Japan Fair Trade Commission
Font Size
  • Small
  • Normal
  • Large
  • Sitemap
  • Japanese
  • Contact Us

Competition Policy Objectives -- A Japanese View

HIDEAKI KOBAYASHI
Deputy Secretary-General, Fair Trade Commission of Japan
June 13 -14, 1997
Competition Workshop, Florence, Italy

The competition law of Japan, the Anti-monopoly Act (AMA) has a rather detailed and complicated provision on the objectives of the Act. Partly because of the complexity of the provision, there have been active discussions on the objectives of the Act. These discussions may be of some use for this workshop. What emerged through the discussions in Japan was the importance of distinction (a) between the objectives and tools of the competition policy and (b) between the direct objectives and ultimate objectives. Such distinction seems to be quite instrumental in analyzing the subject matter of the workshop.

I should like to start by quoting the provision of the AMA on its objectives

Article 1.
This Act, by prohibiting private monopolization, unreasonable restraint of trade and unfair trade practices, by preventing excessive concentration of economic power and by eliminating unreasonable restraint on production,sale, price, technology and the like, and all other unjust restriction of business activities through combinations, agreements and otherwise,aims to promote free and fair competition, to stimulate the creative initiatives of entrepreneurs, to encourage business activities of enterprises, to heighten the employment and people's real income, and thereby to assure the interests of consumers in general, and also to promote democratic and wholesome development of the national economy.

The reason for stipulating such a lengthy objective provision apparently was that the competition law, when it was introduced 50 years ago, was something totally unknown to political leaders, government officials, and the general public in Japan.
The views expressed here are personal opinion of the author, and do not necessarily reflect the position of the Fair Trade Commission of Japan.The provision on the objectives can be divided into several parts.

The first part "by prohibiting private monopolization, unreasonable restraint of trade and unfair trade practices, by preventing excessive concentration of economic power"lists the instruments that this Act employs to attain its purposes.

The second part "by eliminating unreasonable restraint of production, sale, price, technology and the like and all other unjust restriction of business activities through combinations,agreements and otherwise" elaborates the contents of the tools referred to in the first part.

The third part "aims to promote free and fair competition" indicates the direct objective of the Act.

The fourth part "to stimulate the creative initiative of entrepreneurs, to encourage business activities of enterprises, to heighten the level of employment and people's real income" is generally considered to explain the value or significance of the competition policy enforced under the Act.

Finally the fifth part "and thereby to assure the interests of consumers in general, and also to promote the democratic and wholesome development of the national economy" clarifies the ultimate objectives of the Act.

It is note worthy that the objectives here have a multi-layered structure, namely the direct objectives and the ultimate objectives. The former objective may in turn be considered as instruments to attain the ultimate objectives.

The first question is whether competition should be pursued irrespective of its economic effects.

The thinking behind the Japanese Anti-monopoly Act is clearly the opposite. The competition to be assured is "free and fair" competition and not unqualified competition. "Fair competition" is generally considered to mean "competition by means of intrinsic elements of business such as price and quality"(Imamura "Dokusenkinshiho" 1978, p 5-6 )

The AMA also states the value or significance, as well as the ultimate objective of competition policy. Hence it would be reasonable to assume that the AMA does not endorse the kind of competition that is contrary to the value and ultimate objectives of the competition policy.

The second question is whether"efficiency" is the sole benchmark of the legitimacy of competition policy.

In the objective provision of the Japanese competition law, "efficiency" is not specifically mentioned. However,the provision indicates that "creative initiative of entrepreneurs"stimulated by "free and fair competition" results in encouraging "business activities of enterprises" and in heightening "the level of employment and people's real income". It would be logical to assume that, in this context, efficiency increase is presupposed. In any case,in the Japanese competition law, the concept of efficiency does not play a principal role at least explicitly. For example, in merger examination, efficiency increase per se does not usually render an otherwise illegal merger, legal.

The third question is whether maximizing "consumer welfare" should be given the highest priority.

In Japan, there has been long-standing discussion on this question in relation to the last part of Article 1,"to assure the interests of consumers in general, and also to promote the democratic and wholesome development of the national economy". Various theories have been advanced on this point. The first is that "consumer welfare" is subordinate to "development of the national economy". The second is that "consumer welfare" itself is not the objective of the competition policy, but competition policy results in consumer-welfare increase. The third theory is that competition policy is consumer protection legislation.

In Japan, the second theory finds the largest number of supporters. The first theory, as one can imagine, has given the theoretical background to industrial policy makers when they tried to push forward Anti-monopoly Act exemption legislation.

However, the Fair Trade Commission of Japan does assume consumer protection responsibility, or at least a part of it. Based on the "Act against Unreasonable Premiums and Misleading Representation", the JFTC regulates businesses' offering of excessive free gifts as accompaniment to sales, or offering of excessive prizes through lotteries and competition. It also regulates false or misleading representations, such as in T.V. or newspaper advertisement or in labeling. This regulation is considered to be an extension of the regulation of unfair trade practice.

The fourth question is whether the protection of the weak could be a objective of the competition policy.

The objective of the Japanese Anti-monopoly Act is silent on the protection of the weak. This is natural because competition law is legislation for eliminating obstacles to free and fair competition. There is no guarantee, in theory as well as in practice, that the weak would be protected. It would be more natural to assume that when the strong and weak compete without any hindrance, the strong will become stronger.

Hence, the provisions in competition laws for the protection of the weak usually work in a way as to regulate competition so that socially undesirable effects of competition be prevented. They often take the form of exemption provision from the competition law, such as the exemption for cooperatives of small or medium sized enterprises or of consumers.

The fifth question is whether or not increasing national income or employment should be the objective of the competition policy.

Article 1 of the AMA refers to heightening the "level of employment and people's real income". However, as has been mentioned, this part is usually considered to be just stating the value or significance of competition policy, and not its objective as such. This means that specific competition policy measures that do not necessarily lead to an increase of employment or national income are not regarded as contrary to the objectives of the AMA. This of course is but a theoretical argument. The reality nowadays is that one of the strongest motivations for governments, including Japan's, in stepping up the enforcement of the competition policy is to increase international competitiveness through increased efficiency and thus to increase employment and national income.

The sixth question is whether the promotion of regional integration can be a legitimate objective of the competition policy.

The objective of the competition law is the removal of obstacles to free competition in the geographical area covered by the law. Accordingly, it is most natural that the competition law of the European Union aims to eliminate obstacles to free competition caused by private business practices. This will naturally contribute to the regional economic integration in the Union. The question to be asked here seems to be that, is it legitimate to use competition policy instruments for purposes not within the usual realm of competition policy, such as regional economic integration. One example would be to treat strict territory allocation restriction,which is subject to the rule of reason test in Japan and in the United States, as per se illegal.

However, what is in question here is to attain an objective, which is outside the normal competition policy objectives, through policy instruments that are usually employed in enforcing competition policy. Accordingly, it basically is not a question of the objective of competition policy.

The competition law of each E.U. member country is intended to remove obstacles to competition in each country. Although it would usually not be equipped with instruments to promote economic integration among member countries, certain provisions for domestic application, such as the removal of trade restrictive vertical restraints, would have the effect of promoting regional integration.

A question would arise when the competition policy instruments employed to achieve regional economic integration are in conflict with domestic competition law or policy. This appears to be a question, difficult but not unique, of how to coordinate E.U.'s economic integration policy on the one hand and domestic policies of each member nation on the other.

The seventh question is how to deal with the diversification of big business groups.

As I have mentioned, one of the policy instruments listed in the objectives provision of the AMA is the prevention of excessive concentration of business controlling power. In line with this provision, Article 9 of the AMA prohibits the establishment of an holding company or any company becoming one. This prohibition has dual objectives. One is a political objective; to prevent re-emergence of pre-war "zaibatsu" which were considered as a driving force of the war effort, and were dissolved after World War II. The other is a competition policy objective; to prevent the emergence of a dominant economic power that could restrict competition in certain markets.

In recent years, the Japanese business community has been requesting the abolition of the prohibition on holding companies, stressing that because of the increased competition in the domestic market, there is no risk of re-emergence of zaibatsu,also that the present total restriction of holding companies unduly reduces the alternatives of business organization for Japanese enterprises.

The JFTC has been of the view that since there still is the risk of excessive concentration of business controlling power, certain restrictions on holding companies are still needed, although total prohibition may not be necessary. Based on this position, the JFTC has proposed a bill to the Diet last March that would allow the holding company to the extent that it would not result in excessive concentration of business-controlling power.

This seems to be an example where the competition act needs to be tailored in accordance with the specific condition, economic or otherwise, of each country.

The eighth question is about the control of below-cost sales.

The objective of the Japanese competition law, free and fair competition, include the element of fairness. This fairness is considered to include the principle that participants to competition must compete as a business entity, which means that they have to compete in a way that enable them to continue competing on a business basis. Some schools of thought believe that "free competition"requires that competitors should not unreasonably be excluded from competition. The below-cost sales may be seen as problematic from the both standpoints.

However, under the Japanese competition law,below-cost sales are actionable only when (i) the goods or services are sold a at prices far below the costs needed to supply the goods or services (ii) such sales are done for a sustained period of time, (iii)such sales are likely to make businesses of other enterprises difficult, and (iv) there is no justifiable reason to them. Outlawing all below-cost sales would be difficult from competition policy point of view.
On the other hand, using below-cost sale regulation, which is usually a competition policy instrument, for the purpose of preventing money laundering is basically a question political decision,although one may have to be careful whether or not such policy would cause any adverse effects on competition policy.

The final question is whether or not the globalization of the economy will require the concurrence of competition law provisions.

It appears that the most basic objective of competition laws is to realize a situation in which obstacles to free competition are absent. There does not seem to be many different ways of something being absent. Hence, it would be reasonable to assume that the objective of competition laws cannot and should not be different from one law to another. Also from the viewpoint of creating a level playing field, it is desirable that the objectives of competition policy are basically the same all over the world. Needless to say,however, the objective of excluding all obstacles to competition is not easy to attain. Accordingly, trying to make the conditions of competition, or the degree to which obstacles are present, similar in each country could be a more realistic objective to pursue.

On the other hand, the economic condition of each country ( such as the degree of economic concentration, the presence of long-term business relationships among enterprises, etc.)differ so much from country to country.

Accordingly the specific instruments to be employed to attain the final objective of the competition policy have to be designed in accordance with the specific condition of each country. Hence, it would not be necessary or even desirable for each country to have the same competition policy instruments.

But one has to admit that in reality it is not easy for countries to recognize mutually the differences of the relevant economic conditions in each country. Accordingly to agree on a minimum standard for the competition policy instruments that each country has be equipped with may be a second best alternative.



Japan Fair Trade Commission:

100-8987 1-1-1 Kasumigaseki, Chiyoda-ku, Tokyo,Japan
Tel: +81-3-3581-1998
Copyright © 2013 Japan Fair Trade Commission. All Rights Reserved.Page Top