As world economy, it is becoming clear that foreign trade is of critical importance to U.S. business. Despite years of federal legislative and administrative work on the issue, there still exists a huge gap between the expansion of export trade and what present federal programs are likely to produce. We still have urgent reasons for broadening our domestic base of foreign trade by expanding the number of companies that participate. The more widely income from foreign business and investment spreads through our own companies, the more diversified our domestic economy can become. And, the more resilience it will have in order to counter competitive shocks and defeats in individual industries.

Rep. Don Bonker (D-Wash.) pointed out in testimony before the House Foreign Affairs Committee that, "In the Pacific-rim countries, somewhere between 60% and 80% of their entire industrial output is now involved in the world market." In this country, 80% of our foreign trade is done by about 2,500 manufacturers, or about 1% of the total number of such companies. Our total share of world trade in manufactured goods fell 7% from 1960 to 1982, and our foreign trade deficit is expected to be around $65 billion in 1983. Profit from overseas investments can no longer be expected to wipe out that deficit.

Obviously, an increase-in exporting by smaller businesses will help to redress this imbalance. But, while there has been some legislative and administrative action aimed at increasing U.S. exports, none of these measures has been targeted at smaller companies.

The federal government has made two typical errors in the steps it has taken so far to promote foreign trade. First, it has forgotten how little credibility it has with small business. What small business people hear from their peers in the private sector is much more important to them when they are forming their opinions on any aspect of business, foreign trade included, than what the government tries to tell them.

In addition, any patchwork effort to add a small business afterthought to a program designed for large companies or "all businesses" cannot be expected to be accepted by small business. A small business person told that he and General Motors are to be accommodated by the same agency in the same program is unlikely to listen to anything after that.

Smaller businesses are enormously underrepresented in their share of exports. Based on the roughly 45% of the nation's sales that small businesses (500 or fewer employees) make up, they would have to do about $100 billion in exports to achieve a like proportion of the foreign market.

The federal government tried to promote foreign trading with the Overseas Private Investment Company (OPIC), which does business in about 100 lessdeveloped countries. Its principal activity in its first years -- the early 1970s -- involved insuring a handful of major banks and businesses against war, revolution, and political risks in foreign countries. In 1978, Congress began to push it toward a target of 30% of its transactions (not dollars) for smaller companies. OPIC's 1982 annual report has a two-page spread called "A Role for Small Business."

OPIC can now lend money, as well as provide insurance. But its business is "project financing," which traditionally means big money, big companies, and big construction. It has, however, worked to develop special programs for small contractors, and has a Direct Investment Fund reserved for use by small business. Its people are clearly trying. They have succeeded in boosting the small business share of the number of projects insured to 31%, or more than $123 million in coverage.

OPIC loans money to only a handful of smaller companies. And the definition of "small" would go down a little hard at a meeting of a typical Chamber of Commerce small business council. In general, only companies with sales of less than $125 million are eligible for loan guarantees and insurance. These companies can do business with only the more prosperous less-developed countries -- those with per capita income of $2,950 or more. That definition is apparently the one the agency uses for all its reporting.

Like OPIC, a great deal of the activity of the Export-Import Bank of the United States (Eximbank) has been geared toward helping the largest U.S. companies meet foreign competition abroad with insurance and guaranteed or direct low-interest loans. (Business Week magazine recently quoted a Westinghouse Electric Corp. executive as saying that a 1.5% saving in interest cost generally meant the ability to cut a price 5% in world trade.)

Tough as the task is, Congress never stops pushing Eximbank toward doing more for smaller companies. In both the House and the Senate, pending legislation would require the bank to use a stated share of its funds (in the Senate, not less than 10%; in the House, a percentage that would rise from 6% to 10% to 20% over a specified period of time) for small business.

Most recently, the bank itself stepped up its small business activity, conceding that it has been disappointed with its own business efforts. James E. Yonge, an Eximbank director with small business experience, has been placed in charge of the small business program. The bank also adopted a formal resolution committing itself to developing and implementing export trading company programs in cooperation with the [Small Business Administration]," to using the SBA's field offices, and to working with state governments and agencies. Eximbank has read the signs. In September of this year, it redefined small business using the same industry employment and sales standards that the SBA uses. And it has also provided an easy guideline to divide the export credit and guarantees between itself and the SBA. If the small company needs less than $500,000, the SBA will handle the transaction: if more funds are involved, Eximbank will take care of it.

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.