WORLD TRADE
ORGANIZATIONWT/WGTCP/W/134
15 July 1999
(99-2930)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 10 June 1999, has been received from the Permanent
Mission of Japan with the request that it be circulated to Members.
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I. INTRODUCTION
In the last meeting Japan submitted an observation paper about the WTO framework on
competition.  Relating to the paper, a variety of views and concerns were presented by some member
countries on the relationship of competition policy towards development and national sovereignty.
Japan thinks that it is important that those views be fully taken into account in the discussions on the
"framework".  This paper outlines Japan's views on th e main issues pointed out so far, such as those
regarding the relationship between competition policy and economic development, as well as relationsbetween competition policy and national sovereignty.  Referring to the draft that we have previously
submitted, we also present several options based on those earlier views.
II. RELATIONSHIP BETWEEN ECONOMIC DEVELOPMENT AND COMPETITION
POLICY
Up until the end of last year, the relationship between economic development and competition
policy was actively and concretely discussed.  Throug hout the discussions, the view that competition
had a role to play in economic development received broad support in the Working Group as
described in the Working Group report to the General Council in December last year (Paragraph 37).
Actually, anti-competitive practices, including hard core cartels and horizontal concerted boycotts, are
engaged in at the expense of other manufacturers and consumers, and it is clear that they adversely
affect the nation's sound economic development.  For developing countries, it is important to ensurefree and fair competition by prohibiting anti-competitive practices.
Notwithstanding this recognition, the reality is that all of the Members do not share a
common and full understanding of the importance of competition law and policy. This may be
because there seem to be deep-rooted fears among some Members that local firms could beoverpowered by foreign counterparts when competition laws and policies are worked out and put into
effect.  While it is widely acknowledged that domestic competition, enhanced by competition law and
policy, would contribute to the growth of their national economies, they fear that competition with
foreign firms would also be facilitated, which might hamper the development of local firms.  This
might be the reason for the hesitancy to strengthen competition law and policy.
However, competition law and policy is a matter of rules for the market.  The scope of
markets and the number of players allowed to participate are separate matters that involve many otherWT/WGTCP/W/134
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factors.  For example, even in a market where imports and foreign capital are totally prohibited, anti-
competitive practices, such as cartels, should not be allowed in the domestic market.  The more the
market is closed to foreign goods and services, the more important it is to ensure competition within
the market.  Although it depends on how the WTO framework is approached, it is expected that issues
related to competition with foreign firms will be thoroughly dealt with during other discussionsconcerning trade-restricting measures, investment restrictions, and regulations on market entry and
pricing, which directly affect competition with foreign firms.
Based on the above views, we would like to present the following three viewpoints regarding
competition law and policy as a means of facilitating domestic competition and economic
development.
(1) Will the restriction of competition contribute to economic development?
For economic development, some argue that the number of the players in each industry
should be limited so that industry participants could benefit from economies of scale and that
resources could be allocated in accordance with poli cy priority.  According to their argument, by, for
example, restricting new investment in equipment and facilities and encouraging mergers among
existing firms, domestic competition would be ab le to gain curbs and firms would gain enough
strength to compete in international markets.
Japanese experiences show that facilitating competition among domestic firms, rather than
curbing domestic competition, often contributed to  improving their international competitiveness.
Active competition among firms, including new entrants, will be facilitated, and business activities
and market entry will be enhanced when as many firms as possible are given the freedom to do
business and are allowed to exercise their capabilities and originality.  In industries such as textiles,
automobiles and microchips that were locomotives of Japan's economic growth, there was severecompetition among domestic firms.  Thus, the deve lopment of internationally competitive industries
is facilitated when they are exposed to competition in domestic markets.
(2) Exemption systems from competition law
Under Antimonopoly Act exemption systems, a variety of cartels were authorized in Japan.
Major exemption systems permitting cartels were as follows:
(a) Depression cartels
Where there is a serious cyclical depression, firms are allowed to form cartels
when they face a threat of massive failures that would cause serious effects torelated industries and, eventually, to the national economy.
(b) Rationalization cartels
Firms are allowed to agree on the types of products that each will produce
and on the joint purchasing of materials thereby rationalizing their operations
through reduction of production costs and the improvement of technology.
(c) Cartels by small and medium enterprises (SMEs) and SME cooperatives
Small businesses are allowed to get together to gain an equal footing in
competition with big corporations.WT/WGTCP/W/134
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(d) Export and import cartels
Firms are allowed to form cartels in export and import trading, and domestic
trading for the purpose of export and import.  Export cartels also aim at
averting trade friction with firms in the importing countries.
(e) Structural recession cartels
Cartels are allowed to form in order to allow industries that have declined in a
serious structural recession - coal-mining industry, for example - to exit in a
smooth manner.
(f) Specific industry promotion cartels
Cartels are allowed for the purpose of supporting specific industries;
machinery, electronics and telecommunications, for instance.
(g) Public health-related industry cartels
In public health-related industries like hairdressing and laundry, cartels are
allowed to form to prevent excessive competition, thereby damaging the
maintenance of public health and public interest.
Of the seven types of cartels above, only (f) aims at industrial development.  However, this
type of cartel has seldom been utilized.  Some promising industries were allowed to apply for the
authorization of an exempted cartel, but did not actually form a cartel, and others were not covered by
the exemption systems, as a result of which they achieved competitiveness through domesticcompetition.
Thus the exemption systems directly had nothing to do with industrial development in Japan.
Instead, in the case of depression cartels, they were utilized to prevent massive corporate failures in
declining industries where such failures would cause serious damage to related-industries.  However,
under the globalization of economies, it would become difficult to maintain the effectiveness of a
cartel, as participants of cartels would eventually lose their markets in competition with competitiveimports from efficient foreign firms, and the situations became worse.
Before the introduction of exemption systems, careful studies should be done that take into
consideration the balance between the negative impact of these systems on competition and other
policy objectives.  Even after their introduction, the systems should be reviewed flexibly to determinewhether they should be revised or abolished, following changes in the domestic or global economy.
(3) Social effects of competition policy
The effect of competition policy on society, particularly on employment, will vary, depending
on industrial sector, region or time.  However, there could be concerns that the promotion of
competition policy could create job insecurity in specific industrial sectors or regions, even if on a
temporary basis.  Particularly, in industries and areas where economically inefficient companies
maintain certain levels of employment the introduction of competition policy could result in a serious
unemployment problem.
It is understandable that fears of unemployment make policymakers hesitant to promote
competition policy.  However, other industries a nd consumers would be economically sacrificed and
the expansion of national economic welfare would be hampered if competition policy were notWT/WGTCP/W/134
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introduced.  Desirable approaches are:  (a) to increase national economic welfare by actively
implementing competition policy on the one hand;  and (b) to minimize its adverse effects on society
by creating new industries, promoting job mobility, and implementing relief measures for the
unemployed as well as income reallocation policies, within the scope of social consensus, on the
other.  Therefore, it would be very important to have public support for promoting competition policy.
In order to promote "Economic Structural Reform" further, the Japanese Cabinet decided on
the "Strategy for Revitalizing Industries" in January 1999, which focused on the expansion of
investment for ensuring good-quality jobs through the creation of new businesses and the
improvement of productivity.  Japan is now trying its utmost to revitalize its industries.  To develop
new business and create employment opportunities in Japan, the Government of Japan (GOJ) supports
the start-up of businesses by individuals, etc. and is promoting venture business.  Furthermore, theGOJ is improving the business environment in order to encourage existing companies that have
abundant managerial resources, including technological and human resources, to make aggressive
efforts towards the development and expansion of new business that will take advantage of such
resources, while at the same time improving efficiency in existing business fields.  Methods for
developing and expanding new business include th e establishment of new businesses within the
companies as well as split-off of businesses into separate companies.  In addition, the GOJ is
accelerating the implementation of the measures for the 15 new and growing fields listed in the
"Action Plan for the Economic Structure Reform" decided at the Cabinet meeting in May 1997.  At
the same time, the GOJ is focusing efforts on greater mobility of human resources (resolving the
problem of mismatching in employment) as well as on the improvement of individual vocational
abilities (employability).
III. NATIONAL SOVEREIGNTY AND COMPETITION POLICY
As to issues regarding national sovereignty, discussions in the Working Group highlighted:
(a) the need for competition law as a means of competition policy;  and (b) the treatment of conflictsabout individual cases of competition law violation in international fora.  As for the two problems
above, we would like to provide our views on how they should be handled.
(1) Competition law and policy
In order to implement competition policy effectively while living up to transparency and non-
discriminatory principles, competition law is generally considered to be quite useful.  Major reasonsare as follows:
(a) In order to promote competition in a ma rket with insufficient competition, a
system to ensure the consistency of competition rules across all industries is
needed.  Competition policy without such a system tends to succumb topolitical, protectionist pressures from each industry.  Competition law is an
important tool to ensure that regulatory authorities, regulated industries and
consumers recognize the importance of competition policy in economic
growth, and to convince them of its legitimacy.
(b) Even in a market with fewer protectionist restrictions and active competition,
anti-competitive practices by dominant firms could harm other firms and
consumers.  This kind of problem could arise in multiple industrial sectors,
so, in order to ensure fairness and accountability across sectors, it should be
dealt with by a competition law that covers all industries.
(c) In an open market economy, trade liberalization does not necessarily ensure
competition in markets for non-traded goods and services.WT/WGTCP/W/134
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Meanwhile, some argue that there must be ways to achieve the benefits of a competition law
without actually resorting to such a law.  It would be useful to have a further discussion on this matter
in some fora in the future.
(2) International dispute handling
It is not appropriate to leave judgements on i ndividual disputes to outsiders.  Disputes on
specific cases would entail huge difficulties in find ing facts and in determining whether the standards
for judging illegality have been met.  It would be  preferable not to go beyond exchange of opinions in
a legally non-binding forum when such disputes arise.
IV. WTO FRAMEWORK ON COMPETITION
Our paper presented at the last meeting aims at the effective implementation of competition
policy through the cooperation of WTO Members.  As mentioned in the paper, with globalization of
the economy there have been cases where business practices with a transnational dimension or those
in foreign countries adversely affect sound domestic competition.  Meanwhile, bilateral cooperationhas limits as to the number of countries that can be involved.  It is important, therefore, to build an
effective, multilateral framework, in addition to a bilateral framework.  Multilateral efforts would also
encourage a pro-competition environment in some member states that are having difficulty in
advocating competition.
As mentioned in this paper, competition policy in principle contributes to economic growth
and development.  It is desirable also in developing countries to actively implement it, and to broaden
the scope of competition by, among others, reviewing existing exemption systems.  A WTO
framework on competition must be able to support such efforts by member states.
Meanwhile, it is true, as pointed out in previous Working Group meetings, that countries still
in the process of working out competition policy have various difficulties in their systems, human and
financial resources, and social policies.  It is, therefore, necessary that the framework must embrace
realistic and flexible approaches within its original purposes.
It would be useful to study the following options:
(1) Allowing transitional measures in applying the framework
Actual transitional measures, including the scope of countries to be covered, the length of the
transitional period, the extent of measures and obligations of the states during the transitional period,
would be discussed.
(2) Priorities of anti-competitive practices to be banned
In our previous paper, we have proposed several anti-competitive practices to be covered as
substantive elements of the framework.  The necessity for discussing each of these practices mayvary.  Priorities would be discussed.
(3) Exemption systems
Considering further negative effects on economic development that exemption systems may
have, further studies on the appropriateness of the exemption systems would be undertaken.WT/WGTCP/W/134
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(4) Further studies on the necessity of an obligation to have a competition law
Further discussion would be necessary to determine whether there are other ways to achieve
the same effects as competition law.
(5) Regular reviews on competition policy, including handling of individual cases in each
member state
The TPRM deals with broader trade issues, and sufficient discussion of competition law and
policy cannot be expected.  It might be useful to consider the possibility of having regular meetings to
focus on competition law and policy.
(6) Creating technical cooperation and competition advocacy support systems within the
WTO
Discussions would be made to find out whether the WTO could assist member countries that
have domestic problems regarding competition law and policy, through technological cooperation andcompetition advocacy.
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