RESTRICTED
WORLD TRADE WT/WGTCP/W/52
4December 1997
ORGANIZATION(97-5316)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
SUBMISSION FROM JAPAN
Thefollowing communication, dated 27November 1997, wasreceived from thePermanent
Mission ofJapan, withtherequest thatitbecirculated toMembers.
_______________
I. THERELATIONSHIP OFTRADE AND COMPETITION POLICY TODEVELOPMENT
AND ECONOMIC GROWTH
1. Introduction
With regard totheanalysis ofinteraction between trade andcompetition policy, weshould
bearinmind thefollowing when developing aninternational framework forcompetition policy, while,
atthesame time, taking intoaccount thestandpoint ofdeveloping countries.
Ofcourse, thestyles ofcompetition policy might differ depending ontheindividual country,
andthus,harmonization isveryimportant. However, inorder totackle theissueinapractical manner,
weshould startbyestablishing acommon setofprinciples andbyintroducing acompetition policy
which hasagood balance between respecting harmonization andthespecific characteristics ofeach
region.
Further, itisimportant toillustrate concrete cases ofcompetition policy which affect trade,
aswellascases ofcompetition policy measures which contribute toeconomic development. These
concrete cases should beeasier tocomprehend, thusenabling ourdiscussions tofocus onthemduring
thefuture work ofthisWorking Group.
Here wewould liketobring upbriefly, notthecases thatdirectly tieeconomic growth with
theenforcement oftheAnti-Monopoly Act(AMA), butrather thecases where anintroduction of
competition hasbeneficial effects ontheJapanese economy, aswebelieve thatthese fallwithin the
domain ofcompetition policy.
Inaddition, wecould alsobring upcases which have caused problems duetothelackof
competition inplace. Asiswellknown, theGovernment ofJapan nowattaches thehighest priority
toderegulation, along withanactive development ofcompetition policy. Deregulation andactive
competition policy should beimplemented inparallel. Thatisbecause, although thedevelopment of
theformer realises firms toactmore freely inthemarket, itmight induce aso-called "market failure",
tempting firms toresort toanti-competitive behaviour, e.g.,cartels andtheabuse ofadominant position.
Inother words, anactive competition policy isnecessary tofullyrealise theaimofderegulation. In
addition, themaintenance offairandfreecompetition isbeing introduced asaneffective method for
breaking through theeconomic doldrums inJapan. Wecanwitness thisneworientation fromthefactWT/WGTCP/W/52
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thattheamount ofstaffandthebudget fortheJapan FairTrade Commission (JFTC) haveexpanded,
despite ageneral down-sizing oftheJapanese Government duetoadministrative reforms.
2. Competition policy andthebasisfordevelopment oftheJapanese economy following World
WarII
AfterWorldWarII,theindustrialdemocratizationpolicywasimplemented.Thiswascomposed
ofspecific measures, including thedissolution ofthe"Zaibatsu" andmonopolized firms. TheAMA
wasenacted in1947 tomake these measures permanent.
Inaddition tosome other policy reforms taking place aftertheWar, thisintroduction ofa
pro-competitive policy wasconsidered tohavechanged theJapanese economic structure tobemore
competitive, bychanging notonlythemarket structure butalsotheindividual behaviour offirms.
Theeffect widely emerged inthe1950s and'60sanddrew efforts from private firms, before setting
outoneofthebases forasuccessful economic development ofJapan.
Afterthetwooilcrisesinthe1980s,theJapaneseeconomygainedenoughpowerforinternational
competition, andenormous profits fromforeign tradewererecorded. Thisbeing thecase,tradefriction
between Japan andtradepartner countries occurred. Avariety ofmeasures wastaken foritssettlement
and,asaresult, theJapanese market hasbecome much more open. TheJFTC hasalsotaken measures
forimproving market access, suchaseliminating exclusive business practices orreviewing government
regulations andexemptions fromtheAMA. Inthiscontext, thecompetition policy hasbeenrigorously
implemented andsome amendments totheAMA forstrengthening itsenforcement havebeencarried
out.
II. ELEMENTS OFCOMPETITION LAWS AND POLICIES
From theviewpoint ofourexperience incompetition lawsandpolicies, wewillanalyse below
some ofthepoints relevant tothequestions raised byMembers atthelastmeeting.
1. Theroleofguidelines orother official policy statements
InJapan,guidelinesorpolicystatementsareimportantinstrumentsforimplementingcompetition
policy. These guidelines aremade based onthefollowing viewpoints:
(1) Forpreventing theAMA violations andforpromoting proper business activities by
clarifying conducts which hinder fairandfreecompetition andwhich areagainst the
AMA.
(2) When theJFTC judges whether applications, according totheAMA forallowance,
should beaccepted ornot,itexamines respectively thecontents oftheapplication based
onthepurpose orintent oftheAMA. Thistypeofguideline isformaking apparent
criteria tosortoutcaseswhich should bedeeply examined, orforclarifying items which
should betaken intoconsideration when examining.
(3) Formaking theAMA 'sintention widely known andforstating thebasicpolicy position
oftheJFTC forensuring fairandfreecompetition.WT/WGTCP/W/52
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From theabove-mentioned viewpoints, many guidelines andpolicy statements havebeenmade
public inJapan. Forexample, according totheabove classification, wecanpresent themasfollows:
(1) "Guidelines fortheregulation ofunfair trade practices withrespect topatent and
know-how licensing agreements"
"The AMA guidelines concerning jointresearch anddevelopment"
"TheAMA guidelines concerning distribution systems andbusiness practices"
"The AMA guidelines concerning theactivities oftrade associations"
(2) "Administrative procedure standards forexamining mergers, etc.bycompanies"
"Administrativeprocedurestandardsforexaminingstockholdingbycompanies"
"Administrative procedure standards fortheauthorization ofstockholding by
financial companies"
(3) "The JFTC 'spolicy oncriminal accusations regarding theAMA violations".
Asweareinaposition toprovide these guidelines, please contact Japan ifsome countries are
interested inthem.
2. Theimportance ofcompetition advocacy
Themainprinciple ofcompetition policy istomaintain andpromote fairandfreecompetition
andalsotostimulate theincentive ofanentrepreneur 'screativity.
Accordingly, competition authorities arenotonlyattaining anefficient static allocation of
resources bymaking useofthemarket mechanism, butarealsoensuring abasis fortechnological
innovation, thusactively assisting further towards attaining themostappropriate wayforadynamic
development ofresources byspreading thefruits ofinnovation.
(1) Concerning thescope ofinvolvement intheprocess ofprivatization, theJapanese
competition authority hasaddressed matters torealise thespirit ofcompetition policy
intheprocess oftheamendment ofthelawconcerning theprivatization ofthepublic
company, byconsulting withother authorities asnecessary, thusintending notjust
tocomplete privatization butalsotoensure theefficient competition policy.
(2) Concerning thescope ofmonitoring developments incapital markets: ontheonehand,
financial authorities monitor unfair trade practices which arespecific tothecapital
market; ontheother hand, thecompetition authority monitors whether amediator
inthemarket willimpede competition.
3. Theoptimal balance between enforcement andnon-enforcement ofcompetition laws
Asforthebalance between theenforcement andnon-enforcement ofcompetition law,the
legitimate conditions forthelatter areasfollows:
(1) natural monopoly industry;
(2) positive ornegative externalities;
(3) imperfect information on,forexample, safety standards andinfant industry.WT/WGTCP/W/52
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Ontheother hand, theabove conditions arenotsufficient forthenon-enforcement because
ofthefollowing reasons:
(1) thegovernment cannot gather perfect information, andtherefore maymake awrong
decision;
(2) theimplementation ofaplanbythegovernment mayimpede theincentive ofprivate
companies; and
(3) thearbitrary intervention bythegovernment could cause inefficient rent-seeking.
Thus, thescope forthenon-enforcement ofthecompetition lawshould be,inprinciple, as
small aspossible.
From thisviewpoint, on21February 1997, theJapanese Government submitted anomnibus
billtotheDiet(Parliament) which would repeal andreform cartels andother systems exempt from
theapplication oftheAMA under various laws, since these systems arelikely torestrict freeandfair
competition among businesses andtoimpede theinterests ofconsumers. Thebillwasgiven unanimous
approval intheplenary session oftheHouse ofCouncillors (Upper House) oftheDiet. Itwas
promulgated on20June1997. Furthermore, asfortheexemption systems under theAMA andthe
"ActConcerning theExemptions oftheAntimonopoly Act", thereview willbecarried outforthe
whole scope oftheconduct andthetrade association, including theabolition ofthesystem itself, the
conclusion ofwhich willbeannounced bytheendofMarch 1998.
4. Culture ofcompetition tosupplement andreinforce thepositive effects oftheimplementation
ofcompetition laws
Recently, promoting competition culture hasbecome crucially important astheJapanese
Government isplanning torevitalize itseconomy through theimplementation ofcompetition policy,
aswellasthrough thepromotion ofderegulation. Inthiscontext, public consciousness ofcompetition
culture hasbeenrapidly raised inJapan through astrictandactive enforcement oftheAMA, including
theactivation ofthecriminal accusation andtheincreased number ofdecisions fromtheAMA violation
cases.
5. Evaluation ofmergers
InJapan, restrictions onmergers aresetoutinArticle 15oftheAMA asfollows:
"Nocompany inJapan shalleffect amerger coming under anyoneofthefollowing
paragraphs: (i)where theeffect ofamerger maybesubstantially torestrain competition
inanyparticular fieldoftrade; (ii)where unfair trade practices havebeenemployed
inthecourse ofthemerger."
Therefore, elements, other thancompetition, shallnotbeincluded inthedecision criteria.
Foreign mergers mayhaveaneffect onthedomestic market competition. AsfarastheAMA
isconcerned, itcannot regulate suchmergers. However, theAMA prohibits astockholding inJapan
ifthemerger oftheparent company inthehome country causes anti-competitive stockholding inits
subsidiary company inJapan.WT/WGTCP/W/52
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III. THERELATIONSHIPBETWEENTHEOBJECTIVES,PRINCIPLES,CONCEPTS,SCOPE
AND INSTRUMENT OFTRADE AND COMPETITION POLICY -CASES AND FUTURE
TASKS
Several countries, including Japan (cf.WT/WGTCP/W/4), havepreviously contributed papers
which indicate thatlawsregulating trademeasures (trade laws) andlawsregulating competition policies
(competition laws) haveacontradictory andacomplementary effect. Inthefollowing paper, casestudies
arepresented toillustrate thecontradictory andcomplementary effects ofbothlaws. Bydeepening
theunderstanding oftheparticipating countries withregard totherelationship between bothlaws, and
byproposing possible future tasks(related toitemIoftheChairman 'sChecklist) fortheWorking Group,
wehopetolayafoundation thatwillensure theprogress ofaspecific debate onthisissue.
1. Complementary effects ofcompetition lawsontrade laws
When ananti-competitive behaviour offirms isnotsufficiently regulated, suchabehaviour
might beabused byfirms toblock imports. Thus, insuchcases, competition lawcanplayaroleof
enhancing freetrade.
(1) Case studies andempirical data
Asisclearfromthecases below, arigidapplication ofcompetition lawcansecure afreeflow
ofgoods across borders, andthus, reduce theprice ofgoods intheimporting country.
Case 1:Soda Ash
TheJFTC passed arecommendation decision ordering fourJapanese companies nottodecide
upon thetotalquantity ofnatural sodaash(so-called "trona ash") imports, theprice ofimports, the
allocation ratesamong companies, orthetrading partners forimport. After theJFTC 'sdecision, the
market situation ofsodaashchanged inthefollowing elements:
(1) Anincrease intheimport of"trona ash", despite thedownward trend forthedemand
ofsodaash. (Thequantity ofimports increased asmuch aseight times inthefour
years aftertheJFTC 'sdecision.)
(2) Significant changes inmarket shares among sodaashmanufacturers.
(3) Drastic increases ofthequantity ofimports perimporter andthenumber oftrading
partners of"trona ash".
(4) Rapid anddrastic drops intheprice ofsodaash.(Theprice dropped by20percent
inthefouryears aftertheJFTC 'sdecision.)
Case 2:Parallel Imports
TheJFTC published "theGuidelines Concerning Distribution Systems andBusiness Practices"
inorder toprohibit ananti-competitive behaviour oftheJapanese soleimport distribution agent, which
pressured theexporter nottosellproducts toJapanese parallel importers.
Aside, theJFTC rigorously pursued theelimination ofanimport-restricting behaviour. For
example, incasessuchasHungary-made porcelain (1994), German-made pianos (1994), andtheUnited
States-made icecreams (1994), theJFTC judged thatactions taken bythesoleimport distribution agentsWT/WGTCP/W/52
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inJapan toblock parallel imports wereviolating theAnti-Monopoly Act.Asaresult, parallel imports
havenowincreased.
2. Contradictory effects ofcompetition lawsontrade laws
Anextraterritorial application ofcompetition laws, ifusedarbitrarily and/or excessively, has
thedanger ofdistorting trade inthefollowing contexts. Firstofall,when acountry, byimplying the
useofextraterritorial application, attempts toforce another country toimplement trademeasures such
asavoluntary import promotion plan, freetradebetween thetwocountries willbedistorted. Second,
whenanimportingcountry,withoutsufficientinformationaboutanexportingcountry'smarket,enforces
extraterritorial application, thepredictability ofexporting companies willgreatly decrease, which, in
turn, results inashrinkage oftrade between thetwocountries.
(1) Case studies andempirical data
Case 3:Import andExport Cartels
When Japanese trading partners formed import cartels tocompete against export cartels from
theUnited States exporters, theUnited States court judged thatsince onlytheUnited States companies
areexempt from theapplication oftheanti-monopoly lawunder theUnited States domestic law,the
import cartels formed bytheJapanese trading partners areillegal.
(2) Implication forfuture tasks
Investigation ofways toenhance cooperation among competition authorities
Anextraterritorial application ofcompetition lawswillnolonger become necessary ifthe
competition authority ofeachcountry, bycooperating withcompetition authorities ofother countries,
sufficiently applies competition policy within eachcountry. Thus, itisimportant fortheWorking Group
toexamine ways toenhance cooperation among competition authorities.
3. Complementary effects oftrade lawsoncompetition laws
Asmentioned intheprevious paper (WT/WGTCP/W/32), when certain export companies are
engaged inpredatory pricing andhaveattempted tounfairly control themarket inanimporting country,
anti-dumping measures bytheimporting country playtheroleofcompensation fortheinsufficiency
ofcompetition lawsintheexporting andimporting countries.
(1) Case studies andempirical data
Situations inwhich predatory pricing canbeeffectively carried outareextremely limited.
According totheanalysis ofactual cases byeconomic scholars, incases where anti-dumping measures
wereinitiatedinthepast,therewerehardlyanythatfulfilledsuchlimitedrequirements(see,forexample,
OECD 1996).
(2) Implications forfuture tasks
Analysis ofeffective conditions forpredatory pricing
Ifwereflect onthecomplementary effects mentioned above, forthepurpose ofadjusting the
relationship between trade lawsandcompetition laws, itwould beextremely valuable toanalyse in
theory andinpractice thekinds ofcases where predatory pricing canexist.WT/WGTCP/W/52
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4. Contradictory effects oftrade lawsoncompetition laws
Ithasbeenpointed outbyeconomic scholars andothers thattrademeasures (e.g., anti-dumping
measures andCVD) permitted bytrade lawscanhaveananti-competition effect. Inparticular, when
acompany, which hasthepower tocontrol themarket inanimporting country, abuses trademeasures
tosuppress competition intheimporting country, market competition inthatcountry willbenoticeably
contained.
(1) Case studies andempirical data
Forexample, ithasbeenproven thatamong cases where anti-dumping measures havebeen
initiated, theplaintiff company andthedefendant company heldlarge shares oftheglobal market in
disproportionatecases.Thisimpliesthatanti-dumpingmeasuresmayhavebeenusedforanti-competitive
purposes. Inparticular, incases suchasthe"supercomputer case" andthe"trailer equipment case"
described below, ifanti-dumping suitsinitiated bycompanies having amonopolistic andoligopolistic
control ofthemarket intheimporting country hadbeenaccepted, market competition intheimporting
country would bemarkedly suppressed andtheeconomic welfare ofitsconsumers greatly reduced.
Case 4:Supercomputers
When aresearch organization affiliated totheUnited States Government decided onavector
supercomputer produced byaJapanese firm, theUnited States firminitiated adumping suit.(Another
Japanese firmwhich made thefinalbidalsobecame thetarget ofthedumping claim.) After investigating
thematter, theDepartment ofCommerce (DOC) acknowledged thatdumping hadeffectively taken
place anddecided toimpose adumping margin of454percentonthefirmthathadwonthefinalbid
and173percentonthefirmthathadmade thefinalbid.Asaresult, twoJapanese firms havenow
beenvirtually shutoutoftheUnited States market. However, onlyabout threecompanies -theplaintiff
firmandthetwodefendants -arenowmanufacturing andselling vector supercomputers. Thus, the
plaintiff company willendupmonopolizing theUnited States vector supercomputer market fromnow
on.*
*Note: Christopher Dumler oftheCATO Institute hasmentioned thatthisdumping measure
notonlyexcluded asuperior supercomputer from theUnited States market, butalsosuppressed
competition inthatmarket, thereby raising prices andsignificantly harming theinterests ofconsumers
andtaxpayers (Dumler 1997).
Case 5:Truck Trailer AxleandBrake Assemblies andParts fromHungary
Dumping procedures concerning theabove-mentioned goods wereinitiated following arequest
forarbitration bytheUnited States firm. However, antitrust authorities intheDepartment ofJustice
(DOJ) submitted aposition statement totheITCthatrepudiated thedumping charges onthese goods.
Intheposition statement itwaspointed outthatdumping charges would worsen competition because
sixcompanies hadanoligopolistic control inthemarket ofthese goods intheUnited States, andthe
plaintiff firm, which made thedumping claim, inparticular helda56percentmarket share.
Subsequently, theDOJalsosubmitted aposition statement totheDOC andfinally, inexchange for
certain promises made bytheexporter, thedumping investigation washalted.
Case 6:256MB-DRAMs
Inthiscase,which hasbeenmentioned inourprevious paper (WT/WGTCP/W/32), eventhough
theFederal Trade Commission (FTC) accepted thattheexporter 'sprices werecompetitive, theDOC
resumed itsdumping investigation.WT/WGTCP/W/52
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(2) Implications forfuture tasks
Coordination ofkeyvocabulary andconcepts spanning trade lawsandcompetition laws
Asisclear, particularly inCase 6(i.e., thenotion ofcompetitive prices), keyconcepts and
vocabulary usedincompetition legislation maydiffer fromthose usedintradelegislation. Accordingly,
acareful investigation oftheinconsistencies withthekeyconcepts andvocabulary listed below would
bevaluable incoordinating therelationship between trade legislation andcompetition legislation.
(a) Standard definitions of"price" and"cost"
Standards forcalculating competitive prices (competition law), fairvalue, normal value (trade
law), cost,etc.,aswellastheclarification oftheircontents.
(b) Comparison ofthegeneral notion (scope) ofmarket andproduct
Betweentradelegislationandcompetitionlegislation,therearedifferencesinthegeneralconcept
oftheterm"market", andthisgeneral concept needs tobeclarified. Furthermore, thegeneral notion
andscope ofa"product" subject totrademeasures andcompetition policy should beadjusted inrelation
tothemarket definition.
(c) Adjustmentofotherrequirements(e.g.,injurytodomesticindustry,harmoncompetition)
Theneedforincorporating competition principles onthetrade policy decision-making process
AsisclearfromCases 4through 6,inorder tomaintain acompetitive market andtoenhance
economic welfare, itwould beextremely valuable fortrade authorities toadapt competition aspects
intotheirdecision-making process. Thus, itisimportant toexplore waystoensure suchanadaptation.