Johnson calls certificates of review a "cheap form of insurance" against these potential legal problems. Once XYZ Co., for example, is certified for its export activities, it cannot be sued for violation of antitrust laws by any federal or state agency or by a foreign company. Furthermore, a U.S. company that sues XYZ on the grounds that its business has been injured by the certified activities can sue only for the amount of the damages -- not triple the amount. "This is a significant change, because most antitrust lawsuits are initiated by people wbo are lured by the prospect of receiving a share of the treble damages," says Johnson. The act also states that a successful defendant must be reimbursed for its legal expenses by the plaintiff. Formerly, winning a case was a Pyrrhic victory for a defendant crippled by exorbitant legal costs.
One of the first applicants for a certificate of review under the new legislation was the U.S. Farm Raised Fish Trading Co., headquartered in Jackson, Miss., a consortium of catfish farmers and processors that are interested in developing foreign markets for their product. Although The New York Times food critic, Craig Claiborne, calls farm-raised catfish "the finest freshwater fish in America," a lot of folks fail to realize the distinction between farm catfish, raised on a high-protein diet of soybean meal, wheat, and corn, and its country cousin, which feeds along the bottom of southern rivers.
Inroads have been made in promoting the fish domestically (U.S. sales for the $150-million industry are growing at a rate of about 50% to 60% a year), but overseas sales remain "zilch," says Mark Freeman, executive vice-president of Catfish Farmers of America. By pooling their resources through a trading company, the catfish farmers and processors look forward to developing foreign markets for such items as fried catfish with hush puppies, catfish sushi, and catfish a la Russe.
The consortium's initial goal -- to evaluate the potential catfish market in Japan -- is modest, but, further along, the group plans to divide up foreign business, assign exclusive territories, and fix prices, once these activities are properly certified. "Free enterprise is fine for the U.S.," says Freeman, "but it isn t practiced that way in the rest of the world. The ETC Act legalizes a cartel and puts us on even footing" with foreign competitors.
Michael Henderson of UTG agrees that the certificate is worth applying for. In June, UTG's notice of application appeared in the Federal Register, requesting certification for designing and constructing hospitals; staffing and operating health-care facilities; selling health-care products; and providing data-processing services and medical-insurance plans. The company even asked to supply foodstuffs and tires. (Any commercial or financial information that UTG discloses to the government is not available to competitors, since the act exempts applicants from the Freedom of Information Act.)
If UTG receives approval -- which was expected at the end of September -- it plans to bring together suppliers of dental chairs, cabinetry, tires, and other goods. Suppliers can decide how they want to divide up the business and discuss creative financing and pricing. In effect, UTG acts as a packager, organizing the suppliers of goods and services. "That's attractive to the foreign customer who wants to deal with one group with a complete package of goods," says Tom Johnson.
Skeptics of the act's antitrust provision ask if it is realistic to expect a group of competitors, accustomed to fighting it out domestically, to sit in the same room discussing sensitive price issues. "The more competitors involved, usually the greater the conflicts," notes Richard V. L. Cooper, a partner in the Washington accounting office of Coopers & Lybrand, who has worked with several groups trying to form ETCs. He believes that the most successful joint ventures will be struck among companies dealing in complementary, rather than competitive, products. He also recommends to clients that, initially, only two or three companies join up to set the terms, then invite other investors to join under those guidelines.
Whether the new antitrust and banking legislation has any serious effect on the U.S. trade deficit -- or on the fortunes of smaller companies -- remains to be seen. By last August, only 18 companies had applied for antitrust certificatton, and 10 had announced their intention to form trading companies. These included Security Pacific Corp., Citicorp, and Walter Heller International.
The biggest problems for the banks are emotional rather than financial, says Ronald Guerriero, president of World Trade Group, a subsidiary of Bank of Boston, which offers market research and management services to exporters and importers. Most bankers, he says, don't have the constitution for trading. "They don't have a stomach for inventory risk, in spite of the fact that they do a lot of asset-based financing." Asks Guerriero, "What banker has ever had the visceral experience of sitting at a desk in a company with a warehouse full of jujubes and not knowing where he is going to sell them?"
But Guerriero believes that, if customers apply enough pressure, banks will become increasingly involved in foreign trade. "Even if a bank has no inclination for trade," he says, "if 10 of its customers get together and each put up $10,000, their $100,000 deposit would be a very erogenous zone for the bank." Adds Johnson of Baker & McKenzie, "Up until now, the banks have acted as if they are in the driver's seat. If small and medium-size companies get together, they can shop the banks." Johnson says comapanies can try to get the bank involved as an equity partner in exchange for their export financing business. Or the companies can form their own export trading company, then look for a bank to supply the financing and working-capital loans.
Congress hopes that government loan guarantees will provide a carrot for cautious bankers. The Export Trading Company Act directs the Export-Import Bank of the United States (Eximbank) to establish a program to help ETCs and other exporters in their working capital needs by providing short-term, pre-export loan guarantees. In the past, guarantees and financing were available only to cover specific export transactions and not for working-capital purposes.
