United States Position Towards International Cartels



Delivered before the Trade and Commerce Bar Association, New York City, January 4, 1945

Vital Speeches of the Day, Vol. XI, pp. 270-273.

THE international cartel issue lends itself peculiarly to the emotional approach. But on analysis and calm appraisal, although an admittedly complicated subject, it is as susceptible of solution as any other of our numerous international economic problems. What the problem most needs, in my humble opinion, is to remove prejudices and expose the fallacies in the discussion, or, in homely language, to "debunk" it. It is a vital problem and it must be faced realistically.

In recent times we have heard much of the abuses by cartels. Many of them are exposes after the fact, revealed as abuses in the light of subsequent events. The war has added a certain element of hysteria. We find blame placed upon businessmen for the same lack of vision, the same failure to foresee the coalition of evil forces, the same want of courage to prepare which characterized our national administration. No one will attempt to excuse arrangements which, on balance, have worked against the national interest. But after all, it is somewhat flattering to the businessman to expect of him a higher standard than of government.

Many of the horrible examples" appear in the report published as Monograph No. 1,—perhaps it should be entitled Exhibit A,—of the Subcommittee on War Mobilization of the Senate Committee on Military Affairs. These classic cases, though yet to be proven or appraised by the courts in their true context, recur throughout the literature, speeches and reports inspired by the Department of Justice. They are entirely in character as a part of the emotional approach.

Publicity is, of course, a recognized factor in a policy of in terror em enforcement. The startling fact is the "something new which has been added", that the Department of Justice is apparently launched on a crusade to exercise our national laws as an instrumentality of international reform. Unless the courts or Congress intervene, we may expect

dire consequences to our foreign trade. We anxiously awaita cue as to whether this fervent pot-boiling is the prelude to a cannibalistic manhunt or merely the normal process of a democratic people in the solution of their problems, I firmly believe it will develop to be the latter.

I do not wholly deprecate the emotional approach. History shows it as a part of our democratic process. It has been responsible for much helpful legislation. It arouses interest, quickens the popular imagination and focuses public attention on the problem. When the democratic processes function actively we are assured that all sides of the question will be weighed and a sounder solution reached.

I do not defend abuses by international cartels, nor does any fair principled businessman. What they object to in the current emotional approach are the suspicion and implication of stigma which carries even to the most legitimate of international business relations. What they want is a more definite criterion and a means to weed out abuses and thereby legitimatize the remaining, vast majority of, transactions which keep our foreign trade functioning. It is simple enough, of course, to say: "Let foreign nations come to us on our terms." If we did, the operation might be a complete success, but the patient would die. I think that when Congress fully appreciates the problem, it will act vigorously to correct abuses, but in a manner which will at the same time promote our foreign trade.

One of the first essentials, I believe, is to appreciate that the problem is not purely a domestic one. Our decision alone can not control it. For this reason it is largely lost motion, generating heat rather than light, to debate the virtues and vices of international cartels as institutions. Like every instrumentality of commerce, they are susceptible of abuse. Whether we favor or oppose them in other nations is largely academic. They exist. We face a situation of fact. Our problem is thus a two-fold one: to shape our negotiations with other nations to prevent abuses and afford healthier conditions for all international trade; and, from the domestic viewpoint, to determine in the national interest the conditions which will best promote our own foreign trade to the advantage of our national economy.

Discarding emotion, let us examine the facts and issues involved. I think there will be no great disagreement oneither.

The principles of free competition are deeply embedded in American tradition. They were given formal expression in the Sherman Act of 1890 which was designed to preserve free competition and equal opportunity for all. We wish to preserve these benefits.

Like every fundamental statute couched in broad general terms, the scope of the Sherman Act has defied precise definition. In more than 50 years since its enactment Congress by supplemental legislation has attempted to define as unlawful only a few specific practices. Even these few definitions leave important questions to be determined such as, under the Robinson-Patman Act, whether the price discrimination tends to lessen competition. The burden has thus fallen on the courts, except for the authority granted in 1914 to the Federal Trade Commission to determine "unfair methods of competition," subject to court review. Even after 50 years the courts have failed to evolve precise definitions, reiterating that the decision in each case must rest upon the particular facts involved.

While free competition is the fixed ideal in this country, there are many exceptions, all founded on the public interest. The most evident, of course, are the various special laws removing from the scope of antitrust legislation agricultural marketing agreements, labor combinations, interstate and ocean carriers and air transport, not to mention the bituminous coal industry. Less apparent but equally real exceptions are found limiting competition, as to prices, in the Miller-Tydings Amendment and even the Robinson-Patman Act and, as to costs, in minimum wages and maximum hours legislation and other regulatory measures; and, more grievously, in the foreign field in measures of various nations limiting, directing and canalizing trade by means of customs duties, quotas, embargoes, exchange restrictions and other artificial barriers which create preferences and differentials and are the antitheses of free trade and free competition.

Though we still assert free competition as our ideal, we must recognize that other nations take different courses. We cannot hide our heads in the sand. Some nations, such as Russia, do not admit the private conduct of international trade. Other governments threaten to carry forward into the postwar era various plans for governmental purchasing and exporting. In South America the tendency is toward nationalization of basic industries from which other monopolies, both governmental and private, may stem. Cartelized trade by governments may have far worse results than private cartels, for the power of government may be used to subsidize one product and curtail production or importation of competitive products.

In the field of private business, many nations encourage, some even require, agreements among competitive producers assuring orderly production and marketing. Such agreements, whether good or bad, fall under the broader definitions of cartels and, if operative within the United States, might be questioned under our Sherman Act. Throughout Europe, long plagued with customs barriers and quota restrictions, the cartelized system of trade was already highly developed before the war. The scramble for postwar trade holds little prospect of its voluntary abandonment.

What does this difference in laws and customs signify for us? Our courts have built up a vast body of standards and precedents in our domestic commerce designed to protect the domestic consumer and the domestic competitor. Are these standards and precedents to be lifted bodily and applied to Americans in their trade in foreign countries throughout the world, as the Department of Justice now apparently contends? Or should Americans be scot free to meet foreign competition on any terms regardless of the effect here and devil take the hindmost? Or can a reasonable solution be found, somewhere between these two extremes?

We must remember that the field of foreign trade is international, not national. So long as there is a vacuum of international law, operations will continue to be governed by the conflicting laws of various nations. In the application of their national laws in the international field, nations can wage an economic warfare as relentless and crippling to international trade as the Nazi compensation agreements which preceded this war. If Congress so intends, which I sincerely doubt, we can attempt to enforce our laws on Americans wherever they operate and even on foreigners who may subject themselves to our jurisdiction. This would mean, of course, that in operations abroad Americans, in contrast to their foreign competitors, would be subject to our standards in addition to those of the country where they are operating; and that foreigners would beware of entering our jurisdiction. I know of instances, which I am sure many of you have also encountered, in which foreign corporations have been deterred from transferring the seat of operations to this country, although it would be advantageous to them and to us to do so, merely for fear our antitrust laws might be applied to their operations in other countries.

Any attempt to extend the application of our national antitrust laws to operations in other countries is a sure road to economic isolation. Our foreign trade will be curtailed and foreign collaboration, both economic and technical, will be withdrawn. When foreign opportunities seem more attractive our capital and brains will migrate, definitely severing all ties. Such a course, setting up our laws to govern all nations, so far as we can extend them, is directly contrary to the Atlantic Charter, to Article Seven of the Master Lend Lease Agreements and to the principles advanced at Dumbarton Oaks. It is also in direct conflict with President Roosevelt's campaign promise of measures to treble our foreign trade after the war.

While such a course is clearly against the national interest, few would contend that Americans should go scot free in their transactions beyond our borders. There is some support, of course, for the doctrine that laws of Congress are to be given no extraterritorial effect unless such an intention is clearly indicated. It is also true that the effect of acts abroad by American participants is no more harmful to us than are similar acts by foreigners wholly beyond our jurisdiction. Nevertheless, at least until international protective measures are available, it is assumed that our courts will exercise jurisdiction over Americans and others doing business here to restrain acts, wherever performed, which constitute unreasonable restraints of commerce actually operative within the United States. That would be, of course, when they unreasonably restrain the trade of our domestic consumers or competitors.

At best the application of our national antitrust laws to foreign operations is unsatisfactory. It is far from completely effective. It can reach at most only our own segment of international trade, and in doing so place it at a disadvantage in competing with others in common markets. The difficulties of interpretation of our national laws in the foreign field are far greater than in the domestic field. There is every reason, therefore, for all shades of opinion to unite on a program which will clarify the status of our foreign trade and yet safeguard our national interest.

Some form of international action seems essential. American business stands only to benefit from effective steps to prevent abuses and improve business standards in the international field. We each have, therefore, a vital interest in the course of our negotiations with other nations.

Some would have it that they be directed toward obtaining universal acceptance of our Sherman Act to govern international trade. I am sure that if the question were put to American businessmen, there is not the slightest doubt they would prefer to do business throughout the world on the basis of free competition, if that were feasible. However, much as we may sympathize with this objective, I believe the attempt would be futile and disastrous. It could not solve our trade relations with Russia and other nationalistic economies. In fact, it would doubtless encourage, to avoid its effects, further conduct of trade by the government itself in countries which have followed systems different from our own.

If an agreement between nations were couched in the general language of our Sherman Act and interpretation left to the courts of the respective nations, we should find divergence as great as has arisen between our courts and the British in developing the English common law, which in our Sherman Act we believed we were adopting. Or if an international tribunal were created and given jurisdiction, its decisions would doubtless represent the composite view on restraints of trade of the various nationalities represented. From present indications this would differ materially from our own. It would not result in conforming the commercial mores of other nations to our own. It would merely usher in a new and prolonged period of court interpretation with consequent uncertainty.

Others would shortcut the process of interpretation and aim at agreement with other nations defining precisely the types of so-called "restrictive agreements" and prohibiting them. This, of course, is a path on which both Congress and our courts have feared to tread, even in the narrower field of our own commerce. They have held, rather, that each case must be determined on its facts according to the resultant effects.

But there are even more forceful objections to this course. It runs directly counter to the trade principles of many nations. Whether or not with justification in our eyes, other nations see in these private agreements benefits of orderly production and marketing which they feel outweigh those of unrestricted competition. Many of them are far more dependent on their foreign trade than we have been in the past, when we were developing our vast internal market. They justify these agreements in the face of,—and some say they are even necessitated by,—the increasing nationalistic, artificial barriers to trade between nations. They will point out that private agreements find substantial justification in their counterpart of intergovernmental commodity agreements and that private agreements are subject to greater competitive forces and fewer vices than are governmental agreements. They will contend that even without regulation their operation in the vast majority of instances is sufficiently beneficial to outweigh the few instances of abuses, glaring though they may be; and that in any case they cannot be eliminated except progressively as conditions of free trade are established throughout the world and, as sovereign nations, they are not willing to renounce definitely the right to impose controls.

One can say, of course, that there is at least no harm in trying to obtain either the principles of the Sherman Act or the more specific prohibitions. Entirely apart from the delay involved, I believe that course would not be in the national interest. We are all aware of our tremendous economic bargaining power. We should be zealous to guard against its waste. It is well known that each exercise of national bargaining power in negotiations to obtain what another nation is reluctant to give weakens our power for later use. It is far preferable to direct the course of negotiations in the first instance along lines which hold at least fair promise of success, especially when equally effective results may be achieved.

Still others have suggested a more direct and realistic course. Even if definition of "restrictive practices" were attempted, there would be need of a supervisory body to ascertain whether particular agreements fall within the prohibited categories. In such case it would seem highly preferable to negotiate with other nations along broader lines, so that the agency could look more directly at end results than at the mechanics employed.

This course would differ in degree rather than in principle, but the difference would be highly significant in its acceptability to other nations. Instead of attempting to prohibit completely the so-called "restrictive agreements" dividing markets and products, governing prices and the like, it could use that formula to define the type of agreement most susceptible to abuse and therefore affected with a public interest. It could then define, according to end result, the long term objective sought, such for instance as the regular expansion of production and improvement of distribution by private enterprises to make a greater variety and better grade of goods more widely available to consumers and purchasers at reasonable prices, while avoiding any governmental interference with management or operating decisions. This would not prohibit in international trade the numerous agreements for interchange of technical knowledge and information, joint distribution facilities and other arrangements which have in the great majority of cases proved beneficial. It would, however, prevent abuses through subjecting such agreements to defined tests.

There would remain, of course, the important question of enforcement of such an agreement between nations. Progress would have to be made slowly at first. An acceptable start would be to borrow from the experience of our friends, the British Dominions, who have relied greatly on the power of investigation and report conferred upon public authorities. Such power, fairly administered, would serve to expose, and therefore largely to prevent, abuse in private international business agreements. It would obviously benefit those nations of higher business standards and tend to equalize competitive conditions in international trade, which of course is our objective. It would greatly reduce the need of any application of our Sherman Act to our foreign trade.

So long as national sovereignty is retained, no course of international negotiation could bring the rules of standards in international trade to exact parity with our own. No matter how successful the negotiations might be, there would still remain a field of conflict of laws and an area, constantly reducing I trust, in which the international rules and standards may not be fully adequate to protect our national economy. We must therefore re-examine our national laws in their application to foreign trade in order to protect the national interest and yet promote our foreign trade.

Time does not permit a full discussion of that vast problem, but certain conclusions are apparent. Congress should make clear that we look to our Department of State rather than to our national laws as the instrumentality to accomplish international objectives. If uncertainty is to be avoided, Congress should spell out what would seem abundantly clear, that our national laws are limited strictly to the protection and promotion of the national economy. Americans would thus be allowed to operate within the frame work of international accords and subject to the applicablelaws of foreign countries without additional restriction from Our laws save as their operations might prejudice our own economy.

Among suggestions which have been made for national legislation is disclosure of certain types of foreign contracts. While this may be regarded by some as an invasion of the privacy of business agreements, the current emphasis on abuses makes it futile to deny the public interest in at least the more important of such agreements. Unless abuses are effectively prevented or reduced, more serious measures might be taken which would imperil the continuance of foreign trade in private hands. Attention should rather be directed to reasonable limitation of the filing requirement, to the need for complete and adequate protection of trade secrets and to the most useful purpose to be served by such disclosure.

There are those, of course, who contend for complete freedom from the slightest public supervision and who regard even a filing requirement, without public disclosure, as "taking over" private business. I think this view is highly overdrawn. Even our national banks, which are subject to rigorous examination and limitation as to type of investments, are outstanding examples of rugged individualists. The privacy of their business is fully protected. Each is free to exercise its own judgment as to business risks and to make its own mistakes, which of course is the essence of the free enterprise system.

However, any filing requirement would be such an innovation as to warrant full consideration of the present plight of our foreign trade and adequate measures to promote it in the public interest. A necessary and important change would be to recognize that foreign trade differs greatly from domestic, that the presently threatened application of our anti-trust laws accomplishes no national purpose commensurate with its risks and handicaps and that, whatever may be the rules applied, reasonable certainty as to rights and obligations is preferable to the present great state of uncertainty.

This would lead, of course, to provision for administrative determinations, with court review, a policy on which a start was made by the Federal Trade Commission Act of 1914. In the foreign field the questions require such detailed technical knowledge, are so governed by artificial trade barriers imposed by the several nations and are so intimately related to our foreign economic policy as to justify similar specialized treatment. In fact, the field of foreign trade is fully as much a specialty as maritime and air transport which have been removed from the Sherman Act and placed under a commission or board having special jurisdiction.

In foreign trade the Department of State, but for its political nature, and despite possible embarrassment in relations with other nations, which it must face, would be the indicated agency. If not, a non-partisan administrative agency, acting in accordance with determinations of our foreign economic policies by the Department of State and with power of decision after hearing the Attorney General on the effect of foreign contracts on our domestic commerce, could answer the need. It would provide a dispassionate consideration of all the complicated factors involved in foreign business agreements and better protect the national interest,—which includes the promotion of our foreign trade,—than the present un-understanding attempt to apply domestic criteria to foreign conditions. By advance declaratory findings, even though revocable on notice and hearing, it could provide at least a greater degree of certainty, for all concerned, than is possible under the present in terrorem enforcement in lengthy court proceedings instituted by the Department of Justice, which is responsible neither for the promotion of foreign trade nor for the maintenance of relations with foreign governments. Surely no one, with the possible exception of the Department of Justice, would contend that such a procedure of disclosure and rulings would not adequately protect the public interest.

Although international negotiations are of parallel importance, I see no need for national legislation to await their outcome. Appropriate action by Congress would not only strengthen the hand of the Department of State but prepare the way for more effective international action.

To conclude, the issues are relatively simple. With few exceptions, Americans of all shades of opinion can unite in seeking the following basic objectives: (1) the maintenance of free competition within the United States; (2) the preservation of private enterprise; (3) the increase of our foreign trade, both exports and imports; and (4) the prevention of abuses which in the long run tend to restrict production, retard technological advances, increase prices or stifle competition.

When I say that our problem is susceptible of solution, I am counting on all groups of thought to put the national interest above any selfish purpose or political motive. I think business must recognize, and I am sure it does, the public interest and the need to prevent abuses. It must not regard reasonable measures to that end as an attack on the free enterprise system. It stands to gain greatly from effective international action and any reasonable system to reduce the present uncertainties at home. Congress in turn must recognize the special problems of foreign trade. The Department of State must recognize and accept its responsibilities. The Department of Justice must give up the notion that it is an apostle with fire and brimstone to convert foreign nations to our creed. The world still might be saved by other more direct and practical means.