The Failure of the Export Trading Company Program
38 Pages Posted: 14 Feb 2009
Date Written: February 13, 2009
In 1982 Congress expressed concern over the massive and growing United States trade deficit, the competitiveness of U.S. firms in international markets, and the failure of small and medium sized U.S. firms to take advantage of export markets, The antitrust laws were identified as one of the principal culprits. The antitrust laws were criticized as too uncertain and as imposing a competitive disadvantage on U.S. firms competing against foreign firms not subject to similarly stringent national regulation. The antitrust laws were also believed to inhibit the formation of export joint ventures and the type of export trading companies successfully used in other countries.
Congress responded to these concerns by proposing two modifications to the antitrust laws with respect to export conduct. Congress proposed restricting jurisdiction in antitrust cases alleging a violation solely with respect to exports. Congress also proposed a more complex system where United States firms could apply in advance for certification that their export conduct was not a violation of antitrust laws. Ultimately, both proposals were enacted into law in the Foreign Trade Antitrust Improvements Act (FTAIA) and the Export Trading Company Act of 1982 (ETC Act).
Congress had numerous conflicting goals in enacting this legislative package. Congress hoped to benefit from all of the alternative export promotion bills being considered at the time, rather than having to pick and choose among them. Congress hoped that the resulting legislation would: 1) encourage the formation of well financed vertically integrated general trading companies along the line of Japanese general trading companies (sogoshosas) to assist United States exporters with all aspects of the exporting process; 2) allow competitors to jointly exploit market power abroad to offset the power of private cartels and foreign government enterprises; and 3) unleash a wave of export activity by small and medium sized firms previously restrained by uncertainty over the application of U.S. antitrust laws.
This article examines the Export Trading Company program (ETC program) and assesses its successes and failures. This Article suggests that Congress relied on empirical predictions and industry arguments of dubious validity in attempting to restructure the export segment of the industry by altering antitrust principles which were never a substantial impediment in the first place. This Article further suggests that Congress was unable to clarify what it wanted to accomplish in the export sector and enacted legislation incapable of achieving any of its mutually contradictory goals. This Article concludes that in implementing all of the competing proposals, instead of choosing among them, Congress created a program which created little incentive to export. Rather, the program affirmatively injured the state of competition policy in both foreign and domestic markets and the effectiveness of traditional antitrust enforcement.
Part I of this Article sets forth the modifications of the antitrust laws enacted in the name of promoting exports and reducing uncertainty. Part II examines the negligible impact of the ETC Act on the competitiveness of U.S. firms in the international market and on the structure of the export sector of the U.S. economy. Part III examines whether the ETC program has succeeded in reducing any actual or perceived risks which the antitrust laws inject into the export decisions of U.S. firms. Part IV explores the negative effects of the ETC program on the substance and enforcement of U.S. antitrust policy. Finally, Part V of this Article proposes the outright elimination or modification of the ETC program to enhance U.S. export competitiveness and lessen the damage to the U.S. enforcement of its antitrust law.
Keywords: Export Trading Company; sogososha; exports; subject matter jurisdiction; antitrust; Foreign Trade Antitrust Improvements Act, FTAIA, ETC, export cartel
JEL Classification: D40, F12, F13, K21, L40
Suggested Citation: Suggested Citation