what is the objective of competition policy · what is the objectives of competition policy? ......

JICA Expert/Vtm/25-27/03/03 1

WHAT IS THE OBJECTIVES OF COMPETITION POLICY?

Katsuya MIURA

JICA Expert

Thank you for giving me good opportunity to speak before such eager

participants, about Competition Policy Objectives. Today, I introduce mainly basic

ideas of Japanese Anti-Monopoly Act.

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 emphasized in seminars or

workshops. 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 seminar.

I would like to start by citing 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 long objective provision was that the

competition law, when it was introduced 55 years ago, was something totally

unknown to political leaders, government officials, and the general public in Japan.

The ideas expressed here are my personal opinion, and do not necessarily

reflect the situation of the Fair Trade Commission of Japan (JFTC).

The provision of 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 means that this Act employs to achieve 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” fully explains 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 say 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.


The objectives here seem to have a multi-phase structure, namely both the

direct objectives and the ultimate objectives. The former objective may be

considered as instruments to attain the ultimate objectives.

I would like to express reminding 9 concerns and their answers by myself below.

1. Whether competition should be pursued irrespective of its economic

effects?

The thinking behind the AMA is clearly the opposite. The competition to

be assured is “free and fair” competition and not unconditioned competition. “Fair

competition” is generally considered to mean “competition by means of essential

elements of business such as price and quality”.

The AMA also states the value or significance, as well as the ultimate

objective of competition policy. Therefore, it would be reasonable to assume that

the AMA does not approve the kind of competitio n that is contrary to the value and

ultimate objectives of the competition policy.

2. Whether “efficiency” is the sole criterion 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 previously supposed. In any case, in the Japanese

competition law, the concept of efficiency does not play a principal role at least

clearly. For example, in merger examination, efficiency increase per se does not

usually render an otherwise illegal merger, legal.


3. Whether “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 interest 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 belonging 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 surely 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 AMA exemption

legislation.

However, the JFTC 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 gift as

belongings 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.

4. Whether the protection of the weak could be an objective of the

competition policy?

The objective of the AMA 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 obstacle, 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 are 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.

5. 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, this part is usually considered to be just stating

the value or significance of competition policy, and not its objective. It 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 is a theoretical argument. The reality nowadays is that one of the

strongest motivations for governments 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.

6. 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. The concern to be asked

here seems to be that, is it legitimate to use competition policy instruments for

purposes not within the usual field 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 as per se illegal.

However, what is in concern 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.

7. 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, the AMA had prohibited the

establishment of a holding company or any company becoming one. This

prohibition had had dual objectives. One had 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 was a competition

policy objective; to prevent the emergence of a dominant economic power that

could restrict competition in certain markets.

Later, the Japanese business community had 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.

After consideration of such situation, the JFTC has already allowed 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

law needs to be made by the specific condition, economic or otherwise, of each

country.


8. How about the control of below-cost sales?

The objective of Japanese competition law, aiming free and fair

competition, includes 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 academics 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 1) the goods or services are sold at prices far below the costs

needed to supply the goods or services, 2) such sales are done for a sustained

period of time, 3) such sales are likely to make businesses of other enterprises

difficult, and 4) there is no justifiable reason to them. Outlawing all below-cost

sales would be difficult from competition policy point of view.

While using below-cost sale regulation, which is usually a competition

policy instrument, for the purpose of preventing money laundering is basically a

questionable political decision, although one may have to be careful whether or not

such policy would cause any diverse effects on competition policy.

9. Whether or not the globalization of the economy will require the harmony

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. So, it would be reasonable to

assume that the objectives 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 every

countries. But 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.) differs so much from country to country. Therefore, 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. It also would not be necessary or even desirable for each country to have

the same competition policy instruments.

We know truly that it is not easy for us 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

been equipped with may be a better solution.

Thank you very much for kind attention.

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