WORLD TRADE
ORGANIZATIONWT/WGTCP/W/145
11 September 2000
(00-3498)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 9 August 2000, has been received from the Permanent
Delegation of Japan with the request that it be circul ated to Members.  This replaces the version that
was circulated as an advance copy at the Working Group's meeting of 15-16 June.
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Japan's Discussion Paper for Trade and Competition
I. INTRODUCTION
The relationship between competition laws and economic growth has been discussed in depth
in various international fora, such as this Working Group of the World Trade Organization, theAsia-Pacific Economic Cooperation (APEC) and UNCTAD, thereby contributing to achieving a
certain level of common understanding among Member countries.  In this discussion paper, various
issues and concerns, which developing Member countries are faced with, are focused upon, whether
competition laws have just been introduced or none exist yet.  Some of the points are submitted for
consideration by the delegates and have been formulated in light of Japan's own experiences.  The
paper has been compiled for the purpose of discussion and it is to be noted that the Government of
Japan is in no way bound by the contents of this paper.
II. ISSUES AND CONCERNS FACING DEVELOPING MEMBER COUNTRIES
The issues and concerns facing those Member countries related to the economic growth may
be summarized in the following four points:  (a ) the relationship between competition policy and
competitiveness;  (b) the impact of competition poli cy on society;  (c) the relationship of competition
policy with industrial development policy and trade liberalization;  and (d) the limitation of resourcesgiven to the authorities responsible for competition policy and the development of competition policy
itself.
A. T
HE RELATIONSHIP BETWEEN COMPETITION POLICY AND COMPETITIVENESS
First, there is a concern that state-owned companies, which have a substantial share in the
economic activities of developing countries, may be adversely affected by competition policy.  Since
state-owned companies are contributing to providing the entire population with goods and services of
equal quality at equal prices, they could play an important role in the whole development process of
developing countries where the economy is exposed to a higher risk of market failure than in
developed countries.  The implementation of competition policy could well undermine such merits ofthe state-owned companies.WT/WGTCP/W/145
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In addition, state-owned companies have generally been established and operated in the
context of the specific economic situation and social system of each country.  It could thus be said that
a certain consideration should always be given to such context in each country.
There could also be an idea for state-owned companies to be given a role regarding
development of infrastructures, for which huge investments are required by industries such aselectricity, gas, water supply and canal industri es, which could be characterized by natural
monopolies.
However, due to progress in technological innovation and the globalization of the economy, it
is desirable to eliminate any inefficiency in the operations of state-owned companies (and private
enterprises in the regulated industries) by im plementing competition policy, thereby improving
economic welfare in a number of fields.
Second, there is a concern that in regard to the scale of a company, competition policy could
be a hindrance to increasing real competitiveness.  In other words, expanding the scale of a company
by way of a merger would be effective in seeking the "economy of scale", realizing the "synergy
effect" and increasing competitiveness in the internat ional market (it could, therefore, also be regarded
as a means for forming national capital):  a control on corporate mergers could thus end up hindering
the economic development of developing countries.  Moreover, since companies should exceed the
minimum scale to achieve a particular level of efficiency, monopoly or oligopoly by several
companies could even be considered desirable in developing countries where markets are usually
smaller than their developed counterparts.
However, regarding the relationship between the scale of companies and economic growth,
no conclusive studies have been conducted to prove that the expansion of companies (through
mergers) does actually improve performance in the operations (e.g. profitability, sales-growth,
productivity and stock price-earning ratios).  It is also necessary to comprehensively analyse how "thesynergy effect" of mergers (e.g. the effect of learning from experience, resource complementarity and
the integration of functions) will reduce costs.
B. T
HE IMPACT THAT COMPETITION POLICY HAS ON SOCIETY
There is a concern that social friction caused by competition policy cannot be overlooked
because it would force inefficient companies out of business, thereby causing bankruptcies and raising
unemployment.  The cost of such an undesirable outcome can hardly be overlooked in eitherdeveloping or developed Member countries.
On the other hand, it should be noted that if anti-competitive business practices are
overlooked, by simply increasing prices, this will not only give consumers an unnecessary burden, but
also foreclose the economic welfare of the country as a whole.  The desirable approach, therefore, isfor each government to minimize whatever adverse effects to the society, to be created temporarily by
competition policy, by introducing such policy measures as developing new industries, promoting the
mobility of human resources, providing relief to jobless people and redistributing income, to the
extent that they are supported by public consensus, while, at the same time, actively promoting
competition policy in order to improve the economic welfare of the society as a whole.  In so doing,the government should be able to convince citizens and industries and gain their understanding of
competition policy on the point that its advantages will override the drawbacks, if any, in a mid- or
long-term perspective, and that any short-term costs could be covered by implementing the above
policy measures without suspending the competition policy.
In order to increase efforts towards promoting economic restructuring, the Government of
Japan adopted the Industry Renewal Plan at a Cabinet meeting in January 1999, putting specialWT/WGTCP/W/145
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emphasis on ensuring high-quality employment opportunities and improving productivity through the
launching of new businesses.  More specifically, the government supports the opening of new
enterprises – including venture businesses – initiated by individuals, with a view to creating a new
business sector in the nation's industry.  The Government has also created an environment to
encourage existing companies that are well endowed  with managerial resources, such as technology
and human resources, to, on the one hand, further promote efficiency in existing business areas and,
on the other, make an effective use of such resources for developing new businesses and to further
expand the business basis through launching a new in-house organism, or spin-off.  Furthermore, the
Government enacted a special law to restore the dynamism of the industry in October 1999, in a bid to
step up efforts to revitalize the nation's industry.  The law is designed to promote "selection and
integration" among Japanese companies, as well as to support the founding of new companies and the
development of new businesses by the operators of small and medium-sized companies with the aimof smoothly transferring business resources from low to high productivity sectors, thereby
fundamentally improving productivity.
C. T
HE RELATIONSHIP BETWEEN INDUSTRIAL DEVELOPMENT POLICY AND TRADE
LIBERALIZATION
Some people insist that economic growth shou ld be first achieved through the industrial
development policy before implementing competitio n policy.  Others, who favour a market-opening
policy, contend that economic growth should be first achieved through trade liberalization before
implementing competition policy.
Regarding the argument that industrial development should take precedence over the
introduction of competition policy, the experience of the Government of Japan can be taken as an
example.  As part of an industrial development policy, it implemented various measures, such as tax
privileges, loans and subsidies.  However, these measures were never aimed at restricting competition
in each sector, and a restrictive practice was strictly prohibited by the Anti-Monopoly Act.  There hasindeed been active competition among domestic companies.  In light of such experience, it can be said
that industrial development policy and competition policy are both compatible with each other.
Behind the argument that trade should be liberalized prior to the implementation of
competition policy lies a view that progress in trade liberalization significantly reduces any room for
anti-competitive practices.  This can indeed be true if various players begin to compete in the market
as a result of trade liberalization.  In this regard, trade liberalization and competition policy can beconsidered complementary.
However, as tariffs and other measures at national borders have been significantly reduced as
a result of trade liberalization, a growing number of cases have appeared where anti-competitive
practices conducted across national borders or abroad adversely affect competition in the domesticmarket of a country.
Non-tradable goods, and even tradable goods with high transportation costs, do not face
competition with imported goods so long as foreign direct investment is restricted.  Competition
among tradable goods can be affected by various measures taken by a government (i.e. regulations,standards and licensing requirements, etc.) as well as by the anti-competitive practices taken by firms.
In view of the above, it is believed that trade liberalization never justifies the absence or
postponement of competition policy.WT/WGTCP/W/145
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D. THE LIMITS TO THE RESOURCES POSSESSED BY  AUTHORITIES RESPONSIBLE FOR COMPETITION
POLICY
Institutional and capacity buildings are urgent tasks for the authorities of developing Member
countries who are responsible for competition policy.  Some people say that while tackling these
urgent tasks through technical assistance and other measures, it is important to implement competitionpolicy on a step-by-step basis, starting from high priority areas.  As a way to achieve it, some people
call for curbs on horizontal cartels and the promotion of basic competition advocacy as the first step;
merger controls and controls on vertical restrictions as the second step;  and a review of various
government regulations from the viewpoint of competition policy as the third step.
It would be realistic for developing countries to implement competition policy on a step-by-
step basis because it is important to build the capacity of the authorities first and then assure publictrust in them.  Specifically, the authorities should first crack down on practices that obviously restrict
competition.  The unreasonable restraint of trade (cartel), the joint refusal of trade, a resale price
maintenance, the imposition of exclusive conditions on trade and the obstruction of trade by
competitors are regarded as practices that are highly restrictive in view of excluding competitors from
the market and substantially reducing competition.  Among the Member countries' competitionauthorities, there seems to be a common understanding that such practices are per se  illegal, or highly
illegal, i.e. to be essentially prohibited in a similar way to per se illegal.
After taking action against such practices, developing countries might then have to regulate
those practices with less serious effects on competition and other practices, which may call forconsideration of other policy goals together with competition.  In Japan, such practices include most
of the unfair trade practices, certain mergers and acquisitions, as well as restrictions against
subcontractors.
Regarding the allocation of resources among the various government organizations and
institutions, it is important to raise public awareness of the meaning of competition policy through
advocacy and gradually increase the resources (i.e. funds and personnel) to be allocated to the
implementation of competition policy and to the enforcement of the competition laws.
It is also important to consider the effective ways for competition advocacy.  It is necessary to
gain support of competition policy from consumers' and citizens' groups.  Competition policy will
widely bring small benefits to a large number of consumers, but can clearly cause temporary losses toa limited number of persons having vested interests.  Competition policy has the risk of being
politically influenced by the opinions of such a small group.  It is thus important to secure support
from the large group.  In addition, as scholars are often involved in studying competition policy in
many developing Member countries, involving them in the promotion of advocacy may well be
important.  For seminars on competition policy, persons from such groups should be invited toparticipate.
Even if competition laws are enacted and competition policy is determined, there is still a risk
that these could be used to prevent entry into a mark et if they are operated to the advantage of existing
businesses.  It is therefore extremely important to operate competition laws and policy in a non-discriminatory and transparent manner.
III. CONCLUSION
This paper intends to offer a perspective for considering and addressing the issues and
concerns that developing Member countries are face d with, in connection with competition policy and
economic growth. Some Member delegations might agree to its contention, while others mayWT/WGTCP/W/145
Page 5
disagree.  It would be greatly appreciated, if this paper can be used as a basis for further discussion
among delegations.
IV. PROPOSALS
Finally, what needs to be emphasized in the whole context of this paper is that any existing
system needs to be reformed in response to the ch ange of times and the circumstances, with a view to
achieving and maintaining economic development, and also that competition laws are becoming
increasingly important in today's world.  It is necessary to promote competition laws and policy in
carrying out structural reforms and deregulation, so that the productivity of national economy can be
increased in response to globalization. In doing so, it would be extremely useful for Member countries
to share their experiences and knowledge of competition laws and policy.
Japan has been actively extending technical cooperation – receiving trainees and dispatching
experts – mainly with economies in the Asia-Pacific region.  In light of the past experiences, it is
suggested that future technical cooperation in comp etition policy be focused on the following points:
(a) the construction of a network among the competition authorities of Member countries
and the creation of a framework for an efficient and flexible exchange of opinion and
information by using information technology;
(b) the creation of a database for competition laws, their enforcement, technical
cooperation activities, etc., of each Member country;
(c) the comparison of competition laws in each Member country, analysis of their
historical and economic background, information on moves towards the convergence
of competition laws and the offer of a menu-of-options for those economies ready to
enact competition laws;
(d) the consideration of measures for an early introduction of competition laws;(e) the compilation of data on competition policy, reflecting the general development of
national competition laws and the experience of their implementation;
(f) a  consultation and exchange of opinion to address anti-competitive practices with
international dimensions.
Some of the above-mentioned activities have been carried out on a bilateral or regional level.
In order to share the experiences more widely, the WTO should cooperate with other international
organizations in order to contribute to the enhancement of such international cooperation incompetition policy, while at the same time making full use of the efforts made at other levels.  It is
also necessary to discuss the creation of a framework for such a cooperation.
Any comments and opinions on this paper from Member countries are most welcome, either
on the relationship between the competition and economic growth, or on the manner that Member
countries and international organizations are to cooperate for the promotion of competition policy.
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