JFTC seeking public comments on proposed Guidelines re: Anti-Monopoly perspective on business activities for realizing a Green Society
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On January 13, 2023, Japan Fair Trade Commission ("JFTC") proposed a draft of "Guidelines Concerning the Activities of Enterprises, etc. Toward the Realization of a Green Society under the Antimonopoly Act" ("Draft Guidelines").1 The due date for the public comments is 6pm on Monday, February 13, 2023 Japan time.2 The Draft Guidelines target not only the concept of joint activities, but also vertical relationships (e.g., abuse of superior bargaining position) and mergers.
The efforts to address climate change issues need to be strengthened in the world. In Japan, Article 2-2 of the Act on Promotion of Global Warming Countermeasures (Act No. 117 of 1998, as amended, "PGWC")3 calls for the realisation of a de-carbonised society4 by 2050. Accordingly, the Government of Japan made a cabinet decision "the Plan for Global Warning Countermeasures" on 22 October 2021,5 aiming to reduce greenhouse gas emission by 46% in FY2030 from FY2013 and continuing to take on the challenge of reaching the 50%. In order to do so, it is necessary to achieve a society where both reduction of environmental burden and economic growth are compatible – in other words, a "Green Society".
The JFTC held three sessions of "Study Group on Guidelines for Business Initiatives toward Green Society" from October to December 2022.6 The JFTC prepared the Draft Guidelines based on the opinions of the experts attended the Study Group. The purpose of these Guidelines is for the JFTC to support businesses in their efforts to achieve a Green Society by preventing restrictive practices that stifle innovation, such as new technologies, and by further improving the transparency and predictability of the application and enforcement of the Anti-Monopoly Act on business efforts.
In principle, the JFTC recognizes that many of the efforts by businesses to achieve a Green Society would not restrict fair and free competition, but rather would have a pro-competitive effect, such as the creation of new technologies and superior products, and are expected to bring benefits such as greenhouse gas reduction to consumers.
However, in some cases, efforts by businesses have the sole effect of restricting fair and free competition, for example by limiting individual company’s price or technology. In such a case, even if the efforts are nominally aimed at achieving a Green Society, they would be problematic under the Anti-Monopoly Act. In addition, the Anti-Monopoly Act would be applicable even if the business efforts were triggered by an "administrative guidance" (gyosei shido) from a government agency.7
In cases where efforts by businesses are expected to have both pro- and anti-competitive effects, the JFTC will determine such efforts would violate the Anti-Monopoly Act by comprehensively reviewing the pro- and anti-competitive effects arising from such efforts, taking into consideration (a) the rationality of purpose and (b) the reasonableness of means (e.g., whether there are other less restrictive alternative means).
The Draft Guidelines are organized into following five chapters:
- Part I Joint Activities
- Part II Restraints on the Business Activities of Trading Partners and Selection of Trading Partners
- Part III Acts Constituting Abuse of a Superior Bargaining Position
- Part IV Business Combination (i.e. mergers)
- Part V Consultation with the JFTC
In Part I, the JFTC explains the judgment framework and judgement elements under the Anti-Monopoly Act, mainly from the perspective of unreasonable restraint of trade (e.g. cartels and bid-rigging), regarding "joint activities" implemented among competitors, such as an establishment of voluntary standards by a trade association, joint R&D and/or business collaboration8 by multiple competitors. The Guidelines provide hypothetical cases (i) that are not problematic under the Anti-Monopoly Act, (ii) that would violate the Anti-Monopoly Act, and (iii) that require attention to avoid problems under the Anti-Monopoly Act.
Part II presents the JFTC’s position on conduct related to vertical restraints9 (except for the abuse of superior bargaining position ("ASBP"), which is described in Part III separately). A company may restrict the products, sales areas, sales destinations or sales methods, etc. of its business partners, or may terminate transactions with them for the purpose of reducing greenhouse emissions. The Draft Guidelines provide the JFTC’s approach as to what conduct would be or would not be problematic under the Anti-Monopoly Act, respectively, by classifying them into four categories: (i) a company restricting a business partner from dealing with its competitors or handling competitive products; (ii) a company restricting the sales territory to its business partner; (iii) selective distribution; and (iv) restriction of retail sales methods. In addition, the Draft Guidelines provide the JFTC’s approach and hypothetical cases for refusal to deal and boycotts. As to the selective distribution, "a reasonably rational grounds in terms of the interests of consumers" needs to be found; the Draft Guidelines’ hypothetical case indicates that greenhouse gas mitigation is recognized as a "reasonably rational grounds in terms of the interest of consumers".
Part III focuses on the ASBP. When a company in a relatively superior position unilaterally gives a disadvantage to a trading partner, such conduct would constitute an ASBP. A company may set different conditions for the quality of goods or services to be traded to the counterparty for the purpose of reducing greenhouse emissions, and if the parties agree to change the terms and conditions, then there are usually no antitrust issues. However, even if it is for the social and public purpose of reducing house gas emissions, it would violate the Anti-Monopoly Act as an ASBP, for example, when a company in a superior bargaining position makes a request to a counterparty, for the purpose of reducing greenhouse emissions, to unilaterally set a price without considering the cost burden required for the counterparty to fulfil the request, and such conduct is found unjust in light of normal business practices. The Draft Guidelines introduce cases for (i) coerced purchase or use, (ii) request for coerced provision of economic benefits, (iii) unilateral determination of the considerations for a transaction, and (iv) setting transaction terms and conditions other than (i)–(iii)10.
In Part IV, the JFTC presents their approach as to merger reviews – for example, in mergers to strengthen research and development capabilities related to technologies that contribute to the reduction of greenhouse gas emissions. The Draft Guidelines provide JFTC’s approach as to how to define the relevant markets and how to assess substantial restrictions on competition. In addition, it touches upon remedies; while structural remedies are the principle, behavioural remedies may be appropriate in certain cases – for example, when market structure is highly volatile due to technological innovation.
Part V introduces the JFTC’s consultation system, including the official Prior Consultation System and unofficial consultation system. Under either system, a company may consult with the JFTC to determine whether its proposed action may violate the Anti-Monopoly Act. In the official Prior Consultation System, the JFTC will provide a response in writing, and the name of consultant and the content of the consultation shall made public within 30 days of the JFTC’s response. In contrast, in informal consultation, the JFTC will in principle provide a response orally, and the name of consultant will not be made public.
The JFTC will continuously review and update, if necessary, their approach described in the Draft Guidelines in light of future changes in the market and business activities, as well as specific investigation cases and consultation cases. The JFTC will continue to publish and share consultation cases that may serve as a reference.
As mentioned above, the JFTC is seeking comments from the public. The due date for comments is 6pm on Monday, February 13, 2023 Japan time. Comments need to be submitted in Japanese language.
1. English translation of the Draft Guidelines (68 pages) is available at https://www.jftc.go.jp/en/pressreleases/yearly-2023/January/230118EN3.pdf; English translation of the summary of the Draft Guidelines (45 pages) is available at https://www.jftc.go.jp/en/pressreleases/yearly-2023/January/230118EN2.pdf.
2. JFTC's press release (English) is available at https://www.jftc.go.jp/en/pressreleases/yearly-2023/January/230118.html.
3. English translation of the PGWC is available at https://www.japaneselawtranslation.go.jp/en/laws/view/3796, but it does not reflect recent amendments, including the introduction of Article 2-2.
4. A de-carbonized society is defined as a society in which an equilibrium is maintained between the emissions of greenhouse gases generated by human activities and the absorption of greenhouse gases absorbed through the conservation and enhancement of absorptive capacity (Article 2-2 of the PGWC).
5. The cabinet decision is available only in Japanese (232 pages) at https://www.env.go.jp/content/900440195.pdf.
6. The JFTC press release (October 12, 2022) about holding the Study Group sessions is available only in Japanese at https://www.jftc.go.jp/houdou/pressrelease/2022/oct/221012_green.html.
7. English translation of the JFTC’s Guidelines concerning Administrative Guidance under the Anti-Monopoly Act (June 30, 1994) is available at https://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines_files/administrative.pdf.
8. The JFTC's English translation (70 pages) of "Report of Study Group on Business Alliances" (July 10, 2019) is available at https://www.jftc.go.jp/en/pressreleases/yearly-2019/July/190710-3.pdf; the JFTC's English summary (9 pages) is available at https://www.jftc.go.jp/en/pressreleases/yearly-2019/July/190710-2.pdf.
9. Resale Price Maintenance ("RPM") is also a type of vertical restraints, but the Draft Guidelines do not cover it; the Draft Guidelines focus on non-price vertical restraints and present the JFTC's approach.
10. As to (iv), the Draft Guidelines provide a hypothetical case in which an order was cancelled after an instruction was given for the installation of machinery and equipment to reduce greenhouse gas emissions
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