WORLD TRADE
ORGANIZATIONWT/WGTCP/W/120
27 May 1999
(99-2138)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 16 April 1999, has been received from the Permanent
Mission of Japan with the request that it be circulated to Members.
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The relevance of fundamental WTO principles of national treatment, transparency,
and most-favoured-nation treatment to competition policy and vice versa
I. INTRODUCTION
In the discussion of the Working Group on the Interaction between Trade and Competition
Policy the view has been widely expressed that the basic objectives of trade liberalization andcompetition policy are consistent with one another in the sense that both contribute toward making
domestic markets more competitive, thus improving allocation of resources and promoting efficiency
and consumer welfare.  On the other hand, it has also become clear, based on specific examples, that
trade policy (including trade measures) and competition policy have not only complementary but also
contradictory effects on each other.
As a result, we are reaching the stage where due consideration should be given to possible
approaches to reduce the contradictory effects, and enhance the complimentary effects, between
competition policy and trade policy in an effective and durable way, so that the common, basic
objective of increased efficiency and consumer welfare can be achieved.  It can be understood that the
three issues designated as this year's focus of debate were selected based on this perspective.
In this submission paper, we will examine specifically how the basic principles of the WTO
can be applied to competition policy in light of Ja pan's experience, and implications that the basic
philosophy of competition policy has for the WTO principles.
II. APPLICABILITY OF WTO PRINCIPLES TO COMPETITION POLICY
A. N
ATIONAL TREATMENT AND MOST -FAVOURED -NATION TREATMENT
1. Philosophy
The application of national treatment and most-favoured-nation treatment to competition
policy means that provisions of competition laws are applied and enforced in a non-discriminatory
manner to all foreign and domestic firms, products, and services.  It means that in competition policyany discrimination should be prohibited not only on the de jure  basis but also on the de facto basis.WT/WGTCP/W/120
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These two WTO principles are, however, the basi c idea that originally underlines competition
policy as well.  The fundamental concept of competition policy is respect for the market mechanism
to the maximum extent with the result of secured consumer interests and economic development.
Discriminatory measures against competitive firms, products or services are recognized as a threat
that undermines the market mechanism itself.  It can also be stated that abiding by the principles in
competition law and policy is increasingly important in circumstances where border measures of
government are reduced, and instead, domestic measures of government and anti-competitive
practices of business are gathering more concern.
It is worthy to note that the national treatment principle should not be construed as a
guarantee of result-oriented "effective competition opportunities", as was debated in the Uruguay
Round.  This concept is not established in the WTO agreements, nor is it consistent with thephilosophy of "protection of competition, rather than protection of competitors", which is the ideal of
competition policy.
2. Experience in Japan
Both national treatment and most-favoured-nation treatment are guaranteed in the competition
policy of Japan.  For example, Section 45 of the Antimonopoly Act states, concerning the reporting of
violations, that "any person may, when he/she consid ers that a fact in violation of this Act exists,
report the said fact to the Fair Trade Commission (JFTC) and ask for appropriate measures to be
taken".  Conversely, foreign entities are also incl uded in the "firms" and "trade associations" covered
by the Antimonopoly Act.  Foreign firms and trade associations that commit acts to restraincompetition in the Japanese market are in violation of the Antimonopoly Act as well.
In addition, foreign firms may be unfamiliar with the system or have difficulty in making use
of the Antimonopoly Act due to language problems.  In response to the problem, a system for
handling consultations and complaints from foreign firms was established in JFTC, and an official(Officer in charge of Consultation with Foreign Firms) was appointed so that foreign firms can more
easily seek consultations, file complaints, and report violations of the Antimonopoly Act.
B. T
RANSPARENCY
1. Philosophy
The application of the WTO principle of transparency to competition policy means to clarify
ex ante  the competition rules under which firms can engage in corporate activity and the procedures to
be used for responding when violations are filed by competition authorities. Therefore, the
transparency principle increases the foreseeability in judging the propriety of business activities and
assists improvement of the efficiency in business. The application of the transparency principle to
competition policy also means to clarify ex post  the investigation process and the content of decisions
against violators. Thus, it is also closely related to the concept of due process, which has the objectiveof protecting the legal rights of respondents (e.g. right of access to hearing proceedings and courts,
opportunity to state his/her views directly to the JFTC, and non-disclosure of confidential
information).
2. Experience in Japan
(a) Provisions of the Antimonopoly Act
The Antimonopoly Act clearly prescribes definitions of terms, conditions required to
constitute violations, examination and hearing proc edures, publication of hearing proceedings and
other appropriate matters, measures taken against violations (e.g. prohibitory measures, surcharges,WT/WGTCP/W/120
Page 3
criminal accusations), organization of the compet ition authority (empowerment, independency) and
other matters.  Ex ante  and ex post  transparency are thus legally guaranteed.
In the Antimonopoly Act, prohibitions and definitions are established concerning private
monopolization and unreasonable restraint of trade (Section 3), unfair trade practices (Section 19) andother practices.  A series of procedural provisions applied in detecting violations and taking
prohibitory measures are also specified in the Antimonopoly Act.  Specific powers of investigation
are delegated to the JFTC in conducting examinations of alleged violations.  Opportunities are
provided for third parties interested in the JFTC's decision to present their opinion concerning
prohibitory measures.  Hearing proceedings are made public unless it is deemed necessary to protect
trade secrets of the firm.  In addition to prohibitory measures, surcharge orders against unreasonable
restraint of trade (e.g. cartels) and criminal accusation measures are also prescribed in the law.
The Antimonopoly Act also prescribes that the JFTC is an independent administrative body.
The systemic measures for independence ensures the Antimonopoly Act in accordance with its
provisions, and thus contributes to greater transparency.
(b) Enforcement of the Antimonopoly Act
The JFTC clarifies its interpretation of the Antimonopoly Act concerning what kind of
practices are deemed to violate the Antimonopoly Act.  These clarifications are termed "guidelines".
A wide range of guidelines have been issued up to the present, including those concerning distribution
systems and business practices which indicate interpretation of enforcement in the fields of trade incapital and consumer goods, those concerning unfair trade practices with regard to patent and know-
how licensing agreements, and those for interpretation of investigations on mergers and acquisitions.
These guidelines increase the foreseeability of application of the Antimonopoly Act and contribute to
deter violations.
The entire content of legal measures taken by the JFTC against violations is made public,
including names of violators, and the nature and circumstances of violations.
The JFTC also responds to requests for prior consultation received from firms and trade
associations.  The JFTC furnishes responses as to whether a specific practice would cause problems in
light of the Antimonopoly Act.  Firms who receive ad vice that there would occur problems with the
Antimonopoly Act are likely to cancel or modify the practice in question.  Furthermore, the periodicalpublication of major prior consultations and the responses of the JFTC provide the detailed
interpretation on enforcement to the public and thus may deter other firms from conducting similar
practices.
Enforcement results are also published annually in order to increase the transparency in the
overall trend of enforcement.  These results include the number of cases dealt with by type of
violation and by legal measure, the number of mergers reported, amount of surcharge orders and other
issues.
(c) Application to other policies
(Exceptions to and exemptions from the Antimonopoly Act)
Exception and exemption systems limit the range of application of the Antimonopoly Act.
From the perspective of competition policy, it is advisable that the scope of exceptions and
exemptions should be clearly published and repeatedly reviewed so that they are limited to thenecessary minimum in order to ensure the Antimonopoly Act to be applied to all sectors and fields
that are not exempted from the Act.WT/WGTCP/W/120
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(Administrative guidance)
Because administrative guidance often lacks transparency and reduces the foreseeability for
firms, it can be an entry barrier for foreign firms.   In response to this problem, the Administrative
Procedures Act was enacted in Japan in 1993.  That Act states that administrative guidance is not alegal obligation to be complied with and that any administrative guidance must be accompanied by
the name of the official in charge. The act prescribes either presentation of written documents by
government officials, or in the case of verbal guidance, presentation of written documents upon
request.
In addition, irrespective of whether administrative guidance is transparent or not, it may
restrain fair and free competition and can even function to induce violations of the Antimonopoly Actin some cases.  Therefore, the JFTC clarified its interpretation concerning administrative guidance
under the Antimonopoly Act in 1981 and revised its interpretation in 1994.   It was clarified that the
Antimonopoly Act may be applied to any form of practice which meets the conditions that would
establish it as a violation of the Antimonopoly Act, even if the practice is induced by the
administrative guidance based on a specific provision in a law or regulation.
III. APPLICABILITY OF COMPETITION POLICY TO WTO PRINCIPLES
A. C
OMPETITION -ORIENTED PRINCIPLE
The rationale behind national competition laws is the philosophy of the desirability to form an
order with respect to competition that enables the market mechanism to fully function.  This ideal is
expressed as "the promotion of free and fair competition" in the Japanese Antimonopoly Act.
As used here, "free competition" literally means that competition occurs with no obstacle.
Free competition requires free market-entry and exit, and prevention of firms with dominant power
from taking anti-competitive practices.  On the othe r hand, "fair competition" means that competition
occurs primarily in terms of  economic efficiency such as quality, reasonably-priced products and
efficient delivery of services; competition conducted from a perspective other than economic
efficiency should be prevented.
This free and fair competition is expected to form market prices and, in turn, to make the
functioning of the economy more smooth, leading to the protection of consumer interests and the
achievement of economic growth. This philosophy, which relies on the functioning of the marketmechanism for economic growth, seems a common background in the field of competition policy,
including that in developing countries as well.  It can be called the "competition-oriented principle".
B. I
MPLICATIONS FOR WTO COMPETITION DISCIPLINES
The "competition-oriented principle" is a concept that places maximum emphasis on the
market mechanism.  This concept is also important for the WTO, the primary objective of which is the
optimum use of resources on a global level through reduction of tariffs and other trade barriers for the
purpose of raising standards of living.  In fact, provisions consistent with the "competition-oriented
principle" have already been enacted in some of the WTO rules (e.g. provisions in the GATS
Agreement concerning monopolies and exclusive service suppliers, and business practices, provisionin the TRIPS Agreement concerning control of anti-competitive practices in contractual licences.)
Considering the "competition-oriented principle" in the context of WTO competition
disciplines seems to have the following four impli cations:  The first implication is that the basic
philosophy of proactive responses to anti-competitive practices is assured.  The principles of nationaltreatment and most-favoured-nation treatment leave room for the situation where competitionWT/WGTCP/W/120
Page 5
authorities do not discriminate foreign firms with domestic ones but at the same time that they do not
enforce their competition law and let anti-competitive practices be conducted.  The second
implication is to extend the prevention of anti-co mpetitive practices across all sectors.  The third
implication is to minimize sectors or areas exempted from national competition laws in order to
ensure that provisions prohibiting anti-competitive practices will be effectively enforced.  The lastimplication is to introduce a competition policy perspective into government regulations and
industries as well.  It is expected that trade flows will be invigorated by these measures.  Therefore, it
is meaningful to examine the "competition-oriented  principle" in the context of WTO competition
disciplines.
IV. ISSUES FOR FURTHER DISCUSSION AT THE WORKING GROUP
In accordance with the recommendation adopted last December, the number of meetings that
the working group can hold within this year is limited.  The following two issues concerning the item
may be further discussed.
(a) Which common systemic and enforcement elements are advisable to be established
by member countries in order to ensure national treatment, most-favoured-nationtreatment, and transparency in their competition policies?
(b) What kind of WTO principles and provisions should be examined from a perspective
of the basic philosophy of competition policy?
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