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Japan's new antitrust guidelines on environmental sustainability, including business cooperation

Enactment of new guidelines and their Background

On 31 March 2023, the Japan Fair Trade Commission (the JFTC) enacted new guidelines to provide a guidance as to how and whether the concept of “sustainability” would impact their regulatory enforcement.

While private businesses were increasingly under pressure to put this pressing value into practice, some of the common but inevitable formats of sustainability projects and attempts often encounter questions around consistency with competition law (the Anti-Monopoly Act in Japan), and the JFTC’s enforcement line was not necessarily clear. To address this concern, the JFTC has adopted new guidelines to improve transparency and predictability of competition law enforcement, titled “Anti-Monopoly Act Approach to the Activities of Business Operators, etc. towards the Realisation of a ‘Green Society’” (the Guidelines).

A summary of the Guidelines, as well as a comparison with EU competition rules, is set out below. Most notably, the Guidelines include long-awaited substantial principles on “horizontal cooperation” issues which are not covered by any of the JFTC’s existing guidelines, and these principles will help private businesses to navigate themselves in other types of horizontal collaborations even outside sustainability topics. Further, by dealing with vertical restraints, abuse of superior bargaining position and mergers, the Guidelines attempt to discuss competition law issues that relate to sustainability in a more comprehensive manner, which approach differentiates the JFTC’s new Guidelines from the anticipated amendment of EU horizontal guidelines.

Summary of the Guidelines

Basic Principles

As an overarching approach, the Guidelines consider that most activities to seek environmental sustainability are unlikely to restrict competition. These activities often have pro-competitive effects such as innovation and creation of new technologies, which might result in consumer benefits including greenhouse gas reductions.

By contrast, business activities that only have anti-competitive effects, which includes restrictions on price, volume, customers, sales channels, technology and manufacturing facilities, do raise competition concerns under the Anti-Monopoly Act. In cases where business activities have both anti-competitive and pro-competitive effects, the Guidelines provide the following threefold test: (i) whether the purpose of the measure under scrutiny is legitimate; (ii) whether the said measure is reasonable (e.g. whether there are less restrictive alternative measures); and (iii) balancing test between the anti-competitive effects and the pro-competitive effects of the measure.

Antitrust Issues

Next the Guidelines discusses antitrust issues and provides explanatory examples of conducts involving joint conducts (including horizontal cooperation), vertical restraints, abuse of superior bargaining positions and mergers and acquisitions. Apart from the area of horizontal cooperation, these antitrust issues are dealt with in other existing JFTC guidelines. Therefore, as already mentioned, the Guidelines have unique value in clarifying the JFTC’s approach to horizontal cooperation generally beyond sustainability.

On horizontal cooperation, the Guidelines sets out the following key points:

  • Cooperation: Anti-competitive concerns are not expected where cooperation does not: (i) restrain the main competition factors (e.g., price coordination); (ii) restrain new entry; or (iii) exclude existing players. Many environmental sustainability projects would benefit from these categories.
  • Hardcore Restrictions: Anti-competitive hardcore restrictions, such as price restrictions, restraints on new entry and exclusion of existing players, cannot be justified even if they are implemented under the name of “sustainability”.
  • Balancing Test: A balancing test must be carried out where the activities under scrutiny have both pro-competitive and anti-competitive effects (without amounting to hardcore restrictions). The Guidelines examine, in turn, several specific categories of cooperation: (i) standard setting; (ii) joint research and development; (iii) technological alliances; (iv) standardization; (v) joint purchasing; (vi) joint logistics; (vii) joint production and OEM; and (viii) sales alliances and data sharing. For each conduct, the Guidelines set out factors to be considered in the JFTC’s assessment, together with practical examples.

The Guidelines then cover vertical restraints, abuse of superior bargaining position, and mergers. While the principles discussed in these sections are basically the same as the ones discussed in the JFTC’s existing guidelines, the Guidelines provide practical examples in the context of sustainability.

Comparison with EU regime

The introduction of the JFTC’s Guidelines follow a growing global trend, whereby antitrust watchdogs gradually incorporate sustainability concerns into their analysis grid.

For instance, the European Commission (the EC) has recently published the draft revised guidelines on horizontal agreements (the draft EU horizontal Guidelines), which now include a specific section on sustainability agreements. In comparison, the starting point of EC’s reasoning is along the same lines as the JFTC’s: “[s]ustainability agreements only raise competition concerns under Article 101(1) if they entail serious restrictions of competition in the form of restrictions by object, or produce appreciable negative effects on competition contrary to Article 101(1)” (para. 548, emphases added). With this in mind, EC seems to imply that it will be more lenient towards sustainable agreements in the future.

EC’s silo approach vs. JFTC’s “across the board” approach

The EC’s approach to sustainability may be described as a piecemeal approach when compared to the JFTC. Since the JFTC Guidelines aim to address a comprehensive set of antitrust issues raised by sustainability, the JFTC appears to follow a more holistic approach. As previously mentioned, the JFTC Guidelines cover antitrust (horizontal as well as vertical aspects), mergers and abuse of superior bargaining positions (which has no equivalent in EU law). Given this comprehensive coverage of areas, as soon as an antitrust issue involves sustainability considerations, private businesses will be able to rely on a single document. In this sense, the JFTC is one step ahead of the EC.

By contrast, the EC gradually incorporates sustainability concerns into its guidelines each time such guidelines are revised. What holds true for the draft EU horizontal Guidelines is also true for the new EU vertical Guidelines. Adopted in June 2022, they expressly refer to sustainability and its implications for vertical agreements.

In relation to EC’s approach to sustainability in merger cases, it is still necessary to seek guidance from individual cases in which sustainability issues have been raised. As the merger guidelines have not been recently revised, the EC has not yet incorporated sustainability concerns. However, it is expected that sustainability concerns will be incorporated in the next EU merger control guidelines.

Finally, mention must be made of the JFTC’s approach to information exchange. Traditionally, the JFTC has been soft in terms of enforcement when cases involved exchange of commercially sensitive information between competitors. However, in discussing several examples in the guidelines involving information exchanges, the JFTC flagged that information exchange should be avoided in the context of competitor collaboration. This holds true regardless of whether the agreement at stake is a sustainability agreement. Now that the Guidelines are adopted, we may expect a more aligned approach between the JFTC and the EC towards information exchange – and thus a more stringent enforcement of competition law rules in Japan.

Next Steps

While JFTC’s new Guidelines provide useful yardstick, how it works in practice is still left for actual cases, including informal consultations with the JFTC many of which are anonymized and subject to disclosure on JFTC’s website. Also, it is worth noting that the publication of guidelines could indicate JFTC’s growing appetite to have enforcement cases in the area of “sustainability” as well as horizontal cooperation. One thing that we can say for sure is, however, that these criteria would help private businesses to be more brave in exploring sustainability projects by removing uncertainty.