Public Policy and Economic Competition in Japan: Change and Continuity in Antimonopoly Policy, 1973-1995 (Nissan Institute Routledge Japanese Studies Series)

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Public Policy and Economic Competition in Japan

Viewed historically as the lapdog of business, bureaucratic and political interests, Japan’s Fair Trade Commission has had mixed success in promoting its agenda for stronger antimonopoly policy since the early 1970s. Dr Beeman unravels antimonopoly politics in Japan through an analysis of the diverse interests of industry, government, and other parties to reveal how and why antimonopoly policy has made important inroads yet ultimately failed to gain deep acceptance in Japan. The book covers a range of developments in antimonopoly policy during the period 1973–95, including efforts to: • • •

strengthen penalties and the regulation of business behavior under the Antimonopoly Law; extend enforcement of the law to regulated sectors of the economy such as transportation and ﬁnance; limit anti-competitive aspects of other industrial and commercial policies, including those toward depressed industries and the construction sector.

Employing extensive use of primary research materials and numerous interviews, Dr Beeman ﬁnds predictable patterns of change as well as themes of continuity in the development of Japan’s antimonopoly policy. By addressing a broad array of industry sectors and policy issues, the book provides a fresh insight into an agency and a policy that have often been criticized within Japan as too stringent and from outside Japan as too lax. Michael L. Beeman works on international trade issues as a special assistant at the US Department of Commerce.

The Nissan Institute/Routledge Japanese Studies Series Editorial Board

J.A.A. Stockwin, Nissan Professor of Modern Japanese Studies, University of Oxford and Director, Nissan Institute of Japanese Studies; Teigo Yoshida, formerly Professor of the University of Tokyo; Frank Langdon, Professor, Institute of International Relations, University of British Columbia; Alan Rix, Executive Dean, Faculty of Arts, The University of Queensland; Junji Banno, formerly Professor of the University of Tokyo, now Professor, Chiba University; Leonard Schoppa, Associate Professor, Department of Government and Foreign Affairs, and Director of the East Asia Center, University of Virginia.

Other titles in the series: The Myth of Japanese Uniqueness Peter Dale The Emperor’s Adviser: Saionji Kinmochi and Pre-war Japanese Politics Lesley Connors A History of Japanese Economic Thought Tessa Morris-Suzuki The Establishment of the Japanese Constitutional System Junji Banno, translated by J.A.A. Stockwin Industrial Relations in Japan: The Peripheral Workforce Norma Chalmers Banking Policy in Japan: American Efforts at Reform during the Occupation William M. Tsutsui Educational Reform in Japan Leonard Schoppa How the Japanese Learn to Work: Second Edition Ronald P. Dore and Mari Sako Japanese Economic Development: Theory and Practice; Second Edition Penelope Francks Japan and Protection: The Growth of Protectionist Sentiment and the Japanese Response Syed Javed Maswood

The Soil, by Nagatsuka Takashi: A Portrait of Rural Life in Meiji Japan Translated and with an introduction by Ann Waswo Biotechnology in Japan Malcolm Brock Britain’s Educational Reform: A Comparison with Japan Michael Howarth Language and the Modern State: The Reform of Written Japanese Nanette Twine Industrial Harmony in Modern Japan: The Intervention of a Tradition W. Dean Kinzley Japanese Science Fiction: A View of a Changing Society Robert Matthew The Japanese Numbers Game: The Use and Understanding of Numbers in Modern Japan Thomas Crump Ideology and Practice in Modern Japan Edited by Roger Goodman and Kirsten Refsing Technology and Industrial Development in Pre-war Japan: Mitsubishi Nagasaki Shipyard, 1884–1934 Yukiko Fukasaku

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Japan’s Early Parliaments, 1890–1905: Structure, Issues and Trends Andrew Fraser, R.H.P. Mason and Philip Mitchell Japan’s Foreign Aid Challenge: Policy Reform and Aid Leadership Alan Rix Emperor Hirohito and Sho¯wa Japan: A Political Biography Stephen S. Large Japan: Beyond the End of History David Williams Ceremony and Ritual in Japan: Religious Practices in an Industrialized Society Edited by Jan van Bremen and D.P. Martinez Understanding Japanese Society: Second Edition Joy Hendry The Fantastic in Modern Japanese Literature: The Subversion of Modernity Susan J. Napier Militarization and Demilitarization in Contemporary Japan Glenn D. Hook Growing a Japanese Science City: Communication in Scientiﬁc Research James W. Dearing Architecture and Authority in Japan William H. Coaldrake Women’s Gidayu¯ and the Japanese Theatre Tradition A. Kimi Coaldrake Democracy in Post-war Japan: Maruyama Masao and the Search for Autonomy Rikki Kersten Treacherous Women of Imperial Japan: Patriarchal Fictions, Patricidal Fantasies Hélène Bowen Raddeker Japanese–German Business Relations: Competition and Rivalry in the Inter-War Period Akira Kudo¯

Japan, Race and Equality: The Racial Equality Proposal of 1919 Naoko Shimazu Japan, Internationalism and the UN Ronald Dore Life in a Japanese Women’s College: Learning to Be Ladylike Brian J. McVeigh On the Margins of Japanese Society: Volunteers and the Welfare of the Urban Underclass Carolyn S. Stevens The Dynamics of Japan’s Relations with Africa: South Africa, Tanzania and Nigeria Kweku Ampiah The Right to Life in Japan Noel Williams The Nature of the Japanese State: Rationality and Rituality Brian J. McVeigh Society and the State in Inter-war Japan Edited by Elise K. Tipton Japanese–Soviet/Russian Relations since 1945: A Difﬁcult Peace Kimie Hara Interpreting History in SinoJapanese Relations: A Case Study in Political Decision Making Caroline Rose Endo¯ Shu¯saku: A Literature of Reconciliation Mark B. Williams Green Politics in Japan Lam Peng-Er The Japanese High School: Silence and Resistance Shoko Yoneyama Engineers in Japan and Britain: Education, Training and Employment Kevin McCormick The Politics of Agriculture in Japan Aurelia George Mulgan Opposition Politics in Japan: Strategies under a One-Party Dominant Regime Stephen Johnson

The Changing Face of Japanese Retail: Working in a Chain Store Louella Matsunaga Japan and East Asian Regionalism Edited by S. Javed Maswood Globalizing Japan: Ethnography of the Japanese Presence in America, Asia and Europe Edited by Harumi Befu and Sylvie GuichardAnguis

Japan at Play: The Ludic and Logic of Power Edited by Massimo Raveri and Joy Hendry The Making of Urban Japan Cities and Planning from Edo to the Twenty-First Century André Sorensen Public Policy and Economic Competition in Japan Change and Continuity in antimonopoly policy, 1973–1995 Michael L. Beeman

Public Policy and Economic Competition in Japan Change and continuity in antimonopoly policy, 1973–1995 Michael L. Beeman

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London and New York

First published 2002 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2003. © 2002 Michael L. Beeman All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Beeman, Michael L., 1966– Public policy and economic competition in Japan: change and continuity in antimonopoly policy, 1973–95/ Michael L. Beeman. p. cm. 1. Japan – Economic policy – 1945–1989. 2. Japan – Economic policy – 1989– 3. Antitrust law – Economic aspect – Japan. 4. Competition – Japan. I. Title. HC462.9 .B38 2002 338.952–dc21 2001051062 ISBN 0-203-16426-1 Master e-book ISBN

ISBN 0-203-25839-8 (Adobe eReader Format) ISBN 0–415–24969–4 (Print Edition)

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For Sachiko

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Contents

List of illustrations Series editor’s preface Preface Notes on Japanese usage List of abbreviations 1

Introduction

xii xiii xvii xx xxi 1

The problem for analysis 2 Perspectives on regulation 5 The argument in brief and its implications 8 Scope of the study 10 2

The historical context

13

From Meiji to occupation: a century of change, 1853–1952 13 Antimonopoly emasculation and the administrative guidance bargain, 1952–62 16 A gradual reemergence, 1963–72 21 Conclusion 24 3

The Fair Trade Commission

26

The institutional setting: legal structures and powers 26 Personnel matters and institutional ethos: the career staff 29 External linkages and personnel exchanges 31 The commission 32 Institutional change: a source of policy change? 35 4

Remodeling the cartel archipelago LDP in crisis and The Takahashi rising 40 The public policy response to the oil crisis 42 The FTC on ﬁre: enforcement against illegal cartels 46

40

x

Contents Overhauling legal cartel systems 51 Conclusion 67

5

Policy in the political arena: revision of the Antimonopoly Law

69

The FTC’s wish list 69 The road to revision of the Antimonopoly Law 75 Positions of interested parties 77 Failure of the ﬁrst attempt to revise the Antimonopoly Law 83 Failure of the second attempt 86 Revision at last 88 Conclusion 91 6

The problem of structurally depressed industries

96

The Depressed Industries Stabilization Law, 1978–83 97 The Industry Structure Law, 1983–7 102 Conclusion 109 7

Solidifying and expanding the policy base

113

The preventive measures policy and enforcement guidelines 113 Expansion into nonmanufacturing and regulated industries 121 Structural and political dimensions to changes in AML enforcement patterns 127 Conclusion 134 8

Gaiatsu as a source of policy change

137

Gaiatsu and the Structural Impediments Initiative 138 Strengthening enforcement and penalties 139 The cartel archipelago revisited: reducing Antimonopoly Law exemptions 146 Guideline concerning distribution systems and related business practices 153 Conclusion 155 9

The response to collusion in the construction industry 158 Political and institutional factors supporting dango¯ 158 The Shizuoka dango¯ case and its ramiﬁcations 161 The gaiatsu effect 165 The Saitama dango¯ case 167 Conclusion 170

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10 Conclusion: Japanese antimonopoly politics

xi 172

Additional developments post-1995 176 Notes Index

178 213

Illustrations

Figures 2.1 Formal FTC actions, 1947–95 3.1 Changes in the FTC’s organizational structure, 1960–95 3.2 History of FTC chairmen, commissioners, and secretariesgeneral 3.3 Changes in FTC personnel levels, 1949–95 4.1 Trends in the number of cartels exempt from the Antimonopoly Law, 1954–95 4.2 Trends in the number of cartels under the law concerning the Organization of Small and Medium Enterprises, 1953–95 4.3 Trends in recession cartels, 1953–95 4.4 Trends in the number of rationalization cartels, 1955–95 7.1 Trends in the formal and informal handling of cases by the FTC, 1961–95 7.2 Mining/manufacturing output, real GNP, and formal FTC actions, 1955–95 7.3 Trends in consumer inﬂation and formal FTC actions, 1955–95 7.4 Trends in FTC formal actions and budget allocations, 1956–93 7.5 Trends in FTC and national budgets, 1952–95

21 33 36 38 52 55 58 64 130 131 132 133 133

Tables 1.1 Theories of regulation and possible factors inﬂuencing policy 5.1 Outline of different Antimonopoly Law revision bills and proposals 6.1 Adjustments under the Depressed Industries Stabilization Law, 1978–83 6.2 Adjustments under the Industry Structure Law, 1983–8 7.1 Trends in FTC enforcement, 1961–95 8.1 Changes in cartel surcharge rates (1991 AML)

8 93 103 110 129 143

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Series editor’s preface

This preface is being written a few days after the terrorist attacks on New York and Washington in September 2001. Such has been the shock of those events that some commentators are identifying them as the start of a new era in the history of the world. This vision may turn out to be hyperbolic, but one striking effect of the tragedy in the days after it happened is a tremendous wave of sympathy for the United States that has been expressed throughout much of the world. One phrase that is coming to be used in discussions of the crisis is “defence of the civilized world” against a new kind of enemy prepared to use indiscriminate terror against it. Thus the notion has been gaining ground that we must all demonstrate solidarity with the United States in its hour of need because unless we do so, civilized democratic values will be hard to defend for all of us. Shock, tragedy, sympathy, civilization, solidarity, threat – these are the key words of our new era, if that it what it is. Much of course depends on what kind of response to terrorism the US government undertakes, because the enemy is elusive and there is a real danger of creating more sympathy for terrorism – and indeed creating more acts of terrorism – in the attempt to combat it. At the time of writing, all this is completely uncertain. What is certain, however, is that the United States, and values associated with it, enjoy more overt, active, and widespread support than at any point in recent history. “Widespread” does not mean “universal.” Those populations that are deprived, exploited and mired in hopeless poverty remain a huge proportion of the totality of humankind. Nobody should be surprised if ideological ways of thinking, including religious ideologies, lead to organized protest, and protest is mobilized in the form of terror. It is therefore not sufﬁcient to strike at terrorist cells, their leaders, and the governments that grant them succor. Those tasks are difﬁcult and dangerous enough, but far more difﬁcult, and ultimately far more necessary, is the task of eliminating the scourges of poverty and exploitation, which are, in a sense, structurally embedded in the international order based on the prosperity of the “civilized world.”

xiv Series editor’s preface In all signiﬁcant senses Japan today is part of our “civilized world”. The average standard of living of the Japanese people is high. The GNP of Japan is second only to that of the United States, and is larger than the combined GNP of all the other countries of Asia. Even the economy of China, though attracting much attention for the rapidity of its growth, is many times smaller than that of Japan. The national interests of Japan, to take a hard-nosed view, lie with the interests of the advanced countries and their broad set of economic, political, social, and moral values. Japan in most ways is an open, democratic society. Since the early 1990s the country has been suffering from severe problems of economic and political mismanagement. In the broadest of terms the problem is one of a painful transition from one form of political economy to another. The process of transition is far from over and mismanagement has cost the economy dear. Japan is also faced by deeper structural problems, including that of a rapidly aging population. Nevertheless, the key point is that this is a gigantic economy having enormous international weight. The Japanese, being a proud people and heirs to an ancient civilization, have long been concerned to map out their own path in the world, and this creates a certain tension with the trends of globalization so apparent in the world today. Nevertheless, Japan is slowly forging its own set of compromises whereby assimilation to essential global norms of behavior is tempered by the maintenance of structures and practices based on its own cultural experiences. The next stage, however, in which Japanese expertise and commitment are desperately needed, is in the long and painful task of mitigating, and eventually eliminating, not only the common terrorist enemy, but the deepest causes of terrorism, namely global inequality, endemic poverty and squalor, exploitation and rejection. The Nissan Institute/Routledge Japanese Studies Series was begun in 1986 and has passed its ﬁftieth volume. It seeks to foster an informed and balanced, but not uncritical, understanding of Japan. One aim of the series is to show the depth and variety of Japanese institutions, practices, and ideas. Another is, by using comparisons, to see what lessons, positive or negative, can be drawn for other countries. The tendency in commentary on Japan to resort to outdated, ill-informed, or sensational stereotypes still remains, and needs to be combated. Michael Beeman’s elegant and nuanced study of Japanese antimonopoly policy since the 1970s brings into sharp focus a central aspect of a particular intellectual issue. That issue is how far Japanese economic organization marches to its own tune, different from that of the outside world, and how far it is moving into harmony with the tunes of the global economy. A view that has been extremely widespread among observers in the United States and elsewhere is that the Japanese government essentially refuses to enforce policies against monopolistic practices, rather encouraging the formation and maintenance of oligopoly and even monopoly. Beeman shows that the reality is very much more complicated than that. The Fair

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Trade Commission, set up after World War II to promote competitive practices in industry and commerce, has indeed suffered many setbacks and in the past has been threatened with abolition on several occasions. Nevertheless, he is able to demonstrate that over the recent period it has registered a fair modicum of success, as the Japanese economy has been tracking – whether willingly or perforce – globalizing trends in the world economy. He is far from arguing that the economy is dedicated to competition in any ideal sense, but he argues convincingly that notable progress has been made in that direction. When we examine the broader signiﬁcance of his topic, we realize that in many spheres of policy making in Japan there exists a tension between internal and external pressures. For all sorts of political, economic, and even historical and sociological reasons, internal pressures have in the past tended to prevail over pressures hitting Japan from the outside world. Slowly, gradually, however, and with a sense of “two steps forward, one step back,” the power of external pressures to effect domestic change has been strengthening. It is even more complicated than that, because there is a complex interaction between domestic and international pressure. Rather than simply conforming to foreign norms, Japan, in many areas of activity, is assimilating overseas practice to its own norms and values, thus creating a dynamic interaction between the two. In the area of policy toward monopolies, its future is likely to be signiﬁcantly different either from what it was in the past in Japan, or what it is at present in the outside world. That, we may say perhaps, is how Japan works. J.A.A. Stockwin

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Preface

Flanking the central ofﬁce of the US Federal Trade Commission in Washington, DC, stand two identical art deco statues depicting a lone man struggling to restrain a muscular and unwieldy horse. These stone allegries of government as human and corporation as horse are ﬁtting symbols of the ideals and principles underpinning the agency’s mission to regulate harmful and anticompetitive acts of business. In Tokyo, by contrast, no comparable monument can be found in front of Japan’s antimonopoly enforcement agency, the Fair Trade Commission (FTC). Rather, below the FTC’s headquarters lies the expanse of Hibiya Park – a park that joins Japan’s political and bureaucratic districts of Nagatacho¯ and Kasumigaseki on one side with its premier business center of Marunouchi on the other. It also is within this park that an appropriate allegory could be imagined – unbridled horses of Japanese business frolicking carefree throughout the great expanse, all while in clear view of FTC bureaucrats. Or so goes conventional wisdom. Images of Japan’s FTC and the role of antimonopoly policy in the economy range widely. Within Japan, antimonopoly policy and its enforcement agency have been criticized ﬁercely at times as far too severe and restrictive toward commercial activity. These same critics have launched periodic attacks on the FTC, seeking in certain cases to have the agency abolished altogether. Outside Japan, meanwhile, antimonopoly policy and the FTC are often pilloried as far too weak to help ensure even basic levels of free competition in the marketplace. Somewhere between these two perceptions lies reality, not to mention a fascinating story. I became interested in this story in 1991 during my stay on a Fulbright fellowship at the research institute afﬁliated with Japan’s Ministry of International Trade and Industry (MITI). While researching cases where MITI’s orientation appeared to be changing from its narrow obsession with Japan’s industrial development into something much less deﬁned and more inclusive of other considerations, interviewees in the ministry consistently pointed to one of several causes for this reevaluation: the emerging importance of antimonopoly policy in Japan. While consciousness of antimonopoly policy among MITI bureaucrats was clearly at a peak in 1991

xviii

Preface

as a result of concurrent demands being made by the US government to boost Japan’s antimonopoly regime, it was nonetheless clear through these conversations that there was an important story behind the comments. And as I began to look at other sectors of the Japanese economy, ranging from construction to agriculture to services, the issue of how economic competition is regulated in Japan led me into a doctoral program to write on the subject. This book represents the culmination of a great deal of research that began in earnest at the Bodleian Japanese Library at Oxford, but that also proﬁted substantially from the equally rich archives to be found in the Kanda used book district in Tokyo and in the libraries at MITI, the FTC, and the main stacks at the University of Tokyo. After having developed the contours of Japan’s antimonopoly story through research using primary and secondary materials, I then began research interviews in Tokyo. I targeted a broad array of almost exclusively former senior government and industry ofﬁcials who had been in key positions at key moments to try to understand motives, conﬁrm facts, and gain more information that could come only from a conversation with a participant in this story. After I had sent personal letters asking for interviews, and over twentyﬁve of these individuals opened their homes and ofﬁces to me to talk about the past. While it is often said that connections are everything in Japan, it may be of use to some future researchers in Japan to know that a polite letter still seems to do the trick. All those I met were both warm and eager to talk about their connection to Japan’s antimonopoly story, and I owe each of them my sincere thanks. It was with particular sadness that I was unable to carry through with one interview after former FTC Chairman Tanimura Hiroshi passed away suddenly only days after having graciously agreed to set aside three hours for us to talk in two weeks’ time. During our brief telephone conversation he also made it a point to note his regret for having written the following comment about the FTC in the Asahi shinbun, which perhaps he sensed I had seen: “The Fair Trade Commission has the appearance of strength, but in fact it exists without any power as though it was just an impoverished noble of the Imperial Court.”1 This revealing comment, made only months after the end of his tenure at the FTC in 1972, represented a time in the FTC’s history that he assured me had passed. The chapters that follow demonstrate that while the ascendancy of the FTC and antimonopoly policy in Japan in subsequent years have fallen well short of meteoric, signiﬁcant change has indeed taken place. In addition to all of the interviewees who made their time available to me, I would also like to thank a number of individuals without whose support this project could not have progressed as well and as far as it has. First among those professional colleagues from whom I have proﬁted immensely is Arthur Stockwin, whose gracious support and sage guidance was key to my navigating not only a D.Phil. thesis but also the inner

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xix

workings of the University of Oxford and St. Antony’s College. I would also like to thank other colleagues at the Nissan Institute, including Jenny Corbett and Ann Waswo, for their support. Other professionals in the Japan ﬁeld who have graciously offered their time, encouragement, and comments on my work along the way include Mark Tilton, Steve Vogel, George Packard, Bai Gao, Eleanor Hadley, Stephen Wilks, Frank Schwartz, and Miyazawa Setsuo. Ultimately, however, I am responsible for any error in fact, interpretation, or presentation in the following pages. I also owe thanks to the Program on US–Japan Relations at Harvard University for hosting me as a postdoctoral fellow for one year as well as to the Japan–US Friendship Commission and Johns Hopkins University’s Reischauer Center for East Asian Studies for their sponsorship for me to take on two new projects on antimonopoly policy even before I had completed this manuscript. Additional thanks are also owed to Mindy Kotler, head of the Japan Information Access Project, who has supported my work tremendously. Most important has been my family. Starting with a wonderfully supportive mother, I am thankful to have received similar encouragement from my father and the rest of my family from the time I began my thesis to the completion of this book. I owe particular gratitude to my superb daughters, Anna and Maya, for their patience with me through this project, a fact that they will begin to appreciate fully only with the passage of time. But ultimately it is my wife, Sachiko, to whom I owe my deepest gratitude, respect, and love for her unwavering encouragement and assistance since the very beginning of this effort. Michael L. Beeman Bethesda, Maryland

Notes on Japanese usage

This text adopts the convention of placing the surname before the given name for Japanese authors and individuals featured in the text, except where books and other materials are written in English, when standard Western conventions for names are used. Macrons also are included in Japanese words and names to indicate extended vowel sounds, except in common Japanese place names such as Tokyo.

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Abbreviations

AML BOJ DSP EPA FTC FY HR JCP JSP Keidanren Ko¯meito¯ LDP MAFF MFA MITI MOC MOF MOJ MOT NHP OECD OPEC PARC RPM SDPJ SII SMEs

Antimonopoly Law Bank of Japan Democratic Socialist Party Economic Planning Agency Fair Trade Commission Fiscal year House of Representatives Japan Communist Party Japan Socialist Party Federation of Economic Organizations Clean Government Party Liberal Democratic Party Ministry of Agriculture, Forestry, and Fisheries Ministry of Foreign Affairs Ministry of International Trade and Industry Ministry of Construction Ministry of Finance Ministry of Justice Ministry of Transport New Harbinger Party Organization for Economic Cooperation and Development Organization of Petroleum Exporting Countries Policy Affairs Research Council (of the Liberal Democratic Party) Resale price maintenance Social Democratic Party of Japan Structural Impediments Initiative Small and medium-sized enterprises

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1

Introduction

Economic competition and the rules by which it is governed are issues that stimulate intense political activity in all nations. These activities are focused at the level of government and public policy for an unequivocal reason: laws or policies that constrain or promote competition have a direct bearing on the generation and distribution of wealth in any society. As a result, institutions such as corporations as well as individuals in their multiple roles as consumers, workers, and owners have some direct interest in affecting these laws. Governments also may view laws that affect competition as means to meet certain goals, such as upholding national security, legitimizing or delegitimizing certain economic activities, or, more simply, preserving jobs in government regulatory agencies. Although it is often assumed that economic competition is the “dominant regulatory force” governing economic behavior in capitalist market economies,1 the potential to gain or lose substantial private beneﬁt through regulation casts this interpretation into doubt as tenable in all cases. Limits on competition in banking, broadcasting, and airlines in many capitalist nations are only a few examples where the weight of public policy in markets may be more signiﬁcant than the regulatory force of competition itself. In capitalist economies, it is apparent that where competition is allowed to regulate, public policy often intervenes to mandate.2 This book is concerned centrally with the question of how politics affects regulation and regulatory processes. Namely, it examines those political factors that have shaped the development and implementation of Japan’s antimonopoly policy,3 that nation’s fundamental corpus of rules designed to regulate competitive processes and basic business behavior. Particular attention is focused on questions of how and why policy has become stronger and more important since the early 1970s in light of strong resistance from powerful interests, although substantial attention is also paid to understanding the reasons why it has not become even more important.

2 Introduction

The problem for analysis Compared to efforts in the United States and other nations to deﬁne the politics of regulation more broadly and those of antimonopoly policy in particular, few similar efforts have been made in the case of Japan.4 Rather, most research on the role of the state in the economy has focused on promotional industrial policies that may include some aspect of formal or informal government regulation of economic activity. While these studies have failed to bring about a broad consensus on certain basic questions about Japanese policy process, one assumption rarely in doubt is that the Japanese government is an active participant in efforts to shape market competition. Whether it does so independently of, in concert with, or as a result of pressure from organized business and other interests is at issue in these debates. Another nearly ubiquitous theme in the literature on Japan is the existence of extraordinarily close government–business relations. This fact inevitably makes it more challenging to identify whether policies are enacted and enforced primarily according to the desires of the regulators or those of the parties being regulated.5 Understanding of Japan’s government–business relations is further muddled by the use of informal regulation of ﬁrm behavior by central state ministries. While extensive formal regulation is characteristic of some industries, it is also held generally that the state bureaucracy widely eschews formal enforcement and use of regulation in favor of informal means of regulating ﬁrms and markets. Haley writes, “In Japan informal enforcement is not a process of governing, but has become the process of governing.”6 He adds that the “predominance of promotional as opposed to regulatory policies” is one key reason why formal enforcement of the rules is weak in Japan.7 Yet it is equally clear that central government ministries often take up the dual functions of regulation and promotion of the industry sectors under their jurisdiction in such a way as to blur any simplistic distinction between the two. In many cases, regulation, both informal and formal, has been designed carefully so as to help limit vigorous market competition as a means of stabilizing and promoting existing businesses. While the process may be opaque, the net result, according to Iyori, is clear: government–business relations in Japan have “resulted in restriction rather than promotion of competition.”8 In light of these common perspectives, it is difﬁcult to imagine any broad and active role for antimonopoly policy in Japan. Indeed, and in spite of a long history spanning over a half-century, Japan’s antimonopoly regime remains somewhat of a laggard among similar policies in other industrialized nations. However, comparisons of the Japanese case with antitrust policy in the United States or recent policy advances in the European Union overlook the fact that Japan’s antimonopoly regime has undergone important and signiﬁcant improvements since around the time of the ﬁrst oil shock in 1973. Although disagreement exists over the extent

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to which antimonopoly law and its enforcement in Japan have come to represent a meaningful deterrent to illegal behavior, it is clear that substantive change has taken place since the early 1970s when measured according to several major objective criteria. Such measurements include but are not limited to legislative measures to expand the scope and function of the Antimonopoly Law (AML), substantial reductions in the numerous legal and quasi-legal exceptions made to the AML, and increases in enforcement measures against illegal behavior and associated ﬁnes collected from companies. These criteria, therefore, include aspects of antimonopoly policy formulation as well as day-to-day enforcement by Japan’s antimonopoly agency, the Fair Trade Commission (FTC). Relevant to the present study is the fact that a substantial number of these changes have taken place over the strident objections of the elite economic bureaucracy, inﬂuential political leaders, and organized business interests. Such improvements in Japan’s antimonopoly regime appear rather difﬁcult to account for through the lens of some prominent views of the Japanese political economy. The developmental state perspective argues that central industrial and ﬁnancial ministries draft strategic, mercantilist economic policies in order to try to bring about extraordinary economic growth.9 Here, Japan is characterized as having a strong state apparatus where elite bureaucratic agencies, and not the national Diet, govern the nation.10 Formal and informal regulation is a bureaucratic tool used to shore up the interests and developmental plans of the economic ministries. With speciﬁc regard to antimonopoly policy, Johnson and others argue that it has been weakened to the point of near insigniﬁcance by Japan’s economic ministries so as not to interfere with the bureaucracy’s developmental goals. Simply put, “Antitrust policy and legislation . . . have always taken second place in Japan to the developmental goals of the government.”11 A competing view is that economic public policy is made generally according to pressure from organized interests, especially business interests. Although not explicitly Marxist in his approach, Yanaga argues that public economic policy is formed on the basis of the interests of elite producer groups.12 Adopting a public choice framework, Ramsayer and Rosenbluth argue that government policy is in fact held captive by wellorganized interest groups, a process that the ruling Liberal Democratic Party (LDP) has promoted in return for electoral and ﬁnancial support.13 Antimonopoly policy has been gutted, according to these perspectives, precisely because organized business interests want it so and the government has responded to their desires. Yanaga concludes that the government has accommodated big business desires to weaken policy,14 while Ramseyer and Rosenbluth focus on accommodations in antimonopoly policy made for small ﬁrms that represent “a pork barrel that the LDP could manipulate through the bureaucracy to its electoral advantage.”15 A third perspective on the Japanese political economy and economic regulation acknowledges an active bureaucratic apparatus in policy making

4 Introduction while supporting the contention that much policy output is in accordance with the desires of organized groups. Samuels speaks of reciprocal consent, where state and business negotiate their interests to reach mutually acceptable compromises.16 Muramatsu and Krauss propose the model of patterned pluralism, where the bureaucracy acts as the locus point in nearly all public policy debates, thereby granting some power to determine the ﬁnal outcome of policy demands made by politicians and other organized interests.17 Calder bifurcates the Japanese political economy by arguing that state–business relations over trade and industry policies are dominated by the state-guided model while relations between government and inefﬁcient sectors such as agriculture and small business are guided more by the politics of pork barrel.18 Similar conclusions are reached by Pempel.19 The analytical ﬂexibility of this third broad perspective has attracted support among a number of observers who believe that a combined approach most accurately reﬂects the nuances of the Japanese political economy.20 As the case studies in this book will demonstrate, it is only through this perspective on the Japanese political economy that one can begin to account for the changes that have been seen in antimonopoly policy. Yet by adopting a more inclusive perspective than state-centric or interest group-centric views of the Japanese political economy, this framework does not provide a clear road map by which policy process and policy outcome can be understood or predicted. Because of its broad regulatory scope across nearly all economic sectors, antimonopoly policy presents an excellent framework through which to explore basic questions of policy process and regulation in Japan. Thus far, the overwhelming focus on industrial policy studies has led to an incomplete view of Japanese antimonopoly politics, one that is concerned chieﬂy with policy toward large manufacturing companies. Although more detailed accounts of antimonopoly policy across the board are present in the literature, these have taken the perspective of law or economics and are generally mute on key questions of interest to political science.21 The only comprehensive treatment of the subject of antimonopoly policy from a public policy perspective is that by Misono¯, although this work is more descriptive than analytical and is focused almost exclusively on the period up to the late 1960s.22 As a result, antimonopoly policy toward small business, retail, agriculture, ﬁnance, construction, transport, and other sectors has escaped, in the main, scholarly analysis and comment. Additionally, very little effort has been made in the literature to explain the basis for the gains that have been made in antimonopoly policy.23 By adopting the broader perspective on regulation across various economic sectors that antimonopoly policy affords, a clearer understanding of the politics of regulation within the Japanese politico-economic system emerges.

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Perspectives on regulation Although there is a tendency to stress the importance of informal regulation and consensus in Japanese governance styles, antimonopoly politics in Japan demonstrates that Japanese business executives, bureaucrats, and politicians have also cared a great deal about written rules and regulations. As this book shows, antimonopoly policy and law have been the subject of divisive, prolonged, and bitter divisions in debates among and between parties in each of these three groups that form Japan’s so-called iron triangle. Other groups have engaged in these debates from time to time as well. It is no exaggeration to say that antimonopoly policy lies at the intersection of debates that continue to dominate discourse in Japan today: the merits of business self-regulation versus state regulation, the need to insulate Japanese ﬁrms from economic change versus the case for enhancing the market mechanism, and the question of fair trade versus free trade. How Japan ultimately comes to terms with these debates is of great interest to ﬁrms in foreign nations that seek to enhance their investment in and trade with Japan. Proponents of Marxist approaches were among the ﬁrst to recognize the importance that rules and regulations have on business performance and the distribution of wealth. The classic work on regulation from this perspective is by Kolko, who argues that national political leaders supporting the regulation of business during the Progressive Era in American history “in virtually every case chose those solutions to problems advocated by the representatives of concerned business and ﬁnancial interests.”24 Labeling the creation of the United States Federal Trade Commission in 1914 a “triumph of political capitalism,” Kolko concludes: “The business community knew what it wanted from the commission, and what it wanted was almost precisely what the commission sought to do.”25 What big business sought was the agency’s help to stabilize business uncertainty by undertaking tasks that included advising business, collecting statistics, creating guidelines for fair business conduct (as a means of limiting cutthroat competition), and acting as an arbiter in antitrust complaints to keep claims out of unpredictable courts.26 Paralleling broader criticisms of the Marxist position, observers have pointed out that small business owners, labor groups, and other interests also favored the creation of the US Federal Trade Commission.27 Others have viewed regulation in a more benign manner, maintaining that its creation by politicians and enforcement by government agencies is motivated by a desire to uphold and serve the broad public welfare.28 Economists have emphasized the beneﬁts of antimonopoly policy to economic growth, while political scientists and political philosophers have argued its necessity as a means of preserving the destruction of democracy from excessive concentrations of economic power.29 Just such lofty motives are ascribed to the US government in the passage of the Sherman

6 Introduction Antitrust Act of 1890 as a defense against the trust movement.30 Many continue to maintain that government regulation is able to serve important public welfare functions that cannot be provided by other means, including the correction of market failures such as the control of monopoly. The possibility that private parties can take advantage of regulation is recognized, although it is asserted that such controls are often a better alternative to leaving important social issues up to laissez-faire policies for resolution.31 Critics argue that the concept of public interest is nearly impossible to deﬁne. They also cite many empirical studies ﬁnding that “regulatory agencies make numerous decisions that reduce conventional measures of economic welfare,” thereby rendering welfare-centered theories incorrect prima facie.32 The public choice approach stresses the opportunities for “rent seeking” that regulation affecting competition presents for special interest groups. This view focuses on the actions and motivations of rational actors in explaining the outcome of regulatory policy processes. On the question of why regulatory policy comes into existence in the ﬁrst place, Stigler dichotomizes the demand for regulation among producers and the supply of regulation among politicians, concluding that “regulation is acquired by the industry and is designed and operated primarily for its beneﬁt.”33 The motivation for producers to mobilize in favor of regulation is to try to prevent the growth of competitors through regulatory means such as limits on market entry.34 Politicians, as suppliers of regulation, compete to enact such regulation in exchange for votes, contributions, or both. Olson’s theory of collective action provides an explanation of why producers are successful in their pursuit of regulation: rational consumers and other groups will fail to protect their interests when the beneﬁts of doing so are not sufﬁcient to justify their time, effort, and expense. Over time, the result is a growth in the number of well-organized distributional coalitions of producers as well as the regulations that serve them.35 Peltzman focuses on the supply side in the market for regulation, arguing that politicians will supply regulation as long as the beneﬁts of doing so exceed the potential costs in terms of losing support and votes.36 Within this framework, the basic public choice perspective on antimonopoly politics may be summed up as follows: “. . . legislative and policy decisions in the realm of antitrust are shaped . . . by the interactions between wellorganized private interest groups seeking protection from the forces of competition and politicians and other government ofﬁcials seeking to maximize their own personal welfare.”37 Wilson adds to this debate further by noting that costs and beneﬁts of regulation vary widely within and among different groups. He argues that the relative concentration of these costs and beneﬁts for each group must be evaluated before any assumptions can be made about why regulation is or is not enacted by elected representatives.38 Even in unusual cases where regulation is established to meet goals

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opposed by powerful business interests, public choice adherents hypothesize that over time regulatory agencies will in fact be “captured” by those producer interests that the agency is designed to regulate. Key to this process are the interests and motivations of regulatory bodies as institutions and regulators as individuals. Niskanen argues that the central motives of government agencies are guided by a desire to maximize their budgets.39 The potential to receive patronage from key legislators encourages regulators to serve special business interests that can return votes, contributions, or both to the legislator.40 Others emphasize the capture of regulatory agencies by producer groups as the ultimate conclusion in the evolution of government agencies in pursuit of sources of external support.41 Wilson hypothesizes that different types of bureaucrats in a regulatory agency, be they career ofﬁcials, professionals, or others, can have an important impact on personal and institutional motivations and actions. He adds that bureaucrats can act as policy entrepreneurs in their own right.42 Others have emphasized the primacy of organizational factors in explaining regulatory agency output. Katzmann and Weaver argue that internal dynamics within US antitrust agencies have been more salient factors explaining output than external inﬂuences.43 The impact of organizational factors, however, need not necessarily exclude the importance of external political inﬂuence. Harris and Milkis, for example, document how internal processes of the US Federal Trade Commission can be affected dramatically by the political appointments of new senior ﬁgures with new ideas about administration and priorities for the agency.44 Others, such as Doern and Peters, while also recognizing that institutional issues can affect agency behavior substantially, argue that these factors alone cannot serve as inclusive explanations without due consideration of other exogenous legal and political factors.45 Eisner afﬁrms the importance of regulatory institutions in deﬁning regulatory environments, although theorizing that broader arrangements among social interests, the state, and economic actors are the basic forces deﬁning regulatory regimes.46 Vogel expands on the regulatory regime approach to argue that regimes differ depending on the country and across time within a speciﬁc country, and that these regimes produce different regulatory results. In the case of Japan in particular, Vogel argues that the state bureaucracy, with its developmental focus, has been able to change regulation to suit its goals.47 The variety of leading perspectives on regulatory politics – including the process of creation, maintenance, and destruction of regulation – are apt to lead to more confusion than clarity. To better elucidate these various themes, Table 1.1 ranks the relative importance of differing inﬂuences on regulation according to differing theoretical approachs. Few of these approaches suggest a simple, single-factor cause for regulatory change. While the evidence presented in this text also points toward a multifactor explanation, there nonetheless exist rather clear patterns in which these factors interact to affect antimonopoly policy in Japan.

8 Introduction Table 1.1 Theories of regulation and possible factors inﬂuencing policy Potential factors impacting policy

Marxist

Public welfare

Public choice

Public Statechoice centric (broad (statist) approach)

Organizational/ institutional

1 Bureaucratic interest/state autonomy

✕

䊊

✕

䉭

䊊

䉭

2 Organizational/ institutional issues

✕

䉭

✕

䉭

䉭

䊊

3 Business/special interests

䊊

✕

䊊

䊊

✕

✕

4 Public welfare considerations

✕

䊊

✕

✕

䉭

✕

✕ indicates no or marginal inﬂuence on policy. 䉭 indicates possible important inﬂuence on policy. 䊊 indicates certain substantial inﬂuence on policy.

The argument in brief and its implications Since its introduction in 1947 by US occupation forces, Japanese antimonopoly policy and the FTC have experienced a rather unstable, often enigmatic, and sometimes inglorious history. Policy has often been drafted and manipulated in ways intended to curb as well as promote anticompetitive business conduct. Yet despite these apparent contradictions, Japanese antimonopoly policy has not suffered from unidentiﬁable pathologies. When examined over time, the case of Japanese antimonopoly politics reveals rather consistent, predictable patterns in policy formulation, policy evolution, and overall enforcement. Indeed, what emerges beyond the clear linear increase in the overall importance and strength of antimonopoly policy and enforcement since the early 1970s is a more important and revealing trend: changes in antimonopoly policy have been cyclical, characterized by periods of rapid progress as well as substantial setbacks. It is within the context of these characteristic boom and bust cycles that the politics of antimonopoly policy is most clearly revealed. This study ﬁnds that a less parsimonious application of public choice (or supply–demand) theory of regulation, particularly that expanded on by Wilson, is remarkably consistent with Japan’s antimonopoly story. This approach emphasizes that politicians respond to a broader set of incentives than simple producer demands for regulation when regulatory reform is considered. These incentives can include concern for consumer and other interests. It is hypothesized that the supply of regulation will be dependent on the interplay of these interests in the political realm. In cases where both beneﬁts and costs of regulation are diffuse, diverse interests

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are ultimately balanced in ﬁnal policy decisions. In cases where the costs of regulation are concentrated and beneﬁts broad, strong opposition from groups bearing the costs can be overcome only by a skilled entrepreneur who is able to appeal to broad support by such means as uncovering a scandal or taking advantage of a crisis. Finally, in cases where beneﬁts are concentrated but costs diffuse, interest groups can successfully organize to obtain such beneﬁts, often without check from the broader public.48 This approach moreover acknowledges that while state actors can be inﬂuential actors in policy debates, they are only one of many interest groups that ultimately affect policy process and results. This broader application of public choice theory also hypothesizes that actual policy implementation and enforcement by regulators can reﬂect diverse internal institutional motivations and processes as well as external pressures. This approach accurately predicts that while some degree of discretion or independence is possible for antimonopoly regulators, the salience of external political factors ensures that true independence is most often unattainable. As will be shown, Japan’s antimonopoly regulators in the FTC have been able to demonstrate some degree of autonomy when external political factors moved in their favor. On the other hand, during periods of ﬁrm conservative rule by the LDP, FTC regulators have exhibited more defensive and weaker patterns of enforcement of the AML. The evidence thus indicates that Japanese antimonopoly politics is inconsistent with many leading theories of the Japanese political economy and broader theories of regulation. State-centric theories dominate current thinking on antimonopoly politics in Japan, where elite bureaucratic agencies are consistently able to limit initiative by would-be advocates of stronger antimonopoly policy by virtue of their privileged place in the Japanese political system. While there is little doubt that such agencies have regularly sought to limit antimonopoly policy, it is not consistent that proponents of antimonopoly policy, led by the comparatively weak FTC, were able to override the expressed preferences of these elite agencies on a number of occasions. Moreover, the consistent and direct impact of special interests in policy debates through political representation call into question the validity of a state-centered model. On the other hand, strict traditional public choice approaches that discount the role of state bureaucratic interests in favor of a sole emphasis on competing interests at the level of party politics are insufﬁcient as well. The evidence shown clearly indicates that economic ministries and agencies have been inﬂuential participants at times in political debates over antimonopoly policy. Indeed, the study ﬁnds that the FTC itself has been the most inﬂuential protagonist favoring stronger antimonopoly policy in Japan, succeeding in most cases only when the political winds blew in its direction. Marxist explanations also fail: improvements in antimonopoly policy have been made on several occasions in spite of vigorous resistance by organized big business. While institutional factors clearly weigh on the enforcement style output of Japan’s

10

Introduction

antimonopoly enforcement agency, Chapter 3 will demonstrate that the FTC has seen remarkable consistency in its organization over time. This fact discounts the possibility that organizational factors alone can explain the dynamic cycles that have been seen in antimonopoly over the period under study here. Finally, while the public interest has consistently been raised in the discourse over future direction for antimonopoly policy, there is little evidence that an acute concern over public welfare was a substantial factor leading to policy change in terms of legislation as well as enforcement. While this study focuses on efforts to strengthen the scope and enforcement of antimonopoly policy, it is clear that change in antimonopoly policy in Japan has not been accompanied by a wholesale shift in the basic philosophies and processes underlying other economic public policies. Even by the late 1990s, antimonopoly policy had yet to become the central organizing principle around which all major decisions are made on commercial and economic matters. Nor can it be expected that this will happen in the foreseeable future. Yet in the face of formidable institutional barriers and often hostile political opposition, it is nonetheless remarkable that antimonopoly policy has moved from a position of near extinction during the 1950s and 1960s to one that has increasingly become a part of mainstream of Japanese economic public policy by the late 1990s.

Scope of the study This study adopts as its primary organizational principle a historical, or chronological, approach to the development of antimonopoly policy in Japan. Both major and minor issues in antimonopoly politics during the period 1973–95 are examined in case study format in order to outline the context for successful as well as unsuccessful efforts to strengthen policy and its enforcement. For purposes of clarity, however, some issues taken up in one chapter will overlap in time with those in others. An effort has also been made to include case studies across a variety of industry and commercial sectors in order to examine continuity or convergence in antimonopoly policy toward different sectors of the economy. While it is difﬁcult to mark any particular year or incident as a watershed in the history of antimonopoly politics, 1973 is an appropriate starting point for this study for several reasons. First, in spite of their respective analytical limitations, those more detailed studies of antimonopoly policy from a legal or economic perspective that do exist cover in sufﬁcient detail the period through the late 1960s.49 Second, the period just prior to and immediately following the ﬁrst oil shock has been identiﬁed widely as an important period in Japanese political and economic history, bringing to an end an era of rapid economic growth and relatively stable politics that had characterized the previous decade and more.50 These factors led to some important changes in public policies, of which antimonopoly policy

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was only a part. Ofﬁcials of the FTC also point to the early 1970s as a key period in the development of antimonopoly policy.51 Empirical measurements of change also point to the early 1970s as a key period from which improvements in antimonopoly policy can be identiﬁed. In terms of legislative change, the AML was strengthened three times between 1973 and 1995. These revisions granted the FTC greater powers to help address problems such as oligopolistic pricing practices, imposed stockholding restrictions to limit the power of large trading and other companies, tighter stockholding restrictions by ﬁnancial institutions, and the introduction of limited means by which to break apart companies in oligopolistic industries. A central feature in each of the revisions was an increase in penalties for AML violations, including the introduction administrative surcharge system and rises in criminal penalties. Debates over legislative struggles over antimonopoly policy are featured prominently in Chapters 5 and 8. In terms of enforcement, while antimonopoly policy was strengthened slowly from the early 1960s in areas of consumer and small business protection, it was not until the early 1970s that policy was broadly enforced against major manufacturing companies for the ﬁrst time. Administrative surcharges in particular have played an important role by presenting some deterrence to AML violations, while a weak but increasing emphasis on using criminal measures can also be seen. Comparing the total extent of ﬁnes in Japan and the United States imposed through governmentinitiated cases, First ﬁnds that surcharges in Japan by the 1990s either approached or exceeded the level of criminal ﬁnes assessed in the United States. Moreover, he found that the number of formal actions taken by the FTC by the mid-1990s roughly equaled cases brought by US antitrust authorities, after adjustment for gross domestic product.52 Enforcement was expanded through the drafting of a number of guidelines after 1979 as well as other efforts at obtaining compliance with the AML. While FTC enforcement style from 1973 underwent characteristic pendulum swings between activist enforcement and a more defensive strategy through the use of these guidelines, by the 1990s the FTC had adopted a more balanced approach to enforcement by employing a variety of tools.53 Enforcement issues are central features of case studies in Chapters 4, 6, 7, and 9. Another important development in antimonopoly policy since the early 1970s is the elimination of cartels and other joint acts exempt from the AML. In those few cases where new AML-exempt cartels were introduced after 1973, the FTC has played a stronger role in checking the terms of these joint acts and ending measures earlier than was the case during the previous twenty years. Chapters 4, 6, and 8 discuss these trends in more detail and address how political factors have affected such changes. On the other hand, a number of developments pointing to stronger antimonopoly policy, such as efforts to expand enforcement into regulated industries, cannot be identiﬁed as clearly. Many of these changes too are

12

Introduction

raised and examined through the case studies presented in this text. In order to provide scene setting for the main case studies, a short summary of policy developments between 1947 and 1972 will be presented in Chapter 2. In addition, Chapter 3 will outline the institutional environment in which the FTC and its regulators operate in order to provide additional context to the events of 1973 through 1995.

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2

The historical context

Key to understanding political developments in antimonopoly policy from 1973 is the historical and political context in which policy developed after its introduction in 1947. As many observers have conﬁrmed, the most salient feature of this history has been the conﬂict between antimonopoly policy and industrial policy, particularly during the period just prior to and during Japan’s high growth period. While this conﬂict is manifest in many high-proﬁle episodes during Japan’s industrial history, much of this literature has focused on direct competition between the Fair Trade Commission (FTC) and the Ministry of International Trade and Industry (MITI) as the deﬁning dynamic. In reality, however, the expressed preferences of industry and other interest groups have been reﬂected directly in these debates through the political process to a degree that requires substantial further contextualization. Indeed, it was industry’s desire to avoid application of the Antimonopoly Law under the cover of ministerial guidance that became a foundation on which many informal government–business relationships were developed in postwar Japan. Starting with a brief overview of public policy toward competition both prior to and just following World War II, the following section reviews in some detail the history of antimonopoly policy through 1973 in order to frame subsequent policy debates and developments.

From Meiji to occupation: a century of change, 1853–1952 As has been well documented by scholars, one hallmark of Japan’s emergence in the mid-nineteenth century from self-imposed isolation was a deliberate effort by the Meiji government to transform Japan’s feudal economy into a modern capitalist system capable of helping Japan withstand the colonial impulses of Western nations. Initial measures were generally procompetitive reforms, including the dissolution by the early 1870s of all traditional local guilds.1 Despite such initial changes, however, Meiji leaders soon found wanting the entrepreneurial spirit and the resources necessary for rapid economic development based on a model of

14

The historical context

relative government noninterference.2 Much as in Bismarck’s Germany,3 a general trend developed around the turn of the century favoring growing support for promising industries as a means of meeting the overarching nationalist goal of modernization and strength through industrialization.4 Initial government ambivalence toward the problems of monopoly and industrial concentration gradually gave way to growing concern as the degree of economic concentration increased rapidly through the early years of the twentieth century. Japan’s ﬁrst public government report on the problem in 1913 concluded that while there were many demerits in further industrial concentration, beneﬁts such as heightened product innovation and scale economies made the trend desirable in Japan given its lag in industrialization.5 These concerns were held at bay with the importance that the zaibatsu, Japan’s ﬁnancial and industrial combines, came to occupy in the national economic and military strategy.6 Yet economic depression from the late 1920s and the international and domestic political crisis that followed brought serious open questioning among the public of the market power that the zaibatsu and other large ﬁrms had amassed, often as a result of special relations with the government. Dissatisfaction was voiced from groups facing economic hardship, such as small business owners and farmers, all of whom saw the oligopolistic economic system as working against their private interests as well as the broader interests of the nation.7 Such rumblings in many respects appear analogous to similar dissent toward the trust movement in North America more than three decades earlier. Yet improving economic conditions, and in particular the rise of the military in Japanese politics that brought a wartime planned economy, helped ensure that such a movement never gained signiﬁcance. Policies favoring economic concentration in important industries came to occupy a central position in government policy in the lead-up to the start of war in Asia in the mid-1930s.8 Government policy toward cartels and other such acts restricting competition followed a course similar to that of policy adopted toward monopoly: initial ambivalence followed gradually by permission and at times active promotion. By the late nineteenth century the government had accepted and encouraged limited joint acts such as agreements on product quality by associations of small and medium-sized ﬁrms, primarily as a means of promoting exports.9 During the 1920s and into the 1930s, the government expanded the range of allowable cartel acts to include joint sales and production, and added provisions to restrict cartel outsiders.10 Although cartels among large ﬁrms dated back as far as the 1880s, they did not become relatively common until the recession and depression-plagued decades of the 1920s and 1930s.11 Initially formed and dissolved at the whim of the involved ﬁrms, increased government involvement in big business cartels gradually became a common feature in Japan, just as it did during the same period in the United States under the New Deal and in most countries in Europe. This trend was strengthened in 1931 under the

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Important Industries Control Law, which allowed legal cartels to alleviate economic hardship in the wake of the Great Depression.12 Such cartels inevitably proved to be difﬁcult to manage in numerous cases. However, they served as an effective model for wartime control associations, formed at the command of the military government in 1941, to act as joint public–private boards to plan and manage industrial output. In numerical terms, 79 percent of output among the major industries in 1936 fell under some sort of cartel agreement.13 And with the wartime economy in full swing in 1941, there were as many as 20,000 government-sanctioned associations for large and small businesses controlling economic activity in some way.14 With such a legacy of indigenous and state-supported forms of anticompetitive practice, US occupation ofﬁcials following the Second World War faced a difﬁcult task planting American concepts of “economic democracy” ﬁrmly in Japan. Occupation policy toward cartels and excessive economic concentration in Japan consisted of two planks. The ﬁrst program, well documented by Bisson and Hadley, was an ambitious plan to break apart the zaibatsu.15 The second plank of US policy was the drafting of antimonopoly laws for Japan as a bulwark against the return of economic concentration and collusion. The latter policy was put into effect soon after, with the passage of the Law Concerning the Prohibition of Private Monopolization and the Methods of Preserving Free Trade, known more simply as the Antimonopoly Law (AML), on 31 March 1947. An ancillary statute, the Trade Association Law, was also approved more than a year later to regulate tightly the activities of Japan’s business and trade associations. Both laws were drafted under the guidance of the US occupation authorities, and in several areas were signiﬁcantly stricter than comparable statutes in the United States. While there were strong political motivations behind the laws, in their essence they were inspired by an idealized version of US antitrust laws that was very much in the mold of later New Dealera thinking about the proper role of competition and business in a democratic society. The AML also took into account features of the prewar Japanese zaibatsu industrial system and thus contained special provisions such as bans on stockholding companies, intercorporate stockholding, and interlocking corporate directorships. Four other major types of conduct covered by the AML were bans on private monopolies, unreasonable restraints of trade (cartels), undue disparities in bargaining power, and unfair methods of competition (boycotts, dumping, etc.).16 No provision was made for legal cartels except among very small-scale enterprises and consumer groups. Finally, the FTC was established as an independent regulatory commission charged with the task of enforcing the antimonopoly laws. (The FTC’s powers and functions will be discussed in Chapter 3.) The result was laws broad in scope and severe in restriction that were opposed bitterly by conservative forces in Japan. The AML and the Trade

16

The historical context

Association Law were seen not only as a threat to the status quo but also as an American tool designed to handicap Japanese industry and obstruct efforts to reconstruct the economy.17 The Ministry of Commerce and Industry (later MITI) and Japan’s emerging peak big business association, the Federation of Economic Organizations (Keidanren), both resisted occupation plans for the new law by proposing weaker drafts.18 After much debate within Japan, some of the provisions for the new laws were altered in the ﬁnal text, although many of the strict provisions survived with little change from the basic outline that occupation authorities demanded.19 Only two years after the passage of the AML, a moderate revision was approved on the basis of the strong urging of the US business community. The change lifted some reporting and other regulations on international contracts and capital transactions to help promote increased foreign investment. Perhaps the most important result of the revision of 1949 was the example it set in Japan. By clearly equating the AML with a policy that might stunt growth potential and prevent timely reconstruction of the Japanese economy, the US government undoubtedly conﬁrmed the suspicions of Japanese business and government toward the entire concept of antimonopoly policy.

Antimonopoly emasculation and the administrative guidance bargain, 1952–62 With the end of the occupation in sight, the United States set the FTC adrift in mid-1951 to stand its own ground. It was at this point that the FTC began to retreat from active enforcement of the antimonopoly laws. Indications of this new posture were contained in its annual report of 1951, which stated that legal measures should be avoided if they were not in the public interest or if they would result in economic injury for the ﬁrms involved in a violation.20 To understand why the FTC became more pragmatic than dogmatic in its enforcement of antimonopoly policy, several factors must be considered. First was the government’s policy for achieving economic reconstruction and eventually high rates of growth, which both state and business felt would be unattainable in the event of the strict enforcement of the two antimonopoly laws.21 A second reason was the absence of initial visible, active support in Japan for the cause of antimonopoly policy, except for perhaps the dissolution of the zaibatsu and the subsequent ban on stockholding companies.22 Most political parties also failed to show enthusiasm over the new laws. Conservative political leaders were generally hostile to the AML from the start. Meanwhile, sections of the socialist and communist parties took the view that the AML was a mere tool of US capitalist interests seeking to dominate Japan.23 One exception was moderate social democratic forces, which were generally supportive and seemed to hold out the best hope for building a support base for policy in political circles.

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Moderate socialists, however, were not completely convinced by the efﬁcacy of antimonopoly policy in all cases. They urged, for example, that broad AML exemptions be granted for small and medium-sized enterprises (SMEs).24 But given the fact that the two socialist parties, later uniﬁed as the Japan Socialist Party (JSP), were unable to come to power in government except for a brief period under the occupation, the effect of this reserved support was limited.25 Finally, the beginning of the FTC’s retreat must also be seen in terms of its desire for mere self-survival. Even prior to the end of the occupation, a serious political challenge was made to the FTC by conservative businessmen and politicians who pushed for a radical proposal to weaken antimonopoly policy generally. In response, occupation authorities eventually allowed some changes to the organization of the FTC and some substantial revisions in the Trade Association Law.26 Nevertheless, the threat and the message could not have been more clear for the FTC. Following the end of the Allied occupation of Japan, big business and MITI wasted little time in having approved in the Diet in 1953 a broad revision of the antimonopoly laws. The big business community led its effort through Keidanren, which drafted a report in late 1952 containing numerous demands for revision.27 Proposals were also prepared by MITI and, for defensive purposes, by the FTC.28 The FTC’s draft contained several major compromises with the Keidanren version, including permission for legal industry recession and rationalization cartels under certain conditions; a substantial lifting of restrictions on intercorporate stock ownership and interlocking directorates; a repeal of section 8 of the AML, which had allowed the FTC to break up a company possessing excessive economic power; and the complete abolition of the Trade Association Law, with the listing of some of its key provisions in the AML. By compromising on these four points in particular, the FTC ofﬁcials hoped to prevent any further weakening of antimonopoly policy.29 To the chagrin of big business and MITI, however, the FTC was granted sole power of ﬁnal approval for a system of legal recession and rationalization cartels through lastminute political maneuvering in the Diet.30 A legal system of resale price maintenance was also placed under the AML to allow ﬁxed retail prices for approved products. Legislation incorporating these as well as the other concessions from the FTC was passed in August 1953. Prior to the 1953 revision, economic bureaucrats and the business community were already busy on two fronts trying to dismantle the force of the AML. First was the drafting of laws that explicitly allowed for the formation of legal cartels exempt from the AML. The ﬁrst two such laws were approved in the months following the end of the Allied occupation of Japan in April 1952, allowing for government-approved cartels among SMEs and among exporters (later expanded to include importers). Industry and MITI soon after succeeded in having passed a handful of other laws granting AML exemptions for cartels in the textile, machinery, electronics,

18

The historical context

and coal sectors. Beginning in the early 1950s, other economic ministries and their respective business constituents were also successful in having similar legislation passed. Under these laws, the majority of which came into effect between 1952 and 1960, legal cartels were allowed for industries and business sectors as diverse as ﬁsheries, agriculture, fertilizer, liquor, beauty salons, dry cleaners, insurance, trust banking, warehouses, and transport by road, air, and sea.31 Many other regulatory laws were passed in areas such as ﬁnance and transport such that although these sectors were not clearly exempt from the AML, little room was left for any enforcement of antimonopoly policy. Conservative governments during this period were ready to oblige business and bureaucratic requests for such exemptions from the AML in many cases, although the opposition of farmers and other groups served to prevent some efforts to secure legal cartels.32 A second means of bypassing the AML was the pervasive use of government-sanctioned cartels that were not formally exempt from the AML according to a speciﬁc law. The ﬁrst case where these so-called administrative guidance cartels came into conﬂict with antimonopoly policy concerned a decision by MITI regarding the necessity of production cutbacks by government recommendation (kankoku so¯tan) in the cotton-spinning sector, as had been sought by many in the industry. Appealing to the FTC that anticompetitive measures were necessary to prevent serious bankruptcy, MITI argued that implementation of such recommendations would be an act of government based on its sole judgment and therefore did not constitute an act of collusion within industry. The FTC eventually decided to avoid taking formal action, noting that MITI had the right and jurisdiction to issue the order as an “administrative measure.” It argued, however, that the encouragement of such joint actions should be avoided.33 The FTC also demanded that MITI administer the cartel in a vertical manner to each business so as not to encourage or allow cartel discussions among ofﬁcials in the textile companies.34 This compromise acted as the precedent for the creation of numerous state-supported informal cartels under the government’s administrative guidance. While many economic bureaucrats as well as businessmen sought a weaker antimonopoly policy, there were important differences between these two groups that are central to understanding debates over public policy toward competition during this era and after. After having been subjected to strong government regulation through the 1930s and 1940s, many leading industrialists and ﬁnanciers in the 1950s and into the 1960s expressed their clear desire to form and dissolve cartels at their whim, free from the application of the AML and the oversight of economic ministries.35 MITI as well as other key groups such as agricultural associations, however, resisted such desires. In addition, given Japan’s divisive left–right political milieu during the late 1940s through the 1970s, complete freedom for industrialists to form conspiracies on prices and quantity unchecked by government was simply an unattainable goal politically without serious

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backlash against the conservative parties. The state had to be included in some form to provide reassurance that these agreements were being directed in accordance with broad public interest. Reﬂecting classic political compromise, rationalization and recession cartels were allowed under the 1953 revision of the AML but with signiﬁcant conditions attached. The FTC, moreover, was granted jurisdiction over approving and dissolving these cartels. In light of these changes, dissatisﬁed businessmen in many industries sought the convenience of ministry-sponsored cartels instead. While MITI’s guidance of these cartels is often presented as a sign of state strength and developmental foresight,36 two of MITI’s former top career bureaucrats with extensive ﬁrsthand experience of MITI–business relations during the 1950s and 1960s agree instead with the conclusion of a former FTC commissioner:37 It is [a] matter of course that industry complied with MITI’s recommendations [for production curtailment cartels]. Rather than speak of compliance with MITI’s recommendations, if we get to the heart of the matter, these recommendations actually were the creations of industry itself. MITI was nothing more than a cloak for them.38 (Ariga Michiko, FTC Commissioner, 1968–71) Although industry appeared to view MITI’s role constructively in most cases as a neutral arbiter and enforcer of industry agreements when necessary, the very presence of the AML clearly constituted a major reason why business moved closer to the state during this era. Government involvement in industry cartels became the implicit guarantee that the FTC would not act against otherwise illegal business behavior. Finding this status quo undesirable, however, big business leaders soon undertook new efforts to carve out broad exemptions for cartels under the AML to be administered through self-regulation by each industry association.39 Having failed to obtain passage of legislation giving them broad command powers over legal cartels, MITI bureaucrats also saw the new effort at AML revision as an opportunity to gain once and for all sweeping powers to approve or deny legal cartels under the AML.40 Finally, having faced numerous difﬁculties attaining effectiveness under administrative guidance cartels, both MITI bureaucrats and some leading business representatives also sought legal measures to bring stronger force to these agreements through restrictions on cartel outsiders.41 Bureaucratic and business groups successfully pressured LDP politicians to create a committee under the cabinet to study the issue of another revision of the AML, known colloquially as the Committee for the Friends of Cartels (Karuteru Tomo no Kai).42 Committee discussions centered on the general arguments put forward by the FTC and the views of MITI and big business. In support of the FTC view, representatives of SMEs, agriculture groups, and consumer groups argued generally that no further

20

The historical context

ground should be given up to big business and MITI under the AML.43 Taking a view similar to that of MITI, big business and the ﬁnancial sector argued for the necessity of further revision of the AML.44 Recommendations in the committee’s ﬁnal report paralleled industry’s request for the allowance of several types of cartels under the AML as well as the introduction of a simple prior reporting system for rationalization cartels to replace the approval system in effect. Some concession was made to MITI’s interests by making the ministry the gate through which applications and registration for legal cartels would be passed to the FTC. Only in cases where a broad deﬁnition of the public interest was violated were cartels to be disallowed.45 Importantly, efforts by Prime Minister Kishi Nobosuke to abolish the FTC in the process and have some of its functions transferred to the Economic Planning Agency (EPA) were unsuccessful.46 Because the FTC had come close to complete abolition, this episode had the effect of putting it even more on the defensive for years to come. After some difﬁculties between MITI and the FTC on the ﬁnal terms of the bill, it was readied and passed by the cabinet for introduction into the Diet in 1958. The bill, however, failed in the Diet, where it encountered a range of resistance from opposition parties and other groups. Most notable were agricultural associations which feared the effects of industrial concentration and cartels in the fertilizer and related industries as a result of the measure. Also of major concern was to prevent the allowance of legal cartels for joint purchasing of agricultural products, as these would be able to challenge the power of farmer cooperatives. Facing opposition from Diet representatives in the LDP’s agriculture block, all discussion in committees on the bill ground to a halt.47 The legislation subsequently died, as a major imbroglio in the Diet surrounding a revision of the Police Duties Law brought all legislative business to an end. The controversy that the 1958 AML revision bill encountered prevented its reintroduction in future Diet sessions. While the line was held against further weakening of the AML, by 1960 cartels had become such a common feature in Japan that in a 1957 report the FTC commented that it was practically pointless to list business activities where cartels were not allowed.48 These cartels included limits on production, price agreements, restrictions on investment, the establishment of technology and product quality standards, agreements on store opening hours and holidays, and joint marketing arrangements. Ofﬁcial justiﬁcations for these policies ranged widely as well, including the need to prevent “excessive” competition among ﬁrms so as to prevent efﬁciency losses, the promotion of rationalization and efﬁciency, the protection of small business, the prevention of bankruptcy, and the establishment of health and safety standards. The FTC estimated that 28 percent of the value of all shipments from Japanese manufacturing companies in 1960 fell under one of the schemes of ofﬁcially sanctioned, legal cartels.49 Considering the range

The historical context 21 80 70

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Figure 2.1 Formal FTC actions, 1947–95.

of other commercial sectors allowed near-blanket AML exemptions and the number of administrative guidance cartels, the scope of total national output that fell under some kind of cartel arrangement was extensive. The FTC thus faced a paradoxical situation throughout the 1950s: strict enforcement of the AML would only lead even more industrialists, ﬁnanciers, and others to seek protection from the FTC through new laws exempting them from the AML. Where such laws appeared unattainable, business representatives sought formation of cartel agreements under administrative guidance from economic ministries. State involvement in industry cartels came to serve as a legal or quasi-legal shield against intervention by the FTC, a role that economic ministries were anxious to ﬁll. As a result, a two-tier economic system was being formed: one accountable to the AML and the other not. Given this state of affairs and the extraordinarily hostile political atmosphere facing the FTC during this period, the FTC took an even more elastic line in enforcement of the AML.50 As a result, by the end of the 1950s formal enforcement of the AML had fallen to extraordinarily low levels (Figure 2.1).

A gradual reemergence, 1963–72 Although it is difﬁcult to pinpoint a particular year when antimonopoly policy began to recover from major setbacks, the year 1963 points to some change compared to the previous decade in simple terms of more active enforcement of the AML. As the economy entered double-digit growth from the early 1960s, inﬂation became a salient political issue by around 1963. A government committee studying the causes of inﬂation concluded

22

The historical context

that the extensive operation of cartels was in part to blame. These reports called for more active AML enforcement, a position made formal in a cabinet resolution in early 1964.51 This ofﬁcial support for the FTC’s mandate resulted in a signiﬁcant increase in the number of formal actions taken against AML violations. Between 1963 and 1969 the FTC brought an average of twenty-ﬁve formal AML violation cases annually compared with an average of only six per year over the previous decade. But while some of the cases affected major industries such as concrete and petrochemicals, the vast majority of formal cases through 1969 were brought against SMEs. Not until the early 1970s did a clear trend develop toward the targeting of major companies and industries in AML violation cases. Seeking to expand its raison d’être, the FTC became active in two other areas during the 1960s, both of which related to unfair business practices. One area involved the protection of SMEs – especially those that were subcontractors to major ﬁrms – from unfair behavior on the part of their buyers. The other area was in consumer protection. The FTC led the effort to have passed in 1962 a law that sought to prevent and punish false product advertising and labeling as well as to limit premiums and prizes as a means of dampening cutthroat competition in the retail sector in the name of fair trade.52 The latter function, it should be pointed out, appeared inconsistent with a policy favoring competition by helping to stabilize markets for consumer goods in an atmosphere of intense discounting and sales promotions. It is of little surprise, therefore, that this law also received endorsement from the LDP. Through the 1960s the FTC actively took up the application of these two laws, with broad support in political and bureaucratic circles.53 Despite these changes, the inherent conﬂict between industrial and antimonopoly policies continued through the 1960s. Additional attempts were made by MITI to gut the force of the AML through the adoption of sweeping AML-exemption laws. One well-known effort was the failed attempt to have passed the Special Measures Law for the Promotion of Designated Industries. The bill granted MITI the authority to designate industries within which mergers or cartels that ﬁxed prices or production could be implemented free from application of the AML. The bill was attractive to industry because of its AML exemptions, although MITI’s authority to approve and deny joint acts and mergers made the bill unattractive to many business leaders.54 A number of other groups were also opposed to it, including agriculture, small business, ﬁnanciers, and the FTC as well as the Ministry of Finance (MOF). Owing to such wide controversy, the bill became untouchable from the point of view of the LDP and was never brought to a vote in any of the three Diet sessions in which it was introduced.55 MITI from time to time through the 1950s and 1960s had ﬂoated ideas or prepared other bills with a similar intent to that of the Special Measures Law, but each time faced substantial opposition and was unable to obtain the sweeping powers its bureaucrats sought.

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While new legal AML exemptions for cartels continued to be approved through the 1960s, it was at a slower pace than over the previous decade (examples include cartels in pearl cultivation, sugar reﬁning, and fruit growing). Administrative guidance cartels also continued in a variety of sectors, although the FTC’s involvement in some of these clearly increased over the decade. This change was prompted by a 1964 cabinet resolution on inﬂation that also called for the relaxation or abolition of administrative guidance cartels in order to help combat soaring prices.56 Subsequent discussions between MITI and the FTC resulted in the transfer of many MITI-led administrative guidance cartels to the rationalization and recession cartel schemes under the AML, where FTC approval was required. During the recession of 1964–5 the effects of this transition were obvious: a total of nineteen recession cartels were approved by the FTC between November 1964 and January 1966 in comparison with a total of only eight approved over the previous eleven years. This move thus served to make the FTC a more active participant in industrial policy. Having lost its battle over the Designated Industries Promotion Law bill, MITI attempted to do informally what it was blocked by the Diet from doing formally. Making good on an earlier FTC promise during negotiations over the bill to apply the AML ﬂexibly, MITI sent a request to the FTC in early 1965 to deﬁne just what cooperative schemes it would allow. Top representatives of MITI and the FTC met soon after and agreed that the FTC in principle would not intervene in industry discussions on investment plans as long as short-term supply was not affected.57 While this agreement left open the possibility that the FTC could deny such cartels, subsequent testimony of the FTC chairman in the Diet made it apparent that the agency would go along with MITI in most cases.58 This FTC position was further clariﬁed in an ofﬁcial agreement between the FTC and MITI in November 1966. The terms, however, were expanded to include more ﬂexible FTC standards for the approval of mergers. The FTC agreed to deﬁne product markets more broadly, take into account the potential for the entry of new ﬁrms into product markets (expanded to include foreign ﬁrms), and consider the competitive relationship with imported products.59 Mergers in Japan soared beginning around 1960, doubling in number by 1965 and increasing by nearly a further half by 1970. The scale of ﬁrms involved in these mergers also increased greatly from early in the decade.60 Previously, the FTC at times had shown an extremely ﬂexible attitude toward mergers.61 But by the late 1960s, it began to make clear that it would not approve mergers that appeared to lead to near-monopolistic market conditions. One such episode was the FTC’s rejection in early 1968 of an attempt by the three largest paper companies to combine, a proposal that had MITI’s support.62 The FTC’s posture toward mergers underwent its most severe test over the proposed merger of Yawata Steel and Fuji Steel in the late 1960s. The merger, organized by the presidents

24

The historical context

of the ﬁrms, was supported strongly by MITI, inﬂuential businessmen, and many LDP members as a means to bring working price leadership to the steel industry. Anticipating possible FTC opposition, a leading LDP politician sought clariﬁcation of the FTC’s position toward the proposal.63 The FTC nonetheless dug in its heels, as it had with the paper industry merger. Yet after a protracted legal and political struggle that captured wide public and press attention, the FTC approved the merger, contingent on divestitures in certain production facilities. Pressure on the FTC from the LDP and the business establishment was intense throughout the process, stoked by the creation of committees in Keidanren and the LDP that studied proposals to weaken the AML and the FTC further. The net result was veiled threats that left little other choice for the FTC than to allow the merger to go ahead, albeit in a somewhat weakened form.64 In spite of the FTC’s eventual malleability over the Yawata–Fuji merger case, the event was strongly symbolic and brought to the fore fundamental questions about the proper balance between industrial and antimonopoly policies. The controversy also helped dampen future moves toward mergers on a similar scale. Having gained growing support and understanding, antimonopoly policy began to make more substantial inroads as the 1970s unfolded.

Conclusion Several important themes emerge in postoccupation antimonopoly politics under Japan’s successive conservative governments. A ﬁrst notable trend is the fact that despite deep unpopularity among conservative politicians and business leaders, the AML, following its revisions in 1949 and 1953, was consistently able to garner enough support to prevent its further weakening. Already the recipients of broad AML exemptions and other laws muting the impact of competition in their sector, key groups of small businesses and farmers organized in support of the AML when they viewed their direct interests as being in jeopardy from measures believed to favor big business. But while able to help hold the line, these and other groups such as labor and consumer organizations were unable to overcome collective action problems to seek revisions strengthening the law against big business, particularly in light of LDP domination during the post-1955 era. Indeed, many of the most organized of these groups were most interested in carving out their own exemptions from the AML. A second trend was the proliferation of measures that circumvented and circumscribed the AML, whether through formal AML exemptions by law or through the use of administrative guidance by which businesses implemented cooperative actions. This became the basis for a broader trend where public ofﬁcials or institutions were inserted into private decision making and markets in order to avoid application of the AML. While these developments have been discussed widely in relation to policies

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promoting industries that the economic ministries termed “strategic,” efforts to skirt the AML went far beyond major industries and were implemented across the breadth of primary, manufacturing, and service business sectors in Japan. Efforts by narrow industry groups to secure beneﬁcial protection from competition were often approved and implemented through legal means. In certain industry sectors such as steel and chemicals where opposition to legal measures was anticipated or threatened from affected groups, extralegal measures such as administrative guidance became a convenient substitute that did not require Diet action. A third trend was a growing general acceptance among conservative leaders and economic bureaucrats beginning in the 1960s that antimonopoly policy could have a role to play, albeit one that should be limited to preventing egregious excesses rather than as a primary tool to organize markets and promote competition. Over this period, antimonopoly policy was accepted most within ofﬁcial policy circles when it came to the prevention of price-raising cartels (as a means of ﬁghting inﬂation), excessive price discounting, and the abuse of small business and retailers by larger entities. The FTC moved to ﬁll these politically valued roles while generally eschewing more controversial issues. A fourth trend was the politicization of antimonopoly policy and the FTC. Direct political intervention into the FTC’s affairs waxed in the late 1950s under Prime Minister Kishi, but periodically continued after that time.65 Indirect politicization of antimonopoly policy was also apparent. By having obtained the powers to implement programs such as recession and rationalization cartels and resale price maintenance, the FTC came under strong political, bureaucratic, and industry pressure to act more in line with other economic policies. Regular coordination with politicians and bureaucrats became an important function for the FTC, expanding the agency’s role far beyond its original charter. Jurisdictional competition between MITI and the FTC for control over antimonopoly policy also had a clear result by the late 1960s: the FTC had become another institution managing industrial policy. While the political milieu of the 1950s and 1960s denied big business advocates their ultimate goal of obtaining legal means of self-control over restrictive agreements, MITI– FTC competition for their attention ultimately proved useful for businesses in search of government sanction for the same agreements.

3

The Fair Trade Commission

Focusing on political factors to explain the historical development of antimonopoly policy through the late 1960s, the previous chapter avoided mention of certain important institutional factors that also command deeper explanation and consideration. Among these factors are the powers delegated to the Fair Trade Commission (FTC) to enforce and obtain compliance with the Antimonopoly Law (AML) as well as the internal organization and institutional ethos of the FTC itself. March and Olsen assert that such institutional factors at a minimum must be considered as an adjunct to any study of politics.1 Research on antitrust agencies in the United States also points to the potential impact of institutional factors on policy output.2 As a signiﬁcant body of literature in English on the AML and FTC procedures has developed in recent years, this chapter will not seek to outline these issues in a comprehensive manner.3 Rather, focus will be placed on those legal and other institutional factors that have most affected the environment within which the FTC functions day to day as well as the development of the FTC as an organization. The chapter also limits discussion on the development of the FTC and related issues to the period 1947–95, following which certain signiﬁcant changes have been implemented but fall outside the scope of this study (for brief discussion of these changes, see Chapter 10). In addition, the question of institutional and organizational change will be examined as a possible explanation for changes in policy during the post-1972 period.

The institutional setting: legal structures and powers A ﬁrst group of factors that bear consideration are the legal and organizational boundaries within which the FTC operates. Created with the establishment of the AML in 1947, the FTC was accorded the status of an “independent regulatory commission,” based on the US model, where it was functionally separated from the executive branch.4 The American rationale behind the commission structure is to allow a group of experts, appointed by the executive and approved by the legislature, to administer

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policy relatively free from the inﬂuence of politicians or government executives. The FTC, therefore, was not represented formally in the cabinet and ostensibly was not under any direct political control regarding dayto-day affairs. In a structural sense independence can mean being separated from the cabinet and other executive and judicial branch agencies, while in a functional sense it can mean not being inﬂuenced by external pressure.5 The AML provides both types of independence, making clear in the latter case that “The chairman and the commissioners of the Fair Trade Commission perform their duties independently” (section 28). The political environment surrounding the FTC has often made obtaining true functional independence problematic although not entirely impossible. In addition to administrative functions such as approval of mergers and international contracts, the FTC was also accorded special quasi-legislative and quasi-judicial powers. Quasi-legislative powers include the right to draft binding rules and guidelines relating to enforcement and interpretations of language in the AML. The FTC’s quasi-judicial powers include the ability to investigate a case and demand testimony from involved parties, although such powers are not as extensive as those given to other government agencies charged with the task of undertaking criminal investigations.6 Following an investigation, the commission determines whether a violation of the law occurred. Its formal decisions may then be appealed, ﬁrst at a special hearing board within the FTC and then, if necessary, in the Tokyo High Court and the Supreme Court for further review. Given that relatively few AML cases have been taken to the courts or appealed there, the impact of court decisions (case law) on antimonopoly policy has been less important in the main than the commission’s internal development of rules and interpretations of the AML. Yet since all FTC rulings may be appealed in the judicial system, decisions must be disciplined by anticipated interpretations and rulings by the courts. The indirect inﬂuence of court opinion, therefore, is ever present. Other than cases handled by the FTC, private damage suits in the courts are the only other means for the enforcement of antimonopoly policy. Individuals may ﬁle suits under the Civil Code to reclaim damages, although this method has been used only on rare occasions owing to functional difﬁculties in bringing these sorts of cases.7 Private suits are also allowed under the AML, but their use requires that the FTC ﬁrst take a formal action against an AML violation, thereby reducing to a signiﬁcant degree the utility of this means.8 These suits too have been very few in number, and as of 1995 none of them had been successful before a court. Given that the FTC in effect monopolizes the enforcement and guidance of antimonopoly policy, its means of enforcing and obtaining compliance with the AML are of central importance. The FTC’s strongest enforcement threat is the ability to issue a criminal accusation to public prosecutors. The criminal accusation requests that the prosecutors take up cartel and monopoly cases in the Tokyo High Court as criminal violations

28

The Fair Trade Commission

of the AML. A handful of criminal actions were taken prior to 1952, although none against a cartel. With the revision of the AML in 1953, the concurrent general attacks made against antimonopoly policy, and a perception among the general public that cartels would not constitute a grave criminal act, for two decades the FTC ceased using the criminal accusation. The most common formal enforcement method the FTC used against AML violations has been the use of the administrative “recommendation” (kankoku). Formal recommendations ﬁnd acts to have violated the AML and require that they cease and that remedial steps be taken. Formal recommendations, however, did not allow for the imposition of any monetary punishment prior to 1977. The FTC’s most prevalent enforcement method has been the use of informal warnings and cautions. Informal methods have several advantages over formal methods of enforcement from an administrative perspective, such as being a means of sanctioning companies with the implicit threat to take stronger action in the future but without requiring the FTC to attain the level of proof deemed necessary to take a formal action.9 While such informal techniques of law enforcement can be effective in deterring further violations, especially when reinforced with threats to use ever higher levels of possible sanctions,10 they also allow for much discretion over which cases will be dealt with more harshly than others. In addition to the political factors that circumscribed active formal FTC enforcement of the law during its early history, the move toward a more administrative as opposed to a case law approach to AML enforcement was also the result of a number of different institutional factors. Three appear most important and relevant. First is the organizational setting of the FTC based on the commission system. Although loosely based on the US model, the Japanese system combines all antimonopoly policy administration and enforcement power in one bureau rather than separating enforcement between two bodies, as seen in the US case. Labeled the “original sin” by one Japanese legal scholar, the introduction of this commission structure with such integrated functions helped result in AML violation cases being treated administratively by commission action rather than the active use of court proceedings being encouraged or required under criminal statutes.11 Even had the FTC desired to initiate criminal proceedings in the courts, the full cooperation of the Public Prosecutor’s Ofﬁce was required in order to achieve success, but this was a body that itself faced severe limits in terms of staff and budget. Moreover, there existed little institutional incentive for the Public Prosecutor’s Ofﬁce to cooperate with the agency or actively take up FTC-initiated criminal cases even in the event that such cooperation was sought. The second reason for the FTC’s administrative approach to enforcement was the restrictive legal environment that the FTC faced. While drafted on Anglo-American common law principles, the AML was grafted onto Japan’s Continental legal systems and traditions of jurisprudence.

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The blend was an uneasy one, where the application of the broad language and prohibitions provided under the AML was nevertheless subject to narrow court interpretations of the law and rigid standards of proof necessary to withstand court review.12 Following some critical early court decisions in AML cases, including one in 1953 that appeared to make impossible the prosecution of vertical arrangements to control prices and distribution as unfair restraint of trade cases, the FTC generally adopted rather rigorous standards for proof. The body also refrained from making formal rulings in many cases that would be subject to the so-called rule of reason standard, such as those involving unfair trading practices.13 As a result, often only clear violations such as price-raising cartels were pursued with the use of formal recommendations, provided sufﬁcient proof was obtained. The third reason is more systemic to Japanese patterns of law enforcement, where the use of formal legal measures is often suppressed in favor of administrative or other persuasive approaches.14

Personnel matters and institutional ethos: the career staff Given that the FTC is overwhelmingly at the center of the enforcement, interpretation, and promotion of the AML and antimonopoly policy in Japan, the personnel structure of the FTC itself, the incentives of these personnel, and the institutional ethos that sets the tone for FTC activity become important issues. Upon its creation in 1947, the FTC was staffed by a group of individuals with heterogeneous backgrounds, including some with experience in private businesses or academia, and bureaucrats who were borrowed or recruited from other ministries such as the Ministry of Commerce and Industry (later MITI) and the Ministry of Foreign Affairs (MFA).15 Some of these recruits stayed on in the FTC throughout their careers, although the majority who left after several years were replaced by new career recruits out of the universities. Since the mid-1950s, the stafﬁng of the FTC Secretariat has developed primarily around the same career system that can be seen in other Japanese central government bureaus. The FTC recruits university graduates with basic training in either law or economics who have also passed the level 1 civil service exam in public administration. Exact data are unobtainable on trends in the rank of universities out of which new personnel have been recruited,16 although responses from interviews with FTC ofﬁcials suggest that new recruits primarily come from ﬁrst-tier and to a lesser degree second-tier universities. The proportion of recruits coming from ﬁrst-tier universities appears to have been increasing since the 1950s.17 The proportion of recruits trained in law and politics has continued to constitute the significant majority of new staff since at least the early 1960s.18 Career systems in government institutions are believed to foster stability and continuity rather than radical change. Maintenance of the bureau

30

The Fair Trade Commission

and of one’s standing within the organization are believed to be the primary institutional and personal goals for career civil servants.19 Such tendencies appear rather salient in the case of the FTC and are ampliﬁed by the lack of a professional staff. Only a handful of the career staff at any time possess licenses to practice as attorneys, and therefore FTC civil servants cannot easily move out of the organization into professional practice in related ﬁelds. In addition, only on the rarest of occasions are new recruits taken into the FTC as career staff during the midst of another professional career as opposed to directly out of university. The dearth of an active market for private AML litigation in Japan compared to countries such as the United States appears to reduce greatly the incentives for the creation of a professional staff in the ﬁelds of law and industrial organization economic analysis. Given such limitations, there arguably exists less incentive for career employees to expand and test traditional interpretations of the law or engage in creative use of economic analysis as skills that can be used later to obtain professional employment in other organizations such as law ﬁrms.20 Moreover, because FTC staff lack professional qualiﬁcations, only a few take up careers such as law practice upon retirement. Rather, most are employed by afﬁliated bodies of the FTC such as the Fair Trade Association, while others may take up university posts, join trade associations to advise on AML issues, or enter private business.21 Another aspect of the FTC career system tradition also greatly inhibits any move toward the creation of a professional staff: the system of regular rotation of personnel. Career employees are shifted around within the FTC at periodic intervals, normally ranging from one to three years, while being promoted gradually through the ranks to more senior positions. This rotation system has the effect of discouraging specialization in job functions within the institution, so that formal university training in law or in economics has little relation to the types of posts a new recruit will face during his or her career.22 As a result, there exists no tradition of distinction between professional staff such as the lawyer or the economist. Instead, the chief ethos among personnel within the FTC is that of a generalist in administration of the bureau who is bound to the institution and its survival as well as the maintenance of his or her place in it. In principle, the fundamental patterns of this career system have changed little since the 1950s.23 While the career system helps to bind staff together through routine personnel rotation, cooperation among the various sections of the FTC is not necessarily extensive. For example, cooperation between the Economics or Trading Practices Bureaus and the Investigation Bureau is generally weak since economic analysis is not normally used in order to initiate or support an investigation. Instead, a traditional division of responsibilities exists between the Investigation Bureau and other bureaus, based on the long-held belief that courts will not be receptive to economic analysis as substantive proof of AML violations.24 Rather, investigations are most often

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launched in response to complaints or information passed to the FTC as opposed to the uncovering of possible illegal acts through the use of economic or other indicators. The proportion of FTC-initiated investigations fell gradually from over half during the 1960s to around 20–30 percent annually during the late 1980s. This shift was due in great part to the introduction during the 1970s of stronger measures to punish cartel acts, which made obtaining proof more difﬁcult.25 The career system has also resulted in a signiﬁcant gap in time between the founding of the FTC and its development as a mature institution. Young recruits in the late 1940s and in the 1950s were only by the late 1960s and early 1970s ready to occupy division chief or higher positions. Employees with previous allegiances to companies or to government ministries occupied these senior positions in the main up through the early 1970s. In terms of career staff, therefore, the FTC did not become a fully mature institution until the early 1970s. The role this factor played in the development of a stronger antimonopoly policy after this period is difﬁcult to estimate, although it is a point that appears to have been of some signiﬁcance.

External linkages and personnel exchanges Another salient side effect of the extensive use of the career system in the Japanese civil service system is that it promotes intense conﬂict between and among agencies over policy jurisdiction, scarce government resources, and new policy initiatives.26 The FTC especially has had difﬁculty with interagency conﬂict, since its basic mission has often gone directly against the policies of other ministries toward competition within industries under their respective areas of jurisdiction. As a result, the FTC has been chronically locked in battles with other government bureaus over territorial zones.27 Maintenance of the organization and the expansion of the FTC’s mission, therefore, has become a constant struggle under such conditions. The FTC’s isolation in political circles due to its organizational independence has also clearly made this problem more difﬁcult to overcome. Moreover, as previewed in Chapter 2, the FTC has often had to engage in working relationships with other ministries and agencies in order to oversee jointly the myriad of legal systems that have allowed AML exemptions. One way to help minimize conﬂict and encourage conciliation between the FTC and other agencies has been the practice of exchanging personnel for short periods, normally of one to two years. The practice is a common one within the central Japanese bureaucracy, although such exchanges generally are less extensive and often involve fewer senior personnel in the case of most other central government bureaus.28 The practice of accepting outside government personnel on such a large scale has been a legacy of the original organization of the FTC. Yet apart from helping to

32

The Fair Trade Commission

mitigate conﬂict between the FTC and other ministries, the practice has also served to subjugate the FTC to more external inﬂuence and make its institutional ethos less coherent, given the different institutional priorities and backgrounds of personnel from other bureaus. The exact effect of such personnel practices on FTC behavior is difﬁcult to estimate precisely, however. Career FTC employees have indicated in interviews that such personnel exchanges are generally deleterious more by undermining the development of a fully uniﬁed agency spirit than in terms of overtly affecting the actual output of the FTC, although the latter effect too was felt by some interviewees to be signiﬁcant in certain cases.29 As late as 1995, the FTC continued to accept employees from other ministries and agencies for periods of time to ﬁll low, mid-level, and senior positions. At any given time, ofﬁcials on loan from the Ministry of Finance normally ﬁlled the important positions of director of the Planning Division and director-general of either the Trade Practices Bureau or the Economics Bureau. MOF ofﬁcials may also hold another division chief-level post or higher, including the top administrative post in the FTC of secretarygeneral (see the organizational chart shown in Figure 3.1). While the presence of MOF bureaucrats is especially noticeable at senior levels, personnel from other ministries may also occupy division chief-level positions. Since the late 1970s, one ofﬁcial from MITI has normally held the post of director of the International Affairs Division or Trade Association Division, while one or two ofﬁcials from among the Ministry of Construction (MOC), the Economic Planning Agency (EPA), and the Ministry of Agriculture, Forestry, and Fisheries (MAFF) may have occupied the posts of director of the Research Division or chief of the Distribution Sector Section. Some lower-level personnel from the Prime Minister’s Ofﬁce, MITI, EPA, MOF, and MAFF are also present in the FTC. Finally, a signiﬁcant number of ofﬁcials from the Public Prosecutor’s Ofﬁce serve on loan as investigators. As of 1995, nearly ﬁfty employees out of the FTC’s total of 520 were on loan from other government agencies, approximately twenty of whom were from the Public Prosecutor’s Ofﬁce.30 In return, the FTC also loans out its personnel to other ministries such as MITI and the MOF as well as various agencies under the Prime Minister’s Ofﬁce. Some of these FTC ofﬁcials also hold division directorlevel posts within these agencies. As of 1995, the total number of FTC ofﬁcials on loan in other bureaus was approximately twenty. While the number of these personnel exchanges has risen over time from the early 1970s, the increase has been roughly in proportion to increases in the total number of FTC personnel.31

The commission Final control over FTC activities and decisions is held by the four commissioners and the chairman. All commissioners and chairmen are nominated

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Commission (Chairman and four Commissioners) Staff Office (SecretaryGeneral)

Hearing Examiners

Secretariat (Deputy SecretaryGeneral)

Economics Bureau (DirectorGeneral)

Trade Practices Bureau (DirectorGeneral)

Investigation Bureau (DirectorGeneral)

Regional Offices (Director)

General Affairs Division

Coordination Division

Trade Practices Division

Management and Planning Division

Hokkaidô District

(Distribution Sector Section) Personnel and Accounting Division

Research Division

Subcontract Division

First Investigation Division

Tôhoku District

Planning Division

Corporate Affairs Division

Premium and Representation Guidance Division

Second Investigation Division

Chûbu District

Trade Association Division

Premium and Representation Inspection Division

Third Investigation Division

Kinki District

Fourth Investigation Division

Chûgoku District

Fifth Investigation Division

Shikoku District

International Affairs Division

Kyûshu District

KEY • Shaded areas added to FTC between 1960 and 1972 • Italicized and underlined areas added to FTC between 1973 and 1995

Figure 3.1 Changes in the FTC’s organizational structure, 1960–95. Sources: H. Iyori and A. Uesugi, The Antimonopoly Laws and Policies of Japan, New York, Federal Legal Press, 1994; various FTC annual reports

34

The Fair Trade Commission

by the prime minister and conﬁrmed by the Diet for ﬁxed ﬁve-year assignments. In practice, however, most nominations have been made by the chief cabinet secretary to the prime minister following consultation with his staff and are recruited from among the ranks of available retired former senior bureaucrats.32 US occupation authorities desired that the commission be staffed by a variety of individuals such as attorneys, businessmen, and others in addition to government personnel in order to promote democratization and understanding of the AML throughout the business, academic, and bureaucratic communities. This personnel pattern was reﬂected well in the initial appointments to the commission (Figure 3.2).33 But between the end of the occupation and 1995, no appointments of FTC chairmen or commissioners without prior substantial government experience were made under Japan’s successive conservative cabinets.34 The only government between the end of the occupation in 1952 and 1995 that did not have Liberal Democratic Party (LDP) participation (or, prior to 1955, that of the LDP’s predecessor parties) during the period 1993–4 was never presented with an opportunity to appoint a new FTC commissioner or chairman. In this respect, the LDP completely dominated the nomination process for these ofﬁcials. A “reserved seat” on the commission for former ofﬁcials from MITI was established just weeks before the ofﬁcial end of the occupation in 1952. Retired senior ofﬁcials from both the MOF and the Ministry of Justice (MOJ), in the latter case coming primarily from among career ofﬁcials in the Public Prosecutor’s Ofﬁce, have also been represented continuously on the commission since 1947, occupying at least one position in the ofﬁce of chairman or commissioner. The remaining commission spot has been ﬁlled by ofﬁcials from the Bank of Japan (BOJ), followed generally by a system dating from the late 1960s of alternating appointments between retired career ofﬁcials of the FTC and MFA (Figure 3.2). While these patterns of appointment are commonly viewed as the result of pure bureaucratic politics among elite ministries, Keidanren, Japan’s peak business association, supported the addition of former bureaucrats to the commission as early as 1953.35 In the context of volatile left–right politics through the 1950s, it appears likely that these associations feared a political backlash that would accompany the appointment of prominent business leaders to the commission. The chairman of the FTC is often pivotal in terms of guiding discussions in the meetings of the commission, representing the FTC in the Diet and in other political settings, and setting the overall tone for the FTC’s activities.36 With the exception of two brief interludes when former BOJ ofﬁcials were nominated, former MOF ofﬁcials dominated this position in an unbroken line from 1958 through 1995.37 Other than one instance in 1958, there appear to have been no other cases of direct intervention by a prime minister to pressure a chairman to retire during the midst of his term.38

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While the commissioners and especially the chairman hold the positions of ﬁnal authority in the FTC, the majority of new policy proposals as well as investigation initiatives nevertheless originate among the career staff. The commission’s primary role is to approve, modify, or reject these recommendations and proposals. The exact relationship between the career staff and the commission is somewhat ambiguous, and according to some interviewees can change depending on the personality of the FTC chairman.39 Yet, according to interviewees, in a majority of cases the commission reacts to new policy ideas or investigations initiated by the staff rather than setting a new agenda unilaterally or micro-managing the full range of FTC activities.40 The parceling out of posts on the commission among retired ofﬁcials of different central government bureaus has led to the accusation that FTC activities are substantially controlled and limited in a manner that prevents conﬂict with the institutional priorities and policies of these government bureaus and their industry clients.41 This issue will be discussed further in the case studies presented in subsequent chapters. At a minimum, it is apparent that this practice subjects FTC policies and output to such external inﬂuence. Yet there exists some diversity in opinion among FTC career ofﬁcials as to just how salient the concrete effect of such inﬂuence has been on FTC output.42 There is general agreement among such ofﬁcials, for example, that the representation of former MOF bureaucrats on the commission has had a rather signiﬁcant impact on policy vis-à-vis the ﬁnance sector, given the range of senior positions that former and current MOF bureaucrats have held in the FTC. However, many felt that the representation of other retired bureaucrats from ministries such as MITI has been less relevant for policy in the main, especially since the early 1970s.43 Such observations are backed with empirical evidence in some of the case studies presented later where FTC actions have gone against expressed bureaucratic desires, even in cases where the FTC has had continuing personnel relations with other ministries. While the salience of such external inﬂuence through postings on the commission should not be underestimated, it also appears that excessive emphasis on how such relationships may determine FTC behavior can obscure what is a much more complex picture of FTC interaction, bargaining, and accommodation with other bureaus as well as the capability of the agency to act against the preferences of these bureaus despite personnel linkages.

Institutional change: a source of policy change? One question that must be considered is the possible impact of institutional or organizational change on the general upward trend in antimonopoly policy seen since the early 1970s. At the organizational level, what is striking about the period between 1973 and 1995 is the lack of signiﬁcant change rather than the presence of it. In terms of the types of

KEY Family names and location/type of primary careers before entering the FTC are given for each chairman, commissioner, and secretary-general

Economic Bureaus MOF = Ministry of Finance MITI = Ministry of International Trade and Industry FTC = Fair Trade Commission MOT = Ministry of Transport BOJ = Bank of Japan (central bank)

Other Bureaus MFA = Ministry of Foreign Affairs MOJ = Ministry of Justice (includes Public Prosecutor s Office)

Year

Chairman

Commissioner

Commissioner

Commissioner

Commissioner

Commissioners (2)

SecretaryGeneral

1947

Nakayama (banking)

Kuraii (banking)

Shimamoto (MOF)

Ishii (attorney)

Ashino (MFA)

Yokota (MOJ/judge) hashi (prof./MOT)

Ouda (MFA)

1948 Akagi (MOJ)

1949

Uchida (MFA)

1950 Yuchi (MOF)

1951 1952

Yokota (MOJ/judge)

Kitazawa (professor) Yamamoto (MITI)

Takano (PM Office, journalist)

Furuuchi (MFA)

(lines ended Feb. 52)

Ogawa (MFA/FTC)

1953 Yoshida (MOF) Tsukagoshi (MOF)

1954 1955

Sakane (MFA/FTC)

Nakamura (police/mil./ politician)

1956

1957 1958 1959

Naganuma (MOF ad. vice min) Sat (misc. govt. posts)

Suzuki (MFA/MOF)

Takasaka (MITI)

Irie (MOJ)

Ishii (MOJ)

1960 1961

1963

1966

Kikuchi (MITI)

Watanabe (MOF Tax Bur. chief) Sakitani (MOF)

1964 1965

Onuma (govt./FTC Takenaka (indu./FTC)

Sakuma (BOJ)

1962

Umeda (MOJ)

Kitashima (MOF Tax Bur. chief) Kameoka (MOF)

Figure 3.2 History of FTC chairmen, commissioners and secretaries-general.

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1967

Kakinuma (MOF)

Yamada (BOJ) Ariga (FTC)

Yamada (BOJ director)

1968 1969

Tanimura (MOF ad. vice min.)

1970

Kakinuma (MOF/FTC) Kure (BOJ)

1971 1972

Hashimoto (MITI)

Takahashi (MOJ)

Yoshida (govt./FTC)

Takigawa (MFA)

Takahashi (MOF Bank Bur. chief)

1973 Kumada (MOF/FTC)

1974 1975 1976 1977

Aoyama (MOJ) Sawada (BOJ director) Hashiguchi (MOF Budget Bur. chief)

Kumada (MOF/FTC)

Gotô (FTC) Toda (MOF/FTC)

Noguchi (MITI) Gotô (FTC)

1978

Hayakawa (MOJ) Watanabe (MOF/FTC)

1979 1980

Hirata (MOJ)

1981 1982

Senoo (FTC)

Watanabe (MOF/FTC) Ômori (MFA)

Takahashi (MOF ad. vice min.) Munakata (MITI)

1983 1984

Senoo (FTC) Kaihara (MOF)

1985 Iyori (FTC)

1986 1987

Miyadai (MOJ)

Iyori (FTC) Satô (MOF/FTC)

Uga (MITI)

Umezawa (MOF Tax Bur. chief)

Atsuya (FTC)

Satô (MOF/FTC)

1988 1989 Satô (MOJ)

1990 Matano (MFA)

1991 1992

Ueki (FTC)

Kogayu (MOF ad. vice min.) Uematsu (MITI)

1993 1994 1995

Figure 3.2 (cont.)

Shibata (MOF/FTC)

Satô (MOJ)

Ueki (FTC) Shibata (MOF/FTC) Jitôsho (FTC) Itoda (FTC)

38

The Fair Trade Commission

personnel recruited into the FTC and their general backgrounds, including specialization in university training, there was practically no change between 1973 and 1995.44 Moreover, there has been no substantial change in the career system, or any real effort to specialize job functions such as by creating the sort of dual structure of economists and attorneys seen in US and some other antimonopoly policy agencies. This fact is both a cause and a result of the relatively weak use of economic analysis in actual AML enforcement by the FTC.45 And with the exception of some moderate expansion in personnel exchange links with other bureaus from the late 1970s, change has been minimal in the appointment patterns of FTC commissioners.46 In terms of structure, the FTC remained relatively unchanged as well. A handful of new sections were added to the FTC’s structure to reﬂect new priorities, most notably a planning division in the mid-1970s, a section on distribution problems in 1979, and an additional investigation division under the Investigation Bureau in the early 1990s to focus on bid-rigging cases. But in the main, the scale of organizational expansion seen in the FTC during the 1960s was not present between 1973 and 1995 (see Figure 3.1). Changes in only three organizational factors possibly appear to have had some effect on the expansion of antimonopoly policy since the early 1970s. The ﬁrst is a simple increase in the number of personnel, with the total number of FTC staff increasing by more than a third from 363 in 1973 to 520 in 1995 (Figure 3.3). However, as will be seen in Chapter 7, this change alone has not implied a more active or effective FTC. The second factor, alluded to earlier, is 30

–20 –30 –40

1951

Changes in total FTC staff over Previous year Changes in FTC Investigation Division staff over previous year

–50

327 staff (peak under Occupation) 1953–58: 237 staff (low point) 1973: 363 staff 1980: 422 staff 1990: 474 staff 1995: 520 staff (peak)

–70

Figure 3.3 Changes in FTC personnel levels, 1949–95.

1995

1993

1991

1989

1987

1985

1983

1981

Trends in total staff number 1948:

–60

Source: Data provided by the FTC.

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

1959

1957

–10

1955

0

1953

10 1949

Change in Number of Personnel (over previous year)

20

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the maturation of the FTC as an institution, with career employees coming to occupy senior positions within the organization from the early 1970s. The third has been the increased use of appointed research committees made up of experts in economics and law to study and make recommendations on speciﬁc aspects of antimonopoly policy. This development, begun during the late 1960s with the establishment of the Antimonopoly Conference and expanded during the 1970s and 1980s, has helped supplement the FTC’s lack of personnel possessing advanced capabilities in economic and legal analysis. The use of such research and study groups has also been used explicitly in order to help lend external credibility to FTC actions and changes in policy directions. Compared to organizational factors, other institutional factors such as limitations on FTC powers and other legal considerations that circumscribed AML enforcement underwent somewhat more substantial change over the period examined. Examples are developments that made the use of criminal accusations more feasible and the establishment of administrative surcharges to deter violations. These changes will be discussed where relevant through the case studies presented, including a discussion on how the FTC has been able to bring such changes about. In addition to political factors, therefore, a variety of institutional factors outlined in this chapter can also help explain the rather conservative patterns of AML enforcement through the early 1970s. Most of these factors continued to inﬂuence FTC behavior through the mid-1990s, often serving to perpetuate a conservative slant to FTC activities.47 Yet while institutional factors are important to explain certain aspects of FTC action and inaction, remarkable consistency in many of these factors between 1973 and 1995, especially in the FTC’s organization and personnel, suggests that they are insufﬁcient to explain dynamic changes in policy seen over time. The FTC, for example, has not experienced the arrival of political appointees who have sought to institute radical change in the institution or its organization.48 The career system in effect remains much unchanged, while other aspects such as personnel relations with other ministries at the staff and commission levels also show little signiﬁcant alteration. As a result, it becomes more necessary to look outside of the FTC for changes in the political environment that have enabled the expansion of antimonopoly policy and that have allowed for certain other institutional and legal limitations on FTC activity to be overcome or modiﬁed.

4

Remodeling the cartel archipelago

By the early 1970s, cartels of all kinds – illegal, quasi-legal, and legal – had come to occupy a central place in much of business life and in government policy toward industry, ﬁnance, and commerce. Some concern about the sheer number of cartels and their effects on inﬂation began to be expressed in policy circles from the mid-1960s, although few signiﬁcant changes other than moderately more active enforcement of the Antimonopoly Law (AML) had been made subsequently to reduce the number and scope of these cartels. By the early 1970s this state of affairs had led some Japanese to refer to their nation as the “cartel archipelago.” But from 1973 and for the following three to four years, the Fair Trade Commission (FTC) took a much more aggressive stance toward cartels of all kinds. In the process, the agency was able to begin to remodel this cartel archipelago. The FTC’s efforts, moreover, came in the context of great changes and turmoil in the Japanese economy marked by a clear transition from high-speed to lower-speed growth. This chapter will examine several cases relating to government and FTC policy toward cartels through the mid-1970s in order to explain the reasons for this sudden change in posture, as well as why the FTC was successful in many of its efforts yet ultimately unsuccessful in some others. The discussion in this chapter will focus on three themes: FTC opposition to government efforts to use cartels to respond to the oil crisis; increased measures taken against illegal cartels; and FTC efforts to reduce dramatically the number of legal cartels. It will be prefaced by a short summary of the larger economic and political contexts in which these changes occurred.

LDP in crisis and Takahashi rising Marked turmoil was characteristic of the Japanese economy during the early to mid-1970s. Rooted in many factors such as changes in exchange rate schemes, the most acute problem the Japanese economy and therefore the government faced was a rapid rise in inﬂation. Large trade and balance of payments surpluses in the late 1960s and into 1972, compounded

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by the dollar shock, led to excess liquidity in the ﬁnancial system that set off an inﬂationary cycle. Prime Minister Tanaka Kakuei’s desire to implement his Plan to Remodel the Japanese Archipelago aggravated the situation further. The plan’s massive public works spending budget passed for ﬁscal year (FY) 1973 initiated land price increases throughout the nation as investors speculated wildly on the impact of the plan. The oil shock of late 1973 then served to sharpen and prolong this inﬂationary trend. Consumer price increases hit double-digit levels starting in May 1973, beginning a run of inﬂation that peaked at 26 percent in February 1974 and did not fall below 10 percent until October 1975. In political terms, the effect of inﬂation was a clear factor in why the cabinet support rate plummeted from 62 to 25 percent over Tanaka’s ﬁrst year in ofﬁce (July 1972 – July 1973).1 The prime minister’s seeming lack of concern with spiraling inﬂation in the summer of 1973 was cause for open criticism within the conservative party, as the words “Liberal Democratic Party in crisis” took on currency in the mass media.2 Inﬂationary fever was also both the cause and the effect of a number of major corporate scandals in Japan that sent public trust in business and government spiraling downwards. Sensational revelations of how general trading companies had cornered markets in staple foods and other products and had speculated in property assets led to great public criticism and the passage of a law to deal with such acts.3 Corporate responsibility, or rather the lack of it, and status quo LDP policies that supported highspeed growth by big business became a major theme in political discourse. LDP Dietman Miyazawa Kiichi called for a return to “social justice,”4 and LDP faction leader Miki Takeo promoted “social liberalism” as a means to boost public welfare.5 Opposition parties used the public’s anger in these affairs to attack the credentials and policies of the party in power. It was within this milieu that the FTC and its leaders found copious opportunities to begin to challenge established patterns of corporate behavior in order to strengthen antimonopoly policy. Cartels were a primary target of this effort. It was at the start of this turmoil in October 1972 that Takahashi Toshihide was appointed FTC chairman. A former senior Ministry of Finance bureaucrat who rose to become director-general of the Banking Bureau prior to his retirement from the ministry, Takahashi was renowned for his hard work, desire to stick to the rules, and general determination to get the impossible done.6 One FTC commissioner who served under Takahashi described him as a “person of strong individuality,” whose leadership was instrumental in setting a new, more active agenda for the FTC.7 His opponents, by contrast, saw him as a ﬁrebrand. But he was Prime Minister Tanaka’s hand-picked ﬁrebrand, the two having worked together while Tanaka was minister of ﬁnance during the 1960s.8 Takahashi’s relationship with Tanaka helped provide legitimacy for the FTC and its activities in the face of strong opposition, although this relationship did

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not keep Chairman Takahashi from directly criticizing the prime minister’s own policies and positions from time to time.9 Takahashi’s penchant for straight talk, his cane-supported swagger as he entered Diet committee rooms, and his odd nickname “Gorippon” combined to create a mystique that made Takahashi a true media darling. His inexorable devotion to his work, however, is widely believed to have been the primary cause of his eventual resignation as head of the FTC in 1976 due to failing health and his death only months later. In the context of Japan’s turmoil during the ﬁrst half of the 1970s, however, Takahashi truly was a man of the moment.

The public policy response to the oil crisis Even prior to the oil shock of late 1973, the government had belatedly begun to take measures to try to bring inﬂation under control, including efforts to reduce general demand in the economy such as the curtailment of public works spending. Some in industry had an additional agenda for Japan’s economic stabilization. In mid-August, Keidanren announced its idea for the establishment of a “designated wholesale system” that ostensibly would curb price rises in basic and intermediate goods. The idea’s chief architect was president of Nippon Steel and Keidanren vice chairman Inayama Yoshihiro, who acquired the nickname “Mr Cartel” in the 1960s to describe his predilection for price, quantity, and capital spending cartels within the steel industry. Inayama’s idea was to gain government sanction for basic industries to control prices and distribution of their products entirely by designating wholesalers, who must abide by the conditions set or face being excluded.10 The point that this system should be selfregulating by industry and exclude government participation was made clear, although it was admitted that such a system would come into conﬂict with the AML.11 The decisions in October 1973 by member states of the Organization of Petroleum Exporting Countries (OPEC) to increase crude oil prices by over 20 percent and to embargo exports of crude oil to nations supporting Israel, followed by price-raising oil production cuts in early November, created major new problems for policy makers in the midst of these other efforts to contain inﬂation. In corporate boardrooms around the nation, and especially in those sectors heavily dependent on petroleum products, the oil shock further reinforced the tendency to collude in order at least to stabilize markets. In many cases the crisis was in fact exploited for profiteering purposes. For consumers, the oil crisis marked the spread of panic buying and hoarding as rumors became rampant of shortages of certain basic products. Following OPEC actions, discussions in the government on legislative measures to deal with the crisis and contain further price increases centered on two draft bills being prepared by the Ministry of International Trade and Industry (MITI) and the Economic Planning Agency (EPA). One of

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these bills dealt exclusively with adjustments within the petroleum industry by allowing the government to set quotas for petroleum product shipments to different industrial users and to consumers. The FTC expressed an early willingness to cooperate with this emergency measure, and never made much issue of it from the perspective of the AML.12 The second bill from MITI and EPA was intended to give the government the power to establish “criterion prices” in products designated as “vital to the national life,” backed by punishment measures for noncompliance. Even as the bill, tentatively named the Law on Emergency Measures to Stabilize the National Lifestyle (hereafter Lifestyle Stabilization Law), was being prepared in the bureaucracy, virulent resistance was expressed from LDP members and industry leaders. They called the proposals from MITI and EPA dangerous as they would return Japan to price controls like those seen under the bureaucrat-regulated economy of the wartime era. Internal LDP opposition in particular led EPA and MITI to revise many of the more oppressive aspects of the bill, making the actual implementation of overt price controls subject to more severe standards.13 The power of the government to set prices by law was never made a point of contention by FTC Chairman Takahashi as long as price competition was not to be suppressed for an extended period.14 Takahashi and the FTC, however, did object strongly to additional government plans that would allow for a system of price stabilization cartels under the Lifestyle Stabilization Law bill to encompass manufacturers, wholesalers, and retailers.15 These cartels were to be used as a ﬁrst step to control prices, followed by the use of legal price controls if they became necessary. The idea of adding the clauses on price cartels clearly came from Nippon Steel’s Inayama, who suggested to Prime Minister Tanaka personally that a designated wholesaler system could quickly stabilize prices in the steel sector. Tanaka then instructed LDP and ministry ofﬁcials the following day to look into adopting measures that would allow businesses to cooperate, ostensibly so as to prevent unfair proﬁteering.16 Soon after, MITI ofﬁcials announced they were considering the establishment of vertical price cartels in the steel industry to encompass all aspects of distribution. MITI minister Nakasone Yasuhiro stated, “In order to effectively implement price stabilization across all industries, the Antimonopoly Law should be revised and such measures forwarded.”17 Only days later it was revealed that a clause to make such cooperative measures wholly exempt from the AML had been written into the draft Lifestyle Stabilization Law bill.18 To LDP leaders, these developments were a politically palatable legitimization of the system of government–business cooperation and mitigated the need to resort to overt government ﬁat through price controls, which were resisted so strongly by businessmen. Industry leaders, who clearly would have preferred that government had been left out of this equation, nevertheless were also supportive of the measure as it would still provide great freedom to set prices and other conditions that in practice would be

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checked by MITI only if they were overtly objectionable.19 From the FTC’s perspective, however, the prospect of a new legitimization of the government-sanctioned cartel system was considered to be greatly damaging to the legitimacy of antimonopoly policy. Chairman Takahashi criticized the proposals in a public and confrontational manner. After immediately opposing MITI’s announced intention to oversee cartels in the steel industry,20 Takahashi went to work to have the cartel and AML-exempt provisions in the bill scrapped. Cabinet-level LDP members approved a modiﬁed draft of the bill on 27 November, but owing to the FTC’s objections left the issue of AML exemption open for further examination.21 The government’s intentions were made clear, however, when the chief cabinet secretary and the heads of the EPA and Ministries of Finance and International Trade and Industry agreed on 27 November to proceed with the idea of price stabilization cartels. MITI minister Nakasone announced that a vertical price freeze cartel for heating oil would be implemented the following day without legal basis and only according to the “responsibility of the minister of international trade and industry.”22 On the same day, however, FTC investigators raided fourteen sites on suspicion that the petroleum industry had colluded to raise prices of reﬁned oil products.23 The investigation, which was to become the famous petroleum cartel incident, will be discussed further in the following section. The move, however, gave the FTC and its cause against illegal price ﬁxing much public press and undoubtedly strengthened Takahashi’s hand in the debate on the bill. In an effort to resolve the problem, Prime Minister Tanaka met personally with Chairman Takahashi on 28 November to discuss the subject of cartels under the proposed legislation. In the meeting, Takahashi repeated his ﬁrm opposition to the use of these cartels.24 Industry leaders renewed their call for stabilization cartels, but in the end the cabinet and the LDP two days later settled on a compromise that gave partial concessions to the FTC. The agreement was to omit the words allowing “joint acts” from the petroleum industry and the Lifestyle Stabilization Law bills, and also remove the wording allowing AML exemptions. In its place, however, “cooperative measures” were allowed under the law. The FTC was forced to sign ofﬁcial letters of understanding with EPA and with MITI that made possible certain types of these cooperative measures pending notiﬁcation to the FTC, provided that price regulation was implemented in a vertical manner by MITI and that such never involved any discussions among businessmen.25 An Asahi shinbun editorial argued that the agreement was essentially a whitewash.26 From the FTC’s point of view, however, making collusion ultimately accountable to the AML was seen as somewhat preferable to the original proposals from industry and government. The bills were introduced soon after the opening of the ordinary Diet on 1 December, a session that came to be nicknamed the “inﬂation Diet.” In Diet committees, Chairman Takahashi indicated that the FTC would

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interpret these agreements strictly, stating that the letters of understanding “do not permit cartels.”27 A representative of MITI, however, made it clear that the ministry would listen to industry opinion when setting prices.28 Industry was not completely enthusiastic about the ﬁnal form of the bill, with a Keidanren representative testifying that the wording of the draft Lifestyle Stabilization Law was still insufﬁcient to prevent entirely a bureaucratically regulated economy.29 Meanwhile, consumer groups and opposition party members criticized the measure as stomping on the AML, calling it the “high price stabilization law.” The bills were eventually passed on 21 December after two weeks of deliberation. The issue of MITI-administered price regulation, however, was not settled with the passage of the laws. Three months later, Chairman Takahashi took a ﬁrm stance in Diet deliberations on MITI’s price control practices. Given obviously differing interpretations of the letters of understanding by the FTC and MITI, problems were inevitable. Rather than rely on the formal criterion price designation system provided under the Lifestyle Stabilization Law, MITI and industry instead took to setting prices and approving requests for price increases in over ﬁfty product areas through the use of informal administrative guidance.30 Chairman Takahashi charged that MITI in effect was allowing price agreements among businesses in violation of the AML and that the use of guidance in that way was not permitted under the law.31 He argued that the petroleum industry’s desire for and the government’s coordination of price increases following a previous freeze was in fact nothing less than a cartel. He made clear this objection in a House of Representatives committee: I have a problem with the idea that if industry sets prices with the government’s administrative guidance then it is no longer a cartel. If it is not decided by a law that is exempted from the application of the Antimonopoly Law, then the application of the Antimonopoly Law cannot be avoided. I very much wish to see prices [of reﬁned petroleum products] set by law.32 This statement put him in direct confrontation with the prime minister and cabinet ministers, who were set to ﬁnally approve price increases for the petroleum industry to be implemented through MITI’s guidance. Two days later, the government by a cabinet decision issued a uniﬁed opinion on the use of administrative guidance to set prices. The government argued that while setting prices by guidance was an emergency measure based on the foundation law of each ministry, company ofﬁcials could be held liable under the AML should they discuss prices among themselves in this process.33 Later the same day, at a press conference, Chairman Takahashi rebutted the cabinet decision, saying, “Since the FTC is not a member of the so-called government (cabinet), it cannot be bound to this opinion. This does not change the fact that this type of

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administrative guidance is suspect under the Antimonopoly Law.”34 Prime Minister Tanaka ﬁnally met personally with Takahashi on 16 March 1974 to put the issue to rest. Both agreed that the price increases would go ahead as the government had wanted, but that price controls would be transferred to the criterion price system at a “suitable time.”35 Takahashi was adamant that this meant as soon as possible. But by the time price controls under administrative guidance for the more than ﬁfty products were phased out in the summer of 1974, only a handful had ever been designated formally under the Lifestyle Stabilization Law.36

The FTC on ﬁre: enforcement against illegal cartels While Chairman Takahashi and the FTC were generally unsuccessful in their efforts to prevent the use of informal, government-supported cartels to overcome the oil crisis, they were more active than ever before in investigating and dealing with other illegal cartels. Fiscal year 1973 (April 1973 – March 1974) marked the period of greatest FTC activity against illegal acts in its history, recording sixty-nine formal actions over the period, nearly all of which were against illegal cartels. While signs of more active enforcement were apparent from the mid-1960s, an important difference from enforcement in the early 1970s was a move away from cases involving small business and retail in favor of enforcement against large-scale enterprises in major industries such as paper, steel, concrete, and petrochemicals. Measures against big business surpassed those against small business for the ﬁrst time beginning in 1972.37 The context of price speculation and the oil shock was a very conducive environment for the FTC to act against these violations without fear of backlash from leaders in industry, the bureaucracy, and politics. Chairman Takahashi pledged publicly to deal with “opportunistic” price cartels in the wake of the oil crisis even more strictly than before.38 Yet despite such activity, the actual effectiveness of FTC efforts against illegal cartels was an issue of major concern in the FTC by 1973.39 The FTC had consistently used recommendations (kankoku) against these violations, requiring businesses and trade associations to break up cartel agreements, dissolve cartel-forming groups, and take other measures. In this process the FTC depended on the social sanction that these recommendations carried to act as a deterrent to future cartels. By 1973, however, it was clear that many business leaders were not concerned about having been cited for violating the AML.40 Many of the industries cited by the FTC during this period had already received FTC recommendations over the previous decade, some as often as ﬁve times.41 Moreover, in addition to lacking meaningful punishments, FTC recommendations did nothing to cause prices to fall back to pre-cartel levels. These facts in part led the FTC from about this time to call for a revision of the AML to strengthen

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anticartel provisions (to be discussed in Chapter 5). The desire to give more meaning to FTC decisions was the primary reason why the commissioners decided to issue the FTC’s ﬁrst ever criminal accusation of an illegal cartel. The following subsection will take up this issue. The petroleum cartel case The petroleum cartel case, more than any other event before or after it, was a deﬁning moment for the FTC and the cause of a strengthened antimonopoly policy in Japan. But although this was a high-proﬁle case for the FTC, the decision to ask the Public Prosecutor’s Ofﬁce to ﬁle criminal charges against the industry for its cartels highlighted many of the institutional and political limitations faced by the FTC. On 27 November 1973, seventy FTC investigators entered thirteen petroleum ﬁrms and the Petroleum Federation, the chief industry association, to collect evidence on suspicion that the industry had colluded to increase prices and limit shipments in reﬁned oil products.42 The FTC’s suspicions, however, went beyond illegal measures in response to the oil shock and included agreements made earlier in the year. The petroleum industry had already been the object of previous FTC investigations.43 In July 1971 the FTC issued a formal recommendation ﬁnding that the industry had conspired to increase prices in February and warning that any additional price cartels in the industry would be met with criminal proceedings.44 This FTC’s recommendation had been rejected by the Petroleum Federation, which argued that it was only complying with administrative guidance from MITI. The case was then carried over into an FTC hearing process, which by November 1973 had yet to come to a conclusion. Apart from the fact of its having been prewarned already about the consequences of another price cartel, the petroleum industry was a suitable choice for a criminal accusation for several reasons. First was that in the context of the oil crisis, FTC commissioners felt that the use of criminal measures against proﬁteering by the petroleum industry would be broadly accepted in Japan.45 A second reason was that the case was considered of enough merit by the Public Prosecutor’s Ofﬁce to warrant a prosecution. About a year earlier the FTC, wanting to send a clear message to industry about cartels, had approached the Public Prosecutor’s Ofﬁce about its desire to issue a criminal accusation against the paper industry. However, prosecutors refused to take the case, in part on the grounds that it was not signiﬁcant enough to demand criminal proceedings, a decision that reﬂected the prosecutor’s general lack of concern for AML cases.46 By virtue of its highly symbolic value given the oil shock and high inﬂation, however, the FTC was just able to convince prosecutors to accept the petroleum cartel case.47 An additional reason was that despite MITI’s clear involvement in and knowledge of industry activities, evidence collected

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suggested that company ofﬁcials went beyond MITI guidance by colluding to raise prices and by cutting shipments of reﬁned oil products by much more than the expected fall in crude oil supplies from the Middle East. These facts led MITI administrative vice minister Yamashita Eimei to denounce the industry publicly, calling it the “root of all evils” for its role in aggravating the oil crisis.48 Finally, the petroleum industry had the added advantage of being a politically safe target for the FTC at the time, given that the companies involved had ﬁnancially supported Prime Minister Tanaka’s rival, Fukuda Takeo, over previous years.49 Just prior to the issuance of the criminal accusation, Chairman Takahashi personally informed Prime Minister Tanaka of the decision and received his understanding of the move, reﬂecting the signiﬁcance of their relationship.50 Following a two-month-long investigation, the FTC issued a formal recommendation to industry on 5 February 1974 calling for twelve petroleum companies and the Petroleum Federation to suspend illegal agreements over prices, production, and gasoline sales quotas.51 Groups as diverse as local bath proprietors, ﬁshermen, and consumer and agricultural organizations were stirred up, calling the oil crisis an event fabricated by the large petroleum companies.52 Under such intense criticism, the industry again blamed all on MITI’s administrative guidance. The FTC’s recommendation came just as the Diet was beginning a month-long series of sensational hearings on unscrupulous corporate activities. The petroleum industry had much to account for in the FTC’s ﬁndings, with Prime Minister Tanaka himself noting during Diet interpellation that the price increases seemed opportunistic.53 Despite industry actions, MITI was nevertheless preparing the way for the government to approve new price increases for petroleum products to reﬂect even greater price hikes for imported crude oil implemented since the start of the year.54 In order to clear the way for these price increases and at MITI’s strong urging, the industry decided on 15 February to accept the FTC’s recommendation rather than ask to initiate an appeal through FTC hearings, which could take months to conclude.55 The chairman of the Petroleum Federation, Mitsuda Hirotaka, explained that the industry had accepted the recommendation but did not agree with its content given that the role of administrative guidance was not taken into account. The industry clearly expected that the issue would end there, just as had all other cartel cases handled by the FTC to that date. Four days later in a torrent of media coverage, however, it was made public that the FTC had sent an accusation to the Public Prosecutor’s Ofﬁce to initiate criminal proceedings, the ﬁrst ever for a cartel case. The FTC formally accused twelve petroleum corporations of price ﬁxing in several products, eleven corporations of setting sales quotas in gasoline, and the Petroleum Federation of directing production cartels. In addition, thirteen individuals within the corporations and two Petroleum Federation individuals were singled out for their personal involvement.56 The

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petroleum industry expressed shock at this extraordinary action, again pleading its case that it was only complying with MITI guidance.57 The FTC countered that the step should not have been a surprise, given the FTC’s earlier warning and a further announcement by Chairman Takahashi during the summer of 1973 that criminal cases would be initiated against ﬁrms that continued to ﬁx prices despite having been instructed to stop by the FTC.58 It is worth asking at this point what the FTC had to gain by taking this bold step. It is clear that the commissioners were intent on enforcing the AML more strictly than their predecessors, and the seeking of criminal proceedings was only one manifestation of this policy. The accusation may also be seen as a response to public and opposition party pressure to take a drastic step in the midst of strong distrust of big business.59 Moreover, the case also would raise the prestige of the FTC, giving it the public backing necessary to acquire more personnel and to see through its proposals for the strengthening of the AML.60 Yet the commissioners’ decision to proceed with the accusation was not without risks. The possibility of failure was signiﬁcant, either if the public prosecutor failed to obtain sufﬁcient evidence to bring the case to trial or later on appeal before a high court. Prior to issuing the accusation, the prosecutor’s ofﬁce had made clear its general reluctance to take on the case, warning the FTC that the quality of the evidence it had collected was wholly insufﬁcient to bring charges against the industry in a criminal court and that there was no guarantee that its own investigations would reveal more.61 Additionally, according to Japanese criminal law codes, charges had to be made ﬁrst and foremost against individuals within organizations directly responsible for the cartels.62 The criminal penalties for such at the time were up to three years’ imprisonment and a maximum ﬁne of ¥500,000. Should the responsibility of involved individuals be established, only then could corporations or trade associations be found guilty. However, the ﬁnes for corporations were at the maximum ¥500,000 – equivalent to that for individuals. This fact had helped make the FTC commissioners reluctant to initiate criminal proceedings. FTC ofﬁcials felt that organizations, and not transitory company managers, should ultimately be held responsible for illegal cartels, and that equal punishments for both would bring public criticism.63 Moreover, should the case fail, criticism of the FTC would probably scupper any plans it had for revision of the AML or other new policies. Weighing all of the pros and cons, commissioners favored issuing the accusation, although it was clearly Takahashi himself who made the political decision to go ahead. According to a commissioner at the time, “I believe that the determination of Chairman Takahashi was necessary to actually implement [the criminal accusation].”64 The exact role of MITI’s administrative guidance in the cartels soon became a central point of debate. Chairman Takahashi consistently avoided directly criticizing MITI’s role in that particular case.65 The minister of

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justice and a senior Ministry of Justice ofﬁcial were more direct, however, publicly questioning MITI’s involvement.66 The press also took up the issue with vigor, with Asahi shinbun commenting that administrative guidance should be recognized as a “dual-edged sword” and that new measures were necessary to make public the content of guidance.67 More than any other factor, however, it was the petroleum industry’s constant use of the administrative guidance defense that stirred up discussions about MITI’s methods. Anxious to “have the laundry of administrative guidance hung out for all to see,”68 industry ofﬁcials were ready to leak details of MITI’s direct participation in or knowledge of events to newspaper reporters as well as to prosecutors. In Diet testimony, Chairman Mitsuda of the Petroleum Federation clariﬁed the industry’s argument by stating that the production cartel had been according to administrative guidance, but that there had been no guidance on the 1973 price agreements.69 MITI ofﬁcials, on the other hand, were willing to discuss openly in the Diet how the companies involved had made proﬁts of approximately ¥60 billion in October and November 1973 through their price cartel, but were less forthcoming about the production cartels and earlier had ﬂatly denied MITI’s participation.70 Investigators for the prosecutor’s ofﬁce prioritized the case and devoted a sizable number of personnel to look into the affair. They cited full cooperation from most within industry as details of secret committees and meetings with MITI ofﬁcials became known. The FTC soon after added to the debate by reaching a decision on the 1971 petroleum price cartel case, ﬁnding the Petroleum Federation to have violated the AML and rejecting the industry’s administrative guidance excuse.71 In the ﬁnal phase of the investigation, prosecutors turned their attention to MITI’s role and interviewed senior ofﬁcials. In order to clarify its position on the use of administrative guidance, MITI issued an opinion paper while under pressure from the investigators’ inquiries. The paper argued that cooperative acts by industry under administrative guidance should not be regarded as violating the AML and that the FTC should not assess the suitability of MITI’s administrative judgments. It went on to issue a none too subtle warning: that the FTC’s judicial functions should be spun off from the organization, that the issue of the FTC’s legal standing as an independent agency should be addressed, and that it would be best for the FTC’s legal functions to be transferred to the courts and its administrative functions divided up among the economic ministries.72 After an investigation that revealed clear MITI involvement in and knowledge of many of the industry’s agreements, the prosecutors ﬁnally ﬁled criminal charges in the Tokyo High Court on 28 May. On the issue of administrative guidance, the indictment said only that “it did not have a great enough effect to determine whether cartels were formed or not.”73 Industry ofﬁcials expressed bitter disappointment that the charges had not included the issue of guidance, and vowed to reveal all in the courts.

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MITI’s Yamashita commented that while the cartel accusation was not “directly related” to the range of guidance, he would nevertheless “reﬂect” on the extent to which guidance might have had some inﬂuence.74 Chairman Takahashi welcomed the prosecution and took the opportunity to appeal for measures to strengthen the FTC’s organization to make it more effective.75

Overhauling legal cartel systems In addition to targeting illegal cartel agreements, from the mid-1970s the FTC also began a conscious policy of reducing the number of cartels and price-ﬁxing arrangements that were legally sanctioned by the government. The FTC’s concern with these arrangements, as with the case of administrative guidance cartels, centered on their negative economic effects as well as the fear that government policy was creating a so-called cartel mind among businessmen, which in turn encouraged more illegal cartels. The FTC’s attitude toward legal cartels was made clear in June 1974 when it announced that it would take a tougher line toward approving these agreements and furthermore would seek to eliminate most of them over the coming years.76 While limited progress had already been made in this regard, redoubled efforts to reduce the number of these cartels brought about rather dramatic results over a few years’ time. The number of cartel agreements exempt from the AML reached its peak in FY1966 when 1,079 legal agreements were in force. By FY1973 this number had fallen slightly to 979 agreements. But by the end of FY1979, there were fewer than half the number of legal cartels there had been in FY1973 (Figure 4.1). Efforts in the 1960s to begin to reduce the number of cartels had not affected their signiﬁcance in economic terms. By 1970 the proportion of total manufacturing shipments in Japan subject to legal cartels actually increased slightly to nearly 31 percent, as against the 28 percent recorded in 1960.77 Moreover, cartels still abounded in nonmanufacturing sectors. Also, a limited number of new types of cartels were approved during the 1970s (Chapter 6). But as a general trend, legally sanctioned cartels were eliminated continuously and new ones created only rarely. The FTC in the early to mid-1970s was not rejecting out of hand the use of legal cartels to meet certain short-term economic goals such as rationalization of business operations.78 Rather, policy was directed toward trying to reduce the number of these agreements to the minimum possible level by making two qualitative changes. The ﬁrst change was to reduce the number of unnecessary and ineffective agreements that had been allowed to continue over the years. The second was to wean industries off their use of cartel arrangements that they had depended on for several years or, in some cases, over a decade. In both cases, legal cartels had become a customary and comfortable way of protecting businesses from market forces that otherwise might have brought about change and

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1,200 Number of agreements

1,000

Number of business/industry sectors with agreements Total Number

800

600

400

200

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

1958

1956

1954

0

Fiscal Year

Figure 4.1 Trends in the number of cartels exempt from the Antimonopoly Law, 1954–95. Note: This chart only represents cartels that must be approved periodically. Cartels with permanent AML-exempt status are not included. Source: Ko¯sei Torihiki Iinkai, Heisei 7 nendo ho¯koku (1995 FTC annual report).

evolution. Moreover, legal cartels had led businesses to conduct other, illegal cartels in the process. Recognizing the chronic dependence of some sectors on such agreements, the FTC began a sustained effort to try to move these industries into an age of stronger competition. The remainder of this section will outline this process by focusing on changes made in the following classiﬁcations of legal cartels and price-ﬁxing systems: resale price maintenance arrangements, cartels for small and medium-sized industries and businesses, recession cartels, and rationalization cartels. Resale price maintenance The resale price maintenance (RPM) system was established under the 1953 revision of the AML and allowed wholesalers or retailers to agree in writing with manufacturers that they would not sell below a determined price. The FTC designated the product areas for which such agreements could be made and price increases approved when deemed necessary. At the time the system was introduced, then FTC chairman Yokota Masatoshi explained in the Diet that the system was necessary to protect small retailers from damaging price competition, but did admit that RPM would most

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likely beneﬁt manufacturers too by supporting prices. Pressure from retailers and manufacturers in the cosmetics and pharmaceuticals industries was said to have been instrumental in securing the FTC’s support for the introduction of the system. The measure was limited to cover consumer products.79 When inﬂation became an issue in the mid-1960s, a government panel recommended changes in the RPM system on the basis that competition had been impeded and that consumer interests had been subordinated to those of manufacturers and retailers. The FTC prepared legislation to alter the system, but such never reached the Diet, following strong industry, retailer, and LDP opposition.80 The LDP’s continued support of the system was strong, in great part because of its desire not to alienate the vast small retail sector, although political contributions from the cosmetics and pharmaceuticals industries in particular to the LDP and to individual LDP politicians were known to have been substantial.81 RPM continued to be a topic of debate within and outside the FTC, however. Further FTC research revealed that RPM products generally brought companies and retailers signiﬁcantly higher proﬁts than non-RPM products.82 By the early 1970s, the RPM system had come to be criticized heavily by consumer groups and others, such as an association of large retail store companies, as an obstacle to relief from inﬂation and price competition. But despite some subsequent efforts, strong LDP opposition had prevented the FTC from making any signiﬁcant changes.83 By the summer of 1973, ﬁve product areas were designated under the system: pharmaceuticals, cosmetics, toothpaste, household soap, and household detergent. Among these ﬁve, the prices of over 5,500 individual products were being ﬁxed with the FTC’s sanction.84 It became known by the late spring of 1973 that the FTC was again considering a vast reduction in the scope of the system. The FTC argued that the system had outlived its purpose, was only helping to support prices in an era of high inﬂation, and also was probably helping to support oligopoly in these markets.85 In response to such suggestions, LDP members actively tried to pressure the FTC to drop its plans. On 25 August, LDP secretary-general Hashimoto Tomisaburo¯ pledged to the Japan Cosmetics Retailers Federation that he would not allow any changes to take place in RPM.86 One FTC commissioner at the time later recalled how intense was the pressure from industry and a number of LDP members for the FTC to drop its plans for the RPM system.87 But asserting the FTC’s independence, Chairman Takahashi refused to meet with anyone in the LDP, and even consumer group representatives, over the issue. In spite of strong LDP, ministry, and industry opposition, Chairman Takahashi announced in late August 1973 that the following product categories (comprising over 1,700 individual products) would be dropped from the system by April 1974: household soap, household detergent, toothpaste, any cosmetics products costing more than ¥1000, and certain types

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of pharmaceuticals. But in an attempt to help protect small shop owners from the power of large retailers, he announced on the same day that the FTC would simultaneously implement new guidelines to prevent “unfair discounting,” whereby any retail sales at less than a 6 percent markup on wholesale prices would be punished.88 The concession was a gesture made to small retailers in an attempt to contain criticism of the FTC’s decision.89 By attempting to be all things to all sides, the FTC itself became the target of deep animus. Following the announcement, LDP representatives met with FTC ofﬁcials to demand that instead of eliminating products that accounted for 30 percent of RPM-designated product sales, the total amount should be lowered to only 3 percent.90 Moreover, scores of protesters from the 80,000-member Japan Cosmetics Retailers Federation demonstrated at the gate of the FTC from September into October, rallying around the call “Defend the resale price system to the death.”91 The FTC refused to alter its basic policy, but Chairman Takahashi ﬁnally did bend to pressure and announced on 18 October that the implementation of changes to the RPM system would be pushed back ﬁve months until September 1974 in an effort to “avoid friction with industry.”92 Criticism from consumer groups and large retailers over the restrictions placed on discounting was equally intense but not as politically charged. Consumer group representatives claimed that their interests had been sold out to business again, and that despite all of their efforts the case was a matter of “one step forward, two steps backward.”93 The EPA also openly expressed its dismay with the FTC’s decision to institute new regulations for unfair discounting.94 Some limited adjustments thus were made by the FTC to accommodate some demands from industry and politicians, including the guise of unfair discounting regulations. Yet FTC commissioners nonetheless pushed through the ﬁnal package despite continuing political and business opposition and without consultation with the LDP over the ﬁnal terms.95 This was possible only because these changes in RPM could be made according to internal FTC administrative measures and did not require any formal legislation. Only the termination of the entire RPM system and its removal from the AML itself would have required Diet, and therefore LDP, approval. Given continued severe inﬂation, the FTC announced in March 1974 that it had decided to put off the introduction of unfair discounting regulations.96 Meanwhile, designations for RPM products were removed as scheduled in September 1974. Cartels for small and medium-sized enterprises The vast majority of all legal cartel agreements in Japan were allowed under the terms of legislation aimed at stabilizing competition among small and medium-sized enterprises (SMEs). Several different laws allowed AML-

Remodeling the cartel archipelago 55 700 600

Total number of agreements Number of business/industry sectors with agreements

500 Total Number

400 300 200 100

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

1959

1957

1955

0 1953

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Fiscal Year

Figure 4.2 Trends in the number of cartels under the law concerning the Organization of Small and Medium Enterprises, 1953–95. Source: Ko¯sei Torihiki Iinkai, Heisei 7 nendo ho¯koku (1995 FTC Annual Report).

exempt cartels for SMEs. One of these laws, passed originally in 1952 and revised later in 1953 and 1957 as the Law concerning the Organization of Small and Medium Enterprise Organizations (hereafter Organization Law), allowed joint acts in order to “stabilize” or “rationalize” the ﬁrms involved. Under the Organization Law, cartels could be approved for any group of SMEs engaged in the manufacturing or sales of products as well as in service industries. Cartel agreements were allowed for a variety of activities, such as setting prices, placing restrictions on production or investment, determining outlets for sales, purchasing materials jointly, and cooperating over technical standards.97 As Figure 4.2 reveals, the number of SME cartel agreements under this law increased greatly beginning in FY1957, going from 218 agreements up to 652 agreements at their peak in FY1966. In line with the government’s policy in the mid-1960s to increase AML enforcement,98 however, the FTC began a conscious policy to reduce the number of agreements. By FY1970 the number of agreements under the Organization Law had fallen to 469. A May 1972 report by the Antimonopoly Conference, an advisory body to the FTC, noted that the number of cartels under the Organization Law still seemed to be adversely affecting competition in the economy. It noted furthermore that the long-term nature of many of the agreements seemed to be impeding rather than encouraging efforts by businessmen to rationalize or make structural improvements in their operations, and that as a result the reevaluation of the system was necessary.99 This position was reafﬁrmed in the 1974 FTC announcement that

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it would oversee a further reduction in legal cartels. The FTC also revealed that up to one-third of cartel participants in some SME agreements were in fact large enterprises, and argued that this problem needed to be addressed as well.100 The actual administration of the Organization Law, including the designation of cartel associations and the approval of terms and conditions, was under the minister with direct jurisdiction over the relevant industry or service sector. In practice this person was most often the MITI minister. Yet as was typical with much of the legislation allowing for AML exemptions, the FTC was given the right to review certain terms in the agreements. Under the Organization Law, the FTC had the right to “consult” the minister over terms and the power to give or withhold its consent in the case of price agreements. Moreover, the FTC was given the right to petition the relevant minister to request that joint acts be ended should it judge that they failed to meet the conditions necessary for approval under the Organization Law. One month following this formal petition, the FTC could then begin full enforcement of the AML against the cartel association should it still be operating. The ability in effect to cancel these cartels gave the FTC needed leverage over the economic ministries to see that the number of agreements was scaled down. In the early to mid-1970s, FTC ofﬁcials approached MITI numerous times to argue for a reduction in these cartels that were still in force in industries such as textiles and chinaware. Given industry pressure and requests from LDP politicians, MITI rarely had unilaterally proposed ending the agreements. But after receiving strong requests from the FTC, backed by the understanding that the agency could in effect end the agreements unilaterally, MITI conceded to the FTC on many cartels. MITI ofﬁcials, however, argued that one or two more year-long extensions of the cartels were necessary before cartels were phased out so as to allow a smooth transition from controlled markets to more competitive conditions. Following these ﬁnal extensions, while the companies involved and supportive LDP politicians would always request yet another extension, the FTC’s opinion would prevail and the cartels were not renewed.101 By 1976 all cartels in the commercial sector (services and retailing) were eliminated entirely, while the number of agreements in manufacturing was pared down to 395, falling further to 274 by 1979. A 1976 FTC report noted the plight of many of these industries, but it also went on to suggest that cartels were often not being employed to make business more efﬁcient but rather were used as tools to restrict competition as a means of protection.102 Moreover, while requests for new cartels increased rapidly in the wake of the oil shock, FTC pressure was fundamental in assuring that these were approved only when deemed absolutely necessary.103 While the FTC began pressuring ministries to scale back cartel agreements according to the formal government decision in the mid-1960s, it

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must be stressed that the continuance and strengthening of this policy in the 1970s were at the FTC’s own initiative. The results of the FTC’s efforts, while not entirely successful, nevertheless were striking given the pressures facing SMEs in the mid-1970s. These problems included a serious recession and increasing international competition and imports. Ramseyer and Rosenbluth have argued that the reduction in these cartels came as a direct result of the LDP’s waning need of the support of the SME sector into the 1970s and 1980s.104 This conclusion, however, is in direct opposition to active LDP efforts to have cartels continued as well as to numerous facile LDP attempts in the 1970s to earn the political support of the SME sector.105 Rather, it was direct pressure at the initiative of the FTC, and not simple political demographics, that was the primary reason why the number of these cartels actually fell over the period. Recession cartels One of the important changes made to the AML in 1953 was the creation of a system of recession cartels (fukyo¯ karuteru). Unlike under the SME Organization Law, the FTC had sole jurisdiction over the administration of recession cartels. Legally, the FTC needed only to “consult” the minister with jurisdiction over the relevant industry prior to approving or denying a cartel application. Cartels could be permitted by the FTC during times of recession when demand and supply for a particular product were in severe imbalance. The standards used to judge eligibility under the system focused on the following conditions: when a product price fell below the average cost of production, when there was a fear that many businesses might go bankrupt, and when individual efforts by ﬁrms would most likely not improve the situation. After meeting these conditions, cartels would be approved for limited periods and were used primarily to set restrictions on production volumes or on new production facilities and equipment.106 As was discussed in Chapter 2, the recession cartel system was not used actively until the recession of 1965–6 (Figure 4.3). This move was prompted by an ofﬁcial government opinion that resulted in a decision to phase out the use of MITI’s administrative guidance cartels in favor of using the recession cartel system. The policy, however, made it necessary that the FTC then interpret the conditions for eligibility in a rather lax fashion, especially when it came to the requirement that there must be fear of bankruptcy among many ﬁrms.107 Similar ﬂexibility was also employed during the subsequent round of cartels approved for the next recession Japan faced, beginning in 1971.108 Agreements were approved in thirteen product areas, primarily in the petrochemical, paper, and steel industries. As the economy and inﬂation heated up in late 1972 and into 1973, however, it became clear that some industries, such as steel, were making substantial proﬁts while their recession cartels were still in effect.109

1958 Recession Flax and Lamie Yarn Pressed Yeast Vinyl Chloride Resin Sheet Celluloid Hard Vinyl Chloride Tube Synthetic Dyestuffs 1962 Recession Medium Steel Shapes Artificial Graphite Electrodes 1965 Recession Pentachlorophenol Weedkillers Alloy for Structures Automobile Tires Cameras Sugar Medium Steel Plates Hard Vinyl Chloride Tube White Lined Board Cotton and Spun Rayon Yarn Straight Shark Drills Hard Vinyl Chloride Plates Liner Board Corrugating Medium Mashed Potato Flakes Hard board

11/64–7/66 1/65–9/66 6/15–12/65 6/65–3/66 7/65–2/67 8/65–6/66 9/65–6/66 9/65–8/66 10/65–6/67 11/65–9/66 10/65/6/66 11/65–3/67 11/65–7/66 11/65–3/66 11/65–2/66

12/62–9/63 10/63–6/64

4/56–9/61 6/58–12/60 11/58–3/59 12/58–4/59 3/59–5/60 7/60–6/61

Cartel Dates (month and year) 1

Figure 4.3 Trends in recession cartels, 1953–95.

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

7 8

1 2 3 4 5 6

Product Type 2

3

4

5

6

7

8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 30

Number of Months of Original Cartel Plus Subsequent Renewals

Figure 4.3 (cont.)

24 Ferro Alloys 25 Stainless Steel 26 Steel Bearings 1971 Recession 27 Stainless Steel 28 Specific Steel Products 29 Vinyl Chloride Resin 30 Alloy for Structures 31 Liner Board 32 Corrugating Medium 33 Specific Steel Products 34 Polypropylene 35 Polyethylene 36 Ethylene 37 Artificial Graphite Electrodes 38 Ferrosilicon 39 Glass Fibers (Continuous) 1975 Recession 40 Yarn (Discontinous) 41 Worsted Yarn 42 Small Steel Bars 43 Glass Fibers (Continuous) 44 Cement 45 Small Steel Bars 46 Yarn (Discontinuous) 47 Worsted Yarn 48 Vinyl Chloride Resin 49 Cement 50 Liner Board 51 Corrugating Medium 52 Aluminium Sheet 53 Asbestos Slate

12/74–5/75 12/74–4/75 9/75–4/76 11/75–1/76 11/75–1/76 11/76–9/77 4/77–6/78 4/77–1/79 5/77–8/78 6/77–12/77 9/77–2/79 9/77–2/79 9/77–2/78 3/78–10/78

11/71–6/73 12/71–12/72 1/72–9/72 1/72–6/72 2/72–12/72 2/72–7/72 3/72–12/72 3/72–10/72 3/72–10/72 4/72–12/72 5/72–12/72 6/72–12/72 8/72–3/72

11/65–9/66 12/65–9–66 1/66–6/66

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Synthetic Fibers Artificial Graphite Electrodes Dyestuffs for Textiles Vinyl Acetate Monomer Aluminum Kraft Paper 1981 Recession Steel Vessels Vinyl Chloride Resin Yarn (Discontinuous) High-Quality Paper Coated Paper Kraft Paper Polyethylene Glass Fibers (Discontinuous) Glass Fibers (Continuous) Asbestos Slate Ethylene Cement 1986 Recession Steel Vessels Vessel Diesel Engines

4/87–9/89 4/87–9/89

8/79–3/82 5/81–2/82 5/81–9/81 5/81–2/82 5/81–2/82 6/81–12/81 8/81–3/82 8/81–10/81 12/81–3/82 11/82–3/83 10/82–3/83 8/83–12/83

4/78–3/79 8/78–10/78 8/78–3/79 9/78–1/79 9/78–3/79 11/78–4/79

Sources: FTC; H. Iyori and A. Uesugi, The Antimonopoly Laws of Japan, New York, Federal Legal Press, 1983, pp. 184–6.

Note: A few agreements were not exactly contiguous; that is, there was a gap of some weeks before another renewal.

Figure 4.3 (cont.)

72 73

60 61 62 63 64 65 66 67 68 69 70 71

54 55 56 57 58 59

32

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There were also concerns that restrictions in production and investment had led to subsequent shortages in certain products and had helped fuel inﬂation.110 While the FTC’s interpretation of the standards for cartel approval were ﬂexible, it is important to understand the constraints within which the agency was working. Should it interpret the standards more strictly and deny cartel applications, there was a strong fear that MITI would then only administer a cartel under its own guidance or that the ﬁrms would simply form an illegal and secret agreement. By placing cartels under its oversight, the FTC sought to curb terms that were patently damaging to competition and to related industries. On the other hand, by approving cartels using lax standards, the FTC was only encouraging the use of these agreements by industry.111 Despite this dilemma, criticism stemming from the series of recession cartels during 1971–2 plus the FTC’s less permissive attitude toward cartels in general led the commission to make some changes in the way it handled the subsequent series of these cartels. The deep recession that followed the oil shock, beginning in 1975 and lasting in some industries through late 1978, brought with it numerous applications to the FTC for recession cartels. The number of product areas allowed cartels of some sort during that period totaled twenty, reﬂecting in great part the plight of declining industries heavily dependent on natural energy resources. But in keeping with its stricter policy on the use of cartels, the FTC altered the terms of many of these applications and substantially shortened the average length of each cartel. The FTC’s attitude toward the ﬁrst recession cartels it approved following the oil shock is instructive. Makers of wool yarn and an alliance of cotton yarn and synthetic ﬁber manufacturers applied in late November 1974 for recession cartels that would last for six months and reduce production by up to 40 percent in order to support falling prices due to overcapacity and high inventories.112 Chairman Takahashi made it clear that the FTC would review the applications carefully, remarking that “Even with recession cartels, there are worries that they could bring about a cartel attitude. We will strictly investigate such things as management, and will handle the matter by interpreting it strictly according to the letter of the Antimonopoly Law.”113 The FTC responded to the applications one month later by requiring numerous changes in the terms being proposed, including a shortening of the cartel term from six to two months and refusing allowances for freezes on inventories and reductions on sales volumes as the industries had wanted.114 Two cartels were then approved three days later for the three textiles sectors (165 companies affected), with a promise from MITI that it would watch prices closely to ensure that there was no speculation over the expected restrictions on supply.115 Despite strong requests for further extensions for longer periods, the FTC granted only short, month-long extensions, ending the cartels completely within a total period of only ﬁve months.116 Takahashi argued that granting long-

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term cartels would be patent protectionism and would delay the sorts of adjustments the industries needed to make for themselves.117 The FTC’s strict attitude toward approving recession cartels was replicated in further applications in the latter half of 1975 from the electric and open-hearth furnace steel makers (for production of steel reinforcement bars), cement makers, and the glass ﬁber textile industry. The FTC reviewed these agreements regularly after short periods, and by the end of April 1976 it ended this series of cartels, on the rationale that market conditions had improved, that inventory adjustments had progressed, and that long-term protection was undesirable.118 The FTC’s attitude provoked much anger and frustration in business circles, with Keidanren chairman Doko¯ commenting, “I cannot understand its [the FTC’s] current actions. Even though the government is moving ahead with recession countermeasures, [the FTC] is only getting in the way of industry. I do not understand what this Antimonopoly Law is for.”119 This feeling was echoed strongly by other business leaders.120 To circumvent the FTC’s conservative attitude toward these cartels, MITI began establishing guidelines in production and prices for several basic materials industries from October 1975. Although generally not overt cartels, they were nevertheless softer means to bring about a recovery in prices in these areas by setting certain production goals.121 This was a reversal of the earlier policy where such administrative guidance cartels would be stopped by MITI in favor of using recession cartels under the AML. While of course this guidance was never actually completely ended by MITI, it had again become prevalent from 1975.122 The FTC urged that such cartels be put under the recession cartel system, and later also expressed concern that these industries were continuing to cut production to boost prices even after MITI’s administrative guidance had ceased.123 This was exactly the sort of result the FTC had feared. The arrival of Sawada Yasushi, a former ofﬁcial of the Bank of Japan (BOJ), as the new FTC chairman in February 1976 signaled the beginning of a somewhat softer approach by the agency. In his initial press conference and in a meeting with Keidanren leaders, he noted that the FTC’s policy toward recession cartels should be determined by the business environment and that enforcement of the AML would take into consideration the “circumstances of the business community.”124 In order to help ensure that the FTC’s new rhetoric on recession cartels was brought more into line with other government economic policies, Japan’s cabinet under Prime Minister Fukuda Takeo secured the agreement of Chairman Sawada for his attendance at the weekly meeting of cabinet members related to economic affairs. While Sawada’s status in the meetings was only that of observer, cabinet ofﬁcials viewed his participation as a means to keep the FTC informed of government policy toward the economy and as result to try to inﬂuence FTC decisions indirectly.125 Moreover, the LDP added further pressure on the FTC by taking up formal discussions

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on the relaxation of recession cartel standards under the AML so as to make easier the FTC’s approval.126 Economic conditions in some industries remained depressed into 1977 despite ﬁscal and other attempts by the government to boost the economy. The FTC, therefore, faced in the latter part of 1976 and into 1977 a wave of recession cartel applications from a variety of industries such as steel, paper, textiles, petrochemicals, cement, and aluminum. The FTC began approving more cartels in 1977 in line with ofﬁcial government economy boosting policy packages, several of which called speciﬁcally for the use of these cartels to overcome difﬁculties in particular industries.127 For example, a plan drawn up by the LDP and MITI to assist several industry sectors in difﬁculty called for recession cartels in four sectors. Soon after, the FTC approved new cartels and extensions on existing cartels in these sectors.128 While the FTC continued to allow only short terms for these cartels, in line with the policy established under Chairman Takahashi, renewals in most cases were allowed several times over as the FTC and the government came to realize the structural nature of the recession these industries were facing.129 FTC Chairman Sawada argued that while the FTC had not relaxed its actual criteria for recession cartels, the number and length of cartels would necessarily change according to economic conditions.130 However, the impact of government economic policy on the FTC’s handling of the cartels had once again become obvious by mid-1977. Rationalization cartels: the scrap iron and steel cartel As in the case of recession cartels, a system of rationalization cartels (go¯rika karuteru) was established when the AML was revised in 1953. Also like recession cartels, rationalization cartels too were placed under the sole jurisdiction of the FTC, which only had to “consult” the relevant ministries when making a decision on cartel applications. The objects of these cartels were diverse, and included improvements in product quality and efﬁciency gains such as the reduction of production costs. Agreements could be made for a variety of reasons, such as restrictions on technology or on joint purchasing and storage of raw materials. Unlike recession cartels, however, rationalization agreements were not subject to approval depending on certain phases in the business cycle. As a result, many of the agreements continued for more than a decade. Despite their potential wide scope, rationalization cartels were not employed often. The number of agreements in any given year under the scheme never exceeded fourteen (Figure 4.4), while the number of products affected never surpassed nine (some product types were covered by more than one agreement). The agreements were employed primarily in the textile and steel industries, but also at times covered bearings, automobile tires, dyes, and margarine/shortening. The FTC began phasing

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14

12

Total Number

10

8

6

4

2

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

1959

1957

1955

0

Fiscal Year

Figure 4.4 Trends in the number of rationalization cartels, 1955–95. Source: Kosei Torihiki Iinkai, Heisei 7 nen ban kosei torihiki iinkai nenji hokoku (1995 FTC Annual Report).

out these cartels from 1968, so that by the time the FTC announced in 1974 its intention to further cut legal cartels, only nine agreements remained, all in a single product area: scrap iron and steel. Rationalization cartels for scrap were established in 1955 by the steel industry in order to stabilize demand for and prices of scrap in the domestic market. While the industry’s dependence on scrap was lessened thereafter by the introduction of blast furnaces and integrated production methods,131 many steel companies, both large and small, that continued to use electric and conversion furnaces to manufacture certain products such as steel reinforcement bars remained heavily dependent on scrap iron and steel for their production.132 The organization coordinating the cartel for the steel industry was the Scrap Iron and Steel Demand and Supply Liaison Council133 (hereafter Scrap Liaison Council), which included as its members Japan’s major corporations as well as regional producers. The rationalization cartel provided a legal forum for the Scrap Liaison Council to establish monthly benchmark ceiling prices for purchases of scrap as well as oversee an allocation scheme among its members. The general cartel arrangements were reviewed and renewed by the FTC every year or two. As the Scrap Liaison Council began preparations to apply for a ﬁfteenth renewal in April 1972, the agreements had already been running continuously for nearly seventeen years. MITI made it clear that it supported another renewal of the cartel, stating that the forum had been an important one for the exchange of information among ﬁrms and was a “helpful”

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tool for government administrators.134 Prices for scrap had been in a slump, given the 1971–2 recession and subsequent production cuts in the steel industry. While a price of ¥15,000 per ton had been in effect for several months, scrap prices had consistently been well below that mark. Difﬁcult negotiations between the steel ﬁrms and the scrap suppliers followed, until a ﬁxed price band of ¥13,000–¥17,000 was agreed upon. The application from the industry was accepted by the FTC several weeks later, and the ﬁnal terms included nine agreements among 111 steel companies throughout Japan that would run from October 1972 through September 1974. As a condition for its approval, however, the FTC urged that the cartel should not be a semipermanent arrangement and instructed the steel industry to consider carefully what to do should the cartel not be renewed after its approved term was over.135 Demand for scrap iron and steel began to rise dramatically from the last half of 1972 into the ﬁrst half of 1973, in great part owing to the stimulatory public works programs introduced by the Tanaka cabinet. Prices for scrap also began reaching record levels in the international market, a fact aggravated by severe limits put on export contracts of scrap iron by the United States.136 Efforts were made to contain these price increases, but the cartel could not be enforced, owing to its members breaking the agreement to buy needed scrap for a premium.137 The effects of the oil shock later in the year fueled even greater price rises, so that by mid-1974 prices for domestic scrap were near or above the ¥50,000 mark. It was in the midst of high inﬂation and a strong desire from steel companies to hold down scrap prices that in mid-1974 the Scrap Liaison Council began to prepare an application for the renewal of its rationalization cartel. Having promised to consider alternative arrangements following the end of the cartel in September 1974, the steel industry and its members on the Scrap Liaison Council were concerned whether the FTC would again renew the cartel. Cartel leaders approached the FTC in July 1974 for preliminary discussions, at which time it became clear that the FTC was not at all inclined to grant another renewal.138 Several requests were made of industry by the FTC if it was even to consider another renewal, including an outline of how the cartel was aiding in the rationalization of industry and an explanation of how the cartel was not having an unfair impact on related industries. Facing scrap prices well above ¥40,000 per unit and the severe difﬁculties brought on by the oil shock, the industry decided in August to request a preliminary hearing by the FTC commissioners on the issue of renewal. The FTC decided soon after that it would reject a formal renewal application should it receive such from the Scrap Liaison Council. The commissioners cited the following reasons for their decision: (1) price movements in steel and in scrap iron were linked, and therefore instability in prices for manufactured steel products would make it unlikely that prices in scrap could be stabilized; (2) the cartel’s aim of

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rationalization had not been fulﬁlled in the past; (3) manufacturers using conversion and electric furnaces themselves seemed to recognize that the cartel was an impediment to their own rationalization; (4) it was expected that the shortages in scrap would continue indeﬁnitely; and (5) the industry had pledged in 1972 that it would request only one more cartel renewal.139 In mid-September the FTC sent notiﬁcation of its decision to MITI. Despite certain rejection, the steel industry went ahead with its formal application and requested a ﬁxed price band of ¥25,000–¥30,000. On 9 October the FTC turned down the request as it had said it would, citing the above reasons as well as noting that “even supposing that some effects on rationalization might be expected, considering the ill effects from limiting competition according to the joint acts being proposed, these acts cannot be regarded as especially necessary in order to accomplish business rationalization.”40 With this decision the FTC brought to an end the longest-running rationalization cartel in the history of the system. The end of the cartel, however, did not spell the conclusion of joint efforts by the steel industry to stabilize prices and quantities of scrap iron and steel. Concerned that the FTC would not renew another cartel in 1974, industry began exploring the idea of establishing a private corporation to act as a joint scrap reserve for the steel companies. These plans were realized in late January 1974 when the Japan Scrap Reserve Center Corporation was launched. The center’s chief function was to try to stabilize prices by purchasing scrap when prices fell and selling off its stockpile as prices rose.141 However, given the participation of nearly all Japan’s steel companies in the corporation, the FTC soon after cast doubt on its legality under the AML.142 MITI and industry worked out a solution whereby the functions of the facility would be transferred from private ownership and reestablished under a special system of public corporations involving public money. The Japan Scrap Iron and Steel Reserve Association was launched in September 1974.143 In addition to this facility, in June 1975 MITI also formally approved a scrap iron import cartel association under the Export and Import Trading Law in order to allocate foreign scrap. This move was seen as necessary to coordinate domestic demand for US scrap, which had fallen under US export quotas.144 Industry and MITI also agreed on establishing a “Scrap Iron and Steel Conference” (Tetsukuzu Kaigi) from August 1974 as a forum for continuing de facto the rationalization cartel.145 However, the Scrap Conference met only once before being disbanded owing to the inability of MITI, the scrap dealers, and the steel industry to work out price arrangements.146 It is interesting and relevant to note that despite such a long history, the scrap iron rationalization cartel was seen in retrospect by its participants as not ever having been able to stabilize prices in the way intended. The director of the cartel at the time of its demise wrote later that it would have been “impossible” to control changes in scrap iron prices given swings in demand.147 Others concurred that the cartel had not been able

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to control prices.148 Rather, the most important function of the cartel was as a legal forum for steel corporations to discuss their plans for production and investment as well as to make projections concerning the supply of resources.149 This was clearly the type of opportunity the steel industry preferred and had been well accustomed to through a number of different organizations. It was also exactly this type of opportunity the FTC wished to deny industry in order to wean it off the use and abuse of cartels. But as was shown, following the FTC’s decision to reject another renewal, efforts were made between industry and MITI to continue joint acts under a number of different schemes. It was this sort of dilemma the FTC consistently faced in its efforts to remodel the “cartel archipelago.”

Conclusion In the span of ﬁve short years between 1973 and 1977, the FTC had registered record numbers of formal measures against AML violations, including the use of two criminal accusations; successfully undertaken an initiative that nearly halved the total number of legal cartels; implemented more rigorous standards for the approval of new legal cartels; and seen through a broad reduction in the RPM system. Virtually none of these actions was supported by LDP, bureaucratic, or special business interests. Only in regard to the laws to respond to the oil shock did the FTC have much less success in its efforts. How and why was the FTC able to effect change on such a scale? The basis for the FTC’s successes is inseparable from the turbulent political and economic environment in which change took place. Many of the issues and problems pursued by Chairman Takahashi had been discussed broadly in the FTC and elsewhere for several years. Yet those efforts that had been made in areas such as reducing legal cartels, resale price maintenance schemes, and even aggressively punishing illegal cartel behavior through criminal measures had been turned back through opposition of the LDP and other interests. From 1973 a strong anti-big business political environment and inﬂationary economic environment gave the FTC the opportunity to make some desired changes in the cartel archipelago. The FTC’s most successful efforts came in those cases where it had the direct powers and authority to do so. When the FTC had to enlist the cooperation of the public prosecutors, ministries, and the LDP in its efforts, results were often much less forthcoming or wholly lacking. By taking advantage of the political crisis, the FTC acted as a policy entrepreneur in those cases where it overruled narrow business and bureaucratic interests, such as in the area of legal cartels. Chairman Takahashi’s commitment to use the FTC’s independent status during this unstable period as a means of insulating the FTC as far as possible from outside inﬂuences was the primary reason why the FTC was able to succeed to the surprising extent that it did. The FTC’s independent status also facilitated stronger

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AML enforcement against illegal cartels by ensuring that violations were dealt with more harshly. Where the FTC was limited in its efforts, institutional factors as well as bureaucratic and political resistance were all salient. The debates of the early 1970s brought to the fore once again familiar issues of Japan’s government–business approach to implementing industry cartels. The FTC stressed the need to use limited, legal recession cartels, while MITI insisted on intervention using informal guidance cartels, most often at the request of affected industries. FTC efforts to be stricter with the use of recession cartels often appeared only to result in an increased use of informal targets and guideposts by MITI. A similar dilemma was seen with AML-exempt cartels as well, where FTC efforts to have these ended were often met only by similar attempts by industry and MITI to continue cooperative acts under a number of different schemes. As a result, while the number of legal cartels fell substantially, in certain cases the actual effect of this effort was less clear. Meanwhile, while not primarily intended as such, the FTC’s criminal accusation in the oil cartel case had the effect of bringing administrative guidance under more public and political scrutiny.150 As will be discussed in Chapter 7, the case, eventually supported by Japan’s Supreme Court, succeeded in forcing a reevaluation of this relationship. On issues where the FTC lacked control, business interests represented by conservative politicians were able to limit FTC efforts. This was particularly clear in the enactment of the oil shock laws. Industry’s strong desire for the government to resort to the use of informal cartels as opposed to formal price controls was taken up actively by LDP politicians. The result was industry cartels that worked to the detriment of antimonopoly policy and a successful frustration of MITI’s desire to obtain sweeping powers over prices. Moreover, in the case of recession cartels, strong LDP efforts backed by industry and MITI caused the FTC to take a somewhat more lax attitude by 1977 in order to deal with the problem of structurally depressed industries. Institutional issues also represented consistent barriers to FTC action. In order to bring criminal actions against illegal cartels, for example, the necessity of gaining the cooperation of the Public Prosecutor’s Ofﬁce and meeting strict requirements of proof required to take such cases to a court were limiting factors. And while the FTC urged a reduction in the number of AML-exempt cartels, the continued existence of the laws themselves with support from political, bureaucratic, and business circles ensured that FTC efforts did not entail a complete destruction of Japan’s basic procartel policy. Lacking tools to address other broad concerns such as oligopoly and market power that had become the source of great concern during this turbulent period, the FTC, under Chairman Takahashi, launched its most ambitious effort in the agency’s history: a move to strengthen the AML itself.

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5

Policy in the political arena Revision of the Antimonopoly Law

While the economic turmoil and inﬂation of the early to mid-1970s proved to be fertile ground for the Fair Trade Commission (FTC) to strengthen antimonopoly policy generally, the previous chapter has shown that the agency nevertheless faced many difﬁcult political and institutional limitations in trying to enforce the Antimonopoly Law (AML) in a more meaningful manner. Moreover, it had become obvious that the AML was powerless to deal effectively with some of the more structural problems facing the Japanese economy. Despite the hostile political atmosphere facing the FTC, Chairman Takahashi Toshihide and other commissioners and staff felt that these handicaps nevertheless warranted an effort to strengthen substantially the power and scope of the AML. This chapter will focus exclusively on the debate and process of revision of the AML, a political drama that took nearly four years (1973–7) to come to a ﬁnal conclusion. The decision by the FTC to seek a stronger AML in effect raised the issue of antimonopoly policy to the level of high national politics. All political parties, related interest groups, and interested bureaucratic agencies participated actively in the long debate, making for the most comprehensive treatment ever given to the issue of antimonopoly policy in Japan. The debate came at a time when heightened anxiety about the state of Japan’s economy and its structure was at a peak, thereby placing the issue of the proper role for antimonopoly policy squarely in the center of discussions over how state–market relations should be managed to bring about a new economic order (or, indeed, whether a new order was warranted at all).

The FTC’s wish list While the antecedents for a movement to strengthen the AML may be seen as far back as the early 1960s, it was the FTC itself that was solely responsible for bringing the issue of AML revision into the fore of political discourse in 1973. This fact later led to charges from opponents of a strengthened AML that the FTC was putting its own interest in expanding its power and jurisdiction ahead of the broader national economic interest.

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But the manner in which the issue came to reach a consensus in the FTC suggests more complicated motivations. The most basic concern of the FTC was the growing trend toward oligopolized markets in Japan, which the FTC staff and commissioners felt was fostering administered prices by oligopolistic ﬁrms and therefore damaging price competition.1 This problem was heightened by the fear that the shift from rapid growth to slower growth would reduce new market entry, thereby creating even more temptations for oligopolies to collude to stabilize markets and prices. The FTC had been studying the issue of administered prices as early as 1963, and in 1970 an FTC advisory body survey revealed a number of industries to be highly oligopolized, including photographic ﬁlm, whisky, pianos, wristwatches, beer, and plate glass.2 The FTC’s concern with price rigidity in certain markets was reﬂected in other government reports. One of these was by the Economic Planning Agency’s Price Issues Conference, which noted as early as 1966 that price reductions did not necessarily follow from improvements in industrial productivity in certain industries. The group called for stronger policies to promote market competition.3 To help deal with problems of increasing oligopoly, the FTC’s advisory body, the Antimonopoly Conference, recommended in June 1973 that the FTC seek to revive the power lost in the 1953 AML revision to order companies to be divided should they reach a level of excessive market concentration and power (former section 8). Chairman Takahashi soon afterward made this recommendation known in a Diet committee and took the opportunity to advocate the more general idea of revising the AML in line with the recommendations of the Antimonopoly Conference.4 With this statement, the FTC’s desire for AML revision was made public for the ﬁrst time. Oligopoly was not the FTC’s sole concern. As inﬂation soared through the summer and fall of 1973, Chairman Takahashi and FTC ofﬁcials felt that the AML was far too weak to deal effectively with price-raising cartels and other business practices that were coming under severe public criticism.5 Many of these structural problems were mentioned in some detail in Chapter 3, and they include the fact that the FTC had no means to ensure that cartel prices were restored to pre-cartel levels, the weakness of criminal penalties (including the problem that company managers rather than executives were the most likely to be charged), and the problems associated with securing the cooperation of the Public Prosecutor’s Ofﬁce in ﬁling a criminal accusation. In order to bring the AML up to date and to correct some of its practical ﬂaws, Chairman Takahashi announced in a press conference on 12 October 1973 that the FTC would set up a study group by the end of the year to investigate the strengthening of the AML. He proposed the following as the basis for the group’s discussions: 1

giving the FTC the power to divide oligopolistic and monopolistic companies;

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2 3 4 5

providing tools for the FTC to intervene in oligopolistic markets with administered prices; enabling the FTC to order companies to reduce their prices following an FTC order to break up a cartel; strengthening criminal penalties for cartels; and loosening the strict requirements on proof of illegal activities, such as allowing circumstantial proof of cartel acts.6

The Antimonopoly Law Study Group, a gathering of thirteen professors and journalists with the input of the FTC Secretariat, was launched on 14 December and sought to ﬁnish its deliberations by the following October. Before the group met for the ﬁrst time, the oil shock had struck Japan, the FTC had conducted its high-proﬁle raids on the petroleum industry for suspected cartel activities, and Chairman Takahashi had objected strongly to legislation that would exempt emergency stabilization cartels from the AML. The latter episode ended in the passage of the two emergency stabilization laws discussed at length in Chapter 4. While the FTC was able to score only a limited victory in that case, the political debate over the role of antimonopoly policy did result in the adoption of a resolution in December 1973 by the House of Councilors Special Committee on Price Issues. The resolution supported the idea of AML revision, including giving the FTC the power to divide oligopolistic ﬁrms and order prices set by cartels to be reduced to pre-cartel levels.7 These events and others into early 1974, including revelations in the Diet during February of unscrupulous corporate activities, gave the cause for strengthening the AML a signiﬁcant boost. Chairman Takahashi often testiﬁed in Diet committees about the inadequacies of the AML in dealing with Japan’s economic crisis. His arguments easily won over opposition parties and also forced Prime Minister Tanaka Kakuei to issue a vague pledge to introduce an AML revision bill in a future Diet session.8 Chief Cabinet Secretary Nikaido¯ Susumu concluded, “One cannot help but think about the revision of the Antimonopoly Law someday.”9 These sorts of statements foreshadowed the cautious and ambivalent attitude that the Liberal Democratic Party (LDP) would take toward the issue of AML revision. Opposition parties were enthusiastic about the idea of strengthening the AML, with the Ko¯meito¯, or Clean Government Party, and the Japan Socialist Party in the forefront of the movement. Both parties released draft AML revision bills in February 1974 and submitted them to the Diet soon after. These bills included most of the ideas put forward by the FTC, but also called for additional measures such as an overhaul of the resale price maintenance (RPM) system (both drafts), giving consumers the power to issue criminal accusations against suspected AML violations (both drafts), and tightening the conditions for recession cartels (Ko¯meito¯ draft). The moderate Democratic Socialist Party (DSP) and the left-wing Japan

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Communist Party (JCP) released their own AML draft bills later in the year, which also included some unique proposals to increase the strength and effectiveness of antimonopoly policy.10 These bills were never seriously considered in the Diet, given the LDP’s majority in both Houses, but the opposition parties nevertheless sought to add momentum to the AML revision cause as well as stir up criticism against the LDP for its footdragging on the issue. By the summer of 1974, the AML revision issue had gained so much attention and support that opponents of revision began a substantial effort to try to stem the tide. In his inaugural press conference, Doko¯ Toshio, the new chairman of Keidanren, made his position clear by stating, “We cannot agree with the strengthening of the Antimonopoly Law in the manner in which the Fair Trade Commission is discussing.”11 Soon after, Keidanren’s Antimonopoly Law Research Group issued an opinion paper on AML revision. The paper made point-by-point rebuttals of all the proposals being considered by the FTC, called for a review of the FTC’s independent status, and promoted the idea of transferring AML administration to other economic ministries.12 The leader of the Keidanren group furthermore commented that the FTC was an “unruly child” that needed taming.13 Despite reportedly being cautiously in favor of AML revision when Chairman Takahashi announced his intentions in October 1973, Ministry of International Trade and Industry (MITI) ofﬁcials began speaking out against the FTC proposals by the summer of 1974, evoking the shibboleth that a strengthening of the AML would only increase regulation of business and therefore de facto be against free competition.14 MITI minister Nakasone Yasuhiro also spoke out in the Diet against the logic of FTC proposals.15 Opposition from within the LDP was also at times hostile, with many criticizing the FTC’s hubris in drafting a bill and announcing it unilaterally without ﬁrst seeking the approval of other ministries and the LDP.16 LDP Dietmen opposed to AML revision in part or in whole also formed their own study group in August 1974, named the Antimonopoly Law Issue Discussion Group (hereafter the AML Discussion Group), under its chairman, Kuranari Tadashi. Members of this group included House of Councilors Dietman Fujii Heigo, a former steel industry executive, and Tanaka Rokusuke, both of whom became active in the move to kill AML revision proposals over the coming years.17 Discussion Group chairman Kudanari soon after revealed the party’s opening strategy against AML revision by announcing that proposals from the FTC would not serve as the basis of discussion in the LDP (in an attempt to discredit an imminent announcement of the FTC’s formal draft AML revision bill) and that there was no hurry to deal with the revision issue (in an attempt to keep the issue under review so as to prevent it from coming to the Diet).18 On the basis of a report by the FTC’s Antimonopoly Law Study Group, the FTC Secretariat announced its formal framework bill on 19 September. It is worthwhile to summarize below in some detail the nine points made

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in the FTC’s framework bill since they would come to shape the majority of subsequent debate over AML revision. The comparison is useful too in order to compare this FTC wish list with the content of the three government bills that were debated in the Diet in 1975, 1976, and 1977 (see Table 5.1, p. 93). 1

2

3

4

5

6

7

Order to Divide Highly Oligopolistic Companies. The FTC may order a company with a dominant market share to split into two independent corporations or divest itself of sections of its business in order to create more competition in an industry. Before issuing such an order, the FTC must take the following into consideration: capital, proﬁts, factories and other facilities, technology, sales techniques, and international competitiveness. Cost Price Disclosure. The FTC may make public the cost price19 of a good sold by leading companies in highly oligopolized markets when prices are raised simultaneously. (The intent was to circumscribe the ability of these ﬁrms to administer prices either by price leadership or by cartel arrangement.) Order to Reduce Prices to Pre-cartel Levels. The FTC, upon issuing an order to cease and desist from a cartel arrangement, may order the companies involved to reduce their prices for a period of up to six months to the pre-cartel price level. Administrative Surcharges on Illegal Cartels. Companies that are found by the FTC to have formed a price-raising cartel are liable to pay an administrative surcharge equal to the excess proﬁts accrued by each company over the period of the cartel. (The intent was to act as a punitive deterrent to the formation of cartels and as a means of bypassing the need to ﬁle criminal accusations.) Stockholding Restrictions on Large Corporations. Extraordinarily large ﬁrms20 may not hold the shares of other companies which exceed a total value in excess of the ﬁrm’s capitalization or one-half of its net assets. (This proposal was inspired by a 1974 FTC study that showed that Japan’s six largest general trading companies had accumulated massive holdings of listed and unlisted corporate stock.21 The intent was to prevent them from acquiring a position of excessive ﬁnancial power over individual businesses and the economy as a whole.) Stockholding Restrictions on Financial Institutions. The ceiling on ownership of stock holdings in any one company by a ﬁnancial institution is to be lowered from 10 percent to 5 percent. (The intent was to reduce the inﬂuence of banks and other such institutions over industry and other companies.) Increase in Criminal Penalties. The maximum criminal ﬁne will be raised from ¥500,000 to ¥5 million, and the executives of a corporation may be held accountable should they know of any act being committed in their company that violates the AML.

74 8

9

Revision of the Antimonopoly Law Cease and Desist Measures against Unfair Trade Practices. The FTC may order ﬁrms to take certain measures to ensure compliance with its rulings to cease and desist from acts that violate the clause on unfair trading practices (to enhance FTC powers against these practices). Retroactive Cease and Desist Orders. The FTC may issue cease and desist ﬁndings against illegal acts even if companies have ended their practices before a formal FTC ruling is made.22

The ﬁnal content of this FTC framework bill was inspired by a number of different sources and was shaped according to the conventions of Japanese law and business practices. Some of the clauses, such as those to increase criminal penalties and to increase stockholding restrictions on ﬁnancial institutions, were designed to tighten parts of the AML already in existence. The clause on the division of highly oligopolized companies was to revive the power lost to the FTC under the 1953 AML revision. The proposals to place restrictions on shareholding by some of Japan’s largest corporations (aimed speciﬁcally at general trading companies) and to order the disclosure of cost prices were ideas unique to FTC ofﬁcials in order to deal with aspects of Japanese business structure and practices. Other proposals, such as cartel surcharges and orders to reduce cartel prices, were borrowed from the antimonopoly policies of European nations. Despite virulent criticism for being too strict and giving the FTC too much discretionary power, the FTC’s framework bill also included a number of aspects to help make it more palatable to business and to the government. One example was the decision not to include foreign stocks in the restrictions on stockholding by large corporations. Another was inclusion of the clause that the FTC must consider a company’s international competitiveness before issuing an order to divide the ﬁrm. A further example was the setting of surcharges at the same level as the excessive proﬁts earned under a cartel arrangement. The FTC had considered surcharges of two or three times this amount, in line with similar systems in other nations. However, it was felt that such high surcharges would represent something more akin to criminal punishments and that punitive administrative and criminal ﬁnes therefore would violate provisions of the constitution prohibiting double jeopardy under the law.23 The FTC also reportedly had wanted to introduce a maximum criminal penalty of ¥10 million (up from ¥500,000), but lowered it to ¥5 million in order to placate critics who said that the ﬁne was out of line with those for similar criminal acts.24 The FTC argued that its framework bill represented a fair but tough response to concerns about contemporary Japanese business practices and customs. Praise for the framework bill came from consumer and other groups, but much criticism, sometimes scathing, was heard from other corners. Doubts about the framework bill did not come only from those adamantly opposed to the idea of strengthening the AML. Editorials in major news-

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papers welcomed the move toward revising the AML but raised concerns over some aspects of the FTC’s proposals. The proposals for disclosure of cost prices and for orders to return prices to pre-cartel levels received the most cautious reviews, with the newspapers arguing that these powers might be detrimental by allowing the FTC to intrude too far into the workings of the market and of the price mechanism. These same newspapers raised many other questions as well.25 Even some members of the FTC’s Antimonopoly Law Study Group expressed serious doubts about the feasibility and wisdom of the cost price disclosure and cartel price reduction proposals, as did certain FTC commissioners and members of the FTC’s advisory group, the Antimonopoly Conference.26 These voices of dissent within FTC itself and its advisory bodies were capitalized on by opponents of the bill, who charged that the framework bill reﬂected Chairman Takahashi’s personal agenda and preferences and ignored other opinions. In this way, the framework bill came to be associated strongly with the controversial FTC chairman, whom many in business and in the government saw as a “loose cannon” dangerously out of control. The subsequent debate over the content of the bill, therefore, was to a significant degree as much of a debate over Takahashi’s FTC as it was over the merit of the proposals themselves.

The road to revision of the Antimonopoly Law The national debate over AML revision was therefore well under way by the time the formal announcement of the FTC’s framework bill was made in September 1974. Besides substantial opposition from government and business circles, the FTC faced the immediate problem of ﬁnding a sponsor for its proposals. Having no direct representation in the cabinet because of its independent status, the FTC did not have the authority to submit a bill to ministers for consideration. Only the Economic Planning Agency (EPA) expressed mild enthusiasm for the FTC’s plans.27 Moreover, in order to become a government bill in the Diet, the measure had to receive the approval of all cabinet ministers, including those for the Ministries of International Trade and Industry, Finance, and Justice. All of these ministries had serious reservations about some of the FTC’s proposals. Finally, the FTC had consulted very little with other government bodies in the preparation phase of the framework bill, making its task in receiving their approval even more daunting.28 With the LDP having faced near defeat in the House of Councilors election in July 1974, a fact which Prime Minister Tanaka attributed directly to the anger of the general public over inﬂation and high prices,29 the Tanaka cabinet felt that it had at least to take up the issue of AML revision to avoid criticism from opposition parties and the public.30 Chief Cabinet Secretary Nikaido¯ announced in late September that a bill would be submitted to the following Diet session, but suggested that formulating

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such a bill would take much time.31 The government’s sincerity in its pledge to see through AML revision was questionable, however, as was revealed when MITI minister Nakasone stated that he had agreed with Prime Minister Tanaka that AML revision “should proceed with caution.”32 Instead of assigning a high-ranking political ﬁgure to oversee research into an AML bill, the government gave the task to a newly created council of senior bureaucrats in related government ministries and agencies, many of whom opposed signiﬁcant portions of the FTC’s framework bill.33 Before Prime Minister Tanaka announced his resignation in late November 1974, it appeared that the government was on a course to piece together an AML revision bill that would have included raising criminal ﬁnes, a cartel surcharge system, and perhaps some stockholding restrictions, but most likely would not have included most of the FTC’s other recommendations. Prospects for AML revision changed overnight when the incoming prime minister, Miki Takeo, made AML revision a top priority of his government. Miki, the leader of a relatively small faction in the LDP, had been chosen by party boss Shiina Etsusaburo¯ as a compromise candidate to prevent a possible split in the party over the choice of new prime minister. Given his clean image, he was also chosen to help restore the tarnished public impression of the LDP left by Tanaka’s money politics era.34 Known widely for his middle-of-the-road and progressive views, Miki used his new ofﬁce as an opportunity to prioritize a number of issues such as political ﬁnance reform that found him in opposition to large sections of his party. Antimonopoly Law revision was another such priority, meeting three of the major goals he set out for his administration: to tackle inﬂation, to establish more “social justice” in society, and to cooperate with opposition parties and their legislative agendas. Miki’s support of AML revision was also based in great part on the urging of Wakimura Gitaro¯, a prominent economist and chairman of the FTC’s Antimonopoly Conference advisory body.35 However, Miki’s weak position in the party plus his ambitious legislative program proved to be a formula for failure over AML revision and many other issues. Presiding over his ﬁrst cabinet meeting, Prime Minister Miki made clear to ministers that as his ﬁrst priority he wanted an AML revision bill submitted in the next Diet. He instructed Ueki Mitsunori, the directorgeneral of the Prime Minister’s Ofﬁce, to oversee the process of drafting a bill.36 Miki reafﬁrmed this position publicly in his ﬁrst press conference. He added, however, that a government bill would not necessarily adopt the content of the FTC’s framework bill.37 As a means to form a broad consensus around the bill, Ueki recommended and Miki approved that a panel of representatives of consumer, academic, business, and other groups be created to act as an advisory body to the Prime Minister’s Ofﬁce. The advisory group would deliberate on AML revision and act as a forum to have their opinions reﬂected in a government bill.38 The Prime Minister’s Ofﬁce under Ueki became the center for the coordination of opinions

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among the Prime Minister’s Ofﬁce advisory group, the LDP’s AML Discussion Group, and the senior bureaucrats’ conference. Miki’s strategy was clear: by centering work on the AML bill in the Prime Minister’s Ofﬁce, he would try to prevent bureaucrats and LDP politicians from taking the lead on a bill in an attempt to weaken or scrap proposals altogether. Director-General Ueki instructed related ministries to submit their opinions on the FTC draft by early January, and the LDP upgraded the status of its AML Discussion Group to a special committee under the party’s Policy Affairs Research Council (PARC) in order to deliberate on the AML issue.39 Senior LDP politicians, MITI ofﬁcials, and big business leaders called for a soft AML bill with anticartel and consumer protection measures – one that did not include sections to deal with structural problems such as oligopoly. After a meeting with Miki in late December, LDP secretary-general Nakasone declared that the prime minister had agreed to limit AML revision along these lines as well as include additional protection measures for small businesses and subcontractors.40 In the Diet the following day, Miki denounced Nakasone’s comments as a personal opinion and pledged in unambiguous terms that the government’s AML bill would be strict and not watered down.41 On several occasions he later repeated his determination to present a bill that had not been weakened.42 With these public promises, Miki committed himself to a course that was contested bitterly by business, bureaucrats, and a signiﬁcant portion of his party; however, it was also one that ensured that all the FTC’s proposals would receive full consideration.

Positions of interested parties The FTC’s framework bill served as the basis for discussions in the Prime Minster Ofﬁce’s advisory group, the LDP’s AML Special Committee, and the senior bureaucrats’ conference. Rather than recount the events that led up to the introduction of a government bill into the Diet in late May 1975, it is more useful to consider the views of different interested groups over the content of the AML bill and how they affected the debate and the ﬁnal shape of the bill. For reasons of space, the positions of these groups cannot be addressed in great detail. However, the most relevant and representative arguments will be presented. Consumer groups Consumer groups strongly supported the FTC’s effort to revise the AML, pledging their support to prevent the FTC’s proposals from becoming watered down.43 They also felt, however, that the FTC’s framework bill did not go far enough in addressing the demands and needs of Japanese consumers. These groups called for more accountability by the FTC over its enforcement of the AML, including the right to demand a report on

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the outcome of an FTC investigation or inquire as to the reason why the FTC chose not to take up an investigation requested by outside groups or individuals. They also wanted to have more and easier access to the courts to press their claims for damages against cartel-forming corporations. Such proposals included allowing consumer and other groups to ﬁle criminal complaints with the Public Prosecutor’s Ofﬁce and establishing class action suits where a consumer group could sue companies in court and seek damages on behalf of all consumers.44 Consumer group representatives participated in the Prime Minister’s Ofﬁce advisory group and pressed for the inclusion of their claims in this forum. At one stage Ueki and the government seriously considered some of these groups’ proposals, including allowing consumers to ﬁle private suits in courts before or in spite of the FTC issuing a formal ruling on an illegal act (under the law, these groups must wait until after such a ruling) and allowing anyone to issue a criminal accusation to the Public Prosecutor’s Ofﬁce.45 These ideas were eventually watered down in the draft government bill to a requirement that the FTC issue a report on the result of each investigation after receiving a formal complaint of suspected illegal acts.46 Consumer groups strongly criticized the government and the prime minister for paying lip service to consumers but not including most of their demands in the government’s bill. They also criticized the ﬁnal bill for having watered down the FTC’s proposals to a degree where its effectiveness in holding prices down had been thrown into serious doubt.47 Economist and law scholars’ groups Two groups of experts, on economics and law respectively, were energetic participants in the debates over the formulation of an AML bill, and their activities left an impression on its outcome. One group – the Antimonopoly Policy Discussion Group – was made up of 252 modern economics scholars (meaning neoclassical or non-Marxian). This group strongly favored increased AML enforcement and AML revision, but found itself divided over certain aspects of the FTC’s proposals such as cost price disclosure and orders to lower prices to pre-cartel levels.48 After careful deliberation over the FTC’s framework bill, the group called on politicians to prioritize measures for dividing oligopolistic ﬁrms, establishing a cartel surcharge, and setting stockholding restrictions on ﬁnancial and corporate institutions. On the remaining points of the FTC’s framework bill, the group recommended more careful study before any action was taken.49 The group of law scholars (representing 260 members) was less reserved about its support, and its representatives visited senior government ofﬁcials to lobby for the inclusion of all FTC proposals in the government’s bill.50 As the government began altering FTC proposals and attaching conditions to the use of FTC powers under the bill, the group objected

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strongly to several of these additions. One area where the group was instrumental in bringing about concrete changes was over two compromise clauses: allowance for the FTC to order reports from companies about the steps they had taken to eliminate the effects of cartel acts, and a requirement for oligopolistic ﬁrms to ﬁle reports explaining why they had increased prices at similar times (these were compromise measures proposed by the government based on the FTC’s framework bill). The group argued that from a legal standpoint these measures could actually restrict existing FTC powers.51 Opposition parties took up these arguments in their demands for revision of the bill in the Diet and succeeded in having these changes made to the government bill. The expert advice of both groups was an important source of legitimacy for all sides in the debate. Small and medium-sized enterprises Organizations representing small and medium-sized enterprises (SMEs), as well as their members, took a keen interest in AML revision. Groups such as the Tokyo Chamber of Commerce and Industry, the Osaka Chamber of Commerce and Industry, and the Central Committee of National Small and Medium Enterprise Associations all endorsed AML revision as a positive step in the protection of SMEs against the trend toward concentration in the Japanese economy. Their support was not unqualiﬁed, however. For example, many worried about the impact of stockholding regulations for general trading companies on the stable shareholding relationships SMEs had built with these companies. Subcontractors were also concerned about their relationships with major corporations should the latter be subject to an FTC order to split up or divest itself of some of its operations.52 The wishes of SME organizations, an important constituency for the LDP, were taken into careful consideration during the drafting of the government’s bill. For example, SMEs were made exempt from certain stockholding restrictions as well as from orders to divest themselves of a part of a company should it have a dominant market share.53 Big business Big business in general and its representative organizations such as Keidanren were strongly opposed to AML revision, although there did exist some range of opinion among individual businessmen. Big business leaders clearly were concerned about the impact FTC proposals would have on their operations and on the status quo in business customs. However, they also appeared to recognize the public’s anger at business and understood that some sort of mild AML revision was necessary to deﬂect criticism that the LDP was under the inﬂuence of business opinion and political funding. Following the virulent attack on the FTC’s proposals in May 1974 by a Keidanren study group, more divergent views within the business

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community plus Prime Minister Miki’s embrace of AML revision led Keidanren later to issue its ofﬁcial opinion on AML revision, which took a slightly milder position.54 Meanwhile, associations representing ﬁnancial institutions and trading companies made clear their opposition to the proposed shareholding restrictions, which would affect them directly.55 Big business attacked much of the FTC’s framework bill on theoretical, economic, and feasibility grounds. The following FTC proposals were especially objectionable: orders to divide oligopolistic ﬁrms, stockholding regulations, orders for cost price disclosure, and orders to return prices to pre-cartel levels. Most big business spokesmen, however, did not actively oppose the concept of mild surcharges for cartels and increases in criminal ﬁnes.56 When it became apparent that the government under Prime Minister Miki’s leadership was serious about keeping intact most of the FTC’s recommendations, businessmen lobbied bureaucratic and political ofﬁcials alike to place as many conditions as possible on the use of the proposed measures in order to ensure that they would be enforced sparingly. Subtle and not so subtle threats to withdraw political ﬁnding from the LDP should it approve a bill objectionable to big business were made in the process.57 Two recurrent themes came up in the arguments big business used to attack AML revision. The ﬁrst was the idea that further regulation of business and its activities by the government under the guise of AML revision was tantamount to a rejection of the free enterprise system. Memories of wartime economic regulation were still clear in the minds of business leaders, and any overt regulation of business was looked upon with strong suspicion. Prime Minister Miki and his supporters argued against this view, saying that AML regulation was necessary to save the free enterprise system from itself by establishing clear rules.58 FTC chairman Takahashi echoed this rebuttal, noting that “free does not mean a situation where companies are given a free hand to do just as they please” (emphasis added).59 The second recurring argument was that if the FTC was to be given such strong powers over business, the FTC chairman should be made a member of the cabinet since the FTC’s independent status already gave it too much discretionary power.60 This view was shared by many LDP politicians. The subject of the FTC’s independence became a central issue in the debate over the ﬁnal shape of the government’s AML bill. The placing of several conditions on the divestiture order clause was one compromise made with business groups in order to preserve the FTC’s independent status. The bureaucracy The fact that proposals in the FTC’s framework bill touched the jurisdictions of so many ministries made it an extremely controversial bill among bureaucrats. The central nemesis in the bureaucracy against the

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AML revision movement was MITI. Its objections to the FTC’s proposals were parallel with those raised by big business groups, but often had different reasons.61 MITI bureaucrats recognized as valid many of the concerns that formed the foundation of the FTC’s framework bill, including the problems of administered prices, oligopoly, and other anticompetitive behavior.62 They argued, however, that MITI’s oversight of industry gave it the prerogative to handle these problems and hence FTC interference in the conduct of industrial policy was intolerable. In an ofﬁcial opinion on AML revision, MITI stressed that antimonopoly policy could not address adequately the difﬁculties facing Japan’s industrial structure. The opinion paper went on to announce that MITI would establish an advisory body, the Subcommittee on Industrial Organization, to deliberate on its own long-term solutions.63 MITI also conducted several studies to try to demonstrate that some of the FTC’s assertions were not based on economic fact, including its ﬁnding that prices in oligopolistic markets had actually risen less than prices in competitive markets during the period 1965–75.64 Finally, high-ranking MITI ofﬁcials such as Amaya Naohiro attacked the very rationale of AML revision, arguing that unique aspects of Japanese enterprises and Japan’s capitalist system justiﬁed cooperative and collusive acts.65 MITI did not have a difﬁcult time locating LDP politicians who were sympathetic to its views.66 After Prime Minister Miki’s attitude over revision became clear, ministry ofﬁcials sought to use their inﬂuence in the LDP to attach debilitating conditions to several of the FTC’s proposals. On the controversial proposal to allow the FTC to divide oligopolistic ﬁrms, MITI and big business opposition succeeded in having a clause added that required the FTC to consult with the relevant minister twice before issuing an order to divide. This wording, however, was not as strong as MITI’s demand to require the formal agreement of the relevant minister. MITI also succeeded in having another restrictive clause added that disallowed an order to divide a company should alternative ways to restore competition in the industry be available. The result was to make the agreement of the minister a practical, albeit not absolute, necessity.67 Opposition from MITI and big business also resulted in other clauses being altered, including the replacing of the FTC’s desire for orders to reduce prices to pre-cartel levels with weaker language that allowed the FTC to require reports on measures taken to end the effects of cartel acts. MITI, however, was not successful on every front. While broad opposition to the proposal on cost price disclosure led the government to drop the idea, in its place Director-General Ueki included a requirement for companies with signiﬁcant market shares to report to the FTC the reason for any increases in prices among them within a similar period of time.68 The intended effect – a deterrent to oligopolistic ﬁrms from either formally or informally administering prices – was similar. MITI objected that the proposal would still give the FTC too much power to intervene indirectly

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in market prices. Despite much lobbying, the parallel price increase report scheme was included in the bill submitted to the Diet. Other ministries also had a signiﬁcant impact on the terms of the government bill. The Ministry of Finance (MOF), for example, insisted successfully that the tightening of stockholding regulations by ﬁnancial institutions exclude insurance companies and trust banks and that the grace period for corporations to fall in line with their new stockholding restrictions be extended.69 The Ministry of Justice (MOJ) also had several objections, including its opposition to the establishment of a cartel surcharge system (which would be outside of the jurisdiction of the courts) and increases in criminal ﬁnes.70 At the center of the MOJ’s objections, however, was its argument that any clause allowing the complete division of highly oligopolistic corporations ﬁrst had to be coordinated with Japan’s Commercial Law, which contained no procedure for such an operation. After protracted legal debates the government decided to drop the clause making possible the division of a company and instead include an allowance for the FTC to order an oligopolistic company to divest itself of a division, a procedure that was allowed under the Commercial Law. However, a political decision was made to prioritize the rights of shareholders by allowing them to reject an FTC order to divest rather than make explicit that an FTC order would supersede this right. This decision left ambiguous the ability of the FTC actually to cause a company to divest itself of a division, effectively delegating the question to the courts.71 The concerns and objections raised by these and other bureaucratic ministries and agencies had a signiﬁcant effect on the ﬁnal outcome of the government bill, having served to weaken the FTC’s original proposals. Opposition parties All four major opposition parties supported the cause for AML revision actively. However, they did not play a direct role in the drafting of the government bill beyond challenging the government in the Diet not to go back on the prime minister’s promises. The parties did continue to draft bills calling for a strict AML revision and restrictions on other corporate activities, such as proposals that would completely sever close relations (keiretsu) among Japan’s conglomerate groupings.72 These activities acted as a reminder to the government and to business of what might happen should the LDP lose its tenuous majority in the Diet. Opposition party demands did affect the bill during Diet deliberations, the details of which will be discussed shortly. The Liberal Democratic Party Views of AML revision in the LDP were divergent and divisive. This wide mix of opinions in the party was shaped to a substantial degree by the

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demands of the different groups mentioned above, including a concern that corporate donations to the party would be cut should it reject demands from big business and ﬁnance.73 Without the leadership of Prime Minister Miki on the issue, it is questionable whether most of the FTC’s framework bill would ever have been considered seriously by the party, owing to the extremely controversial nature of the AML among Japan’s bureaucrats and businessmen. In addition to LDP sympathies with big business and other groups, there existed a deep-rooted opposition on the part of many conservative-minded LDP politicians to any strengthening of the AML. One example was Aoki Kazuo, an LDP House of Councilors Dietman, who challenged the government by arguing that the FTC itself was unconstitutional because of its independent status from the cabinet.74 Many of the LDP’s other ex-bureaucrats and ex-industrialists shared Aoki’s antagonistic personal views. Others argued that some of the proposals violated the principles of a free enterprise system by limiting business activity. LDP factions and policy study groups took different stances on the revision issue. The Shinpu¯ Seiji Kenkyu¯kai group led by Kosaka Tokusaburo stated its opposition to any AML revision. Other groups, however, such as the Hirakawakai group led by Miyazawa Kiichi, a study group in the – Tanaka faction led by Nikaido¯ Susumu, and the Ohira faction, took more accommodative but somewhat skeptical positions.75 Despite statements from such groups, however, opinions on the AML issue generally cut directly across factional lines.76 Moreover, no group actively supporting AML revision in the LDP was apparent besides the prime minister himself. Key government and party leaders were also split on the issue. Deputy – Prime Minister Fukuda and Minister of Finance Ohira were agreeable toward the ﬁnal government bill, while LDP PARC chairman Matsuno, LDP vice president Shiina, and LDP secretary-general Nakasone worked from the outset to try to scupper any AML bill with real teeth. The result was a thorough internal party debate involving hundreds of hours of deliberations among various groups in the LDP.

Failure of the ﬁrst attempt to revise the Antimonopoly Law As the preceding section shows, the content of the government’s ﬁnal AML bill reﬂected the input of a number of different interested groups. Nevertheless, Prime Minister Miki’s insistence on a strong bill resulted in its closely paralleling the basic points and ideas contained in the FTC’s framework bill. An outline of the government bill and its major conditions and restrictions is provided below and summarized in Table 5.1 (p. 93) for comparative purposes. 1 Divestiture Order for Highly Oligopolistic Companies. The FTC may order a ﬁrm to divest a part of its business should it conﬁrm a monopolistic

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3 4

5

6 7 8 9

10

Revision of the Antimonopoly Law situation (where one ﬁrm holds a market share in excess of 50 percent or two ﬁrms hold a combined market share in excess of 75 percent). Moreover, the following conditions must be met: barriers to new market entry exist, proﬁts exceed normal levels, and large expenditures on sales and administration can be seen. The FTC must also consider such aspects as the general state of the corporation, its international competitiveness, personnel matters, and whether other means of restoring competition are available. The FTC must consult twice with the appropriate minister. Report on Parallel Price Increases. Three or fewer large companies that hold a combined market share of 75 percent or more must report to the FTC the reasons for price increases when two or more of them have increased prices by the same amount within a three-month period. Administrative Surcharges on Illegal Cartels. The surcharge amount is set at 1.5 percent of gross sales (1 percent for retailers and 0.5 percent for wholesalers) over the cartel period. Stockholding Restrictions on Large Corporations. Corporations exceeding ¥10 billion in capitalization or ¥300 billion in net assets may not hold stock that exceeds their total amount of capitalization or net assets, whichever is the greater. Several exemptions apply. Stockholding Restrictions on Financial Institutions. The ceiling on stock held by ﬁnancial institutions in any one company is to be lowered from 10 to 5 percent. Insurance companies and trust banks are to be made exempt. Increase in Criminal Penalties. The maximum criminal ﬁne will be raised to ¥5 million (from ¥500,000). Corporate executives may also be held liable to criminal prosecution. Cease and Desist Orders against Unfair Trading Practices. The FTC will be allowed to order measures to be taken to correct unfair trading practices. Retroactive Cease and Desist Orders. The FTC can issue cease and desist orders against cartels that have already been dissolved. Compulsory Reports on Measures Taken to End Effects of Cartel Practices. Companies will be required to ﬁle reports with the FTC following an order to end cartel activities that detail steps taken to rectify the effects of the cartel. Notiﬁcation to Reporters of Illegal Behavior Following a complaint of illegal activity from an individual or institution, the FTC must send notiﬁcation of what measures it took or did not take against the alleged violation.77

When the government’s AML bill was ﬁnally approved by the cabinet on 25 April 1975, a full ninety days after Prime Minister Miki’s target completion date, its successful passage was already in serious doubt. LDP vice president Shiina, the man who had brought about the birth of the

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Miki administration, had told the press only a few days earlier that an AML bill would go to the Diet but suggested that it would not pass.78 Miki’s decision to press for a strong bill had been extremely divisive for the LDP. As a result, party leaders decided to let the bill be submitted to the Diet with an understanding that the dissension in the LDP be allowed to spill onto the Diet ﬂoor and into committees since an intraparty consensus had not yet been reached. The strategy of party leaders Shiina and Nakasone, among others, was that the bill be debated thoroughly in the Diet and thereby be allowed to die in session. LDP politicians packed the House of Representatives Standing Committee on Commerce and Industry on the day deliberations on the bill began (3 June), and these discussions dragged on through late June. Objections to the bill came from the opposition parties as well, charging that the numerous conditions attached to some items in effect weakened them to the point of insigniﬁcance. LDP leaders attempted to use this standoff between the LDP and opposition party demands over the bill as an excuse to set the bill aside.79 However, Prime Minister Miki was determined to press ahead and had his supporters approach opposition parties about formulating a compromise, a move that infuriated LDP party leaders.80 He nevertheless again appealed to LDP party leaders for their support.81 Members of Miki’s faction were eventually able to reach a compromise with opposition parties on the bill.82 Given high public expectations about the passage of the AML bill, LDP leaders decided to allow the bill to pass the House of Representatives on the basis of this compromise. The compromise covered several points, including a reduction in the number of consultations over divestiture orders between the FTC and the related minister from two to one, an increase in cartel surcharges for manufacturers, and a softening of the wording on reports of measures taken to end the effects of cartel practices. The clause on reports of parallel price increases was dropped completely, at the insistence of opposition parties, owing to arguments by a legal scholars’ group that they could interfere with preexisting FTC powers.83 All parties in the House of Representatives voted for the bill unanimously on 24 June, and the debate shifted to the House of Councilors with ten days remaining in the Diet. However, LDP party leaders led by Shiina arranged with the Speaker of the House of Councilors to try to allow the bill to die in session.84 Three major factors prevented the passage of the bill in the House of Councilors by the end of the seventy-ﬁfth Diet session. One was the opposition of LDP party leaders to the enactment of the AML bill, believing that it and other controversial legislation risked splitting the party and incurring the wrath of big business and other interested groups. The second was the full legislative agenda of the House of Councilors, which was in the midst of considering nearly ten other controversial pieces of legislation when the AML bill was reported to the body. The third was the virulent opposition of some LDP members of the House of Councilors

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and several other ex-bureaucrats and ex-businessmen. In addition to these three main factors, others helped cause the bill to die in session, including anger at the manner in which Prime Minister Miki had handled the AML and other issues in the party and in the Diet.85 In light of likely defeat, the JSP and the DSP at the last minute decided to prioritize other legislation over the AML bill.86 The result was as had been predetermined by Shiina and other LDP party leaders:87 the AML bill was never taken up for a vote in the House of Councilors when the session ended on 4 July 1975.

Failure of the second attempt By the end of the controversial seventy-ﬁfth Diet session, Prime Minister Miki’s tactics over the AML bill and other legislation caused him to slide signiﬁcantly in standing in his own party.88 Big business leaders, stunned that the AML bill had ever even been able to reach the House of Councilors, questioned openly whether or not the government was really made up of LDP politicians.89 Following the bill’s demise, Prime Minister Miki expressed his desire that it be taken up again in the next extraordinary Diet session in the fall of 1975. LDP party leaders, however, quashed any idea of bringing it up again then or perhaps in the future.90 Despite this pessimism, business, academic groups, and others recognized that the debate and public expectations had made possible a stronger antimonopoly policy for Japan sometime in the future.91 The LDP re-formed its AML Discussion Group in September 1975 and decided to review comprehensively the revision issue as well as FTC procedures and functions. Matsuno Raizo¯, chairman of both the AML Discussion Group and the LDP PARC, suggested that an AML bill might not even be submitted in the next ordinary Diet session in 1976.92 Other government leaders such as Deputy Prime Minister Fukuda, however, argued that an AML revision bill should be presented. The government and LDP eventually decided in mid-November that submission would go ahead.93 This decision seemed to be based in signiﬁcant part on the high expectations in the public for ofﬁcial relief measures to deal with continuing high prices and inﬂation.94 However, with the onset of a recession by 1975, most in the party felt that AML revision, especially a strong revision, was an unwarranted policy for the government. Prime Minister Miki stated in his opening speech to the seventy-seventh ordinary Diet the government’s intention to reintroduce an AML bill, calling it a “demand of the times.”95 Miki personally wanted the resubmission of the bill that had passed the House of Representatives in 1975, and opposition parties urged the same.96 But the resistance of LDP party leaders and others ensured that this would not be the case.97 Discussions in the LDP centered on watering down the previous government bill and on proposals to weaken the FTC, either by separating its investigative and

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quasi-judicial functions or by making the FTC chairman a member of the cabinet.98 These opponents believed that political accountability was necessary in order to “coordinate” antimonopoly policy with other economic policies, an argument widely recognized as a red herring to allow conservative forces to control antimonopoly policy. MITI also continued to seek to undermine the revision movement by speeding up its investigations into a new industrial structure policy for Japan that in part would address problems of oligopoly and corporate groupings.99 This second stage in the revision effort, therefore, saw a retrenchment of anti-AML revision forces, who sought to use the opportunity as a means of weakening the FTC or making it more accountable politically. Continued dissatisfaction with the way Chairman Takahashi and the FTC had used its independent position to enforce the AML strictly was clearly at the root of the strength of this retrenchment.100 Just as the debate in the LDP began heating up again in early February 1976, however, Chairman Takahashi announced his resignation from his post owing to a deterioration in his health.101 On the same day as Takahashi’s resignation, the LDP was sent into complete disarray by the news that former prime minister Tanaka might have been involved in the country’s infamous Lockheed scandal. These events only served to weaken the cause for AML revision even further, with the pro-revision forces having lost Takahashi as their most important spokesman and the LDP having turned its attention to other matters. After some discussion, the acting chairman of the LDP’s AML Special Committee, Yamanaka Sadanori, determined that proposals for making the FTC chairman a cabinet minister were not appropriate given the jurisdiction of the FTC.102 In order to help preserve the FTC’s independence from further attack, Prime Minister Miki agreed to drop from the bill the controversial divestiture clause.103 The LDP’s AML Special Committee also decided to draft a series of clauses that would help separate the FTC’s investigative and quasi-judicial (hearing) functions.104 The LDP Committee ﬁnally released its AML draft bill in late March 1976, and after a few minor changes this draft formed the basis of the government’s bill approved by the cabinet in late April. An outline of this bill is presented in summary in Table 5.1 (p. 93) for comparative purposes. At his ﬁrst press conference, the new FTC chairman, Sawada Yasushi, said it was “regrettable” that the bill lacked important features of the 1975 bill (the divestiture order clause). However, he still called for its passage, noting that the bill still contained several important clauses and that debate could continue about the more controversial parts.105 He promoted the need for the FTC to communicate and cooperate to a certain degree with government and business, and this position was widely applauded by the LDP and business circles as a welcome change from the Takahashi era.106 He also went to work to convince the business community of the need for AML revision as well as repairing the damage created by Takahashi’s style of leadership.107 Sawada’s more open and accommodating style was

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to help silence charges that the FTC was running alone and should not be given more discretionary power. Opposition parties, however, criticized the government bill as a major retreat from the bill approved by the House of Representatives in 1975, especially as it lacked the divestiture clause.108 Meanwhile, the issue had been moved to the back of the LDP’s agenda as the fervor over revision cooled down. Desiring to avoid a full debate in the Diet and inevitable criticism from opposition parties, the government did not present its bill until three days before the end of the Diet session. The bill once again died on the Diet ﬂoor. The government resubmitted the bill in the extraordinary Diet session in the fall of 1976, but a coming general election, opposition party criticism, and a lack of motivation in the LDP presented the bill from ever being debated.109

Revision at last The near-defeat of the LDP in the House of Representatives election in December of 1976 brought down the Miki cabinet, and Fukuda Takeo was elected as the new prime minister. Business circles widely applauded the choice of Fukuda, who, they believed, would bring the government back to traditional conservative values and away from the Miki administration’s ﬂirtation with reform and mild liberalism.110 As the leader of a – sizable faction and after having reached a truce with his rival Ohira Masayoshi, Fukuda’s position in the party was more secure than Miki’s. But the Fukuda administration held only a narrow majority in both houses of the Diet, and as a result, opposition parties were able to take control of some of the House of Representatives standing committee chairmanships for the ﬁrst time in eighteen years. Moreover, the defection of several LDP Dietmen in July 1976 to form the moderately progressive New Liberal Club, along with the new party’s successes in the December 1976 general election, put additional pressure on the Fukuda administration to avoid lurching to the right and alienating urban voters. These factors ensured that the coming ordinary Diet session would not be a period for normal conservative politics. Prime Minister Fukuda indicated in his ﬁrst press conference that the AML revision issue should be taken up in the Diet and settled once and for all, believing that the LDP should follow through on its earlier political pledge. His desire, however, was for the passage of a bill similar to the 1976 government bill.111 Soon after, opposition party leaders made clear to Fukuda that they would demand an AML bill on the legislative agenda in line with the bill passed in 1975 by the House of Representatives (hereafter 1975 HR bill).112 Later, they also made AML revision one of three conditions for cooperation with the Diet Policy Committee over Diet affairs.113 This set the stage for potential conﬂict between the ruling and opposition parties over the AML bill.

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Fujita Katsushi, the new director-general of the Prime Minister’s Ofﬁce, was assigned the task of studying the idea of AML revision and coordinating it among the related bodies and political parties. But it was actually Yamanaka Sadanori, the chairman of the LDP’s AML Special Committee since 1975, who became the central actor in the drafting of the bill.114 Yamanaka arranged with Prime Minister Fukuda that he be given full power to draft the bill in exchange for a guarantee that the prime minister and the government would mobilize to ensure that the LDP supported the ﬁnal product.115 Fukuda met soon after with senior LDP leaders and with the chairman of the House of Councilors LDP Diet members in order to clear the way in the party for AML revision.116 The LDP AML Special Committee began regular meetings in early February 1977 to draft a bill. The committee considered a number of proposals to add to the bill, including a clause proposed by big business groups to relax the requirements for FTC-managed recession cartels, given the depth of the economic recession.117 But the most divisive issue was whether to include the company divestiture clause, the major difference between the 1975 HR bill and the 1976 government bill.118 Deliberations continued through mid-March, when the party leadership began giving signs that a company divestiture clause would need to be included in the bill to appease criticism from opposition parties.119 LDP leaders also worked behind the scenes to receive the understanding of big business over the political necessity of including the clause. As a result, while still vigorously opposed to that and several other clauses, Keidanren chairman Doko¯ stated that the development was regrettable but “unavoidable.”120 Many others in industry, however, expressed their extreme dissatisfaction with the content of the bill as well as the fact that Yamanaka never met with industry representatives to hear their views.121 The prime minister approved in late March the bill drafted by Yamanaka and his committee, and it was cleared by the LDP Policy Affairs Research Council only two days later. An outline of the content of the LDP’s bill is presented below and summarized in Table 5.1 (p. 93) for comparative purposes. Moreover, except for a few minor changes that will be detailed shortly, this version was eventually enacted into law in May 1977. 1 Divestiture Orders for Highly Oligopolistic Companies. Content was similar to that of the 1975 bill, but added a requirement that the relevant minister be able to issue an opinion to the FTC on measures possible to help restore competition (and thereby make a divestiture order difﬁcult to realize). The FTC would be required to consult with the appropriate minister twice before beginning a hearing into a company or companies believed to be in a “monopolistic situation.” 2 Report on Parallel Price Increases. Content was similar to that of the 1975 government bill, but was put under a different section of the law so as to prevent it from weakening FTC powers.

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3 Administrative Surcharges on Illegal Cartels. Content similar to that of 1975 and 1976 government bills, setting cartel surcharges at 1.5 percent of sales of the cartel good(s) (2 percent for manufacturing ﬁrms, 1 percent for retail ﬁrms, and 0.5 percent for wholesale ﬁrms). 4 Stockholding Restrictions on Large Corporations. Content similar to that of the 1975 and 1976 government bills. 5 Stockholding Restrictions on Financial Institutions. Content similar to that of the 1975 and 1976 government bills. 6 Increase in Criminal Penalties. Content same as that of the 1975 and 1976 government bills. 7 Cease and Desist Orders against Unfair Trading Practices. Content similar to that of the 1975 government bill. 8 Retroactive Cease and Desist Orders. Content similar to that of the 1975 and 1976 government bills. 9 Compulsory Reports on Measures Taken to End Effects of Cartel Practices. Content same as that of the 1975 government bill. 10 Notiﬁcation of Reporters of Illegal Behavior. Content similar to that of the 1975 and 1976 government bills. 11 Changes in Hearing and Appeals Procedures. Content similar to that of the 1976 government bill. Included were several measures to separate investigative and hearing functions of the FTC, etc.122 Opposition parties, the law scholars’ group, consumer groups, and others criticized the bill as a weaker version than the 1975 HR bill.123 However, FTC chairman Sawada and others noted that the bill was very close in content to the 1975 HR bill, and as such should be seen in a positive light.124 This similarity to the 1975 HR bill drew strong MITI criticism, arguing that more cabinet control over a divestiture order was necessary, that some checks on the FTC’s ability to carry out searches and seizures of companies suspected of being near to having a monopoly were necessary to protect the privacy of companies, and that the parallel price increase report system should be scrapped.125 These were all areas where MITI felt the FTC was intruding on its jurisdiction. After much complaining to the government, the MITI minister was ﬁnally overruled by Prime Minister Fukuda and none of these MITI demands was met.126 The cabinet approved the bill soon after. After the bill had cleared all hurdles in the LDP, the focus turned to whether the ruling and opposition parties could strike a compromise in the Diet. Opposition parties generally were uniﬁed behind a demand that the 1975 HR bill be the basis for any AML bill, and accordingly wanted the following three changes: (1) dropping the clause on reports for measures taken to end illegal cartels (fearing that for legal reasons it might interfere in other FTC powers) and instead allowing the FTC to order prices restored to pre-cartel levels; (2) removal of the ministerial reporting and consultation measures for the divestiture clause; and (3) removal of one of

Revision of the Antimonopoly Law 91 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

the proposed changes in FTC ﬁndings and appeal process. After the LDP agreed to drop the clause in the ﬁrst demand but refused any further changes, the ﬁve opposition parties ﬁnally agreed to accept this compromise and cleared the way for the passage of the bill in the Diet.127 The House of Representatives passed the bill unanimously on 13 May. The House of Councilors passed the bill as well on 27 May, with a handful of LDP Councilors and one independent Councilor voting against or abstaining.128 The new AML took effect from December 1977.

Conclusion The protracted and difﬁcult nature of the effort to achieve Japan’s ﬁrst legislative boost for the AML and the FTC made clear the high barriers that proponents of stronger antimonopoly policy faced. As seen in the debates over cartel reform in the previous chapter, the FTC, acting as a policy entrepreneur, took full advantage of the air of crisis created by spiraling prices and corporate scandals to push its agenda onto the political stage. It is also apparent that despite this conducive environment, the broad scope of the bill that ﬁnally passed would never have come about without having gained the personal support of Prime Minister Miki. In the absence of these conditions, the FTC’s isolation from normal legislative channels plus continued virulent opposition from conservative forces in Japan almost assuredly would have buried the FTC’s proposals before they ever reached the cabinet. The trade-off for lacking political representation in the cabinet was the maintenance of the FTC’s formal independent status. Although consistently under attack through the debates, the government was unwilling to tamper with this status in light of certain opposition. The FTC proposals most vigorously opposed were those aimed at narrow segments of the business community, such as the ceiling on stockholding by large corporations, orders for concentrated ﬁrms to divest holdings, and efforts to restrain administered prices in oligopolized industries. These were also the areas weakened most in the ﬁnal legislation, so as to limit their impact. FTC proposals for other measures such as cartel surcharges and increased criminal penalties, where costs and beneﬁts were most diffuse, were resisted much less and passed in a form similar to initial FTC proposals. Although strong opposition by big business, MITI, and other ministries such as the MOF and MOJ tended to be mutually reinforcing, these efforts blunted but ultimately failed to prevent the passage of these reforms. Small business was much more successful in its efforts to be excluded from the bulk of the impact of the revision bill. While consumer groups helped provide visibility to the revision effort, almost all of their unique proposals were spurned by either the FTC, LDP, or other interested parties. Of particular note was the strong resistance of a substantial number of LDP politicians to AML revision, revealing the deep pro-business current

92

Revision of the Antimonopoly Law

that ran through the party. The importance of big business funding in inﬂuencing such views is clear. However, opposition often also seemed to run deeper than any simple concern over political contributions, tending to reﬂect the personal views of many of the ex-businessmen and ex-bureaucrats in the party toward the FTC and the AML. Some other LDP politicians were in favor of certain changes to the AML, but no group actively supporting the cause ever emerged. Opposition parties universally favored more restrictions on Japan’s growing big business menace, proposing many other restrictions in addition to the revision of the AML. The opposition’s supportive role in keeping the issue before the Diet turned pivotal when electoral successes in 1976 forced the LDP into compromise with these parties on AML reform in order to ensure smooth Diet affairs. It is remarkable that despite vigorous opposition, all but one of the FTC’s original proposals in 1974 eventually passed the Diet in a form with similar statutory content or policy intent. While some of the new AML clauses were laden with certain conditions and exemptions, some point to anecdotal evidence that many of these measures nonetheless appeared somewhat effective in preventing the problems they sought to prevent.129 Through its anti-cartel activities, the FTC had become strongly associated with the issue of price control. Yet the problems addressed by the AML bill went much deeper. In the sphere of expert opinion, the debate over AML revision was rightly seen as going to the very heart of issues of competition, economic structure, and ﬁrms’ behavior in Japan. While far from a complete rejection of old ways, the bill nevertheless represented an important, and not merely symbolic, move away from the status quo. These considerations were relevant for LDP political leaders so far as they related to a desire to address general public criticism and anxiety. However, the LDP’s eventual acquiescence in stronger revision than it was originally willing to tolerate was based chieﬂy on political strategy and compromise, and, with a few exceptions, not on any enlightened desire to establish new economic principles for the marketplace.

Order for ﬁrms engaged in an illegal cartel to reduce their prices to pre-cartel levels for a period of up to 6 months

Measures against unfair restraints of trade cartels

Following FTC ﬁnding against a cartel, FTC may require the involved parties to submit a report on steps taken to eliminate the effects of the cartel, as well as to report on the implementation of these measures

Requirement to report (deleted) to FTC reason for parallel price increases implemented in a 3-month period

Order to disclose cost prices in the event of similar price increases

Measures against simultaneous price increases by oligopolistic ﬁrms FTC may order necessary measures to eliminate the effects of illegal acts

Same as left (but only 1 consultation required)

Order to divest a part of a ﬁrm or other means to restore competition (2 consultations with related minister required)

Orders to divide a ﬁrm should it acquire a dominant position

Measures against monopolistic conditions

Five-party bill (passed House of Rep. 6/24/75)

First Government Bill (4/25/75)

FTC draft bill (9/18/74)

Table 5.1 Outline of different Antimonopoly Law revision bills and proposals Note: major points/alterations highlighted in bold lettering

(deleted)

(deleted)

(deleted)

Second government bill (5/21/76)

Same as ﬁrst government bill (but put under different article) (NOTE: these measures were dropped in Diet deliberations owing to requests of opposition parties)

Same as ﬁrst government bill (but moved to new chapter of AML to prevent weakening FTC powers)

Same as ﬁve-party bill (some conditions added, including 2 consultations required)

Third government bill (passed Diet 5/27/77)

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Surcharge on cartels affecting prices to recover excess proﬁt, including international cartels and agreements by trade associations (1.5% of gross proﬁt, except 1% for retailers and 0.5% for wholesalers)

Surcharge on priceraising cartels limited to the excess proﬁt taken from cartel agreement (amount of price increase x sales volume)

Stockholding restrictions Decrease ceiling on Same as left (insurance on ﬁnancial institutions the holding of stock ﬁrms excluded from from 10% to 5% of the change) outstanding shares in a given company

Second government bill (5/21/76)

Same as left

Same as left

Same as left

Same as left, but added Same as left higher surcharge of 2% for manufacturers

Five-party bill (passed House of Rep. 6/24/75)

Prohibit large ﬁrms Same as left (exceeding ¥10 billion in capitalization or ¥30 billion in net assets) from holding stock in excess of capitalization or net assets, whichever is greater

First Government Bill (4/25/75)

FTC draft bill (9/18/74)

Stockholding restrictions Prohibit large ﬁrms on large corporations (exceeding ¥10 billion in capitalization or ¥200 billion in total assets) from holding stock in excess of their own capitalization or half of net assets, whichever is greater

Administrative surcharges for illegal cartels

Table 5.1 (cont.)

Same as left

Same as left (minor changes in conditions)

Same as left

Third government bill (passed Diet 5/27/77)

(not included)

(not included)

Several provisions to Same as left separate FTC hearing and appeals procedures, etc.

Same as left

Same as left

Same as left

Same as left

– Source: Table adapted from Ohashi Muneo, “Dokkin-ho¯ kaisei no ikisatsu to kaisei jiko¯ kaisetsu” (Details of Antimonopoly Law Revision and an Explanation of the Revision Items), Sho¯ji ho¯mu, 10 August 1977 (special edition no. 37), p. 11.

(not included)

Changes in hearing and appeals procedures

Same as left

Require FTC to Same as left issue report to those ﬁling complaints about illegal acts which outlines the result of FTC investigation and actions

(not included)

Notiﬁcation requirements to reporters of illegal acts

Same as left

Same as left

Allow FTC to order Same as left necessary measures be taken despite the cessation of illegal activities

Retroactive cease and desist orders

Same as left

Same as left

Allow FTC to take Same as left any measures deemed necessary to end unfair trading practices; also, make such practices liable to criminal penalties

Measures against unfair trading practices

Same as left

Same as left

Increase maximum Same as left penalty from ¥500,000 to ¥5 million; also, make corporate heads responsible for cartel acts

Criminal penalties

6

The problem of structurally depressed industries

As seen in the case of the legislative response to the oil crisis outlined in Chapter 4, the Fair Trade Commission (FTC) and antimonopoly policy had traditionally been excluded entirely, or accorded only a marginal role in the outcome of political debates over industrial policy. By the mid- to late 1970s another problem for industrial policy had become obvious to bureaucrats, politicians, and affected companies: the structural depression and decline of several of Japan’s major industries such as cotton textiles, paper, and aluminum. Industrialists argued that traditional measures for helping industries adjust to depressed prices and overcapacity – temporary recession cartels under the Antimonopoly Law or cartels according to administrative guidance – were insufﬁcient and demanded further ofﬁcial assistance and relief. Politicians and economic bureaucrats, choosing not to let market forces lead many of these ﬁrms into bankruptcy, both responded to such calls with legislation to help the companies cut costs and employees, reduce production capacity, and make the transition into new products. The choice for public policy was what kind of assistance was needed and justiﬁed. Given the gravity of the problems facing many of these depressed industries, it might be expected that industrial policy plans for assistance would once again exclude antimonopoly policy and carry a strong anticompetitive tenor. Yet despite some allowances made that were to the detriment of market competition, antimonopoly policy and the FTC nevertheless were accorded rather strong roles in checking industrial policy plans to ensure they were not taken to excess. The FTC was also able to keep out of the ﬁnal legislation many of the anticompetitive plans put forward by industry and the Ministry of International Trade and Industry (MITI). The focus of this chapter is to show why and how the FTC and antimonopoly policy came to be accorded such a role in industrial policy for structurally depressed industries.

Problem of structurally depressed industries 97 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

The Depressed Industries Stabilization Law, 1978–83 Depressed industry sectors faced a variety of problems by 1977, some of which were common to all and others peculiar to speciﬁc industries. Among these problems were higher energy costs as well as a general shift toward stronger import competition and decreased export competitiveness, a trend in part aggravated by the gradual rise in the value of the yen since the early 1970s.1 Some problems they all faced included sluggish demand and an excess of production facilities resulting in oversupply and therefore depressed market prices. Prompted by pressure from industry and politicians, MITI began discussions in late 1976 on ad hoc policies to foster structural improvements in depressed sectors. These policies focused in great part on the coordinated disposal of excess capital facilities used in manufacturing as well as restrictions on new investment by industry. The central goal was to bring about meaningful reductions in production capacity and therefore production volume in order to boost depressed prices.2 This differed from previous measures taken by MITI and the FTC in that total production facilities would be cut rather than simply production. FTC chairman Sawada agreed that a cutback in production capacity appeared necessary but expressed concern over how the policy would be carried out by MITI.3 The move to draft a more comprehensive policy to assist structurally depressed industries received a boost in mid-1977 as the government’s attention turned away from measures to control inﬂation toward measures to restart the economy. Only days after the passage of the bill to strengthen the AML, Prime Minister Fukuda met with his economic ministers to direct them to design measures to help depressed industries. Policies recommended by MITI and industry and agreed on by politicians included the need for longer-term measures to help companies dispose of excess facilities and to promote the transition of depressed industries into new products.4 These policies were formalized in September 1977 when the Fukuda cabinet announced a seven-point plan to help boost the economy. The plan also called for government ﬁnancial support for the disposal of production facilities.5 The package, with its mix of macro- and micro-level policies, was hailed by industry and the media as a long overdue but bold move to improve business conditions.6 On the basis of this plan, MITI established a “Structural Depression Countermeasures Headquarters” that set to work on drafting comprehensive policies and legislation for depressed sectors.7 After a review of industry conditions, MITI then began to intervene further in industries facing acute problems. It intervened in the synthetic textile sector by instituting a recommendation cartel (kankoku so¯tan karuteru) for the ﬁrst time since 1965 to institute production cuts after industry itself could not reach a consensus on terms for a formal recession cartel. Informal guidance cartels were also used in other industries to

98

Problem of structurally depressed industries

help set guideposts for the idling of production facilities and production cutbacks.8 By the end of 1977, the drift of policy being prescribed for depressed industries by politicians and MITI bureaucrats was rapidly moving away from the FTC’s basic position on how industrial adjustments should be made. The FTC argument – that short-term recession cartels should be granted for temporary relief but that long-term measures would only cause ﬁrms to delay needed adjustments – increasingly fell on deaf ears in policy circles.9 Feeling the weight of political and industry pressure, the FTC itself began to take a more open position toward the appropriate role of government in industrial adjustments. This further shift was accompanied by the arrival of a new FTC chairman in the fall of 1977, Hashiguchi Osamu. Chairman Hashiguchi, a former senior bureaucrat at the Ministry of Finance, told a meeting of Keidanren leaders that “Under this type of recession, I wish to apply the Antimonopoly Law as ﬂexibly as possible.”10 He proposed that if conditions warranted, the FTC could implement price rather than quantitative restrictions under recession cartels. He also revealed that the FTC would institute a new interpretation of the Antimonopoly Law (AML) to make possible the actual scrapping of production facilities under recession cartels.11 FTC ofﬁcials reasoned that the disposal of these facilities rather than the use of simple limitations on production output would be a more effective way of improving conditions in industry.12 As his predecessors Takahashi and Sawada had argued before him, however, Hashiguchi urged that all cartels be approved under the authority of the FTC and by legal statute rather than according to informal MITI guidance that could foster illegal cartels. He argued furthermore that self-help efforts by industry should be prioritized over ofﬁcial policies.13 The gulf in the positions put forward by MITI and the FTC developed into a jurisdictional dispute over the future tenor of depressed industry policy. The FTC pledged to be more ﬂexible in the use of recession cartels in order to try to take the lead in policy. MITI ofﬁcials, on the other hand, argued that FTC-sponsored recession cartels alone were insufﬁcient, that the FTC’s insistence on recession cartel periods would fail to help the sectors recover, and that recession cartels required industry reach a consensus on the terms independently, which might be impossible without government mediation. They reasoned, therefore, that MITI must take the lead to deal with the problems.14 MITI also had the support and encouragement of Prime Minister Fukuda and leading Liberal Democratic Party (LDP) politician Komoto Toshio, both of whom had made direct demands of MITI to develop comprehensive policies and legislation to assist depressed sectors.15 In the middle of the debate stood the business community, which itself was not uniﬁed as to the best course of action. Keidanren made clear the motivations of many industrialists, arguing to the government that some law was desirable to help depressed industries dispose of production facilities and deal with the employee redundancies.16

Problem of structurally depressed industries 99 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

However, Keidanren chairman Doko¯ Toshio reportedly argued to Prime Minister Fukuda personally that industry wanted to proceed with the disposal of facilities on its own initiative, with the government only providing tax and ﬁnancial measures to help facilitate this process.17 In line with industry and political demands, MITI in late 1977 began drafting laws to assist depressed industries. The content of this draft bill began to become clear by January, and included the following main points: 1 2 3 4 5 6 7

The relevant minister will designate depressed industries to receive assistance. Plans will be formulated for each depressed sector for the disposal of production facilities. Should ﬁrms in the industry not abide by the plans, the minister can designate and direct cartels in each industry to dispose of production facilities that would be exempt from the AML. The minister can require that cartel outsiders refrain from making new investments in production facilities and cooperate with the designated cartel. The minister can approve mergers and other cooperative business ventures (tie-ups) that would be exempt from the AML. The minister must ﬁrst “consult” the FTC on cartel and merger/tieup plans prior to implementation. A fund will be established to assist companies with their efforts to dispose of production facilities.18

The draft bill gave MITI much potential regulatory power, eliciting criticism from a variety of groups, including consumers’ and scholars’ groups.19 Opposition parties also threatened to attack the bill in the Diet on several fronts, including its potential for intrusive state regulatory control as well as strong concerns over likely employee redundancies due to scalebacks planned for these industries under the law.20 This was a credible threat, given the LDP’s slim majority in both houses of the Diet. Some in industry too were skeptical and critical, especially over the inclusion of restrictions on cartel outsiders. Nine open-hearth and electric furnace steel ﬁrms and one synthetic textiles company, all of which had previously rebelled against government–industry cooperation over guidance, made clear to MITI their strong opposition to the outsider restriction clause.21 The remainder of the open-hearth and electric furnace steel industry also warned against the potential of the abuse of bureaucratic regulation, although they noted with reservation that some restrictions were necessary to ensure that the law was effective.22 Inayama Yoshihiro, chairman of the Japan Iron and Steel Federation and a leading spokesman for Japanese industry, also criticized the bill, saying that “[the inclusion of] outsider restrictions is going too far.”23 Nevertheless, many of the leaders in the affected industries still welcomed MITI’s inclusion of measures they

100 Problem of structurally depressed industries most strongly desired: ﬁnancial assistance and complete AML-exemption for cartels and mergers.24 The FTC also made clear its strong opposition to MITI’s draft bill.25 FTC ofﬁcials argued from two perspectives. The ﬁrst challenged the necessity for the bill, asserting that the goal to reduce production capacity could be accomplished easily by using recession cartels under the AML according to the FTC’s new deﬁnition announced the previous November.26 The FTC’s other argument centered on the idea not only that the bill involved excessive government regulation but also that AML exemption for cartels and mergers/tie-ups was unwise economic policy. According to FTC ofﬁcials, the bill offered protection that would cut competition among ﬁrms and therefore be self-defeating in the long run by delaying needed adjustments. FTC ofﬁcials also noted that AML exemptions would hurt downstream industries and consumers as well as go against the trend in Japan and in the world toward strengthened antimonopoly policy.27 In negotiations between MITI and FTC ofﬁcials over the bill, MITI representatives moderated their stance and expressed a willingness to compromise on several points. Given that the government had just recognized the importance of antimonopoly policy by strengthening the AML, it was impossible politically for MITI to exclude the FTC entirely from having some say over policy toward depressed industries.28 Concretely, the FTC demanded the following of MITI: the deletion of outsider restrictions, setting a time limit on the designation of depressed industries, and the complete removal of the schemes for AML-exempt cartels and mergers or business tie-ups. Opposition parties also generally supported the FTC position.29 MITI ofﬁcials conceded on all points except the use of AMLexempt cartels, which they insisted were absolutely vital to improve industry conditions. Prime Minister Fukuda also made a direct appeal to FTC Chairman Hashiguchi to cooperate over the bill, adding further pressure on the FTC to accept designated cartels.30 As a compromise, the FTC then demanded the full power to agree or disagree with cartel terms. FTC ofﬁcials furthermore threatened to continue to oppose the bill in its entirety should MITI not accept the demand.31 Ofﬁcials in MITI and in the government eventually capitulated, fearing that FTC opposition would serve to attract even more criticism of the bill from opposition parties and thus doom the legislation in the Diet.32 The ﬁnal content of the bill was set in a meeting between FTC chairman Hashiguchi and MITI administrative vice minister Wada and then later afﬁrmed between Hashiguchi and MITI Minister Komoto Toshio. In the ﬁnal legislation, nearly all the FTC’s assertions were accepted: 1 2 3

Cartel outsider restrictions were dropped. AML exemption for mergers and business tie-ups was dropped. A window of one year following enactment of the law was put on the designation of depressed industries eligible for assistance.

Problem of structurally depressed industries 101 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

4 5 6

The FTC was given full right of agreement to terms of designated cartels exempt from the AML. Designated cartels could be used only when the voluntary efforts of businesses proved unattainable. The FTC was allowed to direct the minister to change or cancel a designated cartel should the FTC determine that an agreement was going beyond its necessary limits, was substantially affecting competition, if market conditions improved, or if the cartel was signiﬁcantly damaging the interests of consumers or downstream industries.33

These terms gave the FTC signiﬁcant power to check the use of cartels in order to ensure that competition was not substantially constrained. FTC ofﬁcials, however, expressed their willingness to be somewhat ﬂexible in their interpretations and enforcement.34 The ﬁnal bill therefore included the following main points: 1 2 3

4

The minister can designate industries as depressed following an application from the majority of ﬁrms in the industry. Stabilization plans will be drafted for these industries based on industry–government discussions that should be adhered to on a voluntary basis by ﬁrms. Should sufﬁcient efforts not be made in the industry, the minister may with the agreement of industry and the FTC organize designated cartels that are exempt from the AML in order to reach targets for the disposal of production facilities and to place restrictions on the construction of new facilities. Government ﬁnancing measures will be provided to assist in the disposal of facilities.35

The content of the government bill reﬂected a philosophy toward depressed industry policy blending the approaches promoted by industry, the FTC, and MITI. The FTC succeeded in putting forward its view that the law ﬁrst and foremost should emphasize the self-help efforts of industry to make necessary adjustments in a competitive economic environment. MITI succeeded in ensuring that the state could intervene with legal measures to ensure the effectiveness of these efforts should they break down or prove unattainable. This approach also suited to a certain degree the desires of the bulk of companies in depressed industries, although there was some substantial concern that the FTC had been given such a strong role. Some business organizations such as Keizai Do¯yu¯kai also cautioned that vigilance was necessary to ensure that regulatory control by the government was avoided.36 The bill underwent some further changes in the Diet after opposition parties demanded that clauses be added to help prevent employee redundancies.37 Following opposition party approval, the Special Measures Law for Stabilization of Depressed Industries (hereafter

102 Problem of structurally depressed industries Depressed Industries Stabilization Law) was passed by the Diet in May 1978. The law was set to expire after ﬁve years. Over the course of the law, fourteen product areas in eight industry sectors were designated as depressed. Eight of these product areas fell under designated cartels for some period of time (Table 6.1). As later noted in a MITI publication, adjustments between MITI and the FTC over these designated cartels also “did not always go smoothly.”38 The FTC resisted several of the drastic cuts in production facilities proposed by industry and MITI under designated cartels, arguing instead for more minimal reductions to prevent substantial harm to consumers and downstream users. Compromises were worked out to balance the positions put forward by each side.39 The FTC both in theory and in practice served to act as an important check on the cartel agreements under the law, ensuring that competition was not severely restricted. Another point of tension between the FTC and MITI was that rather than ensuring the actual disposal of excess production facilities, most of the adjustments made under designated cartels resulted only in their idling. This later led to comments from an FTC advisory group that the law did not successfully fulﬁll its aims and might have been counterproductive by delaying the construction of new facilities that were more technologically advanced.40 Despite such difﬁculties, coordination otherwise went smoothly in the main as the law appeared successful in helping to reduce the number of facilities in production by nearly 95 percent of its targets over a ﬁve-year period.41

The Industry Stucture Law, 1983–7 By the time the Depressed Industries Stabilization Law of 1978 was due to expire in 1983, conditions had changed to a considerable degree, now favoring continued and deeper government intervention in depressed sectors. The effects of the second oil shock of 1979–80 and of the further appreciation of the yen were some acute economic reasons. In response the FTC implemented another series of recession cartels between mid1981 and early 1983 to help eight additional industry sectors adjust to economic change (see Figure 4.3, p. 58). One of these, the paper industry, is an illustrative case of the seriousness of the economic problems that led to an expansion in the number of industries appealing for government assistance. While the corrugated paper sector fell under the 1978 Depressed Industries Stabilization Law, other paper product areas faced difﬁcult circumstances by the early 1980s but could not be placed under the law because of its limited one-year window for new designations. Industry clamored and MITI threatened to call for a revision of the 1978 Depressed Industries Stabilization Law before its expiration in order to include new industry sectors should the FTC not accept MITI guidance cartels on production and production capacity.42 Several other industry sectors were felt to need structural improvements as well.

6% 10%

20% 20% 13% 20%

26% 45% 20%

Natural textiles 6 Cotton spinning 7 Worsted yarn

Synthetic textiles 8 Discontinuous acrylic ﬁber 9 Continuous nylon ﬁber 10 Continuous polyester ﬁber 11 Discontinuous polyester ﬁber

Chemicals 12 Ammonia 13 Urea 14 Hydrous phosphoric acid 100% 93% 92%

104% 98% 81% 91%

78% 96%

95% 52% 94% 105% 100%

Percentage of policy goal attained

Yes Yes No

Yes Yes Yes Yes

No Yes

No No Yes No No

(canceled (canceled (canceled (canceled

3/81) 3/81) 3/81) 3/81)

Designated cartel (yes/no)

25% 28% 10%

13% 16% 15% 16%

15% 34%

14% 43% 2% (increase) 30% 33%

Employment decreases (in 1981 as percentage of 1977)

Sources: Kisugi Shin, Sangyo¯ keizai-ho¯ (Industry and Economy Law), Tokyo, Gyo¯sei, 1996, pp. 468–9; and Sueo Sekiguchi, “Japan: A Plethora of Programs,” in Hugh Patrick (ed.) Paciﬁc Basin Industries in Distress, New York, Columbia University Press, 1991, p. 437.

14% 57% 15% 35% 20%

Percentage of facilities targeted for elimination

1 Steel (electric/open-hearth furnace) 2 Aluminum smelting 3 Corrugated paper (cardboard) 4 Shipbuilding 5 Ferrosilicon

Designated depressed product/ industry sector

Table 6.1 Adjustments under the Depressed Industries Stabilization Law, (1978–83)

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104 Problem of structurally depressed industries Another important factor in the changed environment was the deepening of industry’s hardened attitude toward antimonopoly policy, especially in regard to problems faced by depressed industries. Some in industry did express support for antimonopoly policy principles, such as when Keizai Do¯yu¯kai argued in a paper that “for industries that have been losing their international competitiveness, adjustments [should be] forwarded according to market principles.”43 On the other hand, under recessionary pressure many leading business spokesmen were increasingly critical of antimonopoly policy. Representatives of depressed industries argued in the Diet that the AML was preventing rationalization in their industries and appealed for relaxed enforcement by the FTC.44 Keidanren carried this argument further following the appointment in 1980 of its new chairman, Inayama Yoshihiro. Under Inayama, whose antipathy toward the AML was well known, Keidanren at various intervals called for the review of antimonopoly policy, including the relaxation of standards to approve recession cartels. It also argued for the complete revision of the AML to weaken it to at least its level prior to its strengthening in 1977.45 Pressure to weaken antimonopoly policy coming from the business community resonated in political circles as well. Opponents of stronger policy in the LDP actively took up the call made by Keidanren for a revision of the AML. Spurred in part by anger at the FTC’s crackdown on the construction industry (see Chapter 9), a committee to review the status of the AML was established in the LDP in late 1982. This move came just as the government was considering a replacement for the 1978 Depressed Industries Stabilization Law. This committee took up the problem of the depressed industries in its deliberations, applying additional pressure to the debate in government.46 Moreover, the LDP held a comfortable majority in the Diet by the early 1980s which, if necessary, could successfully override any objections from other parties. Importantly, the opposition parties, and especially the Japan Socialist Party (JSP), also were signiﬁcantly more accommodating toward a stronger policy for depressed industries.47 This posture was prompted primarily by a strong desire expressed by labor unions for deeper government intervention to prevent bankruptcies and employee redundancies throughout the depressed industry sectors.48 For example, the Japan Chemical and Energy Industry Labor Associations Conference (representing 750,000 workers) supported further measures to ensure support of depressed sectors, including the active use of mergers and other business tie-up plans.49 It was in this new environment during the summer of 1982 that discussions began in earnest on a bill to replace the 1978 Depressed Industries Stabilization Law. In order to study the problems faced by depressed industries and make recommendations on a new law, MITI established in August 1982 the Special Committee on Counter-policies for Basic Materials Industries. The MITI Special Committee ﬁnished its investigations in December 1982, recommending speciﬁc measures as well as establishing

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certain ideas that should guide the drafting of a new law.50 These ideas were compiled into six basic principles known as the “six Yamanaka principles,” the name noting the inﬂuence of then MITI minister (and former head of the LDP’s Antimonopoly Law Study Group) Yamanaka Sadanori on the content. One of these principles speciﬁcally called for “respect for competition policy.”51 On this basis MITI itself made it clear that the continuation of the designated cartel system was agreeable, even under the same terms of the 1978 law that accorded the FTC the power to check the cartel terms.52 MITI ofﬁcials felt it was important to preserve the concept of MITI–FTC adjustments under the new law despite not being entirely content with how cooperation had gone under the Depressed Industries Stabilization Law.53 But in an attempt to create more ﬂexibility in policy, senior MITI ofﬁcials argued to their FTC counterparts that the commissioner’s reviews of these cartels should be based on an understanding of the actual difﬁculties each industry faced, rather than on objective criteria.54 The FTC countered as it had in 1978 that the adjustment of production facilities could be accomplished under AML recession cartels and that excessive government intervention in markets was undesirable.55 It furthermore refused to alter its criteria for reviewing cartel agreements. But since MITI consented to continue to grant the FTC the power to agree to cartel terms, the FTC did not object strongly to maintaining the designated cartel system.56 FTC criticism instead centered on three other MITI proposals for the new law which showed less “respect” for antimonopoly policy and its principles: permission for MITI to issue a warning against designated cartel outsiders over new investment, the ability for MITI to issue production guidelines to help prevent excessive production, and AML exemption for mergers and business tie-up agreements approved by MITI. MITI ofﬁcials agreed to drop the ﬁrst two of these proposals after strong FTC objections.57 The remaining issue – whether AML exemption for mergers, joint companies, and other tie-up agreements should be allowed – became the focus of debate between the FTC and MITI over the new law. MITI and its Special Committee argued that such business combinations were necessary to help lower costs in depressed industries by taking advantage of scale economies. MITI ofﬁcials and spokesmen in depressed sectors especially desired AML exemptions since the FTC closely scrutinized and was unlikely to approve any merger or business tie-up proposal that would result in a market share signiﬁcantly exceeding 25 percent.58 Furthermore, they argued that AML exemptions were necessary because of uncertainty over how the FTC would rule on mergers and because of concerns that the exchange of information among companies to draft cooperative ventures might be judged illegal by the FTC.59 The FTC under its new chairman, Takahashi Gen (former Ministry of Finance administrative vice minister), objected strongly to any proposal

106 Problem of structurally depressed industries for AML exemption for mergers, joint companies, and other tie-up arrangements. FTC opposition led MITI bureaucrats instead to develop the concept of creating groups of companies in depressed sectors to promote formal cooperative ventures and therefore mergers down the line. On this basis, MITI counterproposed that intragroup mergers and cooperative ventures would be given AML-exempt status while all intergroup agreements or mergers could be scrutinized by the FTC under the AML. FTC ofﬁcials agreed in principle with the idea of industry groupings, but they insisted that all arrangements be held within the framework of the AML. MITI made a new proposal whereby while all mergers and other joint ventures would be subject to the AML, MITI could demand that the FTC make clear its criteria for judging each proposed agreement or merger. MITI argued that these criteria should be made ﬂexible by including a variety of considerations.60 The FTC protested this on the grounds that new criteria were not necessary for each case. It insisted that the FTC continue to use its general guidelines published in 1980 to judge such agreements and mergers.61 After further negotiations MITI ﬁnally agreed that all mergers and tie-up plans would fall within the purview of the AML. It also agreed to remove provisions allowing the minister to demand that the FTC reveal its criteria for reviewing each case. In its place, however, it was agreed that the FTC would publish a separate set of general guidelines by which to evaluate arrangements and mergers among ﬁrms in designated depressed sectors. At MITI’s insistence these guidelines took into consideration such factors as foreign competition, substitute goods, and the difﬁculties faced by the industries.62 In addition, MITI agreed to inform the FTC of all agreements being considered for approval by the minister that could possibly constrain competition. Finally, the FTC was also given the right to notify the minister should tie-up ventures begin to violate the AML. The FTC could then demand changes in arrangements if deemed necessary. The bill was enacted in late April 1983 under the name the Special Measures Law for the Structural Improvement of Designated Industries (hereafter Industry Structure Law) and was set to expire in 1988. The FTC claimed that as a result, all adjustments under the new law would take place within the framework of the AML, except for the designated cartel system, over which the FTC continued to hold veto power. It furthermore argued that its separate standards for mergers and tie-up plans were not an important development since its 1980 merger guidelines already took similar factors into consideration.63 These developments gave the FTC and antimonopoly policy a much broader role than was desired by many companies in depressed sectors. Most spokesmen for the depressed industries, for example, had previously expressed their strong desire for AML-exempt mergers and tie-up plans.64 At the beginning of the debate over the new law in late 1982, a survey of executives in basic

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materials industries – many of which were then or later formally designated as depressed – found that nearly 70 percent supported the MITI view on policies toward depressed sectors while only 25 percent supported the FTC’s position.65 Many industry spokesmen therefore questioned openly the effectiveness of any measures should the FTC be given the power to check agreements and arrangements.66 Given the markedly improved political environment for MITI, an environment that favored deeper government intervention, several factors led MITI ofﬁcials to compromise so much with the FTC over the ﬁnal terms of the Industry Structure Law and accord antimonopoly policy a broader role. The ﬁrst was that the institutionalization of coordination between MITI and the FTC under the 1978 law led to a closer relationship and deeper trust between the two institutions. While MITI ofﬁcials clearly wished to have sole power over depressed industry policy, the fact that no serious gulfs with the FTC had erupted during the implementation of the 1978 law helped foster a feeling that cooperation could be expanded. Reﬂecting this improved relationship, personnel relations between MITI and the FTC were expanded in 1979 whereby one bureaucrat from each side would regularly occupy a division chief post in the other agency.67 Previously it had been “unthinkable” at MITI to allow an FTC bureaucrat to hold such a post.68 In order to preserve this mutual trust and cooperation, MITI ofﬁcials did not join in the chorus of voices in 1982–3 calling for AML revision.69 The second factor was that MITI ofﬁcials had increasingly come to value the importance of antimonopoly policy and market competition as guiding principles for industrial adjustments and industrial policy more generally.70 In 1983, MITI Industrial Policy Bureau Chief Konaga Keiichi commented in an interview that while there was no real uniﬁed opinion within MITI on how deeply antimonopoly policy should be woven into depressed industry policy, he agreed with the suggestion that within MITI, “understanding of competition policy is deeper than before.”71 Such ambivalence helped to moderate the stance that MITI took in its negotiations with the FTC. The third factor was the growing impact of foreign opinion on Japanese industrial policy. By the early 1980s criticism was increasing from the United States and European nations that Japanese industry was being protected unfairly through the use of cartels and similar anticompetitive policies. Such criticism made it more difﬁcult for MITI to justify policies internationally that compromised antimonopoly policy principles.72 Finally, behind the scenes the inﬂuence of MITI Minister Yamanaka Sadanori was important in keeping at bay demands from within the LDP for a law that allowed greater exemptions from the AML. Yamanaka, while not a particularly strong supporter of antimonopoly policy, nevertheless through his work over the 1977 AML revision had come to believe in the need for respecting antimonopoly policy principles. He also argued for the need to preserve MITI–FTC cooperation.73

108 Problem of structurally depressed industries Under the agreements reached between MITI and the FTC, the law’s actual impact on competition hinged on the rigor of the checks the FTC put on the designated cartels and on plans for mergers and tie-up agreements. Adjustments over cartels generally continued as they had under the Depressed Industries Stabilization Law, where compromises were struck between MITI (representing industry) and the FTC over a level of cuts in facilities that would not substantially damage competition.74 Over the course of the Industry Structure Law, twenty-six product areas in ten industry sectors were designated as depressed, thirteen of which had their designations terminated prior to the end of the law’s ﬁxed ﬁve-year term. Designated cartels were organized for only seven product areas, ﬁve of which were canceled before the law expired (Table 6.2). Most of these alterations were made upon the recommendation of the FTC in a paper sent to MITI in November 1985, which argued that economic conditions no longer warranted the continuation of designations and joint acts.75 The major new issue under the law was how strict the FTC would be over efforts to group and promote cooperative ventures among ﬁrms. The FTC made its position clear in the ﬁrst such case to come before it. Talks within the petrochemicals industry and with MITI led to the proposed formation of three joint sales companies covering product sectors designated under the law. These joint companies were then to be used to organize most of the ﬁrms in the industry into three competing groups. However, the FTC soon after rejected the plan because one of the proposed groups would attain a dominant market share of nearly 45 percent in certain products. As a result, a four-group plan was put forward that brought the top market share of the leading group down to slightly over 30 percent (in fact 32.3 percent). Although it preferred a ﬁve-group conﬁguration, the FTC reluctantly agreed to the four-group proposal. It furthermore insisted that the 30 percent ceiling had to be adhered to in the future in order for the AML not to be breached.76 While 30 percent was an increase over the FTC’s formal position to review closely any mergers or cooperative arrangements that created a market share in excess of 25 percent, the difference was slight and did not represent a signiﬁcant weakening in the FTC’s actual standards for approving such joint arrangements. In the case of cement, MITI and the industry tried to put forward a proposal for four joint sales companies that again would allow one group to signiﬁcantly exceed this 30 percent ceiling. The FTC again refused the arrangement, eventually approving a ﬁve-company/ﬁve-group conﬁguration where the top market share was just over 20 percent.77 The experience over the cement and petrochemicals cases led MITI to ensure that subsequent proposals for joint companies and business tie-ups were drawn up within this 30 percent framework before submission to the FTC for approval. Some arrangements did just approach the limit, however.78 Despite publishing separate guidelines for depressed industries, therefore,

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the FTC in fact did not signiﬁcantly alter its actual enforcement standards. Industry groupings were encouraged by MITI to take advantage of scale economies, but at the FTC’s insistence, competition was maintained among them to ensure that no one group could dominate. A total of forty-seven instances of business tie-up measures, joint company formation, and mergers were recorded over the period of the law (Table 6.2). Pressure from the FTC and from overseas to end the use of AMLexempt measures eventually caught up with MITI bureaucrats. In response, in 1987 MITI drafted a new statute that effectively replaced the Industry Structure Law a full year before its planned expiration in 1988. The law, named the Law of Temporary Measures to Facilitate Industrial Structural Adjustment, did not allow any formal AML exemptions such as designated cartels. Rather, it left in place the ﬁnancial assistance schemes based on the concept of voluntary reductions in production facilities and also continued MITI–FTC coordination over cooperative business agreements within the framework of the AML.79 However, as Tilton has found, following the expiration of the Industry Structure Law in 1988, MITI and industry nevertheless continued arrangements informally in some sectors to prevent a new investment race and therefore renewed problems with overcapacity.80 While it is unclear whether these arrangements were actual illegal cartels or less formal guideposts based on industry consensus that MITI recommended to ﬁrms to consider in their investment plans, the FTC nevertheless monitored them closely and pressured MITI to end such measures. By the late 1980s, therefore, the FTC once again found it necessary to face informal efforts by MITI and industry to coordinate investment.

Conclusion The problem of depressed and failing industries in Japan presented new issues and problems for policy makers and businessmen. There existed broad agreement, even to an extent among opposition parties, that something should be done. As a result, the FTC’s original argument that adjustments should be handled purely according to market forces and that only very limited government assistance might be warranted was not accepted in the ﬁnal policy. Indeed, at times FTC ofﬁcials did not seem entirely convinced of the wisdom of their own arguments. Instead, policy reﬂected accommodation between approaches put forward by MITI and industry on the one hand and the FTC on the other. Political change was the basis for certain differences between the 1978 and 1983 laws. In the case of the 1978 law, certain opposition party criticism helped ensure that the LDP, needing opposition party cooperation in the Diet, took a more positive view of FTC positions in spite of demands from the cabinet for stronger measures. Many in business also balked at the regulatory tone of some of MITI’s original proposals, such as cartel outsider restrictions. However, the FTC was successful in having clauses

Chemicals/chemical fertilizer 11 Ammonia 12 Urea 13 Hydrous phosphoric acid 14 Fused magnesium phosphate fertilizer 15 Compound fertilizer

Synthetic textiles 6 Discontinuous viscous ﬁber 7 Continuous nylon ﬁbera 8 Discontinuous polyacrylnitrile ﬁbera 9 Continuous polyester ﬁbera 10 Discontinuous polyester ﬁbera

1 Steel (electric/open-hearth furnace) 2 Aluminum smelting 3 Sugar reﬁning 4 Cementa 5 Electric wire and cablea

Designated depressed product/ industry sector

88% 109%

32% 13%

—

— 170% 103% 164%

— —

— —

20% 36% 17%

66% —

63% 115% 90% 103% 100%

Percentage of policy goal attained

15% —

14% 78% 26% 23% 14%

Percentage of facilities targeted for elimination

Table 6.2 Adjustments under the Industry Structure Law, (1983–8)

No Yes

No No No

—

— —

No —

No No No Yes (canceled 8/87) No

Designated cartel (yes/no)

PC (3) M (1)

CP (1), PC (1) PC (1) PC (2)

—

— —

— —

— — PC (2), JP (1) JSC (5) JSC (5), PC (3)

Type and number of cases of tie-ups/mergersb

100%

19%

No

Yes (canceled 3/86) Yes (canceled 9/87) Yes (canceled 9/87) No No

Yes (canceled 9/86) Yes

No No No

Designated cartel (yes/no)

JSC (4)

PC (1) JSC (4), O (2) JSC (4) O (1) PC (3)

M (1), O (1) PC (1)

— — —

Type and number of cases of tie-ups/mergersb

Notes: a Denotes industries removed from designated status prior to the end of the law. b Abbreviations: PC, production consigned among companies; JP, joint production undertaken among companies; JSC, joint sales companies formed; CP, concentration of production in highly efﬁcient facilities; M, merger and/or transfer of operations between companies; O, other cooperation arrangements.

Sources: MITI; Kisugi Shin, Sangyo¯ keizai-ho¯ (Industry and Economy Law), Tokyo, Gyo¯sei, 1996, pp. 483–92; and Sueo Sekiguchi, “Japan: A Plethora of Programs,” in Hugh Patrick (ed.) Paciﬁc Basin Industries in Distress, New York, Columbia University Press, 1991, p. 443.

88% 94% 92% 61% 73%

36% 22% 21% 27% 26%

94% 55%

Paper products 19 Papera 11% 20 Corrugated paper (cardboard) 20%

Petrochemicals 21 Ethylenea 22 Polyoleﬁnea 23 Polyvinyl chloride (PVC)a 24 Ethylene oxidea 25 Styrenea 26 Polyvinyl chloride (PVC) pipesa

274% 244% 302%

14% 10% 12%

Alloys/metals 16 Ferrosilicon 17 High-carbon ferrochromium 18 Ferronickel

Percentage of policy goal attained

Percentage of facilities targeted for elimination

Designated depressed product/ industry sector

Table 6.2 (cont.)

112 Problem of structurally depressed industries in the law draft both removed and inserted in a manner that went against the preferences of the majority in industry, LDP politicians, and MITI bureaucrats. By the time that discussions were under way over the 1983 law, however, the FTC faced a much less favorable political environment. The LDP had attained a stable majority in the Diet, muting the need to compromise with opposition party positions. Additionally, opposition support for further measures to help preserve jobs enabled MITI to add new provisions on mergers and business tie-ups without much political controversy.81 Among the factors that allowed the FTC to remain involved and keep aspects of depressed industry policy within the framework of the AML were increased international considerations, mild support for the FTC’s position by Yamanaka Sadanori, and increased trust between MITI and the FTC. These concessions were granted in spite of the majority opinion in the depressed industry sector. The formulation of a comprehensive policy in 1978 to deal with depressed industries was a turning point in the long-standing dispute between MITI and the FTC over the use of informal cartels. Most industry sectors under MITI’s informal guidance cartels were transferred to designated cartels under the 1978 law. As Upham points out, the FTC’s more passive role still left MITI as the main broker for depressed industry policy.82 This accommodation minimized signiﬁcantly any dispute of interests, as both sides were able to get what they most desired. For MITI – a body specializing in the allocation of policy favors – this was a continued involvement in industry agreements. For the FTC – a body specializing in rule making and enforcement – it was the assurance that antimonopoly policy principles were adhered to in the main, that it held the power to review and veto arrangements, and that strong government control of industry behavior was avoided. While depressed industry policy again brought ofﬁcially sanctioned cartels to Japan, thereby representing a setback in some respects for antimonopoly policy, arguments favoring cartels, mergers, and business tie-up plans that would constrain competition substantially were not accepted either. As a result, antimonopoly policy principles were accorded a more important role in the philosophy and implementation of industrial policy than had been seen over the previous decades.

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7

Solidifying and expanding the policy base

While the 1970s saw more active enforcement of the Antimonopoly Law (AML) as well as the strengthening of antimonopoly policy more generally, the following ten or so years was a period of comparative hibernation. The vigor as well as the results of Fair Trade Commission efforts and initiatives waned considerably. A variety of factors internal and external to the FTC resulted in a degree of inertia that circumscribed further policy growth and expansion. At the center of this shift were problems and issues related to how strongly and broadly the AML should be enforced. This chapter will raise three prominent issues related to changes in the FTC’s enforcement patterns, processes, and attitudes from the late 1970s through the 1980s in order to identify the concrete reasons for policy successes as well as failures and stagnation. The ﬁrst issue involves a change in the FTC’s basic approach to AML enforcement – the development of the so-called preventive measures policy – that centered on the preparation of enforcement guidelines as a means to gain voluntary business compliance with the AML. The second examines FTC efforts to expand AML enforcement into new areas of the economy, such as governmentregulated and nonmanufacturing industries. The cases of AML enforcement in the ﬁnance and transport sectors will be addressed in this context. The third issue relates to a substantial drop in formal actions taken by the FTC over the period. Those political and structural factors that contributed to the fall will be examined.

The preventive measures policy and enforcement guidelines Following several years of aggressive enforcement during the 1970s culminating in the revision of the AML in 1977, the interest of business leaders was strong in how the FTC would continue to enforce the law, given its new powers. Lacking clear enforcement standards and a strong body of case law, FTC ofﬁcials felt it desirable to draft enforcement guidelines to provide fair warning to businesses about what constituted illegal acts before taking formal actions that could involve monetary surcharges. Other

114 Solidifying and expanding the policy base goals for guidelines were to educate the business community about the AML and set clear criteria for evaluating mergers and other business combinations. Guidelines formed the basis of what FTC ofﬁcials called their preventive measures approach to AML enforcement. Chairman Hashiguchi Osamu (1977–82) especially felt that the move was necessary “in reﬂection” of tense relations that had developed between the FTC and the broader political, bureaucratic, and business community under the tenure of Chairman Takahashi Toshihide.1 The drafting of guidelines did not involve many of the overt political conﬂicts that characterized other efforts to strengthen antimonopoly policy. Yet in certain cases the process created signiﬁcant controversy. Between 1979 and the mid-1980s the FTC prepared separate guidelines on its standards for evaluating corporate mergers, stockholding restrictions under the AML, trade association activities, administrative guidance, franchise business behavior, bidding for construction contracts, and activities by physicians’ associations. Among these, the ﬁrst four listed generally applied across broad industry sectors while the ﬁnal three affected narrower industry interests. Predictably, guidelines with a broader impact faced much less controversy in the main than those affecting speciﬁc industry sectors. While guidelines on franchise businesses generally were uncontroversial, those for the construction industry evoked great controversy and were watered down substantially (construction will be discussed in Chapter 9). Only in the case of physicians’ associations did the FTC successfully enact a more substantial set of guidelines in a narrow industry sector during this period where there was clear opposition. Indeed, strong industry resistance in certain sectors against guidelines on retail and wholesale distribution practices among afﬁliated companies, or keiretsu, caused the FTC to abandon its effort to draw up guidelines that would imply stronger antimonopoly regulation of questionable practices. This section will examine factors that affected the adoption of guidelines for trade associations and administrative guidance as well as examine why formal guidelines were not instituted for keiretsu practices in the distribution sector. Guidelines on activities by trade associations The role of trade associations in promoting cartel activities and other restraints on competition had been a major problem for the FTC since its inception. Cases against these associations totaled 57 percent of all formal AML cases between 1953 and 1979.2 Moreover, the enormous number of trade associations in Japan, some 23,000 in 1978,3 made enforcement of the AML impossible against the bulk of them, given limited FTC resources. In keeping with the FTC’s strong anticartel policy in the early to mid-1970s, the FTC’s advisory body, the Antimonopoly Conference, in 1974 began to study the issue of adopting enforcement standards for trade associations. This effort ended in informal guidelines being drafted

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in October 1975 that established classiﬁcations for a number of common but potentially illegal trade association activities and recommended that appropriate measures be taken against each violation.4 Following the revision of the AML in 1977, trade associations also pressured the FTC to make public how it would enforce the strengthened AML against associations. FTC ofﬁcials responded by deciding to prepare a public formal guideline, a draft of which was announced in March 1979.5 The FTC then solicited opinions on the draft from business groups, scholars, ministries, and others in order to prepare a ﬁnal version. The interest of business, both small and large, in the guidelines was strong since the FTC draft made clear that many activities used by associations to manage competition in their respective industries were most likely illegal. These activities included the exchange of information over short-term supply and demand forecasts, the setting of guideposts for members to follow in reducing production, and the establishment of benchmark prices for products.6 As a result, opposition to the draft came swiftly. Representing small and medium-sized enterprises (SMEs), the Tokyo Chamber of Commerce and Industry argued that the draft guideline in effect had labeled as illegal most of the basic functions of associations and attacked their very raison d’être.7 Furthermore, the Central Committee of National Small and Medium Enterprises Trade Associations released an opinion paper arguing that the same guidelines should not treat SMEs and big business alike and demanded a variety of exemptions.8 Representing large manufacturing industries, Keidanren also stated its opposition to the draft.9 Among other objections, it felt that the draft was too vague by having classiﬁed many acts as “possibly” illegal and that it did not address the relationship between administrative guidance and AML violations.10 Ofﬁcials of the Ministry of International Trade and Industry (MITI) also raised a number of similar objections and concerns.11 Following widespread opposition, Chairman Hashiguchi announced that the FTC would make some alterations prior to the publication of the ﬁnal guidelines. The actual changes made were procedural in the main and only to a mild degree weakened the ﬁnal content.12 Alterations included the addition of a category of activities that would certainly violate the AML, better clariﬁcation of those activities that could “possibly” violate the AML, and more allowance for some activities, including joint publicity.13 In some respects the ﬁnal document was stricter than the ﬁrst draft, such as putting into an enforcement guideline for the ﬁrst time the FTC’s position that administrative guidance was no excuse for illegal activities by trade associations.14 The guideline also touched on bid rigging for government procurement and public works projects, ﬁnding that certain practices to ﬁx bidding prices were suspect under the AML.15 The points relating to bid rigging were expanded in a separate guideline announced in 1984, a topic that will be discussed further in Chapter 9. Despite substantial opposition to the draft trade association guideline,

116 Solidifying and expanding the policy base the FTC nevertheless implemented standards that paralleled its original draft. Chairman Hashiguchi refused to meet with Keidanren ofﬁcials on a working level to discuss the draft, arguing that the content of the ﬁnal guideline was a matter for the FTC alone.16 While MITI ofﬁcials expressed approval that the FTC’s enforcement standards had been made clear and public, they also warned, “Since MITI’s administration is closely related to the activities of trade associations, from now we will pay very close attention to their enforcement.”17 Other trade association representatives also raised enforcement methods as the most important factor in evaluating the guidelines.18 Chairman Hashiguchi argued publicly that the guideline did not represent a strengthening of AML enforcement per se but rather was a ﬁrst step in the FTC’s new preventive measures approach to set out “criteria that trade associations and companies should abide by.”19 To reinforce its preventive approach to enforcement, the FTC also set up a prior consultation system whereby trade associations could receive FTC advice on the legality of acts before they were implemented. The actual effect of these efforts is questionable, however. A survey of mediumand large-scale businesses found that only 34 percent had made reference to the trade association guideline by 1983, and that fewer than half of these businesses had found the guideline to be of much use.20 Moreover, an FTC survey of over 200 trade associations in 1986 found that 30 percent were regularly making demand and supply forecasts that could be in violation of the AML.21 The prior consultation system also appeared to suffer from distrust of the FTC and a reluctance to share business information.22 In terms of reducing the number of AML violations by trade associations, the preventive measures policy clearly had its limits. The FTC opinion on administrative guidance While the trade association guideline dealt at some level with the relationship between administrative guidance and the legality of association activities under the AML, a fundamental difference in opinion on the matter between MITI and the FTC essentially remained unchanged. The FTC’s basic argument – that guidance based on discussions among industry ofﬁcials did not make the ﬁrms involved immune from the AML – had been recognized as valid by MITI but was often essentially ignored or circumvented. It took a decision in September 1980 by the Tokyo High Court on the 1974 petroleum cartel cases to clarify somewhat the legal issues involved and to provide an opportunity for the FTC to issue a stronger opinion. The major issue in the High Court decision was whether administrative guidance issued by MITI to the petroleum industry could be legal grounds for justifying industry actions to ﬁx prices and quantity. The ruling basically afﬁrmed the position previously taken by the FTC, ﬁnding that guidance was not sufﬁcient grounds to justify illegal acts in the cases. The

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ruling, however, did provide in theory some scope for ministries and agencies to carry out guidance as long as it was given to individual companies and based on a law providing for clear exemptions from the AML.23 The Supreme Court later also ruled on the case in a 1984 decision which, while basically in keeping with the High Court ruling, broadened somewhat the scope of acceptable administrative guidance.24 Taking advantage of the favorable 1980 Tokyo High Court decision, the FTC published a formal opinion on the issue to clarify further its ofﬁcial stance. The FTC’s “Opinion on the Relation between the Antimonopoly Law and Administrative Guidance,” released in March 1981, was intended to act as a guideline for government agencies and private business to deﬁne the acceptable limits of administrative guidance. The opinion reafﬁrmed that guidance based strictly on laws using legal measures was not a problem under the AML. The document went beyond FTC positions made prior to the Tokyo High Court ruling, however, by stressing that guidance to individual companies that was uniform in content could also create a cartel in an industry and as such was a problem.25 MITI responded with its own “Opinion on Administrative Guidance.” While conﬁrming the opinion of the FTC and the Tokyo High Court that guidance must not result in illegal cartels among ﬁrms, the MITI opinion nevertheless argued that the ministry would continue to use guidance within its interpretation of the bounds of the law.26 While the FTC based the content of the opinion on its legal interpretation of the Tokyo High Court decision, in practice the FTC appeared reluctant to act formally against violations of the AML that included ministry involvement. Only a few days after the judgment, the FTC began an investigation into MITI’s supporting role in coordinating production cuts in the paper, petrochemicals, and steel industries.27 The results of the FTC’s survey were rather inconsistent. It found that although there had been an exchange of information and some effort at coordinated production cuts among companies involving MITI’s participation, no actual violations of the AML had occurred as the cutbacks had not led to price rises. The fact that coordinated production cuts may have helped to keep prices from falling further, however, was not judged to be a violation. The FTC warned the parties involved and issued a stern caution to MITI to refrain from using such guidance methods in the future.28 This pattern of starting an investigation and warning the parties had been typical of how the FTC dealt with MITI’s administrative guidance after the 1974 petroleum cartel investigations.29 Only rarely did the FTC in such cases use additional formal enforcement mechanisms, although the threat to take formal action was made consistently.30 While the FTC remained reluctant for several more years to take formal measures against cases involving administrative guidance, the result of the 1980 and 1984 court decisions gave substantial legal backing to much of the FTC’s position.

118 Solidifying and expanding the policy base The degree of actual compliance from government agencies and industry with the FTC’s opinion following these court decisions is difﬁcult to gauge. MITI was already on a trend toward involvement in fewer industry cartels, although there is no method for making an objective assessment. Other agencies appeared less interested in the guideline and its potential impact. The view of many scholars, FTC ofﬁcials, MITI ofﬁcials, and others has been that the case proved to be one important development that helped constrain the use of administrative guidance cartels, at least in manufacturing sectors.31 The court decisions at least gave the FTC some legal backing necessary to issue meaningful warnings to other ministries and industries over their use of administrative guidance in industry agreements, a power that the FTC used only rarely to initiate formal investigations. Distribution keiretsu and the failure to enact a guideline While the FTC’s concern over distribution practices was widespread over a number of industries, efforts by the FTC to enact a guideline that threatened strong relationships among manufacturers, wholesalers, and retailers in several key industries created strong opposition to protect narrow interests. Many major Japanese companies initiated active efforts in the 1950s and 1960s to bring distribution channels for their products under their control by creating so-called keiretsu relations with wholesalers and retailers.32 These keiretsu ties varied in form and function, including arrangements for retailers to deal with only one designated wholesaler, the setting of territorial limitations on the establishment of retail outlets, elaborate rebate systems to encourage retailers to sell the products of only one company, and ﬁnancial assistance provided by makers to wholesalers and retailers. Aims varied as well, including a desire to establish reliable distribution channels for products, limit intrabrand competition, support prices in the market, provide strong product service support to win consumer loyalty, and – from the mid-1960s – help counter the effect of increased international competition in the domestic market due to capital and trade liberalization.33 Through the 1950s and 1960s, the FTC on occasion acted against the most egregious distribution practices, primarily citing companies for instituting rigid schemes to ﬁx retail prices. These cases, however, never reached more than a handful in number by the early 1970s, by which time many types of products such as cosmetics, automobiles, home electronics, cosmetics, and cameras had come to be distributed routinely through keiretsu distribution channels.34 By the late 1960s and early 1970s the FTC began to view the increasing control of distribution channels as an important factor limiting competition in the Japanese market. This view was consonant with the FTC’s growing concern over the problem of oligopoly, as it was believed that

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distribution keiretsu were both a cause and an effect of fewer ﬁrms coming to have more control over their respective product markets.35 To provide one example, the number of keiretsu retail outlets carrying multiple brands of products in the consumer electronics and appliances sector fell sharply from 52 to 27 percent in only three years between 1968 and 1970.36 Moreover, complaints from consumers about certain distribution practices were becoming more numerous as well, adding to the FTC’s concern.37 The FTC and its advisory body, the Antimonopoly Conference, began studies into various aspects of distribution keiretsu from the late 1960s in order to determine what problems actually existed and what action should be taken in response. After several studies, in 1976 the FTC began to set informal standards for judging questionable distribution keiretsu practices in the consumer electronics and appliances industry, including the use of rebates and the establishment of territorial restrictions on retail outlets.38 Research continued on other product areas as well, such as on the distribution of automobiles, where the FTC found several objectionable practices and issued warnings for manufacturers to make improvements accordingly.39 The FTC also established a special ofﬁce in October 1979 to handle distribution sector-related issues.40 By the late 1970s a more comprehensive approach to the problems seemed necessary. Following strong complaints from the US government that distribution practices were limiting US exports to Japan,41 Chairman Hashiguchi announced in 1978 that the FTC would enhance its efforts to address problems in distribution.42 To meet this goal the FTC established a new study group in 1978, named the Antimonopoly Law Research Group (hereafter AML Research Group), consisting of scholars and opinion leaders, to study the distribution keiretsu issue in further detail and make recommendations on an appropriate measures.43 Following nearly one and a half years of deliberation, the AML Research Group released its ﬁnal report in March 1980. Eight types of distribution keiretsu practices were reviewed and recommendations made on standards to evaluate the legality of each practice. Those acts judged to be illegal in principle included systems to support resale prices, requirements for retailers to purchase from a designated wholesaler, territorial limits on sales areas for retailers and wholesalers, and acts that prevented retailers from selling a competitor’s products. Practices felt to be possibly illegal depending on the circumstances included systems for rebates and sales on consignment.44 In some respects the release of the AML Research Group report was not a groundbreaking development since the FTC had already judged some of these practices illegal. The report did expand somewhat the list of problem practices, although just how broad to make this list was the subject of much debate in the group. Moreover, theoretical and legal questions over what actually constituted an “unfair” trading method or a “substantial restraint” on competition formed the base of further disagreements.45 The group also recognized and took into account that there were

120 Solidifying and expanding the policy base positive and negative aspects to distribution keiretsu, such as helping to make inventory management and distribution more efﬁcient and promoting good after-sales service.46 These factors clearly served to tone down the ﬁnal content of the report to some degree by opening up theoretical exceptions that made it necessary for the FTC to make case-by-case evaluations rather than apply general standards. Nevertheless, on its release the report was considered more sweeping in content than had been expected.47 Deep concern was expressed among related industries and their distribution networks, which feared that strict enforcement based on the report would cause the undoing of distribution practices and customs established over years of careful nurturing and investment.48 For example, one representative of Shiseido¯, a major cosmetics manufacturer, expressed worry that the company’s traditional distribution patterns would be found illegal should the FTC determine that it was operating a “one retailer one accounts book” system (a practice requiring retailers to purchase from a designated wholesaler). The report recommended that such practices be classiﬁed as clearly illegal.49 A representative of the sales company afﬁliated with the automobile maker Toyota also conﬁrmed that great disruptions in its distribution practices for automobiles would result should the report be implemented fully.50 An organization of ofﬁcials of nineteen major Japanese corporations with distribution keiretsu networks also released a report that countered some of the claims made by the AML Research Group, calling on the FTC to use restraint in its enforcement of the AML against keiretsu practices.51 While the list covered practices that would affect many industries in Japan, the report was particularly problematic for a handful of industries that had invested heavily in the development of keiretsu distribution channels for their products. To judge by their response to the report, the potential consequences of strict AML enforcement based on the recommendations were great indeed. However, on the release of the report, Chairman Hashiguchi sought to allay fears that the FTC was ready to embark on a program to make sweeping changes in distribution keiretsu systems. He denied that the FTC would use it to start immediately “going around nabbing and arresting” companies for their distribution practices.52 Instead, he only cautioned that as a beginning step the FTC would continue to act against any direct attempts to enforce ﬁxed resale prices on retailers. Chairman Hashiguchi furthermore said that the report should act as an “early warning” to industry, and that only in the medium to long term should the report’s recommendations possibly be put into a clear AML enforcement guideline.53 His remarks made clear the ambivalence with which the FTC approached the issue of distribution keiretsu. Several factors affected the decision not to go forward with the drafting of a guideline for distribution practices. The ﬁrst was that despite a determination to take more actions against distribution practices, the content of the report was stronger than many in the FTC were ready to accept

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or felt suitable to put into a broad but rigid guideline. Moreover, strong legal concerns were expressed in the FTC about using formal measures against many distribution practices because of the standards of proof needed to win court appeals of FTC decisions. Besides these practical difﬁculties, arguments made by scholars and others within the FTC that recognized beneﬁcial aspects to certain keiretsu practices also served to split opinion over whether rigid guidelines or a continued case-by-case approach to enforcement was more appropriate. Yet at the base of most of these concerns was a recognition that enacting a strong guideline that declared many preexisting distribution keiretsu practices illegal would cause major economic adjustments and be likely to hurt a large number of manufacturers and their afﬁliated small retailers. Anticipated and actual political and business opposition to such dislocations served to preclude further discussion in the FTC on the preparation of a formal guideline.54 The result of the FTC’s failure to enact clear enforcement guidelines was to perpetuate its ad hoc approach to the issue of distribution keiretsu. The FTC did begin to act somewhat more frequently against a wider variety of problem distribution practices following the release of the report, such as issuing its ﬁrst formal action against the operation of a closedterritory system.55 The FTC also stepped up its use of warnings and administrative guidance to industry to change certain keiretsu practices, such as warning the camera, consumer electronics, and cosmetics industries against their common practice of sending company personnel to work in retail outlets.56 Concern about other practices in the distribution sector also led the FTC in 1982 to overhaul its general designations on unfair trading methods, primarily in order to help curb the abuse of purchasing power held by large retailers over their suppliers. This effort corresponded with a high-proﬁle FTC case against Japan’s premier department store chain, Mitsukoshi Co., for making unreasonable demands of suppliers.57 But in the main, the general structure of distribution keiretsu practices was left relatively untouched, setting the stage for foreign governments and businesses to make stronger complaints that many distribution practices were limiting exports to Japan. These complaints brought the needed external support and justiﬁcation that allowed the FTC in 1991 to ﬁnalize a comprehensive guideline on distribution practices, a topic that will be discussed in Chapter 8.

Expansion into nonmanufacturing and regulated industries In addition to the preventive measures policy outlined above, the FTC under Chairman Hashiguchi simultaneously launched an effort from the late 1970s to broaden the reach of antimonopoly policy into economic sectors that had rarely or never been dealt with by the FTC. This effort to a large extent mirrored developments in the United States and

122 Solidifying and expanding the policy base in Europe during the 1970s as a means of ﬁghting inﬂation and raising efﬁciency in heavily regulated sectors such as transportation and utilities. Noting that nonmanufacturing sectors of the economy accounted for twothirds of total output, Chairman Hashiguchi emphasized the need to promote competition across the breadth of Japanese business, industry, and commerce.58 The FTC’s plan to diversify the scope of antimonopoly policy in Japan took on two general themes. First was a policy to begin to apply the AML against professional associations in areas such as medical and accounting services in order to rid them of anticompetitive practices.59 The FTC also drew up guidelines for all physician associations to help prevent further violations.60 Similar measures were taken in subsequent years against associations of dentists, veterinarians, and other professionals, despite substantial criticism and opposition from the professions, and from Liberal Democratic Party (LDP) politicians who were supported heavily by such groups.61 The second theme was to promote competition in industry sectors where prices, market entry, and other aspects of business were regulated directly by the government. The impetus for this effort was primarily based on a September 1979 policy paper drafted by a committee of the Organization for Economic Cooperation and Development (OECD). The OECD recommendation urged member nations to strive to reduce regulation and promote the application of antimonopoly laws whenever possible in order to increase competition. Representing Japan, the FTC pledged to work toward this end in the medium to long term.62 The FTC soon after established a working group with the Administrative Management Agency, the government institution in charge of overseeing the government’s implementation of laws, to begin work on trying to identify potential areas for deregulation. The sheer scale of regulation, however, necessitated that the process would be a lengthy one. An FTC study in 1980 found that Japan had 176 laws and ordinances that could be classiﬁed as regulatory, and that Japan’s strongly regulated industries accounted for nearly 20 percent of all economic output.63 A later FTC survey showed that regulated industries accounted for over 40 percent of economic output.64 A number of these laws also provided for exemptions to the AML for a variety of joint acts. The bulk of these regulatory laws predominated in nonmanufacturing areas such as agriculture, mining, construction, ﬁnance, transport, telecommunications, and utilities, although some such laws also existed in manufacturing sectors.65 In addition to pressing for deregulation, the FTC also began to apply the AML in some of these areas from the late 1970s. The following section will examine two of these regulated, nonmanufacturing sectors – ﬁnance and transport – in order to assess the reasons for the FTC’s successes and failures in its effort to broaden AML enforcement.

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Finance Although enforcement of the AML against the ﬁnance industry66 was virtually nonexistent during the 1960s and 1970s, during its ﬁrst decade of existence the FTC issued several formal actions and warnings against ﬁrms in the sector. The very ﬁrst formal FTC decision in 1947 was against a number of banks over a cartel agreement on interest rates. The effort to break up the cartel soon after, however, was countered by the passage of the Temporary Interest Rate Adjustments Law, which allowed the Bank of Japan (BOJ), with the advice of the Ministry of Finance (MOF), to set legal ceilings on short-term deposit and lending rates. This act served as precedent in the post-World War II era for other ministries such as MITI to propose industry sector laws that provided for AML exemptions. The rationale for this law was to dampen “excessive” competition for business among banks.67 Regulation in the banking, insurance, and securities industries proliferated soon thereafter, some replacing statutes predating World War II and others setting new limits on competition. These regulations included the control of new market entry through the establishment of licensing systems, approval systems for the location of new branches, and the establishment of ﬁxed limits on prices for ﬁnancial services such as interest rates and commission fees. Other laws, such as the Insurance Industry Law, also allowed for clear exemptions from the AML for a variety of acts.68 Passed ostensibly to bring stability and security to Japan’s ﬁnancial system following the war, these laws served to maintain and augment the MOF’s regulatory control over the ﬁnancial industry, which had been strong since the late 1920s.69 Regulation was often desirable from the point of view of industry, since strict restrictions on areas such as new market entry bolstered the interests of established ﬁrms by providing a stable environment and stable proﬁts as the industry grew. Competition among ﬁrms existed, although it was controlled substantially within the framework of regulation, guidance from the MOF and BOJ, and self-restraint agreements within industry associations.70 Despite numerous regulations, there still existed substantial room for enforcement of the AML against a variety of anticompetitive practices. For example, while ceilings on short-term interest rates were ﬁxed by law, agreements among ﬁrms to set rates under this limit as well as the ﬁxing of long-term rates were not exempt from the AML. Moreover, while underwriting fees for handling corporate bonds and other ﬁnancial services were subject to regulation and reporting, the applicable law did not explicitly allow ﬁrms to set uniform rates. The problem the FTC faced in applying the AML against such practices was that they were often supported, encouraged, or required by the MOF and the BOJ through the use of administrative guidance and the establishment of guideposts.71 By the late 1950s, even FTC efforts to apply the AML against unfair trading acts in

124 Solidifying and expanding the policy base ﬁnance such as boycotts and abuse of dominant position essentially came to a halt.72 Except for one minor technical violation and one action taken against an agricultural ﬁnancial cooperative association, the FTC took no formal actions against the banking and securities industries between 1957 and the end of the 1970s.73 As a result, there existed points of continuity and divergence in FTC policy toward manufacturing and ﬁnance from the late 1950s on. As a point of similarity, the FTC was reluctant in both cases to take formal actions against ﬁrms that were acting with the approval and guidance of government ministries. On the other hand, while FTC pressure on MITI and manufacturing ﬁrms to end anticompetitive acts, and the use of guidance cartels, continued through the 1960s and 1970s, formal and informal enforcement was essentially ended in the case of the MOF and the ﬁnance industry. The weakening of FTC enforcement against the ﬁnancial sector from the late 1950s also corresponded with another important development: the beginning of the LDP’s custom of nominating former senior MOF and BOJ ofﬁcials to occupy the post of FTC chairman. Between 1957 and 1995, every FTC chairman was an alumnus of elite bureaucrats at the MOF or BOJ, while another former MOF or BOJ ofﬁcial normally occupied an additional seat on the commission (see Figure 3.2, p. 36).74 Although FTC career ofﬁcials in the 1960s often welcomed the arrival of these elite ofﬁcials to help strengthen the FTC’s hand in its various conﬂicts with other agencies,75 the custom also brought to the FTC’s highest positions bureaucrats who had sought to protect and limit competition in the ﬁnance sector for much of their career. These personnel relations clearly compromised AML enforcement against the sector.76 Renewed application of the AML against the ﬁnancial sector therefore required three basic changes. First was the abolition of regulation in the sector to enable freer competition among ﬁnancial institutions. In order to make recommendations along these lines, the FTC studied regulated sectors and released a report in 1982. In the area of ﬁnance, the report speciﬁcally urged such steps as the relaxation of restrictions on the establishment of branches, the liberalization of underwriting commission fees, and the loosening of the tight restrictions on new market entry in the insurance sector.77 Subsequent FTC efforts to bring these changes to fruition failed completely, however, as the MOF refused even to consider seriously the FTC’s opinion.78 Another effort in 1989 by an FTC study group raised many more sweeping recommendations for further deregulation, although again the direct effect on the MOF and on the pace of deregulation was virtually nil.79 Deregulation in a variety of areas in ﬁnance did take place through the 1980s, but it was at a pace determined by the MOF in response to demands from within the ﬁnance industry itself and from foreign nations.80 FTC pressure had little if any appreciable effect on this process.81

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The second basic change needed was an end to the use of administrative guidance, guideposts, and other informal regulation that excluded the FTC de facto from enforcing the AML against the ﬁnancial sector. Moreover, meaningful formal deregulation hinged on the idea that formal rules would not be replaced by informal regulation and understandings. Here too, despite making speciﬁc recommendations in the 1982 and 1989 reports for the MOF and BOJ to cease certain administrative guidance practices, FTC efforts failed to bring about change.82 One example of the problem the FTC faced involved the introduction of certiﬁcate of deposit ﬁnancial instruments in 1979. FTC warnings to industry to refrain from ﬁxing rates were made moot by the use of informal rate regulation by the MOF and BOJ. Similar efforts to pressure ﬁrms against coordinating interest rates over money market certiﬁcates were also met with informal efforts by banks and the MOF to institute rigid guidelines on rates. Although both new ﬁnancial products were to be allowed under liberalized interest rate systems, in fact ﬁxed rates were enforced by the MOF through BOJ guidelines.83 The ﬁnal necessary element was a change in FTC basic attitudes toward enforcement against the ﬁnance industry. In the context of Chairman Hashiguchi’s stated policy to expand enforcement into regulated sectors, the ﬁnance industry could not be ignored completely. For example, in late 1978 the FTC issued a warning to banks for making agreements to limit the hours of operations for cash dispenser machines.84 In 1984 the FTC also warned ﬁrms over efforts to coordinate interest rates on compensating balance deposits. The effectiveness of such warnings against industry practices was limited, however, since they were often met with changes in practices within industry and the MOF that in effect continued the status quo but which were more palatable to the FTC.85 Despite favorable court rulings on the question of administrative guidance, the FTC remained reluctant to apply the law formally against the sector to effect change. Chairman Hashiguchi himself noted that despite the likelihood of illegal acts, deregulation nevertheless should precede attempts to enforce the AML against the sector.86 Former FTC ofﬁcials and leading scholars on Japanese antimonopoly law have attributed this result primarily to the continued appointments of former MOF bureaucrats to the posts of chairman and commissioner.87 By the 1990s a large variety of anticompetitive practices still existed throughout the industry yet remained unchallenged by the FTC.88 Transport Parallel to the FTC’s difﬁculty in enforcement of the AML against the ﬁnance sector were similar problems vis-à-vis the transport sector. Regulation was strong across the breadth of the industry, including taxis, buses, airlines, trucking, and shipping. Many of these laws were established

126 Solidifying and expanding the policy base during the early 1950s. Legal limits on competition included licensing systems on ﬁrm entry into markets, rate approval systems, and license systems for routes and other such aspects of operations. Where regulation did not exist, industry agreements and administrative guidance from the Ministry of Transport (MOT) often ﬁlled the void to limit competition among operators. As in the case of ﬁnance, while legally there still existed substantial room for AML enforcement in the sector, the MOT’s role in support of anticompetitive acts made such enforcement difﬁcult in practice. One of the areas the FTC targeted was the taxi industry. While the Road Transportation Law required taxi operators to submit applications for rate changes that fell within a price band set by the MOT, any efforts by operators to ﬁx prices within this band constituted a violation of the AML. However, the MOT’s basic policy of approving only one taxi rate per district in effect made it necessary that operators agree on price changes in order to receive approval for new rates.89 In 1977 the FTC reached an agreement with the MOT to require that taxi ﬁrms submit rate change applications individually rather than as a group in order to help prevent AML violations.90 Despite FTC pressure, however, the ministry’s basic policy on rates remained unchanged. In 1982 the FTC warned the MOT over its support for anticompetitive practices after the ministry exerted strong pressure on one taxi operator to fall in line with a rate increase proposal agreed upon by a local taxi association.91 The FTC also later issued a warning against the association for its practices.92 As stated later in the Diet by FTC chairman Takahashi Gen (1982–7), although the MOT’s one rate/one district policy clearly caused violations of the AML, the act of administrative guidance could not be held accountable under the law as it was not an “act of business.”93 The FTC took two formal actions against other local taxi associations in the early 1980s for setting agreements on prices and limits on increases in the number of operating taxis.94 However, each of these attempts to pressure for more competition in the industry was met with substantial political opposition from members of the LDP transport faction, or zoku. Anticipated and actual opposition from these LDP politicians served to dampen further FTC efforts to enforce the AML against the industry.95 Another example of the difﬁculties faced by the FTC in transport was the airline industry. While the Aviation Law allowed explicit AML exemptions for agreements on airfares among operators, it did not allow companies to make agreements on other terms.96 Despite deregulation of the Aviation Law in 1986 that permitted discounts off base fares of up to 35 percent, the FTC soon after had to issue warnings to airline companies for agreeing on prices and conditions under the new rules. It furthermore pressured the MOT not to allow or encourage such acts in the future.97 Besides having problems in enforcing the law, the FTC also sought to pressure the MOT to deregulate the transport sector so as to introduce

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stronger competition. As in the case of ﬁnance, the FTC made several recommendations for deregulation in a 1982 report. These included the relaxation of the permit system allowing market entry and liberalization of rate bands in most sectors to allow for price competition.98 This opinion was met with stiff opposition by related industries and the MOT, however, and no progress was made on deregulation as a result of FTC pressure.99 Instead, deregulation progressed slowly through efforts made in the cabinet through administrative reform committees and by the industry itself. Even more sweeping changes were recommended in the FTC’s study group report of 1989. This report also encountered vigorous and heated opposition from the MOT, provoking strained relations between the two agencies.100 Except for perhaps helping to propel the broader debate on deregulation, the FTC effort to bring about concrete deregulation in this government-regulated sector also failed. Despite marked similarities in the cases of the ﬁnance and transport sectors, two important factors differed. First, in contrast to the situation between FTC and MOF, there had never been any signiﬁcant personnel relations or other systematic means of institutionalized contact between FTC and MOT. Second, LDP transportation zoku politicians strongly represented the interests of many transportation sectors, including taxis and trucking, that constituted large, organized voting blocs. This fact also served to blunt the vigor with which the FTC enforced the AML against the sector. While FTC enforcement efforts against transport were somewhat stronger than in the case of ﬁnance, in terms of bringing about the changes in regulation and administrative guidance necessary to broaden the scope for antimonopoly policy enforcement and promote competition, the limits of FTC action and initiative were made manifest in both cases.

Structural and political dimensions to changes in AML enforcement patterns Parallel with the FTC’s increased stress on its preventive measures policy and its efforts to broaden enforcement into regulated industries was a decline in formal actions taken against violations of the AML. While it is difﬁcult to estimate the strength of AML enforcement purely in terms of quantitative measures such as formal actions, by nearly any count the period 1980–9 stands out as a relatively inactive one in comparison with the 1960s and 1970s.101 While a total of 344 formal actions were taken by the FTC during the 1970s and 202 actions during the 1960s, only 114 actions were registered during the 1980s (see Figure 2.1, p. 21). A better measure of activity in formal actions would compare the number of actions taken as a percentage of total cases handled in a given year. While 34 percent of the cases processed in an average year during the 1970s ended in a formal action, the comparable ﬁgure during the 1980s was only 8 percent. On this measure the 1980s also fell well behind the 1960s, when

128 Solidifying and expanding the policy base 21 percent of cases handled ended in formal measures (calculated from data in Table 7.1). One structural factor that might explain this change is the resources available to the FTC for enforcement. But even taking this variable into account, again formal enforcement was weaker in the 1980s than in the 1960s and 1970s. Although the number of investigators per cases processed remained relatively stable through the three decades (within a band of approximately one-half to two and one-half cases handled per investigator each year), the number of investigators it took to bring one formal case rose dramatically in the 1980s, especially between 1983 and 1989. While there were just over four investigators in the 1960s and about the same number in the 1970s per formal action during an average year, during the 1980s there were eleven investigators per formal action taken (calculated from data in Table 7.1). A lack of human resources, therefore, does not appear to be an adequate explanation for the low number of formal actions over the period. Another structural factor that might account for the trend is a change in the type of violations being investigated and reported to the FTC. The FTC’s ofﬁcial explanation for the drop in formal cases was that the introduction of the cartel surcharge system in 1977 had led to a decrease in the number of serious violations, especially price cartels.102 Less serious violations were dealt with by the use of less formal methods of enforcement, such as a caution or warning. As the seriousness of a violation is difﬁcult to measure objectively, it is impossible to test this argument. However, it is clear that the FTC did begin to use many more cautions and warnings from around 1980. Owing to changes in FTC methods of reporting the treatment of cases in 1977 and 1982, direct comparisons with the 1970s and 1960s are difﬁcult. Nevertheless, the number of cases handled informally as against formally over the 1980s was radically higher than during the two previous decades (Figure 7.1). The FTC’s use of administrative guidance versus formal measures to deal with violations was a hallmark of FTC enforcement patterns in the 1980s.103 Beyond the FTC’s ofﬁcial explanation for change, other structural hypotheses have been put forward to account for the drop. One is that the heightened potential for court challenges to FTC decisions following the introduction of the cartel surcharge provision in 1977 caused the agency to become more cautious in its use of formal actions.104 Another hypothesis is that company managers became much more careful about their cartel activities following the introduction of the surcharge system, such as avoiding leaving any written evidence of agreements.105 As a result, the FTC faced more difﬁcult investigations, with proof of illegal activity harder to attain. While all of these factors are probably relevant to some degree, it is also clear that the basic FTC philosophy toward enforcement also underwent important changes from around the start of the 1980s. As will be

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Table 7.1 Trends in FTC enforcement, 1961–95 Fiscal year

Formal actions as a percent of cases processed a

Cases processed per number of employees in investigation bureau

Number of employees in investigation bureau per formal action

1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

9% 11% 38% 28% 21% 13% 13% 23% 33% 31% 32% 39% 58% 47% 36% 24% 18% 22% 37% 24% 9% 7% 5% 4% 10% 3% 5% 6% 6% 9% 19% 22% 22% 18% 15%

0.7 2.5 1.9 1.9 2.3 2.1 1.5 2.0 1.4 2.1 1.7 1.3 1.8 1.8 1.0 1.1 1.0 0.4 0.4 0.7 1.5 3.0 2.3 2.0 1.7 1.5 1.3 1.0 1.7 1.5 1.2 1.3 1.0 0.9 0.8

16.3 3.8 1.4 1.8 2.0 3.7 5.5 2.2 2.1 1.6 1.8 2.0 1.0 1.2 2.7 3.9 5.5 12.5 6.7 6.3 7.7 5.0 8.3 11.1 5.9 20.0 16.5 16.5 10.1 7.0 4.3 3.6 4.4 6.3 8.4

Sources: Compiled from various FTC Annual Reports (numbers of employees in Investigation Bureau provided by FTC). Note a Figures rounded to the nearest percent.

130 Solidifying and expanding the policy base 300 Number of Cases Handled

Total Number of Cases Handled

250

Proportion of Cases Handled Ending in Formal Action Proportion of Cases Handled Ending in Cautions/Warnings*

200

150

100

50

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

0

Fiscal Year

Figure 7.1 Trends in the formal and informal handling of cases by the FTC, 1961–95. Note: The caution/warning ﬁgures through 1977 include cases where no violation was detected. Between 1978 and 1981, only warnings are represented; cautions are not counted. Source: Various FTC Annual Reports.

discussed in Chapter 8, formal enforcement again rose signiﬁcantly in the early 1990s to pre-1980 levels as a result of promises made to the United States in bilateral negotiations. The fact that a simple pledge by the FTC in 1990 to use more formal measures resulted in many more being taken points to the importance of attitudes toward enforcement over structural explanations. Political factors provide strong potential explanations of why these attitudes changed to favor the use of informal methods of enforcement from around the start of the 1980s. One possibility is that the FTC was under strong pressure from business, ministries, and the LDP to relax enforcement in a manner that complemented periods of recession in the Japanese economy. The 1980s began with a recession in many sectors as a result of the second oil shock, and a short recession again hit in 1986 that corresponded with the sharp appreciation of the yen. If such pressure actually affected FTC formal enforcement, fewer formal actions during economic slumps would be likely despite the likelihood that recessions would normally bring about more violations of the AML.106 If looked at historically, however, FTC enforcement does not appear to have been softened during periods of recession. Using a standard Spearman correlation model, while there is no statistically signiﬁcant relationship between real GNP and FTC formal actions, there does exist a probable signiﬁcant negative correlation

Solidifying and expanding the policy base 131 80

30 Mining/Manufacturing Output Formal Actions

60

20 15

50

Real GNP 10

40 5 30 0 20

–5

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

–15

1959

0

1957

–10

1955

10

Percentage Change in Output/GNP

25

70

Formal Actions

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Fiscal Year

Figure 7.2 Mining/manufacturing output, real GNP, and formal FTC actions. 1955–95. Sources: Ko¯sei Torihiki Iinkai, Heisei 7 nendo ho¯koku (1995 FTC Annual Report); Keizai Kikakucho¯, Keizai hakusho 7 nen (1995 EPA Economic White Paper).

between formal actions and manufacturing output (P < 5 percent) (Figure 7.2). This ﬁnding suggests that the FTC has in fact enforced the AML more strongly during recessions and less strongly during expansions. If the 1980s are isolated, however, there exists no statistically signiﬁcant relationship either way. This may indicate that the FTC softened its enforcement during this period to a certain degree, although the evidence is far from conclusive. Another factor that was closely related to enforcement trends in the 1970s was the impact of inﬂation. Substantial public support during the inﬂation crisis of the early to mid-1970s enabled the FTC to act strictly without vocal political opposition from the LDP. Unlike in that era, however, inﬂation during the 1980s was relatively low, never rising above 5 percent in a given year. If the relationship between inﬂation and formal actions is examined statistically using the Spearman model, a strong positive correlation showing high statistical signiﬁcance is clear (P < 0.2 percent) (Figure 7.3). One plausible hypothesis, then, is that relatively low inﬂation through the 1980s led to a deterioration in general support for the FTC, causing the commission to become less vigorous in enforcement. Beyond waning public support, there are other means by which external political pressure might be brought to bear on the FTC to affect its behavior. One of the most readily possible direct means is the LDP’s power over approving the FTC’s budget. The party could cut FTC funding should it determine that the FTC is carrying formal enforcement too far.

132 Solidifying and expanding the policy base 25

Total Formal Actions

60

20

50 15 Formal Actions 40

Consumer Inflation 10

30 5 20 0

10

Percentage Change in Consumer Inflation

70

–5 1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

1959

1957

1955

0

Fiscal Year

Figure 7.3 Trends in consumer inﬂation and formal FTC actions, 1955–95. Sources: Ko¯sei Torihiki Iinkai, Heisei 7 nendo ho¯koku (1995 FTC Annual Report); Keizai Kikakucho¯, Keizai hakusho heisei 7 nen (1995 EPA Economic White Paper).

However, a simple comparison between FTC budget trends and the number of formal actions taken reveals that if anything, the FTC received more funds during periods of strong formal enforcement (P < 1 percent) (Figure 7.4). Moreover, given the strong correlation between changes in the FTC’s budget and the national general account budget (P < 1 percent), it appears unlikely that the FTC’s budget has been affected by LDP intervention (Figure 7.5). Rather, the correlation suggests that the FTC’s budget was determined in line with the same routinized budget customs that characterize decision making for other government agencies.107 The budget does not appear to have been an important source of LDP inﬂuence on FTC actions.108 Another possible source of direct political inﬂuence on FTC behavior is the LDP’s legislative power. As will be explored later in relation to AML enforcement against the construction industry, strong pressure from Keidanren and the construction industry to weaken the AML led to the formation in late 1982 of a study group within the LDP to consider the issue. Discussions centered on returning the AML to its pre-1977 strength, making more allowances for legal cartels, and enacting sweeping exemptions to the AML for the construction industry.109 Although the issue was shelved by 1984 owing to a lack of broad support within the LDP and certain deep criticism from opposition parties, the political pressure exerted on the FTC to go easier on business was nevertheless strong and inﬂuential.110 A similar movement around 1987 to weaken the AML also served to keep pressure on the FTC to avoid strong formal enforcement.111 The

Solidifying and expanding the policy base 133 70

35 NOTE: To demonstrate any impact of FTC enforcement levels on the agency’s budget the following year, the line representing budget changes actually corresponds to the following fiscal year (e.g. change shown here for FY1990 actually is change for FY1991)

40

25 20 15

30 10 20

5

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

–5 1962

0 1960

0

1958

10

1956

Total Formal Actions

Changes in FTC Budget 50

30 Percent Change in Budget

Number of Formal FTC Actions

60

Fiscal Year

Figure 7.4 Trends in FTC formal actions and budget allocations, 1956–93. Note: The changes shown in the FTC’s budget are based on change in its budget following supplementary budgets. Source: FTC, various FTC Annual Reports.

35 Percentage Change (over previous year)

30

National Budget FTC Budget

25 20 15 10 5 0

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

1958

1956

1954

–5 1952

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Fiscal Year

Figure 7.5 Trends in FTC and national budgets, 1952–95. Sources: Sengo: nihon keizai nisshi; Keizai Kikakucho¯, 1995 Keizai hakusho¯ (1995 Economic White Paper).

134 Solidifying and expanding the policy base sharp drop in formal actions and the complementary increase in the use of warnings and cautions that is especially noticeable between 1983 and 1989 must be seen as one direct result of the political pressure applied on the FTC through threats to weaken the AML. Formal enforcement continued, but it was employed only in the most serious cases or when previous warnings to end illegal acts had been ignored.112 A ﬁnal means of direct political inﬂuence on the FTC is the appointment of commissioners and chairmen by the prime minister. While there were no signiﬁcant alterations in the general background of the commissioners and chairman between the 1970s and 1980s (see Figure 3.2, p. 36), the contrast in style of the FTC chairmen during these periods could not have been greater. The choices of Hashiguchi Osamu in 1977 and Takahashi Gen in 1982 brought to the FTC leaders with a much more accommodative demeanor than Takahashi Toshihide, who held the post between 1972 and 1976. Although there is no evidence that appointments of FTC chairmen by the prime minister were made contingent on conditions about desirable levels of enforcement, both chairmen nevertheless stressed the need for the FTC to be less adversarial toward business. This tendency was clearly rooted in their personalities and philosophy toward administration while elite MOF bureaucrats.113 The emphasis on a preventive measures policy and enhanced use of informal enforcement measures made these stylistic differences manifest. Chairman Hashiguchi argued that warnings – which in essence simply constituted administrative guidance from the FTC – had an effect similar to formal measures in terms of gaining business compliance with the AML.114 On leaving the FTC, moreover, Chairman Hashiguchi noted his satisfaction that a “Japanese style of competition policy” had been developed under his term.115 Chairman Takahashi Gen continued this basic approach between 1982 and 1987, although the further drop in formal measures and the general stagnation in antimonopoly policy during the period are widely attributed to his even softer personal philosophy toward enforcement.116 As a result, while changes in FTC enforcement patterns over the 1980s can possibly be explained by structural factors, it is equally clear that the combination of an increasingly hostile political environment against the FTC, a decline in visible public support, and the impact of the style of the FTC chairman were also of fundamental importance.

Conclusion As shown in all three issues examined, antimonopoly policy experienced substantial inertia over much of the 1980s. Political boundaries drawn by Japan’s conservative forces again began to choke off FTC initiative. Meanwhile, those factors that allowed the FTC rise during the mid-1970s – inﬂation, consumerism, acute concern about abuse by powerful business

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interests, and the LDP’s move to the center to ensure opposition cooperation in Diet affairs – waned nearly as quickly as they had appeared. Certain improvements were made in spite of these new realities. The FTC began to expand the reach of antimonopoly policy into nonmanufacturing sectors of the economy. In cases such as taxis and trucking, for example, the agency took some steps to boost enforcement in spite of clear preferences of inﬂuential LDP politicians to the contrary. The FTC also began to expand enforcement into other sectors heavily supported by the LDP, such as medical associations and agriculture. Without some degree of independence from the cabinet, it is doubtful that even these limited efforts would have been made. The FTC was able to draft broad guidelines, even in some cases when confronted with broad business, political, and bureaucratic resistance. Yet almost without exception, it was much more successful in enacting guidelines on issues where industry interests were more diffuse, such as in the cases of guidelines for trade associations, mergers, and stockholding, than in cases where industry interests and thus resistance appeared more concentrated, such as in the case of retail keiretsu practices. One guideline that would normally have encountered strong opposition – the FTC’s opinion on administrative guidance – was made possible only as the result of favorable rulings from the Tokyo High Court on the petroleum cartel cases. In most areas, particularly in the area of stronger formal enforcement of the AML, little progress was made. Indeed, formal enforcement fell off dramatically after 1983 when familiar threats from conservative business groups and politicians were made in order to weaken the AML and the FTC. While the FTC’s preventive measures policy was not originally intended to replace formal enforcement, by the end of the 1980s efforts to encourage compliance with the AML had become more of an end in themselves than a means to an end. A rigorous enforcement regime simply was nowhere in sight. In other cases, such as in the case of distribution practice guidelines, the FTC failed to enact guidelines making illegal many speciﬁc business practices in light of substantial opposition from manufacturers, wholesalers, retailers, and politicians. While not all of the demands made by business were met by the FTC in each of the three cases presented, much of the friction between business and the FTC seen during the 1970s nevertheless was conspicuously absent during the 1980s. This fact suggests that the FTC’s nonconfrontational style represented a pattern of behavior that was signiﬁcantly more obsequious to business interests and desires. One of the themes that emerged from the era was the FTC’s inability to come to grips fully with the enforcement of the AML in regulated industries. As argued, the reasons for inaction were based on more than simple personnel relationships between the FTC and other agencies. Despite the clear effect of the FTC’s personnel links with the MOF and weak enforcement against the ﬁnance industry, the case of transport shows similar weak

136 Solidifying and expanding the policy base tendencies in AML enforcement patterns against government-regulated industries more generally. The FTC in most cases adopted a defensive enforcement posture through the use of warnings. Even when it tried to intervene and pressure ministries formally, these efforts nevertheless were often met by other means to continue anticompetitive practices. The FTC simply did not have the political support or supportive consensus necessary to regulate the behavior of other government agencies. In total, while the FTC undertook cautious steps to strengthen and expand the scope of antimonopoly policy through the adoption of guidelines and the diversiﬁcation of enforcement into regulated sectors, the political environment was not conducive to the kinds of strong efforts undertaken by the FTC during the previous era. Threats to weaken the AML were made consistently to pressure the FTC to hold back as interest from the general public and the press waned considerably with increased economic growth and low inﬂation. The net result was constrained, incremental policy development.

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8

Gaiatsu as a source of policy change

The development of antimonopoly policy in Japan has consistently been affected by foreign inﬂuences, primarily from Europe and the United States. Beyond the imposition of the Antimonopoly Law (AML) on Japan by US occupation forces, these inﬂuences have been rather indirect. For example, Fair Trade Commission (FTC) ofﬁcials looked to West German law as inspiration for some FTC proposals that were incorporated into the 1977 AML revision, and the 1979 recommendation by the Organization of Economic Cooperation and Development (OECD) that prompted the FTC to expand AML enforcement into government-regulated sectors. But as seen in each of these cases, it was domestic forces that ultimately shaped how these foreign inﬂuences were reﬂected in Japan’s antimonopoly policy. From the early 1980s, and especially from 1989, the US government became a vocal actor in Japanese antimonopoly policy, trying to inﬂuence both policy direction and outcome. Its reasons for doing so were clear: the desire to enhance ease of access to the Japanese market for US companies and to reduce the number of joint acts by Japanese companies exporting to the United States. Japan was called on to step up enforcement and make reductions in AML exemptions such as legal cartels. Consonant with this effort was a reinvigoration of the FTC and antimonopoly policy generally. It is clear, even from the public comments of FTC ofﬁcials, that US demands along these lines were a major factor in bringing about a further strengthening of antimonopoly policy from around 1990. What is less clear is why the Japanese government generally and the FTC speciﬁcally responded positively to some of the numerous demands made by the United States over antimonopoly policy. Moreover, in some cases the FTC took up change with much zeal, while in other cases there appeared to be little change from past policy. In the context of pressure, or gaiatsu, from the United States, this chapter will focus on how foreign demands on antimonopoly policy were met and shaped within the Japanese political environment. Following a general discussion on the background of American gaiatsu, the remainder of this chapter will focus on three topics that were agreed on in bilateral negotiations between the United States

138

Gaiatsu as a source of policy change

and Japan: changes in enforcement patterns, capabilities, and penalties under the AML; efforts to reduce further the number of AML exemptions; and the drafting and implementation of a comprehensive guideline for distribution and trading practices.

Gaiatsu and the Structural Impediments Initiative US interest in antimonopoly policy issues began to become acute in the late 1970s following the displacement of US domestic production by Japanese exports in areas such as steel, textiles, and consumer electronics. Many in the United States came to believe that Japan’s brand of antimonopoly policy, seen as accommodating toward the country’s industrial policy, was one contributing reason for the rapid expansion of Japanese exports.1 As initial US concern centered on Japanese exports, US government efforts focused on the application of US antitrust laws against Japanese companies rather than on changing Japanese policy. Following the liberalization of import and capital controls in the 1960s and into the 1970s, US interest in the Japanese market began to take hold from the early 1980s. US demands on Japan’s antimonopoly policy generally were twofold through the decade. One was a reduction in the number of AML-exempt cartels. US ofﬁcials argued that Japan should refrain from using such cartels, and that if used they should not injure American businesses and consumers. Second was a demand for the FTC to address exclusionary practices in the distribution system. On this point the list of US complaints was rather long and included broad issues such as the role of trading companies in importing as well as speciﬁc complaints about difﬁculties in particular market sectors. The FTC and its related advisory bodies responded with numerous surveys to study US complaints about Japanese trading and distribution practices. On occasion the FTC acted formally and informally against acts of discrimination against foreign imports. But on the whole the FTC determined that while many of the practices Americans complained of did often constitute barriers to new market entry, they did not unfairly discriminate against foreign companies. Moreover, the FTC noted that few if any actual violations of the AML had been detected during their surveys.2 Very little change, therefore, had been made in these business practices by 1989 when the Ofﬁce of the United States Trade Representative concluded in a report that distribution keiretsu and other trading practices represented substantial barriers to US exports to Japan.3 Continued American frustration with the United States’ economic relations with Japan, aggravated further by a massive bilateral trade imbalance, led US ofﬁcials to change their approach to negotiations. In addition to sector-speciﬁc trade negotiations, the United States requested that Japan enter into a more comprehensive set of talks designed to address structural problems that were preventing an acceptable correction in the

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bilateral trade and investment imbalance. Foremost among these problems were distribution and other exclusionary Japanese business customs and practices.4 These negotiations, named the Structural Impediments Initiative (SII), began in the late summer of 1989 and lasted nearly one year. The demands made of Japan were numerous and broad. Issues that directly or indirectly touched on antimonopoly policy in Japan were central in the discussions and some of the most difﬁcult to resolve. The ﬁnal agreement, reached in June 1990, contained a number of pledges by the Japanese government regarding antimonopoly policy. While the SII process highlighted signiﬁcant divisions in opinion between the governments on the proper function and scope of antimonopoly policy, few of the issues raised by the US side were matters that had not been addressed or debated previously in Japan. Schoppa has treated the SII negotiation process over antimonopoly policy issues in detail, ﬁnding that formal American demands were accepted only where they were supported actively by the FTC or not resisted entirely by other political, bureaucratic, and business elites.5 Rather than focus on the negotiation process itself, the remainder of this chapter will examine in more detail the process of implementation of the three general issues agreed on in the SII forum.

Strengthening enforcement and penalties General enforcement The US government argued forcefully during the SII talks that the FTC’s resources were wholly inadequate for it to enforce the AML on the scale and with the intensity that the US side desired. Following these strong demands, in the ﬁnal SII agreement Japan pledged to “steadily improve and strengthen the FTC” through the addition of personnel and the creation of a stronger investigative structure.6 The number of new staff as well as those assigned to the Investigation Bureau rose sharply from 1990 (see Figure 3.3, p. 38). The structure of the FTC’s Investigation Bureau was also expanded to absorb these additional personnel and broaden the scope of FTC investigations by placing a greater emphasis on bid-rigging cases. These initial steps to boost the FTC staff generally and the Investigation Bureau were clearly based on Japan’s SII commitments. But as was discussed in Chapter 7, having additional personnel in the Investigation Bureau alone was not a necessary condition for strengthened enforcement. Attitudinal changes were also important. In the SII agreement, the government of Japan also pledged to engage in “more vigorous enforcement” of the AML, which included the use of more formal actions and the renewed use of criminal actions. This promise required that the FTC modify its style of enforcement established during the 1980s that had emphasized informal actions. FTC chairman Umezawa Setsuo soon after

140

Gaiatsu as a source of policy change

stated in the Diet that the FTC intended to deal with AML violations more strictly.7 The number of cases dealt with in a formal manner increased signiﬁcantly from 1990 in line with this pledge to a level on par with that during the mid-1970s (see Figure 2.1, p. 21). US demands to increase the use of formal actions at least made it more acceptable politically for the FTC to resort to these measures.8 Symbolic of the attitudinal and structural changes necessary to strengthen formal enforcement has been the FTC’s use of criminal accusations. The FTC issued three criminal accusations between 1991 and 1995. Several steps were taken in line with Japan’s pledges in the SII ﬁnal report to facilitate the use of criminal accusations. As a ﬁrst step the FTC drew up in June 1990 a guideline that established three criteria for using a criminal accusation against AML violations: the scale of the damages or losses incurred by consumers, the magnitude of effects on society, and consideration of the social effects of the illegal act.9 While the guideline clearly limited the use of criminal accusations to exceptional cases only, consensus formed in the FTC that this step should be taken in a less conservative fashion than in the past.10 To facilitate this process, in January 1991 a permanent liaison organization between the FTC and the Public Prosecutor’s Ofﬁce was established to help coordinate investigations and determine whether evidence was sufﬁcient to obtain a criminal indictment.11 This change was instituted at the initiative of the FTC and was not the result of any speciﬁc US government demand.12 As will be recalled from Chapter 4, tension between the two agencies had been one important factor restraining the FTC in its use of criminal accusations. By promoting cooperation, the forum also helped compensate for the FTC’s lack of expertise in investigating cases in a manner necessary to establish the strict level of proof needed before the courts. This cooperation also produced other fruits, such as leading both organizations to modify their belief that criminal accusations ﬁrst and foremost must be issued against individuals before being used against corporations or trade associations. As a result, in two of the three cases accusations were ﬁled against corporations for the ﬁrst time.13 Finally, in one of the three criminal cases the Public Prosecutor’s Ofﬁce for the ﬁrst time provided the FTC with the information that led to a subsequent FTC investigation of AML violations, indicating a more cooperative relationship between the two agencies.14 While other institutional barriers to more effective enforcement remained, such as the FTC’s lack of strong powers to undertake compulsory investigation, the FTC and the prosecutors put in place an institutional framework that signiﬁcantly improved the agency’s ability to make use of criminal accusations. The FTC’s use of more formal measures did not supplant its previous policy of trying to encourage voluntary compliance with the AML. As a part of its response to US demands for stronger enforcement, the FTC also exerted pressure on Japanese businesses and trade associations to draft

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AML compliance manuals in order to obtain fuller compliance with the AML.15 As of early 1994, this effort had resulted in 61 percent of all companies listed on the Tokyo Stock Exchange having adopted some sort of AML compliance program, two-thirds of them having instituted their program after 1990.16 The response of business to the stepped-up use of formal enforcement measures by the FTC is difﬁcult to gauge. One indication is the response given by Keidanren. During the midst of the SII negotiations, Keidanren declared its opposition to the strengthening of AML enforcement in a statement that was similar in tone to previous positions on antimonopoly policy. The statement argued that “there are concerns that ill effects could come about at this juncture should enforcement of the Antimonopoly Law be stepped up as a prerequisite of free competition.”17 Yet less than three years later, and following a change in leadership, Keidanren formally dropped its traditional antipathy toward stronger AML enforcement by urging in 1991 and again in 1993 that its member companies abide by the full spirit and letter of the AML.18 Moreover, Keidanren did not criticize openly the FTC’s use of criminal accusations against AML violators. It is clear that during this period the big business community, at least on the surface, recognized and accepted that stronger AML enforcement had become a permanent part of ofﬁcial Japanese economic policy.19 Raising cartel surcharges In addition to American complaints that the FTC was not enforcing the law in a manner ﬁtting the tenor and scope of the AML, the US government also argued that penalties were too weak to act as a sufﬁcient deterrent to AML violations. The issue of insufﬁcient penalties was an important one in the debate over the 1977 revision of the AML. This led to an increase in criminal ﬁnes as well as the introduction of an administrative surcharge for illegal cartels. At that time the base surcharge was set at a levels ranging between 0.5 and 2 percent of sales of the relevant product for the period the cartel was in force. In the SII talks the US government insisted that the level of surcharges be raised substantially to make them punitive, demanding a level of no less than 10 percent of sales or an amount twice the level of unfair proﬁt.20 Following a formal decision made between Prime Minister Kaifu Toshiki and related cabinet members, Japan pledged to increase the surcharge level.21 In the ﬁnal SII agreement, however, the Japanese government refused to set a concrete ﬁgure despite an apparent preference by the FTC for doing so.22 Instead, the government pledged to increase the surcharge level to a point where it would “effectively deter” AML violations.23 The Japanese government also agreed to US demands to reinterpret the AML to allow the application of surcharges against joint boycotts as well as against cartels.24

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Following the SII agreement and the government’s formal commitment to raise surcharges, debate centered on the appropriate level of increase. The government established under the chief cabinet secretary a study group of academics, business representatives, and other opinion leaders to make a recommendation. The group considered several alternative systems to raise surcharges, such as copying the European Commission’s system, which set a high ceiling rate and allowed antimonopoly authorities to ﬁx a surcharge based on the circumstances of the violation.25 In the end the study group avoided calling for radical change of the system. Instead, it recommended in December 1990 that the base surcharge rate be increased from 1.5 to 6 percent and that this be applied to operating proﬁt rather than on gross sales as under the previous system. The group furthermore recommended that somewhat smaller increases be set for retail and wholesale companies and that a new level of surcharges be established speciﬁcally for all small and medium-sized enterprises (SMEs).26 On this basis the government and the FTC began drafting a bill to revise the cartel surcharges section of the AML. Throughout the process, and up until a bill was passed by the Diet, the US government continued to pressure Japan to set a surcharge of at least 10 percent.27 Similar calls for substantial surcharges came from other sources as well, such as the mass media and the Social Democratic Party of Japan (SDPJ; formerly the Japan Socialist Party), which submitted its own bill with a surcharge rate of 10 percent.28 On the other side of the argument stood business. The decision made by the government, the FTC, and the surcharges study group to set lower rates speciﬁcally for SMEs was clearly a political one to avoid strong small-business opposition to the overall plan as well as certain anger directed at the ruling LDP.29 The decision was also based on some more objective criteria, however, such as that while the average operating proﬁt of large ﬁrms stood at 5.5 percent in 1989, the same ﬁgure for SMEs was only at just over 4 percent.30 There was a clear consensus at all levels in the debate that SMEs should be spared the brunt of the surcharge increase so that the rates reﬂected the ability of these companies to pay rather than threaten their solvency.31 As a result, the ﬁnal bill included only modest increases in surcharges for SMEs (Table 8.1). Among big business leaders there existed some range of opinion on the issue of surcharges. At the outset of the SII discussions, Keidanren stated its formal opposition to the strengthening of antimonopoly policy, including any increase in cartel surcharges or criminal penalties.32 The organization, however, changed this initial stance following the government’s formal commitment to raising surcharge levels, noting that the change was necessary to maintain good economic relations with the United States.33 Rather, strong demands were made that any rise be limited in scope and not exceed the level of unfair proﬁts obtained through cartel activities.34 The construction industry especially was opposed to any surcharge increases

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Table 8.1 Changes in cartel surcharge rates (1991 AML) Previous surcharge Revised surcharge Revised surcharge rate (for small rate (1977–91)a rate (for large business)b businesses)b Standard rate

1.5%

6.0%

3.0%

Rate for manufacturing ﬁrms

2.0%

Rate for retail ﬁrms

1.0%

2.0%

1.0%

Rate for wholesale ﬁrms

0.5%

1.0%

1.0%

Notes a Expressed as a percentage of sales of the relevant product or service over the period of the cartel. b Expressed as a percentage of operating proﬁt on the relevant product or service over the period of the cartel. The surcharges would apply only to cartel acts committed for a period of three years prior to the formal decision of the FTC on the case.

since that industry would bear the brunt of the increase (from 1.5 to 6 percent, as against manufacturing, which faced a somewhat smaller increase from 2 to 6 percent). Concern was deep, as collusion in bidding for public works projects by the industry was made one clear target of the policy for stronger AML enforcement.35 Members of the LDP construction industry faction, or zoku, supported this industry position strongly by arguing that rates should be set lower for the industry.36 Finally, the Ministry of Justice (MOJ) objected strongly to any surcharge that was designed to be punitive.37 The result of the debate was a classic compromise bill drafted by the FTC that took into account all of the factors mentioned above. The base surcharge level was increased to 6 percent in line with the study group recommendation. Surcharges were also raised slightly for wholesalers and retailers, while rates for small businesses were set at 3 percent (Figure 8.1). Reaction to the ﬁnal government bill was twofold. Big business was generally critical of the scale of the rise while others, including the US government, argued that the increase was insufﬁcient to act as a suitable deterrent.38 Indeed, by preserving the approach that surcharges should not be punitive sanctions but rather administrative measures, the increase in fact raised surcharge levels to reﬂect an updated calculation of average proﬁts in each industry type and made them only possibly mildly punitive. In order to boost the punitive deterrent effect of the AML, the government’s study group recommended that an increase in criminal penalties under the AML also be made.39 The revision of the AML containing the revised cartel surcharges passed the Diet in 1991 with little debate following cabinet approval of the bill.

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Raising criminal penalties The issue of increasing criminal penalties inspired a livelier debate than the one over cartel surcharges. The US government demanded during the SII talks that criminal penalties be raised, but this position was rejected by the Japanese government, which argued that any increase would put AML violation penalties out of proportion with other criminal ﬁnes.40 As a result, no formal pledge to raise criminal penalties was made in the SII ﬁnal report. But in light of the recommendation of the government study group on surcharges, the FTC nonetheless announced plans to seek a stronger criminal deterrent.41 In January 1991 the FTC assembled law experts and established the Criminal Fines Study Group to consider how to go about increasing these ﬁnes. Soon after, it was determined in the FTC and in the study group that separate systems should be created for ﬁnes against companies and for ﬁnes against employees responsible for illegal activities.42 The rationale was to make possible a signiﬁcant increase in the level of ﬁnes against companies without holding individuals to the same burden.43 As the Criminal Fines Study Group continued its deliberations into late 1991, the FTC had begun to come down much more severely on AML violations, in line with its pledge in the ﬁnal SII report. In November 1991 the FTC issued its ﬁrst criminal accusation since the petroleum cartel cases of 1974. During the same month the FTC also deepened its investigation of a construction company bid-rigging case involving a large number of inﬂuential as well as small contractors in a manner that suggested that it was also preparing criminal charges against the participants (see Chapter 9).44 These developments made the issue of increases in criminal ﬁnes extremely potent among business leaders in manufacturing and construction, and they strongly lobbied LDP politicians to resist any such change. It was in this context that FTC chairman Umezawa Setsuo took the content of the ﬁnal report of the Criminal Fines Study Group to the LDP’s Special Committee on the Antimonopoly Law in mid-December 1991 to explain its contents prior to the report’s public release. The report stopped short of recommending a speciﬁc amount for increases in the maximum level of ﬁnes, but it did call for an increase from the level of ¥5 million to “several hundred million yen.”45 On this basis, Chairman Umezawa proposed before the LDP committee a ﬁgure of ¥300 million, representing an increase of sixty times over the previous rate.46 Opposition to the plan in the LDP committee, however, was strong. Members took issue with the proposed scale of the increase, the idea of instituting a new sanction so soon after an increase in cartel surcharge rates, the concept of creating two separate criminal ﬁne systems, and the application of such a largescale increase against SMEs as well as large business. As a result, Chairman Umezawa determined that the release of the report of the criminal ﬁnes study group should be delayed, commenting that “it was best not to make

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[the report] public at this stage in order to avoid mutual distrust with the [LDP].”47 Umezawa also said he would try to resolve these “differences of opinion” with the LDP so that the report could be released and the FTC’s proposals accepted.48 Meanwhile, US ofﬁcials made it clear to the Japanese government that they were counting on Japan to institute a very substantial increase in criminal ﬁnes.49 A stalemate continued between the FTC and the LDP for several more weeks until early March 1992, when a request came from a Diet committee to see the content of the report of the criminal ﬁnes study group, resulting in its public release.50 This move brought the issue out into public debate, where criticism was quickly heaped upon the FTC’s proposals. Industrialists in basic materials companies expressed their strong disapproval of the plan.51 Keidanren argued that the proposed level of increase was excessive, following the recent increase in cartel surcharges.52 Moreover, the organization repeated its previous contention that such a signiﬁcant rise represented a constitutional problem by potentially subjecting companies to double jeopardy – cartel surcharges that were set at punitive levels in addition to punitive criminal ﬁnes.53 SME operators also made clear to the government their anxieties over the proposed scale of the ﬁnes, an opinion that was shared widely by LDP Diet members.54 Stronger criticism of the FTC’s plan came swiftly from the Ministry of Construction (MOC) and the construction industry through Construction Minister Yamazaki Taku, who argued that small construction companies would be completely unable to bear the burden of a criminal ﬁne in addition to the recent increase in surcharges.55 In defense of the industry, the MOC released ﬁgures showing that net proﬁt rates in the industry, 3.5 percent for large ﬁrms and 2.3 percent for SMEs, were so low that the new cartel surcharge rates (6 and 3 percent respectively) were sufﬁcient punishment.56 On the other hand, MITI Minister Watanabe Ko¯zo¯ expressed support for an increase in criminal penalties, although he refused to comment on what constituted an appropriate amount.57 And although there was some opposition, most members of the LDP’s Commerce and Industry Committee were ready to accept some limited increase in criminal ﬁnes.58 Thus, some range of opinion existed in the LDP and the bureaucracy on the issue. Attempts to weaken or stop the plan in the LDP centered around members of the party’s construction zoku, although similar resistance was also seen in some of the party’s commerce and industry zoku. The role of the construction zoku in this and other episodes will be discussed in further detail in Chapter 9, as it is related closely to an alleged political deal between Chairman Umezawa and these inﬂuential LDP politicians. Speculation on the deal held that the FTC did not issue criminal charges against the construction companies in exchange for having these Diet members end opposition in the LDP to an increase in ﬁnes. What is clear is that opposition from these zoku members was the primary reason the

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proposed increase in ﬁnes was lowered from ¥300 million to ¥100 million.59 The chairman of the LDP Construction Committee explained that FTC chairman Umezawa had proposed, as a compromise, setting the criminal ﬁne ceiling at ¥200 million and writing into the revision bill some special consideration for SMEs, but that the Cabinet Legislation Bureau objected to the idea of making such an exception in criminal punishment as an unprecedented act. As a result, a compromise was forged by setting a maximum penalty of ¥100 million.60 This move cleared the way in the party for the revision bill, allowing it to receive the quick approval of the LDP’s construction, commerce and industry, and AML committees in March 1992. The measure was passed in the Diet several weeks later with little debate. Reaction to the government’s ﬁnal AML revision bill was drawn along predictable lines. Keidanren and other business leaders criticized the ﬁne as excessive and of dubious constitutionality.61 Leaders of two of Japan’s other leading big business associations, the Japan Association of Corporate Executives (Keizai Do¯yu¯kai) and the Japan Federation of Employers’ Associations (Nikkeiren), echoed this position, adding that the increase was unnecessary following the hike in cartel surcharges.62 On the other side of the debate, the SDPJ criticized the level of the ﬁne as too low and submitted its own bill to raise it to ¥500 million.63 Others also openly questioned the effectiveness of a ¥100 million ﬁne.64 American ofﬁcials also made clear their strong displeasure, noting that the level of the ﬁne was only about one-tenth of those in the United States and Canada.65 Whether an increase in ﬁnes from ¥5 million to ¥100 million represented a signiﬁcant deterrent to AML violations is a matter for debate. Probably its effectiveness depends on the size of a company and the beneﬁts expected from violating the AML. However, what is noticeable about the discussions on ﬁnes was an absence of general popular concern as the matter attracted little noticeable support beyond the two parties most interested in the issue: the United States and the FTC.

The cartel archipelago revisited: reducing Antimonopoly Law exemptions The FTC had had mixed success in trying to reduce the number of AML exemptions since it began the process in the mid-1960s. As was discussed in Chapter 4, the FTC had broad success in the mid-1970s with its unilateral efforts to reduce the number of legal cartels as well as trim the number of products allowed under the resale price maintenance (RPM) system. In these cases, the FTC reformed the RPM system successfully because of its direct control over the product designations and because of the political atmosphere, which made change possible. Yet, as seen in Chapter 7, the FTC had meager success during the 1980s trying to convince other government ministries to revise laws that would cut the number of AML

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exemptions allowed in government-regulated sectors of the economy. Here, the FTC had little leverage with which to promote change. In the SII negotiations the United States raised the issue of AML exemptions as a factor serving to block foreign access to the Japanese market, demanding, for example, a complete end to all legal RPM agreements.66 However, in the ﬁnal SII report US ofﬁcials only secured a pledge from Japan to review the number of exceptions and to keep these “at a minimum.”67 Following SII, the US government also periodically requested that all AML exemptions be phased out. These arguments, however, appeared to have little signiﬁcant effect on the process of the debate in Japan and on the ﬁnal outcome. But given the FTC’s long-standing efforts to cut formal AML exemptions, it launched a renewed effort following SII to make a signiﬁcant reduction that went far beyond any formal government commitment made to the United States. Reducing legal cartels Following the FTC’s success during the mid-1970s in reducing the number of legal cartels by approximately half, the FTC made much slower progress over the late 1970s through the 1980s. Factors other than FTC initiative may be attributed to the fall in these legal cartels during the period. One was the continuing and accelerated rise in the yen, which left many export and other cartels simply unnecessary or unwanted. For example, a rise in the yen made Japanese cement exports uncompetitive, leading MITI in 1988 to cancel the industry’s export cartel, which had been in effect for thirty-three years.68 On the import side, by 1988 import prices for some fertilizer products had fallen to less than half of the price for domestically produced products. This led Japanese farmers to pressure successfully for an end to the law that allowed AML exemptions and government-regulated price ﬁxing of domestic fertilizer stocks.69 Another important factor leading to the end of AML-exempt cartels was concern with the declining international competitiveness of industries that had long been protected by cartels. One example was the decision by MITI in 1986, despite some strong objections from businesses, to end some of the many facility investment cartels allowed for SME textile companies, some of which had been in operation for as long as thirty-two years. The decision lifted restrictions on new investment in order to promote competition and competitiveness in the sector, which was facing serious decline.70 In 1987 an FTC study group focusing on antimonopoly policy toward SMEs urged the phasing out of all of the 252 legal cartels for small companies, most of which applied to the textile industry. The study group argued that the economic rationale for establishing the cartels in the 1950s and 1960s had long since expired and that they were only hurting competitiveness.71 Market forces, in addition to FTC pressure, therefore played an important part in the ending of some legal cartels in the 1980s.

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Another reason why progress was somewhat slow over the 1980s was that the FTC clearly had moderated its stance somewhat from its position during the mid-1970s. As documented earlier, strong pressure from industry and politicians as well as depressed economic conditions for many industries following the second oil shock had led to this shift. Yet while the FTC continued to be involved deeply in granting and managing cartels for industries in recession approved either under the AML or through the depressed industry laws, the FTC refrained from granting any further such agreements after its cancellation of two shipbuilding-related recession cartels in 1989 well before they were due to expire.72 The FTC’s view on the use of recession cartels remained somewhat ambivalent, however, since the agency never urged that systems of rationalization and recession cartels be removed from the AML altogether. The SII process provided the FTC with a political opportunity to begin anew an active effort to reduce the number of legal cartels. FTC ofﬁcials argued that these cartels often fostered the use of illegal cartels and that a further reduction in the number of legal cartels could help reduce AML violations.73 In line with this thinking, the FTC announced in August 1990 that it would renew efforts to lobby these agencies to eliminate all legal cartels.74 In terms of cartels requiring periodic government approval for their renewal, the FTC had good success in pressuring ministries to reduce these to a negligible number by early 1995 (see Figure 4.1, p. 52). The FTC’s greatest successes were in those industry sectors that were under MITI’s jurisdiction.75 By this point, MITI generally agreed with the FTC on the need to wean industries off their dependence on legal cartels. For example, despite pockets of resistance, MITI pushed ahead with the elimination of all remaining investment cartels among SME textile makers.76 While this step alone brought the number of legal cartels down to a bare minimum, the FTC nevertheless met signiﬁcant resistance from ministries other than MITI over its pressure to phase out their cartels. One such example was a rejection by the Ministry of Transport of FTC suggestions to eliminate cartels among domestic coastal shippers.77 Progress in these sectors was much slower or not forthcoming. Revision of laws with Antimonopoly Law exemptions In terms of eliminating AML exemptions in the laws themselves, such as those in transportation, ﬁnance and agriculture, the FTC had a much more difﬁcult time effecting change. Moreover, many of these exemptions were for sectors of the economy that were generally not subject to significant international competition, making changes in market forces such as the value of the yen or the threat of market entry by foreign ﬁrms less important. In the summer of 1991, the FTC’s Study Group on Government Regulations and Competition Policy made a call to eliminate or make improvements in almost all legal cartels.78 Little progress was made initially

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in scrapping outright these formal legal exemptions. For example, the Ministry of Transport (MOT) refused FTC pressure to revise the Aviation Law and continued to allow carriers to set bands for airline fares with government approval.79 Ministry and industry resistance to ending AML exemptions was made clear when in 1992 a subcommittee of the Extraordinary Administrative Reform Council scaled back at the last minute the FTC study group’s recommendation to end AML exemptions in eleven industry sectors, including sugar reﬁning, air transport, coastal and maritime shipping, and warehouse storage. In the end, the subcommittee only called for removing AML exemptions allowing three types of cartels (rationalization, recession, and price maintenance) under the law governing the liquor-distilling industry and delayed a conclusion on the other sectors for three years.80 As a result, AML exemption clauses were ended in the case of only one law between 1990 and 1992.81 With the arrival in 1993 of the ﬁrst non-LDP government in nearly forty years, the FTC appeared to face a better chance of ending AML exemptions. The eight-party coalition government under Prime Minister Hosokawa Morihiro went much further with the issue of deregulation than LDP administrations, adopting it as a central plank of government policy. A strong pro-competition, pro-consumer agenda for reform of the economy was promoted. This movement had broad support among consumer groups and the public generally, as well as among pockets of the business community, including inﬂuential business groups such as Keidanren and Nikkeiren. Many of the strongest arguments favoring deregulation were based on the assertion that the Japanese economic recession beginning in 1991 could not be overcome and stable growth reestablished without sweeping economic reform.82 Resistance to these arguments was strong, however, and came generally from government ministries managing regulated sectors of the economy as well as from the regulated sectors themselves. Discussions about how to promote deregulation and competition were concentrated in two government advisory bodies. The ﬁrst was the Economic Reform Research Council, led by Keidanren Chairman Hiraiwa Gaishi and made up of nongovernment members. The council released a ﬁnal report in late 1993 that called for several measures to end industry protection from competition, including the abolition within a decade of government restrictions limiting new market entry and the abolition within ﬁve years of all AML exemptions.83 The Hosokawa cabinet also established the Task Force Committee on Deregulation to draft a concrete plan for the sweeping deregulation of the Japanese economy. The task force released reports in February and June 1994 that also strongly supported many antimonopoly policy goals. Both reports included a call for the strict enforcement of the AML. Bureaucratic opposition, however, caused it to backtrack to some extent on the issue of AML exemptions, calling only for a review of these systems within ﬁve years with a concrete plan on their elimination to be drawn up by the end of FY1995.84

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The FTC seized on the language in these reports and on the general mood in policy circles favoring deregulation to pressure government ministries once again to end AML exemptions. In November 1993 the FTC decided on a plan to try to end AML exemption clauses in the twenty-ﬁve laws that gave such allowances.85 The FTC then began to lobby other ministries in a series of contact meetings with them, claiming that regulations and AML exemptions injured competition and created high prices. The FTC again decided ﬁrst to target those AML exemption systems that had fallen out of use and where the aims of the laws had not been met through the use of AML exemptions.86 The results of this effort were mixed. In certain cases, such as the revision of the Staple Food Control Law, the FTC successfully pressured the Ministry of Agriculture, Forestry and Fisheries (MAFF) to drop AML exemption provisions as part of a comprehensive overhaul of the law. The AML exemptions, however, had rarely been used over the long life of the law.87 In another case, the FTC encountered strong resistance from the MOT over its pressure to end cartels limiting capacity in coastal shipping. The ministry contended, “Drastic deregulation would invite excessive competition, worsen labor conditions and create safety problems.”88 The related industry association, like MOT, furthermore argued that many of the 4,000 operators would be put out of business.89 The FTC, therefore, failed to make meaningful headway based on the work done by the eight-party coalition government before it dissolved in mid-1994. The return of the LDP to power in its coalition with the moderate Social Democratic Party of Japan (SDPJ) and the New Harbinger Party (NHP) meant the return of the zoku representing entrenched industrial interests in regulated sectors, seeming to doom chances for further reform. However, pressure from certain business groups such as Keidanren and other circles led the government to continue to keep alive many of the themes for antimonopoly policy established under the Hosokawa cabinet. The three-party coalition under Prime Minister Murayama Tomiichi took over the functions of the task force, which issued a ﬁve-year government deregulation plan in February 1995. The plan called for an end to all AML-exempt systems in principle by the end of FY1998.90 This policy was in line with the FTC’s formal request to the government over the content of the plan,91 and it was reafﬁrmed in another government recommendation in December 1995.92 By the end of 1995, therefore, the government had in place a formal commitment to phase out nearly all remaining AML-exempt systems by April 1999. The major opposition party, the New Frontier Party (Shinshinto¯), also has in its policy platform the pledge to end AML-exempt systems.93 FTC ofﬁcials, however, expressed concern that the ending of these cartels would only be met by efforts in business and government to continue arrangements through informal means. This concern led the FTC to draft a stronger version of its 1981 Opinion on Administrative Guidance, which

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argued that guidance by ministries should be used only to promote competition.94 An analogous concern was reﬂected in the text of the Five-Year Deregulation Plan announced in March 1995, which called on related ministries not to replace regulation with administrative guidance and to coordinate their actions with the FTC to prevent AML violations.95 The FTC furthermore stepped up its enforcement of the AML in regulated sectors, seeking to apply pressure on government and business to end joint acts in regulated sectors that lacked explicit exemption from the AML.96 The FTC also began to seek a statutory boost in its ranking within the bureaucracy in order to engage other agencies on an equal footing about objectionable practices from the perspective of antimonopoly policy. This effort was eventually realized in 1996.97 While the work at the policy level to broaden the application of antimonopoly policy moved forward in a political climate favoring deregulation and competition, the focus in the debate also shifted to the FTC’s ability to enforce the AML effectively to guarantee that deregulation brought with it concrete results. Revision of resale price maintenance While the FTC in the mid-1970s instituted a substantial reduction in the number of products designated under the resale price maintenance system, some designations were allowed to continue for certain types of cosmetics (those under ¥1,000) and some pharmaceuticals. Moreover, RPM agreements in the publishing industry were not challenged. Some discussions in the FTC about whether to pursue further reform of RPM arrangements were held in the early 1980s, although the agency did not press the issue in light of the unfavorable political environment of the time. As a result, RPM issues remained an unﬁnished agenda for the FTC. In connection with efforts to reduce legal cartels, the FTC also decided in 1990 to renew its efforts to eliminate the remaining of RPM agreements. The United States supported the FTC’s intention during SII talks, although the Japanese government refused to make a pledge on RPM in the ﬁnal report and in subsequent talks.98 An FTC study group recommended in July 1991 that RPM designations be removed for all pharmaceuticals and cosmetics and that the RPM system for publications be curtailed.99 Following further investigations that demonstrated substantial harm to competition and consumers, the FTC decided to abolish these RPM designations as early as the spring of 1992 after public hearings.100 On this basis the FTC began discussions with the LDP’s Resale Price Maintenance Diet Member Discussion Group and other related LDP committees as well as with the related ministries, notably the Ministry of Health and Welfare. While the changes for pharmaceuticals and cosmetics required only a formal FTC decision to that effect, the system for publications had a clear exemption statute under the AML that therefore required a revision in the law itself, thus needing the cooperation of politicians.

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Industry opposition to the FTC’s plan was immediate, as was the opposition of a sizable portion of the 120,000 retail outlets handling the designated products. Both industry and the trade associations representing the retailers began lobbying politicians and ministries to pressure the FTC to preserve the system.101 Making things more difﬁcult for the FTC was the fact that the acting head of the LDP committee on RPM issues was Saito¯ Eizaburo¯. Saito¯, as will be discussed further in Chapter 9, was a leading proponent of an effort in the early 1980s to weaken the AML. Pressure from ministries, the LDP, industry, and retailers associations succeeded in forcing the FTC to scale back its plans signiﬁcantly.102 Following LDP approval, the FTC announced in April 1992 that only half of the cosmetics products and nearly half of the pharmaceutical products would have their RPM designations removed in a two-stage process to start in 1993 and end in 1995. Moreover, the FTC decided to put off discussions about the removal of other RPM products until 1998 or later.103 The decision to secure the support of the LDP on the issue, which was also tied to preventing LDP opposition to the FTC’s proposals on stronger AML criminal penalties, clearly resulted in the watering down of the FTC’s plans. This approach contrasted with the unilateral decision made by the FTC in 1973 to end designations for a variety of products without seeking LDP approval on the matter. The RPM issue was again raised in June 1992 when the Extraordinary Commission to Promote Administrative Reform, an advisory body of the prime minister, called on the government to cancel all remaining RPM designations for cosmetics and pharmaceuticals by the end of FY1998. The group concluded that “the system threatens consumers’ interests . . . by limiting fair and free competition.”104 The FTC got a much bigger boost from two recommendations made by government advisory bodies under the eight-party, non-LDP coalition government of 1993–4, both of which called for the abolition of all RPM designations within ﬁve years. One of the two reports also recommended limitations on RPM in publications by the end of FY1998. These recommendations were included in the coalition government’s plan for deregulation in June 1994.105 With the inauguration of the LDP–SDJP–NHP coalition government in July 1994, the debate over RPM was taken up by the Task Force Committee on Deregulation, which was preparing the government’s ﬁveyear deregulation plan. Despite the involvement of the LDP in the coalition, on the basis of the recommendations of the Deregulation Investigation Committee the cabinet approved the policy that RPM designations for the remaining cosmetic and pharmaceutical products be phased out by the end of FY1998 and that limitations be made in the RPM system for publications in line with FTC requests.106 Fearing that RPM would be ended in the area of published works, associations representing the book, newspaper, and recording industries soon after actively lobbied the government and the FTC to preserve their RPM designation.107 This effort

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successfully forced the government instead to call on the FTC to study the issue of ending RPM for published works further before reaching any ﬁnal conclusion on the issue.108 By the end of 1995, therefore, the government and the FTC moved forward with plans to end RPM designations for all products except published works by the end of FY1998.

Guideline concerning distribution systems and related business practices As discussed earlier, American complaints about exclusive Japanese trading and distribution practices became common from the early 1980s, while the FTC has also had a variety of concerns about the effect of keiretsu afﬁliations on distribution practices beginning in the early 1970s. The FTC, however, failed to enact a comprehensive guideline on these practices in the early 1980s, preferring to handle problems administratively (Chapter 7). Continuing American concern and a lack of strong FTC action led US ofﬁcials to use the SII forum to seek progress in two areas. One was distribution practices, especially those supported by keiretsu relations, which the US government argued were discriminating against importers. The second area, and one that the FTC had not previously dealt with directly, was the pattern of trading relations in intermediate and ﬁnished goods among Japan’s large company groupings, such as those among the members of the Mitsubishi or the Mitsui groups. In the SII the US government demanded strongly that the FTC enforce the AML actively against the non-competitive aspects of these trading relationships among makers, wholesalers and retailers (distribution keiretsu) as well as among the members of the same corporate groups (group keiretsu). In response, the FTC and the Japanese government agreed even before formal negotiations got under way to address American concerns through drawing up a clear enforcement guideline.109 The FTC formed a committee of law experts named the Study Group on Distribution–Trading Practices and Competition Policy to make recommendations. The study group released a report in June 1990 that covered a wide array of trading and distribution practices and designated those activities deemed potentially illegal under the AML.110 On the basis of these recommendations, the FTC compiled a draft guideline, which was released in January 1991. The draft was widely considered rather sweeping in scope and rigorous in content.111 Included was language that called for the FTC to order companies to divest themselves of stock in another company should the shareholding relationship have affected the trading relationship between the two companies. Clear prohibitions were also proposed on excessively progressive rebates, refusals to deal, and pressure by manufacturers on retailers not to discount prices. While Keidanren and other business associations had agreed with the need for changes in some traditional Japanese business practices,112 there nevertheless existed

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substantial opposition to points contained in the draft.113 Keidanren released a ﬁfteen-point rebuttal of items in the draft guideline, objecting strongly to areas such as the clause calling for stock divestment for exclusive trading relations among group keiretsu companies.114 MITI ofﬁcials also expressed opposition to some of the language in the draft.115 The number of counterarguments made by a variety of parties caused the FTC to delay the scheduled release of the formal guideline by several weeks while it tried to sort through the complaints.116 The ﬁnal guideline was released in July 1991 in a form virtually unchanged from the earlier draft version.117 The FTC then went about implementation in two ways. The ﬁrst was to ask companies to draw up their own internal compliance guidelines based on the relevant parts of the guideline. This pressure, for example, led automobile companies to make some concrete changes in their formal practices with their suppliers and their afﬁliated dealers, such as striking some restrictive clauses from contracts and forcing companies to make it clear that retail prices normally set according to the manufacturer’s recommendation must be communicated to dealers only as “suggested” prices.118 Changes were made in other industries as well in order to bring some formal practices into line with the guideline.119 In certain cases these changes were made willingly by companies seeking to reduce costs they had taken on over many years in order to keep keiretsu relations sustained.120 The second means of implementation was enforcement. Following release of the guideline, the FTC took up some high-proﬁle investigations. The FTC found against the consumer electronics and pharmaceutical industries for using pressure or other techniques to support prices in the market.121 Another case that was followed widely was based on suspicions that Shiseido¯, a major cosmetics supplier, threatened to cut off supplies of its product to discount retailers that had planned to cut prices on the company’s products by up to 30 percent. The FTC ruled against Shiseido¯, ﬁnding that it had committed an unfair trade practice by threatening to withhold rebates or cut off supplies.122 The case was regarded as an indication of the FTC’s renewed efforts to tackle problems in distribution trading practices. Yet in spite of FTC efforts, an appeals court later overturned the agency’s decision. The court accepted the company’s argument that sales were terminated because of noncompliance with a condition to provide direct face-to-face counseling rather than because of the retailer’s price policies. In spite of more strident efforts to enforce the AML against distribution practices, therefore, the FTC nonetheless ran into setbacks in the Japanese courts. While it is clear that certain practices were changed as a result of the guideline, especially those that sought to support prices at the retail level, FTC surveys themselves pointed out that trading practices in some industries still continued to stress long-term relations that gave little hope to potential new entrants into the markets..123 Moreover, as of 1995 the FTC

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had not acted formally against any cases of improper trading relationships among group keiretsu companies. These facts led US ofﬁcials to complain that the FTC was not acting sufﬁciently against exclusive business practices.124 While the FTC was able to require some changes in formal business practices, it appeared unable substantially to affect informal practices and understandings that have perpetuated these relationships.125 Anecdotal evidence suggests that other factors such as the appreciation of the yen, changes in business attitude, and Japan’s economic recession were much more instrumental than the guideline on distribution and trading practices in affecting long-term keiretsu relations. Despite some increase in the use of formal actions against distribution practices, the continued use by the FTC of the guideline approach to enforcement – which relied heavily on voluntary compliance and the use of FTC administrative guidance to achieve change – made clear that the FTC did not shed its administrative approach to AML enforcement on these issues despite US government demands.

Conclusion The emergence of US trade and antitrust ofﬁcials as strong external advocates for antimonopoly policy and the FTC was the key development bringing to an end a near-decade-long period of FTC inertia. While some initial reluctance was present, the FTC generally was positive toward enacting many of the improvements demanded by the United States. Yet the process could be taken only so far in the Japanese political environment, with ambitious plans for stronger ﬁnes and other initiatives becoming scaled back in the face of powerful entrenched interests. Indeed, the FTC itself did not adopt or advocate for all of the positions advocated by the United States. Fortunately for the FTC, the end of the LDP’s hegemony in 1993 and successive coalition governments that both excluded and included the LDP helped bring a more moderate agenda to the Diet. This shift also enabled the agency to become increasingly proactive. The fact that no major concrete changes to strengthen antimonopoly policy were enacted under the non-LDP eight-party coalition of 1993–4 was a function of the short-lived nature of the government. Yet the momentum that the government set in place favoring procompetitive reforms and deregulation proved rather favorable for the FTC following the return of the LDP-led coalition government in 1994. Many of the policies the FTC promoted under the eightparty coalition were approved or continued to move forward. While the presence of the SDPJ and the NHP in the 1994 coalition government helped to ensure that the government maintained its favorable attitude toward antimonopoly policy, hostility in the LDP toward stronger antimonopoly policy also clearly lessened. Through the 1990s, and especially by 1995, it was clear that the very terms of traditional left–right debates over the

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suitable role for antimonopoly policy in Japanese economic development had changed substantially. Meanwhile, the US government continued to act as a vocal advocate for stronger antimonopoly policy, a fact that helped ensure a degree of additional consistent political backing that the FTC could depend on. Political change also paralleled economic change. Growing stagnation in the Japanese economy by the mid-1990s brought a growing consensus among leaders in strong industries that Japan’s regulated sectors were dragging down Japanese growth and competitiveness. While Keidanren did not come close to embracing antimonopoly policy fully, some positions were mildly supportive for the ﬁrst time. The organization also strongly advocated more deregulation and competition among domestic sectors that were heavily regulated or subsidized. Antimonopoly policy also received a great deal more public attention as bid rigging and other scandals were brought to light through FTC actions. These shifts added to the favorable political climate in which the FTC could advance its agenda. If we look at the FTC’s behavior more directly, in terms of enforcement and overall activity there were similarities between the early to mid-1970s and the early 1990s. The agency clearly became more active and, it appeared, more self-conﬁdent. One marked difference stands out, however. While the FTC of the 1970s strongly asserted its independence in order to move forward with its agenda, the FTC of the 1990s promoted change by working with the government and with political parties. In the process the FTC clearly was forced to compromise in order to win the political support necessary to enact favorable policies or legislation. Some changes, such as removing RPM designations and forcing ministries to cancel legal cartels, could have been enacted using a more independent and aggressive approach. Yet growing support in inﬂuential business and moderate, reformist political circles for increased competition in regulated sectors was sufﬁcient to force recalcitrant ministries to agree to end nearly all AML-exempt systems by the close of the decade. Moreover, where political debate and legislation were necessary, the FTC could have released draft bills independent of political input and allowed politicians to debate their merits. Yet the fact that the FTC could promote these changes much more effectively over the 1990s by adopting a less independent approach makes it clear that the political atmosphere for strengthening antimonopoly policy had improved signiﬁcantly. This new political environment once again enabled the FTC to act as a policy entrepreneur in order to overcome objections from broad and, in some cases, narrow interests. Proposals with diffuse costs and beneﬁts such as increases in criminal penalties and surcharge rates were passed by the Diet, but only after compromises were reached that scaled back some of the more ambitious plans. In particular, the LDP responded to voices in small business to prevent these companies from bearing the brunt of these new penalties. American concerns at the trade negotiating table

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about distribution keiretsu practices also prompted the agency to spell out in a guideline problem practices that it had failed to deal with only a decade earlier owing to industry criticism. The FTC also took advantage of prominent government and business organization reports calling for greater competition in regulated sectors to pressure for an end to the majority of remaining formal AML exemptions. These changes came in spite of the narrow interests of industry members and ministries to continue formal cartel arrangements. The FTC was much more successful in promoting change after having obtained greater legitimacy for its views in policy circles. The FTC’s changing fortunes also made it possible for the agency to overcome some important institutional limitations on its activities. Foremost among these was an improvement in the relationship between the FTC and the Public Prosecutor’s Ofﬁce, enabling easier use of criminal actions. This cooperation also made possible some important changes in interpretation of the law to make these actions easier. Personnel increases and additional efforts to strengthen the FTC’s investigative structure and capabilities also had some positive impact on the renewed vigor of AML enforcement efforts. These changes bode well for the agency to continue to make progress with antimonopoly policy. Other limitations, however, still appeared to stiﬂe FTC initiative. Although there was some increased activity, the FTC continued to be rather cautious about bringing formal cases against industry practices that were subject to mitigating circumstances (rule of reason cases). Such cases included certain distribution practices and trading relationships among afﬁliated companies. The FTC also began to boost, albeit rather slowly, enforcement against illegal industry actions that involved government participation through administrative guidance or other means. Other important powers remained elusive, such as search and seizure powers on a par with those of criminal investigators. While political change enabled substantial progress by the FTC to boost antimonopoly policy, both institutional and political factors continued to circumscribe initiative and results.

9

The response to collusion in the construction industry

As in the case of regulated industries, from the early 1980s the Fair Trade Commission (FTC) also began to enforce the Antimonopoly Law (AML) against the construction industry where bid-rigging practices, or dango¯, by companies for public works contracts were customary and pervasive. Unlike the case in certain sectors of transport and ﬁnance, there were no AML exemptions for the construction industry. Moreover, formal regulation on competition in the sector was limited to relatively simple licensing systems for operators. Despite these differences, the FTC nonetheless faced formidable political and institutional problems in the application of the AML against bid-rigging practices. FTC efforts to tighten AML enforcement against the construction sector over the period 1981–95 represent a useful case study that brings into sharp focus how the FTC reacted to and, when possible, took advantage of the political environment to strengthen antimonopoly policy. Although the period covered in this chapter lies outside the chronological approach established for this text, focus on one industry sector over the period brings into relief many of the political contours of antimonopoly policy revealed in earlier chapters. The reasons why the FTC had so many difﬁculties trying to curb construction industry dango¯ will be examined, as well as why it was eventually able to have some success, albeit limited, in bringing enforcement to bear on the industry. Prior to discussion of speciﬁc cases, several political and institutional factors will ﬁrst be raised; they serve as necessary background to FTC enforcement efforts against dango¯.

Political and institutional factors supporting dango¯ No real legal barriers made the construction industry immune from AML enforcement or limited the ability of the FTC to apply the law. Under the AML, bid rigging on public works or on private contracts – whether over prices or preselecting a winning company – is a substantial restraint on competition and therefore illegal. Prior to the ﬁrst major case taken up by the FTC against the construction industry in 1981, the FTC had ruled formally in ﬁfty-one cases against bid rigging, ten of which were

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within the ﬁve years immediately preceding the 1981 case. While a number of these cases had targeted bid rigging in specialty construction work,1 none had attempted to indict the structural, systematic, and pervasive system of bid rigging on public contracts operated by general construction companies. Several factors explain why the FTC had not targeted these pervasive construction industry practices until 1981. First, the vast majority of FTC investigations prior to the 1980s centered on the production or distribution of manufactured products, and it was not until around 1980 that the FTC shifted its focus to enforcement of the AML against service industries such as construction. This general shift, already examined in Chapter 7 in the case of regulated industries, was taking place in the context of discussions in the Organization for Economic Cooperation and Development (OECD) and in developments in antimonopoly policy in other industrialized nations.2 Another factor was the existence of an alternative means for the government to punish bid-rigging acts. From 1941, the police and prosecutors had available Article 96.3 under the Criminal Code, which classiﬁed certain acts related to public bidding as crimes. Up until the early 1980s, government prosecution of cases against construction bid rigging was traditionally handled through this method and not under the AML. Yet there were important limits on the use of the Criminal Code against these crimes. Only extraordinary cases were judged illegal, such as where bids were rigged at unduly high prices, where bidders submitted bids at unfairly low prices in order to try to drive others out of the market, or where those tendering bids exploited their dominant position to demand unfairly low bidding prices. A 1968 district court decision also upheld this limited interpretation, arguing that bid rigging was legal under the Criminal Code as long as the proﬁt made from the bid was appropriate or where no money had been transferred between companies. This ruling was received widely in the construction industry as a legal justiﬁcation for routine bid rigging as long as it did not exceed reasonable bounds.3 In contrast, establishing guilt under the AML was a much easier task since only the act of agreeing to rig bids rather than the intent or effect of the act was considered a restraint on competition and thus a violation.4 The FTC’s lack of enforcement of the AML, however, led most in the industry to believe that the law would not or could not be enforced.5 By the early 1980s, bid rigging had become an institutionalized and pervasive practice. Prominent industry and government leaders even came to deﬁne the arrangement of bids as innate to Japanese character and culture.6 Yet underlying the practice were key institutional and political factors that better explain why dango¯ became as widespread as it did. One of the most central reasons was the structure of the bidding system itself used by government and other public corporations for public works projects. While the Public Accounts Law allowed central and local government as well as other public entities to choose from three types of bidding

160 Response to collusion in the construction industry systems for public contracts, by 1980 the vast majority of bids (92.5 percent of the total number and 89.3 percent of the total value) were solicited under the designated bidding system.7 The designated bidding system, however, limited to ten the total number of bidding participants that the soliciting agency could choose. This approach made the coordination of bids among the known bidding participants signiﬁcantly easier than under a general competitive system where any number of ﬁrms might participate. Moreover, because each agency or government had the power to select the limited number of bidding participants, it also encouraged corruption in the construction industry and among the civil servants and politicians managing the governments and agencies soliciting bids. This corruption took a variety of forms, including donations from construction ﬁrms to local politicians in return for favorable consideration in the selection of bidding participants.8 In addition, ex-civil servants previously involved in tendering bids were often employed by contractors to gain an inside track on future bidding contracts.9 The involvement of civil servants was critical, since through them information about planned contracts and estimated fair values for contracts were leaked to construction ﬁrms either directly or through politicians so that companies could routinely meet to rig and allocate their bids.10 The institutionalized nature of bid rigging, therefore, was made possible through the widespread use of the designated bidding system and became pervasive over many years, owing to the development of close relations among construction companies as well as between these companies and both politicians and civil servants.11 Besides the incentives supporting corruption, other political factors served to cement the interests of political parties to the construction industry. At the level of national politics, major construction ﬁrms came to be closely tied to the Liberal Democratic Party (LDP). Relations were especially close with the LDP’s construction faction, or zoku, who championed the interests of the industry in political and bureaucratic circles in return for large political donations or other favors.12 Moreover, by 1979 donations from the construction industry to the LDP replaced banks and steel companies as the largest source of ofﬁcially reported political funding from an industry sector.13 Moreover, while money, both legal and illegal, formed an important basis of patronage, the LDP could not also ignore the number of votes that the construction industry produced. As of 1981 there were 460,000 licensed construction operators accounting for 5.6 million jobs in the national economy.14 The vast majority of the operators were small and mediumsized enterprises (SMEs), with individual contractors accounting for a pproximately 50 percent and large contractors accounting for less than 1 percent of the total number.15 As a result, the LDP’s interests in the entire industry were extremely strong in terms of both the ﬁnancial backing of large ﬁrms and the electoral backing of the SME sector. These facts led the LDP to become strongly committed to the maintenance and preservation of the industry as a whole and defensive against any attempts

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by the FTC to attack one central mechanism around which the industry revolved: the rigging and allocation of bids for public works contracts. At the local level, links between smaller construction ﬁrms and local politicians and civil servants were also strong. Partisanship often mattered little at the local level, however, where the LDP often did not hold power over local governments.16 The issue of bid rigging for the FTC, therefore, was a much more complicated one than simply enforcing the AML against restraints in competition.

The Shizuoka dango¯ case and its ramiﬁcations In spite of the complex political and institutional factors that made bid rigging such an entrenched feature, the FTC nevertheless began enforcement against such practices in September 1981, when investigators raided four local industry associations in Shizuoka Prefecture on suspicion of coordinated bid rigging on a variety of public projects.17 This investigation was the ﬁrst to target institutionalized bid rigging by general construction companies, as the case covered most of the public contract offers in the area. The choice of Shizuoka Prefecture, moreover, was relevant since it was the location of the electoral district of the then Minister of Construction Saito¯ Eizaburo¯ (of the LDP).18 What otherwise might have been a low-key investigation quickly turned into a major political and public issue by forcing the construction minister to comment on the investigation and take a position on the issue of bid rigging generally. In his ﬁrst public comments, Saito¯ defended the system of dango¯ among construction companies as a practice that could not be helped, given the vast number of contractors in Japan, and maintained that it often worked more smoothly than competition among contractors. Soon afterwards he retracted these comments, noting only that the possibility for collusion existed but that the Ministry of Construction (MOC) would seek to apply all relevant laws to prevent such practices in the future.19 This reversal put into clear focus the government’s contradictory unofﬁcial and ofﬁcial positions on the practice of bid rigging. The Shizuoka case and the wider issue of bid rigging were taken up widely in the mass media, turning these into major public issues for debate. Asahi shinbun, for example, noted that the FTC had stumbled onto a “bottomless pit” of corruption and illegal practices.20 The media did not have much difﬁculty in turning up other suspected cases of bid rigging, and sensational headlines on a number of scandals were commonplace in some major newspapers from late 1981 through mid-1982. One such investigation revealed evidence that contractors in Ibaragi Prefecture had divided bids among themselves and made extremely large proﬁts of 30–40 percent on the contracts.21 This and other, similar scandals became important issues inside and outside of the Diet, where the issue of construction dango¯ became closely linked with concurrent ofﬁcial efforts at reform of

162 Response to collusion in the construction industry government structures and programs to reduce waste and government expenditure.22 Sensational stories about waste of taxpayers’ money stoked the debate, including one estimate that ¥4 trillion in public funds was wasted each year because bid prices did not reﬂect those that would result under a truly competitive bidding system.23 The National Tax Agency also found that large sums of money were unaccounted for on the books of construction companies,24 suggesting that enormous amounts of public funds were making their way covertly into the hands of politicians through construction companies that were proﬁting handsomely. Construction industry spokesmen, on the other hand, argued forcefully that a lack of proﬁtability in the industry, especially among SMEs, made it vital that the system of bid rigging be maintained in order to ensure fair allocation of government projects to help prevent bankruptcy.25 MOC estimates of proﬁts in the industry in FY1978 found that average proﬁts were low compared to those in other sectors, standing at only 2.2 percent.26 Moreover, following an explosion in public works spending in the early to mid-1970s that had led to enormous growth in the number of construction contractors, ﬁscal retrenchment by the government from 1980 and a cap of zero growth placed on public works spending through 1983 made conditions in the industry rather bleak for companies dependent on government contracts.27 These conditions led the LDP and MOC from 1980 to take a variety of measures to restrict growth in competition in the industry, including making qualiﬁcations more difﬁcult for those wishing to acquire an operating license from the government.28 Other arguments were put forward by industry, the MOC, and the LDP to support the need for limiting competition, such as fears that excessive competition based on price could lead to corner-cutting in construction, and therefore safety problems.29 In this regard, industry argued, the FTC’s investigation could not have come at a worse time. The implications of the FTC’s action went directly against the tide in ofﬁcial government policy toward the industry at the time. Given the wide scope of the political problems raised by bid rigging, the government’s response necessarily went beyond the simple issue of the Shizuoka case. While Construction Minister Saito¯ publicly remonstrated with leaders of the construction industry, urging them to abide by all laws, he also decided to help keep alive the debate over changes in the bidding system within the MOC and the construction industry by having the MOC’s Central Council on the Construction Industry examine possible improvements.30 Moreover, the prime minister and chief cabinet secretary also made it clear that the government was not considering any radical change to the bidding system.31 Soon after, however, a shufﬂing of the cabinet under Prime Minister Suzuki Zenko¯ in late November 1981 led to the removal of Saito¯ from his post and his replacement by Shiseki Ihei. Shiseki stated at the outset his desire that the FTC apply the AML against the industry and that some

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sort of general competitive system be introduced to replace the designated system.32 This position was similar to that taken by FTC Chairman Hashiguchi Osamu, who argued to the MOC and elsewhere that the designated bidding system was a major reason for the pervasive nature of bid rigging.33 Some in the construction industry concurred,34 while opposition parties also called for a variety of steps to combat bid rigging.35 These opinions, however, failed to inﬂuence the ﬁnal decisions. The MOC council debated changes for the bidding system for over a year, ﬁnally releasing a report in the spring of 1983. While switching from the designated bidding system to a competitive system was considered, the report suggested only procedural changes under the designated system to help make it more open. It also afﬁrmed a previous MOC decision to allow agencies tendering bids to invite up to twenty participants in order to make bid rigging potentially more difﬁcult.36 As revelations of illegal practices in the construction industry continued to accumulate into 1982, the FTC widened its investigation of the industry. Through Diet deliberations and investigations by newspapers and other media, suspicions became strong that in addition to being a regional problem among smaller-sized companies, Japan’s peak construction industry associations and its large construction company members were also deeply involved in the rigging of bids on major national public works projects. To investigate, the FTC interviewed executives of major construction companies and industry associations, although it stopped short of conducting any raids to gather evidence.37 Suspicions of illegal activity were heightened by the fact that three committees suspected of having been the coordinating groups for bid rigging in the Japan Civil Engineering Contractors’ Association were dissolved by the association in December 1981.38 However, beyond warning the industry associations to end illegal practices and abide by the AML, the FTC did not press the issue any further with the industry. It also issued similar warnings to all related government agencies.39 The FTC launched no further formal investigations and formally ended its enforcement of the AML against the industry in August 1982 by demanding payment of cartel surcharges of approximately ¥340 million from the some 150 companies involved in the Shizuoka case.40 Several reasons led the FTC to end its investigations despite a wealth of evidence from several quarters that dango¯ practices were prevalent throughout the construction industry. One reason was that FTC ofﬁcials from the outset had never intended to go far beyond using the Shizuoka case as an example to the rest of the construction industry.41 FTC ofﬁcials at the time regularly expressed their surprise that the Shizuoka investigation had led to such widespread attention in the media, which in turn had fueled arrests and other political problems.42 A more direct reason was that by the summer of 1982 members of the construction zoku in the LDP began closing ranks to exert pressure on the FTC not to carry its

164 Response to collusion in the construction industry investigations any further. While there is no evidence that direct requests were made by LDP ofﬁcials of the FTC to end its inquiries, clear messages nevertheless were sent by other means. In June 1982 the LDP established a subcommittee under its Construction Committee, subsequently nicknamed the “Dango¯ Committee” because of the leanings of its members, to review issues related to the bidding system and industry practices.43 On the basis of the deliberations, the LDP released a formal opinion paper arguing that the coordination of bids among contractors did not constitute a restriction on competition, that the designated bidding system must continue as the basic method for offering public works contracts, that the FTC should take into consideration the special nature of the construction industry, and that while industry should take care not to violate the AML, all relevant laws – including the AML – should be revised to allow the “coordination” of bids.44 Similar moves to press for revision of the AML were also made in the LDP’s Special Committee on the Antimonopoly Law (hereafter AML Committee), which from 1982 was headed by former Construction Minister Saito¯. Saito¯ had replaced Yamanaka Sadanori following his resignation from the committee to serve as MITI minister. Under Saito¯’s leadership, the LDP’s AML Committee became the center in 1983 for efforts to weaken the AML during the early 1980s. This effort pulled together the demands of many of Japan’s manufacturing industry leaders, including Keidanren Chairman Inayama Yoshihiro, construction industry leaders, and members of the LDP’s construction and commerce and industry zoku in an effort to force a revision of the AML to its pre-1977 language as well as to make AML exemptions explicit for the construction industry.45 Despite support from Prime Minister Nakasone Yasuhiro,46 a variety of factors, including small business opposition, an inability to garner wide backing through the LDP, and a willingness by the FTC to compromise, ultimately made it impossible for Saito¯ and other backers of AML revision to fulﬁll their goal of formally weakening the AML. While many large and small construction companies alike clearly preferred blanket exemptions from the AML,47 LDP pressure on the FTC ensured that the construction industry attained the next best result: tacit FTC understanding not to intervene further in the construction sector. This understanding was formalized through the FTC’s preparation of an AML guideline on acts by construction ﬁrms relating to bidding for public contracts. Recognizing the potential problems of not having a resolution of the ambiguity between the positions taken by the FTC and the LDP over bid rigging, the industry strongly requested that the FTC clarify exactly what acts were allowed under the AML.48 The FTC originally thought of issuing a guideline for SME construction associations only, granting them wide permission to coordinate bids and even promoting the use of AML section 24, which allowed AML exemptions for cooperatives of small companies. The move was to help

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head off proposals being discussed within the LDP to make dango¯ legal through the industry and to revise the AML.49 However, pressure from large companies to be included in the guideline forced a change in this plan.50 The FTC came under strong pressure to make allowances for the widest possible scale of cooperation between companies over public bids, with threats from industry and LDP leaders to weaken the AML unless the FTC agreed with this position.51 Ultimately the guideline did just that, making clear that while the actual rigging of bids was an illegal act, just about anything short of that, such as the exchange of information concerning plans for bids, was allowed under the AML.52 The FTC defended its position by arguing that the new guideline changed nothing since all construction industry associations were still subject to the trade association guideline of 1979 and that the new guideline represented only a clariﬁcation of conditions particular to contract bidding.53 Nevertheless, Ishikawa Rokuro¯, the chairman of the Civil Engineering Contractors’ Association, which represented large construction contractors, praised the content of the guideline for its ﬂexibility. He also warned that should the FTC’s enforcement of the guideline cause “confusion” – a euphemism for problems – the industry would begin anew efforts to have the AML revised or the entire industry made exempt.54 The impact of inﬂuential LDP politicians on the ﬁnal content of the guideline was manifest.55

The gaiatsu effect The ultimate result of the Shizuoka dango¯ case and the accompanying political imbroglio, therefore, was to establish a delicate truce between the FTC on the one hand and the construction industry and the LDP on the other. This truce remained essentially unchanged as long as no force upset the balance. That state of affairs lasted only approximately three years, however, before the waters were disturbed by strong pressure, or gaiatsu, from the US government for Japan to open its public works construction market to American companies. US ofﬁcials charged that the designated bidding system was excluding foreign companies from bidding and that dango¯ practices in effect made the market impenetrable even should American ﬁrms be allowed to bid. These sorts of issues were raised in US–Japan construction market negotiations, in which Japan eventually agreed to open up bidding on several major projects, including airports and highways, to American companies.56 Prior to the formal negotiations, however, the FTC pledged to step up its monitoring of construction bid rigging in expectation of a US government demand along these lines. This position was supported by the Antimonopoly Conference, the FTC’s advisory body, and on this basis FTC Chairman Umezawa Setsuo instructed the FTC staff to monitor the construction industry more closely and to work up a strengthened information-gathering system concerning bid rigging.57

166 Response to collusion in the construction industry The FTC’s ﬁrst real construction industry case following the 1981 Shizuoka case was a symbolic one, targeting general construction companies and other contractors in 1988 for systematically rigging bids on projects at the Yokosuka US naval base in Japan.58 The raid ensured that dango¯ by Japanese construction ﬁrms became a political issue in the United States, given that American taxpayers’ money was being used to construct the projects.59 Following its investigation, the FTC ordered some seventy companies, several of which were leading large ﬁrms, to pay cartel surcharges totaling ¥290 million.60 The MOC, however, was much less enthusiastic about punishing the companies. It handed out suspensions on bidding for public contracts of only one to two months, as opposed to the six- to nine-month suspensions the FTC had proposed.61 Moreover, the MOC took steps to postpone bidding periods on several projects to ensure that the companies would not be affected substantially by the suspension period.62 The FTC followed up the Yokosuka case with an investigation of contractors colluding over bids on an airport project following suspicions raised in the Diet in August 1988. This investigation targeted six leading construction companies, ﬁve of which were involved in the Yokosuka case. The FTC eventually took formal action against the companies, demanding cartel surcharges of ¥300 million.63 The MOC continued to treat such violations of the law as lightly as possible, giving another short suspension on public works bidding to the six companies. Neither case, however, was met with the kind of open hostility toward the FTC from construction ﬁrms, the MOC, and the LDP seen in the early 1980s. US ofﬁcials continued to pressure the Japanese government to open its public works construction market further and take strong steps to end bid rigging. Japan offered further concessions after the US government in late 1988 threatened trade retaliation unless Japan made improvements, an action that ended in certain concessions from Japan. Issues of bid rigging and access to the construction market were also taken up in the US–Japan Structural Impediments Initiative negotiations, and the Japanese government pledged in the ﬁnal report that the FTC would enforce the AML “strictly” against bid rigging of all sorts, among other measures.64 American demands during SII for higher cartel surcharges and criminal penalties for AML violations were also motivated by the belief that strong penalties were the only way for Japan to deal effectively with bid rigging. As was outlined in Chapter 8, objections to the LDP construction zoku from the construction industry were instrumental in limiting increases in penalties on the scale the FTC or the US government desired. Nevertheless, gaiatsu resulted in concrete government agreements that gave the FTC sufﬁcient backing to begin a greater level of AML enforcement against the construction sector without fear of a damaging political backlash.

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The Saitama dango¯ case Following the SII negotiations, the FTC continued to take up cases against the construction industry.65 In April 1991 the agency established a special investigative unit to specialize in bid-rigging cases to fulﬁll a speciﬁc pledge during the SII talks. While gaiatsu was instrumental in granting the FTC the leeway and resources to enforce the AML against construction companies, it did not bring to an end political efforts to interfere in the affairs of the commission vis-à-vis the industry. The FTC’s case against construction companies in Saitama Prefecture provides a vivid example of the difﬁcult political atmosphere in which the FTC continued to operate. The case began in May 1991 with FTC raids on scores of branches of construction ﬁrms of a wide variety of sizes on suspicion that they operated a bid-rigging group to allocate nearly all sizable public works projects in the prefecture.66 The investigation appeared fairly routine until the FTC conducted further raids on the corporate headquarters of large construction companies in November and ordered company executives to respond to extremely detailed questions regarding corporate actions in the case. The severity of this round of FTC’s inquiries, coupled with the FTC’s criminal accusation against petrochemical companies days earlier, led to strong speculation and deep worry through the industry that the FTC was targeting the case for criminal action.67 Soon after, it was indeed revealed that the FTC and the Prosecutor’s Ofﬁce had been engaged in informal discussions over the case in preparation for bringing criminal charges against the participants.68 This fact, coupled with an increase in cartel surcharges in 1991 from 1.5 to 6 percent of operating proﬁt and the ongoing debate over raising criminal penalties for AML violations, made the issue an extremely worrisome one for industry. However, after nearly a year-long investigation, FTC Chairman Umezawa announced in May 1992 that the FTC was unable to establish sufﬁcient criminal proof in the case to warrant a criminal accusation. The FTC instead issued a cease and desist order and demanded the payment of cartel surcharges. The chief of the FTC’s Investigation Bureau explained that the difﬁculty centered around the issue of establishing personal criminal responsibility on the part of the participants, a necessary step before any criminal action could be taken against the corporations or individuals involved.69 Umezawa termed the decision “personally regrettable” but argued that it was made following thorough discussions with the Public Prosecutor’s Ofﬁce and was based on legal reasons alone.70 In addition to the payment of surcharges of approximately ¥1 billion by the forty-three main companies involved, the FTC also took the unusual measure of requiring proof that each of the ﬁrms sent a directive to end all bid-rigging practices to each managerlevel or higher member of staff, in part as a means of helping to establish personal criminal responsibility in any future dango¯ case.71

168 Response to collusion in the construction industry Despite ofﬁcial FTC explanations of the exact reasons for its decision to put off a criminal accusation, speculation abounded that political interference was the actual reason for the FTC’s change in plan. Certainly the potential rationale for such interference was present, given the events relating to the Shizuoka case in the early 1980s, the close links between the industry and the LDP, and the FTC’s need to obtain the cooperation of the LDP in late 1992 and early 1993 in the approval of an AML revision bill to increase criminal penalties. Moreover, there existed widespread concern in the LDP and in the MOC that severe actions against major construction ﬁrms resulting in long suspensions from public bidding would interrupt the government’s commitment to institute a massive public works program to help lift the economy out of recession. All of these reasons were put forward in the media and elsewhere as more convincing reasons why the FTC was unable to issue a criminal accusation in the case.72 Evidence of just such political interference became known two years later with the arrest of Nakamura Kishiro¯, an active member of the LDP construction zoku and the government’s minister of construction during the FTC’s investigation of the Saitama case. Prosecutors charged Nakamura with attempting to apply pressure on the FTC not to issue a criminal indictment on behalf of Kajima Corporation, one of the large companies involved in the case, in exchange for illegal donations.73 The investigation was an extension of an earlier 1993 investigation that led to the arrest of former Deputy Prime Minister Kanemaru Shin, the LDP’s top construction zoku member, on charges of tax evasion on illegal donations from construction and other companies.74 During late 1992 and early 1993 Nakamura was well placed to apply pressure on the FTC by virtue of his positions as construction minister and as the acting chairman of the LDP’s Special Committee on the Antimonopoly Law, where discussions on the AML criminal penalties bill were centered. Prosecutors alleged that a vice president of Kajima Corporation approached Kanemaru and then Nakamura several times in 1992 and early 1993 to ask their help in requesting the FTC to call off its plan to issue a criminal accusation in the Saitama dango¯ case. In return, the prosecutors alleged, Nakamura pressured FTC chairman Umezawa on several occasions in exchange for sizable donations totaling in excess of ¥10 million.75 Umezawa later testiﬁed to prosecutors that Nakamura had indeed attempted to apply such pressure, but he continued to stand by his assertion that the pressure had had no effect on the ﬁnal outcome of the Saitama case. He stressed again that the decision not to initiate a criminal referral was a legal one made after extensive discussions with the Public Prosecutor’s Ofﬁce. Nakamura’s formal defense, however, included an argument that his role in the whole affair was minimal compared to the moves made by then Deputy Prime Minister Kanemaru and Prime Minister Miyazawa Kiichi, who allegedly favored a deal for the FTC to drop the accusation in exchange for favorable LDP consideration of the FTC’s proposals to raise the criminal ﬁnes

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under the AML.76 Umezawa’s testimony to prosecutors reportedly supported this interpretation of events, suggesting that pressure was applied from the very top levels of government.77 Japanese courts eventually found Nakamura guilty for having accepted a donation in return for trying to pressure the FTC to refrain from issuing a criminal accusation. The contention that such pressure was instrumental in the FTC decision has been repeatedly denied in testimony and in public statements by FTC Chairman Umezawa. Nakamura’s legal counsel stuck by his defense that Kanemaru and Miyazawa were actually the instrumental actors in this case. Regardless of what actually happened, the facts of which probably will never be known fully, the efforts of LDP politicians to affect FTC decisions in an investigation raised serious questions regarding the effect of direct political pressure on the commission and threw into doubt the very foundation of the FTC’s independent status. Additional developments Whether the Saitama case and the near arrest of several leading industry executives had any appreciable impact on the pervasive nature of bid rigging is unclear.78 Anecdotal evidence suggests that the case was taken seriously by the companies involved as well as other construction ﬁrms and that some changes in business practices did result, although the extent and duration of change are impossible to estimate.79 Yet many of the structural and political factors serving to help maintain the bid-rigging system were left fundamentally unchallenged by FTC actions. Soon after the Saitama case a number of other sensational scandals involving cash-for-favors transactions between politicians and construction companies, combined with continued American pressure backed up with threatened sanctions, eventually began to change the climate that had supported bid rigging. Following the arrival of the non-LDP coalition government of 1993–4, the government announced that it would employ an open, competitive bidding system from 1994 on all national public projects costing in excess of ¥700 million.80 While symbolic, the move was nevertheless limited by the fact that it left intact the choice for local governments to continue their use of the designated bidding system.81 The discrediting of dango¯ practices at the national level, especially as they related to political corruption, gave the FTC additional opportunities to strengthen antimonopoly policy against bid rigging in ways that supplemented its stronger enforcement of the AML. Some of these changes included the assignment of more investigators to handle bid-rigging cases and the establishment of a mechanism for agencies tendering bids to inform the FTC of any possible irregularities.82 The FTC also began taking up construction bid-rigging cases on a regular basis from around 1993. In addition, it decided in October 1993 to revise its weak 1984 guideline on public bidding.83 The FTC began the effort under the non-LDP coalition

170 Response to collusion in the construction industry government and in advance of US–Japanese negotiations over the construction sector. The FTC also took the opportunity to widen the guideline on bid rigging to include all kinds of products and services.84 The FTC released a draft form of the revised guideline in March 1994 that substantially tightened up the wording by speciﬁcally forbidding certain types of information exchange.85 Both the Japan Federation of Construction Contractors and Keidanren submitted strong requests to the FTC to weaken the language, arguing that the wording went beyond traditional interpretations of the AML.86 The FTC, however, decided that no changes were necessary and put the draft into effect in July 1994.87 Whether the fact that the LDP was not in power during the period when the guideline was revised had any impact on the ﬁnal product is a matter for speculation. Nevertheless, the absence of LDP construction zoku from government most likely made the task much easier by removing certain political opposition.88

Conclusion While previous chapters have demonstrated an array of political and institutional factors limiting FTC action and initiative, the construction industry case nevertheless appears to be extraordinary in certain respects. One central reason is that the practice of bid rigging was inseparable from political corruption on the local and national level. This fact alone made any FTC attempts to apply the AML all the more problematic. As long as bid rigging was carried out within the framework of the Criminal Code, the AML stood as the only real legal obstacle to the practice.89 This fact focused industry and political hostility on the FTC directly, putting enormous pressure on the agency to avoid interfering in construction companies’ affairs. The dearth of support from other government agencies for FTC efforts against the construction industry, except perhaps for the peripheral Board of Audit and the Administration and Management Coordination Agency, left the FTC isolated within the government in its efforts to change industry practices. When those efforts are contrasted with increased FTC enforcement against bid rigging over public contracts by manufacturing or other service companies, it is clear that the construction industry garnered special attention from and protection by the LDP. While FTC ofﬁcials continually argued that the construction industry was in principle no different from any other, and thus subject to the AML, the political reality was obviously different. Yet the construction industry case also provides additional evidence for the trends in AML enforcement and FTC behavior outlined in previous chapters. Most obvious are the cycles seen in FTC enforcement and activity. FTC efforts in the early 1980s to diversify enforcement were beaten back under the strong conservative government of the period, only to be followed by American support and then, from the early 1990s, some-

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what more active enforcement under periods of weakened conservative and non-LDP rule. The conservative threat used initially against the FTC was a familiar one: the withdrawal of powers or jurisdiction from the agency. Later, when the political environment had shifted in favor of enhanced FTC enforcement, the agency was able to take advantage by launching a few high-proﬁle cases and to initiate a more signiﬁcant level of enforcement against bid rigging. The process of enacting construction industry guidelines also followed a similar pattern, where the FTC was able to follow up on its earlier, permissive guidelines with more substantial guidelines in the mid-1990s. The political basis for FTC action and inaction over this period could not have been any clearer. By the mid-1990s a shift in public and media perception of bid rigging was also becoming clear. While political corruption, waste of taxpayers’ money, and other ill effects were widely regarded as reprehensible during the early 1980s, there was much less agreement on whether full competition in public bidding should replace bid “coordination” as a means to divide the spoils. Concern was particularly strong that small contractors would be dislocated should true competitive bidding be introduced. The FTC itself initially tried to create a two-tier system under its ﬁrst guideline by legitimizing bid rigging by small contractors but requiring larger companies to abide by the AML. In the end, however, large ﬁrms also wanted similar exemptions, forcing the FTC to hold both small and large companies to the same, albeit weak, standards under the guideline. By the 1990s many of these overtones disappeared from the debate in exchange for broader agreement that true competitive bidding was a more nearly ideal system. The scope of scandal involving senior politicians and construction was a major factor shifting this tide. More substantial reforms were made in bidding procedures. These represented initial efforts to open public works contracts to open competition for the ﬁrst time. The FTC’s argument that the construction industry should not be treated differently became accepted more widely in the process.

10 Conclusion Japanese antimonopoly politics

By 1995 the Fair Trade Commission (FTC) had undertaken stronger enforcement efforts against a broader array of industries, cartels exempt from the Antimonopoly Law (AML) had been cut to a negligible number, and the AML had been strengthened three times, with particular emphasis on new and stronger penalties for illegal behavior. As stated at the outset of this book, some of these developments came in spite of strong opposition by business leaders, bureaucrats, and politicians. On the other hand, the case studies presented have also demonstrated that changes in antimonopoly policy were at times uneven or characterized by limited results. The focus of this book has been to explain the political basis for these changes and inconsistencies. It is easier to identify those factors that limited the growth and expansion of antimonopoly policy than factors that have augmented it. Opposition to FTC efforts from many inﬂuential business, bureaucratic, and political leaders was intense and direct, while few organized constituents supporting stronger policy emerged. Rather, the FTC itself became the most important protagonist for stronger antimonopoly policy, with the notable exception of external support from the US government from the early 1990s. On occasion the FTC was able to take advantage of crisis or scandal to promote its agenda actively in the face of opposition, by acting as what Wilson calls a policy entrepreneur.1 In most cases, however, the agency was forced to move carefully to establish its agenda among those powerful interests favoring lax application of the law or exemptions to it. The FTC’s successes inevitably depended on changes in the political realm that deﬁned the pace and scope of change. Three distinct phases of political change were apparent. The ﬁrst phase, beginning in the early 1970s and lasting into the late 1970s, was an era of economic turmoil, high inﬂation, and broad public distrust of big business. As major Japanese corporations and the capitalist system generally underwent extreme public scrutiny and criticism, the FTC found great latitude to respond to public anxieties without fear of a conservative political backlash. Prior to 1973 the FTC had tried to address certain economic problems such as oligopoly, administered prices, legal cartels,

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and resale price maintenance (RPM) by going through traditional bureaucratic and political channels. The FTC’s inability to bring about signiﬁcant change within the hostile political context of the time, coupled with the arrival of the charismatic personality of Takahashi Toshihide as chairman, led the FTC to assert its independence where possible in order to effect change. It was within this context that the FTC was able to advocate for a stronger AML and force it onto the Liberal Democratic Party’s political agenda in order to overcome some of the institutional problems hindering more effective law enforcement. The agency’s actions stirred broader public recognition of corporate collusion and oligopoly, helping to increase concern about their effects on the economy and consumer interest. This period marked a critical turning point in the history of antimonopoly policy in Japan. The second phase, which lasted approximately from the end of the 1970s through the late 1980s, was characterized by relative economic stability compared with the previous period. A general retrenchment of the forces that were arrayed against antimonopoly policy was seen, as the LDP’s position strengthened during the 1980s. Lacking broad public interest and support, FTC efforts became signiﬁcantly more incremental and cautious. In certain respects, such as levels of formal enforcement, policy appeared weaker than in the 1970s. The FTC focused on means of change such as the formation of guidelines and the development of systems of consultation with business in order to prevent violations, both of which were implemented more as defensive techniques of policy enforcement intended to avoid overt criticism than as proactive enforcement strategies. The FTC simply lacked the general interest and political support necessary to bring about more meaningful change. Indeed, during the period, substantial change was generally not being demanded or seen as necessary. Although begun under the tenuous context of pressure from the United States, the third phase that unfolded from 1990 began to put the FTC and antimonopoly policy on a more solid footing. Gaiatsu from the United States for Japan to strengthen its antimonopoly policy regime in an age of increased international competition was clearly the primary factor that brought about its reinvigoration. As we have seen, however, the opposition of organized interests within Japan tempered the effect of foreign pressure. By the mid-1990s the FTC was nevertheless able to build further on this momentum through a growing understanding in the political, bureaucratic, and business communities that stronger competition in a number of inefﬁcient industries, and therefore stronger antimonopoly policy, was ultimately in Japan’s best interest to help overcome slow growth. Broad ofﬁcial support for certain FTC proposals such as the elimination of legal cartels and RPM was expressed for the ﬁrst time. This change helped give further legitimacy to the agency and its activities. As the environment improved during the 1990s, the FTC found it easier to work

174 Conclusion: Japanese antimonopoly politics within normal channels of government to bring about a certain degree of desired change. At the level of policy enforcement and implementation, the FTC’s independence was an important element enabling the agency to take the initiative at certain juncture. But at the broader policy level, FTC ofﬁcials worked within the context of established patterns of Japanese public policy making in order to forward antimonopoly policy positions. Within these patterns, Japan’s bureaucratic agencies often take policy initiatives in the absence of speciﬁc political direction, although their activities are checked substantially by overriding industry and political interests. In comparison with other economic ministries in the government, the FTC was especially vulnerable as it lacked an organized constituency of interests at the political level. In order to forward its positions, therefore, the FTC was required to confront, exhort, and negotiate directly with other ministries over issues such as legal cartels and administrative guidance. The FTC also had to secure the cooperation of the LDP in order to have desirable legislation passed and unfavorable legislation altered or scrapped. The LDP’s legislative power in particular proved to be the major inﬂuence over the FTC’s behavior. The need to engage in working relationships with the bureaucracy and the LDP had the result of broadening the FTC’s pure regulatory mission to include policy making and other political functions. As the chief spokespeople in the Japanese government for antimonopoly policy, FTC ofﬁcials often had to participate in extensive political compromise and cooperation. This fact undoubtedly subjected the FTC to a greater potential degree of politicization, making true independence even more elusive. FTC bureaucrats, much like their colleagues in economic ministries, have pursued policies that promote the prestige and position of the agency through the gradual expansion of agency functions, powers, and legitimacy. A parallel concern of equal weight for FTC bureaucrats, however, has been to avoid taking initiatives that would invite substantial criticism from organized interests, thus potentially undermining the agency’s legitimacy in terms of goals and purpose. The ultimate consequence – abolition of the agency – was threatened whenever conservative forces deemed that the FTC had overstepped its bounds. It was not until the 1990s that the agency had secured sufﬁcient support to begin to act more freely without threat of outright abolition. Concern about losing legitimacy has also played a major role in limiting the FTC from taking formal actions against questionable corporate acts when FTC decisions might not withstand strict court review. The effect of these conﬂicting motives on agency output is clear: periods of progress when feasible, tempered by cautious incrementalism when necessary. As for the question of winners and losers in Japanese antimonopoly politics, the case studies presented in this book demonstrate that the results fall fairly predictably along the lines of supply and demand for regulation (or, in the case of antimonopoly policy, the avoidance of regulation). None

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of the parties most actively engaged in the debates – the FTC, organized business interests, elite economic ministries, and conservative politicians – were able to dominate completely efforts to reach equilibrium on this line. Instead, the equilibrium shifted according to political balances of power, economic conditions, and the concentration of interests that were threatened by stronger antimonopoly policy. While economic ministries were often strong opponents of FTC initiative, they were unable to bring about results entirely consistent with their positions. Meanwhile, other participants such as business organizations, consumer groups, and opposition party politicians were all drawn into the debates at times. The multiplicity of competing interests and ideas often required the deep involvement of politicians to broker ﬁnal agreements. As a result, the politics of compromise among diverse interests often prevailed, a situation where “[no] party gets all it wants; each is optimally disgruntled.”2 The broader application of public choice theory outlined in Chapter 1 thus most accurately reﬂects Japan’s antimonopoly story because it combines some basic assumptions about the effect of special interests on regulatory policy at the political level with a recognition that the institutional interests of government bureaus can affect policy at the implementation level and possibly the legislative level. A cost/beneﬁt approach to explaining policy outcome adequately characterizes the result of debates on policy toward competition over the period. In the case of the 1977 AML revision, the FTC proposals most vigorously resisted by business were those aimed at particular segments of the business community, such as the ceiling on stockholding by large corporations, orders for concentrated ﬁrms to divest themselves of sections of their business, and efforts to restrain administered prices in oligopolized industries. These were also the areas where FTC recommendations were weakened in the ﬁnal legislation, to limit their impact. FTC proposals for other measures such as cartel surcharges and increased criminal penalties, where costs and beneﬁts were both diffuse, were resisted much less and passed in a form similar to that of initial FTC proposals. Diffuse beneﬁts/diffuse costs explanations also adequately explain the outcome of the 1992 and 1993 revisions of the AML, where the FTC took advantage of American pressure to forward its position for stronger penalties, an effort that was eventually tempered somewhat in the ﬁnal bills by broad business, bureaucratic, and political opposition. In cases of concentrated beneﬁts/diffuse costs, such as the two laws for depressed industries, the FTC was unable to prevent their passage. However, owing to opposition party support and other political considerations, the FTC was successful in many respects in limiting original proposals from the Ministry of International Trade and Industry. Other legislative changes involving antimonopoly policy, such as laws to respond to the oil shock and laws for depressed industries, also involved substantial exogenous political considerations requiring the involvement of politicians in order to reach ﬁnal compromises. Indeed, both policies were

176 Conclusion: Japanese antimonopoly politics initiated by prime ministers in response to the direct requests of business leaders or in response to a perceived need to ameliorate crisis in industry in order to maintain political power. The involvement of politicians in the initiation of policy affecting competition, as well as their role in balancing diverse positions among the FTC, related ministries, and other interested parties, highlights the overtly political nature of decisions involving policies affecting competition in contemporary Japan.

Additional developments post-1995 Many focus on what has not happened to antimonopoly policy in Japan as an indication of its continued weakness rather than any apparent strength. Tilton, through his careful analysis of business practices in Japan’s basic materials industries, ﬁnds that the FTC has not enforced the law aggressively in key industry sectors in light of apparent continued anticompetitive practices. He adds that those efforts the FTC has made to boost enforcement have not been reﬂected in greater market competition in certain industries.3 Schaede argues that continued weak formal enforcement against unfair trade practices such as restraints in distribution and boycotts has provided scope for trade associations to implement a substantial degree of self-regulation within a number of industry sectors.4 There can be little doubt that the FTC’s conservative approach to enforcement, the institutional basis of which was outlined in brief in Chapter 3, did continue to limit FTC activity and therefore the expansion of antimonopoly policy even after 1973. No substantial change was seen in these strategies, such as the initiation of strong efforts to test the application of the AML through the development of case law. Increases in penalties, an expansion in the industry types targeted for AML violation cases, and enhanced efforts at obtaining compliance were not complemented with a signiﬁcantly more adventurous style of enforcement that involved more risk-taking before the courts. Only at the very end of the 1990s did the FTC appear to be moving toward a somewhat more diverse approach on formal enforcement of the law. Others, meanwhile, are less inclined to dismiss the effectiveness of improvements made in Japan’s antimonopoly regime. Uriu argues that while still a work in progress, the FTC “has been able to exert ever stronger restraints on cartel behavior.”5 Meanwhile, Haley, a scholar of Japanese and comparative law, challenges fundamentally the idea that the FTC has enforced the AML ineffectively since the 1970s if legal and other institutional restraints, including the FTC’s conservative enforcement style, are taken into consideration.6 Just as there remain differing views on the effectiveness of the FTC and Japan’s antimonopoly regime, so too have changes since 1995 reﬂected differing currents affecting its development. Most changes have favored stronger antimonopoly policy. Since 1995 the FTC has been strengthened

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administratively as well as in terms of personnel and scope, legislation has been approved that allows aggrieved parties to take AML cases directly to the courts in certain cases, and legislation proposed that would hold government ofﬁcials accountable to the FTC for acts to encourage illegal bid rigging. The FTC has continued to collect record ﬁnes for AML law violations, although it eschews exercising its right to issue criminal accusations except on a rather infrequent basis. In addition, patterns of political appointments of commissioners and chairmen have changed substantially. As of 2000, only one former economic bureaucrat sat on the commission (a former ofﬁcial of the Ministry of Finance). The remaining four members came from the Ministry of Justice (chairman), Ministry of Foreign Affairs, the FTC, and private industry. All of these developments make clear how much the debate over antimonopoly policy has shifted in Japan since 1973. These changes are rooted in a growing consensus among Japan’s internationally competitive industries and others for the need to introduce stronger competition to many of Japan’s regulated sectors to help overcome general economic malaise. On the other hand, one of the more major events was the repeal in 1997 of the AML’s ban on holding companies (section 9), previously a centerpiece of the program to prevent return of excess concentration and the reemergence of the zaibatsu. The step was promoted actively in political circles by business leaders looking for enhanced ﬂexibility to deal with corporate restructuring after many years of slow growth. Initially resisted strongly by the FTC, the measure was passed with some restrictions that could be invoked if necessary to challenge business combinations resulting in enormous economic power. While promoted by business and the conservative parties, the spectacular decline of the political left in Japanese politics by the late 1990s was also a chief factor in enabling this reform to move forward. The left had always supported Section 9 vigorously, seeking to protect it from abolition by conservative forces throughout the postwar period. By 1997, however, hardly any of the left remained in the Japanese Diet. It is not clear yet whether reform of Section 9 represents a substantial or only a symbolic weakening of antimonopoly policy in terms of its effect on competition. It is a result that most likely will be known only after several more years of corporate reorganization. However, it did represent the real possibility that further changes were in store for Japan’s antimonopoly regime as it approached the beginning of its second halfcentury of existence.

Notes

Preface 1 Asahi shinbun, 28 August 1973, p. 11. Chapter 1 Introduction 1 P. Auerbach, Competition, Oxford, Basil Blackwell, 1988, p. 7. On this general argument and challenges to it within the ﬁeld of economics, see chapter 2. 2 Moran and Wright argue that the relationship between state regulation and markets is so inseparable as to be necessary and not contradictory. M. Moran and M. Wright, “Conclusion: The Interdependence of Markets and States,” in M. Moran and M. Wright (eds) The Market and the State, Basingstoke, UK, Macmillan, 1991. 3 The term “antimonopoly policy” is analogous with the more prevalent terms “antitrust policy” used in North America and “competition policy” used in Europe and other parts of the world. 4 Notable exceptions dealing with regulatory issues beyond antimonopoly policy include F. Rosenbluth, Financial Politics in Contemporary Japan, Ithaca, NY, Cornell University Press, 1989; and S. Vogel, Freer Markets, More Rules, Ithaca, NY, Cornell University Press, 1996. 5 This basic point is also argued in R. Samuels, The Business of the Japanese State, Ithaca, NY, Cornell University Press, 1987; and R. Uriu, Troubled Industries, Ithaca, NY, Cornell University Press, 1996. 6 J. Haley, Authority without Power, New York, Oxford University Press, 1991, p. 163. 7 Haley, Authority without Power, p. 163. 8 Iyori Hiroshi, “Antitrust and Industrial Policy in Japan: Competition and Cooperation,” in G. Saxonhouse and K. Yamamura (eds) Law and Trade Issues of the Japanese Economy, Seattle, University of Washington Press, 1986, p. 60. 9 See C. Johnson, MITI and the Japanese Miracle, Stanford, Stanford University Press, 1982; and C. Johnson, Japan: Who Governs?, New York, W.W. Norton, 1995. For a similar argument, see L. Tyson and J. Zysman, “Developmental Strategy and Production Innovation in Japan,” in C. Johnson, L. Tyson, and J. Zysman (eds) Politics and Productivity, New York, Harper Business, 1989. 10 Johnson, Japan: Who Governs?, p. 13 and chapter 6. 11 C. Johnson, “The Institutional Foundations of Japanese Industrial Policy,” in C. Barﬁeld and W. Schambra (eds) The Politics of Industrial Policy, Washington, DC, American Enterprise Institute for Public Policy Research, 1986, p. 195. 12 C. Yanaga, Big Business in Japanese Politics, New Haven, Conn., Yale University Press, 1968.

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13 J. Ramseyer and F. Rosenbluth, Japan’s Political Marketplace, Cambridge, Mass., Harvard University Press, 1993. 14 Yanaga, Big Business, p. 176. 15 Ramseyer and Rosenbluth, Japan’s Political Marketplace, p. 132. 16 Samuels, Business of the Japanese State. 17 M. Muramatsu and E. Krauss, “The Conservative Policy Line and the Development of Patterned Pluralism,” in K. Yamamura and Y. Yasuba (eds) The Political Economy of Japan, vol. 1, Stanford, Calif., Stanford University Press, 1987. 18 K. Calder, Crisis and Compensation, Princeton, NJ, Princeton University Press, 1988. On this point, see pp. 22–3. Calder uses the term “distributional” policies rather than “pork barrel.” This argument was qualiﬁed somewhat in his later work, Strategic Capitalism, Princeton, NJ, Princeton University Press, 1993. 19 T.J. Pempel, Policy and Politics in Japan, Philadelphia, Temple University Press, 1982. 20 Other examples of this thesis are numerous. See, for example, P. Genther, A History of Japan’s Government–Business Relationship, Ann Arbor, Center for Japanese Studies, University of Michigan, 1990; Y. Murakami, “The Japanese Model of Political Economy,” in Yamamura and Yasuba (eds) Political Economy of Japan, vol. 1; and D. Okimoto, Between MITI and the Market, Stanford, Calif., Stanford University Press, 1989. 21 E. Hadley, Antitrust in Japan, Princeton, NJ, Princeton University Press, 1970; K. Yamamura, Economic Policy in Postwar Japan, Berkeley, University of California Press, 1967; and H. Iyori and A. Uesugi, The Antimonopoly Laws of Japan, New York, Federal Legal Publications, 1983. This work was updated by the same authors in The Antimonopoly Laws and Policies of Japan, New York, Federal Legal Publications, 1994. Numerous other works but from a purely legal perspective exist in Japanese. 22 Misono¯ Hitoshi, Nihon no dokusen kinshi seisaku to sangyo¯ soshiki (Japan’s Antimonopoly Policy and Industrial Organization), Tokyo, Kawade Shobo¯ Shinsha, 1987. 23 Exceptions are S. Wilks, The Revival of Japanese Competition Policy and Its Importance for EU–Japan Relations, London, Royal Institute of International Affairs, 1994; and K. Sanekata and S. Wilks, “The Fair Trade Commission and the Enforcement of Competition Policy in Japan,” in G.B. Doern and S. Wilks (eds) Comparative Competition Policy, Oxford, Oxford University Press, 1996. 24 G. Kolko, The Triumph of Conservatism, Chicago, Quadrangle Paperback, 1967, p. 2. 25 Kolko, The Triumph of Conservation, pp. 225, 278. 26 Kolko, The Triumph of Conservation, pp. 256, 270–8. 27 See, for example, A. Stone, Economic Regulation and the Public Interest, Ithaca, NY, Cornell University Press, 1977, pp. 16–18, 26–51. On broad criticisms of the Marxist position, see R. Noll, “Government Regulatory Behavior: A Multidisciplinary Survey and Synthesis,” in R. Noll (ed.) Regulatory Policy and the Social Sciences, Berkeley, University of California Press, 1985, pp. 25–6. 28 Typical of this approach are R. Cushman, The Independent Regulatory Commissions, New York, Octagon Books, 1972; M. Bernstein, Regulating Business by Independent Commission, Princeton, NJ, Princeton University Press, 1955; C. Kaysen and D. Turner, Antitrust Policy, Cambridge, Mass., Harvard University Press, 1965, especially chapter 1; and T. Blaisdell, Jr., The Federal Trade Commission, New York, Columbia University Press, 1932, especially chapters 1 and 9. 29 For a succinct summary of the economic arguments, see E. Gellhorn, Antitrust Law and Economics, 3rd edn, St. Paul, West Publishing Company, chapter 3. On

180 Notes

30

31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

46 47 48

the political arguments, see, for example, L. Sullivan, “Economics and More Humanistic Disciplines: What Are the Sources of Wisdom for Antitrust?,” University of Pennsylvania Law Review, 1977, vol. 125, pp. 1214–43; and F. Machlup, The Political Economy of Monopoly, Baltimore, Johns Hopkins Press, 1952, pp. 74–6. For differing analytical perspectives, see, for example, E. Kirkland, Industry Comes of Age, New York, Holt, Rinehart, and Winston, 1961, pp. 314–24; H. Thorelli, The Federal Antitrust Policy, Baltimore, Johns Hopkins Press, 1955; E. Sanders, “Industrial Concentration, Sectional Competition, and Antitrust Politics in America, 1880–1980,” in Studies in American Political Development – An Annual Volume I, New Haven, Conn., Yale University Press, 1986; and M. Sklar, The Corporate Reconstruction of American Capitalism, 1890–1916, Cambridge, Cambridge University Press, 1970, especially chapter 7. C. Sunstein, After the Rights Revolution, Cambridge, Mass., Harvard University Press, 1990, esp. chapters 1 and 2. P. Joskow and R. Noll, “Regulation in Theory and Practice: An Overview,” in G. Fromm (ed.) Studies in Public Regulation, Cambridge, Mass., MIT Press, 1981, p. 36. G. Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics and Management Science, 1971, vol. 2, pp. 3–21. Stigler, “Theory of Economic Regulation,” p. 5. M. Olson, The Rise and Decline of Nations, New Haven, Conn., Yale University Press, 1982. S. Peltzman, “Toward a More General Theory of Regulation,” Journal of Law and Economics, 1976, vol. 29, pp. 211–44. W. Shughart II, “Public-Choice Theory and Antitrust Policy,” in F. McChesney and W. Shughart II (eds) The Causes and Consequences of Antitrust, Chicago, University of Chicago Press, 1995, p. 8. J. Wilson, “The Politics of Regulation,” in J. McKie (ed.) Social Responsibility and the Business Predicament, Washington, DC, Brookings Institution, 1974, pp. 138–46. W. Niskanen, Jr., Bureaucracy and Representative Government, Chicago, Aldine Publishing, 1971, especially part II. Niskanen, however, explicitly excludes regulatory bodies from his analysis. A. Wildavsky, The Politics of the Budgetary Process, Boston, Little, Brown, 1964. On this general point and for a synthesis of other, similar works, see Noll, “Government Regulatory Behavior,” pp. 33–5. Bernstein, Regulating Business by Independent Commission; and A. Downs, Inside Bureaucracy, Boston, Little, Brown, 1966, chapter 2. J. Wilson, “The Politics of Regulation,” in J. Wilson (ed.) The Politics of Regulation, New York, Basic Books, 1980. R. Katzmann, Regulatory Bureaucracy, Cambridge, Mass., MIT Press, 1980; and S. Weaver, Decision to Prosecute, Cambridge, Mass., MIT Press, 1977. R. Harris and S. Milkis, The Politics of Regulatory Change, 2nd edn, Oxford, Oxford University Press, 1996, esp. chapters 5 and 8. G.B. Doern, “Comparative Competition Policy: Boundaries and Levels of Political Analysis,” in Doern and Wilks (eds) Comparative Competition Policy; and B.G. Peters, “United States Competition Policy Institutions: Structural Constraints and Opportunities,” in Doern and Wilks (eds.) Comparative Competition Policy. M. Eisner, Regulatory Politics in Transition, Baltimore, Johns Hopkins University Press, 1993, esp. chapter 1. Vogel, Freer Markets, More Rules. On these distinctions, see J. Wilson, “Politics of Regulation,” pp. 364–72.

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49 The main texts include Hadley, Antitrust in Japan; Yamamura, Economic Policy in Postwar Japan, and Misono¯ Hitoshi, Nihon no dokusen. 50 On the economic relevance, see, for example, E. Lincoln, Japan: Facing Economic Maturity, Washington, DC, Brookings Institution, 1988, esp. chapter 2; on political changes, see, for example, Calder, Crisis and Compensation, esp. pp. 103–16. Calder suggests that political crises began as early as 1971. 51 Iyori and Uesugi, Antimonopoly Laws of Japan, pp. 26–31. A similar distinction is made in the Fair Trade Commission’s ofﬁcial thirty-year history volume. Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Dokusen kinshi seisaku sanju¯nenshi (A Thirty– Year History of Antimonopoly Policy), Tokyo, Okurasho¯ Insatsu-kyoku, 1977, part 4. 52 Harry First, “Antitrust Enforcement in Japan,” Antitrust Law Journal, 1995, vol. 64, pp. 160–2. 53 Ayres and Braithwaite argue that a broad range of tools to enforce compliance, combined with a demonstrated commitment to use ever stronger sanctions when necessary, is an effective enforcement strategy for regulatory bodies and obviates the need to depend consistently on formal methods of enforcement. I. Ayres and J. Braithwaite, Responsive Regulation, Oxford, Oxford University Press, 1992, esp. chapter 2. Chapter 2 The historical context 1 Fujita Teiichiro, “Local Trade Associations (Do¯gyo¯ Kumai) in Prewar Japan,” in H. Yamazaki and M. Miyazawa (eds) Trade Associations in Business History, Tokyo, University of Tokyo Press, 1988, p. 88. 2 R. Scalapino, Democracy and the Party Movement in Prewar Japan, Berkeley, University of California Press, 1953, pp. 98–101. 3 See, for example, D. Landes, “Japan and Europe: Contrasts in Industrialization,” in W. Lockwood (ed.) The State and Economic Enterprise in Japan, Princeton, NJ, Princeton University Press, 1965; and K. Hayashi, “Japan and Germany in the Interwar Period,” in J. Morley (ed.) Dilemmas of Growth in Prewar Japan, Princeton, NJ, Princeton University Press, 1971. 4 See, for example, R. Samuels, Rich Nation Strong Army, Ithaca, NY, Cornell University Press, 1994. 5 Yu¯i Tsunehiko, “Senzen nihon ni okeru kyo¯so¯ to dokusen naishi to¯sei ni tsuite – chu¯” (Competition and Monopoly or Control in Prewar Japan – Part II), Ko¯sei Torihiki, October 1983, pp. 33–5. 6 Lockwood, The State, pp. 562–3. 7 See, for example, Lockwood, The State, p. 568; and Arthur E. Tiedemann, “Big Business and Politics in Prewar Japan,” in Morley (ed.) Dilemmas, pp. 286–7. 8 Iyori and Uesugi, Antimonopoly Laws of Japan, pp. 4–6. 9 Lockwood, The State, pp. 568–71; and Yoshida Jinbu¯, Nihon no karuteru (Japan’s Cartels), Tokyo, To¯yo¯ Keizai Shinpo¯sha, 1964, p. 21. 10 Yoshida, Nihon no karuteru, pp. 24–5. 11 H. Iyori, Antimonopoly Legislation in Japan, New York, Federal Legal Publications, 1969, pp. 1–4. For more on these cartels, see, for example, K. Takeo, “Functions of Japanese Trade Associations before World War II: The Case of Cartel Organizations,” in Yamazaki and Miyamoto (eds), Trade Associations, pp. 60–5; and Hashimoto Juro¯ and Takeda Haruhito (eds) Ryo¯taisen kikan nihon no karuteru (Japan’s Cartels in the Interwar Era), Tokyo, Ochanomizu shobo¯, 1985. 12 See, for example, “Kigyo¯ no to¯sei to bo¯eki shinko¯: sangyo¯ go¯rika undo¯ – jo¯” (Business Regulation and Trade Promotion: The Industry Rationalization Movement – Part I), 6 October 1964, Ekonomisuto, pp. 64–8; and “Kigyo¯ no

182 Notes

13 14 15 16 17 18 19

20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

36 37 38

to¯sei to bo¯eki shinko¯: sangyo¯ go¯rika undo¯ – ge” (Business Regulation and Trade Promotion: The Industry Rationalization Movement – Part II), 13 October 1964, Ekonomisuto, pp. 72–6. Takeo, “Functions of Japanese Trade Associations,” p. 65. Lockwood, The State, p. 571. For the history of the dissolution program, see Hadley, Antitrust in Japan; and T.A. Bisson, Zaibatsu Dissolution in Japan, Berkeley, University of California Press, 1954. Bisson, Zaibatsu Dissolution, p. 182. See, for example, Hadley, Antitrust, p. 11. Misono¯ Hitoshi, Nihon no dokusen, pp. 17–20; and Keizai Dantai Rengo¯kai, Keizai dantai rengo¯kai sanju¯nenshi (A Thirty-Year History of the Federation of Economic Organizations), Tokyo, Keidanren, 1978, p. 11. One important change was the removal of a treble damage clause proposed for private AML suits. First provides a detailed account of the drafting process for the law, concluding that the Japanese government had a signiﬁcant effect on the ﬁnal version. H. First, “Antitrust in Japan: The Original Intent,” Paciﬁc Rim Law and Policy Journal, 2000, vol. 9, pp. 1–71. Misono¯ Hitoshi, Nihon no dokusen, pp. 48–50. On this point, see, for example, Yamamura, Economic Policy, chapter 4 (especially p. 69). See, for example, Yamamura, Economic Policy, pp. 9–10 (note 14); Hadley, Antitrust, pp. 372–3; and Bisson, Zaibatsu Dissolution, pp. 181 and 215–18. Yamamura, Economic Policy, p. 175. A. Cole, Political Tendencies of Japanese in Small Enterprises, New York, Institute of Paciﬁc Relations, 1959, section 9. See, for example, Yamamura, Economic Policy, p. 62; and Bisson, Zaibatsu Dissolution, pp. 215–16. Misono¯ Hitoshi, Nihon no dokusen, pp. 66–71. Keizai Dantai Rengo¯kai, “Dokkin-ho¯ kaisei ni tsuite shiryo¯” (Materials on the Revision of the Antimonopoly Law), Keizai Shiryo¯, 18 April 1953, pp. 2–3. For copies of these drafts, see Keizai Dantai Rengo¯kai, “Dokkin-ho¯ kaisei ni tsuite shiryo¯,” pp. 27–32. Misono¯ Hitoshi, Nihon no dokusen, pp. 77–8. Misono¯ Hitoshi, Nihon no dokusen, pp. 78–9. For a list, see Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Dokusen kinshi seisaku – sanju¯nenshi (A Thirty-Year History of Antimonopoly Policy), Tokyo: Okurasho¯ Insatsu-kyoku, 1977, p. 765. Yamamura, Economic Policy, p. 72. Misono¯ Hitoshi, Nihon no dokusen, pp. 61–3. Also see Asahi shinbun, 13 April (p. 2), 7 May (p. 2), 29 June (p. 2), and 7 September (p. 2) 1952. See the memoirs of a participant in the discussions. Koino Shigeru, Kasumigaseki 30 nen (Thirty Years in Kasumigaseki), Tokyo, Jihyo¯sha, 1981, pp. 107–9. See, for example, the positions taken by Keidanren and the Tokyo Chamber of Commerce. Asahi shinbun, 2 April (p. 2) and 24 December (p. 4) 1952. Also, on the strong desire for business self-governance among industrialists, see, for example, “ ‘Jishu cho¯sei’ no jilenma” (The Dilemma of Self Coordination), Ekonomisuto, 7 March 1959, pp. 6–12. See, for example, Johnson, MITI and the Japanese Miracle. After I had read this quotation to both former top MITI ofﬁcials I interviewed, both enthusiastically endorsed it as accurate. Interviews, former senior MITI ofﬁcials, 21 April and 13 June 1997. In Ekonomisuto, 10 August 1976, p. 88.

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39 See, for example, “Dokkin-ho¯ kaisei no butaiura” (Behind the Scenes on the Revision of the Antimonopoly Law), Ekonomisuto, 2 November 1957, pp. 46–8. 40 “Dokkin-ho¯ kaisei no butaiura.” 41 These difﬁculties came despite other powers MITI had available to enforce cartels, such as the threat to cut foreign exchange allocations to companies. See, for example, “Seisan o shita sasaeru kigyo¯ ko¯do¯” (Business Behavior Buttressing Production), Ekonomisuto, 5 April 1958, pp. 35–7; and “Ko¯shite dokkin-ho¯ wa honenukareta” (This Is How the Antimonopoly Law Was De-boned), Ekonomisuto, 25 October 1958, pp. 40–5. 42 For the details of the selection process for the committee, see “Dokkin-ho¯ kaisei no butaiura.” 43 Misono¯ Hitoshi, Nihon no dokusen, pp. 105–7. 44 Yamamura, Economic Policy, pp. 73–4. 45 Misono¯ Hitoshi, Nihon no dokusen, pp. 107–8. 46 “Ko¯shite dokkin-ho¯ wa honenukareta”. 47 See Misono¯ Hitoshi, Nihon no dokusen, pp. 110–11; and Keizai Dantai Rengo¯kai, Keizai dantai, p. 193. 48 Yanaga, Big Business, p. 171. 49 Yoshida Jinbu¯, Nihon no karuteru, p. 62. 50 See, for example, the comments of the FTC’s secretary-general. Sakane Tetsuo, “Kaisei dokkin ho¯an no ko¯so¯ to keizaikai no arikata” (The Planned Antimonopoly Law Revision Bill and the Ways of the Business Community), Shu¯kan To¯yo¯ Keizai Shinpo¯, 11 October 1958, p. 80. 51 Yoshida Jinbu¯, Nihon no karuteru, pp. 32–3; and Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Dokusen kinshi, p. 165. 52 Misono¯ Hitoshi, Nihon no dokusen, pp. 115–18. 53 Interview, former senior FTC ofﬁcial, 23 August 1996. 54 “Motatsuku kanmin cho¯sei ho¯shiki” (The Bungled Public–Private Sector Coordination System), Ekonomisuto, 18 December 1962, pp. 53–5; and Sho¯da Akira, “Tokuan-ho¯ o meguru tsu¯sansho¯ to sangyo¯” (MITI and Industry over the Special Promotion Law), Ekonomisuto, 10 April 1964, pp. 152–8. 55 See, for example, Johnson, MITI and the Japanese Miracle, pp. 255–60; and Yamamura, Economic Policy, pp. 77–83. 56 Misono¯ Hitoshi, Nihon no dokusen, pp. 168–9. 57 Misono¯ Hitoshi, Nihon no dokusen, p. 165. As for how this agreement was put into actual practice, see Ito¯ Keiichi, “To¯shi cho¯sei / kajo¯ setsubi shori to dokkinho¯” (Investment Adjustment: Disposal of Excess Facilities and the Antimonopoly Law), in Tsu¯sho¯ Sangyo¯ Daijin Kanbo¯ Cho¯sa-ka, (ed.) Nihon sangyo¯ to dokusen kinshi-ho¯ (Japanese Industry and the Antimonopoly Law), Tokyo, Tsu¯sho¯ Sangyo¯ Kenkyu¯sha, 1968, pp. 30–48. 58 Misono¯ Hitoshi, Nihon no dokusen, p. 166. 59 See the text of the agreement in Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Dokusen kinshi, p. 181. 60 Misono¯ Hitoshi, Nihon no dokusen, p. 177. 61 For examples, see Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Dokusen kinshi, pp. 139, 186–7. – 62 “Oji sansha ‘ko¯tai’ no hamon” (Repercussions of the “Retreat” by the Three – Oji Companies), Ekonomisuto, 1 October 1968, pp. 32–5. 63 Interview, former senior FTC ofﬁcial, 23 August 1996. 64 See Mainichi Shinbun-sha Keizai-bu (ed.) Shinnittetsu tanjo¯su (Nippon Steel Is Born), Tokyo, Mainichi Shinbun-sha, 1969. 65 Interview, former senior FTC ofﬁcials, 23 August and 26 September 1996.

184 Notes Chapter 3 The Fair Trade Commission 1 J. March and J. Olsen, Rediscovering Institutions, New York, The Free Press, 1989, p. 16. 2 See, for example, S. Weaver, Decision to Prosecute, Cambridge, Mass., MIT Press, 1977; R. Katzmann, Regulatory Bureaucracy, Cambridge, Mass., MIT Press, 1980; and Doern and Wilks (eds) Comparative Competition Policy. 3 Texts in English include M. Matsushita, International Trade and Competition Law in Japan, Oxford, Oxford University Press, 1993; and Iyori and Uesugi, Antimonopoly Laws and Policies of Japan. Numerous additional texts exist in Japanese on FTC powers and functions. 4 The FTC, however, was under the domain of the Prime Minister’s Ofﬁce in an organizational sense through 2001. 5 R. Cushman, The Independent Regulatory Commissions, New York, Oxford University Press, 1941, chapter 1. 6 This includes the Public Prosecutor’s Ofﬁce and the National Tax Agency. 7 On these difﬁculties, see Matsushita, International Trade, pp. 114–16. The total number of cases under the Civil Code between 1947 and 1993 was nine, none of which succeeded (one was settled). Iyori and Uesugi, Antimonopoly Laws and Policies of Japan, p. 240. 8 Iyori and Uesugi, Antimonopoly Laws and Policies of Japan, p. 240. Also see J.M. Ramseyer, “The Costs of the Consensual Myth: Antitrust Enforcement and Institutional Barriers to Litigation in Japan,” Yale Law Journal, 1985, vol.94, pp. 604–45. 9 On these and other points, see Iyori and Uesugi, Antimonopoly Laws and Policies of Japan, pp. 216–9. 10 See, for example, Ayres and Braithwaite, Responsive Regulation, esp. chapter 2. 11 Murakami Masahiro, Dokusen kinshi-ho¯ (Antimonopoly Law), Tokyo, Ko¯bundo¯, 1996, pp. 80–3. 12 See, for example, Iyori and Uesugi, Antimonopoly Laws of Japan, pp. 285–6; and J. Haley, “Competition and Trade Policy: Antitrust Enforcement: Do Differences Matter?,” in J.O. Haley and H. Iyori (eds) Antitrust: A New International Trade Remedy?, Seattle: Paciﬁc Rim Law and Policy Association, 1995. 13 On these developments generally, see Murakami Masahiro, Dokusen, pp. 83–91. The rule of reason standard is employed to judge whether a competitive restraint is reasonable, an evaluation that is normally based on a judgment as to whether an act is more harmful to competition than it is beneﬁcial. 14 See generally Haley, Authority without Power. 15 Interview, former senior FTC ofﬁcial, 23 August 1996. 16 FTC ofﬁcials would not release concrete information in areas such as patterns in personnel recruiting. 17 Interviews, former and current senior FTC ofﬁcials, 9 September 1996 and 7 July 1997. 18 Interview, senior FTC ofﬁcial, 7 July 1997. 19 See, for example, J. Wilson, Bureaucracy, New York, Basic Books, 1989. 20 For a stark contrast, see a description of the motivations of lawyers in a US antitrust division. S. Weaver, “Antitrust Division of the Department of Justice,” in Wilson (ed.) Politics of Regulation. 21 Interviews, former FTC ofﬁcials, 13 November 1996 and 31 May 1997. 22 Interviews, current and former senior FTC ofﬁcials, 3 February and 7 July 1997. 23 Interview, senior FTC ofﬁcial, 7 July 1997.

Notes 185 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

24 Interviews, former and current FTC ofﬁcials, 13 November 1996, 31 May 1997, and 7 July 1997. 25 Interview, former senior FTC ofﬁcial, 13 November 1996. FTC ofﬁcials would not release the actual ﬁgures. 26 On such issues in the Japanese case, see, for example, M. Muramatsu, “Postwar Politics in Japan: Bureaucracy versus the Party/Parties in Power,” in M. Muramatsu and F. Naschold (eds) State and Administration in Japan and Germany, Berlin, Walter de Gruyter, 1996. 27 For a theoretical discussion of such clashes, see, for example, A. Downs, Inside Bureaucracy, Boston, Little, Brown, 1966. 28 Other exceptions include bureaus such as the Economic Planning Agency. 29 Interviews, former senior FTC ofﬁcials, 23 August 1996, 9 September 1996, 1 October 1996, and 13 November 1997. 30 Interview, senior FTC ofﬁcial, 6 November 1996. Exact ﬁgures and detailed information on trends in such practices would not be released by the FTC. 31 Interview, senior FTC ofﬁcial, 6 November 1996. 32 Interview, former senior FTC ofﬁcial, 3 December 1996. 33 This policy on the part of occupation authorities is expressed clearly in the recollections of a former FTC ofﬁcial. See Sakane Tetsuo, “Omoide” (Memories), in Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Ko¯torii jidai no omoide (Memories of Days in the FTC), July 1972, p. 11. 34 Ofﬁcials from the quasi-public quasi-private Bank of Japan have also been represented at times on the commission, although in effect the bank too is an afﬁliated branch of the central government. 35 Keizai Dantai Rengo¯kai, “Dokkin-ho¯ kaisei no yo¯bo¯ iden” (Opinion on Desires for Antimonopoly Law Revision), Keizai Shiryo¯, 18 April 1953, p. 2. 36 All of the former FTC commissioners I interviewed agreed with this interpretation. 37 Chairman Sato¯ Hajime (1959–63) had also been employed in the MOF Tax Agency for a number of years before taking up various other government posts. 38 Interview, former senior FTC ofﬁcial, 23 August 1996. 39 Interviews, former senior FTC ofﬁcials, 1 October 1996 and 13 November 1996. 40 Interviews, former FTC ofﬁcials, 23 August 1996, 9 September 1996, 26 September 1996, 1 October 1 1996, and 13 November 1997. 41 See, for example, M. Tilton, Restrained Trade, Ithaca, NY, Cornell University Press, 1996, pp. 48–9. 42 Interviews, former senior FTC ofﬁcials, 23 August 1996, 9 September 1996, 26 September 1996, 1 October 1996, and 13 November 1996. 43 Ibid. 44 Interview, senior FTC ofﬁcial, 7 July 1997. 45 Interviews, former and current senior FTC ofﬁcials, 13 November 1996, and 7 July 1997. 46 Interview, senior FTC ofﬁcial, 7 July 1997. 47 On some of these factors, see M. Beeman, “Japan’s Flawed Antitrust Regime,” Japan Information Access Project Working Paper, 8 October 1999, Washington, DC. 48 On how such changes can be key in altering the output of an agency, see, for example, Eisner, Regulatory Politics in Transition, pp. 194–5.

186 Notes Chapter 4 Remodeling the cartel archipelago 1 Asahi shinbun, 10 August 1973, p. 2. 2 See, for example, Asahi shinbun, 16 June (p. 2), 22 June (p. 2), and 7 October (p. 2) 1973. 3 The Law concerning Emergency Measures against Withholding the Sale of Materials Vital to National Life, passed 29 June 1973. 4 Asahi shinbun, 12 July 1973, p. 2. 5 Asahi shinbun, 6 October 1973, p. 2. 6 For more details of Takahashi’s career and background, see Jiji Tsu¯shin-sha Keizai-bu, (ed.) Kasen shihai (Domination of the Oligopolies), Tokyo, Jiji Tsu¯shinsha, 1975, pp. 13–14; Nihon keizai shinbun, 8 August 1972, p. 2; and “Kanri kakaku ni mesu o furueru ka” (Can [Takahashi] Deal With Administered Prices?), Ekonomisuto, 5 September 1972, pp. 80–1. 7 Kure Bunji, Dokkin seisaku (Antimonopoly Policy), Tokyo, To¯yo¯ Keizai Shinpo¯sha, 1977, pp. 148–9. 8 Interview, former senior FTC ofﬁcial, 5 July 1996. 9 For example, Takahashi criticized the government’s policy on inﬂation, an unprecedented move for an FTC chairman. Asahi shinbun, 9 August 1973, p. 9. 10 Asahi shinbun, 18 September 1973, p. 8. 11 Asahi shinbun, 14 August 1973, p. 11. 12 Asahi shinbun, 14 November 1973, p. 9. 13 See, for example, Asahi shinbun, 23 November (pp. 1–2), 25 November (p. 2), and 28 November (p. 1) 1973. 14 Takahashi actually supported the use of strong price controls to curb price increases. Interview, senior FTC ofﬁcial, 5 July 1996. 15 Asahi shinbun, 28 November (p. 9) and 29 November (p. 9) 1973. 16 Asahi shinbun, 30 November 1973 (evening edition), p. 2. 17 Asahi shinbun, 17 November 1973, p. 9. 18 Asahi shinbun, 22 November 1973 (evening edition), p. 1. 19 The fact that the government would in principle allow industry to set its own cartel prices was made clear. Asahi shinbun, 25 November 1973, p. 2; Keizai Dantai Rengo¯kai, Keizai dantai rengo¯kai sanju¯nenshi, pp. 663–6. 20 Asahi shinbun, 17 November 1973, p. 9. 21 Asahi shinbun, 28 November 1973, p. 1. 22 Asahi shinbun, 28 November 1973, p. 9. 23 Nihon keizai shinbun, 27 November 1973 (evening edition), p. 1. 24 Asahi shinbun, 29 November 1973, p. 9. 25 Asahi shinbun, 1 December (p. 1) and 7 December (evening edition) (p. 1) 1973. 26 Asahi shinbun, 1 December 1973, p. 1. 27 Asahi shinbun, 9 December 1973, p. 2. 28 Asahi shinbun, 12 December 1973, p. 2. 29 Asahi shinbun, 14 December 1973, p. 7. The fact that industry cartels were not to be permitted under the bill while the bureaucratic regulation of prices was allowed seemed to be the basis for this position. 30 These products included basic materials such as steel and petrochemical products as well as consumer products such as toothpaste and soap. See Kawada Yo¯ki, “Saikin no bukka taisaku” (Recent Price Counter Policies), Jurisuto, 15 July 1974, pp. 78, 80. 31 Asahi shinbun, 12 March 1974, p. 1. 32 Asahi shinbun, 11 March 1974 (evening edition), p. 1. 33 See Asahi shinbun, 12 March 1974 (evening edition), p. 1.

Notes 187 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

34 Asahi shinbun, 13 March 1974, p. 2. 35 Asahi shinbun, 16 March (p. 1) and 17 March (p. 2) 1974. 36 Kisugi Shin, Sangyo¯ keizai-ho¯ (Industry and Economy Law), Tokyo, Gyo¯sei, 1996, p. 450. For an explanation of MITI’s guidance of prices following the oil shock, see Kawada in Jurisuto, pp. 78–81. For a comprehensive FTC opinion on administrative guidance and price controls, see Itoda Sho¯go, “Dokusen kinshiho¯ to gyo¯sei shido¯” (The Antimonopoly Law and Administrative Guidance), Jurisuto, 15 July 1974, pp. 20–5. 37 Ko¯sei Torihiki Iinkai Jimu-kyoku, Dokusen kinshi seisaku sanju¯nenshi, p. 311. 38 Asahi shinbun, 17 January 1974, p. 7. 39 See, for example, Heiwa Keizai Keikaku Kaigi (ed.) Kokumin no dokusen hakusho (The People’s Monopoly White Paper), Tokyo, Ochanomizu Shobo¯, 1977, p. 166. 40 Interview, former FTC ofﬁcial, 26 September 1996. Also see Kure Bunji, Dokkin seisaku, pp. 135–6. 41 See Nihon Keizai Shinbun-sha (ed.) Dokkin-ho¯ ga kaiseisaretara (If the Antimonopoly Law Was Revised), Tokyo, Nihon Keizai Shinbun-sha, 1974, p. 79; and Asahi shinbun, 3 February 1974, p. 1. 42 Asahi shinbun, 27 November 1973 (evening edition), p. 1. 43 The industry had consistently been engaged in ofﬁcially sanctioned as well as illegal cartels since the prewar era. See, for example, Namiki Nobuyoshi, Tsu¯sansho¯ no shu¯en (The Death of MITI), Tokyo, Daiyamondo-sha, 1989, pp. 102–7. 44 Nihon keizai shinbun, 7 July 1971, p. 1. 45 Kure Bunji, Dokkin seisaku, pp. 133–5. 46 Interviews, former senior FTC ofﬁcials, 5 July and 26 September 1996. 47 Ibid. 48 Asahi shinbun, 4 December 1973, p. 7. He noted that despite administrative guidance to cut supplies by 10 percent to match an expected fall in crude oil imports of 16 percent through March 1974, the industry had notiﬁed major purchasers of reﬁned products of supply cuts of 20–40 percent. 49 Asahi shinbun, 29 May 1974, p. 8; and interview, former senior FTC ofﬁcial, 5 July 1996. 50 Interview, former senior FTC ofﬁcial, 5 July 1996. 51 Asahi shinbun, 6 February 1974, p. 1. 52 See, for example, Asahi shinbun, 6 February 1974, p. 3. 53 Asahi shinbun, 7 February 1974, p. 5. 54 Asahi shinbun, 28 February 1974, p. 9. MITI ofﬁcials and industry leaders repeatedly stressed that despite any gains from the cartels in late 1973, these proﬁts had already been lost owing to rising crude oil prices and that the industry needed immediate relief from deﬁcits running at nearly ¥8 billion per day. 55 The issue of whether MITI demanded or merely suggested that industry accept the FTC recommendation later became a point of great contention between MITI and industry. 56 Asahi shinbun, 19 February (evening edition) (p. 1) and 25 February (evening edition) (p. 1) 1974. 57 Asahi shinbun, 20 February 1973, pp. 3, 7, and 18. Also, interview, former senior FTC ofﬁcial, 5 July 1996. 58 Nihon keizai shinbun, 12 July 1973, p. 1. 59 Asahi shinbun, 3 February 1974, p. 1. The FTC was criticized in the Diet by opposition party members for cases where certain corporations had received repeated FTC recommendations yet still no criminal accusations had been issued.

188 Notes 60 These motivations were also discussed within the FTC prior to the issuance of the criminal accusation. Interview, former FTC ofﬁcial, 26 September 1996. 61 Asahi shinbun, 20 February (p. 18) and 13 May (p. 3) 1974. Also, see the comment given by a senior member of the Public Prosecutor’s Ofﬁce that there was not one shred of evidence collected by the FTC that could be used to prove criminal behavior. Ito¯ Shigeki, Shu¯so¯ retsujitsu, Tokyo, Asahi Shinbun-sha, 1988, p. 164. 62 In the case of large corporations, this was often a manager and not a company president. 63 See the comments of a former commissioner in Kure Bunji, Dokkin seisaku, pp. 132–5. 64 Ibid., p. 149. 65 At his press conference following the announcement of the accusation, Takahashi stated that the FTC’s investigation did not even reveal such a role. Asahi shinbun, 20 February 1974, p. 3. The following day he said that the industry’s excuse of administrative guidance was nothing more than a “skillful evasion.” Asahi shinbun, 20 February 1974 (evening edition), p. 1. 66 Asahi shinbun, 27 February 1974 (evening edition), p. 2. 67 Asahi shinbun, 24 February 1974, p. 5. 68 Comment of a vice chairman of the Petroleum Federation, Asahi shinbun, 20 February 1974, p. 7. 69 Asahi shinbun, 27 February 1974, p. 1. 70 Asahi shinbun, 20 February (p. 3) and 28 February (p. 9) 1974. 71 Nihon keizai shinbun, 29 March 1974, p. 1. The Petroleum Federation soon after ﬁled an appeal with the Tokyo High Court. 72 See the full text in Asahi shinbun, 16 April 1974, p. 7. 73 Asahi shinbun, 29 May 1974, p. 1. 74 Asahi shinbun, 29 May 1974, p. 1. 75 Asahi shinbun, 29 May 1974, p. 3. 76 Asahi shinbun, 3 June 1974, p. 2. This move followed an examination into the issue of AML-exempt cartels by the Antimonopoly Conference (an FTC advisory body). Nihon keizai shinbun, 17 April 1974, p. 3. 77 Ken’ichi Imai, “Japan’s Industrial Organization,” in K. Sato (ed.) Industry and Business in Japan, New York, M.E. Sharpe, 1980, pp. 110–11. 78 Cartels to improve safety, reduce international trade conﬂicts, and other such standards were seen as “necessary evils” and thus were excluded from this new FTC policy. 79 See Taniguchi Katsuhiko, “Saihan kakaku mondai to dokusen kinshi-ho¯” (The Resale Price Maintenance Issue and the Antimonopoly Law), in Tsu¯sho¯ Sangyo¯ Daijin Kambo¯ Cho¯sa-ka (ed.) Nihon sangyo¯ to dokusen kinshi-ho¯, pp. 151–7 and ﬁgure 2 on p. 165. 80 “Saihan seido ho¯an wa naze kieta” (Why the RPM System Bill Disappeared), Ekonomisuto, 22 August 1967, pp. 62–7. 81 Kakuno Ryo¯hei, “Takahashi iincho¯ no dokkin monogatari” (Chairman Takahashi’s Antimonopoly Tale), Ekonomisuto, 5 May 1975, pp. 121–2. 82 Nihon keizai shinbun, 21 October 1970, p. 5. 83 Ibid. 84 Asahi shinbun, 30 August 1973, p. 8. 85 Nihon keizai shinbun, 18 May 1973, p. 1. 86 Asahi shinbun, 21 October 1973, p. 8. 87 Kure Bunji, Dokkin seisaku, p. 150. 88 Nihon keizai shinbun, 30 August 1973, pp. 1, 6, 13.

Notes 189 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

89 90 91 92 93 94 95 96 97

98 99

100 101 102

103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120

Interview, former senior FTC ofﬁcial, 5 July 1996. Asahi shinbun, 21 October 1973, p. 8. Asahi shinbun, 14 September (p. 22) and 21 October (p. 8) 1973. Nihon keizai shinbun, 19 October 1973, p. 2. See, for example, Asahi shinbun, 30 August (p. 3) and 5 September (p. 9) 1973. Asahi shinbun, 4 September 1973 (evening edition), p. 1. Kure Bunji, Dokkin seisaku, p. 150. Also see Asahi shinbun, 21 October 1973, p. 8. Asahi shinbun, 24 March 1974, p. 3. For more detail on the development of and provisions under the Organization Law, see, for example, Kimoto Kinya, “Chu¯sho¯ kigyo¯ dantai-ho¯ to fukyo¯ karuteru” (The Small and Medium-Sized Enterprises Organization Act and Recession Cartels), Keizai-ho¯ gakkai nenpo¯, 1983, vol.26, pp. 54–82. According to a cabinet resolution in January 1964. Misono¯ Hitoshi, Nihon no dokusen, pp. 168–9. See the FTC advisory group report. Dokusen Kinshi Kondankai, “Chu¯sho¯ kigyo¯ karuteru no genjo¯” (Current Situation in Small and Medium-Sized Enterprise Cartels), committee report, 16 May 1972. Also, Nihon keizai shinbun, 17 May 1972, p. 7. Asahi shinbun, 3 June 1974, p. 2. This process was conveyed in interviews with former senior ofﬁcials of MITI and the FTC who were directly involved with this issue. Interviews: 18 July, 13 August, and 1 October 1996. See the FTC report. Ko¯sei Torihiki Iinkai, “Chu¯sho¯ kigyo¯ tekiyo¯ jogai karuteru no genjo¯ to mondaiten” (Current Situation and Problems With Exempted Cartels for Small and Medium-Sized Enterprises), unpublished report, May 1976. Also, Nihon keizai shinbun, 26 May 1976, p. 3. See, for example, Ko¯sei Torihiki Iinkai Jimu-kyoku, Dokusen kinshi, p. 370; and interview, former senior FTC ofﬁcial, 1 October 1996. J.M. Ramseyer and F. Rosenbluth, Japan’s Political Marketplace, Cambridge, Mass., Harvard University Press, 1993, p. 132. See, for example, K. Calder, Crisis and Compensation, Princeton, NJ, Princeton University Press, 1988, esp. pp. 346–7. Agreements could also be approved on prices, but such were rarely allowed. See, for example, Misono¯ Hitoshi, Nihon no dokusen, pp. 168–73, 220–1. Ibid., pp. 221, 223. Also, see Kure Bunji, Dokkin seisaku, pp. 151–2. Nihon keizai shinbun, 14 January 1973, p. 12. See, for example, Asahi shinbun, 12 December 1973 (evening edition), p. 2; and 28 March 1974, p. 7. On this dilemma, see Kure Bunji, Dokkin seisaku, p. 151. Also, interview, former senior FTC ofﬁcial, 13 November 1996. Asahi shinbun, 27 November 1974, p. 8. Asahi shinbun, 18 October 1974, p. 9. Asahi shinbun, 26 December 1974, p. 8. Asahi shinbun, 29 December 1974, p. 7. Asahi shinbun, 28 February (p. 9), 29 March (evening edition) (p. 1), and 1 May (p. 11) 1975. Asahi shinbun, 9 January 1975, p. 9. Asahi shinbun, 29 January (p. 8) and 11 May (p. 8) 1976. Asahi shinbun, 13 January 1976, p. 9. See, for example, comments by the president of Asahi Kasei in “Zadankai: keizai ko¯zo¯ / kigyo¯ keiei no henka to ho¯” (Discussion Group: Changes in Economic Structure / Business Management and the Law), Jurisuto, 1 January

190 Notes

121 122

123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138

139 140 141 142 143 144 145 146 147 148 149 150

1977, p. 18; and comments by the vice president of Nippon Steel in Asahi shinbun, 1 April 1977, p. 9. Asahi shinbun, 26 September 1975, p. 9; and Kaneko Akira, “Fukyo¯ taisaku to dokusen kinshi-ho¯” (Recession Countermeasures and the Antimonopoly Law), Keizai-ho¯ gakkai nenpo¯, 1983, vol. 26, p. 24. On this point, see Tsukada Hiroshi, “Konji fukyo¯-ki ni okeru dokkin-ho¯ ni motozuku fukyo¯ karuteru no gaiyo¯” (An Outline of Recession Cartels Based on the Antimonopoly Law in This Recession), Ko¯sei torihiki, June 1979, pp. 38–45. Asahi shinbun, 12 August 1976, p. 9 Asahi shinbun, 2 April (pp. 1–2), 3 April (p. 9), and 30 June (p. 9) 1976. Asahi shinbun, 3 August (evening edition) (p. 1) and 11 August (p. 9) 1976. Also, interview, former senior LDP politician, 8 October 1996. Asahi shinbun, 9 February 1977, p. 2. On these government policies, see, for example, Asahi shinbun, 23 April (p. 2), 2 June (p. 9), 4 September (p. 1), and 21 October (p. 9) 1977. Asahi shinbun, 23 April 1977, p. 2. See, for example, Asahi shinbun, 20 March 1977, p. 9. Asahi shinbun, 12 May 1977, p. 9. S. Yonekura, The Japanese Iron and Steel Industry, 1850–1990, New York, St. Martin’s Press, 1994, esp. pp. 213–26. Most open-hearth furnaces, which also depended heavily on scrap iron, were eventually phased out in favor of conversion furnaces. In Japanese, Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai. Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru: sho¯wa 46–49 nendo nenshi (Scrap Iron and Steel Cartel: An Annual History of Fiscal Years 1971–4), unpublished report, November 1976, p. 19. See Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, pp. 19–44. Asahi shinbun, 3 July 1973 (evening edition), p. 1. Interview, related industry ofﬁcial, 11 November 1996. Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, p. 45. Also, see the comments by a cartel participant who recalled that the FTC’s stated inclination not to continue with the cartel any longer was “extremely strong” (pp.185–6). Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, pp. 46–7. For a copy of the FTC’s decision, see Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, pp. 48–49. Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, pp. 155–9; and also Asahi shinbun, 2 October 1973, p. 9. Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, p. 15. Asahi shinbun, 7 June 1975, p. 8. Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, pp. 161–6. Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, p. 154; Asahi shinbun, 10 June 1975, p. 8. Interview, related industry ofﬁcial, 11 November 1996. See the essay “Tetsukuzu karuteru no omoide” (Memories of the Scrap Iron Cartel) in Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, pp. 198–200. See, for example, essays by Do¯sako Naosato of Nippon Steel Corporation and Fujimura Takeshi of Sumitomo Kinzoku Corporation. Tetsukuzu Kyo¯kyu¯ Renraku Kyo¯gikai, Tetsukuzu karuteru, pp. 185–6, 189–91. Interview, related industry ofﬁcial, 11 November 1996. The FTC did not take action with the primary intention of attacking MITI’s administrative guidance. Rather, this was only one effect of the decision to

Notes 191 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

enforce the law against the petroleum ﬁrms. Interview, former senior FTC ofﬁcial, 5 July 1996. Chapter 5 Policy in the political arena: revision of the Antimonopoly Law 1 See, for example, an interview with FTC chairman Tanimura Hiroshi. “Kanri kakaku ni seifu no kainyu¯ o” (The Government [Should] Intervene in Administered Prices), Ekonomisuto, 4 August 1970, pp. 42–5. 2 On this and other FTC studies of administered prices, see Ko¯sei Torihiki Iinkai – Jimu-kyoku (ed.) Kanri kakaku (Administered Prices), Tokyo, Okurasho¯ Insatsukyoku, 1970. 3 Nihon Keizai Shinbun-sha, Dokkin-ho¯ p. 15. 4 Nihon Keizai Shinbun-sha, Dokkin-ho¯, p. 36. 5 Jiji Tsushin-sha Keizai-bu (ed.) Kasen shihai (Domination of the Oligopolies), Tokyo, Jiji Tsushin-sha, 1975, p. 17. 6 Asahi shinbun, 13 October 1973, p. 9. 7 On the Committee resolution, see Matsushita Mitsuo, “Keizai to¯sei-ho¯ to dokusen kinshi-ho¯” (Economic Regulatory Law and the Antimonopoly Law), Jurisuto, 1 March 1974, pp. 31–2. 8 See, for example, Asahi shinbun, 3 February (p. 1) and 5 February (p. 5) 1974. 9 Asahi shinbun, 20 February 1974, p. 3. 10 For copies of the draft bill outlines of all four parties, see Jiji Tsushin-sha Keizai-bu, (ed.) Kasen shihai, pp. 307–22. 11 Asahi shinbun, 25 May 1974, p. 7. 12 Keizai Dantai Rengo¯kai Dokkin-ho¯ Kenkyu¯kai, “Saikin no dokkin-ho¯ kaisei rongi ni taisuru kenkai” (Opinion on the Recent Discussions of Revision of the Antimonopoly Law), 29 May 1974. 13 Asahi shinbun, 30 May 1974, p. 9. 14 Asahi shinbun, 13 October 1973, p. 9; and 10 July 1974, p. 9. 15 Asahi shinbun, 29 August 1974, p. 7. 16 See the opinion in the ofﬁcial LDP party journal. “Shincho¯ ko¯sei na toriatsukai o yo¯suru dokkin-ho¯ kaisei” (Revision of the Antimonopoly Law Demands a Cautious and Fair Approach), Gekkan jiyu¯ minshu, November 1974, pp. 1–3. 17 Asahi shinbun, 7 August 1974, p. 2. 18 Asahi shinbun, 6 September 1974, p. 9. 19 Cost price was later deﬁned as the cost at which a company sold a good to distributors. 20 Deﬁned as companies with capitalization exceeding ¥10 billion or total assets exceeding ¥200 billion, whichever is greater. 21 See Asahi shinbun, 22 January 1974, p. 1. 22 Ko¯sei Torihiki Iinkai, “Dokusen kinshi-ho¯ kaisei shian” (Antimonopoly Law Revision Framework Bill), 18 September 1974. 23 See, for example, Asahi shinbun, 10 September 1974, p. 1; and comments by Chairman Takahashi in Nihon keizai shinbun, 22 September 1974, p. 3. 24 See Asahi shinbun, 19 September 1974, p. 1; and Nihon Keizai Shinbun-sha, Dokkin-ho¯, p. 90. 25 See, for example, Mainichi shinbun, 30 July 1974, p. 5; Nihon keizai shinbun, 30 July 1974, p. 2; and Asahi shinbun, 20 September 1974, p. 5. 26 See, for example, Asahi shinbun, 27 July (p. 7) and 18 September (p. 9) 1974. Also, Kure Bunji, Dokkin seisaku (Antimonopoly Policy), Tokyo, To¯yo¯ Keizai Shinpo¯-sha, 1977, p. 148. 27 Asahi shinbun, 20 September 1974, p. 9.

192 Notes 28 29 30 31 32 33 34

35 36 37 38 39 40 41 42 43 44 45 46 47

48 49 50 51 52 53 54 55 56 57 58

Asahi shinbun, 19 September 1974, p. 9. See Tanaka’s comments in Asahi shinbun, 9 July 1974 (evening edition), p. 2. See, for example, Asahi shinbun, 22 October 1974, p. 9. Asahi shinbun, 21 September 1974 (evening edition), p. 1. Asahi shinbun, 5 October 1974, p. 2. Asahi shinbun, 22 October 1974, p. 4. See, for example, Nakamura Keiichiro¯, Miki seiken 747 nichi (The Miki Administration’s 747 Days), Tokyo, Gyo¯sei Mondai Kenkyu¯sho, 1981, pp. 28–36; and M. Mochizuki, “Managing and Inﬂuencing the Japanese Legislative Process: The Role of Parties and the National Diet”, unpublished doctoral dissertation, Harvard University, January 1982, pp. 234–5. Interview, former senior FTC ofﬁcial, 5 July 1996. Asahi shinbun, 10 December 1974 (evening edition), p. 1; and interview, former senior LDP politician, 8 October 1996. Nihon keizai shinbun, 12 December 1974 (evening edition), pp. 1–2. Asahi shinbun, 14 December 1974, p. 1. Asahi shinbun, 13 December (p. 1) and 14 December (evening edition) (p. 1) 1974. Nihon keizai shinbun, 21 December 1974, p. 1. Nihon keizai shinbun, 21 December 1974 (evening edition), p. 1. See, for example, Asahi shinbun, 26 January 1975, p. 1. See, for example, Asahi shinbun, 19 September 1974, p. 2. See, for example, the position paper of the Japan Consumer Federation in Jiji Tsushin-sha Keizai-bu (ed.) Kasen shihai, pp. 304–6. Asahi shinbun, 15 February 1975, p. 1. Asahi shinbun, 5 March 1975, p. 1. Asahi shinbun, 17 May 1975, p. 3. For a more detailed criticism of the lack of consumer-oriented measures, see Takeuchi Akio, “Dokkin-ho¯ kaisei to sho¯hisha: ko¯torii shian no ichi hihan” (Antimonopoly Law Revision and Consumers: One Criticism of the FTC’s Framework Bill), Jurisuto, 1 February 1975, pp. 76–82. Asahi shinbun, 1 December 1974, p. 9. Nihon keizai shinbun, 1 February 1975, p. 3; and Dokusen Kinshi Seisaku Kondankai Yu¯shi, “Dokusen kinshi-ho¯ no kaisei ni tsuite no teigen” (A Proposal concerning Revision of the Antimonopoly Law), 31 January 1975. Nihon keizai shinbun, 12 December 1974, pp. 1–2. Asahi shinbun, 26 April 1975, p. 9; and Shoda Akira, “Dokusen kinshi-ho¯ kaisei seifu-an no kento¯” (A Study of the Government’s Antimonopoly Law Revision Bill), Jurisuto, 1 May 1977, pp. 91–8. See, for example, Asahi shinbun, 11 December 1974, p. 9; and 11 January (p. 9), 19 February (p. 9), and 7 March (p. 9) 1975. Asahi shinbun, 17 March (p. 2) and 19 March (p. 2) 1975. Keizai Dantai Rengo¯kai, “Dokkin-ho¯ kaisei ni taisuru kenkai” (An Opinion on Revision of the Antimonopoly Law), 12 February 1975. Nihon keizai shinbun, 11 October 1974, p. 3; and Heiwa Keizai Keikaku Kaigi (ed.) Kokumin no dokusen hakusho (The People’s Monopoly White Paper), Tokyo, Ochanomizu Shobo¯, 1977, pp. 232–3. For examples, see Asahi shinbun, 19 September 1974, p. 9; and 5 February (p. 9), 6 February (p. 1), 13 February (pp. 1, 9), and 6 March (p. 9) 1975. See, for example, Asahi shinbun, 13 February 1975, p. 1; and interview, former senior LDP politician, 8 October 1996. See, for example, Asahi shinbun, 1 January 1975, p. 2; and arguments made by Prime Minister Miki in the Diet, “Dai 75 kai kokkai shu¯giin kaigiroku dai 20

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59 60 61 62

63 64 65 66 67 68 69 70 71 72 73 74 75

76 77 78 79 80 81 82

go” (Minutes of House of Representatives Proceedings, seventy-ﬁfth Diet, no. 20), Kanpo¯, 8 May 1975, p. 9. Nihon keizai shinbun, 22 September 1974, p. 3. See, for example, the views of leaders of Keizai Do¯yu¯kai in Asahi shinbun, 18 October 1974, p. 9. MITI outlined its objections to orders for the division of oligopolistic ﬁrms, cost price disclosure, restoration of pre-cartel prices, stockholding restrictions, and cartel surcharges. Nihon keizai shinbun, 1 February 1975, p. 3. For candid opinions, see Tsu¯sho¯ Sangyo¯sho¯ Seisaku Kenkyu¯kai, “70 Nendai no tsu¯sho¯ sangyo¯ seisaku: III. Sangyo¯ seisaku hen” (A Trade and Industry Policy for the 1970s: Part III: Industrial Policy), internal MITI report (on ﬁle with author), 4 August 1970, esp. pp. 23–5 and 271–92. This report formed the basis for a later formal report. See Sangyo¯ Ko¯zo¯ Shingikai (ed.) “70 Nendai no tsusho sangyo¯ seisaku” (A Trade and Industry Policy for the 1970s), interim report, May 1971, pp. 70–1. Asahi shinbun, 29 October 1974, p. 9. Asahi shinbun, 19 February 1975, p. 2. Amaya Naohiro, “Dokkin-ho¯ kaisei shian ni hanronsuru” (I Object to the Antimonopoly Law Revision Draft Bill), Ekonomisuto, 19 November 1974, pp. 36–45. Several of these LDP politicians, moreover, were ex-ofﬁcials of MITI. Asahi shinbun, 26 February (evening edition) (p. 1), 1 March (p. 9), and 6 March (p. 1) 1975. The inspiration for this idea apparently came from Chairman Takahashi himself. Asahi shinbun, 26 October 1974, p. 9. Nihon keizai shinbun, 15 February 1975, p. 2. Asahi shinbun, 13 December 1974, p. 1; and Heiwa Keizai Keikaku Kaigi (ed.) Kokumin, p. 181. Asahi shinbun, 8 February (p. 9), 8 February (evening edition) (p. 1), and 26 February (evening edition) (p. 1) 1975. Jiji Tsu¯shiin-sha Keizai-bu (ed.) Kasen shihai, pp. 307–22; and Asahi shinbun, 6 January (p. 2), 26 January (p. 2), and 16 March (p. 2) 1975. Nakamura Keiichiro¯, Miki seiken, p. 51; and Mochizuki, “Managing and Inﬂuencing”, p. 177. Aoki Kazuo, Ko¯sei torihiki iinkai ikenron sonota no ho¯ritsu ronshu¯ (A Collection of Arguments on the Unconstitutionality of the Fair Trade Commission and Other Laws), Tokyo, Daiichi Ho¯ki Shuppan-sha, 1976, pp. 103–45. See Asahi shinbun, 20 February (p. 2), 26 February (evening edition) (p. 1), and 2 March (p. 2) 1975. Also, see “Dokkin mondai no seijiteki sokumen” (The Antimonopoly Problem’s Political Side), Ekonomisuto, 11 March 1975, p. 19. See Mochizuki, “Managing and Inﬂuencing,” pp. 180–1; and interview, former senior LDP politician, 8 October 1996. Misono¯ Hitoshi, Nihon no dokusen kinshi seisaku to sangyo¯ soshiki (Japan’s Antimonopoly Policy and Industrial Organization), Tokyo, Kawade Shobo¯ Shinsha, 1987, pp. 247–9. See Nihon keizai shinbun, 16 April 1975, pp. 1–2. On Shiina’s deep opposition to the bill, see Nakamura Keiichiro¯, Miki seiken, pp. 50–1. See Asahi shinbun, 20 June 1975, p. 1. Nihon keizai shinbun, 20 June 1975, pp. 1, 3; and Nakamura Keiichiro¯, Miki seiken, p. 66. Asahi shinbun, 20 June 1975 (evening edition) (p. 1) and 21 June (p. 1) 1975. Nakamura Keiichiro¯, Miki seiken, p. 66.

194 Notes 83 See Nihon keizai shinbun, 24 June 1975, p. 1. For more detail see Sanekata Kenji, “Dokkin-ho¯ kaisei no keiko¯ to mondai-ten” (Antimonopoly Law Revision Process and Problems), Jurisuto, 15 August 1975, pp. 25–30. 84 Asahi shinbun, 24 June 1975, p. 1. 85 See, for example, Nakamura Keiichiro¯, Miki seiken, pp. 66–9. 86 On all of these points, see Asahi shinbun, 25 June (p. 9), 26 June (pp.1–2), 27 June (p. 1), and 2 July (p. 2) 1975. 87 Interview, former senior LDP politician, 8 October 1996. 88 Asahi shinbun, 5 July (p. 1) and 6 July (p. 1) 1975. 89 Asahi shinbun, 25 June 1975, p. 9. 90 Asahi shinbun, 6 July (p. 1) and 15 July (p. 5) 1975. 91 See, for example, Asahi shinbun, 5 July 1975, pp. 8, 9. 92 Nihon keizai shinbun, 13 September 1975 (evening edition), p. 1. 93 See Asahi shinbun, 11 November (evening edition) (p. 1) and 15 November (p. 2) 1975. 94 A newspaper poll found that 46 percent of Japanese voters believed that taking measures to deal with prices was the most important task for the government, followed by 13 percent who cited measures to deal with the economic recession. Asahi shinbun, 1 December 1975, p. 2. 95 Asahi shinbun, 23 January 1976 (evening edition), p. 2. 96 Asahi shinbun, 3 February 1976, p. 2. 97 Asahi shinbun, 14 January 1976, p. 2. 98 See, for example, Asahi shinbun, 24 January (p. 9) and 13 February (p. 1) 1976. 99 Asahi shinbun, 30 December 1975, p. 7. 100 See, for example, Asahi shinbun, 3 February 1976, p. 2. Interview, senior former LDP politician, 8 October 1996. 101 Nihon keizai shinbun, 6 February 1976, p. 1. 102 Asahi shinbun, 10 March 1976, p. 9. 103 LDP AML Committee acting chairman Yamanaka made this determination, which later received Prime Minister Miki’s approval. Asahi shinbun, 26 March 1976, p. 1. 104 Asahi shinbun, 26 March 1976, p. 1. 105 Asahi shinbun, 2 April 1976, p. 1. 106 See Asahi shinbun, 2 April (pp.1–2) and 3 April (p. 9) 1976. 107 Interviews, former senior FTC ofﬁcials, 18 July and 26 September 1996. 108 Asahi shinbun, 16 April 1976, p. 4. 109 Asahi shinbun, 22 October 1976, p. 1. 110 Asahi shinbun, 25 December 1976, p. 3. 111 Nihon keizai shinbun, 26 December 1976, p. 3. 112 Asahi shinbun, 29 December 1976, p. 1. 113 Asahi shinbun, 25 January 1977, p. 1. 114 Yamanaka was actually only the acting chairman until 1977. 115 See Mochizuki, “Managing and Inﬂuencing,” p. 189; and Asahi shinbun, 27 January 1977, p. 1. 116 Asahi shinbun, 29 January 1977, p. 2. 117 Asahi shinbun, 9 February 1977, p. 2. 118 Asahi shinbun, 15 February (p. 2) and 18 February (p. 2) 1977. – 119 The statement was made by LDP secretary-general Ohira. Asahi shinbun, 13 March 1977, p. 1. 120 Asahi shinbun, 13 March (p. 1) and 23 March (p. 9) 1977. 121 Asahi shinbun, 1 April 1977, p. 9. 122 Taken from Asahi shinbun, 31 March (evening edition) (p. 2) and 9 April (evening edition) (p. 2) 1977.

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123 See, for example, Asahi shinbun, 1 April (p. 2), 2 April (p. 9), and 13 April (p. 9) 1977. 124 Asahi shinbun, 31 March 1977 (evening edition), p. 2. 125 Asahi shinbun, 3 April 1977, p. 9. 126 See Asahi shinbun, 6 April 1977 (evening edition) (p. 2), 7 April (evening edition) (p. 2), and 8 April (p. 1) 1977. 127 Asahi shinbun, 28 April 1977, p. 1. 128 Nihon keizai shinbun, 27 May 1977 (evening edition), pp. 1–2. 129 There is a wide variety of opinion on this point, however. For contrasting views, see, for example, Imamura Shigekazu, “Dokkin-ho¯ kaiseigo 10 nen: sono kiseki to hyo¯ka” (Ten Years after the Revision of the Antimonopoly Law: Its Locus and Evaluation), Keizai-ho¯ gakkai nenpo¯, 1987, vol.30, pp. 1–22; and Heiwa Keizai Keikaku Kaigi (ed.) Kokumin, pp. 202–11. Ayres and Braithwaite furthermore have argued that partial industry regulation such as that for highly oligopolistic ﬁrms can be effective. I. Ayres and J. Braithwaite, Responsive Regulation, Oxford, Oxford University Press, 1992, esp. chapter 5. Chapter 6 The problem of structurally depressed industries 1 See, for example, Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Ko¯zo¯ fukyo¯-ho¯ no kaisetsu (An Explanation of the Structural Depression Law), Tokyo, Tsu¯sho¯ Sangyo¯ Cho¯sakai, 1978, p. 3. 2 Asahi shinbun, 10 March 1977, p. 9. On plans for individual depressed sectors, see Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Ko¯zo¯ fukyo¯-ho¯, pp. 159–231. These plans were drafted over many months beginning in early 1977. 3 Asahi shinbun, 10 March 1977, p. 9. 4 Asahi shinbun, 2 June 1977, p. 9. 5 See Asahi shinbun, 4 September 1977, pp. 1,9. For a copy of the government plan, see Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Ko¯zo¯ fukyo¯-ho¯, pp. 131–6. 6 See, for example, Asahi shinbun, 4 September (p. 2) and 8 September (evening edition) (p. 1) 1977. 7 Asahi shinbun, 6 September 1977, p. 9; and Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisakukyoku (ed.) Ko¯zo¯ fukyo¯-ho¯, pp. 8, 136–7, 140–5. 8 See, for example, Asahi shinbun, 1 October (p. 9) and 4 October (p. 5) 1977. 9 There did exist some supporters in the government for the FTC’s position, however, including Bank of Japan chairman Morinaga. Asahi shinbun, 9 June 1977, p. 9. 10 Asahi shinbun, 8 November 1977, p. 9. 11 Nihon keizai shinbun, 8 November (p. 3) and 10 November (p. 1) 1977. 12 See, for example, Aoki Mitsuo, “Tokutei fukyo¯ sangyo¯ antei rinji sochi-ho¯ no ritsuan to dokusen kinshi seisaku” (The Passage of the Special Measures Law for Stabilization of Depressed Industries and Antimonopoly Policy), Ko¯sei torihiki, July 1978, p. 10; and Suzuki Mitsuru, “Tokutei fukyo¯ sangyo¯ antei rinji sochi-ho¯ to dokusen kinshi-ho¯” (The Special Measures Law for Stabilization of Depressed Industries and the Antimonopoly Law), Jurisuto, 15 July 1978, p. 46. 13 See, for example, Asahi shinbun, 13 October (p. 9) and 8 December (p. 8) 1977. The FTC also added pressure by investigating the use of MITI-guided cartels as suspect violations of the AML. Asahi shinbun, 7 January 1978, p. 9. 14 Nihon keizai shinbun, 3 October (p. 3), 10 November (p. 1), and 11 November (p. 3) 1977. 15 See, for example, Koino Shigeru, Kasumigaseki 30 nen, p. 117; and Uriu, Troubled Industries, p. 125.

196 Notes 16 Asahi shinbun, 3 December 1977, p. 9. 17 Asahi shinbun, 7 December 1977 (evening edition), p. 1. 18 See Asahi shinbun, 26 January 1978, p. 9; and Tanso¯ Akinobu, “Tokutei fukyo¯ sangyo¯ antei rinji sochi-ho¯ to dokusen kinshi-ho¯ (The Special Measures Law for the Stabilization of Depressed Industries and the Antimonopoly Law), Ko¯sei torihiki, July 1978, p. 2. 19 See, for example, Asahi shinbun, 29 January (p. 2) and 2 February (p. 9) 1978. 20 See, for example, Asahi shinbun, 26 January (p. 9) and 9 February (p. 9) 1978. 21 See Asahi shinbun, 25 January 1978, p. 8; and “Ko¯zo¯ fukyo¯ taisaku ho¯an ni hantai suru kakkai no ikensho / kenkai / yo¯seisho” (Opinion Papers, Opinions, and Demands from Different Parties in Opposition to the Structural Depressed Counter-measures Bill), Asahi janaru, 24 February 1978, pp. 111–12. 22 Asahi shinbun, 3 February 1978, p. 8. 23 Asahi shinbun, 27 January 1978, p. 9. 24 Nihon keizai shinbun, 23 January 1978, p. 7. 25 The FTC’s ofﬁcial response came in two opinion papers released in January 1978. See Tanso¯ Akinobu, “Tokutei fukyo¯ sangyo¯ antei rinji sochi-ho¯ to dokusen kinshi-ho¯,” pp. 5–6. 26 On this point, see the arguments of an FTC ofﬁcial. Aoki Mitsuo, “Tokutei fukyo¯ sangyo¯ antei rinji sochi-ho¯ no ritsuan to dokusen kinshi seisaku,” pp. 9–12. 27 On these arguments, see, for example, Asahi Shinbun, 26 January 1978, p. 9; Aoki Mitsuo, “Tokutei fukyo¯ sangyo¯ antei rinji sochi-ho¯ no ritsuan to dokusen kinshi seisaku,” pp. 9–12; and Suzuki Mitsuru, “Tokutei fukyo¯ sangyo¯ antei rinji sochi-ho¯ to dokusen kinshi-ho¯,” pp. 46–7. 28 Interview, senior MITI ofﬁcial, 25 September 1996; and interview, former senior FTC ofﬁcial, 23 August 1996. 29 Chairman Hashiguchi also made a point of the fact that should the bill be presented in the Diet without opposition party support, passage would be unlikely, given the LDP’s slim majority. Nihon keizai shinbun, 9 February 1978, p. 3. 30 Interview, former senior FTC ofﬁcial, 14 October 1996. 31 Interview, senior MITI ofﬁcial, 25 September 1996. 32 Interview, senior MITI ofﬁcial, 25 September 1996. A similar interpretation of MITI’s motivations was reported in Nihon keizai shinbun, 23 January 1978, p. 3. 33 See Asahi shinbun, 27 January (p. 9), 29 January (p. 2), 9 February (p. 9), 10 February (p. 1), and 16 February (p. 1) 1978. Also, see Negishi Akira, “Tokutei fukyo¯ sangyo¯ antei rinji sochi ho¯an no naiyo¯ to mondaiten” (The Content of the Special Measures Law for Stabilization of Designated Depressed Industries and Problem Points), Jurisuto, 15 April 1978, pp. 83–5. 34 Asahi shinbun, 11 February 1978, p. 9. 35 For a detailed explanation of the law, see Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisakukyoku (ed.) Ko¯zo¯ fukyo¯-ho¯, pp. 13–127. 36 Asahi shinbun, 21 February 1978, p. 9. 37 Asahi shinbun, 5 April 1978, p. 2. 38 See, for example, Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯ no kaisetsu (An Explanation of the Industry Structure Law), Tokyo, Tsu¯sho¯ Sangyo¯ Cho¯sakai, 1983, p. 15. 39 Interviews, MITI ofﬁcial, 25 September 1996; and former senior FTC ofﬁcial, 23 August 1996. 40 Asahi shinbun, 6 November 1982, pp. 1, 9. 41 Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, p. 445.

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42 See Asahi shinbun, 4 September (p. 8) and 5 September (p. 8) 1981; and 24 January 1982, p. 9. 43 Asahi shinbun, 23 April 1981, p. 8. 44 Asahi shinbun, 7 November 1981, p. 9. 45 See, for example, Asahi shinbun, 29 January (p. 8) and 19 May (p. 8) 1982; and 8 March (p. 9) and 14 June (p. 9) 1983. Also see the formal Keidanren opinions on policy for basic materials industries and on proposals for revision of the AML. “Waga kuni keizai ni okeru so¯zai sangyo¯ no ju¯yo¯sei” (The Importance of Basic Materials Industries in Japan’s Economy), Keidanren shu¯ho¯, 16 December 1982, pp. 6–9; and “Dokkin-ho¯ mondai ni kansuru kenkai” (Opinion on the Antimonopoly Law Issue), Keidenren shu¯ho¯, 4 August 1983, pp. 2–10. 46 Nihon keizai shinbun, 30 December 1982, p. 5; and 28 January 1983, p. 2. On the content of these discussions, see Saito¯ Eizaburo¯ (ed.) Jiminto¯: dokkin-ho¯ kaisei (LDP: Revision of the Antimonopoly Law), Tokyo, Nihon Keizai Tsu¯shin-sha, 1984, pp. 173–80. 47 Asahi shinbun, 4 February 1983, p. 9. 48 See, for example, Asahi shinbun, 8 January 1983, p. 8. 49 Asahi shinbun, 20 January 1983, p. 9. Also, Saito¯ Eizaburo¯ (ed.) Jiminto¯, p. 177. 50 For a copy of this report, see Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, pp. 426–59. 51 Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, pp. 2–5. 52 Nihon keizai shinbun, 1 December 1982, p. 5. 53 Interview, senior MITI ofﬁcial, 25 September 1996. 54 Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, pp. 14–15. 55 See, for example, Asahi shinbun, 4 December (p. 9) and 9 December (p. 9) 1982. 56 The FTC chairman did not raise the issue of designated cartels as a major issue of FTC opposition toward the MITI bill. Asahi shinbun, 4 February 1983, p. 9. 57 Interview, senior MITI ofﬁcial, 25 September 1996. 58 See, for example, Asahi shinbun, 8 January 1983, p. 8. 59 Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, pp. 447–8. 60 For an explanation, see Tsunamoto Yukihiro, “Ko¯zo¯ kaizen-ho¯ to dokusen kinshi-ho¯ no cho¯sei ni tsuite” (On Adjustments between the Structural Improvement Law and the Antimonopoly Law), Ko¯sei torihiki, June 1983, pp. 24–5. 61 Tsunamoto Yukihiro, “Ko¯zo¯ kaizen-ho¯ to dokusen kinshi-ho¯ no cho¯sei ni tsuite,” pp. 24–5. Asahi shinbun, 3 February 1983 (evening edition), p. 2; and see the testimony of the FTC chairman Takahashi Gen in the Diet in Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, p. 48. 62 See, for example, Asahi shinbun, 10 February 1983; and Sekine Yoshiro, “Tokutei sangyo¯ no gappei nado jigyo¯ teikei ni kansuru shinsa kijun ni tsuite” (On Standards for Reviewing Business Tie-Ups such as Mergers by Designated Industries), Ko¯sei torihiki, June 1983, pp. 27–31. 63 See Asahi shinbun, 24 May 1983, p. 9; and Tatsuta Misao, “Fukyo¯ taisaku to kyo¯so¯ seisaku – so¯ron” (Recession Countermeasures and Competition Policy: A General Commentary), Keizai-ho¯ gakkai nenpo¯, 1983, vol. 26, pp. 17–18. 64 See, for example, Nihon keizai shinbun, 5 January (p. 2) and 4 February (p. 9) 1983. 65 “Ko¯sei torihiki iinkai ‘tatemae kancho¯’ no hangeki” (Fair Trade Commission: Counterattack by the “Agency of Principle”), Nikkei bizunesu, 1 November 1982, pp. 41, 43–4. 66 Nihon keizai shinbun, 4 February (p. 9) and 8 February (p. 9) 1983; and the comments by MITI Industrial Policy Bureau chief Konaga in Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, p. 26.

198 Notes 67 Nihon keizai shinbun, 20 June 1980, p. 3. 68 Interview, former senior FTC ofﬁcial, 20 September 1996. 69 Interview, senior MITI ofﬁcial, 25 September 1996. Also, Nihon keizai shinbun, 29 July 1983, p. 3. 70 All of the former and current ofﬁcials of MITI and the FTC I discussed this with speciﬁcally in interviews agreed that attitudes in MITI about competition and the suitable role for antimonopoly policy had changed substantially by the early 1980s. Furthermore, all believed that the increased cooperation between MITI and the FTC was attributable entirely to MITI moving closer to FTC opinions rather than the other way around. Interviews, 13 August, 23 August, 9 September, 20 September, 25 September, 1 October, 14 October, and 30 October 1996. 71 See Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, pp. 25, 34. 72 Nihon keizai shinbun, 3 February (p. 1) and 11 February (p. 9) 1983. Uriu similarly has found MITI’s policies in this regard to have been affected by considerations of foreign opinion. Uriu, Troubled Industries, pp. 133–4. 73 Nihon keizai shinbun, 4 February (p. 3) and 11 February (p. 9) 1983. Also, interview, former senior FTC ofﬁcial, 30 October 1996. 74 Interviews, senior MITI ofﬁcial, 25 September 1996; and former senior FTC ofﬁcial, 30 October 1996. 75 See Ko¯sei Torihiki Iinkai Jimu-kyoku Keizai-bu Cho¯sei-ka, “Sanko¯-ho¯ no unyo¯ jo¯kyo¯” (The Enforcement of the Industry Structure Law), Ko¯sei torihiki, November 1986, p. 35. 76 Nihon keizai shinbun, 1 March (p. 9), 28 May (p. 3), and 21 June (p. 5) 1983. Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisaku-kyoku (ed.) Sanko¯-ho¯, pp. 16–17. Interviews, senior MITI ofﬁcial, 25 September 1996; and former senior FTC ofﬁcial, 30 October 1996. 77 Interview, senior MITI ofﬁcial, 25 September 1996. Also, see Tilton, Restrained Trade, pp. 97–9. 78 Interview, senior MITI ofﬁcial, 25 September 1996. 79 For a complete explanation of the law, see Tsu¯sho¯ Sangyo¯sho¯ Sangyo¯ Seisakukyoku (ed.) Ko¯zo¯ tenkan enkatsuka-ho¯ no kaisetsu (Explanation of the Law for the Facilitation of Structural Transition), Tokyo, Tsu¯sho¯ Sangyo¯ Cho¯sakai, 1988, pp. 29–126. 80 Tilton, Restrained Trade, pp. 139–42. Also, see Nihon keizai shinbun, 12 December 1987, p. 5; and 22 January 1988 (evening edition), p. 1. 81 Sekiguchi too has argued that FTC policy was strongly affected by concerns over unemployment. Sueo Sekiguchi, “An Overview of Adjustment Assistance Policies in Japan,” in H. Tan and H. Shimada (eds) Troubled Industries in the United States and Japan, Basingstoke, UK, Macmillan, 1994. 82 F. Upham, Law and Social Change in Postwar Japan, Cambridge, Mass., Harvard University Press, 1987, p. 197. Chapter 7 Solidifying and expanding the policy base 1 Interview, former senior FTC ofﬁcial, 14 October 1996. 2 Jito¯sho Itsuo (ed.) Jigyo¯sha dantai katsudo¯ shishin (Guideline on Activities by Business Associations), Tokyo, Ko¯sei Torihiki Kyo¯kai, 1980, pp. 1–2. 3 Nihon keizai shinbun, 14 March 1979. 4 Asahi shinbun, 22 October 1975, p. 9. 5 Jito¯sho Itsuo (ed.) Jigyo¯sha, p. 3. 6 Nihon keizai shinbun, 14 March 1979, p. 1. 7 Nihon keizai shinbun, 2 May 1979, p. 8.

Notes 199 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

8 Asahi shinbun, 25 May 1979, p. 9. 9 Asahi shinbun, 2 May 1979, p. 8. 10 Keizai Dantai Rengo¯kai, “Jigyo¯sha dantai no katsudo¯ shishin (an) oyobi jizen so¯dan seido ni kansuru kenkai” (Opinion on the (Draft) Guideline on Trade Association Activities and the Prior Consultation System), report of 24 April 1979. 11 Interview, former senior FTC ofﬁcial, 9 September 1996. 12 Asahi shinbun, 26 August 1979, p. 1; and Nihon keizai shinbun, 19 July 1979, p. 3. 13 Jito¯sho Itsuo (ed.) Jigyo¯sha, p. 4. 14 Asahi shinbun, 26 August 1979, p. 1. 15 Jito¯sho Itsuo (ed.) Jigyo¯sha, pp. 43–4. 16 Asahi shinbun, 26 August 1979, p. 1. 17 Asahi shinbun, 28 August 1979, p. 3. 18 Nihon keizai shinbun, 28 August (p. 6) and 29 August (p. 7) 1979. 19 Asahi shinbun, 28 August 1979, p. 3. 20 Ryu¯tsu¯ Keizai Kenkyu¯sho, “Tokutei fukyo¯ sangyo¯ ko¯zo¯ kaizen cho¯sa kenkyu¯ ho¯kokusho” (Report on Survey Research for the Structural Improvement of Designated Depressed Industries), report of March 1983, p. 113. 21 Asahi shinbun, 18 February 1987, p. 9. 22 Interview, former senior FTC ofﬁcial, 14 October 1996. 23 On the decision, see, for example, Upham, Law and Social Change, pp. 184–8; and Sanekata Kenji, “Dokkin-ho¯ iho¯ to gyo¯sei shido¯ no genkai” (Antimonopoly Law Illegality and the Limits of Administrative Guidance), Jurisuto, 15 March 1981, pp. 63–70. 24 See, for example, Honma Shigeki, “Sekiyu¯ karuteru (kakaku kyo¯tei) saiko¯sai hanketsu no mondaiten” (Issues on the Supreme Court Decision on the Petroleum Cartel (Price Agreement)), Keizai-ho¯ gakkai nenpo¯, 1985, vol.28, pp. 19–37; Hatakeyama Takemichi, “Sekiyu¯ karuteru hanketsu to gyo¯sei shido¯” (The Petroleum Cartel Judgment and Administrative Guidance), Jurisuto, 15 May 1984, pp. 6–9; and Asahi shinbun, 24 February (evening edition) and 25 February (various articles) 1984. 25 For a copy of the text of the FTC opinion, see “Dokusen kinshi-ho¯ to gyo¯sei shido¯ to no kankei ni tsuite no kangaekata” (Opinion on the Relationship between the Antimonopoly Law and Administrative Guidance), Jurisuto, 1 June 1981, p. 37. 26 For a full text of the MITI Opinion, see Sangyo¯ Kenkyu¯sho, “Gyo¯sei shido¯ to dokusen kinshi-ho¯” (Administrative Guidance and the Antimonopoly Law), report of June 1981, pp. 78–83. 27 Asahi shinbun, 24 October 1980, p. 9. 28 Nihon keizai shinbun, 16 December 1980, p. 4. 29 See, for example, Asahi shinbun, 12 August 1976, p. 9; 25 December 1977, p. 9; 7 January 1978, p. 9; 21 March 1979, p. 8; and 11 April 1979, p. 8. 30 See, for example, a formal AML case against pharmaceutical makers where administrative guidance on prices from the Ministry of Health and Welfare was a factor. Asahi shinbun, 1 July 1983, p. 22; and interview, former senior FTC ofﬁcial, 23 August 1996. 31 See, for example, Upham, Law and Social Change, p. 188; the remarks by Prof. Uekusa Masu in Asahi shinbun, 25 February 1984, p. 9; and the editorial in Nihon keizai shinbun, 25 February 1984, p. 2. Also, interviews, former senior FTC and MITI ofﬁcials, 18 July, 13 August, 23 August, 9 September, and 13 November 1996.

200 Notes 32 Report by the Dokusen Kinshi Konwakai, “Ryu¯tsu¯ keiretsuka ni tsuite” (On Distribution Keiretsu), Ko¯sei torihiki, November 1973, pp. 28–32. 33 On these and other points, see, for example, Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Kanri kakaku: dokusen kinshi konwankai shiryo¯shu¯ – I (Administered Prices: Volume I of Collected Materials from the Antimonopoly Conference), Tokyo, – Okurasho¯ Insatsu-kyoku, 1970, pp. 73–4, 94; and Ko¯sei Torihiki Iinkai Jimukyoku (ed.) Dokusen kinshi seisaku no shuyo¯ kadai: dokusen kinshi konwankai shiryo¯shu¯ – VI (Important Issues in Antimonopoly Policy: Volume VI of Collected – Materials from the Antimonopoly Conference), Tokyo, Okurasho¯ Insatsu-kyoku, 1979, pp. 1–7. 34 There were only twelve formal cases taken up against distribution keiretsu practices between 1953 and 1972. See Aizawa Yukio (ed.) Ryu¯tsu¯ keiretsu taksaku no kaisetsu (An Explanation of Distribution Keiretsu Counter-policies), Tokyo, Sho¯ji Ho¯mu Kenkyu¯kai, 1980, pp. 88–9. 35 For a retrospective view, see Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Dokusen kinshi seisaku no shuyo¯ kadai, p. 13. 36 Tsu¯sho¯ Sangyo¯sho¯ Ju¯ko¯gyo¯-kyoku (ed.) Henbo¯suru kaden ryu¯tsu¯ kiko¯ (The Transformation in the Structure of Consumer Electronics Distribution), Tokyo: – Okurasho¯ Insatsu-kyoku, 1971, pp. 26–7. 37 One example of such complaints was consumers who, wishing to purchase an automobile from a dealer outside of their neighborhood, were refused a sale and referred to their local dealer to make a purchase. See Asahi shinbun, 22 November 1975, p. 9. 38 Asahi shinbun, 16 September 1976, p. 9. 39 Such practices included forcing products onto dealers, setting territorial restrictions on sales areas, limitations on the types of automobiles some dealers may handle, and progressive rebates. See Asahi shinbun, 25 October 1979, p. 9; and Nihon keizai shinbun, 23 April 1979, p. 3. 40 Nihon keizai shinbun, 11 August 1979, p. 8. 41 Interview, former senior FTC ofﬁcial, 14 October 1996. 42 Asahi shinbun, 12 January 1978, p. 9. 43 Asahi shinbun, 13 July 1978, p. 9. 44 Dokusen Kinshi-ho¯ Kenkyu¯kai, “Ryu¯tsu¯ keiretsu-ka ni kansuru dokusen kinshiho¯ jo¯ no toriatsukai” (The Treatment of Distribution Keiretsu under the Antimonopoly Law), report of 17 March 1980. 45 The chairman of the AML Research Group stressed that reaching a consensus on the ﬁnal content of the report was difﬁcult. Kanazawa Yoshio, “Ryu¯tsu¯ keiretsu-ka ni kansuru ho¯kokusho o teishutsushite” (On the Release of the Report concerning Distribution Keiretsu), Ko¯sei torihiki, April 1980, p. 5; and Imamura Shigekazu, “Fuko¯sei na torihiki ho¯ho¯ ni okeru ko¯sei kyo¯so¯ sho¯gaisei ni tsuite” (Concerning the Deﬁnition of “Impediments to Fair Competition” under Unfair Trading Methods Regulations), Ko¯sei torihiki, no.428 (June 1986), pp. 32–3. 46 These and other beneﬁts were mentioned in the report. Dokusen Kinshi-ho¯ Kenkyu¯kai, “Ryu¯tsu¯ keiretsu-ka.” 47 Nihon keizai shinbun, 27 March 1980 (evening edition), p. 2. 48 Nihon keizai shinbun, 18 March 1980, p. 4; and Asahi shinbun, 24 March 1980, p. 5. 49 Nihon keizai shinbun, 27 March 1980 (evening edition), p. 2. 50 Nihon keizai shinbun, 18 March 1980, p. 4. 51 Nihon keizai shinbun, 10 February 1981, p. 4. 52 Nihon keizai shinbun, 18 March 1980, p. 4. 53 See the transcript of Chairman Hashiguchi’s press conference. “Iincho¯ kisha kaiken” (The Chairman’s Press Conference), Ko¯sei torihiki, April 1980, pp. 61–3.

Notes 201 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

54 These reasons were conveyed by former senior FTC ofﬁcials. Interviews, 23 August, 9 September, 20 September, 1 October, and 14 October 1996. 55 The case was against Fuji Film for its relations with wholesalers in the sale of X-ray ﬁlm. Nihon keizai shinbun, 8 April 1981, p. 22. 56 Nihon keizai shinbun, 30 May (p. 22) and 21 December (p. 23) 1981; and 25 April 1982, p. 2. 57 On the case, see, for example, Asahi shinbun, 18 June 1982, pp. 1, 9, 23. On the revision of the Unfair Trading Methods General Designations, see, for example, Nihon keizai shinbun, 21 April (p. 5) and 22 April (p. 2) 1982; and Imamura Shigekazu, “Fuko¯sei na torihiki ho¯ho¯ (ippan shitei) kaisei no haikei” (The Background to Revision of Unfair Trading Methods General Designations), Ko¯sei torihiki, August 1982, pp. 27–33. 58 Nihon keizai shinbun, 17 April 1979, p. 4. 59 The ﬁrst formal case of this type was settled in 1979 with an association of architects. Asahi shinbun, 20 September 1979, p. 1. A formal policy of targeting professional service industries was announced in April 1979. Nihon keizai shinbun, 17 April 1979, p. 4. 60 Nihon keizai shinbun, 8 August 1981, p. 1; and Uematsu Isao, “Ishikai no katsudo¯ ni kansuru dokusen kinshi-ho¯ jo¯ no shishin ni tsuite” (On the AML Guideline relating to the Activities of Physician Associations), Jurisuto, 15 October 1981, pp. 20–3. 61 Nihon keizai shinbun, 27 December 1980, p. 22; and 25 June 1982, p. 22. On criticism of the FTC’s actions, see, for example, Nihon keizai shinbun, 13 October 1979, p. 1. 62 Tanso¯ Akinobu, “Seifu kisei sangyo¯ to kyo¯so¯ seisaku” (Government-Regulated Industries and Competition Policy), Keizai-ho¯ gakkai nenpo¯, 1981, vol. 24, pp. 2–6. 63 Katsuno Ryu¯hei, “Seifu kisei bunya oyobi dokusen kinshi-ho¯ tekiyo¯ jogai bunya no minaoshi ni tsuite” (Concerning the Revision of Government-Regulated Sectors and Sectors Exempted from the Antimonopoly Law), Ko¯sei torihiki, May 1980, pp. 54–60. 64 Nihon keizai shinbun, 18 August 1982, p. 4. 65 These manufacturing sectors included liquor distilling, petroleum, aircraft, food processing, and fertilizer. 66 Deﬁned here as the banking, securities, and insurance industries. 67 Kakimizu Junichi, “Kinyu¯gyo¯ ni kansuru dokusen kinshi-ho¯ no unyo¯ jo¯kyo¯ nado” (On the Situation of Antimonopoly Law Enforcement regarding the Finance Industry), Ko¯sei torihiki, March 1992, p. 32. 68 For an outline of these regulations, see Kiyokawa Yutaka, “Wagakuni no seifu kisei oyobi dokkin-ho¯ jogai seido no gaiyo¯ to mondaiten” (An Outline and Problem Points regarding Systems of Government Regulation and Antimonopoly Law Exemptions in Japan), Ko¯sei torihiki, November 1982, esp. p. 22. 69 Zenkoku Chiho¯ Ginko¯ Kyo¯kai, “Ginko¯ to dokusen kinshi-ho¯” (Banks and the Antimonopoly Law), report of May 1993, p. 2. 70 See, for example, Y. Suzuki, The Japanese Financial System, Oxford, Clarendon Press, 1987, esp. chapters 2 and 4; “Seifu kisei seido no kanwa” (Relaxation of Government Regulation Systems), Ko¯sei torihiki, September 1985, pp. 10–13; and Ro¯yama Sho¯ichi, “Ginko¯gyo¯ ni taisuru kisei no seikaku to datsu kisei no kano¯sei” (Policies Regulating the Banking Industry and the Possibility for Deregulation), in Ko¯sei Torihiki Iinkai (ed.) Gendai nihon no sangyo¯ soshiki to dokusen – kinshi seisaku, Tokyo, Okurasho¯ Insatsu-kyoku, 1987, pp. 85–124. 71 On the use of guidance to support acts that violated the AML, see, for example, Iwata Kikuo and Horiuchi Akiyoshi, “Kinri kisei kanwa no ko¯do¯ to sono igi”

202 Notes

72 73 74 75 76 77 78 79 80 81 82

83 84 85 86 87

88

89 90 91

92

(Trends and the Signiﬁcance of Interest Rate Deregulation), Ko¯sei torihiki, February 1984, pp. 19–24; Negishi Akira, “Kinyu¯ shoken shijo¯ no kisei to kyo¯so¯” (Regulation and Competition in Financial and Securities Markets), Keizai-ho¯ gakkai nenpo¯, 1993, vol.36, pp. 1–16; and Nihon keizai shinbun, 10 June 1979, p. 1. One issue the FTC did take up in the 1960s was that of compensating balances, where FTC threats to intervene led to a self-restraint understanding in the industry brokered by the MOF. Negishi Akira “Kinyu¯ shoken no kisei to kyo¯so¯,” pp. 3–4. Chairman Sato¯ Hajime (1959–63) also was a former MOF bureaucrat, although he held other various government posts after leaving the ministry early in his career. Interview, former senior FTC ofﬁcial, 23 August 1996. This was the view of all former FTC ofﬁcials with whom I discussed the issue. Interviews, former senior FTC ofﬁcials, 5 July, 23 August, 9 September, 1 October, and 13 November 1996. Kiyokawa Yutaka, “Wagakuni no seifu kisei oyobi doktin-ho¯ jogai seido no gaiyo¯ to mondaiten,” p. 23; and Nihon keizai shinbun, 16 August 1982, p. 3. Interview, former senior FTC ofﬁcial, 14 October 1996. Nihon keizai shinbun, 1 November 1982, p. 4; and 3 June 1990, p. 26. Interview, former FTC Study Group member, 20 August 1996. See, for example, Rosenbluth, Financial Politics, 1989. Interview, former senior FTC ofﬁcial, 14 October 1996. On the continuance of guidance practices and the replacement of regulation with guidance, see, for example, Tsuruta Toshimasa (ed.) Seifu kisei no kanwa to kyo¯so¯ seisaku (Government Deregulation and Competition Policy), Tokyo, Gyo¯sei, 1989, pp. 124–68. Tsuruta Toshimasa (ed.) Seifu kisei, pp. 133–4; and Nihon keizai shinbun, 18 April (pp.1, 3) and 21 April (p. 3) 1984. Higuchi Yoshishige, “Seifu kisei sangyo¯ to dokusen kinshi-ho¯” (GovernmentRegulated Industries and the Antimonopoly Law), Jurisuto, 1 March 1979, pp. 76–7. See, for example, Nihon keizai shinbun, 17 March 1984, p. 1. Asahi shinbun, 10 September 1982, p. 9. Interviews, former senior FTC ofﬁcials, 5 July, 23 August, 9 September, 1 October, and 13 November 1996. Also see Asahi shinbun, 25 September 1982, p. 9; and the comment by Matsushita Mitsuo in Nihon keizai shinbun, 13 January 1992, p. 5. On these, see, for example, Negishi Akira, “Kinyu¯ • shihon shijo¯ ni okeru dokusen kinshi-ho¯ no tekiyo¯ mondai” (The Problem of Application of the Antimonopoly Law to Financial and Capital Markets), Ko¯sei torihiki, March 1992, esp. pp. 28–30. Negishi Akira, “Do¯ro unso¯-ho¯ jo¯ no ninka unchinsei to dokusen kinshi-ho¯” (Rate Approval System under the Road Transport Law and the Antimonopoly Law), Ko¯sei torihiki, May 1992, pp. 4–7. Asahi shinbun, 21 December 1982, p. 20. Asahi shinbun, 12 March 1982, pp. 3, 23. The taxi operator also sued the MOT for its actions. See Yamauchi Kazuo, “Do¯itsu chiiki do¯itsu unchin no gensoku ni taisuru iho¯ o riyu¯ to suru takushi unchin no nesage shinsei no kyohi” (Refusal of an Application to Reduce Taxi Rates based on the Reason that It Constituted a Violation of the One Rate/One District Principle), Ko¯sei torihiki, April 1985, pp. 28–32. Nihon keizai shinbun, 7 May 1982, p. 23.

Notes 203 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

93 94 95 96 97 98 99

100 101

102 103 104 105 106 107 108 109

110 111 112 113 114

Nihon keizai shinbun, 13 February 1985 (evening edition), p. 1. Nihon keizai shinbun, 13 March 1981, p. 22; and 17 November 1982, p. 30. Interviews, former senior FTC ofﬁcials, 9 September and 30 October 1996. On this and other points, see Tsuji Yoshihiko, “Ninka unchin junshu karuteru to dokusen kinshi-ho¯” (Cartels to Adhere to Approved Rates and the Antimonopoly Law), Ko¯sei torihiki, May 1992, pp. 20–1. Nihon keizai shinbun, 22 August (evening edition) (p. 1) and 23 August (p. 31) 1986. Kiyokawa Yutaka “Wagakuni no seifu kisei oyobi dokkin-ho¯ jogai seido no gaiyo¯ to mondaiten,” p. 24. See, for example, Ogura Masao, “Torakku unso¯ ni okeru seifu kisei seido no jittai to mondaiten” (Actual Conditions and Problems with Government Regulatory Systems in the Truck Transport Industry), Ko¯sei torihiki, November 1982, p. 17. Interviews, former senior FTC ofﬁcials, 20 September and 14 October 1996. See, for example, “Ko¯sei torihiki iinkai vs. unyu¯-sho¯” (Fair Trade Commission vs. Ministry of Transport), Ko¯sei torihiki, December 1989, pp. 26–7. While it is difﬁcult to use arbitrary periods of time such as a decade as a unit to measure enforcement trends, there clearly existed a marked change in enforcement patterns from about 1982, the roots of which can be traced back to perhaps as early as 1977. Marked change is then apparent again from just about 1990. Thus, while somewhat arbitrary, it is generally valid to discuss enforcement in terms of the 1970s and 1980s. Asahi shinbun, 2 December 1987, p. 9. On this general point, see, for example, Kikuchi Motokazu, “Ima motomerareru ‘tsuyoi’ ko¯torii” (On the “Strong” FTC Being Demanded), Ekonomisuto, 23 January 1990, pp. 50–5. On this argument, see, for example, Wada Takeo, “Kacho¯kin seido ni tsuite” (On the Surcharge System), Keizai-ho¯ gakkai nenpo¯, 1987, vol. 30, pp. 91–2; and Iyori and Uesugi, Antimonopoly Laws and Policies of Japan, p. 215. See, for example, Iyori and Uesugi, Antimonopoly Laws and Policies of Japan, p. 215. This is because more ﬁrms are likely to collude during recessions to support prices, cut production, or both; collusion would be less likely during periods of economic expansion. On these customs, see J. Campbell, Contemporary Japanese Budget Politics, Berkeley, University of California Press, 1977, esp. chapters 2 and 10. This was also the opinion of several former FTC ofﬁcials whom I interviewed. Interviews, former senior FTC ofﬁcials, 23 August, 20 September, and 30 October 1996. On this movement, see, for example, Sato¯ Masao, “Keidanren no ‘kenkai’ ni igi ari” (I Disagree with Keidanren’s “Opinion”), Ekonomisuto, 13 September 1983, pp. 26–30; and Saito¯ Eizaburo¯ (ed.) Jiminto¯: dokkin-ho¯ kaisei (LDP: Revision of the Antimonopoly Law), Tokyo, Nihon Keizai Tsu¯shin-sha, 1984. Interviews, former senior FTC ofﬁcials, 1 October 1996 and 4 February 1997. Also, Nihon keizai shinbun, 6 August 1983, p. 1. On this movement, see, for example, Matsukata Kimindo, “Zaikai ni uzumaku kaisei fîba¯” (Revision Fever Swirling in the Business Community), Ekonomisuto, 24 February 1987, pp. 20–8. Interviews, former senior FTC ofﬁcials, 30 October 1996 and 4 February 1997. Interviews, former senior FTC ofﬁcials, 9 September, 20 September, 1 October, and 13 November 1996. Nihon keizai shinbun, 6 September 1982, p. 4.

204 Notes 115 Nihon keizai shinbun, 12 September 1982, p. 3. 116 Interviews, former senior FTC ofﬁcials, 1 October and 13 November 1996. Chapter 8 Gaiatsu as a source of policy change 1 See, for example, United States International Trade Commission, Foreign Industrial Targeting and Its Effects on US Industries – Phase I: Japan, Report to the Subcommittee on Trade, Committee on Ways and Means, US House of Representatives on Investigation no. 332–162 under Section 332(b) of the Tariff Act of 1930, October 1983. 2 See, for example, Ko¯sei Torihiki Iinkai, “Yunyu¯ kanren sho¯hin no ryu¯tsu¯ jitai cho¯sa gaiyo¯” (Outline of a Study into Conditions in the Distribution of Imported Products), Ko¯sei torihiki, May 1985, pp. 14–17; Nihon keizai shinbun, 20 April 1983, p. 1; and the results of several other studies in Ko¯sei Torihiki Iinkai Jimu-kyoku (ed.) Shijo¯ akusesu no kaizen to kyo¯so¯ seisaku: dokusen kinshi konwakai shiryo¯shu¯ – X (Market Access Improvement and Competition Policy: Volume X – of Collected Materials from the Antimonopoly Conference), Tokyo, Okurasho¯ Insatsu-kyoku, 1988, pp. 1–176. 3 Asahi shinbun, 30 April 1989, p. 9. 4 See the comment of a top American trade ofﬁcial. Asahi shinbun, 9 July 1989, p. 9. 5 L. Schoppa, Bargaining with Japan, New York, Columbia University Press, 1997, chapter 8. 6 Structural Impediments Initiative Final Report, 28 June 1990. 7 Nihon keizai shinbun, 28 October 1990, p. 19. 8 Interview, former senior FTC ofﬁcial, 9 September 1996. 9 Nihon keizai shinbun, 10 June 1990, p. 1. 10 Interview, former senior FTC ofﬁcial, 9 September 1996. 11 Nihon keizai shinbun, 11 January 1991, p. 5. 12 Interview, former senior FTC ofﬁcial, 3 February 1997. 13 In one of the cases, however, charges were also eventually ﬁled against individuals as well. Yomiuri shinbun (European edition), 7 March (p. 17) and 8 June (p. 27) 1995. In the earlier case, the Tokyo High Court did not mention that ﬁling charges only against corporations presented a problem. This suggested that the courts allowed this change in legal interpretation. 14 Nihon keizai shinbun, 13 February 1993, p. 31. 15 Asahi shinbun, 4 January 1990, p. 9; and Nihon keizai shinbun, 29 July 1990, p. 3. 16 The Nikkei Weekly, 17 January 1994, p. 3. 17 Asahi shinbun, 25 November 1989, p. 8. 18 Keizai Dantai Rengo¯kai, “Keidanren Charter for Good Corporate Behavior,” 24 September 1991; and Asahi shinbun, 21 April 1993, p. 11. 19 Interest and knowledge of the AML generally increased signiﬁcantly during the early 1990s. See, for example, Nihon keizai shinbun, 10 January (evening edition) (p. 5) and 9 November (evening edition) (p. 3) 1992. 20 Nihon keizai shinbun, 18 June 1990, p. 5. 21 Asahi shinbun, 16 March 1990, p. 9. 22 Kisugi Shin, “Dokkin-ho¯ no unyo¯ kyo¯ka” (Strengthening Enforcement of the Antimonopoly Law), Jurisuto, 15 October 1990, p. 29. 23 Structural Impediments Initiative Final Report, 28 June 1990. 24 Jiro Tamura, “Foreign Firms Access to Japanese Distribution Systems: Trends in Japanese Antitrust Enforcement,” in Haley and Iyori (eds) Antitrust, pp. 271–2.

Notes 205 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42

43

44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59

Nihon keizai shinbun, 11 July (p. 5) and 16 July (p. 3) 1990. Nihon keizai shinbun, 22 December 1990, p. 1. Asahi shinbun, 20 November 1990, p. 9. See, for example, Asahi shinbun, 23 December 1990, p. 5; and 7 January 1991, p. 2. Interviews, former senior FTC ofﬁcials, 1 October and 3 December 1996. Nihon keizai shinbun, 18 December 1990, p. 5. Nihon keizai shinbun, 9 November (p. 5), 27 November (p. 1), and 22 December (p. 1) 1990. Asahi shinbun, 25 November 1989, p. 8. Asahi shinbun, 29 March 1990, p. 9. On the formal Keidanren opinion, see Nihon keizai shinbun, 5 December 1990, p. 5. The decision to raise surcharges to 6 percent was termed “extremely harsh” by the chairman of the leading industry association. Asahi shinbun, 12 January 1991, p. 9. Nihon keizai shinbun, 29 December 1990, p. 5. The Ministry argued that punitive penalties should be handled under the justice system. Interview, former senior FTC ofﬁcial, 1 October 1996. See, for example, Nihon keizai shinbun, 22 December 1990, p. 10. Nihon keizai shinbun, 22 December 1990, p. 5. Asahi shinbun, 16 March 1990, p. 9. Nihon keizai shinbun, 22 December 1990, p. 5. Nihon keizai shinbun, 30 January 1991, p. 5. On the rationale of the need to construct these separate systems, see Dokusen Kinshi-ho¯ ni Kansuru Keijibatsu Kenkyu¯kai, “Dokusen kinshi-ho¯ ni kansuru keijibatsu kenkyu¯kai chu¯kan ho¯koku” (Interim Report of the Study Group on Criminal Fines related to the Antimonopoly Law), report of 17 May 1991. See, for example, Nihon keizai shinbun, 4 February 1991, p. 1. How to establish this dual system was a difﬁcult legal issue, as this was the ﬁrst major alteration in how corporate responsibility was dealt with under criminal law since 1932. Nihon keizai shinbun, 18 May 1991, p. 3. Nihon keizai shinbun, 27 November 1991, p. 11. Dokusen Kinshi-ho¯ ni Kansuru Keijibatsu Kenkyu¯kai, “Dokusen kinshi-ho¯.” Interview, former senior FTC ofﬁcial, 3 December 1996. Nihon keizai shinbun, 18 December (pp.7, 9) and 19 December (p. 2) 1991. Nihon keizai shinbun, 18 December (pp. 7, 9) and 19 December (p. 2) 1991. Chairman Umezawa also repeated in the Diet his desire for an increase in criminal penalties. Nihon keizai shinbun, 21 February 1993, p. 5. Nihon keizai shinbun, 3 March 1992, p. 5. Nihon kaizai shinbun, 3 March 1992, p. 5. Nihon kaizai shinbun, 3 March 1992, p. 5. Nihon keizai shinbun, 26 February (p. 7) and 3 March (p. 5) 1992. Nihon keizai shinbun, 1 March 1992, p. 3. See the comments by FTC chairman Umezawa. Nihon keizai shinbun, 25 September 1992, p. 5. Nihon keizai shinbun, 3 March 1992 (evening edition), p. 1. The Japan Times, 5 March 1992, p. 12. Nihon keizai shinbun, 3 March 1992 (evening edition), p. 1. The Japan Times, 5 March 1992, p. 12. Interview, former senior FTC ofﬁcial, 3 December 1996. Nihon keizai shinbun, 11 March 1992, p. 1. Interview, former senior FTC ofﬁcial, 3 December 1996.

206 Notes 60 Asahi shinbun, 12 March 1992 (evening edition), p. 1; and Nihon keizai shinbun, 13 March 1992, p. 5. 61 The Japan Times, 13 March 1992, p. 7; and The Nikkei Weekly, 14 March 1992, p. 4. 62 The Nikkei Weekly, 14 March 1992, p. 4. 63 Nihon keizai shinbun, 27 March 1992, p. 5. 64 See, for example, the opinion paper by the Japan Federation of Bar Associations (Nichibenren). Asahi shinbun, 18 April 1992, p. 3. Also see the comments of experts on the AML. The Japan Times, 13 March 1992, p. 7; and The Nikkei Weekly, 21 March 1992, p. 1. 65 Nihon keizai shinbun, 15 April 1992, p. 5; and The Wall Street Journal, 29 April 1992, p. A14. 66 Asahi shinbun, 24 March 1990, p. 8. 67 Structural Impediments Initiative Final Report, 28 June 1990. 68 Asahi shinbun, 2 July 1988, p. 8; and Nihon keizai shinbun, 17 June 1988 (evening edition), p. 1. 69 Nihon keizai shinbun, 25 September 1988, p. 3; and Asahi shinbun, 2 December 1988, p. 9. 70 Asahi shinbun, 5 October 1986, p. 9. Some makers, however, later expressed the opinion that the ending of the cartels had been beneﬁcial. Asahi shinbun, 15 November 1988, p. 5. 71 Nihon keizai shinbun, 17 December 1987, p. 5. 72 On the FTC decision, see Nihon keizai shinbun, 7 September 1989, p. 11. 73 Asahi shinbun, 22 February 1990, p. 9. 74 Nihon keizai shinbun, 22 August 1990, p. 1. 75 See, for example, Nihon keizai shinbun, 5 December 1990, p. 5. 76 Nihon keizai shinbun, 3 July 1992, p. 5; and Yomiuri shinbun (European edition), 7 December 1993, p. 8. 77 Nihon keizai shinbun, 2 July 1992, p. 5. 78 Nihon keizai shinbun, 11 June (p. 1) and 30 July (p. 1) 1991. 79 Nihon keizai shinbun, 18 April 1992, p. 7. 80 Nihon keizai shinbun, 14 May (p. 5) and 1 July (p. 5) 1992. 81 Nihon keizai shinbun, 1 July 1992, p. 5. The law was related to the coal industry. 82 See, for example, the report by the Industrial Structure Council. The Nikkei Weekly, 20 June 1994, p. 3. 83 Yomiuri shinbun (European edition), 28 October 1993, pp. 1, 9; and Nihon keizai shinbun, 16 December 1993 (evening edition), pp. 1–2. 84 The Nikkei Weekly, 14 February 1994, p. 4; and Nihon keizai shinbun, 28 June (evening edition) (pp.1, 4) and 20 July (p. 5) 1994. 85 Nihon keizai shinbun (European edition), 2 November 1993, pp. 1,7. 86 Nihon keizai shinbun, 1 May 1994, p. 1. 87 Nihon keizai shinbun, 18 October 1994, p. 5. 88 The Nikkei Weekly, 15 August 1994, p. 3; and Yomiuri shinbun (European edition), 12 August 1994, p. 7. 89 The Nikkei Weekly, 16 January 1995, p. 1. 90 Yomiuri shinbun (European edition), 29 March 1995, p. 12. 91 See the FTC recommendations in Yomiuri shinbun (European edition), 25 February 1995, p. 6. 92 Asahi shinbun, 8 December 1995, pp. 1–2, 7, 11. 93 Nihon keizai shinbun, 1 July 1995, p. 3. 94 On the preparation of this guideline, see Nihon keizai shinbun, 3 February 1992, p. 1; and The Nikkei Weekly, 1 August 1994, p. 2. 95 Yomiuri shinbun (European edition), 29 March 1995, p. 12.

Notes 207 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

96 See, for example, the cases of FTC cautions against the Ministry of Finance and banks on ﬁxing underwriting fees for corporate bonds, Nihon keizai shinbun, 18 December 1991, p. 7, and 18 May 1992, p. 5; cautions against the Ministry of Finance and banks on the setting of prime interest rates, Nihon keizai shinbun, 4 May 1992, p. 1; and warnings to the Ministry of Transport, airline companies, and travel agencies for meeting to prevent prices falling below minimum levels, The Nikkei Weekly, 1 August 1994, p. 2. 97 Interview, former senior FTC ofﬁcial, 7 November 1996. 98 Asahi shinbun, 24 March 1990, p. 8. Schoppa found that US government demands in this area were actually prompted by the requests of FTC ofﬁcials to the American ofﬁcials. Schoppa, Bargaining with Japan, p. 240. 99 Nihon keizai shinbun, 6 July 1991, p. 1. 100 Nihon keizai shinbun, 6 December 1991, p. 1. 101 Nihon keizai shinbun, 30 July 1991, p. 11; and 3 February 1992, p. 11. This represented 7.9 percent of all retailers in Japan. The Nikkei Weekly, 14 December 1991, p. 1. 102 Nikkei ryu¯tsu¯ shinbun, 23 April 1992, p. 1; Nihon keizai shinbun, 3 July 1992, p. 5; and interview, former senior FTC ofﬁcial, 3 December 1996. 103 Nihon keizai shinbun, 12 April (p. 3) and 15 April (evening edition) (p. 1) 1992. 104 The Japan Times, 20 June 1992, p. 7. 105 These groups were the Economic Reform Research Council and the Task Force Committee on Deregulation. Yomiuri shinbun (European edition), 28 October 1993, pp. 1, 9; and Nihon keizai shinbun, 28 June 1994 (evening edition), pp. 1, 4. 106 Yomiuri shinbun (European edition), 10 March (p. 7) and 29 March (pp.1, 12) 1995. 107 Yomiuri shinbun (European edition), 1 August (p. 2), 2 September (p. 26), and 27 October (p. 2) 1995. 108 Asahi shinbun, 8 December 1995, pp. 1–2, 7, 11. 109 Asahi shinbun, 19 July 1989, p. 9. 110 Nihon keizai shinbun, 23 June 1990, pp. 3, 6. 111 Nihon keizai shinbun, 18 January 1991, p. 7. 112 Asahi shinbun, 5 January (p. 5) and 14 March (p. 9) 1990. 113 See, for example, the concerns of basic material industries to the draft. Nihon keizai shinbun, 8 May 1991, p. 28. 114 Nihon keizai shinbun, 13 March 1991, p. 5. 115 Interview, former senior FTC ofﬁcial, 3 December 1996. 116 Nihon keizai shinbun, 15 May 1991, p. 5. 117 One signiﬁcant change was made at the insistence of the US government, however. Yomiuri shinbun, 12 July 1991, pp. 6–7. On industry reaction, see Nihon keizai shinbun, 25 July 1991, p. 5. 118 Nihon keizai shinbun, 25 August (p. 7), 20 September (p. 7), and 24 October (p. 1) 1991. 119 Nihon keizai shinbun, 3 February 1992, p. 11; and Yomiuri shinbun (European edition), 6 November 1993, p. 7, and 22 July 1994, p. 7. 120 See, for example, the case of Matsushita Electric in Nihon keizai shinbun, 11 March 1992, p. 11. 121 See, for example, the cases of the ﬁxing of prices of consumer electronics, Nihon keizai shinbun, 26 March (p. 1) and 26 June (evening edition) (p. 2) 1992; and the case of a company trying to ﬁx prices on its vitamin drink, The Nikkei Weekly, 18 July 1992, p. 8. 122 Yomiuri shinbun (European edition), 14 June 1995, p. 1. 123 See, for example, the study on the glass industry, which found that only twelve of 399 wholesalers in Japan carried the products of more than one company.

208 Notes The Nikkei Weekly, 5 July 1993, p. 2. Also see the FTC’s report on the state of competition in highly oligopolized industries in Nikkan ko¯gyo¯ shinbun, 28 August 1992, p. 2. 124 Nihon keizai shinbun, 29 July 1992 (evening edition), p. 1. 125 This observation was supported in interviews with senior FTC ofﬁcials, 13 November and 3 December 1996. Chapter 9 The response to collusion in the construction industry 1 Higuchi Yoshishige, “Nyu¯satsu dango¯ to dokusen kinshi-ho¯” (Bid Rigging and the Antimonopoly Law), Jurisuto, 15 February 1982, pp. 40–53. 2 See, for example, Uematsu Isao, “Ko¯kyo¯ ko¯ji ni kakawaru kensetsugyo¯ ni okeru jigyo¯sha dantai no shokatsudo¯ ni kansuru dokusen kinshi-ho¯ jo¯ no shishin ni tsuite (jo¯)” (On the Antimonopoly Law Guideline relating to the Activities of Construction Industry Trade Associations regarding Public Works (Part I), Ko¯sei torihiki, April 1984, pp. 46–7. 3 See, for example, Uchiyama Sho¯zo¯, “Ko¯kyo¯ ko¯ji to nyu¯satsu seido no mondaiten” (Problems with Public Works Construction and the Bidding System), Jurisuto, 15 February 1982, p. 15; and “Dango¯ mondai’ no honshitsu o saguru” (Searching for the True Nature of the “Dango¯ Problem”), Gekkan seisaku (April 1982), pp. 59–60. 4 See, for example, Uchiyama Sho¯zo¯, “Ko¯kyo¯ ko¯ji to nyu¯satsu seido no mondaiten,” pp. 19–22; Kishi Seiji, “Dokkin-ho¯ to dango¯-zai” (Antimonopoly Law and Bid-Rigging Crime), Jurisuto, 15 March 1976, pp. 113–16; and Abe Junji, “Kensetsu dango¯ to keiho¯” (Construction Bid Rigging and the Criminal Code), Ko¯sei torihiki, June 1990, pp. 30–2. 5 Uchiyama Sho¯zo¯, “Ko¯kyo¯ ko¯ji to nyu¯satsu seido no mondaiten,” p. 20. Also see the comments of an industry spokesman in Asahi Shimbun, 14 December 1981 (evening edition), p. 3. 6 See, for example, Uchiyama Sho¯zo¯, “Ko¯kyo¯ ko¯ji to nyu¯satsu seido no mondaiten,” p. 17–18. 7 Uchiyama Sho¯zo¯, “Ko¯kyo¯ ko¯ji to nyu¯satsu seido no mondaiten,” pp. 16, 21; and “Dango¯ mondai’ no honshitsu o saguru”, p. 62. The ﬁgures come from a study in 1981 by the Administrative Management Agency. 8 See, for example, Uchiyama Sho¯zo¯, “Ko¯kyo¯ ko¯ji to nyu¯satsu seido no mondaiten,” pp. 18–19. 9 The number of former construction ministry ofﬁcials landing postretirement jobs in the construction industry reached 880 between 1976 and 1982 alone, according to ministry ﬁgures. Nihon keizai shinbun, 24 February 1982 (evening edition), p. 2. On the allegations of the corruption this produced, see, for example, Asahi shinbun, 22 February (p. 1) and 23 February (p. 5) 1982. 10 A survey by the government’s Board of Audit in 1982 found that the vast majority of successful bids were within 0.5 percent under the price predicted by the tendering agency, making clear that companies were leaked these estimates on which to base their bid rigging. Asahi shinbun, 1 May 1982, p. 22. 11 For a more general discussion of the institutional nature of bid rigging, see B. Woodall, Japan under Construction, Berkeley, University of California Press, 1996, esp. chapter 1. 12 See, for example, Woodall, Japan under Construction, chapter 4. 13 Asahi shinbun, 20 December 1981, p. 5. 14 Figures are from “Dango¯ mondai’ no honshitsu o saguru”, p. 65. Other estimates suggested that these numbers were conservative.

Notes 209 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

15 Uematsu Isao in Ko¯sei Torihiki, April 1984, p. 47. 16 See, for example, the case of the mayor of Sendai (Japan Socialist Party) who was accused of inﬂuence peddling in exchange for donations from construction ﬁrms. Asahi shinbun, 4 April 1982, p. 1. 17 Nihon keizai shinbun, 29 September 1981, p. 2. 18 All the former FTC ofﬁcials I interviewed denied ﬂatly that Shizuoka was targeted speciﬁcally for this reason, and instead stated that the case was chosen on the basis of strong information passed to the FTC. Interviews, former senior FTC ofﬁcials, 23 August, 20 September, and 14 October 1996. 19 Nihon keizai shinbun, 16 October 1981 (evening edition), p. 1; and Asahi shinbun, 16 October 1981 (evening edition), p. 14. 20 Asahi shinbun, 10 November 1981, p. 5. 21 Asahi shinbun, 8 November (p. 1), 10 November (p. 22), and 13 November (p. 22) 1981. 22 This was the so-called “administrative reform” movement of the day. 23 According to Asahi shinbun, as cited in “ ‘Dango¯ mondai’ no honshitsu o saguru”, p. 63. 24 Yomiuri shinbun, 30 December 1981, p. 1. 25 See, for example, the comments of Ishikawa Rokuro¯, president of Kajima Corporation and industry leader. Nihon keizai shinbun, 5 February 1982, p. 4. 26 The survey found that the rates for large and small ﬁrms were 3.1 and 2 percent respectively. As reported in “Dango¯ mondai’ no honshitsu o saguru”, p. 64. 27 Nihon keizai shinbun, 10 August 1982, p. 7; and 23 March 1983, p. 9. 28 Nihon keizai shinbun, 3 November 1980, p. 3; and 18 July 1981, p. 3. 29 See, for example, “Dango¯ mondai’ no honshitsu o saguru”, p. 59. 30 Asahi shinbun, 12 November (p. 1) and 20 November (evening edition) (p. 1) 1981. Many members of the MOC’s Council were construction industry leaders and former MOC ofﬁcials. 31 “Dango¯ mondai’ no honshitsu o saguru”, p. 61; and Asahi shinbun, 14 November 1981, p. 3. 32 Nihon keizai shinbun, 2 December 1981, p. 8. 33 Asahi shinbun, 15 October 1981, p. 1; and Nihon keizai shinbun, 22 October 1981, p. 7. 34 This position, for example, was taken by the Japan Federation of Construction Industry Associations. Asahi shinbun, 23 April 1982, p. 5. 35 But not all opposition parties advocated the elimination of the designated bidding system in favor of a limited competitive bidding system. See Uematsu Isao, “Ko¯kyo¯ ko¯ji ni kakawaru kensetsugyo¯ no okeru jigyo¯sha dantai no shokatsudo¯ ni kansuru dokusen kinshi-ho¯ no shishin ni tsuite (chu¯)” (On the Antimonopoly Law Guideline relating to the Activities of Construction Industry Trade Associations regarding Public Works (Part II)), Ko¯sei torihiki, May 1984, p. 32. 36 Nihon keizai shinbun, 10 March (p. 5) and 17 March (p. 5) 1983. The MOC originally decided to mandate this change for every government contract, but moderated this stance after strong protests from government agencies by making this merely optional for them. 37 Asahi shinbun, 30 April 1982, p. 1. 38 Asahi shinbun, 30 April 1982, p. 1. 39 Asahi shinbun, 7 August 1982, p. 1; and 5 January 1983, p. 3. 40 Nihon keizai shinbun, 7 August 1982, p. 1. 41 It was speculated that wide media attention in effect forced the FTC to take formal action in the Shizuoka case rather than end the investigation with a

210 Notes

42

43 44 45 46 47

48 49 50 51 52

53

54 55 56 57 58 59 60 61 62 63 64 65 66

warning. Uchiyama Sho¯zo¯, “Ko¯kyo¯ ko¯ji to nyu¯satsu seido no mondaiten,” p. 18. See, for example, Asahi shinbun, 7 August 1982, p. 20; Suzuki Mitsuru, “Nyu¯satsu dango¯ karuteru to kacho¯kin” (Bid Rigging Cartels and Surcharges), Jurisuto, 15 February 1982, p. 54; and see the comments of Kikuchi Heigo in Nakamura Kazuo (ed.) Shizuoka-ken jo¯ no kensetsugyo¯ dokkin-ho¯ jiken no kaiso¯ (Retrospection on the Antimonopoly Law Incident Involving the Construction Industry in Shizuoka Prefecture), Shizuoka, Kentsu¯ Shinbun-sha, 1983. Most members were inﬂuential leaders in the LDP’s construction zoku. Asahi shinbun, 7 August 1982, p. 20; and 28 January 1983, p. 1. Asahi shinbun, 23 August 1982, p. 5; and Uematsu Isao, “Ko¯kyo¯ ko¯ji ni kakawaru kensetsugyo¯ no okeru jigyo¯sha dantai no shokatsudo¯ ni kansuru dokusen kinshiho¯ no shishin ni tsuite (chu¯),” May 1984, p. 31. Asahi shinbun, 28 January 1983, p. 1. On the discussions, see Saito¯ Eizaburo¯ (ed.) Jiminto¯, esp. pp. 173–213. Nihon keizai shinbun, 27 August 1983, p. 1. The Japan Small and Medium Enterprise Construction Industry Association representing SME contractors, however, argued that AML exemptions should apply to the SME sector alone. “Dango¯ mondai’ no honshitsu o saguru”, p. 60. One industry representative commented that the industry felt paralyzed without a clariﬁcation by the FTC, where “one cannot even drink tea with an industry colleague” for fear of violating the AML. Asahi shinbun, 24 April 1983, p. 9. Asahi shinbun, 18 February 1983, p. 1. Nihon keizai shinbun, 26 August 1983, p. 5. Asahi shinbun, 24 April 1983, p. 8; and 21 February 1984, p. 1. The ﬁnal draft offered signiﬁcant concessions to industry over such activities as information exchanges compared to a previous draft. See Nihon keizai shinbun, 23 December 1983, p. 1; and Asahi shinbun and Nihon keizai shinbun, 21 February 1984, p. 1. See, for example, the arguments by Uematsu Isao, “Kensetsugyo¯ no shido¯ ni kansuru dokusen kinshi-ho¯ jo¯ no shishin ni tsuite (On the Guideline under the Antimonopoly Law relating to Guidance of the Construction Industry), Jurisuto, 15 May 1984, pp. 31–4. Asahi shinbun, 22 February 1984, p. 9. Interviews, former senior FTC ofﬁcials, 20 September and 30 October 1996. Nihon keizai shinbun, 30 March 1988 (evening edition), p. 1. Nihon keizai shinbun, 18 November 1987 (evening edition), p. 1; and 14 January 1988, p. 3. On the case, see Asahi shinbun, 22 May 1988, pp. 1, 31. See, for example, Nihon keizai shinbun, 21 November 1989, p. 11. The US government later demanded damage awards of ¥20 billion from the involved companies. See Asahi shinbun, 5 October 1989 (evening edition), p. 19. Asahi shinbun, 9 December 1988, p. 1. Asahi shinbun, 10 December 1988, p. 31. Asahi shinbun, 26 December 1988, p. 1. The case involved a project that earlier had been the subject of intense US–Japan conﬂict over the construction market. Asahi shinbun, 7 September 1989, p. 1. Structural Impediments Initiative Final Report, 28 June 1990. See, for example, Nihon keizai shinbun, 17 July 1990, p. 34; and 26 January 1991, p. 35. Nihon keizai shinbun, 31 May 1991 (evening edition), p. 19.

Notes 211 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

67 Nihon keizai shinbun, 27 November 1991, p. 11. 68 Asahi shinbun, 31 January 1992, p. 1. The discussions actually began in September 1992. 69 One of the technical reasons cited was that the rules for the bid-rigging group were established in 1972, long before the current individuals involved in the case were in the group. Another reason cited was the large number of people involved and the near impossibility of clarifying responsibility for each of them. 70 Nihon keizai shinbun, 16 May 1992, p. 35. Also see “Naze ko¯torii wa koshikudaki ni natta ka” (Why Has the FTC Become Weak-Kneed?), Shu¯kan to¯yo¯ keizai, 23 May 1992, pp. 40–1. 71 Nihon keizai shinbun, 24 June (p. 1), 21 July (p. 11), and 22 September (p. 34) 1992. 72 See, for example, “Dokkin-ho¯ kyo¯ka, kokunai jo¯sei kara mo saitama no kensetsu dango¯ de ‘hairyo’ nai” (With Strengthening the Antimonopoly Law, No “Special Consideration” for Saitama Construction Dango¯ in Light of Domestic Conditions), Nikkei Business, 15 June 1992, pp. 73–4; and Nihon keizai shinbun, 16 May (p. 35) and 3 July (p. 11) 1992. 73 The Kajima ofﬁcial accused of giving the donations, Kiyoyama Shinji, was also charged by prosecutors. 74 On that case, see Asahi shinbun, 7 March 1993, p. 1. 75 Yomiuri shinbun (European edition), 6 July 1994, pp. 9, 26. 76 Yomiuri shinbun (European edition), 6 July 1994, p. 1; and 17 October 1995, pp. 9, 26. 77 Yomiuri shinbun (European edition), 2 April 1994, p. 27. 78 The fact that major construction companies were preparing an opinion paper to defend the dango¯ practice for release upon the issuance of a criminal accusation testiﬁes to their belief that such an accusation was possible. Yomiuri shinbun (European edition), 14 March 1994, p. 27. 79 See, for example, Nihon keizai shinbun, 3 July 1992, p. 11. 80 Yomiuri shinbun (European edition), 19 January 1994, p. 11. 81 On the questions relating to the effectiveness of the change, see, for example, Yomiuri shinbun (European edition), 20 April 1994, p. 12. 82 Nihon keizai shinbun, 24 November 1993, p. 3. However, the effectiveness of this measure is in doubt given that the government agencies were often involved in the collusion in the ﬁrst place. 83 Yomiuri shinbun (European edition), 5 October 1993, p. 7. 84 Enforcement against companies engaged in bid rigging other than those in construction was also very active during this period, leading to two criminal accusations and numerous other formal actions. 85 Nihon keizai shinbun, 5 March 1994, pp. 1, 4. The 1984 version only stated what was allowed. 86 The Daily Yomiuri, 22 April 1994, p. 16; and Yomiuri shinbun (European edition), 23 April 1994, p. 13. 87 Yomiuri shinbun (European edition), 6 July (p. 7) and 7 July (p. 13) 1994. 88 See, for example, Yomiuri shinbun, 23 April, 1994, p. 13. Also see the comments by a former FTC commissioner who suggests that LDP intervention was an important problem. The Nikkei Weekly, 25 October 1993, p. 3. 89 Alternative means of dealing with bid rigging were available to local governments and government ministries (especially to the MOC), but no agency showed any real intention to apply sanctions.

212 Notes Chapter 10 Conclusion: Japanese antimonopoly politics 1 Wilson, “Politics of Regulation.” 2 Wilson, “Politics of Regulation,” p. 361. 3 M. Tilton, “Regulatory Reform, Market Opening, and Japan’s Security,” paper presented to the Contemporary Japan Group and the Contemporary Economics Research Group, University of Tokyo, 28 February 1997, p. 7. 4 U. Schaede, Cooperative Captialism, Oxford, Oxford University Press, 2000. 5 Uriu, Troubled Industries, p. 259. 6 J. Haley, “Weak Law, Strong Competition, and Trade Barriers: Competitiveness as a Disincentive to Foreign Entry into Japanese Markets,” in K. Yamamura (ed.) Japan’s Economic Structure: Should It Change?, Seattle, Society for Japanese Studies, 1990, pp. 203–35; and Haley, “Competition and Trade Policy,” pp. 303–25.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Index

The following abbreviations have been used in this index: AML Antimonopoly Law; FTC Fair Trade Commission; LDP Liberal Democratic Party; MITI Ministry of International Trade and Industry administered prices 70, 73, 172, 175, 181 administrative guidance 174; AML enforcement guidelines 114, 116–18, 124, 125, 135; during oil crisis 45–6 administrative guidance cartels 17–19, 20, 21, 23, 25, 49–50, 57, 62, 68, 97–8, 112 Administrative Management Agency 122 administrative surcharges 11, 73, 82, 84, 90, 91, 94, 128, 175; big business and 80; in construction industry 163, 166, 167; raising 74, 141–3 agriculture 20, 22, 24 airline industry 126, 149 Amaya Naohiro 81 anti-business environment 67 Antimonopoly Conference 39, 70, 75, 76, 114, 119, 165 Antimonopoly Law (AML) 3, 15–16, 24, 38, 104; attempts to skirt 24–5; early revisions 11, 16, 17, 20, 24, 28, 43; exemptions 146–53, 156 (see also legal cartels); revisions, 1970s 69–83, 89–91, 175 (failure of ﬁrst attempt 83–6; failure of second attempt 86–8); revision 1990s 141–6, 175; violation cases 22; see also enforcement Antimonopoly Law Issue Discussion Group 72, 77, 86 Antimonopoly Law Research Group 110–20 Antimonopoly Law Study Group 71, 75 antimonopoly policy 8–9, 25, 107; affect on depressed industry policy 97–109, conﬂict with industrial policy 13, 17–19, 22–3, 25, 43–6; expansion into nonmanufacturing and regulatedindustries 121–7, 135; foreign pressure on 137–41, 143–5, 147, 151, 153, 155–6, 165–6 Antimonopoly Policy Discussion Group 78

antitrust laws (USA) 15 antitrust policy see antimonopoly policy Aoki Kazuo 83 appeals 27, 90, 95 Ariga Michiko 19 automobile industry 154 Aviation Law 126, 149 Bank of Japan 34, 123, 124, 125 bidding 143, 163; coordination of bids 164 bid-rigging practices (dango¯ ) 143, 158, 163, 164; and AML enforcement guidelines 114, 164–5, 169–70; political and institutional factors supporting 158–61, 169; Saitama prefecture case 167–9; Shizuoka prefecture case 161–5; Yokosuka naval base case 166 big business 5, 46; donations to political parties 92, 160; opposition to revision of AML 79–80, 91, 142–6; public distrust of 67, 172, stockholding restrictions 73, 74, 84, 90, 94 Bisson, T.A. 15 boycotts 124, 176 bureaucracy/bureaucrats 3–4, 5, 7, 9, 18, 19, 25, 151; and AML revision 80–2; opposition to FTC 172, 174 business interests 3, 4, 5, 7, 18, 19–20, 68, 177; and antimonopoly policy 103; opposition to FTC 172, 175; see also big business; small and medium sized enterprises Cabinet Legislation Bureau 146 Calder, K. 4 cartel prices 70, 71, 78, 80, 93; proposals to reduce 73, 74, 75

214 Index cartels 40; enforcement against see enforcement; in petroleum industry 48–9; postwar government policy toward 17–25; prewar government policy toward 14–15; see also administrative guidance cartels; legal cartels; rationalization cartels; recession cartels; small and medium-sized enterprise cartels cease and desist measures 74, 84, 90, 95, 167 Central Committee of National Small and Medium Enterprise Associations 79, 115 certiﬁcate of deposit 125 chemical industry 25 Civil Engineering Contractors’ Association 163, 165 civil servants: career system in FTC 29–31; involvement in bid rigging 160 coalition governments 155; and bid rigging 169; and deregulation 149, 150; and resale price maintenance 152 collective action theory 6 commercial sector cartels 55, 56 commission system, of antimonopoly policy 28 Committee for the Friends of Cartels 19–20 companies, reports required from 79, 81, 84, 90 competition 15, 108, 122; substantial restraints 119, 158, 162; support for 156, 157 competition policy see antimonopoly policy compromise 156, 174, 175 conservative party 16, 18, 24 construction industry 114, 132, 165; criminal ﬁnes 145; enforcement in 158–71; opposition to surcharge increases 142–3 consultation 173 consumer electronics and appliances industry 121; distribution system 119 consumer groups 175; position on AML revision 77–8, 90; and resale price maintenance 54 consumer protection 22 consumers, proposed powers to issue criminal accusations 71, 78 cooperation, within FTC 30 cooperative ventures 106, 108 corruption, in construction industry 160–1, 162, 170, 171 cosmetics industry 120, 121, 154; resale price maintenance 53, 152, 153 cost price disclosure 73, 74, 75, 78, 80, 93 cost/beneﬁt approach to regulation 6, 8–9, 175–6

criminal accusations 27–8, 47–9, 67, 68, 140, 144; consumers’ powers 71, 78 Criminal Code, used against bid rigging 159 Criminal Fines Study Group 144 criminal penalties and ﬁnes 11, 49, 175; for bid rigging 166, 167, 169; proposals to increase 73, 74, 80, 84, 90, 91, 95, 144–6; strengthening 141–6; weakness of 70, 141 criterion prices 43 dango¯ see bid-rigging practices Democratic Socialist Party, and AML revision 71–2, 86 depressed industries policy 96–109 Depressed Industries Stabilization Law 97–102, 103, 175 Depression 14 deregulation 148–51 Deregulation Investigation Committee 152 designated bidding system 160, 163 designated cartels, under Depressed Industries Bills 100, 101, 105, 106, 108 Designated Industries Promotion Law 22, 23 ‘designated wholesale system’ 42 developmental state theory 3 distribution system 138, 139; failure to enact enforcement 118–21, 135; guidelines 153–5; restraints 176 divestiture orders 71, 73, 74–5, 83–4, 85, 87, 89, 91, 175 Doern, G.B. 7 Doko¯ Toshio 72, 89, 99 economic concentration 14 Economic Planning Agency 20, 42–3, 44, 75; Price Issues Conference 70 Economic Reform Research Council 149 economists, on AML revision 78 Eisner, M. 7 emergency stabilization laws 71 enforcement 3, 11, 27–8, 46–7, 172, 176; 1970s–80s 113–36; administrative approach 28–9; against petroleum industry 47–51; cycles of 170–1; general 139–41; political pressure to relax 130–1; retreat from active 16–21; strengthening 139–46; see also enforcement guidelines; formal enforcement; informal enforcement enforcement guidelines 113–14, 135, 173; administrative guidance 116–18; on bid rigging 164–5, 169–70; in distribution 118–21; on trade association activities 114–16 excess facilities, disposal of 97, 98, 99, 102 exports, from Japan 138, 147 extensions on cartels 56, 63, 64

Index 215 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

Extraordinary Commission to Promote Administrative Reform 152 Fair Trade Commission (FTC) 3, 8, 9, 15, 16, 17, 20–1, 33, 67–8, 87–8, 156–7; budget 131–2, 133; career staff 29–31, 38; chairmen and commissioners 32, 34–5, 36–7, 124, 134, 177; and depressed industries 98, 100–2, 105–7, 109, 112; and deregulation 150–1; independence of 9, 26–7, 67–8, 80, 135, 156, 173, 174; institutional change 35, 38–9; institutional ethos 29–31, 32; legal structures and powers 26–9, 101, 108; links with other agencies 31–2; numbers of investigators 128, 139; personnel structure 29–31, 32, 38, 124; political intervention 24, 25, 62–3, 67, 131–2, 168–9, 173; public support for 131, 173 and revisions of AML 69–71, 80, 86–7, 91, 92 (framework bill 72–5, 77); strengthening 139–41; Study Group on Government Regulations and Competition 148; threats against 171, 174 Federation of Economic Organizations 16 fertilizer products 147 ﬁnance industry, enforcement of AML 123–5, 135 ﬁnancial institutions, stockholding restrictions 73, 74, 84, 90, 94 First, H. 11 Five-Year Deregulation Plan 151 formal enforcement 130, 134, 140–1, 173, 176; decline in 127–8, 130, 134, 135–7; and manufacturing output 131 franchise businesses, enforcement guidelines 114 Fuji Steel, proposed merger 23–4 Fujii Heigo 72 Fujita Katsushi 89 Fukuda Takeo 48, 83, 86, 88, 89, 90, 97, 98, 100 gaiatsu (foreign pressure) 137, 173; and construction industry 165–6, 167, 169; and distribution systems 153–5; reductions in AML exemptions 146–53; and Structural Impediments Initiative 138–46 government–business cooperation 43–4, 45 guidelines, see enforcement guidelines guilds, dissolution of 13 Hadley, E. 15 Haley, J. 2, 176 Harris, R. 7

Hashiguchi Osamu 98, 100, 120, 122, 125, 134; and preventive measures 114, 115, 116 Hashimoto Tomisaburo¯ 53 Hiraiwa Gaishi 149 Hosokawa Morihiro 149 House of Councillors, Special Committee on Price Issues 71 Ibaragi Prefecture, bid rigging 161 import controls 138 Important Industries Control Law 1931 15 imprisonment 49 Inayama Yoshihiro 42, 43, 99, 104, 164 industrial policy 13, 22, 25, 96, 97–8; for depressed industries 96–109; impact of foreign opinion 107; in oil crisis 42–6 Industry Structure Law 102, 104–11 inﬂation 21–2, 40–1, 67, 131, 172 informal enforcement 28, 128, 134 informal regulation 2, 3, 5, 125 institutional factors 68; and policy output 26, 35, 38–9 Insurance Industry Law 123 interagency conﬂict 31–2 interest rates 123, 125 Investigation Bureau (FTC) 30, 38, 139 investment cartels 147, 148 investment restrictions 20 Ishikawa Rokuro¯ 165 Iyori Hiroshi 2 Japan Association of Corporate Executives see Keizai Do¯yu¯kai Japan Chemical and Energy Industry 104 Japan Communist Party 16, 72 Japan Cosmetics Retailers Federation 53, 54 Japan Federation of Construction Contractors 170 Japan Federation of Economic Organizations see Keidanren Japan Federation of Employer’s Associations see Nikkeiren Japan Scrap Reserve Center Corporation 66 Japan Socialist Party 16, 17, 71, 86, 104, 142 Johnson, C. 3 joint companies 105, 106, 108–9 joint marketing arrangements 20 Kaifu Toshiki 141 Kajima Corporation 168 Kanemaru Shin 168 Katzmann, R. 7

216 Index Keidanren 17, 24, 34, 42, 45, 154, 156, 170; and AML enforcement 141, 142; AML Research Group 72; and AML revision 79–80, 89; and depressed industries 98–9, 104; and enforcement guidelines 115, 116; and FTC 62, 149; and rise in ﬁnes 145, 146 keiretsu 82, 153–4; distribution 118–21, 135 Keizai Do¯yu¯kai 101, 104, 146 Kishi Nobosuke 20, 25 Kolko, G. 5 Ko¯meito¯ (Clean Government Party) 71 Komoto Toshio 98, 100 Konaga Keiichi 107 Kosaka Tokusaburo 83 Krauss, E. 4 Kuranari Tadashi 72 Law concerning the Organization of Small and Medium Enterprise Organizations 55, 56 Law of Temporary Measures to Facilitate Industrial Structural Adjustment 109 law scholars, on AML revision 78–9, 90 laws with AML exemptions 148–51 legal cartels 11, 20–1; before 1953 14, 17–18, 19; during 1960s 23; efforts to reduce in 1990s 137, 138, 147–8; FTC and 28, 44, 146, 151–67, 173; government policy 1970s 40–2, 43–6; MITI and 20, 22, 49–50, 68; in structurally depressed industries 100, 101, 102, 105, 109 legal systems 28–9, 175 Liberal Democratic Party (LDP) 22, 40–2, 68, 155, 156, 173; and AML 122, 127, 134; and AML revision 71, 72, 75–7, 81, 82–3, 85, 86–8, 89–90, 91–2; AML Special Committee 89, 144–6, 164, 168; and business interests 3; and cartels 43, 44, 45–6; construction faction 143, 160–1, 162; Dango¯ Committee 164; and depressed industries 104, 109, 112; and enforcement 130, 131–2; nomination of FTC chairmen 34, 124, 134; pressure on FTC 24, 62–3, 67, 174; and resale price maintenance 53, 54, 151, 152; Lifestyle Stabilization Law 43, 45 local politics, and construction industry 161 March, J. 26 Marxism 5, 9 Matsuno Raizo¯ 83, 86 media 48; bid–rigging stories 161–2, 163, 171 Meiji government, economic reforms 13–14

mergers 23–4, 99, 100, 105–6, 108, 112; enforcement guidelines 114, 135 Miki Takeo 41, 76, 80, 83, 85, 86, 90 Milkis, S. 7 Ministry of Agriculture, Forestry and Fisheries 150 Ministry of Construction: and bid rigging 161, 162, 166, 168; Central Council on the Construction Industry 162, 163 Ministry of Finance 22, 34, 75, 82, 91, 123, 124, 125, 135 Ministry of Foreign Affairs 177 Ministry of International Trade and Industry (MITI) 13, 16, 17, 22, 23–4, 68, 175; administration of the Organization Law 56; and administrative guidance 18, 19, 23, 49–50, 115, 116, 117, 118; and AML revision 19–20, 72, 75, 81, 87, 90, 91; antimonopoly policy 107; and depressed industries 97–8, 106–7, 109; draft bill to assist depressed industries 99–101; and mergers 24; ofﬁcials from on FTC 34, 35; and petroleum cartel 47–8; price control practices 42–3, 44, 45; and recession cartels 61, 62; reduction of legal cartels 147, 148; relationship with FTC 23, 25, 106, 107, 112; and scrap iron rationalization cartel 64, 66; Special Committee on Counter–policies for Basic Materials Industries 104–5, 106; Structural Depression Countermeasures HQ 97 Ministry of Justice 34, 75, 82, 91, 143, 177 Ministry of Transport 148, 149, 150; support of anticompetitive acts 126–7 Misono¯ Hitoshi 4 Mitsuda Hirotaka 48 Mitsukoshi Company 121 Miyazawa Kiichi 41, 83, 168 modernization 13–14 Muramatsu, M. 4 Murayama Tomiichi 150 Nakamura Kishiro¯ 168, 169 Nakasone Yasuhiro 43, 44, 72, 76, 77, 83, 85 National Tax Agency 162 New Frontier Party 150 New Harbinger Party 150, 155 New Liberal Club 88 Nikaido¯ Susumu 71, 75, 83 Nikkeiren 146, 149 Niskanen, W. 7 OECD 122, 137, 159 ¯ hira Masayoshi 88 O

Index 217 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 4 45111

oil crisis 7, 71, 102: oil shock laws 68; petroleum cartel case 47–8; public policy response 42–6 oligopolistic ﬁrms 70, 78, 79, 80, 81, 82, 118–19, 172; divestiture orders 71, 73, 74, 75, 83–4, 85, 87, 89, 91, 93, 175 Olsen, J. 26 Olson, M. 6 OPEC, oil price rises 42 ‘one retailer one accounts book’ system 120 open hearth and electric furnace steel industry 64, 99 Opinion on Administrative Guidance 150–1 opposition parties: AML revision 71–2, 85, 88, 90–1, 92; cartels 41, 45; depressed industries 99, 100, 104; support for FTC 175 Osaka Chamber of Commerce and Industry 79 outsider restrictions 99, 100 paper industry 57, 102 parallel price increases 73, 84, 85, 89, 93 patronage 7, 160 patterned pluralism theory 4 Peltzman, S. 6 personnel exchanges 31–2, 38 Peters, B.G. 7 petrochemicals industry 57, 108 petroleum cartel 44, 45, 47–51, 116–17 Petroleum Federation 47, 48, 50 petroleum industry, ruling on cartels 116–17, 135 pharmaceuticals industry, and resale price maintenance 53, 152, 153 physicians’ associations 122; enforcement guidelines 114 Plan to Remodel the Japanese Archipelago 41 political change, and success of FTC 172–4 political economy, theories of 3–4 political parties 16–17; 160; see also Conservative Party; Democratic Party; Japan socialist Party; Ko¯meito¯; Liberal Democratic Party; New Frontier Party; New Harbinger Party; opposition parties; Social Democratic Party of Japan politicians 5, 6, 24, 25, 175, 176; corruption 162, 169, 171; opposition to FTC 172; and regulation 6, 8–9 preventive measures policy 114–21, 135 price agreements 20 price controls 43, 45–6, 66–7 price discounting 25 price speculation 46

price stabilization cartels 43, 44 Prime Minister’s Ofﬁce 77 prior consultation system 116 private damage suits 27 production capacity, cutbacks in 97, 98, 117 professional associations, expansion of AML to cover 122 promotional policies 2 proof, standards for 29 Public Accounts Law 159–60 public choice theory 3, 6–7, 8–9, 175 Public Prosecutor’s Ofﬁce 32, 34, 67, 168; cooperation with FTC 28, 68, 70, 140, 157; prosecution of cartels 47, 48 public welfare approach to regulation 5–6, 10 public works 167, 168; bid rigging on 158–9, 162, 163 quality standards 20 Ramsayer, J. 3, 57 rationalization cartels 19, 20, 23, 25, 63–7 recession 61, 63, 130–1 recession cartels 19, 20, 23, 57–63, 68, 148; extensions to 61, 63; and structurally depressed industries 96, 98, 100, 102, 104, 105 recommendations 28, 46, 47, 48, 97 regulated industries, expansion of antimonopoly policy to 122–7 regulation 3, 9; perspectives on 5–8 renewals of cartels 56, 63, 64 ‘rent seeking’ 6 resale price maintenance 17, 25, 52–7, 67, 71, 119, 146, 156, 173; revision of 151–3 Resale Price Maintenance Diet Member Discussion Group 151, 152 Rosenbluth, F. 3, 57 Saitama Prefecture, bid rigging in 167–9 Saito¯ Eizaburo¯ 152, 161, 162, 164 sales areas, territorial limits 119 Samuels, R. 4 Sawada Yasushi 62, 63, 87, 90, 97 scandals 41, 171, 172 Schaede, U. 176 Scrap Iron and Steel Conference 66 scrap iron cartels 64–7 Scrap Liaison Council 64, 65 self–regulation 19, 42, 176 Sherman Antitrust Act 1890 6 Shiina Etsusaburo¯ 76, 83, 84, 85 Shiseido¯ 154 Shiseki Inei 162 Shizuoka Prefecture, bid rigging case 161–5

218 Index small and medium-sized enterprises (SME) cartels 54–7 small and medium-sized enterprises (SMEs) 17, 22, 24; and AML revision 79, 91; in construction industry 160, 162, 164–5, 171; enforcement guidelines 115; ﬁnes 145; protection for 25, 54; reduction in legal cartels 147; surcharges 142; violation cases against 22 Social Democratic Party of Japan 16, 142, 146, 150, 155 Special Committee on Counter–policies for Basic Materials Industries 104–5, 106 Special Measures Law for the Promotion of Designated Industries 22, 23 Staple Food Control Law 150 state-centric theories of regulation 9 steel industry 25, 43, 62, 63, 99; rationalization 64–7 Stigler, G. 6 stockholding companies, bans on 15,16 stockholding restrictions 73, 74, 79, 80, 82, 84, 90, 91, 94, 175; enforcement guidelines 114, 135 Structural Impediments Initiative 138–46, 166 Study Group on Distribution Trading Practices and Competition Policy 153 surcharges study group 142 Suzuki Zenko¯ 162 Takahashi Gen 105, 126, 134 Takahashi Toshihide 41–2, 48, 61–2, 67, 134, 173; and AML revision 69, 70, 71, 80, 87; and petroleum cartel case 49; and price controls 43, 44–5; and resale price maintenance 53, 54 Tanaka Kakuei 41, 43, 44, 46, 48, 71, 75, 76, 87 Tanaka Rokusuke 72 Task Force Committee on Deregulation 152 taxi industry, anticompetitive policy 126 Temporary Interest Rate Adjustments Law 123 textile industry 18, 56, 61, 63, 97, 99 Tilton, M. 176 Tokyo Chamber of Commerce and Industry 79, 115 Tokyo High Court 27; ruling on petroleum cartels 116–17, 135

Trade Association Law 1948 15, 16, 17 trade associations 176; enforcement guidelines 114–16, 135 trading practices: 1990s guidelines 153–5; unfair 15, 93, 95, 119, 121, 123–4, 154 transport industry, enforcement on AML in 125–7, 135–6 Ueki Mitsunori 76, 78, 81 Umezawa Setsuo 139–40, 165, 167, 168, 169; criminal penalties 144, 145, 146 underwriting commission fees 123, 124 unfair trading practices 15, 93, 95, 119, 121, 123–4, 154 United States Federal Trade Commission 5, 7 USA 172, 173; inﬂuence on Japan’s antimonopoly policy 137, 138–9, 155–6; and Japanese construction industry 165–6, 167; occupation policy 15–16; Structural Impediments Initiative 138–46; see also gaiatsu Upham, F. 112 Uriu, R. 176 violations, types of 128 Vogel, S. 7 Wakimura Gitaro¯ 76 warnings 28, 128, 134 wartime economy 15 Watanabe Ko¯zo¯ 145 Weaver, S. 7 West Germany, inﬂuence on Japan’s antimonopoly policy 137 wholesalers. designated 119 Wilson, J. 6, 8 Yamanaka Sadanori 87, 89, 105, 107, 112, 164 Yamashita Eimei 48, 51 Yamazaki Taku 145 Yanaga, C. 3 Yawata Steel, proposed merger 23–4 yen, rise in 147 Yokosuka naval base 166 Yokota Masatoshi 52 zaibatsu 14, 15

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