RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTCP/W/68
25 March 1998
(98-1205)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 10 March 1998, was received from the Permanent
Mission of Japan with the request that it be circulated to Members.
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1. The interaction between trade and competition policy in general
As we have stated so far, both trade laws, which regulate trade policy, and competition laws,
which regulate competition policy, have a common core objective of maximizing economic welfare
by improving the environment for more efficient resources allocation.  As various delegates pointed
out in the Working Group, we noticed contradictory as well as complementary effects between these
two types of law.  In order to follow up meaningful discussion on this subject, we believe it is
necessary to find a way to improve the consistency of these two laws in order to achieve the abovementioned objective.
Furthermore, in order to achieve successful results in the Working Group, we should enter
into a more concrete discussion as soon as possible.  Therefore, having this in mind, we must
undertake specific tasks such as reviewing and coordinating key vocabulary and concepts spanning
trade laws and competition laws as we suggested in our last submission.
2. Stocktaking and analysis of existing trade and competition policy:  Japanese competition
policy
In our last paper submitted to the Working Group (document WT/WGTCP/W/52), we have
also pointed out that in order to tackle the competition issue in a practical manner, we should start by
establishing a common set of principles and by introducing a competition policy which has a good
balance between harmonization and respecting the specific characteristics of each region.  To follow
up this point, we will hereunder elaborate the basic philosophy and characteristics of competitionpolicy in Japan:
(1) The basic philosophy of Japan's competition policy
One of the major objectives of Japan's competition policy is to enhance the initiative and
creativity of entrepreneurs.  Specifically, the Antimonopoly Act states "This act, ... aims to promote
free and fair competition, to stimulate the creative initiative of entrepreneurs, to encourage businessactivities of enterprises, ...".
This characteristic of Japan's competition policy is particularly important for economic
development.  In our history, Japan's competition policy contributed to its postwar economic
development, not merely by strengthening its optimum resource allocation mechanism but also by
enhancing economic dynamism caused by technological innovation and active entrepreneurship as aWT/WGTCP/W/68
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result of intensified competition. The increasing ca ll for strengthening competition policy in Japan
today also reveals the effectiveness of achieving economic growth through such a dynamic approach.
(2) Japan's competition policy and economic development (historical perspective)
Japan's competition policy management has aimed for maintaining the proper function of the
market mechanism in its market, although there was a period of substantial governmental intervention
in the market. The economic policy such as macroeconomic stabilization, maintenance of order in thefinancial market, and development of public infrastructure has also averted businesses from
rent-seeking under protective regulations, encouraging them to make an effort in production and sales
activities in the market.  Further, the strict enforcement of the Antimonopoly Act has prevented
businesses from conducting anti-competitive practices and consolidated the market mechanism in
Japan.  It should be, thus, regarded as one of the most important fundamentals which enabled
economic development in Japan.
It is noted today that all governments should refrain from excessive intervention in the
market. However, mere "laisser faire" economic policy cannot realize the smooth functioning of the
market mechanism.  The effective implementation and improvement of competition policy, including
not only competition laws but also civil and commercial laws, aiming at establishing a competitive
market taking the economic reality into consideration, are also crucially important for economic
development.
(3) The relationship between competition policy and economic development (theoretical
perspective)
Competition policy ensures the well-functioning of the market mechanism.  A group with a
dominant position politically and economically could set up an arbitrary system favourable to its
business activities during economic development, making the transaction cost of the whole economyincrease.  A fair and free market realized by the enforcement of competition policy decreases such
transaction cost.  Thus, we believe the expansion of business transactions as a whole by reducing their
cost is to be essential for further economic development.  There seems to be also a broad consensus
among countries that the realization of a fair and free market by establishing competition policy and
ensuring its strict application are important for the expansion of international trade.
(4) Enforcement of Japan's competition policy
The legal system and its enforcement for deterring anti-competitive business activities depend
upon each country's situation.  Even in the case of 29 OECD member states, the minority actually
apply criminal penalty.  Currently, to deter anti-competitive activities in Japan, there are three types of
sanctions available:
(i) an administrative decision to eliminate the illegal conduct;
(ii) an administrative surcharge to levy illegal surplus resulting from a cartel;  and
(iii) criminal penalty to punish.
These policy tools can be enforced either separately or simultaneously, and the JFTC has been
enforcing each policy tool appropriately.WT/WGTCP/W/68
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3. Trade and competition policy:  Analysis of the impact of anti-competitive practices of
enterprises and associations on international trade (Japanese enforcement)
The impact of anti-competitive practices of enterprises and associations on international trade
has as much importance as the impact of governmental measures on international trade, and therefore,
should be discussed in a balanced manner in the Working Group.  We will now discuss the actual
enforcement of Japan's competition policy by referring to some cases.
(1) Introduction
Take the case in which domestic firms cooperate with each other to prevent foreign
enterprises from entering the Japanese market.  Such conduct is regarded not only as a distortion in
trade but also as illegal under the Antimonopoly Act, and impairs the openness of the Japanese
market.
(2) Specific cases
We will now illustrate three types of cases in which domestic firms tried to block free trade.
In case of anti-competitive conduct, there are three major cases which distort trade:
(a) Unreasonable obstruction of parallel imports
Parallel imports are considered to promote price competition in a market, and accordingly,
obstruction of parallel imports presents a problem under the Antimonopoly Act, if it is
conducted to maintain the price level of the product covered by the contract.
Recently, the JFTC has pursued the elimination of an unreasonable obstruction of parallel
import:  Hungary-made porcelain (1994), Ge rman-made pianos (1994) and US-made ice
creams (1997) are recent notable examples.  In these cases, the JFTC judged that actions
taken by the sole import distribution agents in Japan to block parallel imports were violating
Article 19 of the Antimonopoly Act (unfair trade practices).
(b) Preventing foreign firms from entering the Japanese market
It is illegal for a firm, in concert with its competitors, customers or suppliers, etc., or for a
trade association to prevent new entrants from entering a market or to exclude existing firms
from the market, because such conduct impairs the freedom of firms to enter a market, which
is a prerequisite for effective competition.
For instance, four Japanese soda ash manufacture s colluded to have an exclusive dealing with
the US soda ash export companies by restricting availability of silos necessary for the import
of soda ash.  Their conduct substantially restricts the soda ash import market, and such
conduct is illegal under Article 3 of the Antimonopoly Act.
(c) Forcing a boycott of imports by an influential manufacturer
Such trade practices infringe upon Article 19 of the Antimonopoly Act (unfair trade
practices), if an influential firm in a market conditions its customers not to deal with foreign
competitors' products, thereby making it difficult for them to find alternative trading partners.
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