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Japan's Views on International Cooperation in the Field of Competition Policy

Addressed by HIDEAKI KOBAYASHI Deputy Secretary-General Fair Trade Commission of Japan
American Bar Association - Section of Antitrust Law Midwinter Meeting
27 January 1997
Hawaii, USA

Ladies and Gentlemen,

It indeed is a great honour and privilege for me to say a few words on global cooperation in competition policy from the Japanese perspective. It also is a big challenge for me,because I am talking about competition policy in front of the grand masters of the antitrust laws. My present predicament reminds me what my speech teacher at Carleton College, Northfield, Minnesota taught me 27 years ago, which is "Don't start your speech by apologizing". So instead of apologizing, I wish to start by boasting.

Everyone who studied high-school-level Japanese history knows the phrase, "raku-ichi-raku-za", "raku" meaning easy or liberal, "ichi" the market, and "za" the guild or trade association. In total, it means gliberalizing markets and liberalizing guilds". This was the policy taken up by Oda Nobunaga, a war-lord who started the process of reunification of war-torn Japan. It was pushed further by Toyotomi Hideyoshi who completed the reunification. The purpose of the policy was (i) to abolish customs duties levied on people entering the market in each city, and (ii) to abolish monopolistic privileges which trade associations had enjoyed. All this took place, as a matter of fact, between 1570 to 1600. So we Japanese had competition policy in the late 16th century. Could someone tell me when the Pilgrim Fathers got to New England?

Recently, by the way, I mentioned this episode to a group of British fair trade office people just to impress them. One of them said X "Ah, isn't it rather recent? Our English king had a difficult time in breaking down a cartel among dyers in the 15th century". Clearly I had picked the wrong kind of people for my boast.

In any case, it is a historic fact that the competition law of Japan, or the Antimonopoly Act, was introduced into Japan exactly 50 years ago, while Japan was still under allied occupation. The Act was strongly influenced by U.S. antitrust legislation, if it was not a copy of it. In the half-a -century-long history of the AMA, there have been certain ups and downs in its enforcement. However, I can say with confidence that by now the AMA has firmly taken root in Japanese economic soil and is now playing a key role in the Japanese business life.

I am supposed to talk here about Japan's view on international antitrust cooperation. In my opinion, one of the basic requirements of such cooperation is the following. Each country should assume full responsibility to enforce rigorous competition policy in its own country. So I wish to start by mentioning some of the basic policy objectives of the Fair Trade Commission of Japan or JFTC particularly for the year 1997.

The Commission's roles are twofold: firstly, competition advocacy and, secondly, competition law enforcement.

Regarding competition advocacy, our priority for this year continues to be the abolition of exemptions from the AMA,which unfortunately still abound in Japan. In the last few years the JFTC has been fighting uphill fights with Goliathes in our own government, i.e., government ministries in charge of finance, trade,agriculture, communication, transportation, construction, health and welfare etc. etc. After hard pullings and pushings, the JFTC has managed to persuade those giants to abolish the majority of such exemption clauses. To be more specific, out of 47 exemption clauses in various laws other than the AMA, 33 will be abolished.

But, some hard core exemptions still remain,including those provided in the AMA itself, such as exemptions to the depression cartel or the rationalization cartel. The JFTC has committed to engage in a thorough review on all of them.

This is a part of our endeavours to push forward deregulation in Japan. If Japan is to fail a thorough deregulation like the one realized in the United States, Japan is simply doomed. This is the belief shared by many in Japan, particularly in the business community. In the general election held last October,all the political parties put deregulation at the top of their platform. Most voters could not tell how one party differed from others in this respect, so, many did not bother to show up in the polls.

Ladies and Gentlemen,

Let me now turn to our policy on AMA enforcement. We have been steadily strengthening our ability to deal with the AMA violations. The number of JFTC's enforcement staff has been increased by more than 50 % since 1990. With increased enforcement ability, we intend to attain the following objectives:

First of all, here again, we hope to push forward deregulation. In the last few years, we have unveiled a number of AMA violations in the areas regulated by the government. Here is an example. Many had complained that foods supplied to inpatients in hospitals are quite expensive; sometimes twice as expensive as ones in the ordinary market. After some hard works, we have found the following. Under the national health insurance system, when a hospital supplies to its inpatients such foods as are examined and approved by the government authorized body, the hospital is entitled to an additional allowance. That authorized body, a public foundation approved by the Ministry of Health and welfare, conspired with a private food distributor to monopolize the market of foods for in-patients. Last June the JFTC issued a cease and desist order against those parties, and suggested to the Ministry of Health and Welfare to take appropriate measures. The Ministry then took steps for abolishing the medical food allowance scheme. And under the Ministry's guidance,the foundation has decided to dissolve itself by March this year. The former chairman of the foundation is reported to have received salaries far higher than the Prime Minister's.

The second objective of enforcement is to remove barriers against the access of foreign products and services to the Japanese markets. The JFTC has set up a special task force to deal with the problems regarding (a) access to the Japanese market and (b) price differentials between Japan and abroad. The task-force's works have lead to a number of JFTC's legal measures including the ones against the obstruction of parallel imports of Herend chinaware from Hungary and Steinway pianos from Germany.

The third objective is to eliminate bid-rigging. In the last several years more than two thirds of the JFTC's legal measures involved bid-rigging. Although the JFTC is not a prosecuting office, it has the power to file criminal accusations with the prosecutors' office. The JFTC has exercised this power with regard to several major bid-rigging cases in recent years.

By the way, in Japan, the number of criminal prosecutions against AMA violation has been rather small. In this respect, Japan is similar to European countries and quite different from the United States. On the other hand, in Japan, we have the system of levying administrative surcharges on violators of AMA. This is an administrative measure and not a criminal punishment. However, since the amount of surcharge is quite substantial, it does have preventive effects like criminal fines. The total amount of surcharges imposed in F.Y. 1995 amounted to 6.4 billion Japanese yen (or about US $ 55 million). This is at a level comparable to total amount of antitrust criminal fines levied in the United States.

Ladies and Gentlemen,

I wish now to proceed to the main theme of the discussions since yesterday, i.e. international cooperation competition policy. In today's globalized economy, we need to deal with anti-competitive challenges coming from abroad squarely for enforcing competition policy effectively. For this purpose, international cooperation among the world's competition authorities, both on a bilateral and a multilateral basis, is of utmost importance. Regarding bilateral cooperation, the JFTC has found continuous dialogues with our foreign counterparts most beneficial, particularly those with the U.S. antitrust authorities. On a multilateral basis, we highly value the discussions in the OECD, as well as notification procedures based on the OECD recommendations.

Accordingly, when the U.S. initiative against international cartels was launched in the OECD meeting last October, Japan was the first to express positive support for their worthy initiative. Naturally, we would have quite a few subjects to discuss on this undertaking, for example, the kind of legal or organizational framework best suited for realizing such an initiative. But our two countries share the same views on many basic points and we will be able to work together for the fruition of these endeavors.

Now let me touch another subject of common interest, namely, competition policy and the WTO (or the World Trade Organization). The WTO Singapore Ministerial Meeting, held last month,decided to include gtrade and competition" as a new area for the WTO. This is truly an epoch-making development. There, it was agreed to establish in the WTO a working group to study the interaction between trade and competition policy. The group is to identify areas that may merit further consideration by the WTO.

On the question the WTO's scope of work,Japan's position has been consistent and clear. It should not be limited to competition policy issues that cause trade problems. It should also cover trade policy issues affecting competition, including anti-dumping measures. I am afraid that on this point we may disagree with some of our important partners. But of course, we are least interested in wasting our time on theological debates.

Given the WTO's quasi-universal membership,the Singapore decision opens up the possibility of far larger number of countries having competition policy. Here, we have an exciting scope for fruitful cooperation between our two countries.

Talking about the WTO's role in competition and trade, one may ask how can we utilize the WTO's dispute settlement mechanism for settling trade problems caused by anti-competitive private practices. You might say that it is still premature to talk about such a possibility. But whether we like it or not, we already have such a competition related case presented before the WTO, which is the photographic film and paper case or the Kodak-Fuji case. This case has two aspects, one is alleged trade problems caused by government measures and the other is those caused by private anti-competitive practices. The two are, of course, closely related. The trade aspect has already been addressed through the WTO's dispute settlement mechanism.

Concerning the private practice aspect, no substantive discussion has been started yet because the two Governments differ as to how to discuss the question. However, this case already has provided us with quite interesting food for thought on how the WTO should or could handle issues involving alleged private anti-competitive practices. Here, I cannot specifically refer to the details of the discussion between the two governments. So I can speak only in hypothetical terms.

Let us suppose that the WTO is equipped with instruments to deal with problems caused by private anti-competitive practices. Here we must remember that the WTO is an organization that deals with only government actions. And it apparently will remain so in the foreseeable future. Hence in this hypothetical situation, the WTO instruments would most probably not deal with the private anti-competitive practice itself. Instead, it will deal with government actions on such a practice.

Let's suppose there are two countries,called Yamato and the U.S.L., United States of Lawyers, and two private companies, called Onda and Trysler, belonging to Yamato and the U.S.L. respectively. Trysler thinks that Onda committed anti-competitive practices in Yamato, and they caused damages to Trysler. How would such a problem end up in the WTO, if it ever would?

Trysler may be tempted to ask the intervention of the U.S.L. government.

However, we have to bear in mind a principle of international law called the exhaustion of local remedies. According to this principle, Trysler is supposed to exhaust all possible local remedies available in Yamato, before it seeks its own government's intervention. It could do so by filing complaints with Yamato's competition authority and/or its court. When Trysler is not satisfied with the decision of the Yamato's authorities, then it may appeal to its own government for help. The U.S.L. government may request the Yamato government to take measures to rectify the situation. This is called a positive comity procedure. Then the Yamato government has to make some decision regarding the U.S.L. request. When the U.S.L. government is not happy with the decision, the U.S.L. would probably be able to bring the matter to the WTO.

Regarding such a scenario, one could come up with several interesting questions.

The first question is how binding is the principle, in international law, of the exhaustion of local remedies in such a case. In other words when Trysler has failed to file complaints with Yamato's competition authority, or although it did file complaints, it has not cooperated fully with the foreign authority,should the U.S.L. government be allowed to bring the matter to the WTO?The definition of local remedies may be another problem. Lets suppose private law-suite is available, under Yamato's legal system, for seeking anti-competitive damages, is Trysler obliged to pursue this remedy before it approaches its own government, even though the private law-suit is usually very time-consuming and costly?

The second question is, in a situation where the Yamato government has expressed readiness to look into the matter,and has not yet reached any decision, whether it is appropriate for U.S.L. government to bring the issue to the WTO?

The third is whether or not the U.S.L. government is allowed to skip the positive comity procedure before bringing the matter to the WTO. Another and related question would be whether or not the WTO could be an appropriate place to present a positive comity request. Here, we would have to note that while the WTO procedures are basically open, competition law enforcement usually requires confidentiality.

The fourth question is, when the issue is finally taken up by the WTO, which competition law, Yamato's or the U.S.L.'s, should be applied to such a case, if the WTO is not equipped with any competition rules that all countries have approved.

The fifth and last question is the following. Suppose a decision has been definitively taken by one of Yamato's courts or by the competition authority regarding a case raised by Trysler. how meaningful or effective would it be for the WTO to take up the same matter? Also imagine that the WTO decides differently from the definitive decision by a court in Yamato. How could such WTO decision be enforced? We may ask the same question regarding decisions by competition authorities of many countries, where competition authorities' decisions are taken through quasi-juridical procedures.

I am afraid I don't have any clear answers to these questions. But in future we may well be discussing whether it is advisable for the WTO to take up trade issues caused by private anti-competitive practices. In such a stage, those questions will have to be answered. So it may be worthy of effort to start pondering upon them.

Ladies and Gentlemen,

I wish to conclude by expressing again my heartfelt appreciation to be invited to address this prestigious,highly qualified and at the same time very warm gathering. Thank you.

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