The opinion of the court was delivered by: RYAN
This is an action brought to enjoin the price-fixing and business allocation activities of five fertilizer producers in connection with sales of fertilizer, made under the United States Foreign Aid Program, which was destined for the Republic of Korea. The challenged activities were conducted through the defendant Concentrated Phosphate Export Association, Inc. (CPEA), organized by the other defendants, or their respective corporate predecessors, in 1961. All facts have been stipulated. The question of law presented is whether the exemption from the Sherman Act provided for in the Webb-Pomerene Act applies to these transactions.
The parties have stipulated as follows:
The issue presented by the pleadings in this case is whether the Concentrated Phosphate Export Association, Inc., a nonprofit membership corporation organized and operated under the Act of April 10, 1918, Ch. 50, 40 Stat. 516, 15 U.S.C. 61-65 (commonly known as the Webb-Pomerene Act), and its members violated Section 1 of the Sherman Act (15 U.S.C. 1) in connection with that portion of the Association's sales of phosphatic fertilizer which such Association made for shipment to the Republic of Korea, where the Board of five Directors of the Association composed of one Director for each Member agreed on selling prices and on allocation of sales among such Members, when United States Government foreign aid funds were made available to pay for said phosphatic fertilizer shipments in accordance with statutes, treaties and regulations applicable to the U.S. foreign aid program.
Plaintiff, conceding that the transactions involved were exports from Florida to the Republic of Korea, contends that because they were part of a United States program of foreign aid, controlled, managed and funded by the Government, they are not "export trade" within the meaning of the "Webb-Pomerene Act" and consequently were in violation of the antitrust laws. The defendants rest squarely on the Act and answer that since these transactions were literally exports, the fact that they were shipped under the foreign aid program cannot convert them into domestic sales excluded from the statutory immunity. Plaintiff does not otherwise dispute the lawfulness of CPEA's operations under the Webb-Pomerene Act and the only question, therefore, is the application of the Act to these sales.
Plaintiff's reasoning is that the sales in question do not come within the Webb-Pomerene Act because they do not constitute export trade in that they were such an integral part of a United States program which paid for and closely controlled them, that they were tantamount to purchases made by the United States for the benefit of the Republic of Korea and are therefore domestic sales. Plaintiff also urges that, even if these transactions be held to be export trade, they were never within the contemplation of Congress when it legislated the immunity because (a) there was at that time no Foreign Aid Program in which the Government assumed the financial burden and cost for these commodities sold; (b) the price-fixing activities of the defendants injured the United States. The Government also urges that there is no necessity for these defendants to have the benefit of the immunity of the Act for they were not required to meet unlimited competition from suppliers abroad in foreign aid sales. Finally, the Government contends that a contrary interpretation of the immunity of the Webb-Pomerene Act would destroy the purpose of the exemption and frustrate the foreign aid program as well as the Sherman Act.
Summed up, the Government's argument is one a posteriori: from the conclusion that price fixing is per se illegal under antitrust principles in that injury to competition and to the public is presumed, it takes but one step back to conclude that ergo the United States and its citizens, who bore the cost initially of these fixed prices, must have been hurt. The Government reasoning that this was not intended by Congress when it immunized certain sales reaches a conclusion that these sales do not come within the exemptions of the Webb-Pomerene Act, that they are in violation of antitrust law, and, being "illegal per se", are to be struck down.
We have concluded that the answer lies in the wording of the statute. Let us, first, summarize the facts necessary to an appreciation of the question presented.
There is no dispute as to the accuracy of facts advanced by either party in support of its position. They do differ as to relevance and materiality of some of these facts and, of course, as to the conclusions to be drawn from them. The cooperation of counsel at pretrial hearings produced a statement of stipulated facts with exhibits attached; we turn to these:
CPEA - a non-profit Delaware corporation with its principal place of business in New York, New York, organized on September 12, 1961 to engage solely in export trade as the term "export trade" is defined in the Webb-Pomerene Act, and specifically to engage in trade and commerce in the product known as triple superphosphate and certain other concentrated phosphatic materials. (At all material times, CPEA has been duly registered with the Federal Trade Commission as an association organized and acting under the Webb-Pomerene Act.)
CPEA's five Members: W. R. Grace & Co.; Tennessee Corporation; Socony Mobil Company, Inc.; American Cyanamid Company and International Minerals and Chemical Corporation.
Each of these defendant members is a domestic corporation producing chemical fertilizers known as "concentrated phosphates".
CPEA acts as an export selling agency for the concentrated phosphate products of its members. These products are shipped from Florida to Korea and other foreign ports. CPEA handles all phases of developing and negotiation of these sales and this includes all details, such as the submission of bids, shipment, transportation and billing. The management of CPEA is provided for in its by-laws. It is vested in a Board of Directors equal in number to the number of members with each member entitled to nominate one director. CPEA at all times since its formation has been governed by the Board of Directors, each director representing one of its members. The Board of Directors established the minimum price at which materials would be sold by CPEA and the price at which the member would sell to the Association. The Board of Directors also allocated the available business among the members in accordance with the procedures set forth in the Membership Agreements.
None of the members bid as individuals on the Korean foreign aid procurements here in suit, all such sales were handled by CPEA.
The Government does not challenge the lawfulness of defendants' operations under the Act except as specifically stated in the issue stipulated. Thus, it does not charge that defendants have in any way restrained the domestic export trade of a competitor or enhanced or depressed prices within the United States - activities which under the wording of the Act would deprive them of its immunity.
There were 13 shipments made from September 1961 (when CPEA was formed) through 1966, in which concentrated phosphates were procured "for shipment directly to and use by the Republic of Korea." This action is concerned with but 11 of these shipments. The materials procured and the costs of these shipments "were paid for with funds from the United States Government made available under its foreign assistance program to the Government of Korea", administered by AID,
or its predecessor ICA.
One of the other two shipments was financed with Korean Foreign Exchange Funds, and the other shipment was financed out of a special Stabilization Fund granted in 1961 by the United States to the Republic of Korea to meet Korea's need for foreign exchange and to offset the anticipated short-term reduction in Korea's dollar earnings resulting from Korea's major reform in 1961 of its monetary exchange system. Neither of the two shipments was made subject to ICA or AID regulations; both were handled in accordance with OSROK's
applicable procurement procedures. Although payment for this last mentioned shipment was made with United States funds, the Government does not challenge the lawfulness of this transaction.
The authority for the foreign assistance program since 1961 is contained in the Act for International Development of 1961 (AID) (22 U.S.C. § 2151, 75 Stat. 424, 427), which provides authority to the President "to furnish assistance on such terms and conditions as he may determine in order to promote the economic development of less developed friendly countries and areas, with emphasis upon assisting the development of human resources through such means as programs of technical cooperation and development." (Sec. 211)
Among the terms and conditions, which must be met before eligibility for foreign aid is determined, is that the President find that the assistance proposed would not have a substantially adverse effect on the United States economy.
Following World War II, the United States Government made funds available to many countries to pay for commodities, including fertilizer, sold by commercial companies and shipped from the United States and other free-world sources to the recipient countries. Foreign aid funds have been made available from time to time both prior to and after 1961 to pay for various commodities such as fertilizer, including concentrated phosphates for the Republic of Korea through Acts of Congress beginning with the Mutual Security Act of 1954, 68 Stat. 832.
This assistance is made available to Korea through various treaties and agreements. The relevant agreement here is "The Economic Technical and Related Assistance Agreement between the United States and the Republic of Korea of February 8, 1961". Concern for the economic and general welfare of the United States in the furnishing of this foreign aid is reflected in this Agreement for it is provided that the assistance to be given shall be subject to applicable United States laws and regulations. It is also provided that the Korean Government is to cooperate with the United States Government to assure that procurement will be at reasonable prices and on reasonable terms. It is further provided that
"All or any part of the program of assistance provided hereunder may be terminated by the Government of the United States if it determines that because of changed conditions the continuation of such assistance is unnecessary or undesirable."
The Foreign Aid program was supported by funds appropriated annually by Congress on budget requests and recommendations of the State Department and AID, stating the basis of detailed proposals which were made following negotiations with foreign countries seeking assistance. The funds appropriated by Congress were made available by AID in the form of loans or grants in accordance with the applicable statutes, agreements, and regulations. Foreign aid funds have not been used to procure commodities for use or resale in the United States.
The expenditure of funds AID allocated for Korean commodity imports was subject to AID's approval of "Procurement Authorization Applications", submitted by agencies of the Korean Government to AID from time to time. AID's approval of Korean fertilizer procurements was made either in the form of a "Procurement Authorization" issued to OSROK or a "Procurement Authorization, U.S. Government Agency Purchase Requisition" issued to GSA.
AID, which was officially characterized as essentially a financing institution, did not itself procure any ...