February 28, 2024
Japan Fair Trade Commission
(Change to Guidance Standards for When Negotiable Instruments are Used as Payment Methods for Subcontract Proceeds)
Today, we have started soliciting public comments on the draft of "Change to Guidance Standards for When Negotiable Instruments are Used as Payment Methods for Subcontract Proceeds," and I would like to talk about this.
"Issuance of negotiable instruments which is found difficult to be discounted" is one of the prohibited conducts of the large procuring enterprises stipulated by the Subcontract Act. Given the business practices and financial conditions of the industries comprehensively, the JFTC and the Small and Medium Enterprise Agency have, since 1966 and until now, set the standards for the term of negotiable instruments that were deemed to be basically appropriate as 90 days for the textile industry and 120 days for other industries, and have designated them as "Guidance Standards." We also have provided guidance that long-term negotiable instruments whose terms exceeded these standards could fall under the category of "negotiable instruments difficult to be discounted."
In September 2016, the Ministry of Economy, Trade and Industry issued the document of "Toward Future-Oriented Trade Practices," which proposed the improvements in the payment terms of negotiable instruments. Furthermore, the Government issued "Action Plan of the Growth Strategy" in June 2021, which stated that "We will promote efforts to abolish the use of promissory notes in five years [...]. First of all, we will promote the shortening of the payment terms for promissory notes related to the payment of subcontract proceeds to 60 days or less." In this way, shortening the terms of negotiable instruments was positioned as an interim measure until the abolition of the use of promissory notes.
Specifically, in order to shorten the terms of negotiable instruments, we issued the so-called "Notification of Negotiable Instruments" requesting the relevant trade associations to shorten the terms of negotiable instruments to within 60 days, and announced the policy to review the guidance standard to change the appropriate term to 60 days within approximately 3 years.
We conducted the review based on this policy and decided to change the guidance standard to 60 days regardless of the types of the industries, considering the business practices and financial conditions of the industries in a comprehensive way. Today, this proposed change was announced to request public comments on the proposed change.
We will announce the final version by the end of April based on the public comments received. We also plan to start renewed operation in November this year, with a six-month announcement period after the release of the final version.
We will continue our efforts to further strengthen the enforcement of the Subcontract Act to improve the transaction terms for SMEs.
（Tentative translation）
Today, we have started soliciting public comments on the draft of "Change to Guidance Standards for When Negotiable Instruments are Used as Payment Methods for Subcontract Proceeds," and I would like to talk about this.
"Issuance of negotiable instruments which is found difficult to be discounted" is one of the prohibited conducts of the large procuring enterprises stipulated by the Subcontract Act. Given the business practices and financial conditions of the industries comprehensively, the JFTC and the Small and Medium Enterprise Agency have, since 1966 and until now, set the standards for the term of negotiable instruments that were deemed to be basically appropriate as 90 days for the textile industry and 120 days for other industries, and have designated them as "Guidance Standards." We also have provided guidance that long-term negotiable instruments whose terms exceeded these standards could fall under the category of "negotiable instruments difficult to be discounted."
In September 2016, the Ministry of Economy, Trade and Industry issued the document of "Toward Future-Oriented Trade Practices," which proposed the improvements in the payment terms of negotiable instruments. Furthermore, the Government issued "Action Plan of the Growth Strategy" in June 2021, which stated that "We will promote efforts to abolish the use of promissory notes in five years [...]. First of all, we will promote the shortening of the payment terms for promissory notes related to the payment of subcontract proceeds to 60 days or less." In this way, shortening the terms of negotiable instruments was positioned as an interim measure until the abolition of the use of promissory notes.
Specifically, in order to shorten the terms of negotiable instruments, we issued the so-called "Notification of Negotiable Instruments" requesting the relevant trade associations to shorten the terms of negotiable instruments to within 60 days, and announced the policy to review the guidance standard to change the appropriate term to 60 days within approximately 3 years.
We conducted the review based on this policy and decided to change the guidance standard to 60 days regardless of the types of the industries, considering the business practices and financial conditions of the industries in a comprehensive way. Today, this proposed change was announced to request public comments on the proposed change.
We will announce the final version by the end of April based on the public comments received. We also plan to start renewed operation in November this year, with a six-month announcement period after the release of the final version.
We will continue our efforts to further strengthen the enforcement of the Subcontract Act to improve the transaction terms for SMEs.
（Tentative translation）
