Competition Law and Policy: Support to Small Medium Enterprises and Employment Creation

1. The ASEAN Competition Conference 15-16 November 2011, Bali, Indonesia Competition Law and Policy: Support to Small Medium Enterprises and Employment Creation Toshiyuki NAMBUDeputy Secretary General for International AffairsJapan Fair Trade Commission

2. Today’s Agenda • Small & Medium Enterprises (the Small & Mediums) in Japan • Regulations against Unfair Trade Practices • The Subcontract Act • Conclusion

3. Small & Mediums in Japan • Definition of the Small & Mediums

4. Small & Mediums in Japan • 99.7%of enterprises in Japan is the Small & Mediums. • 70%of employees in Japan is for the Small & Mediums. • 50% of all added value in manufacturing industry is made by the Small & Mediums. • 70% of all sale in retail industry is made by the Small & Mediums. (Source) White Paper on Small and Medium Enterprises 2011

5. Unfair Trade Practices <Art. 19> No enterprises shall employ unfair trade practices.

6. Unfair Trade Practices • Concerted Refusal to Trade (AMA Art. 2⑨i) • Discriminatory Pricing (AMA Art. 2⑨ii) • Unjust Low Price Sales (AMA Art. 2⑨iii) • Resale Price Restriction (AMA Art. 2⑨ⅳ) • Abuse of Superior Bargaining Position (AMA Art. 2⑨v)

7. Unfair Trade Practices <Enforcement> ・Cease and Desist Order (AMA Art.20) ・Surcharge Payment Order（※） -Concerted Refusal to Trade(AMA Art. 20-2) -Discriminatory Pricing (AMA Art. 20-3) - Unjust Low Price Sales (AMA Art. 20-4) - Resale Price Restriction (AMA Art. 20-5) - Abuse of Superior Bargaining Position (AMA Art. 20-6) ※ The practices other than abuse of superior bargaining position shall be the subject of surcharge only if the enterprises conduct the same kind of practices within 10 years. - Civil damages claims (AMA Art.25 and Civil Code Art. 709)

8. Unfair Trade Practices (Abuse of Superior Bargaining Position ) Definition (AMA Art.2 (9) v) Taking any act specified in one of the following, unjustly in light of the normal business practices by making use of one’s superior bargaining position over the other party: (a) Causing the said party in regular transactions (including a party with whom one intends to have regular transactions newly; the same shall apply in (b) below) to purchase goods or services other than the one pertaining to the said transactions (b) Causing the said party in regular transactions to provide for oneself money, services or other economic benefits (c) Refusing to receive goods pertaining to transactions from the said party, causing the said party to take back the goods pertaining to the transactions after receiving the said goods from the said party, delaying the payment of the transactions to the said party or reducing the amount of the said payment, or otherwise establishing or changing trade terms or executing transactions in a way disadvantageous to the said party

9. Unfair Trade Practices(Abuse of Superior Bargaining Position ) • “Task Force against Abuse of Superior Bargaining Position” (Nov. 2009) • “Guidelines Concerning Abuse of Superior Bargaining Position under the Antimonopoly Act” (Nov. 2010)

10. Unfair Trade Practices (Abuse of Superior Bargaining Position ) • Cease-and-desist order against ROYAL HOME CENTER Co.,Ltd (July 2010) • Royal Home Center (RHC) is a large-scale retailer selling products such as household items, pet-accessories, and garden supplies. • RHC one-sidedly returned certain goods to its suppliers without any good reason attributable the suppliers, etc. • Such behavior constitutes “abuse of superior bargaining position” against its suppliers

11. Subcontract Act (Article 1) The purpose of this Act is, by preventing a delay in payment of subcontract proceeds, etc., to ensure that transactions between main subcontracting enterprises and subcontractors are fair and, at the same time, to protect the interests of the subcontractors, thereby contributing to the sound development of the national economy.

12. Subcontract Act (1) Manufacturing or other contract Subcontractor Subcontractor Main Subcontracting enterprise Main Subcontracting enterprise An enterprise with capital (※1) ＞300m Yen An enterprise (※2) with capital ≦300m Yen An enterprise with 10m Yen＜capital≦300m Yen An enterprise with capital ≦10m Yen (2) Information-based product creation contract or a service contract An enterprise with capital ＞50m Yen An enterprise with capital ≦50m Yen An enterprise with 10m Yen＜capital≦50m Yen An enterprise with capital ≦10m Yen ※1The word of “capital” in this page means “capital or total contributions”. ※2 “Enterprise” in Subcontractor section includes “individual”.

13. Subcontract Act • <4 obligations of main subcontracting enterprises> • Deliver documents (Art. 3) • Prepare and preserve documents (Art. 5) • Decide the date of payments (Art.2-2) • Pay an interest for delay (Art. 4-2) • <11 prohibitions of main subcontracting enterprises (Art. 4)> • Refuse to receive the work products • Fail to make payment • Reduce the amount of subcontract proceeds • Take back the goods • ///// ETC

14. Subcontract Act • <Enforcement against the illegal conducts of Subcontract Act> • Recommendation to stop the illegal conduct. (Art. 7) • Criminal Penalties against failure to deliver documents and prepare and preserve documents (Art.10) • → Fine not more than 500,000yen

15. Subcontract Act • Recommendation against Isuzu Jidosya Chugoku Shikoku K.K. (Isuzu) (Jan. 2011) • Isuzu subcontracted the repair etc. of truck to the subcontractors. • Isuzu reduced the amount of subcontract proceeds (about 73million yen) without reasons attributable to the subcontractors. • The JFTC recommend Isuzu to pay them back to subcontractors etc.

16. Conclusions • It is important that the Small & Mediums do business freely and independently in the market. • For that, the JFTC has been supporting the Small & Mediums by challenging the unfair trade practices or illegal conduct of Subcontract Act.