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 "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 http://www.ita.doc.gov/oetca. Reprinted from American Shipper March 2000.
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