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Monday, Sept. 15, 2003

JAPANESE PERSPECTIVES

Antimonopoly Law faces problems with Constitution, implementation


As deregulation proceeds, a greater segment of the economy is being ruled by market principles, and this trend will accelerate with the implementation of structural reforms. Here, the Antimonopoly Law, the watchdog of market principles, will play an increasingly important role, and it must be enforced in ways that can win the public's trust.

However, as this author pointed out in Japanese Perspectives on Feb. 17, there are a number of problems in the way the government is enforcing the Antimonopoly Law. The introduction of a system of new penalties under the law, a proposal currently being considered by the Fair Trade Commission, could make matters worse. Another major problem is the widely criticized practice of bid-rigging that has been induced by the public sector. In this practice, bureaucrats prod private-sector firms into arranging their bids for public works projects, then punish them for it and have them pay the fines as well.

First I would like to point out that the proposal to add penalties to the fines already issued under the Antimonopoly Law could lead to dual punishment, which is banned by the Constitution. Article 39 of the Constitution says, "No person shall be held criminally liable for an act which was lawful at the time it was committed, or of which he has been acquitted, nor shall he be placed in double jeopardy."

Under the Antimonopoly Law, a party can face both fines and criminal punishment. This is considered constitutional in that the fines are intended to deprive the companies involved of profits unfairly gained through cartels and merely return them to a state in which no cartel had existed, and is therefore not to be interpreted as a punishment intended to put them at a disadvantage.

However, the new penalty system being considered by the FTC is nothing but an attempt to impose punishment -- by having the companies to pay more than the unfair profits gained through any cartel. Imposing criminal punishment in addition to such punitive fines would amount to placing the party in double jeopardy. I am afraid the FTC is trying to deviate further from the principles of the Constitution.

Next, let me discuss the public sector's role in bid-rigging cases. The rigging of bids for public works contracts accounts for a large portion of the cartel cases in Japan. For example, there were 33 cases of bid-rigging in fiscal 2001 in which the FTC issued corrective recommendations or ordered the payment of fines, compared with only three other cases involving cartels. This means that 91.6 percent of the cartel cases in Japan concern bid-ridding.

It is often said that government bureaucrats themselves play a key role in many of those cases -- that the national and local governmental bodies that issue public works orders in fact pick the winning bidders in a discretionary manner.

If this is really the case, it means that those bureaucrats are effectively prodding people into committing crimes, even though they originally had no intention of breaking the law. Legislation proposed by a group of lawmakers to prevent such public-sector-induced bid-rigging was enacted by the Diet in July last year and put into effect in January. The FTC itself also set up a panel in June to look into the problem, which must be corrected as quickly as possible. The government must not impose heavier penalties solely on the private sector without first putting an end to the bureaucrats' suspected involvement in bid-rigging.

Yoshio Nakamura is a senior managing director of Nippon Keidanren.


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