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New Capitalism in the Kishida Administration and Competition Policy in Japan

Fumio Kishida was appointed Prime Minister of Japan on October 4, 2021, and the Kishida Administration was formed on the same day. They are aiming to the "New Capitalism" based on the concept of "a virtuous cycle of growth and distribution" and "the development of a new society after COVID-19 pandemic", including strengthening competition policy to promote fair competition.

On October 4, 2021, Fumio Kishida was appointed the 100th Prime Minister of Japan, and was reelected the 101th Prime Minister of Japan on November 11, 2021. The Kishida Administration established the New Capitalism Headquarters to achieve the "New Capitalism" based on the concept of "a virtuous cycle of growth and distribution" and "the development of a new society after COVID-19 pandemic" and started discussions on October 26, 2021. Currently, there is a movement in the world to build a new capitalism that emphasizes sustainability and "people" and leads to new investment and growth. The Kishida Administration aims to lead this movement.

On November 8, 2021, the Kishida Administration announced "The Urgent Proposal – "New Capitalism" for the Future and its Launch" ("Proposal").1 The Proposal consists of two core pillars: Growth Strategies and Distribution Strategies. This article focuses on those strategies specifically related to competition policy in Japan.

 

I. Growth Strategies

The Growth Strategies includes: (i) promoting a nation of science and technology; (ii) reviving the dynamism of Japanese companies, providing thorough support for start-ups, the leaders of innovation; (iii) revitalizing local regions and launching the "Digital Garden City Nation Concept" to connect with the world; and (iv) economic security.

Promotion of Digital Transformation (DX) is one of the Growth Strategies with regard to promotion of a nation of science and technology. As part of it, the Proposal suggests improving the cashless payment environment by making settlement fees transparent. Interchange fees (i.e., fees paid by a settlement company that contracts with a store to a settlement company that contracts with a user when payment is made by credit card) apparently account for 70 percent of credit merchant fees. The Japan Fair Trade Commission ("JFTC") conducts a fact-finding survey on the status of disclosure of standard rates, etc. and submits a report on whether there are any competition policy issues by the end of this fiscal year (i.e., March 2022). In addition to the JFTC, other relevant ministries and agencies (e.g., Ministry of Economy, Trade and Industry ("METI")) will examine effective ways to disclose information to expand cashless payment society.

With regard to the revival of the dynamism of Japanese companies and provision of thorough support for start-ups, the Proposal aims to strengthen competition policy to promote fair competition. In order to advance the New Capitalism, it is important to create a prosperous middle class, including small and medium-sized enterprises, subcontractors and start-ups. The effectiveness of advocacy function of the JFTC should be strengthened, including as to appropriate transactions for start-ups and SMEs as well as in the infrastructure sectors such as digital markets (e.g., telecommunications) and energy markets (e.g., electricity). The JFTC should be strengthened in a focused and systematic manner by qualitative enhancement (e.g., improvement of professional knowledge) as well as quantitative enhancement (e.g., drastic expansion of organization and personnel).

Previously, the JFTC and METI jointly formulated the "Guidelines on Business Partnership Contracts with Startups" on March 29, 2021.2 The Guidelines were prepared for aiming to present ideal approaches to contracts concluded with startups. Further, on December 23, 2021, the JFTC and METI issued a draft of "Guidelines for Business Collaboration with Startups and Investment in Startups" and started to seek comments from the public3. The comments are due by 6:00 p.m. on January 21, 2022 JST.

In addition to above, the Proposal aims to promote transparency and fairness in the digital advertising market. Digital advertising is an important infrastructure that supports the digital market. As the market becomes increasingly oligopolistic, various issues have been pointed out, such as unilateral changes in rules by platform operators and false claims for advertising fees due to padding of the number of advertisement viewed. In light of these circumstances, the digital advertising market should be added to the scope of the Act on Improving Transparency and Fairness (Act No. 38 of 2020; "TFDPA"). Under the TFDPA, the METI designates certain digital platform operators as "Specified Digital Platform Providers" that are subject to the regulation. So far, certain digital platform operators of comprehensive online shopping malls selling goods and certain digital platform operators of application stores have been designated as the Specific Digital Platform Providers4, but not any digital platform operators of digital advertisement. The Proposal suggests to develop systems for transparency and fairness in the digital advertising market by adding it to the scope of the TFDPA; it aims to require large digital platform operators to disclose details and reasons in advance when changing rules and to require thorough explanation of the risks of improper obtainment of advertising fees.

Further, consideration of the initial public offering (IPO) process and special purpose acquisition company (SPAC) system is also one of the Growth Strategies with regard to reviving the dynamism of Japanese companies, providing thorough support for start-ups, the leaders of innovation. Currently Japan's listing system is not friendly to entrepreneurs who would like to take on new changes. It has been pointed out that the Japanese listing system is structured in such a way that customers of securities companies, not start-ups, make money and there is not enough money going to startups. Specifically in the case of IPOs, a share price on the first day of listing (opening price) tends to be significantly higher than a price (IPO price) at which the entrepreneurs sold their shares, and the entrepreneurs tend to earn less money compared to foreign countries. In light of such a situation, the JFTC should work to understand the reality of situation regarding the process of setting IPO prices.

 

II. Distribution Strategies – Strengthening investment in "people" that will bring security and growth

The Distribution Strategies include: (i) support for strengthening distribution in the private sector including in the medium and long term, and (ii) strengthen the distribution function in the public sector.

One of the strategies of (i) is strengthening distribution to non-regular workers by a new legislation to protect freelancers. The COVID-19 pandemic has had a major impact on freelancers. In order to create an environment where freelancers can work with peace of mind, a new law for protecting freelancers will be submitted to the Diet as soon as possible. At the same time, the JFTC's enforcement structure should be developed accordingly.

In this regard, previously the JFTC and METI along with the Cabinet Secretariat, the Small and Medium Enterprise Agency, and Ministry of Health, Labour and Welfare issued the "Guidelines for Creating a Safe Working Environment as a Freelancer" on March 26, 2021.5

 

The Proposal states that the New Capitalism Headquarters will compile its vision and concrete plans next spring, and will take the initiative in disseminating it to the world. In formulating the plans, the Kishida Administration will hold roundtable discussions as needed and carefully listen to the voices of various stakeholders.

 

1 The Proposal is available in Japanese at https://www.cas.go.jp/jp/seisaku/atarashii_sihonsyugi/pdf/kinkyuteigen_honbun_set.pdf
2 The METI's press release of "Guidelines on Business Partnership Contracts with Startups Formulated" (March 29, 2021) is available in English at https://www.meti.go.jp/english/press/2021/0329_003.html; the Guidelines are available only in Japanese at https://www.meti.go.jp/press/2020/03/20210329004/20210329004-1.pdf
3 The JFTC's press release of December 23, 2021 is available in Japanese at https://www.jftc.go.jp/houdou/pressrelease/2021/dec/211223pressrelease.html; the draft of guidelines subject to the public comment is available in Japanese at https://www.jftc.go.jp/houdou/pressrelease/2021/dec/211223_pressrelease2.pdf
4 The METI's press release of "Designation of Digital Platform Providers Subject to Specific Regulations Under the Act on Improving Transparency and Fairness of Digital Platforms" (April 1, 2021) is available in English at https://www.meti.go.jp/english/press/2021/0401_001.html
5 The JFTC press release of March 26, 2021 is available in Japanese at https://www.jftc.go.jp/houdou/pressrelease/2021/mar/210326.html; the Guidelines are available in Japanese at https://www.jftc.go.jp/houdou/pressrelease/2021/mar/210326free03.pdf

 

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