WORLD TRADE
ORGANIZATIONWT/WGTCP/W/176
13 December 2001
(01-6316)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
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.
_______________
Introduction of Competition Laws and Policies and the Relationship
of these to National Development Policies
1. Introduction
1. A number of issues have been discussed by the Working Group to date, of which "questions
regarding the pros and cons of competition policy for developing countries, including the relationship
of such policy to national development policies" is a particularly serious theme demanding further
consideration.  This issue should be treated as a top priority agenda item for this Working Group.  In
this regard, this paper explores several relevant points.
2. In addition to this submission, the Government of Japan has also prepared another paper on
the issue of sectoral exclusions from the application of competition law.
2. Domestic economic development benefits deriving from the introduction and
reinforcement of competition laws and policies
3. The domestic economic development benefits deriving from the introduction and
reinforcement of competition laws and policies include constraining the abuse of market dominance
by domestic and foreign companies, improving economic efficiency and productivity, securing
opportunities for new entry, fostering small and medium enterprises and enhancing consumer welfare.Sound competition policies facilitate the optimal allocation of domestic economic resources.
Competitive markets are a good basis for the medium- and long-term economic development.
Competition laws and policies underpin the establishment and maintenance of a sound market
mechanism.
4. The Minister of Trade and Industry, South Africa
1 notes that, "In the absence of effective
national laws, price structures would be driven upwards and domestic competitiveness would
diminish.  Competition policy has an important role to play, at both the domestic and international
levels, in ensuring that markets operate to the benefit of all citizens, and not merely of major
corporations".
                                                     
1 Keynote address at the WTO Regional Workshop on Competition Policy, Economic Development
and the Multilateral Trading System, Cape Town, 22-24 February 2001.WT/WGTCP/W/176
Page 2
5. Following World War II, Japan reformed its economic system, reforming agriculture,
establishing labour laws, dissolving the various zaibatsu , and abolishing economic control legislation.
These economic democratization policies were aimed at ensuring wide-ranging and equitable income
distribution, and included the 1947 formulation of  an Anti-Monopoly Law based on US antitrust
legislation, with the Fair Trade Commission established to enforce the law.
6. While it has been commented that Japan's post-war economic development was achieved by
subordinating competition policy to industrial policy, as we pointed out in a previous paper2, much of
Japan's economic dynamism has in fact been rooted in the robust market mechanisms created through
competition among firms.  Industrial policy and competition policy coordinated mutually and
developed an environment that allowed companies to engage in free and fair competition.  The
introduction of competition policy early in Japan's economic reconstruction, as well as the subsequent
evolution of this in response to economic development, was a great factor in Japan's rapid economicgrowth in the past.  Even today, it is those sectors where competition has been intensive - the
automobile industry, for example - which tend to have the greatest international competitiveness.
7. The existence of competition policies heightens a country's credibility and also bolsters
investment.  A variety of factors influence investors in deciding investment - the market scale of the
host country, for example, as well as market growth possibilities, a stable macroeconomicenvironment, and political stability - among which the existence of the relevant legislation is also very
important.
8. Anti-competitive practices could undermine the benefits of trade liberalization.  Domestic
competition laws and policies need to be developed to prevent them.  Especially, developing countries
are vulnerable to international cartels and their import regimes are subject to anti-competitivepractices.  The development of domestic laws and policies complements the trade liberalization
process for the country concerned.
9. Anti-competitive practices with an international dimension are a major problem for
developing countries from the perspective of their development policies.  Anti-competitive practices
by companies from industrialized countries can seriously injure markets and industries in multiplecountries, developing countries included, and also constrains the economic development potential of
developing countries.  The most striking example of this is hard core cartels
3.
10. As explained in the OECD Recommendation4, a "hard core cartel" is an anti-competitive
agreement, anti-competitive concerted practice, or anti-competitive arrangement by competitors to fix
prices, make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide
markets by allocating customers, suppliers, territories, or lines of commerce.
11. International hard core cartels cause enormous market damage.  According to the OECD5, "In
the United States alone, ten recently condemned international cartels cost individuals and businesses
many hundreds of millions of dollars annually; af fected over $10 billion in US commerce, with
overcharges of over $1 billion; caused even more harmful economic waste estimated at over
$1 billion".
                                                     
2 WT/WGTCP/W/157.
3 See Communication from Japan (WT/WGTCP/W/168).
4 "Recommendation of the Council concerning eff ective action against hard core cartels" OECD
(C(98)35/Final).
5 "Hard Core Cartels" OECD, 2000.WT/WGTCP/W/176
Page 3
12. In a World Bank paper entitled "Private International Cartels and Their Effect on Developing
Countries",6 they examine the possible effects of recent private international cartels on developing
countries by looking in detail at five case studies.  The producers in these cartels come almost
exclusively from industrialized, OECD countries.  They discuss the direct effects of cartels on
developing country consumers, via the increase in price.  They also discuss the ambiguous indirecteffects on developing country producers such as the harmful effects of increased barriers to entry.
13. The introduction and reinforcement of domestic laws and policies as well as the enhancement
of international cooperation in their enforcement could be a valuable measure in combating
international anti-competitive practices.  Even where such practices impact negatively on a country's
markets and industries, nothing can be done if the injured country does not have domestic competition
laws in place.  Further, where a country does have competition law but does not have a cooperative
framework operating with the competition authoritie s in the country of the company inflicting the
damage, it becomes extremely difficult to take effective action against the practice in question.
3. Consistency with development policy
14. There is strong concern over a potential collision between development policies and the
introduction and reinforcement of competition laws and policies.  However, while developing
competition policies may impose a short-term burden—in the form of administrative costs, forexample—in the medium- to long-term, these po licies should actively support and complement
development policies.  There is no need to perceive a priori  a contradiction between the introduction
of competition policy and industrial or other social policy.
15. South Africa's experience is illuminating in this regard. According to the Minister of Trade
and Industry, South Africa
7, "developing countries need an industrial strategy  which, in the case of
South Africa, is developed mainly through dialogue with the private sector, particularly in key
industries and is aimed at increasing international competitiveness.  Competition policy is a form of
industrial strategy since it opens up markets and puts pressure on producers, making them more
efficient.  It also prevented the abuse of market power, by domestic or multinational firms, and
reinforced incentives for efficiency, productivity and the speeder adoption of new technology".
16. "In developing an industrial strategy, a balance was needed to ensure that, on the one hand,
enterprises could attain the size needed to be internationally competitive and, on the other hand, that
they were subjected to appropriate competitive discip lines to ensure that they were not in a position to
abuse their market power and, indeed, faced appropria te incentives for continual improvement of their
productivity and performance."
4. Gradual introduction in line with economic development stage
17. In terms of the time when competition law should be introduced, obviously there will be
many issues which governments need to decide with reference to key policy areas such as domestic
development.  In theory, however, placing tools fo r the regulation of overall concentration and the
abuse of market dominance in the hands of government should boost a country's industrial and
economic development.
                                                     
6 Background Paper for the World Bank's World Development Report 2001.
7 Keynote address at the WTO Regional Workshop on Competition Policy, Economic Development
and the Multilateral Trading System, Cape Town, 22-24 February 2001.WT/WGTCP/W/176
Page 4
18. According to a Republic of Korea (ROK) paper8, it took many years to attract the necessary
domestic support for the establishment of competition laws and policies, with the Monopoly
Regulation and Fair Trade Act not formulated until 1981.
19. The paper explains as follows:  "Korea's experience demonstrates that it is better to introduce
a competition regime at the initial stage of economic growth, when monopolies have not yet gainedpolitical and economic power.  Despite their merits of achieving economy of scale, large monopolies,
if left unchecked, are very likely to engage in excessive facility investments, cause price hikes
resulting from their inefficient operations, and hinder opportunities for new entrants." (Par.11)
"Market competition ultimately eliminates wastes and enhances efficiency, and complements the
industrial policy pursued by the government." (Par.12)  "Korea's experience is an illustration that, on
the long term, relying more on market and competition is more efficient than depending on
government intervention for economic growth.  It is  certain that the later its adoption, the harder it
gets to correct market distortion and boost competition." (Par.13)
20. Similarly, Japan's competition laws and policies have evolved over the years, and it would not
be realistic, for example, to expect a developing country with no competition laws to suddenly
introduce competition laws and policies on a par with the United States.  A more appropriate approach
would be the gradual introduction and reinforcement of competition laws and policies in line with acountry's stage of development.
21. In terms of the progressive development of competition laws, an effective approach in the
case of Japan and a number of other developed countries has been to introduce a broad competition
law and then allow exemptions for certain areas.  Details of Japan's exemption system are explained
in another paper.
5. Need to introduce overall and comprehens ive competition law for competition policy
implementation
22. Usually, competition policy is realized through enforcement of the applicable law, namely
competition law.  Hoekman and Holmes
9 point out that, "National competition law can be defined as
the set of rules and disciplines maintained by governments relating either to agreements betweenfirms that restrict competition or to the abuse of a dominant position (including attempts to create a
dominant position through merger)".
23. "Competition policy  has a much broader domain. It comprises the set of measures and
instruments used by governments that determine th e 'conditions of competition' that reign on their
markets.  Antitrust or competition law is a com ponent of competition policy.  Other components can
include actions to privatize state-owned enterprises,  deregulate activities, cut firm-specific subsidy
programs, and reduce the extent of policies that discriminate against foreign products or producers."
24. On this point, Japan agrees with the EC
10 that, "while the concept of competition policies is
certainly broader than that of competition law, it is difficult to see how an effective competition policy
can be applied in the absence of legally enfor ceable mechanisms to deal with anti-competitive
business practices".
                                                     
8 WT/WGTCP/W/166.
9 "Competition Policy, Developing Countries, and the World Trade Organization" Bernard Hoekman,
World Bank and CERR, and, Peter Holmes, University of Sussex and College of Europe, Bruges.
10 WT/WGTCP/W/152.WT/WGTCP/W/176
Page 5
25. However, among those competition policies actually realized by WTO Members, there are
cases where Members have adopted an approach without an overall and comprehensive competition
law.  One concrete example is Hong Kong, China.
26. According to the Hong Kong, China paper11, "the ultimate objective of their competition
policy is to enhance economic efficiency and the free flow of trade, thereby also benefiting consumerwelfare.  They adopt a free market and minimum interventionist approach.  A high-level inter-
departmental advisory group, the Competition Poli cy Advisory Group (COMPAG) has developed and
promulgated a policy statement, the Statement on Competition Policy
12, which sets out the objectives
of HKC's competition policy and provides common pointers to facilitate compliance with the
competition policy by both the public and private sectors.  All government bureaux/departments are
regularly requested to critically review their areas of work to identify and propose remedies to anti-
competitive practices, as well as to come up with new pro-competition initiatives.  As for restrictive
business practices, COMPAG has worked closely w ith all government bureaux/departments and the
Consumer Council in monitoring the state of co mpetition in different sectors and in handling
competition-related issues.  Their experience indicates that the needs, requirements and characteristics
of individual sectors vary extensively.  Accordingly, the Government adopts a sector-specific
approach to safeguard competition, whilst maintaining a broad policy overview to ensure overallconsistency".
27. "They are results-oriented and consider a sectoral approach more pragmatic and appropriate
for promoting competition in Hong Kong, China.  Su ch an approach allows flexible, target-oriented
and cost-effective means to be adopted to prevent or eliminate anti-competitive practices, without the
risk of over-regulating or incurring excessive legal and administrative costs."
28. If, as Hong Kong says, it is possible to effect competition policy without an overall and
comprehensive competition law, the Hong Kong case will provide a very interesting reference in
considering the relation between competition law and competition policy.
6. Conclusion
29. Because competition policies have positive effects on economic development, we have an
opinion that it would be important to introduce competition policies, while paying due attention to the
balance with specific developmental policies in each Member countries.  This paper shows it is
possible to have a progressive approach in introduction of domestic competition law.  When we study
the progressive development with regard to competition laws and policies, the approach adopted by
the Hong Kong could be an interesting example.
30. This submission is not intended to prejudge the official stance of Japan or to predict a future
negotiation on this area, but to study, from the neutral perspective, the effects of competition policiesor its relationship with development policies.
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11 WT/WGTCP/W/141.
12 http://www.info.gov.hk/tib/roles/psoc.htm.