In selling trade-marked articles, therefore, the export merchant is in an unfavorable position.
Selling "short" is a common occurrence with ex port merchants. It is dangerous work when handling trade-marked goods, because the manufacturer may refuse to sell to him, or delay the filling of orders, if as sometimes happens the domestic demand suddenly in creases, and promises to absorb the output.
10. Export merchant prefers to sell under own trade-mark.—The handling of identified products is, therefore, a difficult and thankless task. By attach ing his own trade-mark the export merchant gains many advantages. He is no longer dependent on any one manufacturer. He may specify his own qual ity and pattern and give the order to any manufac turer willing to produce the goods at the lowest price. This in fact is the method followed in the English tex tile trade. The agents of the export firms send in sample patterns for which a demand exists in the foreign markets or against which they have already sold many orders. The "shipping merchant" knows what factories in Great Britain are able to produce that particular pattern and quality of cloth and places the order with them.
11. The commission house.—In the United States and Canada a large proportion of the export trade is handled by commission houses.
A commission house acts as a middleman between producer and foreign buyer and takes the place of the export merchant, but in buying or selling it acts not on its own behalf but as an agent, for a fee. When acting as agent for the foreign buyer, the house is called in England a "commission agent," and in America an "export commission house." When act ing as agent for the producer the name "factor" is ap plied.
Strictly speaking, the house cannot act in more than one capacity in any one transaction; it repre sents either manufacturer or buyer. In strict hon esty, no commission house can charge commission to any but its principal. But frequently double com missions are collected and legally no irregularity can be charged as long as a commission house has pro tected the interests of both parties. The difficulty of controlling the selling price charged by the commis sion house in those cases where it acts as selling agent has led many firms to disregard the principle of com mission and to invoice the goods to the commission house at a straight price, less than the regular list price by an amount which in European concerns is designated as "discount," rabat , or decoct.
The commission house dating back only fifty years has to a large extent driven the export merchant out of the export field in the United States.
12. Commission house as agent of commission house may be a buying agent for some foreign firm. As such its instructions may be spe cific or general. It may have been ordered to buy of a certain manufacturer, or to place the order at its own discretion, within certain price limits. The foreign importer expects to pay the commission house the amount of the invoice, plus freight and insurance, plus commission. Commission houses sometimes at tempt to get also a rebate on their own behalf from the manufacturer. In order to prevent this, foreign im porters usually insist on having the manufacturer's invoice transmitted with the commission house in voice. An agreement is sometimes made that the books of the commission house may be inspected from time to time by the foreign house to show the con ditions of purchase.
Sometimes the foreign buyer is content to pay the price which the commission house quotes, and places his order on that basis. In this case the commission house no longer acts as the agent for the buyer, but is in the position of a merchant who has sold short. This will be discussed more fully under "indents." In either case the commission house pays cash for its purchase and finances the foreign importer by drawing 30, 60 or even 90 day drafts, or by open credit. This latter method is not commonly found in the United States, but is widely used in Europe. Open credit is only possible when the relations be tween the importer and the commission house are of long standing or a permanent nature. Some Euro pean export merchants have contracts with foreign importers by which the latter bind themselves to se cure all European goods thru their offices. In such cases open credit is commonly used and a maximum amount is determined beyond which the account will not be permitted to run. In addition to the buying commission an agreed rate of interest of six, eight and even nine per cent is charged on the open balance.