating expenses. Finally, larger ETCs will normally pay higher salaries to upper level executives than will small- er entities. General Expenses The general expenses that will be common to most ETCs will also vary directly with the scope of operations. Accordingly, facility size and asso- ciated square footage costs will differ in terms of numbers of personnel and geographic location. Fringe benefit packages will also differ from one ETC to another, depending upon the type and scale of trading operation. Travel and related costs will depend upon the distance and complexity of reaching the foreign countries to be served and the number of times the ETC transacts with for- eign customers. Advertising and promotion expenses will depend upon the type of merchandise being marketed and the media chosen to promote sales. Finally, the costs associated with the operation of an overseas office will vary dramatically with the developed status of the target country, and the special fringe benefit requirements that can be associated with some overseas locations. The general expense items that you must consider are: • Facilities • Fringe benefits • Travel and related costs • Communications • Advertising and promotion • Equipment maintenance • Overseas office(s) Facility costs are generally fixed once the ETC enters full service operations if adequate planning has preceded the purchase, lease, or rental of appropriate office space. However, the growth through full operational status will result in both underutilization and overutilization of equipment during transitional periods. Of particular impor- tance is a careful analysis of facility and equii; ment needs for a 3-to-5-year period to offset a potentially high cost fluctuation. An element of cost that is generally large in relation to the overall costs of operating an ETC is the fringe benefits paid to employees. Standard items for many U.S.-based companies can include: • Social Security (FICA) and other govern- ment insurance • Health, life, and travel insurance • Pension plans • Holiday, vacation, and sickness costs Fringe benefit costs are usually calculated as a percentage of payroll. Overseas offices will gen- erally have a different percentage rate applied to payroll, and this fraction will be generally higher than domestic rates. Marketing costs will vary by product and coun- try, and with the role of foreign buyers in promot- ing the product. An ETC handling name brands may decide to use various media to advertise a product to meet long-range marketing goals. An ETC engaged in a one-time sale to a foreign distributor would not incur such advertising costs. Travel costs will generally constitute a sizeable portion of the marketing budget. Depreciation and Amortization An ETC will generally incur significant capital costs during the first year of operation. These costs will be amortized over an extended period and include the following: • Computers and communications equipment • Furnishings and office equipment • Various startup costs Computers and Communications Equipment A critical aspect of ETC operations is the rapidity with which it transforms market leads into sales. Numerous calculations and evaluations must be made by an ETC, and these can best be made through the use of automated processing equip- ment. The operational scope of an ETC will tend to determine computer needs and isolate the costs associated with the purchase or lease, operation, and maintenance of ETC computers. The use of a low cost microcomputer may be entirely adequate for a modestly sized ETC dealing with a devel- oped country. On the other hand, trade with the less-developed world replete with currency fluc- tuations, countertrade requirements, and the need in some instances to rapidly turn over goods, may call for a more sophisticated computer capability. The ability to communicate rapidly with buyer, seller, and a host of intermediaries, both internal and external, and to resolve export problems with- in hours if not minutes, is an essential aspect of international trading. Equipment costs in this area, especially if overseas offices and domestic regional offices are involved, must be considered as an integral cost of ETC operations. Telex, telecopiers, word processors, and multi-line telephone systems are the fundamental ingredients of this commu- nications network. In addition, the ability to rap- idly communicate complex systems diagrams and involved specifications in foreign languages may also be required of an ETC and may involve con- siderable cost. Furnishing and Office Equipment You will also be required to purchase furnish- ings at the onset of ETC operations. Initial costs will center upon the cadre of individuals assigned to the initiation of operations with capital set aside to purchase further items as growth occurs. Other Capital Expenditures In addition, you will probably assign the following capital expenditures to be amortized over a selected period: • Organizational expenses • Feasibility study • Consulting fees • International and domestic travel • Miscellaneous startup costs Interest Expense As in any business venture, your ETC must be concerned with the cost of money and the impact that high interest rates have on the bottom line. Trading companies are particularly careful to ensure that any costs in this area are held to an absolute minimum. Normal trading operations should result in no more than 25 to 35 percent of the cost of goods sold in 1 year being burdened by the accrual of interest expense. In many instances "back to back" sales arrangements are made with the buyer, and the manufacturer will receive payment for prod- ucts 30 days after the ETC takes possession of these goods. This is the preferred method of mak- ing overseas sales and a letter of credit can be used to eliminate most, if not all, of the financing for items delivered in short periods of time. How- ever, all trading companies must anticipate hav- ing to finance or arrange financing for some of its transactions. When financing is required, your ETC may draw upon a number of institutions both public and private to assist in the process. If, for exam- ple, the producer requires payment for goods at the time of delivery, then your ETC may draw upon its own capital resources or arrange financ- ing through a local bank. Other sources, such as the SBA loan program may offer credit depend- ing upon the amount to be financed. If the buyer requires financial assistance, then the ETC may provide the needed funds and charge interest for the transaction. U.S. or foreign banks can extend credit to the purchaser. The Export-Import Bank of the U.S. can also be called upon if sizeable transactions are involved and the credit worthiness of the purchaser is well established. As noted above, an ETC has several options with which to address the problems of financing exports. This is a critical element in the final determination of ETC viability and profitability. The initial amount of equity capitalization, as a function of the cost of goods sold, will significantly influence the amount of interest that an ETC may pay during the course of a year if it plans to finance a fraction of sales. An ETC may conduct many transactions dur- ing the course of a 1-year period and require short-term debt capital to make trades. The magni- tude of these costs will vary in accordance with collection periods and the arrangements made with both seller and buyer. Interest Income An ETC can be expected to finance transac- tions from its own capital on occasion and thus derive income from this activity. In addition, all the ETC's capital may not be involved in trade operations, or drawn down to finance expansion, resulting in some interest accruing from routine bank investments. This short-term interest income can offset some operating costs. Return on Equity An important consideration in the design of an ETC, as the company proceeds through its growth period to full operation, is the expected return on investment for the equity participants (ROE). Sev- eral factors will influence the decision to invest in an ETC including the opportunity cost of capital, capital to sales ratios, anticipated earnings, and the indirect financial benefits associated with insti- tutional growth. The ROE for various capital-to- sales ratios and net returns on sales are as follows: Net Return as Percent of Sales Capital-to-Sales Ratio 1:6 1:8 1:10 1:12 2.0 percent. 2.5 percent. 3.0 percent. 24 28 30 35 36 42 The actual return on investment believed neces- sary by equity participants will depend on several factors including: the perceived level of risk asso- ciated with ETC operations, the management skills and credentials of organizers, and peripheral advan- tages. In the latter category, a bank holding com- pany might consider the potential benefits to a bank subsidiary attempting to internationalize its financing businesses. For illustrative purposes, the hypothetical ETC examples in Chapters 7-13 use a capital-to-sales ratio of 1:6 to 1:10 for financed transactions and a net return on sales of 1 to 3 percent in the fourth year of operations. These ratios and percentages vary in the examples provided during the ETCs growth period and in accordance with the trading com- pany's business operation. The numbers are used to illustrate the approach to designing an ETC. Actual figures will vary, of course, in accordance with the precise scope of operations planned for the trading company. Chapter 7 — Overview of Hypothetical ETC Examples There are numerous options available to ETC organizers. The variables that define these options are outlined in Chapter 5 of the Guidebook. These variables suggest that the ETC formation options are virtually unlimited when all the organizational ingredients are considered. This chapter of the Guidebook presents an overview of six hypotheti- cal ETC examples that are examined in Chapters 8-13. Hypothetical ETC Examples The six ETC examples are representative of ETCs that are currently being considered for devej- opment and also provide a cross-section of the range of ETC formation possibilities. The exam- ples are summarized in Table 7-1 and include: • A Trade Stream Model that includes an entre- preneur, manufacturer, freight forwarder, and bank holding company (BHC) as partners, deals in a narrow product line from a geo- graphic region, exports to a single country, and has sales of $6.5 million in the fourth year of operation • A Single Product Model that includes six microelectronics manufacturers and a BHC, deals in a very narrow product line drawn from a nationwide base, exports primarily to the developed world, and has $10 million in sales in the fourth year of operation • A Services Model that includes a group of architecture and engineering firms provid- ing design and management services from firms located in a geographic region to a region of the world and has sales of $35 million in the fourth year of operation • A Hub Model that includes a port authority as the equity participant and services pro- vided by a bankers' bank, deals in multiple product lines from a geographic region, exports to a geographic region of the world, and has sales of $50 million in the fourth year of operation • A Bank Holding Company Model that in- cludes a bank holding company, an ocean shipper and an insurance company as partners, deals in multiple product lines from a single state, exports worldwide, and has sales of $65 million in the fourth year of operation • A Single Product Area Model that includes a group of manufacturers and a venture capital institution as equity partners, deals in a sin- gle product area nationwide, exports to a geographic region of the world, and has sales of $250 million in the fourth year of operation The examples are hypothetical. They are designed to serve as tools for discussing organizational ele- ments and the financial considerations of an ETC. Each example assumes that the organizers are in the later stages of their feasibility investigation and business planning. Presentation of ETC Examples To facilitate your review, each ETC example is organized to parallel the broad categories for defin- ing and organizing an ETC that are described in Chapters 5 and 6 of the Guidebook. There are separate chapters for each ETC example which include the following subsections: • Background which presents the context for the example and describes the generic model upon which the example is based • General characteristics which provides back- ground on why and how the ETC was formed and describes key organizational elements including domestic coverage, product mix, international scope, institutional participants, trade volume, and financial considerations • Operational approach which describes the basis for operating the ETC and includes an organization of the entity, staffing in the first and fourth years of operation, and key elements of cost in the first and fourth years of operation such as wages and salaries, gener- al expenses, interest expenses, and capital expenditures • Financial summary which presents examples of pro forma income statements and balance sheets for the first through fourth years of operation Table 7-1 — Summary of Hypothetical ETC Examples Institutional Participants Products or Services Domestic Coverage Foreign Market Trade Volume Trade Stream Model Manufacturer Freight Forwarder BHC Entrepreneur Single Product Model Manufacturers BHC Services Model Architects & Engineers Hub Model Port Authority Bankers Bank Bank Holding Company BHC Model Ocean Shipper Insurance Company Single Product Area Manufacturers Model Equity Capital Organization Narrow Product Line Geographic Region Single Product Line Nationwide Design & Management Services Multiple Product Lines Multiple Produc Lines Single Product Area Line Geographic Region Geographic Region Single State Single Country Geographic Region Geographic Region Worldwide Geographic Region $6.5 Million (fourth year) $10 Million (fourth Year) $35 Million (fourth year) $50 Million (fourth year) $65 Million (fourth year) $250 Million (fourth year) General Assumptions Used in Formulating ETC Examples The ETC examples present hypothetical staff- ing and financial data on various potential models which may be established. The data have been constructed to conform to the specific character- istics of the ETC described and to present potenti- ally realistic business situations. Your own organi- zations and financial analyses will differ from those presented depending upon specifications of your trading opportunity and business/ ETC objec- tives. The purpose of the ETC case studies is to provide concrete examples as a tool for your exami- nation of ETC formation opportunities by outlining key design considerations. The Department of Commerce recognizes that each ETC will differ and that specific financial objectives cannot be established on a general basis for all organizational forms. Actual values for an emerging ETC will be developed during the feasibility study and be refined in the preparation of the business plan. The dollar values in the hypothetical models are based on nominal dollars. A short discussion is provided below on the calculations used in designing the six hypothetical examples. Salaries And Wages Salaries and wages are calculated on an aver- age remuneration base which takes into account highs and lows for each position. Fourth year salaries for similar positions are increased to reflect normal business practice. Consideration is given to the shortage of "seasoned hands" available for ETC staffing, therefore, early to mid-career professionals' salaries were used in developing costs. Finally, compensation is calculated taking into consideration net sales and the U.S. region in which the ETC is established. The average sala- ries presented in the models could vary signifi- cantly depending upon the factors identified above. General Expenses Facilities Facilities costs were estimated on the basis of square footage per person plus an allowance for common areas. Prices were varied in accordance with ETC location (e.g. city, suburban) and the net sales supporting the operation. Alternative means of housing the ETC were considered includ- ing lease, rent, or buy. Leasing was selected as the mode for the model examples. Fringe Benefits There are significant fluctuations in the fringe benefits associated with various types of service organizations. It was determined that variations of as much as 20 percent can occur around the average figures used in the model examples. Travel and Related Costs The travel and related costs calculations are based on approximations of the number of trips required to various overseas destinations for dif- fering numbers of personnel and changing lengths of stay. Communications Communications cost estimates are based on the extensive use of telephone, telex, and other communications media including sales promotion literature and brochures. Maintenance of Equipment This category of cost includes the funds required to maintain data processing and other ETC equip- ment over the period of 1 year. This will include maintenance support to overseas offices where applicable. Overseas Offices When an ETC maintains an overseas office, estimates have been made for salaries and wages, facilities, and the incidental costs required to operate the office. It must be emphasized that significant variations in cost may occur from coun- try to country and by location within country. The numbers presented are considered reasonable for the models discussed but any overseas operation can be subjected to significant fluctuations in local currency values that may result in signifi- cant changes in overall operating costs. Depreciation and Amortization The values shown for depreciation and amorti- zation in the models are derived by spreading capital expenditures and startup costs over a 5- year period. Income Taxes The tax rate for computing Federal, State and local income tax is assumed to be 50 percent. Of course, for smaller operations the effective tax rate may actually be lower. When a loss is shown in early years, the value of this loss is carried forward to future years for tax purposes. Pro Forma Income Statement and Balance Sheet The pro forma income statement and balance sheet developed for each of the ETC models were based on the development of specific values for each element of cost. Most of these values are discussed above and in greater detail in the model descriptions. However, it is important to point out that an average rate of 15 percent has been pro- jected for both interest income and interest expense from operations for all years. Interest on tempo- rary investments not related to operations is 12 percent. These rates will, of course, vary in accor- dance with future economic conditions and must be carefully constructed for "out years" based on the best information available at the time of ETC organization. Sales growth has been considered as approximately a linear function throughout the model projections. Inventory calculations are based upon estimates of both goods in transit and where applicable, warehoused merchandise. Other items in the financials have used averages that are consistent with generally acceptable accounting practices when constructing pro forma income statements and balance sheets. 42 Chapter 8 — Trade Stream Model Background A model that will prove attractive to many market oriented companies is the Trade Stream ETC, which "piggybacks" on the large two-way flow of goods between the United States and its major trading partners. The 1985 merchandise trade with the United States's ten largest partners amounted to some $366 billion. (See Table 8-1.) Table 8-1 — The Ten Largest U.S. Trading Partners, 1985 Merchandise Trade (In billions of dollars) Balance U.S. U.S. of Country Exports Imports Trade North and South America Canada $ 46.8 $ 69.4 $ (22.6) Mexico 13.6 19.4 (5.8) Venezuela 3.2 6.8 (3.6) Western Europe United Kingdom $11.1 $ 15.6 $ (4.5) West Germany 8.9 21.2 (12.3) France 6.1 9.9 (3.8) Netherlands 7.2 4.4 2.8 Asia Japan $ 22.2 $ 72.4 $ (50.2) Taiwan 4.5 17.8 (13.3) Middle East Saudi Arabia $ 4.0 $ 2.0 $ 2.0 Total S 127.5 $238.9 $(111.3) Just as important is a review of the content and growth potential for the two-way trade that occurs between the United States and the countries shown in the table. If a small ETC were developed with sales of less than $10 million in added trade with any one of these countries, the impact upon gross trading accounts would be negligible. However, the small trader's operation could be simplified by following the well-established paths made by numerous other successful traders. U.S. trading relationships with Canada and Western European countries are particularly sta- ble and straightforward. Occasional trade obstacles such as tariffs or import controls may complicate the export of some products, but, in general, these problems can be eliminated by the careful design of an ETC. A guiding objective of this model, which emphasizes the development of a market- oriented trading company, is to avoid the high profile problems that foster "protectionism," and to emphasize the sale of products that generate a minimum of official interest by the recipient nation. The following model is provided as an illustra- tion of the major steps envisioned in the forma- tion of a Trade Stream ETC. The operating philosophy of this Trade Stream Model has been based first and foremost on the definition of an appropriate niche in the United Kingdom market for recreational and sporting goods. The feasibility study conducted by the organizers showed that the demand, especially for recreational products, had risen steadily in the United Kingdom. Further, the organizers had isolated a specific market area and identified potential customers for their products. General Characteristics The ETC's creation was the result of a match- ing made by the Department of Commerce's ETC Contact Facilitation Service. An entrepeneur who has extensive experience in marketing in the Euro- pean Community (EC) conducted a computer search for others interested in joining an ETC exporting light manufactured products to the EC. His search produced the names of some of these companies. He contacted several but chose the recreation equipment manufacturer due to the quality of his products and relative sophistication in the international arena. The manufacturer had already spoken to his local banker about financ- ing exports and the bank's holding company agreed to take an equity position in the ETC. The entre- preneur also contacted a freight forwarder who maintained a network of contacts and had long experience with exporting light manufactures from the East Coast. The freight forwarder agreed to be the fourth investor in the new ETC. The gener- al characteristics of the Trade Stream Model are summarized in Table 8-2 and discussed in more detail below. Table 8-2— Trade Stream Model General Characteristics Characteristics Domestic Coverage A limited number of manufacturers on the Eastern Seaboard. Product Mix Sporting goods and recreational equipment. Internationa] Scope Initially the United Kingdom. After 2 years, the plan is to expand through an association with a British trading company into other regions. Institutional Participants A recreational equipment manufacturer, a BHC with a London office, a freight-forwarder, and an entrepreneur with marketing experience in the EC. Trade Volume First year sales are $1 million growing to $6.5 million in the fourth year. Financial Considerations An initial capitalization of $300,000 was contributed by organizers. Domestic Coverage The ETC is organized to provide comprehen- sive services to a limited number of product man- ufacturers along the Eastern Seaboard of the United States. Product Mix The organizers of the trading company will con- strain their activity to a comprehensive line of products that include sporting goods and recrea- tional equipment. The scope of this line ranges from sporting footwear to travel trailers for tour- ing and camping. International Scope The ETC will limit its sales activity to the United Kingdom during the first 2 to 3 years of sales promotion. During this period the ETC will seek an association with a major United Kingdom trading company to expand sales into other regions of Europe and the world. Institutional Participants The expertise within the organizing group and institutional participants is as follows. Manufacturer of Recreational Equipment The principals in this firm have successfully merchandised products in the United States and are familiar with a full-range of similar products made domestically. In addition, they are familiar with the competitive range of goods manufactured in the United Kingdom and other EC countries. Finally, the manufacturer has reviewed the situation with regard to imports into the United Kingdom from Asia. Based on this knowledge, the ETC organizers have confidence that the line of goods proposed for export have a ready market. Contact has been made by the ETC organizer with other manufacturers on the Eastern Seaboard, and preliminary arrangements have been made to include selected items in the initial marketing package. Discussions have also been held on the development of a new line of goods specifically tailored to the United Kingdom market. Bank Holding Company (BHC) The BHC subsidiary bank has an office in Lon- don and correspondents in most major United Kingdom cities. A major objective of this finan- cial institution is to expand its operations overseas and to specifically establish branch offices in several more European countries. Its investment in the ETC constitutes a minority ownership, however, approval has been obtained from the Federal Reserve Board to make the equity investment. Freight Forwarder The freight forwarding organization is essen- tially a local organization with a small clientele of various manufacturers located on the Eastern Sea- board. Much of this company's experience has been in the shipment of goods through the ports of Boston, New York, and Philadelphia. Destinations have varied, although a considerable quantity of the goods in transit have been shipped to European ports. The ETC investment was made to expand the freight forwarder's knowledge of specialized product handling and to open operations in other areas of the United States. The freight forwarder made this investment cognizant of the provisions of the Shipping Act, as amended, wnich will not allow a licensed freight forwarder to collect bro- kerage fees from carriers on transactions with the ETC in which it has an equity interest. Entrepreneur The individual investor in the ETC has exten- sive experience in marketing light industrial and other products throughout the EC, and he has operated from an office in London. His background includes employment as an overseas regional office manager with the international division of a major United States multinational organization. Trade Volume The feasibility study showed that sales of $1 million in the first year of operation and $6.5 million in the fourth year appear reasonable. Financial Considerations The four partners of the ETC pooled their resources and capitalized the entity with $300,000. Operational Approach The operational details in the first and fourth years for organization, staffing, and costs are as follows. Organization The board of directors is composed of representa- tives from each of the organizers described above. A chart showing the relationship of the institu- tional supporters to operating personnel is shown in Figure 8-1. Staffing Table 8-3 shows the staffing patterns for the first and fourth year of operation. Three individ- uals and a secretary are appointed to initiate operations. Part-time assistance is provided by the organizing firms to hold down costs until ini- tial sales are made. The chief executive officer (CEO), with extensive knowledge of the product area, is drawn from the manufacturing organization. The entrepreneur is placed in charge of market- ing, and the services of a support person to handle communications and secretarial responsibilities are added to the initial team. These individuals address the primary tasks of this fledgling ETC. Hence, the organization will commence operations with a cadre of four personnel and anticipate growth in the fourth year of operation to some 10 to 15 individuals. Table 8-3— Trade Stream Model Staffing (Number of Personnel) Position or Function Year 1 Year 4 President 1 Executive Secretary Administrative Assistant Vice President Marketing 1 Secretarial 1 Vice President Finance 1 Staff Assistant Secretarial and Clerical Total Positions 4 Elements of Cost The critical first year of operation has been carefully analyzed by the ETC to ensure a mini- mum cash flow problem and the maximum reli- ance on back to back sales. The sale of merchan- dise in the United Kingdom is handled by a well-established distributor with impeccable credit references and who serves a large number of Brit- ish retailers. The branch manager of the BHC's subsidiary in London has been actively involved in export-import trade and is familiar with the financing and documentation aspects of interna- tional trading transactions. With this background, the elements of cost are presented below. Figure 8-1 — Trade Stream Model Organizational Chart 1 ^CompJn'"' — i l _ 1 r — I i 1 1 1 1 BOARD OF DIRECTORS 1 _J 1 1 ! PRESIDENT sssasz 1 1 VICE PRESIDENT FINANCE FUNCTIONS VICE PRESIDENT MARKETING 1 . Sourclnj . E«porl Services 1 VICE PRESIDENT FINANCE FUNCTIONS [ Regional Oll.ce 1 1 : EEr 1 [ Salaries and Wages The salaries and wages paid to ETC employees for the first and fourth years of operation are shown in Table 8-4. Supplemental support to the full-time individuals is provided by the owners in terms of an advisory service to hold down costs. General Expenses The general expenses of the ETC are those rou- tinely incurred by any trading entity. In the sec- ond year, an office is established in London to further promote sales in that country. On the domestic scene, the ETC moves to larger facili- ties to house the expanded staff. This category of expenses is increased more than two-and-one-half fold in the fourth year to achieve the sales level of $6.5 million. The first and fourth years of general expenses are -shown in Table 8-4. Table 8-4— Trade Stream Model Elements of Cost (In thousands of dollars) er, office furnishings, and general startup expenses. These expenditures will amount to $50,000 in Year 1 and are as follows: Salaries and Wages President's Office $ 65 $110 Vice President's Marketing Office 63 90 Vice President's Finance Office 42 100 Total $170 $300 General Expenses Facilities $ 20 $ 55 Fringe Benefits 40 75 Advertising and Promotion 8 15 Travel and Related Costs 20 30 Communications 7 15 Maintenance of Equipment 5 5 Miscellaneous 5 5 Overseas Office - 85 Total $105 $285 Depreciation and Amortization $ 10 $ 10 Interest Expenses $ 15 $45 Income (5) (25) Total $ 10 $20 Expenditures to Be Depreciated or Amortized The fixed asset and organization costs are com- posed of the purchase of a small business comput- Thousands of dollars Organizational Expenses $15 International and Domestic Travel 15 Furnishings and Equipment 20 Total Expenditures $50 These expenses were depreciated or amoritized over a 5-year period. Financial Summary The pro forma income statement and balance sheet for the Trade Stream Model are shown in Tables 8-5 and 8-6. The gross profits in the first and fourth year of operation are 13 percent of sales. Net income in the first year shows a loss, and a resultant draw down on equity capital of $165,000. In the fourth year, profits after operating expenses, interest income, depreciation and taxes amount to about 2 percent of sales. The return on average equity is negative in Year 1 but reaches 32 percent by Year 4. Table 8-5 — Trade Stream Model Pro Forma Income Statement (in thousands of dollars) Year Income from Operations Net Sales Less Cost of Goods Sold Gross Profit Operating Expenses Salaries and Wages General Expenses Depreciation and Amortization . Interest Total Operating Expenses Operating Income Interest Income Income Before Income Taxes Income Taxes Net Income (Loss) Return on Average Equity (ROE) .. $1,000 870 $3,500 3,045 $5,000 4,350 $6,500 5,655 130 455 650 845 170 105 10 15 225 150 10 38 275 210 10 45 300 285 10 45 300 423 540 640 (170) 32 110 205 5 11 19 25 (165) 43 129 230 0.00 0.00 4 115 $(165) $43 $125 $115 (76T) 27T 521- 32T Table 8-6— Trade Stream Model Pro Forma Balance Sheet (in thousands of dollars) Assets Cash and Temporary Investments Accounts Receivable Inventory Fixed Assets Less Accumulated Depreciation Total Assets Liabilities and Capital Accounts Payable Short-term Debt Stockholders' Equity- Paid-in Capital Retained Earnings Total Equity Total Liabilities and Capital $ 52 25 457 40 $ 49 88 652 30 $ 56 125 S4S 20 $ 52 162 1,044 10 $574 Sisis> $1,049 $1,268 S239 200 $341 300 $ 446 300 $ 550 300 300 (165) 500 (122) }00 3 300 MS 135 178 303 418 $574 $1,049 $1,268 Chapter 9 — Single Product Model Background A major goal of the ETC Act was to reduce the uncertain application of U.S. antitrust laws to joint exporting arrangements. The Webb-Pomerene Act, passed in 1918, provides a limited exemption from the antitrust statutes. Unfortunately, this act did not provide sufficient immunity and was not broad enough to permit Webb-Pomerene Asso- ciations to engage in importing, third country trade, or to export services. The ETC Act pro- vides broader coverage than the Webb-Pomerene Act and removes many of the uncertainties regard- ing the organization of a horizontal ETC. As noted in a previous section of the Guidebook, horizontal product ETCs are those that aggregate the similar products of manufacturers to benefit from economies of scale and to spread the risks of exporting. Many of these manufacturers may engage in head-to-head competition in domestic markets. The antitrust protection afforded by an Export Trade Certificate of Review is too appeal- ing to ignore in such circumstances. In fact, the benefits provided by a certificate may well serve as a catalyst in bringing such a joint venture effort about. A goal of U.S. economic policy is to encourage growth in the high-technology industries. Some of these high-technology fields are: • Aircraft and parts • Computers and office equipment • Electrical equipment and components • Optical and medical instruments • Drugs and medicines • Plastic and synthetic materials • Engines and turbines • Agricultural chemicals • Professional and scientific instruments • Industrial chemicals American manufacturers are world leaders in the development of these high-technology products. To maintain this dominance, a significant com- mitment has been made in terms of research and development (R&D). In fact, a significant per- centage of the nation's R&D funds are devoted to these areas because of their importance to our overall economic health. The export of high-technology products has provided large credits to the U.S. balance of trade, and has made an important contribution to the creation of job opportunities. High-technology products account for approximately one-third of manufacturing exports. The competition in this field stems primarily from Japan and West Euro- pean countries. The microelectronics industry, in particular, is having a sizeable impact upon the U.S. economy as many new businesses are rapidly emerging throughout the country. These companies are staffed with innovative personnel with imaginative ideas on the future of the industry. Small- and medium-sized companies are springing up in such areas as California (Silicon Valley), Chicago, Bos- ton, and Philadelphia and many experience high- growth over a short period. These high-techno- logy firms support many other business groups ranging from defense-related activities to the com- puter industry. However, many of these compa- nies lack the capital and knowledge needed to compete for a share of the international market. The following ETC is designed to show how a consortium of small microelectronics producers could form a horizontally organized ETC to mar- ket their products. General Characteristics The impetus for forming this Single Product ETC was at a major meeting of microelectronics manufacturers at a trade association conference. A subject of the conference was international trade, and some concern was expressed that the U.S. lead in high-technology was slipping in relation to its competitors. In addition, it was recognized that many of the "would be" participants in export- ing were small companies without the necessary expertise or capital. However, an umbrella organi- zation might be able to aggregate manufacturers' capabilities in an attempt to capture a share of international trade. A small group of interested parties was informally assembled by one of the manufacturers to discuss the problem. Sufficient interest was expressed to permit the arrangement of a more formal meeting a few weeks later. This group of chief executive officers discussed an alter- native method for promoting joint exports. The meeting resulted in the contribution of funds to perform a study to assess the opportunities provided by the ETC Act. The study effort was assigned to a management consulting organization which developed the necessary detail to file an application with OETCA for an antitrust certifi- cate of review. The management consulting firm was charged to explore the possibility of securing Eximbank funding. It was understood that a sale financed by the Eximbank would not exclude a transaction from protections a certificate of review would otherwise provide. A search for an addi- tional capital provider was initiated by the group in parallel with the study effort and equity capital was successfully obtained from a major bank hold- ing company. The BHC filed an application for approval with the Federal Reserve Board under Title II of the ETC Act. Both applications were approved prior to the commencement of operations. The general characteristics of the Single Product Model are summarized in Table 9-1 and discussed below. Table 9-1— Single Product Model General Characteristics Characteristics Model Domestic Coverage Nationwide. Product Mix Microelectronics components. International Scope Western Europe initially with later expansion to Japan and selected less-developed countries. Institutional Participants Six microelectronics manufacturers and a BHC. Trade Volume $4 million in sales during the first year growing to S10 million in the fourth year. Financial Considerations The ETC is capitalized with $400,000 at the commencement of operations. Domestic Coverage Members of the original group included manu- facturers from the Silicon Valley, Boston, and an industrial area in the Mid-West. The spread of the manufacturers' production capabilities defined the domestic coverage of the ETC as nationwide. Product Mix The products to be exported by the ETC were limited to a narrow range of microelectronics com- ponents produced by the ETC's founders with potentially diverse markets in a wide range of electronics systems markets. International Scope Study results had shown that a large market for the selected products existed in Western Europe, Japan, and to a lesser extent, in some of the devel- oping countries. Accordingly, the organizers estab- lished Western Europe as the priority target; the secondary target would be the other countries. Institutional Participants Six small- and medium-sized manufacturers formed the basic cadre of firms initiating ETC operations. The bank holding company (BHC) which contributes a third of the equity capital is the other partner in the trading venture. Approval has been obtained from the Federal Reserve to make the equity investment. The production requirements developed by the ETC would be allocated among the manufacturers according to their capital commitment, production capacity and availability, and price. The Board of Direc- tors of the ETC would be the final arbiter in allocating orders among the six participating organizations. All export orders, for all of the manufacturers, would proceed through the ETC. Trade Volume The market research performed as part of the feasibility study indicated that growth to $10 mil- lion in sales could be achieved in the fourth year of operation. A sales target of $4 million was established for the first year. Financial Considerations An initial capitalization of $400,000 in equity funds was accumulated by the ETC to commence operations. Of this amount, $120,000 was provid- ed by the BHC and the rest contributed by the manufacturers. Fifty percent of the entity's capi- tal stock was issued to stockholders, with the bal- ance held to provide for flexibility in developing financial options in future years. Operational Approach The operational details in the first and fourth years, for organization, staffing, and costs are as follows. 50 Organization The board of directors was constituted with a representative from each of the manufacturers and the BHC, which would hold one-third of the seats. In addition, a senior representative from the management consulting firm that conducted the study was appointed to the board. The organi- zational chart for the Single Product Model is summarized in Figure 9-1. Staffing It was determined that the ETC staff could be kept small because of the marketing and other assistance provided by the manufacturers and BHC. Accordingly, the initial staffing consisted of 9 individuals with growth to 18 in the fourth year. See Table 9-2 which summarizes these data. Elements of Cost Salaries and Wages The salaries and wages paid ETC personnel amounted to $330,000 in the first year and $600,000 in the fourth year. The general mix of personnel remained the same, but additional personnel had been added in support of the MIS and sales functions. Table 9-2— Single Product Model Staffing (Number of Personnel) Position or Function Year 1 Year 4 President Executive Secretary Vice President Operations MIS and Communications Personnel Vice President Marketing Salesperson Market Research Secretarial Vice President Finance Accounting Clerical and Secretarial Total Positions General Expenses The general expenses assocated with operation of this ETC are highlighted by the costs associat- ed with facilities, fringe benefits, and travel and related costs. These amount to 83 percent of all general expenses in the first year and 77 percent in the fourth. The general expenses for these two periods are $230,000 and $455,000 respectively. Table 9-3 provides a summary of this data. Figure 9-1 — Single Product Model Organizational Chart Board of Directors Equity Capital Provider I Countertr Imports a rid Third Cou itrv Transact! Salespersons Purchasing Costing Bookkeeping Expenditures to Be Depreciated or Amortized Of the initial $400,000 in capitalization, $100,000 would be committed to startup expens- es in the first year of operation. These expenses are shown below: Item Thousands of dollars Data Processing and Communications $ 15 Equipment Feasibility Study 50 International and Domestic Travel 20 Other Startup Expenses 15 Total Expenditures $100 These expenses were depreciated or amortized over a 5-year period. Financial Summary The pro forma income statement and balance sheet for the Single Product Model are shown in Tables 9-4 and 9-5. The gross profit derived from trading operations over the 4-year period averages 14 percent. Net loss in the first year amounts to $26,000 and in the fourth year the net income amounts to $153,000. A little over 1.5 percent Table 9-3— Single Product Model Elements of Cost (In thousands of dollars) Salaries and Wages President's Office $ 90 $105 Vice President Operations Office 25 125 Vice President Marketing Office 125 240 Vice President Finance Office 90 130 Total $330 $600 General Expenses Facilities $ 50 $100 Fringe Benefits 80 150 Travel and Related Costs 60 100 Communications 20 50 Maintenance of Equipment 10 30 Miscellaneous 10 25 Total $230 $455 Depreciation and Amortization $ 20 $ 20 Interest Expenses $ 15 $41 Income (9) (22) Total $ 6 $ 19 was earned on sales of $10 million in Year 4. Interest expenses incurred in Year 1 are $15,000 and in Year 4 are $41,000. The return on invest- ment for the first year is negative but reaches 25 percent by Year 4. Table 9-4— Single Product Model Pro Forma Income Statement (in thousands of dollars) Income from Operations Net Sales Less Cost of Goods Sold Gross Profit Operating Expenses Salaries and Wages General Expenses Depreciation and Amortization. Interest Total Operating Expenses . Operating Income Interest Income Income Before Income Taxes Income Taxes Net Income (Loss) Return on Average Equity (ROE) .. $4,000 3,440 560 $6,000 5,160 840 $8,000 6,880 1,120 $10,000 8.600 1.400 330 230 20 15 595 400 300 20 34 754 500 375 20 41 936 600 455 20 41 1,116 (35) 86 184 284 9 14 21 22 (26) 100 205 306 (0) 37 103 153 $ 26 $63 $102 $153 (7%) 15% 21% 25% Table 9-5 — Single Product Model Pro Forma Balance Sheet (in thousands of dollars) Assets Cash and Temporary Investments Accounts Receivable Inventory Fixed Assets Less Accumulated Depreciation Total Assets Liabilities and Capital Accounts Payable Short-term Debt Stockholders' Equity Paid-in Capital Retained Earnings Total Equity Total Liabilities and Capital $ 70 60 80 $ 51 90 ,032 60 $ 72 120 1,290 40 S 44 150 1,548 20 $984 S ,233 $1,522 $1,762 $410 200 $ 546 250 $ 683 300 $ 820 250 400 (26) 400 37 400 1 39 400 292 374 437 539 692 S l >S4 $ .233 $1,522 $1,762 Chapter 10 — Services Model Background Trade between the United States and Middle East countries grew steadily through the 1970s. Despite some downturn caused by the drop in oil revenues in the 1980s, this area remains an impor- tant target for U.S. exports. An important facet of American trade to this region is the significant growth of service exports over the last decade. The U.S. balance of payments have benefited from the "invisibles" fraction of overall exports which have often turned a would be trade deficit into a surplus. One of the most important attributes of service exports to the Middle East has been the high profits earned in the construction and engineer- ing sector. This is an area that includes: construc- tion firms, institutions that accomplish both design and construction work, and firms that specialize in design-only tasks. The last category is also divided into groups that include: architects and engineers (A&Es), consulting engineers, or strictly architectural organizations. Prominent among these groups are the A&Es that provide comprehensive design and technical services in all of the con- struction related fields. An A&E firm may be highly specialized (e.g., highways, bridges, and roads) or provide design services that range from the design of airports to subway systems. Common to A&E activity is the preparation of feasibility studies that may require practical skills to perform a range of functions from soil investigations to environmental impact studies. An A&E project would typically include responsibility for: feasibility studies, the project design including preparation of detailed specifi- cations, and monitoring and approving all work stemming from the project implementation. In an overseas environment, an A&E's knowl- edge may be called upon to take responsibility for all, or any facet, of the three major tasks dis- cussed above, depending upon the purchasers' pref- erence. The Middle East has been a major market for design-only A&E firms. Almost 50 percent of A&E international billings were received from this area in 1978. In 1980, design firms won some $450 million of contracts in this region. The ETC Act identified "service" organizations as possible participants in forming ETCs and specif- ically named architectural and engineering ser- vices. The following example describes a hypo- thetical A&E trading company organized to provide design and related services in the Middle East. General Characteristics A number of medium-sized A&E firms were unable to compete successfully for major interna- tional projects with the larger firms who were able to provide a more comprehensive design ser- vice. After hearing about ETCs, they investigat- ed the possibility of forming a trading company as the vehicle for pooling their resources and talents to win contracts in the Middle East. Four A&E firms based in New England decided to commit themselves by funding a feasibility study. The feasibility study identified good mar- ket opportunities in the Middle East for the future construction of major infrastructure projects. Research was also conducted at DOC/ITA, the Department of State, and AID to develop a thor- ough understanding of the region and trading relationships. The A&Es operating plan for the ETC focused on three major tasks that would be completed in the first several months of effort including: the establishment of an overseas office, the develop- ment of appropriate contacts in target countries, and organizational planning. The need to establish a permanent presence in the Middle East had been recognized at the outset by the ETC. Accordingly, the trading entity pro- ceeded to implement their plan for opening an office in Cairo, Egypt. This location had been selected on the basis of obtaining early design work in that country and because of its central- ized position in the Middle East. In addition, the commercial environment was seen to be improv- ing, and Cairo offered reasonable air access to other nations in the region. A major problem requiring immediate atten- tion by the ETC was the development of appro- priate contacts and relationships with firms and individuals in the countries targeted for sales. Many Middle East nations require that foreign firms do business through a registered agent, and joint ventures with local design firms could be required to compete effectively. In addition, local representation is important in both the negotia- tions and implementation phases of design work. A summary of the general characteristics of the Service Model as shown in Table 10-1 and dis- cussed more fully below. Domestic Coverage The A&Es organizing the ETC are all head- quartered in the New England states. Other small firms, from within and without the region, will be invited to join the organization as potential busi- ness is identified. Table 10-1— Services Model General Characteristics Characteristics Model Domestic Coverage Primarily New England. Product Mix Design work for a diversified range of housing, commercial facilities, and infrastruc- ture projects. International Scope The entire Middle East with the initial focus being on Egypt. Institutional Participants Four A&E firms are the initial team. Several other A&E firms may eventually become associated. Trade Volume First year sales of $6.5 million reaching $35 million in sales by the fourth year. Financial Considerations An initial capitalization of $500,000 provided by the A&E organizers. International Scope The A&E firms' initial analysis had shown that a sizeable market for design services exists in the Middle East. Of particular interest to the A&Es were the countries of Egypt, Saudi Arabia, the United Arab Emirates, and Kuwait. Institutional Participants The ETC was developed by four A&E firms who contributed money for the feasibility study and then the equity capital. There are a number of other A&E firms, some highly specialized, who were involved in the discussions from the early stages. Some contributed minor amounts toward the feasibility study. They could become formally associated if a contract is obtained that would demand their specialized skills. It was recognized that if this event occurred a further application for certification would have to be filed with DOC to amend the original submission that had been previously approved. Trade Volume The feasibility study had identified a great number of projects in the early stages of concep- tion in various Middle East countries. The study concluded that, given the combined credentials of the A&E firms and the significant marketing effort undertaken, they could anticipate sales growing from $6.5 million in the first year of operation to $35 million by the fourth year of operation. Financial Seed capital was provided by the A&Es and stock issued to cover the purchase. The initial capitalization was $500,000. Facilities, furnish- ings, and communications equipment were pro- vided by the A&E firms at no cost during the first year of operation. Product Mix Four A&E firms with a diversified mix of non- competitive skills form the initial team of ETC organizers. The capabilities and experience of the group include design work on: highways, bridges, and roads; health care and educational facilities; irrigation, water supply, and desalinization; and housing. The marketing effort will focus on the skills of the professionals within the four firms but because the work is multidisciplinary and the skills are readily transferable from one A&E firm to another, marketing will not be limited to the original specialities of the A&Es. Operational Approach The operational details in the first and fourth years, for organization, staffing, and costs are as follows. Organization The ETC was organized around a small domes- tic cadre of individuals to oversee the operation and an overseas staff of both American and for- eign personnel to market the products. A board of directors was appointed by the A&Es and a presi- dent selected to manage the organization. Since the design work developed by the ETC would be subcontracted to one or more of the participating A&E firms, only a small group was needed to implement operations. Similarly, the A&E firms would draw specialists from these firms to pre- pare design proposals and provide support in negoti- ating contracts. The ETC is primarily a marketing tool and its organization and associated costs reflect this design objective. The board of directors is made up of the president and individuals from each of the organi- zing A&Es. The organizational chart for the fourth year of the Service Model is shown in Figure 10-1. Staffing The staffing plan developed by the ETC for its first and fourth year of operation is shown in Table 10-2. A president and vice presidents for marketing and finance are hired at the outset. Except for the financial vice president, they are expected to spend significant amounts of time marketing in Egypt. The staff grows from 12 to 26 over the 4-year period. Table 10-2 — Services Model Staffing (Number of Personnel) Position or Function Year 1 Year 4 President Executive Secretary Director MIS and Communications . Staff Assistant Clerical and Secretarial Vice President Marketing Salesperson Market Research Secretarial Vice President Finance Accounting Clerical and Secretarial Total Positions Elements of Cost The major costs of this service ETC are dis- tinctly different from those of an ETC involved in product trade. The major expenses are incurred by establishing the marketing office in Cairo and in payroll and fringe benefits. Figure 10-1 — Services Model Organizational Chart Highways, Bridges and Roads A&E Health Care and Educational Facilities A&E ■ BOARD OF DIRECTORS I Irrigation, Water Supply and Desalination A&E Housing A&E J Administrative Staff Director, MIS and Communications VICE PRESIDENT FINANCE VICE PRESIDENT MARKETING Financing and Currency Accounting and Bookkeeping Overseas Office Market Research Salaries and Wages The salaries and wages paid by the ETC are shown in Table 10-3. The initial hiring was used to develop markets and the increase in personnel by Year 4 was both to develop and coordinate the increased cost of supporting ETC projects. Table 10-3— Services Model Elements of Costs (in thousands of dollars) Cost Elemer Salaries or Wages President's Office $ 70 $265 Vice President Marketing Office 145 290 Vice President Finance Office 130 185 Total S345 $740 General Expenses Fringe Benefits $ 85 $ 300 Advertising and Promotion 20 60 Travel and Related Costs 40 80 Communications 15 45 Maintenance of Equipment 15 Miscellaneous 20 50 Overseas Office(s) 355 825 Total $ 535 $1,375 Depreciation and Amortization Interest Expenses $ 75 $ 585 Income (98) (900) Total $ (23) $ (315) General Expenses The general expenses start at $535,000 in the first year and reach $1,375,000 in the fourth year and represent over 50 percent of the total operating costs. Expenditures to Be Depreciated or Amortized The ETC had no expenditures which needed to be capitalized and thus amortized. The initial capital of $500,000 was used for salaries and general expenses over the 4 years and for leverag- ing sales. Startup costs were absorbed by the firms in the partnership as part of their normal operations, and, therefore, no additional costs were incurred. Financial Summary The pro forma income statement and balance sheet for the Service Model are shown in Tables 10-4 and 10-5. The gross profits in the first and fourth year of operation is 9 percent of sales. Net income in the first year shows a loss, and a resul- tant draw down on equity capital of some $272,000. In the fourth year, profits after operating expens- es, interest income, and taxes amounted to about 2 percent of the sales. The return on average equity is negative in Year 1 but reaches 54 percent in Year 4. These high rates of return are attribut- able to the assumption that customers pay inter- est from bills when rendered while participating A&E members in the ETC receive no interest on payables. Table 10-4— Services Model Pro Forma Income Statement (in thousands of dollars) Income from Operations Service Revenues Less Direct Costs Gross Profit Administrative Expenses Salaries and Wages General Expenses Depreciation and Amortization Interest Total Administrative Expenses Operating Income Interest Income Income Before Income Taxes Income Taxes Net Income (Loss) Return on Average Equity (ROE) $6,500 5,915 $15,000 13,650 $25,000 22,750 $35,000 31,850 585 1,350 2,250 3,150 345 535 75 450 725 240 575 1.000 420 740 1,375 585 955 1,415 1.995 2.700 (370) (65) 255 450 98 324 000 900 (272) 259 855 1.350 0.00 0.00 421 675 $(272) $(259) $434 $675 75% 72% b2'. 54% Table 10-5 — Services Model Pro Forma Balance Sheet (in thousands of dollars) Assets Cash and Temporary Investments $136 $167 $121 $116 Accounts Receivable Billed 1,300 3,000 5.000 7,000 Unbilled 975 2,250 3,750 5,250 Fixed Assets Less Accumulated Depreciation .... Total Assets $2,411 $5,417 $8,871 $12,366 Liabilities and Capital Accounts Payable $1,183 $2,730 $4,550 $6,370 Short-term Debt 1,000 2,200 3,400 4,400 Stockholders' Equity Paid-in Capital 500 500 500 500 Retained Earnings (272) (13) 421 1,096 Total Equity 228 487 921 1,596 Total Liabilities and Capital $341 1 $5417 $8,871 $12,366 Chapter 11— Hub Model Background One model of an ETC that is being actively developed, in at least two locations, is the port authority trading company. The incentives that stimulated this approach to increasing exports were twofold: port authorities have a vested interest in promoting the flow of goods through their facili- ties and State or local governments, which in the majority of instances own the port authority, and port authorities actively pursue the economic advantages to be obtained by encouraging exports from their region. Moreover, port authorities usually receive a legislative mandate to actively promote traffic through their facilities. One method of accomplishing this public objective is to form an ETC to support small-and medium-sized manu- facturers in the process of exporting. Virtually all States and cities with jurisdiction over a major port are reviewing, or already have reviewed, the possibilities presented by the ETC Act. Congress made it abundantly clear in the Act that State and local government authorities were expected to actively participate in the ETC development process. The ETC Act states: * Those activities of State and local govern- mental authorities which initiate, facilitate, or expand exports of goods and services can be an important source for expansion of total United States exports, as well as for experi- mentation in the development of innovative export programs keyed to local, state, and regional economic needs. In addition, the Conference Report contained the following comments: State and local government entities, includ- ing port authorities, industrial development corporations, and other non-profit organiza- tions, could be an important source of overall export expansion and of the development of innovative export programs keyed to local, state, and regional needs. This title in no way affects the ability of such organizations to continue these efforts, including their ability to organize, own, participate in or support ETCs. The following text describes a hypothetical Hub Model designed around a seaboard state with a major port in the southern region of the country. General Characteristics Prior to the initiation of ETC activities, the State had for years attempted to stimulate small business exporting through a number of trade related programs. These efforts had included mar- ket research, trade missions and shows, outreach programs, overseas offices, and counseling. The State activity had also received assistance from a number of Federally sponsored programs and had gained considerable knowledge of trade operations. Unfortunately, the impact of these efforts were negligible in terms of overall exports by small business, and it was recognized by the authorities that an umbrella organization was needed to achieve further progress. However, several hundred small firms with export potential had been identified by the public entity, and many of these companies had expressed a willingness to use the ETCs ser- vices. With this background, legislation was intro- duced into the State legislature and approval obtained to establish a port authority ETC. In addition, the port authority was authorized to take title to goods and to finance some transac- tions. The latter action would be accomplished first through appropriations, and then by means of general revenues accumulated from operations. A public/private sector board of directors was estab- lished for the ETC, with membership composed of port authority personnel, the bankers bank, export service organizations, and representatives from the industrial and agricultural communities. The general characteristics of the ETC are dis- cussed below and summarized in Table 11-1. Domestic Coverage The port authority ETC is organized to provide comprehensive services to small- and medium- sized manufacturers and agricultural producers from regions serviced by the port. Table ■Hub Model General Characteristics Characteristics Domestic Coverage The region serviced by the port authority. Product Mix Any locally produced products which have an overseas market. International Scope Any region of the world which trades through the port. Institutional Participants The port authority and consortium of local banks. Trade Volume $3 million in the first year and $50 million of aggregate sales by the fourth year of operations. Financial Considerations Initial seed capital of $200,000 provided through state appropriations. Product Mix No restrictions are placed on the selection of manufactured goods or commodities produced within the region. The only proviso was that an overseas market existed, or could be developed for the merchandise. International Scope The destinations of ocean carriers using the port would initially constrain the activities of the ETC. However, the shipping from the port travels to several geographic regions and no significant impediment to market access was foreseen by the port authority. Further, the organizers plan to encourage future traffic through the port by aggre- gating cargoes from small producers and thus make the port more attractive to additional carri- ers, both domestic and foreign. Institutional Participants A consortium of bankers in the State had agreed to work cooperatively with the port authority ETC to pool resources and assist in the financing of exports. Accordingly, banks within the State were invited to join the consortium, and a bankers bank was established to allocate an established line of credit for the financing of exports for small businesses. Trade Volume The port in cooperation with State authorities had completed a feasibility study and concluded that the ETC should have aggregate sales of some $50 million after the fourth year of operation. The initial studies also showed that the first year's financing could be accomplished through reve- nues from port activities plus a nominal contribu- tion from State appropriations. The first year's trade volume was calculated at $3 million in sales. Financial Considerations The ETC, notwithstanding its nonprofit status, was expected to place the operation on a firm business footing in a 4-year period. According- ly, the enabling legislation contained a "sunset" provision that required the ETC to cover the full cost of trading operations by the end of the fourth year. However, an initial appropriation of $200,000 would be made to "seed" the operation. The indi- rect and low-cost advisory services provided by the port authority were to be charged to the ETC at full cost at the conclusion of the subsidized period. Operational Approach The operational details in the first and fourth years, for organization, staffing, and costs are as follows. Organization A board of directors was established for the ETC by the port authority which took the lead in drawing membership from both the state and local community. Board members included port authority personnel, representatives from the state's Economic Development Department, bank- ers bank individuals, and industry and agricultur- al firms. The organization chart is shown in Fig- ure 11-1. Staffing A staff of five individuals was appointed to manage the ETC's operations. (See Table 11-2.) Office and clerical services and the use of port authority equipment were to be provided to the trading company at no direct cost during the startup period. This reduced the initial staffing require- ment. Thereafter, the ETC had ready access to the port authority support services and was charged on the basis of cost to the port authority. A similar agreement was reached on the allocation of space for personnel and other facilities. The ETC staff initiated a two-pronged effort to refine its knowl- edge on both the sources of products and the overseas markets. A third area of emphasis that followed the initial steps was to analyze the requirement for consolidating shipments into eco- nomically viable loads for overseas shipments. Accordingly, three of the startup personnel were assigned the tasks of sourcing, marketing, and shipment consolidation. The ETC director had responsibility for management and all financial aspects of the trading company's operation. Table 11-2-Hub Model Staffing (Number of Personnel) Position or Function Ye£ Director 1 1 Executive Secretary - 1 Administrative Assistant - 2 Deputy Director Sourcing 1 1 Product Specialist - 3 Clerical and Secretarial - 4 Deputy Director Operations 1 Inland Freight - 2 Overseas Shipping - 2 Overseas Distribution - 1 Warehousing - 2 Packaging - 2 Clerical and Secretarial - 4 Deputy Director Marketing 1 1 Salesperson - 3 Communications - 3 MIS and Data Processing - 4 Market Research - 2 Deputy Director Finance 1 1 Accounting - 3 Purchasing - 2 Clerical and Secretarial - 4 Inventory Control - 2 Total Positions 5 50 Elements of Cost Salaries and Wages The salaries and wages for the ETC's staff are shown in Table 11-3. Totals in this category amounted to $204,000 in the first year and $1.35 million in the fourth year. The rapid increase in compensation costs was based on a major increase in exports through the ETC after the initial year of operation had been completed. General Expenses The ETC was able to keep general expenses relatively low during the first 4 years due to the support provided by the port authority. This assis- tance included minimal costs for support services and facilities. Table 11-3 identifies the general expenses incurred over the 4-year period. Expenditures to Be Depreciated or Amortized The ETC had no initial capitalization costs because the entity was financed entirely out of appropriations and income. However, the ETC had been authorized to raise funds through the partial sharing of returns on revenue bonds that are issued and backed by the port authority. This Figure 11-1 — Hub Model Organizational Chart PORT AUTHORITY State ~* Representatives j 1 | , I Industrial Representatives BOARD OF DIRECTORS PORT AUTHORITY ETC DIRECTOR Port Authority Support Services I DEPUTY DIRECTOR SOURCING DEPUTY DIRECTOR MARKETING \ Bankers r _ B _L nk _ i -i | J Agricultural Representatives Executive Secretary DEPUTY DIRECTOR SHIPMENT CONSOLIDATION Table 11-3— Hub Model Elements of Cost (In thousands of dollars) Salaries and Wages Director's Office and Sourcing $ 69 $ 360 Office of Deputy Director Operations 45 380 Office of Deputy Director Marketing 45 370 Office of Deputy Director Finance 45 240 Total $ 204 $ 1,350 General Expenses Facilities $ 10 $ 140 Fringe Benefits 50 670 Advertising and Promotion 5 100 Travel and Related Costs 20 80 Communications 5 20 Maintenance of Equipment - 10 Miscellaneous 5 10 Overseas Offices 430 Total $ 95 $ 1,460 Depreciation and Amortization $ $ Interest Expense $ 97 $ 120 Income (3) (105) Total $ 94 $ 15 occurred in the fifth year. The bond offering resulted in the allocation of $5 million to the ETC to utilize as an equity capital base for future trading operations. The ETC honors interest and repay- ment of capital to the port authority in exactly the same manner as the authority is obligated to the bond holders. Financial Summary The pro forma income statement and balance sheet for the Hub Model are shown in Tables 11-4 and 11-5. The gross profits in the first and fourth years of operation amount to 10 percent of sales. Net income in the first year shows a loss of $93,000. In the fourth year, profits after operating expens- es and interest income are about 4 percent of sales. As a nonprofit organization, this ETC pays no income taxes and has no capital expenditures to depreciate or amortize. The return on average equity calculation is not applicable in this particular Table 11-4— Hub Model Pro Forma Income Statement (in thousands of dollars) Income from Operations Net Sales Less Cost of Goods Sold Gross Profit Operating Expenses Salaries and Wages General Expenses Depreciation and Amortization. Interest Total Operating Expenses . Operating Income Interest Income Income Before Income Taxes Income Taxes Net Income (Loss) Return on Average Equity (ROE) .. $3,000 2,700 $20,000 18,000 $35,000 31,500 $50,000 45,000 300 2,000 3.500 5,000 204 95 430 504 752 882 1,350 1,460 97 232 233 120 396 1,166 1,867 2,930 (96) 834 1.633 2,070 3 35 72 105 (93) 869 1,705 2.175 $93 $869 $1,705 $2,175 n/a n/a n/a n/a Table 11-5-Hub Model Pro Forma Balance Sheet (in thousands of dollars) Assets Cash and Temporary Investments Accounts Receivable Inventory Fixed Assets Less Accumulated Depreciation Total Assets Liabilities and Capital Accounts Payable Short-term Debt Stockholders' Equity Paid-in Capital Retained Earnings Total Equity Total Liabilities and Capital $21 $164 $169 $164 45 300 525 750 2,700 4,725 6,750 8.775 $1,359 1,300 $2,413 1,800 $3,463 1,300 $4,533 300 200 (93) 200 776 200 2,481 200 4,656 107 976 2,681 4,856 $2,766 $5,189 $7,444 $9,689 Chapter 12 — Bank Holding Company Model Background An important participant in the field of future exporting is the bank holding company (BHC) ETC which provides a full-range of services to U.S. businesses. The ETC Act was designed to facilitate the emergence of this entity. Both full or partial ownership of a trading company is author- ized by the legislation. By the end of 1985, 41 BHCs had filed applications in accordance with the Bank Export Services Act (Title II, ETC Act) and many have commenced operations. The following model has been developed to pro- vide a composite picture of the type of operation that stems from partial BHC ownership of an ETC. This model is hypothetical, and draws the information for its construction from all sections of the Guidebook. General Characteristics The ETC is organized primarily by a bank holding company as a profitable business venture. The bank s overseas branches will provide informa- tion on overseas trading transactions and potential markets. The ETC is unconstrained in its selec- tion of goods. Based in California, the ETC will export products and commodities from the State. Initially, it will focus on high-technology and agricultural products. Later, it plans to diversify into an extensive range of California-produced goods. An essential step in the organizational process of this ETC was for the BHC to apply for authori- zation from the Federal Reserve Board under Title II of the ETC Act to make an equity in- vestment in the venture. A summary of characteristics of this trading company is shown in Table 12-1 and discussed below. Domestic Coverage The ETC is organized primarily to provide com- prehensive services to product and commodity manufacturers from the State of California. Table 12-1 — Bank Holdings Company Model General Characteristics Characteristics U.S. Domestic Coverage The State of California. Product Mix Initially, high-technology and agricultural products. Later, all products manufactured in California. International Scope No limitations; the ETC will perform a continuing world- wide analysis constrained only by its resources. Institutional Participants Fifty-two percent ownership by a major bank holding com- pany. An ocean shipping company and marine insurance firm each contri- bute 24 percent. Trade Volume $10 million in the first year and reaching $65 million in the fourth year. Financial Considerations The initial capitalization is $4 million with the BHC contri- buting $2.08 million and the two other owners contributing $.96 million each. Two million more shares are held by the ETC for future use. Product Mix The trading company is unconstrained in its selection of the goods to be exported. However, it will concentrate initially on evaluating markets for, and subsequently selling, high-technology and agricultural products. The ETC plans to diversify into an extensive range of California produced goods as opportunities occur or are developed. International Scope No limitations are placed on the geographic regions or countries in which the ETC will con- duct its trading operations. Early, efforts by the trading company will be oriented toward a worldwide market analysis of sales opportunities for California products. Institutional Participants The ETC will be a free standing entity with majority ownership held by a major bank holding company. Information on overseas trading trans- actions and potential markets are made available through a network of overseas branches owned by the BHC's bank subsidiary. Other investors will include an ocean shipping company that home ports in California and an insurance company specializing in marine insurance. These two invest- ors also have specialized knowledge of trading and are particularly well equipped to support the ETC as it enters the export process. Trade Volume Financial planning for the trading company is based on a sales figure of $65 million achieved after the fourth year of business. A goal of reach- ing $10 million in sales is set by the organizers for the first year of trading. Financial Considerations The total capitalization requirement is estimated at $5 to $6 million with an initial investment of $4 million being allocated in the first year of busi- ness activity. Ownership is based on the initial issuance of $4 million worth of shares with the BHC contributing $2.08 million in cash. The remaining amount will be divided equally among the ocean shipper and insurance company. In addi- tion, the equivalent of $2 million in shares will be held by the ETC for future issue. The timing of the issue will be based primarily on earnings, growth, and the attainment of a capital base to continue expansion after the fourth year of oper- ation. Operational Approach The operational details in the first and fourth years for organization, staffing, and costs are as follows. Organization The organization is developed initially around a cadre of BHC personnel experienced in the inter- national aspects of banking. Permanently assigned personnel from both the ocean shipper and insur- ance firms are added to this group. A board of directors is elected by the stockholders and a chief executive officer appointed. The organization chart for this institution after 4 years of operation is shown in Figure 12-1. Staffing A group of 15 management and trading specialists is established to operate the ETC during the first year. The total number of ETC employees is estimated at 50 when the company reaches matu- rity during the fourth year. (See Table 12-2.) The BHC and its bank subsidiary will be providing a significant amount of marketing data to the ETC from their overseas operations thus reducing slightly the total number of employees needed to staff the sales program. In addition, significant support will be accorded the ETC by all of the equity participants on various aspects of the trading process. Table 12-2 — Bank Holding Company Model Staffing (Number of Personnel) Position or Function Year 1 Year 4 President Executive Secretary General Counsel and Secretary- Treasurer Administrative Staff Clerical and Secretarial Vice President Operations Export Service Personnel Clerical and Secretarial Product Specialist MIS and Communications Support Vice President Marketing Sales Personnel Support Vice President Finance Accounting Clerical and Secretarial Total Positions 1 1 4 3 i i 6 3 5 50 Elements of Cost Salaries and Wages The salaries and wages paid by the ETC amount to $590,000 and $1.4 million in the first and fourth years, respectively. This represents modest growth when compared to sales which are seen to increase significantly through the 4 years of operation. However, the three overseas offices are also staffed with 10 personnel who are significant contribu- tors to overall sales. Table 12-3 shows the costs associated with salaries and wages. General Expenses In the first year, this trading company's expenses are $500,000. By the fourth year, the four major general expense items associated with ETCs opera- tion are facilities ($455,000), fringe benefits ($350,000), travel and related expenses ($300,000), and overseas offices ($585,000). These four ele- ments account for over 80 percent of general ex- penses in the fourth year. Line item costs for Years 1 and 4 are shown in Table 12-3. Figure 12-1 — Bank Holding Company Model Organization Chart ! Bank Holding Company )■ L ! I 1 Bank Susidiary International Operations [ . and Correspondent Bank L I BOARD OF DIRECTORS r -1 i International Trade Service Organizations 1 1 1 1 Credit Analysis Purchasing Insurance rn Export Service Personnel Management Information and Communications Personnel Table 12-3— Bank Holding Company Model Elements of Cost (In thousands of dollars) Year 1 Year '. Salaries and Wages President's Office $ 130 $ 309 Vice President Operations Office 165 527 Vice President Marketing Office 165 345 Vice President Finance Office 130 219 Total $ 590 $1,400 General Expenses Facilities $ 150 $ 455 Fringe Benefits 145 350 Advertising and Promotion 35 125 Travel and Related Costs 30 300 Communications 25 75 Maintenance of Equipment 10 50 Miscellaneous 10 50 Overseas Offices 95 585 Total $ 500 $1,990 Depreciation and Amortization $ 60 $ 60 Interest Expenses $ - $ - Income (117) (318) Total $(117) $ (318) Expenditures to Be Depreciated or Amortized The startup costs associated with ETC devel- opment are $300,000 to be depreciated over a 5- year period. Details are as follows: Item Thousands of dollars Data Processing and Communications Equipment $ 85 Organizational Expenses 25 Feasibility Study 85 Consulting Fees 10 International and Domestic Travel 35 Miscellaneous 10 Office Furnishings 50 Total Expenditures $300 Financial Summary The pro forma income statement and balance sheet for the BHC Model are shown in Tables 12-4 and 12-5. The gross profits in the first and fourth years of operation amount to 10 percent. Net income in the first year shows a loss, and a resultant draw down on equity capital of some $33,000. In the fourth year, profits after operat- ing expenses, interest income, depreciation, and taxes were over 2 percent of sales. The return on average equity is negative in Year 1 but reaches 23 percent in Year 4. Table 12-4 — Bank Holding Company Model Pro Forma Income Statement (in thousands of dollars) Income from Operations Net Sales Less Cost of Goods Sold Gross Profit Operating Expenses Salaries & Wages General Expenses Depreciation & Amortization .. Interest Total Operating Expenses ... Operating Income Interest Income Income Before Income Taxes Income Taxes Net Income (Loss) Return on Average Equity (ROE) 10,000 9.000 1.000 $35,000 31,500 3,500 $50,iioo 45,000 5,000 $(,5,000 58.500 6,500 590 5(10 60 753 882 60 1,075 1,260 60 1,400 1,990 60 1,150 1,695 2,395 3,450 (150) 1,805 2,605 3,050 117 125 213 318 (33) 1,930 2,818 3,368 949 1.409 1.684 $ (33) $ 981 $ 1.409 $ 1.684 1% 22% 25'; :y. Table 12-5— Bank Holding Company Model Pro Forma Balance Sheet (in thousands of dollars) Assets Cash and Temporary Investments Accounts Receivable Inventory Fixed Assets Less Accumulated Depreciation Total Assets Liabilities and Capital Accounts Payable Short-term Debt Stockholders' Equity- Paid-in Capital Retained Earnings Total Equity Total Liabilities and Capital $1,164 250 4,725 240 $Nr 875 6.750 180 $726 1,250 8,775 120 $1,156 1.625 10,800 60 $6,379 $8,412 $10,871 $13,641 $2,412 $3,463 $4,514 $5,599 4.000 33.3 4,000 948 4,000 2,357 4.000 4.042 $3,966 $4,948 $6,357 8.042 $6,379 $8,412 $10,871 $13,641 Chapter 13 — Single Product Area Model Background Economists and other analysts of the interna- tional scene have given significant attention to the sizeable growth characteristics of the Pacific Basin region. No other region of the world shows so much potential for increased trade among all nations of the region and the United States. Our exports to this region exceeded $50 billion in 1985. The Pacific Basin will continue to be a major market for American merchandise. Another indi- cation of the attractiveness of this region is the U.S. direct investment in the area which reached approximately $33 billion in 1985. The nations of this region, as illustrated in Fig- ure 13-1 include: Australia Japan New Zealand Burma Korea Philippines China Malaysia Singapore Hong Kong Taiwan Indonesia Thailand Figure 13-1 — The Far East The Pacific Basin abounds with natural resources including tin, natural rubber, hardwoods, coco- nut oil, palm oil, copper, nickel, bauxite, and oil. In addition, the manufacturing capability of Japan and the evolving industries elsewhere in the region make it an attractive area for trading operations. A potential obstacle to be considered in designing an ETC is that the nations of this region are astute traders and the requirements for countertrade will surface on many occasions when export sales are promoted. However, the rich resources of the area can turn the countertrade requirement to an ETCs advantage if the business is appropriately planned at the outset to deal with this complex problem. The following ETC model has been designed to engage in trade with Pacific Basin countries on a regional basis. A Single Product Area Model which represents an integrated ETC has been selected to illustrate the operations of such a trading company. General Characteristics The operational approach to the development of trade in the Pacific Basin was initially devel- oped by a medium-sized manufacturing organiza- tion located in the Midwest. This producer had not exported directly but had supplied goods to engineering and construction organizations involved in overseas turnkey projects. The knowledge gained from this experience had led to consideration of the ETC option. As a member of a trade associa- tion, the manufacturer had ready access to data. Information was developed on a compatible line of goods produced by other U.S. manufacturers and the firm received direct assistance from the association in identifying and contacting other electrical machinery manufacturers. In order to insulate this joint export activity from antitrust liability, an application for an Export Trade Cer- tificate of Review was filed with OETCA. The application was approved prior to the commence- ment of trading operations. A board of directors was established with rep- resentatives from each of the capital providers. Capital stock in the ETC was issued to the incor- porators and a president for the organization appointed. It had been recognized at the begin- ning of discussions that not all the products of each manufacturer would be necessarily saleable in the target region. Accordingly, agreement had been reached on the products to be marketed and an associated merchandise services package had been developed for promotion. The brochure reflected information obtained from both market research in the United States and from a study commissioned with an Asian market research organization. Countertrade opportunities had also been identified in natural resource areas and some "buy back" opportunities identified throughout the region. Significant front-end costs had been anticipated by the organizers in terms of processing data, communications, and the immediate requirement to establish an overseas marketing office. Of particular importance was the sizing and procure- ment of a computer that could be programmed to provide near "real time" information on countertrade opportunities and short-term currency fluctua- tions. Singapore was chosen as the initial overseas office site to permit early concentration on Asian countries. Another office was to be established in Tokyo during the second year of operations. With these considerations in mind the ETC commenced operations. The ETCs general characteristics are presented in Table 13-1 and discussed below. Table 13-1 — Single Product Area Model General Characteristics Characteristics Model Domestic Coverage Nationwide with initial emphasis on the U.S. Midwest region. Product Mix Electrical machinery. International Scope The entire Pacific Basin region with early emphasis on Japan, the People's Republic of China. Taiwan, Korea, and the Associ- ation of Southeast Asian Nations (ASEAN). Institutional Participants Eight product manufacturers and an equity capital organi- zation. Trade Volume The ETC designed the organiza- tion around sales of $75 million in the first year and S250 million in the fourth year. Financial Considerations An initial equity captialization of $10 million was contributed by the organizers. Domestic Coverage The ETC was formed to provide comprehensive services to manufacturers from all parts of the country. However, the organization was headquar- tered in the Midwest where many of the organizers were domiciled. Product Mix The ETC restricted its marketing focus to the electrical machinery market. A comprehensive line of manufactured goods was selected from among the many items classified under the general heading of electrical machinery. The final deci- sion on the goods to be exported was made on the basis of market research in the United States and through an overseas firm specializing in Pacific Basin studies. International Scope The Pacific Basin region was selected as the market for the ETC products which included Japan, the Peoples Republic of China, Taiwan, and Korea, and the member states of the Association of South- east Asian Nations (ASEAN) which include In- donesia, Malaysia, Singapore, Thailand, and the Philippines. Other countries of the Pacific Basin would be included in the scope of operations as opportunities were identified. Institutional Participants The entity was developed by a group of eight manufacturers who cooperatively appointed a small group of executives to explore the proposed ven- ture. Funds were contributed by each of the organizers to develop a feasibility study and a plan of action. At the conclusion of the study the capital requirements for launching the endeavor were identified and commitments made by the organizing entities. In addition, a large financial institution engaged in lending funds to entre- preneurial activities agreed to commit financial resources to the endeavor. Trade Volume The feasibility study completed by the organizers showed that a very large market for electrical machinery could be readily discerned for the future. It was also recognized by the ETC that a signifi- cant amount of countertrading would be required in certain countries. This fact would significantly influence the capitalization requirements in terms of, first, the expected return on capital and, sec- ond, the expenses related to financing. Finally, the organizers recognized the need for arranging third country sales and importing into the United States. Financial Considerations The initial capitalization requirements were determined to be $10 million with half of this being contributed by the equity capital provider. As a result of these and other considerations, the organizers developed their financial plan around sales of $200 to $300 million in the fourth year of operation. The long range target of the group was to eventually achieve a trading volume of $500 million. An initial goal of $75 million in sales was set for the first year's operation. Operational Approach The operational details in the first and fourth years, for organization, staffing, and costs are as follows: Organization The organizational form used by the ETC in the fourth year of operation is shown in Figure 13-2. This illustration identifies three overseas offices and a comprehensively staffed entity designed to achieve the sales projected at ETC maturity. Staffing The staffing plan developed by the ETC for its first and fourth years of operation is shown in Table 13-2. The function or skill requirements Table 13-2— Single Product Area Model Staffing (Number of Personnel) Position or Function Year 1 Year 4 President 1 1 Executive Vice President - 1 Vice President Administration 1 Administrative Staff 3 5 Clerical and Secretarial 1 4 Vice President Operations 1 1 Director Countertrade Division 1 1 Director Service Support 1 1 Export Service Personnel 6 10 Warehousing and Distribution - 6 Import Operations 2 3 Product Specialist 3 Third Country Operations 2 Clerical and Secretarial 4 6 Vice President MIS and Communications 1 1 MIS 2 6 Communications 3 6 Clerical 3 Secretarial 2 5 Vice President Marketing 1 1 Salespersons 2 6 Market Research 1 2 Packaging and Promotion Specialists 1 4 Political and Economic Analysts - 2 Overseas Offices Liaison Personnel - 3 Clerical and Secretarial 1 3 Vice President Finance I 1 Accounting 4 8 Currency Transactions 1 1 Purchasing and Costing 2 5 Clerical and Secretarial 3 4 Total Positions 50 108 associated with these 2 years are identified in the table together with the numbers of employees expected to staff the ETC. Elements of Cost Major elements of cost, including salaries and wages, general expenses, and capital expenditures are discussed below. Salaries and Wages The salaries and wages paid by the ETC for domestic personnel are shown in Table 13-3. The institution would grow from a payroll of 50 to 108 over the 4-year period. This growth to maturity is consistent with sales generation and capital avail- ability. General Expenses General expenses nearly double for the ETC over the 4-year period. However, sales more than triple which illustrates the economies of scale that can be attributed to trading companies engaged in large scale operations. A major factor in the increase in general expenses is the cost involved Table 13-3— Single Product Area Model Element of Cost (In thousands of dollars) Cost Element Year 1 Year 4 Salaries or Wages President's Office $ 205 570 225 210 225 $1,435 $ 750 360 125 85 75 Ml 50 515 $ 2.010 $ 200 $ - (222) S (222) $525 970 Vice President MIS and Communications Office Vice President Marketing Office .... Vice President Finance Office Total 750 535 General Expenses $ 850 980 MM) 200 150 50 Kid 1,570 $4,000 $ 200 Fringe Benefits Advertising and Promotion Travel and Related Costs Communications Maintenance of Equipment Miscellaneous Overseas Offices and Warehouses ... Total Interest $1 065 Income (809) Total Figure 13-2 — Single Product Area Organizational Chart i i t I Manufacturers I BOARD OF DIRECTORS -I r "l Bank Holding Company Management — 4 Consulting Firm VICE PRESIDENT MARKETING VICE PRESIDENT OPERATIONS 1 Market Research 1 Salespersons ications Data Processing Table 13-4 — Single Product Area Model Pro Forma Income Statement (in thousands of dollars) Income from Operations Net Sales Less Cost of Goods Sold Gross Profit Operating Expenses Salaries and Wages General Expenses Depreciation and Amortization.... Interest Total Operating Expenses Operating Income Interest Income Income Before Income Taxes Income Taxes Net Income Return on Average Equity (ROE) $75,000 70,500 $112,500 105,750 $175,000 164,500 $250,000 235,000 4,500 6.750 10,500 15,000 1,435 2,010 200 2,100 2,600 200 187 2,700 3,300 200 637 3,270 4.000 200 1,065 3,645 5,087 6,837 8,535 855 1,663 3,663 6,465 222 354 551 809 1,077 2,017 4,214 7,274 539 1,009 2.107 3,637 $538 $1,008 $2,107 $3,637 5% 9% 17% 24% in establishing overseas offices. It is noted that the ETC establishes an overseas office in Singa- pore during the first year; a second office is estab- lished in Tokyo at the end of the second year. The ETCs fourth year of trading operations is based upon sales of $250 million and the estab- lishment of a third overseas office in Hong Kong. In the intervening years, office costs increase by the opening of U.S. regional offices on the East and West Coasts of the United States, Warehous- ing facilities are also located in these regions to handle the flow of goods and to hold selected inventory items. Expenditures to Be Depreciated or Amortized Major expenditures from capital are made by the ETC to initiate operations and are detailed as follows: These expenditures are amortized over a 5-year period. Financial Summary The pro forma income statement and balance sheet for the Single Product Area Model are shown in Tables 13-4 and 13-5. The gross profits in the first and fourth year of operation amount to 6 percent. Net income in the first year shows a gain of about 0.7 percent of sales. In the fourth year, profits after operating expenses, interest income, depreciation, and taxes are about 1.4 percent of net sales. The return on average equity is 5 percent in Year 1 and 24 percent in Year 4. Thousands of dollars Data Processing and Communications Equipment $275 Feasibility Study 200 Office Furnishings 225 Organizational Expenses 150 Consulting Fees 75 International and Domestic Travel 75 Miscellaneous 50 Total Expenditures $1,050 72 Table 13-5— Single Product Area Model Pro Forma Balance Sheet (in thousands of dollars) Assets Cash and Temporary Investments Accounts Receivable Inventory Fixed Assets Less Accumulated Depreciation Total Assets Liabilities and Capital Accounts Payable Short-term Debt Stockholders' Equity Paid-in Capital Retained Earnings Total Equity Total Liabilities and Capital $1,719 1,876 12,690 800 $1,024 2,813 19,740 600 $1,108 4,376 28,200 400 $1,110 6,251 «..(,(, n 200 $17,085 $24,177 $34,084 $44,221 $6,547 $10,131 2,500 $14,431 6,000 $18,731 8,200 10,000 538 10,000 1,546 10,000 3,653 10,000 7,290 10,538 11,546 13.653 17,290 $17,085 $24,177 $34,084 $44,221 Appendix A — Questions and Answers on ETC Issues 1. Q. Could a nonprofit ETC be organized under, say, the auspices of a local council of governments to provide an export mechanism for local manu- facturers? A. Yes. The ETC Act specifically encourages local government participation in the ETC. These ETCs may be wholly owned or formed cooperatively with the private sector. A public sector ETC will usually be organized around some organization such as a port or other entity based on transport or commerce. 2. Q. How can information be obtained on any coun- tertrade restrictions that an ETC might encoun- ter? A. Some governments use trade policies, trade laws and regulations and administrative directives to restrict, require or strongly encourage countertrade. An ETC facing countertrade demand should con- tact ITA's Country Experts known as Desk Officers, and US&FCS officers in DOC district offices and foreign posts. The Office of Trade Finance is another supplemental source of information on countertrade restrictions. 3. Q. Is countertrade illegal? A. Countertrade itself is a neutral international transac- tion. As with any other international transaction, it is subject to the laws of importing and exporting nations, in addition to the international obligations of both nations. Thus, if a countertrade results in dumping, countertraded imports are subject to the antidumping penalties of the importing nation. More- over, if the countertrade arrangement is mandated, the U.S. Government strongly opposes it as a dis- ruptive, distorting trade practice. 4. Q. Could an ETC be formed to import raw materials, process them, and then export them and only pay taxes on the value added in the United States? A. Only if the ETC operates through a Foreign Trade Zone that has been formally established through the Foreign Trade Zones Board. Information on these zones can be obtained from the Department of Commerce, Foreign Trade Zone staff. 5. Q. Are there local content restrictions on an ETC? A. The only restriction is discussed in Title II of the ETC Act which requires that more than 50 percent of the revenues of an ETC which has a bank holding company as an equity participant be derived from exporting or facilitating the export of goods or services produced in the U.S. 6. Q. There seem to be a number of government pro- grams which might help me. How do I know where to start? A. After reviewing the Guidebook, you should start with the Department of Commerce/ International Trade Administration's district offices (listed in Appendix C). They will help direct you to further information on the various government programs. 7. Q. Could an ETC purchase goods from a competitive trading company and export these goods? Is a cer- tificate advisable? A. Yes. Dealings among and between traders is not uncommon and can work to both their advantages on occasions. The question on the desirability of certification would depend upon the larger issue involving a possible restraint of trade. In general, it may be advisable to obtain a certificate before engaging in third party transactions in the United States. 8. Q. If I request a Export Trade Certificate of Review, will my financial statements be available to my competitors under the Freedom of Information Act? A. No. Section 309 of the ETC Act exempts infor- mation submitted in connection with an application from the Freedom of Information Act and affirma- tively prohibits disclosure of confidential informa- tion, except in very narrow circumstances. 9. Q. Could an ETC organized by a group of U.S. com- petitors that had obtained an Export Trade Certificate of Review be liable for noncompliance with EC competition laws? A. A Certificate of Review provides no protection from the competition laws of other countries. In- formation about the laws and possible antitrust restrictions of other countries can be obtained by- contacting the Foreign Embassy or Consul. 10. Q. Why have trading companies been so slow to develop in the United States? Do the Japanese trading companies have any legal advantages over U.S. -based ETCs? A. Yes. Japanese ETCs are not constrained in owning manufacturing operations, banks, and ocean ship- pers or in obtaining bank equity investments as are their U.S. counterparts. However, the ETC Act does allow diverse entities to own an American ETC thus mitigating against the advantage of foreign counterparts. 11. Q. How do I find out if there is a District Export Council in my area? A. Call your local DOC/ITA regional office to obtain information on your local DEC. 12. Q. How do I find out and get involved in trade mis- sions and fairs? A. Trade missions and fairs are organized periodically by DOC/ITA. SBA, and many state and other local government organizations. You should start by contacting your DOC/ITA local district office since they play a coordinating role for most trade activities. Q. To avoid complications with foreign currency, is it possible to have all contracts and payments in dollars? A. No. Some foreign countries may have a dollar sur- plus and be prepared to make sales in this manner but this must be considered the exception and not the rule. Overseas banks, however, including those owned by the U.S. and other hard currency nations, will assist in foreign currency exchange arrange- ments. For further information, contact a large bank in your area for data on its international correspondents or overseas branches. Can an ETC form a Foreign Sales Corporation (FSC) to take advantage of the corporate tax sav- ings it provides on export profits? Yes. The Foreign Sales Corporation Act allows an ETC to either be an FSC or to have an FSC as a subsidiary. Its members can then enjoy a 15% to 30% reduction in corporate taxation on qualified export profits. Appendix B — Government Programs by Government Agency United States Department of Commerce — International Trade Administration U.S. Department of Commerce International Trade Administration 14th Street and Constitution Avenue, N.W. Washington, D.C. 20230 Office of Export Trading Company Affairs — This office was created under Title I of the ETC Act. Its mission is to promote and encourage the formation of ETCs by sponsoring conferences, workshops, and presentations on ETCs and to provide a program for registering suppliers and ETCs to help registrants identify and contact potential business partners. OETCA also administers the Export Trade Certificate of Review process under Title III of the ETC Act. It is located in Washington, D.C. and can be reached at (202) 377-5 131. Business Counseling Service — In addition to the District Offices,' ITA maintains an Export Counseling Unit in Wash- ington, D.C, to help U.S. firms develop or expand markets abroad. Counselors advise exporters on the choice of support services and guide them in the use of export practices and procedures. U.S. business executives who are planning to visit Washing- ton and would like to schedule appointments with trade specialists should contact the nearest District Office or the Export Counseling Unit, USFCS/CSIC, Washington, D.C. 20230, telephone (202) 377-3181. Additionally, these ITA trade specialists can be consulted by phone. If you are interested in a specific region, there is assistance on specific markets: They provide commercial and economic information on most trading partners of the United States. This is available through ITA's International Economic Policy unit. Assistance about marketing in differ- ent countries may be obtained by dialing (202) 377. ..plus: Africa 175; Near East 4441; South Asia 2954; the People's Republic of China and Hong Kong 3583; Japan 4527; the Pacific Basin 3875; the European Community 5341; non-EC Europe 2177; USSR and Eastern Europe 1104; North America 3643; Mexico 2332; the Caribbean Basin 2527; and South America 2436. If you seek trade information on industry sectors, it may be obtained by dialing (202) 377. ..plus: high technology and electronic equipment industries 2795; production and pro- cessing machinery industries 4545; utilities and construc- tion industries 5455; consumer goods industries 3422; trans- portation industries 4161; industrial components industries 4781; construction, transportation, and tourism service indus- tries 4581; textiles and apparel 5078, and major projects 5225. Addresses of the District Offices are provided in Appendix C The Export Counseling Unit also maintains an Export Informa- tion Reference Room in Washington where interested persons will find a wide range of information on major foreign pro- jects under consideration by international financial institu- tions. Contact the Commercial Service Information Center, ITA, Washington, D.C. 20230; telephone (202) 377-5370. Exporters Licensing Services — This service assists U.S. firms in fulfilling their obligations under the Export Administration Act. The Act seeks to ensure national security and to further national foreign policy goals by controlling exports of cer- tain kinds of sensitive, high-technology equipment and data to certain destinations. The Exporters Services group gives speedy advice to business executives who need to determine whether their exports require advance, validated licenses or need help in filing the requisite applications. Telephone assis- tance is available at (202) 377-481 1. Commerce Business Daily — This periodical, published daily Monday through Friday, lists succintly U.S. Government procurement invitations, contract awards, subcontracting leads, sales of surplus property, and foreign business op- portunities. It is available in both paper copy and as an on-line data base. The paper copy costs $175 a year (priority mail) or $100 a year (nonpriority) or $90 (priority mail) and $50 (non-priority mail) for a 6-month subscription. Mail orders, including a check payable to the Superintendent of Documents and citing the full title, subscription list identifica- tion code "COBD," and filing code "2D" should be addressed to: Superintendent of Documents, U.S. Government Print- ing Office, Washington, D.C. 20402. Orders also may be made by calling the Order Desk at (202) 783-3238 and charged to a VISA, Mastercharge, or a prepaid Superinten- dent of Documents Deposit Account. Trade Opportunities Program (TOP) — This program provides detailed information on opportunities for direct sales to for- eign buyers. As subscribers to TOP, American business firms indicate the products or services they wish to export, the countries they are interested in, and the type of opportunities desired, whether direct sales, overseas representation, or foreign government tenders. The TOP system matches the product interests of foreign buyers with those indicated by U.S. subscribers, mailing the leads to subscribers on a daily basis. U.S. companies also have the option of subscribing to the weekly TOP Bulletin or TOP Datatape Service, which contains all export leads received and processed by TOP. Contact the Office of Trade Information Services, ITA, Washington, D.C. 20230; telephone (202) 377-2988. The Agent/Distribution Service (A/DS) — The service is designed to assist U.S. exporters in finding agents and dis- tributors for their products. ITA's commercial officers con- duct customized on-site searches to identify representatives who are both interested and qualified to handle specific products. Contact the Office of Trade Information Services, ITA, Washington, D.C. 20230; telephone (202) 377-2988. World Traders Data Reports (WTDR)— These reports are provided to assist exporters in obtaining credit information and other business data on foreign firms. Contact the Office of Trade Information Services, ITA, Washington, D.C/20230; telephone (202) 377-2988. Commercial News USA(CN)— This publication is used to disseminate information on U.S. products to foreign pur- chasers. It is published in magazine form and distributed to over 200,000 foreign business officials, government repre- sentatives, and other prospective buyers. Contact the Office of Event Management and Support Services, ITA, Washington, D.C. 20230; telephone (202) 377-5367. Foreign Trader's Index (FTI) — Trade lists are published of all foreign companies in a given industry or country included in the Department's Foreign Trader's Index. Covering 143 countries, this file contains information on more than 140,000 importing firms, agents, distributors, service oganizations, manufacturers, retailers, and potential end-users of Ameri- can products and services. The information provided on each firm includes name, address, key contact, telephone, cable, type of business and age of information. Trade lists are useful in identifying a wide range of buyers, agents, distributors, manufacturers and potential business contacts abroad in a particular country or industry of interest. Trade lists range in price from $12 to $40 depending on age. They are avail- able in various forms, such as mailing labels and computer printouts, to meet company requirements. Contact the Office of Trade Information Services, ITA, Washington, D.C. 20230; telephone (202) 377-2988. Country Market Surveys (CMS) — CMSs offer a wealth of marketing information of use to the potential U.S. exporter, information that is often difficult to obtain from other sources. They are summaries of full-length International Market Research (IMR) Reports which analyze U.S. export op- portunities in a specific country market for a particular U.S. industry. The surveys describe the current marketing situa- tion, trends expected in the next five years, best sales pros- pects, estimates and projection of market size, imports from the United States, domestic production, and end-user industry sectors. The CMSs also provide sources of information on regulations and technical standards. The price for new CMS publications is $10 each or $9 each if six or more CMSs are ordered. Contact the Office of Trade Information Services, ITA, Washington, D.C. 20230; telephone (202) 377-2988. Export Mailing Lists — The Export Mailing List Service pro- vides overseas contact information to U.S. exporters. These tailor-made lists of potential customers of U.S. goods and services are generated from a computer file of foreign buyers, agents and distributors. They are based on client specifica- tions such as country(ies), industry sector(s) and business activity (i.e., retailers, manufacturers, distributors, etc.). A computer listing or mailing labels can be purchased for most products and countries. The price of this service is based on search specifications. Contact the Office of Export Market- ing Assistance, Export Lists Branch, ITA, Department of Commerce, Washington, D.C. 20230; telephone (202) 377-1468. Overseas Business Reports (OBR) — These reports provide basic background data for business-people who are evaluat- ing various export markets or considering the possibility of entering new areas. Covering both developing and industri- alized countries, the OBR series discusses pertinent market- ing factors in individual countries; presents economic/com- mercial profiles of countries and regions; issues semiannual outlooks for U.S. trade with countries and geographical regions; and publishes selected statistical reports on the direction, volume, and nature of U.S. foreign trade. OBRs may be ordered through the Government Printing Office, Washing- ton, D.C. 20402. Foreign Economic Trends and Their Implications for the United States (FET)— Prepared by U.S. Embassies and con- sulates abroad and printed/distributed by the U.S. Depart- ment of Commerce, this series of country-by-country reports gives in-depth reviews of current business conditions, cur- rent and near-term prospects, and the latest available data on the gross national product, foreign trade, wage and price indexes, unemployment rates, and construction starts. The reports are of particular value for their analysis of current developments and the implications for future U.S. trade. FETs may be ordered through the Government Printing Office, Washington, D.C. 20402. Department of Commerce — National Oceanic and Atmospheric Administration National Oceanic and Atmospheric Administration U.S. Department of Commerce National Marine Fisheries Service Washington, D.C. 20235 (202) 634-7283 National Marine Fisheries Service (NMFS)— This Agency assists businesses interested in exporting seafood products through a variety of programs. Assistance includes provid- ing information and counselling about potential foreign mar- kets; tariff and non-tariff barriers; foreign seafood import regulations and consumer preferences; and inspection ser- vices on export shipments to ensure products meet foreign import standards. NOAA disseminates information about overseas trade opportunities through a publication entitled the Computer Assisted System for the Export of Seafood (CASES). Additionally, NOAA hosts U.S. Seafood Sales Missions to various world seafood markets and sponsors U.S. Seafood Sales Exhibitions at international food shows. Department of Agriculture U.S. Department of Agriculture Foreign Agricultural Service Washington, D.C. 20250 Product Advertising Abroad — Export trading companies can use the monthly newsletter, "Contacts for U.S. Farm Prod- ucts," as a convenient, free way to advertise the availability of product lines to the overseas food trade. This newsletter is sent to FAS agricultural representatives overseas who in turn distribute the information to the food trade in their country or countries of responsibility. The Export Programs Division — The Export Programs Divi- sion in the Foreign Agricultural Services serves as a contact point for small business people wanting further information on exporting food and agricultural products. The Coordina- tor for Minority and Small Business Programs may be reached at (202) 447-7103. The Office of Transportation (OT) — OT assists exporters with their transportation problems, sponsors export trans- portation seminars, and publishes directories like the Ocean Liner Cargo Services Directory and the International Livestock Transportation Directory. The Director may be contacted at (202) 447-3963. The Commodity Credit Corporation (CCC) — CCC has guar- antee programs generating both commercial and concessional financing. Under the commercial programs, the Export Credit Guarantee Program, foreign buyers purchase U.S. farm com- modities from private U.S. exporters and U.S. banks provide financing at commercial rates up to 3 years. CCC's guaran- tee protects the U.S. bank in case of default under a letter of credit issued by the foreign buyer's bank. CCC makes guar- antees available for transactions where exports would not be made without the program. They may be contacted at (202) 447-6211. Export Import Bank Export-Import Bank of the United States 81 1 Vermont Avenue, N.W. Washington, D.C. 20571 (202) 566-8990 Briefing Programs— Eximbank offers a briefing program which is available to the small business community. Con- ducted on a regular basis at the bank in Washington, D.C, the program includes both group briefings and individual discussions about a business owner's particular export needs and the direct application of Eximbank programs to them. For information on the scheduled briefing sessions, call (202) 566-8870. Small Business Advisory Service — To encourage small busi- nesses to sell overseas, the Eximbank maintains a special office to provide information on the availability and use of export credit insurance, guarantees, discount loans, and for- eign bank credits extended to finance the sale of U.S. goods and services abroad. Its toll-free number is (800) 424-5201. New to Export Short-Term Insurance Policy — Eximbank offers through FCIA a short-term (1-180 days) insurance policy geared to meet the particular credit requirements of smaller, less experienced exporters. Under the policy, Exim assumes 95 percent of the commercial and 100 percent of the politcal risks involved in extending credit to the exporter's overseas customers. This policy frees the smaller exporter from "first loss" commercial risk deductible provisions that are usually found in regular insurance policies. The special coverage is now available to companies who have not used the services of Eximbank or FCIA during the past five years, and whose average annual export sales for the past two years did not exceed $750,000. Exim's Working Capital Loan Guarantee Program — The Export-Import Bank, will guarantee specific loans or revolving lines of credit for ETCs or other exporters when (1) the financial institution or creditor would not otherwise have granted the loan and, (2) the ETC/exporter would not be able to export the products without the loan. The loans may be secured by export accounts receivable, inventories of exportable goods, accounts receivable from leases, performance contracts, grant commitments, participation fees, member dues, revenue from publications, or other appropriate collateral. Exim's Small Business Credit Program — This program encour- ages U.S. commercial banks to extend fixed-rate medium- term export loans by providing standby assurance that the bank can borrow from Eximbank at a fixed rate of interest. If a bank (as exporter of record) or supplier, agent, or export trading company is selling products of a "small manufactur- er" based on the Small Business Administration's size stan- dards for procurement, the transactions' financing might be eligible under this program. Exim's Medium-Term Credit Programs— This program is targeted at U.S. exports competing with foreign exports that receive official credit subsidies. It provides fixed rate sup- port to a U.S. bank that is financing an export sale. Its guidelines, fee rates, and internal administration are similar to the Small Business Credit Program except that evidence of subsidized export credit competition must accompany each request. Overseas Private Investment Corporation Overseas Private Investment Corporation 1615 M Street, N.W. Washington, D.C. 20527 (800) 424-OPIC OPIC Finance Program— OPIC, the Overseas Private Invest- ment Corporation, is a U.S. Government corporation that promotes U.S. investment in less developed countries. OPIC's Finance Program is oriented towards medium- to long-term ventures that involve significant development benefits. Small Business Administration U.S. Small Business Administration Office of International Trade 1441 L Street, N.W. Washington, D.C. 20416 Specific information about SBA financing and counseling services can be obtained from the nearest SBA District Office identified in Appendix E. See the telephone directory in these cities (under U.S. Government) for exact locations. Information on the Small Business Investment Company Program can be obtained as indicated below. SBA Export Revolving Line of Credit Program— The SBA can guarantee up to 85 percent of a bank line of credit to an eligible small business or ETC to finance the acquisition of raw materials, inventory or labor needed to produce, acquire, or market the product or service to be exported. The ERLC may not exceed 18 months or $500,000. Funds may not be used to acquire fixed assets or retire existing debt. The ETC or the small businesses forming an ETC must each have been in business for one year (though not necessarily in exporting) prior to applying for an SBA guaranteed ERLC loan through its bank. SBA Regular Business Loan Program — Under this program, an eligible small business or ETC may obtain longer term financing (depending on use of proceeds). Up to a maximum of $500,000 (or 85 percent of the loan) may be obtained on a bank-SBA guaranty basis or up to $150,000 (depending on the availability of funds) on a direct basis under this pro- gram. Interest rates may be fixed or variable. Funds may be used to obtain plant or equipment or for working capital. ETCs with any bank equity participation are not eligible for the above SBA financing programs. SBA can assist only those eligible small businesses and ETCs the majority of whose assets and activities are located in or are undertaken in the United States. Funding through the above programs cannot be used to establish joint ventures overseas. The above information is provided for general guidance to startup or establish ETCs. Because of the possible unique operations and structure of an ETC, each application will be carefully reviewed to ascertain compliance with statutory requirements and regulation applicable to the Agency's lending programs. Small Business Investment Corporations — Equity capital or long-term financing may be obtained by eligible small businesses or ETCs from SBICs which are licensed by SBA if the SBIC has an investment strategy which includes such activities. SBICs may invest in ETCs in which banks have equity participation provided other SBIC requirements are met. For further information and a copy of a directory of SBICs, contact the Office of Investment, Small Business Administration, 1441 L Street, N.W., Washington, D.C. 20416. Telephone (202) 653-6584. Export Counseling, Training and Publications — These are available through the SBA's Service Corps of Retired Exec- utives and Active Corps of Executives Program, various university and college programs, and under an agreement with the Federal Bar Association. These free services can be arranged through the SBA local office nearest you. Agency for International Development (AID) Agency for International Development Washington, D.C. 20523 Information Programs— Export Opportunities with Agency for International Development explains the mechanisms for AID's programs. The AID Documents Kit for Export Sup- pliers is another useful publication. Both of these documents can be obtained by writing the Office of Business Relations, A.I.D., Washington, D.C. 20523 or calling (202) 632-8972. After reading these materials, you should decide whether to pursue these opportunities by subscribing to AID Financial Export Opportunities (SBC), AID Procurement Information Bulletins (PIB), or AID Small Business Memo (SBM). Office of the United States Trade Representative Office of the U.S. Trade Representative 600 17thSt.,N.W. . Washington, D.C. 20501 (202) 395-3432 The Office of the U.S. Trade Representative is an agency of the Executive Office of the President, charged with coordi- nating and establishing U.S. trade policy. It represents the U.S. at international trade and commercial meetings and negotiations. Individual exporters rarely have direct contact with this office except if they wish to file a complaint about unfair subsidized overseas competition or other GATT- forbidden trade practices. The U.S. Trade and Development Program (TDP) U.S. Trade and Development Program U.S. International Development Cooperation Agency Washington, D.C. 20523 (703) 235-3663 The Trade and Development Program is dedicated to promoting U.S. exports. Its primary mode of operation is to finance feasibility studies for major construction projects in devel- oping countries which would result in significant exports of U.S. products. An ETC of construction, architecture and engineering firms might approach the TDP once they have focused on a specific project for which they would like to provide services. Appendix C — International Trade Administration District Offices NORTHEASTERN REGION I CONNECTICUT •Hartford, 06103, Room 610-B, Fed. Bldg., 450 Main St. (203) 722-3530. MAINE Serviced by the Boston District Office MASSACHUSETTS Boston, 02116, 10th Floor, 441 Stuart St. (617) 223-2312. NEW HAMPSHIRE Serviced by the Boston District Office NEW YORK Buffalo, 14202, 1312 Federal Bldg.. 111 W. Huron St. (716) 846-4191. New York, 10278, Rm. 3718, Federal Office Bldg., 26 Federal Plaza, Foley Sq. (212) 264-0634. RHODE ISLAND Serviced by the Boston District Office VERMONT Serviced by the Boston District Office MID-ATLANTIC REGION II DELAWARE Serviced by the Philadelphia District Office DISTRICT OF COLUMBIA Serviced by the Baltimore District Of- fice MARYLAND Baltimore, 21202, 415 U.S. Custom- house, Gay and Lombard Sts. (301) 962-3560. NEW JERSEY •Trenton, 08608, 240 West State St., 8th Fl. (609) 989-2100. PENNSYLVANIA Philadelphia, 19106, 9448 Federal Bldg., 600 Arch St. (215) 597-2866. Pittsburgh, 15222, 2002 Fed. Bldg., 1000 Liberty Ave. (412) 644-2850. APPALACHIAN REGION III KENTUCKY Louisville, 40202, Rm. 636B, U.S. Post Office and Courthouse Bldg. (502) 582-5066. NORTH CAROLINA •Greensboro, 27402, 203 Federal Bldg., 324 W. Market St., P.O. Box 1950. (919) 378-5345. SOUTH CAROLINA Columbia, 29201, Strom Thurmond Fed. Bldg., Suite 172, 1835 Assembly St. (803) 765-5345. TENNESSEE Nashville, 37239, Suite 1427, 1 Com- merce PI. (615) 251-5161. VIRGINIA Richmond, 23240, 8010 Federal Bldg., 400 N. 8th St. (804) 771-2246. WEST VIRGINIA Charleston, 25301, 3000 New Federal Office Bldg., 500 Quarrier St. (304) 347-5123. SOUTHEASTERN REGION IV ALABAMA •Birmingham, 35205, Suite 200-201, 908 S. 20th St. (205) 254-1331. FLORIDA Miami, 33130, Suite 224, Federal Bldg., 51 S.W. First Ave. (305) 350-5267. GEORGIA Atlanta, 30309, Suite 600, 1365 Peachtree St., NE. (404) 881-7000. Savannah, 31401, 27 East Bay St., P.O. Box 9746. (912) 944-4204. MISSISSIPPI Jackson, 39213, Suite 3230, 300 Woodrow Wilson Blvd. (601) 960-4388. PUERTO RICO San Juan, (Hato Rey), 00918, Room 659 Federal Bldg., Chardon Ave. (809) 753-4555, Ext. 555. GREAT LAKES REGION V ILLINOIS Chicago, 60603, Room 1406, Mid-Con- tinental Plaza Bldg., 55 E. Monroe St. (312)353-4450. INDIANA Indianapolis, 46204, 357 U.S. Court- house & Federal Office Bldg., 46 E. Ohio St. (317) 269-6214. MICHIGAN Detroit, 48226, 445 Federal Bldg., 231 W. Lafayette (313) 226-3650. MINNESOTA Minneapolis, 55401, 218 Federal Bldg., 110 S. 4th St. (612) 725-2133. OHIO •Cincinnati, 45202, 9504 Fed. Bldg., 550 Main St. (513) 684-2944. Cleveland, 44114, Room 600, 666 Euclid Ave. (216) 522-4750. WISCONSIN Milwaukee, 53202, 605 Federal Bldg., 517 E. Wisconsin Ave. (414) 291-3473. PLAINS REGION VI IOWA Des Moines, 50309, 817 Federal Bldg., 210 Walnut St. (515) 284-4222. KANSAS Serviced by the Kansas City, Missouri District Office MISSOURI Kansas City, 64106, Rm. 1840, 601 E. 12th St. (816) 374-3142. *St. Louis, 63105, 120 S. Central Ave. (314) 425-3302. NEBRASKA Omaha, 68102, Empire State Bldg., 1st Floor, 300 S. 19th St. (402) 221-3664. NORTH DAKOTA Serviced by the Omaha District Office SOUTH DAKOTA Serviced by the Omaha District Office CENTRAL REGION VII ARKANSAS Little Rock, 72201, Rm. 635, 320 W. Capitol Ave. (501)378-5794. LOUISIANA New Orleans, 70130, 432 International Trade Mart, 2 Canal St. (504) 589-6546. NEW MEXICO Albuquerque, 87102, 505 Marquette Ave. N.W., Rm. 1015. (505) 766-2386. OKLAHOMA Oklahoma City, 73105, 4024 Lincoln Blvd., (405) 231-5302. TEXAS •Dallas, 75242, Room 7A5. 1100 Com- merce St. (214) 767-0542. Houston, 77002, 2625 Federal Bldg., Courthouse, 515 Rusk St. (713) 229-2578. ROCKY MT. REGION VIM ARIZONA Phoenix, 85073, 2950 Valley Bank Center, 201 N. Central Ave. (602) 261-3285. COLORADO •Denver, 80202, Room 119, U.S. Cus- tomhouse, 721 19th St. (303)837-3246. IDAHO Serviced by the Salt Lake City District Office MONTANA Serviced by the Denver District Office NEVADA Reno, 89502, 1755 East Plumb Lane, Rm. 152.(702)784-5203. UTAH Salt Lake City, 84101, Rm. 340, U.S. Post Office Bldg., 350 S. Main St. (801) 524-5116. WYOMING Serviced by Denver District Office PACIFIC REGION IX ALASKA Anchorage, 99513, P.O. Box 32, 701 C St. (907) 271-5041. CALIFORNIA Los Angeles, 90049, Rm. 800. 11777 San Vicente Blvd. (213) 209-6707. *San Francisco, 94102, Rm. 15205 Federal Bldg.. Box 36013, 450 Golden Gate Ave. (415) 556-5860. HAWAII Honolulu, 96850. 4106 Federal Bldg., 300 Ala Moana Blvd., P.O. Box 50026. (808) 546-8694. OREGON Portland, 97204, Room 618, 1220 S.W. 3rd Ave. (503) 221-3001. WASHINGTON Seattle, 98109, 706 Lake Union Bldg.. 1700 Westlake Ave. North. (206) 442-5616. 'Denotes Regional Managing Director Appendix D — U.S. Foreign Commercial Service Posts WESTERN Mexico Ivory Coast Belgium Netherlands EAST ASIA AND HEMISPHERE Mexico, D.F. Abidjan Brussels The Hague THE PACIFIC Monterrey Kenya Nairobi Kuwait Antwerp Amsterdam Argentina Buenos Aires Guadalajara Panama Czechoslovakia Prague Rotterdam Norway Australia Canberra Melbourne Bolivia La Paz Panama City Kuwait City Denmark Oslo Perth Peru Liberia Copenhagen Sydney Brazil Brasilia Lima Uruguay Monrovia Morocco Finland Helsinki Poland Warsaw China Beijing Porto Alegre Rio De Janeiro Salvador Montevideo Venezuela Rabat Casablanca France Portugal Lisbon Guangzhou Shanghai Sao Paulo Caracas Nigeria Bordeaux Oporto Hong Kong Canada Ottawa Calgary Montreal Toronto AFRICA/NEAR EAST/SOUTH ASIA Lagos Kaduna Pakistan Lyon Marseille Strasbourg Romania Bucharest Hong Kong Indonesia Jakarta Algeria Algiers Karachi Lahore Germany Bonn Spain Madrid Surabaya Japan Vancouver Cameroon Saudi Arabia Berlin (West) Barcelona Tokyo Chile Yaounde Jidda Dusseldorf Sweden Fukuoka Santiago Douala Dhahran Frankfurt Stockholm Osaka-Kobe Colombia Egypt Riyadh Hamburg Munich Switzerland Sapporo Korea Bogota Costa Rica San Jose Dominican Republic Cairo Alexandria Ghana Accra South Africa Johannesburg United Arab Emirates Abu Dhabi Dubai Stuttgart Greece Athens Thessaloniki Bern Zurich Turkey Ankara Seoul Malaysia Kuala Lumpur New Zealand Santo Domingo Ecuador India New Delhi Bombay Zaire Kinshasa Hungary Budapest Istanbul United Kingdom Wellington Auckland Quito Calcutta Zimbabwe Italy London Philippines Guayaquil Madras Harare Rome U.S.S.R. Manila Guatemala Iraq Florence Moscow Singapore Guatemala City Baghdad EUROPE Genoa Milan Yugoslavia Singapore City Honduras Israel Austria Naples Belgrade Thailand Tegucigalpa Tel Aviv Vienna Palermo Zagreb Bangkok Note: For information about US and Foreign Commercial Service Posts call 202-377-1599. Appendix E — Small Business Administration Offices Agana, GU Albany, NY Albuquerque, NM Anchorage, AK Atlanta, GA* Augusta, ME Austin, TX Baltimore, MD Biloxi, MS Birmingham, AL Boise, ID Boston, MA* Buffalo, NY Camden, NJ Casper, WY Cedar Rapids, IA Charleston, WV Charlotte, NC Chicago, IL* Cincinnati, OH Clarksburg, WV Cleveland, OH Columbia, SC Columbus, OH Concord, NH Corpus Christi, TX Dallas, TX* Denver, CO* Des Moines, IA Detroit, MI Elmira, NY Eau Claire, WI El Paso, TX Ft. Worth, TX Fairbanks, AK Fargo, ND Fresno, CA Harlingen, TX Harrisburg, PA Hartford, CT Hato Rey, PR Helena, MT Holyoke, MA Honolulu, HI Houston, TX Indianapolis, IN Jackson, MS Jacksonville, FL Kansas City, MO* Knoxville, TN Las Vegas, NV Little Rock, AR Los Angeles, CA Louisville, KY Lubbock, TX Madison, WI Marquette, MI Marshall, TX Melville, NY Memphis, TN Miami, Fl Milwaukee, WI Minneapolis, MN Monteplier, VT Nashville, TN Newark, NJ New Orleans, LA New York, NY* Oakland, CA Oklahoma City, OK Omaha, NE Philadelphia, PA* Phoenix, AZ Pittsburgh, PA Portland, OR Providence, RI Rapid City, SD Reno, NE Richmond, VA Rochester, NY Sacramento, CA St. Louis, MO St. Thomas, VI Salt Lake City, UT San Antonio, TX San Diego, CA San Francisco, CA* San Jose, CA Santa Ana, CA Seattle, WA* Shreveport, LA Sikeston, MO Sioux Falls, SD South Bend, IN Spokane, WA Springfield, IL Springfield, MO Statesboro, GA Syracuse, NY Tampa, FL Towson, MD Tucson, AZ Tulsa. OK Washington, DC West Palm Beach, FL Wichita, KS Wilkes-Barre, PA Wilmington, DE *Regional Offices and District Offices NOTE: For exact locations and telephone numbers consult the telephone directory in these cities under U.S. Government. S3 APPENDIX F Public Law 97-290 96 STAT. 1233 Public Law 97-290 97th Congress An Act To encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services generally. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, TITLE I— GENERAL PROVISIONS SHORT TITLE Sec. 101. This title may be cited as the "Export Trading Company Act of 1982". findings; declaration of purpose Sec. 102. (a) The Congress finds that— (1) United States exports are responsible for creating and maintaining one out of every nine manufacturing jobs in the United States and for generating one out of every seven dollars of total United States goods produced; (2) the rapidly growing service-related industries are vital to the well-being of the United States economy inasmuch as they create jobs for seven out of every ten Americans, provide 65 per centum of the Nation's gross national product, and offer the greatest potential for significantly increased industrial trade involving finished products; (3) trade deficits contribute to the decline of the dollar on international currency markets and have an inflationary impact on the United States economy; (4) tens of thousands of small- and medium-sized United States businesses produce exportable goods or services but do not engage in exporting; (5) although the United States is the world's leading agricul- tural exporting nation, many farm products are not marketed as widely and effectively abroad as they could be through export trading companies; (6) export trade services in the United States are fragmented into a multitude of separate functions, and companies attempt- ing to offer export trade services lack financial leverage to reach a significant number of potential United States exporters; (7) the United States needs well-developed export trade inter- mediaries which can achieve economies of scale and acquire expertise enabling them to export goods and services profitably, at low per unit cost to producers; (8) the development of export trading companies in the United States has been hampered by business attitudes and by Government regulations; (9) those activities of State and local governmental authorities which initiate, facilitate, or expand exports of" goods and serv- ices can be an important source for expansion of total United States exports, as well as for experimentation in the develop- ment of innovative export programs keyed to local, State, and regional economic needs; (10) if United States trading companies are to be successful in promoting United States exports and in competing with foreign trading companies, they should be able to draw on the re- sources, expertise, and knowledge of the United States banking system, both in the United States and abroad; and (11) the Department of Commerce is responsible for the devel- opment and promotion of United States exports, and especially for facilitating the export of finished products by United States manufacturers. Oct. 8, 1982 [S. 734] Export trade services, expansion. Export Trading Company Act of 1982. 15 USC 4001 note. ►The complete text of Public La* 97-290. 97th Congress. October 8, 1982. (h) It is the purpose of this Act to increase United States exports of products and services by encouraging more efficient provision of export trade services to United States producers and suppliers, in particular by establishing an office within the Department of Com- merce to promote the formation of export trade associations and export trading companies, by permitting bank holding companies, USC 181 note bankers' banks, and Edge Act corporations and agreement corpora- tions that are subsidiaries of bank holding companies to invest in export trading companies, by reducing restrictions on trade financ- ing provided by financial institutions, and by modifying the applica- tion of the antitrust laws to certain export trade. DEFINITIONS USC 4002. Sec. 103. (a) For purposes of this title- ID the term "export trade" means trade or commerce in goods or services produced in the United States which are exported, or in the course of being exported, from the United States to any other country; (2) the term "services" includes, but is not limited to, account- ing, amusement, architectural, automatic data processing, busi- ness, communications, construction franchising and licensing, consulting, engineering, financial, insurance, legal, manage- ment, repair, tourism, training, and transportation services; (3) the term "export trade services" includes, but is not limited to, consulting, international market research, advertis- ing, marketing, insurance, product research and design, legal assistance, transportation, including trade documentation and freight forwarding, communication and processing of foreign orders to and for exporters and foreign purchasers, warehous- ing, foreign exchange, financing, and taking title to goods, when provided in order to facilitate the export of goods or services produced in the United States; (4) the term "export trading company" means a person, part- nership, association, or similar organization, whether operated for profit or as a nonprofit organization, which does business under the laws of the United States or any State and which is organized and operated principally for purposes of — (A) exporting goods or services produced in the United States; or (B) facilitating the exportation of goods or services pro- duced in the United States by unaffiliated persons by pro- viding one or more export trade services; (5) the term "State" means any of the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the Trust Territory of the Pacific Islands; (6) the term "United States" means the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the Trust Territory of the Pacific Islands; and (7) the term "antitrust laws" means the antitrust laws as defined in subsection (a) of the first section of the Clayton Act (15 U.S.C. 12(a)), section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to the extent that section 5 applies to unfair methods of competition, and any State antitrust or unfair com- petition law. (b) The Secretary of Commerce may by regulation further define any term defined in subsection (a), in order to carry out this title. OFFICE OF EXPORT TRADE IN DEPARTMENT OF COMMERCE i USC 4003. Sec. 104. The Secretary of Commerce shall establish within the Department of Commerce an office to promote and encourage to the greatest extent feasible the formation of export trade associations and export trading companies. Such office shall provide information and advice to interested persons and shall provide a referral service to facilitate contact between producers of exportable goods and services and firms offering export trade services. TITLE II— BANK EXPORT SERVICES Bank Export Services Act. SHORT TITLE Sec. 201. This title may be cited as the "Bank Export Services Act". Sec. 202. The Congress hereby declares that it is the purpose of this title to provide for meaningful and effective participation by bank holding companies, bankers' banks, and Edge Act corporations, in the financing and development cf export trading companies in the United States. In furtherance of such purpose, the Congress intends that, in implementing its authority under section 4(c)(14) of the Bank Holding Company Act of 1956, the Board of Governors of the Federal Reserve System should pursue regulatory policies that— (1) provide for the establishment of export trading companies with powers sufficiently broad to enable them to compete with similar foreign-owned institutions in the United States and abroad; (2) afford to United States commerce, industry, and agricul- ture, especially small- and medium-size firms, a means of export- ing at all times; (3) foster the participation by regional and smaller banks in the development of export trading companies; and (4) facilitate the formation of joint venture export trading companies between bank holding companies and nonbank firms that provide for the efficient combination of complementary trade and financing services designed to create export trading companies that can handle all of an exporting company's needs. 12 USC 1841 note. 12 USC 1843 note. 30 USC 181 note. INVESTMENTS IN EXPORT TRADING COMPANIES Sec. 203. Section 4(c) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)) is amended— (1) in paragraph (12)(B), by striking out "or" at the end thereof; (2) in paragraph (13), by striking out the period at the end thereof and inserting in lieu thereof"; or"; and (3) by inserting after paragraph (13) the following: "(14) shares of any company which is an export trading company whose acquisition (including each acquisition of shares) or formation by a bank holding company has not been disapproved by the Board pursuant to this paragraph, except that such investments, whether direct or indirect, in such shares shall not exceed 5 per centum of the bank holding company's consolidated capital and surplus. "(A)(i) No bank holding company shall invest in an export trading company under this paragraph unless the Board has been given sixty days' prior written notice of such proposed investment and within such period has not issued a notice disapproving the proposed investment or extending for up to another thirty days the period during which such disapproval may be issued. "(ii) The period for disapproval may be extended for such additional thirty-day period only if the Board determines that a bank holding company proposing to invest in an export trading company has not furnished all the informa- tion required to be submitted or that in the Board's judg- ment any material information submitted is substantially inaccurate. "(iii) The notice required to be filed by a bank holding company shall contain such relevant information as the Board shall require by regulation or by specific request in connection with any particular notice. "(iv) The Board may disapprove any proposed investment only if — "(I) such disapproval is necessary to prevent unsafe or unsound banking practices, undue concentration of resources, decreased or unfair competition, or conflicts of interest; "(II) the Board finds that such investment would affect the financial or managerial resources of a bank holding company to an extent which is likely to have a materially adverse effect on the safety and soundness of any subsidiary bank of such bank holding company, or "(III) the bank holding company fails to furnish the information required under clause (hi), "(v) Within three days after a decision to disapprove an investment, the Board shall notify the bank holding com- pany in writing of the disapproval and shall provide a written statement of the basis for the disapproval. "(vi) A proposed investment may be made prior to the expiration of the disapproval period if the Board issues written notice of its intent not to disapprove the invest- ment. "(B)(i) The total amount of extensions of credit by a bank holding company which invests in an export trading com- pany, when combined with all such extensions of credit by all the subsidiaries of such bank holding company, to an export trading company shall not exceed at any one time 10 per centum of the bank holding company's consolidated capital and surplus. For purposes of the preceding sentence, an extension of credit shall not be deemed to include any amount invested by a bank holding company in the shares of an export trading company. "(ii) No provision of any other Federal law in effect on October 1, 1982, relating specifically to collateral require- ments shall apply with respect to any such extension of credit. "(iii) No bank holding company or subsidiary of such company which invests in an export trading company may extend credit to such export trading company or to custom- ers of such export trading company on terms more favora- ble than those afforded similar borrowers in similar circum- stances, and such extension of credit shall not involve more than the normal risk of repayment or present other unfa- vorable features. "(C) For purposes of this paragraph, an export trading company — "(i) may engage in or hold shares of a company engaged in the business of underwriting, selling, or distributing securities in the United States only to the extent that any bank holding company which invests in such export trading company may do so under applica- ble Federal and State banking laws and regulations; and "(ii) may not engage in agricultural production activ- ities or in manufacturing, except for such incidental product modification including repackaging, reassem- bling or extracting byproducts, as is necessary to enable United States goods or services to conform with requirements of a foreign country and to facilitate their sale in foreign countries. "(D) A bank holding company which invests in an export trading company may be required, by the Board, to termi- nate its investment or may be made subject to such limita- tions or conditions as may be imposed by the Board, if the Board determines that the export trading company has taken positions in commodities or commodity contracts, in securities, or in foreign exchange, other than as may be necessary in the course of the export trading company's business operations. "(E) Notwithstanding any other provision of law, an Edge Act corporation, organized under section 25(a) of the Fed- eral Reserve Act (12 U.S.C. 611-631), which is a subsidiary of a bank holding company, or an agreement corporation, operating subject to section 25 of the Federal Reserve Act (12 U.S.C. 601-604(a)), which is a subsidiary of a bank holding company, may invest directly and indirectly in the aggregate up to 5 per centum of its consolidated capital and surplus (25 per centum in the case of a corporation not engaged in banking) in the voting stock of other evidences of ownership in one or more export trading companies. "(F) For purposes of this paragraph — "(i) the term 'export trading company' means a com- pany which does business under the laws of the United States or any State, which is exclusively engaged in activities related to international trade, and which is organized and operated principally for purposes of exporting goods or services produced in the United States or for purposes of facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade services. "(ii) the term 'export trade services' includes, but is not limited to, consulting, international market research, advertising, marketing, insurance (other than acting as principal, agent or broker in the sale of insurance on risks resident or located, or activities performed, in the United States, except for insurance covering the transportation of cargo from any point of origin in the United States to a point of final destina- tion outside the United States), product research and design, legal assistance, transportation, including trade documentation and freight forwarding, communication and processing of foreign orders to and for exporters and foreign purchasers, warehousing, foreign exchange, financing, and taking title to goods, when provided in order to facilitate the export of goods or services produced in the United States; "(iii) the term 'bank holding company' shall include a bank which (I) is organized solely to do business with other banks and their officers, directors, or employees; (II) is owned primarily by the banks with which it does business; and (III) does not do business with the general public. No such other bank, owning stock in a bank described in this clause that invests in an export trad- ing company, shall extend credit to an export trading company in an amount exceeding at any one time 10 per centum of such other bank's capital and surplus; and "(iv) the term 'extension of credit' shall have the same meaning given such term in the fourth paragraph of section 23A of the Federal Reserve Act.". Sec. 205. On or before two years after the date of the enactment of this Act, the Federal Reserve Board shall report to the Committee on Banking, Housing, an Urban Affairs of the Senate and the Committee on Banking, Finance and Urban Affairs of the House of Representatives the Board's recommendations with respect to the implementation of this section, the Board's recommendations on any changes in United States law to facilitate the financing of United States exports, especially by small, medium-size, and minority busi- ness concerns, and the Board's recommendations on the effects of ownership of United States banks by foreign banking organizations affiliated with trading companies doing business in the United States. GUARANTEES FOR EXPORT ACCOUNTS RECEIVABLE AND INVENTORY Report to congressional committees. 12 USC 1843 note. Sec. 206. The Export-Import Bank of the United States is author- ized and directed to establish a program to provide guarantees for loans extended by financial institutions or other public or private creditors to export trading companies as defined in section 4(c)(14)(F)(i) of the Bank Holding Company Act of 1956, or to other exporters, when such loans are secured by export accounts receiv- 12 USC 635a-4. Ante. p. 1236. able or inventories of exportable goods, and when in the judgment of the Board of Directors — (1) the private credit market is not providing adequate financ- ing to enable otherwise creditworthy export trading companies or exporters to consummate export transactions; and (2) such guarantees would facilitate expansion of exports which would not otherwise occur. The Board of Directors shall attempt to insure that a major share of any loan guarantees ultimately serves to promote exports from small, medium-size, and minority businesses or agricultural con- cerns. Guarantees provided under the authority of this section shall be subject to limitations contained in annual appropriations Acts. bankers' acceptances Sec. 207. The seventh paragraph of section 13 of the Federal 12 USC 372 note. Reserve Act (12 U.S.C. 372) is amended to read as follows: "(7)(A) Any member bank and any Federal or State branch or agency of a foreign bank subject to reserve requirements under section 7 of the International Banking Act of 1978 (hereinafter in this paragraph referred to as 'institutions'), may accept drafts or bills of exchange drawn upon it having not more than six months' sight to run, exclusive of days of grace — "(i) which grow out of transactions involving the importation or exportation of goods; "(ii) which grow out of transactions involving the domestic shipment of goods; or "(iii) which are secured at the time of acceptance by a ware- house receipt or other such document conveying or securing title covering readily marketable staples. "(B) Except as provided in subparagraph (C), no institution shall accept such bills, or be obligated for a participation share in such bills, in an amount equal at any time in the aggregate to more than 150 per centum of its paid up and unimpaired capital stock and surplus or, in the case of a United States branch or agency of a foreign bank, its dollar equivalent as determined by the Board under subparagraph (H). "(C) The Board, under such conditions as it may prescribe, may authorize, by regulation or order, any institution to accept such bills, or be obligated for a participation share in such bills, in an amount not exceeding at any time in the aggregate 200 per centum of its paid up and unimpaired capital stock and surplus or, in the case of a United States branch or agency of a foreign bank, its dollar equivalent as determined by the Board under subparagraph (H). "(D) Notwithstanding subparagraphs (B) and (C), with respect to any institution, the aggregate acceptances, including obligations for a participation share in such acceptances, growing out of domestic transactions shall not exceed 50 per centum of the aggregate of all acceptances, including obligations for a participation share in such acceptances, authorized for such institution under this paragraph. "(E) No institution shall accept bills, or be obligated for a partici- pation share in such bills, whether in a foreign or domestic transac- tion, for any one person, partnership, corporation, association or other entity in an amount equal at any time in the aggregate to more than 10 per centum of its paid up and unimpaired capital stock and surplus, or, in the case of a United States branch or agency of a foreign bank, its dollar equivalent as determined by the Board under subparagraph (H), unless the institution is secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance. "(F) With respect to an institution which issues an acceptance, the limitations contained in this paragraph shall not apply to that portion of an acceptance which is issued by such institution and which is covered by a participation agreement sold to another institution. "(G) In order to carry out the purposes of this paragraph, the Board may define any of the terms used in this paragraph, and, with respect to institutions which do not have capital or capital stock, the 89 publication Federal Board shall define an equivalent measure to which the limitations contained in this paragraph shall apply. "(H) Any limitation or restriction in this paragraph based on paid- up and unimpaired capital stock and surplus of an institution shall be deemed to refer, with respect to a United States branch or agency of a foreign bank, to the dollar equivalent of the paid-up capital stock and surplus of the foreign bank, as determined by the Board, and if the foreign bank has more than one United States branch or agency, the business transacted by all such branches and agencies shall be aggregated in determining compliance with the limitation or restriction." TITLE III— EXPORT TRADE CERTIFICATES OF REVIEW EXPORT TRADE PROMOTION DUTIES OF SECRETARY OF COMMERCE Sec. 301. To promote and encourage export trade, the Secretary 15USC4011. may issue certificates of review and advise and assist any person with respect to applying for certificates of review. APPLICATION FOR ISSUANCE OF CERTIFICATE OF REVIEW Sec. 302. (a) To apply for a certificate of review, a person shall 15 USC 4012. submit to the Secretary a written application which — (1) specifies conduct limited to export trade, and (2) is in a form and contains any information, including information pertaining to the overall market in which the applicant operates, required by rule or regulation promulgated under section 310. (b)(1) Within ten days after an application submitted under sub- Notice section (a) is received by the Secretary, the Secretary shall publish in the Federal Register a notice that announces that an application Register for a certificate of review has been submitted, identifies each person submitting the application, and describes the conduct for which the application is submitted. (2) Not later than seven days after an application submitted under subsection (a) is received by the Secretary, the Secretary shall transmit to the Attorney General — (A) a copy of the application, (B) any information submitted to the Secretary in connection with the application, and (C) any other relevant information (as determined by the Secretary) in the possession of the Secretary, including informa- tion regarding the market share of the applicant in the line of commerce to which the conduct specified in the application relates. ISSUANCE OF CERTIFICATE Sec. 303. (a) A certificate of review shall be issued to any applicant that establishes that its specified export trade, export trade activi- ties, and methods of operation will— (1) result in neither a substantial lessening of competition or restraint of trade within the United States nor a substantial restraint of the export trade of any competitor of the applicant, (2) not unreasonably enhance, stabilize, or depress prices within the United States of the goods, wares, merchandise, or services of the class exported by the applicant, (3) not constitute unfair methods of competition against com- petitors engaged in the export of goods, wares, merchandise, or services of the class exported by the applicant, and (4) not include any act that may reasonably be expected to result in the sale for consumption or resale within the United States of the goods, wares, merchandise, or services exported by the applicant. (b) Within ninety days after the Secretary receives an application for a certificate of review, the Secretary shall determine whether the applicant's export trade, export trade activities, and methods of operation meet the standards of subsection (a). If the Secretary, with the concurrence of the Attorney General, determines that such standards are met, the Secretary shall issue to the applicant a certificate of review. The certificate of review shall specify— (1) the export trade, export trade activities, and methods of operation to which the certificate applies, (2) the person to whom the certificate of review is issued, and (3) any terms and conditions the Secretary or the Attorney General deems necessary to assure compliance with the stand- ards of subsection (a). (c) If the applicant indicates a special need for prompt disposition, the Secretary and the Attorney General may expedite action on the application, except that no certificate of review may be issued within thirty days of publication of notice in the Federal Register under section 302(13X1). (d)(1) If the Secretary denies in whole or in part an application for a certificate, he shall notify the applicant of his determination and the reasons for it. (2) An applicant may, within thirty days of receipt of notification that the application has been denied in whole or in part, request the Secretary to reconsider the determination. The Secretary, with the concurrence of the Attorney General, shall notify the applicant of the determination upon reconsideration within thirty days of receipt of the reauest. (e) If the Secretary denies an application for the issuance of a certificate of review and thereafter receives from the applicant a request for the return of documents submitted by the applicant in connection with the application for the certificate, the Secretary and the Attorney General shall return to the applicant, not later than thirty days after receipt of the request, the documents and all copies of the documents available to the Secretary and the Attorney General, except to the extent that the information contained in a document has been made available to the public. (f) A certificate shall be void ab initio with respect to any export trade, export trade activities, or methods of operation for which a certificate was procured by fraud. REPORTING REQUIREMENT; AMENDMENT OF CERTIFICATE; REVOCATION OF CERTIFICATE 15 USC 4014. Sec. 304. (a)(1) Any applicant who receives a certificate of review — (A) shall promptly report to the Secretary any change rele- vant to the matters specified in the certificate, and (B) may submit to the Secretary an application to amend the certificate to reflect the effect of the change on the conduct specified in the certificate. (2) An application for an amendment to a certificate of review shall be treated as an application for the issuance of a certificate. The effective date of an amendment shall be the date on which the application for the amendment is submitted to the Secretary. (b)(1) If the Secretary or the Attorney General has_ reason to believe that the export trade, export trade activities, or methods of operation of a person holding a certificate of review no longer comply with the standards of section 303(a), the Secretary shall request such information from such person as the Secretary or the Attorney General deems necessary to resolve the matter of compli- ance. Failure to comply with such request shall be grounds for revocation of the certificate under paragraph (2). Notice. (2) If the Secretary or the Attorney General determines that the export trade, export trade activities, or methods of operation of a person holding a certificate no longer comply with the standards of section 303(a), or that such person has failed to comply with a request made under paragraph (1), the Secretary shall give written notice of the determination to such person. The notice shall include a statement of the circumstances underlying, and the reasons in support of, the determination. In the 60-day period beginning 30 days after the notice is given, the Secretary shall revoke the certifi- cate or modify it as the Secretary or the Attorney General deems necessary to cause the certificate to apply only to the export trade. export trade activities, or methods of operation which are in compli- ance with the standards of section 303(a). (3) For purposes of carrying out this subsection, the Attorney investigations. General, and the Assistant Attorney General in charge of the antitrust division of the Department of Justice, may conduct investi- gations in the same manner as the Attorney General and the Assistant Attorney General conduct investigations under section 3 of the Antitrust Civil Process Act, except that no civil investigative demand may be issued to a person to whom a certificate of review is issued if such person is the target of such investigation. judicial review; admissibility Sec. 305. (a) If the Secretary grants or denies, in whole or in part, 15 USC 4015. an application for a certificate of review or for an amendment to a certificate, or revokes or modifies a certificate pursuant to section 3040b), any person aggrieved by such determination may, within 30 days of the determination, bring an action in any appropriate district court of the United States to set aside the determination on the ground that such determination is erroneous. (b) Except as provided in subsection (a), no action by the Secretary or the Attorney General pursuant to this title shall be subject to judicial review. (c) If the Secretary denies, in whole or in part, an application for a certificate of review or for an amendment to a certificate, or revokes or amends a certificate, neither the negative determination nor the statement of reasons therefor shall be admissible in evidence, in any administrative or judicial proceeding, in support of any claim under the antitrust laws. protection conferred by certificate of review Sec. 306. (a) Except as provided in subsection (b), no criminal or 15 USC 4016. civil action may be brought under the antitrust laws against a person to whom a certificate of review is issued which is based on conduct which is specified in, and complies with the terms of, a certificate issued under section 303 which certificate was in effect when the conduct occurred. (b)(1) Any person who has been injured as a result of conduct engaged in under a certificate of review may bring a civil action for injunctive relief, actual damages, the loss of interest on actual damages, and the cost of suit (including a reasonable attorney's fee) for the failure to comply with the standards of section 303(a). Any action commenced under this title shall proceed as if it were an action commenced under section 4 or section 16 of the Clayton Act, 15 USC 15, 26. except that the standards of section 303(a) of this title and the remedies provided in this paragraph shall be the exclusive stand- ards and remedies applicable to such action. (2) Any action brought under paragraph (1) shall be filed within two years of the date the plaintiff has notice of the failure to comply with the standards of section 303(a) but in any event within four years after the cause of action accrues. (3) In any action brought under paragraph (1), there shall be a presumption that conduct which is specified in and complies with a certificate of review does comply with the standards of section (4) In any action brought under paragraph (1), if the court finds that the conduct does comply with the standards of section 303(a), the court shall award to the person against whom the claim is brought the cost of suit attributable to defending against the claim (including a reasonable attorney's fee). (5) The Attorney General may file suit pursuant to section 15 of the Clayton Act (15 U.S.C. 25) to enjoin conduct threatening clear and irreparable harm to the national interest. GUIDELINES Sec. 307. (a) To promote greater certainty regarding the applica- 15 USC 4017. tion of the antitrust laws to export trade, the Secretary, with the concurrence of the Attorney General, may issue guidelines — (1) describing specific types of conduct with respect to which the Secretary, with the concurrence of the Attorney General, has made or would make, determinations under sections 303 and 304, and (2) summarizing the factual and legal bases in support of the determinations. (b) Section 553 of title 5, United States Code, shall not apply to the issuance of guidelines under subsection (a). ANNUAL REPORTS 15 USC 4018. Sec. 308. Every person to whom a certificate of review is issued shall submit to the Secretary an annual report, in such form and at such time as the Secretary may require, that updates where neces- sary the information required by section 302(a). DISCLOSURE OF INFORMATION 15 USC 4019. Sec. 309. (a) Information submitted by any person in connection with the issuance, amendment, or revocation of a certificate of review shall be exempt from disclosure under section 552 of title 5, United States Code. (b)(1) Except as provided in paragraph (2), no officer or employee of the United States shall disclose commercial or financial informa- tion submitted in connection with the issuance, amendment, or revocation of a certificate of review if the information is privileged or confidential and if disclosure of the information would cause harm to the person who submitted the information. (2) Paragraph (1) shall not apply with respect to information disclosed— (A) upon a request made by the Congress or any committee of the Congress, (B) in a judicial or administrative proceeding, subject to ap- propriate protective orders, (C) with the consent of the person who submitted the informa- tion, (D) in the course of making a determination with respect to the issuance, amendment, or revocation of a certificate of review, if the Secretary deems disclosure of the information to be necessary in connection with making the determination, (E) in accordance with any requirement imposed by a statute of the United States, or (F) in accordance with any rule or regulation promulgated under section 310 permitting the disclosure of the information to an agency of the United States or of a State on the condition that the agency will disclose the information only under the circumstances specified in subparagraphs (A) through (E). RULES AND REGULATIONS 15 USC 4020 Sec. 310. The Secretary, with the concurrence of the Attorney General, shall promulgate such rules and regulations as are neces- sary to carry out the purposes of this Act. DEFINITIONS 15 USC 4021. Sec. 311. As used in this title— (1) the term "export trade" means trade or commerce in goods, wares, merchandise, or services exported, or in the course of being exported, from the United States or any territory thereof to any foreign nation, (2) the term "service" means intangible economic output, including, but not limited to — (A) business, repair, and amusement services, (B) management, legal, engineering, architectural, and other professional services, and (C) financial, insurance, transportation, informational and any other data-based services, and communication serv- ices, (3) the term "export trade activities" means activities or agreements in the course of export trade, (4) the term "methods of operation" means any method by which a person conducts or proposes to conduct export trade, (5) the term "person" means an individual who is a resident of the United States; a partnership that is created under and exists pursuant to the laws of any State or of the United States; a State or local government entity; a corporation, whether organized as a profit or nonprofit corporation, that is created under and exists pursuant to the laws of any State or of the United States; or any association or combination, by contract or other arrangement, between or among such persons, (6) the term "antitrust laws" means the antitrust laws, as such term is defined in the first section of the Clayton Act (15 U.S.C. 12), and section 5 of the Federal Trade Commission Act (15 U.S.C 45) (to the extent that section 5 prohibits unfair methods of competition), and any State antitrust or unfair competition law, (7) the term "Secretary" means the Secretary of Commerce or his designee, and (8) the term "Attorney General" means the Attorney General of the United States or his designee. EFFECTIVE DATES Sec. 312. (a) Except as provided in subsection (b), this title shall take effect on the date of the enactment of this Act. (b) Section 302 and section 303 shall take effect 90 days after the effective date of the rules and regulations first promulgated under section 310. TITLE IV-FOREIGN TRADE ANTITRUST IMPROVEMENTS SHORT TITLE 15 use i note Sec. 401. This title may be cited as the "Foreign Trade Antitrust Improvements Act of 1982". 15 USC 4011 note. Foreign Trade Antitrust Improvements Act of 1982. AMENDMENT TO SHERMAN ACT Sec. 402. The Sherman Act (15 U.S.C. 1 et seq.) is amended by inserting after section 6 the following new section: "Sec. 7. This Act shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with for- eign nations unless— "(1) such conduct has a direct, substantial, and reasonably foreseeable effect— "(A) on trade or commerce which is not trade or com- merce with foreign nations, or on import trade or import commerce with foreign nations; or "(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and "(2) such effect gives rise to a claim under the provisions of this Act, other than this section. If this Act applies to such conduct only because of the operation of paragraph (1KB), then this Act shall apply to such conduct only for injury to export business in the United States.". AMENDMENT TO FEDERAL TRADE COMMISSION ACT Sec. 403. Section 5(a) of the Federal Trade Commission Act (15 U.S.C. 45(a)) is amended by adding at the end thereof the following new paragraph: "(3) This subsection shall not apply to unfair methods of competi- tion involving commerce with foreign nations (other than import commerce) unless— "(A) such methods of competition have a direct, substantial, and reasonably foreseeable effect— "(i) on commerce which is not commerce with foreign nations, or on import commerce with foreign nations; or "(ii) on export commerce with foreign nations, of a person engaged in such commerce in the United States; and "(B) such effect gives rise to a claim under the provisions of this subsection, other than this paragraph. If this subsection applies to such methods of competition only because of the operation of subparagraph (A)(ii), this subsection shall apply to such conduct only for injury to export business in the United States.". Approved October 8, 1982. LEGISLATIVE HISTORY-S. 734 (H.R. 1799, H.R. 6016): CONGRESSIONAL RECORD: Vol. 127 (1981): Apr. 7, 8, considered and passed Senate. Vol. 128 (1982): July 27. H.R. 1799 and H.R. 6016 considered and passed House; S. 734, amended, passed in lieu. Oct. 1, Senate and House agreed to conference report. WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS: Vol. 18, No. 41 (1982): Oct. 8, Presidential statement. APPENDIX G Conference Report on S. 734 Export Trading Company Act of 1981 CONFERENCE REPORT ON S. 734. EXPORT TRADING COMPANY ACT OF 1981* Mr. RODINO submitted the follow- ing conference report and statement on the Senate bill (S. 734) to encour- age exports by facilitating the infor- mation and operation of export trad- ing companies, export trade associ- ations, and the expansion of export trade services generally: Conference Report (H. Rept. No. 97-924) The committee of conference on the disa- greeing votes of the two Houses on the amendments of the House to the bill (S. 734) to encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services gen- erally, having met, after full and free con- ference, have agreed to recommend and do recommend to their respective Houses as follows: That the House recede from Its disagree- ment to the amendment of the House to the text of the bill and agree to the same with an amendment as follows: In lieu of the matter proposed to be in- serted by the House amendment insert the following: TITLE I-GENERAL PROVISIONS SHORT TITLE Sec. 101. This title- may be cited as the "Export Trading Company Act of 1982". findings; declaration of purpose Sec. 102. (a) The Congress finds that— tl) United States exports are responsible for creating and maintaining one out of every nine manufacturing jobs in the United States and for generating one out of every seven dollars of total United States goods produced; (2) the rapidly growing service-related in- dustries are vital to the well-being of the United Stales economy inasmuch as they create jobs for seven out of every ten Ameri- cans; provide 65 percent of the Nation's gross national product, and offer the great- est potential for significantly increased in- dustrial trade involving finished products; (3) trade deficits contribute to the decline of the dollar on international currency mar- kets and have an inflationary impact on the United States economy; (4) tens of thousands of small- and medium-sized United States businesses pro- duce exportable goods or services but do not engage in exporting; (5) although the United States is the world's leading agricultural exporting nation, many farm products are not market- ed as widely and effectively abroad as they could be through export trading companies; (6) export trade services in the United States are fragmented into a multitude of separate functions, and companies attempt- ing to offer export trade services lack finan- cial leverage to reach a significant number of potential United States exporters; (7) the United Stales needs well-developed export trade intermediaries which can achieve economies of scale and acquire ex- pertise enabling them to export goods and services profitably, at low per unit cost to producers; (8) the development of export trading com- panies in the United States has been ham- pered by business attitudes and by Gover- ment regulations; 191 those activities of State and local gov- ernmental authorities which initiate, facili- tate, or expand exports of goods and services can be an important source for expansion of total United States exports, as well as for ex- perimentation in the development of inno- vative export programs keyed to local. State, and regional economic needs; (10) if United States trading companies are to be successful in promoting United States exports and in competing with for- eign trading companies, they should be able to draw on the resources, expertise, and knowledge of the United States banking system, both in the United States and abroad; and tilt the Department of Commerce is re- sponsible for the development and promo- tion of United States exports, and especially for facilitating the export of finished prod- ucts by United States manufacturers, It is the purpose of this Act to increase United States exports of products and serv- ices by encouraging more efficient provision of export trade services to United States pro- ducers and suppliers, in particular by estab- lishing an office within the Department of Commerce to promote the formation of export trade associations and export trading companies, by permitting bank holding companies, bankers' banks, and Edge Act corporations and agreement corporations that are subsidiaries of bank holding com- panies to invest in export trading compa- nies, by reducing restrictions on trade fi- nancing provided by financial institutions, and by modifying the application of the antitrust laws to certain export trade. definitions Sec. 103. (a) For purposes of this title— lit the term "export trade" means trade or commerce in goods or services produced in the United States which are exported, or in the course of being exported, from the United States to any other country; (2) the term "services" includes, but is not limited to. accounting, amusement, archi- tectural, automatic data processing, busi- ness, communications, construction fran- chising and licensing, consulting, engineer- ing, financial, insurance, legal, manage- ment, repair, tourism, training, and trans- portation services; (3) the term "export trade services" in- cludes, but is not limited to, consulting, in- ternational market research, advertising, marketing, insurance, product research and design, legal assistance, transportation, in- cluding trade documentation and freight forwarding, communication and processing of foreign orders to and for exporters and foreign purchasers, warehousing, foreign ex- change, financing, and taking title to goods, when provided in order to facilitate the export of goods or services produced in the United States; <4) the term "export trading company" means a person, partnership, association, or similar organization, whether operated for profit or as a nonprofit organization, which does business under the laws of the United States or any State and which is organized and operated principally for purposes of— (A) exporting goods or services produced in the United States; or (B) facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade sennces; (5) the term "State" means any of the sev- eral States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands. American Samoa, Guam, the Commonwealth of the Nortticrn Mariana Islands, and the Trust Territory of the Pacific Islands; (61 the term "United States" means the several States of the United States, the Dis- trict of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands. American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the Trust Territory of the Pacific Islands; and . (7) the term "antitrust laws" means the antitrust laws as defined in subsection (a) of the first section of the Clayton Act (IS U.S.C. 12(a)), section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to the extent that section 5 applies to unfair methods of competition, and any State antitrust or unfair competition law. (b) The Secretary of Commerce may by reg- ulation further define any term defined in subsection (a), in order to carry out this title. Sec. 104. The Secretary of Commerce shall establish within the Department of Com- merce an office to promote and encourage to the greatest extent feasible the formation of export trade associations and export trading companies. Such office shall provide infor- mation and advice to interested persons and shall provide a referral service to facilitate contact between producers of exportable goods and services and firms offering export trade services. TITLE II— BANK EXPORT SER VICES SHORT TITLE Sec. 201. Ttiis title may be cited as the "Bank Export Sennces Act". Sec. 202. The Congress hereby declares that it is the purpose of this title to provide for meaningful and effective participation by bank holding companies bankers' banks, and Edge Act corporations, in the financing and development of export trading compa- nies in the United States. In furtherance of such purpose, the Congress intends that in implementing its authority under section 4(c)(14) of the Bank Holding Company Act of 1956. the Board of Governors of the Feder- al Reserve System should pursue regulatory policies that— (1) provide for the establishment of export trading companies with powers sufficiently broad to enable them to compete with simi- lar foreign -owned institutions in the United States and abroad; (2) afford to United States commerce, in- dustry and agriculture especially small and medium-size firms, a means of exporting at all times; (3) foster the participation bv regional and sniallcr banks in the development of export trading companies; and (4) facilitate the formation of joint ven- ture export trading companies between bank holding companies and nonbank firms that provide for the efficient combination of complementary trade and financing services designed to create export trading companies that can handle all of an exporting compa- ny's needs. INVESTMENTS IN EXPORT TRADING COMPANIES Sec. 203. Section 4(c) of the Bank Iloldina Company Act of 1956 (12 U.S.C. 1843(c)) is amended— (1) in paragraph (12XB). by striking out "or" at the end thereof; (2) in paragraph (13). by striking out the period at the end thereof and inserting in lieu thereof "; or"; and (3) by inserting after paragraph (13) the following: "(14) shares of any company which is an export trading company whose acquisition (including each acquisition of shares) or ♦Reprinted from the Congressional Record; Vol. 128, No. 134, Part II: October 1, 1982; pp. H8341-H8350. formation by a bank holding compuny has not been disapproved by the Board pursuant to this paragraph, except that such invest ments, whether direct or indirect, in *uch shares shall not exceed 5 per centum of the bank holding company's consolidated capi- tal and surplus. "(A)d) No lank holding company shall invest in an export trading company under this paragraph unless the Board has been given sixty days' prior written notice of such proposed investment and wilhin such period has not issued a notice disapproving the proposed investment or extending for up to another thirty days the period during which such disapproval may be issued. "(H) The period for disapproval may be ex- tended for such additional thrity-day period only if the Board determines that a bank holding company proposing to invest in an export trading company has not furnished all the information required to be submitted or that in the Board's judgment any materi- al information submitted is substantially inaccurate. "(Hi) The notice required to be filed by a bank holding company shall contain such relevant information as the Board shall re- quire by regulation or by specific request in connection with any particular notice. "(ivl The Board may disapprox^e any pro- posed investment only if— "(I) such disapproval is necessary to pre- vent unsafe or unsound banking practices, undue concentration of resources, decreased or unfair competition, or conflicts of inter- est; "(ID the Board finds that such investment would affect the financial or managerial re- sources of a bank holding company to an extent which is likely to have a materially adverse effect on the safety and soundness of any subsidiary bank of such bank holding company, or "till) the bank holding company fails to furnish the information required under clause < Hi). "(v) Within three days after a decision to disapprove an investment, the Board shall notify the bank holding company in writing of the disapproval and shall provide a writ- ten statement of the basis for the disapprov- al. "(vi) A proposed investment may be made prior to the expiration of the disapproval period if the Board issues written notice of its intent not to disapprove the investment "(BXi) The total amount of extensions of credit by a bank holding company which in- vests in an export trading company, when combined with all such extensions of credit by all the subsidiaries of such bank holding company, to an export trading company shall not exceed at any one time 10 per centum of the bank holding company's con- solidated capital and surplus. For purposes of the preceding sentence, an extension of credit shall not be deemed to include any amount invested by a ba7ik holding compa- ny in the shares of an export trading compa- ny. "(ii) No provision of any other Federal law in effect on October 1, 1982, relating specifically to collateral requirements shall apply with respect to any such extension of credit "(Hi) No bank holding company or subsid- iary of such company which invests in an exporl trading company may extend credit to such export trading company or to cus- tomers of such export trading company on terms more favorable than those afforded similar borrowers in similar circumstances, and such extension of credit shall not in- volve more than the normal risk of repay- ment or present other unfavorable features. "(C) For purposes of t/us paragraph, an export trading company— "Ii) may engage in or hold shares of a company engaged in Die business of under- writing, sellmy. or distributing securities in the United States only to the extent that any bank holding company which invests in such export trading company may do so under applicable Federal and State banking laws and regulations; and "Hi) may not engage in agricultural pro- duction activities or in manufacturing, except for such incidental product modifica- tion including repackaging, reassembling or extracting byproducts, as is necessary to enable United States goods or services to conform with requirements of a foreign country and to facilitate their sale in for- eign countries. "(D) A bank holding company which in- vests in an export trading company may be required, by the Board, to terminate its in- vestment or may be made subject to such limitations or conditions as may be imposed by the Board, if the Board determines that the export trading company has taken posi- tions in commodities or commodity con- tracts, in securities, or in foreign exchange, other than as may be necessary in the course of the export trading company's business op- erations. "(E) Notwithstanding any other provision of law, an Edge Act corporation, organised under section 25(a) of the Federal Reserve Act (12 U.S.C. 611-631). which is a subsidi- ary of a bank holding company, or an agree- ment corporation, operating subject to sec- tion 25 of the Federal Reserve Act (12 U.S.C. 601-604(a)), which is a subsidiary of a bank holding company, may invest directly and indirectly in the aggregate up to 5 per centum of its consolidated capital and sur- plus (25 per centum in the case of a corpora- tion not engaged in banking) in the voting stock of other ei'idences of ownership in one or more export trading companies. "(F) For purposes of this paragraph— "(i) the term 'export trading company' means a company which does business under the laws of the United States or any State, v)hich is exclusively engaged in activ- ities related to international trade, and which is organized and operated principally for purposes of exporting goods or services produced in the United States or for pur- poses of facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade services. "(ii) the term 'export trade services' in eludes, but is not limited to, consulting, in ternational market research, advertising, marketing, insurance (other than acting as principal, agent or broker in the sale of in surance on risks resident or located, or ac tivities performed, in the United States, except for insurance covering the transpor tation of cargo from any point of origin in the United States to a point of final destina tion outside the United States), product re search and design, legal assistance, trans portation, including trade documentation and freight forwarding, communication and processing of foreign orders to and for ex- porters and foreign purchasers, warehous- ing, foreign exchange, financing, and taking title to goods, when provided in order to fa- cilitate the export of goods or services pro- duced in the United States; "(Hi) the term 'bank holding company' shall include a bank which (I) is organized solely to do business with other banks and their officers, directors, or employees; (II) is owned primarily by the banks with which it does business; and (III) does not do business with the general public. No such other bank, owning stock in a bank described in this clause that invests in an export trading company, shall extend credit to an export trading company in an amount acceding at any one time 10 per centum of such other bank's capital and surplus; and "(iv) the term 'extension of credit' shall have the same meaning given such term in the fourth paragraph of section 23A of the Federal Reserve Act ". Sec. 205. On or before two years after the date of the enactment of this Act. the Feder- al Reserve Board shall report to the Com- mittee on Banking. Housing, and Urban Af- fairs of the Senate and the Committee on Banking, Finance and Urban Affairs of the House of Representatives the Board's recom- mendations with respect to the implementa- tion of this section, the Board's recommen- dations with respect to the implementation of this section, the Board's recommenda- tions on any changes in United States law to facilitate the financing of United Stales exports, especially by small, medium-size, and minority business concerns, and the Board's recommendations on the effects of ownership of United States banks by foreign banking organizations affiliated with trad- ing companies doing business in the United States. OUARANTFES FOR EXPORT ACCOUNTS RECEIVARI ,E AND INVENTORY Sec 206. The Export-Import Bank of the United States is authorized and directed to establish a program to provide guarantees for loans extended by financial institutions or other public or private creditors to export trading companies as defined in section 4lc)(14)(F)(i) of the Bank Holding Company Act of 1956, or to other exporters, when such loans are secured by export accounts receiv- able or inventories of exportable goods, and when in the judgment of the Board of Direc- tors— (1) the private credit market is not provid- ing adequate financing to enable otherwise creditworthy export trading companies or exporters to consummate export transac- tions; and (2) such grarantees would facilitate expan- sion of exports which would not otherwise occur. The Board of Directors shall attempt to insure that a major share of any loan guar- antees ultimately serves to promote exports from small, medium-size, and minority busi- nesses or agricultural concerns. Guarantees provided under the authority of this section shall be subject to limitations contained in annual appropriations Acts. BANKERS ' ACCEPTANCES Sec. i07. The seventh paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 372) is amended to read as follows: "(7)(A) Any member bank and any Federal or State branch or agency of a foreign bank subject to reserve requirements under sec- tion 7 of the International Banking Act of 1978 (hereinafter in this paragraph referred to as 'institutions'), may accept drafts or bills of exchange drawn upon it having not more than six months' sight to run, exclu- sive of days of grace — "Hi which grow out of transactions in- volving the importation or exportation of goods; "(ii) which grow out of transactions in- i y olving the domestic shipment of goods: or "(Hi) which are secured at the time of ac- ceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples. "(B) Except as provided in subparagraph (C), no institution shall accept such bills, or be obligated for a participation share in such bills, in an amount equal at any time in the aggregate to more than ISO per centum of its paid up and unimpaired capi- tal stock and surplus or, in the case of a United Stales branch or agency of a foreign bank, its dollar equivalent as determined by the Board under subparagraph (H). "(C) The Board, under such conditions as it may prescribe, may authorise, by regula- tion or order, any institution to accept such bills, or be obligated for a participation share in such bills, in an amount not exceed- ing at any time in the aggregate 200 per centum of its paid up and unimpaired capi- tal stock and surplus or, in the case of a United States branch or agency of a foreign bank, its dollar equivalent as determined by the Board undev,subparagraph (H). "(D) Notwithstanding subparagraphs (B) and (C). with respect to any institution, the aggregate acceptances, including obliga- tions for a participation share in such ac- ceptances, growing out of domestic transac- tions shall not exceed 50 per centum of the aggregate of all acceptances, including obli- gations for a participation share in such ac- ceptances, authorised for such institution under this paragraph. "(E) No institution shall accept bills, or be obligated for a participation share in such bills, whether in a foreign or domestic trans- action, for any one person, partnership, cor- poration, association or other entity in an amount equal at any time in the aggregate to more than 10 per centum of its paid up and unimpaired capital stock and surplus, or, in the case of a United States branch or agency of a foreign bank, its dollar equiva- lent as determined by the Board under sub- paragraph ; Sec. 312. la) Except as proiided in subsec- tion lb), this title Khali take effect on the date of the enactment of this Act. lb) Section 302 and section 303 shall lake effect 90 days after the effective date of the rules and regulations first promulgated under section 310. TITLE IV-FORE1GN TRADE ANTITRUST IMPROVEMENTS KHORT TIT1.E Sec. 401. This title may be cited as the "Foreign Trade Antitrust Improvements Act of 1982". AMENDMENT TO SHERMAN ACT Sec. 402. The Sherman Act 115 U.S.C. 1 el seq.) is amended by inserting after section 6 the following new section: "Sec. 7. This Act shall not apply to con- duct involving trade or commerce (other than import trade or import commerce) with foreign nations unless— "ID such conduct has a direct, substan- tial, and reasonably foreseeable effect— "(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or "IB) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the Ultited States; and "12) such effect gives rise to a claim under the provisions of this Act, other than this section. If this Act applies to such conduct only be- cause of the operation of paragraph IDIB). then this Act shall apply to such conduct only for injury to export business in the United States.". AMENDMENT TO FEDERAL TRADE COMMISSION ACT Sec. 403. Section 5 fa) of the Federal Trade Commission Act 115 U.S.C. 45(a)) is amend- ed by adding at the end thereof the following new paragraph: "(3) This subsection shall not apply to unfair methods of competition involving commerce with foreign nations (other than import commerce) unless— "(A} such methods of competition have a direct, substantial, and reasonably foresee- able effect— "(i) on commerce which is not commerce with foreign nations, or on import com- merce with foreign nations; or "fii) on export commerce with foreign na- tions, of a person engaged in such commerce in the United Stales; and "(B) such effect gives rise to a claim under the provisions of this subsection, other than this paragraph. If this subsection applies to such methods of competition only because of the operation of subparagraph (A)(ii), this subsection shall apply to such conduct only for injury to export business in the United States.". And the House agree to the same. That the House recede from its amend- ment to the title of the Senate bill. For title I of the House amendment and modifications committed to conference: Clement J. Zablocki, Jonathan Bincham, Dennis E. Eckart, Don Bonker, Howard Wolpe, Wm. Broomfield. Robert J. Lacomarsino. Arlen Erdahl, Benjamin A. Gilman, Millicent Fenwick, For title II of the House amendment and modifications committed to conference: Fernand J. St Germain, Frank Annunzio, Joe Minish, John J. LaFalce, Doug Barnard, J. W. Stanton, Chalmers P. Wylie, Stewart B. McKinney, Jim Leach, For title III of the House amendment and modifications committed to conference Peter W. Rodino, Bill Hughes, Robert McClory, M. Caldwell Butler, Managers on the Part of the House. Jake Garn, John Heinz, William Armstrong, John H. Chafee, John C. Danforth, Don Riecle, Bill Proxmire, Christopher J. Dodd, Alan Dixon, Managers on the Part of the Senate. Joint Explanatory Statement of the Committee of Conference The managers on the part of the House and the Senate at the conference on the dis- agreeing votes of the two Houses on the amendments of the House to the bill (S. 734) to encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services gen- erally submit the following joint statement to the House and the Senate in explanation of the effect of the action agreed upon by the managers and recommended in the ac- companying conference report: The House amendment to the text of the bill struck out all of the Senate bill after the enacting clause and inserted a substi- tute text. The Senate recedes from its disagreement to the amendment of the House with an amendment which is a substitute for the Senate bill and the House amendment. The differences between the Senate bill, the House amendment, and the substitute agreed to in conference are noted below, except for clerical corrections, conforming changes made necessary by agreements reached by the conferees, and minor draft- ing and clarifying changes. TITLE I Short Title The committee of conference agreed to the House provision: "The Export Trading Company Act of 1982". Findings The House amendment contains Congres- sional findings with respect to the impact of exports on U.S. jobs, the role of service-re- lated industries in U.S. exports, the effects of trade deficits on the value of the dollar, and the responsibilities of the Department of Commerce in export promotion, which are not contained in the Senate bill. The Senate bill contains findings with re- spect to the role of the United States as an exporter of agricultural products, and the need for exporters to achieve greater econo- mies of scale, which are not in the House amendment. Other Senate and House find- ings are similar or identical. The committee of conference agreed to a combination of the House and Senate provi- sions, all the findings in the House amend- ment and an amended version of the Senate finding with respect to agricultural exports. Purpose The statement of the bill's purpose in the House amendment includes references to the creation of an export trading company promotion office in the Department of Commerce, investment by certain banks in export trading companies, and modification of antitrust laws with respect to export trade, references which are not contained in the Senate bill. The committee of conference agreed to the House provision with an amendment adding reference to the Edge Act and Agree- ment corporations as being eligible to invest in trading companies if those corporations are subsidiaries of bank holding companies. Definitions A. The committee of conference agreed and reaffirmed that the definitions con- tained in title I of the bill apply only to the provisions of title I, and not to the other titles of the bill. To the extent possible, however, the definitions recommended by the committee of conference in title I con- from with the definitions recommended in other titles. The Senate bill defines "goods produced in the United States" as those containing no more then 50% (by value) imported compo- nents or materials. The House amendment contains no such definition. The committee of conference deletes this definition. Specific consideration was given to the status, under this and other definitions in the bill, of fish harvested by U.S. flag ves- sels within the United States fish conserva- tion zone and sold at sea or in a foreign port without having otherwise been landed or processed in the United States. The commit- tee of conference agreed that fish so har- vested and sold should be regarded as goods produced in the United States, and their sales as constituting export trade within the meaning of this title and other titles of the bill. B. The definition of "services produced in the United States" in the Senate bill and the definition of "services" in the House amendment are similar, except that the Senate bill includes some services not men- tioned in the House provision, and contains the additional requirement that at least 50% of the value of such services be attrib- utable to the United States. The committee of conference agreed to the House provision with an amendment to include additional specific services con- tained in the Senate bill. C. The definition of "export trade serv- ices" in the Senate bill includes "product re- search and design", which is not specified in the House amendment. The committee of conference agreed to the Senate provision. D. The definition of "export trading com- pany" in the Senate bill includes nonprofit organizations, which is not contained in the House amendment. The definition in the House amendment requires export trading companies to be operated principally for the export of U.S. goods, or for facilitating such exports by unaffiliated persons, while the Senate bill requires both. The committee of conference agreed to a compromise of the Senate and House provi- sions which includes nonprofit organiza- tions, but permits export export trading companies to perform only one of the two functions contained in both the House and Senate provisions. E. The House amendment includes defini- tions of "export trade association" and "State." The Senate bill has no such provision. The committee of conference adopted the Senate position. E. The Senate bill includes a definition of "Secretary", as meaning the Secretary of Commerce. The House amendment contains no such definition. The committee of conference agreed with the House position. F. A definition of "company" contained in the Senate bill, but not in the House amend- ment, is incorporated in the definition of "export trading company" adopted by the committee of conference. The conference substitute includes a defi- nition of "anti-trust laws" contained in title III of the Senate bill, but not contained in the House bill, with an amendment deleting reference to section 6 of the Federal Trade Commission Act. Issuance of Regulations The Senate bill authorizes the Secretary of Commerce by regulation to further define terms contained in title I. The House amendment contains no such authorization. The committee of conference agreed to the Senate provision. Office of Export Trade The House amendment directs the Secre- tary of Commerce to establish an office in that Department to promote and assist export trade associations and export trading companies. The Senate bill similarly directs the Sec- retary to promote export trading compa- nies, but does not require the establishment of a Commerce Department office for that purpose. The committee of conference agreed to the House provision. TITLE II-BANK EXPORT SERVICES ACT The Senate receded to the House insofar as the basic statutory framework within which bank-affiiiated export trading compa- nies (ETCs) will operate. By placing the ETC within the bank holding company 100 structure rather than within the bank, as the Senate bill provided, the conferees be- lieve that adequate safeguards will continue to exist to minimize potential risk to the bank or banks within the holding company structure and that adequate separation will exist between a bank's involvement in export trade activities and its deposit taking function. The decision to accept the bank holding company structure carried with It to a large extent the utilization of existing regulatory provisions in effect in connection with existing bank holding application prac- tices and procedures except where modified to insure an adequate but yet a minimal reg- ulatory presence. The House, consequently, receded to the Senate to ensure a stream- lined application process with respect to basic definitional matters such as what an ETC is and what activities it can engage in, and on a number of ancillary matters such as the authorization for Export-Import Bank loan guarantees. In addition, defini- tive guidance is provided to the Federal Re- serve Board on how to implement this new statute in a way that will insure the rapid growth of ECTs consistent with the pur- poses of this Act without unnecessary regu- lation. Regulatory Framework S. 734, as a free standing statute, would have permitted a wide variety of banking in- stitutions to invest in ETCs. Inasmuch as these institutions are regulated by a number of different governmental agencies, S. 734 required a number of general regulatory provisions. H.R. 6016, reported by the House Committee on Banking. Finance and Urban Affairs, on the other hand, elected to re- strict banking institution investment in ETCs to bank holding companies and bank- ers' banks, and therefore constructed its version of this legislation as an amendment to the Bank Holding Company Act of 1956 (treating bankers' banks as holding compa- nies for purposes of this Act). As a result, the various constraints on bank holding company activities already in the Bank Holding Company Act would also automati- cally apply to invest in ETCs, and it was not necessary to repeat them in the House ver- sion of the legislation. Similarly, the restric- tion on investment to bank holding compa- nies allowed the House to dispense with much of the regulatory complexity of the Senate bill. In conference, the managers on the part of the Senate, recognizing the House's pref- erence for channeling risks of this kind through holding companies rather than through banks directly, agreed to recede to the House on most basic structural issues, with certain modifications. As a result, the provisions of the House amendment relating to the amount of bank holding company capital and surplus which can be invested in or loaned to an ETC, the 60-day disapproval procedure on the part of the Federal Reserve Board for such pro- posed investments, including the notifica- tion provision, and the exemption from Sec- tion 23A of the Federal Reserve Act are all Incorporated in the conference agreement. Similarly, the Senate provisions relating to judicial review, rulemaking authority, state banking laws, and protection of the safety and soundness of the bank, are all deleted, largely because they are covered by various sections of the Bank Holding Company Act which will now apply to investment in ETCs by virtue of the conferees' decision to accept the House approach of placing ETC within that Act. The Senate also receded to the House and agreed to eliminate the restric- tion on an ETC having the same name as its bank organization parent. There were, however, several areas where the conferees made significant modifica- tions in the approach of the House amend- ment. Guidance to the Federal Reserve Boabd Most important in that regard is the deci- sion of the conferees to provide additional guidance to the Federal Reserve Board in administering this Act through the addition of a new Section 202 at the beginning of Title II. This section declares it to be the purpose of Title II to provide for meaning- ful and effective participation by bank hold- ing companies In the financing and develop- ment of export trading companies, and that, specifically, the Board should pursue regu- latory policies that: (1) provide for the establishment of export trading companies with powers suffi- ciently broad to enable them to compete with similar foreign-owned institutions in the United Sta*.°<; and abroad. (2) afford to United States commerce, in- dustry and agriculture, especially small and medium-size firms, a means of exporting at all times: (3) foster the participation by regional and smaller banks in the development of export trading companies, and (4) facilitate the formation of joint ven- ture export trading companies between bank holding companies and nonbank firms that provide for the efficient combination of complementary trade and financing serv- ices designed to create export trading com- panies that can handle all of an exporting company's needs." These objectives, along with the purpose set forth in Title I of the Act, if properly pursued by the Federal Reserve Board, will guarantee the development of effective, "full-service" trading companies with bank holding company involvement that will ef- fectively and aggressively market American products and will not be disadvantaged or limited in competing with foreign-owned export trading companies or with ETCs owned by nonbank firms. The new section 4(c)<14)(A)(iv) of the Bank Holding Company Act created by the conference substitute provides for disap- proval of proposed investments in an export trading company only if the Board deter- mines: (1) such disapproval is necessary to pre- vent unsafe or unsound banking practices, undue concentration of resources, decreased or unfair competition, or conflicts of inter- est: (2) the Board finds that such investment would affect the financial or managerial re- sources of a bank holding company to an extent which is likely to have a materially adverse effect on the safety and soundness of any subsidiary bank of such bank holding company: or (3) the bank holding company fails to fur- nish the information required by Board reg- ulations. The second criterion above is a modifica- tion proposed by the Senate conferees and accepted by the House. The original lan- guage of the House amendment referred only to the "financial or managerial re- sources of the companies involved." Howev- er, the legislative history of that amend- ment suggested a narrower intent, i.e., "risk to the bank". In order to reach the intent of the amend- ment more closely, the conferees agreed on revised wording to clarify the expectation that the Board will focus on risk to the bank, as opposed to other affiliates, and on the specific Impact the proposed investment will have on the bank. Definition of Export Trading Company It is clearly the purpose of both the House and Senate to stimulate the establishment of export trading companies to improve U.S. export capabilities with corresponding fa- vorable effects on American balance of trade, economic growth and employment. The major public benefit sought by enact- ment of export trading company legislation is jobs for Americans through the promo- tion of exports. The necessity of export expansion has never been more obvious. The House amendment to S. 734 would require that a bank-affiliated export trading company be operated "exclusively" for purposes of ex- porting goods and services produced in the United States and would have permitted im- porting that was incidental to export activi- ties—that is an import agreement that en- hanced export activities would be accept- able. The use of the term "exclusively" was designed to ensure the export promotion and job creation character of the legislation. The House, however, receded to the Senate by adopting the Senate's use of the term "principally" In defining the purposes of a bank-affiliated export trading company. This is no way implies a reduced commit- ment to the bill's purpose: U.S. export pro- motion. On the contrary, while it is under- stood that ETCs will periodically have to engage in importing, barter, third party trade, and related activities, the managers intend that such activity be conducted only to further the purposes of the Act. The managers do not expect the preponderance of ETC activity to involve importing. ETC affiliation with banks represents a breach of the traditional separation of banking and commerce and has necessitated provision for a minimal but adequate regu- latory presence. It is the intent of the man- agers that the regulatory authority, in addi- tion to facilitating bank-related investments in ETCs, examine, supervise, and regulate ETCs in such a way as to assure that bank- affiliated ETCs operate in a manner consist- ent with the Congressional intent: that ETCs promote, increase, and maximize U.S. exports. Product Modification The conferees retained the prohibitions on manufacturing and agricultural produc- tion that were included in both the Senate bill and the House amendment. The export trading company is intended to be a service- providing organization and not the producer of the products it is exporting. The Senate, however, receded to the House amendment permitting the ETC to undertake incidental product modification, including repackag- ing, reassembling or extracting byproducts. as is necessary to enable U.S. goods or serv- ices to conform with foreign country re- quirements or to facilitate their sale in for- eign countries. The ETC would also be per- mitted to provide any service deemed neces- sary to protect it from the additional risk Incurred by such product modification. Joint Ventures The conferees intend that this title not affect the ability of individuals and organi- zations to form ETCs. State and local gov- ernment entities, including port authorities, industrial development corporations, and other non-profit organizatloas. could be an important source of overall export expan- sion and of the developemnt of innovative export programs keyed to local, state, and 101 regional needs. In addition, other organiza- tions, for example, agricultural coopera- tives, have similar experience and needs. This title In no way affects the ability of such organizations to continue these efforts Including their ability to organize, own, par- ticipate In or support ETCs. This title ad- dresses only the question of whether bank- ing organizations should be authorized to invest in ETCs and, if so, the restrictions which would be placed on ETCs sponsored by such banking organizations. The conferees that this title does not pre- clude a banking organization that is author- ized to Invest in an ETC from engaging in a Joint venture, partnership or other coopera- tive arrangement with other authorized banking organizations or other nonbanking firms to organize an ETC. Such cooperative arrangements are in fact to be encouraged. There are numerous firms and organiza- tions which may want to from an ETC but feel that they lack either investment capital or expertise. A banking organization may well be able to provide such assistance through a joint venture or partnership ar- rangement with these other firms. The ETC so supported, however, would be subject to the restrictions contained in this legislation inasmuch as a banking organization is in- vesting in that ETC. Permitted Services Both the Senate bill and the House amendment contained a list of services which a bank-affiliated export trading com- pany is permitted to provide. Those lists were identical except for three elements: (1) the Senate bill used the phrase "including, but not limited to" to make c!ear the list is a non-exclusive one; (2) the House amend- ment contained an explicit reference to "taking title"; and (3) the Senate bill's list included "insurance". The House by receding to the Senate on the first issue, insured that the list of per- mitted services is a non-exclusive one. With regard to the second issue, "taking of title", the Senate receded to the House. The Senate bill would have implicitly permitted such an activity. To eliminate any possible ambiguity, the explicit authority contained In the House version was adopted. Regarding "insurance", the House receded to the Senate with an amendment The con- ferees determined it to be appropriate to permit bank holding companies to provide insurance on risks resident or located, or ac- tivities performed, outside of the United States. Since a large proportion of cargos moving overseas originate at a point that is located away from the port of shipment, it has become customary for insurance carri- ers providing insurance for such cargos to endorse their policies to cover cargos for export from the point of their origin in final transit to their destination, including ordi- nary delay and storage. Such ocean cargo "warehouse to warehouse" coverages pro- vide insurance protection for all risks relat- ed to the land, air, or water transportation of the cargo in the United States as well as during the overseas transportation. In addi- tion to permitting export trading companies to provide insurance on risks outside of the United States, therefore, the conferees de- termined that it would facilitate the provi- sion of export trade services for export trad- ing companies to provide ocean cargo "ware- house to warehouse" insurance as well, and accordingly amended the definition of insur- ance activities permitted in support of export trade services, reflecting the confer- ees' decision. The conferees also considered the possibil- ity of expanding the range of institutions eligible to Invest in ETCs to include Edge Act Corporations. This proposal was includ- ed in the Senate bill because the expertise and experience of Edge Act Corporations in international trade matters made it logical to encourage their involvement in ETCs. On the other hand, the conferees were also con- cerned about the added potential risk to a bank if an ETC were formed by an Edge Act Corporation that was a subsidiary of a bank. It was the strong view of the House that the best protection for the bank and Its deposi- tors was to channel all trading company ac- tivity through the bankers' bank and bank holding company structures. Accordingly, the conferees agreed that Edge Act Corpo- rations that are subsidiaries of bankholding companies are eligible to invest in ETCs. The Inclusion of bankers' banks as eligible investors— a provision of both the Senate bill and the House amendment, will also fa- cilitate the involvement of smaller banks in ETCs. The conferees also discussed whether the mechanism for Board approval of a pro- posed investment should apply only to in- vestments that would give the holding com- pany control of the ETC, as in the Senate bill, or whether the standard in the Bank Holding Company Act requiring Board con- sideration of any investment constituting over 5 percent of an export trading compa- ny should apply. In this case, the conferees, recognizing the newness of this concept, opted for the stricter House approach contained in the Bank Holding Company Act. In doing so, however, the conferees stressed their intent that the Board, as soon as possible, both de- centralize this review process to the level of the Federal Reserve District Banks and con- sider providing guidelines for smaller invest- ments (those that would result in a control- ling interest for the holding company) that would minimize the review process and reduce the regulatory burden on the Board. Section 23A The Senate receded to the House on the exemption of bank-affiliated export trading companies from the provisions of Section 23A of the Federal Reserve Act. During the start-up phase in an effort to encourage maximum bank participation in export trad- ing company activities, the conferees believe that the overall limitation of ten percent of the consolidated capital and surplus of the bank holding company, on extensions of credit to an affiliated export trading compa- ny, would adequately protect affiliated banks from excessive risks, and that the ex- emption from the collateral requirement of existing law is necessary in view of the type of assets most ETCs would have. The con- ferees, however, intend to review the deci- sion in connection with an imminent major revision of 23A either as part of a possible conference on legislation separately passed by the Senate or at such time as revisions to 23A receive final consideration by the Con- gress. Reports Section 205 of the substitute contains the Senate bill's provision calling for a report by the Federal Reserve two years after the en- actment of this Act on the implementation of the banking provisions, recommendations for further changes in U.S. law to facilitate the financing of U.S. exports, and recom- mendations on the effects of ownership of U.S. banks by foreign banking organizations affiliated with trading companies doing business in the United States. Export-Import Bank The House receded with an amendment to the Senate on the latter's provision estab- lishing a program of Export-Import Bank guarantees for loans extended by financial institutions or other creditors to ETCs or other exporters, where such loans are se- cured by export accounts receivable or in- ventories of exportable goods. The House amendment to the Senate provision clarifies the eligibility of public creditors (port au- thorities, agencies of state and local govern- ments, and governmental instrumentalities) as well as private creditors for Export- Import bank guarantees. Bankers' Acceptances Th conferees want to emphasize strongly that the adoption of this long overdue liber- alization of the present limits on bankers' acceptance in on way is intended to impinge upon or restrict the inherent powers of the Federal Reserve Board to issue appropriate regulations to prevent circumvention of the new liberalized limits through the impru- dent use of participation agreements. The conferees have been advised of an ongoing analysis by the Federal Financial Institu- tions Examination Council on the proper treatment of participation of bankers' ac- ceptances, preparatory to the development of a proposed united policy approach by each Federal regulatory agency. The confer- ees encourage this action to the extent it is consistent with and in furtherance of the language, history, and purposes of this legis- lation or demonstrable safety and soundness concerns. In this regard, the conferees re- quire that the Council report to the respec- tive Committees of jurisdiction within 18 months after the date of enactment, the re- sults of its analysis, a summary of any indi- vidual regulatory agency action viewed as needed, and any legislative recommenda- tions relating to safety and soundness con- siderations. In the meantime, however, the conferees stress that no action should be taken, either by regulation or other require- ment to preclude the use of bankers' accep- tances through the use of participations, as contemplated by this legislation, by the widest number of American banks. TITLE III-EXPORT TRADE CERTIFICATES OF REVIEW The House and Senate Conferees agreed upon a substitute amendment for Title III of S. 734 which incorporates elements from both S. 734 and the House Amendment to S. 734. Section 301 is a statement that the pur- pose of this Title is to promote U.S. export trade by affording U.S. business an export trade certificate of review process. Section 302 provides the procedures a person must follow to apply for a certiiicale of review. To obtain a certificate of review, any individual, firm, partnership, associ- ation, public or private corporation, or other legai entity, including a public or private body, submits a written application to the Secretary of Commerce. The Secretary of Commerce shall forward applications and other specified information to the Attorney General within 7 days of receipt. All appli- cations must be in a form and contain all in- formation required by regulation. Within 10 days of receiving the applica- tion, the .Secretary of Commerce shall pub- lish in the Federal Register a notice identi- fying the applicant and describing the con- duct for which certification is sought. Section 303(a) provides that a certificate shall be issued to a person who establishes that its proposed conduct will (1) result in neither a substantial lessening of competi- tion or substantial restraint ol trade within the United States nor constitute a substan- tial restraint of the export trade of any competitor of the applicant; (2) not unrea- sonably enhance, stabilize, or depress prices within the United States; (3) not constitute unfair methods of competition against com- petitors engaged in the export trade of goods or services exported by the applicant; and (4) not reasonably be expected to result in the consumption or resale in the United States of goods or services exported by the applicant. The Conferees intend that the standards set forth in this subsection en- compass the full range of the antitrust laws. Section 303(b) provides that within 90 days, tiie Secretary must determine wheth- er the applicant s export trade, export trade activities, and methods of operation meet the standards of Section 303(*>. The Secre- tary shall not issue the certificate without the concurrence of the Attorney General that the standards of Section 303 are met. The certificate must specify the export trade, export trade activities, and methods of operation certified, the person to whom the certificate is issued, and any terms and cond'ticns deemed necessary by the Secre- tary or the Attorney General to assure com- pliance with the standards of subsection (a). Section 303(c) provides for expedited cer- tification where necessary; however, no cer- tificate may issue before 30 days from the date of publication of the Federal Register notice, whether or not the application is ex- pedited. Section 303(d)(1) provides that the Secre- tary shall notify the applicant of an adverse determination and the reasons therefore. Section 303(d) permits an applicant to re- quest reconsideration of the Secretary's de- cision. The Secretary, with the concurrence of the Attorney General, shall respond within 30 days. Section 303(e) provides for the return, of documents submitted in connection with an application upon written request of an ap- plicant whose certificate of review has been denied. Section 303(f) provides that any aspect of a certificate procured by fraud is void ab initio. Section 304(a) provides that the holder of any certificate of review is obligated to report to the Secretary changes relevant to the matters contained in the certificate and may seek an amendment to the certificate to reflect any necessary change. An applica- tion for amendment Is to be treated as an application for the issuance of a certificate. Section 304(b)(1) provides that the Secre- tary shall, at his own initiative or at the re- quest of the Attorney General, seek infor- mation from a certificate-holder to resolve any uncertainty concerning compliance. Failure to comply with such a request Is grounds for modification or revocation of the certificate pursuant to subsection (b)(a). Section 304(b)(2) provides that the Secre- tary of Commerce, at his own initiative or at the request of the Attorney General, may seek revocation of the certificate. Section 304(b)(3) is Intended to assure that the Attorney General investigate per- sons other than the certiificate-holder through use of the civil Investigative demand as set forth in the Antitrust Civil Process Act as amended (15 U.S.C. 1311 et seq.) regarding activities which may not be In compliance with the standards in section 303(a). If. upon an investigation, the Attor- ney General determines that the export trade activities or methods of operation of the certificate-holder no longer comply with section 303(a) standards, he shall advise the Secretary who then must initiate a revoca- tion or modification proceeding under sub- section (b)(2). Section 305(a) provides that a review of a grant or denial of an application for a certif- icate or an amendment thereto or revoca- tion or modification thereof of any person aggrieved by such determination if such suit is brought within 30 days of the determina- tion. Normally, the administrative record shall be adequate so that it will not be nec- essary to supplement it with additional evi- dence. The Senate bill required, prior to revoca- tion or modification of a certificate, a hear- ing as appropriate under the circumstances. The House bill did not require a hearing. In following the House approach, the Confer- ees understood that, should the Secretary nevertheless establish a hearing procedure. S. 734 would not require use of the proce- dures of the Administrative Procedures Act. Section 305(b) provides that no action by the Secretary or Attorney General under this title, except for an action under Subsec- tion 305(a), is subject to judicial review. Section 305(c) makes explicit that any denial by the Secretary, in whole or in part, of a proposal for issuance of a certificate, or amendment thereto, or any determination by the Secretary to revoke the application, or reasons therefor, is not admissible in evi- dence in any administrative or judicial pro- ceeding in support of a claim under the anti- trust laws as defined in this title. Subsection 306(a) protects a certificate- holder from criminal and civil antitrust ac- tions, under both federal and state laws, whenever the conduct that forms the basis of the action is specified in, and complies with, the terms of the certificate. Conduct which falls outside the scope of, or violates the terms of. the certificate is ultra vires and would not be protected. Such conduct would remain fully subject to criminal sanc- tions as well as both private and governmen- tal civil enforcement suits under the anti- trust laws. The Conferees agreed that the protections conferred by a certificate extend to all members of a certified entity provided that each member is listed on the certificate. Section 306(b)(1) permits persons injured by the conduct of a certificate-holder to bring suit for injunctive relief and single damages for a violation of the standards set fonh in Section 303(a). Pursuant to section/ 306(b)(2). any such suit must be brought within two years of the date the plaintiff has notice of the violation. Section 306(b)(3) accords a presumption of legality to persons operating within the terms of conduct speci- fied in a certificate. Subsection (b)(4) per- mits a certificate holder to recover the cost of defending the suit (Including reasonable attorneys fees) if the claimant fails to estab- lish that the standards of section 303(a) have been violated. Section 306(b)(1) provides that all proce- dures applicable to antitrust litigation, in- cluding laws and rules to expedite a pro- ceeding or to prevent dilatory tactics, apply to actions brought under this title. The standards under section 303(a), the remedies under this subsection, as well as the provi- sions concerning the statute of limitations, a presumption of validity, and the awarding of costs to the certificate holder, including attorneys fees, remain the exclusive provi- sion governing actions under this Act. More- over, section 16 of the Clayton Act, so far as it pertains to Injunctive actions for threat- ened (as opposed to actual) injury or to vio- lations of the antitrust laws such as sections 2. 3. 7. and 8 of the Clayton Act, are inappli- cable to actions authorized by section 306 of this Act. Section 306(b)(5) permits the Attorney General, notwithstanding the limitations in section 306(a)(1), to bring suit pursuant to Section 15 of the Clayton Act (15 U.S.C. 25) to enjoin conduct threatening clear and ir- reparable harm to the national Interest. Both the House and Senate versions con- templated the promulgation of guidelines to assist applicants, potential applicants, and the public In understanding the Issuing authority's Interpretation of the certifica- tion criteria. The Conferees agreed upon section 307, which is similar to the House version, except that the Secretary issues the guidelines. Under section 307, the Secretary, with the concurrence of the Attorney Gen- eral, may publish guidelines that describe conduct with respect to which determina- tions have been made or might be made, with a summary of the factual and legal bases underlying the determinations. The guidelines may be based upon real or hypo- thetical cases. Because the purpose of this section Is to disseminate Information, the Secretary Is not required to use rulemaking procedures, although he may if he so chooses. The Conferees agreed upon section 308, which tracks the Senate version of a similar provision. Under section 307, every person to whom a certificate has been issued shall submit to the Secretary an annual report, In such form and at such time that he may re- quire, that updates, where necessary, the in- formation required by section 302(a). The Conferees agreed upon section 309, which tracks version in the House. Under subsection 30.9(a), all Information submit- ted by a person In connection with the issu- ance, amendment, or revocation of a certifi- cate of review Is exempt from mandatory disclosure under the Freedom of Informa- tion Act, 5 U.S.C. § 552. In addition, under subsection (b)(1). no officer or employee of the United State shall disclose commerical or financial information submitted in con- nection with the issuance, amendment or revocation of a certificate of review if the information is privileged or confidential and if disclosure of the Information would cause harm to the person who submitted the in- formation. This limitation Is subsect to six exceptions, contained in subparagraph 309(b)(2). The first exception in subsection 309(b)(2MA), covers requests of Congress or a committee of Congress. This provision would not authorize release to an individual Member of Congress, but would authorize release to a Chair acting for the Commit- tee or Subcommittee. The Conferees under- stand that Committees will exercise appro- priate care to protect confidential informa- tion. The second exception, subparagraph 309(b)(2)(B), permits disclosure in a judicial or administrative proceeding subject to an appropriate protective order; the third ex- ception, subparagraph 309(b)(2)(C). permits disclosure with the consent of the submit- ting party; the forth exception, suparagraph 309(b)(2MD), permits necessary disclosures In making determinations on applications; the fifth exception, subparagraph 309(b)(2xE). permits disclosure in accord- ance with statute; and the final exception, subparagraph 309fied at 12 CKR Parts 21 1. 285 (1984)). * Pub L. 97-290. Title II, section 20fl (codified at 12 U.S.C 635h-)|. For further information on this and other Eximb.mk programs cont.ict K.vnibank's Small Business Hot Line (8O0) 424-.>201) or Office of Exporter Credits and Guarantees (2021 500-8819 or write to Export Import Bank of the United States, 811 Vermont Ave „ NW.. Washington, 1) ( 10571 for its brochure. Eximbank Prograiii* >hul Sti nil Business. « Pub. L 97 290 Title II. section 207 (codified nt 12 U S.C 372 (7)|. Federal Reserve Boaid reflations implementing this portion of Title II are tountl al 48 FR 5535. 28973. 57107 (Feb 7, ju.e 24 ind Dec. 28. 19831 (codified at 12 CFR PlirH 250. 2tto (1904)) ' Pub L. 97-290. Title III (codified nt 15 U.S.C. 4011-4021). Interim regulations implementing Title III are found ai 48 FR 10595- tO(«H [Mar 11. 1983) (codified at 15 CFR Part J25 (1984|| * Foreign Trade Antitrust Improvements Act of 1982. Pub. I. 97-290. Title IV (. odified at 15 U.S.C. 8a. 45(a)(3)) For some recent, useful analyses of Titles III and IV, sim Zurin. The Export Trailing Company Act Ruducing Antitruit Uncertainty in Export Trode. 17 |. Int'l I.. * Econ. 297 ( 1983); Ryan. The Export Trading Company Act of 1982 antitrust panacea, ploixbo or pitfall? |19«3| The Antitrust Bull 501 II. Factors to Consider in Deciding Whether To Seek a Certificate of Review Under Title III Persons involved in export trade who are deciding whether to apply for a certificate of review under Title III should first identify and assess the antitrust risks associated with their proposed export conduct. To focus this assessment, it is helpful to consider, for example, whether a competitor, a customer, or a state government might bring a lawsuit asserting that the proposed export conduct violates U.S. antitrust law. Next, a potential applicant should review the costs and benefits of applying for Title III certification. The two most significant benefits of a certificate of review are virtual immunity from government antitrust suits and procedural advantages in private suits. The certificate holder and the members identified in the certificate, have virtual immunuity from federal and state government civil and criminal antitrust or unfair competition suits. 9 The only exception to this immunity is that the justice Department may bring an action against the certificate holder to enjoin conduct "threatening clear and irreparable harm to the national interest." l0 This virtual immunity extends to the export conduct specified in the certificate and carried out during the effective period of the certificate in compliance with its terms and conditions. The procedural advantages that a certificate of review provides to the certificate holder and its members in private actions by persons who claim to have been injured by the certified conduct are: (1) A reduction in liability from treble to single damages, (2) a shorter statute of limitations for bringing an action, (3) a rebuttable presumption that the certified conduct is permissible, and (4) the recovery by a prevailing certificate holder of the costs of defending the suit, including a reasonable attorney's fee. This virtual immunity and the procedural advantages provided by Title III can reduce antitrust risks and uncertainty by deterring lawsuits of dubious merit. Moreover, a certificate of review can remove the uncertainty and risks associated with "gray-area" conduct by giving an exporter an opportunity to confirm the often qualified conclusions of counsel that particular export conduct is not likely to violate the antitrust laws. The government's determination not to grant a certificate is subject to judicial review and the agencies must give reasons for the denial; therefore, a firm can obtain a definite answer about "gray-area" conduct. If a certificate is not granted, neither the denial nor the reasons for it are admissible in any administrative or judicial proceeding in support of any claim under the antitrust laws. Finally, Title III protections can apply not only to the actual operation of an export entity but also to its planning activities. The primary costs of applying for a certificate of review arc time, money, and disclosure of confidential information. An applicant will spend time and money in: (1) Preparing the application and responses to supplemental questions, if any, (2) discussing the proposed conduct and the form of the certificate with the government after the application has been filed, and (3) carrying out post- certification requirements, such as submission of annual reports. Certain of these costs can be significantly reduced by taking advantage of the pre- application counseling provided by the Office of Export Trading Company Affairs, as described in Part VI. Another potential cost is the time required to obtain a certificate. The minimum time to obtain a certificate is 30 days from publication of a summary of the application in the Federal Register. The more typical time period is 90 days from the date the application Is accepted by the Department of Commerce. This 90 day period may be extended (1) if the government requests additional information, or (2) if the applicant and the government agree that more time is needed (up to an additional 30 days). If special business circumstances require prompt decision or change quickly and frequently, Title III certification may not be appropriate; however, it is always worth discussing possible expedited review with the Office of Export Trading Company Affairs in such circumstances." The possible disclosure of confidential business information to the federal government, to competitors or to foreign enforcement officials is another potential cost of Title III certification. The application form for a certificate of review requires some disclosure to the 8 Pub L. 97-290 section 306 (a) and (b| (codified at 15 U.S.C. 4016 (a) and (b). 10 Id. section 30eib|(5). 1 ' The Commerce and |ustlce Departments will consider requests for expedited review in light of jn applicant's showing that it has a special need for prompt decision. Such equests should include an explanation of why expedited treatment is needed, including a statement of all relevant facts and circumstances (such ss bidding deadlines or other circumstances beyond the control of the applicant) that require the applica M to act in less than 90 lays and that have a significant imparl on the applicant's export trade See 15 CFN 325 .7 (1984) federal government of information about the applicant's business plans, sales, and markets. In addition, the government may ask supplemental questions about other confidential information, such as an applicant's contracts, suppliers, customers, or joint venture arrangements. Title III and its implementing regulations, however, place significant restrictions on the disclosure of confidential information. Any information submitted in connection with an application is exempt from disclosure under the Freedom of Information Act. Also, the government is prohibited, except in rare instances, from disclosing confidential commercial or financial information that would cause harm to the person that submitted it. Even though summaries of the application and certificate are published in the Federal Register and although the entire certificate is available to the public in the Department of Commerce Freedom of Information Act Reading Room, government officials and early applicants have been able to draft these publicly available materials so that no confidential or proprietary information need be disclosed. While a Title III certificate of review provides significant protections, potential applicants should be aware of its limitations. The certificate provides no protection for persons not identified as an applicant or members in the certificate. Moreover, conduct that falls outside the scope of the certificate or violates its terms remairis fully subject to criminal sanctions, as well as both private and governmental civil enforcement suits under U.S. antitrust laws. Furthermore, a certificate obtained by fraud is void from the beginning and, thus, provides no protection. Finally, applicants should be aware that other nations have antitrust or competition laws with which they must comply. The certificate does not confer immunity from these foreign laws. Persons planning to engage in export activities may also consider other options to Title III certification. Each of the options discussed below differs from Title III in its scope of protection.and degree of government scrutiny and should, therefore, be evaluated carefully to ensure that the exporter chooses the option most appropriate to its particular situation. Title IV of the ETC Act reduces antitrust uncertainty by directly amending the Sherman and Federal Trade Commission Acts to clarify that these statutes apply to export conduct only if it has a "direct, substantial, and reasonably foreseeable" effect on the domestic or import commerce ofjhe United States or on the export commerce of a U.S. person. Thus, if export conduct has an anticompetitive effect only on foreign markets, it is not subject to U.S. antitrust laws. For some persons involved in export trade, reliance on Title IV will provide sufficient antitrust certainty without the need to apply for a Title III certificate of review. Title IV, however, does not provide the advantages of Title III, such as limitations on damages and award of attorney's fees, which should deter frivolous suits. Moreover, a number of export trade fact situations may permit colorable claims of jurisdiction and thus perhaps result in litigation expense. Similarly, a number of export trade fact situations may pass the jurisdictional threshold of Title IV even though no antitrust liability is ultimately found. After weighing the costs and benefits, a binding administrative determination by the government with the protections under Title III may be more appropriate for some exporters than relying solely on the statutory clarification provided by Title IV. Another option is the antitrust exemption provided by the Webb- Pomerene ActG512 for associations engaged "solely" in export trade. Because one of the main reasons for enacting Title III was the uncertainty of protection under the Webb-Pomerene Act, exporters should be aware of the following differences between the two statutes: (1) The Webb-Pomerene Act covers the export of goods only, while Title III also covers services, including the licensing of technology. (2) The Webb-Pomerene Act requires that the entity registered with the Federal Trade Commission be an association, whereas Title III permits any person or entity tc apply, including a single company. (3) Only persons engaged solely in exporting are eligible to become a Webb-Pomerene association. Title III does not limit the domestic or import activities of the certificate holder, although the certificate itself protects only export conduct. (4) Unlike Title III, the Webb-Pomerene Act does not provide an antitrust preclearance process for an exporter's proposed activities. The Webb Act operates only as a defense to an antitrust suit that has been brought — a function that Title III also performs. (5) Unlike Title III, the Webb-Pomerene Act does no't limit awards in private suits to single, rather than treble, damages. (6) Unlike Title III, the Webb-Pomerene Act does not allow payment of attorney's fees to a prevailing defendant. Generally, exporters will be able to receive greater protection for their export conduct through Title III certification than they will under the Webb-Pomerene Act. Another option for reducing antitrust uncertainty is to ask the Justice Department or the Federal Trade Commission for a written statement of its present enforcement intentions concerning proposed conduct, including export plans. 13 Such a statement of intention, unlike Title III certification, is not legally binding; however, the Department of Justice has never brought suit challenging conduct granted a favorable business review. 14 And unlike Title III, the Justice Department's "business review letters" or the FTC's "advisory opinions" do not preclude private suits or state enforcement actions, although conduct granted a favorable business review by the Department of Justice has never been successfully challenged in court in a private action. A final option to reduce antitrust uncertainty for companies in certain economic sectors, such as agricultural producers, is statutory immunity from antitrust enforcement. But often the extent of this immunity in export trade is not altogether clear. 1S For example, the Capper-Volstead Act, 16 which provides an antitrust exemption to associations of agricultural producers engaged in the joint marketing of their members' products in "interstate and foreign commerce," may not immunize agreements between those associations and nonmembers, such as foreign distributors. 17 "IS U.S.C. 61-6S For a discussion of Ihe Webb- Pomerene exemption, see. eg.. 1 | Atwood & K. Brewster, supra note 1. Hi section 9.35-46; 2 id. al sections 17 09 and 17.23-17.27, "See 28CFR 50.6 ( 1 983 1 and 16 CFR 1.1-4 (1983) "See 2 |. Atwood & K Brewster, supra note i sections 14.04-14.06. 15 See e.g.. 1 id at 55 3.20-3.28: B. Hawk, supro note 1. at 8-15: W. Fugate. supra note 1. at §§ 13 8- .12. For a more detailed discussion of antitrust exemptions, see U.S. Dep't of Justice. Report of Ihe Task Croup on Antitrust Immunities ( |an 19771 reprinted in Antitrust Exemptions and Immunities: Hearing before Subcomm. on Monopolies and Commercial Low of the House judiciary Comm . 95th Cong.. 1st Sess 1880 (1977) Some of these exemptions have been amended since the publication of this hearing. See. e.g.. Airline Deregulation Act of 1978. Pub L 95-504. 92 Stat. 1"05 (codified at 49 U.S.C. 1301 et seq.) Shipping Act ol 1984. Pub. L. 98-237, 98 Stat 67 (to be codified at 46 U.SC. app. 1701-1720). For a discussion of these amendments, see J. von Kalinrv- ski. Antitrust Laws and Trade Regulation 55 44.01-59.08 (19B3 and Supp.): P Areeda & D. Turner. Antitrust Law section 2C (1980 and Supp.) "7 USC. 291-292. "See e.,i?.. United States v. Maryland & Virginia Milk Prod. Assn. Inc.. 362 US. 458 (1960): Pacific Coast Agricultural Exro-' Ass'n v. Sunkist Crowers. Inc., 526 F 2d 119€. i202 (9th Cir. 1975). cert, denied. 425 US 959(1976). 121 III. Eligibility Criteria A. Eligible Applicants Anyone who is a "person" within the meaning of that term in Title HI is eligible to apply for a certificate. |T|he term "person" means an individual who is a resident of the United States: a partnership that is created under and exists pursuant to the laws of any state or of the United States; a state or local government entity; a corporation, whether organized as a profit or nonprofit corporation, that is created under and exists pursuant to the laws of any state or of the United States; or any association or combination, by contract or other arrangement, between or among such persons." Under this definition, any individual or legal entity that is either a resident or citizen of the United States can apply for a certificate under Title III. Unlike Title II, the "Bank Export Services Act," which applies only to bank affiliated ETCs '"and unlike the Web-Pomerene Act, which applies only to associations engaged solely in export trade, Title III permits any U.S. exporter to apply for and be issued a certificate of review, regardless of its legal form and range of activities. An entity calling itself an ETC, however, is not required to obtain a Title III export trade certificate of review. Early applicants have included export intermediaries, manufacturers of their subsidiaries, combinations of U.S. distributors, an association of agricultural producers, an agricultural cooperative and a state port authority. 20 Under Title III. a single U.S. company can apply for certification, even though it may not qualify as an ETC under Title II and its export trade is only a small part of its total business operations. "15 U.S.C. 4021(5). "Section 203(3)(F) of the Bank Export Servlcet Act defines export trading company" aa "a company which does business under the laws of the United Slates or any stale, which is exclusively engaged in activities related to international trade, and which is organized and operated principally for purposes of exporting goods or services produced in the United States or for purposes of facilitating the exportation of goods or services produced In the United States by unaffiliated persons by providing one or more export trade services ," In addition, the definition of export trading company" in Title 1 does not limit who may apply for a Title III certificate of review. Set- 15 U.S.C. 4002(a)(4); H.R. Rep. No. (124. 97th Cong.. 2d Stss 18 (19H2). "A list of the applicants that have received certificates and copies of the certificates are available in the International Trade Administration's Freedom of Information RecordB Inspection Facility. Room 4001-B. IIS. Department of Commerce. 14th Street und Constitution Avenue. NW . Washington, D.C 2o::io. In addition, a list of all applications that are currently being processed can be obtained from the Office of F.xport Trading Company Affaire. Poom 5fll8 U.S. Department of Commerce A foreign company cannot seek a certificate because it is not a "person." U.S. subsidiaries of foreign companies, however, are eligible. Moreover, foreign companies can receive the protection of a certificate by becoming "members" of eligible applicants." B. Conduct Eligible For Certification Under Title III, certificates of review may be issued only with respect to "export trade, export trade activities and methods of operation." "Thus, as a threshold matter, the agencies will determine whether the conduct proposed for certification falls within these definitions before considering whether the conduct meets the four certification standards of Section 303(a) of Title III. Conduct that constitutes export trade, export trade activities or methods of operation is eligible for certification and will be reviewed for its consistency with those standards. Conduct that does not constitute export trade, export trade activities or methods of operation is not eligible for certification. 1. Export Trade. Title III defines "export trade" to be "trade or commerce in goods, wares, merchandise, or services exported, or in the course of being exported, from the United States or any territory thereof to any foreign nation." " And, unlike Title II of the ETC Act, Title III does not require that the goods or services for export must be produced in the United States. Even though the goods or services have not yet been exported by the applicant or its members, they may fall within the definition of "export trade," and, therefore, be eligible for certification, if they are "in the course of being exported." For example, the sale 31 " 'Member' means, with respect to an applicnnt. a partner, shareholder or participant who is seeking protection under the certificate This applies to partners in partnerships or joint ventures; shareholders of corporations; or participants in associations, cooperatives, or other forms of profit or nonprofit organizations or combinations, by contract or other arrangement." 15 CFR 125 2(k| (1984). " 15 U.S.C. 4013(a). " 15 USC 4021(1). "Export trade activities' and Methods of operation" are. in turn, defined in terms of "Export trade " Section 311(2) of Title III defines services" as: intangible economic output, including, but not limited to— (A) Business, repair and amusement services. |D| Management, legal, engineering architectural, and other professional services, and (C) Financial, insurance, transportation, informational and any other data based services, and r.ommunicu'ion services " Patents, trademarks, know how and technology are intangible economic outputs Therefore licenses (if patents, trademarks, know how and technology to persons for use in foreign countries are within the definition of export trade" and will be el.gible for of a product within the United States, if the product is to be exported, may in some circumstances constitute "export trade." However, the production in the United States of goods will not • ordinarily be considered as "export trade," even if the goods produced are destined for export. Nothing in Title III prevents an export venture from engaging in manufacturing activities or any other activities, such as import or domestic trade. Such activities would not, however, be eligible for certification, and would remain subject to the normal application of the antitrust laws. In order to qualify as "export trade." goods or services must ultimately be exported "from the United States or any territory thereof to any foreign nation." M Although it will not often be an issue, questions could be raised as to when goods and services are exported "from the United States or any territory thereof." For example, fish that are caught by U.S. flag vessels within U.S. waters and sold at sea would be considered to be exported from the United States." The definition of "export trade" does not require that the goods or services to be exported be produced in the United States. For example, sales abroad of foreign-made products that were imported into the United States and then exported to a foreign country qualify as "export trade," as do the sales abroad of goods assembled in a United States foreign trade zone from imported parts. In addition to goods and services that are to be exported, the definition of "export trade" as "trade or commerce" in such goods and services includes export trade services. Export trade services are services that are provided exclusively to facilitate the export of goods or services. Examples of export trade services include the sale and shipment of goods or services abroad, advertising in the export market, international market research, product research and design exclusively for export, joint trade promotion, financing, communication and processing of "15 USC 4021(1). " One situation which presented this issue wai specifically addressed by the Conference Report: "Specific consideration was given to the status, under this and other definitions in the bill, of fish harvested by US flag vessels within the United States fish conservation zone and sold at sea or in a foreign port without having otherwise been landed or processed in the United States The committee of conference agreed that fish so harvested and sold should be regarded as constituting expoit trade within the meaning of this title and other Mies of the bill" II R Rep No 624. 97th Cong . 2d Sess 18 (19821 foreign orders, and negotiating export contracts with foreign buyers. 26 2. Export Trade Activities and Methods of Operation. As a matter of practice, the agencies have distinguished between "export trade." which goes to "what" the applicant exports, and "export trade activities and methods of operation," which go to "how" the applicant proposes to conduct its export trade. Title III defines "export trade activities" as "activities or agreements in the course of export trade" 27 and "methods of operation" as "any method by which a person conducts or proposes to conduct export trade." 2S Proposed activities, agreements or methods of conducting business will be eligible for certification if they fall within these definitions. It is not important whether proposed conduct is best characterized as an export trade activity or a method of operation, so long as the proposed conduct constitutes one or the other. However, since the purpose of a certificate is to remove antitrust uncertainty, the certification of export trade is meaningful only in connection with the certification of some export trade activity or method of operation that raises some colorable antitrust exposure. It is especially important that applicants specify their "export trade activities and methods of operation" since the certificate's protection is limited to the specific conduct that is described in the certificate. Agreements in the course of export trade ("export trade activities") might include agreements among the members of a joint export entity on the allocation of export shipment, agreements setting prices or other terms and conditions of purchase or sale for or in foreign markets, and distributionship agreements for export. 29 Where an -'See. e.g.. IS US C. § 4002(a)(3) "Id. section 4021(3) "15 USC. 4021(4). "Section 206 of S. 734. the Senate version of Title III. contains additional examples of agreements in the course of export trade. S. 734. intended to amend the Webb-Pomerene Act. would have required the applicant to specify: "(7) The export trade activities in which the association or export trading company intends to engage and the methods b> which the association or export trading company conducts or proposes to conduct export trade in the described goods, wares, merchandise, or services, including, but not limited to. any agreements to sell exclusively to our through the association or export trading company any agreements with foreign persons who may act as joint selling agents any agreements to acquire a foreign selling agent, any agreements for pooling tangible or intangible property or resources, or an\ territorial, pnce-mainlenance. membership, or other restrictions to be imposed upon members of the association or exporl trading company." applicant seeks certification of an agreement involving non-members, however, only the applicant and members identified in the certificate may receive the protection from antitrust liability afforded by Title III. The applicant's methods of operation might include such mechanisms as using exclusive or non-exclusive export distributors, selling on consignment, and using a resale price maintenance program for its foreign sales. Methods of operation eligible for certification might also include the organizational and managerial aspects of the export venture, such as the manner in which the overseas prices will be established, the role members will play in the management decisions of the venture, the manner in which business information will be disclosed to or exchanged between members and/or non-members, and restrictions on the activities of members in export markets or on their withdrawal from the export venture. While, as a general matter, certification is not available for overseas investment activities, investments that are. integral to the export of goods or services may in some circumstances be eligible for certification. For example, investment in warehouse facilities overseas to store exported products until transferred to the foreign purchaser would ordinarily be eligible for certification. Similarly, although the production or manufacture of products ordinarily would not be eligible for certification, minor product or packaging modification activities necessary to insure compatibility of the product with the requirements of the foreign market could be considered an export trade activity eligible for certification. IV. Certification Standards Proposed export trade, export trade activities and methods of operation may be certified if the applicant establishes that such conduct will — (1) Result in neither a substantial lessening of competition or restraint of trade within the United States nor a substantial restraint of the export trade of any competitor of the applicant, (2) Not unreasonably enhance, stabilize, or depress prices within the United States of the goods, wares, merchandise, or services of the class exported by the applicant, (3) Not constitute unfair methods of competition against competitors engaged in the export of goods, wares, merchandise, or services of the class exported by the applicant, and (4) Not include any act that may reasonably be expected to result in the sale for consumption or resale within the United States of the goods, wares, merchandise, or services exported by the applicant. Congress included these specific certification standards in Title III, rather than adopting a standard referring generally to the antitrust laws, as had been proposed in several antitrust certification bills in Congress. This apparently reflects a Congressional decision to have the agencies and the courts interpret Title III in a way consistent with the purpose of the antitrust laws — the maintenance of competition in domestic markets for the benefit of U.S. consumers. It is clear that Congress intended the four certification standards to encompass the full range of U.S. antitrust laws. 30 Thus, the certification standards are intended to ensure that conduct that is likely to have substantial anticompetitive effects within the United States will not be certified. If the only substantial anticompetitive effects of the conduct are in foreign markets, a certificate will be issued. Title III was intended to eliminate uncertainty concerning the applicability of the antitrust laws to conduct in export trade and thereby to promote exports. Congress did, however, provide for a single-damage remedy against certified conduct by certificate holder that is subsequently determined by a court to be inconsistent with Title III standards. There is no indication that Congress intended to increase the potential liability of exporters who avail themselves of the possibility for increased certainty provided by Title III certification. These considerations suggest that the appropriate interpretation of the Title III standards is one that does not impose iiability for export conduct on certificate holders beyond that which they would face in the absence of a certificate. Thus, export conduct should not be found inconsistent with the Title III standards if such conduct would not also be likely to violate an antitrust law otherwise applicable to export trade for which damages may be recovered as a remedy. A. The First Standard— Substantial Lessening of Competition or Restraint of Trade Under this standard, conduct will be certified unless it results in a substantial lessening of competition or restraint of 10 See MR Rep. No 924. 97th Cong.. 2d Sess. 26 (1982) (Conference Report). S Rep. No. 27. 97lh Cong.. 1st Sess 20-21 (1981) 123 trade in the domestic market or a substantial restraint on the export trade of U.S. export competitors. To determine whether the proposed conduct will result in a substantial lessening of competition or restraint of trade within the United States, the analysis will in most instances look to the overall purpose and effect of the activities on competition in the domestic market. As a practical matter, the kind of export conduct most likely to raise a question of compatibility with this portion of the first standard is joint export activity involving U.S. domestic competitors. In many circumtances, such export conduct will not be inconsistent with this standard. However, if joint export activity is likely to lead to coordination of domestic price or output levels among domestic competitors, the conduct is likely to substantially lessen competition among them in U.S. markets, and thus will not be certified. If the conduct will not substantially lessen competition in a domestic market, it will be certified. A determination as to whether proposed conduct will substantially lessen competition in domestic markets will often require an analysis of the market structure in the United States for the goods and services to which the proposed conduct will apply. This determination may depend on a number of factors, among the most significant of which are the concentration in the relevant market(s), the ease of new entry and the market power of the applicant and its members. In determining the degree of market power of the applicant and its members, the aggregate market shares of each, as well as market shares of their parents, subsidiaries and affiliates, will be considered along with a number of other factors. Ordinarily, the risk that the proposed conduct will produce a substantial anticompetitive domestic effect is greater when the markets are highly concentrated or when the participants in the proposed conduct have a large market share than when neither of these factors is present. An evaluation of whether proposed export conduct will be likely to substantially restrain the export trade of a competitor of the applicant will focus on the purpose and effect of the conduct. For example, conduct that is predatory, 31 or that denies an export competitor access to an essential facility and thus prevents it from competing for exports "would not be certified. However, instances of conduct that would be violative of this standard are likely to be rare." In particular, it is important to ensure that this standard is not applied to hard, vigorous competition. Such competition would be consistent with this standard even if it improves the competitive position of the applicant as compared to other U.S. export competitors and results in a reduction in their exports. Certification in such circumstances may be possible even if the applicant accounts for a substantial shareof the U.S. supply of a product or service.*' B. The Second Standard— Unreasonable Price Effects The second standard requires the agencies to analyze the purpose and likely effect upon domestic prices of the proposed export conduct. An unreasonable effect on domestic prices is not inherent in the formation or operation of every joint export entity, and, in practice, export activities creating unreasonable domestic price effects are likely to be rare. Under this standard, an effect on domestic prices resulting from export sales that lessen domestic supply and that are a legitimate business response to demand in foreign markets, will in itself not constitute an unreasonable effect on domestic prices. However, an increase in domestic prices that results from anticompetitive behavior directed at the domestic market will be unreasonable. For example, if the purpose of proposed conduct is to manipulate domestic prices, directly or indirectly through the manipulation of domestic supplies, certification will be denied. C. The Third Standard— Unfair Methods of Competition Under this standard, proposed conduct that is anticompetitive and likely to substantially restrict the exports of U.S. export competitors will not be certified. Contrary to the " Sue. e&. Pacific Engineering S Production Co. i Kerr McCee Corp . 551 F2ii 790 (10th Cir ). cerl. denied. 434 U.S. 879 (1977): Areeda A Turner. Predatory Pricing and Related Practices Under Section 2 of the Sherman Act. 88 Harv. L. Rev. 697 (1975). "See. e.g.. U.S. v Terminal R.R. Assn. 224 U.S. 383(1912). "Because of the relative ranty of such situations and the difficulty of effectively defining them. throughout most of the remainder of these Guidelines we will consider only the "effect on domestic competition" standard, which presents the most common issuer under the Act If issues under the "injury to competitors" standard are presented by a certificate application, they will of course be evaluated. "See S Rep. No 27. 97th Cong . 1st Sess 20-21 |19H1) Quoting United Stales v Minnesota and Mfg Co. 92 F Supp 947. 985 (D Mas suggestion of some commentators, n however, this unfair competition standard is not intended to broaden the scope of antitrust liability for a certificate holder. While this language is similar to that contained in section 5 of the Federal Trade Commission Act. it is narrower on its face. Moreover, the policies and purposes underlying Title III are different from those underlying the Federal Trade Commission Act. The Federal Trade Commission Act is primarily applied to protect U.S. consumers from anticompetitive conduct, whereas Title III is an export promotion statute that reduces antitrust uncertainty for export conduct while also protecting U.S. consumers and exporters from anticompetitive conduct. In addition, the Federal Trade Commission Act is enforced by the Federal Trade Commission, and the typical remedy for violations is a cease and desist order. Conduct by a certificate holder that violates one of the Title m standards may subject the holder to a private tingle damage action. In light of these considerations, any pertinent judicial decisions expanding section 5 of the Federal Trade Commission Act beyond the Sherman and Clayton Acts and applying to conduct only because of its effect on competitors, while illustrative, have no precedential significance. Conduct that would violate the last part of the first standard — that would substantially restrain the export trade of a competitor — would also be likely to violate this standard. 36 The mere fact that conduct would lead to export sales by the applicant or its members that would displace sales of other U.S. exporters would not be grounds in itself for denying certification. An example of conduct that might not meet this standard is the deliberate and unreasonable restriction of domestic export competitors from sources of supply. D. The Fourth Standard — Resoles in the United States The fourth standard seeks to ensure that anticompetitive effects, if any. of proposed export conduct are not fell in the United States through subsequent reimport of the exported goods or services into the United States. It is intended to ensure that the antitrust protection afforded by Title 111 will not be given for conduct which, while ing 19S01 ''•See. eg Bruce » Pierce. Understanding the E\porl 7 odng Company Act and Using (or Avoiding/ la Antitrust Exemptions. 31 Bu». Law 975. 1011-12(1983) '" N'T supra Section IV A ostensibly involving exports, has -a significant imoact in the domestic market. Under the standard, the agencies will look at whether the applicant reasonably expects the exported goods or services to reenter the United States for sale or consumption within the United States, and if so, whether such sale or consumption within the U.S. may have a substantial domestic impact in the relevant product markets. The fact that exported products or services are incorporated into finished products overseas or are significantly transformed in their character and then exported back into the United States would not be a basis for denial under this standard. V. Application of Certification Standards to Specific Conduct in Export Trade A. Vertical Restraints Vertical restraints are arrangements between firms operating at different levels of the distribution chain (for example, between a manufacturer and a wholesaler or a wholesaler and a retailer) that restrict the conditions under which firms may sell or customers may purchase products. Although vertical restraints can take a variety of forms, most restraints can be placed in one of three categories: (1) Territorial and Customer Restraints — Restrictions on the territories in which, or customers to which, a buyer is permitted to resell goods purchased from the^eller, including location clauses, areas of primary responsibility, and profi'. pass- over arrangements. (2) Exclusive Dealing Arrangements — Requirements that a buyer deai only with a particular seller or that a selier dejl only with a particular buyer or g r nup of buyers, including exclusive distributorship and requirements contracts. (3) Tying Arrangements — Requirements that a buyer desiring to purchase one product ("the tying good") from a seller also purchase a second product ("the tied good") offered by the seller. In domestic commerce, such non-price vertical restraints are judged under a flexible, economically sound evaluation of their purpose and effect. 37 Such vertical restraints generally promote competition by facilitating the efficient distribution of products and by permitting firms to compete on the level of distribution and service in the same way that they compete on product design and price. Accordingly, the legality of a non-price vertical restraints in each case depends on its economic effect, and no particular restraint is presumed to be anticompetitive. In short, non-price vertical restraints generally play an important procompetitive role in the domestic economy by allowing firms to structure their distribution systems efficiently. Vertical restraints used in export trade are analyzed in the same manner as vertical restraints employed domestically, with one significant difference — restraints used in the international context do not give rise to antitrust scrutiny unless they affect competitive conditions in the United States. Thus, vertical restraints whose competitive efiects are felt abroad pose no problem? under the United States antitrust laws An example would be the maintenance of resale prices in foreign markets. 38 Vertical restraints in the course of export trade can take various forms and arise in vanous contexts. A U.S. producer might grant exclusive distribution rights to an export intermediary and might impose territorial, customer, price, and other restrictions on such intermediary. The inability of a producer to deal with certain export intermediaries in light of, or because of, supply agreements between itself and other export intermediaries is another kind of vertical restraint. A vertical restraint could also take the form of a requirement by a U.S. exporter that its export intermediaries deal only in the exporter's products for export or a requirement that such intermediaries purchase certain products from it as e condition of access to other products. Each of these vertical restraints might have some restrictive effect on the ability of particular exporters to export In most cases, however, these restrictions are legitimately imposed by a supplier of products in order to increase the competitiveness of its products in export markets. For example, the grant of exclusive distribution rights may be based on the exporter's interest in providing an incentive for a distributor to provide services necessary for the successful marketing of a product without fear that other distributors will be able to take a "free ride" on the first distributor's efforts. In addition, the grant of exclusive distribution rights may be intended to improve the efficiency of exporting by reducing bargaining and other transaction costs and by ensuring that distributors attain a sufficient volume of sales to permit the achievement of scale economies in export distribution. Similar motives could underlie the exporter's imposition of price, quantity, territorial or other restrictions on its distributors in export trade, such as an obligation to pay a commission to the exporter when an export sale is made outside the distributor's exclusive territory. The imposition of an exclusive dealing obligation on an export intermediary may be intended to protect an exporter's investment in training, equipment or other facilities and services against "free riding" by competing exporters who might, if they were able to sell through the export intermediary, benefit from the first exporter's investment without bearing any cost. If parties could not use an exclusive dealing arrangement to prevent "free riding", the exporter might be discouraged from making investments to improve export efficiency and thereby to increase exports. Vertical restraints in export trade ordinarily do not have a substantial anticompetitive effect in violation of the Title III standards. The four certification standards embody the policy of the antitrust laws. The antitrust laws protect competition, not competitors. 39 Therefore, unless such restraints will be likely to lead to the achievement or maintenance of market power or to the coordination of price or output levels within the United States, they generally will be consistent with the Title III standards. Examples of Vertical Restraints The following examples are intended to give guidance in determining when proposed vertical restraints satisfy the four standards. They are illustrative and not comprehensive. Example 1: Exclusive Export Intermediary for U.S. Manufacturer Rubber-King, a U.S. manufacturer of automobile tires accounting for 50 percent of U.S. domestic sales of tires, wishes to appoint ETC, a non- manufacturing U.S. -based export intermediary familiar with European markets, as its exclusive distributor for Europe. For the last five years, Rubber- King has used Blooper, another U.S.- based export intermediary, as its exclusive distributor for Europe. Now Rubber-King has become dissatisfied with Blooper's efforts and has decided 37 Sec Conlmenldl TV. Inc. v GTE Syl 433 US 36. 54-5^ (19: 7 ) '" II is important to nole. however that many foreign countries' antitrust laws prohibit resale price maintenance and non-price vertical reslrai 39 Brunswick Corp v. Pueblo t 429 US. 477. 488(1977). not to renew its distributorship agreement with Blooper at the expiration of its term. In its proposed exclusive distributorship agreement with ETC, Rubber-King intends to include provisions (i) preventing ETC from reselling Rubber-King's tires except in Europe; (ii) preventing ETC from selling Rubber-King's tires at a price lower than a specified minimum price in certain European countries; (iii) requiring ETC to purchase a full line of automobile tires for export to Europe: and (iv) requiring ETC not to purchase or deal in automobile tires for sale to Europe except from Rubber-King. Finally, the proposed agreement would obligate Rubber-King to impose restrictions on its other distributors to prevent their shipment of its automobile tires to Europe. Rubber-King and ETC have jointly applied for a certificate of review covering the restrictions described above as well as Rubber- King's refusal to renew its distributorship agreement with Blooper or to supply Blooper with tires. Discussion A certificate of review would likely be granted to the applicant in the circumstances outlined above because none of the vertical restraints would be likely to substantially restrain competition in the United States. The use of an exclusive distributor for a particular country or area of the world in the course of export trade normally would be viewed as a reasonable efficiency-creating method of operation. Thus, even though Rubber-King has a significant market share, the grant of exclusive rights to ETC and the refusal to renew Blooper's distributorship agreement or to supply it with tires would be consistent with Title Ill's standards, since these actions would have no substantial anticompetitive effects within the United States. The refusal to renew Blooper or to sell tires to it might limit Blooper's export of tires. Such a limitation, however, would not be inconsistent with the Title III standards. Rubber-King seems to have a reasonable business justification for replacing Blooper and, more importantly, any resulting damage to Blooper would be unlikely to substantially lessen competition in domestic markets. The restriction that prohibits ETC from selling in the U.S. does not substantially lessen competition in the U.S.: such territorial restrictions are usually unobjectionable vertical restraints. Also, the territorial and price restraints that apply to ETC's sales in foreign markets would not have any anticompetitive effect in the United States. Finally, the exclusive dealing and full- line purchase obligations imposed on ETC would not be inconsistent with Title Ill's standards. These obligations would have the effect of preventing U.S. tire manufacturers other than Rubber- King from using ETC as a European distributor. Nevertheless, the fact that the proposed conduct might result in such a limitation would not violate the Title III standards if, as would be true normally in the case of exclusive dealing obligations, the conduct would not be expected to result in a substantial restraint on competition within the United States. It is unlikely that the restriction in this case would significantly limit the abiliiy of Rubber- King's competitors to export. It is likely that there are numerous U.S. and European entities that would be qualified to act as a distributor of tires in Europe. Furthermore, if exports to Europe did not constitute a large percentage of the total sales opportunities available to U.S. manufacturers of tires, it seems unlikely that even a significant foreclosure affecting potential export sales in Europe could be inconsistent with the Title III standards. Such a foreclosure would be unlikely to affect seriously the competitiveness of such other manufacturers in the domestic market and thereby substantially restrain competition in the United States. Example 2: Export Intermediary Handling the Products of Competing U.S. Exporters IPORT is a newly-formed export trading company that intends to export a variety of products purchased from a number of suppliers, including competing suppliers. IPORT does not at present know who its U.S. suppliers or foreign distributors will be. Nonetheless, it would like to obtain a certificate of review covering its entering into agreements under which it would be an exclusive distributor for any supplier and would agree not to deal in export trade in the products of that supplier's competitors unless authorized by the supplier. In addition, it would enter into agreements under which it would grant exclusive distributorships to foreign entities and oblige such entities not to deal in goods competing with those supplied by IPORT. Discussion Exclusive arrangements such as those described above involving a company such as IPORT would not normally have a substantial anticompetitive impact in any U.S. market. In light of the fact that IPORT is a small, new export intermediary, it seems unlikely that its entering into exclusive arrangements with any individual supplier or with any export distributor would substantially restrain U.S. competition through effet ts on competing suppliers. The certification of IPORT to represent a number of suppliers, however, raises the possibility that IPORT could become the exclusive export.distributor for competing U.S. manufacturers. To clarify that IPORT is not certified to engage in joint discussions with competing producers, the certificate will be limited to only individual negotiations and agreements between IPORT and its suppliers unless IPORT can demonstrate that in particular product markets broader certification would be appropriate. In addition, in order to avoid the possibility that IPORT could disclose competitively sensitive information obtained from one supplier to competing suppliers, the certificate would normally contain a condition stating that IPORT will not intentionally make such disclosures. If IPORT needed to exchange certain sensitive business information in order to engaged in export trade, it might be possible to grant a certificate of review for such exchanges if IPORT specifically described the products or suppliers involved and if the domestic market for the product were competitive and had structural features indicating that successful price or output coordination would not be likely to occur. In such cases, the agencies may place in the certificate limitations on the nature of information to be disclosed and the manner in which it would be exchanged. Example 3: Manufacturer Acting as Export Intermediary for Competitors Erektor is a U.S. manufacturer of electric motors that accounts for 5% of sales of such motors in the U.S. market. Erektor is capable of producing the entire range of such motors currently used but has concentrated on sales of smaller sizes of motors. Erektor is currently exporting motors but is hampered in its export sales by its lack of a complete line of sizes; therefore, it wishes to enter into exclusuve or non- exclusive agreements with other U.S. manufacturers of motors under which it would distribute their motors in foreign markets. Without identifying particular suppliers. Erektor has asked that a certificate of review covering such conduct be issued. The electric motor markets in the United States are not particularly suspectible to coordination of domestic prices or output. Entry barriers are not significant and manufacturing economies of scale can be achieved at a production level of one percent of current industry output. The industry is relatively unconcentrated; in any relevant product market, the largest firm accounts for 10% of sales, two other firms each account for 8%, four firms each account for 5% and 30 other firms account for the remainder of sales. Discussion In these circumstances, a certificate of review would likely be granted to Erektor for its individual export distribution agreements with other suppliers of electric motors. It is conceivable that the existence of exclusive export distribution agreements between producers accounting for a large percentage of industry sales and one of their competitors could adversely affect domestic competition in certain product markets. However, entry into the. relevant product markets in this example is easy, and the markets are unconcentrated and appear to be competitive. These factors make it unlikely that coordination among the firms could effectively raise U.S. prices. Thus, these factors minimize the risk that the exclusive arrangements in this case will have a substantial anticompetitive effect. Furthermore, if Erektor considered that the disclosure to its suppliers of specific types of information {e.g., information relating to bid requirements or purchase specifications) obtained by Erektor from any of them to be reasonably necessary to success in distribution, it could request that it be certified to make such specific disclosures. If the exchange of the specified information would be unlikely to risk anticompetitive domestic effects, certification could be granted. In order to ensure that competitively sensitive information (for example, U.S. production and sales information), would not be exchanged among competitors, the certificate would contain a condition stating that a competiting supplier will not intentionally disclose such information to Erektor and that Erektor will not disclose such information to any competing supplier. Erektor conceivably could enter into individual exclusive distribution agreements with manufacturers accounting for a large percentage of industry sales of electric motors. In such a case an issue would be raised as to whether the exclusive arrangements, which would deny other export intermediaries handling exports of electric motors access to one possible source of supply, would violate the standards of the statute by producing a substantial anticompetitive effect in the United States. Since these standards encompass the antitrust laws and those laws protect competition, not competitors, the mere fact that some exporters would be disadvantaged would not be sufficient to demonstate an inconsistency with the standards. These exclusive export agreements appear unlikely to affect competition in the sale of electric motors within the United States. Accordingly, they likely would be certified.- 40 Because only Erektor sought certification, the protections of the certificate would extend only to Erektor. Erektor would be protected for its agreements with others as specified in the certificate, but the other parties to such agreements would not be protected, unless they ask for protection as an applicant or member. Example 4: Vertical Aspects of Competing Manufacturers Exporting through a Joint Export Association A, B, C and D are manufacturers of a particular chemical, accounting for 45 percent of U.S. domestic sales of the product, who wish to enter into an agreement to form an export association, Chem-X. One of the provisions of the proposed agreement would require A, B, C and D to sell the chemical for export only through Chem- X and would prevent them from independently exporting the chemical either directly or indirectly through other U.S. export intermediaries. Exports of the chemical have been minimal because of strong competition in the consumer countries from non-U. S. firms. Joint export marketing is expected to provide significant transportation and distribution cost savings. A, B, C, D and Chem-X have applied for a certificate of review covering their agreement to export exclusively through Chem-X and to refrain from directly or indirectly exporting the chemical independently Discussion It seems likely that a certificate of review could be granted covering the proposed restriction. 41 The grants of exclusivity to Chem-X, in themselves, would not be likely to have any anticompetitive effects in the U.S. market. It would seem that the exclusivity granted to Chem-X would be reasonably necessary for Chem-X to prevent the firms from individually 40 For a discussion of the issues raised by the horizontal aspects of the operation of Erektor. see Section V.B. below. * ' The horizontal aspects of the formation and operation of Chem-X by domestic competitors rai9e other issues concerning potential anticompetitive effects in U.S. markets. These issues are discussed in Section V.B below. obtaining a free ride from Chem-X's marketing efforts.' 12 B. Horizontal Restraints The analysis under Title Ill's certification standards of joint export activity among competitors will focus on whether the conduct is likely to have a substantial anticompetitive effect in a U.S. market. This is essentially a two- part test. First, the agencies will analyze whether the joint activity is likely to have any anticompetitive effect on U.S. commerce. If it is incapable of having any anticompetitive impact in the United States, the collective export activity will be certified. Examples of such conduct include the joint setting of prices and quantities at which products are sold in export markets if the products by law cannot be sold in the United States and the exchange among competing U.S. sellers of information relating exclusively to exporting or export markets {e.g.. identification of customers in any export market). Second, if there is potential for anticompetitive spillover affecting U.S. markets, then the agencies will analyze whether the formation or contemplated operation of the joint entity is likely to substantially restrain or lessen competition within U.S. commerce. Generally, anticompetitive spillover may occur if competitors, in the process of engaging in export trade, share price or other sensitive business information relating to their respective U.S. sales or if competitors manipulate domestic prices through the manipulation of domestic supply. The framework for analyzing whether there is likely to be a substantial anticompetitive effect in the United States is similar to that for analyzing' joint ventures or mergers. 43 In analyzing the export conduct sought to be certified, the agencies will evaluate the economic characteristics of the domestic market in order to assess whether a market is likely to be conducive to domestic price or output coordination In evaluating the domestic market structure, the agencies will first undertake to define the relevant product and geographic markets in which to assess the anticompetitive effects of the joint export activity. The definition of a relevant product market typically begins by tentatively considering as a market each product for which certification is sought and each product in which the 42 For a discussion of the foreclosure of distribution channels and foreclosure of supply issues, see Examples 1 and 3 supra. 43 See U.S. Dep't of Justice. Antitrust Division Merger Guidelines. 49 FR 26823 (June 29. 1984) joint venture partners compete in the United States. This preliminary market definition, however, may be broadened if there are close substitutes in demand or supply that effectively limit the exercise of market power by the participants in the joint venture. Substitutes in demand exist when there are other products to which consumers could readily shift in response to a price increase. Substitutes in supply exist when producers of other products are able to enter into the production of the product by modifying existing facilities or constructing new facilities within a relatively short period. For example, woodworking shops that employ their lathes to manufacture rolling pins would be included in the baseball bat market if those shops could quickly and easily shift into the production of bats — even though bats and rolling pins are not substitutes in demand. In addition to defining the relevant product market, the agencies may have to determine the geographic market. The purpose of this determination is to establish a geographic boundary that roughly separates firms that are important factors in the competitive analysis from those that are not. Depending on the nature of the product and the competitive circumstances, the geographic market may be as small as a city or as large as the entire world. In determining the geographic market, the agencies will consider all relevant evidence. For example, transportation costs may restrict the geographic market where those costs are high relative to the value of the product, as is often the case for raw materials and unprocessed agricultural products; however, transportation costs are unlikely to affect the geographic market determination for most finished goods because those costs do not play a significant role in restricting the alternatives available to buyers. Furthermore, the definition of a relevant market may be affected by import competition. If foreign firms sell competing products in the relevant market, they may be included. The competitive significance of foreign firms will be affected by such factors as trade restraints and their excess capacity. After determining the relevant market, the agencies will examine the market's structure in order to assess whether its economic characteristics are conducive to developing and maintaining a consensus on domestic price levels and output rates. As a first step, the agencies will assume that the competitors merged and focus on the post-merger market concentration — a function of the number of firms in a market and their respective market shares. Treating the participants in a joint export venture as a merged entity is a useful threshhold test, because for joint ventures with small market shares in markets with a low degree of market concentration [e.g., 20 approximately equal-sized firms in the market and the four joint venture participants have a total market share of 20%), the agencies will be able to determine without a detailed examination of other economic characteristics that the joint venture poses no substantial threat to competition in the United States. In other cases, however, the agencies will proceed to examine a variety of other economic characteristics relevant to determining whether the market is predisposed to effective coordination of domestic price levels and output rates and, therefore, whether the joint export entity is likely to be a substantial restraint on domestic competition. Such characteristics include: (1) The ease of entry into the market by other firms, (2) the ease with which firms in an industry can expand supply; (3) the homogeneity of a product across producers; (4) the existence of large buyers; (5) whether the participants have in the past effectively coordinated domestic price levels or output rates; and (6) whether domestic demand is stable or variable. 4 * If an assessment of domestic market concentration in light of these other structural characteristics leads the agencies to conclude that the joint export entity is likely to have substantial restraining effects in domestic competition, the agencies may find it necessary either to limit significantly the activities that may be certified or to impose safeguards on certified activities, such as an information exchange limitation. However, even in a concentrated market, the absence of certain other characteristics listed above may lead to the conclusion that successful price and output coordination would be unlikely and that, therefore, certification would be possible for joint export activities with few or no limitations. Particularly 44 For a more detailed discussion of these and othpr economic characteristics and of how they may relate to concentration levels and to each other, see id.. R Posner. Antitrust Law: An Economic Perspective 55-72. 135-147 |1978: Posner Information and Antitrust. Reflections on the Gypsum and Engineers Decisions. 67 Geo. l..|. 1 187 (1979) Clark. Price-Fixing Without Collusion An Antitrust Analysis of Facilitating Practices After Ethyl Corp.. |1983| Wise L. Rev 887 H-iy Oligopoly. Shared Monopoly ond Antitrust Lav,. 67 Corn L Rev. 439 (1982): E. I. DuPonl de Nemours h Co. v. FTC. 1984-1 Trade Cas ^65 881 (2d Cir 1984) vacating In re Ethyl Corp.. |1979-1983 Transfer Bmder| Trade Res Rep f,22.003 |FT C 198.11 where competitors intend to cooperate only on a single contract or where contacts among them are to be infrequent, the likelihood of a substantial anticompetitive impact is reduced because there would be no continuing opportunity for coordinating domestic pricp levels or output rates. An issue of particular concern for applications involving domestic competitors is the possibility of sharing price and other sensitive business information in connection with export conduct. In some situations, such exchanges are likely to have anticompetitive effects because the information can be used for coordinating domestic price levels or output rates. In other situations, however, sharing such information is not conducive to coordination of domestic prices or output and, thus, is likely not to have an anticompetitive effect. In determining whether to certify exchanges of such information among domestic competitors, the agencies will carefully scrutinize the application in a manner similar to other joint activities. The agencies will ordinarily place a condition in the certificate stating that the certified parties will not intentionally make exchanges of competitively sensitive information except as explicitly certified. The agencies would certify such exchanges if it can be shown that the sharing of information is in the course of export trade and is unlikely to have a substantial anticompetitive effect in U.S. markets either because the nature of the information is incapable of affecting U.S. competition or because the economic characteristics of the relevant markets indicate that the exchange is likely to have a procompetitive or competitively neutral effect. If they have insufficient information about the proposed conduct or about the specific product markets or domestic competitors to make a determination about whether the exchange is likely to have a procompetitive, competitively neutral or anticompetitive effect, the agencies will not certify the exchange. If they determine that such an exchange is likely to substantially restrain or lessen domestic competition, the agencies will not certify the exchange. In some instances, however, safeguards on the nature of information shared and the manner in which it is exchanged may eliminate the likely effect on domestic competition, thus permitting the agencies to certify it. Such safeguards would be placed in the certificate as a condition. Different levels of safeguards may be necessary depending on the farts of h particular case. The more likely that the exchange would effectuate coordination of U.S. price levels and output rates then the stricter the safeguards that would have to be imposed. Among the safeguards that will be considered may be a requirement that certain information only be disclosed to a neutral third party, a requirement that such meetings be monitored by knowle efficient!; exploit their technological advance. For example, the owner of a patent may no! have the capability or be in the best position to manufacture patented products in all fields of use to whicn a patent could be applied and may. therefore, wish fo license the patent to others. Consequently, technology licensing should, in general, be encouraged in order to permit innovators to receive appropriate compensation for their developments and to further the dissemination of such developments to manufacturers in »>* fields in which an innovation can be used. In order to ensure the most efficient development of technology it is sometimes necessary for an owns;* of technology to impose restrictions en licensees or on its own use of the technology. Before licensed technology can be transformed into marketable products, substantia! investments often must be made by the iicensee. In order to provide a licensee with the proper incentive to make these investments, it may be necessary for a licensor to grant the licensee exclusive rights within a particular territory or a particular field of use and to restrict other licensees and itself from use of the technology in such territory or field. Similarly, a licensor often will wish to impose restrictions on its licensees in order to protect itself from competition in territories or fields of use in which it is using the technology. These general considerations also apply to the licensing by U.S. owners of foreign patents and of the right to use secret know-how abroad. Such foreign licensing, by increasing the rewards to licensors from their research expenditures, could increase their incentive to conduct research and thereby produce procompetitive innovations in U.S. markets, as well as improve the trade balance of the United States. In addition, the varied competitive conditions, including costs. that licensees of technology face in other countries often create a greater need than in domestic licensing tc maintain licensing incentives for both the licensor ond licensee through ihe use of restrictive licensing provisions. Even licenses that include restrictions on the foreign licensee's foreign patents or know-how often will be consistent with Title Ill's standards, because they would not have substantial anticompetitive effects in any U.S. market. For example, a territorial restriction in a foreign patent limiting the licensee to selling the patented product in a particular foreign country would have the effect of prohibiting th»- sale of that product in the United States. Without a license under the foreign patent, however, the licensee could no- have manufactured the product in that foreign country. Moreover, if the licensor owned a U.S. patent covering the same invention as the foreign patent, the licensor lawfully could have stopped the importation of such products into the United States even without the restriction in the foreign license. It may be that in certain cases the grant of a license by a U.S. manufacturer of a product to a foreign iicensee could have the practical effect of eliminating the licensee as a competitor in the U.S. market. For example, this would be the case if, as a result of the license, the licensee were to abandon its former technology and use the licensed technology for all production. Even in such a case, however, the restraint would not necessarily run afoul of Title Ill's standards. A factual inquiry would be require to determine whether the foreign firm otherwise was an actual or potential competitior in the appropriately defined relevant market and, if so, whether the structure or performance in that market suggested that the elimination of that additional competitor might substantially restrain domestic competition. Similarly, it is unlikely that a licensing restriction will be found to constitute a substantial restraint on the export trade of a competitor of the applicant or an unfair method of competition against such competitor. The mere fact that a licensing arrangement with a foreign licensee may result in the sale of the licensee's products displacing U.S. exports of competing products likely would not be contrary to Title Ill's standards. Even the use of typing obligations requiring the licensee to purchase products from the licensor in connection with the licensing of technology often will not restrict the exports of competing exporters of the products in such a way as to substantially restrain U.S. domestic competition in the tied product. A tying arrangement may be a reasonable way of encouraging a licensee to accept a license of technology of unceriain utility. For example, a licensee might be encouraged to accept a license cf process technology. The major part of the "royalties" it would have to pay to the licensor might be in the form of purchases of a tied input. The quantity of such purchases would vaiy depending on the ultimate usefulness of thp licensed technology . Finally, the use by a !ic< nsor of n restriction prevuntini . iicensee from using technology i ornoethive with the licensed ipchnolttgy o> from selling goods thill compete wit' lit ensed o'oi.iucts might Mmji !':•■ , -.pel opportunities of competing licensors or sellers of competing goods. Again, however, such a restriction might be justified in view of the licensor's interest in ensuring that a licensee devote its efforts to the development and use of the licensed technology. In any event, the restriction of competitors from the export sales or licensing opportunities represented by a licensee or group of licensees would not in most cases have a substantial anticompetitive effect in U.S. domestic markets. Example of Technology Licensing The following example is intended to give guidance in determining when proposed export conduct involving technology licensing satisfies the four certification standards. It is illustrative and not comprehensive. Example: Exclusive Foreign Patent License Short Wave, a manufacturer of radios accounting for 5 percent of U.S. sales, holds patents in the United States and in a number of other countries for a new type of transistor that can be used in various electronic products. Short Wave, which has made an independent decision to concentrate on the U.S. market and not to export its radios, wishes to license Langwelle, a German manufacturer of radios with 10 percent of the German market and no substantial sales in the United States. The license gives Langwelle the exclusive right under Short Wave's German patent to manufacture, use and sp!! the patented transistor in Germany for the radio field. The patented transistor provides improved performance in radios but is not a revolutionary development, and many other types of transistors can be used for the same purpose in radios. In order to induce Langwelle to use its patent, Short Wave is charging Langwelle a relatively low royalty. However, Short Wave also wishes to require Langwelle to purchase certain radio components for use in al! radios manufactured by Langwelle that incorporate the licensed transistor. Finally, Short Wave wishes to impose a restriction on Langwelle preventing it from directly or indirectly exporting radios incorporating Short Wave's transistor to the United States. The U.S. market for radios is composed of 20 companies none of which has a market share in excess of 10 percent. Discussion !l seems Sikelj thai the contemplated licensing arrangement would be ■ 'in listen; w ilh '' i'.le ill's standards. Short Wave's imilati i il decision to export its iechnolog; by licensing other radio manufacturers in export markets seems to be an appropriate way to exploit its foreign patents It seems unlikely that a substantial risk of a significant anticompetitive effect would result from Short Wave licensing a potential exporter of radios to the U.S. market and restricting the licensee's exports to the United States of radios incorporating the licensed technology. First, the license restriction prohibiting Langwelle from exporting from Germany radios containing the patented transistor would not be expected to have any effect on competition in the U.S. in the sale of radios containing that transistor. The U.S. patent covering the transistor gives Short Wave the power, through patent infringement or unfair trade practice proceedings, to exclude the importation into the U.S. of any radios using the patented transistor. Therefore, assuming the U.S. patent is valid, even absent the license restriction Langwelle could not have sold radios embodying the transistor in the U.S. Second, the license restriction does not affect Langwelle's ability to use transistors not embodying Short Wave's patent in radios for export to the United States. To the extent Langwelle found it economically beneficial to use the licensed transistors in all of its radios, it would be, as a practical matter, excluded from the U.S. market. However, even assuming that absent the license Langwelle would have imported radios employing other transistors into the U.S., in light of the unconcentrated nature of the U.S. market for radios, it seems unlikely that the exclusion of such a potential competitor would constitute a substantial restraint of trade within the United States. The tying arrangement in the license seems to be consistent with the standards pertaining to restraints on the export trade cf a competitor of the applicant or unfair methods of competition against such a competitor. The tie could have the effect of inducing Langwelle's use of the licensed technology by more closely tailoring Langwelle's cost of such use to its level of use. The tie should net raise significant competitive concerns because Short Wave does not appear to ha\e market power in the tying product since there appear to be many alternatives available to the patented technology. D. Soles to or Financed by U.S. Government Early certificates of review have beer, issued with the following disclaimer: "This certify ate does not apply to sales to the United States Government or to any sale more than half the cost of which is borne by the United Slates Government.'' This disclaimer has been intended to prevent the grant of the benefits of a certificate of review to conduct in export transactions that might harm the United States Government when it is bearing most of the cost of such transactions. The agencies have decided that such a broad exclusion from certification is not necessary, so long as the guidelines speil out in more detail when conduct in sales made to, or financed by, the U.S. Government is included in or excluded from the coverage of export trade certificates. Conduct that is otherwise covered by a certificate will be covered in the case of the U.S. Government financed transactions when either of two conditions are met. First, such conduct will be covered by the certificate where the net effect of any U.S. Government payment or financing involved in an export transaction is that not more than half the cost is borne by the U.S. Government. Second, even where more than half the cost is borne by the U.S. Government, the conduct will still be covered by the certificate where, because of the nature of the conduct or the existence of substantial competition from unaffiliated persons, the arrangement does not eliminate or substantially reduce competition in the transaction. 1. More than tlalf the Cost Borne by U.S. Government. For these purposes, more than half the cost of an export transaction will be considered to have been borne by the U.S. Government when: a. The U.S. Government buys the goods for shipment abroad (e.g., "Food for Peace" transactions); b. The United States is paying for a sale of goods to a foreign government through a grant that is specifically earmarked for the purchase of the goods in question; or c. The transaction is financed by a loan to a foreign government that has such terms that the loan constitutes a grant because the United States effectively bears most of the cost. Most Agency for International Development and many U.S. Department of Agriculture foreign aid loans fall into this category. 46 When U.S. Government financing for a U.S. export transaction is not a grant or a heavily subsidized loan, but rather a loan at approximately market rates. then even conduct that would raise the price of goods exported would not have the effect of primarily harming U.S. taxpayers. Therefore, the special risk of harm to the U.S. Government that is the subject of this section of the Guidelines would not be present. Transactions that involve payments or financing by the U.S. Government, but in which the U.S. Government will not be considered to have borne more than half the cost, include: a. Transactions in which any U.S. Government financing is at or near market rates. Examples of government programs that involve financing at or near market rates include most Eximbank, Overseas Private Investment Corporation, and Small Business Administration programs. (Where there is a question as to the share of the cost of a transaction borne by the government in situations where below- market rate financing is involved, the government's share will ordinarily be calculated in the manner described in footnote 46.) b. Transactions funded by international agencies to which the U.S. Government contributes but does not supply a major portion of the funds for those agencies' financial assistance programs. Programs funded by the Asian Development Bank, for example, would normally fall in this category. c. Transactions in which the purchaser is a foreign government that receives funds from the United States as part of a general government-to- government aid program, where the aid is unrestricted and not earmarked for particular programs. Transactions of this nature do not raise the special risk discussed in this section of the Guidelines, because it is not possible to determine the extent to which they are financed by the U.S. Government. 2. Conduct that does not Eliminate or Substantially Reduce Competition. If the U.S. Government financing of an export transaction is such that the U.S. Government bears more than half the "We distinguish loans that aie so geneious mat more than half the cost is borne by the U.S. Government from other loans by looking at the interest rates and the repayment terms, and comparing them to commercial rates and terms. If the present value of the expected future repayment is less than half the value of the transaction, then it is one in which more than half the cost is borne by the U.S. Government. For example, in the case of a 40-year loan at 3% interest, with no payments due for the first ten years, the future repavments of principal and interest (to be made in the eleventh through fortieth yearsl are only worth about 10*^ of the face value of the loan, when the commercial rate at the time of the loan is about 14 i . In a transaction financed by such a loan, more than half the cost (i.e. 90°< | is borne by the US. Government. In the text, we discuss which loan programs fall into which category. If an applicant has questions about how a particular loan program is viewed, he should specify it in the application or in conversations with the agem les. so that an analysis can be done, and the certificate can specifically address the situation. cost, the transaction will nonetheless be covered by a certifii ate (assuming it is otherwise within the scope of the certificate) if it is not likely to have anticompetitive effects th.it will harm U.S. taxpayers. For these purposes, U.S Government financed export transactions will be considered not to have such anticompetitive effects when either of the following is true: a. Where the conduct involved is purely vertical and does not involve a horizontal combination among competitors; or b. Where there is substantial competition from persons who are not participants with the certificate holder in the transaction. This condition will be considered as having been met when there are at least three other suppliers competing for the transaction, and those suppliers are qualified and able to supply the goods being sought on substantially competitive terms. 3. Certification of Specific U.S. Government Financed Export Arrangements. The Dreceding discussion is intended to provide guidance on the coverage of certificates of review for U.S. Government financed transactions in situation wnere the applicant has not specifically expressed an intention to participate in such transactions, and wnere tne certificate makes no explicit provision for them. In these situations, certificates of review will include standard language stating that the certificate's application to conduct in U.S. financed transactions will be subject to the limitations set forth in these Guidelines. These Guidelines are not, however, intended to preclude case-by-case analysis by the agencies of applicants' requests for explicit coverage of particular U.S. Government financed transactions, or particular types of government financed transactions. The agencies will consider, if requested, express certification of participation in programs financed by the U.S. Government and wdl provide such explicit coverage where the facts demonstrate an absence of likely anticompetitive harm to the U.S. Government. For example, in proposed transactions in which the U.S. Government would bear more than half the cost, the conduct is not strictly vertical, and there are fewer than three other competing suppliers, the applicant may nonetheless show that the specific arrangements contemplated would not result in anticompetitive harm to the U.S. Government and may obtain explicit coverage for these arrangements in its certificate. VI. Helpful Hints About the Application Process A. Pre-Application Counseling The Office of Export Trading Company Affairs offers preapplication counseling at no cost to potential applicants. Conducted in complete confidence by a team consisting of an attorney from the Office of General Counsel, a market analyst and an antitrust economist, this counseling offers potential applicant specific guidance on completing an application form. Such guidance may reduce the time it takes to obtain a certificate and may reduce or eliminate supplemental information requests. This office also provides counseling on forming, structuring and operating an export entity and on financing exports and on other referrals for export assistance. Prior to arranging preapplication counseling, potential applicants are encouraged to seek general export counseling from a local ITA District Office. Such counseling includes answering potential applicants' preliminary questions about the ETC Act as well as discussing their overall export business plans. B. Supplemental Information Requests After the application has been accepted for processing, the Commerce or Justice Department may find it necessary to request additional information in order to make a determination under the four certification standards. The regulations permit Commerce to request such information in writing if either agency finds it necessary and thereby suspend the 90 day processing period. The 90 day period begins again when Commerce receives the requested information, and the agencies deem it sufficient to continue the analysis. Normally, however, such a suspension of the time period can be avoided through a telephone conference call or a meeting with the two agencies. A cooperative, rather than an adversarial, attitude facilitates these negotiations as does having someone available who is intimately familiar with the business that is the subject of the application. Dated: January B, 1985. Malcom Baldrige, Secretary of Commerce. [FR Doc. 85-927 Filed 1-10-1985; 8:45 am] BtLUNO CODE S510-OR-* 134 Appendix K— Application for an Export Trade Certificate of Review OMB Approved: 0625-0125 FQPM ITA 4093 P (REV 7-85) No export trade certificate may be issued unless a completed application form has been received ( 1 5 USC 40 1 1 -402 1 1 U.S. DEPARTMENT OF COMMERCE INTERNATIONAL TRADE ADMINISTRATION APPLICATION FOR AN EXPORT TRADE CERTIFICATE OF REVIEW SPECIAL ACTION: Application for Amendment Request for Expedited Review See instructions below DEPARTMENT OF COMMERCE USE ONLY Name of Applicant Date Received Date Deemed Submitted Tracking System Number CONFIDENTIALITY OF APPLICATION Information submitted by any person in connection with the issuance, amendment, or revocation of a certificate of review is exempt from disclosure under the Freedom of Information Act, section 552, title 5, United States Code Except as provided under section 309(b)(2) of the Export Trading Company Act ("Act") and 15 CFR 325 16(b)(3), no officer or employee of the United States shall disclose commercial or financial information submitted pursuant to the Act if the information is privileged or confidential and if disclosure of the information would cause harm to the person who submitted the information NOTE: The exchange among competitors of competitively sensitive information may, in some circumstances, create risks that competi- tion among the firms will be lessened and antitrust questions raised. The exchange of information about recent or future prices, production, sales or confidential business plans is especially sensitive As a general matter, the danger that such exchanges will have anticompetitive effects is less when the firms involved have a small share of the market and greater if they have a substantial share. Applicants may consider seeking the advice of legal cousel on whether any steps would be advisable in the applicant's particular circumstances to avoid issues of this nature One possible step that the applicant may consider in preparing the application is to compile and submit these types of information through an unrelated third party, such as an attorney or consultant INSTRUCTIONS The Department of Commerce urges applicants to read title III of the Export Trading Company Act (Pub L. 97-290, Sections 401 1-4021, title 15. United States Code) and the accompanying regulations (Volume 15, Code of Federal Regulations, Part 325) and the guidelines (50 FR 1786) before completing this application form. These documents and additional information and guidance on the certification program are available free from the Office of Export Trading Company Affairs. Telephone (202) 377-5131 Space is provided on the attached form for some of the information requested. In most cases you are being asked to supply additional information on supplemental sheets or attachments. Please include the name of the applicant on each supplement or attachment, and specifically identify the Item number to which the attachment refers. The two certifying statements on the last page of this form MUST be completed before your application will be deemed submitted Designate the documents or information which you consider privileged or confidential and disclosure of which would cause you harm File an original and two copies of the completed application either by first class mail, registered mail or by personal delivery durinq business hours to Office of Export Trading Company Affairs International Trade Administration, Room 5618 US Department of Commerce Washington. DC 20230 In response to the questions in this application the applicant is requested to be as specific as possible, including, where applicable, a discussion of the antitrust concerns which caused the applicant to seek a certificate. Some information, in particular the identification of goods or services that the applicant exports or proposes to export, is requested in a certain form (standard industrial classification (SIC) numbers) if reasonably available. Where information does not exist in this form, an applicant is not required to create it, and may satisfy the request for information by providing it in some other convenient form If an applicant is unable to provide any of the information requested or if the applicant believes that any of the information requested would be burdensome to obtain and unnecessary for a determination on the application, the applicant should state that the information is not being provided or is being provided in lesser detail, and explain why If the applicant has a special need for a quick decision on its application, it should set forth the facts and circumstances that warrant expedited processing in the space provided at Item 17. The justification should explain why expedited action is needed, such as bidding deadlines or other circumstances beyond the control of the applicant that require the applicant to act in less than 90 days and that have significant impact on the applicant's export trade. ITEM 1: Applicant/Organizer Information Name of Applicant: Principal Address: City Name of Applicant's Controlling Entity, if any (if none enter "none"): Principal Address: Room or Suite City Stat Individual(s) authorized by the applicant to submit application and to whom all correspondence should be addressed: Name: Title: Address: Street Room or Suite City Telephone: Relationship to Applicant: ITEM 2: Name and principal address of each member, and of each member's controlling entity, if any: (Attach to this application, clearly identifying attachment as response to ITEM 2.) ITEM 3: Copy of any legal instrument under which the applicant is organized or will operate. Include copies, as appropriate, of its corporate charter, bylaws, partnership, joint venture, membership, or other agreements or contracts under which the applicant is organized. (Attach to this application, clearly identifying attachment as response to ITEM 3.) ITEM 4: A copy of the applicant's most recent annual report, if any. and that of its controlling entity, if any. (Attach to this application, clearly identifying attachment as response to ITEM 4.) To the extent the information is not included in the annual report, or in other documents submitted in connection with this application, attach a brief description of the applicant's domestic (including import) and export operations, including: (a) The nature of its business, (b) The types of products or services in which it deals; (c) The places where it does business (This description may be supplemented by a chart or table.) ITEM 5: A copy of each member's most recent annual report, if any, and that of its controlling entity, if any: (Attach to this application, clearly identifying attachment as response to ITEM 5.) To the extent the information is not included in the annual report, or in other documents submitted in connection with this application, attach a brief description of each member's domestic (including import) and export operations, including: (a) The nature of its business; (b) The types of products or services in which it deals, (c) The places where it does business. (This description may be supplemented by a chart or table ) ITEM 6: Names, titles, and responsibilities of the applicant's directors, officers, partners, and managing officials, and their business affiliations with other members or other businesses that produce or sell any of the types of goods or services described in ITEM 7, (below). (Attach this information to this application, clearly identifying attachment as response to ITEM 6.) ITEM 7(A) A description of the goods or services which the applicant exports or proposes to export under the certificate of review. This description should reflect the industry's customary definitions of product and services (Attach this information to this application clearly identifying attachment as response to ITEM 7(A).) ITEM 7(B) If the information is reasonably available, please identify the goods or services according to the Standard Industrial Classification (SIC) number. Goods should normally be identified at the 7-digit level. Services should be identified at the most detailed SIC level possible. (Attach this information to this application, clearly identifying attachment as response to ITEM 7(B).) ITEM 7(C) Identify the foreign geographic areas to which the applicant and each member export or intend to export their goods and services. (Attach this information to this application, clearly identifying attachment as response to ITEM 7(C).) For each class of the goods, wares, merchandise, or services set forth in ITEM 7, please provide the following information: (A) The principal geographic area or areas in the United States in which the applicant and each member sell their goods and services. (Attach this information to this application, clearly identifying attachment as response to ITEM 8(A).) (B) For each of the previous two fiscal years the dollar value of the applicant's and each member's (i) total domestic sales, if any, and (n) total export sales, if any. Include the value of sales of any controlling entities and all entities under their control. (Attach this information to this application, clearly identifying attachment as response to ITEM 8(B).) For each class of the goods, wares, merchandise, or services set forth in ITEM 7, indicate the best information or estimate accessible to the applicant of the total value of sales in the United States by all companies for each of the last two (2) years. Identify the source of the information or the basis of the estimate. (Attach this information to this application, clearly identifying attachment as response to ITEM 9.) Describe the specific export conduct which the applicant seeks to have certified. Only the specific export conduct described in the application will be eligible for certification. For each item, the applicant should state the antitrust concern, if any, raised by that export conduct. Examples of export conduct which applicants may seek to have certified Include the manner in which goods and services will be obtained or provided; the manner in which prices or quantities will be set; exclusive agreements with U.S. suppliers or export intermediaries; territorial, quantity, or price agreements with US. suppliers or export intermediaries; and restrictions on membership or membership withdrawal. (These examples are given only to illustrate the type of export conduct which might be of concern. The specific activities which the applicant may wish to have certified will depend on its particular circumstances or business plans.) (Attach this information to this application, clearly identifying attachment as response to ITEM 10.) If the export trade, export trade activities, or methods of operation for which certification is sought will involve any agreement or any exchange of information among suppliers of the same or similar products or services with respect to domestic prices, production, sales, or other competitively sensitive business information, specify the nature of the agreement or exchange of information. (Attach this information to this application, clearly identifying attachment as response to ITEM 11.) ITEM 12: A statement whether the applicant intends or reasonably expects that any exported goods or services covered by the proposed certificate will re-enter the United States, either in its original or modified form. If so, identify the goods or services and the manner in which they may re-enter the United States. (Attach this information to this application, clearly identifying attachment as response to ITEM 12.) ITEM 13: The names and addresses of the suppliers of the goods and services to be exported (and the goods and services to be supplied by each) unless the goods and services to be exported are to be supplied by the applicant and/or its members. (Attach this information to this application, clearly identifying attachment as response to ITEM 13.) ITEM 14: A proposed non-confidential summary of the export conduct for which certification is sought. This summary may be used as the basis for publication in the Federal Register. (Attach this information to this application, clearly identifying attachment as response to ITEM 14.) ITEM 15: Any other information that the applicant believes will be necessary or helpful to a determination of whether to issue a certificate under the standards of the Act. (Attach this information to this application, clearly identifying attachment as response to ITEM 15.) ITEM 1 6: (Optional) A proposed draft certificate. (Attach this information to this application, clearly identifying attachment as response to ITEM 16. 1 Item 1 7: If the applicant is requesting expedited review, specify the facts and circumstances which warrant it in the space below. (If additional space is necessary, attach the information to this application, clearly identifying attachment as response to Item 17.) CERTIFICATIONS I certify that the applicant named in ITEM 1 above and each of the members listed in ITEM 2 above has authorized me to submit this application and the attachments, and to represent the applicant and members, if any, in seeking an export trade certificate of review. TYPED OR PRINTED NAME SIGNATURE (sign in ink) I certify that to the best of my knowledge and belief the information submitted in this application and the attachments is true and correct and fully responds to all items in the application. TYPED OR PRINTED NAME FORM IT A 4093 P (RFV 7 851 SIGNATURE (sign in ink) USCOMM DC 85 21655 APPENDIX L Department of Commerce Intex et al.; Export Trade Certificates of Review DEPARTMENT OF COMMERCE * International Trade Administration Intex et al.; Export Trade Certificates of Review The Department of Commerce issued the first Export Trade Certificates of Review ("Certificates") under the Export Trading Company Act of 1982. Two certificates were awarded to two small businesses and a third to a consortium consisting of four individual firms and an agricultural association. These Certificates protect the holders from private treble damage actions and government suits under U.S. antitrust laws for their certified activities. Intex International Trading Company. Inc.. a Connecticut corporation ("Intex") will represent a group of several specialized consulting engineering firms for the purpose of competing overseas. Intex' certificate will allow Intex and its clients to exchange confidential business information while preparing bids on overseas projects. International Marketing and Procurement Services. Inc. ("IMPS"), a Pennsylvania corporation, acts as a representative for U.S. manufacturers of sports and leisure equipment and services in the Middle East, Europe, Australia and the Far East. IMPS was certified to enter into exclusive sales and foreign distributorship agreements, to fix pr.ces for exports, to allocate quantities for export and export markets among U.S. manufacturers and to refuse to deal with foreign competitors in the export markets ' U.S. Farm-Raised Fish Trading Company. Inc., a Mississippi corporation ("Catfish") will engage in the export sale of farm-raised catfish in Europe and the Far East. This certificate protects the horizontal and vertical integration of domestically competitive catfish farmers and processors. Catfish was certified to fix purchase and export sale prices for its members, and to market through exclusive dealing arrangements with its members. These companies are the first exporters to reduce antitrust uncertainties under a program provided by Title III of the Export Trading Company Act of 1982. Upon signing the Act into law a year ago. President Reagan stated: The Bill removes impediments to trade and permits companies to sell American products overseas more efficiently and effectively. It is an innovative idea based on team work and is designed to encourage joint efforts by manufacturers, export management companies, banks, freight forwarders, and others to enter foreign markets. More companies will seek the world of exports when they realize that government is not an adversary. It is your partner. These first certificates symbolize this concept. Their holders represent the- thousands of small and medium sized firms Secretary Baldrige has referred to as: Producing goods and services that are competitive overseas but are inhibited from exporting by their unfamiiiarity with foreign markets, customers and laws. Individually they can't afford the costs and risks to develop the necessary expertise to penetrate those markets. Armed with the protection of these certificates and benefiting from the economies of joint activity. IMPS, INTEX and CATFISH have the opportunity to compete on an equal footing with their counterparts in other countries. Exporters will be interested in these first Certificates in order to learn what conduct is being granted immunity from Federal and State antitrustlaws. The presence of restrictions in a certificate does not necessarily mean that it is the Department of Commerce's or Justice's view that activities beyond those restrictions could not be certified under the Export Trading Act. Restrictions and conditions in a certificate may well result from the applicant's own plans or wishes. For example, the consulting engineers represented by INTEX are non-competing and each has no more than $100 million in annual gross billings. These conditions were not imposed on the applicant by Commerce or Justice but rather were contained in INTEX' description of its business operation in the application. Restrictions and conditions will be applied on a case by case basis where appropriate, rather than as a general rule. Of particular note is a restriction in the Certificates which states that "this does not apply to sales to the United States Government or to any sale more than half of the cost of which is borne by the United States Government." The mere fact that unrestricted government- to-government foreign assistance ultimately is used to pay all or part of the price of goods or services sold in export trade will not exclude a transaction from protections a certificate would otherwise provide. Neither will the fact that the sale is financed by the Export-Import Bank exclude a transaction from the protections a certificate would otherwise provide. For further information regarding the subject of this press release, please contact the Office of Export Trading Company Affairs. International Trade Administration, Department of Commerce, Room 5618, Washington, D.C. 20230, Mr. Charles S. Warner, Director. 202/377-5131. This office offers pre-application counselling for exporters who wish to apply for an export trade certificate of review. Dated: October 26, 1983. Irving P. Margulies, Deputy General Counsel. |FP Doc S3-29M2 Filed 10-31-43 8 45 «m| ■ttJJNQCOOC MW-OfMI Intex; Export Trade Certificate of Review agency: International Trade Administration, Commerce. ACTION: Notice of issuance of export trade certificates of review. Summary: The Department of Commerce has issued export trade certificates of review to International Marketing and Procurement Services, Inc. (IMPS). U.S. Farm-Raised Fish Trading Company, Inc. (Company), and Intex International Trading Company, Inc. (Intex). This notice summarizes the conduct for which certification has been granted. ADDRESS: The Department request public comments on these certificates. Interested parties should submit their written comments, original and five (5) copies, to: Office of Export Trading Company Affairs, International Trade Administration, Department of Commerce, Room 5618, Washington. DC. 20230. Comments should refer to the applications as "Export Trade Certificate of Review, application numbpr 83-00002, 83-00004 and/or 83- 00008." FOR FURTHER INFORMATION CONTACT: Charles S. Warner. Director, Office of Export Trading Company Affairs. Intenational Trade Administration. 202/ 377-5131, or Eleanor Roberts Lewis. Assistant General Councel for Export Trading Companies, Office of Genera! Counsel. 202/377-0937. These are not toll-free numbers. SUPPLEMENTARY INFORMATION: Title III of the Export Trading Company Act of ♦Reprinted from Federal Register; Vol. 48, No. 212; Tuesday, Nov. 1, 1983. pp. 50383- 139 1982 ("the Act") (Pub. L. No. 97-290) authorizes the Secretary of Commerce to issue export trade certificates of review. The regulations implementing the Act can be found at 48 FR 10596-10604 (March 11. 1983) (to be codified at 15 CFR Part. 325). A certificate of review protects its holder and the members identific d in il from private treble damage actions and government criminal and civil suits under federal and state antitrust laws for the export conduct specified in the certificate and carried out during its effective period in compliance with its terms and conditions. Standards for Certification Proposed export trade, export trade activities, and methods of operation may be certified if the applicant establishes that such conduct will: 1. Result in neither a substantial lessening of competition or restraint of trade within the United States nor a substantial restraint of the export trade of any competitor of the applicant; 2. Not unreasonably enhance, stabilize, or depress prices within the United States of the goods, wares, merchandise, or services of the class exported by the applicant: 3. Not constitute unfair methods of competition against competitors engaged in the export of goods, wares, merchandise, or services of the class exported by the applicant; and 4. Not include any act that may reasonably be expected to result in the sale for consumption or resale within the United States of the goods, wares, merchandise, or services exported by the applicant. The Secretary will issue a certificate if he determines, and the Attorney General concurs, that the proposed conduct meets these four standards. For a further discussion and analysis of the conduct eligible for certification and of the four certification standards, see "Guidelines for the Issuance of Export Trade Certificates of Review," 48 FR 15937-40 (April 13,1983). Description of Certified Conduct IMPS— Application No. 83-00002 The Office of Export Trading Company Affairs received an application for an export trade certificate of review from IMPS on June 9. 1983. The application was deemed submitted on June 13, 1983. A summary of the application was published in the Federal Register on June 24. 1983 (48 FR 29034-35 (1983)). Based on analysis of the information contained in the application, the response to supplementary questions, and other information in their possession, the Department of Commerce has determined, and the Department of Justice concurs, that the following export trade, export trade activities, and methods of operation specified by IMPS meet the four standards of the Act: Export Trade Sports and Leisure Equipment and Services (all sporting and athletic goods and goods that are intended as part of or are supplied to a recreation center or sports complex, including outdoor and public building furniture intended for a recreation center or sports complex; and the custom design and installation of Sports and Leisure Equipment and the provision of services that are intended as part of or are supplied to a recreation center or sports complex, such as the development, design, installation and management of sports and recreation facilities or programs on a "turn-key" basis or otherwise). Export Markets The Middle East (including Saudi Arabia, Oman. Kuwait, Bahrain, the United Arab Emirates. Qatar. Jordan, Iraq, Lebanon. Egypt. Sudan, Morocco and Syria): Europe (including the United Kingdom. Ireland, France. Belgium, the Netherlands, Germany. Switzerland. Greece. Itlay. Spain, Portugal. Denmark, Finland. Norway. Sweden, Austria, Poland, Czechoslovakia, and Yugoslavia); thje Far East (including China, Taiwan. Japan, Korea, the Phillippines. Indonesia, and Hong Kong): and Australia. Export Trade Activities and Methods of Operation (a) To enter into any number of non- exclusive agreements with U.S. manufacturers and suppliers ("Suppliers") or with buyers in the Export Markets to act as a Sales Representative or Broker. IMPS may enter into such agreements with Suppliers regardless of whether the Suppliers produce or sell similar or substitutable Sports and Leisure Equipment and Services. (b) To enter into agreements with Suppliers wherein: as (1) IMPS agrees to serve as the exclusive Sales Representative and , in addition, may agree not to represent any competitors of such Supplier unless authorized by Supplier; or (2) The Supplier agrees not to sell. directly or indirectly through any other intermediary, into the Export Markets in which IMPS exclusively represents the Supplier and. if such sales do occur, to pay a commission to IMPS; or (3) Both (1) and (2) above. (c) To enter into nonexclusive agreements appointing distributors or 6ales agents in the Export Markets. (d) To enter into exclusive agreements with persons in the Export Markets (including distributors and sales agents). wherein (1) IMPS agrees to deal in the Export Markets only through that person, or (2) that person agrees not to represent IMPS's competitors in the Export Markets or not buy from IMPS s competitors, or both (1) and (2). (e) For itself or on behalf of Suppliers. to engage in any or all of the following activities as part of or in conjunction with or independent of Export Trade Services, whether by agreement with one or more Suppliers, with its distributors or agents in the Export Markets, or with Suppliers' distributors or agent in the Export Markets, or on the basis of its own determination: (1) To establish prices at which Sports and Leisure Equipment and Services will be sold in the Export Markets. (2) To establish quantities of Sports and Leisure Equipment and Services to be sold in the Export Markets, (3) To allocate the foreign markets, territories or customers among such Suppliers and their distributors or agents in the Export Markets or among its distributors or agents in the Export Markets, or (4) To refuse to quote prices or to market or sell such Sports and Leisure Equipment and Services to foreign purchasers in competition with IMPS in the Export Markets. (f) To enter into exclusive or non- exclusive agreements with individual buyers in the Export Markets which agreements provide that IMPS will act as a Procuring Agent with respect to a particular transaction. For purposes of this certificate, the following terms are defined: (a) "Export Trade Services" — consulting, international market research; advertising, marketing, insurance, product research and design exclusively for export, transportation, trade documentation and freight forwarding, communication, processing, foreign orders, foreign exchange, financing, taking title to goods, providing warehouse facilities, buying, selling and assembling for export and appointing distributors or sales agents in the Export Markets. (b) "Suppliers" — U.S. manufacturers and suppliers. (c) "Sales Representative" — an intermediary who represents ihe Supplier in the Export Markets and who, in so acting, offers, provides or engages in some or all Export Trade Services. (d) "Broker" — an intermediary who locates buyers in the Export Markets for the Supplier or who locates Suppliers of Sports and Leisure Equipment and Services for buyers in the Export Markets on a straight commission or cost-plus commission basis and who, in so acting, offers, provides or engages in some or all Export Trade Services. (e) "Procuring Agent" — an intermediary who identifies and locates Sports and Leisure Equipment and Services for purchase, gives advice on or chooses among prospective Suppliers, advises on or negotiates prices, quantity and other purchase terms and conditions, and purchases for its own account or for the account of others Sports and Leisure Equipment and Services and who, in so acting, offers, provides or engages in some or all Export Trade Services. Company — Application No. 83-00004 The office of Export Trading Company Affairs received an application for an export trade certificate of review from the Company on June 9. 1983. The application was deemed submitted on June 13, 1983 and a summary of the application was published in the Federal Register on June 24. 1983 (48 FR 10595- 604 (19831). Based on analysis of the information contained in the application, the response to supplementary questions, and other information in their possession, the Department of Commerce has determined, and the Department of Justice concurs, that the following export trade, export trade activities, and methods of operation specified by the Company meet the four standards of the Act: Export Trade Live or processed farm-raised catfish. Export Markets All parts of the world except the United States. Export Trade Activities and Methods of Operation l.The Company will purchase live or processed catfish for export from its member catfish processing organizations, and will set purchase prices and allocate export orders among its member processors through a sealed bid procedure or a rotating bid system (in which the export orders would be allocated to one or more of the member processors in turn), or some combination of these two procedures. 2. The Company will set export prices and market the catfish in the Export Markets directly or indirectly through export intermediaries, on exclusive or nonexclusive basis. 3. The Company may enter into agreements with its member processors that prohibit them from exporting independently of the Company, either directly or indirectly through other export intermediaries. 4. The member processors may agree to export exclusively through the Company and may refuse to deal with otherexport intermediaries. 5. The Company may prescribe the following conditions for withdrawal of members from the Company: The withdrawing member must offer to sell its common stock to the Company at book value for 30 days, and after 30 days, for an additional 30 days to any other member of the Company. After the second 30-day period, the shares may be sold to anyone. Intex — Application No. 83-00008 The Office of Export Trading Company Affairs received an application for an export trade certificate of review from Intex on June 15. 1983. The application was deemed submitted on June 20, 1983. and a summary of the application was published in the Federal Register on July 6. 1983 (48 FR 31060 (1983)). Based on analysis of the information contained in the application, the response to supplementary questions and other information in their possession the Department of Commerce has determined and the Department of Justice concurs, that the following export trade, export trade activities, and methods of operation specified by Intrx meet the four standards of the Act: Export Trade. Consulting engineering services. Export Markets. All parts of the world except the United States Export Trade Activities and Methods of Operation. Intex will facilitate the export of consulting engineering services performed by U.S. firms by seeking to identify suitable overseas projects in which some or all of its client base of up to 15 noncompetmg U.S. consulting engineering firms could participate. The services Intex may provide to its clients include elaborating on the Terms of Reference and scope of work, assisting in preparing a response to the project originator, assisting in the preparation and submission of the complete proposal, and monitoring the selection process until the contract has been awarded. Subject to certain limitations. Intex may provide its services to non- client consulting engineering firms The Office of Export Trading Company Affairs is issuing this notice pursuant to 15 CFR 325.5(c), which requires the Department of Commerce to publish a summary of a certificate in the Federal Register. Under Section 305(a) of the Act and 15 CFR 325.10(a). any person aggrieved by the Secretary's determination may, within 30 days of the date of this notice, bring an action in any appropriate district court of the United States to set aside the determination on the ground that the determination is erroneous. A copy of the certificates will be kept in the International Trade Administration's Freedom of Information Records Inspection Facility. Room 4001-B, U.S. Department of Commerce. 14th street and Constitution Avenue, N.W., Washington, DC. 20230 The certificates may be inspected and copied in accordance with regulations published in 15 CFR Part 4. Information about the inspection and copying of records at this facility may be obtained from Patricia L Mann, the International Trade Administration Freedom of Information Officer, at the above address or by calling (202) 377-3031. Dated: October 26. 1983 Irving P. Margulies, Deputy General Counsel. IFR Doc ft3-29b«;< Fikd 10-31-M 6 45 «m| Partners in Export Trade— 1987 Edition A Directory for U.S. Exporters and Trade Facilitators This directory is the Commerce Department's Contact Facilitation Service publication. The 1987 edition contains listings for over 4800 companies including manufacturers, export trading companies, export management companies, banks, accountants, attorneys, freight forwarders, and service organizations. The PARTNERS IN EXPORT TRADE DIRECTORY can help U.S. producers of goods and services match up with companies that provide export services. It is also a useful resource for U.S. and foreign buyers seeking suppliers of a specific product a service. WHO WILL FIND PARTNERS IN EXPORT TRADE USEFUL? • Export Trading Companies (ETCs), Export Management Companies (EMCs), and other trade facilitation firms seeking to identify clients for their services. • Producers wishing to locate firms which can help them export more effectively, such as ETCs, EMCs, banks, attorneys, consultants and accountants. • Firms seeking sources of export financing. • Producers interested in joint export ventures who wish to locate potential partners. • All kinds of companies, including foreign buyers, seeking sources of U.S. goods and services. THE PARTNERS IN EXPORT TRADE DIRECTORY and THE EXPORT TRADING COM- PANY GUIDEBOOK are sold through the Government Printing Office. To obtain copies, contact the Government Printing Office sales outlets which are listed in your local telephone directory. 142 Glossary A/P— See AUTHORITY TO PAY. ACCEPTANCE— This term has several related meanings: (1) A time draft (or bill of exchange) which the drawee (the Payer) has accepted and is unconditionally obligated to pay at maturity. The draft must be presented first for acceptance — the drawee becomes the "acceptor" — then for payment. The word "accepted" and the date and place of payment must be written on the face of the draft. (2) The drawee's act in receiving a draft and thus entering into the obligation to pay its value at maturity. (3) (Broadly speaking) Any agreement to purchase goods under specified terms. AD VALOREM— "According-to-value." See DUTY. ADVISORY CAPACITY— A term indicating that a shipper's agent or representative is not empowered to make definitive decisions or adjustments without approval of the group or individual represented. Compare WITHOUT RESERVE. AFFREIGHTMENT (CONTRACT OF)— An agreement between steamship line (or similar carrier) and an importer or exporter in which cargo space is reserved on a vessel for a specified time and at a specified price. The importer/exporter is obligated to make payment whether or not the shipment is made. AFTER DATE — A phrase indicating that the date of matu- rity of a draft or other negotiable instrument is fixed by the date on which it was drawn a specified number of days after presentation of the draft to the drawee or payee. Compare AFTER DATE, AT SIGHT. AFTER SIGHT — A phrase indicating that the date of matu- rity of a draft or other negotiable instrument is fixed by the date on which it was drawn a specified number of days after presentation of the draft to the drawee or payee. Compare AFTER DATE, AT SIGHT. AGENT— See FOREIGN SALES AGENT. AIR WAYBILL— A bill of lading which covers both domes- tic and international flights transporting goods to a specified destination. Technically, it is a non-negotiable instrument of air transport which serves as a receipt for the shipper, indicating that the carrier has accepted the goods listed therein and obligates itself to carry the consignment to the airport of destination according to specified conditions. Com- pare INLAND BILL OF LADING, OCEAN BILL OF LAD- ING THROUGH BILL OF LADING. ALONGSIDE — A phrase referring to the side of a ship. Goods to be delivered "alongside" are to be placed on the dock or lighter within reach of the transport ship's tackle so that they can be loaded aboard the ship. ANTIDIVERSION CLAUSE— See DESTINATION CON- TROL STATEMENT. ARBrTRAGE — The process of buying foreign exchange, stocks, bonds, and other commodities in one market and immediate- ly selling them in another market at higher prices. ATA CARNET— See CARNET. AT SIGHT — A phrase indicating that payment on a draft or other negotiable instrument is due upon presentation or demand. Compare AFTER SIGHT, AFTER DATE. AUTHORITY TO PAY— A letter used mostly in the Far Eastern trade, addressed by a bank to a seller of merchan- dise, notifyinf him that it is authorized to purchase, with or without recourse, drafts up to a stipulated amount drawn on a certain f:-. : gn buyer in cover of specified shipments of merchandise. BANK AFFILIATE ETC— An ETC partially or wholly owned by a banking institution as provided under the ETC Act. BANKERS' BANK— A bank that is established by mutual consent by independent and unaffiliated banks to provide a clearinghouse for financial transactions. BANK HOLDING COMPANY (BHC)— Any company which directly or indirectly owns or controls, with power to vote, more than five percent of voting shares of each of one or more other banks. BARRATRY — Negligence or fraud on the part of a ship's officers or crew resulting in injury or loss to the ship's owners. BARTER — Trade in which merchandise is exchanged directly for other merchandise without use of money. Barter is an important means of trade with countries using currency that is not readily convertible. BILL OF EXCHANGE— See DRAFT. BILL OF LADING— A document that establishes the terms of a contract between a shipper and a transportation compa- ny under which freight is to be moved between specified points for a specified charge. Usually prepared by the ship- per on forms issued by the carrier, it serves as a document of title, a contract of carriage, and a receipt for goods. Also see AIR WAYBILL, INLAND BILL OF LADING, OCEAN BILL OF LADING, THROUGH BILL OF LADING. BLOCKED EXCHANGE— Exchange which cannot be free- ly converted into other currencies. BONDED WAREHOUSE— A warehouse authorized by cus- toms authorities for storage of goods on which payment of duties is deferred until the goods are removed. BOOKING— An arrangement with a steamship company for the acceptance and carriage of freight. BROKER— See EXPORT BROKER. BRUSSELS TARIFF NOMENCLATURE (BTN)— See NOMENCLATURE OF THE CUSTOMS COOPERATION COUNCIL. BUYING AGENT— See PURCHASING AGENT. CARNET — A customs document permitting the holder to carry or send merchandise temporarily into certain foreign countries (for display, demonstration, or similar purposes) without paying duties or posting bonds. CASH AGAINST DOCUMENTS (C.A.D.)— Payment for goods in which a commission house or other intermediary transfers title documents to the buyer upon payment in cash. CASH IN ADVANCE (C.I.A.)— Payment for goods in which the price is paid in full before shipment is made. This method is usually used only for small purchases or when the goods are built to order. CASH WITH ORDER (C.W.O.)— Payment for goods in which the buyer pays when ordering and in which the transaction is binding on both parties. CCCN (THE CUSTOMS COOPERATION COUNCIL NOMENCLATURE) — The customs tariff used by many coun- tries worldwide, including most European nations but not the United States. It is also known as the Brussels Tariff Nomencla- ture. Compare STANDARD INDUSTRIAL CLASSIFICA- TION, STANDARD INTERNATIONAL TRADE CLASSI- FICATION, TARIFF SCHEDULE, COMMODITY GROUP- INGS. CERTIFICATE OF INSPECTION— A document certifying that merchandise (such as perishable goods) was in good condition immediately prior to its shipment. CERTIFICATE OF MANUFACTURE— A statement (often notarized) in which a producer of goods certifies that the manufacturing has been completed and the goods are now at the disposal of the buyer. CERTIFICATE OF ORIGIN— A document, required by cer- tain foreign countries for tariff purposes, certifying as to the country of origin of specified goods. CERTIFICATE OF REVIEW— See EXPORT TRADE CER- TIFICATE OF REVIEW. C & F — "Cost and Freight." A pricing term indicating that these costs are included in the quoted price. CHAMBER OF COMMERCE— An association of business- people organized to promote local business interests. CHARTER PARTY— A written contract, usually on a spe- cial form, between the owner of a vessel and a "charterer" who rents use of the vessel or a part of its freight space. The contract generally includes the freight rates and the ports involved in the transportation. C & I — "Cost and Insurance/' A pricing term indicating that these costs are included in the quoted price. C.I.F. — "Cost, Insurance, Freight." A pricing term indicating that these costs are included in the quoted price. C.I.F. & C. — "Cost, Insurance, Freight, and Commission." A pricing term indicating that these costs are included in the quoted price. C.I.F. & E. — "Cost, Insurance, Freight, and (Currency) Exchange." A pricing term indicating that these costs are included in the quoted price. CLAYTON ACT— A major U.S. antitrust law passed in 1914 to supplement the Sherman Act. The Clayton Act deals primarily with the prohibition of price discrimination among buyers by sellers in the sale of commodities and certain corporate mergers where the effect may be to substantially lessen competition or tend to create a monopoly. CLEAN BILL OF LADING— A receipt for goods issued by a carrier with an indication that the goods were received in "apparent good order and condition," without damages or other irregularities. Compare FOUL BILL OF LADING. CLEAN DRAFT — A draft to which no documents have been attached. COLLECTION PAPERS— All documents (invoices, bills of lading, etc.) submitted to a buyer for the purpose of receiving payment for a shipment. COMMERCIAL INVOICE— An itemized list of goods shipped, usually included among an exporter's COLLECTION PAPERS. COMMISSION AGENT— See PURCHASING AGENT. COMMODITY CREDIT CORPORATION— A government corporation controlled by the Department of Agriculture to provide financing and stability to the marketing and export- ing of agricultural commodities. See also Chapter 4 and Appendix B. COMMODITY GROUPINGS— A numerical system used by the U.S. Bureau of the Census to group imports and exports in broader categories than are provided by the TAR- IFF SCHEDULES. Currently, Schedule A is used to categorize imports, Schedule E for exports. Schedule B was replaced by Schedule E in 1978. Compare THE CUSTOMS COOPER- ATION COUNCIL NOMENCLATURE, STANDARD IN- DUSTRIAL CLASSIFICATION, TARIFF SCHEDULES. COMMON CARRIER— An individual, partnership, or cor- poration which transports persons or goods for compensation. CONFIRMED LETTER OF CREDIT— A letter of credit, issued by a foreign bank, whose validity has been confirmed by an American bank. An exporter whose payment terms are a confirmed letter of credit is assured of payment even if the foreign buyer of the foreign bank defaults. See LETTER OF CREDIT. CONSIGNMENT — Delivery of merchandise from an exporter (the consignor) to an agent (the consignee) under agreement that the agent sell the merchandise for the account of the exporter. The consignor retains title to the goods until the consignee has sold them. The consignee sells the goods for commission and remits the net proceeds to the consignor. CONSULAR DECLARATION— A formal statement, made to the consul of a foreign country, describing goods to be shipped. CONSULAR INVOICE— A document, required by some for- eign countries, describing a shipment of goods and showing information such as the consignor, consignee, and value of the shipment. Certified by a consular official of the foreign country, it is used by the country's customs officials to verify the value, quantity, and nature of the shipment. COUNTERPURCHASE— One of the most common forms of countertrade in which the seller receives cash but contractu- ally agrees to buy local products or services as a percentage of cash received and over an agreed period of time. COUNTERTRADE— International trade in which the seller is required to accept goods or other instruments of trade, in partial or whole payment for its products. COUNTERVAILING DUTY— An extra duty imposed by the Secretary of Commerce to offset export grants, bounties, or subsidies paid to foreign suppliers in certain countries by the government of those countries as an incentive to exports. CREDIT RISK INSURANCE— Insurance designed to cover risks of nonpayment for delivered goods. Compare MARINE INSURANCE. CUSTOMS — The authorities designated to collect duties levied by a country on imports and exports. The term also applies to the procedures involved in such collection. CUSTOMHOUSE BROKER— An individual or firm licensed to enter and clear goods through Customs. 144 DATE DRAFT — A draft which matures a specified number of days after the date it is issued, without regard to the date of ACCEPTANCE (Definition 2). Compare SIGHT DRAFT, TIME DRAFT. DEMURRAGE — Excess time taken for loading or unloading a vessel. Demurrage refers only to situations in which the charterer or shipper, rather than the vessel's operator, is at fault. DESTINATION CONTROL STATEMENT— Any one of vari- ous statements which the U.S. Government requires to be displayed on export shipments and which specify the desti- nations for which export of the shipment has been authorized. DEVALUATION— The official lowering of the value of one country's currency in terms of one or more foreign curren- cies. Thus, if the U.S. dollar is devalued in relation to the French franc, one dollar will "buy" fewer francs than before. DISC — "Domestic International Sales Corporation." The DISC incentive was created by the Revenue Act of 1971. It has since been replaced by the Foreign Sales Corporation (FSC) which came as a result of the passage of the Tax Reform Act of 1984. Taxpayers were permitted to establish corporations (called Domestic International Sales Corpora- tions) to conduct their export activities. The DISC legisla- tion provided for deferral of Federal income tax on 50 percent of the export earnings allocated to the DISC, with the balance treated as dividends to the parent company (export income allocated to the parent company was taxed in the normal manner). The U.S. promised in 1982 to develop a substitute for the DISC mechanism acceptable to its trading partners in the General Agreement on Tarrifs and Trade (GATT). That substitute is the foreign Sales Corporation or, at the election of the taxpayer, an interest-charge DISC. See FSC. DISPATCH — An amount paid by a vessel's operator to a charterer if loading or unloading is completed in less time than stipulated in the charter agreement. DISTRIBUTOR— A foreign agent who sells directly for a supplier and maintains an inventory of the supplier's products. DOCK RECEIPT — A receipt issued by an ocean carrier to acknowledge receipt of a shipment at the carrier's dock or warehouse facilities. Also see WAREHOUSE RECEIPT. DOCUMENTS AGAINST ACCEPTANCE (D/ A)— Instruc- tions given by a shipper to a bank indicating that documents transferring title to goods should be delivered to the buyer (or drawee) only upon the buyer's acceptance of the attched draft. DOCUMENTS AGAINST PAYMENT (D/P)— Instructions given by a shipper to a bank indicating that documents trans- ferring title to goods should be delivered to the buyer (or drawee) only upon the buyer's payment of the attached draft. DOMICILE — The place where a draft or acceptance is made payable. DRAFT (OR BILL OF EXCHANGE)— An unconditional order in writing from one person (the drawer) to another (the drawee), directing the drawee to pay a specified amount to a named payee at a fixed or determinable future date. DRAWBACK — A refund of duties paid on imported goods which is provided at the time of their reexportation. DRAWEE — The individual or firm on whom a draft is drawn and who owes the indicated amount. Compare DRAWER. Also see DRAFT. DRAWER — The individual or firm that issues or signs a draft and thus stands to receive payment of the indicated amount from the drawee. Compare DRAWEE. Also see DRAFT. DUMPING — Importing merchandise into a country (e.g., the United States) at prices below the prices in the domestic market. DUTY — A tax imposed on imports by the customs authority of a country. Duties are generally based on the value of the goods (ad valorem duties), some other factor such as weight or quantity (specific duties), or a combination of value and other factors (compound duties). EDGE ACT CORPORATION— Banks that are subsidiaries either to bank holding companies or other banks established to engage in foreign business transactions. They were estab- lished by Act of Congress in 1919. EMC— See EXPORT MANAGEMENT COMPANY. ETC— See EXPORT TRADING COMPANY. EURODOLLARS— U.S. dollars placed on deposit in banks outside the United States (primarily in Europe). EX-"FROM" — When used in pricing terms such as "Ex Factory" or "Ex Dock," it signifies that the price quoted applies only at the point of origin (in the two examples, at the seller's factory or a dock at the import point). In practice, this kind of quotation indicates that the seller agrees to place the goods at the disposal of the buyer at the specified place within a fixed period of time. EXCHANGE RATE — The price of one currency in terms of another i.e., the number of units of one currency that may be exchanged for one unit of another currency. EXIMBANK— See EXPORT-IMPORT BANK. EXPORT — To send or transport goods out of a country for sale in another country. In international sales, the exporter is usually the seller or the seller's agent. Compare IMPORT. EXPORT BROKER— An individual or firm that brings togeth- er buyers and sellers for a fee but does not take part in actual sales transactions. EXPORT-IMPORT BANK— An independent U.S. Govern- ment Agency created to facilitate U.S. trade relations pri- marily through providing financing, insurance, and feasibil- ity studies. EXPORT LICENSE — A government document which permits the "Licensee" to engage in the export of designated goods to certain destinations. EXPORT MANAGEMENT COMPANY— A private firm that serves as the export department for several manufacturers, soliciting and transacting export business on behalf of its clients in return for a commission, salary, or retainer plus commission. EXPORT MERCHANT— A company that buys products directly from manufacturers, then packages and marks the merchandise for resale under its own name. EXPORT TRADE CERTIFICATE OF REVIEW— A certi fication of partial immunity from antitrust laws that can be granted based on the ETC Act legislation by the Department of Commerce with Department of Justice concurrence. Any prospective or existing exporter with antitrust concerns may apply by filling out the appropriate form describing the anticipated methods, of operation and other trade activities. EXPORT TRADING COMPANY— An ETC, as envisioned by the ETC Act, is a company doing business in the United States principally to export goods or services produced in the United States or to facilitate such exports by unaffiliated persons. It can be owned by foreigners and can import, bar- ter, and arrange sales between third countries, as well as export. EXPORT TRADING COMPANY ACT— The law passed on October 8, 1982, creating a special legal status for Export Trading Companies. It establishes an Office of Export Trad- ing Company Affairs in Commerce, permits bankers' banks and bank holding companies to invest in ETCs, reduces the restrictions on export financing provided by financial insti- tutions, establishes a contact facilitation service, authorizes a voluntary program whereby an exporter can receive anti- trust protection for specified export conduct, and modifies the application of the antitrust laws to certain export trade. For a description and copy, see Chapter 2 and Appendix F. FACTORING — A method used by businesses including trading companies to obtain cash for discounted accounts receivables or other assets. F.A.S. — "Free Alongside (VESSEL)." A pricing term indi- cating that the quoted price includes the cost of delivering the goods alongside a designated vessel. FCIA-See the FOREIGN CREDIT INSURANCE ASSOCIA- TION. F.I. — "Free In." A pricing term indicating that the charter- er of a vessel is responsible for the cost of loading goods onto the vessel. F.I.O. — "Free In and Out." A pricing term indicating that the charterer of a vessel is responsible for the cost of loading and unloading goods from the vessel. F.O. — "Free Out." A pricing term indicating that the char- terer of a vessel is responsible for the cost of loading goods from the vessel. F.O.B. — "Free On Board." A pricing term indicating that the quoted price includes the cost of loading the goods into transport vessels at the specified place. FORCE MAJEURE — The title of a standard clause in marine contracts exempting the parties for non-fulfillment of their obligations as a result of conditions beyond their control, such as earthquakes, floods or war. FOREIGN CREDIT INSURANCE ASSOCATION (FCIA) — An agent of EXIMBANK which operates to provide comprehensive insurance for exporters against nonpayment. FOREIGN EXCHANGE— The currency or credit instruments of a foreign country. Also, transactions involving purchase and/or sale of currencies. FOREIGN FREIGHT FORWARDER— See FREIGHT FOR- WARDER. FOREIGN SALES AGENT— An individual or firm that serves as the foreign representative of a domestic supplier and seeks sales abroad for the supplier. FREE PORT — An area such as a port city into which mer- chandise may legally be moved without payment of duties. FREE TRADE ZONE— A port designated by the govern- ment of a country for entry of any non-prohibited goods. Merchandise may be stored, displayed, used for manufacturing, etc., within the zone and reexported without duties being paid. Duties are imposed on the merchandise (or items man- ufactured from the merchandise) only when the goods pass from the zone into an area of the country subject to the Customs Authority. FOREIGN TRADE ZONE— See FREE TRADE ZONE. FREIGHT FORWARDER— An independent business which handles export shipments for compensation. FOUL BILL OF LADING— A receipt for goods issued by a carrier with an indication that the goods were damaged when received. Compare CLEAN BILL OF LADING. F.P.A. — "Free of Particular Average." The title of a clause used in marine insurance, indicating that partial loss or damage to a foreign shipment is not covered. (Note: Loss resulting from certain conditions, such as the sinking or burning of the ship, may be specifically exempted from the effect of the clause.) Compare W.P.A. FSC — "Foreign Sales Corporation." The Tax Reform Act of 1984 created a new tax incentive for U.S. exporters. The Foreign Sales Corporation replaces the Domestic Interna- tional Sales Corporation which was authorized by the Reve- nue Act of 1971. It should be noted that as an alternative to establishing a FSC, taxpayers may create an interest-charge DISC. To qualify for special tax treatment, a FSC must be a foreign corporation, maintain an office outside the U.S. ter- ritory, maintain a summary of its permanent books of account at the foreign office, and have at least one director resident outside of the U.S. A portion of the foreign sales corpora- tion's income (generally corresponding to the tax deferred income of a DISC) is exempt from U.S. tax at both the FSC and the U.S. corporate parent levels. This exemption is achieved by allowing a domestic corporation that is a FSC shareholder a 100-percent deduction for a portion of dividends received from a FSC attributable to economic activity actually con- ducted outside the U.S. customs territory. Interest, dividends, royalties, or other investment income of a FSC is subject to U.S. tax. GATT— "GENERAL AGREEMENT ON TARIFFS AND TRADE." A multilateral treaty the purpose of which is to help reduce trade barriers between the signatory countries and to promote trade through tariff concessions. GENERAL EXPORT LICENSE— Any of various export licenses covering export commodities for which Validated Export Licenses are not required. No formal application or written authorization is needed to ship exports under a General Export License. Compare VALIDATED EXPORT LICENSES. GROSS WEIGHT— The full weight of a shipment, including goods and packaging. Compare TARE WEIGHT. HORIZONTAL ETC— An ETC which exports a range of similar or identical products supplied by a number of manu- facturers or other producers. Webb-Pomerene Organizations, trade-grouped organized ETCs, and an ETC formed by an association of agricultural cooperatives are the prime exam- ples of horizontally organized ETCs. See also WEBB- POMERENE ASSOCIATIONS. IMPORT — To bring foreign goods into a country. In inter- national sales, the importer is usually the buyer or an inter- mediary who accepts and transmit goods to the buyer. Com- pare EXPORT. IMPORT LICENSE— A document required and issued by some national governments authorizing the importation of goods into their individual countries. INHERENT VICE — An insurance term referring to any defect or other characteristics of a product which could result in damage to the product without external cause. Insurance policies may specifically exclude losses caused by inherent vice. INLAND BILL OF LADING— A bill of lading used in trans- porting goods overland to the exporter's international carri- er. Although a through bill of lading can sometimes be used. it is usually necessary to prepare both an inland bill of lading and an ocean bill of lading for export shipments. Compare AIR WAYBILL, OCEAN BILL OF LADING, THROUGH BILL OF LADING. INTERNATIONAL FREIGHT FORWARDER— See FREIGHT FORWARDER. INTERNATIONAL TRADE ADMINISTRATION (ITAh-The ITA is a division of the Department of Commerce designed to promote world trade and to strengthen the international trade and investment position of the United States. See also Chapter 4 and Appendix B. IRREVOCABLE LETTER OF CREDIT— A letter of credit in which the specified payment is guaranteed by the bank if all terms and conditions are met by the drawee. Compare REVOCABLE LETTER OF CREDIT. ITA— See INTERNATIONAL TRADE ADMINISTRATION. JOINT VENTURE— A business undertaking in which more than one firm share ownership and control. LETTER OF CREDIT (L/C)— A document, issued by a bank per instructions by a buyer of goods, authorizing the seller to draw a specified sum of money under specified terms, usual- ly the receipt by the bank of certain documents within a given time. LICENSING — A business arrangement in which the manu- facturer of a product (or a firm with proprietary rights over certain technology, trademarks, etc.) grants permission to some other group or individual to manufacture that product (or make use of that proprietary material) in return for specified royalties or other payment. LIGHTER — An open or covered barge towed by a tugboat and used mainly in harbors and inland waterways. MARINE INSURANCE— Broadly, insurance covering loss or damage of goods at sea. Marine insurance will typically compensate the owner of merchandise for losses sustained from fire, shipwreck, piracy, and various other causes, but excludes losses which can be legally recovered from the carrier Compare CREDIT RISK INSURANCE. MARKING (or MARKS) — Letters, numbers, and other sym- bols placed on cargo packages to facilitate identification. OCEAN BILL OF LADING— A bill of lading (B/L) indicat- ing that the exporter consigns a shipment to an international carrier for transportation to a specified foreign market. Unlike an inland B/L, the ocean B/L also serves as a collection document. If it is a "Straight B/L," the foreign buyer can obtain the shipment from the carrier by simply showing proof of identity. If a "Negotiable B/L" is used, the buyer must first pay for the goods, post a bond, or meet other conditions agreeable to the seller. Compare AIR WAYBILL, INLAND BILL OF LADING, THROUGH BILL OF LADING. OPEN ACCOUNT — A trade arrangement in which goods are shipped to a foreign buyer without guarantee of payment. The obvious risk this method poses to the supplier makes it essential that the buyer's integrity be unquestionable. OPEN INSURANCE POLICY— A marine insurance policy that applies to all shipments made by an exporter over a period of time rather than to one shipment only. OPIC — Overseas Private Investment Corporation. A wholly owned government corporation designed to promote private U.S. investment in developing countries by providing political risk insurance and some financing assistance. PACKING LIST — A list showing the number and kinds of items being shipped, as well as other information needed for transportation purposes. PARCEL POST RECEIPT— The postal authorities' signed acknowledgement of delivery to them of a shipment made by parcel post. PHYTOSANTIARY INSPECTION CERTIFICATE— A certificate, issued by the U.S. Department of Agriculture to satisfy import regulations of foreign countries, indicating that a U.S. shipment has been inspected and is free from harmful pests and plant diseases. PRO FORMA INVOICE— An invoice provided by a supplier prior to the shipment of merchandise, informing the buyer of the kinds and quantities of goods to be sent, their value, and important specifications (weight, size, etc.). PURCHASING AGENT— An agent who purchases goods in his/her own country on behalf of large foreign buyers such as government agencies and large private concerns. PROCURING AGENT— See PURCHASING AGENT. QUOTA — The quantity of goods of a specific kind that a country will permit to be imported without restriction or imposition of additional duties. QUOTATION— An offer to sell goods at a stated price and under specified conditions. REPRESENTATIVE— See FOREIGN SALES AGENT. REVOCABLE LETTER OF CREDIT— A letter of credit which can be cancelled or altered by the drawee (buyer) after it has been issued by the drawee's bank. Compare IRREVO- CABLE LETTER OF CREDIT. S.A. (SOCIETE ANONYME)— French expression meaning a corporation. SALES REPRESENTATIVE— An agent who distributes. represents, services, or sells goods on the behalf of foreign sellers. SHERMAN ACT — This law bars contracts, combinations, or conspiracies in restraint of trade and makes it a violation of law to monopolize or to attempt to or conspire to monopolize any trade in interstate or foreign commerce. Jurisdiction requires a direct, substantial, and reasonably foreseeable effect on domestic trade or commerce or on the export com- merce of a person engaged in such commerce in the U.S. SHIPPER'S EXPORT DECLARATION— A form required for all shipments by the U.S. Treasury Department and prepared by a shipper, indicating the value, weight, destina- tion, and other basic information about an export shipment. SHIP'S MANIFEST— An instrument in writing, signed by the captain of a ship, that lists the individual shipments constituting the ship's cargo. SIC— See STANDARD INDUSTRIAL CLASSIFICATION. SIGHT DRAFT — A draft which is payable upon presenta- tion to the drawee. Compare DATE DRAFT, TIME DRAFT. SITC— See STANDARD INTERNATIONAL TRADE CLAS- SIFICATION. SPOT EXCHANGE — The purpose or sale of foreign exchange for immediate delivery. STANDARD INDUSTRIAL CLASSIFICATION (SIC)— A standard numerical code system used by the U.S. Govern- ment to classify products and services. Compare COMMODI- TY GROUPINGS, THE CUSTOMS COOPERATION COUN- CIL NOMENCLATURE , STANDARD INTERNATIONAL TRADE CLASSIFICATION. STANDARD INTERNATIONAL TRADE CLASSIFICATION (SITC) — A standard numerical code system developed by 147 the United Nations to classify commodities used in interna- tional trade Compare COMMODITY GOUPING, THE CUS- TOMS COOPERATION COUNCIL NOMENCLATURE, STANDARD INDUSTRIAL CLASSIFICATION, TARIFF SCHEDULES. STATE-CONTROLLED TRADING COMPANY— In a coun- try with a state trading monopoly, a trading entity empow- ered by the country's government to conduct export business. STEAMSHIP CONFERENCE— A group of steamship opera- tors that operate under mutually agreed upon freight rates. SWAP ARRANGEMENTS— A form of trade in which title to similar or identical products from different locations are traded to save transportation costs. SWITCH ARRANGEMENTS— A form of countertrade in which the seller sells on credit and then transfers the credit to a third party. TARE WEIGHT — The weight of a container and/or packing materials without the weight of the goods it contains. Com- pare GROSS WEIGHT. TARIFF SCHEDULES OF THE UNITED STATES (TSUS) — A standard numerical system used by the U.S. Customs Bureau to classify imports and exports. Compare STANDARD INDUSTRIAL CLASSIFICATION, CUSTOMS COOPER- ATION COUNCIL NOMENCLATURE, STANDARD IN- DUSTRIAL TRADE CASSIFICATION. TDP— See TRADE AND DEVELOPMENT PROGRAM. THROUGH BILL OF LADING— A single bill of lading covering both the domestic and international carriage of an export shipment. An air waybill, for instance, is essentially a through bill of lading used for air shipments. Ocean ship- ments, on the other hand, usually require two separate documents — an inland bill of lading for domestic carriage and an ocean bill of lading for international carriage. Through bills of lading, therefore, cannot be used. Compare AIR WAYBILL, INLAND BILL OF LADING, OCEAN BILL OF LADING. TIME DRAFT — A draft which matures either a certain number of days after acceptance or a certain number of days after the date of the draft Compare DATE DRAFT, SIGHT DRAFT. TRADE AND DEVELOPMENT PROGRAM (TDP)— This program is designed to promote economic development in the Third World and the sale of U.S. goods and services to these developing countries. It operates as part of the Interna- tional Development Cooperative Agency. TRADE MISSION — A mission to a foreign country organized to promote trade through the establishment of contacts and exposure to the commercial environment. They are frequently organized by Federal, State, or local agencies. TRAMP STEAMER — A ship not operating on regular routes or schedules. TRUST RECEIPT— Release of merchandise by a bank to a buyer in which the bank retains title to the merchandise. The buyer, who obtains the goods for manufacturing or sales purposes, is obligated to maintain the goods (or the proceeds from their sale) distinct from the remainder of his/her assets and to hold them ready for repossession by the bank. TURNKEY — A method of construction whereby the con- tractor assumes total responsibility from design through com- pletion of the project. VALIDATED EXPORT LICENSE— A document issued by the U.S. Government authorizing the export of commodities for which written export authorization is required by law. Compare GENERAL EXPORT LICENSE. VERTICAL ETC — An ETC that integrates a range of func- tions taking products from suppliers to consumers. W.A. — "With Average." A marine insurance term meaning that a shipment is protected from partial damage whenever the damage exceeds 3 percent (or some other percentage). WAREHOUSE RECEIPT— A receipt issued by a warehouse listing goods received for storage. WEBB-POMERENE ASSOCIATION— Associations en- gaged in exporting that combine the products of similar producers for overseas sales. These associations have partial exemption from U.S. anti-trust laws but may not engage in import, domestic or third country trade or combined to export services. See also HORIZONTAL ETCs. WHARFAGE — A charge assessed by a pier or dock owner for handling incoming or outgoing cargo. WITHOUT RESERVE— A term indicating that a shipper's agent or representative is empowered to make definitive decisions and adjustments abroad without approval of the group or individual represented. Compare ADVISORY CAPACITY. Bibliography The following publications, articles, and speeches have use- ful discussions of ETCs and the exporting process. Abbott, "Promises Deferred, Hopes Unfulfilled: A Commen- tary on the Export Trading Company Act and Proposals for Reform," 17 Geo. Wash. J. Int'l L. & Econ. 525 (1983). Acheson, "The Export Trading Company Act: A Year Down- stream," 18 Int'l Law 389 (1984). Adkins, "Which Way for U.S. Trading Companies?" Dun's Business Month, March 1983, at 56. Almstedt, "An Expert Looks at ETCs," Collado Rep., Oct. 1982. Almstedt, Kermit W., and Evans, Michael W. "An Outline of the Application of America's Antitrust Laws to Overseas Activity by American Businesses," November 1981. 19 pp. Includes a summary of antitrust statutes and their applications. ' American Banker (ETC Issue), February 17, 1983 at 11. See also numerous ETC articles published in American Banker papers dating from November 1982. Aronoff & Jacks, "Port Authorities: Opportunities Under the Export Trading Company Act of 1982, " Traffic World, February 10, 1986, at 88. Atwood, J. and K. Brewster. Antitrust and American Busi- ness Abroad, 2d ed. (1983 supp., forthcoming), 277-327. Barrett, Patricia E. "Prospects for Bank Holding Company Participation in Export Trading Companies." 4 pp. The Dir- ector of Trade Policy of the National Foreign Trade Council discusses misconceptions about bank ownership of ETCs and the development of the bank-ETC relationship. 2 Barovick, Richard. "Commerce Department Strengthens Rela- tions with State Export Programs." Business America, De- cember 27, 1982. 4 pp. A report on DOC/ITA efforts to strengthen state export programs by the enactment of legislation to support ETC development, export financing, and tax incentives. Barovick, Richard. "NFTC Conference on Export Trading Companies." Business America, October 18, 1982. 4 pp. A report on the National Foreign Trade Council conference on ETCs. Outlines the role of the ETCs formed by GE, Sears Roebuck, and GM in promoting trade. Boles, John M. "Remarks made for the Conference on Export Trading Companies." 13 pp. The president of a large U.S. trading company explains why the U.S. needs ETCs to deal with foreign competition and U.S. industrial growth. ' Browne, Harry. "Export Trading Companies: Metamorpho- sis for the Traditional EMC." 2 pp. The director of a small trade association discusses how his business benefits from the Export Trading Company Act. : Bruce, John F., and Pierce, John C. "Understanding the Export Trading Company Act and Using (Or Avoiding) Its Antitrust Exemptions," The Business Lawyer, May 1983. 43 pp. Attorneys interpret each of the titles of the ETC Act and discuss their separate histories. Casey, William R. "Export Trading Companies: New Op- portunities for the Transportation Industry." 1 p. The rules by which ETCs may operate as ocean freight forwarders. : Christian, Betty Jo. "Export Trading Companies: New Vehicle for Growth for American Business." 3 pp. An attorney dis- cusses the antitrust exemption given to ETCs, and the types of ETCs likely to emerge. : Clawson, "The Export Trading Company Act of 1982: Export Trade Comes of Age in the United States," 34 S.C.L. Rev. 757(1983). Coopers & Lybrand, "Export Trading Companies: A New Port for American Business." October 1983. Cooper, Richard V.L. "Structuring an Export Trading Compa- ny." Coopers & Lybrand, May 1982, Washington, D.C. Coffey, William J. "Export Trading Companies and Ocean Carriers." 2 pp. Explanation of new business opportunities created in the ocean transportation industry by ETCs. : "A Commerce Trade Official Explains the ETC Legisla- tion." Business America. October 18, 1982. 4 pp. Assistant Secretary of Commerce for Trade Development William H. Morris, Jr., explains the ETC Act legislation and its support for American business. "Countertrade & Export Trading Companies: Has the United States Joined the Successful Trading Game of Japan & Others," 1 1 Syracuse J. Int'l L. & Com. 417, (1984). Delano, "Trading Places," Inc., November 1983, at 139. Department of Commerce, Office of Minority Business Enter- prise. How to Build an Export Business, An International Marketing Guide to the Minority Owned Firm. Dziubla, "International Trading Companies: Building on the Japanese Model," 4 Nw. J. of Int'l L. & Bus. 422 (1982). ETCs - New Method for U.S. Exporting, American Man- agement Associations (L. Welt ed. 1984). Evans, Roger R. "Freight Forwarder ETCs: New Ventures." 3 pp. The proper structure of an ETC and who its members should be as they relate to the forwarding industry. ; "Export Credits: The Legal Effect of International and Domestic Efforts to Control Their Use." 7 B. C. Int'l & Comp. L. Rev. 433(1984). "Export-Trading Firms: Will the Euphoria Last?" Indus- try Week, March 7. 1983, at 20. A paper presented at the "Conference on Export Trading Com- panies," Executive Enterprises, Inc., December 10-11. 1981, Sheraton Washington, Washington, DC. A paper presented at the business symposium "How to Use Export Trading Companies to Penetrate Foreign Markets." Baruch College, City University of New York. December 9. 1982, Parker- Meridien Hotel, New York, New York. Feketekuty, Geza. "The Export Trading Company Act." 2 pp. The Senior Assistant U.S. Trade Representative comments on the impact of the ETC Act on the U.S. economy. Ferchill, "Banks and the Export Trading Company Act of 1982," 6 Fordham Int'l L. J. 265 (1983). Fogt, Howard W., Jr. "Export Trade Legislation: A Search for Legal Certainty." 25 pp. An attorney outlines the legisla- tive issues and the challenge to the Common Market created by the antitrust provisions of the ETC Act. ' Friedland, "Whether Trade Likes It or Not, Barter is Here as Long as the Global Credit Market is Tight," American Banker, September 21, 1984, at 41. Fugate, W. "The Export Trade Exception to the Antitrust Laws: The Old Webb-Pomerene Act and the New Export Trading Company Act." 15 Vand. J. ofTransnat'l Law 673 (1982). Fugate, W. Foreign Commerce and the Antitrust Laws, 3d ed. (1983 supp., forthcoming), 251-301, 377-427. Garvey, "The Foreign Trade Antitrust Improvements Act," 14L. &Pol'yinInt'lBus. 1 (1982). Golden, Cornelius J., Jr., and Kolb, Charles E.M. The Export Trading Company Act of 1982: An American Response to Foreign Competition. 113 pp. Detailed Article by attorneys focuses on the origin and purpose of the ETC Act, the role of banking in the operation of ETCs, the certification proce- dures, antitrust immunity, and the problems created by the application of the Act. Grambergs, "The Export Trading Company Act of 1982: The- ory & Application," 14 Geo. L. J. Comp. 525 (1984). Griffin & Modell, "The Export Trading Company Act," 30 Prac. Law 73 (1984). Griffin, J., ed. The Export Trading Company Act of 1982. International Law Institute, Georgetown University Law Center (1982). Hawk, "International Antitrust Policy and the 1982 Acts: The Continuing Need for Reassessment," 51 Fordham L. Rev. 201 (1982). Hawk, United States, Common Market and International Antitrust: A Comparative Guide, 221-73 (2d ed. 1986). Hay Associates. "A Study to Determine The Feasibility of The Export Trading Company Concept." March 1977. Heginbotham, Erland H. "The Existing Trade Infrastruc- ture." 5 pp. An outline of the different structural types of trading companies, their comparison with those of other countries, the financial infrastructure of ETCs, and the role of the government and Department of Commerce in promoting exporting and ETCs. ' Hirschhorn, "A Shot in the Arm for American Exports," ABA J., June 1983 at 746. Hurt & Finkel, "Export Trading Companies: New Banking and Antitrust Dimension," 5 Fed. Bar News & J. 270 (1983). Ianni, "State Trading: Its Nature and International Treat- ment," 10 Int'l Bus. Law. 374 (1982). Jacklin, "The Bank Export Services Act: The Legal Frame- work for Banking Organization Investment in Export Trad- ing Companies," 18 Geo. Wash. J. Int'l & Econ. 55 (1984). Jacks, "Export Trading Act - Benefits for Port Authorities," Worldwide Shipping Company, January 1986, at 43. Johnston, Charles R. "Export Trading Companies: What They Are; What They Can Do; How They Will Develop." 5 pp. Director of the Council for Export Trading Companies (CETC) explains the various titles of the ETC act, the ser- vices that ETCs can provide, and the future development of ETCs with the help of the CETC. 2 Klauser, A.E. "Impact of the Japanese General Trading Company on U.S. Export Efforts." 5 pp. The senior vice- president of Mitsui, the American-based Japanese trading company, explains the influence, functions, and objectives of "sogo shosha" — the trading conglomerate — in the U.S. 2 Korbel & Bruce, "Shared FSCs: An Innovative, New Bene- fit for Small- and Medium-Size Exporters," Business America, January 20, 1986. "In Philadelphia, Some Help for the Small Trader," 15 Nat'l J. 995(1983). Lacy, "The ETC Act, 1985: Fifty-Seven Certificates and Growing," Export Today, 1985. LaMont and Unkovic. "The Export Trading Company Act of 1982: Invitation to Aggressive Export Expansion," 87 Dick. L. Rev. 205(1983). Lewis, "Title III of the Export Trading Company Act: A Case Study in Interagency Coordination to Promote Exports," 5 J. L. & Com. 451 (1985). Loumiet, "The Bank Exports Services Act - An Early Analysis," 57 Fla. B. J. 58(1983). Loumiet, "The Bank Export Services Act - An Early Analysis," (Part 2), 57 Fla. B. J. 1 13 (1983). Marquez & Masterson, "How Exporters Can Benefit From Trading Company Law," Caribbean Business, April 6, 1983. McCampbell, William A. "Problems in the Manufacturer/ Export Representative Relationship." 1 pp. Problems created when export representatives and manufacturers must agree on sales commitments, sales territory, and size of the ETC. 2 Michaelson, Martin. "Horizontal Export Activity — Some Practical Considerations on Reducing Antitrust Risk." 10 pp. Explanation of principal antitrust statutes by an attor- ney. Also analyzes agreements among separate competitors versus joint ventures and the limits of the Webb-Pomerene protection. ' National Association of Export Trading Companies, Inc. A Profile of the Export Trading Company Industry, July 1981. 15 pp. A description of the ETCs that were formed prior to the recent ETC legislation. National Association of State Development Agencies (NASDA). Export Trading Companies: Possible Structures, Small Business Response, Public Sector Roles. Washing- ton, D.C., 1982. 63 pp. Explains the strategies for increasing state trade through assistance to companies, state trade newsletters, developing sales leads, and seminars. National Council for Urban Economic Development. "Eco- nomic Development Through Exports: A Guide to Local Action." 200 pp. Discusses the role of cities in the development of municipal export programs. Nehmer, Stanley, et al. A Study of the Feasibility of Export Trading Companies to Promote Increased Exports by the Textile and Apparel Industries, prepared for the Depart- ment of Commerce by Economic Consulting Services, Inc., February 1981. 145 pp. Examines the feasibility of ETCs which specialize in textiles and apparel, constructs a model of an ETC for these industries, and assesses the interest of U.S. manufacturers and foreign importers in dealing with ETCs. Newman, Stanley S. "New York State Export Initiatives." 3 pp. A New York State international commerce expert describes the various programs that his state has initiated to increase industries export businesses. 2 New Opportunities Under the Export Trading Company Act of 1982. Law & Business, Inc. (1983). Oakes, John M. "Draft Remarks for the Conference on Export Trading Companies." 12 pp. An international trade banker explains the possible structure of an ETC with commercial bank involvement. ' O'Brien, Lawrence J. "The ETC Act: Rationale and Ramifi- cations." An attorney's analysis of how Congress, the bureau- cracy, and the business community have performed in their respective areas of drafting, implementing, and using ETCs. : O'Day, Paul T. "Export Trading Companies: The Options Are Wide." 2 pp. A Department of Commerce official explains what the Department's role is in promoting the ETC Act. : O'Hara, Clifford B. "Export Trading Companies: What Role Will Port Authorities Play?" 2 pp. A former official of the Port Authority of NY & NJ surveys possible ways in which port authorities can get involved in forming ETCs. ; Ouida, Herbert. "XPORT Port Authority Trading Compa- ny." 2 pp. The project director of the Port Authority of NY & NJ explains what that organization has done to form an ETC. Payt, "How Agricultural Exporters, Cooperatives and Joint Export Marketing Groups Can Use the Export Trading Com- pany Act," 8 J. Agric. Tax'n & L 34 (1986). Petkanics. "The Export Trading Company Act of 1982: Are Banks the Answer to our Export Trading Problems?" 1 pp. Int'l Tax & Bus. Law. 196 (1983). Pinegar, "The Export Trading Company Act of 1982: An Overview," Int'l Bus. Law, November 1983, at 13. Price Waterhouse. "Business Views On International Trade In Services." December 1983. A survey questionaire of companies in Fortune's Directory of Service Companies. Price Waterhouse. "Demystifying ETCs," June 24, 1983. Report delivered by Price Waterhouse partner Gilbert Sim- onetti, Jr. to the Export Seminar in San Diego, California. Reinsch, "The Export Trading Company Act of 1981," 14 L. & PoLy in Int'l Bus. 47 (1982). Rosenthal, "The Export Trading Company Act of 1982: ImDli- cations for International Antitrust Enforcement," Private Investor Abroad, at 73 (1983). Ryan, "The Export Trading Company Act of 1982: Anti- trust Panacea, Placebo, or Pitfall?" Antitrust Bull., Fall 1983 at 501. Salhort, Anthony. "NVO/ETCs: Natural Affinity or Natu- ral Threat?" 2 pp. President of the International Associa- tion of Non-Vessel Operating Common Carriers explains how NVOCCs — trade intermediaries — can achieve the goals of the ETC Act. : Scally, Jack. "The Multinational Trading Company: Positive Force in U.S. World Trade," 3 pp. A manager of the General Electric Trading Company explains the evolution of that ETC. 2 Scouton, William. "Export Trading Companies: A New Tool for American Business." Business America. October 18, 1982. 4 pp. An International Trade Administration official explains and highlights the provisions under the ETC Act for banking and antitrust certification. Seberger, "The Banking Provisions of the Export Trading Company Act of 1982," 39 Bus. Law 475 (1984). Stow, "Export Trading Companies: An Update," Business America, January 20, 1986. Sylvester, "Exploring the 1982 Export Trading Companv Act," Nat'l L. J., December 12, 1983. "Symposium: Export Trading Companv Act," 2 B. U. Int'l L.J. (1983). The Export Trading Company Act. Practicing Law Institute (1983). Theiste, Harold A. "Piggy-Back Export Trading Compa- nies." 7 pp. A manager of Control Data Corporation describes the formation of and services provided by Control Data Commerce International, the international trading arm of CDC Unkovic, "International Opportunities and the Export Trading Company Act of 1982," BNA, 37 Corporate Practice Series (1984). Unkovic, "Joint Ventures and the Export Trading Company Act," 5 J. L. &Com. (1985). Unkovic & LaMont, "The Export Trading Company Act of 1982: Invitation to Aggressive Export Expansion," 87 Dick. L. Rev. 205(1983). U.S. Conference of Mayors. Exports and Economic Devel- opment: A Guidebook for Local Government Officials. Washington, D.C., July 1981. 82 pp. Victor, "The Export Trading Company Act of 1982: New Antitrust Protection for Exporters (and New Opportunities for Lawyers)," 52 Antitrust L. J. 917 (1984). Wakeford, Ronald C. The Formation of Export Trading Companies, 1982. 19 pp. Executive Director of the Council of Export Trading Companies reports on the development of the ETC Act, the types of possible ETCs, the services pro- vided, and the capitalization of ETCs. Ward, "Export Trade and Antitrust," 26 Res Gestae 290 (1982). Watson, "Export Trade is Not Just a Big-Bank Game," American Banker, December 1984, at 18. Weil, Frank A. Privatizing U.S. Industrial Trade Promotion (A Prefeasibility Analysis). National Chamber Founda- tion, April 1982. 34 pp. Analysis of "privatizing" — assign- ing to the private sector industrial trade promotion func- tions now performed by the government. Focuses on strengths and weaknesses of the U.S. industrial trade promotion system, the possible structure of a private trade promotion corpora- tion, and other trade promotional processes. Williams & Baliga, "The Export Trading Company Act of 1982: Nature and Evaluation," 17 J. World Trade L 224 (1983). Winkler, Joseph C. "An Alternative Option for U.S. Manu- facturers." 2 pp. Avoiding problems in controlling invento- ries, packaging, advertising and pricing which may occur when a firm begins to export. : Zarin, Donald. "The Export Trading Company Act: Reducing Antitrust Uncertainity in Export Trade." 17 Geo. Wash. J. Int'l L. & Econ. 29(1983). Zenderman, "New Law May Spur Technology Exports," High Technology, April 1983 at 84. A paper presented at the "Conference on Export Trading Com- panies," Executive Enterprises, Inc., December 10-11. 1981. Sheraton Washington. Washington. DC. A paper presented at the business symposium "How to Use Export Trading Companies to Penetrate Foreign Markets." Baruch College, City University of New York. December 9. 1982. Parker- Meridien Hotel. New York, New York. GOVERNMENT \bur Staff in Washington Wouldn't it be nice to have a Washington staff to keep you up-to-date on all you need to know to steer your exporting business on the fast track to success? 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