WORLD TRADE
ORGANIZATIONWT/WGTCP/W/177
13 December 2001
(01-6310)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
Competition Policy and Exemption Systems
The following is the final text of a paper received from the Permanent Delegation of Japan
which was circulated as an advance copy for the Working Group's meeting of 5-6 July 2001.
_______________
1. Introduction
Flexibility and progressivity are two important factors when developing a multilateral
framework of cooperation in competition policy, which may be particularly for the countries wherecompetition laws have not been introduced.  When having discussed the two factors, the issue of
exemptions from competition laws has been the focus of attention among some Member countries
when considering the relationship between economic development and competition policy.  In the
previous meeting held in March, some countries, making particular reference to Japan, noted that it is
not enough to review simply the present status of exemptions, but rather it is necessary to see how theexemption systems have evolved historically, following stages of its economical development.  This
paper summarizes the competition policy and exemption systems of Japan from a historical
perspective.
Japan's experience indicates that international competitiveness can be eventually further
strengthened by increasing competition among domestic companies, rather than by regulatingcompetition through exemption systems.  Many promising new industries have actually sharpened
their competitive edges through competition, both at home and abroad, thereby greatly contributing to
the growth of the Japanese economy.  Some of these industries did not apply for exemption, even
though they were entitled to and others were not protected by the exemption systems at all.
Competition policy is primarily supposed to contribute to economic growth and development.  It istherefore desirable that developing countries encourage and enhance competition by positively
implementing a competition policy and limiting the exemption systems.
2. Competition policy and exemption systems in Japan
The Antimonopoly Act, the competition law of Japan, was enacted based on the principle of
protecting consumers' interests and promoting the healthy development of the national economy by
encouraging fair and free competition.  Since a host of different business activities are subject to its
regulation, it does contain some exemption systems for some segments of industries where itsapplication may not necessarily be appropriate, or where certain other targets of economic policy must
be attained.  It is common for countries having such legislation to provide certain exemptions for
these reasons.WT/WGTCP/W/177
Page 2
(i) Major exemption systems
Under the framework of exemption systems various cartels were or have been permitted.
Major examples are as follows:
(a) Depression cartels
During cyclical depression, companies are allowed to form cartels when a chain of
bankruptcies are feared to cause great damage, not only to one industry, but also to the related
industries, and eventually to the national economy.
(b) Rationalization cartels
Companies are allowed to form cartels when they are making rationalization efforts to reduce
production costs through the reduction of production items and the joint procurement of materials, to
improve technology, etc.
(c) Cartels by small and medium-size enterprises (SMEs) and SME cooperatives
Small businesses can form a cartel to compete with large companies on an equal footing.
(d) Export and import cartels
Cartels are allowed to be formed in export and import business and relevant domestic
transactions.  Export cartels were also aimed at preventing frictions with overseas trade partners.
(e) Structural depression cartels
Cartels can be formed to allow declining industries in serious structural depression – the
coal-mining industry, for example - to exit in a smooth manner.
(f) Cartels by public health-related industries
Hairdressers and laundry business operators are allowed to form cartels to prevent excessive
competition which could frustrate achieving the public policy objective of maintaining public health.
(g) Cartels to promote specified industries
Cartels can be formed to promote specific industries, including machinery, electronics and
information.
Depression and rationalization cartels used to be permitted by the Antimonopoly Act and
were subject to approval by the Fair Trade Commission, by having to undergo strict scrutiny prior to
approval.  Depression cartels were allowed when most of the operators in the same industry were
finding it extremely difficult to continue operations.  The cartel was thus an exceptional, limited
measure to help industries survive future competition.  Depression cartels were only permitted whencompanies did not expect to overcome depression via rationalization, or other self-help measures, and
the scope of the permitted cartel was limited to the strict necessity for pulling out of the depression.
Collaborative actions for rationalization, including the unification of standards and the
standardization of products, contribute to improving efficiency, which would seem to be the same
goal as that for competition.  Rationalization cartels, therefore, used to be allowed for this purpose.As it is also true that collaborative actions among companies could sometimes curb competition, strict
conditions were laid out and the types of cartels permitted were limited.  Rationalization cartels wereWT/WGTCP/W/177
Page 3
only allowed when they actually contributed to the overall rationalization of corporations, including
the upgrading of technology, the improvement of product quality, a reduction in costs and the
enhancement of efficiency.  Furthermore, they were only allowed when they were specifically
necessary, the scope of the cartel being limited so as not to infringe the interests of consumers.
When cartels are permitted within the framework of laws other than the Antimonopoly Act, in
general, a minister in charge must get consent from the Fair Trade Commission in order to ensure
their harmonization with the implementation of competition policy.  In other cases, for the same
purpose, cartels can be approved by a minister in charge after having been reviewed by, or notified to
the Commission.  For example, the export and impor t transaction law stipulates that the Fair Trade
Commission can request the cancellation of the minister 's approval of a cartel agreement, if it finds
that the cartel has failed to meet requirements.  Regarding the Small and Medium-size Business Law,
the Ministry of International Trade and Industry (now called the Ministry of Economy, Trade andIndustry) and the Fair Trade Commission held intensive consultations to scrutinize its compliance
with the requirements, the period of exemption, etc.   Even during the exemption period, the Ministry
and the Commission immediately reviewed the appropriateness of the exemption, when the economic
environment turned for the better.  Exemption clauses can no longer be applied when cartels are found
to be infringing the benefits of consumers and related-industries and use unfair trade practices.Exemptions based on laws other than Antimonopoly Act have thus a framework for coordination with
competition policy, and have been strictly enforced within the limitations of achieving proper
industrial policy targets.
(ii) Current status of the implementation of exemption systems
The year-on-year changes to the number of cartels based on exemption clauses are shown in
Attachment 1.  It should be noted that the number of cartels, based on the law concerning the public
health-related business and the small and medium-size business law, appears exceptionally large
because the calculation is based on the cartels of local business associations in accordance with the
geographical regions, including each 47 prefectures in Japan.  The figures in parenthesis show the
number of cartels, industry by industry, exempted by the two laws.  As for the cartels based on theexport and import transaction law, those involving the same products have been calculated separately
if the destination of the exports differed.  Those cartels based on all three laws accounted about 90
per cent of total number.
As for cartels based on the small and medium-size business law in 1965, 441 were formed by
industrial trade associations and 211 by commercial trade associations, making the number of trade
association reach an all-time high of 652.  At that time, they represented 104 different industries and
21 commercial businesses.  Once such cartels were established, they tended to exist for a long timemaking operators' reluctant to rationalize their operations.  Not only due that, but also to the problems
of rising prices, the governmental authorities tried to abolish them completely, or at least scale them
down.  Consequently, the number of cartels decreased  in FY1973 to 44 after reaching the peak of 131
cartels in FY1963.  No cartels of this type have been organized since FY1994.
Cartels based on the export and import transaction law have gradually been decreasing since
the late 1960s.  In FY1975, they totaled no more than 100, and since 1998, no cartels of this kind have
been organized since FY1998.  This is basically because such cartels no longer became necessary due
to the international disciplines being stepped up under the WTO to counter protectionism by trading
partners.
As for cartels relating to the public health-related business law, more than 100 were formed in
six different business areas: haircutting, hairdressing, dry cleaning, theatres, meat sales and ice sales.
The number of cartels had sharply declined since the late 1980s, and no cartels have been organized
since FY1998.  There were several reasons for the decline.  One of them was due to the actions by the
government authorities' to abolish or scale dow n the cartels following the mounting criticism fromWT/WGTCP/W/177
Page 4
consumers over increased service fees and prices.  Another reason was the difficulty encountered to
maintain cartels within a particular service sector due to the rising competition of the quality of
services and facilities, and the location of businesses.  Indeed, if prices are maintained at the same
level, consumers tend to choose those operators offering better services and conditions, or those more
favorably located.  It was thus extremely difficult for cartel organizers to fix and maintain the sameprice level.
Depression and rationalization cartels were strict ly overseen by the Fair Trade Commission in
light of competition policy.  Measures were taken to  minimize the impact of cartels. Depression cartels, for
example, were allowed to exist for only three months.  No depression cartels have been formed since
FY1989 and no rationalization cartels since FY1981.  The exemptions for depression and rationalizationcartels were abolished in 1999.
Cartels for promoting specific industries have rarely been utilised.  Laws allowing such
cartels for promoting specific industries or structural reforms were temporal legislation and all of
them have already been repealed or have expired.
Many promising new industries (automotive, semiconductor, animation, etc.) actually
sharpened their competitive edge through competition, both at home and abroad.  Some did not apply
for exemption even though they were entitled to, while others were not at all protected by the
exemption systems at.  Attachment 1 shows that there were an all-time high number of 1,709
approved cartels in FY1965.  Attachment 2 indicates that no promising industries or products invoked
such exemptions.
Japan's experience indicates that international competitiveness can eventually further be
strengthened by increasing competition among domestic companies, rather than by regulatingcompetition through exemptions.  By ensuring the freedom of business for as many entrepreneurs as
possible and offering places for operators to freely exert their power and creativity, active competition
among operators, including newcomers, will be accelerated.  Seeing that cartels for promoting
specific industries were rarely utilised, we believe that exemption systems themselves have nothing to
do with industrial development.  Depression cartels were used in case of industries on the decline for
the sole purpose of preventing industry-wide failure and to avoid any possible serious damage to
related industries.  In Japan's internationally competitive industries, including those of the automotiveand semi-conductor sectors, active competition was staged among domestic companies.  On the other
hand, for industries where domestic competition was regulated, including those of finance and
transport-related, the inefficient companies were able to survive, even though they seriously suffered
during a depression.  Such instances clearly illustrate that competition policy primarily contributes to
economic growth and development.  It is desirable, therefore, that developing countries encourage andenhance competition by positively implementing competition policy and limiting exemption systems.
(iii) Current status of exemption systems review in Japan
In recent years, under the globalized economy, domestic cartels have not been working as
expected. Even if domestic companies have been allowed to form a cartel, the participants could
hardly compete competition against competitive imports or efficient foreign companies. Byconsequence, the market situation worsened for the cartel participants and they lost valuable domestic
markets. As a result, 35 exemption systems stipulated in 20 different laws were abolished in 1997. In
1999, the exemptions of depression cartels and rationalization cartels were also abolished as well as
the general exemption law.  Furthermore, in 2000, the exemption of management stabilization and
rationalization cartels by industrial and commercial trade associations, stipulated in the lawconcerning the Organization of Small and Medium  Enterprise Organizations, was abolished. In
accordance with the deregulation of the electricity and gas sectors, the exemption of natural
monopoly, stipulated in Article 21 of Antimonopoly Act (the exemption of own actions in production,WT/WGTCP/W/177
Page 5
sales and sales by businesses constituting natural monopoly by the inherent nature of the businesses),
was repealed.
As a result of these various reviews, currently 22 exemption systems based on 16 laws are
existent.  Most of them derive from the specific nature of their business operations.  Among them: are
a cartel permitted by the road transportation law in or der to maintain lifeline access, necessary for the
daily life of local residents; and an international transportation cartel based on the aviation law, which
is also permitted in other countries.
When instituting exemption systems, the ba lance of the negative impacts on competition
should be carefully compared with the benefits gained from attaining other policy targets.  It is also
necessary to flexibly consider the revision or abolishment of the established systems in accordance
with the changes in domestic and foreign economic environments.
3. Conclusion
At the June meeting last year, Japan submitted its views on the relationship between
competition and development to this Working Group.  At the October meeting, Japan then introduced
its experience in a separate submission, which showed that both industrial and competition policies
equally contributed to the development of the Japanese economy.  This second submission was
response to an inquiry from some developing Member countries that Japan's rapid economic growthmay have been achieved from the fact that its industrial policy took precedence over its competition
policy.  At the March meeting this year, Japan gave actual example of international cartel cases to
show how many developing countries are exposed to international anti-competitive activities.  At the
same time, it focused on the necessity to have a multilateral framework to fight against anti-
competitive activities.  Discussions in the Working Group, as well as the papers presented, clearlyindicate that a framework for multilateral cooperation in competition policy will help promote, rather
than hamper, the economic development of developing countries.  In this paper, we have explained
about Japan's exemption systems.  Althoug h we do not reject the exemption systems per se , we would
rather emphasize the importance of ensuring harmonization with competition policy when operating
of the systems.  Furthermore, it is important to maintain flexibility when revising or abolishingexemption systems in accordance with changes in the domestic or foreign economic conditions from
competition policy perspective.  It is to be hoped that the above Japanese experiences can be of some
use to developing Member countries.WT/WGTCP/W/177
Page 6
Appendix 1
Transition in the number of approved cartel cases by year and by………..
General To small and
medium
enterprisesTo trade To commercial and service
industry
Base law Article 24-3 of
the
Antimonopoly
Act (Anti-
depression
cartel)Article 24-4 of
the
Antimonopoly
Act
(Rationalization
cartel)Law
concerning
the
Organization
of Small and
Medium
Enterprises
AssociationsExport and
Impact
Transaction
LawLaw
Concerning
Improvement
of
Environmental
& Hygienic
Business
OperationWholesale
Market
Law
1954 0 0 143(12) 14
1955 0 4 194(21) 37
1956 1 6 218(31) 71
1957 1 6 280(50) 93 0
1958 5 8 314(64) 150 0
1959 4 9 370(92) 172 0
1960 3 9 467(117) 193 …..
1961 0 11 549(119) 199 …..
1962 1 11 591(130) 202 …..
1963 2 14 588(131) 202 …..
1964 2 14 587(121) 210 …..
1965 16 14 652(125) 214 …..
1966 1 13 634(117) 210 …..
1967 0 13 582(102) 216 …..
1968 0 12 522(87) 221 …..
1969 0 10 469(69) 218 …..
1970 0 13 439(57) 195 …..
1971 9 10 604(52) 177 ….. 0
1972 2 10 607(50) 181 ….. 0
1973 0 9 591(44) 138 ….. 0
1974 2 0 511(37) 109 ….. 0
1975 1 0 395(27) 98 ….. 0
1976 1 0 279(21) 86 ….. 0
1977 6 1 290(25) 76 ….. 0
1978 4 0 274(18) 74 ….. 0
1979 1 1 267(17) 70 ….. 0
1980 1 1 268(19) 66 ….. 0
1981 3 0 290(22) 60 ….. 0
1982 2 0 263(19) 58 ….. 0
1983 0 0 231(18) 58 ….. 0
1984 0 0 235(18) 58 ….. 0
1985 0 0 226(15) 59 ….. 0
1986 0 0 224(15) 57 ….. 0
1987 2 0 185(14) 54 ….. 0
1988 2 0 179(13) 46 ….. 0
1989 0 0 174(11) 43 ….. 0WT/WGTCP/W/177
Page 7
1990 0 0 170(10) 34 ….. 0
1991 0 0 147(10) 31 ….. 0
1992 0 0 90(7) 28 ….. 0
1993 0 0 1(1) 21 ….. 0
1994 0 0 0 12 ….. 0
1995 0 0 0 9 ….. 0
1996 0 0 0 5 ….. 0
1997 0 0 0 1 …..
1998 0 0 0 0 0
1999 0 0 0 0 0
Notes
1. The number of cases indicated are the number of cartels which were approved or agreed by
the Fair Trade Commission, or whic h were approved by the competent Minister after consulting or
notifying the Commission.
2. Figures in ( ) represent the number of cases by calculating through the following methods.
(1) Since cartels exempted by the Law Concerning the Organization of Small and
Medium Enterprise Associations and the Law Concerning Improvement of
Environmental & Hygienic Business Operation are implemented per association
organized by geographical regions including 47 prefecture those in an industry, are
counted as a single case.
(2) Although cartels exempted by the Road Transportation Law are implemented per
route, cartels implemented by the same operator are counted as a single case.
(3) The cartels exempted by the Coastal Sh ipping Association Law having different
restriction targets and contents are counted as a single case.
3. In case of cartels exempted by Export-Import Transactions Law, those cartels of the same
product with  different destinations, are counted as separate cartels.
4. ….. means the absence of legal provisions for exemption or for reference with the
Commission or the invalidation of the law.
5. The number of cartels in ….. exempted by the Maritime Transportation Law indicates the
number of cartels of the conclusions which were notified in the relevant year and is an approximate
figure.WT/WGTCP/W/177
Page 8
Transportation Business Insurance Business
Base law Port
Transportation
Business LawRoad
Transportation
LawCivil
Aeronautics
LawCoastal
Shipping
Association
LawMaritime
Transporta
-tion LawLaw
concerning
Non-life
Insurance
Rating
OrganizationsInsurance
Business
Law
1954 0
1955 0
1956 0
1957 0 …..
1958 0 9(1)
1959 0 10(1)
1960 0 12(1)
1961 0 13(1)
1962 0 16(1)
1963 0 15(1)
1964 0 14(1)
1965 0 16(1)
1966 0 21(1)
1967 0 22(1)
1968 0 22(1)
1969 0 22(1)
1970 0 21(1)
1971 0 19(1)
1972 0 14(1)
1973 0 7(1)
1974 0 4(1)
1975 0 4(1)
1976 0 5(1)
1977 0 5(1)
1978 0 5(1)
1979 0 5(1)
1980 0 5(1)
1981 0 6(1)
1982 0 6(1)
1983 0 4(1)
1984 0 4(1)
1985 0 4(1)
1986 0 4(1)
1987 0 4(1)
1988 0 2(1)
1989 0 2(1)
1990 0 2(1)
1991 0 2(1)
1992 0 2(1)
1993 0 2(1)
1994 0 2(1)
1995 0 1(1)
1996 0 1(1) 0 0WT/WGTCP/W/177
Page 9
1997 0 0 1(1) 4 4
1998 0 2(1) 4 4
1999 0 2(1) 2 4WT/WGTCP/W/177
Page 10
Mining Agriculture
and fisheryManufacturing Industry
Base law Coal Mining
Industry
Rationalization
Temporary
Measures LawMetal Mining
Industry
Stabilization
Temporary
Measures LawFishery
Production
Adjustment
Association
Law and
other 4 lawsLaw Concerning
Temporary
Measures for the
Structural
Improvement of
Specified
Industries and
other 9 LawsLaw Concerning
Measures for
Securing
Revenue from
Liquor Tax and
Liquor Business
AssociationTotal
1954 0 1 ….. 162(31)
1955 0 8 1 ….. 248(75)
1956 0 8 1 ….. 312(124)
1957 0 11 1 ….. 401(170)
1958 0 10 4 ….. 509(249)
1959 1 11 9 ….. 595(306)
1960 0 10 6 ….. 714(349)
1961 0 15 9 ….. 868(365)
1962 0 16 10 ….. 951(384)
1963 0 0 16 18 ….. 970(397)
1964 0 0 18 20 ….. 999(399)
1965 0 0 17 15 ….. 1,079(415)
1966 0 0 14 12 ….. 1,040(381)
1967 0 0 16 13 ….. 997(374)
1968 0 15 23 ….. 968(372)
1969 0 15 22 ….. 844(317)
1970 0 23(1) 23 ….. 845(318)
1971 0 23(1) 4 ….. 976(281)
1972 0 21(1) 17 ….. 979(285)
1973 0 20(1) 17 ….. 908(233)
1974 0 21(1) 19 0 788(190)
1975 0 15 19 0 654(167)
1976 0 16 19 0 528(150)
1977 0 23 12 0 535(150)
1978 0 18 9 0 506(130)
1979 0 13 12 0 491(121)
1980 0 13 13 0 489(120)
1981 0 14 8 0 503(114)
1982 0 12 7 0 471(105)
1983 0 11 8 0 436(102)
1984 0 10 10 0 440(103)
1985 0 12 9 0 426(102)
1986 0 13 8 0 382(99)
1987 0 7 5 0 310(87)
1988 0 4 3 0 276(73)
1989 0 5 0 0 261(61)
1990 0 5 0 0 248(51)
1991 4 0 0 221(45)
1992 4 0 0 161(41)
1993 6 0 0 67(29)
1994 6 0 0 53(20)WT/WGTCP/W/177
Page 11
1995 3 0 0 41(14)
1996 4 0 0 12(11)
1997 3 0 15(14)
1998 1 0 14(11)
1999 - 0 15(12)WT/WGTCP/W/177
Page 12
Appendix 2
Major items of exemption systems implemented in FY 1965 (partial extract)
1. Concerted activities provided for in Article 24 of the Act Concerning Prohibition of Private
Monopolization and Maintenance of Fair Trade (Antimonopoly Act)
Depression cartels (partial extract)
Target products Contents of restriction
PCB weed killers sales quantity
Corrugated liners facilities
Center base paper facilities
Cotton yarn and spun rayon yarn facilities
Steel bars and flat bars of wire gauze for
structure (excluding those for export)production quantity and price
Refined sugar (excluding beet sugar and
exports)facilities
Stainless steel plates (including band
plates, but excluding those for export)production quantity
PCP weed killers (excluding those for
export)sales quantity
Straight shank drills (excluding those for
private consumption and those for
export)production quantity
Rationalization cartel (partial extract)
Target products Contents of restriction
Scrap iron A,B,C,D,E Purchase price, purchase quantity and
purchase method
Stub staple fiber yarns Production variety (quality)
Margarine and shortening Production variety (quality)
Synthetic dyes Production variety (production field and
standards)
Hemp yarn Production variety (quality)
Tires for vehicles Production variety (production field and
standards)
Bearings Production variety (production field and
standards)WT/WGTCP/W/177
Page 13
2. Cartels exempted by individual laws
(i) Export and Import Transaction Law
Export transactions agreement (partial extract)
Target products Contents of restriction
Cotton yarns Quantity, registration of client and payment
conditions
Cotton fabrics Price, quantity, quality, payment conditions,
etc.
Cotton Africa prints Quantity, quality, payment conditions, etc.
Pacific saury and canned sardines Price and quantity
Steel-frame bridges Price and distribution of deals
Malleable iron joints Price and quality
Woolen fabrics Quantity, payment conditions and registration
of clients
Towels Quality
TV receivers Price, quality and registration of clients
Cameras Quantity and registration of clients
Batteries Price, quantity and registration of clients
Export-related domestic transactions agreement (partial extract of producers' or distributors'domestic transactions agreement)
Target items Contents of restriction
Printing cotton fabrics Dying and processing charges and sales ratio
Cotton yarns clients
Cement Price, quantity and distribution of deals
TV receivers Price, quantity and sales method
Batteries Price, quantity and sales method
Paints Price, quantity, quality, distribution of deals,
etc.
Export-related domestic transactions agreement (exporters' or export associations' domestic
transactions agreement)
Target items Contents of restriction
Specific 4 parts of Bicycle Collective agreement between A and B (price
and clients)
Frozen Albacore Price, quantity, and distribution of deals
Kanga Quality, design and secrecy on transaction
contentsWT/WGTCP/W/177
Page 14
Import
Importers' and import associations' import transactions agreement
Target items Contents of restriction
Maize Quantity, quality, registration of deals, etc.
Onions Price, quantity and loading time
Bean sprouts Price, quantity and loading time
(ii) Law concerning the Organization of Small and Medium Enterprise Associations
Stabilization programIndustrial associations (partial extract of major cartel cases)
Target items Contents of restriction
Cotton staple fiber textile industry (63
cases)Delivery method, production quantity, and
shipping quantity
Refreshing beverage industry (38 cases) Facilities (registration, new establishment and
extension), sales method, price, etc.
Stamping cotton industry (33 cases) Facilities (registration, new establishment and
extension, and operation), and delivery method
Filament loom textile industry (26 cases) Facilities (registration, new establishment and
extension), production quantity, and delivery
method
Yarn twisting industry (26 cases) Facilities (registration, new establishment and
extension)
Trade associations (Partial extract of major cartel cases)
Target items Contents of restriction
Petroleum retailing (43 cases) Sales method and types of products
Automobile tire sales (33 cases) Sales method, and sales and purchase method
Household electric machine & appliance
retailing (33 cases)Sales method, purchase quantity, and purchase
method
Liquefied petroleum gas sales (25 cases) Sales method and types of products
Rubber footwear wholesaling (23 cas es) Sales method and purchase method
Rationalization program (1 case)
Target items Contents of restriction
Gypsum board manufacturing industry Sales method and type
The above-mentioned data was extracted from the 196 5 Annual Report of the Fair Trade Commission.
__________