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Export Trading Company Affairs (ETCA)
The Export Trade Certificate of Review Program - The Competitive Edge for U.S. Exporters
By Chris Gillis
In today's competitive business environment, no one is immune from the threat of litigation - especially shippers' associations.
Shippers' association in international trade are groups of companies that commonly use their combined freight volume and management power to secure better rates and service from transportation provided and to share other export-related costs, such as warehousing, distribution and finance.
Their ranks have swelled in recent years in ocean shipping since the implementation of the 1998 Ocean Shipping Reform Act.
Association members enjoy the ability to work together to further their business and financial interests. For outsiders, however, the associations conjure up images of cartels and abuse of market power. Worse, the associations could easily find themselves facing multimillion-dollar antitrust lawsuit from companies who blame them for lost business.
But there is a way for shippers' associations to protect themselves through a little-known U.S. Commerce Development program called the Export Trade Certificate of Review. Congress created this program 18 years ago under the Export Trading Act.
Shippers' associations find protection from damaging litigation under the 1982 Export Trading Act. The certificate gives holders and their members immunity from being sued by federal and state governments for collaborative activities specified in the certificate. The certificate holder and its members are allowed to recover millions of dollars in attorney fees from unsuccessful plaintiffs and reduces the maximum exposure< damages. single to triple>
"That's virtually unheard of in the U.S. antitrust law," said John T. Masterson Jr., Commerce's Deputy Chief Counsel for International Commerce. "Without the certificate's protection, you're betting the company if you have to go to court."
Commerce's Export Trade Certificate was challenged only once in court. In 1988, Horizon International sued Commerce and the Justice Department's Antitrust Division over the certificate issued to the Chlor/Alkali Producers International. The case was thrown out when the U.S. Appeals Court for the Third Circuit unanimously upheld the validity of the certificate.
There have since been three lawsuits filed against these certificates, but the plaintiffs dropped them.
Taking Chances. Most shippers' associations that are involved in ocean freight services operate within the legal framework of the Ocean Shipping Reform Act and the antitrust rules of the Justice Department.
The reform act defines a shippers' association as "a group of shippers that consolidates or distributes freight on a nonprofit basis for the members of the group in order to secure carload, truckload, or other volume rates or service contracts."
The wording hasn't changed from the act's predecessor, the 1984 Shipping Act.
The Justice Department first laid out its antitrust rules for shippers' associations during a luncheon speech by Charles F. Rule, deputy assistant attorney general of the Department's Antitrust Division, to the Chemical Manufacturers Association in October 1985.
The Justice Department used to require shippers' associations to submit a business review letter before setting up operations. These letters were closely scrutinized for signs of unfair market practices. Justice Department clearance could take up to a year.
The Department was particularly concerned about the abuse of "monopsony" power by shippers' associations - in other words, when the buyers of services begin to dictate prices to the seller. The Justice Department said monopsony may occur if a shippers' association controls more than 35% of the market.
The Justice Department also watched for priced-fixing by shippers' association and abuse of the system by individual member firms.
Additionally, the Department demanded that shippers' associations be managed by an independent third party with no direct affiliation to the firms which it represents.
Over the years, the requirement for the business review letter to be filed with the Justice Department disappeared, but the antitrust rules still apply the shippers' associations.
There's growing concern about whether some shippers' associations are staying within the legal guidelines of the Justice Department's rules. The Department may soon take another look at shippers' associations.
Most shippers' association managers say they're not big enough to reach the level of monopsony.
Extra Protection. But some shippers' associations say they're not taking any chances and have sought antitrust protection under Commerce's Export Trade Certificate of Review program.
"We got our certificate for the extra protection," said John S. Chinn, President of the U.S. Shippers Association and manager of international distribution for Air Products and Chemicals in Allentown, Pa. "It's a great tool."
The U.S. Shippers' Association represents 13 chemical firms in negotiating ocean transportation service contracts; inland transport to U.S. export terminals; packing and crating, leasing of transportation equipment and facilities; terminal storage, wharfage and handling; insurance, forwarder services; export sales documentation and services and customs clearance.
The shippers' association may currently not be involved in all these services, but it has the authority under the Commerce antitrust protection to do so in the future.
"I believe the Export Trade Certificate is unnecessary for your typical shippers' association that negotiates just ocean freight rates," said Peter Freedman, Washington counsel to numerous trade and transportation interests."But when shippers are considering to jointly market and sell products abroad or domestically, then the certainty offered by the certificates becomes more important and worth the extra effort to obtain."
There are other forms of antitrust protection, but they are more restrictive in their coverage than the Export Trade Certificate, such as the Webb-Pomerene Act and the Capper-Volstead Act.
The Webb-Pomerene Act program, which is managed by the Federal Trade Commission, covers only export associations. Its protection includes services such as U.S. transportation.
The Capper-Volstead Act provides antitrust protection to agricultural cooperatives that market their products in overseas markets. But it doesn't provide the protection if the cooperatives deal with outside members.
Shippers' associations, which do not operate under any particular antitrust protection program, manage themselves according to guidelines established by their antitrust attorneys.
The American-European Soda Ash Shipping Association (AESSA) has operated this way since 1993. Its members are FMC Corp., OCI Chemical Corp., AG Soda Corp., Solvay Materials, IMC Chemicals, and General Chemical.
"The purpose of AESSA is to allow our members to coordinate our logistics to Europe for rail transport and vessel charter," said Gregory J. Nikiper, Export Logistics Manager for FMC Corp. "We cooperate on scheduling and vessel utilization to optimize our distribution process and minimize our overall cost structure. It has been successful due to the cooperation and trust of its membership."
Thorough Process. The process to obtain an Export Trade Certificate is thorough. Members of the shippers' association must submit detailed information about their business generally to a lawyer or consultant representing the group. The information is compiled into an application and given to Commerce's Office of Export Trading company Affairs in Washington for review.
An antitrust economist, a department attorney and an international trade specialist review the application. The Commerce Department has 90 days to approve or reject the application. Certificates are issued in concurrence with Assistant Attorney General in charge of the Justice Department's antitrust Division.
"We do our homework in the review process," said Vanessa M. Bachman, Deputy Director of Commerce's Office of Export Trading Company Affairs. "If we find that hurts domestic competition, we won't grant the protection."
Commerce has not rejected many applications. Usually, it will ask for more information from applicants if questions arise during the reviews.
Besides shippers' associations, the certificates may be obtained by other export-related entities, such as manufacturer associations, agricultural cooperatives, port authorities, export intermediaries and joint ventures.
Commerce conducts annual reviews of certificate holders' activities. Additionally, certificate holders must amend their certificates when changes are made within the group's membership. For some shippers' associations this may be a difficult task if their members are continuously bought and sold.
The First International Shippers' Association, a group of fish exporters in the Pacific Northwest, became one of the earliest participants in the Commerce program in 1985. But the group eventually disbanded and dropped its certificate when the fish market changed, said Freedman, who set up the group and managed its legal affairs until 1992.
Only about 180 certificates have been issued by Commerce since 1982. The Department estimates that as many as 5,000 U.S. firms are operating under the antitrust protection. In 1998, these firms handled over $30 billion in exports.
Because of resource constraints, Commerce has been unable to promote the program as much as it planned in recent years, and hopes more exporter groups will take advantage of its benefits.
The staff of the Office of Export Trading Company Affairs will provide free and confidential guidance to applicants. "We found them to be extremely helpful, " Freedman said.
Commerce says that all materials submitted in connection to the certificates are exempt from the Freedom of Information Act. There are also no application fees.
The future of Export Trade Certificate of Review program appears to be in good shape since it continues to have strong bipartisan congressional support. It also promotes U.S. exports. For more information, shippers can access the Internet site, Export Trading Company Affairs.
Reprinted from American Shipper March 2000.