International Trading Companies: Building on the Japanese Model

Northwestern Journal of International Law & Business, Dec 1982

Passage of the Export Trading Company Act of 1982 provides new opportunities for American business to organize and operate general trading companies. After presenting a thorough history and description of the Japanese sogoshosha, Mr. Dziubla gives several compelling reasons for Americans to establish export trading companies. He also examines the changes in United States banking and antitrust laws that have resulted from passage of the act and offers suggestions for drafting guidelines, rules, and regulations for the Export Trading Company Act.

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International Trading Companies: Building on the Japanese Model

Robert W. Dziubla, International Trading Companies: Building on the Japanese Model International Trading Companies: Building on the Japanese Model Robert W. Dziubla 0 0 This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons - International Trading Companies: Building On The Japanese Model Robert W. Dziubla* Passageofthe Export TradingCompanyAct of1982providesnew opportunitiesfor American business to organize and operategeneraltrading companies. Afterpresentinga thoroughhistory anddescriptionofthe Japanese sogoshosha, Mr. Dziubla gives several compellingreasonsfor Americans to establish export tradingcompanies. He also examines the changes in UnitedStatesbanking andantitrustlaws that haveresultedfrompassage ofthe act, and offers suggestionsfor draftingguidelines,rules, and regulationsfor the Export Trading CompanyAct. For several years, American legislators and businessmen have warned that if America is to balance its international trade-and in particular offset the cost of importing billions of dollars worth of oilshe must take concrete steps to increase her exporting capabilities., On October 8, 1982, the United States took just such a step when President Reagan signed into law the Export Trading Company Act of 1982,2 which provides for the development of international general trading companies similar to the ones used so successfully by the Japanese. The Japanese success in exporting goods is primarily a result of the operation of a specific type of trading company, the sogoshosha, or gen* Awarded the Japan-U.S. Friendship Commission/American Bar Foundation Fellowship in in scattered sections of 12 and 15 U.S.C.). eral trading companies. While there are thousands of Japanese trading companies, the vast majority of these are small- to medium-sized firms specializing in a particular product or industry (senmonshosha)3. Only nine out of these thousands, however, qualify as sogoshosha.4 The ability of the sogoshoshato export goods in enormous quantities and thus help Japan maintain a trade surplus is undeniable. The Japanese overall trade surplus is expected to climb from $16 billion for 1981 to $20 billion in 1982, and its trade surplus with the United States is expected to reach $15 or $16 billion, up from $9.91 billion.5 Former Senator Adlai Stevenson III, the chairman of the Senate Subcommittee on International Finance and formerly the primary proponent of the Export Trading Company Act, noted that in June 1980 the United States had a trade deficit of $2.28 billion, the fiftieth consecutive monthly trade deficit, and that the "success of trading companies in exporting United States products has already been demonstrated by foreign trading companies. Mitsui Trading Company is America's sixth largest exporter." 6 While this statistic is both impressive and disturbing, it nevertheless fails to convey the true enormity and marketing ability of the sogoshosha. One revealing statistic is that in 1979 these nine companies accounted for 54.5% of Japan's imports and 48.2% of her exports.' Further figures showing the size of the sogoshosha, the scope of their activities, and their importance to manufacturers will be considered below. Two important questions face American businessmen and their counsel as they consider the establishment of export trading companies. First, why should American business go to the expense and trouble of trying to establish general trading companies that could compete with companies such as Mitsui or Mitsubishi when these same companies are doing so well at exporting American products, for a commission of only 2-3%? In other words, would it not 'be cheaper for American companies to use the Japanese sogoshosha and pay their small commission, or alternatively enter into joint ventures with them, rather than spend millions of dollars to set up their own general trading company? Second, if, as this article will demonstrate, there are compelling reasons 3 Y. TSURUMI & R. TSURUMI, SoGOSHOSHA: ENGINES OF EXPORT-BASED GROWTH 1 (1980) [hereinafter cited as SOGOSHOSHA]; Cole, supra note 1, at 281. 4 SOGOSHOSHA,supra note 3, at 1; Cole, supra note 1, at 281 n.22. 5 Asian Wall St. J. Weekly, Nov. 23, 1981, at 2, col. 1. 6 126 CONG. REC. S1 1587 (daily ed. Aug. 26, 1980) (Statement of Senator Stevenson). 7 Kanabayashi, Japan'sBig andEvolving TradingFirms: Can the U.S. Use Something Like 7hem, Wall St. J., Dec. 17, 1980, at 58, col. 2. 4:422(1982) why America should establish general trading companies, then how can American business develop general trading companies? Six reasons compel American business to develop its own general trading companies rather than to rely on the existing Japanese export companies. First, although it will require enormous capital investment to establish an American trading company that could compete with the sogoshosha in an area where the sogoshosha have a definite experiential advantage, an American general trading company would have only one goal: to export American goods, particularly those manufactured by small- to medium-sized firms, which have traditionally been sold only within the United States. Thus, America's trade deficit would improve. Moreover, because the trading companies would require an extensive network of international offices, they would presumably provide many valuable jobs, particularly for liberal arts graduates and especially for those with foreign language ability.8 Second, because the sogoshosha already are tied to their ownlargely Japanese-sources of supply of manufactured goods, they are unable to give total commitment to exporting American goods.9 As will be seen below, the sogoshosha have developed an integral network of subsidiary and affiliated companies that provide component parts and distribution services for finished goods ultimately exported by the sogoshosha. Because all of these companies belong to a particular trading company group, because the core trading company has a financial interest in seeing each of these companies prosper, and because the trading company is often under a long-term obligation to purchase the component parts from its affiliates, it cannot devote itself completely to exporting American goods. Thus, it cannot devote itself wholeheartedly to its American customers, and exportation of American goods would be of secondary concern at best. Third, because the sogoshosha are already in fierce competition with each other and beset by internal and external problems that will be discussed more fully below, they probably cannot be induced to undertake the additional problem of developing separate joint ventures with nascent American trading companies,10 especially when the American trading companies eventually could produce the strongest threat to the hegemony of the Japanese trading companies within the field of international trade. Fourth, the overwhelming preoccupation of sogoshosha personnel with sales volume, which is a necessary evil given the low commission rates which the sogoshoshacharge, has rendered them insensitive to the needs of small- and medium-sized firms." Although the sogoshosha have had long experience exporting the goods manufactured by smalland medium-sized Japanese companies and thus have learned how to handle the concerns of such customers, the sogoshosha have limited experience with American manufacturers of comparable size. Therefore, they would be likely to ignore the needs of their American customers in order to maintain sales and, thus, profit levels. Fifth, a United States general trading company would be best suited for barter trade. As one author has stated in concrete terms easily appreciated: In dealing with China, American manufacturing firms will soon discover that China's ability to balance her imports through barter-trade exports will require sogoshoshalike internal exchanges of diverse commodities and services. How else can American manufacturers who want to export tractors receive payment in kind in the form of Chinese apparel and sorghum-based "white lightning" called Mao-tai? 2 In short, American trading companies would be an important means of establishing mutually beneficial trade relations with many third world nations that are short on foreign exchange reserves. Finally, and perhaps most importantly, American trading companies would presumably be very profitable. In 1971, the average return on equity achieved by the Japanese trading companies was 27%. 13 American trading companies should be able to achieve similar returns. For the foregoing reasons, American business should take advantage of the opportunity to form general trading companies provided by the Export Trading Company Act. Many Japanese executives, how10 SOGOsHosHA, supra note 3, at 83. 11 Id. 12 Id. at 74. 13 See M. YOSHINo, NOTE ON THE JAPANESE TRADING COMPANY 15 (1973) (Harvard Business School Case No. 9-374-136); see also infra text accompanying note 210. ever, question the ability of American business to develop international trading companies. This is because long-term investment in both capital and personnel is required. As Akio Morita, chairman of Sony, Inc., remarked in 1973: A member of our company may be stationed in some faroff land, struggling to learn in a country with entirely different customs and characteristics. But he realizes that with the knowledge he has gained in five years or so he might become chief of the department in our head office that deals with this area. . . . He, therefore, is keenly interested in how strong the company will be in five or ten years from now. . . . As a result, Japanese enterprises steadily move ahead. . . American companies are constantly concerned with figures, and if rapid returns are not produced, the rating of the company drops. Except for very large corporations therefwoorerl,dIwiwdoenmdearrkwethinegthevrenAtumreesricthanat croemqupiarenielosnagreterwmilliinnvgesttomeemntbs.ar4k on Similarly, the managing director of Marubeni Corp., the third largest sogoshosha, commented that "[i]t would be very difficult for the U.S. to establish trading firms like those in Japan because Japanese firms are based on Japan's unique industrial structure."' 15 What is this "unique industrial structure" and, assuming that it provides the basis for the Japanese success in forming export trading companies, how can America develop successful trading companies within the context of its own business and industrial structure? The remainder of this article attempts to answer this question. Only one previous article has even addressed this question, 6 but given the novelty of the Export Trading Company Act and the dearth of information on the sogoshosha, several questions remain unanswered. For example, will the modifications of United States antitrust laws by the Export Trading Company Act provide American trading companies with immunity from antitrust laws comparable to that enjoyed by their Japanese counterparts? Will the modifications of United States banking laws permit United States banks to become as financially involved with their client trading companies as is possible for Japanese banks under the Japanese banking laws and system? Why did the sogoshosha develop in Japan over 100 years ago while the same concept is only now beginning to arouse interest in the United States? Can this 100-year gap in experience be closed, and, if so, what form will American trading companies assume? In attempting to answer these and related questions, this article first defines general trading companies and establishes a framework for 14 Quoted in Y. TSURUMI, JAPANESE BUSINESS 4 (1978). 15 Kanabayashi, supra note 7, at 56, col. 2. 16 Cole, supra note I. analyzing them. This framework is simply a statement of the three crucial functions that all trading companies must perform to be successful. Then a review of the pre-World War II development of the sogoshosha within this framework shows how the Japanese social and legal structures provided the basis for the phenomenal growth of the sogoshosha. Incidentally, this review may also provide a preview of the possible stages of development facing American trading companies. The next section of this article describes the postwar development of the sogoshosha and their current functions. Included in this section are discussions of the Japanese antitrust laws and how they affect sogoshosha operations; the financial structure of the sogoshosha; the degree of intercorporate ownership and interlock which prevails; and the fundamental role that large commercial banks fulfill by making enormous low-cost loans to the sogoshosha and by owning significant percentages of their stock. The section then concludes with an analysis of the changes adopted by the sogoshosha within the past eight years in order to cope with significant developments in international investment and trade. The last section of this article examines the modifications of United States banking and antitrust laws that have resulted from passage of the Export Trading Company Act. It compares the American and Japanese laws to determine if American trading companies will have the same freedom and flexibility of operation as their Japanese models. In conclusion, this article offers suggestions for the drafting of guidelines, rules, and regulations for the Export Trading Company Act and describes the most likely course that American businesses-especially American multinational banks-may follow in creating their own trading companies under the new Act. A general trading company is an economic organization whose functions are: 1. to minimize the risks involved in international transactions (the risks of fluctuation in demand and fluctuation in exchange rates) by spreading these risks over many transactions and many customers; 2. to reduce transaction costs by taking advantage of economies of scale; and 3. to make efficient use of capital because of the preceding two functions. 17 A sampling of the descriptions of the sogoshosha provided by other scholars may help expand and explain this proposed definition and analytical framework. One author has attempted to describe the essence of the sogoshosha by declaring that "its ability to bring about synergistic impact is the success secret of trading companies.""' Another has described the sogoshosha as "market intermediaries for the domestic and international distribution of Japanese manufacturing firms."19 A third scholar has focused on the integrative function of trading companies within groups of corporations: 2° the trading company taps the financial resources of the group bank and acts as the purchasing and sales agent for all of the group's manufacturing enterprises.2 ' A recent work has described the sogoshosha as "primarily large-volume, first-stage wholesale traders of industrial raw materials and grains and of such standardized intermediate products as steel, synthetic fiber, and fertilizer. '22 One of the most thorough scholars in the area of Japanese multinational business operations, Michael Yoshino, believes that the 17 Yamamura, GeneralTrading Companies in Japan: Their Originsand Growth, in JAPANESE INDUSTRIALIZATION AND ITS SOCIAL CONSEQUENCES 165 (H. Patrick ed. 1976). Two other authors have tried to define what the sogoshosha are by proffering a profile of their fundamental activities. One writer states that the "vital functions" provided by the sogoshosha are: (I) territorial knowledge of both domestic and international markets; (2) dynamic and static economies of scale; (3) a large internal market, that is, the ability to barter goods and services within the sogoshosha itself because of the huge number of goods and services handled; and (4) financing services using capital from the international capital markets. SOGOSHOSHA, supra note 3, at 11-14. Another author states that the main strengths of the sogoshosha are: (1) group affiliations revolving around the central trading company and including various manufacturing firms, (2) an international information network, (3) excellence in management, and (4) financial services. M. YOSHINO, supra note 13, at 11-12. Both of these authors have overlooked the central role that the large Japanese commercial banks have played in the growth of the sogoshosha. For a description and analysis ofthese "bankcentered conglomerates," see infra text accompanying notes 218-236. 18 M. YOSHINO, supra note 13, at 6. 19 SOGOSHOSHA, supra note 3, at 5. 20 Throughout its history Japan has been noted for the importance of groups. In the business world, this national characteristic is demonstrated by the common practice of corporations grouping around a large commercial bank. For more information, see infra text accompanying notes 218-236. 21 M. YOSHINO, JAPAN'S MULTINATIONAL ENTERPRISES 6-7 (1976) [hereinafter cited as JAPAN'S MULTINATIONAL ENTERPRISES]. 22 A. YOUNG, THE SOGO SHOSHA: JAPAN'S MULTINATIONAL TRADING COMPANIES 6 (1979). Mr. Young further states that price, speed of information, and economies of scale "are of primary importance in these kinds of sales, which require little engineering service to manufacturers, minimum sales promotion, and minimal repair and other after-service to retail customers." Id. Each of the sogoshosha handle between 10,000 and 20,000 products. Id. at 4. true strength of the sogoshosha lies in their ability to coordinate the activities of small, independent manufacturing firms so that these firms complement each other's skills in performing a variety of specialized manufacturing and distributing functions.2 3 One example of the successful sogoshosha operations that he provides is the synthetic fibers field. This example will help illustrate the previously proposed definition by providing a concrete explanation of the contribution of the sogoshosha to the development of successful export trade. The two firms that pioneered synthetic fibers had many problems marketing their new products, and one of the main obstacles was the reluctance of the spinning, weaving, dyeing, and manufacturing firms to use the synthetic fibers. Most of these firms were small and familyowned. Their reluctance was understandable because they were unsure of market response and lacked technical expertise. To overcome this reluctance, the synthetic fiber manufacturers organized a select group of the small firms into a hierarchical manufacturing system and provided technical and managerial expertise. The trading companies took over the movement of the goods among these firms and provided credit at every stage. Finally, with the help of the trading companies, the fiber manufacturers developed a hierarchical system among fiber wholesalers and distributors. The result was vertical integration from the manufacturer through processing firms to retail outlets.24 . The trading companies also gave export advice to the fiber manufacturers. When import restrictions abroad began threatening the export position, the trading companies were the first to perceive this threat because they were the export agents. The trading companies then put together a hierarchical organization abroad by convincing and helping the small manufacturers-who had hesitated to locate abroad by themselves-to set up foreign subsidiaries. Generally, the fiber manufacturer held 20-30% of the equity in the foreign subsidiary. The trading company held 15-25%, other firms in the group held 5-10%, and the remainder was locally owned.25 These foreign subsidiaries then became captive outlets for the export of intermediate materials. This method succeeded because the import restrictions were imposed on goods in the final stages of production-spun, woven, or completed manufactured goods-rather than the fibers themselves. By exporting fibers to their subsidiaries and manufacturing the restricted goods in the foreign country, the manufacturers avoided all or most of the im4:422(1982) port restrictions.26 The fiber manufacturers provide a concrete example of how the activities of the sogoshosha can help to solve the export problems of a particular industry. It is now necessary to examine how these activities fit into the three-part analytical framework proposed at the beginning of this section. Minimizing the Risks of International Trade One of the three functions of the sogoshosha is to minimize the risks inherent in international trade. These risks fall into two categories: fluctuation in exchange rates and fluctuation in demand. The sogoshosha minimize the risks that result from fluctuations in exchange rates by importing and exporting simultaneously. Thus, they are able to buy and sell in local currencies. This, according to at least one author, reduces transactions across different currencies to "a fraction of the total import and export business."2 7 For example, a trading company will make a commitment to buy goods from a Japanese producer in yen, even though the export sales contract is in dollars. Although the trading company might thus absorb a foreign exchange loss for its customer, it can internally offset this exchange loss against an exchange gain resulting from the purchase of goods in America in dollars and the sale in Japan in yen.28 Another benefit accruing to the trading companies because of their dealing in several currencies is the ability to speculate in the foreign exchange markets. Because the sogoshosha have large supplies of many foreign currencies on hand to finance their various projects, they are able to sell at a profit--or at least avoid a loss--on a currency that is about to decline in value vis-;I-vis other currencies that the sogoshosha possess. Thus, when the sogoshosha expect the American dollar, for example, to decline in value against the Deutschmark, the sogoshosha will sell their dollars for Deutschmarks. The trading companies are particularly well suited to benefit from trading in the foreign 26 Id. 27 Yamamura, supra note 17, at 163-66. Another author, however, contends that the trading companies are able to "marry" their exchange transactions only about 15% to 25% of the time. The reason, he explains, is that "[t]he tendency for import payments to be short-term and export receipts to be medium to long-term results in a lower ratio of 'marriages' than would be possible if export receipts and import payments were more in phase." W. MONROE, JAPAN: FINANCIAL MARKETS AND THE WORLD ECONOMY 51 (1973). He goes on to remark that the trading companies are both the major customers of the authorized foreign exchange banks and the major de facto foreign exchange dealers for the majority of Japanese firms. Id. 28 Krause & Sekiguchi, Japan and the World Economy, in AsiA's NEW GIANT: HOW THE JAPANESE ECONOMY WORKS 391 (Patrick & Rosovsky ed. 1976). exchange markets because of their vast international intelligence networks that often provide advance knowledge of political and economic changes affecting international exchange rates.29 The sogoshosha minimize the risk of fluctuation in demand primarily through their ability to spread this risk over many transactions and many customers. Although no concrete data exist on the number of sogoshosha transactions or customers, each of the sogoshosha handles 10,000 to 20,000 different products.30 The number of individual transactions would obviously be much higher. The sogoshosha also reduce fluctuations in demand through their unique ability to create long-term supply and demand, to ensure longterm stability in supplies of products and materials, and to generate new business. The sogoshosha create supply and demand by organizing huge joint ventures, such as overseas development of industrial raw materials like iron ore, coal, or bauxite, with giant producers. On the one hand, these ventures supply raw materials which the sogoshosha can sell 31 and, on the other hand, they create demand for transportation, construction, and mining equipment. Naturally, the sogoshosha are willing to provide such equipment, either as principals or agents. B. Economies of Scale The second function of the sogoshosha is to take advantage of economies of scale. Although trading companies effect economies of scale in numerous areas, the most significant one is the development and transmission of market information. The production of information about market opportunities includes the costs of gathering and disseminating such information. These costs, however, are fixed and independent of the use to which the information is put. Thus, the key to lowering the costs is to increase the size of the market for such information.32 The costs of assembling this information are distributed among its users. Nonetheless, as a whole these costs are staggering. For example, in 1973 Mitsui spent 3,000 million yen (about $13,333,333) on information and communications, and 2,000 million of this amount (about $8,888,888) was spent on telecommunications alone.33 It is this magnitude of expenditure that 29 Id. 30 A. YOUNG, supra note 22, at 4. 31 Id. at 3-4. 32 This is true because the "search costs per unit of information" decline as the market expands. Yamamura, supra note 17, at 164. 33 H. FUKUDA, JAPAN AND WORLD TRADE: THE YEARS AHEAD 68 (1973). The dollar figures are based upon a July 1981 exchange rate of 225 yen to one dollar. makes Mitsui's communications system second only to the Pentagon's.34 Within the realm of market information, the sogoshosha "thrive on both dynamic and static economies of scale."35 The static economies of scale derive from their domestic and worldwide network of market contacts. Once the initial investment in large-scale informational networks is made, the incremental costs of processing territorial information are marginal to the trading companies and their clients. The sogoshosha'saverage general selling and administrative expense is very low-about 1.3% of revenues. By contrast, in small enterprises this figure can be as high as 25%.36 Hence, even small- and mediumsized firms, in Japan or abroad, which often are too weak financially and managerially to have any market contact points, can simply hook up with the vast informational network of a sogoshosha for a small fee. This fee covers only the incremental costs and incremental contributions to the sogoshosha's overhead. Often even large firms use the sogoshosha'sinformation and distribution networks for developing uncertain markets and for servicing existing but inaccessible markets.37 The dynamic economies of scale enjoyed by the sogoshosha derive from the cumulative ability of both the organization and its individual employees to identify, screen, process, and translate into business opportunities the political, economic, social, and even climatic events occurring within domestic and international markets.3" This ability stems from what one author has termed "the process of learning by doing that takes place inside sogoshosha."39 According to this author, the accumulated experience of a sogoshosha's past successes and failures is passed on to its recruits, who join the trading company's internal efforts to increase the firm's "informational stock."' This information in turn reduces negotiation costs because buyers and sellers are aware of their alternatives-they have greater certainty about the world price structure and their own opportunity CoStS. 4 1 While the range of information supplied by the sogoshosha is as 34 A. YOUNG, supra note 22, at 77-79. During fiscal year 1976, the top six sogoshoshaspent about $192 million on expenditures related to information and communication. Id. at 77. 35 SOGOSHOSHA,supra note 3, at 12. 36 M. YOSHINO, supra note 13, at 16. 37 Id. 38 SoGosHosHA, supra note 3, at 12. 39 Id. Stated another way, this specialization of trading company personnel in international trade results in savings because specialization, and the resultant increase in productivity, is a function of the volume of transactions. Yamamura, supra note 17, at 165. 40 SOGOSHOSHA,supra note 3, at 12. 41 Yamamura, supra note 17, at 164. broad and diverse as the needs of their clients, there are fairly standard areas covered by all the firms. These areas include: size of potential markets; competitive manufacturers in the export country; current prices and profit potential; foreign exchange rates and likely financial fluctuations; distribution channels; the credit ratings of potential wholesale and retail distributors; current attitudes of industrial users, consumers, competitors, labor unions, or government officials toward the proposed export products; foreign import regulations and other tariff and nontariff trade barriers; and the various export permits required by the government. 4 2 For those manufacturers dependent upon advanced technology, the sogoshosha provide information on current scientific and technological advances in the United States and Western Europe, on the latest equipment available, on market potential, and on technology licensing or joint venture requirements.43 The sogoshosha also benefit from economies of scale in the areas of transportation, warehousing, and insurance. Because the sogoshosha handle diverse goods, and more importantly, at diverse locations, they are able to charter an entire freighter, aircraft, train, barge, or other mode of transportation and fill it by consolidating the goods supplied by many clients.44 In this way, the sogoshosha do not have to pay a premium for guaranteed, timely shipment of a cargo. Moreover, even if they do not charter an entire vehicle, they can negotiate bulk discounts for volume shipping. Finally, the sogoshosha can obtain favorable shipping rates from carriers with excess capacity because the sogoshosha can guarantee return business4.5 The trading companies also receive beneficial rates on insurance and warehousing because they can guarantee a high volume of transactions. Indeed, many sogoshosha find it profitable to own their own shipping, warehouse, and insurance companies.46 42 A. YOUNG, supra note 22, at 61. 43 Id. 44 SOGOSHOSHA, supra note 3, at 13. 45 Id. at 13. 46 A. YOUNG, supra note 22, at 66. Mr. Young notes that: The big trading companies own many warehousing subsidiaries, including rolled steel warehouses, grain elevators, and refrigerated warehouses. They also own large ore carriers, log carriers, and general cargo ships. Firms such as Nippon Kokan K. K., Nisshin Flour Milling Co., and Sapporo Breweries, Ltd., to use the Fuyo group as an illustration, can often employ group railways such as Keihin Electric Express Railway Co., or Tobu Railway Co., Marubeni Corporation warehouses such as Marubeni Reizo K. K. at the Tokyo harbor, and Marubeniowned cargo boats or transports operated by group member Showa Shipping Company. Id. 4:422(1982) C. Efficient Use of Capital The third and last major function of the sogoshosha is to make the most efficient use of capital possible; their ability to accomplish this is based upon their success at reducing risks and effecting economies of scale. Simply stated, "[b]y reducing risks (that is, reducing the variance of expected returns) in using capital, the trading companies are able to obtain capital (and create credit) which would not have been available to a single trader, or available only at a higher price."'47 Furthermore, because the economies of scale described above substantially reduce the costs to the customers of the sogoshosha, the amount of capital employed by the customers is increased substantially.48 That is, because the sogoshosha can extend credit and long-term financing and because they can provide export services at the lowest cost, they reduce their clients' costs. The money saved is capital, which otherwise would have been unavailable. Even larger manufacturers "would have to allocate a substantial amount of capital to provide or purchase these services independently at a higher cost."'49 Japanese industry benefited greatly from exactly this type of increased available capital during the boom times of the 1960s and 1970s when capital was scarce.50 The foregoing analysis of how the sogoshosha export competitively and yet make a substantial profit should provide the reader with an understanding of the essential functions and operations of the sogoshosha. It should also provide a basis for understanding how American business-within both the industrial and service sectors of the economy-could benefit from the formation of American trading companies. Yet the foregoing description inadequately details the intricacies of international trade as practiced by the sogoshosha and the close, intergroup coordination and interdependence that are crucial to the sogoshosha's success. The following description of the historical development of the sogoshoshais intended to fill these gaps. At the same time, the description provides an insight into the role that various historical occurrences and accidents played in the evolution of the sogoshosha. It should also give the reader the means to assess the possibility and the methods for development of American trading companies. 47 Yamamura, supra note 17, at 165. 48 A. YOUNG, supra note 22, at 67. 49 Id. at 68. 50 Id. HISTORICAL EVOLUTION OF THE SOGOSHOSHA The modern day sogoshosha evolved from two different sources. The first was in the Japanese trading and banking houses that began to expand so rapidly during the 1870s and 1880s and that ultimately were calledzaibatsu.s5 The course of this expansion was largely vertical and involved expansion from trading and banking into manufacturing activities. The predominant examples are the Mitsui and Mitsubishi families, 2 followed by Sumitomo and Yasuda. The zaibatsu, defined as a "group of giant diversified companies under the control of a family-owned holding company," 53 sprang up at this time primarily for two reasons. First, in the 1880s the Japanese government decided to dispose of most of the commercial enterprises it had begun and run under government control since Commodore Perry had opened Japan to the West, and it was the zaibatsu that acquired most of these operations.54 Second, during the 1880s, the zaibatsu adopted the radical Western notion of the joint stock company.55 Thus, the zaibatsu were able to expand their supply of capital by selling their stock publicly. The owners of the zaibatsu, having imposed a corporate form on their multifaceted operations, controlled their empires in the following manner. First, they established a holding company at the pinnacle of their corporate pyramids. 56 They then segregated their various commercial operations into corporate subsidiaries and affiliates. These were linked together in an extensive network by means of intercorporate stockholding, interlocking directorates, management agents, and easily available bank credit, which the zaibatsu extended to their affiliates to facilitate the expansion of their production and to increase their dependence upon the zaibatsu5.7 One author has remarked that the zaibatsu were patterned closely after the Japanese concept of the family: a network of related households, all of whose members were subject to the authority of a single head.5" It was at this point that the trading companies as we know them 51 Y. TsURUMI, THE JAPANESE ARE COMING: A MULTINATIONAL INTERACTION OF FIRMS AND POLITICS 132-35 (1976) [hereinafter cited as THE JAPANESE ARE COMING]; M. YOSHINO, supra note 13, at 2. 52 J. ROBERTS, MITSUI: THREE CENTURIES OF JAPANESE BUSINESS 4-5, 119-20 (1973). 53 JAPAN'S MULTINATIONAL ENTERPRISES, supra note 21, at 4. 54 Id. at 4-5. 55 Id. at 5. This type of company is called kabushiki kaisha, and the initials K.K. are often placed after a joint stock company's formal name. 56 Id. at 6. 57 Id. 58 Id. today began to appear. They sprang up because the zaibatsu lacked an integrative element, that is, a central organization within the zaibatsu to coordinate production and intergroup transportation of component parts and finished goods, and to arrange financing.5 9 By tapping the financial resources of the group bank, utilizing the existing shipping and warehousing arms of the group, and serving as the purchasing and sales agent for all of the group's manufacturing enterprises, the trading company was able to coordinate and integrate all of the various activities carried on by the diverse companies under the control of the zaibatsu.6 ° The trading company provided essential links within the zaibatsu by skillfully organizing a large number of small enterprises to produce for the export market.6 This relationship between the trading company and the smaller affiliated firms was called keiretsu.62 The trading company would supply its keiretsu firms with raw materials, technical and management assistance, and credit.6 3 Moreover, it was the trading company that allocated the credit of the zaibatsu.4 The second source from which the sogoshosha evolved was the senmonshosha, or the small- to medium-sized trading companies specializing in one product or industry.65 Some of these senmonshosha have their origins in the textile industry and date from the late 1880s, when the cotton spinning industry developed in Japan. The necessity of procuring raw cotton from foreign sources gave rise to specialized trading companies in that field.66 Then, as the cotton spinning industry became large enough to export, the trading companies that had specialized in cotton procurement abroad began to handle the exports as well.67 Gradually, they diversified into other products and industries because of their experience in the cotton industry. The sogoshosha grew rapidly during the period from 1900 to 1945. By the turn of the twentieth century they had established an extensive network of branches and offices in every major market in the world.68 Through this network the trading companies exported cheap, labor-in59 Id. at 6-7. 60 Id. 61 Id. at 7. 62 Kei means "lineage" and "group," while retsu means "arranged" in order. Thus, keiretsu means an organization that is well-ordered. Id. 63 Id. 64 Id. 65 M. YOSHINO, supra note 13, at 2; THE JAPANESE ARE COMING, supra note 51, at 132-35. 66 M. YOSHINO, supra note 13, at 3. 67 Id. C. Itoh and Marubeni developed in this way. Nisho-Iwai and Ataka developed in a similar fashion, but within the steel industry. Id. 68 JAPAN'S MULTINATIONAL ENTERPRISES, supra note 21, at 7. tensive, highly-standardized products that were distributed in a foreign market by local wholesalers and retailers.69 The role of the trading company in exporting these cheap, standardized products was quite simple: "neither technical services nor advertising and sales promotion was required. Of overriding importance for trading in these products was the simple communication of information on price and volume." 70 In addition to functioning as an export conduit, these distribution networks abroad served another purpose by identifying new technology and products and feeding them back to the main company.s As the sogoshosha gained more experience in international trade, their internal structure became more refined. During the early 1900s, a trading company was a unified operation in which all employees handled all types of trading. But, as time passed, the trading company divided along major product lines.72 A concomitant change in management style also occurred: managers were sent abroad for long periods of time, and division managers and heads of foreign branches were given considerable autonomy.73 The means by which these foreignbased managers were controlled, however, remained traditional. They were bound by a long-socialized and deeply engrained sense of loyalty to the honsha, the main company, which in most cases was the holding company at the top of the zaibatsu pyramid.74 Moreover, their loyalty was rewarded because ultimately they were promoted back into the honsha. Two questions remain to be answered before this historical analysis will be complete: why was it that general trading companies developed in Japan during this period and did not develop elsewhere, and why did certain trading companies develop into sogoshosha while others did not? The answers to these questions may provide helpful insights for Americans contemplating following the Japanese model. In trying to answer the first question, it is important to note at the outset that Japan is tragically poor in natural resources, and it is this characteristic which most influences Japan's economic relations with other nations.75 This scarcity of natural resources provided a strong impetus to engage in international trade. Furthermore, because the Japanese government was determined to avoid the economic domina4:422(1982) tion of the kind that befell the Chinese in the 1800s, it decided to industrialize. The trading companies were simply a necessary result of this desire to industrialize and of "the ignorance of the Japanese about foreign markets, their lack of knowledge of foreign languages, and their desire to become a participant in the world economy. 76 General trading companies did not develop in the West because there was no need for them. First, the West's institutions for international trade had already developed over an extended period of time, and the formation costs were spread out during the entire time. In comparison, Japan had placed itself in national isolation (sakoku) for 200 years and was required to develop quickly after the Open Door policy was imposed upon it by Commodore Perry. 7 Second, Western linguistic and cultural similarities, as well as geographical proximity, made the absolute costs of information, of negotiation, and of enforcement of contracts much lower for the West than for Japan.78 Third, the West had a highly developed capital market in which corporations could obtain necessary funds. In Japan, however, the capital market was virtually nonexistent. 79 Finally, while the industrial system of the West was composed of many large corporations that could market their own goods, the Japanese industrial structure was a dual-style system in which the majority of manufacturing occurred in a cottage-industry setting and required other large corporations to market the manufactured goods. 80 Why is it, though, that Mitsui and Mitsubishi and the other sogoshosha, out of all the thousands of trading companies in Japan, became the behemoth general trading companies?8 The answer is simple: historical placement and access to capital. For example, Mitsui and Mitsubishi were some of the first entrants into the import/export field. Moreover, Mitsui was an established and respected name from the Tokugawa era (1615-1868), had been made the fiscal agent of the Meiji government (1868-1912), and had the backing of the Mitsui Bank.82 Thus, it was already well established and well known. In comparison, Sumitomo Shoji, which was the trading company for the Sumitomo group, a comparative late-comer into the import/export 76 Id. at 389. 77 Yamamura, supra note 17, at 193-94. 78 Id. 79 Id. 80 Caves & Uekusa, IndustrialOrganization, in ASiA'S NEW GIANT: How THE JAPANESE ECONOMY WORKS 508 (Patrick & Rosovsky ed. 1976). 81 Yamamura, supra note 17, at 192. 82 Id See also J. ROBERTS, supra note 52. field, had access to large amounts of capital and large markets (mostly firms within its group) because it was a member of the solid, closelyknit Sumitomo group.83 In sum, the present-day sogoshosha had their origins in the Japanese industrialization process which began in the late 1800s. By 1945 the sogoshosha had attained a crucial role in the worldwide operations of the zaibatsu by functioning as the central mover of goods and credit within the zaibatsu and by marketing the products manufactured by the zaibatsu throughout the world. The conclusion of World War II and the Allied occupation of Japan, however, caused significant changes in the structure and operation of the sogoshosha. The following section details those changes and shows the course of development followed by the sogoshosha from 1945 to the present. III. POSTwAR DEVELOPMENT OF THE SOGOSHOSH After World War II, the military occupation authorities, and in particular General Douglas McArthur, the Supreme Commander for the Allied Powers in Asia (SCAP), were faced with the task of trying to help Japan rebuild, while eradicating the causes which the Allies believed had contributed to Japan's imperialistic and violent expansion in the Pacific Basin. To accomplish the first task, SCAP began a study of the war-shattered Japanese economy. A group of American scientific advisors reported that Japan's economic reconstruction would depend heavily upon intensive scientific and technological development, because only then could manufacturing productivity -increase.84 To eradicate Japanese imperialism, SCAP ordered the dissolution of the zaibatsu because-SCAP believed-they were one of the moving forces behind the Japanese war effort. In July 1947, SCAP specifically dissolved Mitsui Bussan Trading Co. and Mitsubishi Shoji Trading Co., the most important enterprises within the Mitsui and Mitsubishi zaibatsu8.5 Mitsui Bussan was divided into 200 companies and Mitsubishi Shoji into 139.86 Because the zaibatsu no longer existed, no one remained to conduct Japan's international trade. Hence, Allied military authorities conducted all such trade until 1948.87 Beginning in 1948, however, private Japanese trading firms resumed the responsibility for international 83 Yamamura, supra note 17, at 193. 84 S. OHKrrA, GUTSU-SHIGEN-KEIZAI [Technology-Natural Resources-Economy] 4 (1949). 85 H. IyoRi, ANTIMONOPOLY LEGISLATION IN JAPAN 12 (1969). 86 Id. 87 THE JAPANESE ARE COMING, supra note 51, at 135. trade.8" It was at this time that the current structure of the sogoshosha also began to develop, for it was during the early 1950s that Japan's leading manufacturing firms -and largest commercial banks-encouraged and supported by the Japanese government through its Ministry of International Trade and Industry (MITI)-began to develop a new system of keiresau groups. The manufacturing firms found this system particularly suited to their immediate postwar needs. Their equity capital had been severely depleted by the war effort and they had to contend with galloping postwar inflation. 89 Hence, they had to rely extensively upon their banks to satisfy their needs for both long- and short-term loans.9° These needs resulted in an extremely high debt to equity ratio of about three to one and made the manufacturing firms even further dependent upon their banks,9 1which were in turn completely dependent upon the Bank of Japan. It was this unique relationship between manufacturing enterprises and banks-a structure that evolved as an historical accident-that provided the Japanese government and the Bank of Japan with effective levers to use both monetary policy, such as the central bank's supply of money, and fiscal policy, such as the government's investments and industrial promotions, to stimulate the Japanese economy.92 The government had already decided to implement a long-term growth policy whereby MITI would aid mainly a few large and growth-minded firms in key industries such as steel, chemicals, and automobiles.93 These large businesses, nourished by MITI, in turn were to pull up smaller manufacturers which were part of their group.94 As part of this long-term growth plan for selected industries, MITI let weaker firms planned, however, they were often unprofitable.262 Thus, the sogoshosha established OEDs. Initially, the OEDs' involvement with new overseas investments was limited to preparing an investment proposal after the division had decided to make an investment.263 To this end, the OEDs prepared routine financial analyses and pro forma statements, checked the credit of proposed local partners, submitted appropriate documents to the governments concerned, drafted joint venture contracts, and initiated the routine intrafirm procedure for formal approval of the investment.2" Gradually, the OEDs realized that the only way to ensure a substantive role in the initial investment decision itself was to make themselves invaluable through project analyses and feasibility studies. Thus, they honed their planning and analytical skills and eventually persuaded either the product divisions or top management to establish committees to screen new foreign investments 65 The end result was that the OEDs, having standardized their data collection procedures and having proven the need for their project analyses and feasibility studies, assumed a central role in foreign investment decisions. Indeed, the reports prepared by the OEDs were welcomed by the governments of host countries and relied upon by foreign partners in preparing their own proposals.' In this way, the sogoshoshawere able to consolidate their foreign investment decisions and make them more profitable. V. PROSPECTS FOR THE SOGOSHOSHA Although the sogoshoshahave grown enormously in the past thirty years, several authors have reservations about the ability of the sogoshosha to maintain, much less increase, their level of sales. Two basic reasons explain these reservations. First, the traditional strength of the sogoshosha was the scale on which they could procure and distribute goods. As the Japanese industrial structure shifted, however, from textiles and standard goods to capital-intensive goods such as steel, chemicals, oil, and petrochemicals, the type of marketing structure also shifted. These newer types of exports require technical services, extensive marketing efforts, and after-sales service. The trading companies, though, lack the ability to provide these services2 6 7 and, as a result, more and more manufacturers who formerly used the 262 JAPAN'S MULTNATiONAL ENTFRPimSES, Jupra note 21, at 99-103. 263 .d. at 103. 2 6 4 Id. 265 .d. at 103-04. 266 Id. at 104. 267 Id. at 118-19. 4:422(1982) sogoshosha are now buying their own supplies directly and marketing their own products independently.2 68 The sogoshosha have reacted to this problem with different degrees of rapidity and intensity, but the basic reaction of all has been to integrate their operations. In doing so, they have followed six closely interrelated business strategies: growth, diversification, creation of supply and demand, organization and coordination of new growth industries, consumer market penetration, and consolidation of affiliates. The expansion of C. Itoh & Co. into the United States computer market through a local subsidiary and the consolidation by Mitsui & Co. of its twenty-eight affiliated corporations--discussed above -are but two examples2. zT The second reason for reservations about the future of the sogoshosha is, according to at least one author, their inability to produce more Japanese managers culturally and socially comfortable in foreign languages, customs, and manners.2 7 1 Because the overseas activities of the sogoshosha have become extensive, Japanese expatriate managers and their local clerical staff are increasingly unable to handle all the work. Moreover, to penetrate overseas markets more deeply, the trading companies need local experts well-versed in the "ins and outs" of local business and politics-an area in which Japanese expatriates are at a distinct disadvantage.272 Mitsubishi International Corp., the United States subsidiary of Mitsubishi Corp., is the only sogoshosha that has made a serious effort to remedy this shortcoming. By the spring of 1979, it had made formal attempts at retraining both its Japanese and American managers in or268 A. YOUNG, supra note 22, at 100. 269 See supra text accompanying notes 160 and 261. 270 Useful examples of some of the activities are: (1) growth-introduction of three-year economic programs based upon macroeconomic indices, the economic plans of major customers, and internal sogoshosha data on past performance; (2) diversification-establishment of sales companies to handle specialized products and acquisition of smaller trading companies (senmonshosha); (3) creation of supply and demand-achieving both upstream and downstream integration in the same industry or product line; (4) organization and coordination of new growth industries--organizing large complex projects such as natural resource development or urban and regional development (5) consumer market penetration-expansion into the consumer food industry (by purchasing chicken and pig farms, the products of which go to group firms for processing, packaging, distribution, and retail sale), or by entering into joint ventures with foreign firms seeking to enter Japan (e.g., Mitsubishi and Kentucky Fried Chicken (1970) or Marubeni and Dairy Queen (1973)); (6) consolidation of affiliates-the merger of Mitsubishi Nippon Heavy Industries, New Mitsubishi Heavy Industries, and Mitsubishi Shipbuilding and Engineering into Mitsubishi Heavy Industries. A. YOUNG, supranote 22, at 106-17. 271 SOGOSHOSHA, supra note 3, at 57. 272 Id. at 55. der to integrate the latter more fully into the company.273 Efforts such as this one are essential to the continued success of the sogoshosha because they will be unable to exploit fully their key strength-economies of scale in communications and organization-unless foreign managers are integrated into the operation.274 Furthermore, these foreign managers will probably be dissatisfied and unwilling or unable to devote all their time and capabilities to their jobs until they are integrated. After all, the sogoshosha'sorganizational strength is based on informal but substantive cooperation among professionals who share the values and goals of the firm.275 And the foreign managers, who are becoming increasingly important in the overseas operations of the sogoshosha, will not share these values and goals unless they are socialized in the "corporate style" (shafu) and integrated into the company's mainstream activities. Although the foregoing reservations apply in varying degrees to all of the sogoshosha, there is little doubt that they are, and will continue to be in the forseeable future, engines of export-based growth. They have taken concrete steps to move into new consumer markets and handle goods that complement or replace standardized, less complex ones now being manufactured more cheaply in Hong Kong, Taiwan, and Korea. DEVELOPMENT OF AMERICAN INTERNATIONAL TRADING COMPANIES The concern of American business and the United States government over the ability of American industry to export its products at levels sufficient to balance United States imports-if not to provide a basis for positive growth-greatly contributed to enactment of the Export Trading Company Act of 1982.276 In title I of the Act, Congress specifically found, inter alia, that although exports are vital to maintaining American jobs, trade deficits contribute to inflation, and that although America has many exportable products, especially in the agricultural sector, "export trade services in the United States are fragmented into a multitude of separate functions, and companies attempting to offer export trade services lack financial leverage to reach a significant number of potential United States exporters.""27 Thus, the 273 Id. at 57. 274 Id. at 55. 275 Id. 276 Export Trading Company Act of 1982, Pub. L. No. 97-290, § 102(a), 96 Stat. 1233, 1234 (to be codified at 15 U.S.C. § 4001). 277 Id. § 102(a)(6), 96 Stat. 1233, 1234 (to be codified at 15 U.S.C. § 4001). 4:422(1982) purpose of the Act is to increase United States exports by providing more efficient export services through the use of export trading companies (ETCs) and by permitting bank holding companies, bankers' banks, and Edge Act corporations to invest in ETCs.278 In short, Congress has amended the antitrust and banking laws to allow financial institutions to own stock in and make loans to American trading companies and to grant these trading companies a limited exemption from the operation of the American antitrust laws, all to increase American exports. Revision of American Antitrust Laws Although two different titles within the Export Trading Companies Act have a direct and substantial impact on United States antitrust laws, as a practical matter one of them may render the other unnecessary. 1. Limitation of Sherman Act and FederalTrade Commission Act Applicability Title IV of the Export Trading Companies Act is itself called the "Foreign Trade Antitrust Improvements Act of 1982, ''279 and it has amended both the Sherman Act"' 0 and the Federal Trade Commission Act.28 These amendments will create sweeping changes in antitrust enforcement in international trade.28 2 The amendments' practical effect is to exempt export trade from the prohibitions of the Sherman Act against monopolistic practices and the prohibition of the Federal Trade Commission Act against unfair methods of competition, unless the exempted activity has a "direct, substantial, and reasonably forseeable 278 Id. § 102(b), 96 Stat. 1233, 1234 (to be codified at 15 U.S.C. § 4001). 279 Id. § 401, 96 Stat. at 1246 (to be codified at 15 U.S.C. § 6a). 280 15 U.S.C. § 1 el seq. (1976), as amendedby Export Trading Company Act of 1982, supra note 276, § 402, 96 Stat. at 1246 (to be codified at 15 U.S.C. § 6a). 281 15 U.S.C. § 45a (1976 & Supp. IV 1980), as amended by Export Trading Company Act of 1982, supra note 276, § 403, 96 Stat. at 1246 (to be codified at 15 U.S.C. § 6a). 282 The text of the amendments is as follows: SEC. 402. The Sherman Act (15 U.S.C. 1 et seq.) is amended by inserting after section 6 the following new section: "SEC. 7. This Act shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless"(1) such conduct has a direct, substantial, and reasonably forseeable effect"(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or "(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and "(2) such effect gives rise to a claim under the provisions of this Act, other than this section. cause ETC benefits. u8 6 effect" on domestic trade or commerce.283 Although it can be argued that the "reasonably foreseeable effect" language is simply a codification of pre-existing case law,284 the required finding of a "direct" and "substantial" effect, nonetheless, will alter the conduct of antitrust cases involving export trade. Moreover, the requirement of a finding of "reasonably forseeable effect" arguably will allow courts less leeway to infer intent from the defendant's actions. A further analysis of the effect which these required findings will have on United States antitrust litigation is beyond the scope of this article, but no doubt numerous legal articles will be forthcoming. 85 In any case, several practitioners have predicted that the presence of title IV will discourage companies from seeking certification as an ETC becertification poses problems that might outweigh its 284 See, e.g., United States v. Griffith, 334 U.S. 100 (1948) (a finding of specific intent is unnecessary; if a restraint occurring as a result of the defendant's conduct is sufficient); International Org., United Mine Workers v. Red Jacket Consol. Coal & Coke Co., 18 F.2d 839 (4th Cir.), cert. denied sub nom. International Org., United Mine Workers v. Carbon Fuel Co., 275 U.S. 536 (1927) (questions of willful purpose or conscious design are unnecessary because persons combining or contracting are presumed to have intended the necessary and natural consequences of their acts and agreements). 285 Indeed, the passage of the Export Trading Company Act has already generated several articles. Eg., Moore, LateAddition May Prove to be Key to Export Act, Legal Times, Oct. 11, 1982, at 1, col. 3-4; Farnsworth, TradeBillis Expectedto Spur Exports, N.Y. Times, Oct. 5, 1982, at 31, col. 1-4. See also Export Trading Companies: A4New Toolfor American Business, Business America, Oct. 18, 1982, at 1-14 (Business America is a newsletter published by the United States Department of Commerce) [hereinafter cited as ETCs, A New Tool]. 286 Moore, supra note 285, at 1, col. 3-4. For example, certification subjects the ETC to liability for reimportation. Id. Limitation ofAntitrust Liability and Damages Title III of the Act is entitled "Export Trade Certificates of Review," and its basic purpose is to limit the antitrust liability of entities possessing a certificate of review. Section 306 details the protection conferred by a certificate of review and provides, in pertinent part, that: (1) no civil or criminal action will lie against a certificate-holder for conduct which is specified in and complies with the terms of the holder's certificate; (2) any person suing for relief from the activities of a certificate-holder is limited to actual damages (rather than treble damages), plus injunctive relief, interest on actual damages, cost of suit, and reasonable attorneys' fees; (3) suit must be commenced within two years of notice of the damage and in any event within four years of its occurrence; (4) a rebuttable presumption exists that a certificateholder's activity, as specified in the certificate, does not have an anticompetitive effect; and (5) a successful certificate-holder can recover attorneys' fees and costs of suit.28 7 To obtain a certificate of review, an applicant must demonstrate to the Secretary of Commerce that the applicant's specified export trade,2 88 export trade activities, 289 and methods of operation2 9 ° will, in 287 The actual language of Section 306 is as follows: SEc. 306. (a) Except as provided in subsection (b), no criminal or civil action may be brought under the antitrust laws against a person to whom a certificate of review is issued which is based on conduct which is specified in, and complies with the terms of, a certificate issued under section 303 which certificate was in effect when the conduct occurred. (b)(1) Any person who has been injured as a result of conduct engaged in under a certificate of review may bring a civil action for injunctive relief, actual damages, the loss of interest on actual damages, and the cost of suit (including a reasonable attorney's fee) for the failure to comply with the standards of section 303(a). Any action commenced under this title shall proceed as if it were an action commenced under section 4 or section 16 of the Clayton Act, except that the standards of section 303(a) of this title and the remedies provided in this paragraph shall be the exclusive standards and remedies applicable to such action. (2) Any action brought under paragraph (1) shall be filed within two years of the date the plaintiff has notice of the failure to comply with the standards of section 303(a) but in any event within four years after the cause of action accrues. (3) In any action brought under paragraph (1), there shall be a presumption that conduct which is specified in and complies with a certificate of review does comply with the standards of section 303(a). (4) In any action brought under paragraph (1), if the court finds that the conduct does comply with the standards of section 303(a), the court shall award to the person against whom the claim is brought the cost of suit attributable to defending against the claim (including a reasonable attorney's fee). (5) The Attorney General may file suit pursuant to section 15 of the Clayton Act (15 U.S.C. 25) to enjoin conduct threatening clear and irreparable harm to the national interest. Export Trading Company Act of 1982, supranote 276, § 306, 96 Stat. at 1243 (to be codified at 15 U.S.C. § 4016). 288 Section 311(1) of the Export Trading Company Act states that "the term 'export trade' means 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." Id. § 311(1), 96 Stat. at 1245 (to be codified at 15 U.S.C. §4021). essence, have no anticompetitive effect in the United States and will not result in resale of the applicant's goods or services in the United States. 2 9 1 Within ninety days of receipt of an application, the Secretary is required to evaluate the potential for anticompetitive effects or resale, and if no anticompetitive effects or likelihood of resale exist, the Secretary, with the concurrence of the Attorney General, will issue a certificate of review to the applicant specifying the export trade, export trade activities, and methods of operation to which the certificate applies.292 An applicant or any other aggrieved person has a right to judicial review of the Secretary's grant or denial, whether in whole or in part, of a certificate.2 93 Other, less important provisions of title III state that the Secretary, with the Attorney General's concurrence, may issue guidelines about the application of the antitrust laws to export trade.294 In addition, a certificate holder must file an annual report with the Secretary. 2 95 Finally, any information submitted by any person in connection with the issuance, amendment, or revocation of a certificate is generally exempt from the public disclosure which is required of executive agencies.2 96 A review of the foregoing provisions' potential effect on the establishment and operation of American ETCs follows. B. Revision of American Banking Laws The Export Trading Company Act made provision for bank ownership and involvement in ETCs primarily by amending 297 the Bank Holding Company Act of 1956.298 The pertinent definitions are contained in title I of the Export Trading Company Act.29 9 General provisions and operative provisions are found in title II, called the "Bank 289 Section 311(3) of the Export Trading Company Act states that "the term 'export trade activities' means activities or agreements in the course of export trade." Id. § 311(3), 96 Stat. at 1245 (to be codified at 15 U.S.C. § 4021). 290 Section 311(4) of the Export Trading Company Act states that "the term 'methods of operation' means any method by which a person conducts or proposes to conduct export trade." d. § 311(4), 96 Stat. at 1245 (to be codified at 15 U.S.C. § 4021). 291 Id. § 303(a), 96 Stat. at 1241 (to be codified at 15 U.S.C. § 4013). 292 Id. § 303(b), 96 Stat. at 1241 (to be codified at 15 U.S.C. § 4013). 293 Id. § 305(a), 96 Stat. at 1243 (to be codified at 15 U.S.C. § 4015). 294 Id. § 307(a), 96 Stat. at 1244 (to be codified at 15 U.S.C. § 4017). 295 Id. § 308, 96 Stat. at 1244 (to be codified at 15 U.S.C. § 4018). 296 Id. § 309(a), 96 Stat. at 1244 (to be codified at 15 U.S.C. § 4019). 297 Id. § 203, 96 Stat. at 1236 (to be codified at 12 U.S.C. § 1843). 298 12 U.S.C. §§ 1841-1850 (1976 & Supp. IV 1980), as amendedby Export Trading Company Act of 1982, supra note 276, § 203, 96 Stat. at 1236 (to be codified at 12 U.S.C. § 1843). 299 Export Trading Company Act of 1982, supranote 276, § 103, 96 Stat. at 1234 (to be codified at 15 U.S.C. § 4002). The reader should be aware that there are two sets of definitions in the ETC Act, those in section 103, which apply to bank export services (i.e., title II), and those in section 4:422(1982) Export Services Act."3 ° An ETC is defined as a company doing business in the United Statesprincoialy for the purpose of exporting goods and services produced in the United States. and assisting unrelated companies to export their products overseas. 3°' An ETC can either export goods and services for its own account or provide facilitating services for unrelated exporters, but cannot do both. 30 2 Even though an ETC is a company "principally" engaged in exporting, it can engage in importing and trade with third countries. Moreover, the Act permits foreign ownership of ETCs. 3 3 Bank holding companies 304 and bankers' banks may invest up to 5% and loan up to 10% of their consolidated capital surplus in an ETC.305 They may also own up to 100% of the stock of an ETC, and the ETC may have the same name as its bank organization parent.0 6 Although the Federal Reserve Board (FRB) must approve any investment, an investor company simply needs to notify the FRB of the intended investment and, if the FRB fails to object within sixty days, the bank may proceed with the intended investment.30 7 Finally, it should be noted that a bank is exempted from the collateral requirements in the Federal Reserve Act for loans to its ETC.30 8 311, which apply to export trade certificates of review (i.e., title III). Seeid. §§ 103, 311, 96 Stat. at 1234, 1245 (to be codified at 15 U.S.C. §§ 1234, 1245). 300 Id. § 201, 96 Stat. at 1235. 301 Id. § 103(4), 96 Stat. at 1234 (to be codified at 15 U.S.C. § 4002). This section states that: the term "export trading company" means a person, partnership, association, or similar organization, whether operated for profit or as a nonprofit organization, which does business under the laws of the United States or any State and which is organized and operated principally for purposes of(A) exporting goods or services produced in the United States; or (B) facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade services. .... 302 Id See also ETCs, A New Tool, supra note 285, at 5. 303 ETCs, A New Tool,supra note 285, at 5. 304 12 U.S.C. § 1841(a) (1976 & Supp. IV 1980). Section 1841, in essence, defines a bank holding company as a company that owns or controls, either directly or indirectly, a bank or another bank holding company. In addition to its normal meaning, "control" also is deemed to include ownership or voting control of 25% or more of the voting securities of a bank or bank holding company. 305 Export Trading Company Act of 1982, supranote 276, § 203, 96 Stat. at 1236 (to be codified at 12 U.S.C. § 1843). 306 H.R. REP. No. 294, 97th Cong., 2d Sess. (Conference Report on S.734, Export TradingAct of 1982, and Conferees' Explanatory Statement on Bill) , reprintedin 43 ANTITRUST & TRADE REG. REP. (BNA) 719, 724 (Oct. 7, 1982) [hereinafter cited as Conference Report]. 307 Export Trading Company Act of 1982, supra note 276, § 203(3), 96 Stat. at 1236 (to be codified at 12 U.S.C. § 1843). 308 Id. Other provisions of title II, although interesting, are largely unrelated to this article; they cover such problems as export-import guarantees of loans to ETCs, id. § 206, 96 Stat. at This revision of the United States banking laws should make available to ETCs the financial support and international trade experience that have helped make the sogoshosha successful. As we have seen, city banks are the main source of capital for the sogoshosha, both through stock ownership and the extension of loans. For example, in 1973 Mitsubishi Bank owned 7.84% of the stock in Mitsubishi Corp.3 °9 and provided 14.8% of its loans.31 0 In short, Mitsubishi's main bank provided 22.64% of its total funds in 1973. C. Itoh & Co. is an even more interesting example, in that two main banks accounted for 41.24% of its loans and equity; Sumitomo Bank owned 8.72% of its stock and held 12.9% of its debt, while Daiichi-Kangyo Bank also owned 8.72% of its stock and held 10.9% of its debt.3t1 In total, the Sumitomo Bank group and the Daiichi-Kangyo Bank group accounted for 50.04% of C. Itoh's equity and debt.31z Similar ownership patterns are not impossible for American ETCs, because under the Act a bank holding company may own an ETC completely. The only limitations on such ownership are that: (1)the investment by a bank holding company in the stock of an ETC not exceed 5% of the bank holding company's consolidated capital and surplus, and (2) the total extensions of credit by a bank holding company to an ETC at any one time not exceed 10% of the bank holding company's consolidated capital and surplus. 313 The Act specifically provides that "an extension of credit shall not be deemed to include any amount invested by a bank holding company in the shares of an export trading company." 314 As we have seen, the ability of the sogoshosha to export goods successfully is closely tied to the amount of funds they have to loan to their related firms and customers and that they can use to integrate the various operations involved in exportation. The Export Trading Company Act will allow ETCs to receive significant amounts of their funds from banking organizations. It also ensures that banks will be able to participate in ETCs and thus make available to ETCs the knowledge and facilities which the banks have developed in their international dalings. Thus, the ETCs should have the financial ability, trained person§ 1239 (to be codified at 12 U.S.C. § 635a-4) and bank acceptance of ETC drafts or bills of exchange, id. § 207, 96 Stat. at 1239 (amending 12 U.S.C. § 372 (1976)). 309 A. YOUNG, supra note 22, at 54. 310 43. 311 43, 54. 312 Id. 313 Export Trading Company Act of 1982, supra note 276, § 203(3), 96 Stat. at 1236 (to be codified at 12 U.S.C. § 1843). 314 Id. nel, and physical presence necessary to compete efficiently with the sogoshosha and to export American products in large quantities. Competitive Limitations on American Export Trading Companies Although the Export Trading Company Act should help significantly to increase United States exports-assuming, of course, that American industry and agriculture take advantage of export markets and the presence of ETCs-several structural and operational differences will exist between American and Japanese trading companies. These differences could have an enormous impact upon the success of American export trading companies. The most bothersome problem is that, although all export trade organizations, whether they have the statutory certificate of review or not, will enjoy a limited exemption from the operation of the Sherman Act and the Federal Trade Commission Act, the exemption may be construed by the Department of Commerce, the Attorney General, or the courts to apply only to export trade activities. As previously explained, however, one of the three major functions of an international trading company is to minimize the risk in international trade of fluctuations in demand and fluctuations in exchange rates. One method by which the sogoshosha accomplish the latter is to "marry" the exportation of goods from Japan under one contract with the importation of goods from abroad under a different contract. 15 They thereby limit transactions across different currencies to minimal levels and thus reduce the risk of fluctuations in exchange rates. In other words, to minimize the risk of exchange rate fluctuations, the sogoshoshamust engage in both export and import activity. And, it is not always possible for them to keep exports above imports because international demand rates change continuously and because changes in exchange rates may at times require imports greater than exports. Thus, during the period 1963 to 1972, for example, the sogoshoshaimported 62-65% of all Japanese imports and exported 47-52% of all Japanese exports.3 16 In no year during this period, however, did the exports of the sogoshosha exceed their imports. 3 17 Neither the certificate of review procedure set forth in title III nor 315 See supra text accompanying notes 27-28. 316 Krause & Sekiguci, supra note 28, at 392. 317 By fiscal year 1976, the export to import ratio had improved. In that year only two of the big ten had imports exceeding exports, and exports amounted to 21.3% of their sales while imports amounted to 20.9%. A. YOUNG, supranote 22, at 29. For a breakdown ofthis data by sogoshosha, see Table A-5 in the appendix. the limited antitrust exemption for export trade set forth in title IV establishes clear guidelines for ETCs with certificates of review or export trade organizations lacking such certificates to determine the amount of import trade in which they can engage without losing their antitrust exemption. This uncertainty within the Export Trading Company Act will hamper seriously the ability of such companies to "marry" their transactions and thereby reduce the risk of exchange rate fluctuations. Their overall effectiveness may thus be hindered from the start3. 1 8 ETCs must deal with the inevitable fluctuations in international demand and in foreign exchange rates by-engaging in varying levels of import activity so as to maximize their effectiveness. Therefore, the Secretary of Commerce and the Attorney General, in drafting the various guidelines, rules, and regulations called for by the Export Trading Company Act,319 should pay particular attention to the need to balance domestic antitrust concerns with the need of ETCs to engage in both import and export trade. Perhaps the most difficult problem facing the government and the courts in determining whether the activities of a certificate-holding ETC have a domestic anticompetitive effect, in violation of the four antitrust standards of section 303(a) of the Act, 2' is factoring into the 318 The experience of the Japanese sogoshosha in this area, however, may be inapplicable to "American sogoshosha" and requires the following qualification. Japan is woefully lacking in natural resources and the raw materials necessary for the construction of finished products. Therefore, she must import vast amounts of raw materials that are processed and then used in the industrial process. The sogoshosha play a key role in importing these raw materials and then exporting the finished products manufactured therefrom. In contrast, America has an abundance of raw materials and is able to manufacture many of her finished goods largely from domestic sources. Thus, it may be necessary for American trading companies or their client firms to import more than 50% of the fair market value of the finished goods eventually exported by them. 319 Under section 307 the Secretary of Commerce may, with the concurrence of the Attorney General, draft guidelines regarding the application of the antitrust laws to export trade. Export Trading Company Act of 1982, supra note 276, 96 Stat. at 1244 (to be codified at 15 U.S.C. § 4017). Section 310 requires the Secretary, with the concurrence of the Attorney General, to promulgate any rules or regulations necessary to carry out the purposes of the Act. Id. 320 The certificate of review is issued to any applicant that has established that its specified Id. § 310, 96 Stat. at 1245 (to be codified at 15 U.S.C. § 4020). § 303(a), 96 Stat. at 1241 (to be codified at 15 U.S.C. § 4013). 4:422(1982) decision-making processes the very competition from the Japanese sogoshosha and their counterparts in China, Korea, and Brazil that spurred the development of the Export Trading Company Act.321 Arguably it is the very existence and operation of the sogoshosha which, having contributed to the necessity for development of American ETCs, will operate to prevent the formation of American monopolies and the imposition of anticompetitive and monopolistic practices upon American consumers. In other words, it is the competition from the sogoshosha and their foreign counterparts within the American market that has hurt the American trade balance and that thus encouraged passage of the Export Trading Company Act. In their various activities, the American ETCs' challenge is to contend with the competition that helped foster their creation. The process of determining whether the export trade, export trade activities, and methods of operation of an ETC substantially lessen competition, restrain trade, or unreasonably affect prices within the United States, therefore, necessarily requires an evaluation of sogoshosha activity within the United States in the same relevant product market areas as the export trade activity under evaluation. The same problem of determining how much import activity an ETC can engage in without running afoul of the Act plagues title II, which covers bank investment in ETCs. The definition of an export trading company, regardless of whether it is the section 103(a)(4) or section 203(3)(F)(i) definition, states that an ETC must be "organized and operated principally for the purposes of exporting goods or services produced in the United States or facilitating the exportation of goods or services produced in the United States by unaffiliated persons."" Nowhere in the Act, however, is the word "principally" defined. Presumably, the Secretary of Commerce, with the concurrence of the Attorney General, will clarify this deficiency in the guidelines, rules, and regulations mentioned above. Given the need of ETCs both to import and to export, however, it would probably be best if the Secretary's pronouncements adopt a flexible approach, rather than simply declare that ETCs must generate more than 50% of their annual revenues from export activities. One possible method by which the Secretary could help ensure the success of the ETCs, thereby promoting the purposes of the Act, while at the same time making sure that ETCs are principally engaged in export trade as required by the Act, would be to 321 See infra text accompanying notes 323-26. 322 Export Trading Company Act of 1982, supra note 276, §§ 103(a)(4), 203 (3), 96 Stat. at 1234, 1236 (to be codified at 15 U.S.C. § 4002, 12 U.S.C. § 1843). draft regulations imposing a specific limitation on the number of years in a given period during which an ETC could have imports in excess of exports. For example, the regulations could require an ETC to maintain exports greater than imports on a rolling five-year basis. This approach would give ETCs greater flexibility in "marrying" their export trade to import trade and thereby increase the ability of the ETCs to minimize the risks of international trade. A similar result could be reached by requiring an ETC to have average exports greater than average imports during a given period of, perhaps, three, four, or five years. In this way, the ETC would be able to take advantage of any unexpected drop in prices for large quantities of component raw materials found abroad late one year and incorporated into a finished product that would be exported early the following year. Thus, not only would the trading company be able to minimize the fluctuations in exchange rates, it would also be able to effect economies of scale-another crucial function of an export trading company. VII. CONCLUSION The Export Trading Company Act should provide American business with the apparatus necessary to export its goods more aggressively, easily, and cheaply. No longer will small- and medium-size firms be forced to confine their sales to the domestic market, for the ETCs should provide the same type of funding, expertise, and facilities that have made Japan the second largest economy in the world and that have allowed Japan consistently to post a trade surplus. The only serious impediment is that the ETCs may constantly have to maintain exports above imports. This may not be possible given the risks of fluctuation in both international demand and international exchange rates with which the ETCs must cope. Despite these limitations, the ETCs now have a framework that should allow them to minimize these risks, to reduce transaction costs by taking advantage of economies of scale, and to make efficient use of capital because of the preceding two functions. The ETCs will also be positioned to benefit greatly from the Japanese experience-they will know how successful trading companies such as the sogoshosha are organized, how they have handled shifting patterns in international trade, and how they have expanded their operations. If the American ETCs can build on the Japanese experience, American business may not regret that it has sold large amounts of technological knowledge to Japan, which Japan has improved upon and marketed throughout the world. Given the undeniable success of the sogoshoshain exporting Japa4:422(1982) nese goods worldwide on a massive scale, thereby allowing Japan to maintain an enormous trade surplus, it is possible that American trading companies organized and operating in a similar fashion will alleviate America's trade deficit to a large extent. American trading companies should be able to reach new markets with many American goods already sold abroad and establish markets for American goods that have heretofore been sold only in the United States. In doing so, American trading companies presumably will create many new job opportunities, both within their own organizations and for their customers, who would be producing for the world market rather than for the American market alone. The only apparent alternatives to American development of privately held ETCs are to tolerate a continuing trade deficit or to rely on massive government involvement in marketing American goods abroad. These options appear infeasible, yet successful international trade is a complex, expensive undertaking. The solution may lie in the establishment of American ETCs similar to those of the United States trading partners. In addition to the Japanese sogoshosha, the Koreans have built similar organizations.323 China has begun organizing and supporting state-run trading companies.324 In 1971, Brazil's Minister of Finance helped found a trading company (Cobec), which was 30% owned by the government's Banco di Brasil, with the remaining shares primarily held by commercial banks from around the world.32 5 Not surprisingly, Brazil's exports of manufactured goods rose 115% from 1976 to 1977.326 The passage of the Export Trading Company Act was a major legislative step toward making America a powerful exporting nation. It is now the responsibility of the government and of American business leaders to develop the structures and methods necessary to realize the Congressional hopes for export-based growth. 323 SoGosHosHA, supra note 3, at 67-72. 324 Asian Wall St. J. Weekly, Oct. 26, 1982, at 6, coL 1-4. 325 SOGOSHOSHA, supra note 3, at 65-67. 326 Id. at 66. APPENDIX Table A-1. The Multinational Presence of the Ten Leading Trading Companies (March 31, 1973)* COMPANY SUBUNITS OF NUMBER OF THE BRANCHES PERSONNEL WHOLLY- OR BRANCHES FROM THE NUMBER OWNED OF THE PARENT OF LOCAL BRANCHES SUBSIDIARIES SUBSIDIARIES COMPANY PERSONNEL 14 15 15 23 20 17 82 79 65 90 87 68 55 46 44 50 763 802 592 584 560 476 334 306 330 234 2,460 2,133 2,041 1,500 1,120 973 632 572 850 407 * Reprintedby permissionof Harvard University Press from M. YOSmNO, JAPAN'S MULTINATIONAL ENTERPRISES 29 (1976). Table A-2. Product Categories of the Two Leading Trading Companies in Percent* MrrsUBISHI** CATEGORY Machinery Iron and steel Foodstuffs Nonferrous Metals Textiles Fuel Chemicals Construction Materials Other * Reprinted by permission of Harvard University Press from M. YOSHINO, JAPAN'S MULTINATIONAL ENTERPRISES 28 (1976) ** Because of rounding, Mitsubishi percentages do not add exactly to 100 %. MrrSUI CATEGORY Textiles Chemicals Other 4:422(1982) Table A-3. Major Activities of Subsidiaries of the Ten Leading Trading Companies (March 31, 1973)* ACTIVITY NUMBER PERCENT Manufacturing 455 65.4 Sales (other than general trading) 85 12.2 Service 83 11.9 Extractive 36 5.2 Resource development (other than extractive) 37 5.3 Total 696 100.0 * Reprinted bypermission of Harvard University Press from M. YOSHINO, JAPAN'S MULTINATIONAL ENTERPRISES 123 (1976) Table A-4. Foreign Subsidiaries of the Ten Leading Trading Companies by Industry (March 31, 1973)* INDUSTRY Textiles and related products Metal Machinery Chemicals and related products Food Sundry goods Pulp and paper NUMBER OF SUBSIDIARIES PERCENT 53 37 34 12 11.6 8.1 7.5 Other 24 5.3 Total 455 100.0 * Reprinted by permission of Harvard University Press from M. YOSHINO, JAPAN'S MULTINATIONAL ENTERPRISES 123 (1976). Table A-5. Sales of the Ten General Trading Companies by Types of Trade for FY 1976 (in percent)* Mitsubishi Corporation Mitsui & Co. Marubeni Corporation C. Itoh & Co. Sumitomo Shoji Nissho-Iwai Co. Toyomenka Kanematsu Gosho Ataka & Co. Nichimen Company Total Third-country trade Domestic trade * Reprintedbypermissionof Westview Press from THE SOGO SHOSHA JAPAN'S MULTINATIONAL TRADING COMPANmS 29, by Alexander Young. Copyright © 1979 by Westview Press, Boulder, Colorado. "FY" stands for Fiscal Year. Table A-6. Percentage Breakdowns of Annual Turnover of Ten Largest General Trading Companies by Product and by Activity (1974)* Annual Turnover by Product International Trade to TradingCompany Textile MetalsMachineryFoodChemicals Others**Total Turnover Mitsubishi Mitsui Marubeni C. Itoh Sumitomo Nissho-Iwai Tomen Kanematsu Ataka Nichimen 9% 9 20 30 10 22 26 17 19 32% 34 27 15 36 39 23 23 36 25 14% 16 20 16 18 19 21 11 12 13 13% 15 13 12 12 11 14 19 20 14% 12 10 11 17 8 15 11 18% 14 11 16 9 21 6 22 20 12 * Reprintedwithpermission from THE JAPANESE ARE COMING: A MULTINATIONAL INTERACTION OF FIRMS AND POLITICS 129, Copyright 1976, Ballinger Publishing Co. ** "Others" include the importation of timber trade and of crude oil, coal, and pulp products. Total Table A-7. The Ten Largest General Trading Companies of Japan (1974)* Company ClassA (Largest) Mitsubishi Mitsui Class B (Medium Large) Marubeni C. Itoh Sumitomo Nissho-Iwai Class C (Least Large) Tomen Kanematsu Ataka Nichimen Annual Turnover 1973 (4) • r V18,035 Bil 9,408 8,627 19,903 5,548 5,232 5,181 6,006 8,929 2,444 2,321 2,095 2,069 Number of EmIplotyO"ees .(B.) 20,539 10,064 10,475 28,603 8,040 7,717 5,775 7,071 15,449 4,094 3,901 3,498 3,956 696 690 698 886 566 578 697 595 599 503 Y2& 0 Bil 14.0 14.0 26.0 9 4 7 6 9.0 2 2 3 2 * Reprinted with permission from THE JAPANESE ARE COMING: A MULTINATIONAL INTERACTION OF FIpms AND POLrICS 128, Copyright 1976, Ballinger Publishing Co. *0 S 0 4C)., ~ .0 4., *0 -00 .~ '---C,0 0 0 0 r. 0( ,, 0 0 , 0~o M W-= 2 0=... 'C o 0-_.= OCO-., 00 00 ; , 0 0 0, ::3 C 0 .2 M0 z tz< Table A-9. Profit Rates of Japanese General Trading Companies, Manufacturers, and all Industries, 1962-1971* Profit-totalasset ratesa Trading All Year companies Manufacturers industries Profit-ownedcapitalratesb Trading All companies Manufacturers industries a. Current profits before tax divided by total assets. b. Current profits before tax divided by the sum of retained earnings reserved plus paid-in capital plus net profit after tax before dividends. Annual figure is an arithmetic average of semiannual reports. Reprintedbypernissionof The Brookings Institution from Krause & Sekiguchi, Japanandthe WorldEconomy, in AsiA'S NEw GIANrT. How THE JAPANESE ECONOMY WORKS 395 (H. Patrick & H. Rosovsky ed. 1976), @ 1976 by the Brookings Institution. Table A-10. The Six Largest Trading Companies (1973)* 612 574 361 340 312 297 10,001 10,948 8,039 7,454 5,564 7,096 Central Bank Loans to Financial Institutions (B) A-B -1,748 26,570 302 26,210 37,187 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 NAME * Reprinted by permission of Harvard University Press from M. YosinNo, JAPAN'S MULTINATIONAL ENEmwRPtsEs 28 (1976). Table A-11. country Japan United States United Kingdom West Germany France Unit Yen billion $ million Pounds million D.M. million Francs million Source: Y. SuzuKI, MONEY Am BANKINo IN CONTEMPORARY JAPAN 8. 0 1980 by Yale University Press. Reprinted tqth permission. .0 0 cu ou 0 I 0 -. 6Il,'t Io! I3 I • " 1 I I I 1°1o6Id 00~ ~ Ic r II*~-r '00 jC7,djo n A w I I 0'0 ~~0O~o0W0 O C %' 0 1 CuM cau0 a Cu: cu as C,uA :3 c c, t A0 I I 00 I SII I 06 1 CIAl 4 4964 CdC I I 0 C1 the University of Washington in Seattle. B.A., 1974 , Northwestern University; M.A., 1978 , Uni- versity of Chicago; J.D., 1980 , Northwestern University. I E.g., Cole, EstablishingAmerican TradingCompanies ,2 Nw. J. INT'L L . & Bus . 277 ( 1980 ) trading companies) . 2 The Export Trading Company Act of 1982 , Pub. L. No. 97 - 290 , 96 Stat. 1233 ( to be codified 8 The interaction of these American trading company personnel with the peoples of the world of many American companies . P. SIMON, THE TONGUE-TIED AMERICAN 1-40 ( 1980 ). A recent article trenchantly notes that over 12,000 Japanese are currently studying in the United States, with more than 50% of them studying technical subjects . The most popular subjects are electrical engineering and computer science . In sad contrast, however, only 500 Americans are Oct. 26 , 1981 , at 15, col. 1 . 9 SOGOSHOSArsIu,pra note 3, at 83. See also Abbott & Totman, "BlackShips" and Balance Sheets: The Japanese Market and U.S.-Japan Relations , 3 Nw. J. Ir'L L . & Bus . 103 , 132 - 34 ( 1981 ). 88 Id. 89 THE JAPANESE ARE COMING, supra note 51, at 13. 90 Id. 91 Id. 92 Id . 93 JAPAN'S MULTINATIONAL ENTERPRISES , supra note 21, at 63. 94 THE JAPANESE ARE COMING, supra note 51 , at 13. The role that MITI played in Japan's son, MITI and Japanese Economic Policy, in THE FOREIGN POLICY OF MODERN JAPAN 227 (Scalapino ed. 1977 ). Some foreigners have even called MITI the "ministry of one-way trade" GROWTH 223 ( 1973 ). See also R. CAVES & M. UEKUSA , INDUSTRIAL ORGANIZATION IN JAPAN 0 - g

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Robert W. Dziubla. International Trading Companies: Building on the Japanese Model, Northwestern Journal of International Law & Business, 1982,