Congress passed the Export Trading Company Act of 1982 in October of that year. The act provides a means by which companies that want to function like Japanese trading companies can quiet their lawyers' fears about antitrust law violations: It allows export trading companies to work together in their export activities to fix prices, discuss selling opportunities, and the like. To protect against potential antitrust problems, a company may obtain a certificate issued by the Department of Commerce with the concurrence of the Department of Justice. Eleven months after passage, no certificates had yet been issued, although perhaps close to a dozen were pending (see "Trading Places" page 139).
All of the agencies involved in stimulating U.S. exports mean well, and they do their best. All do a fair amount of counseling and advising in a complex field. Some insure against political or commercial risk and lend money. But there is simply no way that the existing programs are sufficient to increase our foreign trade as much as is necessary.
We no longer have much choice about taking some new, substantially different initiatives in order to come to terms with an altered world economy. Small business people and entrepreneurs must find some new ways of promoting foreign trade. The problem has reached crucial proportions.
We have only to look to an already successful program to find a possible solution. The existing small business investment companies (SBICs) offer an important and useful model for structuring small business export trading companies. The leverage und tax attractions given to SBICs, in the form of low-interest federal loans at up to four times a company's available private capital, and various, substantial tax advantages, are essential to the SBICs' success. But they are less important than two other SBIC assets. Under the terms of an SBIC, private capital is at risk and has to be entirely lost before any of the federally borrowed funds are lost. And, the management must be private and entrepreneurial. The SBICs can make money for their stockholders only by helping other entrepreneurs make more money from the growth of their businesses.
The creation of new small business export trading companies (let us call them SBIECs), as part of a new small business export trading company act, would be a good start toward increasing small business participation in foreign markets. The act could be an amendment to the existing ETC Act, the Small Business Investment Act, or a wholly new bill. The form it might take is not important. What is important is that these new SBIECs would be set up along the same lines as SBICs. SBIECs should have the same beneficial interest arrangements as SBICs, the same kinds of entrepreneurial supports, and the same kinds of tax advantages.
The SBIECs would also have a similar function as SBICs do now. They would be mandated to provide long-term debt financing (discretionary in the case of SBICs); to buy equity only in those companies that plan to export; and to provide management counseling for a fee. They would be licensed by the government an d required to designate the countries and industries in which they intend to specialize, based on the expertise of the individuals associated with each one.
The new SBIECs would have the same eligibility as SBICs to borrow from the government from three to four times their privately raised capital at interest rates about one percentage point higher than the cost of money to the federal government. They would have this right because they would accept the risk inherent in assisting small exporting companies. Since this risk would fulfill a governmental goal -- promoting foreign trade -- SIBIECs should be given some incentive.
SBIECs also would have another reason for helping small trading companies. Money investd in them, as with SBIC's, would in turn, be invested in businesses on a long-term basis through the purchase of stock, or as shorter-term loans. SBIEC stockholders could make a profit only if the companies in which the SBIEC had invested were profitable. Therefore, any assistance SBIECs would give to businesses to boost their foreign trade would mean a very real benefit to the SBIEC's stockholders.
These new SBIECs could be limited, at first, to a certain number per geographical area. This limitation would foster some competitiveness and serve to weed out applicants that were not serious. The SBIECs should also be set up for an experimental period of 7 to 10 years. This would be a long enough time to test their effectiveness, allow them to make some long-term loans, and ensure that any problems would be recognized.
State and federal governments could also work in concert. If a state, for example, put $3 million into three separate SBIECs, the federal government could provide matching grants of money, debt, or equity. This action would help states with one of their major problems: job creation. Each state could choose the types of products and services in which to concentrate its efforts, thereby promoting the industries that would most help each local economy.
Certainly, some better plan than we have yet implemented could be found for increasing small business's share of foreign trade. There are people with the needed expertise and interest in both government and the private sector to help structure an effective program. Details of the ultimate plan are less important than ensuring that some kind of proposal be put into effect. The need is clear and urgent, the model is available, and the time is right. Now, the President, Congress, and the small business community must make it happen.
