CHAPTER XVI

THE WEBB-POMERENE ACT1

The only important anti-trust legislation enacted since 1914 is the Webb-Pomerene Act, designed to promote the American export trade through the legalization of export associations It is proposed in this chapter to outline briefly the conditions that gave rise to a demand for such legislation; to trace the progress of the bill through Congress; to describe the provisions of the act; and to call attention to some possible objections. First as to the conditions that led to the passage of the Webb Act.

During the early years of the twentieth century it was freely predicted that American manufacturers, combined as many of them were in the modern trust, were to capture the markets of the world. Only a few years later the opinion was as commonly expressed that without legislation permitting coöperation in the American export trade our manufacturers were no match for their foreign competitors. Several reasons were given for the unequal conditions of competition. In the first place, American manufacturers in striving for business abroad had to meet the vigorous rivalry of powerful foreign combinations, often international in scope. These combinations were frequently aided by their respective governments, and in some cases participated in by these governments. The stock illustration was Germany, which had achieved the most notable success in the

1 On the Webb-Pomerene Act see: Congressional Record, vols. 53-56; Report of the Federal Trade Commission on Cooperation in American Export Trade, in two parts; House Report no. 1118, 64th Cong., 1st sess.; Senate Report no. 1056, 64th Cong., 2nd sess.; House Report no. 50, 65th Cong., 1st sess.; Proceedings of the National Foreign Trade Conventions; Duncan, Journal of Political Economy, 25, pp. 313-338 (1917); Notz, Journal of Political Economy, 27, pp. 525–543 (1919); and Notz, Yale Law Journal, 29, pp. 29-45 (1919).

rapid development of its foreign trade and which, being highly unpopular after 1914, furnished a good talking point. However, such combinations were common in other countries, for example, Belgium, Holland, Italy, and Japan. In Great Britain, on the other hand, despite the absence of widespread combination, a large and profitable export trade was being maintained. This was attributed to the unusually favorable conditions, notably the advantage of an early start, the possession of excellent shipping and banking facilities, and the high grade of service rendered by the British commission merchants, not to mention the export houses buying and selling goods for export on their own account. Some American companies, particularly the United States Steel Corporation, the Standard Oil Company, and the International Harvester Company, were admittedly strong enough to cope with these foreign combinations, yet the smaller concerns in these industries, as well as nearly all of the concerns in certain industries in which competitive conditions prevailed, were said to be at a great disadvantage. Hence the need of association.

Secondly, in the leading countries of the world_associations for the promotion of export business were permitted,-an advantage that the Sherman Act denied, so it was believed, to American exporters. In Germany, for example, prior to the war there were 600 important cartels, many of which dominated the export trade in their particular industry. These cartels made an especial effort to extend the foreign trade, frequently selling at a loss in the endeavor to gain a foothold or to maintain a position once established. In order that such agencies might be met on more equal terms the association of American manufacturers in a common selling agency was held to be necessary. The need for such association, it may be observed, was not equally great in all branches of the export trade. Thus, American foodstuffs and raw materials could readily be sold even without an export organization, though coöperation might

1 Report of the Federal Trade Commission on Cooperation in the American Export Trade, I, p. 5. Hereafter referred to as Report on Cooperation in American Export Trade.

somewhat reduce the cost of distribution, and might increase the bargaining power of American producers. There was even less occasion for association of the manufacturers of specialties. Here the lack of standardization would make difficult the work of an export organization. Moreover, less competition was encountered in the sale of specialties, such as safety razors, for example, and as a result coöperation was not so important. Of course, the exporters of specialties also had to create their market abroad, but many of them had found it to their advantage to do this individually. It was in the manufactured staples that the advantages of coöperation were most marked. Such goods met vigorous competition abroad, often at the hands of large organizations. To capture foreign trade under such circumstances it was usually necessary to study the foreign requirements; to employ salesmen familiar with foreign conditions and customs; to advertise and demonstrate; to keep in touch with credit conditions, so that credit might be extended wisely; to establish abroad branches and warehouses in order that the foreign customer might count on prompt and regular deliveries; in a word, to maintain an effective system of direct representation.

Even in the foreign trade in manufactured staples export associations were not always necessary or even advantageous. In many branches there existed highly efficient export commission houses handling sales on a commission basis, and export merchants buying and selling goods on their own account. These agencies in both Great Britain and the United States had played a notable part in the development of export trade. In fact, British export trade had been largely built up through their efforts. These export houses had already developed efficient organizations, which were familiar with foreign conditions; and they now possess an advantage over associations in this country by virtue of the fact that they handle imports as well as exports, whereas the American associations under the provisions of the Webb Act may deal solely in exports. For the export houses, owning their own ships, as many of them do, the han1 See Report on Cooperation in American Export Trade, I, p. 94; II, p. 320.

dling of imports as well as exports represents an undoubted saving in transportation, in that it more commonly provides a cargo in both directions. However, the system of direct representation also has its advantages. Thus it is to be anticipated that the foreign trade in any particular article, and of course the domestic trade also, will be more effectively pushed by an agency whose capital is invested in plants and equipment devoted to the manfacture of that product than by an agency having no such investment and dealing in a great variety of products. An association obviously has an individual interest in its product, an interest which an export house in the very nature of the case lacks.

Thirdly, in some of the foreign markets American producers were confronted with well organized combinations of buyers. Thus, four London concerns were said to fix the price of silver, and American exporters in making sales in Great Britain, India and elsewhere had to accept the price fixed by these firms.1 For some time past the world's copper trade had been controlled by a German metal-buying agency. Such associations, it was said, by playing off one American exporter against another were able to beat down the price of American goods destined for export. In the case of copper the aforementioned German concern, according to Mr. John D. Ryan, president of the Amalgamated Copper Company, by means of such tactics bought American copper delivered abroad during 1903 to 1913 at 83/100 of a cent per pound less than domestic buyers paid for delivery at New York or the Connecticut Valley.3 The association of American producers in a selling agency, it was claimed, would eliminate the competition between American firms, and thus make it possible for them to secure better prices for articles sold abroad.

Finally, the development of our export trade was said to be hampered by inadequate banking and credit facilities abroad; by discrimination against American goods by foreign steamship lines; by the small amount of American investments in the securities of foreign companies; and by our comparative inex

Report on Cooperation in American Export Trade, I, p. 7.

2 Ibid., p. 7.

3 Ibid., II, p. 261.

perience. The last obstacle perforce had to be overcome by the producers and manufacturers themselves. Upon them necessarily fell the task of developing the requisite organization, of acquiring an intimate acquaintanceship with the requirements of foreign markets, and by attention to quality and service of creating a demand for products "Made in America." The additional business that comes through investments in foreign enterprises was to be secured by a campaign to educate American investors in the advantages of foreign securities,-a campaign now well under way. The other difficulties were to be met by legislation permitting foreign banking, establishing an American merchant marine, and authorizing producers and manufacturers to combine for export purposes. The Webb bill was thus only one stone in the foundation upon which our increased foreign trade was to rest.

The desirability of legalizing associations for export trade was inquired into by the Federal Trade Commission under the powers granted to it in § 6 (h) of the Trade Commission Act, and a decision highly favorable to the principle underlying the Webb Act was reached.1 The Commission pointed out that such large concerns as the United States Steel Corporation, the International Harvester Company, the United Shoe Machinery Company, the National Cash Register Company, the General Electric Company and others did not need to enter into export associations, since they individually were well able to compete with foreign combinations. Rather the purpose of the Webb bill was to enable a number of smaller companies not having a large enough volume of business to justify the carrying on of an export trade by themselves to coöperate for this purpose and, by distributing the overhead charges over their combined foreign sales, to bring the costs down to a reasonable figure. Other advantages to be gained through coöperative action were the securing of better credit information and thus the better financing of foreign business, an ability to give longer credits when desirable, the greater ease with which initial losses could be carried, a larger

1 See Report on Cooperation in American Export Trade, I, p. 379. 2 Ibid., pp. 161-162, 242.