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Table of Contents
I. Introduction
II. Factors to Consider in Deciding Whether to Seek a Certificate
of Review under Title III
III. Eligibility Criteria
A. Eligible Applicants
B. Conduct Eligible for Certification 1. Export Trade 2. Export Trade Activities and Methods of Operation
IV. Certification Standards A. The First Standard - Substantial Lessening of Competition or Restraint of Trade
B. The Second Standard - Unreasonable Price Effects
C. The Third Standard - Unfair Methods of Competition
D. The Fourth Standard - Resales In the United States
V. Application of Certification Standards to Specific Conduct in Export Trade
A. Vertical Restraints
Example 1: Exclusive Export Intermediary for U.S. Manufacturer
Example 2: Export Intermediary Handling the Products of Competing U.S. Exporters
Example 3: Manufacturers Acting as Export Intermediary for Competitors
Example 4: Vertical Aspects of Competing Manufacturers Exporting through a Joint Export Association
B. Horizontal Restraints
Example 1: Joint Export Marketing and Sales Association
Example 2: Planning for Joint Export Marketing and Sales
Example 3: Joint Buying
Example 4: Joint Export of Services
C. Technology Licensing
Example: Exclusive Foreign Licensee
D. Sales to or financed by the U.S. Government VI. Helpful Hints
A. Pre-Application Counseling These guidelines set forth the factors a firm should consider in deciding whether to apply for a Certificate of Review, the purpose of the certification procedure, the protection conferred by the Certificate of Review, and the persons and conduct eligible to receive certificatation. The guidelines include a discussion of the four certification standards in Title III, the application of those standards to specific kinds of export conduct and advice about the application process.
B. Supplemental Information Requests The Export Trading Company Act of 1982 [1] (the ETC Act or the Act) is intended to increase U.S. exports of goods and services primarily by removing two impediments: (1) Restrictions on bank investment and certain export financing, and (2) the uncertainty regarding the application of U.S. antitrust laws to export activity. To remove these impediments to exporting, the ETC Act makes several changes to applicable banking and antitrust laws. These changes are reflected in four titles that are largely independent of each other.
Title I establishes an office in the Department of Commerce to promote the formation of export trade associations and export trading companies (ETCs) [2]. No particular structure is required of an ETC. An ETC is an entity that links U.S. producers of goods and services with foreign markets. Under Title I, the Office of Export Trading Company Affairs provides counseling about Title III and the Act, and has initiated the Exporter's Yellow Pages, which allows foriegn buyers to source U.S. products and services, and which allows U.S. suppliers to locate export partners and export intermediaries.
Title II permits eligible banking entities to acquire, subject to certain limitations, up to 100 percent of the stock of an ETC.[3] It also improves exporters access to working capital financing by establishing a loan guarantee program at Eximbank.
To reduce antitrust uncertainty, Congress enacted a regulatory certification procedure under Title III and a statutory clarification under Title IV. Without amending the antitrust laws, Title III creates a certification process which enables an exporter to receive an advance determination about its specified export conduct. The Certificate confers significant protection for the specified export conduct from federal and state government antitrust suits.[4] A Title III Certificate of Review also reduces an exporter's private action liability from treble to single damages for the certified conduct.
Title IV directly amends the Sherman and Federal Trade Commission Acts to clarify how they apply to export commerce.[5]
II. Factors to Consider in Deciding Whether To Seek a Certificate of Review Under Title III
Persons involved in export trade who are deciding whether to apply for a Certificate of Review under Title III should first identify and assess the antitrust risks associated with their proposed export conduct. To focus this assessment, it is helpful to consider, for example, whether a competitor, a customer, or a state government might bring a lawsuit asserting that the proposed export conduct violates U.S. antitrust law.
Next, a potential applicant should review the costs and benefits of applying for Title III certification. The two most significant benefits of a Certificate of Review are virtual immunity from government antitrust suits and procedural advantages in private suits. The Certificate holder and the members identified in the certificate, have virtual immunity from federal and state government civil and criminal antitrust or unfair competition suits.[6] This virtual immunity extends to the export conduct specified in the Certificate and carried out during the effective period of the Certificate in compliance with its terms and conditions. The only exception to this immunity is that the Justice Department may bring an action against the certificate holder to enjoin conduct threatening clear and irreparable harm to the national interest. [7]
The procedural advantages that a Certificate of Review provides to the certificate holder and its members in private actions by persons who claim to have been injured by the certified conduct are: (1) A reduction in liability from treble to single damages, (2) a shorter statute of limitations for bringing an action, (3) a rebuttable presumption that the certified conduct is permissible. and (4) the recovery by a prevailing certificate holder of the costs of defending the suit, including a reasonable attorney's fee.
A. Benefits of Virtual Immunity
The virtual immunity and the procedural advantages provided by Title III can reduce antitrust risks and uncertainty by deterring lawsuits of dubious merit. Moreover, a Certificate of Review can remove the uncertainty and risks associated with gray-area conduct by giving an exporter an opportunity to confirm the often qualified conclusions of counsel that particular export conduct is not likely to violate the antitrust laws.A governmental determination not to grant a Certificate is subject to judicial review and the agencies must give reasons for the denial; therefore, a firm can obtain a definite answer about gray-area conduct. If a certificate is not granted. neither the denial nor the reasons for it are admissible in any administrative or judicial proceeding in support of any claim under the antitrust laws. Finally, Title III protections can apply not only to the actual operation of an export entity but also to its planning activities.
B. Costs of Applying for a Certificate of Review
The costs of applying for a Certificate of Review are time, money and disclosure of confidential information. An applicant will spend time and money in: (1) Preparing the application and responses to supplemental questions, if any, (2) discussing the proposed conduct and the form of the Certificate with the government after the application has been filed, and (3) carrying out post-certification requirements, such as submission of annual reports. Certain of these costs can be significantly reduced by taking advantage of the pre-counseling provided by the Office of Export Trading Company Affairs, as described in Part VI.The possible disclosure of confidential business information to the federal government is another potential cost of Title III certification. The application form for a Certificate of Review requires some disclosure to the federal government of information about the applicant's business plans, sales, and markets. In addition, the government may ask supplemental questions about other confidential information, such as an applicant's contracts, suppliers, customers, or joint venture arrangements.
Title III and its implementing regulations, however, place significant restrictions on the disclosure of confidential information provided in an Application for a Certificate of Review. Any information submitted in connection with an application is exempt from disclosure under the Freedom of Information Act. Also, the government is prohibited, except in rare instances, from disclosing confidential commercial or financial information that would cause harm to the person that submitted it. Even though summaries of the application and certificate are published in the Federal Register and although the entire Certificate is available to the public, government officials and Certificate applicants have been able to draft these publicly available materials so that no confidential or proprietary information need be disclosed.
C. Limitations of Certificate Protection
While a Title III Certificate of Review provides significant protections, potential applicants should be aware of its limitations. The Certificate provides no protection for persons not identified as an applicant or members in the certificate. Moreover, conduct that falls outside the scope of the Certificate or violates its terms remains fully subject to criminal sanctions, as well as both private and governmental civil enforcement suits under U.S. antitrust laws. Furthermore, a Certificate obtained by fraud is void from the beginning and, thus, provides no protection. Finally, applicants should be aware that other nations have antitrust or competition laws with which they must comply. The Certificate does not confer immunity from these foreign laws.
Anyone who is a person within the meaning of that term in Title III is eligible to apply for a certificate.
The term "person" means an individual who is a resident of the United States: a partnership that is created under and exists pursuant to the laws of any state or of the United States: a state or local government entity; a corporation, whether organized as a profit or nonprofit corporation, that is created under and exists pursuant to the laws of any state or of the United States; or any association or combination, by contract or other arrangement, between or among such persons.[8]
Under this definition, any individual or legal entity that is either a resident or citizen of the United States can apply for a Certificate under Title III.
Unlike Title II, the Bank Export Services Act which applies only to bank affiliated ETCs and unlike the Webb-Pomerene Act, which applies only to associations engaged solely in export trade, Title III permits any U.S. exporter to apply for and be issued a Certificate of Review, regardless of its legal form and range of activities.[9]
An entity calling itself an ETC is not required to obtain a Title III Export Trade Certificate of Review. Nor is a firm required to be an ETC to obtain a Certificate; under Title III, a single U.S. company can apply for certification even if its export trade is only a small part of its total operations.
A foreign company cannot seek a Certificate because it is not a person. U.S. subsidiaries of foreign companies, however, are eligible to obtain a Certificate. Moreover, foreign companies can receive the protection of a Certificate by becoming members of an eligible applicants' Certificate.[10]
B. Conduct Eligible For Certification
Under Title III, Certificates of Review may be issued only with respect to export trade, export trade activities and methods of operation [11] The agencies will determine whether the conduct proposed for certification falls within these definitions before considering whether the conduct meets the four certification standards of Section 303(a) of Title III. Conduct that constitutes export trade, export trade activities or methods of operation is eligible for certification. Conduct that does not constitute export trade, export trade activities or methods of operation is not eligible for certification.
1. Export Trade. Title III defines export trade to be trade or commerce in goods, wares, merchandise, or services exported, or in the course of being exported, from the United States or any territory thereof to any foreign nation. [12] Title III does not require that the goods or services for export must be produced in the United States.
Even though the goods or services have not yet been exported by the applicant or its members, they may fall within the definition of export trade and, therefore, be eligible for certification, if they are in the course of being exported. For example, the sale of a product within the United States, if the product is to be exported, may in some circumstances constitute export trade. However, the production in the United States of goods will not ordinarily be considered as export trade even if the goods produced are destined for export. Nothing in Title III prevents an export venture from engaging in manufacturing activities or any other activities, such as import or domestic trade. Such activities would not, however, be eligible for certification, and would remain subject to the normal application of the antitrust laws.
In order to qualify as export trade, goods or services must ultimately be exported from the United States or any territory thereof to any foreign nation. [13] Although it will not often be an issue, questions could be raised as to when goods and services are exported from the United States or any territory thereof. For example, fish that are caught by U.S. flag vessels within U.S. waters and sold at sea would be considered to be exported from the United States. [14]
The definition of export trade does not require that the goods or services to be exported be produced in the United States. For example, sales abroad of foreign-made products that were imported into the United States and then exported to a foreign country qualify as export trade as do the sales abroad of goods assembled in a United States foreign trade zone from imported parts.
In addition to goods and services that are to be exported, the definition of export trade includes export trade services. Export trade services are services that are provided exclusively to facilitate the export of goods or services. Examples of export trade services include the sale and shipment of goods or services abroad, advertising in the export market, international market research, product research and design exclusively for export, joint trade promotion, financing, communication and processing of foreign orders, and negotiating export contracts with foreign buyers.[15]
2. Export Trade Activities and Methods of Operation. As a matter of practice, the agencies distinguish between export trade and export trade activities and methods of operation. Export Trade refers to what the applicant exports, and export trade activities and methods of operation refers to how the applicant exports. Title III defines export trade activities as activities or agreements in the course of export trade and defines methods of operation as any method by which a person conducts or proposes to conduct export trade. [16] Proposed activities, agreements or methods of conducting business will be eligible for certification if they fall within these definitions. It is not important whether proposed conduct is best characterized as an export trade activity or a method of operation, so long as the proposed conduct constitutes one or the other.
It is especially important that applicants specify their export trade activities and methods of operation since the Certificate's protection is limited to the specific conduct that is described in the certificate.
Agreements in the course of export trade (export trade activities) might include agreements among the members of a joint export entity on the allocation of export shipment, agreements setting prices or other terms and conditions of purchase or sale for or in foreign markets, and distribution agreements for export.
The applicant's methods of operation might include such mechanisms as using exclusive or non-exclusive export distributors, selling on consignment, and using a resale price maintenance program for its foreign sales. Methods of operation eligible for certification might also include the organizational and managerial aspects of the export venture, such as the manner in which the overseas prices will be established, the role members will play in the management decisions of the venture, the manner in which business information will be disclosed to or exchanged between members and/or non-members, and restrictions on the activities of members in export markets or on their withdrawal from the export venture.
While, as a general matter, certification is not available for overseas investment activities, investments that are integral to the export of goods or services may in some circumstances be eligible for certification. For example, investment in warehouse facilities overseas to store exported products until transferred to the foreign purchaser would ordinarily be eligible for certification. Similarly, although the production or manufacture of products ordinarily would not be eligible for certification, minor product or packaging modification activities necessary to insure compatibility of the product with the requirements of the foreign market could be considered an export trade activity eligible for certification.
Proposed export trade, export trade activities and methods of operation may be certified if such conduct will
(1) Result in neither a substantial lessening of competition or restraint of trade within the United States nor a substantial restraint of the export trade of any competitor of the applicant,
(2) Not unreasonably enhance, stabilize, or depress prices within the United States of the goods, wares, merchandise, or services of the class exported by the applicant.
(3) Not constitute unfair methods of competition against competitors engaged in the export of goods, wares, merchandise, or services of the class exported by the applicant, and
(4) Not include any act that may reasonably be expected to result in the sale for consumption or resale within the United States of the goods, wares, merchandise, or services exported by the applicant.
Title III is intended to eliminate uncertainty concerning the applicability of the antitrust laws to conduct in export trade and thereby to promote exports. Congress did, however, provide for a single-damage remedy against certified conduct by a Certificate holder that is subsequently determined by a court he inconsistent with Title III standards.
A. The First Standard: Substantial Lessening of Competition or Restraint of Trade
Under this standard, conduct will be certified unless it results in a substantial lessening of competition or restraint of trade in the domestic market or a substantial restraint on the export trade of U.S. export competitors. To determine whether the proposed conduct will result in a substantial lessening of competition or restraint of trade within the United States, the analysis will look to the overall purpose and effect of the activities on competition in the domestic market. If the conduct will not substantially lessen competition in a domestic market, it will be certified.
A determination as to whether proposed conduct will substantially lessen competition in domestic markets will often require an analysis of the market structure in the United States for the goods and services to which the proposed conduct will apply.
An evaluation of whether proposed export conduct will be likely to substantially restrain the export trade of a competitor of the applicant will focus on the purpose and effect of the conduct. For example, conduct that is predatory, or that denies an export competitor access to an essential facility and thus prevents it from competing for exports would not be certified.[17] However, instances of conduct that would be violative of this standard are likely to be rare.[18] In particular, this standard is not applied to vigorous competition. Such competition would be consistent with this standard even if it improves the competitive position of the applicant as compared to other U.S. export competitors. Certification in such circumstances may be possible even if the applicant accounts for a substantial share of the U.S. supply of a product or service.[19]
B. The Second Standard: Unreasonable Price Effects
The second standard requires the analysis of the purpose and likely effect upon domestic prices of the proposed export conduct. In practice, export activities creating unreasonable domestic price effects are likely to be rare. Under this standard, an effect on domestic prices resulting from export sales that are a legitimate business response to demand in foreign markets, will in itself not constitute an unreasonable effect on domestic prices. However, an increase in domestic prices that results from anti-competitive behavior directed at the domestic market will be unreasonable. For example, if the purpose of proposed conduct is to manipulate domestic prices, directly or indirectly through the manipulation of domestic supplies, certification will be denied.
C. The Third Standard: Unfair Methods of Competition
Under this standard, proposed conduct that is anti-competitive and likely to substantially restrict the exports of U.S. export competitors will not be certified.
Conduct that would violate the last part of the first standard-that would substantially restrain the export trade of a competitor-would also be likely to violate this standard. The mere fact that conduct would lead to export sales by the applicant or its members that would displace sales of other U.S. exporters would not be grounds in itself for denying certification.
D. The Fourth Standard: Resales in the United States
The fourth standard seeks to ensure that anti-competitive effects, if any, of proposed export conduct are not felt in the United States through subsequent re-importation of the exported goods or services into the United States. It is intended to ensure that the antitrust protection afforded by Title III will not be given for conduct which, while ostensibly involving exports, has a significant impact in the domestic market.
Under the standard, the agencies look at whether the applicant reasonably expects the exported goods or services to reenter the United States for sale or consumption within the United States, and if so, whether such sale or consumption within the U.S. may have a substantial domestic impact in the relevant product markets. The fact that exported products or services are incorporated into finished products overseas or are significantly transformed in their character and then exported back into the United States would not be a basis for denial under this standard.
V. Application of Certification Standards to Specific Conduct in Export Trade
Vertical restraints are arrangements between firms operating at different levels of the distribution chain (for example, between a manufacturer and a wholesaler or a wholesaler and a retailer) that restrict the conditions under which firms may sell or customers may purchase products. Although vertical restraints can take a variety of forms, most restraints can be placed in one of three categories:
(1) Territorial and Customer Restraints -Restrictions on the territories in which, or customers to which, a buyer is permitted to resell goods purchased from including location clauses, areas of primary responsibility, and profit pass over arrangements.
(2) Exclusive Dealing Arrangements - Requirements that a buyer deal only with a particular seller or that a seller deal only with a particular buyer or group of buyers, including exclusive distributorship and requirements contracts.
(3) Tying Arrangements - requirements that a buyer desiring to purchase one product ("the tying good") from a seller also purchase a second product ("the tied good") offered by the seller.
Vertical restraints in the course of export trade can take various forms and arise in various contexts. A U.S. producer might grant exclusive distribution rights to an export intermediary and might impose territorial, customer, price, and other restrictions on such intermediary. The inability of a producer to deal with certain export intermediaries in light of, or because of, supply agreements between itself and other export intermediaries is another kind of vertical restraint. A vertical restraint could also take the form of a requirement by a U.S. exporter that its export intermediaries deal only in the exporter's products for export or a requirement that such intermediaries purchase certain products from it as a condition of access to other products.
Each of these vertical restraints might have some restrictive effect on the ability of particular exporters to export. In most cases, however, these restrictions are legitimately imposed by a supplier of products in order to increase the competitiveness of its products in export markets.
Vertical restraints in export trade ordinarily do not have a substantial anti-competitive effect in violation of the Title III standards. Therefore, unless such restraints will be likely to lead to the achievement or maintenance of market power or to the coordination of price or output levels within the United States, they generally will be consistent with the Title III standards.
Examples of Vertical Restraints
The following examples are intended to give guidance in determining when proposed vertical restraints satisfy the four standards. They are illustrative and not comprehensive.
Example 1: Exclusive Export Intermediary for U.S. Manufacturer
Rubber-King, a U.S. manufacturer of automobile tires accounting for 50 percent of U.S. domestic sales of tires, wishes to appoint ETC, a non-manufacturing U.S. export intermediary familiar with European markets, as its exclusive distributor for Europe. For the last five years, Rubber-King has used Blooper, another U.S. based export intermediary, as its exclusive distributor for Europe. Now Rubber-King has become dissatisfied with Blooper's efforts and has decided not to renew its distributorship agreement with Blooper at the expiration of its term. In its proposed exclusive distributorship agreement with FTC, Rubber-King intends to include provisions (i) preventing ETC from reselling Rubber-King's tires except in Europe; (ii) preventing ETC from selling Rubber-King's tires at a price lower than a specified minimum price in certain European countries; (iii) requiring ETC to purchase a full line of automobile tires for export to Europe; and (iv) requiring ETC not to purchase or deal in automobile tires for sale to Europe except from Rubber-King. Finally, the proposed agreement would obligate Rubber-King to impose restrictions on its other distributors to prevent their shipment of its automobile tires to Europe. Rubber-King and ETC have jointly applied for a Certificate of review covering the restrictions described above as well as Rubber-King’s refusal to renew its distributorship agreement with Blooper or to supply Blooper with tires.
Discussion
A Certificate of Review would likely be granted to the applicant in the circumstances outlined above because none of the vertical restraints would be likely to substantially restrain competition in the United States. Thus, even though Rubber-King has a significant market share, the grant of exclusive rights to ETC and the refusal to renew Blooper's distributorship agreement or to supply it with tires would be consistent with Title III's standards, since these actions would have no substantial anti-competitive effects within the United States. The refusal to renew the agreement with Blooper or to sell tires to it might limit Blooper's export of tires. Such a limitation, however, would not be inconsistent with the Title III standards. Rubber-King seems to have a reasonable business justification for replacing Blooper and, more importantly, any resulting damage to Blooper would be unlikely to substantially lessen competition in domestic markets. The restriction that prohibits ETC from selling in the U.S. does not substantially lessen competition in the U.S.: such territorial restrictions are usually unobjectionable vertical restraints. Also, the territorial and price restraints that apply to ETC's sales in foreign markets would not have any anti-competitive effect in the United States.
Finally, the exclusive dealing and full-line purchase obligations imposed on ETC would not be inconsistent with Title III's standards. These obligations would have the effect of preventing U.S. tire manufacturers other than Rubber-King from using ETC as a European distributor. Nevertheless, the fact that the proposed conduct might result in such a limitation would not violate the Title III standards if, as would be true normally in the case of exclusive dealing obligations, the conduct would not be expected to result in a substantial restraint on competition within the United States. It is unlikely that the restriction in this case would significantly limit the ability of Rubber-King’s competitors to export.
Example 2: Export Intermediary Handling the Products of Competing U.S. Exporters
IPORT is a newly-formed export trading company that intends to export a variety of products purchased from a number of suppliers, including competing domestic suppliers. IPORT does not at present know who its U.S. suppliers or foreign distributors will be. Nonetheless, it would like to obtain a Certificate of Review covering its entering into agreements under which it would be an exclusive distributor for any supplier and would agree not to deal in export trade in the products of that supplier's competitors unless authorized by the supplier. In addition, it would enter into agreements under which it would grant exclusive distributorship to foreign entities and oblige such entities not to deal in goods competing with those supplied by IPORT.
Discussion
Exclusive arrangements such as those described above involving a company such as IPORT would not normally have a substantial anti-competitive impact in any U.S. market. In light of the fact that IPORT is a small, new export intermediary, it seems unlikely that its entering into exclusive arrangements with any individual supplier or with any export distributor would substantially restrain U.S. competition through effects on competing suppliers.
The certification of IPORT to represent a number of suppliers, however, raises the possibility that IPORT could become the exclusive export distributor for competing manufacturers. To clarify that IPORT is not certified to engage in joint discussions with competing producers, the Certificate will be limited to only individual negotiations and agreements between IPORT and its suppliers unless IPORT can demonstrate that in particular product markets broader certification would be appropriate. In addition, in order to avoid the possibility that IPORT could disclose competitively sensitive information obtained from one supplier to competing suppliers, the Certificate would normally contain a condition stating that IPORT will not intentionally make such disclosures. If IPORT needed to exchange certain sensitive business information in order to engaged in export trade, it might be possible to grant a Certificate of Review for such exchanges if IPORT specifically described the products or suppliers involved and if the domestic market for the product were competitive and had structural features indicating that successful price or output coordination would not be likely to occur. In such cases, the agencies may place in the Certificate limitations on the nature of information to be disclosed and the manner in which it would be exchanged.
Example 3: Manufacturer Acting as Export Intermediary for Competitors
Erektor is a U.S. manufacturer of electric motors that accounts for 5% of sales of such motors in the U.S. market. Erektor is capable of producing the entire range of such motors currently used but has concentrated on sales of smaller sizes of motors. Erektor is currently exporting motors but is hampered in its export sales by its lack of a complete line of sizes: therefore, it wishes to enter into exclusive or nonexclusive agreements with other U.S. manufacturers of motors under which it would distribute their motors in foreign markets. Without identifying particular suppliers, Erektor has asked that a Certificate of Review covering such conduct be issued. The electric motor markets in the United States are not particularly susceptible to coordination of domestic prices or output. Entry barriers are not significant and manufacturing economies of scale can be achieved at a production level of one percent of current industry output. The industry is relatively unconcentrated; in any relevant product market, the largest firm accounts for 10% of sales, two other firms each account for 8%, four firms each account for 5% and 30 other firms account for the remainder of sales.
Discussion
In these circumstances, a certificate of review would likely be granted to Erektor for its individual export distribution agreements with other suppliers of electric motors. It is conceivable that the existence of exclusive export distribution agreements between producers accounting for a large percentage of industry sales and one of their competitors could adversely affect domestic competition in certain product markets. However, entry into the relevant product markets in this example is easy, and the markets are unconcentrated and appear to be competitive. These factors make it unlikely that coordination among the firms could effectively raise U.S. prices. Thus, these factors minimize the risk that the exclusive arrangements in this case will have a substantial anti-competitive effect. Furthermore, if Erektor considered that the disclosure to its suppliers of specific types of information (e.g., information relating to bid requirements or purchase specifications) obtained by Erektor from any of them to be reasonably necessary to success in distribution, it could request that it be certified to make such specific disclosures. If the exchange of the specified information would be unlikely to risk anti-competitive domestic effects, certification could be granted.
Erektor conceivably could enter into individual exclusive distribution agreements with manufacturers accounting for a large percentage of industry sales of electric motors. In such a case an issue would be raised as to whether the exclusive arrangements, which would deny other export intermediaries handling exports of electric motors access to one possible source of supply, would violate the standards of the statute by producing a substantial anti-competitive effect in the United States. Since these standards encompass the antitrust laws and those laws protect competition, not competitors, the mere fact that some exporters would be disadvantaged would not be sufficient to demonstrate an inconsistency with the standards. These exclusive export agreements appear unlikely to affect competition in the sale of electric motors within the United States. Accordingly, they likely would be certified.[36]
Because only Erektor sought certification, the protections of the certificate would extend only to Erektor. Erektor would be protected for its agreements with others as specified in the certificate, but the other parties to such agreements would not be protected, unless they ask for protection as an applicant or member.
Example 4: Vertical Aspects of Competing Manufacturers Exporting through a Joint Export Association
Bubbles, Blossom, Buttercup and Utonium are manufacturers of a particular chemical, chemical X, accounting for 45 percent of U.S. domestic sales of the product, who wish to enter into an agreement to form an export association, Chem-X. One of the provisions of the proposed agreement would require Bubbles, Blossom, Buttercup and Utonium to sell the chemical for export only through Chem. X and would prevent them from independently exporting the chemical either directly or indirectly through other U.S. export intermediaries. Exports of the chemical have been minimal because of strong competition in the consumer countries from non-U.S. firms. Joint export marketing is expected to provide significant transportation and distribution cost savings. Bubbles, Blossom, Buttercup,Utonium and Chem-X have applied for a Certificate of Review covering their agreement to export exclusively through Chem-X and to refrain from directly or indirectly exporting chemical X independently.
Discussion
It seems likely that a Certificate of Review could be granted covering the proposed restriction. The grants of exclusivity to Chem-X, in themselves, would not be likely to have any anti-competitive effects in the U.S. market. It would seem that the exclusivity granted to Chem-X would be reasonably necessary for Chem-X to prevent the firms from individually obtaining a free ride from Chem-X's marketing efforts. [20]
The analysis under Title III's certification standards of joint export activity among competitors will focus or whether the conduct is likely to have a substantial anti-competitive effect in a U.S. market. This is essentially a two-part test. First, the agencies will analyze whether the joint activity is likely to have any anti-competitive effect on U.S. commerce. If it is incapable of having any anti-competitive impact in the United States, the collective export activity will be certified. Examples of such conduct include the joint setting of prices and quantities at which products are sold in export markets if the products by law cannot be sold in the United States and the exchange among competing U.S. sellers of information relating exclusively to exporting or export markets (e.g. identification of customers in any export market). Second, if there is potential for anti-competitive spillover affecting U.S. markets, then the agencies will analyze whether the formation or contemplated operation of the joint entity is likely to substantially restrain or lessen competition within U.S. commerce. Generally, anti-competitive spillover may occur if competitors, in the process of engaging in export trade, share price or other sensitive business information relating to their respective U.S. sales or if competitors manipulate domestic prices through the manipulation of domestic supply.
The framework for analyzing whether there is likely to be a substantial anti-competitive effect in the United States is similar to that for analyzing joint ventures or mergers.[21] In analyzing the export conduct sought to be certified, the agencies will evaluate the economic characteristics of the domestic market in order to assess whether a market is likely to be conducive to domestic price or output coordination.
In evaluating the domestic market structure, the agencies will first undertake to define the relevant product and geographic markets in which to assess the anti-competitive effects of the joint export activity.
After determining the relevant market, the agencies will examine the market's structure in order to assess whether its economic characteristics are conducive to developing and maintaining a consensus on domestic price levels and output rates. As a first step, the agencies will assume that the competitors merged and focus on the post-merger market concentration, a function of the number of firms in a market and their respective market shares. Treating the participants in a joint export venture as a merged entity is a useful threshold test, because for joint ventures with small market shares in markets with a low degree of market concentration (e.g. 20 approximately equal-sized firms in the market and the four joint venture participants have a total market share of 20%), the agencies will be able to determine without a detailed examination of other economic characteristics that the joint venture poses no substantial threat to competition in the United States. In other cases, however, the agencies will proceed to examine a variety of other economic characteristics relevant to determining whether the market is predisposed to effect coordination of domestic price levels and output rates and, therefore, whether the joint export entity is likely to be a substantial restraint on domestic competition. Such characteristics include; (1) The ease of entry into the market by other firms, (2) the ease with which firms in an industry can expand supply; (3) the homogeneity of a product across producers: (4) the existence of large buyers; (5) whether the participants have in the past effectively coordinated domestic price levels or output rates: and (8) whether domestic demand is stable or variable.
If an assessment of domestic market concentration in light of these other structural characteristics leads the agencies to conclude that the joint export entity is likely to have substantial restraining effects in domestic competition, the agencies may find it necessary either to limit significantly the activities that may be certified or to impose safeguards on certified activities, such as an information exchange limitation. However, even in a concentrated market, the absence of certain other characteristics listed above may lead to the conclusion that successful price and output coordination would be unlikely and that, therefore, certification would be possible for joint export activities with few or no limitations. Particularly where competitors intend to cooperate only on a single contractor where contacts among them are to be infrequent, the likelihood of a substantial anti-competitive impact is reduced because there would be no continuing opportunity for coordinating domestic price levels or output rates.
An issue of particular concern for applications involving domestic competitors is the possibility of sharing price and other sensitive business information in connection with export conduct. In some situations, such exchanges are likely to have anti-competitive effects because the information can be used for coordinating domestic price levels or output rates, In other situations, however, sharing such information is not conducive to coordination of domestic prices or output and, thus, is likely not to have an anti-competitive effect.
In determining whether to certify exchanges of such information among domestic competitors, the agencies wilt carefully scrutinize the application in a manner similar to other joint activities. The agencies will ordinarily place a condition in the Certificate stating that the certified parties will not intentionally make exchanges of competitively sensitive information except as explicitly certified. The agencies would certify such exchanges if it can be shown that the sharing of information is in the course of export trade and is unlikely to have a substantial anti-competitive effect in U.S. markets either because the nature of the information is incapable of affecting US. competition or because the economic characteristics of the relevant markets indicate that the exchange is likely to have a pro-competitive or competitively neutral effect. If they have insufficient information about the proposed conduct or about the specific product markets or domestic competitors to make a determination about whether the exchange is likely to have a pro-competitive, competitively neutral or anti-competitive effect, the agencies wilt not certify the exchange. If they determine that such an exchange is likely to substantially restrain or lessen domestic competition. the agencies will not certify the exchange. In some instances, however, safeguards on the nature of information shared and the manner in which it is exchanged may eliminate the likely effect on domestic competition, thus permitting the agencies to certify it. Such safeguards would be placed in the Certificate as a condition.
Examples of Horizontal Restraints
The following examples are intended to give guidance in determining when proposed export conduct among domestic competitors satisfies the four certification standards. They are illustrative and not comprehensive.
Example 1: Joint Export Marketing and Sales Association
Companies A, B, C, D and E joined together as apply for certification as the Farm-Raised Fish Export Association (Trout-About). Trout-About proposes to market and sell farm-raised trout in export markets. As the exclusive export intermediary for its members, Trout-About would establish the price at which it would purchase and sell the trout for export. It would also allocate among its members the quantities of fish sold for export.
In order to produce farm-raised trout, a farmer would need to have land that could be flooded to make a fish pond and to buy trout fingerlings and feed. The cost is modest and it would take less than six months to produce marketable trout. To become a trout processor, a company would have to invest approximately $1,000,000 for the building and equipment, but could begin processing in approximately six months. Most trout processors currently operate one eight-hour shift per day but could readily move to multiple shifts.
A and B are Fortune 200 corporations that process and sell a variety of foods for wholesale, including processed farm raised trout. C and B are small U.S. corporations that process and sell wholesale farm-raised trout. Together A, B, C, and D account for 57% of the farm-raised trout processed in the United States in the past year. However, the processed trout market is growing and several new entrants recently started production. E is an association that represents 60% of the trout farmers in the United States. E holds the majority of shares in Trout-About.
Discussion
Even though the members of Trout-About produce and process a large percentage of U.S. farm-raised trout, it is likely that the agencies would certify Trout-About to establish, by agreement among its members, the price at which trout is purchased and sold for export and to allocate among its members the quantities of fish sold for export by Trout-About. Even if the members tried to effect a supra competitive domestic price by attempting to manipulate domestic supply of trout, other persons could quickly and easily enter into production or processing of farm-raised trout. The trout producers and processors outside the association readily could expand current output substantially. Moreover, consumers could readily switch to alternative foods including other fish. Furthermore, there is no indication that the trout producers or processors intend to manipulate supply to raise U.S. prices.
To ensure against possible coordination of domestic price levels and output rates, the Certificate would normally contain a condition stating that a member will not intentionally disclose, directly or indirectly to Trout-About or to any other member information about its own costs, output, capacity, inventories, domestic prices, domestic sales, domestic orders, terms of domestic marketing or sale or U.S. business plans, strategies or methods that is not already generally available the trade or public. If firms seek to exchange such information in the course of exporting such exchanges will be certified only if the agencies determined that the disclosure is not likely to have substantial anti-competitive impact in the U.S.
Example 2: Planning for Joint Export Marketing and Sales
The only eight U.S. producers of kryptonite seek certification for joint discussions and meetings on the possible formation of a business plan operate an export entity to jointly market and sell kryptonite for export. The producers are interested particularly in exporting to Japan and Western Europe where non-tariff barriers and antidumping suits make it more difficult to penetrate the export market. In the formation phase of the joint export entity, the eight producers propose to meet together to discuss the sales opportunities for kryptonite in at export market, the export marketing practices of any producer, the expense exclusive to export sales (e.g.. ocean freight rates), the storage and distribution capabilities of producers kryptonite exports, the quantities of kryptonite that each producer would have available for export and each producer’s ability to respond to purchase orders for export. Based on these discussions, the producers prop to meet together4o develop an export joint venture business plan that would authorize the joint export entity to purchase kryptonite for a common stockpile and to sell it in any export market. The business plan would also include other arrangements between that entity and the producers necessary to carry out the venture, such as authorizing the entity to act as the exclusive export sales and marketing agent for the producers. Among the issues the producers would consider i formulating a business plan would be whether and how to (1) coordinate the common stockpile and consolidate transportation costs, (2) establish quantity and profit allocations among producers and procedures for adjusting quantity and profit allocations, (3) establish procedures for setting the prices at which kryptonite would be bought and sold for export and (4) allocate among producers territories o customers in any export market After they formulate a business plan, the producers intend to submit it for certification.
Kryptonite is a homogeneous product. Five of the eight producers are located close to each other on natural deposit sites in Utah, and thus have similar production and transportation costs. The two largest firms each have about 30% of domestic sales. There is negligible competition in the U.S. market from imports because U.S-origin kryptonite mined from natural deposits is less expensive than most foreign kryptonite which is produced synthetically. The price of kryptonite customarily is negotiated at the time of purchase, and is heavily dependent on local market conditions: consequently, domestic prices are poorly correlated with export prices. The growth of the U.S. market has been declining in the past five years, although the export market has been growing at the rate of 20% per year. The cost of commencing production is approximately $300 million in capital and equipment and it takes at least three years before production can begin. U.S. buyers of kryptonite are primarily glass and chemical producers, all of which are large, aggressive and sophisticated purchasers. While these customers are not numerous, they frequently purchase large quantities of kryptonite.
Discussion
The agencies likely would certify joint meetings and discussions on the subject of forming the kryptonite joint venture; however, safeguards on certain exchanges of information would be necessary because the U.S. kryptonite market possesses many economic characteristics that make it relatively conducive to the coordination of domestic pricing and output strategies. They are (1) high concentration on the selling side with only eight producers; (2) high barriers to entry; (3) a homogenous product; and (4) insignificant differences in cost functions among producers because of the close proximity of kryptonite mines. Exchanges among producers of nonsensitive information for planning purposes, such as sales opportunities in export markets, expenses exclusive to export sales, and any producers’ marketing practices in export markets, would likely be certified without safeguards because such discussions could not be used to coordinate an effective consensus on restricting domestic price or output levels. Nevertheless, given the economic characteristics of the kryptonite market, discussions about each producer's storage and distribution capabilities, quantity of kryptonite available for export and ability to respond to purchase orders for export as well as the procedures for allocating quantities and profits and for setting prices at which kryptonite would be bought and sold for export might be used to effectively coordinate domestic price level and output rates. Therefore, in determining whether to certify meetings among producers for such discussions, the agencies would have to consider what information was likely to be conducive to effective collusion on domestic price and output levels. The agencies then would require that exchanges involving such information not be specific to a particular firm or be given by each producer to an independent third party for distribution to producers in a form that was not competitively sensitive, for example, in aggregated form. In addition, the certificate would likely require that each meeting or telephone conversation among producers on the formation of the joint export venture be monitored by knowledgeable counsel, that accurate and complete written records of such discussions be kept, that those records be subject to inspection by the Commerce and Justice Departments at their request, and that, to the extent that any firm operates separate domestic and export sales or marketing units, only personnel from the export unit participate in the discussions. Furthermore, because of the possibility of effective coordination of domestic price levels in an extended planning phase, the certificate may be limited in duration to a period reasonably necessary to develop a business plan, such as six months.
Finally, it is important to note that while the planning activities described here probably could be certified, that fact does not necessarily mean that the implementation of the plan would be certified. Such certification would depend on a full evaluation of both the economic factors in the kryptonite market and the proposed plan. Because of the possibility that the procedures for establishing prices and for allocating quantities, profits, territories or customers among producers could be used to effectively coordinate domestic price levels and output rates, the business plan would have to describe these procedures in sufficient detail to permit the agencies to determine whether such coordination is likely to occur.
In order to consolidate their purchasing and warehousing operations to reduce the amount of inventory each store must carry and thus reduce finance charges and other expenses, seven of the ten U.S. firms that operate Customs regulated duty-free shops selling tobacco products along the United States-Mexico land border joined together to form an association' Smoke Stack, to be their exclusive purchasing agent for export sales. The firms would agree to purchase tobacco products for export only from Smoke Stack. They then would resell the purchased tobacco products exclusively for export.
Smoke Stack's members have 98% of all tobacco export sales by duty-free shops along the Mexico border. The member firms are not licensed to engage in wholesale or retail domestic sales, domestic tobacco wholesale and retail sales in the Southwest are made by hundreds of independent distributors, none of which have dominant market power in any geographic area, Smoke Stack purchases approximately 1% of the total amount of tobacco products sold by value in the southwestern United States.
Discussion
The agencies would likely certify Smoke Stack as a joint buying arrangement. Sales in duty-free shops are made only to persons leaving the United States to enter Mexico. The tobacco cannot be re-imported legally into the U.S.; it can only be consumed outside the U.S. Thus, if Smoke Stack had the effect of raising the prices at which Its members sell, the effect would not be felt In the U.S. market. Furthermore, the member firms acting separately would be unable to attain economies of scale offered by joint buying. More importantly. however, Smoke Stack does not account for a significant percentage of tobacco products purchased in the southwestern United States. Therefore, it does not have the market power as a buyer to significantly and anti-competitively restrain the domestic trade of sellers or of other domestic buyers of tobacco products. Nevertheless, concern about Smoke Stack's joint buying activities becoming a substantial restraint of trade in the United States could rise if the buying power of its members increases. In order to monitor such a development, the agencies are likely to require answers to specific questions in the annual report in order to measure the increase by quantity and value of Smoke Stack's purchases of tobacco products in the United States,
Example 4: Joint Export of Services
Four consulting engineering firms, a bank holding company, an accounting firm, and a large construction management firm have established a consortium for the purpose of submitting a bid on an extremely large project in a Mid-east nation to expand that nation's ports and harbors. The U.S. consulting engineering firms in the consortium are the second, fifth, sixth and tenth largest in U.S. sales. Firm A will work on the dredging, firm B on the piers, firm C on the warehouses, and firm D on the transportation. Membership in the consortium is restricted to these firms. Other U.S. consulting engineering firms have the capability to put together a similar type of venture. The consortium believes that it will he competing against similar consortia supported by the Japanese, Korean, British. French and German governments. The consortium has invited two host country firms to participate in the venture in order to comply with that country's requirements for the project.
The companies have formed the consortium because the project is so large that a smaller group would not have the technical capabilities to carry out the project. Most of the engineering firms are already reasonably busy due to domestic demand as well as to contracts for sales end construction work in other countries. The project will take almost ten years to complete; therefore, the participants are also concerned about the long-run political situation in the host country.
The consulting engineering industry has over 2,500 firms, the largest 12 of which have combined annual billings of over $50,000,000 of total industry billings of $500,000,000. The smaller firms specialize in one primary area, which the larger firms specialize in several diverse areas. In each of the specialties involved in the consortium, there are large numbers of firms engaged in effective competition with one another. Firms typically are selected for foreign projects on the basis of personnel with the relevant education and project-related experience, and the firm’s experience and reputation. Price is considered only in negotiations with a few 'finalist' firms selected by the purch user.
The consortium seeks certification to submit the hid and, if selected, to export the engineering and architectural services and technical assistance and know-how required in order to complete the project. To coordinate the preparation of the bid and the completion of the project, if awarded. The consortium has established a separate corporation with a small staff consisting of employees from each of the participants as well as non-employees with specific management, financial or consulting engineering expertise.
Discussion
The agencies would likely certify the consortium's proposed export conduct. The consortium involves complementary skills; the project is large, and there appear to be some political risks. While these considerations do not necessarily make the consortium certifiable, they do tend to indicate the reasonableness of its business purpose.
In this case, there is no reason to suspect that the consortium would substantially restrain or lessen competition in the domestic consulting engineering industry. The U.S. markets for the types of consulting engineering services offered by the firms involved in the consortium can be characterized as having a fragmented, unconcentrated structure. As such, they do not appear to be an industry that is conducive to the coordination of price or output in the domestic market. Moreover, the establishment of an independent entity to coordinate submission of the bid and completion of the project reduces day-to-day contact among officials of the participants, who are also competitors. In addition, the consortium, although important, does not appear to be essential for non-participating firms. It appears to be possible for the nonparticipating firms to form or become part of other consortia. In any event, it seems unlikely that a failure of competitors to have access to this consortium would affect them in such a way as to substantially lessen domestic competition. Such circumstances make it likely that the consortium will not be required, as part of the certification process, to be open to any firm on reasonable and nondiscriminatory terms.
Even licenses that include restriction on the foreign licensee's foreign patents or know-how often will be consistent with Title III's standards, because this would not have substantial anti onipetitive effects in any U.S. market. For example, a territorial restriction in a foreign patent limiting the licensee to selling the patented product in a particular foreign country would have the effect of prohibiting sale of that product in the United States. Without a license under the foreign patent, however, the licensee could not have manufactured the product in that foreign country. Moreover, if the licensor owned a U.S. patent covering the same invention as the foreign patent, the licensor lawfully could have stopped the importation of such products into the United States even without the restriction in the foreign license. It may be that in certain cases the grant of a license by a U.S. manufacturer of a product to a foreign licensee could have the practical effect of eliminating the licensee as a competitor in the U.S. market. For example, this would be the case if, as a result of the license, the licensee were to abandon its former technology and use the licensed technology for all production. Even in such a case, however, the restraint would not necessarily run a foul of Title III's standards. A factual inquiry would he required to determine whether the foreign firm otherwise was an actual or potential competitor in the appropriately defined relevant market and, if so, whether the structure or performance in that market suggested that the elimination of that additional competitor might substantially restrain domestic competition.
Similarly, it is unlikely that a licensing restriction will be found to constitute a substantial restraint on the export trade of a competitor of the applicant or an unfair method of competition against such competitor. The mere fact that a licensing arrangement with a foreign licensee may result in the sale of the licensee's products displacing U.S. exports of competing products likely would not be contrary to Title III's standards. Even the use of tying obligations requiring the licensee to purchase products from the licensor in connection with the licensing of technology often will not restrict the exports of competing exporters of the products in such a wsy as to substantially restrain domestic U.S. domestic competition in the tied product.
Finally, the use by a licensor of a restriction preventing a licensee from using technology competitive with the licensed technology or from selling goods that compete with the licensed technology might limit the export opportunities of competing licensors or sellers of competing goods. Again. however, such a restriction might be justified in view of the licensor's interest in ensuring that a licensee devote its efforts to the development and use of the licensed technology. In any event, the restriction of competitors from the export sales or licensing opportunities represented by a licensee or group of licensees would not in most cases have a substantial anti-competitive effect in U.S. domestic markets.
Example of Technology Licensing
The following example is intended to give guidance in determining when proposed export conduct involving technology licensing satisfies the four certification standards. It is illustrative and not comprehensive.
Example: Exclusive Foreign Patent License
Short Wave, a manufacturer of radios accounting for 5 percent of U.S. sales, holds patents in the United States and in a number of other countries for a new type of transistor that can be used in various electronic products. Short Wave, which has made an independent decision to concentrate on the U.S. market and not to export its radio, wishes to license Langwelle, a German manufacturer of radios with 10 percent of the German market and no substantial sales in the United States. The license gives Langwelle the exclusive right under Short Wave's German patent to manufacture, use and sell the patented transistor in Germany for the radio field. T he patented transistor provides improved performance in radios but is not a revolutionary development, and many other types of transistors can be used for the same purpose in radios. In order to induce Langwelle to use its patent, Short Wave is charging Langwelle a relatively low royalty. However, Short Wave also wishes to require Langwelle to purchase certain radio components for use in all radios manufactured by Langwelle that incorporate the licensed transistor. Finally, Short Wave wishes to impose a restriction on Langwelle preventing it from directly or indirectly exporting radios incorporating Short Wave's transistor to the United States. The U.S. market for radios is composed of 20 companies none of which has a market share in excess of 10 percent.
Discussion
It seems likely that the contemplated licensing arrangement would he consistent with Title III's standards. Short Wave's unilateral decision to export its technology by licensing other radio manufacturers in export markets seems to be an appropriate way to exploit its foreign patents. It seems unlikely that a substantial risk of a significant anti-competitive effect would result from Short Wave licensing a potential exporter of radios to the U.S. market and restricting the licensee's exports to the United States of radios incorporating the licensed technology. First, the license restriction prohibiting Langwelle from exporting from Germany radios containing the patented transistor would not be expected to have any effect on competition in the U.S. in the sale of radios containing that transistor. The U.S. patent covering the transistor gives Short Wave the power, through patent infringement or unfair trade practice proceedings, to exclude the importation into the U.S. of any radios using the patented transistor. Therefore, assuming the U.S. patent is valid, even absent the license restriction Langwelle could not have sold radios embodying the transistor in the U.S. Second, the license restriction does not affect Langwelle's ability to use transistors not embodying Short Wave's patent in radios for export to the United States, To the extent Langwelle found it economically beneficial to use the licensed transistors in all of its radios, it would be, as a practical matter, excluded from the U.S. market. However, even assuming that absent the license Langwelle would have imported radios employing other transistors into the U.S., in light of the unconcentrated nature of the U.S. market for radios, it seems unlikely that the exclusion of such a potential competitor would constitute a substantial restraint of trade within the United States.
The tying arrangement in the license seems to be consistent with the standards pertaining to restraints on the export trade of a competitor of the applicant or unfair methods of competition against such a competitor. The tie could have the effect of inducing Langwelle's use of the licensed technology by more closely tailoring Jacngwelles cost of such use to its level of use. The tie should not raise significant competitive concerns because Short Wave does not appear to have market power in the tying product since there appears to be many available alternatives to the patented technology.
D. Sales to or Financed by the Federal Government
Conduct that is otherwise covered by a certificate will be covered in the case of the U.S. Government financed transactions when either of two conditions are met. First, such conduct will be covered by the certificate where the net effect of any U.S. Government payment or financing involved in an export transaction is that not more than half the cost is borne by the U.S. Government. Second, even where more than half the cost is borne by the U.S. Government, the conduct will still be covered by the certificate where, because of the nature of the conduct or the existence of substantial competition from unaffiliated persons, the arrangement does not eliminate or substantially reduce competition in the transaction.
1.More than Half the Cost Borne by the U.S. Government. For these purposes, more than half the cost of an export transaction will be considered to have been borne by the U.S. Government when:
a. The U.S. Government buys the goods for shipment abroad (e.g., 'Food for Peace" transactions);
b. The United States is paying for a sale of goods to a foreign government through a grant that is specifically earmarked for the purchase of the goods in question; or
c. The transaction is financed by a loan to a foreign government that has such terms that the loan constitutes a grant because the United States effectively bears most of the cost. Most Agency for International Development and many U.S. Department of Agriculture foreign aid loans fall into this category.[22]
When U.S. Government financing for a U.S. export transaction is not a grant or a heavily subsidized loan, but rather a loan at approximately market rates, then even conduct that would raise the price of goods exported would not have the effect of primarily harming U.S. taxpayers. Therefore, the special risk of harm to the U.S. Government that is the subject of this section of the Guidelines would not be present. Transactions that involve payments or financing by the U.S. Government, but in which the U.S. Government will not be considered to have borne more than half the cost,
Include:
a. Transactions in which any U.S. Government financing is at or near market rates. Examples of government programs that involve financing at or near market rates include most Eximbank, Overseas Private Investment Corporation. and Small Business Administration programs. (Where there is a question as to the share of the cost of a transaction borne by the government in situations where below-market rate financing Is involved, the governments share will ordinarily be calculated in the manner described in note 22.)
b. Transactions funded by international agencies to which the U.S. Government contributes but does not supply a major portion of the funds for those agencies' financial assistance programs. Programs funded by the Asian Development Bank, for example, would normally fall in this category.
c. Transactions in which the purchaser is a foreign government that receives funds from the United States as part of a general government-to-government aid program, where the aid is unrestricted and not earmarked for particular programs. Transactions of this nature do not raise the special risk discussed in this section of the Guidelines, because it is not possible to determine the extent to which they are financed by the U.S. Government.
2. Conduct that does not Eliminate or Substantially Reduce Competition. If the U.S. Government financing of an export transaction is such that the U.S. Government bears more than half the cost, the transaction will nonetheless be covered by a certificate (assuming it is otherwise within the scope of the certificate) if it is not likely to have anti-competitive effects that will harm U.S. taxpayers. For these purposes, U.S. Government financed export transactions will be considered not to have such anti-competitive effects when either of the following is true:
a. Where the conduct involved is purely vertical and does not involve a horizontal combination among competitors; or
b. Where there is substantial competition from persons who are not participants with the certificate holder in the transaction. This condition will be considered as having been met when there are at least three other suppliers competing for the transaction, and those suppliers are qualified and able to supply the goods being sought on substantially competitive
3. Certification of Specific U.S. Government Financed Export Arrangements. The preceding discussion is intended to provide guidance on the coverage of certificates of review for U.S. Government financed transactions in situation where the applicant has not specifically expressed an intention to participate ia such transactions, and where the certificate makes no explicit provision for them. In these situations, certificates of review will include standard language stating that the certificate’s application to conduct in U.S. financed transactions will be subject to the limitations set forth in these Guidelines.
These Guideline are not, however, intended to preclude case-by-case analysis by the agencies of applicants; requests for explicit coverage of particular U.S. Government financed transactions, or particular types of government financed transactions. The agencies will consider, if requested, express certification of participation in programs financed by the U.S. Government and will provide such explicit coverage where the facts demonstrate an absence of likely anti-competitive harm to the U.S. Government, For example. in proposed transactions in which the U.S. Government would bear more than half the cost, the conduct is nut strictly vertical, and there are fewer than three other competing suppliers, the applicant may nonetheless show that the specific arrangements contemplated would not result in anti-competitive harm to the U.S. Government and may obtain explicit coverage for these arrangement in its certificate.
VI. Helpful Hints About the Application Process
The Office of Export Trading Company Affairs offers pre application counseling at no cost to potential applicants. Conducted in complete confidence by a team consisting of an attorney from the Office of General Counsel, a market analyst and an antitrust economist, this counseling offers potential applicant specific guidance on completing an application form, Such guidance may reduce the time it takes to obtain a certificate and may reduce or eliminate supplemental information requests. This office also provides counseling on forming. structuring and operating an export entity and on financing exports and on other referrals for export assistance
Prior to arranging preapplication counseling, potential applicants are encouraged to seek general export counseling from a local ITA District Office. Such counseling includes answering potential applicant's preliminary questions about the ETC Act as well as discussing their overall export business plans.
B. Supplemental Information Requests
After the application has been accepted for processing, the Commerce or Justice Department may find it necessary to request additional information in order to make a determination under the four certification standards. The regulations permit Commerce to request such information in writing if either agency finds it necessary and thereby suspend the 90 day processing period. The 90 day period begins again when Commerce receives the requested information, and the agencies deem it sufficient to continue the analysis. Normally. however, such a suspension of the time period can be avoided through a telephone conference call or a meeting with the two agencies. A cooperative. rather than an adversarial, attitude facilitates these negotiations as does having someone available who is Intimately familiar with the business that is the subject of the application.
Notes
1. Pub. L. No.97-290, 96 Stat. 1233-1247.
2.Export Trading Company Act of 1982, Pub. L. 97290, Title 1.98 Stat. 1233 (codified at 15 U.S.C. section 4001-4003).
3. Bank Export Services Act, Pub. L. 97-290. Title II, sections 201-205 (codified at 12 U.S.C. 1843).
4. Pub. L. 97.-290, Title II. section .207 codified at (12 U.S.C. 372 (7)).
5. Pub. L. 97-290, Title III (codified at 15 U.S.C.. 4011-4021).
6. Pub. L. 97-290 section 308 (a) and (b) (codified at 15 U.S.C.4016(a) and (b).)
7. Ibid. section 306(b)(5).
8. 15 U.S.C. 4021(5)
9.Section 203(3)(F) of the Bank Export Services Act defines export trading company as a company which does business under the laws of the United States or any state, which is exclusively engaged in activities related to international trade, and which is organized and operated principally for purposes of exporting goods or services produced in the United States or for purposes of facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade services. In addition, the definition of export trading companyin Title I does not limit who may apply for a Title III certificate of review. See 15 U.S.C. 4002(a)(4); H.R. Rep. No. 924, 97th Cong., 2d Sess. 18 (1982).
11. 15 U.S.C. 4013 (a).
12. 15 U.S.C. 4021(1). Export trade activities and Methods of operation are, in turn, defined in terms of Export trade. Section 311(2) of Title III defines services as: intangible economic output, including, but not limited to
(A) Business, repair and amusement services,(B) Management, legal, engineering. architectural, and other professional services, and (C) Financial, insurance, transported. informational and any other data based service, and communication's services.
Patents, trademarks, know how and technology are intangible economic outputs. Therefore, licenses of patents. trademarks, know how and technology to persons for use in foreign countries are within the definition of export trade and eligible for certification.
14. One situation which presented this issue was specifically addressed by the Conference Report:
Specific consideration was given to the status under this and other definitions in the bill of fish harvested by U.S. flag vessels within the United States fish conservation zone and sold at sea or in a foreign port without having otherwise been landed or processed in the United States. The committee of conference agreed that fish so harvested and sold should he regarded as ... constituting exploit trade within the meaning of this title and other titles of the bill: H.R. Rep No 624, 97th Cong., 2d Sess. 18 (1982)15. See e.g., 15 U.S.C. 4002(a)(3).
16. Ibid. section 4021(3); 15 U.S.C. 4021(4).
17. See. e.g.. Pacific Engineering & Production Co. v. Kerr-McGee Corp., 551 F.2d 790 (10th Cir.), cert. denied, 434 U.S. 879 (1977); Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697 (1975);31. See. e.g.. U.S. v. Terminal RR. Assn., 224 U.S 383 (1912).
18. Because of the relative rarity of such situations and the difficulty of effectively defining them, throughout most of the remainder of these Guidelines we will consider only the effect on the domestic competitionstandard, which presents the most common issues under the Act. If issues under the injury to competitorsstandard are presented by a certificate application they will of course be evaluated.
19. See S. Rep. No 27, 97th Cong. 1st Sess. 2021 (1981) quoting U.S. v. Minnesota Mining & Mfg. Co. 92 F. Supp. 947, 965 (D. Mass 1950).
20.The horizontal aspects of the formation and operation of Chem-X by domestic competitors raises other issues concerning potential anticompetitive effects in U.S. markets. These issues are discussed in Section V.B. below.
21. See U.S. Dept. of Justice, Antitrust Division , Merger Guidelines.
22. We distinguish between loans that are so generous that more than half the cost is home by the U.S. Government from other loans by looking at the interest rates and the repayment terms, end comparing them to commercial rates and terms. If the present value of the expected future repayment is less ihan half the value of the transaction, then more than half the cost of the loan will be borne by the U.S. Government.
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