12 The Webb Act

An expanding foreign trade is one of our chief economic objectives. Both Government and business should desire and promote policies that will open up new markets to American enterprise, encourage sound foreign investment and facilitate the flow of goods between this and other countries. There can be no issue, surely, over this basic purpose. Nor is there room for disagreement on the proposition that a crucial, if not indeed the ultimate, test of our economic policy should be its efficacy in promoting free enterprise as opposed to a controlled economy. Differences, if any, relate only to methods.

However, anyone who has been under the impression that the Webb Act provides an easy backdoor entrance for American firms to join forces with cartels seeking domination and control of world markets is in for sad disillusionment. The Webb Act was intended to strengthen American competition against foreign cartels. It was enacted by Congress in the belief that it would provide a means of assistance to American business in combatting the power of foreign cartels dominating world markets. The Act was not passed to permit American firms to take part in cartel restrictions on American trade—such restrictions are directly contrary to Congressional purpose.

It should be emphasized that associations organized under the Webb Act cannot legally enter into international agreements which restrict production and distribution, divide territories and fields of operation, fix prices or other wise regiment industry throughout the world. Neither can they legally enter into agreements which restrain trade within the United States, restrain the export trade of any domestic competitor or association, or which enhance or depress prices or substantially lessen competition within the United States.

We have instituted a suit against the United States Alkali Export Association, the California Alkali Export Association and others, charging them with maintaining international cartel agreements to restrain trade in the manufacture and distribution of alkalis in violation of the Sherman Act. In this case we have charged that activities by the defendants were not authorized by the Webb Act. I shall refer later to this case in more detail. It is sufficient to say at this point that other associations are under investigation for similar activity, and that new antitrust suits will be instituted whenever evidence discloses illegal activity by export associations or others.

The alkali suit may very well have prompted the resolution of the Board of Directors of the Commerce and Industry Association of New York to declare that Congress should restudy the Webb Act and by proper amendments bring it up to date so that there can be achieved under it all of the objectives that President Wilson sought to attain when he procured the enactment of this Act in 1918. The resolution recited that the Department of Justice program for enforcement of the Sherman Act seemed to be seeking to impose the competitive system and the antitrust philosophy, as interpreted by the United States Supreme Court, on other countries, and implied that antitrust enforcement was frustrating the purposes of the Webb Act. And in other quarters it has been suggested that perhaps the Webb Act provides a vehicle for attaining cartel objectives without incurring the penalties of the Sherman Act.

These suggestions that the enforcement of the Sherman Act in the field of foreign trade somehow constitutes a betrayal of the Congressional policy embodied in the Webb Act, and that the Webb Act legalizes restrictive cartel practices, are based upon a misconception of the meaning and purpose of the Act. The Webb Act was enacted to help American business compete with foreign cartels. It was not passed to provide a conduit for joining them. It was designed to stimulate the position of American concerns as competitors for world trade and to stimulate the growth of our export trade. The Act created only a very limited exemption from the Sherman Act which I shall presently discuss.

But, before taking up the Act itself, let us look at the conditions which brought about its enactment. The background of the Act is set forth extensively in a report by the Federal Trade Commission, dated June 30, 1916, on cooperation in American export trade. This report set forth that other nations had certain advantages in foreign trade because of superior facilities and more effective organizations; it pointed out that doubt and fear as to legal restrictions prevented Americans from developing effective organizations for engaging in international trade, and that as a result the smaller concerns suffered because of their lack of organization and facilities. It emphasized that in seeking business abroad, American manufacturers and producers had to meet aggressive competition from powerful foreign combinations often international in character. It recited that in some industries the smaller manufacturers had to compete abroad with great American companies having much more efficient worldwide selling organizations. In order to assist these smaller businesses to acquire proper facilities for doing an international business, and to enable them to meet the competition in prices and services of major American concerns and all foreign competitors, the report recommended that small American producers and manufacturers should be permitted to unite their efforts for purposes of conducting foreign trade. By combining their efforts it was thought that these small firms would be better able to advertise, maintain an adequate selling force, and create markets abroad.

But, while recognizing the desirability of a certain degree of cooperation in seeking international markets, the Federal Trade Commission in its 1916 report was fully cognizant of the possibility of misuse of export associations and of the necessity to prevent their misuse by legislative safeguards and antitrust enforcement. Thus the Commission said:

“Two chief dangers from cooperation export organizations of American manufacturers and producers are apparent. They may be used to exploit the home market and they may be used unfairly against individual American exporters in foreign trade. The dangers in cooperative action must be faced frankly and provided against fully.

“The Commission is confident that this can be done without sacrificing the essential advantages of joint action and without altering the policy of the antitrust laws or interfering with their enforcement.”

And the Commission further declared that “This recommendation is made subject to the condition that the legislation shall be carefully safeguarded and shall make absolutely clear that the combinations for export business are subject to all of the rigors of the Sherman law if they are used to restrain trade in the United States.”

Bills were then introduced in Congress by Senator Pomerene and Congressman Webb, and were considered by Congressional committees and debated from 1916 to 1918, when the law was enacted. The Webb Act as finally passed provides that nothing in the Sherman Act shall be construed as declaring to be illegal an export association or any agreement made or act done in the course of export trade by such association, provided that such association, agreement or act does not: (a) restrain trade within the United States; or (b) restrain the export trade of any domestic competitor or association; or (c) enhance or depress prices within the United States, substantially lessen competition within the United States, or otherwise restrain trade therein.

Since the Webb Act is a statute creating an exception to the Sherman Act’s general application, the principle of interpretation governing all statutes which create such exceptions must be applied here; that is, the Webb Act must be strictly construed. It must not be taken to cover any more ground than appears to have been intended by the language of the Act itself read in the light of the legislative history.

The legislative history leaves no doubt whatever as to what Congress intended. In its report of May 11, 1917, the House Judiciary Committee stated:

“The bill is drawn so as to leave in full force our antitrust laws as applied to our own markets and as affecting different American exporters in their dealings with each other.... The bill does not authorize any violation of the present antitrust laws.... The bill prohibits the slightest violation of our antitrust laws within the United States.”

The Senate Committee report contained a similar declaration.

The House and Senate debates abound with declarations by the sponsors of the bill that it did not in any way interfere with the application of the Sherman Act to the domestic commerce of the United States and to agreements to restrain the export trade of competitors of the associations. In referring to antitrust jurisdiction over proposed export associations, Representative Webb stated: “If the combination for export trade affects unduly or artificially the prices in the United States then they come within the Sherman Antitrust Law.”

Senator Pomerene made the following significant arguments during debate on the bill:

“The position was taken in substance that this bill was a repeal of the Sherman Antitrust Law, and if it became the law of the land and these associations were authorized they would at once seek to control the foreign market and probably enter into a combination with foreign companies and cartels engaged in the same line of business and thus reenforced and worldwide in their control of products they would reduce the prices of food animals, of grain, and of other products and raise the prices to the consumer when it suited their purposes.”

“If the Senator when making this argument had recited facts instead of fancies, there might have been some force in his utterances but he was giving free reign to his imagination. The Senator overlooked the fact that this bill does not repeal the Sherman Law. He had in mind one paragraph only and lost sight of all the restrictions and qualifications it contains. I submit that when this bill is construed judicially it will be analyzed as a whole and not one part separate from the other.

“The Senator forgets that neither the associations, nor their agreements, nor their actions can be in restraint of trade within the United States, nor in restraint of the foreign trade of any domestic competitor and they cannot by any agreement, conspiracy, or act artificially or intentionally and unduly either enhance prices or reduce prices domestically, and if they do they violate the law of the land.”

During the debates some members of Congress, foreseeing the possibility that export associations might join in a combination with foreign companies, questioned the sponsors of the bill as to the effect of the bill upon such practices. In the House debates, Mr. Moore of Pennsylvania asked: “Suppose a combination in which Americans join with foreigners had been formed?” To this query Congressman Webb replied: “Then you violate the antitrust law and it has been so held by the court.” Later, in the Senate debates, Senator Pomerene stated: “There is nothing in this bill authorizing the division of territory abroad.”

Attempts to amend the Act between 1921 and 1928 failed. Amendments proposed in 1928 would have extended the Act to include combinations for importation of crude rubber, potash, sisal and other raw materials not made, produced, or grown in substantial quantities within the United States. The bill proposed that year was stated by the House Judiciary Committee to be designed “to meet an acute situation affecting the import trade of the country” by reason of the fact that certain foreign governments controlled and operated monopolies dealing in rubber, potash and sisal for which this country depended materially upon importations. Because of the operation of these foreign monopolies the price to American importers had been greatly increased. The Committee thought that the best way of meeting “these alien government combinations” was to allow American buyers of the monopolized products to combine for the purpose of importing them. During debates on the bill it was attacked, among other things, on the ground that if it were passed, import associations would be permitted to join with foreign producers in worldwide agreements arranging world markets and fixing world prices. The bill failed to pass, Congress thus indicating its unwillingness to extend further the application of the Webb Act.

Thus it is clear that from the very beginning of the agitation for the Act it was understood that the activities of export associations would have to be strictly limited to the promotion of foreign export trade, and that any agreements or activities which restrain domestic competitors either in domestic or foreign commerce would still be illegal under the Sherman Act. This, it seems to me, is what has been overlooked by those who now question the application of the Sherman Act to activities of export associations which restrain domestic competition and the export trade of competitors.

The Department of Justice is not seeking any novel interpretation of the Sherman Act or of the Webb Act. We have thus far instituted one suit involving associations formed under the Webb Act and it requires no novel interpretation of the Act to sustain the allegations involved.

In that suit, filed on March 16, 1944, we charged two American export associations, 13 American manufacturers, and a British corporation and its American agent, with maintaining international cartel agreements to restrain trade in the manufacture and marketing of alkalis, in violation of the Sherman Antitrust Act. Our complaint asserted that the 17 defendants and four co-conspirators—two American corporations, one German, and one Belgian—had conspired to allocate and maintain exclusive marketing areas and export quotas throughout the world, eliminating competition and restraining exports in alkalis by means of illegal contracts, agreements and understandings still in effect!

The following were named as defendants in the complaint: United States Alkali Export Association, Inc. (“Alkasso”), a Delaware corporation with principal offices in New York City; California Alkali Export Association (“Calkex”), a California corporation with principal offices in Los Angeles; Imperial Chemical Industries Ltd. (“ICI”), a British corporation with principal offices in London, England; Imperial Chemical Industries (New York) Ltd., a New York corporation wholly owned and controlled by ICI, London; Pittsburgh Plate Glass Company, Inc., a Pennsylvania corporation with principal offices in New York City; Church & Dwight Company, Inc., a Delaware corporation with principal offices in New York City; Diamond Alkali Company, Inc., a Delaware corporation with principal offices in Pittsburgh, Pa.; Dow Chemical Company, Inc., a Michigan corporation with principal offices in Midland, Mich.; Hooker Electrochemical Company, Inc., a New York corporation with principal offices in Niagara Falls, N. Y.; The Mathieson Alkali Works, Inc., a Virginia corporation with principal offices in New York City; Niagara Alkali Company, a New York corporation with principal offices in New York City; Pennsylvania Salt Manufacturing Company, a Pennsylvania corporation with principal offices in Philadelphia; Southern Alkali Corporation, a Delaware corporation with principal offices in New York City; Westvaco Chlorine Products Corporation, a Delaware corporation with principal offices in New York City; Wyandotte Chemicals Corporation, a Michigan corporation with principal offices in Detroit; West End Chemical Company, Inc., a California corporation with principal offices in Oakland; and Pacific Alkali Company, Inc., a limited partnership organized and registered in California with principal offices in Los Angeles. Named as co-conspirators were: American Potash & Chemical Corporation, a Delaware corporation with principal offices in New York City, substantially all of whose capital stock beneficially owned by the German potash trust, was seized by the Alien Property Custodian in 1942; Solvay Process Company, a New York corporation with principal offices in New York City; Solvay et Cie. (“Belgian Solvay”), a Belgian corporation with principal offices formerly in Brussels but now in London, England; and I. G. Farbenindustrie Aktiengesellschaft, a German corporation with headquarters in Frankfort-am-Main, Germany.

This suit is of major importance in the drive to eliminate the effect of cartels on American commerce. It is the first suit which the Antitrust Division has filed involving the activities of associations organized under the Webb Export Trade Act. It should serve as a warning of our determination to prevent cartel groups from carrying out their illegal plans by use of the Webb Act.

“Alkalis,” it should be explained, include soda ash (sodium carbonate), caustic soda (sodium hydroxide) and bicarbonate of soda. Soda ash is used in the manufacture of glass, textiles and chemicals. Caustic soda is used in the manufacture of soap, textiles, rayon and paper and in the refining of petroleum products. Sodium bicarbonate is used for many industrial, chemical and drug purposes and, purified, as baking soda. In 1939, there were produced in the United States approximately 2,900,000 tons of soda ash, worth more than $50,000,000; approximately 1,000,000 tons of caustic soda, worth more than $40,000,000; and approximately 140,000 tons of refined bicarbonate of soda, worth more than $5,000,000.

All the domestic defendants in the suit, with the exception of Alkasso, Calkex and ICI (N. Y.), were engaged in the manufacture and sale of alkalis in the United States and conduct substantially all of their export trade in alkalis through Alkasso and Calkex. Alkasso was organized in 1919 and filed a verified statement with the Federal Trade Commission to obtain benefits and immunities provided by the Webb Export Trade Act. Alkasso’s members, who control and manage all its activities, include defendants Pennsylvania Salt, Pittsburgh Plate Glass, Hooker Electrochemical, Diamond, Mathieson, Westvaco, Church & Dwight, Dow, Niagara and Southern. Alkasso obtains alkalis from its members, transporting from warehouses maintained at Hoboken, N. J., and New Orleans, La., to markets throughout the world. Calkex was organized similarly in 1936 by American Potash & Chemical, West End Chemical and Pacific Alkali, who control and manage its activities. It obtains alkalis from member companies and ships from Pacific Coast ports to various world markets. Prior to 1940, Alkasso and Calkex together exported 95% of the alkalis exported from the United States. Since then, because of war conditions and the resignation of Solvay from Alkasso in 1941, the alkalis exported by the two associations have amounted to 75% of the total alkali exports from the U. S.

It is charged that beginning in 1924 and continuing to the present day the defendants have engaged in an unlawful combination and conspiracy in restraint of trade and commerce in alkalis and that they have been and are parties to contracts, agreements and understandings in violation of the Sherman Act. This continuing agreement, it is alleged, provides:

(1) That Alkasso, Calkex, their respective members, ICI, I. G. Farben, and Belgian Solvay not compete with each other in the sale of alkalis in any market of the world outside of the United States, and that ICI, I. G. Farben and Belgian Solvay refrain from importing alkalis into the United States;

(2) That Alkasso, Calkex and their respective members be assigned certain marketing areas as their exclusive territory (including the U. S.) and that ICI, I. G. Farben and Belgian Solvay refrain from exporting alkalis to such territory and prevent other European manufacturers from doing so;

(3) That exclusive market areas be assigned to ICI (the British Empire exclusive of Canada), I. G. Farben (Scandinavia), and Belgian Solvay (Continental Europe exclusive of the Scandinavian countries), and that Alkasso and Calkex and their respective members refrain from exporting alkalis to such territories and prevent other American manufacturers from doing so.

(4) That the rest of the world markets be shared jointly by Alkasso, Calkex, their respective members, and ICI, with competition therein eliminated by allocating quotas to British and American companies and limiting their exports to certain fixed percentages of the total sold in such areas and by agreeing among themselves on the prices at which alkalis are sold in such markets;

(5) That Alkasso, Calkex and their respective members prevent other American manufacturers and dealers from exporting to joint territory except in compliance with quota and price agreements fixed for such markets.

(6) That Alkasso, Calkex, and their respective members conduct their export trade and utilize the aforesaid arrangements and their practices thereunder in such manner as to enhance, stabilize and maintain at uniform and non-competitive levels the prices at which caustic soda is sold in the United States.

It is alleged that the results of this conspiracy have been:

(1) To eliminate competition by Alkasso, Calkex and their members with ICI and European producers of alkalis in the manufacture and marketing of alkalis throughout the world;

(2) To eliminate exports of alkalis by ICI, Belgian Solvay and I. G. Farben to the United States;

(3) To eliminate exports of alkalis by Alkasso, Calkex and other American manufacturers to many markets of the world; and to restrict and curtail by quota arrangements the export of alkalis from the United States to many world markets;

(4) To eliminate competition by Alkasso and its members with Calkex and its members in exports of alkalis from the United States;

(5) To curtail and limit the production of alkalis within the United States;

(6) To prevent competition between manufacturers of alkalis in the United States (who are not members of Alkasso and Calkex) and Alkasso, Calkex, ICI, Belgian Solvay and I. G. Farben in world markets;

(7) To prevent independent exporters of alkalis in the United States from engaging in the export of such commodities; and

(8) To enhance, stabilize and maintain at arbitrary price levels the prices at which caustic soda is sold in the United States.

The Department of Justice sought the abrogation of the illegal contracts and agreements and a permanent injunction against the defendants restraining them from violating the Sherman Act. The Government also asked that the defendants be enjoined from entering into any future contract, agreement or understanding with any foreign company in any manner restricting their exports of alkalis from the United States by division of export markets, allocation of territories, fixing of prices in export sales, or fixing or observing any export quotas. The Government further asked that the domestic defendants be enjoined from selling alkalis exported from the United States in any foreign markets through ICI (N. Y.) or through any agent or dealer selling alkalis for or on behalf of ICI or ICI (N. Y.).

Thus, in this case, we allege a conspiracy to restrain the exports of American competitors; to restrict imports to the United States and thereby restrain trade within the United States; to curtail and limit production in the United States, and to enhance, stabilize and maintain price levels within the United States. These allegations clearly charge a violation of the Sherman Act. The Webb Act, I am confident, does not protect activities of this type.

The allegations in this single instance against a Webb Export Association raise serious questions of law violation which cannot be ignored. The suggestion that we are stretching the Sherman Act by novel interpretation simply does not stand up. Associations organized under the Webb Act should take warning that the Alkali case represents the view of the Department of Justice as to the application of the Sherman Act to the activities of such associations. The position of the Department is in accord with the purpose, history and language of the Webb Act.

It is the policy of the Department of Justice to enforce the Sherman Act as vigorously as possible whenever evidence establishes probable violation. The Sherman Act represents a Congressional policy of more than fifty years’ standing. The Department of Justice did not create the Act although it has the responsibility of making it effective. The Department of Justice does not interpret the Act. That is the task of the courts. It is true, however, that the attitude of the Department of Justice toward antitrust law enforcement is predicated, frankly, not on a passive interest in the matter—a grudging willingness to perform an unwelcome duty—but on a deep conviction that Congress is right, and that the public economic policy embodied in the Sherman Act is basically sound.

So long as the conditions which gave rise to the Webb Act still exist, the Act, if properly employed, may be useful in promoting trade within the special and limited domain to which the Act applies. To meet centralized buying by centralized selling, and to stand up against the exclusionary tactics and monopolistic practices of well-established foreign cartels is sometimes necessary. Joint action by American exporters may serve to secure an equal footing in foreign trade in markets where combination is permitted or even encouraged. No doubt such retaliatory measures are wasteful as ways of organizing world trade, and no doubt we and other nations would be better advised to join hands in getting rid of international trade restraints, theirs and our alike. Meanwhile, however, the Webb Act has a use in defending American interests in markets which are too often cartelized.

If export associations are to be economically useful in the postwar world, approved by public policy and serving the purpose for which they were created, they must be the spearhead of American industry as it enters into competition with foreign industry for a fair share of world markets, rather than the tool of international monopolists to draw American industries into restrictive cartel agreements which contain provisions in conflict with the Sherman Act.

I have given some thought to the question whether the Webb Act should be tightened—whether additional legislation should be enacted to assure that possible abuses shall be eradicated. Some of those who have suggested such legislation apparently feel that export associations, operating under the cloak of the Webb Act, may be used to carry American industries into private international cartels which operate contrary to our public policy, and that serious consideration should be given now to legislation that would make such abuses impossible.

But at present, I am not ready to believe that additional legislation is necessary. Vigilant enforcement of the Sherman Act against those who misuse the Webb Act together with the understanding and cooperation of industry will make additional legislation unnecessary and prove adequate to prevent export associations from becoming screens for illegal cartel activity. The appreciation by industry itself of the advantage of avoiding restrictive agreements is an important factor in our future policy. But if antitrust enforcement should prove ineffectual, and if the postwar period should be characterized by widespread misuse of export associations operating under the cloak of the Webb Act, then, of course, serious consideration will have to be given to legislation which will end the abuses.